As we close 2009, you likely have already seen some decade reviews, best-of lists, worst-of lists, and the like.
Here is our perspective on the startling transformation of Russell Investments from the best-of category to something not so worthy of recognition over the decade.
It’s not the kind of story that inspires confidence in Russell’s ability to “Improve Financial Security for People,” the company’s long-held mission. With the firm continuing to unravel like a holiday sweater well past its prime, Russell closes the decade as a skeleton of what it used to be … and skeleton a that appears to have broken bones at that.
The backstory
For more than seven decades, Russell has had a special presence in Tacoma. Starting as a small brokerage in 1936, the firm became one of the largest pension consultants in the U.S. as well as a dominating presence in the Tacoma business landscape. From 1999 through 2008, it was named one of the best companies to work for in the U.S. seven times. Russell had a 20% annual revenue growth rate and took great care of its employees.
And then, to close a decade of significant change for the company, along came a series of unfortunate events executed by the corporate parent company and Russell’s first “outsider” CEO, Andrew Doman. Corporate complications were, of course, heightened by global economic and market conditions.
In 1999, George Russell sold Frank Russell Company to Northwestern Mutual, the huge Milwaukee-based insurance carrier. Russell retired and for the first five years under its new owners the firm continued to grow under CEO Mike Phillips. In 2005, Phillips handed the CEO reins over to Craig Ueland and the firm continued to build a global business serving institutional investors, distributing mutual funds and providing indexes and investment benchmarks for investors.
In June 2008, Ueland left the company under mysterious circumstances. Northwestern Mutual, having named one if its executives, John Schlifske, as Russell’s interim CEO, orchestrated the reconstruction of Russell leadership. Doman was hired in January of 2009.
Doman was a consultant at McKinsey & Company. Nobody really expects him to be a long-term company leader. He’s renting a home in Gig Harbor and his family remains in London. The consensus perception is that he’s a change agent. He has brought in other former McKinsey consultants who have led an effort to redefine the company, possibly positioning it for sale. Based on the activity since the middle of 2008, Northwestern and Doman have succeeded in stripping almost all historically important character and leadership from the company.
Doman inherited a mess that began around the time of Ueland’s exit and grew under Northwestern Mutual’s control in the second half of 2008.
- After the beginning of the financial crisis in October 2008, Russell shut down its hedge fund team (based in London) when the department lost millions on risky bets.
- In the last quarter of 2008, some of the Russell money market funds held large positions in Lehman Brothers short-term paper which became worthless. Northwestern Mutual loaned Russell $764 million so these funds wouldn’t “break the buck.”
- As a result of the loan, the value of Russell’s internal private stock price (used as an employee retention tool) was scheduled to be reduced to zero. Many of the top managers were offered the chance to retire from the firm and get paid out from their internal stock holdings based on the past year’s price. Many jumped ship and took the deal. It was much more attractive than waiting perhaps four or five years before the shares built up any value again.
Doman entered to focus on bottom-line profit and the change escalated:
- Russell’s once-generous 15% contribution to employee’s retirement accounts stopped.
- A 20% reduction in staff was announced. It kept Russell associates on edge for months before a decision was actually made to reduce the global staff by about 400, with half those cuts coming in Tacoma. Company morale quickly sunk to an all-time low. But wait … there’s more.
- In September 2009, after multiple delays in an announcement, Doman confirmed that Russell decided to pass on substantial incentives from the City of Tacoma to move its headquarters to Seattle. It did so because Northwestern Mutual could get a great deal on the former Washington Mutual building. Northwestern buys a building cheaply and gets a tenant.
- At the same time, Russell continues to reduce its employee base through firings and layoffs. Far more people are leaving the firm than joining it.
- More than 500 of the remaining employees live in Pierce County. When the move from Tacoma to Seattle begins in April 2010, these employees will face disruption in their lives due to an extra couple hours of commuting to Seattle each day.
- But not all of them will be asked to come along on the trip to Seattle because Russell has decided to outsource a couple hundred more jobs to India. It’s not only information technology and administrative work. Reportedly index and investment management analytics, two core functions of Russell’s existence, will also experience outsourcing.
- Since Thanksgiving, the heads of two of Russell’s three primary business lines have also departed. Mark Hansen, who was the leader of Russell’s pension consulting business, and Greg Stark, the leader of Private Client Services (mutual fund sales group), have left. The press release about Stark’s replacement indicated that he was taking a sabbatical and then would participate in an executive education program before returning sometime in the future. Really?
The future
Maybe, ultimately, Russell will reach stability, have happy employees and do good work for its clients from Seattle and its global offices. It’s possible that Russell’s investment products might satisfy investors through all this mess.
It’s our expectation that within the next 18-to-24 months, Russell will be sold. Doman and his McKinsey lieutenants will be richly rewarded. And depending on the buyer, Russell could either be broken up into separate businesses or even see the Russell name absorbed into another firm.
Hundreds of current Russell associates living throughout the South Sound wonder what is in their future and many of them are actively searching for a way out. They would prefer not to join the other 200+ previously departed associates who are still looking for new jobs and hoping that they find them before their unemployment benefits run out.
For a firm with such a proud history being among the best companies to work for in the country, it has been a startling fall from grace.
The authors, Allyn Hughes and Gary Brooks, worked a combined 11 years at Russell, before founding their investment advisory firm in March 2008.
Russell Investments, 18 months from “best” to a mess
As we close 2009, you likely have already seen some decade reviews, best-of lists, worst-of lists, and the like.
Here is our perspective on the startling transformation of Russell Investments from the best-of category to something not so worthy of recognition over the decade.
It’s not the kind of story that inspires confidence in Russell’s ability to “Improve Financial Security for People,” the company’s long-held mission. With the firm continuing to unravel like a holiday sweater well past its prime, Russell closes the decade as a skeleton of what it used to be … and skeleton a that appears to have broken bones at that.
The backstory
For more than seven decades, Russell has had a special presence in Tacoma. Starting as a small brokerage in 1936, the firm became one of the largest pension consultants in the U.S. as well as a dominating presence in the Tacoma business landscape. From 1999 through 2008, it was named one of the best companies to work for in the U.S. seven times. Russell had a 20% annual revenue growth rate and took great care of its employees.
And then, to close a decade of significant change for the company, along came a series of unfortunate events executed by the corporate parent company and Russell’s first “outsider” CEO, Andrew Doman. Corporate complications were, of course, heightened by global economic and market conditions.
In 1999, George Russell sold Frank Russell Company to Northwestern Mutual, the huge Milwaukee-based insurance carrier. Russell retired and for the first five years under its new owners the firm continued to grow under CEO Mike Phillips. In 2005, Phillips handed the CEO reins over to Craig Ueland and the firm continued to build a global business serving institutional investors, distributing mutual funds and providing indexes and investment benchmarks for investors.
In June 2008, Ueland left the company under mysterious circumstances. Northwestern Mutual, having named one if its executives, John Schlifske, as Russell’s interim CEO, orchestrated the reconstruction of Russell leadership. Doman was hired in January of 2009.
Doman was a consultant at McKinsey & Company. Nobody really expects him to be a long-term company leader. He’s renting a home in Gig Harbor and his family remains in London. The consensus perception is that he’s a change agent. He has brought in other former McKinsey consultants who have led an effort to redefine the company, possibly positioning it for sale. Based on the activity since the middle of 2008, Northwestern and Doman have succeeded in stripping almost all historically important character and leadership from the company.
Doman inherited a mess that began around the time of Ueland’s exit and grew under Northwestern Mutual’s control in the second half of 2008.
Doman entered to focus on bottom-line profit and the change escalated:
The future
Maybe, ultimately, Russell will reach stability, have happy employees and do good work for its clients from Seattle and its global offices. It’s possible that Russell’s investment products might satisfy investors through all this mess.
It’s our expectation that within the next 18-to-24 months, Russell will be sold. Doman and his McKinsey lieutenants will be richly rewarded. And depending on the buyer, Russell could either be broken up into separate businesses or even see the Russell name absorbed into another firm.
Hundreds of current Russell associates living throughout the South Sound wonder what is in their future and many of them are actively searching for a way out. They would prefer not to join the other 200+ previously departed associates who are still looking for new jobs and hoping that they find them before their unemployment benefits run out.
For a firm with such a proud history being among the best companies to work for in the country, it has been a startling fall from grace.
The authors, Allyn Hughes and Gary Brooks, worked a combined 11 years at Russell, before founding their investment advisory firm in March 2008.