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FirstEnergy agrees to board refresh, review of executive team, lobbying activity

FirstEnergy Corp. agreed to refresh its board of directors, allow an independent review of its current executive team and increase oversight of political and lobbying activities as part of a far-reaching settlement that resolves multiple shareholder lawsuits.

The Akron, Ohio-headquartered utility on Feb. 10 announced it has agreed to a settlement term sheet that resolves claims in shareholder derivative lawsuits filed in the U.S. District Court for the Southern District of Ohio, the U.S. District Court for the Northern District of Ohio and the Ohio Court of Common Pleas in Summit County.

The settlement, subject to court approval, stipulates several steps designed to improve corporate governance.

FirstEnergy's fourth-quarter 2021 earnings call was scheduled for Feb. 11. In a Form 8-K filed Feb. 10 containing the call's presentation, the company said because the shareholder derivative lawsuits were brought on its behalf, the settlement includes a payment to FirstEnergy of $180 million less plaintiffs' legal fees, to be covered by insurance.

Under the terms, six members of the board of directors who have served on the board for at least five years will not stand for reelection at the company's annual shareholder meeting later this year. FirstEnergy identified these board members as Michael Anderson; Chairman Donald Misheff; Thomas Mitchell; Christopher Pappas, the company's former executive director; Luis Reyes and Julia Johnson.

The board currently has 16 members, seven of whom have come on in the past year. In the fourth-quarter 2021 presentation, FirstEnergy said it has been considering options to reduce the board's size, though it did not state a final number.

A special committee of at least three independent directors will initiate a review of the current executive team within 30 days of the 2022 annual shareholder meeting.

The board also will oversee FirstEnergy's lobbying and political activities, which includes "periodically reviewing and approving political and lobbying action plans prepared by management."

In addition, the board must form a committee of newly appointed independent directors to oversee the company's implementation of board-approved action plans.

The terms also stipulate FirstEnergy "implement enhanced disclosure to shareholders of political and lobbying activities" and "further align financial incentives of senior executives with proactive compliance with legal and ethical obligations."

"The corporate governance provisions included in the settlement are aligned with the actions we have taken to move forward as a stronger organization," Misheff, FirstEnergy's non-executive chairman, said in a written statement. "FirstEnergy achieved significant accomplishments in 2021, including two transformative transactions raising $3.4 billion, increasing our planned capital investments, continued operational excellence, and, importantly, prioritizing a culture of compliance and integrity."

The Federal Energy Regulatory Commission recently ordered FirstEnergy to refund customers, with interest, for improper accounting of lobbying expenses from January 2015 through late 2021.

FERC's audit said FirstEnergy made payments of about $70.9 million to various 501(c)(4) groups and a group identified as Hardworking Ohioans Inc. for "lobbying or other nonoperating purposes." In addition, the audit pointed out that FirstEnergy did not disclose the payments until an investigation by the U.S. Justice Department was made public.

In a three-year deferred prosecution agreement with federal prosecutors in July 2021, FirstEnergy admitted that the company and its past and present affiliates funneled nearly $60 million through political nonprofit groups to secure the legislative bailout of two Ohio nuclear plants.