R.I. Gov. Carcieri Demands ‘Complete Management Overhaul’ at Beacon Mutual

A day after a committee chaired by former Rhode Island Gov. Lincoln Almond issued a report highly critical of Beacon Mutual, current Governor Donald L. Carcieri is demanding that the chief executive officer and vice president of underwriting be immediately terminated.

In a letter to the Beacon Mutual board of directors, Carcieri demands that they immediately terminate for cause Beacon Chief Executive Officer Joseph Solomon and Vice President for Underwriting David Clark, two who featured prominently in the Almond report’s findings of wrongdoing.

Carcieri has also asked for the resignations of board members who have presided over the company since its formation in 1994, and of board members who have associations with individuals or companies implicated in the report. “As directors for over a decade, they were either complicit in the abuse or they were incompetent in not stopping it. Either is reason enough for their removal,” the Governor stated.

He indicated that if the board members do not resign, he would take action on his own to remove them “I note that the company’s By-Laws provide me with the authority to remove from the board for cause gubernatorial appointees. Given the widespread mismanagement and abuse that are now well-known, I will not hesitate to use this authority,” he told the directors in his letter.

Also, the Governor is demanding that Beacon Mutual immediately begin to cooperate with the Department of Business Regulation in its forensic audit of the company.

He criticized the board’s refusal to honor his request for a meeting with him today. The board has scheduled its own meeting on the Almond report for tomorrow.

Carcieri is holding a media availability at 2:45 p.m. today in the State House to discuss a letter.

The text of the Governor’s letter follows.

Dear Members of the Board of Directors:

I write to reiterate my strong belief that the leadership of the Beacon Mutual Insurance Company must change immediately. As I discussed on the phone yesterday with Mr. Hayes, I am deeply troubled by the conclusions of the report of the Almond Ad Hoc Committee. The report details a pattern of mismanagement and abuse of policyholder funds dating back for many years. Indeed, the report confirms the fears that I have raised about the company for well over one year now. My concern and plan for the future governance of Beacon are motivated solely by my interests in protecting this public asset and bringing to an end the corruption that too often has taken root in important institutions in Rhode Island.

Beacon is a “nonprofit independent public corporation” established by the State of Rhode Island to serve the public good. It is not a private for-profit entity. As such, it has a unique public mission. As Governor, I am the appointing authority for a majority of the members of the Board. Further, I am responsible for the economic well-being of the state. The health of the workers’ compensation market is a vital element of our economy. My primary objective is to preserve Beacon for the people of Rhode Island, just as I did in the cases of Blue Cross/Blue Shield of Rhode Island and Roger Williams Hospital in the face of corporate governance scandals at those institutions. For these reasons, I have an obligation to communicate to the Board the steps that I believe are necessary to move the company forward.

We cannot allow our state’s dominant workers‚ compensation insurer to be anything less than outstanding. The abuse detailed in the Almond Ad Hoc Committee report undermines the integrity of the current leadership of Beacon. For the good of the company, Beacon needs a complete overhaul of its management and board.

I understand that the Board of Directors will meet this Friday morning and that the Board believes that the meeting I requested for this afternoon is premature. The Board’s refusal to meet with me demonstrates its continued lack of understanding of the severity of this situation and its responsibilities to its policyholders and the state. Even after the Board’s own internal audit condemned Beacon’s management, certain elements of the Board and management continue to act as if their primary responsibilities are to themselves.

I write now to convey to the entire Board the expectations I have.

First, tomorrow the Board must terminate for cause the Chief Executive Officer and the Vice President for Underwriting. The Almond Ad Hoc Committee report is replete with examples of mismanagement more than sufficient to justify these actions. In addition, I am particularly concerned that the Almond Ad Hoc Committee believes that the Chief Executive Officer attempted to obstruct the Board’s very own internal audit. This action is unfortunately consistent with the management’s pattern of stonewalling the Department of Business Regulation’s forensic audit. This must stop now.

Second, the Board members who have presided over this mismanagement since 1994 must resign from the Board. Whether or not these directors were aware of the abuse and mismanagement detailed in the Almond Ad Hoc Committee report is irrelevant. As directors for over a decade, they were either complicit in the abuse or they were incompetent in not stopping it. Either is reason enough for their removal.

I plan to name new gubernatorial board members; members with the community standing needed to right the company. I note that the company’s By-Laws provide me with the authority to remove from the board for cause gubernatorial appointees. Given the widespread mismanagement and abuse that are now well-known, I will not hesitate to use this authority.

Third, any Board members who are personally implicated or who represent policyholders who are implicated in any of the abuse detailed in the Almond Ad Hoc Committee report must resign from the Board.

Fourth, Beacon must immediately and fully cooperate with the forensic audit now underway by the Department of Business Regulation. Although the Almond Ad Hoc Committee did a commendable job with limited time˜and in the face of management obstruction,˜only the Department’s full market conduct examination and forensic audit can get to the bottom of the abuse and mismanagement that appears rampant at Beacon once and for all. It is time for Beacon to rein in its attorneys and stop stonewalling the Department’s investigation.

I eagerly await the results of your Board meeting and the decisions of individual board members. Rest assured that in the interim, my administration will be reviewing the range of legal options at our disposal to effect immediate change at Beacon.

Topics Legislation