Community Values, Prudential Style

by Tom Wheeler

Just a few years ago, Prudential was in the midst of a scandal of epic proportions, when the multinational insurance giant got caught red-handed ripping off hundreds of millions of dollars from its customers.

Some policyholders, many of them elderly, lost their life savings. Thousands of Prudential clients faced the prospect of losing their homes, their retirements, or money set aside for their children's education. This was fraud on a truly massive scale.

Throughout much of the 1980s and early 1990s, Prudential sold billions of dollars worth of dubious policies that were intentionally misrepresented through misleading sales techniques and outright forgery. The abuses included the practices of "churning" and "twisting."

"Twisting" is the sale of insurance based upon incomplete or fraudulent comparisons. "Churning" refers to a practice in which agents pressure current policyholders to buy new, larger policies with the promise that the dividends from their existing policy will pay off the new monthly premium. What the agents often failed to explain is that dividends eventually run out and the policyholder is forced to make a huge cash payment to salvage the old policy and then fork out a large premium to pay for the new policy.

Prudential initially made big profits in the scheme. For some senior executives, the huge flow of cash from these activities helped finance extravagant corporate spending and lavish lifestyles, while Prudential employees who questioned the scheme or refused to participate were intimidated into silence or fired.

After initially getting caught, Prudential offered a measly 2-cents-on-the-dollar settlement back in 1993. A year later, the company finally admitted that it had committed widespread fraud. The admission was necessary in order to avoid criminal indictments. Eventually, Prudential was forced to pay the largest fraud settlement in American legal history. Beset by this public relations nightmare, Prudential's marketing department needed a way to repair its reputation.

Welcome to "community values," Prudential style.

Hearts and Minds

In the wake of the churning scandal, Prudential's revamped communications department launched two new initiatives: the "Helping Hearts" campaign and the "Spirit of Community Initiative."

The Helping Hearts program is a matching grants initiative that provides portable cardiac defibrillators to volunteer emergency medical service squads. The "Spirit of Community Initiative" is a series of programs designed to "rekindle America's community spirit by encouraging young people to become actively involved in making their communities better places to live." It includes the "Prudential Spirit of Community Awards," created in 1995 to "recognize students in middle and high school grades who have demonstrated exemplary, self-initiated community service," as well as the Prudential Youth Leadership Institute "to teach leadership and community service skills to high school-age students."

Given Prudential's history, the Leadership Institute perhaps gives new meaning to the old joke that "those who can't do, teach."

Elisa Puzzuoli, Prudential's director of issues management, acknowledges that the real purpose in giving awards to schoolkids is to award the company itself a better image. Speaking at the Issues Management Conference, Puzzuoli talked about how these "reputation programs" helped reposition Prudential as a company that really cares about the communities where it operates.

An intensive PR blitz touting Prudential's community initiatives generated "great publicity," Puzzuoli said, and "helped us get through the darkest days of Prudential." She estimated that the programs have raked in millions of dollars of "added value" for the company.

Puzzuoli stressed the importance of "forming strategic alliances" and "picking a third party" as cover to ensure credibility for the company's PR initiatives. To legitimize its work with schoolkids, Prudential formed a partnership with the National Association of Secondary School Principals (NASSP), sought endorsements from groups like the National 4-H Council, and recruited prominent figures such as former President Jimmy Carter and actor Richard Dreyfuss officials to help build "goodwill" by participating in the awards program.

"We really are a community-based business," Puzzouli said without a hint of irony.

While Prudential lectures children about the values of "community spirit" and flacks tout its efforts to be a "responsible corporate citizen," the company's internal problems continue to mount, with recent reports that the company has destroyed documents related to the churning scandal in regional offices as far apart as Massachusetts and Florida.

In 1996, the Los Angeles Times obtained an internal memo from the Prudential home office, ordering managers in over a dozen states to destroy documents relevant to the investigation. "We just learned this morning that one state is looking into possible violations regarding our 'private pension' materials," the memo said. "You must destroy all private pension letters other than the approved versions I referred to in my earlier focus message today. Again, destroy and discard any other letters."