Tag Archives: Allianz

Fireman’s Fund Insurance Ravaged by Allianz Bureaucracy

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.

Is Hartford in a Freefall to Nowhere?

Believe it or not, it is easier for a company to achieve remarkable levels of success than it is to stop the slide down once a company reaches the pinnacle of its success. There is no in-between. Once a company stops growing, it begins to decline. It may take months, years or even decades, but in the vast majority of cases, once the decline of a successful company begins it is virtually impossible to stop before the company loses its independence or actually fails and disappears. The lesson is simple: If a company is not making history, you are history. If you don’t grow, you go!

There are almost too many examples to prove the point, but Xerox, Kodak, Polaroid, Trans World Airlines, General Motors and Chrysler are but a few that can be mentioned. Even if the companies have survived, they are clearly in a form different from their heyday of success. Consistent patterns – some obvious and some subtle – plague all companies that begin the downward slide to failure. For a successful company to avoid the slippery slide to oblivion the leaders of the company must understand, resist and overcome these signs of slide.

These identifiable patterns include:

  • The company begins to lose its competitive edge. Market and technology changes become the enemy rather than the opportunity.
  • The culture of the organization evolves from entrepreneurial to bureaucratic.
  • Company management begins to exhibit an attitude of entitlement to future success for the company.
  • The company seeks to maintain rather than attain.
  • As the future becomes uncertain, management wraps itself in the certainty of the past.

Once these patterns have taken hold and a company begins to decline, it is virtually impossible for the management that allowed the decline to begin to reverse the slide into oblivion. It becomes, as they say, inexorable.

A company in decline can easily be identified by the actions of a flailing management in an attempt to save the company. Actions such as:

  • Reorganization after restructuring after reorganization. It is as if simply moving the pieces around will change the game.
  • Cost-cutting and downsizing ad nausea. Cost-cutting and downsizing were not what caused the company to grow in the past, but a desperate management acts as if such actions are the Yellow Brick Road to future growth.
  • Switching from taking known risks to making gambles on unknowns. Gamblers always lose in the end, but managed risks are opportunities for growth.
  • Seeking to change the rules of the game to make it easier for the company to compete, i.e. changes in accounting or regulatory rules.
  • Attempting to sell off parts of the company to save the whole. When a company is in growth mode it adds to the whole. When a company is in decline it subtracts from the whole.
  • An attempt to find a “strategic partner” to prop up the company as it teeters on the brink of failure.

There are three telltale signs of a company in decline:

  • Constant, pleating protestations from management that, “everything is okay and under control.”
  • When there is wave after wave of changes in the executive suite, especially the CFO and CEO.
  • When second level management and key employees begin to desert the company.

Any number of companies could be the poster child for the ersewhile successful company that barreled down the road to potential oblivion, but none more contemporary or pertinent than Hartford Financial Group. (Even though AIG and Lehman Brothers are obvious examples of successful companies that failed, their demise was more the result of greed and search for artificial growth.)

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What Do Allianz, Jimmy Swaggart, Eliot Spitzer and Larry Craig Share in Common?

Psychologists have long recognized that individuals with deep character flaws that they’d just as soon hide from others often adopt a defensive mechanism of publicly railing against the very flaw from which they suffer. Psychologists refer to this as the “PBK” syndrome. (Phony But Know it!) Here’s what I’m talking about.

Elliott Spitzer as a prosecutor in New York, took a highly public self-righteous stand against prostitution. He even spearheaded new legislation to fight the evil, only to be exposed later as a frequent user of the service.

Congressman Mark Foley (R-Fla.) aggressively proposed and supported legislation to identify and prosecute pedophiles, only to be forced to resign from Congress when it was revealed that he had sent sexually explicit Internet messages to at least one underage male Congressional page.

Former Senator Larry Craig (R-Idaho) was recognized as a staunch and proud homophobic who constantly fought gay rights. That is, until he was cited at the Minneapolis airport for soliciting sex from a male.

• Ted Haggard, nationally known and highly respected preacher, constantly sermonized against the sin and evils of homosexuality, only to be exposed as having, on several occasions, paid a male prostitute for his services.

And who can forget when televangelist Jimmy Swaggart, the self-appointed moral judge of America, tearfully tried to explain away his prolific use of prostitutes. (His defense was that he only looked but did not touch!)

I could go on and on, but the case for the PBK syndrome is made.

Now, psychologists have discovered that PBK syndrome can apply not only to individuals involved in hypocritical immoral personal activities, but also to companies involved in bad business practices.

One example of corporate PBK syndrome came to light this past week when it was widely announced that Allianz has joined with CNBC to launch competition to find new, “Green” entrepreneurs. This search for entrepreneurs will be spearheaded by a new TV series to be screened on CNBC later this year.

Tagged for its TV debut as “The Good Entrepreneur,” the show is backed by CNBC and financial services provider Allianz. The announced aim of the show is to find the entrepreneur with the best eco-business concept which is sustainable, responsible and innovative.

Wow! Allianz involved in identifying, rewarding and supporting entrepreneurs. What a concept! Allianz joining up with CNBC to identify entrepreneurs is a little like Eliot Spitzer joining with the Playboy Channel to do a reality TV show aimed at identifying the best new call-girl services in America.

If any company lacks even one scintilla of entrepreneurial philosophy or culture it would be Allianz. If there were a “Bureaucracy Hall of Fame,” Allianz would surely be the standard against which all other bureaucracies would be measured. Allianz is so bureaucratic that even bureaucrats within the organization complain about the bureaucracy.

This is pure PBK syndrome in the business world. Allianz knows that its organizational structure and culture is anything but entrepreneurial. Yet, rather than concentrate and correct their own bad business practices, they go public with a widely-publicized stance aimed at identifying and supporting entrepreneurs.

It’s easy to see what Allianz shares in common with these other PRK’ers. Can all of us say – HYPOCRISY?

And the moral of the story is …

Whether it be personal or business practices, it is always better to take care of business at home, before we lecture others to be what we are not.  Know thyself and conquer the world.