Firm run by Massport CEO failed to thrive

But Coy didn't play role in all moves that hurt HR Logic

By Sean P. Murphy, Globe Staff, 7/30/2002

As the national economy heated up in 1997, a group of investors at Fidelity Capital decided to move into the employee services field, a niche industry that was then attracting the attention of Wall Street investors.

The idea was to have the new company, HR Logic Inc., contract with small and mid-sized businesses to handle their employee services. HR Logic Inc. promised to save the companies money by efficiently handling their payroll, health and worker's compensation insurance, and retirement plans.

HR Logic, with its headquarters in Waltham, quickly became the second-largest firm of its kind in the country and in 1999, hired as CEO Craig P. Coy, who later left the company and is now CEO at the Massachusetts Port Authority.

HR Logic never made a profit, and next week it will cease operation, costing 370 workers their jobs, including 87 locally.

While its demise is similar to that of hundreds of other start-ups in a declining economy, HR Logic is attracting attention because of Coy's tenure at the firm and because he hired as his top Massport deputy George K. Hertz, a former influential member of HR Logic's board who played a role in hiring Coy.

Investors and former managers at HR Logic, most of whom spoke on condition of anonymity, said that besides an ailing economy, HR Logic was hurt by the purchase of a larger and problem-ridden competitor in 1999 and the failure to efficiently upgrade and integrate its computer systems in 2001.

Coy was hired at Massport in April in large part to break the practice of political patronage and to bring private-sector management practices to the government agency. Until the hiring of Hertz last week, Coy's recent business experience has received litte attention.

Massport runs Logan International Airport, the Port of Boston, and the Tobin Bridge, and has significant development interests in property it owns in the Seaport District.

In interviews and in response to written questions, Coy and Hertz provided limited details concerning HR Logic and their past business relationship.

''Their relationship was purely professional and typical of the relationship between a board director and a chief executive,'' said Jose Juves, a Massport spokesman.

Six former managers or investors said in interviews that HR Logic's 1999 purchase of NovaCare Inc., a national competitor, was a severe blow to its fortunes. They said Hertz had championed that acquisition, but that Coy was left out of the decision making.

''It was a poor decision, made without sufficient knowledge of exactly what HR Logic was getting in the deal,'' said David Fried, a Philadelphia-based investor, whose own company, Human Resources Alternatives, had been acquired by HR Logic a year before HR Logic acquired NovaCare.

HR Logic paid about $75 million for NovaCare. At the time, NovaCare was servicing about 50,000 employees for about 4,000 different companies. HR Logic was about one-tenth the size.

NovaCare itself had previously acquired eight so-called professional employer organizations, according to interviews. Thus, HR Logic had to integrate the numerous payroll, insurance, and other systems used throughout its own companies and the ones acquired through NovaCare.

Several former managers said NovaCare's clientele was mainly blue collar, and traditionally more expensive to insure, while HR Logic's previous expertise was with white-collar companies in the Northeast.

HR Logic later dropped a significant number of clients it had acquired from NovaCare because they remained unprofitable, the former managers said.

They said Hertz was instrumental in NovaCare's acquisition; Fried called him ''the main decision maker.'' At the time, Hertz was a manager at Fidelity Capital, the venture capital arm of Fidelity Investment. Hertz represented Fidelity, the lead investor, on HR Logic's board.

Coy, who was hired several months before the acquisition, said he was kept out of negotiations over NovaCare because knowledge of a competitor's internal operations would have given him an unfair advantage if the merger talks fell through.

In early 2001, Coy was responsible for bringing a new computer software system to HR Logic. But the software crashed the system, according to several former managers, wiping out crucial data that had to be retyped and forcing company employees to temporarily write paper checks for the thousands of employees it serviced.

But Juves, in a statement, said that while the software ''had problems early on, the software's performance improved.''

Months after the computer crash, Coy left HR Logic. Coy is reluctant to talk specifically about his departure from HR Logic two years after he was hired.

Asked if he was forced out, Coy said, ''No, it was a mutual decision.''

Coy, a former Coast Guard commander and Harvard Business School MBA, added that he ''left because the company and I mutually agreed that I had done all that I could do and it was time to go.''

Coy, who earns $250,000 at Massport, said he left with less than a year's severance pay. His stock options have since become worthless, he said. Coy and Hertz acknowledge that Hertz, as a director, played a role in Coy's arrival and departure from the company, but declined to answer questions detailing what happened.

Coy said he became interested in working in the public sector, in part because of the Sept. 11 attacks.

His bid to head Massport was backed by Marshall Carter, the former State Street Bank and Trust CEO and chairman who headed a state panel that investigated Massport in the wake of the attacks because of concerns about airport security lapses and anger that the agency had become a political patronage mill.

The two hijacked planes used to destroy the World Trade Center departed from Logan.

Coy said he did not recruit Hertz to Massport. Hertz, he said, was recruited by a professional firm hired to find qualified people.

''He is as smart as hell and could have made a lot more money in the private sector,'' said Coy of Hertz, who will earn $190,000 as deputy executive director of Massport, $48,000 more than his predecessor in that job.

Hertz, who has a master's degree in public administration from the University of Massachusetts, worked in state government until 1982, rising to state budget director. He has declined to say why he left Fidelity Capital.

Boston Globe

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