Counterparties: The shortest CEO tenure ever

By Ben Walsh
July 6, 2012

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On June 27, Bill Johnson, the CEO of Progress Energy, signed a contract to become the next CEO of Duke Energy. On July 2, the year-and-a-half-old merger agreement between Progress and Duke closed with the stipulation that Johnson would become the new company’s CEO.

Yet, on July 3, Johnson’s resignation was announced. Here’s how Duke Energy explained what happened in its regulatory disclosure:

On July 3, 2012, Duke Energy announced that Mr. Johnson has resigned from all of his positions at Duke Energy and will no longer serve as President and Chief Executive Officer of Duke Energy or as a member of Duke Energy’s Board of Directors…effective as of 12:01 a.m. on July 3, 2012… Also, on July 2, 2012, the Board reappointed Mr. James E. Rogers as President and Chief Executive Officer of Duke Energy, effective as of 12:01 a.m. on July 3, 2012, in addition to his role as Chairman of the Board.

Yes, you’re reading that right: Johnson served only one day as CEO. Here’s Dealbreaker’s Matt Levine: “I have no way of researching this but I’ll go out on a limb and say it’s unlikely that any company has ever previously announced the hiring and firing of a CEO within three paragraphs of each other in the same 8-K”. The WSJ somehow needed to speak to actual sources to make following assertion: “New chief executives almost never quit days after accepting an employment contract, executive-compensation consultants said”.

The former lead director of Progress Energy is not pleased, calling Johnson’s removal “the most blatant example of corporate deceit that I have witnessed during a long career on Wall Street”. S&P is also not pleased and put Duke on a downgrade watch.

Johnson’s ego is no doubt bruised, but on the bright side he’s eligible for $44 million in deferred compensation and pension benefits. This includes a $1.5 million lump sum payment for not disparaging the company that fired him after just one day. – Ben Walsh

On to today’s links:

Primary Sources
US economy adds just 80,000 jobs in June in yet another crappy jobs report – BLS

Jobs
The “simplest way for the government to create jobs is simply for the government to stop firing people” – Felix
Federal job cuts outpacing state, local reductions – WSJ

Data Points
A reminder that today’s much-hyped BLS jobs numbers are very much subject to revision – Politico

Charts
Visualizing Big Pharma’s many multibillion-dollar fines for drug-marketing fraud – Propublica

LIBOR
UK’s Serious Fraud Office decides to investigate possible criminal fraud – WSJ
“The Libor fiasco is the latest black eye for the FSA” – WSJ
“You have two groups of banks … One group is trying to pull LIBOR up, the other is trying to pull LIBOR down” – Aleph Blog
The LIBOR scandal and “the rotten heart of finance” – Economist

Long Reads
Learning to love abstraction: a brief history of money – James Surowiecki

In Vain
RIM cuts vacations, moves to six-day workweek to deliver product that is probably a dud anyway – Ottawa Citizen

Reversals
“I see Microsoft as technology’s answer to Sears” – Vanity Fair

Wonks
Autos and homebuilding will save America from a recession – Pragmatic Capitalism

Disgusting
China arrested more than 800 people for auctioning off babies for $7,800 each – Bloomberg

Confessions
“It’s easier to get people talking about drugs than about insider trading” – Guardian

More From Felix Salmon
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The problems of HFT, Joe Stiglitz edition
Private equity math, Nuveen edition
Five explanations for Greece’s bond yield
Comments
3 comments so far

Have you ever worked with somebody who kept making promises they couldn’t deliver? Loaned money to a friend who repeated pledged, “I’ll pay you back next week”? Dated somebody who always called to cancel at (or after) the last minute? Consider your response to such a relationship.

y2kurtus has correctly pointed out that Social Security and Medicare are a good deal for the middle class. In return for an affordable tax during our working years, we are promised a secure (if basic) retirement.

Yet these promises cannot be fulfilled. As Chart A here points out, the cost of these programs is projected to rise to more than 12% of GDP in about 15 years, double their cost in 1990.
http://www.ssa.gov/oact/trsum/index.html

Moreover, these projections, while sobering, may be just as overly optimistic as your delinquent friend’s hopes for next week. They don’t take into account persistently high unemployment, jobs that leave and never return. They may not properly anticipate the rising cost of medical care.

Nor is this a budget problem that can be solved through inflating a fiat currency. Both Social Security and Medicare are promises of REAL goods and services, a basic standard of living and essential health care.

We need to stop pretending that these promises will be fulfilled. We need a rational plan, a project timeline that CAN be met, so we can all move forward. Until then, those promises are worth no more than the hopes of dinner and a movie the Friday after next.

My modest proposal:
(1) Increase the standard retirement age to 70, accounting for increases in life expectancy. This change alone would theoretically come close to bringing Social Security back into balance, however it would result in a large increase in disability payments for those in their 60s. More is needed.

(2) Remove the earnings cap on Social Security. It is a general welfare program, not an IRA, so there is no reason to let the upper middle class off the hook.

(3) Eliminate the 50% spousal benefit for those presently under the age of 50. (Keep the full benefit for a surviving spouse.) You receive benefits based on your lifetime contributions, structured the same way as your working-life household income was structured.

(4) Cap benefits at what they would be for somebody making 150% of the national median. Again, this is a social welfare program, not a retirement plan. The upper middle class doesn’t need the help.

Still need to solve the Medicare problem, the cost of health care in general, but these four proposals would at least bring Social Security under control — and give us promises we can count on going forward.

Posted by TFF | Report as abusive

It’s odd that TFF focuses so much on Social Security, which is basically in fair and quantifiable shape, and fixable, and then end with “yeah, Medicare is hard, too”, when it is healthcare costs in general that will cause serious problems in the the future (Medicare will be a large problem of that, but that merely insurance accounting, as the health-care burden on GDP would as bad or more likely worse off with all private insurance and no Medicare).

If we paid the same in health care costs as the rest of the industrialized world, we would be normally be running a budget surplus. Read that again, and tell me SS is the main problem in this country.

As to TFF’s specific points:

1. SS is going to be 12% of GDP in 2027? From your link: “Program costs equaled 4.2 percent of GDP in 2007, and the Trustees project these costs will increase gradually to 6.4 percent of GDP in 2035 before declining to about 6.1 percent of GDP by 2050 and then remaining at about that level.”

2. Retirement age: the average life expectancy has gone up for educated, white-collar, health-care-secure people. It has not gone up for blue-collar workers, particularly minorities. So you’ve just disadvantaged non-wealthy people, and used their SS contributions to subsidize those with good health and white collar jobs (i.e. the generally wealthier).

3. Removing contribution limits and instituting benefit caps: I know TFF says that SS is a welfare program and not a defined contribution plan, and thus we should rationalize contributions and earning to reflect that, but SS has such a high acceptance factor precisely because it is NOT viewed as a welfare program. Change that perception, and watch support for SS plummet. That’s not the solution, either.

Posted by SteveHamlin | Report as abusive

Great points, SteveHamlin.

My reason for focusing on Social Security is that the problem IS quantifiable and fixable. It is very frustrating for me to project my own retirement (in 20 years) and have literally no idea how to value the promises on my Social Security statement. There are at least three ways to fix the Social Security gap, all with very different implications for my own position:

(1) Somehow increase taxes to cover the gap. This would leave my benefits unchanged.

(2) Proportionately devalue the benefits (perhaps by increasing the “full retirement age”). This would knock back my benefits by roughly 25%.

(3) Increase means/asset testing to qualify for benefits. This approach would knock back my benefits by 50% or more.

Right now, I’m doing my best to plan for the worst case scenario, which in this case means saving enough that I won’t be relying on receiving anything at all from Social Security. Fix those promises — which we both agree can be done with relative ease — and I’ll know what to expect. It would generate an immediate stimulus (less saving, more spending) without costing the government anything. How can that be a bad thing?

“If we paid the same in health care costs as the rest of the industrialized world, we would be normally be running a budget surplus.”

Repeated for emphasis and agreement. Single-payer system?

“SS is going to be 12% of GDP in 2027″

SS = 6%, Medicare = 6%. Roughly.

“So you’ve just disadvantaged non-wealthy people”

Increasing the retirement age devalues ALL pensions. Presently, white-collar workers can continue until they are 70, earning an increased benefit by delaying Social Security. Blue-collar workers may be forced to retire earlier, earning only a portion of their full benefits. A three year increase in the standard retirement age corresponds to roughly a 25% decrease in the benefit.

If that is too harsh a solution for the non-wealthy, then I’d be happy to re-slant the program further in their favor. But one way or another, benefits need to be reduced for those who can afford it.

Posted by TFF | Report as abusive
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