Meet Mr. Fixit
Big fees and campaign gifts dog a bankruptcy guru
On most days, the midtown Manhattan office of Stephen Cooper is deserted, except for a pet lizard he keeps in a glass cage in the corner. The chairman of a financial advisory firm, Cooper is nearly always on the road, jetting from one executive suite to another to help bankrupt companies get back in the black.
One day he touches down in Burlington, Ontario, headquarters of Laidlaw Inc., a transportation giant. Then, he's off to Houston, where he serves as the interim chief executive of Enron, the energy firm that collapsed spectacularly in 2001, wiping out the retirement funds of thousands of employees and investors. All the traveling pays off handsomely. Cooper and the firm he runs, Kroll Zolfo Cooper, will rake in about $20 million a year for as long as it takes to dig Enron out of the gutter. The Laidlaw salvage job will yield $17.5 million.
Pros. Cooper is a star performer in the booming bankruptcy business, one of a small group of big-time turnaround specialists skilled at raising corporate carcasses from the dead. More than 400 public companies filed for bankruptcy during the past two years. These cases are growing ever more complex, and that's where the turnaround pros come in. Their bottom line is the bottom line: Get the balance sheet healthy enough to satisfy big creditor banks so the company can emerge from bankruptcy. Typically, they can fire senior management, restructure debt, sell off assets, lay off workers, and cut back benefits. "They take the ship that's headed to the rocks and steer it safely to calm waters," says Elizabeth Warren, a Harvard Law School professor. "And they do it with macho swagger."
Cooper can strut with the best of them. But critics have raised troubling questions about the operating methods of his company, until recently known as Zolfo Cooper. Shareholder groups, institutional investors, the Securities and Exchange Commission, and a bankruptcy judge have complained about excessive fees, fat employment contracts, and side business deals, court records show. The critics suggest fundamental conflicts of interest: A company managed by Cooper simultaneously maintains investments for some major banks that are the chief creditors of the bankrupt companies he is working to revive. In the end, critics say, even after some of Cooper's clients come out of bankruptcy, most employees and shareholders emerge empty-handed.
Cooper and two partners sold Zolfo Cooper last September to Kroll Inc., a security firm, in a deal that paid Cooper $50 million in cash with an expectation of another $50 million down the road. Cooper, 56, now runs a Kroll subsidiary, Kroll Zolfo Cooper. In a review of his operations, U.S. News found:
At Laidlaw, Cooper and most other board members voted in late 2001 to keep secret a report detailing $75,000 in questionable campaign contributions at a Laidlaw subsidiary. The report indicated that an executive of the subsidiary used corporate funds to reimburse some employees for federal campaign gifts. Federal law bars corporations from making such reimbursements. Over the strenuous objections of a prominent director, the board decided against disclosing the internal findings to the Federal Election Commission.
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