Tag Archives: Allianz SE

Allianz SE “Timidity” Triggers Blunder in Failure to Acquire Hartford

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.

New Nomination for Numskulls and Nitwits

The world is full of numskulls and nitwits and if we are going to do “God’s work” (the words of Goldman Sachs, not mine) to make this world a better place, we should all join together to expose them.

My latest nomination for numskulls and nitwits of the month are the management leaders of Allianz Life.

Dating back to the days of LifeUSA, sponsorship of professional golfers and golf tournaments has been used for branding the corporate name, recognizing and rewarding the efforts of agents and employees and gaining exposure to customer demographics most likely to purchase annuity products.

Over the years, both LifeUSA and Allianz Life (Allianz was also involved in golf sponsorship prior to merger with LifeUSA) have sponsored a great group of professional golfers. These individuals – men and women – have not only been exceptional golfers but, even more important, great people who worked diligently to put LifeUSA and Allianz in the most favorable light possible for employees, agents, potential customers and policyholders. Besides the personal involvement of the golfers themselves, both LifeUSA and Allianz Life have received millions of dollars in free, highly-favorable branding exposure from worldwide media.

The value of the golf sponsorship as a branding and marketing tool might best be signified by the fact that Allianz Life’s parent, Allianz SE in Germany, has become a significant sponsor of golf in Europe. Never having been involved in golf sponsorship prior to acquiring LifeUSA, Allianz SE is now heavily involved in using golf to create positive brand awareness. Allianz SE has become a highly visible sponsor of the St Andrews Links courses. It sponsors one of the most prestigious amateur tournaments in Europe and has hired profession golfer Paul McGinley as “Allianz Golf Ambassador.”

Now comes word that the nitwits and numskulls of Allianz Life have decided to terminate their relationship with Brett Quigley. Quigley has represented Allianz for over a decade. He is a favorite of the media, often being followed by television during play and in interviews. His play and popularity have garnered Allianz millions in favorable brand exposure. Brett has a reputation for being very fan-friendly (especially when compared to his uncle Dana) and is highly respected on the PGA tour.

Now, I don’t question the right of Allianz management to decide not to sponsor Quigley. (It is hardly the only bad decision they have made!) But, what I do take issue with is the manner and reasoning of their decision.

I do not have direct, first-hand knowledge, but (as they say) I have been informed by “usually reliable sources” that Quigley was notified (I assume by someone other than senior management) that his relationship with Allianz Life would not be renewed. The reasons given for this decision were a) he is not from Minnesota (he was born in Rhode Island but now resides in Florida) and b) he was the only Allianz-sponsored golfer to earn a bonus for his performance in 2009.

If this is the case, then the person who made this decision is either a numskull or a nitwit or is not being honest regarding the reason for the decision. (I wonder if there is another unsaid motivation for this action.)

Using the fact that Quigley is not from Minnesota as a good reason to terminate his relationship with Allianz is simply ludicrous. It is so stupid that it stands by itself and hardly deserves comment. If you follow that logic then you would suggest that Allianz Life only do business in Minnesota.

If true, to tell Quigley that his contract will not be renewed because he was the only golfer to earn a performance bonus is as numskullish as that adjective. After all, it was Allianz Life management that required all sponsored golfers to accept lower guaranteed sponsorship fees in exchange for being paid based on performance. I admit that such an approach is good logic. The better a golfer performs and the more exposure he garners for Allianz, the more he should be paid. But, to then turn around and terminate the golfer who performed the best and gained the most exposure for Allianz is pure insanity. It’s like telling an agent that he will be paid a bonus if he sells more than any other agent, and then a year later terminating the agent because he sold more than others and earned to large a bonus.

Of course, we should not be surprised, this numskull and nitwit type of decision made by Allianz Life management is totally consistent with a bureaucratic style of management and with decisions they have made in the past – particularly as it relates to people and how they are communicated with and treated.

And the Moral of the Story …

Based on the way the management of Allianz Life makes decisions and treats people, maybe a group should get together to buy a life insurance company and compete with Allianz Life. They could contract with Brett Quigley to help brand the company. Of course, that is so long as he was willing to move to Minnesota and agree not to play that well.

We Exterminate Rats and Cockroaches – Why Not Management Consultants?

Except for maybe bankers, can you think of any group more useless than management consultants? These people are a confirmation of the old theory that if you don’t have the ability to actually do the job then you can teach others to do the job.

I don’t mean to have a closed mind, but hiring a management consultant to tell you how to manage your company is like buying a horsewhip to get more horsepower out of your car. But, you have to give grudging credit to these clowns, because they have figured out a way to get the management of numerous companies to pay billions of dollars for their “advice.” Give them credit, management consultants have found a willing host in tissues of corporate management and have taken advantage of it.

The reality is that too many companies are being managed by too many hardcore bureaucrats who have no idea how to effectively lead. It has become an accepted copout for these weak managers to hire someone who has never run a company to teach them how to run a company. Talk about the blind leading the blind!

Management consultants have been able to disguise the fact that they bring no real value to an organization. This has been accomplished by the creation of a whole new language of buzzwords and then to charge ridiculously excessive fees in order to translate the meaning of this language. We have all heard the words and phrases like “best practices,” “synergy,” “concentric,” “methodologies” and of course the all-time favorite “granular.”

I recently read (well, I didn’t read it, but did see it) a report from one of the leading consulting firms that was titled, “A Multi-granular Linguistic Model for Management Multi-criteria Decision-making.” (I did not make that up!) Need I say more? What incompetent, insecure bureaucratic manager would not be willing to pay millions (of company money) to learn the secrets in a report with such a title?

Big fees are another way management consultants hide their uselessness. Once when I was running Allianz Life we had a decision to make regarding a specific market segment. It was no big deal, but the Lords of Allianz in Germany told me that we should retain McKinsey & Company to provide consulting assistance in making the decision. (At the time, Allianz SE was the single largest customer of McKinsey; paying them scores of millions each year to help them run the company.) We had no interest in bringing McKinsey in, but in order to placate our bureaucratic masters at Allianz SE we agreed to have McKinsey bid on the project. When the bid came in, before sharing it, I asked the executive group what they felt such a service should be worth. The consensus was, being generous, maybe $50,000. The McKinsey bid was $460,000. Only in America could a company have such arrogance. The irony was that Allianz thought it was a good deal and were disappointed when we laughed McKinsey out of the office.

Management consultants have four standard plays – synergy, best practices, downsizing and outsourcing – in their playbooks. They use these strategies and the supposed efficiency and cost cutting they will generate in order to justify their obscene fees.

I was witness to this playbook in action. One of the truly incompetent bureaucratic executives at Allianz of North America paid management consultants literally millions of company dollars in an effort to synergize, downsize and outsource the company to success. In the process, not only were millions of dollars wasted on management consultants, but employee morale was destroyed, efficient operations reduced, marketing became a confused process and expenses actually increased. Later, Allianz had to spend even more money to unwind these misguided efforts. The only winners were the consulting companies. Fortunately, the executive responsible for this waste lost his job and was allowed to “retire.”

I don’t mean to pick on or single out Allianz; they are just one of hundreds of companies that fall prey to the illusionary promises of management consultants. Like other companies infested with a bureaucratic culture of management they are highly susceptible to the illusion of management made simple by tactics.

Now don’t get me wrong, I am not against a manager or executive seeking advice and input from others to be successful. It is a sign of a strong leader to be open to input. But it is a copout to pay millions of dollars to outside gun-slingers – who can’t shoot straight themselves – to take the burden of managing off your shoulders. I favor a different approach. Anyone can benefit from having a mentor, but few can benefit from a consultant. There is a difference. The mentor cares about you and the consultant cares about the fee.

A good example of this approach would be to build a board of directors whose members have varied, actual, successful, hands-on experiences managing and leading a company. As directors these individuals care about you and the success of the company. If used properly, they can be an effective sounding-board for you and other executives in the company. (Not to mention at a whole lot less cost than a management consultant!) And, one does not have to be a CEO to benefit from a mentoring system. In fact, the concept of mentoring can be built into the very culture of the company.

The bottom line is that management consulting can be very effective in the leadership of a company, but it should be an internal not external process.

And the Moral of the Story …

If the management of a company believes it needs to bring in management consultants to teach and help them manage the company, then they should not be in charge of managing the company.

When you see a company constantly seeking outside help to run the company and, in the process, paying thousands, if not millions of dollars, to management consultants, then you are looking at a company with a poor internal culture, managed by weak, incompetent bureaucratic executives stumbling down the road to ultimate failure.