The New York Times
Laborers' Leader Takes Over Troubled Union-Owned Insurer
May 9, 2003
Terence M. O'Sullivan, the newly elected chairman of Ullico, the beleaguered union-owned insurer, said yesterday that he would try to save the company from going under and restore its reputation after it became the focus of four insider trading investigations.
Mr. O'Sullivan, president of the laborers' union, was elected chairman and chief executive yesterday as Robert A. Georgine, widely criticized for heading a stock-trading effort that made millions of dollars for Ullico's directors, relinquished his positions as chairman, chief executive and president.
Mr. O'Sullivan said he had invited Ullico's special counsel, James A. Thompson, a former governor of Illinois, to appear before the company's new board next Tuesday and present the recommendations from his investigation into the accusations of insider trading.
Mr. Thompson had urged the previous board to require the directors to return the more than $6 million they made in trading Ullico stock, but a special committee of that board rejected his recommendations. Mr. O'Sullivan said in an interview that he hoped Mr. Thompson's presentation would help persuade the new board to adopt Mr. Thompson's recommendations.
The stock trading by Ullico's directors embarrassed the labor movement when it was criticizing American corporations for not doing enough to cleanse themselves of scandal.
In the deal at issue, many Ullico directors bought company stock in 1998 and 1999 at prices set by the board, knowing that the board would soon most likely reset the share price far higher. In 2000, 17 directors, half of the board, sold the stock back to the company at many times the purchase price, knowing that the board would soon reset the stock price far lower. All 17 sellers were current or former union officials.
"This stock trading caused a major disruption within the company at a time the labor movement could ill afford to have this kind of disruption," Mr. O'Sullivan said.
He was one of two members on an eight-person special committee of Ullico's board to vote to require the directors who made trading profits to return the money.
Two weeks ago, Mr. Georgine, former president of the A.F.L.-C.I.O.'s building trades department, said he would step aside as chairman, but remain as chief executive and president. But he resigned from the other two posts yesterday when he saw that Mr. O'Sullivan and his 15-member slate of directors were intent on ousting him from those jobs.
Mr. Georgine said yesterday that he was due $2 million in severance payments that he said he would give back to the company to repay it for his and other directors' trading profits. Several union leaders questioned whether Mr. Georgine, who earned more than $10 million from 1999 to 2001, was due the $2 million.
Mr. O'Sullivan did not choose a new president yesterday, saying he planned to select an insurance professional to run Ullico's daily operations. He said he planned to continuing running the Laborers' International Union of North America, which has 800,000 members. Union officials said he would receive no salary from Ullico.
After many labor leaders began criticizing Mr. Georgine for not dealing aggressively with Ullico's stock-trading problems, several began working behind the scenes to elect a new board and push him out.
"The steps the Ullico shareholders have taken are what should happen at every American company that faced similar problems," said John J. Sweeney, the A.F.L.-C.I.O's president, who quit Ullico's board last year. "Ullico needed to live up to the standards we ask others to meet."
Mr. O'Sullivan's most pressing problem is to help restore Ullico's financial health. It was founded in 1925 to provide low-cost insurance to blue-collar workers and today it provides insurance to unions and their members, handles investments for unions and administers benefit funds.
Ullico had a pretax net loss of $115.9 million last year, according to company documents, far worse than its loss of $44.4 million the previous year. Much of last year's loss came in Ullico's Washington-based holding company, which ran up more than $10 million in legal bills related to the scandal, union official said.
Mr. O'Sullivan said one expense he planned to cut was the corporate jet, which he said cost $3.7 million a year to rent.
Mr. O'Sullivan said that Mr. Georgine was not the only official at fault for Ullico's financial woes, adding that he would review the company's staff and decide whom to keep and whom to dismiss.