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Fireman’s Fund Insurance Ravaged by Allianz Bureaucracy

September 28th, 2014 · Allianz, Allianz/Hartford, Business Management

Once again bureaucracy is shown to be the most efficient way to snatch defeat from the jaws of victory.

A German newspaper recently reported that insurance giant Allianz, owner of California based Fireman’s Fund Insurance Company (FFIC), is planning to dismantle the company and sweep it into the dustbin of bureaucratic failures. Allianz has tacitly confirmed the report but only complaining that the planned action became public before intended by the company. As with any bureaucratic failure, the hope of those responsible is that no one will notice.

The newspaper (Sueddeutsche Zeitung) article revealed that Fireman’s Fund commercial business is to be folded into another German industrial insurance company owned by Allianz, while the “personal lines business” of FFIC will be allowed to “runoff” until it is gone or FF2offered to another company interested in scavenging the the tattered remnants of the deceased company.

This is a sad and totally unnecessary ending for Fireman’s Fund; a valued, 150-year-old company that had survived the 1906 San Francisco earthquake, but could not withstand the upheaval heaped on it by the bureaucratic management minions of Allianz who virtually squandered the $3.3 billion in cash Allianz paid to acquire Fireman’s Fund in 1991.

Good Idea Soiled by Bureaucracy

When Allianz purchased Fireman’s Fund the transaction seemed (and was) a sound strategic move that would provide Allianz – the largest casualty insurer in Europe – with an entrance into the American market that it had heretofore desired but lacked. For Fireman’s Fund the affiliation with Allianz promised to offer the resources, credibility, expertise and capital of one of the world’s largest insurance companies; providing it with the capability to become a substantial player in the American market. But the relationship was star-crossed from the beginning.

The timeline of activity and actions following the Allianz acquisition of FFIC offers the mother of all examples of how a bureaucracy-riddled company can ravage the value of any investment and kill the opportunity to leverage it to success. In the interests of transparency, I both worked for Allianz as the CEO of a company (LifeUSA) it acquired in 1999 and served on the board of directors of Fireman’s Fund; so I had a front row seat to observe (and experience) how a bureaucratic company functions. In fairness, the vast majority of those I dealt with at Allianz in Germany were extremely intelligent, highly ethical and well-intended; it’s just that they were raised to be bureaucrats and excelled at practicing that art. Even more revealing to me was that the most senior executives of Allianz – especially the CEO – recognized and were frustrated by the inadequacies of a bureaucratic culture, but felt powerless to change it.

The conundrum is that when bureaucracy ridden companies – such as Allianz – are able to scrunch up the courage to make a strategic decision such as an acquisition, they immediately retreat into a bunker mentality, trying to protect their investment, rather than leverage it. Bureaucrats are dedicated to analysis, but terrified by action.

Bureaucratic companies seem incapable of understanding that an investment to acquire a company is the start of the process, not the ending. The clear message given to those leading the acquired company is, “Okay, we took the risk of putting up the money to buy the company, now it is your job to grow the company, but we are not going to risk any more capital to help make that happen.”

This mentality triggers a chain of events that invariably emasculates the culture of the acquired company, leading to the diminution of the initial investment, if not the outright destruction of the company. This inevitable process starts when the bureaucrats of the parent company, begin to impose their stifling bureaucratic rules and controls on the acquired company; limiting the actions and strategies that made it an attractive acquisition. The suffocation of the entrepreneurial culture of the acquired company soon begins to trigger the departure of those individuals capable of creating the desired growth. This leads to a string of increasingly less capable executives charged with running the acquired company. These executives are hired, not for their creativity and independence, but rather for their acquiescence of and compliance with the bureaucratic culture.

It is noteworthy that in the past nine years alone, Fireman’s Fund has had seven different CEOs; all hired and fired by the Allianz bureaucracy. (Believe it or not, one of these CEOs, in the midst of downsizing the company and laying-off hundreds of employees, purchased a Rolls-Royce and parked it at the company for all employees to see.) In the end, the acquired company is populated by managers with the same attitude, aptitude and recalcitrance to action as the bureaucrats who hired them. And then the executives of the parent company wonder why the company fails!

Fireman’s Fund also serves as a classic casebook example of how a bureaucratic culture will send good money chasing after bad money. To comprehend this process it is critical to understand that a bureaucrat will do almost anything to avoid acknowledging and accepting responsibility for failure. As failure looms the bureaucrat will become more and more frantic and irrational in their actions to hide the failure.

Despite investing $3.2 billion to acquire Fireman’s Fund as an entrance into the American casualty insurance market, Allianz was unwilling to allocate the additional capital necessary to bring FFIC up to the competitive levels of the other players in the market. AllianzPressed for growth, but lacking the necessary capital and falling deeper and deeper into the catacombs of the Allianz bureaucracy, Fireman’s Fund was forced to take risks that became gambles, that turned into losses. As the losses at FFIC mounted the bureaucrats at Allianz had the choice of acknowledging the failure of its initial investment or to hide the fact by pouring in additional funds to keep the company afloat. Soon good money was chasing bad money in a bureaucratic effort to avoid the inevitable. But this money was only intended to cover past mistakes, not invest in the future. As such it only accelerated the downward spiral that ultimately destroyed both Allianz’s investment and Fireman’s Fund.

Over a decade ago Allianz executives internally acknowledged that the investment in Fireman’s Fund was a failure and sought to sell the company. Unfortunately, the bureaucrat culture at Allianz had already triggered a decline at FFIC that made the company unmarketable—at least at a price anywhere near what Allianz initially paid. Not wanting to publicly admit failure, the Allianz bureaucrats hung on, but in so doing they took actions that made the situation even worse. Allianz not only refused to invest the capital necessary to build up the capabilities and competitiveness of FFIC, they began to suck as much money as possible out of the company. (One year Allianz required FFIC to pay a dividend of $1 billion dollars to the parent company.) Having reached the conclusion that it would not be possible to sell Fireman’s Fund without exposing the failure of Allianz management and the loss of the company’s investment, it was decided to let the company “bleed-out” and die. What we are witnessing now are the attempts of Allianz bureaucrats to dispose of the decaying body.

And The Moral of the Story …

Don’t let your kids grow up to be bureaucrats! If success is what you seek, then you must do anything and everything to keep bureaucracy at bay in your company. Recognize bureaucracy as the Ebola virus of management that ultimately destroys all it infects.

The comments expressed here are not an attack on Allianz, but on bureaucracy. Allianz is one of the largest companies in the world, but it is also the epitome of a bureaucratic culture. Just imagine how much more successful Allianz could be and how effective Fireman’s Fund could have been as an entrance into the American market, had it not been for the ravages of bureaucracy. Instead, the investment has been wasted, Allianz is still not in the American casualty insurance market and Fireman’s Fund is dead. It is a lesson anyone in any company needs to learn and remember.

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The Prerequisite for Leadership is the Willingness to be Alone in the Future

September 21st, 2014 · Building Better Business Managers, Business Management, Effective Leadership

The essence of successful leadership is the ability to scout out the future and find the best path to reach it.

We can all recall the stories and vivid imagery of the early 19th century “wagon trains” that carried Americans looking for a brighter future into the great unknown of the American west. Those brave souls who gathered up their belongings and climbed aboard the Conestoga carriages had grand dreams for their futures, but there was also anxious uncertainty: no one in the wagon train had traveled in the uncharted territory of the unknown. They only knew they wanted to escape from hardscrabble lives in the East and “go West.” But they were as naive as newspaperman Horace Greeley as to what they would encounter or how to get there.

“Washington is not a place to live in. The rents are high, the food is bad, the dust is disgusting and the morals are deplorable. Go West, young man, go West and grow up with the country.”

                                                                       –Horace Greeley, New York Tribune

To have any chance of getting where they wanted to go, wagon trains needed a “scout” to show the way. The responsibility of the scout – often portrayed as a buckskin clad, rifle-toting loner – was to be out ahead of the wagon train to gather information about the unknown road ahead.

Each morning the scout would set out alone, ahead of the wagon train. He would survey what was over the 84-1horizon and out of sight of the wagon train to determine how to overcome risks and find the best path to move forward. Each evening he would return to the wagon train to explain what he had seen, what they could expect to encounter and the best way to prevail over any obstacles that could threaten the wagon train’s goal.

Step by step along the journey the scout moved out ahead of the wagon train, never venturing too far ahead to lose touch, but far enough so that each day the wagon train knew what perils to expect and how to deal with them. Wagon trains that attempted the journey into the unknown of the west without the guidance of an experienced scout were doomed to failure.

When you think about it, for the contemporary organization that seeks to move forward into the unknown of the future, the leader becomes the modern-day scout. They are out ahead of the group, surveying the landscape and determining the best strategy to move forward. The leader is constantly coming back to the group to communicate what lies ahead and how best to overcome any obstacle. Organizations that attempt to move forward into the unknown without a leader who can scout out the future are similarly doomed to failure.

The challenge most often faced by wagon trains and being faced by many organizations today is that the need for experienced scouts and effective leaders exceeds the supply. It took a unique person to safely shepherd a wagon train to the west and it takes the same type of person to lead on organization into the future.

Many long to be leaders, but far too many fail to understand what it takes to be a leader; even fewer are willing to pay the price of leadership.

The leader must be willing to be alone, out ahead of the others to scout out the future and determine the best way to get there. The extent of the aloneness will define the level of leadership provided.

It is difficult for many to comprehend that if they are not out front and alone, they are not leading.

Being a wagon train scout was a lonely job and so is leadership, but it is the only way a successful outcome to any venture can be achieved. Unfortunately the price of leadership – being out ahead and alone – is a price that many are unwilling to pay. And that is somewhat surprising.

After all, everyone is supposed to want to be a leader. In reality, though, most would rather be followers than leaders. (Perhaps that’s one reason why leadership opportunities are so frequently available.) Many are more comfortable riding in the wagon as part of an organization than being responsible for it. The truth is that more are content to follow a path than to create one.

Fundamental to leadership is a willingness to step out, step ahead and to stand alone until others can be Scoutbrought along. A scout to the future needs the confidence to be vulnerable, exposed to the risks, criticism and complaints of others and many are uncomfortable with that vulnerability. But, that is okay; there is nothing wrong with that. The real work to accomplish great things is done by those who follow rather than lead. Leaders and followers need each other in order for both to be successful. The scout to the future can be successful only when they give others a path to follow. Those driving the wagons will have no path to success if there is not a leader willing to accept the responsibility to show the way.

If the truth is told, many of those who profess to be leaders are uncomfortable in the lonely role of leadership and their actions confirm that. All too often, those in leadership positions are unable to understand or accept the responsibilities of being out ahead of others and fall into a defensive attitude of entitlement. Seeing the leadership position as an end, rather than a responsibility, they act as though power, respect and compliance are their due. In order for the followers to be willing to follow, the leader must be willing to scout out the future and postulate a clear, specific path, while convincing the followers that it leads to success for everyone.

This attitude of being unwilling to be out ahead of the group, to stand up and stand out is clearly evident in the dearth of real leadership in the political arena. We only have to look to the current quagmires in the Middle East and the Ukraine, to understand that few politicians are willing (or able) to be out ahead of the wagon train to offer and layout a clear course of action. As a result, actions are only reactions, not part of plan. We are told the objective is to rid the world of ISIS, but are not given the path to do so.

Rarely do we see an elected official who is willing to be out front alone, scouting the future. At least not until they have read, analyzed and digested the latest opinion poll. That is like a wagon train scout waiting until he gets the opinions of all those in the wagon train – who have not been down this path – before deciding which path to recommend. That is following, not leading. True leaders will drive opinion, not be driven by it.

And the Moral of the Story …

It is okay to be a follower—not a leader. Many achieve their greatest satisfaction and accomplishment by following the lead of others to accomplish great things. But if you do seek a leadership role – if you want to be a scout for the future – you must recognize and accept that with the role comes a responsibility to step up and step out.

Leading means risking the slings and arrows of criticism and complaint so the followers are free to achieve the vision the leader created. Unfortunately too many individuals seek leadership positions simply for the perceived comfort, power and perks of the office. In doing so, they become more follower than leader. It is great if you want to be the one to scout out the future and figure out the best way to get there, but you can’t do that riding in the security of the wagon with everyone else.

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Disappointment is the Residue of Misperceiving Management as Leadership

September 14th, 2014 · Building Better Business Managers, Business Management, Effective Leadership

There are many outstanding managers but very few true leaders

Barack Obama has been president for almost six years and sadly, the most consistent and persistent criticism has sought to portray him as a feeble leader who is neither decisive nor effective.

Much of this perception arises from the coordinated, concerted effort of obstreperous Republicans. Lacking the President_Barack_Obamapower, creativity or willingness to offer anything constructive, they have adopted a strategy of belligerent hostility in an effort to thwart any Obama plan of action. The result is to further erode the opinion of his leadership skills.

At first blush it may seem incongruous to suggest that someone with the ability to twice be elected president of the United States lacks strong leadership skills. Nevertheless, the claim of Obama’s deficient leadership qualities would have fallen flat if there was not some truth in the charge.

Barack Obama is an extremely intelligent individual with exceptional talents, but a natural born leader he is not. On the other hand, Obama is one of the most effective managers ever to occupy the Oval Office.

The Record Speaks for Itself

Any objective review of Obama accomplishments, especially in the face of the ferocious, lock-step resistance from Republicans and right-wing wackos, is clear evidence of his effectiveness as a manager. But that does not qualify him as a true leader. In reality, any success that Obama has achieved is evidence of his exceptional ability as a pragmatic and practical manager—not his visionary leadership skill.

True leaders are, by nature, so passionate about the vision they seek to achieve and lead others to accept that they are rarely practical and pragmatic. When was the last time you recall a leader being accused of being “deliberative, detail oriented and anal?”

Conversely, the essence of management skill is to be practical and pragmatic, almost to a fault. Rarely will a manager – no matter how successful – be described as a “visionary leader.” And it is this misperception of the important elements of management as leadership that ultimately creates disappointment and is at the base of Obama’s low approval ratings.

A Proper Definition of Terms

The problem is that few concepts are more bandied about, misunderstood or misconstrued than leadership. (“Love” might be the only one that comes to mind.) And because the mantle of leadership is so exalted as to be something everyone should strive to achieve, the meaning of leadership has become adulterated and diluted.

Many mistakenly believe that leadership is bestowed by title or position of power. How many times have you seen companies identify the senior management group as “the leadership team”? But just calling someone with management responsibilities “a leader” does not make it so and this misperception can lead to confusion and disappointment, for both the manager and the followers.

One reason the concepts of management and leadership become hopelessly tangled is because success in any endeavor is dependent on the commingling of both. The vision of a leader requires management to make it become a reality. Management without a vision is no more than wayward bureaucracy.

In simple terms, the leader has a vision of what should be done, while a manager has a plan to get it done. What makes a leader seem weak and a manager bureaucratic stems from the fact that very few visionaries are effective managers and even fewer managers are visionaries. That is the reason why, once a company has achieved a certain degree of success, the visionary founder is often replaced by those charged with managing the effort to retain the success. (Often with little success.)

Obama, in truth, is a much better manager than he is a leader. In most situations – especially in business – this would not be a significant problem. But Obama is President; Americans revere and expect leadership qualities in a president and discount their management ability—a skill even more important than vision.

Jimmy Carter was far more effective as a manager than Ronald Reagan ever was, but given the choice between the manager and the perceived visionary, the people rejected Carter and embraced Reagan. Today, Reagan is an icon and Carter is an afterthought. My guess is that if you asked the average person to list the five most effective U.S. presidents, the names of George Washington, Abe Lincoln, Teddy Roosevelt, Franklin Roosevelt and John Kennedy would be most often mentioned. What these men all had in common was the aura of leadership and visionary thinking, not their effectiveness as managers.

The closest parallel to what Obama faces as a more effective manager than leader would be to compare the dynamics TeddyRooseveltof the temperament and style of Teddy Roosevelt (left) against his handpicked successor, William Taft. Roosevelt was clearly the type of hyperactive visionary leader that attracts a strong following. He had a vision for a “progressive” America in which the role of government was to protect the weak against the strong, as opposed to a government that empowered the strong to abuse the weak that existed when he became president. Roosevelt passionately and aggressively set about to “bust the trusts” and change the rules of government in an effort to create a level playing field for all.

Clearly this is the definition of a leader: One who seeks to change the system, rather than manage it. Roosevelt’s vision generated heated hatred from the powerful and loving adulation from the powerless. The truth is that Roosevelt set the vision, but he was unable to manage it to fruition and failed in most of his efforts to change the system. Constrained by an admittedly impertinent promise not to run for re-election, Roosevelt turned to his good friend and protégé William Taft to succeed him as president. Taft believed in the vision Roosevelt had created, but he was a methodical, consensus-seeking, pragmatic manager, not a visionary leader. History reports that Taft was able to use his management skills to pass more legislation, change more laws and bring about more of Roosevelt’s vision than Roosevelt himself. And yet, it is the visage of Teddy Roosevelt on Mount Rushmore, not that of Howard Taft.

You see, Americans love their leaders, but give short shrift to managers. And viewed with even more disdain are managers dressed in a leader’s clothing. President Obama shares in the blame for the electorate’s disappointment in his leadership abilities, because in his effort to be elected president, he positioned himself as a “transforming visionary leader.” His election as the first African-American was certainly a transforming event for the country, but when the “vision” failed to materialize and when Obama naturally fell back on his inclination as a manager, disappointment and disillusion in his leadership ability took hold.

In fairness to Obama, from the day he was inaugurated, he was faced with the most serious economic challenge since the Great Depression. It was a challenge that called for sober management – not inflammatory rhetoric – in order to prevent a “total meltdown” of the economy. Obama’s strength – managing the problem – was successful in preventing a debilitating depression and setting the stage for a fairly rapid economic recovery. On the other hand, Franklin Roosevelt met the same type of economic challenge with visionary leadership but lacked the coolness of an effective manager and the Great Depression dragged on for a decade. And yet, it is Roosevelt – not Obama – who is revered as a great leader.

If you need even further proof of how leadership and management can be confused – and how hungry people are for real leadership – all one needs to do is return to the election of 2012. By any measurement the presidential election was Romney’s to lose – and he did. Break the 2012 presidential election down to one defining tipping point and it is this: Obama reiterated a promise of visionary leadership while Romney stressed his experience as a manager and promised more of it. Even though Obama had failed to deliver on the promise of visionary leadership, the people chose the hope for leadership over the promise of management.

It could be argued that what is needed in these complicated and confusing times is an effective manager, and, in truth, we probably did end up with the best manager, but for the wrong reasons. The only problem is that when management is misrepresented and misperceived as leadership, the residue is always disappointment—even if the manager is successful.

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