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Transition Game

Stuart Reese Leads a Cultural Change at MassMutual

Stuart Reese, who was thrust into the role of president and CEO at MassMutual in the wake of the scandal that took down his predecessor, Robert O’Connell, recently completed his first year at the helm. This has been a time of transition, he said, noting that in some ways — especially with regard to individual businesses and their performance, as well as community involvement — it has been seamless. But with others, most notably the corporate culture he’s instilling and a strategic plan he’s shaping, it’s been anything but.

Stuart Reese remembers the phone call. It would be a hard one to forget.

It was from board member James Birle (now chairman) and it came on June 2, 2005, around lunch time. He was calling to say that, amid a series of allegations of improper conduct, Robert O’Connell was out as president and CEO of MassMutual, the largest company in Massachusetts and a Fortune 100 stalwart, and that Reese, then the company’s executive vice president and chief investment officer, was in.

Asked to recall his immediate reaction to that news, Reese struggled somewhat, saying that the ensuing minutes, hours, and days were in some ways a blur, with he and many others at the company “going 24/7,” as he put it.

“It was a difficult moment conceptually and logistically, because there were so many issues that had to be dealt with very, very quickly, and so few people who knew what was going on,” he remembered, adding that he had to address regulators, rating agencies, the press, the board, and employees, all of whom were looking for answers.

“We had to engage a lot of people to get many things done quickly, and these people weren’t exactly sitting around waiting for this to happen; they were doing other things,” he continued. “The mindset at the time was that we knew there were so many good people at the company running the businesses; we said ‘let’s engage them and let them know what’s going on and rely on them to run the business while we deal with these other issues.’”

Thus began what has been an intriguing transition process, said Reese, one that is in many ways still ongoing. In some respects, that transition has been seamless in nature, he said, especially with regard to individual businesses and their performance — year-end 2005 and first-quarter ’06 numbers show strong gains in many areas — but definitely not in some others.

That was certainly the case with corporate culture, said Reese, who sat down with BusinessWest recently to talk about his first year at the controls of the company and his focus moving forward.

“We had to make a very clear statement internally and externally that there was a change in culture and that things were going to be different in some ways,” he explained. “There were some things that had been done wrong, and they were not going to be done that way any more. In that regard, the transition was intentionally not seamless in some ways.”

Elaborating, Reese said that since last June, he, the board, and the leadership team he’s assembled have promoted a culture defined by transparency — a word he would use often — as well as meritocracy and open lines of communication, all traits he believes were missing during the O’Connell years.

But the cultural shift involves more than improved communications and open doors, said Reese, noting that the company intends to be more customer-driven in the development and refinement of products and services.

“We need to be more of an outside-in driven organization, and less of an inside-out driven organization,” he explained. “We need to have a higher percentage of our employees closer to the customer and responding to the customer, so what’s taking place within the company is driven more by the customer than by internal processes.”

BusinessWest looks this issue at Reese’s first year of work guiding the financial services giant, and about how he’s spreading a new culture among its nearly 6,000 employees.

Mutual Respect

Reese says his primary goals for his first 12 months at the helm were to have a strategic plan in place and a team assembled that is “second to none.”

He’s just about there. “There are some ‘i’s to do be dotted and ‘t’s to be crossed, and we’ll do that by the June board meeting,” he told BusinessWest. “But those primary goals of having the team in place, as well as the strategy and the vision, have been accomplished.

“We still have some work to do communicating our plan to the company, and we’ll do that — there are many methods for communication,” he continued. “What I’ve learned is that people need to hear these things many times, so we’ve got lots of repetition ahead of us and helping people understand exactly what it all means; we’re just beginning execution.”

Reese uses the third-person plural quite regularly as he discusses the company, its present, and future. He’s spent the past year assembling his leadership team — there are a few holdovers from the O’Connell era, some from within the company in new positions, and several newcomers to MassMutual — and is a strong proponent of teamwork.

“I want people who are team players,” he said. “This isn’t about me, it’s about the company and moving it forward.”

The concept of ‘team’ is a recurring theme for Reese, who first came to MassMutual in 1993 and has served in a number of roles since.

A graduate of Gettysburg College in his native Pennsylvania, Reese majored in biology and had designs on a career in veterinary medicine. Such thoughts subsided when he actually started working for a local vet.

“I realized rather quickly that this wasn’t what I wanted to do with the rest of my life,” he told BusinessWest, adding that he took a few business courses, found the subject matter intriguing, and eventually earned an MBA at the Amos Tuck School of Business Administration at Dartmouth College.

He mulled several job offers before taking one from Aetna in 1979. There, he served in several capacities, most involving investments. He eventually rose to the rank of vice president and managing director of Capital Markets, overseeing the management of all external funds.

A search firm hired to identify candidates for positions in asset-management at MassMutual contacted him, thus beginning a dialogue that brought him to Springfield in early 1993. Over the years, he held various leadership positions at several MassMutual subsidiaries, serving as chairman and CEO of Babson Capital Management LLC, chairman of Cornerstone Real Estate Advisors LLC, and as a member of the Board of Directors for Oppenheimer Acquisition Corp.

As executive vice president and chief administrative officer, he was responsible for the management of the company’s general account and served as a key advisor on overall business strategy.

He was handling those duties and others when MassMutual and its State Street headquarters became ground zero for a highly public and controversial change of command, one that played itself out on the front pages of the Boston Globe and Wall Street Journal at the top of the local news broadcasts.

Details of the firing emerged, and specific allegations against O’Connell — all of which he denied — ran the gamut from improper use of company planes and helicopters to nepotism; controversial real estate transactions to questionable handling of a ‘shadow’ account.

Reese was reluctant to revisit the events of June ’05 — and the weeks and months that preceded them — other than to praise the board for addressing the matter, not covering it up, and also the team of leaders that effectively moved the company forward from that fateful phone call.

“Instinct plays some role in that process, but I think instinct is somewhat overstated,” he explained. “Basically, I had to rely on the existing management team, trust them to do the right things, and just grind through it. And that’s what we did.”

Policy-maker

While the O’Connell firing is not exactly behind the company — several investigations are still ongoing and arbitration requested by O’Connell is still pending — MassMutual has, in most respects, put that ugly chapter in its 154-year-history, in the rear-view mirror, said Reese.

Indeed, in areas ranging from community involvement to the Q1 numbers posted by the company and its subsidiaries, life has been seemingly unchanged, he told BusinessWest.

And if there has been change on the business end, it has mostly been for the better.

First-quarters numbers show strong gains: total assets under management for the company and its subsidiaries rose to $418 billion, a $23 billion, or 6%, gain from the end of ’05. That projects to a 24% increase for the year, slightly better than the already solid 22% registered in ’05. Life company assets climbed to $116.5 billion in Q1, up 7% from the same quarter a year earlier, while net income soared to $143 million for the period that ended March 31, up 55% from the $92 million posted in that same period a year earlier.

As for individual subsidiaries, most had strong performances in ’05. Oppenheimer Funds Inc. was recently named the ‘best large overall fund family’ and ‘best large fixed-income fund family’ at the 2006 Lipper Fund Awards in New York, said Reese. In addition to those top honors, three Oppenheimer mutual funds — Oppenheimer AMT-Free Municipals, Oppenheimer California Municipal Fund, and Oppenheimer Rochester National Municipals, were recognized for their individual achievements within their respective Lipper classifications.

Other subsidiaries, including Babson Capital Management LLC, Baring Asset Management Limited, Cornerstone Real Estate Advisers LLC, MassMutual International Inc., which has operations in Chile, Hong Kong, Japan, Luxemburg, Macau, and Taiwan, also had solid gains in 2005, said Reese.

“We had a fabulous year.” And while individual businesses have put up good numbers, the company has expanded its physical presence. It opened a 66-acre office complex (the former Phoenix headquarters) in Enfield last fall, and recently completed a $45 million renovation to the State Street headquarters. That project included construction of an 80,000-square-foot document-management building and renovation of a major building wing, including a complete overhaul and expansion of its employee cafeteria.

Progress in these areas, as well as continued strong involvement in the community — to the tune of $5.9 million in total corporate donations in 2005, a $2 million increase over ’04 — constitute the seamless elements of the transition, as Reese described them.

But there have been other changes for which that adjective would not apply, said Reese, referring to a new management team he assembled, an emerging strategic plan, and that broad cultural change he mentioned and its focus on transparency.

Open to Discussion

When asked what that word meant to him, Reese said it comes down to making all matters of the company visible to all constituencies, including the board, rating agencies, and employees.

Change, in the form of greater visibility, was needed, he said, because in the O’Connell years, the management style could be described as exclusive, not inclusive, with managers aware only of their specific piece of the company.

Reese used the term ‘hub and spoke’ to describe it.

“There was a relatively small group, maybe two or three people, that knew everything about what was happening,” he explained. “You had Bob and one or two other people at the center of the hub and everyone else on the outside, knowing only their small piece of what was going on.

“To me, this ‘you can focus on your piece and don’t bother with the rest of it, I’ll take care of it’ style is not an effective management strategy,” he continued. “I want a management team that’s involved in managing the entirety of the corporation; I lead the team, but every member of that team should have a clear understanding of what’s going on with the company.”

Which brings him to the strategic planning activities that have been ongoing since last June, and undertaken with the help of a consulting firm. Reese offered few real specifics on the plan’s contents, other than to say that this is a mutual insurance company owned by its policyholders and it will remain that way; there are no plans to take it public. Also, he said MassMutual will refocus on its core business — protection, especially the life insurance business.

Reese said the company will look for opportunities to grow its international business — China and India are two logical areas for expansion — and will also be exploring new acquisition opportunities, looking, as always, for ventures that make sense for the company and fit into its evolving strategy.

Overall, Reese said that more important than the strategic plan’s specific contents is the fact that employers and board members must know and understand the basic goals and how to achieve them.

And this is another change from the O’Connell administration, he continued.

“To the extent that there was a strategy for the company before, it was probably only known to a few people,” he said, referring to the hub-and-spoke nature that existed. “We want to clearly communicate our strategy to everyone.”

When asked how he intends to spread his new culture and explain his strategic plans to 6,000 employees, Reese acknowledged that this is certainly a challenge.
The process involves many methods, he said, including a trickle-down theory that involves individual businesses and departments and successive layers of leadership. But Reese will also work to get the message out personally.

He has staged several ‘all-employee meetings’ and recently initiated a series of what amount to ‘lunches with the president,’ involving small groups of employees covering all rungs on the ladder. The first installment was considered a success.

“From my vantage point it was great … there’s no agenda; you just pick up a pizza and talk about the company,” he explained, noting that he has staged such sessions in prior jobs and with measurable results. “It’s a chance for them to talk to me and for me to hear from them about what’s on their minds.”

The Bottom Line

The small gatherings are just one component of a much larger culture of openness and communication, said Reese, noting that such a change in a large company doesn’t come quickly or easily.

And it comes through teamwork, he stressed repeatedly, as well as a management philosophy in which there is no real hub or a few spokes. Instead, there’s a system of mutual understanding — both literally and figuratively.

George O’Brien can be reached at[email protected]

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