On Friday, PG&E’s shareholders will meet for the first time since the company’s power lines started California’s deadliest wildfire last November. Investors are set to vote on a fresh slate of directors that the utility announced in April.
That reset has resulted in a board on which Wall Street interests are heavily represented. Eleven are new arrivals, more than half of whom have investing or corporate restructuring experience.
A board of directors is tasked with overseeing a publicly traded company's management and with representing the interests of shareholders.
Some financial experts say that the company is doing exactly what it needs to do: Emerging from Chapter 11.
"The board of directors for the company reflects its current priorities, which is to get out from bankruptcy and offer bondholders some protection from default,” said Aswath Damodaran, a corporate finance professor at New York University’s Stern School of Business. “I think the board reflects where the company is at this point in its life cycle."
But others have expressed disappointment. Gov. Gavin Newsom called the board choices troubling this spring. Newsom said he’d expected to see a greater emphasis placed on changing the company’s safety culture.
"It's kind of curious that they went in really heavy on finance and bankruptcy people, because bankruptcy really doesn't seem to be the central challenge in front of PG&E," said Jared Ellias, who teaches bankruptcy and corporate governance at UC Hastings College of the Law.
Ellias said that the new board shows how the utility thinks that "the relationship with Wall Street is the most important set of expertise that they want to have."
In a statement to KQED, a PG&E spokesperson refuted the idea that Wall Street interests are too heavily weighted on the new board.
“The Board and our new CEO are focused on safety and operational performance and resolving the claims of those affected by the 2017 and 2018 wildfires,” PG&E wrote.
The company also noted that many of its new board members have executive experience at utilities.
Many of the new board members have a history with hedge funds that have been actively involved in efforts to shape PG&E’s future.
New board members include Richard Barrera, a former partner and co-portfolio manager at Redwood Capital Management, one of the three firms that, according to SEC filings, collectively held 10% of PG&E shares this spring, when the board overhaul and selection of current CEO Bill Johnson took place.
Another, Michael Leffell, once served as deputy executive managing member at Davidson Kempner Capital Management. Bloomberg reported that firm joined forces with other Wall Street heavyweights, Pacific Investment Management Co. and Elliott Management, in trying to sell state lawmakers on a plan to establish a fund for past wildfire victims. The investor group is one of several that have reportedly pitched various versions of such a fund, which wildfire victims’ attorneys say would unfairly cap the amount of liabilities PG&E owes their clients.
The hedge funds involved have jockeyed for position since PG&E entered into bankruptcy protection in January.
While Redwood Capital Management, Abrams Capital Management and Knighthead Capital Management have held significant sway, another hedge fund — BlueMountain Capital Management — has successfully leveraged its smaller 2% stake.
In the runup to PG&E’s bankruptcy, BlueMountain Capital vowed a fight to replace PG&E’s entire board, even proposing its own slate, which included former National Transportation Safety Board head Christopher Hart. In April, PG&E hired Hart as a safety adviser reporting directly to the CEO.
BlueMountain Capital also pushed for Frederick Buckman, who now sits on PG&E’s board. Buckman’s resume includes time as a managing partner focused on the utilities sector at Brookfield Asset Management. He has also been the chief executive of utilities, including PacifiCorp, the Oregon-based power company controlled by investor Warren Buffett’s conglomerate, Berkshire Hathaway.
On Friday, in addition to casting votes on the current board, shareholders are also expected to approve the addition of CEO Bill Johnson and to consider whether to create another position for another independent director. That would bring the board’s total size to 15.
While the board is supposed to serve shareholders, one of PG&E's loudest critics, former California Public Utilities Commission President Loretta Lynch, said it should also answer to the public. She said it should include representation for wildfire survivors, PG&E workers, the state government and ratepayers.
“When the federal government bailed out Chrysler decades ago, the government had a say in who the Chrysler board members were. And those members stayed on the board until Chrysler fully repaid the government with interest,” Lynch said. “That certainly should happen here because clearly PG&E is going to be bailed out by ratepayers.”
CPUC President Michael Picker recently wrote in a blog post on the agency’s website that regulators will be watching.
“Bringing in new leaders with impressive resumes is one thing; making sure they are appropriately qualified for the specific safety-driven requirements of the task at hand is something else,” he wrote.
According to PG&E's corporate governance guidelines as of April 5 of this year, all members of the board of directors are elected each year and serve one-year terms.
Meanwhile, the CPUC announced this week that it is seeking comment on a possible overhaul of PG&E, including restructuring the company.
Director since 2019. Former commissioner of the Federal Energy Regulatory Commission.
Director since 2019. Former commissioner of the Federal Energy Regulatory Commission.
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