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DukeEmployees.com - Duke Energy Employee Advocate

Duke - Page 3 - 2002


"The Enron debacle is not an aberration, but it is the result
of deregulation" - David Hughes, president of Citizen Power


Rick Priory’s Confidence Speech

Employee Advocate – DukeEmployees.com – April 5, 2002

Duke Energy’s website published the text of a speech that Rick Priory gave recently at the Economic Club of Detroit: Businesses Must Repair Lost Confidence. We have absolutely zero disagreements with anything he stated. He gave a correct account of everything that has transpired, and the needed remedies.

The only problem was that the speech seemed to be directed toward others. It seemed to imply the everybody else needs to clean up their act. Does he fail to realize that he is right in the middle of the lost confidence crisis?

The speech was a lot like the Duke Energy Ethics Policy. It is a great document, but no one follows it. That actually makes things worse! If one knows to do better, but willingly refused to do so, he does not even have the excuse of ignorance!

Ignorance can excuse a lot of things. Would a three year old child be arrested for jaywalking? No, the child would be excused because of ignorance. Dogs, cat, and squirrels can jaywalk all they please. They may get hit by a car, but they will never be ticketed, because they are completely ignorant of any wrongdoing.

It would have been a different matter if Mr. Priory has said that he was wrong. If he had said that he had been going down the wrong path, and that he wanted to change, he could have had a fresh start.

He stated “when those who invest their dollars and confidence in our companies begin to doubt our word and question our integrity, we risk far greater – and more lasting – loss.”

It’s good that he is catching on, if he really is. The CEO game is a lot like the political game. Everything is code words, buzz words, and spin doctoring. What they say may or may not be what they believe. What they say may or may not be the truth. They both want to tell the public what it wants to hear. They are seldom willing to admit any shortcomings.

Of course he drug out corporate philanthropy. They always do when things get hot. Here is a news flash for all CEO’s: philanthropy does not excuse everything! In fact, it excuses nothing.

In most cases, CEO’s are taking bows for giving away the public’s money – that’s where it came from. The money always comes from the poorest and most desperate people, along with the money from the wealthy. If a company only sells jet airplanes, then they are not taking money directly from the poorest citizens. But an energy company takes money from everyone. It could be said that if a corporation has millions and millions of dollars to give away, that they are overcharging anyway!

A corporation may operate ethically and not rob from the public or its employees, and have no money to give away. That is not a crime. The corporation that gives away millions, but cheats the public and employees in every way possible, deserves no praise. But every time they get caught read-handed they start screaming about their great philanthropic works.

Giving a very small fraction of total profits to charity does not excuse highway robbery! And then, the employees and public must hear their eternal bragging about it. Individuals have contributed millions of dollars and told no one about it. If a corporation gives five dollars, you can bet that there will be a press release announcing it!

Maybe in some cases the CEO’s are trying to clear their conscience. Perhaps they believe that if they give just a few dollars back that they will not end up in the very hottest corner of hell. But for most, it is probably just business. Business schools teach philanthropy as another human relations tactic, nothing more, nothing less.

Mr. Priory offered six areas to turn around the confidence crisis:

    Employee Advocate comments in parenthesis

  • “First, businesses much acknowledge the breach.

    “Your company may be – and probably is – squeaky clean. But this isn’t the time to get defensive or point fingers.

    “None of us wants to take heat for problems outside our own organization – and certainly not for negative perceptions beyond our control. But in today’s environment, public opinion is painted with a broad, sweeping brush. When one company stands charged, we are all considered guilty until proven otherwise.

    “Those of us in the nuclear industry learned that lesson 20 years ago in response to the accident at Three Mile Island. It was dramatically clear to us then, and today, that our industry is only as strong as its weakest link. When news of the reactor cooling system accident at Three Mile Island spread, it didn’t matter that Duke Power’s plants had operated reliably and without incident. Every nuclear operator suffered from the crisis – and every nuclear operator would be responsible for moving the industry beyond the accident.

    “The nuclear industry couldn’t afford to wait for government to set standards. Regulation inevitably lags behind the knowledge inside an industry, and experience has proven that industry-established standards are usually more rigorous than those imposed from outside the business sector.

    “The industry needed to step forward to promote the highest levels of safety, reliability and excellence. And we did, creating the Institute of Nuclear Power Operations, or “INPO,” which every nuclear utility in the US. voluntarily joined, and continues to support today.

    “Through INPO, the aftermath of TMI brought a torrent of constructive change and improvement throughout our industry. Today, our plants are safer, our operating personnel are better trained, our emergency plans are better tested and the exchange of ideas and experience among the industry is much more open and productive. Bad things can happen to good companies. It’s how you respond that matters.”

    (The implication it that “other companies” are making him look bad; don’t look at other companies – look in the mirror! Taking the employees pensions was not for any of the stated reasons; it was simply to transfer wealth from the employees to the company. The threat of nuclear terrorism is glossed over each day. The credit for INPO goes to late CEO, Bill Lee, not Mr. Priory.)

  • “Next, we must open the windows and clear the air.

    “Companies like yours and mine must make meaningful strides toward increased financial disclosure and transparency. Even accounting professors and PhDs have trouble deciphering today’s complex financial statements and earnings reports. For individual investors and employees, the task is near impossible.

    “We’re seeing a push to lift the veil of complexity and corporate-speak from our financial reporting, and that’s a good outcome. The investing public deserves – and should demand – reliable information, candor and accountability. They need to be able to understand a business’ basic measures of success and failure. And they need to be able to trust and verify the validity of the information they’re provided.

    “At Duke Energy, we’ve always provided financial depth and detail – and we’re improving on that. We are working to provide greater context and clarity around our accounting practices, risks and exposures. We are sharing the information that is important to investors.

    “This is no easy job, and in the midst of annual report production season, I’m sure many companies are working hard to raise their level of disclosure. But I will also note that simply providing reams of data doesn’t constitute transparency or adequate disclosure. On the contrary, the details can make your business appear more opaque than ever.

    “It is incumbent upon us to disclose the information people need to make well-informed investment decisions. We need to do that in plain, simple language. I expect that as we move forward, we’ll get a clearer picture of what level of detail is desired and valuable. In the meantime, we must be proactive in making our earnings more visible, our financial reporting more transparent, and the characterization of our business more credible than ever.”

    (Notice that employees are again overlooked. If openness had been practiced, then there would be no audits taking place.)

  • "Third, we must all be accountable for the actions and impacts of our business.

    “When the Titanic sank in 1912, there was a lesser known cruise ship, the Californian, just 20 miles away. The ship’s proximity meant that it could have saved the 1,500 lives that were lost -- and changed the course of history.

    “Unfortunately, the Californian did not respond to the Titanic’s distress signals -- because the radio dispatcher was not on duty at the time. You know the moral of the story: We can’t afford to be asleep at the switch. We must be responsive, vigilant, and alert – to the state of our own ship, the course of others, and the sea changes around us.

    “If you’re the captain of the ship, you must be at the helm – and make sure that all hands are on deck. We must be accountable for our actions, our knowledge, and the role we play in setting ethical standards.”

    (Don’t worry about setting standards; just follow them. Just tell the truth; no one is believing the “cover story” anyway.)

  • "Fourth, we need to think beyond today.

    “Warren Buffett once said that ‘It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.’ That five-minute reputation rule is especially pertinent in today’s fast-moving environment, in which we must make quick, five-minute decisions that may affect us for years to come.

    “We must consider ethical conduct at every decision point in our business, and think through the reputation risks of projects and deals just as we weigh capital and other risks. Principled, ethical conduct must supercede economic expedience. And we must look beyond the narrow view of corporate self-interest, focusing more broadly on sustainable, social good.

    “Ethical dilemmas are hard to spot at times -- like the snake in the grass you don’t notice until you’ve been bitten. We often don’t recognize the ethical quandary until the decision point has passed. That’s another reason for giving careful, considered deliberation to the decisions we make today. In the courts of law and public opinion, we don’t have the benefit of hindsight.”

    (If this advice had been heeded six years ago, there would be no hand wringing today.)

  • "Next, we must de-code ethics for our employees.

    "I expect that every major U.S. company, particularly those doing business internationally, have ethics programs and codes of conduct in place. Duke Energy certainly does, and we are proud of the program, systems and measures we have in place. So when I propose de-coding ethics, I’m not suggesting doing away with all the good work that’s been done. Instead, we must take codes of conduct off the walls and out of their frames and begin the hard work of ensuring that ethical conduct is a personal accountability - not just a corporate platitude.

    "We must model integrity in our actions and in our leadership. Employees must know that they have the right – the obligation – to question decisions or practices that concern them. Our doors must be open to those employees, and we must be willing to listen and respond to those quiet cries of conscience."

    (What! Decode ethics for employees! Mr. Priory needs to decode ethics for himself! There is really nothing to decode; the policy just needs to be followed, as written. This advice applies directly to Richard B. Priory and Duke Energy Corporation. The ethics policy was never followed!)

  • "And finally, practice humility.

    "I mentioned the term kairos earlier, and there’s a second Greek term that is fitting to our discussion, and that is hubris, or overbearing, over-reaching pride. That pride has led to the downfall of the once mighty, and is being named as a contributor to the current breakdown in public confidence.

    “We’ve all seen examples of arrogance, over-confidence and a sense of superiority – in individuals and in organizations. And that pride, that hubris, tends to create great chasms of mistrust and ill-will. It makes you lose touch with your stakeholders, distorts your perspective and judgment, and diminishes your ability to understand, relate to and feel compassionate toward others. I find arrogance to be an unattractive trait in individuals; in organizations that rely on the trust and good will of their publics – it is absolutely toxic.”

    (Again the employees are overlooked, maybe he has not really caught on at all. He does know his subject well; he knows arrogance and over-confidence extremely well.)

If Mr. Priory does not understand how these six areas apply to him and Duke Energy, he is dangerously out of touch with reality.



Jacqui Gates Leaves Duke

Employee Advocate – DukeEmployees.com – April 5, 2002

Duke Energy has announced that Jacqui Gates, vice president of diversity, ethics and compliance, is leaving the company. Her original title in October, 2000 was “first vice president for diversity and ethics.”

You know that Duke always wants more for less, so they tacked “compliance” onto her title. That makes a lot of sense, if you think about it. Duke’s only concern is minimum compliance with the employment laws. As long as they meet the minimum standard of compliance, they will avoid more fines and lawsuits.

Some employees who have heard Ms. Gates speak did not feel that Duke could completely control her thinking. And Duke wants more than control; they want total domination! The higher the management position, the more controllable the person must be.

Some of Ms. Gate’s coworkers have relayed that she said her bags are always packed. The implication was that if Duke did not make a wholehearted effort to improve its relationship with employees, she would move on.

Well, employee benefits are still in shambles, morale is at an all time low, and Ms. Gates has moved on. Evidently, she meant what she said, and kept her word.

Since Duke’s standard of operation is the opposite of that of Ms. Gates, we can see where there may have been a few sparks. Her new position will be Ethics Officer at World Bank.

At the January 2001 Noon Meeting, Rick Priory said: “Our goals remain very much as they were, although the probability of achieving success increases considerably with Jacqui Gates on board.” Does that mean that the chances of success are now slim indeed?

If Duke was looking for a “plastic person” to fill a cosmetic position, they may have encountered more than they bargained for. Ms. Gates stayed with Duke for over a year. She undoubtedly learned that one cannot swim in molasses!

Noon Report – January 2001

Duke's President for Diversity and Ethics?



Duke Advised to Listen to Landowners

Dow Jones – April 5, 2002

(3/27/02) - WASHINGTON - (Dow Jones) - Federal energy regulators Wednesday advised a Duke Energy (DUK) natural gas pipeline unit to step up efforts to address significant landowner concerns about a planned pipeline expansion in Tennessee, Virginia and North Carolina.

The admonition that landowner concerns could complicate obtaining a certificate for the East Tennessee National Gas Co.'s Patriot Project came as the U.S. Federal Energy Regulatory Commission gave the project preliminary approval on economic and public-interest grounds.

FERC found the $289 million expansion project will provide non-environmental benefits, such as supplying two power plants with fuel and providing a region of Southwest Virginia with natural gas supplies for the first time.

But "substantial landowner opposition" must be addressed in the second and final stage of the commission's review of the project, which involves an environmental impact assessment, FERC Chairman Pat Wood III said.

"We've got to find a better way to address landowner issues up front," Wood said.

FERC strongly encouraged the Duke pipeline unit to use a process, which FERC pioneered as part of its hydropower license review, in which environmental and landowner concerns are assessed and addressed informally before FERC weighs in with a final ruling on the project.

Duke has "some work to do before I can sign off on a final order," Wood said, noting that landowner opposition shouldn't be as substantial as it is now, given that the project involves largely rural areas.

"We're not going through downtown New York City," Wood told reporters after Wednesday's meeting. He was referring to the highly controversial Millennium pipeline project, which terminates in lower Manhattan and has forced FERC to confront thorny landowner concerns.

Wood was optimistic Duke's use of the informal dispute resolution process would help resolve the landowner concerns about the Patriot Project. Its application in hydropower licensing cases "really turned down the temperature" in disputes about environmental impacts of hydropower projects, he said.

The Patriot Project involves an expansion of the existing pipeline through replacement, looping and uprating of 187 miles of pipeline, and the replacement and addition of compressor facilities. It also involves the construction of nearly 100 miles of new pipeline.

FERC published its notice of intent to conduct an environmental impact statement for the project last October.

Below is a link to one Duke gas line protest site:

The Tennessee Gas Pain



Duke at Secret Energy Meetings

Reuters – by Chris Baltimore – March 27, 2002

WASHINGTON (Reuters) - Thousands of Energy Department documents released under a federal court order on Monday could fuel the controversy over the Bush administration's refusal to make public details about secret meetings it held with utilities and oil companies while writing the national energy policy.

The Energy Department released 11,000 pages of documents on Monday related to the administration's energy task force and disclosed that Energy Secretary Spencer Abraham met with dozens of industry officials while helping to shape the president's energy plan. The information was released hours before a deadline set by a federal judge in a case brought by Judicial Watch and the Natural Resources Defense Council.

A hearing slated for Tuesday will set a trial schedule for a lawsuit filed by the group Judicial Watch, which wants to force the Bush administration to disclose additional information on the task force meetings.

Democratic lawmakers allege Enron Corp. and other energy companies exerted undue influence in the task force's deliberations, while environmentalists were largely shut out.

The administration's energy task force, headed by Vice President Dick Cheney, produced a policy favoring more oil and gas drilling as well as greater emphasis on coal-fired power generation. Cheney's office has acknowledged that representatives of Enron, Bush's biggest financial backer in the 2000 campaign, were among industry experts the task force consulted.

President Bush has vowed to fight several requests for details about the task force meetings, claiming the information is privileged.

Bush has insisted in a separate suit brought by the General Accounting Office that releasing documents would damage the executive branch's ability to obtain candid outside advice, signaling he was ready for a courtroom battle.

On Monday, White House spokesman Ari Fleischer said the Energy Department documents and the GAO lawsuit were unrelated. Fleischer added the administration's stance on the GAO lawsuit is unchanged. The GAO, the investigative arm of Congress, has sued the Bush administration to compel production of information on the meetings.

In response to the court order, five other agencies released information Monday related to the task force, including the Environmental Protection Agency, Interior Department, Agriculture Department, and the White House Office of Management and Budget.

But most of those documents were heavily vetted and stripped of most substance, according to Judicial Watch.

"They're creating the impression that they are obstructing justice," said Larry Klayman, chairman of Judicial Watch, adding that refusals to produce documents will give his group grounds to seek additional disclosure.

INDUSTRY MEETINGS DETAILED

The Energy Department documents, which provided the most detail, showed numerous meetings with top executives from energy firms like Duke Energy Corp., UtiliCorp United and Exelon Corp, as well as industry groups such as the Nuclear Energy Institute and the National Association of Manufacturers.

The Department of Energy said it released the documents in consultation with the Department of Justice. Its search located 26,000 pages, "but much of this information is exempt from release under the law," the Energy Department said in its release. Most contained draft versions of the energy plan, which the department claimed were exempt under three provisions of the Freedom of Information Act.

Documents released show that Abraham met with utility executives between February and April last year before the White House released its energy policy.

One such meeting on April 17, 2001, was with Haley Barbour, a lobbyist representing utility giant Southern Co. and former head of the Republican National Committee.

On April 25, Abraham met with a group of unspecified "coal producers," in a meeting attended by White House energy policy director Andrew Lundquist.

Lundquist last week announced he will leave his post for a private industry job, soon after Francis Blake resigned from his post as deputy energy secretary to take a job with a private corporation.

On Feb. 21, 2001, Abraham met with a group of oil company heads from ChevronTexaco, Shell Oil Co., Ashland Inc., Anadarko Petroleum and the American Petroleum Institute.

In a release, Abraham said the documents show that his agency "not only sought but included all viewpoints." Of 25 policy recommendations submitted by the American Petroleum Institute, the final energy plan only included four, the Energy Department said.

More on the secret energy meetings:

Duke Attended Energy Meetings



Bold Rogue Trader

Employee Advocate – DukeEmployees.com – March 17, 2002

The New York Times reported of a Baltimore rogue currency trader who hid $691 million in losses. He managed to keep the scam going for five years! He was described as being bold, unusually clever, and devious by Allied Irish Banks of Dublin.

This is an example of what just one rogue trader can do. Such trader have been known to bring down mighty financial institutions.

Rick Priory, CEO, has stated that about half of Duke Energy’s revenues are derived from commodity positions. In the February Noon Meeting, he acknowledged that there is no way to absolutely guarantee that such things will never happen.

The tower grows. But Enron should have taught everyone that towers come down faster than they go up.

The Baltimore trader has a trading limit of $2.5 million, but that did not slow him down. At one point, he had a position worth more than $1 billion.

The trader’s losses were announced February 6. The news just may have adversely affected his $220,456 bonus, due on February 8.

Noon Report Risk Question



Duke on List With Enron

Employee Advocate – DukeEmployees.com – March 17, 2002

Duke Energy has been taking a lot of bows for being at the top of the Fortune “America's Most Admired” list (fortune.com 3/4/02). Duke now has the honor of being on the same list as Enron.

Enron just barely squeezed into the top ten list; they placed tenth. But the fact that Enron made the list at all, makes the whole list tainted.

Neither Duke nor Enron placed in the top ten for the nation. They were in the top ten for energy companies only. Given Duke's size, it would have been difficult for them not to get on the list.

Neither Duke nor Enron made the top ten for any of the individual attributes:

    Social Responsibility
    Quality of Management
    Financial Soundness
    Long Term Investment value
    Innovativeness
    Employee Talent
    Use of Corporate Assets
    Quality of products/services

Enron did make the bottom ten list for several of the attributes.



DukeSolutions to be Sold

The Charlotte Observer – by Ted Reed – March 15, 2002

(3/14/02) - Duke Energy Corp. said Wednesday it will sell DukeSolutions, a lagging energy management division that failed to meet expectations, to a Massachusetts company.

The sale to privately held Ameresco Inc. continues Duke's effort to shed marginal enterprises and focus on its core businesses of wholesale energy production and trading, natural gas and regulated electricity.

Terms of the all-cash sale were not disclosed, although Duke said its earnings would not be materially affected.

DukeSolutions employs about 200 people, including 80 in Charlotte and 50 in Toronto. Mike Bakas, Ameresco's vice president of renewable energy, said all employees would be "evaluated as to fit," but noted: "One of the jewels of the acquisition is the employees that come with it."

He said the Charlotte office will be retained and could expand.

Ameresco, based in Framingham, Mass., specializes in energy management, working with private businesses and government-funded operations to increase energy reliability, reduce energy costs and promote conservation.

The company generates power at small plants with outputs ranging from 5 to 300 megawatts. (One megawatt is enough power for about 1,000 homes.) It recently signed a deal to operate a 150-megawatt wind generation plant in Montana.

"We found that DukeSolutions is identical to Ameresco in the things they do in the marketplace and in their philosophy of doing business," Bakas said. "So the marriage is seamless. It allows us to have a bigger presence in the U.S. and Canada with minimal disruption."

While not specifying revenue or employment numbers, Bakas said Ameresco would more than double its size with the acquisition, expected to close by mid-April. He said the company now employs between 100 and 200 people.

He said the merger would put Ameresco in the top tier of three or four energy management firms with revenues in the $150 million range.

Duke invited Ameresco and other firms to submit bids for DukeSolutions more than six months ago. "This has been going on for a solid six months, but it picked up heat over the past six to eight weeks," Bakas said. Duke spokesman Bryant Kinney said the sale resembled Duke's sale last month of Duke Engineering & Services, a nuclear engineering division that was sold to a Virginia-based nuclear power company.

"We wanted to find a company with a focus on this type of business," he said. "It's not something we were focused on (and) it has not been a growing business for us."

In fact, DukeSolutions seems to have consistently faced difficulties since shortly after its creation in 1997.

In late 1999 and early 2000, the segment laid off about 200 workers, because the slow pace of electricity deregulation meant fewer opportunities than anticipated. That cut employment to about 300 workers, and the cuts have continued since then. Industry sources said then that DukeSolutions had not been signing as many contracts it had expected to sign.

Duke does not report DukeSolutions' financial results separately. The segment's results are lumped with other businesses in "other energy services," which accounted for 2001 revenues of $565 million. Duke Energy's 2001 revenue was $59.5 billion.

At year-end, Duke took an $8 million charge for "asset impairments and a goodwill charge" at DukeSolutions. Kinney said the write-down reflected deterioration in asset value and was required by a recent accounting law change.

An industry source, who asked not to be named, said DukeSolutions has consistently failed to perform.

"It was losing money and was (likely) to lose money again in 2002," the source said.



Duke Attended Energy Meetings

Associated Press – by Pete Yost – March 3, 2002

WASHINGTON -- A top Energy Department official working on revision of power plant pollution standards met with 64 industry representatives and a single member of an environmental group, a Democratic congressman said Friday.

The lopsided numbers -- seven meetings with business groups and one with one member of the Natural Resources Defense Council -- suggest "undue industry influence" on the administration's deliberations, Rep. Henry Waxman wrote President Bush.

Dates of the meetings and the participants were detailed in a letter to Waxman from Frank Blake, the deputy energy secretary, who held the meetings. Waxman, D-Calif., released Blake's letter.

Lobbyist and current Republican national chairman Marc Racicot was representing the Electric Reliability Coordinating Council, an industry group, at a July 23 meeting with Blake. There were 15 participants, including executives from Southern Co. and Duke Power.

The industry representatives at the meetings and the corporations they represent gave $6.4 million to Bush's presidential campaign and other Republicans and $2 million to Democrats, Waxman said.

"The notion that there is anything improper about an Energy Department official meeting with energy experts is absurd," said Energy Department spokeswoman Jeanne Lopatto. "He had eight meetings with energy experts including an environmental group, and that was over a four-month period. That's his job."

Of the 64 industry representatives, a lobbyist from the Edison Electric Institute participated in three of the meetings. Two utility executives -- one from Southern Co. and the other from Duke Energy -- each attended two of the meetings.

The Bush administration is studying overhauling a regulation that requires power plants, as well as refineries and industrial sources, to install new pollution controls when they make significant improvements or expansions that result in additional chemical releases.

During the Clinton administration, the EPA began aggressively to use those rules in enforcement actions against a dozen electric utilities, mainly those using older, much dirtier coal-fired plants.

In a resignation letter this week, the Environmental Protection Agency's enforcement chief said two companies that had tentatively agreed to settle lawsuits have refused to sign a final agreement, hoping that the rules will be weakened. Other companies with whom EPA was close to settling lawsuits have walked away from the table, said the EPA official, Eric Schaeffer, director of regulatory enforcement.

Energy Meetings Behind Closed Doors



Too Much Privilege

Wall Street Journal – by Carol Hymowitz – February 27, 2002

Do Executives at the Top Have Too Much Privilege?

Special Deals for Top Executives, While Underlings Lose Jobs and Savings, Are All Too Common

Four years ago, the then-chairman and chief executive officer of PepsiCo, Roger A. Enrico, decided that rather than pocket his $900,000 annual salary, he would ask the company's board to use the money to fund scholarships for children of employees who earn less than $60,000 a year.

PepsiCo's foundation already was offering scholarships, but Mr. Enrico -- who is the son of an iron worker and went to college on a scholarship -- wanted to enlarge the fund. "I wanted to do something personal to say thanks to front-line employees who make, sell and move our products," he says. "We can't succeed without them -- and if they are recognized and treated fairly, our company is going to do better."

Mr. Enrico, currently vice chairman, hasn't collected an annual salary since 1998, but he rebuffs the idea that he is making a financial sacrifice. "I'm not trying to play the poor man, or hold myself up as someone making a sacrifice," he says. "I've made a lot of money in [stock] options." He also has earned millions of dollars each year in bonuses.

Even so, Mr. Enrico's voluntary giveback is notable at a time when top executives at many companies, including Enron, Lucent, Global Crossing, Kmart and WorldCom, have seemed intent on preserving their lush compensation even as their companies flounder and their employees lost jobs, severance, medical benefits and retirement savings.

The disparity is provoking plenty of anger among employees, and even some shareholders. Top executives have earned such gigantic sums in recent years that they're far more able to weather tough times than their underlings. Yet they keep demanding more -- at the expense of those they should be leading.

"Where were the directors?" asks Mr. Enrico, about the boards that approve such agreements. "I can understand when you've got a company doing extraordinarily well and beating its peers, and you feel some anxiety about retaining top people.

But when a company is stumbling terribly, I don't understand cutting deals for people."

Mr. Enrico also worries that these questionable deals are widening the gap between executives and lower-level employees, thus undermining the basic tenets of opportunity and equality that are the country's strength. "We're not about class warfare but about everyone having the chance to move up, so this isn't just a business issue, it's also a social issue," he says.

Employees have little recourse for getting justice. Many have filed class-action suits, but for now, all they can do is vent their anger.

"It looks like there was an awful lot of selfish behavior at the top, with executives acting only for their own benefit," says John Sidline, a former Global Crossing public-relations manager from Portland, Ore. "It's a big disappointment. A lot of people held Gary Winnick [Global Crossing founder and chairman] on a pedestal for such a long time and we feel now that we've been stabbed in the back."

Mr. Sidline was laid off in July and is still unemployed. His 401(k) retirement savings declined sharply when Global Crossing shares fell.

Many laid off workers say that if and when they land new jobs, they will be careful not to become too attached to their employers. "If you had asked me awhile ago where I'd be in 10 years, I would have said Global Crossing," says Adrienne Ragland, a former project manager at the telecommunications company in Rochester, N.Y. "But now I think I'll be at three or four companies in that time. Loyalty only goes so far. I won't be able to give 100% devotion and commitment."

The special-deals mentality in some executive suites marks the culmination of a decade of runaway executive pay. Throughout the 1990s, executive compensation packages soared, and many top executives won guarantees of big rewards whether or not they succeeded. Directors at many companies agreed to the lucrative packages, convinced they were necessary to keep executives from jumping to high-tech start-ups.

"A decade ago, people thought if you paid CEOs $5 million or $10 million, you could get them to work hard and smart, but now it has to be hundreds of millions of dollars -- and it's a very rare company where pay falls at the top when performance falls," says Joseph Badaracco, a professor of business ethics at Harvard Business School.

Each new rich contract won by one executive ratchets up the amounts others expect. "I'm dealing with a prospective CEO right now whose demands have nothing to do with his need for money, but are a way to keep pace with his peers -- and not just within his own industry, " says a Boston-based executive-compensation consultant who didn't want to be named.

The tide may be turning.

The dot-com crash and stock-market decline in the past two years have slowed the pace of executive pay increases. A handful of chief executives also have voluntarily taken pay cuts or refused bonuses in an effort to rally employees behind a "we're all in this recession together" mentality.

Last year, for example, Charles Schwab cut its co-CEO's salaries by 50%, while other officers took salary reductions of 5% to 20%. Although the cuts initially were aimed at avoiding layoffs, the brokerage firm still cut its work force by about 13% last year. In September, AMR Corp.'s American Airlines Chairman Donald Carty decided to voluntarily forgo his salary and other compensation through the end of 2001. Since then, other senior airline executives have given up raises for two years as part of the industry's federal bailout.

The Enron scandal, and problems at other firms, are prompting some executives and directors to evaluate their companies' practices. Randall Tobias, former chairman of Eli Lilly and a current director at Kimberly-Clark, Phillips Petroleum and Knight-Ridder, says "there's a growing feeling among directors and CEOs that it's time to take a fresh look at executive compensation."

He questions boards that have approved loans for senior executives to purchase company stock, and then have forgiven the loans when the stock price fell. "If an executive takes a loan, he should be obligated to repay it, regardless of whether he made a profit on his stock purchase or not," he says.

Pay for performance, Mr. Tobias adds, is a straightforward concept: "If there is no performance, there is no pay."

Astute leaders should realize that if they fail to set ethical standards, they will lose respect and following. What they and their employees are paid reflects their company's -- and their own -- values.

When Henry Heinz began building his food-processing company in the late 1800s, he made a conscious decision to try to avoid the labor strife he saw at neighboring U.S. Steel in Pittsburgh by paying his employees better-than-average wages.

During the Depression, his son Howard Heinz cut executive raises to avoid employee layoffs. The strategy coincided with the company's values as "a place that made pure food and was good to work for," says Nancy Koehn, a business historian at Harvard Business School. It also served the company well, since Heinz was introducing many new processed foods and needed a loyal labor force.

PepsiCo's Mr. Enrico says his decision to forgo his salary "didn't come out of the blue," but was part of his upbringing at PepsiCo. He recalls how when he was a young manager, former PepsiCo CEO Don Kendall refused part of his bonus "because he thought it was too large," says Mr. Enrico.

At about the same time, Fortune magazine published an annual chart listing Fortune 500 companies' earnings growth and CEO compensation. Mr. Kendall, Mr. Enrico's mentor, "was very proud that PepsiCo was the highest earnings performer and that he was among the lower-paid CEO's. Don thought a lot of other CEOs were on the wrong end of the chart for the wrong reasons."



Worthless Ethics Policies

The Charlotte Observer – by Charles M. Kelly – February 25, 2002

The Observer's Business Monday cover story, "Set up an ethics code that works," (Feb. 18), listed seven tips for making sure a business is protected from ethical breaches. They were as good as you'll find, as far as legal protections of the CEO and senior executives are concerned.

Unfortunately, they omit the most basic prerequisite for ethical corporate behavior: a genuine commitment by the top brass to respect the rights of all constituencies -- employees, the environment, customers, stockholders, and, yes, even the government.

Ethical behaviors are more a result of corporate culture than of bureaucratic systems.

I'm afraid our dominant corporate culture is following Milton Friedman's famous maxim: "So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer is, no they do not."

This is probably the most frequently quoted justification for greed that today's corporate executives cite. If there is a profit in it, they not only feel no responsibility for how their actions and decisions affect average Americans or their country, they sanctimoniously claim a moral superiority for holding such selfish values. Corporate executives have transformed greed from vice to virtue. Admittedly, a healthy self-interest is a virtue, essential to one's success and beneficial to society. But greed, an excessive self-interest, leads to behaviors that are devious, deceptive, manipulative, exploitative and, in general, detrimental to society -- although profitable to holders. It can even lead to behaviors that are legally fraudulent, as apparently happened at Enron.

By now it has become obvious. In the interests of profits and personal wealth, most modern corporations push all laws to their limits, and if the penalties are not sure and severe, beyond their limits. This applies to reporting income (tax avoidance), treatment of employees (pay, work conditions, rights of collective bargaining), protection of the environment (conservation costs money) and respect for customers (let the buyer beware).

In pursuing unrealistically high profit objectives, the sophisticated CEO can create pressures on subordinates to cut ethical corners, yet retain deniability of any ethical or legal wrongdoing himself. He may previously have proclaimed the very best behavioral standards, including the usual "tools" of organizational development: statements of corporate ethics, values, philosophy and mission. He may have set up a bureaucratic system to monitor behaviors.

But it's in his day-to-day business discussions where he demonstrates the values and expectations that actually count.

A chemical company president, for example, may meet with plant managers and announce a 5 percent cut across the board, "because competition demands it." But if a manager complains that the cost of toxic waste removal is already at the bare minimum, he's told: "If you can't do it, and do it legally, I'll find someone else who can."

The message is clear: Those who keep their jobs or get promoted are those who deliver -- and don't get caught. So the managers quickly figure out they can use a fly-by-night toxic waste disposal company that will do the job at a significant cost savings. The company's unidentifiable waste ends up alongside a rural road, and senior managers have deniability of any willful intent to violate environmental laws.

Of course, the term "ethics" suggests that the issue is much broader than adherence to law. It would also include doing what's right by society's moral standards. Is it ethical to hire accounting and legal consultants to skirt the obvious intent of tax laws? Is it ethical to reduce employee head count beyond reason to realize a huge personal financial gain?

When profit is the only moral standard, lower-level executives and managers are pressured to make cuts that adversely affect a company's least powerful or least noticeable constituencies. It's all done to increase the wealth of investors and top executives. That's usually legal, but it's not fair, and can easily lead to illegal behavior as competition intensifies.

The way top management goes about getting results, not sanctimonious protestations of ethical commitment, determines the morality of corporate behaviors.

Charles M. Kelly is a retired management consultant living in Tega Cay, S.C., and is the author of The Destructive Achiever: Power and Ethics in the American Corporation (Addison-Wesley, 1988).



Ethics as Window Dressing

Employee Advocate – DukeEmployees.com – February 19, 2002

The Charlotte Observer ran a story (below) about setting up a business ethics code. The article mentioned the devastating problems that some companies have faced due to a lack of ethics. Of course, some examples were in order.

Three companies immediately popped up in the article: Enron, Nortel Networks, and Duke Power.

Enron’s problems led to bankruptcy proceedings. The chief financial officer at Nortel resigned due to questionable retirement plan activities. Duke Power is under investigation by their North and South Carolina regulators for allegedly understating profits.

If ethics lip service alone would prevent legal problems, Duke and Enron would have none. Enron memorabilia, with nifty ethics slogans, is being auctioned off now. Duke has a glorious ethics policy.

The only problem is that in both cases all the ethics banter was merely window dressing. Talk of ethics was for public and employee consumption only. The executives had to be free to wheel and deal. There was big money for the taking, and these companies intended to take it.

What makes Duke’s ethics policy so ludicrous is that it was implemented shortly after Duke's biggest immoral act in its history: Raiding the pension fund. Also, health benefits were reduced or eliminated.

Breaking promises made for twenty-five years, labeled senior management as being untruthful. Coming up with the ethics policy, labeled them as being hypocritical.

Taking benefits (money) from employees was evidently part of the master plan to be more like Enron. Duke management has succeeded in accomplishing what they thought they wanted. Now they want to distance themselves from Enron, just as President Bush does.

Enron has Duke shackled to one leg and G. W. Bush shackled to the other leg. Enron is stunned, staggering, and just before falling into a sewage lagoon. Bush and Duke are filing frantically at the chains!

“We want to be like Enron” has become “We are not like Enron.”

Those with zero ethics are be blown like reeds in the wind. And, meaningless ethics polices change nothing.



Set Up an Ethics Code That Works

The Charlotte Observer – by Ellison Clary – February 19, 2002

Companies have paid lip service to ethics for decades, but today's rough economy and recent scandals have brought increased scrutiny of business decisions and harsher consequences for ethical lapses.

An ethics and accounting scandal led one of the nation's most prominent companies, Houston-based energy trader Enron Corp., to seek bankruptcy protection. Just last week, Nortel Networks' new chief financial officer resigned amid questions about shifting money in his company 401(k) retirement plan just before a corporate layoff announcement. Closer to home, Charlotte's Duke Power is under investigation by N.C. and S.C. regulators who say the utility might have understated profits to state agencies. But it's not just accounting issues at some of the nation's largest companies that have raised concerns in the business community. It's the everyday ethical breaches at the small and medium-sized firms where a few miles added to an expense form or a free trip accepted from a client could hurt the bottom line.

Bob Giacalone, a business ethics professor at UNC Charlotte, said he knows of a company that suffered public humiliation and repercussions that will last a decade after some employees sold company secrets. The catch was that several co-workers knew what was happening but didn't report it to bosses because they thought managers were aware of the breach because so many people were involved. In an uncertain economy, workers could become more desperate and violate ethics codes, while co-workers would hesitate to report the violations for fear of losing their jobs, experts say.

"The temptation to chisel will be there in a down economy, but I don't think that gets to the core problem," said Dick Toenjes, another ethics professor at UNC Charlotte. A sense of responsibility and an appreciation for business ethics must be instilled in any organization, he said.

Responsibility starts at the top with business owners and executives.

First, bosses must issue clear, detailed ethics policies and the punishment for violating those rules, experts say. Giacalone said the bosses have to be willing to hear bad news and deal with the problem. Otherwise, "a cancer will form in the organization if someone does something unethical, and the company doesn't do anything about it."

Second, they must "talk the talk" when it comes to adhering to the company's policies, experts say. If the leaders at Enron allowed creative accounting, then rank-and-file employees who adhered to strict ethics standards "are by definition either fools or saints," Toenjes said.

How companies deal with ethical breaches is vital, experts say. An investigation should be swift and thorough, and discipline must be effective and fair. Finally, other employees need to know what was done. "People are learning that if they hide pertinent information, it's going to get out and then it's an even bigger crisis than the original situation," said David Snepp, managing partner at C4CS, a Charlotte crisis-consulting firm.

In addition, employees must feel safe in reporting suspected ethics violations, and companies should have designated officers for enforcement decisions, said Jacqueline Gates, Duke's vice president for diversity and ethics. An employee whistle-blower triggered the states' investigation of Duke Power. The employee still works for Duke, which has a non-retaliation policy.

At the company where employees were selling secrets, executives later spoke with employees about how they should report ethics violations to supervisors.

Charlotte executives from 12-employee Ehren-Haus Industries Inc. to steel maker Nucor Corp., with more than 8,000 workers, say they recognize that operating ethically is good business. But like other small and large businesses, Ehren-Haus and Nucor vary widely in their approaches.

Steel maker Nucor has a three-page written ethics policy that gives examples of what's acceptable and what's not, said Jim Coblin, vice president of human resources. Among other things, it states that Nucor employees should not accept favors from people who want to do business with the steel maker, specifying they cannot accept gifts such as trips and sports tickets. "Any appearance of possible impropriety must be avoided," it says. Nucor supervisors meet monthly and receive, among other things, reminders about the importance of ethics from company executives, Coblin said. They get ethics training annually, and the company expects them to enforce the ethics code with discipline that includes termination for breaches such as stealing, Coblin said.

At Ehren-Haus, owner Helen Marie Berthold said she provides a simple test for ethical decisions: "If your mother read about it in the newspaper, would she like it?"

Bethold, whose company makes displays, said her homespun policy has kept her out of trouble. She shares it often with her employees.

Having no detailed written policy might work for a small company, said Toenjes, but only if the personality of the owner influences the entire work force. Generally, that doesn't happen after employment tops 50, he said.

While there is no one-size-fits-all ethics policy, every policy should include some basic rules, said Mark Calloway, a partner in the Charlotte office of Alston & Bird.

Those rules include avoiding conflicts of interest; not tolerating sexual or other harassment, and a commitment to honesty with customers, suppliers, stockholders, government officials and the public. There also should be a commitment to comply with applicable laws and a procedure to monitor performance and conduct periodic ethics reviews, Calloway said. One advantage of having a detailed written policy is that it can help reduce the severity of punishments under federal sentencing guidelines, Calloway said.

So where do you find help?

Several executives of smaller businesses said they recommend finding reputable accountants and attorneys to help with ethical questions -- then doing what they say.



Duke's Non-Benefits

Employee Advocate - DukeEmployees.com - February 18, 2002

Great Expectations

Duke management has, from time to time, attempted to intimidate employees by strongly implying that a layoff is imminent. After hearing this (unofficial) proclamation by his supervisor, one employee decided to be proactive and get a job with a more stable company.

One interviewer asked the employee where he worked; he answered " Duke Power."

The interviewer said "I've heard about those people. They give you all kinds of benefits, but if you take any of them, you are a ... (a genetic impossibility)"

Here was a person who had never worked for Duke, but yet, he gave an accurate assessment of the benefits situation. He had evidently interviewed many former Duke employees, who had all given him the same account.

Taking away retirement and health benefits was not enough for Duke management; they continue to chisel at benefits in any way possible. Some in Duke management are stating that their "expectation" is for employees, who work Monday through Thursday, to have all their medical visits scheduled on Fridays.

Here again, is an example of a Duke non-benefit. The company allows employees to take sick time for medical visits, but if they can intimidate everyone into only visiting a doctor on their one time, Duke will never have to deliver on the promised benefit!

Hourly employees do not get unlimited sick leave. So, they can never take more sick time than they have accumulated. But now, some in management do not even want employees to take the sick time that they have earned!

Management would prefer that employees never use any sick time. They would prefer that employees save all of their sick time until they retire - then they can lose it all at once!

Some companies pay the employees their accumulated sick leave when they retire. The Postal Service allows employees to take all of their accumulated sick time as vacation when they retire. This gives employees an incentive to save their sick leave. Duke has a use-it-or-lose-it policy, but they still do not want you to use it!

Of course, the great thing about expectations is that are just that: expectations. Anyone is free to expect anything they want. That does not necessarily mean that will ever get what they expect.

Many employees will never received the pension amounts that they expected. They will never receive the retirement health coverage that they expected. They will never see the early retirement subsidy that they expected. And, it is not like these were unreasonable expectations. The company made these promises to employees, in writing. To reinforce these expectations, statement were sent annually, itemizing all of the benefits to expect!

Employees expected not to be managed by liars! But this reasonable expectation was not met.

There is also a new trend in Duke management of blaming any mistake an employee makes on "lack of integrity." What a joke! Employees know where the lack of integrity lies. Management would love to transfer their failings onto the employees, but no one is buying it.

If an employee makes a mistake, it is just that: a mistake. Nothing sinister can concluded because an employee makes a simple mistake, and reports it to management. This is in no way comparable with the way management has taken money from employees and attempted to cover it up. That truly demonstrates a lack of integrity. And, this complete absence of integrity starts at the very top of management! Top management wanted to be “just like Enron.” And, by Jove, they made it!

Duke's ploy of promising one thing, and delivering something entirely different cannot be categorized as a mistake. It is not a mistake when the company deliberately schemes to mislead employees by distorting and misrepresenting promised benefits.

What sunk Enron? Was it not misrepresentation? People who will misrepresent small matters will likely misrepresent larger matters. The Enron fallout has not settled yet. Management at many companies may have a lot more to worry about that a few hours of sick leave legitimately taken.


Duke - Page 2 - 2002