October 12, 2012
Almost every successful, high-profile institution will, at some point, land in the crosshairs of public scrutiny, facing a challenge worse than “issues management” but short of a classic “crisis.” Call it a “reputation event.”
But now, traditional companies face unique challenges when confronted by today’s opinion-propelled media.
Liberty Mutual Insurance Group learned this the hard way.
The Fortune 100 player sustained slow-motion trauma when Boston Globe Metro columnist Brian McGrory converted undeniable data points into nine columns between April 13 and June 13 of this year, marking the worst 60 days of the century for the company in its headquarter market.
“I suspect they felt it would all go away after a couple of columns,” McGrory told The Strategist.
Owned by policyholders and not publicly traded, Liberty Mutual is known for staying out of the newspapers. Instead, it relies on smart and effective corporate social responsibility, cause and citizenship strategies delivered through advertising and sponsorships, locally and nationally.
More comfortable with managing business and insurance trade reporters, the company seemed overmatched as McGrory, a 23-year Globe veteran with an investigative and political pedigree, deftly quilted a damning tapestry that portrayed Liberty Mutual’s leadership as a bunch of elitist high-rollers who were badly out of touch with the economic realities of their policyholders.
Annual total compensation of $50 million for its longtime CEO, a $46.5 million state tax break for a new corporate headquarters, $200,000 in compensation for each director, five corporate jets at a private terminal in suburban Boston, an opulent $4.5 million executive suite renovation, luxury vacation homes, country club memberships — this was all news to stakeholders. The company voluntarily reports quarterly financials but is not subject to more stringent federal transparency rules.
The seeds for Liberty’s predicament were sown six months earlier, in late October 2011, when a freak snowstorm triggered massive, prolonged power outages for hundreds of thousands of people in the Northeast. One of those was McGrory.
Frustrated and cold, he was “stunned, just stunned” to learn of the compensation of Northeast Utilities CEO Thomas May.
McGrory noticed May sat on the board of Liberty Mutual, and that former Liberty Mutual CEO Gary Countryman was on May’s board of directors. The intertwined relationships of May, Countryman and other Boston corporate chiefs — serving on each other’s boards, setting each other’s salaries, sharing golf courses and vacation communities — fascinated McGrory, and he made a mental note.
On April 11, Globe business reporter Todd Wallack reported that the total compensation of Countryman’s successor as Liberty Mutual CEO, Edmund F. “Ted” Kelly, made Kelly “one of the highest-paid corporate executives in the country.”
In response, McGrory dashed off “a quick column” titled, “It’s greed to top all.”
The opening sentence set the tone for what was to come: “At some point in the future, maybe 50 years from now — maybe a century — historians will look back at this era as the time when America basically lost its collective mind.”
The column translated Kelly’s compensation to “$192,000 a day or $24,000 an hour,” a phrase McGrory would repeat in subsequent pieces and one that struck a nerve in a difficult economy. Within hours of publication, McGrory said his phone began “ringing off the hook” with tips — the beginning of a reader reaction “that was off the charts.”
It also wasn’t long before Massachusetts Attorney General Martha Coakley described Kelly’s pay as “exceedingly high” and called for “greater scrutiny” of the company’s future rate-hike requests.
One tip led McGrory to discover that Liberty Mutual had “its own air force.” Public aviation records and a Wall Street Journal database revealed that the corporate jets had made dozens of flights to locations near Kelly’s vacation homes. “Soaring greed” was the headline for that McGrory column.
Next, McGrory exposed the compensation of Liberty Mutual’s top-nine earners, noting that, collectively, they made more than the Boston Red Sox starting lineup. He also recounted his fruitless attempts to speak with any member of the company’s board.
Another tip led him to public building records detailing the renovation of the 1,335-square-foot office of David Long, who succeeded Kelly as CEO in June 2011. “If you’re on any sort of medication for heart ailments or stress, proceed at your own peril,” McGrory cautioned before dissecting the $4.5 million make-over.
The corporate data in each column would have been somewhat damaging as a news story, but they were reputation smart bombs in the hands of a skeptical populist like McGrory, a former Metro editor who has authored several best-selling political mysteries.
“The facts were pretty damning,” he said. “My goal was never to act angry in print, because it was all so outrageous in itself that you didn’t need to be outrageous in tone. I tried to take a joking tone to invite readers into it. My goal was to take it seriously but keep it light, if that makes sense. I didn’t need to add more outrage. It all just looked awful for them.”
Kelly defended his compensation as “an accounting issue” in an April 28 interview with Wallack, but the task of responding to McGrory belonged to veteran corporate spokesman Vice President John Cusolito.
Cusolito, who declined to participate in this article, fought back with standard issues management messaging, explaining that Kelly’s compensation was largely driven by success incentives and deferred payments; that executive pay was based on industry benchmarks; that the corporate jets were needed for a company of global scale, etc.
While the approach represented best practices for neutralizing and mitigating conflict when dealing with business media, it proved to be ineffective on the front of the Metro section and in the context of McGrory’s amused outrage.
“I respected what Cusolito was doing,” McGrory said. “He struck me as a very nice guy who was doing the best he could with what he had. I always called him and let him know what I was doing. He would take down my questions and he would get back to me later, usually with an email response. There was never really any sort of conversation. They have always been extremely reticent in dealing with media in general and perhaps with the Globe specifically. Their lack of response made my job easier.”
The saga climaxed when Cusolito invited McGrory to meet CEO Long in the executive suite, triggering a final column that began: “[In] my next life, I want to be the mahogany salesman with the Liberty Mutual account.”
Long adopted a humble, transparent tone during the meeting, acknowledging that Kelly would receive a sizable pension and, as board chairman, continued use of corporate jets. But he promised to fill board vacancies with members who would bring “different perspectives,” and took personal responsibility for his extravagant office makeover, saying, “I didn’t take as much time thinking about it as I probably should have.”
Long said policyholders have the final say on Liberty Mutual’s performance and conduct of business, adding, “If they don’t like what we’re doing, they can go somewhere else.” (The company reported $18 billion in revenue for the first six months of 2012, a 6.5 percent increase over the same period in 2011.)
McGrory said that he found Long “extremely charming and very forthcoming.” The interview ended the drip, drip, drip of Liberty Mutual’s reputation event. Would things have been different if the company had engaged with McGrory earlier?
“It would have given me some pause had they acknowledged that they had gotten carried away and promised to make reforms, but instead they dug in their heels,” he said. “Although some of this stuff was just too obvious not to write about, the best thing they could have done was gotten enough of it out there earlier so the tips dried up.”