The Cassidy firm grows from a boutique into a supermarket, diversifying successfully into public relations, polling and "grass-roots" lobbying. For the first time, the firm adds former congressmen to its roster of lobbyists.
By Robert G. Kaiser
After selling a portion of his company to an Employee Stock Ownership Plan (ESOP) and pocketing $11 million, Gerald Cassidy could pursue his large ambitions. From 1989 onward, Cassidy & Associates was transformed.
Cassidy sensed -- not for the first or the last time in his long career -- that the game he played for a living was changing. The firm that had made him rich was a small boutique specializing in winning earmarked appropriations from Congress for its clients, mostly universities, colleges and health-care institutions. But his success in that field had attracted a raft of competitors. And huge budget deficits run up under Presidents Ronald Reagan and George H. W. Bush had made the appropriations process in Congress much more difficult. Cassidy wanted to branch out and become a much bigger player in Washington.
"You could see the changes happening in the Congress. More and more, I was seeing big issues needed to be influenced by public opinion, so I wanted to create a public affairs firm," Cassidy said.
James Fabiani, Cassidy's associate since 1982, suggested they pursue Sheila Tate, press secretary to George Bush in the 1988 presidential campaign and the godmother of one of Fabiani's two daughters. She agreed to join Cassidy & Associates in 1989 and to create a new public relations division with Jonathan S. Jessar, a prominent Republican publicist. They worked together for a year trying to develop a PR practice for Cassidy when Jessar dropped dead of a heart attack at the age of 46.
Months before Cassidy hired Tate he had invited Jody Powell to lunch to talk about lobbying and public relations. Powell, President Jimmy Carter's popular press secretary, was then running Ogilvy Public Relations's Washington office. They talked about ways lobbyists and publicists could collaborate. "I thought he'd refer business to us," Powell recalled years later, as he chomped on nicotine gum. "But instead he created a competitor."
After Jessar's sudden death, Fabiani and Cassidy thought of Powell. They had a connection to Powell through his neighbor in Wesley Heights, who happened to be Lester "Ruff" Fant, Cassidy's lawyer and the designer of the firm's ESOP. Fant and Powell were pals, and Fant called him to say Fabiani and Cassidy were interested.
The existence of the ESOP influenced Powell's decision to accept Cassidy's job offer. Cassidy described the ESOP to Powell as a way to give key employees some equity in the firm they worked for. He also offered shares in the company as an inducement. Powell was pleased that at Cassidy & Associates, "you could create value, and share the value you created, which is very hard to do at most companies." So a Cassidy-Powell partnership was born. It would prove to be important in the lives of both men.
Powell hadn't known Sheila Tate previously, but now the two agreed to create a new firm under the financial and organizational umbrella of Cassidy & Associates. Powell was enthused by the opportunity, and quickly started hiring people, beginning with a number of Ogilvy colleagues. Cassidy allowed Powell to offer shares in the firm as inducements.
Powell Tate went into business in August 1991. By the end of August, Powell recalled with a grin, the new enterprise was $600,000 in the hole. "Fortunately," he said, "the accounting wasn't very good at the beginning," so it wasn't immediately obvious how much money they were losing. And then, very quickly, Powell Tate began to sign up clients and make real money. The new operation turned a profit in the first year.
By the mid-'90s Powell Tate was booming, for a time making bigger profits than Cassidy's lobbying operation. In 1996 its revenues were $13 million. "Cassidy encouraged the creation of a first-class PR operation," recalled Dale Leibach, one of Powell's original hires, "and he didn't try to micromanage."
Cassidy didn't stop with public relations. In 1992 he acquired Beckel-Cowan, a pioneering "grass roots" lobbying firm whose specialty was building support for policy ideas -- or creating the appearance of it -- around the country. This was the art form that came to be known as "Astroturf" lobbying, since the grass-roots sentiments being expressed were not entirely natural. Then Cassidy bought a polling firm, Frederick Schneiders Research.
"Cassidy had embarked on this grand scheme to create a one-stop-shop public affairs operation" that could provide clients with a range of services, said Greg Schneiders, a pollster and veteran of the Carter White House. He was a principal in Frederick Schneiders Research, who benefited handsomely when Cassidy acquired his firm in a tax-free transaction. Such a supermarket for exerting influence in Washington sounded like a great idea, and in a few cases it really worked. But the supermarket looked better than it ultimately turned out for Cassidy.
In 1993, Cassidy made an expensive hire that was a departure from past practice, more evidence that he was adapting to changing times. Traditionally the Cassidy firm was populated by "little people," in the words of Dan Tate Sr., a veteran of the congressional liaison office in the Carter White House who worked as a lobbyist for Cassidy from 1993 to 2001. Tate said he tried to persuade Cassidy to hire Washingtonians of stature who had reputations in the city but that Cassidy demurred. He preferred former Hill staff assistants who knew how Congress operated but had never become large figures in their own right. Cassidy had avoided hiring former members of Congress through the 1980s, when it became increasingly common for ex-members to join the ranks of Washington's lobbyists. Former Rep. Frederick B. Rooney, a Pennsylvania Democrat, became a consultant to the firm, paid to bring in new business, in 1991. But it was not until two years later that Cassidy offered a big job to a prominent former member.
That was Marty Russo of suburban Chicago, an oversized, voluble pol of the old school with many friends in the Democratic House leadership and a longstanding alliance with Rep. Dan Rostenkowski. "Rosty," a fellow Chicagoan who had mentored Russo in the House, chaired the Ways & Means Committee, whose influence over the tax code made it a favorite lobbyists' target. Russo had lost a 1992 primary to another incumbent Democrat when their districts were combined after the 1990 census.
Cassidy later described Russo as "somebody who had major attributes: Number one, he was enormously popular with Republicans and Democrats. Very social guy, fabulous golfer, great friends with the conservatives on the Democratic side and . . . very smart." Cassidy decided he wanted him, and offered Russo stock in the company and a starting salary of more than $300,000. He also offered to hire Russo's chief of staff and open an office in Chicago for both of them. In an interview Russo said the total value of the package was probably $500,000.
The rumor spread on K Street that Russo himself would be making $500,000 a year. Said the proprietor of a competing lobbying firm: "Everybody was gasping because Cassidy paid him $500,000, and everybody worried that every Congressman who 'came downtown' henceforth would demand Russo-like numbers." For his part, Russo was able to bring some new Chicago-based clients to the firm. The Chicago Board of Trade and the Mercantile Exchange soon showed up on the list of Cassidy clients. Business remained strong. In March 1994, Cassidy was able to "sell" a second piece of his company to the ESOP he had created. Once again, Aegon, the Dutch insurance conglomerate, financed the transaction, putting up $18 million that allowed Cassidy to pay himself and many of his key people, including Powell and Russo, some serious money. This time Cassidy kept $4 million; Fabiani and Powell each got $5 million, Russo somewhat less. The remainder was shared by 38 other employees.
Once again the financial transaction was complicated and confusing. In the first round of stock purchases for the ESOP in 1989, $15 million bought 81,522 shares of the firm -- $184 a share for shares whose value could only be estimated, because there was no market in them. Formally, those shares were said to constitute 30 percent of the firm's value.
The second round came five years later, after Cassidy had issued thousands of new shares in the company, diluting the ownership stake of those who held the older shares. "Every time we did a transaction," Cassidy explained, "like starting Powell Tate, or acquiring [Beckel Cowan] . . . or giving stock to the employees, we did it by issuing new stock. The effect was to dilute all the other existing stock."
The man who had come to Washington in 1969 to help Sen. George McGovern work on hunger issues, who had built a lucrative lobbying practice around his relationships with key Democrats now found himself in a Republican town, employing Republican lobbyists, enjoying what once might have been considered a Republican style of life. Cassidy still considered himself a Democrat, and donated heavily to Democratic politicians, but now he had hedged his bets. He had a chance to continue accumulating wealth, which had become his primary objective.
Washington Post research editor Alice Crites contributed to this report.
Tomorrow: A New Kind of Business.
Key Related Materials
An overview of Gerald Cassidy's life and career.
A "cast of characters" in the life and career of Gerald Cassidy.
Please email us to report offensive comments.
Posted by: toddradian | March 21, 2007 07:23 AM
Posted by: John2.Bravo | March 21, 2007 08:42 AM
Posted by: ken70000 | March 21, 2007 08:58 AM
Posted by: nwiley | March 21, 2007 10:06 AM
Posted by: John2.Bravo | March 21, 2007 10:13 AM
Posted by: heirtodc | March 21, 2007 01:25 PM
Posted by: peterpaulmary | March 21, 2007 01:53 PM
Posted by: Rachaelcre8f8 | March 21, 2007 02:15 PM
Posted by: Rachaelcre8f8 | March 21, 2007 02:27 PM
Posted by: steven.willhite | March 21, 2007 02:35 PM
Posted by: John2.Bravo | March 21, 2007 02:54 PM
Posted by: peterpaulmary | March 21, 2007 03:12 PM
Posted by: Cbanks4 | March 21, 2007 05:47 PM
Posted by: ssomo | March 21, 2007 08:59 PM
Posted by: Rachaelcre8f8 | March 21, 2007 09:28 PM
Posted by: lisajw | April 5, 2007 04:48 PM
The comments to this entry are closed.