It's a tale of two cities. While its certainly not the best of times at Beantown's Putnam Investments, it seems to be the worst of times for the employees at Strong Financial in Menomonee Falls, Wi. Both firms are heavily involved in the scandal plaguing the fund industry and have some striking similarities in circumstances. But their fates, and those of their workers, seem decidedly different.
At Strong, the outlook is bleak. Industry watchers and sources say that morale is plummeting at the firm and that employees there are both shocked at the revelations about founder Richard Strong, and awed at the predicament they now find themselves mired in.
After Strong, chairman, CEO and CIO of the firm resigned in December because of improper trading in his own account as well as a host of misdeeds by his firm, Strong Financial was put on auction block. Richard Strong announced a sale of the firm was being contemplated and Goldman Sachs was hired to scout out potential buyers.
At press time, it was reported that a number of bidders were interested in purchasing the assets of the firm, a move that could set the sale in motion. Strong had reportedly mandated a deadline last week, for potential buyers to submit a price range in which they are willing to pay for the firm's assets.
Bank One, Wachovia Bank, KeyCorp, and Wells Fargo, are among the reported suitors, as well as Lehman Brothers and New York Life Insurance. The assets are to be sold off, leaving the remaining portion of the hollowed-out firm to assume any liabilities imposed by regulators and handle the bevy of lawsuits.
Strong's public relations department had previously said that a sale is just one option, but sources have said the move is a foregone conclusion. An imminent sale could lead to the majority of the 1,300 employees at its headquarters losing their jobs.
Attracting quality workers to the firm may be nearly impossible at this stage with the cloud of uncertainty surrounding its future, say industry insiders. Current workers should start updating their resumes and considering alternative options, some have suggested. Burton Greenwald, president of the Philadelphia fund-consulting firm B.J. Greenwald Associates, said employees there have to be considering whether or not their jobs at Strong in the suburbs of Milwaukee are a long-term viable option. Strong Financial did not return several calls seeking comment.
"Our phones ring continuously from Strong associates wondering whether they should actively be looking for new jobs. The kinds of calls I am getting are calls asking for advice. People have a strong loyalty to the firm, but feel they need to be hedging their bets," said Rochelle Lamm, Chairman and CEO of Precision Marketing Partners and The Academy of Financial Services Studies in Milwaukee. Lamm is the former president of Strong Intermediary Services and Strong Retirement Plan Services. The two firms fall under Lamm Wallach Companies, which provides distribution, sales, marketing and training services exclusively to the financial services industry. "While people first and foremost are concerned about their families and jobs, as we talk with our former colleagues at Strong, they have many more questions than answers about what's in store for them personally and for the firm," Lamm added.
Lamm said that between her two firms, a total of 15 people are ex-Strong veterans, including Leslie Lynch, president of The Academy of Financial Services Studies and Strong's former head of human resources. "Our firm is filled with ex-Strong employees, its like family over there to us."
A Lump of Coal
Adding insult to injury, Strong announced recently that it is cutting back on the retirement benefits it provides to employees. "That is a sorry commentary on the leadership in the sense that the abuses occurred at the very top, but the rank and file are suffering because of it," Greenwald added.
Specifically, the firm told its employees that it is eliminating its 2004 pensions plan contribution and ditching its matching contribution to employees' 401(k) plans, amid a push to lessen costs. Additionally, the firm said that it is considering other cost cutting measures as it fights to stop assets from hemorrhaging. The 2004 pension contribution that is being eliminated by Strong's board of directors was to be paid in 2005. The firm said it will make its 2003 contribution at the end of this month.
"It's an unfortunate piece of news for the employees and is basically driven by the firm being in some difficulty because of what the top executive did," said Don Cassidy, senior analyst with Lipper of New York. "I think the firm is in a position of trying to survive, whether that be independently or being acquired, but it is unfortunate for the innocent people."
"Obviously the firm is experiencing some serious declines in assets and they are cutting costs accordingly," Cassidy noted. However, Lamm said she cannot understand the decision to cut employee benefits and added: "I would hope that a decision of that significance, if driven by the need to cut costs, would have been accompanied by an equivalent cut in the compensation of the senior management team. That's what great leaders would do."
"When you're down and your back is against the wall, a company needs really experienced, calm cool and collected senior management to retain talent and engender confidence that if employees pull together there will be a positive outcome."
Some have suggested Strong lacks the bench-strength to replace a forceful leader like Richard Strong and is suffering now that it is a essentially body without a head.
While Strong's headquarters is known for its immaculately manicured grounds, ironically for its employees, the grass is actually greener on the other side. "I think there's a vacuum at Strong because Dick Strong was an extraordinarily strong willed personality," Greenwald said. "There was not another figure there -- he dominated the scene. At Putnam you had Ed Haldeman come in with the strong possibility that he would be Larry Lasser's successor. Haldeman is a strong leader. In that sense Putnam was fortunate in that they had someone to fill the void. I don't see that person evolving at Strong."
Life After Larry
Optimism and anxiety are the two prevailing emotions over at Putnam's headquarters, sources said. While the majority of the workers are happy to be putting the scandal behind them with the firm settling with the SEC, they are also anxious that at any time another shoe might drop. They fear uncertainty and worry that another potentially undiscovered wrinkle in the investigations could further damage the firm.
Putnam employees are reportedly on the defensive when conducting business and have had to be less flexible with clients at times, primarily due to the increased scrutiny on the firm. "On the distribution side and client management side, it may be difficult to keep their heads up," said an executive recruiter with a large firm, who asked to remain anonymous.
However there is a silver lining. Those that are at Putnam are trying to rally around the new management team, several sources said. "Overall, employees are eager to help Putnam, now more than ever, and remain focused on their responsibilities to provide high quality service to clients and shareholders," said Edward F. Whalen, managing director of human resources at Putnam. "Employees have expressed tremendous support for the new management team and its direction."
Putnam's executives are acutely aware of the effects on employees. Whalen said Putnam's management is committed to rebuilding the trust and confidence of investors, as well as clients and employees, adding that management is making it a priority to keep employees updated on new developments.
"Most important is holding the investment teams in place and showing the external world solidity," the recruiter said. Additionally smoothing the transition, Haldeman is making it easy for those that are not committed to the rebuilding process to leave, she said.
"I think that the rank and file are putting plenty of faith in Ed Haldeman and Steven Spiegel (the newly appointed vice-chairman)," she said. "Putnam's done a terrific job of calming the investment and distribution people. They've done a great job of buying time."
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