Governance and Management Crisis: ‘Make Sure This Never Happens Again’

RE Magazine, January 2020 Issue
Author: Erin Kelly

Valley Electric Association’s headquarters building in Pahrump, Nevada. (Photo by Jeff Scheid)

When Dick Peck agreed to become temporary CEO of Valley Electric Association (VEA) last March, the veteran utility executive knew he was walking into a co-op in crisis.

Shortly before Peck arrived, the local sheriff’s office arrested the previous CEO on suspicion of embezzlement. The charge came as deputies were investigating allegations of sexual harassment and hush-money payments by her immediate predecessor, who abruptly left his position in May 2018 after more than 10 years on the job.

The allegations against the two former CEOs haven’t resulted in any charges by the district attorney. But they added to the ire co-op members were already feeling about a rate hike that one of the former CEOs had promised wouldn’t happen.

“It was one of the worst situations I’ve stepped into,” says Peck, who has helped co-ops recover from bankruptcies and other problems. “I thought, ‘Holy buckets, I’m in trouble here.’ Our boardroom can probably hold 30 to 40 people. We had at least 300 to 400 people at my first meeting. … Believe me, they were mad. They just wanted to slice and dice me.”

Nine months later, the Pahrump, Nevada, co-op has made significant strides in improving trust among its members and promoting a new culture of transparency, openness, and consumer involvement. It has also found a new leader, announcing in late November that the board hired veteran co-op executive Mark Stallons to be its new permanent CEO. Stallons served as president and CEO of Owen Electric Cooperative in Owenton, Kentucky, and has 30 years of experience at Midwestern co-ops. He’s scheduled to start Jan. 6.

Valley Electric Association serves more than 45,000 members across 6,800 square miles in Southwest Nevada. (Photo by Jeff Scheid)

What VEA went through and how it responded offers lessons to all co-ops about being proactive on governance, oversight, and reputation management, says Stephen Bell, NRECA’s senior director of media and public relations and lead creator of a recently released co-op reputation-management toolkit.

“It’s human nature to say, ‘We’re good. This situation could never happen to us,’” he says. “It’s tough to open the closet, find something, and proactively do something about it. But that’s oftentimes what’s needed.”

Even co-ops that haven’t had major problems are receiving more attention from the media and the public, says Pat Mangan, NRECA’s director of governance education.

“It ebbs and flows, but we’ve been in an up-trend in the last two or three years,” he says.

Among the topics in the news: compensation and benefits for co-op directors, how the board nomination and election process works, and how board vacancies are filled.

In the past, a local newspaper would likely have been the only outlet to publish a story about a co-op issue, Mangan says. Today, those stories can be pervasive on the internet.

“Social media has facilitated the spread of information much more quickly,” he says.

And, Bell adds, adverse attention on one co-op can tarnish the image of nearby co-ops by association. He says one of the best ways for co-ops to protect their reputation is to lean into transparency to maintain credibility with members.

“A constant focus on member engagement and proactive communication lays the foundation for an improved reputation in the local community,” Bell says.

Over the past decade, the number of co-ops that have wholly or partially opened their board meetings to members has increased, Mangan says. More co-ops are also posting financial information and board meeting minutes on their websites. Some are even using their newsletters to explain board members’ pay and benefits.

“We are seeing a trend toward being proactive in terms of transparency,” he says. “Co-ops are getting out in front of it. I applaud them for doing that. But what works for one co-op may not work for another. The key is to not just sit back and assume your co-op will never face troubles. That could change overnight.”

Veteran utility executive Dick Peck helped Valley Electric Association implement transparency initiatives as temporary CEO after the co-op suffered a series of governance and management setbacks. (Photo by Jeff Scheid)

‘A Classic Case’

When things started going poorly at VEA, the response from the community was swift. A member group, formed when the rate hike was announced in February, fought to remove the co-op’s entire six-member board, saying they’d failed in their most essential role: managing the CEO. By late October, all six directors were gone.

Peck is the owner of a management consulting firm and renewable energy business in Kenai, Alaska, and has nearly 50 years of experience in public power, including 24 years as CEO of rural utilities in the West.

“When a utility is in stress—whether it be financial or political— that’s what I am drawn to,” the ex-Marine said when he accepted the assignment.

He describes VEA’s troubles as a “classic case” of what can happen when a co-op isn’t proactive.

“If you don’t allow appropriate transparency, this is the kind of trouble you’re going to get into,” Peck says.

VEA’s website now has a prominent “transparency” section, where members and the public can read monthly financial reports, audits, board minutes and agendas, budgets, planning documents, and bylaws.

“We said, ‘Here we go. We have no secrets,'” says Peck, who stepped up several efforts that were already underway at the co-op after the longtime CEO quit. “You can’t put personnel matters or contracts on the website, but everything else can be put up so members can see it. That was job one.”

VEA employees say Peck helped improve the co-op’s credibility in part by going out into the community, attending high school football games and Rotary Club meetings, and talking with local families.

The co-op also created four new committees where consumer-members provide input to the board on financial matters, policy, member liaison issues, and the co-op’s charitable foundation.

“As members, every one of us owns a little piece of our co-op,” says VEA consumer-member Linda LeVasseur, who serves on the finance committee. “I think the co-op is coming into a new age of information and openness. We all have a responsibility to help it get there. And we all have to take some responsibility for the problems, because if we’d been more on top of things, then they wouldn’t have happened.”

Kathy Keyes, the new board president and one of four women on the previously all-male board, says she thinks the member advisory committees are the most important step that directors have taken to restore members’ trust.

Board members Kathy Keyes and David Dawson and Valley Electric Association members at the co-op’s annual meeting. (Photo by Jeff Scheid)

“They connect the membership with the staff and, very importantly, the directors,” she says. “We’ve had committees in the past, but the directors were never a part of it, and members felt like their work was all for nothing. So now actually having board members right there, they feel they’re being listened to; they’re being heard.”

VEA leaders also have sought employees’ input and worked to engage them in planning for the co-op’s future.

“Employees were never asked to participate in the past, which was a shame,” says Peck, who made it a point to get out of his office and walk around and talk to staff often.

Employees also worked with the board in developing a strategic plan for 2020 and beyond.

“Things are dramatically better,” says Matt King, a VEA manager and leader in the employee strategic planning process. “There’s more conversation going both ways between management and workers. There are open doors in the cooperative now that an employee can walk through and ask a question, whether it’s of the CEO, the CFO, or the supervisor of our warehouse.”

Employees “never lost faith in Valley Electric,” Keyes says. “They still believe that we could be an awesome co-op again.”


RESTORING MEMBER TRUST

 

Actions Valley Electric Association has taken to improve member trust:

  1. Increased transparency on its public website, adding financial reports and audits.
  2. Created advisory committees for members to provide input to the board on financial issues, policy, member liaison issues, and the charitable foundation.
  3. Began holding town hall meetings with members and employees on “hot topics” before major policy changes or decisions are made.
  4. Promises from new board members to be open with co-op members and staff.
  5. Engaged employees of all levels and departments to help the board and management craft strategic plans for the co-op’s future.
  6. Instituted an open-door policy that allows any employee to walk into the office of the CEO or any other manager to ask questions or voice concerns.
  7. Encouraged employees and directors to be active in their communities.
  8. Let actions speak for themselves rather than just talking about trust and transparency.

‘Ask the Right Questions’

One of VEA’s new directors, Terrie D’Antonio, took over interim management duties when Peck’s contract expired at the end of October. She volunteered to serve for free until a CEO could be hired. Nearly 60 people applied for the job that ultimately went to Stallons.

“Mark comes from a larger co-op than we are, and he brings tremendous experience,” D’Antonio said in a co-op release. “I believe he is just the right person to lead our co-op, working with our members and employees.”

D’Antonio, who served as CEO of the largest social service nonprofit in Nevada before retiring, was appointed to VEA’s board in June after a lineworker at the co-op urged her to run for the seat of a director who resigned.

The response by Nevada’s Valley Electric Association to recent governance troubles offers insights into preempting and managing a crisis. (Photo by Michael Hengel)

“At first I thought, ‘Oh my goodness, no. I’m retiring, and I certainly don’t want to have to deal with any of that,’” she says. “But I talked to some of my neighbors who had met Dick, and they were very impressed with him and the direction the co-op was going. … It’s been great. We all feel the same way, that we have to be more transparent.”

Past CEOs didn’t provide the board with the information they needed to do their jobs properly, D’Antonio says, but that was partly the board’s fault.

“You can’t have a CEO who doesn’t share with the board,” she says. “But you can’t have a board that doesn’t ask the right questions either.”

She told the members in her district that she wouldn’t make promises she couldn’t keep, including promises that there won’t be any rate hikes. A former CEO told members that the sale of co-op-owned transmission assets would ensure there wouldn’t be a rate increase for 10 years—a vow that was broken.

“You’re going to lose members’ trust if you make false promises,” NRECA’s Bell says. “Trust is lost in an instant but takes a long time to rebuild.”

(Photo by Jeff Scheid)

And if a co-op is going to raise rates, it’s important to communicate that to members well in advance and facilitate opportunities for a community dialogue, he says.

“Co-op members want to be heard and respected.”

VEA now holds town hall meetings to get input from members and employees before making decisions that affect the co-op’s operations.

If co-ops want to find out if their members trust them, they may want to survey them, Mangan says.

“Ask yourselves: How do you know your members love you?” he says. “Have you done a third-party survey? That’s absolutely a good idea. A survey has revealed in some co-ops a gap between their perception and that of their members. Co-ops are not always perceived by their members as being as transparent as they think they are.”

Read More: The Four S’s of Reputation Management
Co-ops that have avoided significant struggles can still learn lessons from what happened at Valley Electric Association.
The key is to have a proactive approach to reputation management to be ready for challenging situations…

”Starting to Feel Better’

LeVasseur says the mood among her fellow VEA members is “light skepticism” toward the co-op.

“They’re starting to feel better, but they still are leery,” she says. “I think that they are going to eventually rebuild the trust. But you’re not going to do it in six months or eight months. It’s going to take time. I think by this time next year, with our new CEO on board, we’re going to see changes in VEA. And our member-owners will be more aware and educated about what’s going on.”

LeVasseur says she believes the member advisory committees will help restore trust because co-op members who serve on them go back and talk to their neighbors about the positive changes at VEA.

“I’ve been able to share some of the information as far as the rates, the cost of doing business, what the co-op is doing toward their ability to pay their bills, what their ratings are with the banks—more information than we ever got before,” she says. “The co-op is starting to be run the way members would like to see it run.”

(Photo by Jeff Scheid)

Keyes says she believes members are giving the new board a chance to win back their trust.

“They’re willing to give us an opportunity to prove that we’re going to make good decisions going forward,” she says.

D’Antonio says it’s important to learn from past mistakes but not to relive them over and over again.

“We’ve got to move forward,” she says. “I just think about all the great things that are going to happen in the future.”

Stallons says he sees the co-op’s challenges as opportunities for growth.

“In times of difficult challenges, leadership, teamwork, development, and problem solving are necessary,” Stallons said in a statement. “I have met employees who are eager to work together and build an electric cooperative that is member focused, looking ahead and leading by example. I see huge potential in Valley Electric.”

Peck, who returned to his home in Alaska after helping VEA, says he’s confident the new board will take its oversight responsibilities seriously and ask tough questions of the new CEO.

“They’re heading down the road to make sure this never happens again at Valley Electric.”

 

Story credit to RE Magazine, click here to view the story on their website.