May 9, 2006

Professors Michaud and Borts on Beacon Mutual

Carroll Andrew Morse

The title of Saturday’s Projo op-ed by Brown University Professors Dennis Michaud and George Borts is “How to Professionalize Beacon Mutual's board”. Unfortunately, their solution as to how to improve the board amounts to little more than “select improved board members”…

While Beacon's basic competitive position, efficiency, and financial integrity remain sound, the company needs a professional board that embraces prudent best corporate-governance practices and is accountable to the policyholders. This is the only logical approach to improving oversight and control at Beacon.
The above paragraph is the entire solution of Professor Michaud and Professor Borts to Beacon Mutual’s corruption problem, not their introductory description of it.

The Professors do take a not-very-veiled swipe at the concept of Gubernatorial appointments on the Beacon board…

Moreover, the pattern of appointing some Beacon directors on the basis of political connections, rather than professional qualifications, has contributed to the company's governance shortcomings. Under the current Beacon charter, Governor Carcieri controls the majority of director appointments and director retention.
However, the Professors never make clear in their op-ed whether they believe the Governor's appointments should be completely eliminated or just constrained via some form of merit selection procedure.

The Professors also make no mention of the competitive advantages that Beacon receives from the state, in the form of a tax-emption and an exemption from having to pay into the state’s insurance insolvency fund. As a result, they overlook the central question regarding the future of Beacon Mutual: Why doesn’t an additional layer of public oversight of Beacon Mutual, beyond that of normal corporate governance procedures, continue to be justified for as long as the company receives special treatment from the state?

Of course, Professors Michaud and Borts could render this question moot by endorsing the position that Beacon’s competitive advantages be phased out in return for a change in the composition of its board.

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You do not understand. The central theme of this opinion piece is that Governor Carcieri in his two (and now third) appointments to this board did not take sufficient time to find directors that could push or challenge management on the implimentation of strategy, policy, or Beacon's mission. Rather, the govenor gives us an ex-cop and a nun who know little if anything about how an insurance company operates.

You call for another layer of regulation rather than higher quality directors. Wow, sounds like another big-government democrat..claiming to be a republican. Just what RI business needs, more regulation. The governor's management style reminds me of that of President Jimmy Carter (another micro-manager).

Posted by: Jenn Dolan at May 9, 2006 2:45 PM

Dennis Michaud has been on the Beacon Mutual payroll for quite a long time.
Don't know if they bounced him since the grand jury has been seated or if he's still a mouthpiece.
Anyone know if Borts is also a Beacon hired gun?
Michaud's task for Beacon was to push the privatization deal up in the legislature by producing white papers and testifying.
One can only speculate on what Michaud lost ($$) when their grand plans to take this company private blew up in their faces.
Will be curous to see if the labor unions front this lackey's run against the governor in the Republican primary as has been rumored.
These dirty birds need to fly away for good.

Posted by: Tim at May 9, 2006 5:00 PM


The legislation that passed the Senate, in addition to changing the composition of the board, gives Beacon Mutual all kinds of flexibility in setting in its rates that other workers’ comp insurers are not allowed. Here’s a few snippets…

[The corporation shall not be required to adhere to the uniform classification system or uniform experience rating plan required under section 27-7.1-9.1…

The information furnished in support of [a Beacon Mutual rate filing] may include…(ii) the experience or judgment of the corporation…

Notwithstanding any law to the contrary, the corporation may establish and apply a premium surcharge of up to three (3) times its applicable premium rate for policyholders who present higher than normal risks within a class…

The corporation may also establish and apply discounts to the policyholders who present lower than normal risks within a class.]

If the Michaud/Borts version of good corporate governance, i.e. have angels on the board of directors, is enough to make sure Beacon doesn’t abuse the special flexibility granted to it by the state, then shouldn’t the exact same flexibility be given to any other Rhode Island insurer that also uses best corporate governance practices?

And I’m not calling for “another layer of regulation”. I’m calling for the existing layer of regulation to be maintained, for as long as Beacon gets special treatment. It is supporters of the current law and of the 1996 changes in Beacon Mutual’s charter that want to use government regulation to create a monopoly.

Posted by: Andrew at May 10, 2006 10:15 AM