In October, 2003, Massachusetts Secretary of State William Gavin and the SEC each filed civil complaints against the Boston-based fund company, Putnam Investments. In the days that followed, the company's CEO of 18 years, Lawrence Lasser, was forced out along with several portfolio managers. Even though the new CEO Charles "Ed" Haldeman was working on a settlement with regulators, investors were still pulling their money out of the company. By November, $6 billion had been taken out of the firm.
Haldeman's challenges as new CEO were great. Not only would he have to fix the ethical problems at Putnam and reassure investors, he would need to reinvent the culture at Putnam to attract and retain talent. Many firms respond to a breakdown in ethics by adding more rules and regulations. But under Haldeman, Putnam has dismantled much of the hierarchical culture that prevailed at the company
Haldeman began by focusing on communication. Instead of the quarterly meetings held for the company's 800 officers as was the tradition under the old regime, Haldeman opted for all-employee meetings, where he and other executives talked for 15 minutes and then opened up the floor for questions from employees. He also sent weekly e-mails to employees.
In April, 2004, Putnam agreed to pay $110 million to settle accusations leveled by their accusers. The firm had been accused of rapid trading, which, although not illegal, is considered an unethical practice and is banned by many companies. As part of its settlement, the fund company agreed to a number of corporate measures, including mandating that portfolio managers who buy Putnam funds hold them for at least 12 months.
Compliance was only part of the solution for Putnam, though. Haldeman realized that there was something in the company's culture that allowed the unethical atmosphere to thrive. Because of the firm's intense focus on short-term gains, portfolio managers broke rules and executives allowed it. There was also a strong hierarchical culture. Three executives ran the company from the 12th floor, where they cocooned themselves behind closed doors. The only reason to go to the 12th floor would be if you were summoned, which usually wasn't a good thing.
Haldeman created a concept he called "One Putnam," which required a flattening of the organization, and a reduction in management staff. The new, flatter organization allows for more collaboration among departments and divisions, which was unheard of before. Now that there are opportunities for these divisions to work together, there are more opportunities for employees to move within the company. This strategy also better positions Putnam for recruiting at colleges and universities
Haldeman also got rid of some of the outward trappings of the formal culture at Putnam. The company switched to business casual dress code and replaced the executive-only dining room with an employee cafeteria. Haldeman's office remains in the middle of the investments area, avoiding the 12th floor and its memories altogether.
Compensation was another key area which the cultural transformation affected. Under the old regime, compensation decisions were made by a small group of executives behind closed doors. Because people didn't know what criteria was being used to evaluate their performance, they assumed compensation was based on politics. At Putnam, bonuses made up about 90 to 95% of many employees' income, and stress over what would become of the bonus program was high. To quell fears, Haldeman gave out 2003 bonuses two months early and promised to keep bonuses at the 2003 level for two years. Haldeman also eliminated the huge differentiation between how much senior management makes and what everyone else gets paid. Haldeman is paid less than half of what Lasser made in 2000.
Finally, Haldeman established a compensation program that rewarded long-term consistent fund performance, rather than quick successes. So far, the company is thriving under the new culture.