BusinessWeek

 

 

AFL-CIO Tops Change Chairs At ULLICO With Hope That Scandal Abates With Return Of Insider Trading Profits

 

 

Tense Moments in a Labor Power Struggle

 

A potentially ugly scene is averted at the last second as union-owned insurer ULLICO's CEO and chairman steps down under fire

 

By Aaron Bernstein in Washington

Edited by Douglas Harbrecht

May 9. 2003

 

 

The labor movement moved decisively on May 8 to begin cleaning up scandal-ridden ULLICO Inc., pressuring the union-owned insurer's CEO and chairman to resign and installing a new slate of directors. But the final hours involved fierce political maneuvering, with AFL-CIO officials showing up with their own security guards as the company's annual meeting got under way at a Washington (D.C.) hotel.

 

In mid April, ULLICO's former CEO, Robert A. Georgine, agreed to step down as chairman after AFL-CIO leaders and other union presidents threatened to oust him in a proxy fight at the annual meeting. But Georgine, the prime architect of a series of stock sales that enriched him and other ULLICO directors at the expense of ULLICO's union pension-fund shareholders, refused to relinquish his CEO post, says Terence M. O'Sullivan, the president of the Laborers Union who was elected on May 8 to take over as ULLICO Chairman and CEO.

 

For the past two weeks, Georgine lobbied ULLICO board members in an effort to keep his job, say union leaders on both sides. AFL-CIO President John J. Sweeney, O'Sullivan, and other labor officials drew up elaborate plans to ensure Georgine's departure in advance of the meeting.

 

UNCERTAIN OUTCOME.  Right up until the meeting began, Georgine retained the loyalty and support of up to 14 of ULLICO's 28 directors, especially among those who hailed from construction unions, an AFL-CIO department he headed for 15 years, insiders say. AFL-CIO lawyers even prepared shareholder resolutions that would have forced emergency changes to ULLICO's bylaws during the meeting if Georgine had prevailed. The resolutions would have allowed ULLICO shareholders, largely union pension funds, to override a vote by directors.

 

So uncertain was the outcome right up to the meeting, that AFL-CIO Secretary-Treasurer Rich Trumka, who was voted onto the insurer's board on May 8, arrived at the hotel at 2 pm accompanied by aides, lawyers, and two muscle-bound security guards with crew cuts who usually guard the lobby of the AFL-CIO's headquarters.

 

The guards, AFL-CIO officials say, were there to make sure that federation and Laborers' officials could immediately gain access to ULLICO's headquarters after the change of control. "We want to go over there to let people at ULLICO know who's in charge, and we thought they might try to deny us access," said one official, who subsequently left with his colleagues to head over to the insurance company headquarters after the meeting ended about 5:30 pm.

 

BIG MONEY QUESTION.  A confrontation was averted, however, when Georgine arrived and handed O'Sullivan a resignation letter, O'Sullivan and other officials say. After O'Sullivan was voted in, the new board made it clear that Georgine wouldn't be allowed back in ULLICO's building without an escort, say those who attended the closed session. "It took awhile, I'll grant you that, but today we can focus on moving ULLICO forward and restoring it to health," O'Sullivan said after the meeting ended. Georgine could not be reached for comment.

 

Left unsolved is whether Georgine will be able to keep the more than $23 million he has made in recent years. O'Sullivan says he has called another board meeting for May 13 and invited former Illinois Governor James Thompson to review a report he prepared last year after ULLICO's board hired him to investigate the questionable stock sales.

 

Thompson's scathing report, which Georgine blocked until recently, called for directors to return the millions they made in the transactions (see BW Online, 11/15/02, "A New Twist in Labor's ULLICO Scandal"). O'Sullivan and some other ULLICO directors say they hope to endorse the recommendations next week.

 

O'Sullivan also says he plans to bring in outside lawyers to examine Georgine's employment contract, including an $11.6 million retirement trust he was given, as well as the $12.6 million he made from the stock sales and other compensation since 1998.

 

NOT DONE YET.  So far, Georgine hasn't agreed to return the money. Instead, his resignation statement asserts that he is owed $2 million more in severance. In his statement, however, he offers to forego the severance to cover his aftertax stock profits and those of other directors.

 

Labor still faces more bad publicity before the whole affair is over. Republicans on the House Education & Workforce Committee have subpoenaed Georgine to testify before the panel in mid June. And the Senate Governmental Affairs Committee has scheduled its own June ULLICO hearing.

 

At the same time, a Washington (D.C.) grand jury has subpoenaed two individuals, including a ULLICO board member, the company's lawyers have said. But if ULLICO's directors agree to return their stock profits next week, the scandal finally may start to abate.