Few executives faced a tougher test than those in the health care, energy, and financial services sectors. "This year marked a put-up or shut-up time" for three giant financial service trade group leaders, said Kurt Pfotenhauer ($584,835), CEO of the American Land Title Association. "They earned their pay by effectively pushing back hard against a regulatory regime that in some instances would have subjected their members to a smothering amount of new federal regulation."
The Securities Industry and Financial Markets Association, the Financial Services Roundtable, and the American Bankers Association were able to mount effective lobbying campaigns even though several of their big members were the targets of public anger and of heated rhetoric from the White House and Congress.
"It has been an extremely difficult public-relations and political environment," acknowledged Edward Yingling, the president and CEO of the bankers association, who made $2.29 million in 2008. "We're used to major storms, but this is a level 4 hurricane." The group has managed to fend off some financial services reforms that it dislikes. "I think we've had some success in modifying" congressional reform efforts, he said, "and some success in keeping out some of the wilder ideas."
Yingling attributes the group's success to the grassroots clout of its big and diverse membership, which represents 95 percent of the assets in American banks. The ABA's "community bankers generated more than 300,000 grassroots letters on regulatory reform" that went to Capitol Hill last year, he said.
But even gold-plated bankers couldn't ignore the recession. The ABA imposed hiring and salary freezes, cut back on travel, and canceled its annual summer bash usually held at such posh resorts as West Virginia's Greenbrier. The economic climate also tabled further bonuses for the group's executives.
At the Financial Services Roundtable, president and CEO Steve Bartlett felt the public backlash as well. "I believe I enjoy a great reputation and have credibility," said the former Republican lawmaker from Texas, who made $1.63 million in 2008. "But it's a tough time. It's harder to communicate our message if a congressman hears complaints about us at a town hall meeting." So Bartlett set a goal for the 100-member organization to "rebuild trust in everything we do." He recently assessed membership fees as high as $75,000 to retain a public-relations firm to work on messaging.
Timothy Ryan, CEO of the Securities Industry and Financial Markets Association, who made $2.02 million in 2008, agreed that the times are challenging: "We're [being] held responsible for some of the devastation of the last few years." Ryan took SIFMA's helm in April 2008 after spending 15 years at JPMorgan Chase, where he was a vice chairman just before the market's collapse. Since then, the trade association's budget shrank from about $100 million in 2008 to just over $80 million this year as some of its member firms merged or went under during the financial crisis. SIFMA had to let 57 people go in 2008 and 2009, he said. Given the financial pressures that many members were facing from the recession, the group cut dues "across the board," Ryan added. "We took in excess of 20 percent out of the organization."
Frank Fahrenkopf, CEO of the American Gaming Association, dealt with the economic collapse by eliminating member dues in 2009. Dues this year are half the 2008 assessment. Fahrenkopf, who took home $2.08 million in 2008, said his organization was fortunate in that it had built up hefty reserves to weather a storm such as the one that hit last year. "We've always been very careful of our costs," he said.
The energy sector, in addition to facing tough financial times, had to adjust to a president who had campaigned on reducing the influence of "Big Oil" in Washington. Jack Gerard, who took over as CEO at the American Petroleum Institute on September 1, 2008, after longtime chief Red Cavaney retired (with $2.69 million), has already undertaken a major shake-up, following his pattern as head of the National Mining Association and the American Chemistry Council.
Last fall, Gerard, who received compensation of $1.64 million for his four months at the institute (most of it in the form of deferred compensation), laid off 14 percent of the staff, some 40 people. The personnel cuts had nothing to do with the group's finances and everything to do with his leadership philosophy, Gerard said. "I believe [that trade associations] should be run like a business. Bring great clarity to the mission statement, get consensus on what members expect, and then organize personnel and activities around that." He added, "We go in and say, how do we deliver value in the public policy arena?"
That is no small challenge. Democrats have built political momentum for overhauling energy policies to dramatically reduce greenhouse gases and lessen dependence on foreign oil. How and when those policy changes come about will have enormous implications for the industry.
In response to the political winds, Gerard, a Republican, hired Democratic lobbyist Martin Durbin, the nephew of Senate Majority Whip Richard Durbin, D-Ill., away from the American Chemistry Council. He also hedged his bets by launching an aggressive lobbying strategy. In February, Gerard lured grassroots organizer Deryck Spooner -- whom the CEO calls the "best in class" -- away from the Nature Conservancy to do similar work at the API. "The greatest [strategic] value to the oil and natural-gas industry is that we employ 9.2 million people and account for 7.5 percent of U.S. gross domestic product," Gerard said. "It's all about the voters, jobs, and constituents."
The health care reform debate was the Super Bowl moment for the industry's trade associations, and many of their top-paid executives had strategically positioned themselves with White House and Senate leaders who negotiated the issues over the past year. The key CEOs included PhRMA's Billy Tauzin; the Blue Cross and Blue Shield Association's Scott Serota; Chip Kahn, president of the Federation of American Hospitals ($2.33 million); Richard Umbdenstock, president of the American Hospital Association ($2.06 million); and Karen Ignagni, president of America's Health Insurance Plans ($2.08 million).
Hospitals were among the winners in the legislation that was finally enacted in late March; it is expected to reduce the number of uninsured people turning up in emergency rooms in the coming years. "We have been engaged in health reform from the beginning and joined with other hospital associations to come to an agreement with the White House and the Senate, so I think health reform is probably a good metric to assess my job by," Kahn said. As chief lobbyist at the Health Insurance Association of America 15 years ago, he masterminded the iconic "Harry and Louise" ads that helped to kill President Clinton's health care reform effort.
Legislative success doesn't always guarantee a CEO longevity at the top, however. In early February, PhRMA's board of directors announced that Tauzin, who positioned the organization as an ally to Obama on health care, would leave the helm in June. The group spent more than $100 million on pro-reform advertising and agreed to reduce senior citizens' prescription drug costs by about $80 billion. In return, PhRMA received concessions that included a promise the reform bill would not permit the reimportation of drugs from Canada.
Although the deal stuck, the strategy caused strife within the association. When it appeared that health care reform was dead at the end of January following the surprise Senate win by Republican Scott Brown in Massachusetts, some say that the board pushed Tauzin out for having bet wrong and allying PhRMA so closely with the Democrats. PhRMA denied that he was forced out.
"These are high-risk, difficult jobs," Leslie Hortum, head of executive search firm Spencer Stuart's D.C. office, said. "These CEOs have to influence the legislative process in a challenging, partisan environment while also balancing their own members' competing interests and agendas."
Lobbying for Legislative Leverage
Reply With Quote