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BEHIND THE NEWS: Tumult, ouster cast uncertainty over premier employer

January 14, 2008

Why did Sallie Mae cast off June McCormack last month, sending one of Indiana's highest-profile female executives packing? After all, she's just the sort of seasoned manager the student loan company seems to need as it grapples with some of the biggest challenges in its 25-year history as a public company.

The company isn't commenting, and McCormack said a nondisclosure agreement she signed on her way out the door limits what she can say.

Yet what she does say is revealing.

"I think there was a new president, and he was deciding to form a team he felt comfortable with. It's not uncommon," McCormack said during a phone interview from her Indianapolis home.

At another point in the interview, she said, "I think it's fair to say it was a decision on the part of the president to structure things a little differently."

She added: "I had a terrific career at Sallie Mae. All of my units were performing extremely well when I left. I am proud of my performance, and the performance of my units."

McCormack, 59, goes way back in the student loan business. She spent 11 years with Virginiabased Sallie Mae before jumping to Indianapolis-based USA Group in 1997. Three years later, when Sallie Mae acquired USA Group for $770 million, she rejoined the executive ranks of the Virginia company.

But she remained in Indiana, where Sallie Mae employs more than 3,000, spread across offices in Fishers, Castleton and Muncie. McCormack served as the community liaison for Sallie Mae's operations here. More important, she held Sallie Mae's third-highest-paid post, executive vice president of servicing, technology and sales marketing.

In 2006, she collected salary, bonus and stock awards worth $1.1 million. And a Securities and Exchange Commission filing shows that, under her severance agreement, she'll receive $3.3 million in cash.

So we need not worry about her financial future. But fretting over the company's future in Indiana, where its pay and benefits make it a premier employer, is another matter.

Why the hand-wringing? For starters, Sallie Mae's prospects have dimmed dramatically-for a stew of reasons, including credit market turmoil, a change in its business environment and management miscues.

As the research firm Gimme Credit said in a report, "The company has lurched from one fiasco to another in recent weeks," rattling investor confidence.

Among the stumbles: CEO Albert Lord bungled a December conference call with analysts, then concluded the chat with the infamous line, "Let's get the f*** out of here."

This month, Sallie Mae raised $3 billion in two stock offerings-moves it took to strengthen its capital base and make good on a disastrous bet on its own stock price.

It's been quite a reversal of fortune since April, when Sallie Mae executives announced their company was being acquired by a group of private-equity firms for $25 billion, or $60 a share.

But the deal fell apart after Congress passed a law cutting subsidies to student lenders, casting uncertainty over what had been a highly profitable business.

For investors, it's been mostly downhill from there. The stock now trades for about $18 a share, down by two-thirds since July.

In December, the board handed the presidency to C.E. Andrews, a veteran Sallie Mae executive, who pushed aside McCormack and at least one other executive.

In an attempt to rebuild investor confidence, the board this month named a new chairman, Anthony Terracciano, a veteran financial executive known for helping troubled companies.

"Tony's track record serving as a leader of a number of organizations over the last 20 years-it's an outstanding record. We begin to bring some stability, from a market perspective," said Sallie Mae board member Earl Goode, who in his day job serves as Gov. Mitch Daniels' chief of staff

Despite the tumult, Goode said he's aware of no changes afoot that would cause Sallie Mae to scale back in Indiana, home to about one-quarter of its work force. He noted that the company continues to have an executive vice president based in Fishers, Robert Autor.

For her part, McCormack doesn't sound embittered.

"I am very anxious to do something new, and am looking forward to a new chapter. I hope it will be in Indiana," she said.

At the same time, she doesn't sound like someone who thinks she left a sinking ship.

"Certainly, Sallie Mae is the biggest player in its space," she said. "There is no reason it can't have a bright and sunny future."

Let's hope she's right.
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