Timidity in the presence of opportunity is the business equivalent of cowardice in the face of danger. Nothing good results. The timid see opportunity pass by and cowards lose a life worth living. Opportunity is often brightest in the darkness of uncertainty, volatility and change. Likewise, uncertainty, volatility and change also shine a light that exposes timidity. The bold embrace the opportunity created by the uncertainty of change, while the timid are intimidated by it and constantly lag behind.
Almost exactly a year ago – at the depths of the worldwide economic upheaval – I posted two blogs (Jan. 26, Feb. 4) suggesting that such times presented Allianz SE with a unique opportunity to achieve its long-held dream of becoming a significant player in the North American insurance market by acquiring a floundering Hartford Insurance Group. I had also written a previous blog lauding the foresight and courage of the Allianz SE leaders for not following the herd over the cliff and also for a conservative approach to financial management that positioned Allianz to sail through the financial upheaval, virtually unscathed.
Conservatism in financial services is a good thing, but sometimes it can be used as a disguise for timidity. Only strong, visionary leadership is able to tiptoe along the line and balance between the two. Unfortunately, in failing to seize the opportunity to acquire a wounded Hartford, the Allianz SE management crossed the line from conservatism to timidity. As a result, Allianz may have seen its dream of prominence in the American market fade or at the very least become prohibitively more time consuming and expensive. It is even possible that Allianz could eventually be forced out of the North American insurance market altogether.
At the time, due to inept management and a complete disregard for risk, there were serious questions regarding the very survival of the venerable Hartford. The future looked bleak, with losses running in the billions of dollars and a stock price that approached $3. (Against a stated book value of $30 per share.) Ironically, it was the financial strength of Allianz SE that enabled it to loan Hartford $2.5 billion and the largess of the government that chipped in another $3.5 billion that gave Hartford the breathing space to refocus. The stock price has rebounded to as high as $29.
Do you think it makes sense that when you covet a larger share of the market and see your dominant competitor fall on hard times and become vulnerable, that you step in and loan them money so they can continue to dominate you in the market? Allianz management obviously recognized the opportunity in the Hartford, but their timidity to act in the face of opportunity was exposed.
As a result, Hartford is back in the market, the cost of any potential acquisition has probably tripled, while Allianz remains a bit-player in the North American property insurance market; still saddled with its problems at Fireman’s Fund and Allianz Life of North America. It is amazing the price we often pay for timidity!
Clearly, as was written in the previous blogs, there were extraordinary benefits to be derived by Allianz in the acquisition of Hartford. The acquisition of a company with the size, stature and brand of Hartford would have enabled Allianz – in one fell swoop – to achieve its long held desire to become a significant brand and player in the North American market. Instead, Allianz remains only a bit-player in the market.
Allianz continues to have serious problems with two companies it owns in North America – Fireman’s Fund and Allianz Life of North America. Fireman’s Fund which has been plagued by a past top management that could only charitably be described as incompetent and self-serving. At the same time, its capital for potential growth has siphoned off to pay dividends to Allianz SE and now has little hope or resources to rise above being merely a niche player in the market.
Meantime, Allianz Life of North America has settled into a haze of bureaucratic management that allows it to only bumble along on a receding wave of past success and it has become vulnerable to existing or potential new competitors. If Allianz SE had seized the opportunity to acquire Hartford, these two companies could have been merged into Hartford and the problems submerged.
There were a number of other benefits – both for Allianz and Hartford – that an acquisition would have triggered, but it is suffice to say, they have been squandered as well.
The defenders of Allianz SE lack of action (timidity) will say that, at the time, Allianz lacked sufficient capital to acquire Hartford, but that is just an easy excuse. The reality is that Allianz could have found the required capital if it had so desired, but during those uncertain times it is apparent that Allianz decided to husband its capital for what might happen, instead of investing the capital to make something happen.
In truth, it was probably the psychological challenges rather than a resource limitation that exposed the timidity of Allianz management. At the time, Allianz was just emerging from the stigma of a terribly botched acquisition of Dresdner bank, which cost Allianz billions of dollars in losses. (The irony of course is that Allianz purchased Dresdner at the very height of the market and they would have purchased Hartford at the very bottom of the market.) Also, the depth of Hartford’s investment and liability problems had not been fully exposed. (The Hartford’s management didn’t even know what they were!) However, the market had driven the stock price of Hartford to about 10 percent of stated book value and that certainly would have given some protection to Allianz in an acquisition.
Allianz defenders would argue that Hartford management did not want to sell and that Allianz did not want to participate in a hostile or auction acquisition. Of course, Hartford management did not want to sell, but I am willing to bet the real owners of the company would have been willing.
Of course, all of these points and counterpoints are mute now. The indisputable fact is that the management of Allianz SE – signaled by their $2.5 billion investment – clearly recognized the opportunity that uncertainty, volatility and change in the financial market that had brought Hartford to its knees, but their exposed timidity prevented them from taking the bold steps needed to take full advantage of the moment. And for that timidity, Allianz will always pay a price far more expensive and lasting than the cost of acquiring Hartford.
And the Moral of the Story …
Confidence in one’s ability to make the right decision in difficult times is the precursor for any achievement. It is not the false confidence of conceit or vanity, but the confidence of knowing from personal experience, knowledge of the situation and the understanding of the potential opportunity that provides the strong leader with the confidence for boldness. Conversely, there are those who possess the experience, knowledge and understanding that should bring forth confidence, but who fail to act. For them, thy name is timidity and opportunity is forever lost.