As Marco Consulting Group celebrated its 25th anniversary this month, wheels were also set in motion for future change at the top of the Taft-Hartley plan consulting firm.
Chairman Jack Marco on Jan. 9 announced a buyout program that puts 49% of the firm's shares in the hands of 26 employees beyond himself and co-founder Tom Mitchell, vice chairman. Also announced was the appointment of Jason Zenk, executive vice president and senior consultant, to CEO at the firm; he will be the third largest shareholder after Messrs. Marco and Mitchell.
In an interview after the buyout announcement, Mr. Marco said part of the plan included a pledge to staff and clients that he and Mr. Mitchell would be “actively engaged” at the firm through 2017, when their combined 51% ownership stake will be offered to the employee owners for purchase. It's not definite that he and Mr. Mitchell would retire at that point, but he said he wanted to commit to the firm and its clients for five more years.
Previously, Messrs Marco and Mitchell owned 82% of the firm, with 17 employees owning the remaining shares.
The buyout announcement is the culmination of a tumultuous 18 months at the Chicago-based company, during which Russell Campbell left as CEO to start management consulting firm Your Second Opinion LLC, Rockford, Ill.; Ian Jones, president, quit to set up a Buffalo, N.Y., office for Morgan Stanley Smith Barney unit Graystone Consulting; and Miguel Zarate, senior consultant, joined Chicago-based rival Marquette Associates Inc. Marco Consulting had sued Mr. Jones and MSSB in April 2011 claiming Mr. Jones violated the non-compete clause in his contract, but the suit was settled a month later.
Mr. Marco said the employee buyout plan had been in the works for five years, and the departures of Messrs. Jones and Zarate did not delay it.
“An employee buyout is a very difficult thing to do,” he said. “If you don't want to bring in a third party to buy the firm, it's a real stretch to work something out that the employees can afford. We came up with a plan that made it all doable by making it a two-step plan,” initially selling employees the 31% from Messrs. Marco and Mitchell and then the remaining shares in five years.
Mr. Marco said that all along he wanted the firm to continue with its employees as owners.
Mr. Zenk in a separate interview said that although Marco Consulting was open with its clients about the buyout plans, clients were relieved a deal was finalized. “I think clients said, 'Good; at last it's done,'” he said. “I think when you have two dominant figures in the industry (Messrs. Marco and Mitchell) with the majority of shares, clients thought if this (buyout) doesn't happen, what's the future here?”
Mr. Marco said that perceived uncertainty had hurt obtaining new clients. “No question, on a couple occasions,” he said. “Our competition had put some doubt in prospects' minds.”
Still, within the last year Marco Consulting had added four pension fund clients to its fiduciary services accounts business, begun in 2005, where the firm takes discretionary oversight of portfolio investment decisions for clients. Three of those clients — the National Automatic Sprinkler Industry Pension Fund, Indiana State Council of Carpenters Pension Fund and the 1199SEIU Regional Pension Fund — had used Marco Consulting as their traditional investment consultant; the fourth — the $200 million Fox Valley and Vicinity Construction Workers Pension Fund, St. Charles, Ill. — is a new client for the firm.
Dan Aussen, executive director of the Fox Valley plan, said in a telephone interview that he wasn't aware of any changes at Marco when they selected the firm, but he had heard Mr. Zenk was being promoted and he received an e-mail in the last few weeks from Marco stating an employee buyout there was being completed. “Marco did a good presentation,” he said. “There's no concern on our end” about the buyout.
Mr. Zenk — who will continue with his previous responsibilities even as he takes on the role of CEO — said Marco's fiduciary services assets have climbed to more than $6 billion, from $5.6 billion in September 2011. He foresees steady growth continuing as demand for non-traditional consulting increases. The firm has a total of $127 billion in assets under advisement.
Among Taft-Hartley funds that issued RFPs following Mr. Jones' departure in 2011, the $78 million Buffalo Laborers Pension Fund, Cheektowaga, N.Y., retained its relationship with Mr. Jones by hiring Graystone later that year, said Thomas Panek, pension administrator.
“We liked his style,” Mr. Panek said in a telephone interview. Marco was allowed to rebid, he added, but “when they did have someone new talk to us, we just weren't happy with the presentation.”
Still, client departures have been few and Mr. Marco said the response to the buyout plan “was spectacular. People were anxious about us going outside instead of having a buyout, but now nothing changes, no distractions.”
“Generational transfer has always been an issue for consulting firms, as well as for investment management firms, and needs to be handled very carefully” said Brian Baskir, head of global consultant relations for ING U.S. Investment Management, New York. “They're not alone… it's a typical thing for a lot of these kinds of firms who've been around for 20 years or more, where the founders are looking to find a way to pass the baton to the next generation of the firm leadership.”
He said the Marco transition that was announced “was kind of expected, and I think the way they are doing it is good. It's gradual, which makes it positive and non-disruptive for their clients.”