Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50885
By N. William C. Ross and Robert B. Warren, Partners, WeirFoulds LLP The sole shareholder of a regulated electricity utility company is a municipality. The utility pays all of its retained earnings to the municipality, in the form of dividends, to assist the municipality which is facing a budget shortfall. Corporate governance in the energy sector For in-house counsel working within the energy sector, the challenges are many, whether you're working on behalf of a public sector company serving the public purse or a publicly traded private sector entity. If you're working for the municipally owned utility, how do you reconcile the needs of the city with those of the ratepayer when both are important stakehold- ers? And how do politicians factor into the equation when they become directors on the board but also still represent taxpayers who vote for them? Then there is the case of the publicly traded utility that ushers in an industry veteran who takes care of himself first with a tidy compensa- tion package that is later rejected by a new majority shareholder. What should have been done to avoid such a situation? The same municipality appoints three members of council to the seven-member board of directors. The utility proposes to increase its rates. Doing so will impose a burden on local residents and businesses. Do the municipal councillors have a conflict of interest? The electricity utility has an oil spill from one of its transformers in a remote area. The spill is contained, with apparently minimal damage to a nearby lake. The local managers of the company decide not to report the spill to the officers and directors of the company. Are the officers and directors still obligated to order a cleanup? In January, in the wake of the death of its founding chair, New Utilities Inc., a TSX-listed electric utility holding company, recruited John Sparks to serve as its new chair. Sparks was a recently retired senior executive, who had spent his entire career in the utilities industry. NUI's shares were depressed at the time, largely due to subpar decision-making by its board and senior officers. Sparks accepted the position subject to settling his compensation package. He arranged for Venture Co. to buy out NUI's largest shareholder in February. The board consisted of nine directors, including Sparks. Four resigned and were replaced by new directors, nominated by Venture Co. Sparks proposed a generous compensation package for himself: a signing bonus of $10 million and an option at current market value for a significant number of NUI shares. Rather than face a struggle with Sparks, the chair of the compensation committee resigned and was replaced by a new director. Sparks retained a compensation expert to advise NUI on his compensation package. The expert report was delivered to the board and to the compensation committee in March, at the time scheduled for meetings of the committee and the board. Sparks excused himself from the portion of the meeting of the board at which his compensation package was to be considered. After about half an hour of discussion the board approved the compensation package. Subsequently, a third party acquired all of NUI's shares and sought to set aside Sparks' compensation package. INHOUSE OCTOBER 2011 • 13 Y 3 Y 4 es or No 2 es or No Y obligation to the utility' es or No (b) Do the of Y eholder? es or No shar (a) Is the decision to issue dividends a pr ficers to act in the best inter 1 dir ficers and dir ectors and of s ratepayers? ectors of a r egulated utility company also have an oper exer ests of the company and its cise of the obligation of (b) Will the court or es or No Y es or No Y compensation package? (a) Do you think the steps taken by NUI wer der the setting aside of the compensation package? e corr ect with r espect to the