NRG CEO farewell

I don't know how many of yall noticed, but the CEO of NRG David Crane got canned a little while ago. The stock price for the company slid from something like $30 to something like $10 over the last year. There were market factors involved, but the primary reason seems to me to be that investors just didn't want NRG to be spending cash they made from brownco generation to transform the company into an environmentally friendly greenco company.

I think it's a great shame really. We had a CEO of one of the largest power generators in the country trying to financially responsibly pivot from coal to renewable energy. And the investors said, "No! Burn more coal!" Back in September, Crane was forced to announce a strategy reset to dial back the green initiatives and focus on conventional generation, but at that point he was already tainted. He has the green energy bug. It really has me rather depressed about our economy's ability to respond to our environmental threats. Sure, we still have the pure-play new-energy companies like SolarCity and the like. But, if the old-energy companies can't pivot, they will instead fight change to the bitter end. Same with our utilities, who see rooftop solar as an existential threat to the grid. Can we really rely on market forces to steer us in the right direction?

Here's David Crane's farewell to employees:

[rquoter]Dear NRG Colleagues:

During the challenging market environment we faced together over the past several months, I was always well aware that a personal outcome for me might be my departure from the company and indeed, yesterday, Jan. 4, was my last official day as an NRG employee.

Yet it never ever occurred to me over these past months that I might not get a chance to say goodbye to you personally and face to face, the way goodbyes are meant to occur, or even by emailed departure memo, as has always been the custom for exiting NRG employees. But that is the situation I find myself in now.

While emphatically not of my choosing, it almost certainly is for the better that I will not have had the opportunity to say goodbye. I would have made a mess of it, burdened as I am by the sense of loss and separation from all of you. More than that, I am impacted by the knowledge that I let you down. I did not fulfill my end of the bargain. I did not succeed in leading you, as I said I would, to making NRG that shining city on the hill, that beacon of light in the energy industry that would guide the way for the rest to follow.

Remember this: I let you down; you did NOT let me down.

I emphasize this point because some observers, since the public announcement of my termination, have suggested to me that NRG's ambition may have been hindered by a reluctant or recalcitrant employee base, unalterably resistant — as the supposition goes — to reaching for the clean energy future.

That is simply not true.

I find myself repeating, time and time again, that I had all 11,000 NRG employees with me every step of the way and that indeed all of you "had my back" each and every day of my tenure at the company. There was no CEO on the face of earth who is as proud as I am, or who was as well served by, the people I worked with at NRG.

So, I say thank you ... profoundly ... thank you.

To all of my colleagues who believed, as I did, that NRG was truly a purpose-driven company, trying to build a great and value enhancing business for our shareholders while saving the planet for our children, I say to you: keep the faith. I was in Paris last month; the world is moving and the global business community is moving with it. The dream has not died with my separation from the company; the dream lives on in each of you!

To all of my colleagues who had their doubts about my outspoken advocacy on climate change and a variety of other topics, thank you so much for your loyalty and faithful service to me and to the company. I am sorry to the extent I ever said things or did things that you were not comfortable with, but I hope you appreciate that the steps I took, the new frontier of the energy business that I pushed the company into, were then, and are still now, in the long-term best interest of the company's employees, its shareholders, its customers and the earth we all inhabit. As a company that aspires to growth, there is no growth in our sector outside of clean energy; only slow but irreversible contraction following the path of fixed line telephony.

So, in closing, let me tell you something that may seem out of place in the context of the indelible sadness of this message: I am optimistic about what lay ahead for all of you. You will achieve great things.

For my part, I intend to continue to do everything within my power to bring about the clean energy future as fast as quickly and as completely as we can achieve it. That the clean energy future is going to happen is, at this point, inevitable, but as we have seen with my own personal experience, timing is everything and the earth, as we know it, is running out of time. We need to act now.

Whatever I do, however I choose to proceed, it is hard for me to imagine that it will compare in terms of personal impact on me as has my life experience at NRG. As it happens, I was let go during the same week that I started at NRG 12 years ago — that's 4,383 days roughly — and I want you to know I tried my hardest each and every one of those days to make us a better company.

It was a lot of work, but as I turn this page on my career, I don't regret any of it. Working with all of you to accomplish all that we accomplished was the greatest experience of my life. We came up a little short this time, but we will not the next.

Stay safe.

David Crane[/rquoter]

And :

[rquoter]If I was right, why was I fired?

One thing that happens when your termination is announced publicly and covered in The New York Times and Wall Street Journal, as well as the newswires and trade press, is that everyone you encounter thereafter offers you a theory as to why you got fired.

In my case, what has been noteworthy about these "theories about my demise," as I have taken to calling them, is how uniformly they do not pin my downfall on strategy or strategic direction. Even investors who did not like the direction I was taking NRG steered away from telling me my strategy was wrong (although some did console me with words like, "David, I am sure you are going to get to the clean energy future, just not with NRG," which seemed a bit self-evident to me since I had just been fired). And given the company did not announce any change in strategic direction at the time I was fired, or since, it seems my transgression lay elsewhere.

If not strategy, then what?

The theories put forward to me have varied — I wish I had written them all down — but the most popular rationale has been to tie my dismissal to the short-termism of institutional investors. As this argument goes, my long-term vision for NRG was spot-on, but the market simply couldn't look past short-term implementation stumbles.

The problem is that the short-termism theory doesn't hold up under the facts of the case. And I personally, as a matter of principle, don't object to short-termism anyway.

My view is that the long term is made up of a bunch of short terms strung together so a company can perform in the here and now, or else there will be no long term for it to worry about.

As to the facts of my circumstance, NRG was taking care of the short term just fine at the time of my firing. While there was some underperformance in a couple of NRG's smaller business units, responsibility for one of those businesses was commonly attributed to me while the other underperforming business unit was directly supervised by the company's COO, who became my successor, so this would not seem to have constituted grounds for my dismissal.

Maybe it was failure of the company to perform overall?

No, that couldn't have been it. NRG was delivering solid financial and operational performance year to date 2015, comfortably within its guidance range set back in 2014, which actually was quite remarkable given the collapse in commodity prices over the past 18 months.

So what was it?

NRG's stock was way down in 2015, but so was the stock of every other independent power producer (IPP). Yet I was the only IPP CEO fired.

Okay, then what?

Transformation. I think the problem was transformation.

Brown to green
We were attempting to transform NRG from brown to green, and from centralized to distributed. Investors didn't like it. Many times, institutional investors would complain to me about the complexity and challenge of what we were trying to do. They would point out to me that if they wanted exposure to "brown" (a.k.a. fossil fuels), they could buy Dynegy (DYN). If they similarly wanted "green” (renewables) they could buy Solar City (SCTY), and the portfolio combination of SCTY and DYN was easier for them to carry than NRG.

From an investment perspective, their point has merit. Internal transformation is complex, messy and doesn't occur overnight. Companies highly capable at doing one thing are not innately good at doing something else, even if it is similar. Thus, CEOs’ attempts at internal transformation — even when essential — often end badly. Witness the negative outcomes for well-respected CEOs trying to achieve similar transformations at Westinghouse in the 1990s and Vivendi a decade later.

From a societal perspective, this lack of investor appetite for internal transformation is a dangerous inhibitor to corporate change — change which, in NRG's case, was both essential to its long-term viability and highly desirable from a societal perspective. The global fossil-fuel industry is a $6 trillion-a-year business, dominated by giant investor- and state-owned corporations, with vast reserves of hydrocarbons under their control and on their balance sheets. If we consume all of what they have found, the earth melts.

So at some point — soon — we need to ask these folks to dramatically change what they do, or at least how they do it, or else go out of business. Not an easy ask.

From oil to energy management
Let's say deep inside the bowels of the long-term planning department of a major oil company, the corporate planners have reached the conclusion that 20 years from now, the gig is up for oil. Society, dealing with a rapidly warming world, simply no longer will permit them to pull their oil out of the ground. This theoretical oil company has the good idea that its future will be in personalized comprehensive energy management services supplied to energy consumers on a highly decentralized and disaggregated basis.

Does it make sense for that oil company's CEO to announce that she will transition her business over time from oil to energy management?

No effing way. Institutional investors, and her board of directors, will throw up on the idea. "Keep drilling," they will say to her, "until we tell you otherwise."

Energy incumbents remain a wellspring of potent opposition to climate advocates in the fight against climate change. Until we find a way to enable the CEOs of these companies to change their business strategy without fear of reprisal, we can count on their dogged resistance to society's transformation to a clean-energy economy.

Until we find a way to hold the CEOs and boards of directors of these companies accountable for disregarding their outsized role in our collective responsibility for the health of the planet, they will continue to insist on recovering from the earth, and then combusting, every last hydrocarbon molecule in their reserves.[/rquoter]

 

Generation has been a boom or bust proposition for investors, but they can make payroll just fine. Anyway, I think it's already pretty clear we are not going nuclear, we are building renewables. It's well on its way.

I don't expect you to know the power business as well as I do, but I will point out this fellow is one of the biggest of the big shots in conventional generation. He is just about the last guy to look at for running a clean energy business poorly.

Anyway, you miss the point. Companies serve their shareholders. Our society relies on market forces to drive companies to create value for us by trying to make money for the investors. But this is an example - and not the only one - where shareholder interest runs counter to the public interest (and even in this case the company interest). So is this capitalist vehicle we've created really helping us? Is this the structure we want where investors are incentivized by short term returns to pollute their own planet?

I'm a big fan of what had been NRG's approach - looking for ways to make clean energy profitable. They aren't about making unsustainable herculean efforts to save the planet. They find ways to make the responsible thing pay a return. If they did it as a pureplay, like solarcity, investors would be happy and Crane would have a job. But because he tried to do a hybrid, investors can't stand it. So why not pureplay then? Because they have a bunch of coal plants set to retire and they literally can't keep doing what they are doing. Execute a pivot and you can save the company. Keep doing coal and you are just extracting what is.left before they are shuttered. It's nearsighted.