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Sunday, October 5, 2003 - Page updated at 12:00 AM

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Inside the Boardroom: Gary Reed is the region's 'go-to' guy

Seattle Times business reporter

Gary Reed: A timeline


1939 Born in Seattle.

1961 Graduates from Duke University.

1967 Goes to work for Weyerhaeuser in New York.

1969 Earns MBA from Harvard.

1970 Joins Washington Mutual board.

1971 Becomes chairman of Simpson Timber.

1974 Joins Safeco board. Joins board of Univar, a chemicals and commodities company.

1977 Joins board of Seafirst, parent of Seattle-First National Bank.

1979 Seafirst begins building up risky energy loans. They will reach $1.2 billion by 1982.

1983 Faced with collapse from failed energy loans, Seafirst is bought by San Francisco-based BankAmerica for $125 million plus stock.

March 1986 Joins Microsoft board as company goes public at $21 a share. Recruited by Bill Gates Sr., who met him at Univar and told his son, "Here's a guy who I know likes computers and stuff."

1991 Leaves Seafirst board as new regulations bar serving on two bank boards; stays on Washington Mutual board.

September 1992 Joins board of the Blethen Corp., owner of The Seattle Times; recruited by Frank Blethen. Joins Seattle Times board in April 1995.

1996 Retires as chairman of Simpson Timber.

1997 Safeco board approves $2.8 billion acquisition of American States Financial, following a bidding war. The high price intensifies problems already simmering at the insurer.

1998 Joins Paccar board; recruited by Charles Pigott.

January 2000 Steve Ballmer becomes CEO of Microsoft, tension with Bill Gates grows; over coming months, Reed gets them talking.

May 2000 Shareholders complain about Safeco's performance; board elects Reed lead director for the company.

August 2000 Safeco CEO and Chairman Roger Eigsti resigns, effective December.

January 2001 Reed takes over as CEO for one month while Mike McGavick is hired.

October 2003 Reed says he is planning to step back from boards by resigning from some.

In early 2000, during the peak of the region's economic boom, Safeco was heavily in debt. The Seattle insurer's profits were plunging. Shareholders were screaming.

The board of directors turned to one man to lead it out of trouble: Gary Reed.

Around the same time, inside Microsoft's windowless boardroom, tempers flared. Bill Gates had promoted Steve Ballmer to CEO. Now the two longtime allies were sparring over who ran the company.

Again, one man took the lead to patch the rift and soothe egos: Gary Reed.

Gary who?

William Garrard Reed Jr., the most powerful Seattle business leader you've likely never heard of.

Reed serves on more public-company boards than anyone in Washington, such national and global leaders as Washington Mutual, Paccar, Safeco and Microsoft, as well as private boards, including that of The Seattle Times.

Like Reed, most corporate-board members — here and across the country — have operated in relative obscurity. But fraudulent corporate accounting and outrageous CEO pay have recently turned a spotlight on how directors oversee the nation's largest corporations.

Congress and stock exchanges have instituted reforms aimed at making boards more accountable, but they don't address a critical component: the board directors' character, their ability to provide moral and ethical leadership in troubled times.

In the Pacific Northwest, business people say Reed has been that kind of leader, someone who can help keep companies on course. At 64, Reed has spent most of his life inside the boardroom, making decisions that shaped businesses and the Northwest economy. From his front-row seat, he witnessed the savings-and-loan crisis, the timber-industry decline, the tech boom and bust, Safeco's crash and Boeing's relocation.

"Gary is the go-to board director in any situation that requires board input," said Mike McGavick, Safeco's CEO. "If anything happens that a director later will have judged they ought to have known, rather than trust my judgment, I call Gary. His judgment is just pitch perfect."

Now, after more than 30 years inside the boardrooms, he says he plans to step back from that role, leaving some of the boards he has served so long.

Scion of a timber family

The nature of Reed's ascent helps explain his relative obscurity. Many corporate chieftains fight their way to the top, gaining fame with bold deeds, brash talk or breakthrough technology. Think Jeff Bezos, Howard Schultz, Bill Gates.

Reed climbed a different ladder. After he completed Harvard Business School, his father in 1971 handed him the job of chairman of the board at Simpson Timber, a lumber, paper and plastics maker founded by his great-grandfather in 1890.

He was 32.

Merit, Reed insists, had nothing to do his appointment. "That's what nepotism is," he said. "I was like a prince."

He lived modestly, given his family's wealth and position. He drove his 1969 dark green Buick Riviera for 22 years. When he visited Simpson's lenders in New York and New Jersey, he rode the bus.

Pictures from his early days show a clear-eyed man noticeably a generation or two younger than most of his boardroom peers. His gaze is direct, his attitude neither arrogant nor timid. Some shots capture an impish spark that has stayed with him over the years.

His father, William Reed Sr., recommended his son take his seats on company boards. Thomas Gleed brought him to Washington Mutual in 1970 on the notion that "it was important to get young people on the board."

The companies were smaller then. Reed succeeded his father on Safeco's board in 1974, when the insurer made just $18 million in profit, about 20 times less than the $346 million it reported last year. Many of the companies already were influential and, with Reed's help, would become industry leaders.

His father also helped him join the board of Seafirst, parent of Seattle-First National Bank, where he saw firsthand how a board could let managers wreck a company.

He joined Microsoft's board when it was forming as the company sold its first public shares in 1986. One board candidate, a local executive, declined the offer, fearing liability. "I'm not sure they had a backup," Reed says.

Gates' father, William H. Gates, knew Reed from another company, Univar, and occasionally told him what his son was up to with an enterprise called "Micro-Soft." He and Univar Chairman Robert O'Brien, who also joined Microsoft's board, recommended Reed.

"Here's a guy who I know likes computers and stuff," the elder Gates told his son.

Direct questions

As an insider from birth, Reed had little to prove — yet everything to prove.

"I didn't fight my way up," he said. "In a sense you could say I've had to fight my way down — to have people really believe that I wanted to learn the things on the factory floor."

He was comfortable working among the wealthy and powerful. And he took to heart his father's beliefs in accountability and integrity, working hard to get to the bottom of things.

"He asks the questions other people might hesitate to ask," said Ann McLaughlin Korologos, an investment banker who joined Microsoft's board in 2000. "He has an incredible, almost enchanting way of asking a brutal question in a very fair way. Brutal meaning cutting to the quick. It's never resented as a result."

Reed is deliberate, thoughtful, never quick to judge, Safeco CEO McGavick said. "You never want to be in a position of 'selling' Gary," he added. "He wants information displayed in a way that it's clear that both the upside and downsides have been thoroughly evaluated."

A modest Reed sees his direct style as a shortcoming, something he's still trying to improve. He admires board members who put things more delicately.

Nonsense, says Korologos: Mushy questions get mushy answers. "He's not a Chatty Cathy. He might sit there quiet for an hour and then he'll ask something and I'll say, 'I wish I'd thought of that.' "

Other colleagues concur. "Gary will not be steam-rolled," said Lou Pepper, former CEO of Washington Mutual and a retired partner at the law firm Foster Pepper & Shefelman. "He's not a loner as far as being in your face, always challenging. But Gary is very firm in things he really believes in, and he pushes. He's a delight to work with because of that."

Risky energy loans

Reed's reputation as a fixer, a leader with sound judgment, came the hard way. He took part in the Seattle area's most spectacular success — Microsoft. But he also was in the ring during the bruising battle to save Safeco and for one of the area's biggest knockouts: Seafirst Bank.

In an effort to keep profits rising in the late 1970s, the bank began taking on a large number of new loans from Penn Square Bank, an Oklahoma lender. The loans were speculative bets on oil and gas prospectors, but they pumped up Seafirst's profits, and Chairman William Jenkins wanted Seafirst to appear prosperous to the board and Wall Street. In just three years, Seafirst took on $1.2 billion of these loans.

When the prospectors went bust in 1982, Penn Square and Seafirst collapsed. Only a buyout by BankAmerica saved Seafirst from going out of business.

Reed said he and the other directors were caught unaware of how badly the bank was exposed. Jenkins' strong personality and past success disarmed them in questioning, and as board chairman and president, Jenkins controlled what the other directors knew about the bank's operations.

"We were blindsided," Reed said. "We basically agreed with management on things. There was discussion of issues, but the meetings didn't involve the appropriate amount of tension."

The experience was instructive: "I've always thought — or since then at least — that the proper role of directors is to be somewhat skeptical of management," Reed said. "The key is to be skeptical and yet not lose management's confidence and trust that they think you believe in them."

The lesson paid off later, after Safeco paid $2.8 billion for American States Financial, an Indianapolis insurer, in 1997. The purchase put Safeco deeply in debt.

Again, Reed found himself without a good picture. "I think what we didn't realize is that the existing company itself was not doing well and had some serious problems," he said.

But this time, he reacted differently. In May 2000, shareholders doled out a tongue-lashing at Safeco's annual meeting.

The stock had fallen by more than half in two years, and the company was worth less than Safeco's assets, exposing it to a potential takeover. Based on the "fervor and intelligence" of their complaints, the board decided to take control of the matter and elected Reed lead director, granting him chairmanlike powers.

He moved quickly. By August, Chairman and Chief Executive Roger Eigsti had agreed to take early retirement. Reed then began the search for a successor. During a wide search, a friend suggested McGavick, and by the end of the year, the board had chosen him. Until McGavick took over, Reed stepped in briefly as CEO, refusing salary to avoid conflicts of interest.

"We had confidence in his judgment to take the company through a very critical time, when we were really without a CEO," said Judy Runstad, a real-estate and environmental-law specialist at Foster Pepper & Shefelman, who has been on Safeco's board since 1990.

In his first few months, McGavick slashed the dividend and began cutting 1,200 jobs, part of an overhaul that still is under way. Last week, McGavick said Safeco will eliminate another 500 jobs in addition to selling its life-insurance and investment arms.

"Safeco's still working itself out of the hole that I as one of the directors and the former management dug for it," Reed said.

Reed also led his family company down a painful path. In the late 1980s, Simpson went on an acquisition drive, buying small mills that made specialty printing papers. The plants did well at first, but by the early 1990s, larger plants and cheap imports had pushed prices down, making them largely unprofitable.

Simpson suffered — Reed won't say how much — and eventually sold them.

"It was something I certainly should have acted on sooner," Reed said

Good deeds

Reed has had his share of success. Washington Mutual, for example, not only survived the savings-and-loan crisis of the 1980s but has expanded aggressively through acquisitions and is now the nation's largest thrift.

Reed said WaMu had an advantage during the crisis because it had recently gone public, raising a lot of cash that cushioned it and staved off failure. Others say Reed's contribution was important, though subtle.

"We never talked about Seafirst or Washington Mutual when he was on both boards, because you just don't do that. And he didn't," said Pepper, WaMu's former CEO. "But you knew very well he'd been burned over there — he'd been snakebit. And after that, people watch where they step."

In his role as a Microsoft board member, Reed called upon a different set of skills. He had to grapple with a delicate subject and two strong personalities — Gates and Ballmer.

Gates gave up the CEO job in January 2000. Day-to-day managing and doing performance reviews "wasn't where his brilliance really came into the fore," Reed said. "What we wanted to do was protect him from the things that other people could do, and kind of unleash him into the areas where his brilliance would have the greatest impact on the company."

But it was hard for Gates to let go. "I'm sure there was some tiny corner of his mind that (thought) 'I'm being asked to step aside as CEO,' " Reed said. "He did it himself. He wanted to. But we were willing to accept it. I think it was as hard on him as it would be on anybody."

Microsoft's meetings were normally intense, daylong sessions with eight directors in a windowless room on Microsoft's campus. Lunch was brought in so they could keep working.

But now the boardroom atmosphere crackled. "It was just palpable," Reed said. "With two people in the room talking about the same things but not talking to one another. One person will say something and you'll see the other's eyes roll."

It got to a point where the board was asking, "How often do you guys talk to one another? Do you meet one-on-one?"

Reed's Seattle roots and seniority helped him take on the problem and open communication, Korologos said. Reed said the conflict simply had to be addressed.

"My feeling was I don't understand the software, I don't understand the finances or whatever, but I do know there's a problem between you two. Let's talk about it."

Korologos said Reed sometimes ignored the tension and focused on business, helping set a tone that said business was what mattered.

"It was very tough," Reed recalled. "Bill has a strong personality, and he comes on very forcibly. The manners vanish; in-your-face. It's a characteristic that I think comes from being a driven person."

Three years later, the problem has eased.

"It certainly is much, much better than it ever was. Maybe it is resolved. It's just so important that they talk to one another and talk to us. Nothing's more important for that board than making sure that Bill Gates, the chief software architect, and Steve Ballmer, the CEO, talk to one another."

Stepping back

The years have changed Reed. At 64, the puckish look of his younger days has faded along with the open face, the trusting eyes. His impish smile and humor remain, but with an air of skepticism. His jaw is set, his brow more quizzical. Gold frames circle his eyes, giving him the discerning look of the businessman he's become.

Despite his time in big boardrooms, Reed doesn't show up on lists of the richest Americans, lists dominated by Gates, Ballmer and Paul Allen, whose tens of billions dwarf most fortunes.

Reed lives on 5½ acres of lakefront property in Medina, a piece of land valued at $14 million, excluding his $1.8 million house.

He was paid $261,000 last year for serving on the four public boards and received another $500,000 in stock. All told, his stock in those four companies is worth more than $45 million.

And then there is whatever money he inherited and earned during his working career.

He still owns the 1969 Riviera, but retired it after it hydroplaned perilously on Interstate 90. He now drives a 1991 Infiniti Q45, also dark green. It has better brakes, he said, better mileage "and a windshield that didn't leak, too!"

Working on four public boards is a full-time job that can even take up Reed's weekends, especially when companies are reporting their earnings. Because he serves on the audit committees of three of them, he must look closely at the financial numbers.

"He loves business, he loves numbers, he spends a lot of time on it," Runstad said.

Reed said he wants to pare back that time. His three children are grown — two are in the business world and one is a housewife. He wants to spend more time with his wife, Victoria, and possibly fly-fishing at his favorite site in Alaska. Even when they're at their country home, he is often deep in the minutia of his companies.

It's a difficult time to leave, though, because the reforms to make boards more accountable have made the work harder.

"I'm not doing nearly the job that I think a good director should be," he said. But he feels the companies still need him.

It's something his youngest son, Doug, in his second year at Stanford Business School, likes to kid him about.

"All the companies would be helped if you got off one," he told his dad, "and maybe if you got off all of them."

Alwyn Scott: 206-464-3329 or ascott@seattletimes.com

Copyright © 2003 The Seattle Times Company

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