ValueAct Urges External Search for New Hawaiian Electric CEO

(Bloomberg) -- Activist investor ValueAct Capital Management is urging Hawaiian Electric Industries Inc. to look outside of the company for a successor to Chief Executive Officer Constance Lau to help the utility accelerate its renewable energy goals.

The San Francisco-based hedge fund said in a letter to Hawaiian stakeholders that it believes the company has started its succession planning for Lau and is in need of a corporate cultural shift.

“The company is at an inflection point where management can be driven either by more of the same inertia or, alternatively, by innovative, forward-looking thinking and action,” ValueAct Chief Executive Officer Jeff Ubben said in a letter dated Nov. 11.

“I firmly believe the best candidate for this crucial leadership role will be found outside of the company,” he added.

A representative for Hawaiian Electric wasn’t immediately available for comment Tuesday.

Hawaiian Electric rose 0.4% to $43.14 Tuesday in New York trading, giving the company a market value of $4.7 billion.

Renewable Goals

Ubben said he was concerned that Hawaiian Electric won’t meet its renewable goals. He said nearly two-thirds of the increase in its renewable electricity sales from 2008 to 2018 were derived by installation of rooftop solar systems by customers -- individuals and businesses -- rather than by large-scale renewable projects initiated by the company.

The utility is on track to hit an interim target of getting 30% of its power from renewable sources by 2020, Lau told investors during the company’s third-quarter earnings call on Nov. 1. Hawaii is pushing the utility to get all of its energy from clean sources by 2045 to reduce its dependence on pricey oil-fired generation. Lau has said Hawaiian Electric is “focused on” meeting that goal.

ValueAct said it had its doubts based on the company’s track record that it could reach its internal goal to reach 50% of electricity sales from renewables by 2022.

‘Lackluster Performance’

“The problem starts at the top,” Ubben said. “Hawaiian Electric Industries executives and its board leadership have been richly rewarded for lackluster performance.”

ValueAct contends the utility remains too reliant on imported oil, which is used to produce 63% of its electricity and is leading to higher rates for its customers. Hawaiian residents have paid 280% more for electricity per kilowatt hour than the U.S. average over the past 10 years. The company has filed with regulators for another rate increase.

“It’s time to break this never-ending cycle and provide economic relief for residents,” Ubben said.

The San Francisco-based hedge fund disclosed in October 2018 a $50 million position in Hawaiian Electric through its ValueAct Spring fund, which is focused on environmental and social investing. Total shareholder returns since ValueAct disclosed its position Oct. 25, 2018, have been about 22%.

Outside Candidates

Ubben said at the time that ValueAct planned to push the utility to accelerate its use of renewable energy, among other changes. He said in the letter this month that he was encouraged by the utility adding three new directors to its board in February. He was disappointed, though, that two of them, renewable energy veterans Mary Powell and Celeste Connors, weren’t assigned to any board committees.

Hawaiian Electric could improve its performance by looking outside the company to replace Lau after her departure, Ubben said.

“I am not alone in my observations,” Ubben said. “Business, government and community leaders have shared privately that they also believe the entrenched leadership style and culture at Hawaiian Electric holds the company and Hawaii back from realizing their full potential.”

To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net;Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, ;Lynn Doan at ldoan6@bloomberg.net, Michael Hytha, Matthew Monks

©2019 Bloomberg L.P.