Sempra Defies Shareowners

From Fox News:

Sempra Energy (SRE, $SRE) said its board elected Chief Executive Debra L. Reed as its new chairman, succeeding former company CEO Donald E. Felsinger, who is retiring.

Ms. Reed, 56 years old, replaced Mr. Felsinger as CEO of the power and energy company in June of last year and has worked for Sempra Energy for 34 years. Prior to her CEO appointment, she was executive vice president of Sempra Energy, and previously was president and CEO of Sempra’s two largest subsidiaries, San Diego Gas & Electric and Southern California Gas Co. from 2006 to 2010. She first joined the company in 1978 as an energy systems engineer at SoCalGas.

Mr. Felsinger, 65 years old, is retiring at the end of the month after a 40-year career with the company. He has worked as executive chairman since June of last year, when he stepped down as CEO. Ms. Reed will replace him as chairman on Dec. 1.

Mr. Felsinger had served as chairman and CEO of Sempra since 2006, and before then as the company’s president and chief operating officer.

Completely left out is the fact that just a few months ago shareowners approved a proposal from activist Ray T. Chevedden splitting the chair and CEO positions by a vote of 55%. (More CEOs Sharing Control at the Top, WSJ, 6/6/2012) Maybe we need to do more than just parrot back corporate press releases. Maybe we should also honor the will of shareowners.  Will Glass Lewis and ISS take note by recommending votes against the board? I hope so.

The two most authoritative positions in a boardroom are the CEO and the chairman. However, when these roles are combined, all the authority is vested in one individual; there are no checks and balances, and no balance of power. The CEO is charged with monitoring him or herself, presenting an obvious conflict of interest. Indeed, if the CEO is responsible for running the company, and the board is tasked with overseeing the CEO’s decisions in the interests of shareholders, how can the board properly monitor the CEO’s conduct if he or she is also serving as board chair?

Read more at The Costs of a Combined Chair/CEO, HLS Forum on Corporate Governance and Financial Regulation, 7/13/2012 and Sempra CEO to lead board, defying shareholder vote, North County Times.

ISS is proposing to change their corporate governance policies.

Under the proposed policy, ISS would recommend a vote AGAINST or WITHHOLD from the entire board (except new nominees, who should be considered CASE-BY-CASE) if the board failed to act on a shareholder proposal that received the support of a majority of shares cast in the previous year.

ISS generally drives 10-20% of the vote. Sempra may have bitten off more than the Board can chew. I agree with Chevedden. His son, John Chevedden got votes of 46% and 43% at Honeywell and Northrop Grumman this year. Although these weren’t majority votes, they were close.  I say press ahead.

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