The consequences of FirstEnergy bribing a top Ohio lawmaker over several years to assure passage of a $1.1 billion state bailout of two Ohio nuclear plants continued last week, with the company agreeing to jettison six long-time members of its board of directors and subject the current top management team to new scrutiny.

Under a settlement with shareholders, six members of the company’s 16-member board of directors who have served at least five years would not seek re-election at the company’s annual meeting in May.

Their departure would not include two board members appointed last year who are employees of Icahn Capital. (See FERC Authorizes Icahn Employees for FE Board.) Icahn purchased 3.3% of the company’s shares in September 2021.

Nor would the purge affect a third new member expected to join the board this spring representing Blackstone Infrastructure Partners, which purchased $1 billion in FirstEnergy common stock in December. A Blackstone observer currently attends board meetings. (See FirstEnergy Announces $3.4 Billion in New Equity Financing.)

The company’s board announced the measures last week, just minutes before releasing full-year 2021 and fourth-quarter earnings, eclipsing the positive results that had been set as the focus of an analyst call Friday.

The shakeup is part of a package of changes the board accepted in order to resolve multiple shareholder derivative lawsuits filed by pension funds, unions and others in federal and state courts in Ohio.

The suits alleged that the bribery scheme — to which the company pleaded guilty in a deferred prosecution agreement with the U.S. Department of Justice — was not in the best interest of shareholders.

The company fired its former CEO, Charles Jones, and a handful of other top executives in October 2020. Current CEO Steven Strah was appointed in March 2021. The federal bribery probe is ongoing.

In addition to subjecting the company’s current executive team to a “review process” by a new board committee comprising “at least three recently appointed independent directors” and preventing six veteran board members from seeking re-election this May, the settlement would require:

• the board to oversee the company’s future lobbying and political activities, including periodically reviewing and approving lobbying plans;
• the board to “form a committee of recently appointed independent directors to oversee the implementation and third-party audits of board-approved action plans;
• the company to issue “enhanced disclosure” to shareholders about political and lobbying efforts; and
• the company to “further align” executive bonuses with “proactive compliance with legal and ethical obligations.”

Once approved by the courts, the settlement would also include a payment of $180 million to the company by insurance, minus any court-ordered attorney’s fees awarded to the multiple plaintiffs.

The settlement announcement came just days after FERC released an audit report of the company’s accounting practices. The report noted that its examiners were concerned about “significant shortcomings in FirstEnergy and its subsidiary companies’ controls over financial reporting, including controls over accounting for the costs of civic, political and related activities, such as lobbying activities, performed by and on behalf of FirstEnergy and its subsidiaries.” (See related story, FERC Auditors Find FirstEnergy Accounting Irregularities.)

In remarks to analysts during the earnings conference on Friday, Strah called the settlement one of the “important milestones” the company has achieved in the last year but stressed that “most of our significant work done over the past year involves the cultural changes at our company.”

The company said it earned $1.3 billion ($2.35/share) on revenues of $11.1 billion in 2021. That compares to earnings of $1.1 billion ($1.99/share) on revenue of $10.8 billion in 2020.

For the fourth quarter, the company reported earnings of $427 million ($0.77 cents/share) on revenue of $2.7 billion. That compares to earnings of $242 million ($0.45 cents/share) on revenue of $2.5 billion in the fourth quarter of 2020.