After selling his firm to an international conglomerate, Gerald Cassidy finds himself working for corporate masters. For the first time in a quarter century of lobbying, the lion weakens. Some of the new owners contemplate the unthinkable: Cassidy & Associates without Cassidy.
By Robert G. Kaiser
At the beginning of 2000, Gerald Cassidy found himself playing a whole new ballgame. For the first time since he became a lobbyist in 1975, he was working for somebody other than himself. He didn't like it, according to numerous colleagues.
To be sure, the firm was still called Cassidy & Associates. It was still located in the elegant offices at 700 13th Street NW that Cassidy had moved into in 1991. The offices were designed to look like a white-shoe law firm -- federal-period furnishings, thick carpets and a copy of a Gilbert Stuart portrait of George Washington in Cassidy's personal office. The firm had some of the same clients and some of the same employees. But it had a new owner, Shandwick International, which itself was acquired in 1998 by the Interpublic Group of companies (IPG), a global conglomerate whose principal holdings were advertising agencies and public relations firms.
At Shandwick the acquisition was the source of great excitement. In the public relations industry, said Paul Costello, at the time a Shandwick executive, "Washington was seen as a potential boondoggle of untapped dollars . . . Everyone wanted Washington." Shandwick had won the prize, the biggest lobbying and public relations firm in the nation's capital.
Cassidy & Associates' profit margins -- 17.3 percent in 1998, according to Donaldson, Lufkin & Jenrette, the investment bank that helped sell Cassidy to Shandwick -- were the highest of any component part of the company. Its revenues -- $44.3 million in 1998 -- were bigger than any other component part of Shandwick International. By adding them to the bottom line, overnight Shandwick became the top-grossing public relations firm in Washington.
Cassidy, too, was enthused by the deal. "I thought . . . we would get a lot of business," he recalled, by representing Shandwick clients from around the world who had problems in Washington. "The view was that we could grow the business a great deal." In their negotiations, Shandwick and IPG had encouraged his ambitions to expand, and IPG executives promised he could use IPG stock to acquire other companies.
But the initial enthusiasm quickly faded on both sides. Said Stephen R. Conafay, one of the Shandwick executives responsible for the deal, "It was apparent right away that numbers weren't going to be met." The problem was Powell Tate, Conafay said -- Cassidy's public relations arm, whose revenues had been stagnant for several years. Under the terms of the acquisition, Powell Tate was to be merged with Shandwick's own Washington office.
Two PR operations could not have been less alike. Powell Tate was a political firm, run by political veterans. Shandwick Washington focused on corporate PR, and did a lot of work for high-tech firms in Northern Virginia. "Powell Tate was buttoned down; Shandwick was informal and irreverent," recalled Ben Boyd, who worked for Shandwick. "The styles of the firms were totally different." Shandwick's employees worked in snazzy offices featuring open spaces and free food in the Ronald Reagan building at the foot of 13th Street NW. Powell Tate's conventional workspace, more like a law firm's was just three blocks north, but a world apart.
The merger was never really thought through, according to numerous participants. Boyd remembered being told that henceforth, the Powell Tate unit would be a "public affairs" firm, while Shandwick would do "public relations." Boyd considered that "a distinction without a difference."
David Whitmore, a public relations and finance man with a law degree, was the Shandwick International acquisition officer and Cassidy board member responsible for overseeing the deal. "It should be a Harvard [Business School] case study of how to screw up a merger," he said in an interview. It took two companies each with about 70 employees, each with annual revenues of about $14 million, combined them, and after a couple of years had one company with 70 employees and revenue of about $14 million.
In other words, "the merger was disastrous," as Cassidy put it in an interview.
Jody Powell called the period that followed the merger "the worst two years of my life." He had to lay some people off, though he resisted fiercely and simply refused more than once. But many of his employees just left. "A lot of Jody's best people, our best people, left because of the merger," Cassidy said. A number of them said in interviews that Powell Tate had quickly ceased to be a fun place to work.
Cassidy & Associates had also entered a difficult new phase of its history. The situation was "incredibly volatile," said a former executive of the firm, who spoke on condition of anonymity because he feared legal retribution from Cassidy. "We were losing staff and churning clients," the former executive said. "I didn't see how we could meet a business plan when the place was just roiling on a daily basis."
In earlier years the firm took pride in the high percentage of its clients that renewed their contracts year after year -- traditionally 80-90 percent, the former executive added. "Suddenly we were hemorrhaging clients. It spiraled downward. The joke was, it wasn't a lobbying firm any more, it was a marketing firm, because so much energy had to be spent drumming up new clients." More than three dozen lobbyists who worked for Cassidy in 1998 departed in subsequent years. Many set up their own firms, some in direct competition with the mother ship. Vincent Versage, the fourth person to join the firm (in 1985), was one of the first. He established the National Group at the beginning of 2002; several other Cassidy lobbyists joined him.
Cassidy had routinely required his employees to sign contracts that included a one-year "non-compete" clause, meaning they couldn't compete directly with Cassidy & Associates for a year after leaving. But Versage got legal advice that he could communicate with his old Cassidy clients and try to persuade them to come to him after that year ended. Of the 10 clients he represented in his last year with Cassidy, eight moved with him to the National Group. He charged them all less than they had paid Cassidy.
Cassidy assigned James P. Fabiani, who had worked with him longer than anyone else in the firm, to handle dealings with IPG and Shandwick in New York. Fabiani warmed to this assignment and liked the people he was working with. And according to Conafay, they liked him.
One of his assignments from Cassidy, Fabiani recalled, was to prevent IPG from meddling in Cassidy & Associates' internal workings. This could involve evading the terms of the sale agreement. "For example, as part of the deal we were required to turn over payroll operations and salary setting to IPG," Fabiani said. "Gerry didn't want it to happen, and it never did." Cassidy said that under his deal with IPG, he retained authority over the payroll.
Fabiani and Cassidy independently reached the same conclusion: The purchasers didn't really understand the business they had bought. They knew nothing about lobbying, and very little about Washington. Fabiani admired Cassidy's determination to keep running the firm as he had before he sold it: " 'Nobody's going to tell me what to do, nobody's going to take my business. I may have sold it, but I'm sure as hell not going to give it to them.' That was really his whole attitude."
As months passed, some IPG executives caught a serious case of buyer's remorse. Said Conafay, then in charge of making the acquisition work: "Gerry's just a tough old Irishman. He was going to have things his way. . . . And there was a lot of concern about whether we wanted someone that difficult to work with."
Several key Shandwick executives considered firing Cassidy and replacing him with Fabiani. This was not widely known, and when Cassidy veterans hear about it for the first time, years after the fact, some express amazement. "That would be ridiculous," said Lester "Ruff" Fant, Cassidy's lawyer and financial adviser before the acquisition. He and several others said they couldn't imagine the cautious, indecisive Fabiani filling Cassidy's shoes.
Conafay, on the other hand, said the issue was one of effective management. Fabiani knew how to run the company and was willing to do it. Conafay and others at IPG feared that Cassidy would not meet the obligations they thought he had to his new owner.
This drama unfolded against a backdrop of corporate chaos at Shandwick. New executives at its parent company, IPG, fired every one of the Shandwick people who had been involved in the acquisition of Cassidy. A new Shandwick CEO came to Washington, met with Cassidy and others, and decided not to make any big changes. The idea of replacing Cassidy with Fabiani died. Cassidy insists no one at IPG ever mentioned it to him, but several of his associates said he knew all about it. Toward the end of 2001, quietly, he fired Fabiani, who had been working with him for 17 years. Fabiani had played a huge role in the development of Cassidy & Associates; in return, Cassidy had made him a wealthy man. He took more than $10 million out of the various transactions that had made Cassidy himself even richer.
Months later a new lobbying firm opened its doors in elegant offices on the 7th floor of 1100 Pennsylvania Ave. NW. Its furnishings, including many fine antiques, created an old-money atmosphere reminiscent of the offices of Cassidy & Associates on 13th Street, though the furniture pieces were perhaps a little finer than Cassidy's. The firm was called Fabiani & Company; one of its principals was Steve Conafay, the former Shandwick executive. The new company, according to its own promotional material, "was built upon [its founder's] 20 years of experience building the largest, and, arguably, the most effective, government affairs firm in the country." That would be James Fabiani.
Washington Post research editor Alice Crites contributed to this report.
Tomorrow: Cassidy & Associates struggles to stay on top.