www.energycentral.com ENERGYBIZ MAGAZINE 31
News Flash>> www.energycentral.com Changing Patterns <strong>CEO</strong>S ON THE MOVE The pace of turnover in the executive suite is quickening – as is <strong>CEO</strong> job dissatisfaction. In January, <strong>CEO</strong> exits in all industries reached 92, the highest level in four years, according to Challenger Gray & Christmas, an outplacement firm. The pace of <strong>CEO</strong> change in January was up 84 percent from the preceding year. In a related development, Burson- Marsteller reports that executives are not having as much fun as they once did. The public relations firm said its surveys indicate that 60 percent of chief executive officers do not like their job – up from 27 percent in 2001. 32 ENERGYBIZ MAGAZINE March/April 2005 Not so long ago, an outside executive stood a better chance of being named chief executive officer at a U.S. energy utility than someone who had worked their way up through the ranks as an operating engineer or regulatory attorney. As the power and gas industry prepared for what was presumed to become a global competitive marketplace for energy services and commodities, new <strong>CEO</strong>s were being recruited from such disparate fields as banking, telecommunications and consumer product manufacturing. After more than a decade in banking at Deutsche Bank and other financial firms, Mayo Shattuck III, was named <strong>CEO</strong> of Constellation Energy Group in November 2001 and was considered a harbinger of change for leadership in the utility business. Change certainly arrived, but it took a far different course than many anticipated. The California market failure, subsequent collapse of Enron, and its aftershocks in utility and energy executive suites around the nation threw the entire industry into a “back-to-basics” backlash. What had been a road toward diversification and risk-taking by utilities, merchant generators, and energy trading firms became a route of failed ventures, Chapter 11 bankruptcy filings, investigations, regulatory repercussions, and costly litigation. Well-respected energy executives, including Bill McCormick at CMS Energy, Chuck Watson at Dynegy and Bill Wise of El Paso, were ushered out while new leaders were brought in to pick up the pieces — all at a pace that was previously unknown to the traditional utility industry. Will insiders or outsiders be tapped to lead the industry into its future? To a large degree, the answer depends on the circumstances of the <strong>CEO</strong> transition, said Jeffrey Holzschuh, head of the Global Energy and Utility Group of Morgan Stanley. “The companies that got themselves in financial trouble just needed new leadership, and the companies that got into trouble went outside,” Holzschuh said. “As these companies refocused on their electric and gas assets, it means that their top talent is being groomed from within.” A head count of <strong>CEO</strong>s appointed during the past three years shows that most – 15 out of 24 – were promoted from within. In fact, even several of those considered “outsiders” arrived from comparable utility companies. For instance, American Electric Power’s president and <strong>CEO</strong> Michael Morris had previously been president, chair and <strong>CEO</strong> of Northeast Utilities. Other recently named <strong>CEO</strong>s, including Paul Evanson at Allegheny Energy, and Bruce Williamson of Dynegy, were recruited from the top executive ranks of Florida Power & Light and Duke Energy, respectively. Technically, someone like John Wilder, now <strong>CEO</strong> of TXU, might be considered an outsider, having been recruited from his prior position in the executive echelon at Entergy, with prior experience at Royal Dutch/Shell. Also, Michael Chesser, hired as <strong>CEO</strong> of Great Plains Energy in October 2003 was previously the chair and <strong>CEO</strong> of United Water, although his résumé included executive stints with Baltimore Gas & Electric, Atlantic Energy, and GPU Energy. For those who have followed a similar path to the <strong>CEO</strong>’s chair, the insider/outsider label is a distinction without much differentiation, so long as the past experience is relevant to the energy business. “The energy business is always going to be driven by people who had some exposure to energy,” Williamson said. Rare indeed is the complete industry outsider, such as Constellation’s Shattuck or Doug Foshee, who took the reins at the struggling El Paso after being chief operating officer at Halliburton – and even that transition showed a commonality of experience in the fossil-fuels business. “Going back to pre-Enron, we were doing searches for <strong>CEO</strong>s and COOs and looking broadly at other industries that were capital-intensive, like transportation and telecommunications,” said Bob Shields, an energy executive recruiter with Spencer Stuart’s Chicago office. “That changed a lot when Enron occurred. Companies had to pare back. Naturally, when they did that, they were more inclined to come back to those who know the business.” In recent years, numerous executive studies have shown that the best performing leaders come from within. “The outsider who comes in to whip a company into shape is more likely to get a thrashing,” found the Booz Allen <strong>CEO</strong> study in 2004. Similarly, consulting firm Burson-Marsteller reported “businesses are better off hiring insider <strong>CEO</strong>s than outsider <strong>CEO</strong>s for long-term success.” Given that conclusion, it made perfect sense for CMS Energy to promote David Joos as president and <strong>CEO</strong> last year following the interim appointment of Ken Whipple, formerly an outside board member who stepped in to hold the utility steady after McCormick’s forced departure in 2001. In 1976, Joos joined CMS’ principal subsidiary, Consumers Power, after graduating from Iowa State with a degree in nuclear engineering. Except for a brief period with an architectural/engineering firm, he spent his entire career with the utility.
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