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Jul 12, 2018

Doug Ford’s ‘worrisome’ Hydro One overhaul rattles Bay Street

The challenges for Hydro One following Ford’s board renewal plan


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Doug Ford got his way with the immediate retirement of Hydro One’s CEO and ouster of its entire board, but experts warn the shakeup could ultimately hurt the new premier’s declaration that “Ontario is open for business.”

Ford said Wednesday he has followed through on a key campaign promise to overhaul Hydro One’s leadership as he seeks to reduce electricity prices. Moments before Ford addressed reporters, Hydro One announced chief executive Mayo Schmidt will immediately retire and the company’s entire slate of directors will be replaced.

Anita Anand, a corporate governance professor at the University of Toronto, said Hydro One’s overhaul is rattling investor confidence.

“This is supposed to be operating as a private company. But what we’ve seen lately, and especially [Wednesday], this is far from it,” Anand said in an interview with BNN Bloomberg Thursday.

“I think generally Bay Street is very surprised at a [wholesale] exit of the board and the CEO. A $20-billion company now having no leadership – this is worrisome.”

Indeed, Ford’s leadership shakeup has already prompted Credit Suisse Analyst Andrew Kuske to downgrade Hydro One to Neutral from Outperform.   

“In our view, we believe [Hydro One’s] shares will de-rate and suffer from a potentially long-term ‘Ontario overhang,’” Kuske wrote in a note to clients titled “Painful Populist Power Politics.”

Hydro One shares tumbled more than five per cent to $19.15 on the Toronto Stock Exchange at 9:56 a.m. ET, after plunging as much as 7.9 per cent at the open for the biggest intraday drop since the company went public in 2015.

With the province as the utility’s largest shareholder with a 47 per cent stake, Thursday morning’s drop cost every Ontario resident about $24.77, according to estimates by BNN Bloomberg.

Anand also raised concerns about how Hydro One’s leadership changes will affect business perceptions of the province itself.

“What I worry about is this is an indication that decision making is at the head of the province’s house now. And what should we expect going forward – not just in terms of Hydro – but in terms of decisions that affect consumers in Ontario?” she said.

“It sends a message to not just Ontarians, but also internationally that, is Ontario really the place that is open for business?”

Ford’s next challenge is making sure suitable replacements are found to fill Hydro One’s senior ranks, according to another governance expert.

“I think Ford’s challenge right now to get market support is to appoint directors that aren’t full of Order of Ontario, political affiliations and things like this – but really some solid directors who have on-the-ground experience with utility expertise,” said Richard Leblanc, professor at York University, in an interview with BNN Bloomberg. 

But that task is going to be out of Ford’s hands to a large extent. A new board is expected to be in place by Aug. 15, with four directors nominated by the province and another six nominated by an ad hoc committee comprised of Hydro One’s other top shareholders. The new board of directors will also be responsible for selecting a new chief executive.

Meanwhile, Anand warned that the prospects for finding a new Hydro One CEO at “less-than-market-rates” are low and stressed that the process will take time.

“That time lag between having a full-performing CEO and performing board, and finding someone to replace both of those leadership entities is going to likely be costly,” Anand said. 


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