The Pedernales Electric Cooperative Board of Directors has terminated the employment contract of General Manager Juan Garza. The announcement, made by Board President Larry Landaker, astonished the audience of PEC members and staff gathered at the monthly board meeting in Johnson City on Monday afternoon.

The posted agenda called for the board to meet in closed, executive session after the morning’s open session to consider an LCRA contract provision, legal issues, a real estate opportunity and personnel matters relating to the General Manager. The board was due to re-convene in public session at 1 p.m., but did not re-appear from behind closed doors until almost 2:25 p.m. The normal amiable chatter, socializing and interaction with audience members was clearly absent from board members as they entered the meeting room to begin the afternoon session.

In a somber tone, President Landaker said a motion to terminate Garza’s employment contract was “approved by a majority vote” during executive session, to become effective on June 30, 2010. In an interview after the meeting, Landaker said he was the one who made the motion to terminate Garza’s contract, something he had considered doing for “less than a few months.”

Landaker said that he likes Garza personally and that Garza “got PEC through a difficult transition period.” Garza’s “stewardship at PEC is appreciated by all the board members,” according to Landaker, and there were not allegations of wrongdoing involved in the board’s decision.

Citing privacy concerns relating to personnel matters, Landaker declined to detail the reasons for the board’s action, but did offer this explanation: “There are a variety of reasons, but it is safe to say that anytime an action like this is taken, it is an indication that the board and general manager are not in sync and are going in different directions. It is the sense of the board that the general manager needs to be on the same page as the board and going in the same direction.”

Landaker indicated that management, led by Garza, has not responded to the Navigant Consulting Report on business practices at PEC and the SomersetGuild review of employee satisfaction in a way acceptable to the board. These reports “formed road maps for management to follow,” said Landaker. “We would like to see us move a little faster and jump a little higher.”

It is the “job of management to bring forth tangible solutions that address very serious issues such as those addressed in the SomersetGuild review,” according to Landaker. “I’m not satisfied that those deficiencies have been cured.”

Garza addressed the board after the announcement of his termination, saying he was shocked by the decision, given the “great strides in openness and transparency” and financial progress made at the cooperative since he took over the reins. “I accept the decision of this board with the understanding that I have done the best job I can with one of the greatest teams of employees that I have ever known.”

The board apparently expected more timely and tangible results from management in effectuating reforms adopted by the board. Landaker explained, “PEC has had two open elections – both about reform. To most people, ‘reform’ means change.” When asked if the delay in implementing board approved changes to PEC practices, for instance requiring a credit check or deposit from new customers, was an example of action the board would like to have seen implemented quicker, Landaker declined to comment, saying only that others are free to draw their own conclusions.

The audit report from Bridgepoint Consulting submitted to PEC in May was critical of the cooperative’s expenditure process. It stated in part, “Overall our opinion is that the administration of the Expenditure process NEEDS MAJOR IMPROVEMENT. Numerous specific control weaknesses were noted indicating that controls are unlikely to provide reasonable assurance that risks are being managed and operational objectives will be met.”

Garza took over as general manager in February 2008 after the ouster of former GM Bennie Fuelberg. Garza embraced the new era of transparency already launched at PEC as a result of a class action lawsuit brought by some of its members, but he also brought his own management style based on the “servant leadership” methodology.

Garza instituted an extensive servant leadership training program and hired a new manager and support staff to run it. Program expenses included educational materials and employee retreats to the Canyon of the Eagles Resort. The SomersetGuild report issued in February 2010 showed that although 87% of employees understand the servant leadership philosophy, only 28% of employees felt servant leadership had been “fully embraced” by managers at PEC.

The PEC board has authority over only one cooperative employee – the general manager. Landaker said he does not anticipate any other top-level management changes, but added that any changes will be up to the new general manager. The board will meet in special session on June 19 at 10 a.m. before the annual membership meeting to select a new interim general manager, most likely from within PEC, and take steps to engage a search firm to conduct a national search for a new general manager. Landaker estimates the search may take between six to nine months; however, he stressed that the board will take whatever time is necessary to find the right candidate to head PEC management.

While saying it was a “serious day” for PEC, Landaker also said it was a “day of optimism” for the future of PEC, its members and employees. “We believe in our employees. We have the most dedicated, hardworking work force in Central Texas.”

Although Landaker would not reveal how individual board members voted on the motion to terminate Garza’s contract, he did say it “was a majority vote” and there “were no abstentions.” In his remarks to the board in open session, Garza thanked directors Patrick Cox and Kathy Scanlon for “their support.” By deduction, the vote appears to have been five directors voting in favor of terminating Garza’s contract, two against.

When Garza took over as general manager in February 2008, his contract called for $350,000 in annual salary, $1,500 per month car allowance, and the same insurance and benefits that are offered to all PEC employees. The contract also provided for a bonus based on accomplishing certain goals and targets. At the time, Garza said he hoped the performance bonus would equal 40 to 50 per cent of his annual pay. In 2009, the board authorized a $30,000 bonus, less than 10% of Garza’s annual pay.

Garza did not fire or remove any top managers at PEC when he took over from Fuelberg, and even requested a transition period so that Fuelberg could introduce him to the co-op’s employees and take him on a visit of all the offices in the PEC service area.

Garza, now 65 years old, is the son of migrant workers and the youngest of 10 children. He grew up in the South Texas town of Cotulla, served in the Army during the Vietnam War from 1965 to 1967, and then graduated from Loyola University in Chicago with an undergraduate degree in mathematics and a master’s of business administration.

He returned to Texas in 1983 and worked his way from deputy director of finance for Corpus Christi to its City Manager. In 2000, he moved to Austin to become the city’s human resources director, and in 2002 he became the head of the city owned electric utility called Austin Energy before taking the job as General Manager at PEC in early 2008.