Southern Company and Balch’s Third-Party Risk

[This post was originally published last year on April 30, 2018. Today is the annual shareholders meeting of Southern Company. With a federal probe emanating from Mississippi, cost overruns at a nuclear power plant in Georgia, and Balch & Bingham’s alleged shenanigans in Alabama, Southern Company has many issues to confront; however, CEO Tom Fanning in the past year has quietly distanced the company from Balch, while hiring some of the best talent from the embattled law firm.]

Institutional investors and Wall Street analysts are keenly aware of third-party risks and the ability of major corporations to manage them.

Right now, Southern Company CEO Tom Fanning is under a microscope for his company’s incestuous relationship with Balch & Bingham, the embattled law firm that saw two partners indicted last September in an alleged $360,000 bribery scheme that suppressed African-Americans in North Birmingham from having their toxic and contaminated property tested by the EPA.

As one leading consulting firm says, “There would be strong governance in place to define next steps once a risk is identified, including guidance not only for remediating it but also deciding if it should be accepted and how to properly manage it if it is. There would be clear ownership of third-party risk.”

Fanning and his team have not only ignored the risks, they have done nothing to remediate the situation or take ownership.

Southern Company, through its wholly-owned subsidiary Alabama Power, had a Balch & Bingham lobbyist on Capitol Hill inquiring and lobbying about the North Birmingham situation as the bribery scheme was occurring.

Alabama Power is Southern Company’s most profitable utility that is closely tied to, almost intertwined with Balch & Bingham.  (Alabama Power’s CEO, General Counsel, and VP for Government affairs are all former Balch & Bingham partners.)

As we gear up three weeks away from Southern Company’s annual shareholders meeting, the grave risk cannot be overshadowed by a profitable subsidiary. The federal trial against the two Balch partners may start only weeks after in June.

The cancer of corruption, influence peddling, egocentric envy, and blatant racism from a third-party is deadly if not confronted directly, swiftly, and honestly by corporate management.

Wall Street is watching and listening.