View from the top at Liberty Mutual
My next life, I want to be the mahogany salesman with the Liberty Mutual account.
I say this after being led this week around the executive floor of Liberty Mutual’s Boston headquarters, home to some of the highest paid insurance officers in America. There was mahogany everywhere — doors, paneled walls, custom-made cabinetry, exquisite trim. I wouldn’t have been surprised to see a men’s room with mahogany urinals.
What was I doing at Liberty Mutual? Believe me, there were moments I wondered that myself. I had asked questions about a $3 million renovation to the executive offices in 2005, not to be confused with the $4.5 million renovation to the chief executive’s office in 2011, and suddenly company spokesman John Cusolito, my on-again, off-again friend, called with an invitation to stop by. Before I knew it, I was being given a tour of Liberty Mutual by David Long, the relatively new chief executive officer.
Long made news during my Monday visit — lots of news. He made hopeful news and maddening news, all of it presented in an unassuming manner and cloaked in a soft British accent. Say this about David Long: At a youthful 51 years old, he is a disarmingly good spokesman for a company that has pulled some alarmingly wayward stunts.
On the negative side of the ledger, Long confirmed that Ted Kelly, the recently retired $50 million-a-year Liberty Mutual CEO, is in the executive pension plan. Yes, the person who took nearly $200 million from the company in the last four years is still getting more.
How much more? I’d ask readers to once again put away any sharp objects, put down all carbonated beverages, and take a very deep breath before you read what’s next. Here goes: Approximately $3.3 million a year.
That, anyway, was my back of the envelope calculation, taking into account what I know about the parameters of the company’s plan, melded to Long’s statement that Kelly’s “retirement package excludes long-term compensation.” When I sent my math to company officials on Tuesday, they confirmed that it was just about right.
There’s something else, while we’re on the subject. Remember how Long told the Globe in April that only the chief executive of Liberty Mutual was allowed personal use of the company’s fleet of five luxury jets at Hanscom Field? That would mean that Kelly, as the retired CEO, would not qualify for this lofty privilege. But for the life of me, I couldn’t picture Kelly, who used to regularly soar to his Vero Beach vacation home aboard Bombardiers and Gulfstreams, reaching for his wallet at the JetBlue counter at Logan to pay the $40 fee for a second checked bag. So I pressed the point.
“Ted Kelly has use of planes,” Long said. “He does as long as he’s chairman of the board.” When I pointed out that this was a reversal of what he said last month, Long replied, “I went back and checked and realized that wasn’t the case.”
And who exactly is paying for all this — the roughly $3.3 million dollars a year, the free pass on Liberty’s air force, all that money already gone? You, dear Liberty Mutual policy holders, the owners of the company, the very people who struggle in a deeply damaged economy to pay rising auto and homeowner’s insurance, all without ever seeing the kind of dividend checks that some other mutual companies send out.
But that’s the negative. The rest of the news was not all disheartening. In spots and spurts, it was actually encouraging. I have previously pointed out in this space that nobody associated with Liberty Mutual’s leadership — not Kelly, not Long, not the obsequious board of directors — has uttered so much as a murmur of acknowledgment that maybe $50 million a year, maybe a fleet of planes, maybe a deeply conflicted board, is something they might want to change.
Long ended the silence, offering up the first murmur of concern. Maybe he believes it, or maybe he’s tired of the negative attention, but please read on.
Most importantly, Long vowed to fill four current vacancies on the board of directors, as well as a fifth one scheduled to open up next year, with members who offer different perspectives. This, presumably, means they won’t golf at the same exclusive country clubs, live in the same resort towns, sit on each other’s company boards, and approve each other’s absurd pay packages, as so many board members now do.
“I am currently undergoing a broad search,” Long said. “We have a number of candidates, all of whom are outside of Boston.”
Long added, “Historically, there was a fair amount of interweaving, given the number of companies located here. There aren’t that many companies of this size and breadth based here any more. You’re looking for someone with an understanding of global issues.”
When Long was asked about executive pay, specifically Kelly’s, he spoke like he was on a very high tightrope.
“Ted took a company that was in pretty serious financial condition and built it into a Fortune 100 company,” Long said. “I don’t know how you put a value on that. I’m just grateful he did what he did. Would I expect to make that kind of money? Absolutely not.”
I’ll take that as another murmur. (Let the record show that Long was paid $5.3 million in 2011.)
It got more complicated when the conversation turned to the $4.5 million renovation of his 1,335-square-foot office suite when he became CEO in 2011, the makeover that included burled walnut, a carved stone shower, and the personal exercise room.
He showed it to me, by the way, and it was not as big as I anticipated, but stunning in every detail, from the carpet that’s recessed into the dark hardwood floors, to the contemporary leather furniture, to the vibrant paintings set on pale silk walls. It had the feel of a luxury suite at an ultra-expensive downtown hotel.
“There’s no good answer,” Long said, when asked why and how. He said this as we sat in his impeccably decorated conference room, just off his office, where he said he spends most of his time. “We knew it would be expensive. The heating and cooling systems were 70 years old. We knew the labor would be a lot because we were working nights and weekends, for convenience as well as for asbestos removal.
“Yeah, it’s a lot of money,” he said. “It will be my office until I’m no longer here. I’ll take responsibility for it. I didn’t take as much time thinking about it as I probably should have.”
He was asked, somewhat incredulously, if he really meant that he is not moving to the top floors of the 23-story Liberty Mutual headquarters tower that is scheduled to open across the street next year. His company’s executives are known for many things, but sacrifice is not one of them.
No, he said, the entire senior management team is staying exactly where it is.
As the clock ticked toward the end of our hour, I asked what, in my mind, has been among the most important questions all along: What good is it to have a profitable company if the owners don’t benefit from the profits?
In a successful privately held company, the owners make more money, which is justified. They took the risk in founding or buying the company, they deserve the rewards. In a publicly traded company, the stockholders benefit through higher stock values. In some mutual companies, policy holders benefit through dividends.
In Liberty Mutual’s case, it’s none of the above. The biggest beneficiaries are the executives themselves, the ones who cash in buckets of phantom stock and honestly believe they deserve every million, who fly on the fleet of luxury planes, who have staggering pension plans — all of it approved by the backslapping members of an incestuous board who are paid upwards of $200,000 a year to never make a wave.
Long talked about the company’s “$18 billion in capital.” He said, “The whole issue of dividends is tricky.”
“We are a much more financially secure company, to pay out our policy holders,” he said. “Policy holders have the ultimate say. If they don’t like what we’re doing, they can go somewhere else.”
I’m glad he said that rather than me. Policy holders, take notice.
But I’m not going to leave this on a negative note, and instead will conclude with this: David Long now has an unusual blend of promise and opportunity in an era that offers precious little of either. The promise is his obvious brainpower to understand what’s at stake, in terms of the economic disparities that dominate the nation and the deep skepticism that runs wide and deep. The opportunity is his ability to change it, even a little of it.
He doesn’t need to be an outspoken reformer. He just needs to quietly do what’s right.
Brian McGrory is a Globe columnist. He can be reached at email@example.com.