Management Lessons in the Tiger Tragedy

And you thought television soap operas had unbelievable twists and turns. They can’t hold a candle to real life – especially when it comes to something like the tangram Tiger Woods is enmeshed in. Bill Clinton got off easy compared to Tiger. And the transgressions of Jessie Jackson, John Edwards and Mark Sanford were for the most part swept under the rug (bed). (Do we even know who Mark Sanford is?”)

It is not the purpose of this blog to discuss, criticize or defend Tiger Woods. Rather, the objective here is to determine if it is possible to learn a management lesson from this tragedy.

Aside from Tiger Woods and his family, it is becoming apparent that the heaviest potential damage from the scandal will fall on the PGA Tour. Tiger Woods had been marketed as, and had become, the face of the PGA Tour. In 2008, when Tiger missed most of the season due to a knee injury, the PGA Tour suffered a decline in interest, attention, sponsors and revenue. Indeed, without Tiger, television ratings sagged by 50 percent or more. Now, with Tiger’s absence due to scandal rather than injury and with no idea as to when and under what type of cloud he will be under when he returns, (if he ever does) the impact on the PGA Tour could be long lasting and almost catastrophic.

If any other golfer on the PGA Tour had been exposed as acting the way Tiger did, there would be publicity and scandal, but there would have been little, if any, impact on the Tour as a whole.

There is a lesson to learn from this situation.

And it is not, as Mark Twain famously opined, “Put all of you eggs in one basket—and then watch the basket.” Instead, it’s to point out that any industry or company exposes itself to severe risk if it allows itself to become dependent on a single product, market or production source for its success. When you have a show horse, the easy approach and tendency is to ride that horse for all it’s worth, but should it come up lame, you have a real problem.

Sometimes the circumstances make it difficult to avoid falling into a position of dependency on a single source of success, i.e. golf is an individual sport and the PGA can’t really control the actions of one player, but that is all the more reason for management to recognize the risk from events it can’t control and take actions to mitigate it.

When I took over as president of ITT Life in 1980, 60 percent of the production of the company came from one marketing company. Receiving this much production from one source made some things easier, but it also exposed the company to tremendous risk—should that source of business turn bad. If, for some reason, this source of production would be lost to the company, then the survival of the company itself would be in question.

The first action I took was to declare that no one marketing organization should account for more than 10 percent of the company’s business. This did not mean that I wanted to decrease the sales of this one group, but it did mean that I wanted a plan to develop other sources business that would effectively reduce the dependence on that single source. Just a few years later, that large source of business had continued to increase its business, but because we had concentrated on developing new sources of business, its percent of total business was close to 10 percent.

When LifeUSA was a growing company, stock analysts often discounted our growth because they pointed out that all our business came from independent marketing companies that could easily switch allegiances to other companies. Even though no one marketing company dominated production, this was still appropriate criticism because if the independent marketing companies did divert their business to other companies it would have a negative impact on LifeUSA. Our response was to take a minority ownership position in the largest marketing companies. This allowed the companies to remain independent, but it inhibited their ability to move business to other companies and protected LifeUSA.

During the past decade, the insurance industry has achieved high levels of success by selling an annuity product called an “Equity Indexed Annuity” (EIA). Among those companies selling fixed annuities, the EIA became the single, largest source of premium income. In fact, at one point, the EIA amounted to almost 80 percent of the sales made by the leading annuity company. Those in the insurance industry selling the product enjoyed the growth and profits, but never asked the most important question. Just like the management of the PGA Tour rode the success of Tiger Woods and never asked, “What would we do if we didn’t have Tiger Woods?” the executives of the insurance companies never asked, “What would we do if we didn’t have the EIA?”

No one ever thought that Tiger Woods would be exposed as a serial adulterer and no one in the insurance industry ever thought they would not have the EIA to depend on. But, they were both wrong!

Tiger was exposed and the SEC has declared that the EIA is not really an annuity, but a security. This means that the PGA will suffer significant collateral damage from the exposure of Woods, because they did not develop an alternative to Tiger Woods to promote. Likewise, insurance companies could be severely impacted because they became too dependent and did not have a plan to replace their EIA sales.

When the SEC made its ruling, the annuity industry was thrown into disarray. The insurance executives had grown fat and lazy relying on the EIA product for sales and profits and were left like beached whales mired on the shoals of indecision, and facing the possible loss of a product that offered oceans of profits.

And the Moral of the Story …

As a business leader or manager, never ever allow yourself and your company to be in a position of critical dependence on a single source of your success and survival. And if you find yourself in such a position (whether it is your fault or not) immediately develop a plan that will change the situation or at least have a plan of action to survive if the source is lost.

Just as the leader’s function is to think about the future in a positive way, so too is it the responsibility of the leader to think about and prepare for actions to be taken if something goes wrong – because it will. Just ask Tiger.

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2 responses to “Management Lessons in the Tiger Tragedy

  1. “This allowed the companies to remain independent, but it inhibited their ability to move business to other companies and protected LifeUSA.”

    ?????

    How does an MO remain independent and be inhibited at the same time? That’s statement doesn’t make sense. If a Marketing Organization is to truly remain independent, they need the ability to market what is the most marketable, what is best for client, agent and company, and what is the most profitable. Sometimes this means moving away from the insurance company that owns the Marketing Organization, especially if they are making the wrong choices when it comes to product and how they treat the field and the consumer. Just a thought from someone who’s been on both sides of the fence.

  2. Anonymous … Thanks for the comment. I agree totally with your point. However, when LifeUSA took a minority ownership position in a MO, there was no requirement for the organization to produce business for LifeUSA. (Although there was incentive.) Our objective was to obtain “shelf-space” so we could be assured that our products would be available to the agents. If our products were not competitive or in bests interests of the consumer, the MO and their agents were free (indeed encouraged) to sell what they thought best. (Afterall, LifeUSA received a percentage of the profits made on the sale of other company products.) We wanted only to controll access to the MO’s agents but always felt we had to earn the business. The bottom line was that the MO was totally free and independent in making the decision as to which products were sold.

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