Just a year after opening its doors, Prudential had earned a reputation as a company on the side of the needy. Its life insurance policies proved to be an enormous hit. The company paid claims within twenty-four hours, as promised. It charged as little as three cents a week, as promised. And it made life better for the struggling people of Newark, as promised.
Within a few months, Dryden was a fixture at factory yards during lunch. Standing on a box amid gatherings of soot-covered workers, he peddled his peculiar little policies as protection for their wives and children. He found few takers at lunchtime, but once the day was done, Prudential's office filled with rugged men toting lunch pails and searching for more information. Moneyâa few pennies at a time, collected door-to-doorâbegan pouring into the new company.
By 1883, Prudential found itself in the strongest financial position in its history; it had 200,000 policyholders, and that number was expanding at a rapid clip. Just two years later, on May 13, 1885, Prudential issued its policy number 1,000,000 to its newest insurance client, and new president, John Dryden.
With business booming, the company attracted New York advertising agencies that saw Prudential as a potential client. Mortimer Remington, a young account executive with J. Walter Thompson Advertising Agency, got his foot in the door through his father-in-law, a friend of Dryden. Remington persuaded the Prudential president that the company needed a national advertising strategy, complete with a trademark recognizable to any prospective client. Once hired, Remington pored through books and magazines in search of inspiration.
The truth of how Remington found his trademark idea has been a source of some mythmaking within the company. But it doesn't matter whether, as some have it, Remington's brainstorm hit when he saw a large, rocky hill in New Jersey or while thumbing through a library book containing pictures of geological formations. Either way, within a few weeks, Remington returned to Dryden with his suggestion: The trademark should be a likeness of the Rock of Gibraltar, with the legend “Prudential has the strength of Gibraltar.” Dryden was delighted. For years to come, Prudential would be known as “the Rock.”
By the late nineteenth century, Prudential's rich cash hoard came to be coveted by its own shareholders. A huge surplus had grown at the company, largely the result of better-than-predicted mortality rates. Dryden divvied up the kitty among policyholders, reasoning that his company had essentially overbilled. But, as the shareholders saw it, the money belonged to themâafter all, the policyholders had received exactly the insurance they wanted for the price they agreed to pay.
As the years passed, Dryden's split with his shareholders grew deeper. A group of dissidents sued the company, demanding that it be prohibited from distributing its surplus capital to policyholders and be ordered to turn $2.5 million over to the shareholders. The court split the differenceâit upheld the company's right to make the concessions but agreed that the shareholders should receive the millions they wanted.
For Dryden, the problem had become untenable. Aggressive stock speculators were snatching up shares, with an eye toward the cash surplus. Dryden feared that his company would be torn apart by short-term greed and left with too little cash to honor claims. He decided Prudential had to rid itself of shareholders and turn the ownership over to its policyholders, a process known as mutualization. Dryden set the complex process in motion, and by 1915, after intense lobbying, the New Jersey state legislature authorized Prudential to repurchase its shares and transfer ownership of the company to the policyholders. When the effort succeeded, years later, Prudential was left answerable to almost no one.
But Dryden did not live to see the battle through. Shortly after the push toward mutualization began, he slipped into a coma during a minor operation. In a matter of days, on November 24, 1911, John Dryden died at his home. Born into poverty, he left behind an estate valued at more than $50 million.
As the years passed, the responsibility for running the Prudential fell on a series of unimaginative homegrown favorites. For decades, none of these bland executives wanted to tinker much with the company's recipe for success. Prudential grew almost unavoidably, with its national reservoir of goodwill expanding with each policy it sold.
Heavy advertising polished that image, burning the name Prudential into the national psyche as a synonym for duty and honor. The ads, imprinted with the company's increasingly familiar trademark, used slice-of-life vignettes that went for the jugular. Any uninsured reader who put down the ads without guilt wasn't paying attention.
Typical was an ad that ran in 1925, captioned “The Little Grey Lady.” It showed a sad picture of an elderly woman, looking forlornly out of a closed window as she worked at a seamstress table.
“Toilâtoilâa merciless cycle of toil is all she knows,” the ad read. “Daily, those slender, needle-scarred fingers tremble more and more. Someone is responsible for thisâglaringly responsible. A husband, a brother, a son has failed in his imperative duty.” The duty, the ad said, was to purchase life insurance. With it, the old lady would have been allowed to live her final years in comfort.
By the time of the Great Depression, the company's advertising was reshaped as many policyholders, strapped for cash, allowed their policies to lapse. It was a potentially devastating trend for any insurance company, one that the ads tried to stanch.
One ad in late 1929 featured a middle-aged woman with her young daughter, sitting anxiously in a darkened room. Hanging over their heads was a newspaper announcing a mortgagee's sale. “The life insurance policy that would have saved their home was permitted to lapse,” the copy read. Similar ads were used to raise policyholders' concerns about their children's education, all with great success.
The subtext of these messages reinforced the image of trust: By doing business with Prudential, your mother won't have to work in her old age, your family home will be protected, and your children will be educated. It was all the more comforting because, for many, the message was true.
By 1946, Prudential had become fat, cautious, and unimaginative. Risk taking was shunned. Its executives were comfortable, pampered, and prissy. But in that year, everything changed when the board elected Carrol Shanks as the company's seventh president. Unlike his predecessors, Shanks was not a dyed-in-the-wool insurance man; he made his reputation in the wilder, more aggressive world of Wall Street. Shanks stirred mixed emotions among his followers; some saw him as cold and calculating, but he engendered excitement and inspiration in others. Everyone knew him as tough, decisive, and, when he needed to be, ruthless.
Shanks moved quickly to bust up Prudential's lazy, parochial ways. He forced out the deadwood at the top, a shock in a culture that had not seen a high-level dismissal in decades. Ignoring seniority, he brought in his own team of managers loyal to him. Within months, Prudential had a new general counsel and new heads of several departments. The moves shot fear through Prudential's executive workforce, but they also served as a wake-up call throughout the ranks of the lumbering insurance giant.
In 1948, after shattering the cozy relationships in the executive suites, Shanks turned his eye to the rest of the company. He worried that by keeping all the senior management talent in Newark, Prudential wasn't going to find and develop talent around the country. So Shanks broke Prudential into pieces, scattering essentially separate companies, known as regional home offices, throughout the United States and Canada. He established the first regional home office in Los Angeles in 1948, quickly following in Toronto, Houston, Jacksonville, and across the country. Decentralization sped up sales coverage, built local prestige, and quickened service. It proved an enormous success.
Shanks then shook up the company's investment strategy. Until then, Prudential had been happy to sink its money only into huge blocks of blue-chip stocks and bonds. Instead, Shanks wanted Prudential to embrace risk. He pushed the investing department to loan money to strong, growing companies that might have trouble finding bank credit. That way, Prudential could charge higher rates. He developed the company's group health insurance program, convinced that if the private insurance companies didn't start offering such products, the federal government would. Prudential was no longer just an insurance company. It was a powerhouse, expanding rapidly into every aspect of the financial services world.
The Pru, as reshaped by Shanks, was a stronger, more aggressive company than it had been at any time in its history. Shanks could have left with the reputation as the company's greatest leader since Dryden. Then Shanks got tripped up by a tax shelter.
In 1960, the
Wall Street Journal
reported on its front page that Shanks had personally borrowed money to set up a tax shelter that purchased a lumber company. An hour after closing on the deal, Shanks sold 13,000 acres of timber to a subsidiary of Georgia-Pacific, the paper company. That sale gave Shanks enough money to repay his loans and saved him close to $400,000 in taxes. The
Journal
article pointed out a few facts that made the deal seem smarmy: Shanks served on Georgia-Pacific's board of directors, while Owen Cheatham, the chairman of Georgia-Pacific, was a director of Prudential. At the time of the deal, Georgia-Pacific owed close to $65 million to Prudential. The
Journal
article heavily implied that the timber transactions were unethical sweetheart deals.
The board of directors was incensed. In all its years, neither the company nor any of its senior officers had ever been singled out with an accusation of an ethical lapse. The stench of scandal was new to Prudential, and the board of directors didn't like it. By December, Shanks resigned under pressure, so angry that he refused to even visit the company for more than a decade.
By 1973, the Prudential had again fallen into another rut of complacency. Little had changed at the company since Shanks's resignation, even though the 1960s had been a decade of enormous transformation in the financial world. Although the company had become the largest insurance company in the world in 1966, it had reached the goal by plodding along without much innovation.
Then, that year, the company named Robert Beck as president. Beck was the first man since John Dryden to rise from the job of insurance agent to Prudential president. He started his career working as a financial analyst for the Ford Motor Company, as one of Robert McNamara's famous “Whiz Kids.” But Beck was restless. He wanted to get into sales. In college, he had worked part-time with Prudential, and he loved insurance. He spoke of it with the fervor and earnestness of a crusader. So he left the automobile industry and took a job as a Prudential insurance agent, working his way up over the years.
As the youngest president ever to work at Prudential, Beck felt in close contact with the trends of the time, particularly the focus on consumerism that was sweeping the nation. Consumers wanted their worlds easier and services more readily accessible. To Beck, it made perfect sense for a financial company the size of Prudential to offer its customers the full range of financial services, from insurance to stocks to tax shelters.
The idea took hold in the mid-1970s when Donald Regan, then the chairman of Merrill Lynch, pushed his company into offering “womb-to-tomb” financial services. Merrill established the Cash Management Account, which allowed customers to write checks against their investment portfolios, and pushed its franchise in stocks and bonds into everything from insurance to credit cards. Beck felt sure that this was the future of the industry, with brokerage firms providing the cash management and lending services of banks. He wanted his insurance company on the cutting edge.
So Beck, after taking over the newly powerful position of chairman of Prudential, adopted long-range plans of transforming the insurance company into the nation's first financial supermarket. He wanted to wade into the business slowlyâhe knew that another insurance company, INA of Philadelphia, had stumbled badly when it invested in Blyth Eastman Dillon and lost a lot of money. Beck's team looked first at smaller, regional brokerage firms and mutual fund families. The right property at the right price didn't seem to be available.
Then, on March 5, 1981, Beck was vacationing at Ocean Reef, Florida, when he received a telephone call from David Sherwood, the president of Prudential. Sherwood said he had heard from First Boston that Bache had put itself up for sale. The firm seemed to fit perfectly into Prudential's plans. Its planning group had already begun sizing up Bache months earlier. Sherwood asked Beck what he thought the company should do.
Tell the planning group to start digging deeper, Beck replied. In a few days, he would return to Newark to be briefed on the matter. Maybe, Beck thought, Prudential's search was over.
MARCH 17, 1981, was the kind of day that couldn't make up its mind. It was gray. It was sunny. It was windy. Then the snow flurries fell. Despite the lousy weather, more than 100,000 people packed Fifth Avenue to watch the marching bands play in the city's 219th annual St. Patrick's Day parade. Manhattan was virtually transformed into an urban canyon of green, as revelers laughed and drank, in a celebration not so much of Ireland's patron saint as of themselves.
Downtown, few in the offices of Bache took notice of the merrymaking. Burned out and exhausted, Bache executives had been struggling for eight days and nights to finalize a merger deal with Prudential. A team of executives from the insurance company had effectively commandeered the senior management of Bache, demanding information to help them analyze everything about the brokerage firm. When Beck returned from Florida, he called in specialists with knowledge in computers, law, and marketing and ordered them to dig into the bowels of the Bache ship to make sure there were no leaks.
Jacobs had told Bache's board of Prudential's interest about a week earlier and had assigned Clark Clifford part of the responsibility for negotiating a deal. The Bache directors had asked few questions, but Jacobs had told them that Prudential seemed serious. “I think everybody needs to be standing by,” he said.