Ignorance is Not Bliss

Posted on Tuesday, February 14th, 2012

I decided last fall to run for the board of my local energy coop, Cobb Electric Membership Corporation (Cobb EMC). After reading a series of stories in the local newspaper about the coop’s plan—misguided in my opinion—to join with other coops in Georgia to build a coal-fired energy generation plant in the central part of the state, I became concerned that the organization had drifted away from its core purpose—distributing energy to its members at the lowest possible price—and needed at least one board member with industry experience to help get it back on track. I am pleased to say that I won the election easily, and I am enjoying my role in public service. One of the first actions taken by the new board was to withdraw from plans to build this plant.

Our decision was celebrated immediately by environmental groups who had opposed the plant from the beginning. I am not opposed to power generation using coal, but I would rather see new, highly efficient plants with updated emissions controls in place while closing the older, more polluting ones. If a new plant were to be built, natural gas—which is cleaner and cheaper—would probably be a better choice.

Of even greater concern to me was that building a plant which wasn’t actually needed could bankrupt the utility. When I asked for the business case which should have been developed to support the planned construction, I was met with blank stares. Pro Forma financials analyzing revenues & expenses over the life of the financing? Nope. A cost estimate for construction? Not that either. Yet the coop had awarded a no-bid project development contract, and the developer (who had no experience in developing this type of project) had started the process of obtaining permits.

It became apparent to me and the other new Directors that the previous Board had decided to venture into the new business of energy generation—which operates on a completely different business model—without understanding the risks involved. The Board didn’t know what it didn’t know. A thorough business case, for example, would have revealed whether there was a market for the surplus energy the plant would produce. Without buyers for its surplus energy, the plant could have bankrupted the coop.

How the Board devolved into the state of dysfunction in which it was flying blind is a story that is still surfacing. Much of it has been told in the local media over the past 18 months. Some of it will emerge in criminal court proceedings. When all is said and done, the story will be a great business school case study about corporate governance and fiduciary responsibility.

As far-fetched as it sounds, something like this could happen again. To make a modest contribution toward the prevention of future scandals, I offer these suggestions for nonprofit Boards and individual Directors:

• Consider setting limits on the number of terms a Director may serve. Some of the Cobb EMC Directors had served for 25 or 30 years. A continual influx of new Directors asking probing questions helps to keep the organization on track. Long-term service leads to Board complacency.

• Know the organization’s bylaws and squawk when one is violated.

• When presented with a proposal for a major initiative or a significant change in direction, ask questions, beginning with “Why?” “Why do we need this?” “What’s driving this change?”

• Take a stand. Vigorous debate about important issues is crucial to the health of any organization. When you’re advocating for your constituency, try to persuade your fellow Directors to come around to your perspective. All votes on important issues will appear in the Board minutes—along with which Directors voted “for” or “against” the motion. These minutes should be shared with the membership so the true “owners” of the COOP are fully informed.

• Most importantly, if you’re concerned that illegal activity is taking place, report it immediately to your local district attorney.

In the next couple of weeks I’ll be writing a series of posts about national energy policy. Thanks for reading.