A Pension Of Success -- Tacoma's George Russell Gives Advice To Retire On

LIGHTNING PUSHED THE EDGES of the storm as the winds began to increase to hurricane levels, unusual for the Washington coast in late March, and unexpected. The seas were running 20 feet high, but the Shadowfax, 100 feet of gleaming white ocean-going yacht, was handling the storm well. Suddenly a huge wave - upwards of 35 feet - crashed against the boat, damaging the bow, cracking the deck at the forward cabin. But George Russell, equally comfortable in the corporate board room and on the bridge of a yacht, had planned well.

His boat was built to exacting specifications, well above standards for a fiberglass craft. Watertight doors were closed, sealing off the forward cabin. Russell and his small crew carefully navigated through the storm for more than 50 hours until it abated enough to allow them to make port. Safely home and with a tale that Russell could go to dinner on for a month.

Surviving storms at sea is one thing. Surviving the storms that crash and howl around a business these days is quite another. But Russell's company, the Frank Russell Co. of Tacoma, is doing just that and surviving quite nicely, thank you.

You don't know George Russell? You should. His company advises some of the largest companies and governments in the world on how best to invest the money they are holding for people's retirement. This is a lot of money, upwards of half a trillion dollars. That's $500,000,000,000. ELEVEN zeros!

You should know Russell because he is one of those people in the world who makes things happen. He is probably better known in Tokyo, Moscow, Zurich, London or New York than he is in Tacoma. Tacoma? Yes, Tacoma, headquarters for his sophisticated multinational company. Not the typical company when you think of Tacoma, but that's not important at this point. We're talking about George Russell right now.

Need an example of what we're talking about here?

It is a showery summer evening. The setting sun has draped a rainbow over the entrance to Gig Harbor in southern Puget Sound. The Shadowfax, repaired and a gleaming white yacht once again, rocks at anchor in the gentle swells of the protected waters of this quaint Northwest stopover.

A dozen people are seated around the dinner table in the main room of the yacht, chatting about the usual things: the weather, boats, kids, schools. George Russell taps his glass gently and proposes a toast - to the special guest of the evening, an investment banker from New York who is trying to establish a new equity fund for Poland to help that former Soviet-bloc country lend money to small-business entrepreneurs. About $150 million is the ball-park figure.

"We don't need the $1 billion we raised for the Asian infrastructure fund," Russell is saying. The needs are different and $150 million should do the trick. Soon the conversation is on Poland, its progress toward democracy and a true market-driven economy. Then Bosnia. Then Asia. Then the U.S. and the state of the economy and whether the Fed should drop interest rates to help boost the economy.

Russell believes interest rates should drop. This from the chairman of the local board of the bank. Yes, we're talking about The Fed here, the central bank, Alan Greenspan and all that. When the Fed did meet a few weeks later, interest rates were cut and it made page one news around the country.

You get the picture.

THE RUSSELL COMPANY IS the Consumer Reports of the pension business. Consumer Reports will test toasters, camcorders or cars and tell consumers what they found. It will drive six cars and rate them on which ones are safer, faster, cheaper, likely to break down, touching all the possible fears of being ripped off. Russell does that, but instead of Cadillacs and Hondas, the company looks at the people who manage money for pension funds.

If you work for a company, that business probably is putting money into an account to help pay for your retirement. That's what a pension fund is - a corporate savings account to pay for its employees' retirement. Multiply the companies that have pension funds by the dollars they are putting away into those funds and you have a very, very large pot of money. Trillions and trillions of dollars.

Pension funds want to invest those dollars and increase the size of the pot. If they don't, the funds will not have enough money to pay for everyone who is entitled to the funds.

Gone, then, is that house on the golf course, a chip shot from the first tee. Gone is the cabin by the lake in the North Cascades; the RV touring the back roads of Washington; the easy visit to the grandchildren; those hundreds of retirement plans.

But if the pension fund does make money, it then will have enough to write retirement checks to its employees when the time comes. Many people are in the business of advising companies on how to invest the money in pension funds using various strategies to get the best possible return for the money.

Remember, these are sophisticated strategies and they work. Just as well, too, since most of us panic at the thought of planning for retirement and would choose the old "let's stuff some money in a mattress" approach if given half a chance.

Enter the Russell Company. Want a Chevrolet of a money manager? Russell looks at all the Chevies in the business and tells its clients which ones are doing well and why. Want to diversify? Russell looks at the hundreds of money managers it tracks and tells clients which ones have the record that is most likely to produce the best results.

For more than 30 years, Russell has shaped his grandfather's small investment company - it still carries his name, a measure of the respect George Russell had for his grandfather - into the world-class organization it is today. It has more than 1,000 employees. Its revenues are nearly $200 million. Its clients range from AT&T and Boeing to the Japanese government's postal savings plan.

One other factor that makes what Russell does useful and important is that there is no one strategy all pension funds can use. Boeing, with many long-term employees, needs to be more cautious than Microsoft, whose thirty-something work force is much more footloose and unlikely to stay around to get vested in a pension.

It makes advice important. It makes the Russell company important. THE PROCESS A person goes through to start a business is strange enough, but to start a business and have it flourish is touched with the magic of chance. For Russell, the magic came 26 years ago when he was one of the early sellers of mutual funds. He was trying to sell them to individuals, but then thought that corporate pension funds, beginning to grow to some size in the early 1960s, would be interested in them as well.

Chance? Yes, but others would say it was an intuitive genius at work, a man who was able to make the intellectual leap that created a whole new business. Once pension funds left the old-boy, careful-cautious world of bank trust departments, the door was open to a variety of money managers. Russell made the leap then, deciding to manage managers instead of managing money.

The business has changed and grown over the years. It has offices in Paris, Sydney, London, Zurich, Toronto and Tokyo, among others. George Russell was one of the first to suggest that pension funds invest overseas. He did that in the early 1970s and was laughed at. Now if you're not invested overseas, you're a laggard.

Russell created pension consulting and is listed now as one of the four most influential men in the entire pension industry. But the company has clearly grown beyond him.

Russell is described as someone who wants to know where the wastepaper baskets are going to be placed as well as charting the strategic direction for the company's future. Russell wondered what would happen if he were no longer around to run the company.

One weekend, he sent a letter to his top officers saying that he had just been killed in an airplane crash and they were to figure out what to do about the company's future and report back to him by Monday.

A lost weekend to say the least. But top executives came back with some sober news. The way the company was structured, it probably would not survive the death of its most visible member.

Business owners do not let go easily. But Russell did.

His top executives said there was no clear leader beyond him. They thought Mike Phillips, who had been Russell's managing director in the London office, would be the best candidate. Phillips was named president six months later.

The way the company's ownership was arranged, Russell's survivors - his wife, Jane, four children and a growing number of grandchildren - probably would have lost control through taxes and other encumbrances. Russell changed it, giving part of the company to his top executives in the form of bonuses.

ONE DAY, GEORGE Russell was coming back from one of his overseas trips, planning a meeting at farming property owned by the family. There is a long road up the hill to the house.

The car arrived in front of the house with luggage from the overseas trip, but no George Russell. Off in the distance, along the road to the house, you could see a small cloud of dust moving slowly up the hill to the house. It was Russell.

After the long flight to Tacoma he decided to run the last mile or two home.

If nothing else, Russell is energetic. He loves to climb mountains and has climbed a few in his day. He's been to the top of Mount Rainier several times and encourages his employees to follow him. This summer, a dozen Russell associates - that's what they call their employees - did just that. A few years ago, he decided to take some time off, to think about where he was going and what he would do next. A cruise? Forget it. Trekking in the Himalayas was more like it.

Corporate headquarters in Tacoma has a first-floor room devoted to mountain climbing, featuring one of the best libraries of rare mountain-climbing books around. When the building was constructed, it was oriented toward Mount Rainier - there is a view of the mountain from each of the conference rooms on each floor. The mountain is part of the corporate logo.

But the mountain is more than part of the corporate logo, it's part of the corporate culture. It takes energy, stamina, a sense of purpose, a clear goal, endurance and cooperation to climb a mountain. They fit the business, at least the business as Russell sees it.

Russell's destiny seems intertwined with the destiny of the City of Destiny. His father was general manager of the Tacoma News Tribune, working for the Baker family. He was an inventor, a fabricator, steeped in the business of business. His mother, still alive and active at 87, was Frank Baker's daughter. The new Mary Baker Russell Center at Pacific Lutheran University is an example of the family's role in the Northwest.

The Bakers are to Tacoma what the Bullitts are to Seattle. They helped to set the tone, the character of Tacoma society. These days, it's the Russells, George and Jane, who are involved with Tacoma.

It's noon, in a small glass-enclosed meeting room. George and Jane Russell are meeting about the International Museum of Modern Glass in Tacoma, trying to work out details of fund-raising, money, a campaign director. George asks questions - he does that a lot. Jane has answers and offers a sense of which path to take. She does that a lot.

Russell met Jane when they both attended Stanford. Her brother was a friend of George, a fellow Tacoman; Russell at first thought Jane could help him find dates. But Russell found Jane and it stuck - at the company picnic this summer, there they were, walking around, talking with various employees, all the time holding hands.

Russell divides his time between Tacoma and the world. He does not much care for local - or even national - politics. He'd rather spend his time trying to get television series started in Russia to help them understand democracy.

Still, the Russell company is not above local politics. Last year, it threatened to leave the state if tax-law changes were not made. Knowing George Russell, it was not an idle threat.

George Russell is what they call a mover and shaker in the world. He created something called the Russell 20-20, a group of pension-fund managers and money managers who search out prudent investment opportunities in the emerging markets of Eastern Europe, Russia, China and India.

He helped form the first equity fund in Poland. They came back for more. He took the group to China and a few months later a $1 billion infrastructure fund was created.

But Russell does not look like a mover and shaker. He has wealth and position, but resembles a high-school algebra teacher. He wears a short-sleeved white shirt to work every day.

He takes little credit for what he has done.

"Our success is because of the quality of people who work here," Russell says. "I try to hire people who are smarter than me. Otherwise everything just stays the same."

Russell says one measure of success is how employees feel about the company. To hear them talk, it is a jewel. Maybe it's the new program instituted this summer - everyone with more than 10 years at the company gets a two-month sabbatical.

The start of the modern-day company came in a cold call to Ling-Temco-Vaught, a pioneer company in the aerospace industry. Russell thought that people running pension funds should no longer use the old-boy network to determine who got their money to invest. Instead, he thought they should use Russell as its research source for the best available skills. He tried the idea out on LTV. They liked it and in three months, Russell had made the largest mutual fund sale ever up to that point - about $50 million - to three large companies.

Then came the intuitive leap that created an industry. Russell was studying the pension industry and realized that nobody knew whether one bank managing a fund did better than another.

What if, Russell thought, you could research how funds were managed, determine how they compared and provide that information. Pension funds could then make a decision on the best manager and that would improve pension fund performance.

It was, after all, other people's money, and performance and accountability were primary.

Russell now faces a crossroads. He has led his company for more than 30 years, and now is beginning to let go. He has his place on the world stage and obviously enjoys that. He is increasingly involved in the community, chairing this, pushing that.

Retire? Forget it. Russell still makes six trips a year around the world and his calendar is fairly well booked through 1997.

OK: TACOMA, let's deal with it.

Why Tacoma? Russell said he could have moved the company to a large money-center anytime. Many of his competitors and colleagues wonder about Tacoma as a headquarters.

But Tacoma is home, and if he could make it all work there, he could make it work anywhere. Besides, it now turns out to be one of the smarter moves he has made. As the business becomes increasingly international, Tacoma, really the Northwest, is as good a location as any in the world. In air miles, London is only 12 miles farther from Tacoma than Tokyo, making both money centers within equal reach of Russell executives. As the business becomes more international, the West Coast location means Russell is talking to London before markets close, to New York as markets function and to Asia as markets open for the day.

Not too bad.

Russell and the company like to play to the Tacoma thing. Kind of like, yeah, Tacoma, you want to make something of it? Still, it is one of those accidents of fate that produced a Frank Russell Co. in Tacoma, the same way Seattle was fortunate that a Bill Gates was born in Seattle.

You don't know George Russell? You should. In a small area on one floor of the Russell building, traders take care of Russell clients. On any given day, one percent of the total New York Stock Exchange volume is handled here, in Tacoma.

Stephen H. Dunphy's Newsletter column appears Tuesday to Friday in the Business Section of The Seattle Times. Harley Soltes is Pacific's photographer.