Approved by the Board: March 27, 2007
LANSING BOARD OF WATER AND LIGHT
_________________________
Tuesday, January 23, 2007
_________________________
The Board of Commissioners met in the Boardroom of the Administrative Offices, 1232 Haco Drive, Lansing, Michigan.
Present: Commissioners Gary Calkins, Robert Cochran, Joseph Graves, Semone James, Santiago Rios, Julee Rodocker, Robin Smith, and Sandra Zerkle.
Absent: None.
The Secretary declared a quorum present.
Chairperson Smith asked all to rise for the Pledge of Allegiance to the Flag.
Chairperson Smith called the meeting to order at 5:36 p.m.
By motion of Commissioner Calkins, seconded by Commissioner Rodocker the minutes of the November 28, 2006 regular meeting were unanimously approved.
THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE WELCOME TO SPEAK TO THE BOARD ON ANY AGENDA SUBJECT AND ANYONE WISHING TO COMMENT ON ANY MATTER NOT ON THE AGENDA MAY DO SO IMMEDIATELY PRIOR TO ADJOURNMENT.
Joseph Davis, Business Manager of IBEW Local 352 encouraged the Board to move forward with the process in addressing the issues found within the human resource audit. He advised that many persons were energized with the audit and would like to move forward as it has been a month since the results were shared with the BWL. Mr. Davis also advocated for utilizing an open and shared interview process in the hiring of a new General Manager as was practiced in the past. He further noted that the previous shared process allowed for employee, bargaining unit and public input. Mr. Davis went onto report that they have met to discuss the pension survey, which will be broader than initially anticipated in trying to help employees with their future plans. He also advised that they hope to have the survey to employees within a month.
A letter was received from Jim Dravenstatt-Moceri to Commissioner James regarding pension fund issues.
Received and placed on file.
PENSION FUND TRUSTEES REPORT
The Pension Fund Trustees held their annual meeting on November 28, 2006, to receive the financial statements for the Defined Benefit Pension Plan, Defined Contribution Pension Plan and Retiree Benefit Plan (VEBA). Performance reports for the three plans were reviewed in detail for the period ended September 30, 2006.
Representatives from LCG Associates reviewed the Defined Benefit Pension Plan Performance Report and staff presented the Defined Contribution Pension and Retiree Benefit Plan Performance Reports.
Staff did not propose any changes to the existing policies that include the Defined Benefit Pension Plan Investment Policy, Defined Contribution Pension Plan Investment Policy and the VEBA Trust Investment Policy.
There being no further business, the meeting adjourned at 4:57 p.m.
Respectfully submitted,
Robin M. Smith, Chair
Pension Fund Trustees
MINUTES
BOARD OF BOARD OF WATER AND LIGHT
PENSION FUND TRUSTEES’ ANNUAL MEETING
Tuesday, November 28, 2006
Present: Trustees Gary L. Calkins, Robert W. Cochran (arrived at 4:16 p.m.), Joseph E. Graves (arrived at 4:18 p.m.), Semone M. James (teleconferenced), Julee M. Rodocker, and Robin M. Smith.
Absent: Trustee Santiago Rios
Staff Present: Interim General Manager Richard Peffley, Senior Vice President of Operations William Cook, General Counsel Amy Cavanaugh, Acting Human Resource Director Sheryl Hudson, Communications Director Mark Nixon, Manager of Finance and Planning Sue Flores, Senior Financial Analyst Charmaine Shellman, Human Resource Systems Consultant Darold Oxender, Associate Attorney Brandie Ekren, Communications and Public Relations Representative Cheval Breggins, Executive Administrative Assistant Beverly Bishop, Secretary Rosemary Sullivan, and Corporate Secretary Rhonda Jones.
Consultant Present: Richard Babcock, Senior Vice President of LCG Associates and David Emerson, Consultant of LCG Associates.
A quorum was present at 4:16 p.m.
Chairperson Smith called the meeting to order at 4:08 p.m.
Public Comments
There were no public comments.
Audited Financial Statements
Manager of Finance and Planning Sue Flores reported that the financial statements for the Defined Benefit, Defined Contribution and Retiree Benefit Reports (VEBA) each received a clean opinion by the auditors, Plante & Moran and there were no audit comments. Ms. Flores explained that a clean audit indicates that the auditors did not have any areas of concern or issues relative to the plans that the BWL needed to address. She further advised that the BWL typically does not receive auditor comments on any of the three audit reports.
Moved by Trustee Smith, seconded by Trustee Rodocker and carried, to approve the following resolution:
RESOLUTION
ACCEPTANCE OF 2006 AUDITED FINANCIAL STATEMENTS FOR DEFINED BENEFIT PENSION PLAN, DEFINED CONTRIBUTION PENSION PLAN, AND RETIREE BENEFIT PLAN AND TRUST (VEBA).
Resolved, that the Corporate Secretary receive and place on file the Defined Benefit, Defined Contribution, and Retiree Benefit Pension reports presented during the Pension Trustee Meeting.
--------------------------
Defined Benefit Pension Plan Performance Report
David Emerson, Consultant of LCG Associates presented the third quarter market returns for the Defined Benefit (DB) Pension plan for the period ending September 30, 2006. He indicated that the majority of the major indexes show positive market returns in the third quarter and all of them are in the black for the longer term. There are a couple of major themes that investors and portfolio managers have reviewed that include: 1) housing market, 2) energy crisis – fluctuating oil prices and 3) consumers. Mr. Emerson advised that although mortgage is refinancing is slowing down and energy prices are starting to stabilize, consumers are finding available funds to spend in the marketplace. All of these factors including that of interest rates and inflation are major areas that portfolio managers review when investing in stocks and bonds.
Richard Babock, Senior Vice President of LCG Associates reviewed the total fund allocation and discussed the following associated charts and reports for the quarter ending September 30, 2006:
· Distribution of Assets
Mr. Babcock reported that we are slightly above the target goal in domestic equity and 3.8% above in international equity. The reason being that the international market has increased significantly which means that the asset allocation has shifted to the BWL’s benefit. In order to rebalance the funds LCG Associates recommends the sell of approximately $6,300,000 from the Wachovia Equity Account (Large Cap Core), which will lighten domestic equity. Mr. Babcock further stated that he would like to leave in place the overweight in the international sector because on a relative basis it appears to have more long- term value than the domestic market.
Trustee Smith advised that last year they spoke about the risks involved in the international market versus the domestic market. It now appears that LCG is stating that the international market is stronger than the domestic market. What are the risks of being involved in what is normally deemed a riskier marketplace?
Mr. Babcock responded by stating that more than half of the productivity exists outside of the United States. There are two different managers in all of the G7 countries as well as the other countries. Therefore, between the two of them there is enormous diversification, as we become a global economy and society. He went onto state that he thinks the risks are no more so than the domestic market, the only difference being the near term currency as the dollar strengthens and weakens against currencies around the world. There is that risk but over time it tends to balance out. Mr. Babcock went onto clarify that they will transfer the funds from domestic equity to fixed income to reduce overall equity exposure.
· Comparative Performance
Mr. Babcock noted that in the past two quarters passive index managers have had an advantage over active index managers and there are two reasons why. One is that in the large cap arena one may have mega stocks and because these are caperated indexes then it is a self-fulfilling prophesy because as they get bigger, they count more and drive the index up. Conversely, in the small cap market that has a cap limit to it, it forces small cap managers to buy the less attractive stocks in the index because they have to place the monies somewhere. Mr. Babcock also reported that the figures in the comparative performance data are net after all fee numbers. He further noted that the diversification of managers’ dramatically reduces risk. They now have five managers whereas, before when they started there was only one. Overall, performance has been quite good, as they have benefited by going into small cap international funds.
· Total Fund Performance
· Total Fund Five-Year Return vs. Risk. Mr. Babcock noted that the BWL’s fund has outperformed the market benchmarks from the T-Bill to the S&P 500. Therefore, the cadre of managers over the last five years has added value versus the risk index in the capital market.
· Equity Sector Allocation. (The pie charts indicate the level of diversification achieved since the September, 2005 report.)
· Equity Allocation
· Equity Performance for individual managers for the current quarter and historical performance.
Mr. Babcock reported that American Beacon Small Cap Value/Instl is behind in its performance and he would like to see it improve to his expectations. It is a mini-fund of funds and there are five underlying managers that manage the portfolio on a cost effective basis. He also noted that if they were to replace them right now then they could not locate a candidate. Small cap value is the single best performing asset class since 1970, which makes it difficult to locate additional candidates. Therefore, we do not have anywhere to go right now but if it continues then they could move to the index. However, Mr. Babcock reported that he still thinks that American Beacon Small Cap Value/Instl is a good choice but if things do not perk up then they will make a change.
Trustee Graves asked that you typically make these types of changes when you do not see the type of performance that you are looking for?
Mr. Babcock noted that they look at performance, underlying process and philosophy, and people. Do they have the same team in place; did they bring in some other individuals that have a different view? He went onto state that they want them to hire what we hire to make sure they continue to do what they do best. The worse thing that could be done is to eliminate the fund while at the bottom when it is about to come back strong. Recognizing that there will be years in which they under perform, as they all do.
Trustee Graves asked what happens when you are dealing with a particular fund management group and the principle that has been directing that activity departs and forms their own fund? His understanding is that that history follows that principle.
Mr. Babcock concurred.
The Trustees advised that they passed a policy in which they wanted to place value on the diversity of fund managers and make sure that there is diversity within their management group. As a result, they inquired as to whether or not there had been opportunity to diversify and if there is an established timetable to periodically facilitate the search for diversification.
Mr. Babcock responded by noting that they monitor the fund managers on a continual basis and they have since expanded from 2 to 8 managers. At the time the policy was passed, he believes they had already initiated and nearly completed the process of adding additional managers. Staff noted that none of the managers have been changed since the inception of the resolution and they did not take the policy to mean that that would prompt them to change managers at that time. Their interpretation was that if the opportunity presented itself then they would take into consideration everything passed in the resolution. They went onto advise that performance with the existing fund managers has been good and so in essence the opportunity to change managers has not presented itself.
Trustee James asked when you say the opportunity has not presented itself what specifically will you be looking for? She took it to mean that it would just be performance from the fund manager?
Mr. Babcock reiterated that they would look at performance, people, and process. He noted that there are three other asset classes that they are presently reviewing that they are allowed to invest in by policy. The current market conditions suggest that this might be the best time to invest in international emerging markets, real estate and high yield bonds. These are three additional areas that they are going to continue to research for potential investment.
Trustee James suggested that they narrow down the search, as the premise could always be that they are searching and continuing to do so. She went onto recommend that the Trustees establish a timetable in which to effect this change relative to diversification.
Mr. Babcock explained that they would be delighted to accommodate the Trustees request. He noted that they have several clients who ask them to be proactive in finding a fund manager, which can certainly be accomplished being that they conduct these types of searches on a regular basis.
Trustee Smith asked if they would need additional guidance or a resolution that says that we would like to initiate this task on a quarterly or yearly basis?
Trustee Calkins stated that based on previous statements he thought that LCG Associates were already doing this on a continual basis. Thus far, he thinks they have done a lot from where they initially started. He went onto state that they were originally in one big basket and have diversified significantly since that time and so except for one fund it appears to have done well. Trustee Calkins further noted that he is not knocking LCG Associates as they have done what was requested and so he is unsure what more can be done other than to continue to do that search.
Trustee Smith noted that they are not criticizing what they has been done at this point and she thinks the statement made by Trustee Calkins is a fair assessment. She went onto state that it is not so much that they are not pleased with what LCG Associates are doing but that they want them to be more proactive in searching for fund managers.
Amy Cavanaugh, General Counsel advised that Proposition 2 was just passed in the state of Michigan and it will go into effect mid-December 2006. The proposition essentially states that no one can give preference on the basis of race, age, sex, gender, or national origin. She went onto state that they need to evaluate what that means in terms of the resolution that was passed by the Board in going forward to look for diversity in terms of the funds and its managers. Ms. Cavanaugh further explained that they do not have an answer yet and many public entities are trying to define what they can and cannot do to diversify themselves. In the meantime, she just wanted everyone to know that it is an issue in this context as well as many others for the BWL.
Trustee Smith clarified that the proposition does not prohibit the BWL from looking for diversity. It is only when you are seeking preferential treatment and that is not what they are asking them to do. The Trustees are suggesting that they see what is available and if it makes sense to change it then they will do so.
Trustee Graves advised that he understood that General Counsel has not had the opportunity to give a legal opinion. However, his understanding of what just passed does not in anyway precludes in his mind the Board looking to have a diverse portfolio. He went onto state that there are minority owned firms that meet the criteria that the Board set out in terms of performance, dollar amounts, and years of operation which is relevant to the question regarding a principle. Trustee Graves noted that he wants to be sure that what they are tracking is in principle and that they consider the fund managers track record. He further noted that he thinks they can still be proactive and if our Legal Department develops an opinion that we need to discuss then that can be done at the appointed time. Nevertheless, he thinks one needs to be proactive when there is opportunity because they are not talking about preference when you say that all parties have to meet this standard. Trustee Graves went onto explain that you are simply saying diversify this pool but they need to meet this standard and there are firms out there that can accomplish that goal.
The Trustees agreed that they need further guidance from the Legal Department in terms of the effects of Proposition 2 on current BWL policies and resolutions. They also support referring the issue of developing a timetable for diversification to the Finance Committee.
Trustees Graves further clarified that there is nothing at this point that precludes LCG Associates from being proactive. He further advised that they do not need to wait for the Trustees to act.
Mr. Babcock concurred.
· Fixed Income Sector Allocation
· Fixed Income and C&E Performance for the current quarter and historical
· Other Performance Assets
Trustee Smith stated that during the previous discussions they mentioned international emerging markets. She knows it was stated that they are currently performing but they keep getting into the now. How long do we know that they are going to perform and how much of a greater risk is it for us to be involved in emerging markets?
Mr. Emerson noted that emerging markets are totally different than what they were ten years ago. Certainly there is a fair amount of volatility but the risk factor has gone down. There is exposure to emerging markets through our two international managers. It is a very small portion at approximately 10% of each. Mr. Emerson continued to note that emerging markets have become what the United States markets were in the late 1970’s and we have seen what they have done since that time. He further explained that as the overall economy continues to globalize then those are the growth areas and it should continue. There it maybe overvalued right now but over long periods of time emerging markets will be a potential asset when the economy is right.
Mr. Babcock also noted that there is one thing that makes it slightly less volatile which is the fact that you do not have as much currency risk in the emerging markets because they pay good currency to the U.S. dollar.
The complete report on Investment Management Analysis of Comparative Risk and Return for the quarter ending September 30, 2006 is on file with the permanent minutes.
Retiree Benefit Plan (VEBA)
Finance and Planning Manager Sue Flores reviewed the status of the VEBA (Retiree Benefit Plan and Trust) for the third quarter ending September 30, 2006. The total fund allocation for the VEBA Retiree Benefit Plan and Trust as of September 30, 2006 is $46,933,982. However, the actuarial accrued liability for the VEBA fund as of February 2006 was estimated to be $216,161,111. Compared to the current balance $178,496,807 is unfunded. Ms. Flores noted that the BWL is in better shape than most municipalities. Other governmental entities will need to start making progress towards their unfunded liability, whereas the BWL has started early and is ahead of many other governmental bodies.
One-year performance on the VEBA fund as of September 30, 2006 was 8.5% overall. The current asset allocation is 34.4% fixed income, 58.4% equity, and 7.1% cash equivalents, which is close to the allocation targets. The comparative performance graph shows that each of the asset allocation classes were either close or have surpassed their benchmarks. The charting also indicated that although they added more to the VEBA fund and it earned money, the actual liability also grew from one year to the next. Ms. Flores noted that staff would like the Trustees to consider giving consist to move forward in evaluating and engaging financial investment firms similar to LCG Associates relative to VEBA. There is $50,000,000 invested with additional contributions of $11,000,000 each year. This fund will continue to grow and staff thinks that it would be wise to go out for bids for investments firms similar to the function that LCG currently performs. They will evaluate the cost of that service and bring forth a recommendation to the Board. The VEBA fund is currently managed internally and most of the equities are in an index fund, mirroring the asset allocation with approximately 15 individual bonds.
Defined Contribution Pension Fund Performance Report
Ms. Flores provided a high level summary report of the Defined Contribution (401A) Plan as of September 30, 2006.
· Plan assets by class total $120,590,000
· Historical performance of funds
· Historical performance benchmarks
The allocation of this fund is based on the individual employee preferences in how they choose to direct their investments. They have the option to select their funds online, by telephone or in writing. They can also choose the Goalmaker option that places money in a combination of investments that automatically rebalances. The selection is based on a combination of age, expected retirement date, and risk tolerance. Approximately 15% of employees are enrolled in Goalmaker.
Trustee Smith asked that based on the Goalmaker category how did employees do in the market?
Ms. Flores reported that this is based on employee’s individual preferences and she looks at age comparisons in how people invest. There are individuals in there 50’s and 60’s heavily into equity investments, which she would question. However, they may have other investments outside of the BWL and this maybe their choice. Therefore, it is difficult for the BWL to pick the perfect fund because they are not financial advisors. Ms. Flores continued to note that the funds perform really well and they conduct an annual review and evaluation with Prudential on all of the funds.
Trustee Graves asked if there is a service available to employees if they want it?
Ms. Flores advised that there are monthly meetings available for employees to meet with either a Prudential and/or ICMA representative. Appointment notifications are sent via email and posted on bulletin boards. The representatives’ role is to speak in general terms about investments relative to age, length of service, financial goals, etc. They typically fall short of making specific fund recommendations. Ms. Flores also explained that the BWL has a self-directing brokerage option available with approximately $700,000 in employee funding. The option allows employees to self-direct from the Prudential Family Fund.
Informational Items
Ms. Flores briefly addressed Proposal 06-02, Pension Protection Act of 2006 and Resolution 2005-3-13.
Proposal 06-02. There is language that was added to the investment policy last year to give consideration to diversity candidates. They have been asked by the BWL’s internal legal staff to bring to their attention all the policies that have this type of language contained within the document. At this time, they are not saying that it is right, wrong or indifferent. They are however raising the issue and they will review it with all of the other policies that may have been affected by the passing of Proposition 06-02.
Pension Protection Act of 2006. There was sweeping pension legislation changes that affected both public and private funds. Several of the changes were on private funds and will be phased in over a period of years. They are reviewing those changes and will be working with internal legal staff, external counsel, and the actuaries to determine how everything will affect the BWL. It is also possible that they may need an actuarial update to determine the financial impact.
Resolution 2005-3-13. Interim General Manager Dick Peffley stated that Resolution 2005-3-13 prompts management to review consideration of a cost of living adjustment to the Defined Benefit Plan within 30 days of Board of Commissioners’ approval of the BWL-IBEW contract. He met with retirees Ron Byrnes and Roger A. Jeffers who submitted a proposal for the Board’s consideration. Mr. Peffley noted that he had staff cost the initial proposal and included it in the packet for informational purposes only. He further noted that any increase to the cost of living would come from the DB plan, which is currently over funded. However, the over funding is also used to fund VEBA. Mr. Peffley went onto suggest that this topic be referred to the Finance Committee for further discussion and a plan to move forward.
The Trustees supported moving the Cost of Living Adjustment proposal to the Finance Committee.
There being no further business, the Pension Fund Trustees meeting adjourned at 4:57 p.m.
Submitted by:
Rhonda Jones
Corporate Secretary
Motion by Commissioner Calkins, seconded by Commissioner Graves, to receive the Pension Fund Trustees’ Committee Report as presented.
Action: Carried unanimously
MINUTES
BOARD RETREAT
December 2, 2006 – 8:30 a.m. to 3:30 p.m.
The James B. Henry Center for Executive Development
3535 Forest Road - Lansing
Present: Commissioners Gary Calkins, Robert Cochran, Semone James, Santiago Rios, Julee Rodocker, and Robin Smith.
(Note: 4th Ward Vacancy Exists)
Absent: Commissioner Joseph Graves
Facilitator: Bryan Singletary, President of Practical Energies
Staff Present: Corporate Secretary Rhonda Jones
The Commissioners met to discuss various issues that included public power governance, strategic planning for public power systems, key issues, strategies in the selection of a new General Manager (GM) and Board relations. The goal of the Board retreat was to have open and effective discussion regarding the above topics in relation to the Board of Water and Light (BWL).
Bryan Singletary, President of Practical Energies facilitated the Board retreat. As such, Mr. Singletary advised that outside influences and employee concerns that outweigh those of the ratepayers has too much influence over the Board. Individual groups or persons are only subsets. If it does not benefit the ratepayer then it is not good for the organization. Effective Board governance can be achieved through individual Board members who are interested, engaged, effective, and meet their fiduciary responsibilities. Board interests must stay at the policy level.
The Commissioners expressed concern regarding inclusiveness, whereas individual Commissioners speak for the entire Board without Board input. Mr. Singletary suggested that Commissioners keep in mind that an individual’s opinion is seen as the Board’s viewpoint. Therefore, everyone has a right to their opinion but they must exercise caution in this respect. Mr. Singletary also advised that the strategic plan should be the focus of all boardroom discussions. The Commissioners also noted that the Board’s role is to establish policy and not manage the BWL. The strategic plan should be a working document and hence the focus of the Board. It was noted that in the past, lack of policy has lead to several issues.
One of the Commissioners asked if they should avoid criticizing staff during a Board meeting? Mr. Singletary explained that it would be more appropriate to advise the GM that something maybe amiss and needs to be revisited thereby, allowing the GM to address the issue. He also clarified that it is ok to make a public declaration of positivity to staff but one must keep things targeted. Mr. Singletary observed that once the Board starts making operational decisions then they have moved away from governance, which increases the likelihood of a lawsuit. Interference in day-to-day activities is an indication that the Board has stepped outside of their fiduciary responsibilities. The more operational decisions are made, the more personal exposure.
Statutory Duties: General Responsibilities, Ethics, Public Access and Federal Laws
Fiduciary Duties: Fiduciary, Liabilities, and Protections
Under the guise of Public Power Governance Mr. Singletary also noted the following:
· Legal issues should be referred to the GM and he/she can refer it to General Counsel or perhaps have Counsel contact the Board directly.
· The Board should not have informational lunches with employees; assumptions and rumors do far more harm than good because you are speaking as many voices and not as one. He also advised that if an employee calls a Commissioner for lunch then they should decline.
· Email is public record. Do not conduct debates via email, as this is an inappropriate form of communication.
· Commissioners should keep their special and personal interests out of Board business.
Mr. Singletary met with executive staff on Friday, December 1st to discuss the questionnaire responses and review several key issues. Listed below are some of those observations as well as those of the Commissioners and that of Mr. Singletary.
· Executive staff indicated their comfort level with the Board but noted that those directly below them do not know the Board and hence things become that of perception and rumor.
· Staff also expressed concern regarding stepping outside of existing bounds due to the Board’s history of terminations. It was also indicated that the Board is working well together right now. However, when hotly contested issues arise that cause dissention amongst Board members and/or staff, will they continue to work well together?
· The Commissioners noted that they do not think staff provides enough guidance to the Board regarding what needs to be enacted at the BWL in terms of policy decisions.
· Sidebar meetings with individual Commissioner’s and staff should not be allowed, as the GM is the key. A Commissioner explained that they noticed a lot of these meetings occurring and felt it to be very disconcerting. The Commissioners explained that they believe this practice stemmed from issues with a previous GM in which concerns were not being addressed. Therefore, individuals were approaching the Commissioners’ as there was a severe lack of trust with management.
· The question was asked, should individual Board members give the GM direction? Mr. Singletary responded by stating that direction should come from the Board as a whole or the Chair but not as individual Commissioners.
As a result of the discussion, the Commissioners recommended that they develop a Memorandum of Understanding to govern the Board. The documentation will help avoid some of the past governance issues that were discussed. Mr. Singletary added that it is ok to argue in the Boardroom but not in the court of public opinion. As a Board, the Commissioners should communicate with one another why they did what they did.
Facilitator Suggestions:
1. Add a training session on parliamentary procedure (recommend Colleen Trohand with American Public Power Association). Board may want to also consider having a parliamentarian sit in on regular Board meetings for direction and clarification when needed.
2. Review the strategic plan and revisit it after the new General Manager is hired. He advised that this would require a 2-day retreat.
3. The Board should read everything sent to BWL customers prior to their receipt. Mr. Singletary suggested that they should not get involved with proofing, approving or having input; just be aware of what the BWL is communicating to its customers.
4. The Commissioners suggested a follow-up session with Mr. Singletary at which he recommended another Board retreat in approximately 6-months but definitely after the new GM is hired so that he/she may participate.
5. Develop a Communication Policy that would govern the Board’s internal and external communications.
6. The Board should consider having a strategic planning session in January 2008 as it is going to affect the budget process.
Questions for the Board:
1. Are you standing true to your fiduciary responsibilities?
2. Are you asking questions for information that you need to make policy decisions?
Strategic Direction
· The utility business is stagnate and there are relatively small changes or surprises. However, the Board should approve a long-term business plan and periodically review and update it.
· Review the strategic plan once a year. Consider utilizing an outside consultant or facilitator once every other year to provide an outside objective viewpoint.
· Independent System Operator (ISO) training is in order for Board members and as such, staff should provide the training. This will give the Commissioners background and understanding on information relative to generation, transmission, power plant building, etc.
· Mr. Singletary suggested that the Board look at branding the BWL to advise customers of the benefits of the services that the BWL provides.
The Board should have an open declaration that the new GM will be held to the Strategic Plan.
Mr. Singletary encouraged the Board to conduct a national search for the GM to ensure that they have done their due diligence, which is not to say that they do not already have talented persons in house.
It was noted that the standard Request For Proposal (RFP) search firm charges 25% of the GM’s yearly salary. Mr. Singletary also explained that he believes the Board should utilize a search firm with utility experience, American Public Power Association, or public power experience. He cautioned against hiring a non-public utility person. However, if the Board chooses to do so then they need to make sure adequate training is provided. Lack of training and experience in the public arena can be the downfall of a GM.
Mr. Singletary also explained that the GM should be given his/her evaluation at least 2-weeks prior to having discussion. He also suggested that the Board should not see the GM’s self-evaluation until they have completed their own evaluations to ensure that there is no duplication.
What are you looking for in a General Manager?
Musts & Wants – Board must decide what they want in a GM prior to the interview process.
Be honest about the compensation package, the Lansing community and its attributes as possible; and allow for a flexible benefit package. It is also recommended that the Human Resource department should thoroughly explain the benefit package to prospective candidates.
Plan of Deliverables:
1. Develop a Communication Policy that Speaks to Internal and External Board Communications
2. Establish a Yearly Board Calendar
3. Address the General Manager Selection Process
4. Follow and Make a Commitment to the Strategic Plan
a. Add a component of education to the Board meetings in which staff educates the Board on relevant industry-wide issues
5. Speak as One Voice
There being no further business, the Retreat adjourned at 3:25 p.m.
Corporate Secretary
Motion by Commissioner Cochran, seconded by Commissioner Calkins, to receive the Board Retreat Report as presented.
Action: Carried unanimously.
COMMITTEE OF THE WHOLE
December 18, 2006
The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing beginning at 4:00 p.m. on Monday, December 18, 2006.
Commissioner Rios called the meeting to order and asked the secretary to call the roll. The following members were present: Commissioners Gary Calkins, Robert Cochran, Joseph Graves, Semone James, Santiago Rios, Julee Rodocker (arrived at 4:16 p.m.) and Robin Smith.
Absent: Commissioner Sandra Zerkle
Joseph Davis, Business Manager of IBEW Local 352 thanked the Board for bringing in an outside consultant to conduct the Human Resource Audit without any parameters. He also applauded them for presenting the findings in an open forum so that everyone could receive the information. Mr. Davis noted that the New Year would bring forth many new tasks including that of the General Manager (GM) search. He went onto state that the previous search method used by Charles Blockett was an admirable attempt as it included employee and retiree groups and also allowed for public input.
Discuss and Reach Consensus on Top 5 Candidates for Internal Auditor Position – Charles Blockett
Charles Blockett of Charles Blockett, Jr. and Associates, Inc. explained that they have two objectives: 1) narrow the candidate pool to five and 2) determine the balance of the remaining process. He went onto suggest that since four of the ten candidates received a minimum number of votes, then he asked if the Commissioners would like to reduce the candidate pool to four or add an additional person? Mr. Blockett advised that based on his experience he recommended that they interview at least five people. He also noted that the background checks and subsequent information would be provided to the Commissioners prior to their vote for the final candidate.
Motion by Commissioner Calkins, seconded by Commissioner Smith to accept the top four candidates: James A. Felch, Kenneth L. Johnson, Susan M. Pifer, and Shirley T. Smith.
Discussion: Commissioner Graves advised that he wants to be supportive of Mr. Blockett’s suggestion that they select a minimum of five individuals. Given that premise Commissioner Graves made a friendly amendment to add Glenn Holloway to the list of candidates due to his experience with the BWL.
Commissioners Calkins and Smith supported the friendly amendment.
Discussion: Commissioner James suggested that Martin S. Wood also be included in the interviewing process in addition to Glenn Holloway being that they both received the same number of votes.
Commissioners Rios and Calkins supported the friendly amendment.
Discussion: Commissioner Smith advised that she would rather stay with five candidates as opposed to six because it would extend the interview process from one to two days. She suggested having discussion on the other candidates that received an equal number of votes.
Commissioner James noted an interest in interviewing Martin Wood an as additional candidate and expressed concern regarding Mr. Holloway’s previous departure.
Commissioner Rios suggested that in the interest of giving themselves the benefit of another candidate and the fact that they each received the same number of votes, he recommended that they interview six, which would include both Mr. Holloway and Mr. Wood.
Commissioner Cochran seconded the friendly amendment.
Mr. Blockett noted that in his experience when there are more than five candidates it makes for an extremely long day. He did not recommend interviewing six candidates, as the interviewees on the first day would be at a disadvantage. Mr. Blockett cautioned against six interviews due to the time factor and the validity of the process.
Commissioner Cochran supported Commissioner James’ comments in regards to Glenn Holloway as a finalist for the Internal Auditor position.
Commissioner Graves noted that he supported the perspective of both Commissioners Cochran and James. However, he thought the interview process would allow them to explore and examine the concerns that they may have with regards to Mr. Holloway’s potential employment with the BWL and his previous departure. He went onto state that he does have some concerns as to why he left. However, he understood that circumstances change and that Mr. Holloway has a lot of familiarity with the BWL. Therefore, he would support the five by keeping Mr. Holloway in the pool and he would not support six for the reasons just presented by Mr. Blockett.
After further discussion, Commissioner Rios withdrew his friendly amendment to interview six candidates by adding Martin Wood to the finalist pool.
The original motion to accept the top four candidates that included James A. Felch, Kenneth L. Johnson, Susan M. Pifer, and Shirley T. Smith carried by the following vote:
Yeas: Commissioners Calkins, Cochran, Graves, James, Rios, Rodocker, and Smith.
Nays: None
Absent: Commissioner Sandra Zerkle
The motion to add Glenn Holloway as the fifth candidate failed by the following vote:
Yeas: Commissioners Calkins, Graves, and Smith.
Nays: Commissioners Cochran, James, Rios, and Rodocker.
Absent: Commissioner Sandra Zerkle
Motion by Commissioner Smith, seconded by Commissioner James to add a fifth candidate, Martin S. Wood to the finalist pool.
The motion carried unanimously by the following vote:
Yeas: Commissioners Calkins, Cochran, Graves, James, Rios, Rodocker, and Smith.
Nays: None
Absent: Commissioner Sandra Zerkle.
As a summary to the motions, the following five candidates will be extended an opportunity to interview as a finalist for the Internal Auditor position with the Board of Water and Light: James A. Felch, Kenneth L. Johnson, Susan M. Pifer, Shirley T. Smith, and Martin S. Wood.
Mr. Blockett noted that he would notify all five candidates and advise them of where they stand in the process. He would also ask that they sign an authorization form to allow background checks. The background search will include a civil and criminal record check, education verification, verification of previous employment, bankruptcy check, and newspaper article search. Mr. Blockett went onto state that he will request each candidate to prepare a written plan of action as to how they would develop an internal audit plan for the BWL, no more than 10 pages in length. This document would display their individual writing style, ability to communicate, and their organizational thoughts. This instrument would also act as an additional source in evaluating the candidates and obtaining the best ideas from all five persons. In addition to the above, Mr. Blockett stated that he would send them a copy of the survey responses, annual report, and strategic plan. Mr. Blockett will work with Secretary Jones to obtain copies of the materials needed to provide to the candidates.
Charles Moore, Interim Internal Auditor suggested that Mr. Blockett provide a copy of the external audit report as it will be a better source of information to draw questions and help with the internal auditor process. The Commissioners agreed with the suggestion.
Mr. Blockett further noted that the background check firm would have all of their materials returned to him by January 4, 2007. He also stated that he would give the candidates until January 5, 2007 to complete and submit their internal audit plans.
Commissioner Smith asked Mr. Blockett if he would want a time lag from the date of the interviews to the date of the final selection?
Mr. Blockett responded by stating yes. He also strongly recommended that they take 3-4 workdays to think about the candidates and review the reports. While also keeping in mind that the Open Meetings Act covers the position, which means that they must interview and deliberate in public. He went onto state that between now and January he will ask each Commissioner to develop three job related interview questions that he will use to determine a standard set of interview questions.
The Commissioners charged Secretary Jones to work with Mr. Blockett in establishing the interview dates, the remaining schedule and to also provide whatever materials necessary for the candidates in relation to the Internal Auditor action plan.
Commissioner Calkins asked for a copy of the interview questions used during the last process to use as a basis for the new questions. Commissioner Rios asked Secretary Jones to distribute those materials to the entire Board.
Human Resource Audit Report – Michael Goree
Commissioner Cochran, Human Resource Chair introduced Michael Goree of Growth Strategies Consulting, Inc. who conducted a Human Resource Audit of the BWL at the request of the Board of Commissioners. Mr. Goree explained that part of the process involved in the Human Resource audit was trust in which there were three facets, 1) trusting individuals to do their job, 2) trusting the General Manager and leadership to learn to do their job, and 3) trusting the Board of Commissioners to do their job. He went onto note that he considered various options in delivering the report such as, sharing it with the Board of Commissioners only, sharing it with senior management only, or opening the door and sharing the document with the entire organization. Of all three options he chose the later. Mr. Goree advised that no one including the Commissioners had seen the final report prior to today’s meeting. He also explained that everyone must believe that he did his job. The organization was open to him, individuals were open and honest in their conversations, and he was not prohibited from receiving anything that he requested of the organization. Mr. Goree noted the Commissioners and staff’s cooperation in this endeavor and advised that it was a huge step forward for the BWL. He went onto explain the challenge he faced was in how to convey the employee’s passion, dedication, and commitment in a report. Mr. Goree advised that he spoke to hundreds of people at the BWL and not once did people blame others for the problems at the BWL. What he did hear was the passion for doing a better job with the tools and resources that are available and whether or not they are available to the persons at the BWL. He noted that throughout the report one would hear the employee’s passion for the organization. However, Mr. Goree also noted that there are challenges at the BWL. He explained that he was hired because he is very direct and to the point, which his final report reflects. Mr. Goree proceeded to present the preliminary analysis and findings of the Human Resource Audit. Listed below is a brief synopsis of the information presented:
· Four Key Hurdles – Cognitive, Political, Motivational and Resource
· Truths and Rumors – With any project of this nature you will hear both truths and rumors. Some of the truths included:
o No interference by the Commissioners, Leadership, Union, or outside influences
o Full and trusting cooperation by all employees
o Straightforward and direct approach
o Access to all aspects of the organization
· Process Followed – Met with Human Resource Committee to review plan, reviewed key documents, interviewed employees, developed preliminary findings and recommendations, and presented those findings to the Board of Commissioners on December 18, 2006.
· Non-Human Resource Realities – Some of the Non-HR realities include:
o Not all departments are “pulling in the same direction”.
o Some directors and managers have an “I’m a Director, therefore I get what I want” mentality. Completely unnecessary and demoralizing for staff.
o Insensitivity to employee’s work by some “management”.
o Somewhat insular in understanding what other organizations offer, are faced with, competition, etc.
o Good Old Boy network is still strong in some areas.
o Decision Quality not taught – Decision making skills weak in some areas
o Main focus on power generation and less on water – partial product of the rate structure.
o Supervisory skills of some very weak to non-existent.
o Weak brand identity.
o Weak diversity strategy with little impact.
o Ombudsman process not used and most see little value in the process.
o The Call Center – Needs greater intervention to re-establish a strong team environment; also not receiving the support from HR that it needs to move forward.
o 4 General Manager’s in 10 years – Little time to heal and yet another change. Recommend cooling off period of 6-9 months before hiring another General Manager.
o Work systems and processes could improve with “lean principles”.
o Appear to have too many supervisors/managers in some departments.
o Where is the Trust? – Strategic, Personal, Organizational
o Destroyers of Trust within BWL – Inconsistent messages and standards, false feedback, failure to trust others, rumors in a vacuum and consistent underperformance.
· 100 Year Plus Companies – The most difficult to duplicate, therefore the most sustainable, advantages are those that rest in people and their processes.
· Human Resources Needs to be Driven By. . .
1) What do you want employees to know?
2) How do you want employees to feel?
3) What do you want employees to do?
· Human Resource Realities – Mr. Goree noted that the comments listed below are not single line items from one individual but sentiments heard several times from various persons throughout the organization including that of Managers, Directors, and employees. Some of the Human Resource realities include the following:
o Not user friendly
o Looked upon as a detriment to organization
o Very poor response time
o Very poor communication with employees
o Not accessible – locked doors
o Never seen them on other shifts
o Reactive not anticipative
o Who is in charge?
o Compensation system poorly communicated
o Performance system – old systems with a new face – too complicated
o Weak “people skills”
o Controlling and at times out of control
o Overly structured and little to no flexibility
o Poor employment process
o When one is out sick, hard, if not impossible to get an answer
o Structured in silos with little cross development
o Currently, 12 employees. Normal staffing ratio is approximately 1:100 employees. Appears excessive given the poor response time, lack of visibility in certain areas, limited access, etc.
o Not seen as the “go to” Department
· Mr. Goree also reported on major areas of review that included recommendations for each respective subject relative to his findings. The areas of review included the following and are found in detail within the body of the report.
* Employment Law/Documentation * Training/Development
* Employee Recruitment, Selection and Retention * Succession Planning
* Labor Relations * HR Information Systems (HRIS)
* Benefits Administration * HR and Line Management
* Compensation * The HR Staff
* Performance Management * The Call Center
All Focus on the Three A’s – Attitude, Aptitude and Action
1) Attitude
· Change and movement come from the “right” attitude. A weak/no foundation invites trouble down the road.
· This comes in the form of the right vision and strategy and guiding it through your organization.
2) Aptitude
· We can communicate all we want about where we want to go but, if employees don’t have the Aptitude to get us there.
· Without the right skills and knowledge, employees feel anxiety and frustration.
· We want action! But, without aptitude through development you face even greater hurdles.
3) Action
· “The failure to execute strategy results in 70% of CEO failures…”
· Execution requires attitude and aptitude first!
The Next 100 Days:
· 72 work days – Based on 5/week
· 571.5 work hours – Based on 8/day
· 34,286 work minutes
· And the average worker works less than 6 hours a day
· Plan the work and work the plan.
The Identification and Removal of Waste
Office Waste – Focus: People Office Waste – Focus: Information
Goal Alignment Translation
Assignment Missing Information
Waiting Hand-Off
Motion Irrelevancy
Processing Inaccuracy
Office Waste – Focus: Process
Control Sub-optimization
Variability Scheduling
Tampering Work-around
Strategic Uneven Flow
Reliability Checking
Standardization Error
Mr. Goree closed by reiterating that the BWL has a highly dedicated workforce with an underutilized Human Resource department that is not as responsive as it could be. He also noted that the BWL has a workforce with some managers and supervisors that have an investor owned attitude. Mr. Goree further stated that the BWL has to break that cycle. He also advised that the problems at the BWL are not necessarily a personality or knowledge issue as much as it is an execution issue.
Commissioner Graves observed that Mr.Goree had done an excellent job in conducting the Human Resource audit. In the beginning, he was given the flexibility to look throughout the organization and while the report in large part focuses on the Human Resource Department and function, it also looks at the organization as a whole. He went onto note the physiological, emotional, and personality changes discussed in the report would perhaps take longer than a 100-day plan to accomplish.
Mr. Goree noted that a 100-day plan gives employees the opportunity to step up to the challenge and secondly, do they have the ability in which to do the job? He explained that as a dedicated and committed organization to the staff at hand and the success of the employees that currently work at the BWL, he believes it is imperative that people are given the opportunity to step up to the plate. Everyone will not have the ability to meet the challenge. However, without giving people the opportunity to try then it sends a bad message to the organization. Mr. Goree further noted that he is a conceptual person and not a detailed person. He went onto advise that he is much better suited as a conceptual individual as opposed to a detail oriented individual.
Commissioner Smith noted that it was well stated when Mr. Goree implied conceptualism since some of the physiological and emotional issues cannot be dealt with in a bullet point presentation. She went onto state that she believes Mr. Goree outlined and gave them a good overlay as to the organization and not just Human Resources but how HR strategically fits into the organization. Commissioner Smith also noted that Mr. Goree dealt with the system issues, the flexibility of the organization, its rigidness, and fragmentation. She went onto state that the wheels of change are slow but that there needs to be a comprehensive plan as to how they address the issues as an institution.
Mr. Goree responded by stating in his opinion, the BWL has approximately 6 – 9 months to have a large impact if they start the first of 2007. Therefore, the BWL can state that by September 2007 all of “these” things will be done and you must start immediately. The 100-day plans create a sense of urgency but not a sense of panic. Mr. Goree explained that once you become accustomed to it then it becomes a part of the system of always improving every 100-days.
Commissioner Rios noted that they should keep in mind the key purpose of the audit. The Board has heard a lot of the information that suggested the problems that were presented in the report. Commissioner Rios went onto note that they wanted to have an independent objective person to evaluate the BWL and he was pleased that Mr. Goree accomplished what they asked him to do. Part of that process was to receive recommendations from an outside objective viewpoint from someone who is professionally trained and experienced in dealing with organizational opportunities so that they could move the BWL forward. Commissioner Rios stated that to him it is very important as they discuss the report that they also keep in mind its purpose. The second item is that the Board of Commissioners is not where the changes are going to take place. It is their role to look at the report and either accept it, to the extent that it is accepted and they agree with the direction that the Mr. Goree is recommending, then to discuss it with management and give policy direction in terms of addressing some of the needs and opportunities. The third point is that the Board must keep it simple; part of the simplicity is having a doable plan. Commissioner Rios noted that because of the enthusiasm, they might think that they can accomplish these goals overnight but they are not going to be able to do so. He went onto explain that the Commissioners job is to take the report in its entirety and keep in mind its purpose and understand their respective roles as a Board versus that of management and employees. And to also address with management, the extent to which they agree and acknowledge some of items within the report. Commissioner Rios advised that there would be different views on the priorities of some of the actions that can be taken. He went onto state that there are perhaps some operational difficulties that will not allow them to do everything that they want to do in the first 100-days as it might carryover to the second 100-days. Commissioner Rios stated that from his perspective, up to this point they have fully accomplished their objective as a Board. Their challenge as he sees it is for the Board to come to terms with management and to set a plan in motion that makes sense and delivers the types of results that they can all be proud of and continue to be better. Commissioner Rios advised that Mr. Goree has done a lot of research and knows the organization as well as anyone could and probably better. He went onto suggest that he would like to see Mr. Goree continue with the execution stage. Commissioner Rios advised that as of right now he is the Board’s employee but once they receive the report and give him additional assignments then he thinks the ball is passed to management. He also stated that one of the things he would encourage management to consider is taking advantage of this very important resource and developing an action plan for the future.
Commissioner Smith stated that she thinks time after time it has to be a doable plan and that whatever is implemented, simplicity must be paramount. She also noted that it must be something that is doable, as they can clearly see there are some areas that need to be addressed and the execution of the plan is not something that the Board of Commissioners will do. Commissioner Smith explained that their job is to implement policy, make sure that policy supports the document so that new things can be implemented in the organization. She further advised that trust was the paramount issue and the report was presented to everyone at the same time. How people interpret it maybe somewhat different but they are all on the same page in that there must be change and change must begin now. Commissioner Smith noted that there is a wonderful opportunity to implement some very important ideas. She also commented that she did not always believe that the answers are not there but that sometimes they are not asking those that have the answers.
Commissioner Cochran indicated that he has the utmost respect for Mr. Goree and he has fulfilled his every wish. He further acknowledged that Mr. Goree is worthy of his trust and thanked him for his wonderful performance. Commissioner Cochran then asked Mr. Goree if he had anything that he would like to comment on to the Board of Commissioners with prior counsel approval that would require a closed session?
Mr. Goree responded by stating that his understanding is that a closed session requires conversation about specific individuals. He then asked if that was a fair statement?
Amy Cavanaugh, General Counsel responded by stating that if he wanted to talk about specific individuals then that that would be classified as a remark or a complaint. Therefore, that individual person has the right to request a closed session.
Mr. Goree stated that at this point, the challenge is that the role of the Commissioners versus the role of the management and he believes that the Board is in governance and management is in operations. Therefore, if there are individuals that he believes need some intervention then that is a conversation that he would prefer to have with the General Manager and not with the Board of Commissioners. The Board of Commissioners sets policy and the daily operational executable issues reside with senior management.
Commissioner Cochran asked Mr. Goree if he is available to do what Commissioner Rios has suggested in continuing with this work? Mr. Goree noted that he has two passions: 1) the success of his clients and 2) achieving his goal of doing whatever he can to not be here. As a result, he will do whatever he can to help the BWL and his calendar is always adjustable depending upon the circumstances.
Commissioner Rios asked Dick Peffley, Interim General Manager if he wanted to make any comments?
Mr. Peffley responded by indicating that he had just received the report and did not have any comments at this point. However, he did note that he looks forward to working with Mr. Goree. Mr. Peffley went onto state that as with any audit he is looking at how to improve. The BWL had an engineering audit and will conduct a production audit. Mr. Peffley noted that he saw the Human Resource Audit as another tool to help improve the BWL.
Motion by Commissioner Cochran, seconded by Commissioner Smith to accept the Human Resource Audit report as presented and forward it to full Board for consideration.
Carried unanimously.
A complete copy of the “Lansing Board of Water and Light, Human Resource Audit, Preliminary Analysis and Findings” report is on file with the permanent minutes.
The Committee of the Whole took a meeting break at 6:03 p.m. and resumed at 6:20 p.m.
The Commissioners discussed the number of firms that they would like to interview in awarding the Request for Proposal (RFP) to an executive search firm for assistance in hiring a new General Manager. They also discussed the possibility of changing Dick Peffley’s title from “Interim General Manager” to “General Manager” for a term of one-year, based on Michael Goree’s recommendation to delay the process for up to 9-months.
Commissioner Calkins introduced a motion to stop the process and remove the word “Interim” from Dick Peffley’s title and allow him to operate as the permanent General Manager for one-year. Commissioner Cochran advised that he did not think they should stop the process of hiring a new General Manager but they should consider delaying it. As such, Commissioner Cochran seconded the motion.
Discussion: The Commissioners expressed their respect and support of Mr. Peffley and the work he has done thus far. They also welcomed him to become a part of the process and apply for the permanent position. The Commissioners agreed that they want to continue with an open process and would like to ensure that they have the best candidate available. The Commissioners agreed to move forward in conducting a national search as had been previously outlined. After further discussion, Commissioner Calkins redrew his motion from the floor.
Motion by Commissioner Smith, seconded by Commissioner James to award the Request for Proposal bid for the Executive Search Firm to Charles Blockett, Jr. & Associates.
Discussion: The Commissioners expressed concern in awarding the bid without conducting interviews with the top 3 candidates. It was recommended that the Board proceed with an open process and interview the executive search firms prior to making a final decision.
Commissioner Graves particularly noted that he believes the Board should continue with the process that they have outlined and therefore, it should not stop. He recognizes the suggestion made by Mr. Goree to delay the process but believes they should move forward. Commissioner Graves also noted Mr. Peffley’s good works and invited him to become a part of the process if he so desires. As such, Commissioner Graves went onto suggest that they proceed with the initial process of interviewing the top 3 RFP respondents. He explained that Charles Blockett, Jr. & Associates, Inc. was the only firm in which all of the Commissioners voted to interview. Based on Mr. Blockett’s national success and success with the Board of Water and Light he supports the motion currently on the floor.
The motion to award the RFP bid to Charles Blockett & Associates, Inc. failed by the following vote:
Yeas: Commissioners Graves, James and Smith.
Nays: Commissioners Calkins, Cochran, Rios and Rodocker
Absent: Commissioner Zerkle
Motion by Commissioner Cochran, seconded by Commissioner Graves to interview the top 3 firms listed on the voting tally sheet: Charles Blockett, Jr. and Associates, Inc., Varnum Consulting, and ASG Renaissance, LLC.
Discussion: The Commissio