Exelon CEO needs to be held accountable in ComEd scandal

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For example, the agreement alleges an executive described as "CEO-1"—clearly former ComEd CEO Anne Pramaggiore, who stepped down abruptly last fall from her new post as head of all Exelon utilities when the federal investigation of ComEd’s Springfield activities came to light—orchestrated the hiring of Madigan pals as lobbyists and lawyers, even getting one appointed to the ComEd board.

This was no penny-ante kickback scheme by low-level purchasing agents. The allegations–which ComEd doesn’t dispute—outline a continuous campaign of corruption carried out by senior executives, including one of Crane’s direct reports.

In short, the corruption took place not merely on Crane’s watch but under his nose. Like so many CEOs in similar situations, Crane is left with little choice but to plead ignorance. Perhaps he managed to keep his eyes and ears closed tightly enough to avoid learning the true nature of his subordinates’ relationship with Madigan, who held the keys to top business priorities such as a state bailout of Exelon nukes.

If so, it’s a reason to fire him. A CEO so uninformed about such egregious misconduct by senior executives relating to matters of such importance to the company clearly isn’t up to the job.

An Exelon spokesman excuses Crane because "the conduct at issue in the agreement with the U.S. Attorney relates only to ComEd and does not contain any allegation of misconduct by Exelon."

Sorry, but the corporate veil separating Exelon and ComEd is little more than a legal fiction that shouldn’t shield Crane from accountability for wrongdoing at the Chicago-based utility. Even Exelon’s website acknowledges that his responsibilities go beyond the holding company, noting that "Crane oversees a family of companies," including ComEd.

Crane has powerful reasons to pay close attention to ComEd, a core operation of Exelon that generates more than one-quarter of the holding company’s operating profit. As Exelon’s largest utility, it couldn’t be more important to Crane’s goal of building up utility operations and reducing the company’s reliance on nuclear power plants. He serves as a ComEd director, responsible for monitoring top utility execs such as Pramaggiore, whose spokesman says she did nothing wrong.

As CEO, Crane also bears responsibility for corporate culture throughout the Exelon empire. He oversaw a culture that not only tolerated corruption but allowed it to flourish. He should answer for the deeds of underlings whose actions reflect that culture.

There’s precedent for canning CEOs who abide cultural corruption, even when they’re personally uninvolved and unaware of specific dishonest acts. Former Wells Fargo CEO John Stumpf never created a checking account without the customer’s knowledge, but he lost his job after it came to light that low-ranking employees of the giant bank were doing so on an industrial scale.

Joseph Berardino of Arthur Andersen similarly took the fall for the actions of subordinates after the now-defunct accounting firm was charged with a crime. Prosecutors indicted Andersen for shredding documents relating to its audit of corrupt energy company Enron.

”While my nature is to keep fighting and protect our clients, the fact is that the improper shredding of documents took place on my watch," Berardino said at the time, "and I believe it is now in the best interests of the firm for me to step down.”

Crane shows no inclination to accept responsibility for the actions that led to criminal charges against ComEd. In a statement released on Friday, he said “a small number of senior ComEd employees and outside contractors orchestrated this misconduct, and they no longer work for the company." He said the company will clean up its lobbying, offered an apology "for the past conduct that didn’t live up to our own values," and promised "we will ensure this cannot happen again.”

Blame-ducking and apologies aren’t good enough. Exelon directors should hold Crane to the same standard imposed on CEOs of other criminally charged companies. He failed in one of his most important duties as CEO: instilling a culture of integrity throughout Exelon’s corporate empire. If he had made it clear that corruption wouldn’t be tolerated, ComEd executives never would have done the bidding of Madigan’s henchmen.

The first time a political operative tried to extort a payment or a job, they would have gone to prosecutors. Instead, they danced to Madigan’s tune in a long-running tango with benefits for both partners, courtesy of ComEd customers.

Exelon got a new law that puts ComEd rate hikes on something close to autopilot. The utility’s rates for delivering power have climbed 35 percent since Madigan waved through the new rate-setting process in 2011, generating more than $750 million in revenue increases for ComEd. Madigan also greenlighted a 2016 bill that bails out ailing Exelon nuke plants through extra charges on electric bills. It’s worth about $2.4 billion to Exelon over 10 years.

Those numbers make the $200 million fine ComEd will pay under the deferred prosecution agreement look like a great investment. Coming up with the $200 million won’t require any belt-tightening at Exelon, a $34 billion-revenue company that spent more than $1.3 billion on dividends last year.

No wonder Exelon stock rose 3.5 percent to $39.40 on Friday.

What’s good for Exelon’s bottom line is also good for Crane’s. Crane collected about $15 million in total compensation for each of the past seven years, Exelon filings show. So far, there’s no indication the $200 million fine will affect his 2020 compensation.

Nor should ComEd customers expect to get back any of the money they’ve paid as a result of the corrupt scheme. Customers also should plan on continuing to pay every cent ComEd is allowed to charge under legislation purchased by Crane’s team.

It’s important to note that prosecutors haven’t charged Crane or any other current or former company executive with crimes. Some may be cooperating with prosecutors apparently intent on bringing down Madigan, whose office denies he did wrong.

Crane is the responsibility of Exelon directors. Only by removing him as CEO can they show an unqualified commitment to ending corruption at ComEd.
 

26-Delivered

via Crain’s Chicago Business

July 21, 2020 at 05:26PM

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