SHIP BUREAU CHIEF, BOARD IN BITTER BATTLE CEO'S STYLE, ACTIONS FOCUS OF CRITICISM

SHIP BUREAU CHIEF, BOARD IN BITTER BATTLE CEO'S STYLE, ACTIONS FOCUS OF CRITICISM

The 130-year-old American Bureau of Shipping, which certifies the safety of much of the world's maritime fleet, is reeling from a power struggle at the top.

In the last several weeks:* The board forced its chairman, Frank Iarossi, to give up his positions of president and chief executive officer and hired a new chief executive.

* Mr. Iarossi subsequently called another board meeting with a larger attendance and was reinstated by an 18-14 vote.

* Five outside directors, concerned about the direction of ABS, have resigned.

* The chief financial officer, who submitted a scathing report to the ABS audit committee on Mr. Iarossi's leadership, left the bureau before his contract was up.

The drama began to unfold several months ago when the chief financial officer, Robert Duffy, charged that Mr. Iarossi:

* Changed the ABS financial reporting system and moved much control to the bureau's Houston office in order to escape oversight by the management committee.

* Purchased two New York condominiums for ABS use without board approval.

* Hired his daughter as a consultant at $1,000 a week.

* Utilized his wife, an interior decorator, to purchase office furnishings in New York and Houston.

* Spent $4,000 of ABS money for a Houston political fund-raiser, in violation of ABS rules.

Overlaying all of these issues were the concerns of some of those who hired Mr. Iarossi in April of 1990 over his penchant to act without consulting the management committee.

Mr. Iarossi, in an interview at the ABS offices on the 106th floor of the World Trade Center, said he repaid the $4,000 political contribution when informed he violated ABS bylaws. However, he denied all other allegations of impropriety and said he will be more open with the management committee in the future.

Those who resigned last month said they cannot continue their association with a chairman whose judgment and ethics they strongly question.

Mr. Iarossi said the real rub is that he is an aggressive, high-profile leader whose style of management runs counter to the conservative attitudes of an old-line New York institution. "We're dealing with a cultural change," he said. "This is most difficult."

Edward K. Trowbridge, chairman and chief executive officer of the Atlantic Mutual Companies - a Wall Street marine insurer that was one of the founding members of the bureau in 1862 - said the issue is much more serious than management style.

In explaining why he and others resigned, Mr. Trowbridge said: "The bottom line is that our confidence in Mr. Iarossi with respect to overall governance and stewardship eroded to zero."

Five of the nine members of the management committee resigned. In addition to Mr. Trowbridge, they are Ran Hettena, president of Maritime Overseas Corp. in New York; Niels W. Johnsen, chairman of Central Gulf Lines in New York; Richard T. Soper, Mr. Iarossi's immediate predecessor as chairman of ABS; and Vice Adm. George W. Steele USN (Ret.).

ABS is a non-profit classification society that certifies that vessels are structurally and mechanically sound so they can safely transport crew, passengers and cargo.

ABS establishes standards, or rules, for the design and construction of all types of vessels, and ensures that vessels maintain their seaworthiness by conducting annual inspections. The classification services are used by ship owners around the world. (See accompanying story.)

Although the conflict between some members of the management committee and Mr. Iarossi had been building for a year, the matter came to a head at a meeting of the ABS board of managers on Jan. 8 and a subsequent meeting on Feb. 5.

At the January meeting, the board took from Mr. Iarossi, who earns more than $250,000 a year, the positions of president and chief executive officer. Fred Sherman, director of the Jackson County Port Authority in Pascagoula, Miss., was hired as president with the intention that Mr. Iarossi was to remain as chairman but report to him.

Mr. Iarossi later declared that the January board action violated ABS bylaws - a charge that Francis M. Meyler, ABS counsel, disputed in a written opinion. Mr. Iarossi called a special board meeting for Feb. 5. That meeting was attended by some additional members, including several from overseas.

According to Mr. Trowbridge, Mr. Iarossi secured enough votes from overseas members and those ABS staff members who also serve on the board to overturn the Jan. 8 decision. "He in effect stacked the meeting, and in particular carried the day with the staff votes," Mr. Trowbridge said.

Mr. Iarossi countered that the Feb. 5 meeting was marked by a "very open debate" that lasted three hours. During that debate, he said, some board members expressed the view that the challenge to his leadership was initiated by a "disgruntled guy who wanted to be chairman." The disgruntled individual, he said, was Mr. Duffy, who was miffed that he was not named chairman.

Mr. Duffy, contacted in Italy, where he is traveling on vacation, said: ''That's absolutely incorrect." Mr. Duffy said he was interviewed for the job, along with a number of other candidates, but he admits he did not have the technical credentials required for the position.

Former board members say the two men are obviously different personalities. Mr. Duffy, a former Sea-Land Service Inc. executive, is "straight as an arrow" and a stickler for financial oversight, whereas Mr. Iarossi acts according to the philosophy of "the end justifies the means," they said.

Mr. Duffy's chief accusation was that Mr. Iarossi changed the bureau's

financial reporting system, including both its hardware and software, and moved much of the financial control to Houston in order to escape oversight by the management committee.

"He wanted someone allied with him to allow him to do whatever he wanted to do unchallenged," Mr. Duffy said.

Mr. Duffy's report to the audit committee contained a number of accusations he and the former board members said constituted bad financial or moral judgment.

For example, using his wife to purchase expensive furnishings for ABS offices and putting his daughter on the ABS payroll, though not explicitly prohibited by the ABS bylaws, did not sit well with board members.

John Mackowski, former chairman of Atlantic Mutual Cos. and a retired member of the ABS management committee, said Mr. Iarossi allowed his family members to perform duties for the bureau even after the committee expressed concern. ''These are all signs of an arrogant man," Mr. Mackowski said.

"This is really obnoxious of them to bring this up after the explanation they got," Mr. Iarossi responded. He said his wife saved ABS more than $30,000 by using her connections to avoid going through middlemen for the purchases. "And she didn't make a nickel on it," he said.

Mr. Iarossi also said the ABS manager to whom his daughter reports is pleased with her work and chose to keep her employed on a part-time basis. He said she is paid $25 an hour, or not much more than what ABS pays for part- time secretaries. Mr. Duffy said her initial contract was for a salary of $1,000 a week.

Mr. Iarossi's detractors were especially upset when he set up a corporate sub-office in Houston. According to one of the committee members who resigned, it cost more than $8 million in 1990 to transfer a number of employees to Houston, and additional expenses are expected to be listed in the 1991

financial report.

Mr. Iarossi said Houston is a lower cost environment for work that need not be done in New York, and the bureau will recoup the moving expense in time.

"But on whose time?" asked another former board member who did not wish to be identified. "The jury is still out on this," he added.

Mr. Iarossi's Houston connection continues to be a thorn in the side of his detractors. He was living there in his former capacity as head of Exxon Shipping. Some say he has made Houston a second corporate headquarters.

"It creates a we-vs.-them mentality," another former management committee member said, adding that as long as Mr. Iarossi distances himself from New York, he will create suspicion among management committee members.

Mr. Duffy said Mr. Iarossi was hired with the understanding he would move to New York. "In my opinion, he never intended to move," Mr. Duffy said. Instead, he charged, Mr. Iarossi spent millions of dollars to bring personnel closer to him. "It was a personal agenda rather than a business agenda," he said.

Mr. Iarossi said he actually spends more than 40 percent of his time in New York, and most of the rest of the time on the road promoting the bureau.

Although purchasing apartments for visiting ABS staff is a common procedure, and he said he was not trying to circumvent the management committee when he purchased the New York condominiums, Mr. Iarossi now admits he should have consulted with the management committee first.

He also said he should not have used ABS money to purchase tickets for

himself and his wife to the political fund-raiser in Houston. "It was clearly my mistake," he said, adding that he has repaid the money.

At the root of these and other disagreements, Mr. Trowbridge said, is a chief executive who makes important decisions without consulting the management committee.

"Eventually, this led us to believe that Mr. Iarossi was, essentially, evading effective oversight by the committee," Mr. Trowbridge said.

Mr. Iarossi said he agrees now that he should be more open with the management committee and has pledged to be so. However, he has no intention of changing his aggressive style. "It has always been my style to lead from up front," Mr. Iarossi said. "If I am going to reverse the negative perception, I can't do it by being quiet," he added.

Some former management committee members said Mr. Iarossi's decision last year to move the ABS headquarters from Paramus, N.J., to the World Trade Center, and to transfer a number of employees to Houston, has burdened the bureau with large debt.

Mr. Duffy charged that Mr. Iarossi chose the World Trade Center for questionable reasons. "His interest was piqued when he heard there was a fireplace in the chairman's office," Mr. Duffy said.

Mr. Iarossi said ABS in fact secured a very good lease at the World Trade Center during a soft real estate market, and that the location is in keeping with his desire to uplift the image of the bureau.

ABS total revenue in 1991 is projected to be $142 million, up from $117 million in 1990, although net income will be down to about $2.5 million from $7 million in 1990.

Barry J. Michaels, ABS tax manager in New York, said a more buoyant shipbuilding market as well as diversification of the bureau into "for profit" land-based activities will improve the bureau's revenue in the coming years.

Some detractors are also concerned about the bureau's credibility. They point to how Mr. Sherman was handled. He quit his job as port director in Pascagoula after the ABS board elected him president in January, but was never able to assume the position.

"It's a real tragedy what happened to him," Mr. Trowbridge said. Last week, Mr. Sherman reached a financial settlement with ABS.

Mr. Trowbridge last month distributed his letter of resignation publicly, and he received numerous queries about the bureau's professionalism and its

financial management. "It is my belief the bureau is now in serious peril," Mr. Trowbridge said.

Mr. Iarossi said he has not encountered such negative feelings among clients. He said the management committee, following the resignations, will support him in his efforts to restructure ABS and move aggressively into the next century.

His staff is also offering their support. "Personally, I think the right team won," Mr. Michaels said.