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Weekly UpdatesIf there is one essential, but sometimes elusive asset in today's business world it is trust. For cooperatives, trust is our member/owners' belief in our character, strength, service and integrity.
Trust can sometimes take a generation to build, but can be lost in no time at all. The nature and importance of trust means we, as corporate citizens, must take great care to protect it once it has been earned.
As a result of years of abusive, audacious, inappropriate actions--combined with a sense of entitlement by the board and former management--the Pedernales Electric Cooperative (PEC) became the poster child for mistrust in 2007. The same animosity that people across the nation have recently voiced against AIG, the failed insurance giant, is representative of the anger the members of PEC expressed during the past year.
As Fitch Ratings Services stated in a recent report, "PEC's transition from such long-established practices will take time and PEC will face continued pressure and scrutiny from its members." As a result of the longstanding problems stemming from the previous administration, Fitch stated that there could be a "lengthy process that PEC will likely encounter to rebuild trust with its membership." The transgressions of the past have been costly; although, as Bob Dylan has sung, the times they are a changing. At Pedernales Electric Cooperative, we are in the process of re-establishing trust with our members and restoring our once impeccable reputation. Throughout our service area our members, the media and legislators have questioned the previous administration's role as the stewards of the cooperative and cast serious doubt on the trust that they had invested in the running of this entity that they in fact own.
A bedrock of trust between management, governing boards and members can benefit PEC and all cooperatives in a variety of ways. For example, when it comes to making changes in electric rates, no one wants to see their monthly bill increase. Most members, however, will be more understanding of the change if they trust that their company is raising rates out of necessity to maintain quality, reliable service and not for other purposes that do not pertain to the cooperative's core mission--providing reliable, safe and affordable electric power.
How did PEC get to this low point? These were not problems that suddenly appeared or were the result of the current economic situation. These issues were years in the making. Member dissatisfaction led to a class action lawsuit, state legislative and congressional hearings and an investigation by the state attorney general's office that is now being presented to the grand jury.
Mistakes were made.
But PEC can meet the challenges that it faces today--just as the founders of the Rural Electrification Administration (REA) met the challenges of an earlier generation. Sam Rayburn, the sponsor of the 1934 REA Act, understood the necessity of bringing electricity to rural America to provide economic and social opportunity. Rayburn also instilled those values in Lyndon Johnson, the young Congressman from the Texas hill country who worked to make the PEC a reality in 1939. The people of central Texas and millions of other Americans trusted their leaders to bring power and opportunity to them in the Depression era. And as Sam Rayburn stated--There is no degree in honesty. You are either honest or dishonest.
I offer PEC as an example of the importance of building and preserving trust in rural electric cooperative communities, because what affects any one coop has the potential to affect the entire cooperative network. Cooperatives can help each other every day by working to strengthen the relationship with members and other co-ops throughout the country.
The recent economic recession has prompted the American public to view all corporations with increasing skepticism, and the companies that hold up best under this magnifying glass will be those that entered the recession with a sturdy reputation as trustworthy organizations. As corporate citizens, we all have an obligation to operate ethically, honorably and openly. As electric cooperatives, we have a further obligation to be financially prudent while providing our members the service they expect and deserve. As Thomas Jefferson noted, the best society is that which is based on democratic virtues, not one representing the interests of a selfish elite. My personal goal, as a recently elected member of the PEC board is for Pedernales Electric Cooperative to once again be known as a principled and efficient cooperative.
Navigant Consulting Report Revelations
In 2008, Navigant Consulting Inc. released its review of the Pedernales Electric Cooperative. Their report clearly documented that the previous board and management of the organization had betrayed the membership and tarnished the reputation of the nation's largest electric cooperative. In the 391-page report, Navigant investigators stated, "The lack of controls and effective Board oversight allowed PEC's former Senior Management to enter into questionable transactions, receive significant compensation, and operate the Cooperative inefficiently, as well as on a basis contrary to the best interests of the Cooperative's members." Indeed, about the only thing PEC did not do was purchase the naming rights from Enron for the ballpark in Houston.
The bottom line is that the board of directors, whether by intent or neglect, failed in their duties and responsibilities. This cost the cooperative millions of dollars and an immeasurable loss in the confidence of our members. Now, the task of the new board of directors is to institute reform and change in order to restore the viability of the organization and reestablish the trust of the members.
Trustworthiness is Good Corporate Policy
Most consumers don't think about their electric company unless they flip a switch and nothing happens. When the power goes out and one starts calculating the cost of the food in the freezer, that's when the organization makes its most lasting impression on members. During storms and outages, it is vital that the average member has confidence that his co-op has quickly dispatched workers to fix the problem. If the member trusts that the company is run effectively and fairly, he is likely already convinced that competent professionals are working swiftly to restore power as soon as possible. If this member had a low opinion of his provider prior to the outage, his patience for repair crews to do their jobs will quickly expire.
Thankfully, PEC has a new management team and dedicated employees who have maintained a level of trust with our members. Juan Garza, the new PEC general manager, and his staff have worked to maintain the tradition of excellent service and has collaborated closely with the new board of directors to achieve the reforms outlined in the newly enacted policies. The reaction of citizens--and more specifically, cooperative members--will undoubtedly hinge upon how much good will and trust the company can maintain as we rebuild our relationships and image.
Transparancy: The Most Important Tool for Building Trust
Some of our members--like those at other cooperatives--crave access to an abundance of information about how we do business. To address member concerns and rebuild trust in the board and management team, PEC has given its members easy access to the same information I receive as a board member before each board meeting.
The day that PEC received the results of the Navigant investigation, the cooperative held a public meeting to discuss the report and posted the report in its entirety on our web site. The report was largely critical and focused on many questionable financial decisions approved by some of the company's most well known executives. However, by making it public, PEC demonstrated to its members and employees a very significant change in how we will go about business in the future.
When the Pedernales Electric Cooperative was formed in 1938, it endowed in its membership the power to effect change through the electoral process. For the past thirty years, I have been an advocate for responsible leadership and management at the PEC. Unfortunately, for many years the election process perpetuated board directors, reinforced existing management, and prevented meaningful member participation. Changes to the electoral processes implemented in the aftermath of the discoveries of the Navigant investigation have once again provided members with an opportunity to participate in their cooperative.
Beginning with the June 2008 election of three new voting board members, including myself, PEC entered a new era committed to openness and transparency with our members and the public. And the reforms have come quickly. We have:
* Ratified new ethical standards, including whistleblower protections and policies addressing conflicts of interest for directors and key employees;
* Implemented a landmark open meetings/open records policy that provides access to PEC's decision-making process. We now provide members with materials for each board meeting and post video of each meeting on PEC's web site;
* Reduced the board's compensation package by an estimated 40 percent and restricted reimbursable expenses;
* Approved a long-term wholesale power agreement with the Lower Colorado River Authority that promotes transparency and the sharing of information on costs and rates;
* Adopted groundbreaking goals that promote energy conservation and the increased use of renewable resources; and
* Adopted new policies that have reduced our budget by $10 million by eliminating or reducing professional service contracts.
PEC also voted to ratify a conflict-of-interest policy and a whistleblower policy, two major changes that promote the same transparency for our employees that we have offered to our members.
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