Organization: Duke Energy Corporation

Year: 2020

Resolved:

Shareholders of Duke Energy Corporation (“Duke”) ask the Board of Directors to adopt a policy, and amend the bylaws as necessary, to require the Chair of the Board to be an independent director. The policy should provide that (i) if the Board determines that a Chair who was independent when selected is no longer independent, the Board shall select a new Chair who satisfies the policy within 60 days of that determination; and (ii) compliance with this policy is waived if no independent director is available and willing to serve as Chair.

This policy shall apply prospectively so as not to violate any contractual obligation.

Supporting Statement:

In our view, shareholder value is enhanced by an independent Board Chair who can provide a balance of power between the chief executive officer (“CEO”) and the Board and support strong Board oversight of management. According to proxy advisor Glass Lewis “shareholders are better served when the board is led by an independent chairman who we believe is better able to oversee the executives of the Company and set a pro-shareholder agenda without the management conflicts that exist when a CEO or other executive also serves as chairman.”

 

While separating the roles of Chair and CEO is the norm in Europe, 53% of S&P 500 boards have also implemented this leading practice. Directors on boards with a joint CEO-Chair report being more likely to have difficulty voicing a dissenting view (57% versus 41%) and to believe that one or more of their fellow directors should be replaced (61% versus 47%) according to a 2019 survey by PwC. 

 

Except for two transition periods, Duke CEOs have also served as Chair of the Board since 1999. Duke’s lack of independent board leadership may be aggravated by the fact that its long-serving “Independent Lead Director,” Michael Browning, age 73, has served on the boards of Duke and predecessor companies since 1990. Duke’s corporate governance principles state that independent directors normally retire when they reach age 70 or 15 years of service. According to ISS Governance QualityScore, “an excessive tenure is considered to potentially compromise a director’s independence.” Institutional investor CalPERS classifies directors with a tenure exceeding 12 years as not independent.

 

We believe independent Board leadership would be particularly useful to oversee the strategic transformation necessary for Duke to capitalize on the opportunities available in the transition to a low carbon economy. While Duke has been applauded for its commitment to achieve net-zero emissions by 2050, its near term capital expenditures have been criticized for their continued reliance on fossil fuel expansion.^[1] An independent chair may help the Board recognize the risk that excessive investment in natural gas infrastructure could become a stranded asset.^[2] 

 

We urge shareholders to vote for this proposal.

^[1] Benjamin Storrow, E&E News, “Utilities' big promises on CO2 questioned by analysts,” September 25, 2019.

^[2] Mark Dyson et al, Prospects for Gas Pipelines in the Era of Clean Energy, Rocky Mountain Institute, 2019. 

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