August 02, 2006

Heck-of-a-Contract

The Washington Senate race just got a whole bunch more interesting for those of us outside the state. Senator Maria Cantwell's Republican opponent is Mike McGavick who resigned last year as the CEO of SafeCo so he could run against Cantwell. He had a nice pot of money from his days at SafeCo that he was planning to use to help fund his campaign. Well, it looks like that pot of money might have just turned into a big honeypot because it seems that the "golden parachute" was really a "stolen parachute" and SafeCo investors want their money back.

This week Emma Schwartzman, the great-great granddaughter of SafeCo's founder filed suit against former CEO Mike McGavick saying the McGavick was not eligible for the $28 million payout he got after resigning from SafeCo. The lawsuit also indicts the Board of Directors of violating security laws by concealing the size of the payout they had authorized.

Mike McGavick's contract with SafeCo had explicitly ruled out a "golden parachute" if he chose to resign from the company. So why did he get such a nice payout? Well, it helps to have friends (pdf) who will negotiate a contract for your services AFTER you resigned that resemble a golden parachute deal.

“If you or I take money that doesn’t belong to us, it’s called theft. When a Board of Directors and their CEO do it – that’s called corporate waste. Mike McGavick didn’t earn the $28 million, he knew he wasn’t entitled to it, but he took it anyway,” said Schwartzman. “I have brought this lawsuit to protect the assets and integrity of Safeco Corporation -- a company that is important to me, my family, and my community.”

Attorney Knoll Lowney of Smith & Lowney is one of the attorneys representing Schwartzman in the case. Lowney appeared with Schwartzman at the press conference and quickly emphasized that the case was about an illegal corporate transaction not excessive officers’ compensation.

“Mr. McGavick’s employment contract clearly stated that if he resigned he would forfeit his right to all compensation, including bonuses and stock options, and would get only his last paycheck. Instead he received $28 million. This did not represent a ‘golden parachute’ but a ‘stolen parachute’,” said Lowney.

“So, how was it that Mr. McGavick found himself walking away with $28 million including stock options and a bonus? Fraud – in the form of a document called an Executive Transition Services Agreement that McGavick and Safeco executed in December 2005,” Lowney asserted.

The agreement required McGavick to provide transition services during the first two months of 2006 as an employee of Safeco Corporation. The suit alleges this agreement was merely a fraudulent transaction to carry out an illegal giveaway of Safeco assets, including returning all of the stock options and bonus McGavick would have forfeited upon resigning. The suit alleges numerous other examples of improper payments to McGavick.

As Lowney notes in the press conference, proponents of McGavick will think this is just an election year ploy. However, he points out that the Board is also composed of some Democrats including a former governor who participated in this new contract. And looking at the timeline makes it clear that this was a fraud enacted to support McGavick's Senate run.

But, you know? Too bad we ordinary Americans can't negotiate an "Executive Transition Services Agreement" when we decide to quit a company to pursue other more exciting options. Anyone want to fund my new career?

Posted by Mary at August 2, 2006 07:48 AM | WA Politics | Technorati links |
Comments

In the Northwest Safeco is thought of as the bargain insurance company for low-risk customers (may/may not be true). The customer base is people who vote and will be pissed that the company threw big bucks to their chum instead of sharing it with the customers.

Posted by: J Edgar at August 2, 2006 03:29 PM

keep eyes on this

Israel Intensifies Hezbollah Attacks Deeper Into Lebanon

Posted by: fwf at August 2, 2006 04:09 PM

Thank you, Emma Schwartzman, thank you.

Posted by: Wells at August 2, 2006 08:21 PM

http://thumbsnap.com/v/KItgG8vR.gif

But remember this is our candidate (see link above) and I use "our" very loosely.

Posted by: Roger D at August 3, 2006 10:17 AM