Ethics and Integrity in the Power Industry
Pillsbury Winthrop’s 2003 Energy Conference
Richard W. Blackburn
Executive Vice President, General Counsel and Chief Administrative Officer
Duke Energy
Albuquerque, N.M.
June 13, 2003
Good morning. Let me thank Pillsbury Winthrop for including me in this weekend’s forum and for organizing such a topical program. During challenging times, events like these can serve as wonderful catalysts—fostering new ideas, different approaches and fresh perspectives.
I’m excited to talk this morning about some very basic, fundamental elements of good business. Having a discussion of ethics fill a keynote slot at an energy conference certainly says a lot about the current state of our sector and about doing business in corporate America.
It seems like just yesterday the energy industry was high-flying. We were talking double-digit growth, deregulation, synergies and integration.
What a difference a year makes. In dramatic fashion many of those “new,” “innovative” segments of our industry—the ones that fueled such profitability and growth—have now smacked into an unyielding, concrete wall of diminished market volatility and low liquidity, credit crunches and scandals.
We have a new paradigm in our industry and throughout American business—and the new buzz-words are “compliance,” “transparency” and “regulatory controls.”
And for good reason. Stories of greed and malfeasance on Wall Street and in corporate America were not pulled from thin air—and the fallout from them has been devastating.
The institution of business is reeling from 18 months of scandal after scandal uncovered and played out on TV and in the newspapers.
Recently, even the media has found itself on the list of the disgraced. In an Orwellian twist, for weeks we’ve read about fraud and deceit in the New York Times, and now we’re finding out about it at the New York Times.
We’ve seen vividly how the selfish, unethical actions of a few can dramatically impact thousands of unwitting employees and investors. And we’ve all come to realize that it only takes the transgressions of a handful to tarnish business as a whole and to shake the foundation of free markets.
I’m not here today to examine what motivates people to do the wrong thing. I’m not a sociologist, I’m an attorney. I’m here to talk about the importance of drilling a strong, ethical, value system into the core of your business organizations. In today’s environment more than ever, it is essential that as attorneys we are effectively engaged to help build a clear framework in business to ensure we’re all doing the right things.
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Ethical conduct is, and always has been, a defining characteristic of successful businesses—it helps you stay right with the law, and it helps you win in the marketplace. A consistent and visible commitment to strong ethics and high commercial standards breeds the trust necessary to gain and retain good business on favorable terms.
Recent events have justifiably shaken the public’s faith in Corporate America’s commitment to do the right thing. In response we see more legislation, more regulation, and more investigations. All of this is probably necessary, but it will not alone fix the problem.
The primary obligation for restoring that loss of faith in business resides with business itself.
But how do we begin the restoration process?
It starts with strong and sustained leadership. Leaders set the standard. It is their direction and example which set the course for employees, which then quickly translates to customers, to investors, to regulators, and others.
And make no mistake, it is the employees who form the character of any organization. So it is essential to recruit the right kind of employee and establish the right kind of incentives to retain those special resources.
To be clear, the “right kind of employee” doesn’t fit into any specific mold—after all, a truly diverse workforce is essential to cultivating different perspectives and fresh ideas. And you won’t find the key ingredient on even the most impeccable resume.
The “right kind of employee” is one who is fully aligned with your business values and can be trusted to remain aligned.
And the business values must be clear from the top - simple, consistent with strategy, and non-negotiable. It is the way you live in an organization.
Adherence to business values will help guide your business in the right direction but they must be married with consistent ethical training and rigorous compliance regimes.
Within an organization—especially heavily regulated businesses like utilities and energy companies—robust compliance programs must be in place, not only as a backstop but as a resource for the commercial folks who are out there doing their jobs and have to do it according to an ever changing set of rules.
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Let’s take a quick look at a company I know well, a company with a long history, deep roots in the communities it serves and a long-standing reputation as honest and fair.
The company I’m referring to is Duke Energy. We have nearly a 100-year history of doing the right thing. But we’ve seen in the last 18 months how investigations and accusations—even if unfounded—can tarnish a reputation and erode public trust.
We’ve defended our company vigorously against unfair and unfounded accusations, and cooperated fully in all of the many investigations of our industry. We are winning lawsuits and showing that the facts will sustain us over time.
But we’ve also taken a hard, critical look at what we do and how we do it. And where we have found conduct that doesn’t live up to our ethical standards, we’ve taken quick action to correct it. Restoring trust, after all, starts by making sure your house is in order. We’ve spent the last year doing just that.
We’re doing all the things required by the Sarbanes-Oxley Act and the revised New York Stock Exchange rules. Our CEO and CFO are certifying the financials. We’ve restructured the audit committee of our board. (Which now meets for twice as long is it did in the past.) We’re beefing up our internal controls, and we’ve created a disclosure committee.
At Duke Energy, we have also substantially revamped our compliance programs—enhancing internal reporting capabilities and expanding the function.
Over the past year, we have reinforced with employees Duke Energy’s business values, emphasizing their central role in every task and every decision. We’ve also updated our Code of Business Ethics, to clarify how the values apply in specific situations.
We want our employees to understand that our values—integrity, stewardship, inclusion, initiative, teamwork and accountability—are more than slogans on the wall. They are the way we expect people to do business—from the boardroom to the breakroom.
We weave them into our corporate policies and procedures, into our very culture. They underlie contracts written for mutual benefit, as well as legal obligation. And they are key factors in the way we recruit, select and train employees, and guide their performance.
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Attorneys should have a major role in all of this. Attorneys play multiple roles—advisor, problem solver, tactician, coach and a visible corporate conscience.
Too often, people see the competitive edge as resting on the ethical edge. Attorneys are usually positioned well to translate scenarios into black and white, and counsel on the importance of staying away from the ever moving and blurred line between right and wrong.
It is this valuable counsel that earns an attorney a position on the team. And with this opportunity comes an obligation to provide an unvarnished, crystal clear picture of what is right and wrong—without hedging and without compromise.
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So it’s with the backdrop of leadership, legal responsibility and obligation that I’ll bring up an issue that has me more than a bit concerned. That issue is Sec. 307 of the Sarbanes-Oxley Act and what I believe is the Bar’s misguided reaction.
We all know Sec. 307 requires the SEC to promulgate rules to assure attorneys report evidence of violations “up the ladder” to the General Counsel, the CEO, or the Board. The big issue is what happens if no action is taken. The SEC first proposed the requirement of a “noisy withdrawal” by the reporting attorney but then blinked when the Bar pushed back with concerns about privilege and damage to the lawyer client relationship.
My view is that the SEC had it right in the first instance—the client is not management or the Board, but the owners of the business, the shareowners. Protecting relationships with management or the Board misses the point entirely.
This should be a leadership issue for the Bar. Investors, customers and employees are craving the stability that flows from people with integrity who stand up to their obligations. Attorneys can and should fill that role.
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For legal counsel, the new landscape of corporate governance represents tremendous challenges and opportunities.
Scrubbing our systems and practices, instituting new and enhanced measures of control and governance, and setting new standards are time consuming and costly endeavors.
But the work is essential to rebuild the trust which sustains our industry’s foundation and our future.
For attorneys busy rebuilding a culture of accountability and integrity in our sector, I’ll close with five essential principles to guide progress:
- Position yourselves as problem solvers who enable progress.
- Earn a role as a valued member of the team.
- Set a clear picture of right and wrong.
- Make sure you are empowered to speak out.
- Just do it!
Thank you.
