Turnover follows return at Citizens Advisers

For a socially conscious fund group, Citizens Advisers Inc. appears to be acting downright anti-social these days.

The Portsmouth, N.H., company, whose founder and chairman Sophia Collier returned in July after an absence of more than three years (InvestmentNews, Oct. 7), is reorganizing. That overhaul, led by Ms. Collier, has coincided with a significant number of staff departures and investor defections.

“I was pretty fed up with everything going on there,” says a former employee, who spoke on condition of anonymity. “When [Ms. Collier] stepped back into the business, she was completely removed from the entire business model. She didn’t even understand what some key business people were doing.”

Ms. Collier, who founded Citizens in 1991 when she acquired the money market fund of San Francisco’s Working Assets Management, stepped away from her day-to-day responsibilities in 1999 to care for her dying father. Upon her return, she decided not to keep on John L. Shields, whose three-year contract as president and CEO had expired.

business touch

A self-taught businesswoman who never attended college, Ms. Collier is known for her well-honed entrepreneurial instincts.

In 1977, she co-founded American Natural Beverage Corp., manufacturer of SoHo Natural Soda, an all-natural beverage she created in her apartment in Brooklyn, N.Y.

Twelve years later, Seagram Co. Ltd. bought American Natural Beverage Corp., netting Ms. Collier an estimated $15 million.

Ms. Collier plays down the changes at Citizens. Most of the staff departures, she says, are related to the recent market downturn and the company’s attempt to keep expenses in line with shrinking revenue.

“I feel very good about what we are doing,” she says. “We are probably more stable than some of the other [fund] shops.”

Citizens is hardly the only fund company in the midst of upheaval. The miserable stock market has forced nearly every fund company to lay off scores of employees.

Last year, Citizens’ long-term funds had $122.5 million in net outflows – that is, new cash minus redemptions. That compares with net outflows of $69.9 million in 2001 and net inflows of $471.4 million in 2000, according to Financial Research Corp. in Boston.

And Citizens still has decent funds, relatively speaking.

Its marquee $323 million Core Growth Fund posted a loss of 25.7% in 2002, compared with a loss of 27.7% for the average large-cap-growth fund tracked by Morningstar Inc. Over the three years through last Wednesday, the fund lost 23.17%, slightly better than the category average of -24.68%.

Citizens Small Cap Core Growth Fund posted a 25.4% loss last year, compared with a loss of 28.3% for the average small-cap growth fund. Over the three-year period, the $15 million fund lost 12.33%, compared with an average loss of 23.12% for the category.

Firings and defections

“I think they are doing an excellent job under very difficult circumstances,” says Martha Pope, the outside chairman of the board that oversees Citizens’ 10 mutual funds.

Still, Citizens, which now employs 45 people, has been a hotbed of layoffs and defections in recent months.

Among those dismissed recently were John O’Brien, senior vice president and chief operating officer; Kathleen O’Connor, director of institutional relationship management; and Darrin Wizst, who was responsible for sales to foundations.

Last month, Diane Tod South, the firm’s director of social research, was also dismissed. Sources say Ms. South, who frequently butted heads with Ms. Collier, was let go shortly after raising concerns about Citizens’ investment process to one unidentified fund trustee.

Valerina T. Dingle, vice president of marketing for Citizens, says Ms. South had no such conversation with any trustee. And Ms. Pope, who had served as a senior adviser during the Northern Ireland peace negotiations in the mid-1990s, is also unaware of any concerns raised by Ms. South.

Ms. Collier, meanwhile, chalked Ms. South’s sudden dismissal up to “creative differences.”

The firm has also been rocked by several high-profile defections.

Most recently, Thomas Coler, co-manager of Citizens Emerging Growth and Citizens Small Cap Core Growth funds, resigned. So did John Schmieder, an equity analyst. David Budka, the firm’s product manager, has also recently resigned.

Tough management

While Citizens isn’t shy about pushing publicly held companies to share more information with investors, it is hesitant to shine a spotlight on the changes going on within its own walls. Ms. Dingle, for example, declined to provide the job titles and spellings of the names of executives who no longer work for the company.

She did, however, confirm that information after it was obtained from outside sources.

So what has led to all the turmoil at Citizens?

“Pretty much 100% was the economy,” says Robert Gunville, Citizens’ chief operating officer.

“We had built ourselves up to be ready to handle $5 billion in assets,” he says. “We were overstaffed.”

Ms. Collier concedes that at least some of the personnel changes were prompted by her desire to put her own executive team in place.

But some former employees blame the turmoil on her management style, which some describe as overbearing and unpredictable.

“[Ms. Collier], who stepped foot in the building once a year, would come in and make changes without having any concept of the consequence,” says a former employee who asked not to be identified.

Mr. Gunville describes Ms. Collier’s management style as “straight, to the point and holding people accountable for their roles and responsibilities.”

“She is a straight shooter,” he says. “There is no bullshit when you are dealing with [Ms. Collier].”

It remains to be seen whether Ms. Collier can successfully lead Citizens. Having opened the firm’s doors in the 1990s, she’s had little experience steering the group through a down market, observers say.

“Experience pays off in times like these,” says Burton Greenwald, a mutual fund consultant in Philadelphia. “Whether this individual has that sort of perspective is certainly questionable.”