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Chapter 13

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.

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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.

Gerald Cassidy and Jody Powell
Gerry Cassidy, top left, talks with his friends Jody Powell, top right, and Don Webster (with back to the camera) after a day of hunting on Maryland's Eastern Shore. (Susan Biddle - The Washington Post)

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.

Sheila Tate with Nancy Reagan
In this 1996 photo, Nancy Reagan, right, speaks with former Press Secretary Sheila Tate. (Nancy Andrews - The Washington Post)

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.

Gerald Cassidy and Marty Russo
Marty Russo, left, with Gerald Cassidy at Cassidy & Associates's 30th anniversary party in 2005. Russo, a former congressman from Illinois, joined the firm after losing his House seat in the early 1990s. (Susan Biddle - The Washington Post)

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.

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So the last two days have shown that a lobbyist will skirt tax laws and change sides depending on who is paying the bills. Nice to know Gerry is a man of principle and that principle is all about the the green. How is lobbying as currently formulated good for anyone other than lobbyists and corrupt politicians? How is it not the corporatism aspect of fascism? How is it not corrosive to the individual citizens Constitutional rights? If the tone of this comment offends I suggest you check out Gerry's online journal. It has plenty of sycophantic worship at the alter of greed. You could always lobby Bush to signing statement away the First Amendment. Gerry Cassidy and EVERYONE like him needs to be put out of business. The best fist step to removing or mitigating corruption comes with ending his career and the careers of those like him. The right to petition should be free, equitable to all players and fairly effortless, not an endeavor that requires huge upfront material outlays - a race to see who can spend the most money and line the most pockets. Unless you like a system that brings you such items as the Iraq Invasion sponsored by Halliburton, schools often so underfunded that it guarantees not only that Johnny can't read but often provide a ripe training ground for future criminals and Big Pharma's Usually Spotty Health Care System.

Posted by: toddradian | March 21, 2007 07:23 AM

Hey, I'm far more interested today in Al Gore speaking to Congress on global warming. Go Al! I wish the Post would cover him more. Is he running for president? would be great.

Posted by: John2.Bravo | March 21, 2007 08:42 AM

I only learned today that John Silber was not content to leave alone our previous exchange in the blog after Chapter Five of the Kaiser series. He decided to return again to his self-justifying and unconvincing allegation that I was a slacker. In addition, he accuses me of treating him with a lack of respect and with acrimony. On that subject, John is a well-known expert.

I have no intention of once again rebutting John point for point. There are too many people in Washington with whom I worked for three decades to waste my time. From John's recitation, it would appear that he paid me a million dollars for the pleasure of taking my wife and me out to dinner. Not a bad deal. I'm waiting for a second invitation.

I decided to break up my partnership with Gerry for one reason and one reason alone. I started what I thought was a good thing and saw it turning into something else. I was no longer sure that I knew what was going on either ethically or legally. In my time in Washington, I'd seen more than a few wise-guys and some fairly decent people go to jail who found themselves in that position. Under no circumstance did I intend to be one of them, to have my wife and children visiting me in Allenwood. I didn't want that for another million, ten or even a hundred million. I saw the Jack Abramhoff phenomenon coming from a hundred miles away. I never regretted that decision and that was the reason I wrote my "Greening of America" Op-Ed article in the New York Times. The rampant corruption in Washington is now evident to all. I only hope that the Democrats have the gumption and the votes to do something about it. Ken Schlossberg.

Posted by: ken70000 | March 21, 2007 08:58 AM

Interesting that the Citizen K Street banner is no longer posted up high on the page BLARING at everyone.

I had to find it in the middle of the page and in small regular type.

Posted by: nwiley | March 21, 2007 10:06 AM

I hear crickets. Much more interested in Al Gore today.

Posted by: John2.Bravo | March 21, 2007 10:13 AM

Johnny Bravo, do you have some inside pull with the Post.com? Gore is now front and center on the homepage! Nice work!

Posted by: heirtodc | March 21, 2007 01:25 PM

It's good to see Gore back on the hill and talking about one of the most important issues of our time.

Posted by: peterpaulmary | March 21, 2007 01:53 PM

It appears as though the perfect marriage was born. Greedy self absorbed narcissistic lobbyists with their governmental mirror images in ex-congressmen. Jefferson IS turing over in his grave right now. Oh, and Gerry, I find your boo hoo whining pathetic in regards to Kaisers reporting regarding ESOP. Did you really believe that all you have done would not be scrutinzied and analyized?

Posted by: Rachaelcre8f8 | March 21, 2007 02:15 PM

John2bravo, I too am very excited about Al Gore's appearance today. But I think that you have missed something incredibly important in todays chapter. Maybe it's because we are immune to how our government works, that we think the corrption is normal now. But Congressmen using their connections once they have left their elected office is abhorant to me and any other self respecting person who believes in the real truth of Democracy.

Posted by: Rachaelcre8f8 | March 21, 2007 02:27 PM

Yeah Congressmen turned lobbyist using connections has to be one of the all-time major "conflicts of interest" I have ever seen except maybe Cheney/haliburton! Hard to believe it is legal. How did That happen??

Posted by: steven.willhite | March 21, 2007 02:35 PM

Rachaelcre8f8, thanks for your note, hey did I get that right, create fate? That's wonderful. I like your thoughts, it's just that I'm more excited about Al Gore talking about our planet's future (or lack thereof) than something some lobbyist did in 1986. There's a bigger crusade going on. I'm into Al Gore today.

Posted by: John2.Bravo | March 21, 2007 02:54 PM

Maybe I'm missing something but if Cassidy is such a money grubbing guy like Kaiser seems to think he is then why did he take home less of the latest ESOP deal than Powell and Fabiani and then give money to 38 others. what gives Kaiser?

Posted by: peterpaulmary | March 21, 2007 03:12 PM

John2Bravo, did you watch the hearing today? As would be expected, Al did a great job and I feel like his efforts are truly panning out, as there seems to be more press coverage and at least recognition in corporate America that action needs to be taken.

Posted by: Cbanks4 | March 21, 2007 05:47 PM

I see some are still here trying to paint lobbyists as noble creatures driven by their love for humanity.

Outside the beltway we know they are parasites that have warped the system to benefit the special interest corporations they represent. Claims that so-and-so was a good guy 30 years ago may be true, but that is no excuse for working against the good of the people here and now. No one is fooled by your soft soap -- except maybe other Beltway parasites.

Posted by: ssomo | March 21, 2007 08:59 PM

In his last response to Schlossberg's post, John Silber questions many of Schlossberg's assertions, including his assertion that the investment by Boston University in Seragen came from and seriously damaged the university's endowment. I found the following quote online from the Atlantic Magazine of the year 2000.
"Far from restraining universities, however, the difficulty of turning a profit seems to have made them more aggressive. A growing number of schools, for example, are buying equity stakes in the very companies that stand to profit from their faculties' research -- a practice that both raises the potential for conflict of interest and is financially risky. In the 1980s and early 1990s Boston University poured $85 million (nearly a fifth of its endowment) into Seragen, a biotech firm specializing in cancer research, which several BU professors had founded. Convinced that the company would generate windfall profits, BU President John Silber also personally invested heavily in Seragen and persuaded numerous professors and trustees to do likewise. But from 1991 to 1997 Seragen lost almost $150 million. The university, which at one point owned 91 percent of the company's stock, was accused of egregiously mismanaging the school's endowment to prop up the company and to protect the trustees' investments."
It seems that once again, as between Schlossberg on the one hand and Cassidy and Silber on the other, Schlossberg seems to have the facts on his side.

Posted by: Rachaelcre8f8 | March 21, 2007 09:28 PM

Thank you for this rare gem of epic journalism. I hope you do more such pieces, in particular on the PAC money and like influences behind our Middle East policy, which includes, without question the invasion of Iraq and current saber rattling against Iran. If you do embark on such a high-risk odyssey, please make it 50 parts and spare readers no mercy. Now that we are clear on how our government "of the people" is bought and paid for, I think it's time we quantify the human lives the "PAC money for apartheid and imperialism" has purchased, i.e., how many dead in the region and how many dollars to US? Perhaps 1967 would be a good year to start? Thank you again for your excellent decision to do long form journalism online. I wish I could say it has dispersed all my deeply held suspicions, but all it has done is confirm them. Nonetheless, I applaud your effort. Please, please do more.

Posted by: lisajw | April 5, 2007 04:48 PM

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