Tom Fanning Southern Company Matrix Scandal: What don’t we know?

A longtime consultant for Alabama Power has hired a private detective to watch Tom Fanning, the CEO of its parent company, Southern Company, according to documents reported by AL.com yesterday.

Matrix, LLC, Alabama Power’s political firm, hired the investigator to track Fanning and his girlfriend in 2017, according to AL.com reports. Matrix has found itself at the center of scandals in recent months over its role in using private investigators, intimidation campaigns and smear tactics to advance electric utility programs in Alabama, in Florida and possibly other states.

The AL.com story cites court documents filed by Jeff Pitts, a former Matrix employee who spun off from the company to form a rival company called Canopy Partners. Pitts and Canopy are in litigation with Matrix and its founder, Joe Perkins, in an Alabama court.

According to a court filing by Pitts, monitoring of Fanning was initiated by Perkins “to influence corporate decision-making and succession planning for its own benefit and at the direction of Alabama Power executives. Company”.

Perkins denied to AL.com that he had any role in monitoring Fanning.

A Southern Company spokesperson, “also speaking on behalf of Alabama Power, said it recently learned of the surveillance and the company does not know who initiated it or why.” , reported AL.com.

“Furthermore, to date, no information we have gleaned would indicate that the surveillance was initiated by or at the request of Southern Company or its affiliates,” Southern Company spokesman Schuyler Baehman said Tuesday. . “Simply put, we don’t think this is a business of the business. We are as curious as anyone about who may have been leading this kind of surveillance.

The startling new allegations, which came less than a week after Fanning’s resignation was announced late Friday, July 29, raise a host of questions about Alabama Power and Southern Company:

1. Is the story related to Fanning’s recently reported departure from Southern?

Bloomberg reported late Friday, July 29, that Tom Fanning “plans to announce his retirement in the coming months,” citing “people familiar with the matter.” A Southern spokesperson said that “no decision has been made regarding when Fanning will leave,” Bloomberg reported at the time.

Yesterday’s revelations shed new light on Fanning’s departure. Southern’s Baehman “said Fanning’s retirement was part of a succession plan and had nothing to do with oversight or other issues,” AL.com reported.

But the timing raises questions.

Typically, companies the size of Southern announce leadership changes in choreographed press releases, with successors telegraphed in advance to avoid upsetting investors.

Southern has a mandatory retirement age of 65 for executives, and Fanning reached that age this year, but the company’s board has “extended Fanning indefinitely” to allow for the continuity of his leadership of the Vogtle nuclear project as always. ongoing, according to a company spokesperson’s comments to Bloomberg.

Did knowledge of Fanning’s surveillance, which Baehman said Southern “recently learned of,” or any factors related to it, cause Fanning to leave quickly?

If Pitts’ allegations are true, then an Alabama Power executive was asking The Matrix to spy on their boss, Fanning.

The fact that the company had reached a state of dysfunction under Fanning’s leadership such that one of his subordinate executives hired a private investigator to gather incriminating information about him could, if true, result in losing investor confidence in Fanning’s leadership.

2. Why would Alabama Power executives watch Fanning?

If Pitts’ account is to be believed, why would Alabama Power executives be watching Fanning? Pitts’ filing says it was “influencing corporate decision-making and succession planning.”

Back then, in 2017, Southern Company was in desperate need of cash, due to its financial disasters with the Kemper Coal Carbon Capture Plant in Mississippi and the Vogtle Nuclear Power Plant in Georgia. Following these failures, the company had to sell Gulf Power, its subsidiary in begging Florida, to raise funds. Investors worried, and Fanning heard increasingly difficult questions from analysts on quarterly earnings calls throughout 2017.

Alabama Power would have been an obvious place to turn for cash. It was earning some of the highest profit margins in the nation for utilities, and Alabama regulators, who were elected in races that Alabama Power allegedly used Matrix to influence, had not conducted a rate case. contested since 1982.

This dynamic could have increased tensions between the leaders of Alabama Power and Fanning. And if executives thought Fanning was in a precarious position with investors over the struggles of Kemper or Vogtle, they may have sensed an opportunity.

Mark Crosswhite, unnamed in AL.com’s history, is the chairman and CEO of Alabama Power; he has been leading the subsidiary since 2014.

3. Will the Alabama PSC or FERC open any of Southern’s books?

Did Alabama Power executives in fact order the surveillance of Fanning, as alleged by Pitts? If so, who was specifically behind all of this? Why did they do it? Was it someone else?

All of these questions will be difficult to answer without a thorough investigation, either by law enforcement authorities or the Alabama Public Service Commission, the company’s notoriously lax regulator.

The PSC could subpoena records that shed light on the relationship between Alabama Power and Matrix, and the relationship between Alabama Power and Southern Co. It could also audit Alabama Power’s finances and question witnesses under oath.

However, the current PSC has shown no inclination for this kind of oversight. A report comparing different utility commissions from Brown University’s Climate and Development Lab called Alabama’s PSC “one of the most opaque, politically motivated, and environmentally hostile commissions in the nation.” “, and noted that “weak transparency rules allow much of the APSC’s regulatory decisions to happen privately between commission officials and Alabama Power.

Alabama’s PSC has gone 40 years without holding a contested tariff case that allows public scrutiny of Alabama Power’s finances, and for third parties to step in and ask discovery questions of Alabama Power

4. Who will lead Southern next?

With Fanning out, Southern said Friday he had launched a search for a replacement. Fanning has been CEO and Chairman of the Board of Southern since 2010. Any senior executive at the company would have been part of the team and the culture he shaped there.

While it’s true that Alabama Power executives ordered Matrix to hire a private detective to find incriminating material about Fanning, that – along with the other actions Matrix has been accused of taking at the direction of ‘Alabama Power – would make a parody of Southern’s “code of conduct”. ethics”, which includes a section on “ethical decision-making”.

“What would it look like in the newspaper?” this section asks employees to consider. “Would you be proud to tell your children or your parents? If you are in doubt, this may not be the right decision.

Climate-focused investors pushed shareholders, as early as 2014, to remove Fanning from the board chair and create an independent board chairman who would “oversee the strategic transformation necessary for Southern to take advantage of available opportunities.” in the transition to a low carbon economy”. Shareholders concerned about corporate governance have criticized companies that allow their CEO to concurrently chair the board.

Former Intel Chairman Andrew Grove said, “Separating jobs is at the heart of business design. Is a company a sandbox for the CEO, or is the CEO an employee? If he is employed, he needs a boss, and that boss is the board of directors. The president leads the council. How can the CEO be his own boss?

Southern investors and the company’s board will have a choice: they can appoint a leader who has been part of the corporate culture that has led leaders to monitor each other, use Matrix to supposedly smearing opponents and manipulating elections, and failing energy megaprojects like Kemper and Vogtle – or they can bring in an outsider who can instill governance reform and lead a faster transition away from fossil fuels .

Investors and the board will also have to choose whether to pursue a broad investigation into the board governance and oversight practices that led to the current situation at Southern or attempt to sweep the scandal under the rug.

Header image: Matrix/Alabama Power/YouTube, PPE.