Published in Agenda
By Stuart R. Levine

Hurricane Sandy created mass disruption in the Northeast as people were displaced from their homes, suffered catastrophic flooding and lost electricity on a historic scale.  While New Jersey Governor Chris Christie received high marks for his crisis response, the same could not be said of the governance team at the Long Island Power Authority, the utility serving Nassau and Suffolk counties in New York. LIPA’s botched response to the region’s power outage offers a lesson on the qualities that governing boards need to navigate their organizations through large-scale emergencies. It also shows the heavy consequences that all stakeholders endure when their organization fails to exhibit these traits.

The public has faulted LIPA for being particularly slow to respond in Sandy’s aftermath, causing untold suffering, economic loss and anger. Most individual and business customers went without power for two weeks or more, and the long-term economic damage is yet to be seen.

By way of background, LIPA differs from other public utilities in New York in that it relies on outside contractors to perform major operating functions, and it is not overseen by New York’s Public Service Commission, a professional oversight board. Those factors make internal governance particularly important for LIPA, as it lacks direct control over crucial service providers like utility linemen and tree cutters, and it has no real external watchdog beyond its own board.

Through the lens of effective board governance practices, we can study moves that LIPA’s board of trustees made – and didn’t make – during the years before Sandy struck that might have contributed to the recent problems.

Hiring the CEO. Among a board’s most important roles is appointing a CEO who has a strong mandate to manage the organization. LIPA’s last CEO stepped down two years ago. Michael Hervey, who was appointed COO in September 2010, also subsequently served as “acting” CEO. The board never officially hired him as CEO, so the State Senate never approved him as such – signaling a leadership vacuum.  He will step down at year-end, after 12 years of service, having been asked to resign because of LIPA’s poor performance. There is no doubt that Hervey’s lack of clear, board-backed authority impaired his decision-making on investing in new technology that could have mitigated Sandy’s impact.

Succession planning. As is evident from the anecdote above, LIPA’s board had no succession plan in place in 2010, and thus was unprepared when the last CEO stepped down. And as of now, the board has not announced a successor for Hervey after his position becomes vacant in several weeks.

Oversight of enterprise risk management. Another responsibility of a governing board is to deal with controllable events and prepare for uncontrollable ones. Because LIPA is vulnerable to storm-caused outages, management has been looking for ways to secure the system, and it hired a consultant in 2006. But adequate preparation was still not in place by August 2011, when Hurricane Irene struck the area.

Investigators found that during the five years before Irene struck, LIPA failed to implement many of the consultant’s 2006 recommendations, including procedures for clearing roads outside hospitals and schools and locating downed wires.

And in a glaring oversight failure, just four days before Sandy arrived, the LIPA trustees met for about two hours – but discussed the storm for just 39 seconds, according to the board minutes. Board chair Howard Steinberg said the trustees were confident about LIPA’s preparedness, but they did not discuss or review the plan.

New York Governor Andrew Cuomo recently declared that LIPA, at least as it is currently configured, must be dismantled.  The utility’s 1.1 million customers, myself and my wife included, must hope that whatever replaces LIPA will be founded on principles of good corporate governance. That would certainly help the organization achieve its goal of providing reliable and economical electric service, to the benefit of all stakeholders.