Correction to This Article
The column said that Constellation Energy Group incurred more than $1 million in termination costs when it pulled out of a merger agreement with a Berkshire Hathaway subsidiary. The cancellation cost Constellation about $1.2 billion, according to a regulatory filing.
At Constellation, Not a Star Performance

By Steven Pearlstein
Friday, April 24, 2009

It's been a rough year for Mayo Shattuck.

In his salad days, the onetime golden boy of finance helped take Microsoft and America Online public, then rode Alex. Brown & Sons up the Internet boom before selling the investment firm to Bankers Trust.

Four years later, when Shattuck was recruited to take the reins at Baltimore-based Constellation Energy Group, he cleaned out the stodgy old utility managers and moved aggressively into the merchant energy business, embracing the brave new world of deregulated power and moving to fill the void left by Enron and Dynegy. As energy prices soared and Constellation stock topped $100 a share by early 2008, Shattuck won lavish praise from Wall Street and a lavish pay package from his directors.

Beginning last summer, however, the stars at Constellation fell out of alignment. The sharp and sudden reversal of energy and commodity prices devastated Constellation's giant trading operation, up to then the source of most of the company's profit. Even worse, the company discovered that it had grossly underestimated by billions of dollars the cash collateral it would have to come up with if its credit ratings were suddenly cut.

When the error was finally disclosed in August, Constellation's stock price plunged and the very ratings downgrade it had foreshadowed became a reality. With the company on the brink of a bankruptcy filing, Shattuck arranged to sell it to a subsidiary of Warren Buffett's Berkshire Hathaway for just under $27 a share. The ink was barely dry on the deal, however, when Electricite de France, the energy arm of the French government, weighed in with an even better offer for a 49.9 percent stake in Constellation's nuclear power division. Getting out of the Buffett deal saved Constellation its independence and Shattuck his job, but cost shareholders more than a million dollars in merger termination costs.

If all that weren't bad enough, word leaked in March that the deal with the French contained a little provision guaranteeing 120 senior managers at Constellation $32 million in bonuses meant to keep them on the job. Unfortunately, the news came just after the company posted a $1.3 billion loss for 2008, cut its dividend, laid off hundreds of employees and pushed through a local rate increase. Although Shattuck quickly quelled the political firestorm by canceling the bonuses, it was too late to prevent Constellation from being linked both to Enron and AIG in the public imagination.

When I finally met Shattuck last week in his office overlooking Baltimore Harbor, I expected to find the embodiment of everything wrong about corporate America. To my disappointment, I found a smart and charming fellow Bostonian, straightforward, down-to-earth and surprisingly philosophic about his plutocratic reputation.

In his telling, Constellation was not another Enron. There was no accounting fraud, no earnings manipulation, no hidden off-balance-sheet shenanigans. As far back as 2006 he had anticipated the need to expand Constellation's balance sheet to support its burgeoning energy and commodity trading business, striking a merger deal with Florida Power & Light, only to see it killed by Maryland regulators. And even before the August debacle, Shattuck had moved to dial back Constellation's merchant trading business by putting its London trading operation up for sale.

Shattuck readily admits that the miscalculation of the company's collateral risk was inexcusable. But he argues that nobody could have foreseen the financial collapse last September that dried up lines of credit and triggered unprecedented volatility in commodity prices.

In the wake of the debacle, Shattuck and Constellation's directors fired half of the top management team, including the chief financial officer, and announced a "de-risking" strategy to reduce the company's heavy reliance on energy trading. Instead, Constellation will move toward generating more of the power that it sells, with a particular focus on nuclear power.

As I listened to Shattuck, it struck me that what was missing from his rendition was much contrition, embarrassment or a sense of personal responsibility.

While you might applaud the bold move of firing half the executive management team for bungling the execution of the corporate strategy, why spare the chief executive and directors who devised and approved a strategy that they have now renounced?

Shattuck was clever enough to volunteer to forgo any bonus for himself for 2008, but seems not to have considered the possibility that a firm that lost $1.3 billion during the year and had its shares decline by 75 percent would not offer one.

And while one can sympathize with Shattuck's frustration with Maryland officials and voters who have misguided notions about local electric rates, it's fair to point out that it is his job as chief executive to manage the company's political risks and public image.

Like many executives and directors on Wall Street, Mayo Shattuck ultimately defends his performance by noting that in business, as in life, bad things sometimes happen to good people. By the same logic, of course, good things sometimes happen to good people -- which those good people ought to remember the next time they confuse luck with skill and begin to believe they are worth $14 million a year.

Steven Pearlstein can be reached at

View all comments that have been posted about this article.

© 2009 The Washington Post Company