These are two articles. The first details how Allstate stalked and terrorized its own agents when they refused to break the law and cheat clients, or put up with a new system the company designed to cheat them. The second article explains how the pervasive evil of this corrupt company was literally trained, using advanced brainwashing techniques, and exhortations to practice immorality and illegality in the name of profit.


Being an agent for the giant insurer can be tough-- even terrifying. An extraordinary war between a company and its own troops is only getting fiercer.

by Richard Behar
Reporter Associates Jane Furth and Tricia Welsh

Copyright 1995 Time Inc. All rights reserved.

Appointment set for [December] 14th with Texas Dept. of Insurance...I strongly believe the only way this will turn out correctly where the truth will come out and there will be a beneficial conclusion for all parties concerned is if Wayne Hedien takes one day out of his busy schedule to personally meet with some of these [agents] and offer them protection to tell the truth...I asked nicely. I gave plenty of time even though my life is in danger. --Letter from Allstate agent Myles Barchas to CEO Wayne Hedien, November 1993 Barchas made a trip to Dallas yesterday and is on the move again this morning...The surveillance lost him for awhile in traffic and had to set up on his apartment and office in hopes of relocating him...The intelligence that has been picked up is that Barchas may be headed to the State Insurance Dept. in Austin. Instructions were given to stay on him. --Allstate corporate security internal memo, December 1993

Myles Barchas had become one of Allstate's top-selling salesmen- -the best in the 550-agent Dallas region--by his 29th birthday in 1993. Working seven-day weeks, he had amassed 3,200 customer accounts, nearly twice the company average. Allstate, headquartered in Northbrook, Illinois, showered Barchas with awards and honors and free exotic vacations that he never had time to accept.

Then one day Barchas's world exploded. Deeply disturbed that his superiors were ordering agents to break state laws that protected consumers from discrimination, he began to blow the whistle. Though the company never admitted doing anything wrong, Barchas's evidence resulted in Allstate's paying what was then the largest insurance fine in Texas history. But Barchas paid too. He was stalked and chased by private eyes for periods spanning six months, according to internal company documents. And with the flick of a computer switch, Allstate took away his business.

an Allstate office afloat in rural Georgia. Penzo, 48, is called a neighborhood office agent (NOA), a title shared by roughly 80% of the sales force. That means she's an Allstate employee, unlike Barchas, who was (at least on paper) an independent contractor. Even so, when she started in 1989, Penzo's manager told her to expect to break even in a few months and to earn a six-figure income by 1991, provided she plowed her own bucks into the company's business-- money she had saved from 20 years of working at Sears Roebuck, Allstate's former parent.

documents suggest she was doomed to fail. A cash-flow analysis done for her benefit by Allstate in 1991--when she was supposed to have reached six-figure pay-- predicted she would have to invest as much as $100,000 just to run the office and pay herself a small salary for the next three years. When Allstate refused to give her a copy of the analysis, claiming it was inaccurate, she began pleading and complaining to her superiors. When that got her nowhere, she began filing lawsuits and organizing agents around the country to do the same. Last year Penzo and other witnesses began to observe strange vehicles staking out her office. Police traced one of them, a silver van with smoked windows and a Florida license plate, to a surveillance agency that says it handles "only insurance-related investigations" for Allstate and other companies.

Such are two skirmishes in Allstate's continuing war with its agents. Featuring private eyes, high-speed chases, nasty lawsuits, and threats of violence, it is one of the ugliest worker-management face-offs in a major U.S. company, and it is only getting worse. While the company insists relations with its agents are excellent, war is not too strong a term for the situation: A senior Allstate executive has used it internally to characterize the relationship.

How bad is it? Confidential employee opinion surveys reveal that nearly two-thirds of employees are not confident the company tells them the "straight story." The surveys were conducted on four occasions since early 1994, with consistent results, within Allstate's personal property and casualty unit, which generates nearly 80% of the corporation's sales. Earlier this year agents secretly helped a Wall Street Journal reporter expose an issue they had been trying to get management to acknowledge for years: that training seminars linked to the notorious Church of Scientology were widespread in Allstate during the late 1980s and early 1990s. In Florida agents are attempting to unionize. In New York some struggling agents filed a class-action racketeering suit against Sears; a judge dismissed it in March, and the agents are appealing. More troubling for Allstate is a class-action lawsuit in California, where upwards of 3,000 agents are seeking to recover tens of millions of dollars in unreimbursed costs. Allstate may be vulnerable because California is one of few states where labor laws call for "indemnification" of an employee's expenses and losses.

One of Allstate's high-ranking executives, Robert Springer, last September co-drafted a letter to CEO Jerry Choate and to a group of 1,600 Allstate agents that begged the two sides to meet. "There is a storm coming," the draft warned, "and if we are going to make a positive attempt to heal this great company, a sense of urgency is dictated. Gentlemen, this is a war we have put ourselves into, no less...Before we can truly devote ourselves to the customer, insured or stockholder, we have to heal our own family."

Healing will be a big job. While many agents are financially successful, many others are barely hanging on. In recent years many agents have filed personal lawsuits against Allstate, resulting in sealed settlements. When cases do get to court, the company has proven to be a ferocious adversary--delaying cases, withholding documents, filing voluminous motions, running up everybody's legal bills. It's a common enough approach, but Allstate pursues it with special vigor: In June Arizona's supreme court admonished Allstate for "tactics" against a former agent that "in the long run, can only serve to cause disrespect and other harm to the civil justice system." It urged Allstate to focus on the merits of cases rather than try to "trip" its opponents "with technicalities." Various Allstaters believe they have been stalked simply because they are whistle blowers, litigants, or highly paid employees whose managers, they claim, have harassed them into involuntary retirement in order to take their businesses away.

What's going on here? Allstate appears to be in fine form. In the contest for market share, it gets the silver medal behind State Farm in auto premiums (19% vs. 10%) and in homeowner's (24% vs. 12%). Sears sold 20% of Allstate's stock to the public two years ago in the largest initial public offering in U.S. business history. The remaining 80% was spun off for $11 billion last June, making Allstate the nation's largest publicly traded insurer. The balance sheet looks good: Despite big losses from the California earthquake, Allstate last year earned $484 million on $21 billion in revenues; analysts expect those profits to triple this year. An August cover story in Barron's gushed that the insurer's shareholders were now "In Better Hands."

But top executives know the story isn't so rosy. An internal document from last May deals with customer service and public perception: "If you compare our service with the rest of the industry, we're not very good. Our satisfaction levels need to be much higher...Claim satisfaction has also dropped...Company image is a problem. The general public--not just Allstate insureds--seem to have a negative impression of us...Those comments [in focus groups] reflect our poor reputation...We need to get the message out that we're better than what most people have heard or think."

More important, shareholders and even company directors rarely get wind of the troubles with the agents, which began to grow serious about a decade ago, when Allstate faced up to a problem: It was in a highly competitive, mature business, and costs were getting out of hand. The bad blood is traceable one way or another to the company's efforts--some predictable, others extraordinary--to squeeze costs and boost profits. The same forces have affected other insurers, many of which are also experiencing friction with sales agents. But the hostilities seem markedly greater and deeper at Allstate.

The company wholly and vehemently denies that it stalks or harasses agents. "We do not do surveillance," says Jack MacKay, an assistant vice president for legal affairs. "People make mistakes once in a while around here, but people don't do that kind of thing. It's suggestive of an invasion of people's privacy where there would generally be no real reason for it." He acknowledges that Allstate authorized the surveillance of Myles Barchas, but says that is the only time in his 17-year career such a thing has happened, to his knowledge. Yet a former company security officer, in a sworn deposition two years ago, referred to surveillance as "standard operating procedure" that Allstate utilizes "if it's required."

MacKay also dismisses the notion that Allstate has serious problems with its agents, arguing instead that a small, disgruntled minority are whipping up conspiracy theories. "It's a tough industry, and I suspect some people are going to struggle and some people are going to fail," he points out. "Do we have agents out there who are unhappy with the company? Absolutely. How many? I don't know. [But] the relationship between the company and its agency force is absolutely outstanding."

Former CEO Wayne Hedien, who retired last year after five years at the helm, declined to be interviewed for this story. It took a month of prodding to get CEO Choate to agree to talk. We spoke with or received documents from more than 100 current and former Allstate agents and managers for this article. Some felt so strongly that they spoke at the risk of their jobs: Choate refused to waive a rule requiring agents to get company permission before speaking with the press. Those who violate the rule can be terminated, regardless of how much money they've personally invested in the business.

In recent years more than 1,600 agents have formed a national "club"--not a labor union, they insist, a club--that Allstate quietly monitors but refuses to communicate with. Some of its leaders have been harassed, even terminated for dubious reasons (such as misfiling a handful of insurance applications). At a recent convention in Atlanta, not one member of the group--the National Neighborhood Office Agents Club (NNOAC)--was willing to be quoted in FORTUNE. One of the club's most eloquent leaders, Richard Larkin, a successful 33-year Allstate veter an, edits a newsletter that calls for the ouster of senior executives, whom he considers "crooks and cowards." He says he arrived at his home in Virginia one day last March to find his .22-caliber handgun, which he hadn't used for more than a decade, lying on his dresser. The gun's chamber had four spent cartridges. In Larkin's closet, a row of pants had bullet holes through their backsides.

Larkin believes the shooting incident is related to his activities on behalf of the NNOAC, that somebody was trying to scare him into silence. But he has no proof, and Allstate denies any involvement. Larkin refers to the past ten years at Allstate as "a decade of deceit" and writes that "if the Good Hands people are to prevail in this struggle, then those responsible for the turmoil, the deceit and deception must depart. Those corporate executives who feel they are above the law in the pursuit of the bottom line are liabilities. They constitute a clear and present danger to all employees of the company and to the insuring public."

The NNOAC is the group to which senior executive Springer drafted the letter urging cooperation and peace. But in the letter's final draft, Choate and his colleagues watered down the language dramatically, removing all references to things like storms and wars and healing and urgency--inaccurate "hyperbole" in their view. "At that point in time, we were a newly public company," explains Allstate lawyer MacKay. "So for securities reasons, for a lot of different reasons, the choice of wording is very delicate." In the end, it didn't matter: Choate wound up deep-sixing the peace talks altogether.

In a way, Allstate's problems are historical, since the company was always a bit of an odd duck in the insurance trade. As set up in 1931, it bypassed the traditional route of selling policies through agents and instead found customers through the Sears catalogue and by direct mail. Later Allstate clustered agents in Sears stores and in some freestanding locations. But unlike the independent contractors who worked for its chief rival, State Farm, Allstate agents were mostly employees whose sales expenses were picked up by the company. Those hired in the 1960s and 1970s were told they could work hard for ten years, build a book of business, and spend the rest of their careers servicing their customers. Six-figure incomes were common, causing some jealousy among managers who earned less. As long as Sears prospered, so did Allstate. But the retailing empire was faltering by the mid-Eighties, while the insurer's costs were starting to climb faster than premiums.

How could Allstate become the lowest-cost insurance provider (a proclaimed goal) and also keep pace with State Farm, whose offices of independent contractors were blanketing the country? Allstate's solution: Blanket the country with its own employees, turn them into quasi-independent contractors (or NOAs), and get them to swallow most of the overhead--rent, phones, staff. The plan would let Allstate maintain total control over its workers while they picked up more of the expenses of the business. "We are not out to create war on this," a top executive announced at a presentation to regional officials in 1984. "This is just the way we are going to run our business in the future."

But war it was, at least by the time the message filtered down several management layers. Many agents were warned that if they didn't leave their Sears booths and start behaving like entrepreneurs in freestanding offices, they could be fired or shuffled off to Siberia-like locations, or surrounded by new hires who would erode their incomes. A former Tennessee agent, Bob Sharp, says he was warned that he'd be sandwiched "next to a dumpster behind a Kroger grocery store." A former manager from Louisiana, James Ivy, claims that managers were instructed to "ride their asses" until agents agreed to take the plunge into NOA-land. Inevitably, many just weren't capable of running real businesses. Moreover, numerous agents suddenly found themselves surrounded by one another, competing for the same customers, as Allstate oversaturated their markets. "You had to sell something [the NOA program] that you knew was shaky and that wasn't in the best interests of the agents," recalls Henderson Quinn, a Seattle-based manager who spent 14 years at Allstate. "A lot of agents were lied to. A lot of managers just lied to keep their jobs. It's not a pretty story. In some ways, the company gave away half the store, then they decided to take it back in ways that were duplicitous. Basically the company got greedy."

CEO Choate has a different view: "No one forced anyone into the [NOA] program. And I'm the one who put the program out so I know how it was administered...Our overwhelming strength is our agency system. For us to do anything that isn't in the best interests of the force would be absolutely crazy."

In the world of franchises, from Baskin-Robbins to Burger King, laws clearly mandate that the risks of opening a store must be spelled out in writing. But Allstate's NOA agents, who continued to be company employees, were left to rely heavily on managers' verbal assurances. Many say they were misled into believing that most or all of their expenses would be reimbursed under a formula linked to new production. In fact, the formula often reimburses only 25% to 50% of an agent's expenses, which can easily run to $75,000 a year. Internal Allstate documents from the mid-1980s use the term "cost- sharing agent" to describe the new NOAs-a term that was not shared with agents at the time.

Once the program was announced, in 1985, Allstate went on a growth blitz. The force expanded from 13,000 to nearly 16,000 agents over the next five years; far more than 3,000 had to be hired, since thousands failed in that period. Underwriting standards were relaxed, while agents were encouraged to sell as much insurance as they could and plow their profits back into their agencies by hiring staffs. New agents were told to expect the six-figure incomes that older agents enjoyed, while the older agents were told to expect even more. At motivational rallies near Allstate's headquarters, a money machine blew fake dollar bills around the room. "The more you sell, the more you make," promised a recruitment brochure. "It's as simple as that."

But a confidential study by the Booz Allen & Hamilton consulting firm projected that under the new system agents would be earning less after 20 years of service than if they stuck with the old system or if they worked for State Farm--and this assumed a more generous reimbursement plan than the company adopted. Soon many agents were starting to drown, even with their spouses working for free. Warned one manager in an internal document in 1987: "You are going to see agents losing homes, etc., due to borrowing money to keep the NOA office open."

Much of the business the agents were generating during those expansion years was unprofitable. Loss ratios increased, reserves dropped. Solution: Allstate slammed the brakes on growth in 1990, severely tightening underwriting rules. Agents with high-expense operations began to hemorrhage. To reinforce the message, Allstate in 1992 slashed commission rates on new insurance policies by more than half (from 20% to 8%), while commissions for renewal business doubled (to 8%). So agents who hadn't built up a substantial customer base watched their revenues plunge as their out-of-pocket costs were already soaring.

While early company manuals for NOAs rang with inspirational rhetoric about how agents could set their own goals, agents maintain they can now be threatened with "job in jeopardy" status for not meeting sales quotas. Agents increasingly lack time to meet those quotas. The number of operations centers that service the agents has been slashed from 22 to three since 1990, eliminating thousands of employees. All that customer- service work--from processing payments and claims to inspecting property--has been handed to the sales agents. Workloads have soared, while incomes have suffered because agents have less time to sell. And agents who fail? Their accounts get shifted to other agents, who must service them for little extra compensation. If they slack off, it's "job in jeopardy" time.

Georgia agent Lynda deCordre was threatened with termination unless she serviced as many as 6,000 extra accounts, on top of her own 4,000. A single parent, she found herself working 17- hour days, suffering from stress disorders, and pleading vainly for help from Allstate. As an agent-employee in a Sears store, deCordre had earned as much as $175,000 per year and rose to become one of the company's top sellers of commercial insurance. By the time she "retired" as an NOA entrepreneur in 1994, she had laid off four workers, had lost two homes, and was bankrupt. "I was doing the work of six people," she recalls, "while my manager was telling me that I was the only agent in the country not succeeding in the new program. He said I was providing too much customer service. For a long time I believed him. And then I started talking to agents in other cities and states."

Pat Barille of Illinois was such a model agent that Allstate featured her in a Sears annual report and in videos designed to motivate rookies. She won plenty of sales awards, plowed $250,000 into her agency, and was flat broke within three years. She sued Allstate in November, charging fraud and seeking to recover her money. "It was a nightmare," she says. "An executive at headquarters told me I just happened to get in at the wrong time, and there was nothing the company could do for me. There are thousands of agents that this happened to. It's not just me."

Allstate says agents under such pressures should invest further in their businesses and hire more staff. The company is beginning to talk again about growing aggressively in some 70% of its markets. But many agents are reluctant to spend, ever fearful that Allstate could decide anytime to slam the brakes on growth or lower commission rates or raise premiums, which are already often higher than State Farm's.

The bottom-line question for NOAs: Why should agents invest their own money in a business where they assume the risks but cannot own anything? "I've dropped a half million dollars in the last ten years," says a veteran agent from Virginia. "Three years ago management decided to cut our ability to buy Yellow Pages advertising, and my business fell so badly I had to fire most of my employees. I'm not spending any more of my own money. I will not, I will not, I will not! Why should I? I'm just a fool. I don't own the book of business."

Allstate has developed a new concept--the neighborhood exclusive agent (NEA)--which requires employees to pay 100% of their expenses in return for higher commissions and the opportunity to own their customer accounts after five years. Most agents aren't buying: For one thing, NEAs can be terminated at any time without cause, and any part of their contract can be changed. Only 10% of agents are NEAs, but it's clearly the wave of the future since new hires are given no choice.

Myles Barchas of Dallas is one agent who liked the sound of the NEA deal. Intensely driven, he was hired as an NOA in 1988, built a staff of five, and plowed most of his income back into the business. He willingly became an NEA in 1992 but soon concluded Allstate wasn't living up to its end of the bargain. A private letter ruling from the IRS states that, for Allstate to obtain certain tax breaks, NEAs must be free to run their agencies with "no direction" from Allstate. Yet Barchas was still being required to attend meetings, meet sales quotas, and submit his staff to sales training sessions. He began to complain.

The final straw for Barchas came when he realized that agents were being required to discriminate against many people with spotless driving records, in violation of Texas law. For instance, the law clearly stated that single people or people without prior insurance could not be denied standard rates on that basis. Allstate, in heavy cost-cutting mode and apparently believing such people represented higher risks, tried to skirt the law by accepting only customers that owned two cars. When the state nixed that loophole, Allstate created another: It excluded people who lived in apartment buildings without covered parking garages. Customers they did accept were placed in the highest risk bracket available, paying double what others paid for the same insurance. "Allstate decided that it would cheat to beat its competitors," Barchas says. "They are crooks because they broke the law, and cowards because they couldn't admit it. If everyone just worked together honestly, we could have destroyed the competition."

In early November 1993, Barchas decided to lodge a formal complaint against his regional managers through Allstate's "We Care" program, which supposedly assures whistle blowers confidentiality. Yet three days after the complaint was made, says Barchas, he received a call warning that a supervisor was on his way over and would "break down the door" if necessary. Barchas refused to let him in. Several days later, Barchas says, he received an anonymous death threat on the telephone and began noticing people following him. Overwhelmed by fear, Barchas warned an Allstate manager that "anyone comes through the plane of my door, they get shot." On November 16 he had a security system installed in his home. The man who installed the alarm, a former police officer, saw that Barchas was in such a panicky state that he moved the Allstate agent into his own home in a rural town 80 miles from Dallas. For several weeks, Barchas, believing his life was in danger, barely slept and rarely walked outside the ex-cop's house, which was surrounded by private investigators hired by Allstate.

The company placed Barchas under 24-hour surveillance for several periods spanning six months--November 1993 to April 1994--at a cost of at least $145,000, according to internal records. Midway through that period, the agent's computers were suddenly turned off, while his customers received letters stating that Barchas had retired (some letters said he had "terminated his employment"). Allstate insists that the stalking, and the agent's ultimate termination, were justified by Barchas's shooting threat and a range of "peculiar behavior," defined by the insurer as the following: suddenly "abandoning" his job and customers, leaving "rambling" voice- mail messages on the answering machines of top executives, and refusing to deal with anyone at headquarters except for then- CEO Wayne Hedien, who received "garbled, incoherent" letters from the agent at his office and home. Allstate also says it hired a psychiatrist to analyze Barchas's letters, "just to make sure he wasn't dropping bombs in airline packages or anything," according to Allstate lawyer MacKay. "He only wanted to talk to Hedien."

Barchas didn't abandon his job, as Allstate suggests. While being stalked, he kept his office door locked and referred new customers to other agents; his staff continued to service existing customers. And though his letters to Hedien are occasionally wobbly, they complain articulately about the surveillance and the violations of Texas law. "I'm not proud of the letters," says Barchas. "I was in a terrorized state of mind. But I wanted to make sure that Hedien couldn't pass the buck."

Allstate claims it was particularly rattled when Barchas called headquarters to announce that a package of materials would be sent to the CEO's home around Thanksgiving. But the package contained only audiotapes proving that agents were breaking the law, plus a copy of a book called How to Succeed in Business Without Lying, Cheating or Stealing.

Allstate's psychiatrist concluded a week later that Barchas posed no danger to any employee, except perhaps to himself. Yet the surveillance continued on and off until the following April. "Myles was scared to death," says Tim Rose, the ex-cop who took the agent into his home. "There's no way Myles was going to hurt anybody. I was going to teach him how to shoot, and he was so uptight about it he wouldn't even hold the pistol. Everybody who has insurance paid for that [surveillance]. Allstate shouldn't have done it."

When Barchas flew to Austin to visit state insurance regulators, two Allstate private investigators were on the same American Airlines flight. On another occasion he drove nearly three hours to see the regulators, tailed by three investigators at speeds reaching 100 mph, according to Allstate's own surveillance reports. Still the surveillance continued, night and day. When Barchas used his cellular phone, his calls were apparently monitored by a scanning device. A second Allstate agent who furnished Barchas with documents was followed. So was Terry Munoz, an employee of Barchas's, as she drove from work to pick up her son at his school. After 30 minutes of being stalked, she finally lost the tail by pulling into the parking lot of a police station. "I was panicked," she recalls. "I don't think Allstate deserves to do that to anybody." Echoes Barchas: "I can't even fathom having billions of dollars at my disposal and following women. My only consolation is that God will get them."

Backed into a corner, Barchas began to work with a Dallas TV reporter. The frenetic energy he had poured into his sales career would now be applied toward exposing his bosses. The agent went undercover in ten cities, carrying a hidden camera in a shoulder bag and posing as a prospective customer. At every stop, agents refused to insure him for a multitude of illegal reasons: For being single, for owning one car, for declining to buy more than one policy, for having been insured previously by a high-risk carrier, and so on. The TV expose, which aired across Texas in early 1994, prompted what was then the largest insurance fine in Texas history--though at just $850,000 it equaled about six hours' of Allstate's earnings and was a painful lesson for future whistle blowers. "The undercover operation was the impetus to the fine," says Mary Keller, an attorney with the Texas department of insurance. "It was because ofMyles's work. We owe him a lot. Allstate flatly broke the law, and they thought they could get away with it."

Allstate agreed to pay the fine without conceding guilt. The company then canceled its advertising with the TV station and sent a letter to policyholders promising to "eliminate any lingering misconceptions" among its agents about what the rules were. But while the letter suggested agents were skirting the law on their own, company memos clearly show that Allstate directed them to do so.

Wallace Davis, a former Allstate senior manager who supervised 70 employees, recalls a meeting of top Texas managers and two dozen agents in Austin in October 1993. At the meeting, he says, the company's top-ranking regional official, Gary Briggs, announced that the company had lost its fight with the state and could no longer turn away people simply because they owned one car. According to Davis, Briggs then stated: "When these people come to your office, use your imagination, go through the motions, but find some way they don't qualify." Explains Davis: "These executives feel above such petty things as rules from the Texas department of insurance." Briggs denies the allegation.

Curiously, when Allstate was nailed, then-governor Ann Richards went on TV to attack the industry in general but not Allstate in particular. FORTUNE has obtained sworn statements, previously unreleased, from five Allstate agents that may shed some light on the matter. The agents claim they attended a meeting during which a high-level Allstate official bragged about a quid pro quo involving the governor that was allegedly orchestrated by Texas Representative Al Edwards, the head of the state's black caucus. According to the sworn statements, Edwards agreed that the governor would not mention Allstate's name on television. Soon after, the company expanded its minority vendor program through Edwards, according to an internal company memo. Edwards and Allstate deny any such deal. Richards couldn't be reached. To nobody's surprise, last December a 12-member grand jury blasted the state of Texas for a "significant reluctance" to investigate insurance company fraud, "undue influence from the industry," and "political pressure on the regulators."

Allstate's surveillance of Barchas is itself under investigation by the Texas Board of Private Investigators, a state agency. One reason is that Barchas's credit report was pulled on three occasions by two companies that have since been linked to a group of Dallas private investigators. When the companies could not justify pulling the reports, their relationships with a major credit agency were terminated. It is a violation of federal law for credit reports to be obtained for improper purposes. Allstate officials say they are not aware of any reason why Barchas's credit reports would have been gathered.

Barchas is suing Allstate and believes he is still being harassed. He entered a parking lot in April to discover that all four of his car doors were wide open, yet no valuables had been removed. Later he nearly lost a wheel while driving down a highway; the lug nuts had all been loosened, according to a Honda repairman. Barchas says he and his father receive repeated hang-up calls at their homes. Shortly after a conversation with this magazine in August, Barchas says he experienced "20 straight hang-ups," followed by an egg splattered against his front door. Allstate says all surveillance activities against Barchas ceased in the spring of 1994. Other agents feel sure they've been stalked by the company, despite its denials. A former Arizona agent, Edward DeLorenzo, believes he was a target in 1987. He was an enormously successful, award-winning salesman, earning upwards of $200,000 a year. Then one day investigators began visiting and grilling his customers. When DeLorenzo called his managers to find out what was happening, "nobody would talk to me, or they'd say they didn't know what I was talking about." One day a manager tailed the agent in his car all the way to a customer's house. Next, De Lorenzo observed a car going back and forth repeatedly in front of his own home; he slept on the couch with a baseball bat.

Why would DeLorenzo be harassed? Last year, in a tape-recorded statement for an unrelated lawsuit, a former high-ranking manager admitted that DeLorenzo was "targeted for termination" because he was highly compensated. The ex-manager, Bill Adams, also stated that he, Adams, was ordered to fly to an operations center in Texas to pull 100 of DeLorenzo's customer applications and "find some dirt" that could be used to get rid of him.

The scheme apparently worked: DeLorenzo suffered a nervous breakdown, was briefly hospitalized, and never returned to Allstate. "I was the white buffalo," he says today. "And when you gun down the top buffalo, you can then go after the rest of them, or at least get the rest of [the agents] scared enough to jump through hoops." DeLorenzo says that Adams, wracked by guilt, visited him six years later to apologize. Adams refuses to comment, but in his 1994 statement he described the company's culture in the following way: "It was like a big fraternal system. I mean, you either played the game their way by their rules or you got dealt a bad hand or you got eliminated from the game. It's just the way it worked."

Randy Lane, a former Nevada agent, had a similar experience. Lane has a box in his home stacked with two dozen trophies and plaques from Allstate. A three-inch-thick loose-leaf binder is filled with letters from management, dated 1976 through 1991, praising Lane for his performance. His 3,000 customers provided him with annual income of about $150,000. "Randy was a very good agent," recalls his former immediate manager, Charles Murphy, who now works for Metropolitan Life. "When he worked for me, he produced, he wrote good quality, he was profitable, and he retained a lot of his business."

But Lane had infuriated a number of higher-ups. When the company issued an underwriting guideline, he would verify its legality with insurance regulators-treasonous behavior at a place like Allstate. He was even threatening to steer customers to regulators when he felt they were improperly rejected by Allstate's underwriting department. An internal document in 1989 states that Lane "either needs to join the program or get out of the way." Payback time began several months after Lane's manager, Murphy, left Allstate in 1991. Lane says a new manager began to target him, overscrutinizing his work, soliciting customer complaints, and cutting Lane off from communicating with a major claims center. Lane was also subjected to a massive corporate security probe and repeated audits.

To protect himself, the agent secretly tape-recorded more than 700 of his conversations with colleagues. In early 1992 he sued the company and went on stress leave. He never returned. A judge split his suit in half: a federal case, which Allstate narrowed to the issue of age discrimination and Lane lost, and a state case that was dismissed because of Lane's surreptitious taping; he is appealing the decision. Meanwhile, Allstate created a 12-page single-spaced "job in jeopardy" report. Virtually every petty disagreement with a customer was transformed by management into a career-threatening violation by Lane, whether he was involved in the incident or not. Observes ex-manager Murphy: "I thought it was unusual that in a short period of time, they had written Randy up. I had absolutely no complaints about him."

Allstate denies that Lane was placed under surveillance, but family members and neighbors strongly dispute that. Lane's cousin, an Army police officer named James Kelley, claims he himself was stalked while living at Lane's house in 1992. Lane's daughter Rebecca, then 15, filed a police report in November 1992 claiming she was followed to school. She says for years she suffered from nightmares. "I would dream that men were taking away my little sister," she says today. "After I was followed, I wouldn't go anywhere by myself, like to the bathroom in a restaurant or to the mall." Lane says he continues to be plagued in his sleep. "I still have nightmares of Allstate management coming after me," he says. "I was one of their biggest producers in the state, and I couldn't understand why this was happening."

After viewing a videotaped deposition of an Allstate security officer in 1993, Rebecca Lane insisted he was one of her stalkers. So did a neighbor, Vivian Helms, who provided a sworn statement to that effect. "He put a newspaper in front of his face, but I was close enough to see exactly who he was," Helms recalls. "There's no doubt in my mind. I worked in a bank years ago, and we were told how to observe people." The security officer, Peter Ellena, who has since died, admitted to investigating Lane but denied conducting any physical surveillance. Allstate says Ellena was dying of cancer at the time of the deposition and was thus unrecognizable in the videotape. "He was a mere shadow of himself," says Allstate lawyer Ed Moran. "He was a skeleton."

Two of Lane's lawyers, Jack Kennedy and Sherry Bowers, claim they were placed under surveillance by Allstate earlier this year. Bowers says that during the month-long trial in Reno, she was regularly stalked, was subjected to repeated hang-up calls in the middle of the night, and even had wooden nails wedged into one of her tires, causing a slow leak. She slept with a snub-nosed .38-caliber pistol by her side. During the day she kept an assistant in her hotel room to guard her files and computer. In one instance, she says, a white truck followed her to an automatic bank teller, where she parked and climbed out of her car. The truck stopped on the far side of the lot, where a man donning a cap and sunglasses climbed out and began talking on a cellular phone. Bowers immediately jumped back into her car and raced to her hotel, the white truck in hot pursuit. "I don't know whether they were trying to get into my room or just make me uneasy," she says. "Maybe they were hoping I would stay awake at night, unable to sleep." In another instance, says Bowers, she was stalked on a snowy Friday night on the long, mountainous drive from Reno to her home in California. "For having the nerve to sue them, I have been followed and I have been harassed," she says, adding that she is worried it could happen again. "I have a family of five, and I don't want to be harassed by them anymore."

Allstate vehemently denies stalking or harassing any of Lane's lawyers. "It flabbergasts me that, five months after the trial, I'm now first hearing that they thought we had them under surveillance," says Allstate attorney Moran. "I was there for most of the trial. If they really believed that Allstate was surveilling them, why would they not have called me? Or why didn't they run to the Nevada police and complain?" Responds Bowers: "Would he [Moran] have done anything about it to assist us? Did they do anything about it when Randy Lane complained about the surveillance? Instead, what they did was make a motion to suppress the evidence so that it would never be brought before the jury."

Though much of the acrimony at Allstate has involved NOAs, the "cost-sharing agents" instituted ten years ago, not all of it has. Nearly 1,300 Allstate agents have refused to convert to NOA entrepreneurship. They work in Sears stores or company- owned offices, where all their overhead is paid for. But many of them complain of harassment for failing to convert. One such agent, 48-year-old Cornell Vandegrift of central Florida, has worked for 18 years for Allstate. He and his two partners claim that in recent years they have suffered continuous audits and verbal abuse from managers. For failing to become an NOA, Vandegrift is not permitted to purchase Yellow Pages display ads, which help draw customers. And yet--Catch-22--he is threatened with termination for not meeting production quotas.

Earlier this year Vandegrift decided he had had enough. He filed several discrimination complaints with the federal Equal Employment Opportunity Commission. Allstate was alerted to the complaints in April. A month later Vandegrift noticed a strange- looking car--low to the ground, tinted windows, two antennas-- passing outside his home. Ninety minutes later he hopped into his pickup truck to run an errand. Suddenly, after two blocks, the odd car was following him. Vandegrift pulled into a shopping center and entered a store to buy aspirin. When he got back behind the wheel, he soon spotted his stalker making a swift turn from a vacant corner of the lot. Allstate denies putting a tail on Vandegrift.

It also denies it ordered surveillance of Carolyn Penzo, the Georgia agent who was stalked by a silver van that police traced to an insurance-related investigative outfit that has done work for the company. At the time, Penzo had been organizing fellow agents in a RICO suit against Sears. A federal judge dismissed the suit in March, concluding that "mere puffery" about business opportunities doesn't constitute fraud. In addition, a personal fraud suit by Penzo in Georgia was dismissed because "fraud cannot consist of mere broken promises." What's more, because Penzo was an employee, under Georgia law "no misrepresentations or fraudulent silence is actionable."

Encouraged by six-figure promises, Penzo herself has sunk more than $200,000 into her Allstate agency since she began in 1989. "She's apparently doing okay," says Allstate attorney Greg Rohlfing. "She's still there." But just barely: She has exhausted her life savings while failing to earn the minimum wage, has laid off her office staff, and is facing eviction because she cannot afford the office rent.

Yet for several years Penzo's annual reviews stated she was meeting or exceeding performance levels expected of an Allstate agent--while losing her shirt. The Booz Allen plan recommended that rookies be given 600 to 800 policies at the starting gate; Penzo began with only 180. At an average commission of roughly $45, that generated about $8,000 per year. A company document and a former top manager maintain that the average agent sells roughly 200 policies a year. Given Penzo's routine office expenses, she would have had to sell twice that amount just to break even.

Allstate's own records suggest this would have been a Herculean task: Penzo was situated by the company in a zip code that had only 888 households per agent. "In my opinion, they want to penetrate rural markets like State Farm, but they want to spend as little as possible," says Penzo. "So they stuck me here and used my free labor and assets. They always told us, 'Don't worry, we'll cover your expenses. You're in good hands.' " Given what's taken place over the past ten years at Allstate, it's little wonder that so many agents are bitter. Their cynicism is fueled by superiors who try to tell them what opinions they should hold when they complete their confidential surveys. "If you can mark your survey as 'overall satisfied,' all things considered, it will reinforce your own attitude positively and add to your success," wrote Allstate's top New York official in a letter to employees last year. "Marking your survey 'not satisfied overall' is to perpetuate and aggravate a false and destructive perception that nothing good yet is possible." Many employees who answered their surveys positively were given a free day off.

Allstate's top regional official in Dallas wrote a similar note to his employees. "Many of you feel we, the management team, are not giving you the straight story," he observed. He then instructed underlings who could not answer their opinion surveys in a positive way to call him directly--on a special "straight story" hotline.

An Allstate memo told company executives about his visit to the Texas state insurance department. Text of that memo:

Midwestern Territorial Office
December 4, 1993

RE: Nyles Barchas
Dallas Region


12/3/93 - 10:30 PM
Michael O'Brien of Parker & Jones, Inc. reported that ... Barchas took a taxi from the airport to the Texas Insurance ... Department, arriving just before 5:00 pm. He carried a black ... brief case and a box which was about six inches deep; he was ... heard telling the security guard in the lobby that he had ... o'clock appointment. He went to the 10 th floor where the ... department is located and then left the building at 6:15 pm ... the brief case, but not the box and returned to the airport.

Barchas caught a flight back to DFW, left the airport in his rented van, drove an erratic route -- sometimes with his headlights out, stopped to eat at a TGI Friday's restaurant and then returned to his apartment.

Surveillance was to remain on the apartment.

James (Jim) P. Duffy

cc: Don Bird


Although Allstate's corrupt CEO has disavowed the training described in the second story below, it not only took place, but used behavioral modification, indoctrination, and brainwashing techniques that DO NOT GO AWAY just because the CEO disavows the program. Most of the senior management and agents who took this semi-religious training are Still In Place -- and have not changed the attitude of illegality and shortsighted greed they were taught.

Management by Statistics teaches that there are NO moral constraints on a "producer" or high profit-maker. Producers are audited weekly, with no regard to long-term goals, the company name, fairness, customer service, or legality -- only highness of profits. If they fail to make the highest short-term profits, audited on a Weekly basis, they are punished and humiliated, no matter how well they treat customers or protect the company's name or long-range goals. On the other hand, if they make the highest profits, they are praised and rewarded, no matter who they cheat, or how, or what moral rules or laws they break.

Anyone with half a brain can imagine what sort of corporate culture and treatment of claimants such an ugly and immoral system would engender.

by Rochelle Sharpe, Wall Street Journal, March 22, 1995

Two years ago, an Allstate agent stood up at Sears's annual meeting to ask what then seemed a bizarre question. "To what extent," he inquired, "are the teachings of L. Ron Hubbard's Church of Scientology present today in Allstate and in Sears?"

Sears's Allstate Insurance Co. unit, both appeared bewildered. Mr. Brennan said he had no knowledge of any relationship at all. Mr. Hedien said he didn't even know any Scientologists. "I'm a Roman Catholic myself," Mr. Brennan added. Shareholders laughed, and the board moved on to apparently more serious concerns. But today, the influence of Scientology at Allstate is no joking matter. Between 1988 and 1992, it turns out, the Good Hands company entrusted the training of workers coast to coast to a consultant teaching Scientology management principles. The consultant says more than 3,500 Allstate supervisors and agents participated in the nearly 200 seminars conducted by his firm, which was licensed by a Scientology institute to teach such classes. The course materials -- which preached a rigorous, even ruthless devotion to raising productivity -- were developed by Mr. Hubbard, founder of the religion that some critics claim is a cult. One of the purposes of teaching Mr. Hubbard's management program, a Scientology pamphlet states, is to instill "the ethics, principles, codes and doctrines of the Scientology religion throughout the business world."

Though the company recently banned and repudiated the courses, their reverberations are still being felt -- and may even be growing. Some employees continue to use Mr. Hubbard's techniques, while other workers weave conspiracy theories about an alleged Scientology plot to infiltrate the highest levels of the company. Some agents believe they have been harassed and, despite repeated denials, the insurance giant has been unable to put all the speculation to rest. Recently, agents in Florida have launched a drive to unionize the work force -- and they are using the Scientology issue as a centerpiece of their attack on management. Allstate employees who took the classes say an important, although hardly exclusive, theme of the training was an uncompromising commitment to the bottom line -- even if that meant treating poor performers harshly. The course materials warned managers never to be sympathetic to someone whose productivity numbers, or "statistics," were down. "We reward production and up statistics and penalize nonproduction and down statistics. Always," the training booklet said. "Don't get reasonable about down statistics. They are down because they are down. If someone was on the post, they would be up." The course underscored this point by advising that "reasonableness is the great enemy in running an organization."

The program also taught psychological concepts such as the "tone scale," which catalogs emotions and, Scientologists believe, can be used to influence behavior. Illustrated with cartoon characters, the scale contains 41 levels, ranging from death, apathy and grief near the bottom to exhilaration, action and "serenity of beingness" at the top. All of the levels are numbered: Covert hostility is 1.1, boredom, 2.5. Allstate managers learned to find a person's place on the scale by analyzing the individual's favorite style of conversation. "If you wish to lift the person's tone, you should talk at about half a point above their general tone level," the course book advised.


Richardson, who took the course in 1990, remembers exchanging startled glances with a colleague and muttering: "If they turn off all the lights and start singing John Denver music, I'm walking out."

"There is absolutely no connection between the Allstate Insurance Company and the Church of Scientology." If any Scientology materials were included in training sessions, it was "a blip on the screen . . . a very inconsequential, one-shot situation," a spokesman said. But later, Jeff Kaufman, a regional vice president who participated in Allstate's decision to use the Scientology consultant, acknowledged that the controversial courses were taught to agents and managers nationwide. Mr. Kaufman described the employment of the consultant as "an accident."

"I feel like our intentions were very honorable," Mr. Kaufman says. But now, he adds, the matter "is biting at me personally." He emphasizes that he didn't know at the time of the training that Scientology principles were involved. Many Allstate employees, though, did know the connection. For one thing, the introduction to their course book declared the materials "were researched and written entirely by" Mr. Hubbard, who died in 1986. Some trainees recognized the name instantly; others learned who he was from colleagues taking the course. Mr. Hubbard is best known not as a management guru but as the science-fiction writer who founded the Church of Scientology International in 1954. Since its earliest days, the church has been a target of anticult activists who say it exploits its members and harasses opponents. Church members counter that their organization has been systematically misrepresented, even persecuted, by the media and government. Scientology, they say, is "an applied religious philosophy" that helps people develop spiritual awareness. Members seek perfection by exorcising bad memories, or "engrams," from past lives through a counseling process called "auditing."

Over the years, Scientology has been aggressive in its efforts to attract new members -- including such celebrity adherents as Lisa Marie Presley, Tom Cruise and John Travolta -- and to build an efficient, well-financed organization. Along the way, members credit Mr. Hubbard with developing a comprehensive management system for church operations using Scientology principles. The system came to Allstate through a circuitous route that began in 1979, when church members formed a not-for-profit religious group, the World Institute of Scientology Enterprises, to market Mr. Hubbard's techniques to business. In its book, "What Is Scientology?" the organization boasts that its courses have been taught at a number of the nation's largest companies, including General Motors Corp., Mobil Corp., Volkswagen AG -- and Allstate. Except for Allstate, all these companies say they can't find any evidence that their workers took such seminars. Many Allstate employees would come to rue the Scientology connection and to blame it on the company's top executives. Yet, ironically, it was a group of agents, rather than anyone in top management, who sought out Scientology management training in the first place. The impetus was a companywide restructuring of agents' jobs in the mid-1980s. Under the new system, agents had more responsibility to run their own businesses, hire staff, manage expenses and attract new clients.


The change put enormous new pressure on employees, many of whom had previously sold insurance in Sears stores and had no entrepreneurial experience. (Sears, which once owned all of Allstate, sold a 20% stake to the public in 1993 and plans to spin off the rest of the company later this month.) The pressure prompted a group of about 10 agents from the Sacramento area to band together in late 1987 to search for ways to sharpen their business skills. One member suggested at a monthly meeting in early 1988 that the group consider hiring outside consultants to help in the effort. Karen O'Hara, a relatively new agent based in the tiny town of Galt, Calif., replied that she had a client who was a management trainer, three people at the meeting recall. But they say Ms. O'Hara didn't point out that she knew the trainer, Donald Pearson, through a Scientology communications class she had taken. Ms. O'Hara confirms she took such a class but won't comment further. Soon Mr. Pearson, then 39 years old, was meeting with the group to present his ideas. Before long, he was lecturing on organizational development to more than 40 Allstate employees gathered at the Sheraton Hotel in Sacramento. Agents say Mr. Pearson didn't hide his religion or the origin of the training program but stressed that the sessions had nothing to do with Scientology. "It was a management program, not a religious promotional program. . . . They didn't buy Scientology, they bought courses," Mr. Pearson says now. "What's my religion got to do with whether I'm a good consultant?" A Scientology spokeswoman adds that the same principles that are religious within the church can be viewed as secular when applied outside the church. Mr. Pearson, though, was a top trainer for a firm called International Executive Technology Inc., which was devoted to teaching the Hubbard management system. Materials Mr. Pearson distributed in his classes included Mr. Hubbard's copyright notice at the bottom of many pages. And all of Mr. Hubbard's written words, including his management pronouncements, are considered religious scripture by the church, according to the Scientology pamphlet, "The Corporations of Scientology."

One Scientology brochure predicts that as businesspeople use the L. Ron Hubbard technology and "win with it, they will reach for and apply LRH technology in other aspects of their lives and may become Scientologists."

Mr. Pearson steered clear of these issues in his Sheraton talk, agents say, and hewed to the subject of how insurance agents and managers could do a better job of running their businesses. By all accounts, he was a huge success; agents later described the tall, sandy-haired speaker as confident, direct, down to earth and authentic. The employees who heard him were so impressed that they invited him to deliver the keynote address that fall at a meeting of Northern California managers, held at a posh Lake Tahoe resort. After that presentation, requests poured in from managers for further assistance from Mr. Pearson. One high-ranking Northern California manager says he persuaded executives at Allstate headquarters in Northbrook, Ill., to pay for intensive seminars for his employees. For more than two months in late 1988 and 1989, about 50 managers and agents in the region spent two to three days each week in classes at Mr. Pearson's Sacramento office, which was decorated with Mr. Hubbard's vivid paintings of spaceships and moonscapes.


The seminars gave loads of tips on office organization and goal-setting. Filled with Mr. Hubbard's special terms, the materials discussed ways not to waste "attention units"; what "hats," or duties, workers had; and how to construct an "org board," a chart of the organization's functions. The classes also showed how employees could be divided into three categories: "the willing," "the defiant negative" and "the wholly shiftless."

To help managers understand their own personalities, consultants administered a 200-item questionnaire similar to the ones Scientologists pass out on street corners. The Allstate employees got back graphs that rated them on 10 counts, including stability, certainty and composure. They also practiced staring at colleagues and examining their facial features in an effort to like the co- workers more. But the seminars focused mostly on management by statistics, a concept that involved charting income and production on weekly graphs. Employees who produced so-called up statistics weren't to be questioned, no matter how they behaved. "Never even discipline someone with an up statistic. Never accept an ethics report on one -- just stamp it `Sorry, Up Statistic' and send it back," Mr. Pearson's materials advised. Workers with declining production had to be investigated immediately, the course taught. "A person with low statistics not only has no ethics protection but tends to be hounded," the training manual said. It also quoted Mr. Hubbard's writings blaming the Depression, the failure of communism and even the decline of ancient Greece on people's willingness to reward or excuse so-called down statistics. The Allstate classes included Mr. Hubbard's statement that about 10% of the population was "nuts" and that "2 1/2% are the chief nuts."

Rather than resist the course, many who took it appeared grateful for the lessons and eager to apply them. "It was invaluable," says Edmund Kramer, who took the classes when he was a marketing sales manager in California. "I know some people are afraid of it because they think it has religious connotations. But once you touch it, you're going to carry something with you from it forever. It's very powerful in its simplicity."

The first wave of managers to try the course, all from California, appear to have focused primarily on how to chart their business fortunes -- and to react quickly to any downward trend. It is unclear whether any of the California managers followed Mr. Hubbard's harsh rhetoric on poor performers. In any event, by the end of the year, sales and profits were up significantly, managers say. So many managers outside the region clamored for information about the training program that Mr. Pearson and Allstate manager Lindal Graf were invited to promote it in Southern California, Tennessee and Kentucky. Mr. Pearson also spoke to 130 Allstate managers from all over California who had gathered in the city of Ontario for a conference. Six weeks later, in November 1988, he had his debut at Allstate's corporate office, leading a seminar for 30 sales managers from throughout the country. Within months, corporate executives who had heard the favorable reviews were seeking Mr. Pearson's participation in a series of three-day sessions for managers nationwide. Before they offered him that pivotal assignment, though, they asked him to conduct a tryout session at corporate headquarters for visiting managers. That is when executives first heard complaints about Scientology, says Kenneth Rendeiro, a former sales manager who was in charge of setting up the training programs. Two California managers, scheduled to participate in the sessions, refused to take part because, they explained, Mr. Pearson was affiliated with Scientology.


Corporate executives then convened a series of meetings to discuss whether it was a mistake to hire a Scientologist, and Mr. Pearson reassured officials that his training program was separate and distinct from the religion. As a result, William Henderson, then vice president of sales, decided to give Mr. Pearson the job, Mr. Rendeiro says. However, Mr. Henderson, now retired, denies any involvement. He says the company is trying to blame it "on the old guy who retired."

There's no dispute, however, that Mr. Pearson ended up traveling around the country with two other trainers unaffiliated with Scientology, giving seminars to managers in about half the company's 28 regions. Mr. Pearson says these seminars, for which Allstate paid him $4,500 per three-day session, were given from 1989 to 1992. The classes became so popular that many regional managers invited Mr. Pearson back, at $5,000 a day, to do special sessions geared toward agents. Allstate's Mr. Kaufman says he had specifically forbidden trainers from selling any books at the advanced-management seminars. But once Mr. Pearson began teaching large numbers of agents, questions arose about whether he was abiding by the rules. "He snuck in about a half-hour on the promotional literature," says John Softye, a New York agent who took Mr. Pearson's Agent Prosperity Seminar in 1989. "He said: `You buy these books and you can see how to benefit yourself and improve your thinking."' The seminar materials also advertised a series of books available from Mr. Pearson and his company: Mr. Hubbard's "Science of Survival" for $50, his "How to Live Though an Executive" for $31.25, and a three-pack of his "Money and Success" tapes for $145. By this time, several other consultants who worked with Mr. Pearson were also training Allstate agents in Scientology management practices. At least one of the consultants pitched another book to agents: "Dianetics," Mr. Hubbard's seminal book on Scientology. Mr. Pearson says he told the consultant to stop the practice, since Allstate had banned the sale of religious materials at the seminars. Mr. Softye claims, though, that Mr. Pearson also sold copies of "Dianetics" at his seminar, an allegation that Mr. Pearson denies. In this phase of the training program, reports from the field began to grow less favorable. In Arizona, for example, workers say they noticed a disturbing change in a key supervisor's management style after their Hubbard training in July 1990. After taking the classes, territorial-sales manager Jeffrey Swanty talked constantly about management by statistics, says David Richardson, the former Allstate manager who attended the course with him. To apply the ideas, Mr. Richardson says, Mr. Swanty developed a system under which the worst-performing agent and the worst-performing manager in his territory would be required to reach a series of daily, weekly and monthly goals. Frequently, Mr. Richardson says, the goals were unreachable, requiring that business be doubled or tripled within a short period. "It allowed management by intimidation. It was vindictive -- a way to try to remove people," Mr. Richardson says. "We would harass agents" by calling them constantly and visiting them repeatedly. (Mr. Richardson had his own run-ins with Mr. Swanty and was reprimanded at least once.)

One incident that employees still talk about involved William Wesler, a 35-year-old Phoenix manager, who was suffering from lymphatic cancer in 1990. Everyone in the office knew about Mr. Wesler's condition and his efforts to reduce stress as part of his treatment, Mr. Richardson says. Nonetheless, a month after taking the Hubbard training course in July, Mr. Swanty placed Mr. Wesler on a rigorous program to improve his performance.

THE HUBBARD COURSE MATERIALS During the following 120 days, Mr. Wesler was supposed to double his district's sales, hire at least one female and one minority agent, attend public-speaking classes and enroll in a college course on interpersonal skills, his August 1990 job evaluation states. He also had to meet with Mr. Swanty every other week to receive an evaluation of his progress. "It was a workload for three people," says Mr. Wesler's widow, Sherry Scott. She says her husband completed most of the work but quit in October 1990. He died in May 1992. "When I saw Jeff Swanty at the funeral, I turned and walked away," says Greg Peterson, who had worked for Mr. Wesler and says he watched Mr. Swanty's behavior change after the management classes. "I feel his actions worsened Bill Wesler's health," he adds. Mr. Swanty acknowledges that he was impressed with the Hubbard course materials but says he didn't implement much of the program because he feared it would create too much paperwork. He says he didn't know at the time that Mr. Hubbard was connected to Scientology. He knew Mr. Wesler was ill, Mr. Swanty adds, but denies he treated him unfairly in light of his declining performance. "We treat people with dignity," says Edward Moran, an in-house Allstate lawyer who also denies that Mr. Swanty was unfair. He says Mr. Wesler was having serious problems with managing and communicating with agents for some time before he received his negative evaluation in August 1990. In addition, Mr. Moran says, Mr. Swanty began drafting the evaluation in June, before he took the Hubbard lessons. However, the performance review is dated Aug. 14. Across the country, a number of agents were making complaints similar to those voiced in Arizona. Lawsuits and Equal Employment Opportunity Commission complaints were proliferating; more than two dozen have alleged fraud, harassment or discrimination by Allstate, often in connection with wrongful-discharge cases. One manager joked about forcing so many to quit that they would have to bring in "body bags" to cart them away, while others described agents with low productivity as below the "scum line," workers said in pretrial statements related to these lawsuits. The company says the number of suits isn't unusual for a firm its size. The allegations reflect the failure of some agents to prosper under the more entrepreneurial system Allstate set up in the mid-1980s, it adds. The agents are falsely blaming Scientology and company officials for their own shortcomings, Allstate says. "Bless their hearts, they wish it were still 1965," says Michael Simpson, Allstate's recently retired vice president of sales. The company would never condone harassment, Mr. Simpson says, though he adds the firm couldn't be aware of the actions of every single worker. "Allstate has always been extremely ethical and right-treating of its employees," he says. Yet given the philosophy espoused in the Hubbard training program, many agents became convinced, rightly or wrongly, that the hardball tactics they saw many managers adopting were inspired by the Scientologists' training methods. Many knew that the church has been accused repeatedly of spying on and harassing its opponents. Under its "Fair Game Law," written by Mr. Hubbard in 1967, an enemy of Scientology is "fair game" and can "be deprived of property or injured by any means by any Scientologist, without any discipline of the Scientologist. May be tricked, sued or lied to or destroyed." The church says Mr. Hubbard rescinded this law in 1968, although critics contend that only the term, not the concept, was discontinued.


By 1990, many agents were concerned enough to confront their supervisors about the use of the Hubbard materials. In some instances, employees protested the implementation of management-by- statistics programs in Allstate offices. In South Florida, a Catholic agent balked at participating in a program linked to another religion. His opposition caused such a furor that the Hubbard-inspired program was curtailed, agents say. In 1992, without acknowledging any past problems, the company scaled back its reliance on Mr. Hubbard's teachings. By 1993, Mr. Pearson had stopped giving any seminars at the company. But fear of Scientology persisted at Allstate, and the brief Scientology discussion at Sears's 1993 annual meeting did little to ease agents' concerns about the Scientology link. One reason was that agents were still finding elements of Mr. Pearson's training program in Allstate management seminars. That fall, for example, some agents participating in a new training program, the Agency Development Process, noticed two pages, titled "Statistics Graphs, How to Figure the Scale," that were identical to those found in the Scientology material. The references to L. Ron Hubbard had been deleted. Allstate's new companywide Better Prospecting Seminar also had some similarities to Mr. Hubbard's program, focusing on statistical analyses of performance and describing employees' various tasks using the Scientology term "hats." The new program offended some agents, who say they felt they were being taught to deceive and confuse their customers. In May 1994, New York agent Mr. Softye, who describes himself as a devout Catholic, refused to take a test that preceded participation in the Agency Development Process, which he believed was related to Scientology training. He initially received a "job-in-jeopardy" reprimand, though it was rescinded when he complained to corporate headquarters that the test conflicted with his religious values. The incident fueled agents' drive to uncover their company's apparent links to Scientology. The National Neighborhood Office Agents Club, NNOAC, a group of Allstate agents who are critical of management, began printing special reports outlining what it knew about the Scientology connection. In addition, the group sent Hubbard training materials that had been used at Allstate to each member of the board of directors. Someone also mailed an anonymous letter to the company's investment bankers at Lehman Brothers Inc. claiming a Scientology connection. These actions finally grabbed the attention of top management. Allstate senior vice president Robert Gary flew three NNOAC agents to Atlanta last August and met with them in a tiny Delta Air Lines conference room at the airport. Mr. Gary says he acknowledged the company's involvement with the Hubbard management training. He told the agents the seminars were "initially embarked on in innocence," but he agreed they were a mistake. The senior vice president promised the company would write to employees admitting the error and would order that all the Scientology material be deleted from Allstate's training books.


Later that month, Allstate President Jerry Choate wrote the three agents a letter disavowing the Hubbard management materials. "The inclusion of these materials was unfortunate because the ideas and views expressed in them were clearly inconsistent with Allstate's values," Mr. Choate wrote. "The people who were responsible for screening the consultant's training materials failed to recognize that they were inappropriate and remove them."

He promised a complete review of the process that led to the hiring of Mr. Pearson. He also said the Hubbard materials hadn't been distributed for several years and that, in March 1994, he had ordered instructors to stop using any of the old texts, even if they weren't objectionable. But last October, an incident in Florida showed that speculation among Allstate agents about the influence of Scientology on the company is far from dead. On Halloween, 16 agents from Orlando were called into a brief meeting, where territorial-sales manager Daryl Starke reprimanded agents for failing to sell enough life insurance. "This is serious business, folks; wake up!" one agent quoted Mr. Starke as saying. He told workers that unless they produced six life-insurance policies within 90 days, their jobs would be in jeopardy, three employees at the meeting say. Within a few weeks, many of these workers happened to hear about the Scientology issue for the first time. They suspected that Mr. Starke had taken the Hubbard course, as Allstate now says he had. One agent was so disturbed that he talked to his priest about the matter. In recent months, he and another agent filed religious-discrimination claims with the EEOC. Allstate denies the charges. The cases are pending.

More on Allstate Insurance and Scientology
More by Richard Behar
Major Articles and Collections on the Nature of Scientology:
TIME Magaine
Readers Digest (1) (2)
LA Times
LA Weekly
The Richard Leiby Collection
Pulitzer Prize Winning series on Scientology in St Petersburg Times