One of the greatest difficulties a CEO can face is inheriting a company with a morally flawed model, a model which requires chicanery and exploitation to derive a signficant proportion of its profits.
It is well nigh impossible when things seem to be successful for the CEO to change the business model to one which no longer has the dishonest profitable thread running through it. Colleagues will not be persuaded as it affects their bonuses nor will the majority of the shareholders .
It is only when outside forces, what the Japanese call gai-atsu( foreign pressure), become strong enough that change can take place. Such was the case of the insurance broking industry when Eliot Spitzer confronted them over undisclosed commissions, such is the case of the banks with the unravelling of their subprime mortgage investments as the credit crunch unpicks their trust.
Even more pertinently Lincoln's election as US President and his refusal to sanction slavery put the entire Southern States economy, responsible for 57% of exports from the USA, into a position where the business model could only be preserved through secession. The economy based on slavery has been incomparably the most expensive in human lives and wealth to eradicate.
Showing posts with label CEO. Show all posts
Showing posts with label CEO. Show all posts
Monday, 19 January 2009
Friday, 3 October 2008
Who decides on the risk?
A Chief Executive and his Chief Financial Officer, faced with a deteriorating situation in their markets, decide on a drastic course of action, supported by their banker.
Under their governance rules they submit their plan to the risk management committees. The first risk management commitee, having talked through the proposals with the stakeholders refuses to support the plan, which almost causes an apoplectic fit from the Chief Financial Officer who is not used to such detailed risk management consideration of his proposals.
The second risk management committee, composed somewhat differently, then refines the plan, adds some additional controls and benefits and confirms their agreement with it.
It then remains for the first risk management committee to decide whether their concerns and those of the stakeholders have been sufficiently addressed.
Is this a model for future corporate governance and for putting the risk manager right in the centre of the risk management process at the point of the decision?
Under their governance rules they submit their plan to the risk management committees. The first risk management commitee, having talked through the proposals with the stakeholders refuses to support the plan, which almost causes an apoplectic fit from the Chief Financial Officer who is not used to such detailed risk management consideration of his proposals.
The second risk management committee, composed somewhat differently, then refines the plan, adds some additional controls and benefits and confirms their agreement with it.
It then remains for the first risk management committee to decide whether their concerns and those of the stakeholders have been sufficiently addressed.
Is this a model for future corporate governance and for putting the risk manager right in the centre of the risk management process at the point of the decision?
Monday, 22 September 2008
Wholely right
The following extract from Berkshire Hathaway's 2002 Annual Letter to Shareholders deserves the widest possible circulation. Warren Buffett should be required reading for all in the risk business. I have not abbreviated the extract - you need to read the whole section.
Derivatives
Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system.
Having delivered that thought, which I’ll get back to, let me retreat to explaining derivatives, though the explanation must be general because the word covers an extraordinarily wide range of financial contracts.
Essentially, these instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices or currency values. If, for example, you are either long or short an S&P 500 futures contract, you are a party to a very simple derivatives transaction – with your gain or loss derived from movements in the index. Derivatives contracts are of varying duration (running sometimes to 20 or more years) and their value is often tied to several variables.
Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses – often huge in amount – in their current earnings statements without so much as a penny changing hands.
The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it
seems, madmen). At Enron, for example, newsprint and broadband derivatives, due to be settled many years in the future, were put on the books. Or say you want to write a contract speculating on the number of twins to be born in Nebraska in 2020. No problem – at a price, you will easily find an obliging counterparty.
When we purchased Gen Re, it came with General Re Securities, a derivatives dealer that Charlie and I didn’t want, judging it to be dangerous. We failed in our attempts to sell the operation, however, and are now terminating it.
But closing down a derivatives business is easier said than done. It will be a great many years before we are totally out of this operation (though we reduce our exposure daily). In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit. In either industry, once you write a contract – which may require a large payment decades later – you are usually stuck with it. True, there are methods by which the risk can be laid off with others. But most strategies of that kind leave you with residual liability.
Another commonality of reinsurance and derivatives is that both generate reported earnings that are often wildly overstated. That’s true because today’s earnings are in a significant way based on estimates whose inaccuracy may not be exposed for many years.
Errors will usually be honest, reflecting only the human tendency to take an optimistic view of one’s commitments. But the parties to derivatives also have enormous incentives to cheat in accounting for them.
Those who trade derivatives are usually paid (in whole or part) on “earnings” calculated by mark-to-market accounting. But often there is no real market (think about our contract involving twins) and “mark-to-model” is utilized. This substitution can bring on large-scale mischief. As a general rule, contracts involving multiple reference items and distant settlement dates increase the opportunities for counterparties to use fanciful assumptions. In the twins scenario, for example, the two parties to the contract might well use differing models allowing both to show substantial profits for many years. In extreme cases, mark-to-model degenerates into what I would call mark-to-myth.
Of course, both internal and outside auditors review the numbers, but that’s no easy job. For
example, General Re Securities at yearend (after ten months of winding down its operation) had 14,384 contracts outstanding, involving 672 counterparties around the world. Each contract had a plus or minus value derived from one or more reference items, including some of mind-boggling complexity. Valuing a portfolio like that, expert auditors could easily and honestly have widely varying opinions.
The valuation problem is far from academic: In recent years, some huge-scale frauds and near-frauds have been facilitated by derivatives trades. In the energy and electric utility sectors, for example, companies used derivatives and trading activities to report great “earnings” – until the roof fell in when they actually tried to convert the derivatives-related receivables on their balance sheets into cash. “Mark-to-market” then turned out to be truly “mark-to-myth.”
I can assure you that the marking errors in the derivatives business have not been symmetrical.
Almost invariably, they have favored either the trader who was eyeing a multi-million dollar bonus or the CEO who wanted to report impressive “earnings” (or both). The bonuses were paid, and the CEO profited from his options. Only much later did shareholders learn that the reported earnings were a sham.
Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons. This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counterparties. Imagine, then, that a company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company. The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown.
Derivatives also create a daisy-chain risk that is akin to the risk run by insurers or reinsurers that lay off much of their business with others. In both cases, huge receivables from many counterparties tend to build up over time. (At Gen Re Securities, we still have $6.5 billion of receivables, though we’ve been in a liquidation mode for nearly a year.) A participant may see himself as prudent, believing his large credit exposures to be diversified and therefore not dangerous. Under certain circumstances, though, an exogenous event that causes the receivable from Company A to go bad will also affect those from Companies B through Z. History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times.
In banking, the recognition of a “linkage” problem was one of the reasons for the formation of the
Federal Reserve System. Before the Fed was established, the failure of weak banks would sometimes put sudden and unanticipated liquidity demands on previously-strong banks, causing them to fail in turn. The Fed now insulates the strong from the troubles of the weak. But there is no central bank assigned to the job of preventing the dominoes toppling in insurance or derivatives. In these industries, firms that are
fundamentally solid can become troubled simply because of the travails of other firms further down the chain. When a “chain reaction” threat exists within an industry, it pays to minimize links of any kind. That’s how we conduct our reinsurance business, and it’s one reason we are exiting derivatives.
Many people argue that derivatives reduce systemic problems, in that participants who can’t bear certain risks are able to transfer them to stronger hands. These people believe that derivatives act to stabilize the economy, facilitate trade, and eliminate bumps for individual participants. And, on a micro level, what they say is often true. Indeed, at Berkshire, I sometimes engage in large-scale derivatives transactions in order to facilitate certain investment strategies.
Charlie and I believe, however, that the macro picture is dangerous and getting more so. Large
amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one other. The troubles of one could quickly infect the others.
On top of that, these dealers are owed huge amounts by non-dealer counterparties. Some of these counterparties, as I’ve mentioned, are linked in ways that could cause them to contemporaneously run into a problem because of a single event (such as the implosion of the telecom industry or the precipitous decline in the value of merchant power projects). Linkage, when it suddenly surfaces, can trigger serious systemic problems.
Indeed, in 1998, the leveraged and derivatives-heavy activities of a single hedge fund, Long-Term Capital Management, caused the Federal Reserve anxieties so severe that it hastily orchestrated a rescue effort. In later Congressional testimony, Fed officials acknowledged that, had they not intervened, the outstanding trades of LTCM – a firm unknown to the general public and employing only a few hundred people – could well have posed a serious threat to the stability of American markets. In other words, the Fed acted because its leaders were fearful of what might have happened to other financial institutions had the LTCM domino toppled. And this affair, though it paralyzed many parts of the fixed-income market forweeks, was far from a worst-case scenario.
One of the derivatives instruments that LTCM used was total-return swaps, contracts that facilitate 100% leverage in various markets, including stocks. For example, Party A to a contract, usually a bank, puts up all of the money for the purchase of a stock while Party B, without putting up any capital, agrees that at a future date it will receive any gain or pay any loss that the bank realizes.
Total-return swaps of this type make a joke of margin requirements. Beyond that, other types of
derivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investors and analysts encounter major problems in analyzing the financial condition of firms that are heavily involved with derivatives contracts. When Charlie and I finish reading the long footnotes detailing the derivatives activitiesof major banks, the only thing we understand is that we don’t understand how much risk the institution isrunning.
The derivatives genie is now well out of the bottle, and these instruments will almost certainly
multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerousthey are has already permeated the electricity and gas businesses, in which the eruption of major troublescaused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives businesscontinues to expand unchecked. Central banks and governments have so far found no effective way tocontrol, or even monitor, the risks posed by these contracts.
Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our
owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, andthat posture may make us unduly apprehensive about the burgeoning quantities of long-term derivativescontracts and the massive amount of uncollateralized receivables that are growing alongside. In our view,however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.
Derivatives
Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system.
Having delivered that thought, which I’ll get back to, let me retreat to explaining derivatives, though the explanation must be general because the word covers an extraordinarily wide range of financial contracts.
Essentially, these instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices or currency values. If, for example, you are either long or short an S&P 500 futures contract, you are a party to a very simple derivatives transaction – with your gain or loss derived from movements in the index. Derivatives contracts are of varying duration (running sometimes to 20 or more years) and their value is often tied to several variables.
Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses – often huge in amount – in their current earnings statements without so much as a penny changing hands.
The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it
seems, madmen). At Enron, for example, newsprint and broadband derivatives, due to be settled many years in the future, were put on the books. Or say you want to write a contract speculating on the number of twins to be born in Nebraska in 2020. No problem – at a price, you will easily find an obliging counterparty.
When we purchased Gen Re, it came with General Re Securities, a derivatives dealer that Charlie and I didn’t want, judging it to be dangerous. We failed in our attempts to sell the operation, however, and are now terminating it.
But closing down a derivatives business is easier said than done. It will be a great many years before we are totally out of this operation (though we reduce our exposure daily). In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit. In either industry, once you write a contract – which may require a large payment decades later – you are usually stuck with it. True, there are methods by which the risk can be laid off with others. But most strategies of that kind leave you with residual liability.
Another commonality of reinsurance and derivatives is that both generate reported earnings that are often wildly overstated. That’s true because today’s earnings are in a significant way based on estimates whose inaccuracy may not be exposed for many years.
Errors will usually be honest, reflecting only the human tendency to take an optimistic view of one’s commitments. But the parties to derivatives also have enormous incentives to cheat in accounting for them.
Those who trade derivatives are usually paid (in whole or part) on “earnings” calculated by mark-to-market accounting. But often there is no real market (think about our contract involving twins) and “mark-to-model” is utilized. This substitution can bring on large-scale mischief. As a general rule, contracts involving multiple reference items and distant settlement dates increase the opportunities for counterparties to use fanciful assumptions. In the twins scenario, for example, the two parties to the contract might well use differing models allowing both to show substantial profits for many years. In extreme cases, mark-to-model degenerates into what I would call mark-to-myth.
Of course, both internal and outside auditors review the numbers, but that’s no easy job. For
example, General Re Securities at yearend (after ten months of winding down its operation) had 14,384 contracts outstanding, involving 672 counterparties around the world. Each contract had a plus or minus value derived from one or more reference items, including some of mind-boggling complexity. Valuing a portfolio like that, expert auditors could easily and honestly have widely varying opinions.
The valuation problem is far from academic: In recent years, some huge-scale frauds and near-frauds have been facilitated by derivatives trades. In the energy and electric utility sectors, for example, companies used derivatives and trading activities to report great “earnings” – until the roof fell in when they actually tried to convert the derivatives-related receivables on their balance sheets into cash. “Mark-to-market” then turned out to be truly “mark-to-myth.”
I can assure you that the marking errors in the derivatives business have not been symmetrical.
Almost invariably, they have favored either the trader who was eyeing a multi-million dollar bonus or the CEO who wanted to report impressive “earnings” (or both). The bonuses were paid, and the CEO profited from his options. Only much later did shareholders learn that the reported earnings were a sham.
Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons. This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counterparties. Imagine, then, that a company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company. The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown.
Derivatives also create a daisy-chain risk that is akin to the risk run by insurers or reinsurers that lay off much of their business with others. In both cases, huge receivables from many counterparties tend to build up over time. (At Gen Re Securities, we still have $6.5 billion of receivables, though we’ve been in a liquidation mode for nearly a year.) A participant may see himself as prudent, believing his large credit exposures to be diversified and therefore not dangerous. Under certain circumstances, though, an exogenous event that causes the receivable from Company A to go bad will also affect those from Companies B through Z. History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times.
In banking, the recognition of a “linkage” problem was one of the reasons for the formation of the
Federal Reserve System. Before the Fed was established, the failure of weak banks would sometimes put sudden and unanticipated liquidity demands on previously-strong banks, causing them to fail in turn. The Fed now insulates the strong from the troubles of the weak. But there is no central bank assigned to the job of preventing the dominoes toppling in insurance or derivatives. In these industries, firms that are
fundamentally solid can become troubled simply because of the travails of other firms further down the chain. When a “chain reaction” threat exists within an industry, it pays to minimize links of any kind. That’s how we conduct our reinsurance business, and it’s one reason we are exiting derivatives.
Many people argue that derivatives reduce systemic problems, in that participants who can’t bear certain risks are able to transfer them to stronger hands. These people believe that derivatives act to stabilize the economy, facilitate trade, and eliminate bumps for individual participants. And, on a micro level, what they say is often true. Indeed, at Berkshire, I sometimes engage in large-scale derivatives transactions in order to facilitate certain investment strategies.
Charlie and I believe, however, that the macro picture is dangerous and getting more so. Large
amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one other. The troubles of one could quickly infect the others.
On top of that, these dealers are owed huge amounts by non-dealer counterparties. Some of these counterparties, as I’ve mentioned, are linked in ways that could cause them to contemporaneously run into a problem because of a single event (such as the implosion of the telecom industry or the precipitous decline in the value of merchant power projects). Linkage, when it suddenly surfaces, can trigger serious systemic problems.
Indeed, in 1998, the leveraged and derivatives-heavy activities of a single hedge fund, Long-Term Capital Management, caused the Federal Reserve anxieties so severe that it hastily orchestrated a rescue effort. In later Congressional testimony, Fed officials acknowledged that, had they not intervened, the outstanding trades of LTCM – a firm unknown to the general public and employing only a few hundred people – could well have posed a serious threat to the stability of American markets. In other words, the Fed acted because its leaders were fearful of what might have happened to other financial institutions had the LTCM domino toppled. And this affair, though it paralyzed many parts of the fixed-income market forweeks, was far from a worst-case scenario.
One of the derivatives instruments that LTCM used was total-return swaps, contracts that facilitate 100% leverage in various markets, including stocks. For example, Party A to a contract, usually a bank, puts up all of the money for the purchase of a stock while Party B, without putting up any capital, agrees that at a future date it will receive any gain or pay any loss that the bank realizes.
Total-return swaps of this type make a joke of margin requirements. Beyond that, other types of
derivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investors and analysts encounter major problems in analyzing the financial condition of firms that are heavily involved with derivatives contracts. When Charlie and I finish reading the long footnotes detailing the derivatives activitiesof major banks, the only thing we understand is that we don’t understand how much risk the institution isrunning.
The derivatives genie is now well out of the bottle, and these instruments will almost certainly
multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerousthey are has already permeated the electricity and gas businesses, in which the eruption of major troublescaused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives businesscontinues to expand unchecked. Central banks and governments have so far found no effective way tocontrol, or even monitor, the risks posed by these contracts.
Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our
owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, andthat posture may make us unduly apprehensive about the burgeoning quantities of long-term derivativescontracts and the massive amount of uncollateralized receivables that are growing alongside. In our view,however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.
Wednesday, 27 August 2008
Impact on the public domain
Great risk management quote from Sir Edwin Nixon's obituary in the Telegraph today;
"Write nothing internally without considering its impact on the public domain."
Nixon became managing director of IBM UK in 1965 and retired as Chairman of its holding company in 1990, a remarkably long tenure, by today's standards. He also was Chairman of Amersham International from 1988-1996 overseeing notable growth.
In 1968 when I worked at Dexion, known for its slotted angle storage systems , Eddie Nixon was still proudly remembered after his four year stint as a Dexion management accountant, his first business post, as " the one who got away". He certainly managed his career risks extremely well and the obituary records that "although both approachable and good humoured, he was at the same time a perfectionist who liked things done well, and with style."
How does your CEO match up?
"Write nothing internally without considering its impact on the public domain."
Nixon became managing director of IBM UK in 1965 and retired as Chairman of its holding company in 1990, a remarkably long tenure, by today's standards. He also was Chairman of Amersham International from 1988-1996 overseeing notable growth.
In 1968 when I worked at Dexion, known for its slotted angle storage systems , Eddie Nixon was still proudly remembered after his four year stint as a Dexion management accountant, his first business post, as " the one who got away". He certainly managed his career risks extremely well and the obituary records that "although both approachable and good humoured, he was at the same time a perfectionist who liked things done well, and with style."
How does your CEO match up?
Monday, 18 August 2008
Holidays, fun and risk
Holidays away from home are fraught with risks. You are in an unfamiliar place, exposed to unfamiliar weather, eating unfamiliar food and without the restraints that normally you recognise. On top of all of this you have the absurd expectation that, because you are on holiday, nothing can go wrong. Truth is you don't want to think about details when you are on holiday.
I have seen a middle aged European holidaymaker agree to be strapped into a parachute harness and towed into the sky by a motor launch off a Phuket beach whilst a Thai lad, sitting on his shoulders, manipulated the parachute cords to steer him around the bay. To make matters worse the boat did not have a clear run to get up speed, but had to weave its way through the swimmers near the beach.
The issue was not did he have insurance - it would probably not have paid out if there had been an accident - but why did he not recognise the danger and the slapdash nature of the people who he was about to risk his life with. Maybe he was too laden with alcohol to take a sensible view, even more likely he thought it a good idea at the time and, his protective mantra was " nothing can go wrong, 'cos I'm on holiday." Nine times out of ten there was no problem, but those are only slightly better odds than Russian roulette.
The same lack of thought can happen on company away days, where risks are taken, often by the chief executive, with the whole management team, in the interests of bonding. There is usually no attempt to understand the risks and to get the team to find ways of mitigating them, there is just the focus on the goal of having a good time and there is sometimes an element of bullying . Directors who allow such thoughtless risk taking may find themselves faced with a corporate manslaughter charge if things go wrong. On holiday you're on your own.
I have seen a middle aged European holidaymaker agree to be strapped into a parachute harness and towed into the sky by a motor launch off a Phuket beach whilst a Thai lad, sitting on his shoulders, manipulated the parachute cords to steer him around the bay. To make matters worse the boat did not have a clear run to get up speed, but had to weave its way through the swimmers near the beach.
The issue was not did he have insurance - it would probably not have paid out if there had been an accident - but why did he not recognise the danger and the slapdash nature of the people who he was about to risk his life with. Maybe he was too laden with alcohol to take a sensible view, even more likely he thought it a good idea at the time and, his protective mantra was " nothing can go wrong, 'cos I'm on holiday." Nine times out of ten there was no problem, but those are only slightly better odds than Russian roulette.
The same lack of thought can happen on company away days, where risks are taken, often by the chief executive, with the whole management team, in the interests of bonding. There is usually no attempt to understand the risks and to get the team to find ways of mitigating them, there is just the focus on the goal of having a good time and there is sometimes an element of bullying . Directors who allow such thoughtless risk taking may find themselves faced with a corporate manslaughter charge if things go wrong. On holiday you're on your own.
Friday, 25 July 2008
It's none of his business
Steve Jobs has been criticised for not being frank with his shareholders about his health. He has had one bout of cancer some years ago and the speculation is that he may be suffering a recurrence.
Any shareholder who buys Apple stock on the strength of Jobs being at the helm, must recognise that they are taking on an unusual set of risks. On the upside there is Jobs' extraordinary ability to develop new products which the world then realises that it wants extravagantly. On the downside there is the possibility, just like anyone, that he might not last out the year and the fear that he is irreplaceable.
There is no key man insurance big enough for Steve Jobs and the shareholders must accept that and not bleat about wanting to know the intimate details if he does not want to give them. You buy Apple stock for the ride and if it gets too scarey, jump off.
Any shareholder who buys Apple stock on the strength of Jobs being at the helm, must recognise that they are taking on an unusual set of risks. On the upside there is Jobs' extraordinary ability to develop new products which the world then realises that it wants extravagantly. On the downside there is the possibility, just like anyone, that he might not last out the year and the fear that he is irreplaceable.
There is no key man insurance big enough for Steve Jobs and the shareholders must accept that and not bleat about wanting to know the intimate details if he does not want to give them. You buy Apple stock for the ride and if it gets too scarey, jump off.
Thursday, 19 June 2008
Martin Sullivan's journey
Not many of the CEOs who have lost or will lose their job this year will leave behind so many of their colleagues feeling bereft as does Martin Sullivan of AIG. After 35 years with the company he has made his mark as a very capable and humane leader. It was always a risk to take the reins of an organisation which had been so closely identified with its two previous leaders, but I cannot imagine that he regrets having had his hand on the tiller. For someone to work from the age of 17 for 35 years with the same company is not as common as it used to be. For that person to make it to the top of the world's largest insurer is a very great journey indeed.
For us in the UK there was especial pride in Martin's leading one of the Global 100 companies. When I introduced him at an AIRMIC breakfast forum in London two years ago I pointed out that only Lindsay Owen-Jones at L'Oreal, Howard Stringer at Sony and Martin had done that with a non UK company.
We wish him well for whatever he wants the future to hold.
For us in the UK there was especial pride in Martin's leading one of the Global 100 companies. When I introduced him at an AIRMIC breakfast forum in London two years ago I pointed out that only Lindsay Owen-Jones at L'Oreal, Howard Stringer at Sony and Martin had done that with a non UK company.
We wish him well for whatever he wants the future to hold.
Tuesday, 27 May 2008
Think risk, smarter acquisitions
For any company contemplating an acquisition the following reality check from Justice Neville Owen is very pertinent.
"A Board which does not understand the strategy may not appreciate the risks, and if it does not appreciate the risks it will probably not ask the right questions to ensure the strategy is properly executed."
For two Boards contemplating a merger it is probably a deal breaker.
"A Board which does not understand the strategy may not appreciate the risks, and if it does not appreciate the risks it will probably not ask the right questions to ensure the strategy is properly executed."
For two Boards contemplating a merger it is probably a deal breaker.
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