Give the money back

Washington Post: The company directors and officers had a great deal going. They -- alone among investors -- could buy thousands of shares of stock at a price all but guaranteed to rise. Later, when the stock was about to slump, they could resell at the top-of-the-market price; the insiders got to sell back all their holdings -- making more than $6 million -- while other investors could unload just a fraction. That wasn't all: The company's five top executives received nearly $6 million in bonuses apparently never disclosed to the board of directors. The company chairman made $5.4 million in 2000 alone.
This may sound like just another sordid tale of corporate greed, but it comes with a twist: The company is Ullico Inc., an insurance firm owned by labor unions and their pension funds, and the corporate insiders are some of the leaders and ex-leaders of America's biggest unions. Founded in 1925 to provide low-cost life and health insurance to union members, Ullico cashed in on the stock market boom, turning a $7.6 million investment in telecommunications company Global Crossing Ltd. into a profit of about $486 million. To partake in some of that newfound wealth, Ullico officers and directors were allowed to buy up to 4,000 shares of stock at $28.70 a share in 1998 and $54 in 1999. When Global Crossing stock started to tank, Ullico allowed insiders to sell back all their shares at $146; bigger shareholders -- unions and pension funds -- were limited to selling 2.2 percent of their holdings.
Piles of money
When a whiff of the goings-on at Ullico hit the media last year, the company hired former Illinois governor James Thompson to investigate, then refused to release his report. Now, under pressure from stockholders, the report is out, and it's clear why it was suppressed: Its 109 pages present an exhaustive recitation of how Ullico officials helped themselves to piles of money. Thompson's report "strongly" recommended that Ullico Chairman Robert Georgine and 19 others give back their profits from the stock buyback program and said the board should consider whether millions in other profits ought to be disgorged as well. The report found no violations of criminal statutes but said there was "a compelling argument" that the directors violated their duties to act in the best interests of the company.
Ullico's response? It attacked Thompson's legal conclusions and appointed a committee of the board that voted 5 to 3 against asking for the money back. Georgine reserved his ire for what he suggested was the real "breach of trust": the leaking of the Thompson report. Some leaders, including AFL-CIO President John Sweeney, have quit the board in protest and called on colleagues to return the profits. The heads of the Auto Workers, Service Employees, and State, County and Municipal Employees unions are pressing for Georgine to be replaced, and it appears they will get their way; a reform slate of directors has just won the board's backing and appears to be committed to both ousting Georgine and recovering some of the gains.
In the meantime, those who are holding on to the money include Georgine ($837,760), former Ironworkers union president Jacob West ($837,760) and Bill Casstevens, former secretary-treasurer of the United Auto Workers ($603,080). While federal and state investigations continue, and the company's annual meeting approaches, Ullico needs to keep in mind how all this looks to the working men and women whose interests they purport to be serving.