The ad campaign is unconvincing because Simmons is describing a firm that doesn’t sound remotely like the one in the newspapers – the one that defrauded thousands of customers in the 1980s. More important, critics charge, it doesn’t address the firm’s wrongdoing directly. To be sure, Simmons has produced steady profits, which will help pay the $1.1 billion bill for what is now the costliest cleanup in Wall Street history. But former employees and industry observers contend that the ad campaign shows that the brokerage firm still hasn’t been able to admit to its problems. And the same sources fear that the company’s financial picture could darken if it doesn’t figure out a way to polish up its image. The decline has already begun, with large losses in the most recent quarter.
Prudential got into this mess by aggressively hawking more than $8 billion worth of risky limited partnerships. By 1990 thousands of small investors were suing the firm, then called Pru-Bache, over the money-losing investments. In 1991 George Ball, who had run the firm since 1982, was pressured to leave. Simmons arrived a few months later. The Securities and Exchange Commission and state regulators uncovered an astonishing array of abuses: brokers had lied, traded customers’ accounts excessively and persuaded customers to sign agreements they didn’t understand. To settle the charges, Prudential agreed last fall to repay wronged investors.
Squeaky-clean Simmons is the last guy you’d expect to find on garbage detail. He’s a great-grandson of a cofounder of Hayden Stone, a forerunner of Smith Barney Shearson. The seventh generation of Simmonses to attend Harvard, he devoted 24 years to the family firm, quitting in a fury when American Express chief James Robinson passed him over for a top job in 1990. At Shearson, Simmons was a capable manager – unusually loyal to subordinates – but a bad politician. He was the only senior executive to oppose American Express’s 1981 acquisition of Shearson. He objected to splitting Lehman and Shearson into two firms – a move favored by Robinson. And his blunt manner often offended Shearson brokers. Small wonder Robinson didn’t anoint him. “I’ve always been one to speak my mind,” says Simmons. Robinson didn’t return Newsweek’s phone calls.
Simmons didn’t discover the depths of Prudential’s problems until he arrived at Pru. To his credit, he began setting aside money to cover potential settlements right away. But he was slow to launch a complete housecleaning, in part because of his loyalty to employees. For example, control of the partnership cleanup fell to Loren Schechter, the firm’s chief watchdog when the notorious investments were sold. No one would have been surprised if Simmons had fired Schechter. But the new chief championed the lawyer because he says Schechter alerted Pru managers about rule-breaking in the 1980s. Schechter’s hardball legal tactics came to define Pru as a reluctant penitent. He delayed turning over documents to investigators and sued a securities regulator to prevent the release of other records, among other things. Schechter stepped down from his post last winter and didn’t return calls seeking comment. “We weren’t looking for blame,” says Simmons. “I still don’t believe this was a systemic problem.”
Simmons has finally begun tackling Pru’s image problem. He pressed hard for a settlement and began giving interviews for the first time. “We have put management back in control and established a code of behavior which puts the client first,” he reports. And he agreed to star in the new ad campaign. Focus groups show that customers like the ads, he says. But they must be the ones who don’t read newspapers. “The trouble with Simmons’s straight talk is that it doesn’t include the words “We’re sorry’,” says Gaye Torrance, president of a New York public-relations firm. The ads are also alienating Pru brokers, who think they’re condescending. “I’m straight with people and I expect the same, from our brokers, to my kids,” says Simmons in one. Bad publicity decimated the brokers’ ranks last year and threatens to do the same in 1994. The firm has already lost about 500 of its 6,000 brokers. The firm’s recent news that it would have to set aside yet more money to cover new claims hurt brokers doubly hard. The negative press drives new customers away. And the mounting cost of the claims makes brokers doubt Simmons, who assured them that he had set aside enough reserves. “All I can do is stand up and tell the truth as I understand it,” says Simmons.
The partnership nightmare is only now beginning to affect the bottom line. “There’s no question that Prudential’s revenue and profits have been hurt because of the scandals,” says Perrin Long, an analyst at First of Michigan Corp. It’s been hard to see, though, because the last three years have been blockbusters for the industry. Now, with soft markets and a weakened sales force, the firm is starting to struggle. Pru lost $35 million in the second quarter, while other firms had mixed results. If you count the extra expense of paying back wronged investors, Pru’s loss swells to $215 million. It’s not the grade Simmons deserves after having successfully guided the company through a life-or-death crisis. But it’s the one he may be stuck with until he starts paying closer attention to what potential customers really think of the Pru.
