Tidjane Thiam’s AIA Scheme Falls Flat at the Pru

June 2, 2010

Stop Press

Tidjane’s plan to take over AIA, the Asian arm of AIG has collapsed. This news adds a postscript to the following unpublished account of the plan and of the Pru’s leader Tidjane Thiam. It raises questions of leadership and strategies for opposing a plan for major corporate change.

Original Post

Today’s news [2nd June 2010] reveals a group of active shareholders, The Prudential Action Group had been working to block the proposed bid, believing the price being offered was too high.They Prudplanned to oppose the deal at a shareholder vote due to be held on 7 June.

The Prudential Insurance group has a tradition of reliability built from generations of agents providing insurance and savings schemes for the poorest families in England. The new man from the Pru is helping create a new global organization with an audacious bid for AIA.

Tidjane Thiam could not be further from the image of businessman in charge of a traditional English financial institution. The French-Ivorian son of an Ivorian diplomat was educated as an Engineer in France where he won top grades, and later took an INSEAD MBA. His subsequent work at McKinsey ended with an invitation to join the Ivorian government, but political turbulence ended his ministerial career and he returned to business life at Aviva. When Richard Harvey stepped down as chief executive of Aviva, he was tipped as a possible future head.

Robert Peston evaluated the bid and the new man from the Pru. The BBC’s hard-to-impress financial editor, described him in ways he saw as different from the norm.

“I’d not met Tidjane Thiam, the chief executive of the Prudential, till I interviewed him yesterday. And unlike many business leaders I encounter, for whom the expression charmless nerk [does he mean nerd?] was probably invented, it’s not hard to see how he has reached the top: he’s persuasive, amusing and self-deprecating.”

The article goes on to examine Thiam’s plan to obtain finance for acquiring AIA, the Asian arm of the ailing finance giant AIG.

“As if you didn’t know, if you want serious long-term growth, there’s no better place to go shopping for business assets than Asia. And as for the putative treasure sought by the Pru, AIA, it’s at what Thiam describes as an “inflexion point”. Which means that AIA’s profits are soaring, because of a combination of recovery in the Asian economy and the great sense of liberation of its local management that they’re soon to be freed from the stigma of being owned by AIG, the US insurer that crashed spectacularly in late 2008”.

Peston is suspicious of the promised added value of mega-mergers. He recalls the hubris which followed the enthusiasm of Fred Goodwin of Royal Bank of Scotland and John Varley of Barclays regarding the acquisition of the Dutch bank ABN. He is not alone in his concerns. The Daily Mail noted

Prudential admits it may have to spend £500m hedging against currency movements as it battles to complete its right issue. That is on top of £850m of adviser fees and other charges. The massive outlay associated with the £14bn capital raising won’t help win over investors. They are already lukewarm on the insurer’s plans to shell out £24.6bn. Details of the charges were revealed in a mammoth 936-page prospectus for the share issue [an opportunity] that will have got lawyers and advisers salivating.

The document highlights the vast amount of shareholder cash that Pru chief executive Tidjane Thiam is putting at risk with the audacious takeover of the Asian insurance business belonging to bailed out US firm AIG.

Contained within the document are numerous warnings about the potential risks of embarking on the AIA acquisition. The Pru warns that the problems at AIA’s parent company AIG could rub off on the firm and ‘harm the Prudential Group’s business and reputation’. It also said that integrating AIA could be tougher than anticipated and that targets could be missed. Change of control clauses could impact the business that the Pru is buying, and there could be hurdles with the myriad of overseas regulators which monitor the Asian businesses.

Shareholders of the Pru are called on to help finance the scheme and were scheduled to meet on June 7th [2010].

End Note

This, as they say, is not the end of the story but the beginning. Students of leadership might reflect on the lessons from the story both for a change-oriented CEO, and for minority shareholders opposing a board’s proposals


Robert Benmosche: New leader, old leadership style?

January 3, 2010

Robert Benmosche was appointed as a tough guy to do a tough job at AIG. Is such a job ‘situationally’ right for such a leadership style? To address the question, we have to take a fresh look at an old leadership theory

According to The Financial Times

Robert Benmosche has the toughest task in corporate America – keeping AIG afloat while finding some $80bn (£50bn, €56bn) to repay US taxpayers and free the insurer from government ownership. Since taking over in August , Mr Benmosche has clashed with government officials over executives’ pay, threatened to resign and halted the “fire sale of the century” – a plan to sell large chunks of the once-mighty insurer that had been blessed by the federal authorities after they first bailed out AIG in September [2008]. Mr Benmosche believes that his aggressive management style has helped stop the rot at a company that was heading for liquidation and was being lambasted by politicians for paying bonuses with federal money. He predicts it will take at least two years for AIG to sell businesses and earn enough profits to repay the government and persuade it to sell its 80 per cent stake. The authorities are not as confident. Tim Geithner, the US Treasury Secretary, recently told Congress he did not believe the government [would] be fully refunded for its largesse towards AIG. The Government Accountability Office has estimated that taxpayers will end up losing more than $30bn on the insurer.

The recent crises in financial institutions have revealed that many were led by charismatic and dominant individuals whose style in hindsight was often associated with narcissism and worse psychological characteristics. [Mandrill Management, as it has been called in earlier blogs]. There is much to be said for a direct and forceful style in times of crisis. Mr Benmosche has a chance to provide a more positive exemplar for such a style. We will follow the case carefully.

Robert Benmosche’s background

Born: 1944, Brooklyn, New York
Education: New York Military Academy; BA in Mathematics, Alfred University, NY
Career: Truck driver for Coca-Cola; two years as a lieutenant in the US Army Signal Corps. ; In 1966 worked in technology at consultancy Arthur D. Little
before joining Chase in 1979; Between 1982 and 1995 he was at Paine Webber, the brokerage house, working variously in marketing, finance, operations, human resources and sales; Moved to MetLife in 1995 as its chief executive, before retiring
in 2006. Appointed CEO of AIG in August 2009 after the corporate upheaval of the credit crunch. Hobbies: “I need to find the time to go beyond learning wine-making and jogging.”

A Note on Situational Leadership

Students of leadership will still come across the venerable theory of situational leadership. The textbook Dilemmas of Leadership traces the concept to an influential article in Harvard Business Review from the late 1950s, reprinted as a classic 25 years later. Prior to the 1950s, trait theorists had assumed there was a ‘one right way to lead organizations. By the 1950s, the older trait theories were being replaced by theories which suggested there was still a ‘one right way’, by that the ‘way’ would be influenced by context. Contingency theories have a family resemblance to situational theories. They don’t take contrasting positions. Any confusion is due more to historical differences. Contingency theories came from broader studies iof organization; situational leadership as its label implies has been limited within leadership studies, and subject to ‘appropriation’ by consultant-academics such as Hersey and Blanchard.

Situational Leadership was a movement away from earlier full-blown trait theories of ‘what leaders are’ (fixed traits) to ‘what leaders do’. There is no simple way through the ‘contingency/situational’ jungle. Rickards and Clark (Dilemmas of Leadership) suggest that any leadership theory can be studied for exploring the dilemmas which any leader has to deal with. For example, situational leadership suggests that a leader who adapts to situations may produce anxieties and lack of trust and confidence in others regarding his or her ‘authenticity’. This is a dilemma of trust in seeking the appropriate behaviours to exercise leadership influence or control.


AIG plumps for Willumstad: What took them so long?

July 14, 2008

Update

AIG came to the brink of disaaster in the credit crunch of September 2008. Its newly appointed leader Bob Willumstad may be just the sort of person to steer them out of the current crisis. But will he be given the opportunity?

Original post follows

Bob Willumstad at 62 seemed to have missed out on his dream of running a major corporation. Now he heads the troubled giant AIG. His track record is admirable. Which raises the question: what took appointment boards so long to pick him?

Robert Willumstad was one of the names in the hat in the leadership merry-go-round at City Group with Chuck Prince and Vikram Pandit. He then became part of AIG, another company with leadership difficulties, but still not in the top job.

The Economist

The Economist picks up the story

On June 15th [2008] Mr Willumstad was hastily installed as chief executive of AIG, following the forced resignation of Martin Sullivan after only three years at the helm. He comes with a pedigree few can match. He played a big part in assembling Citi, smoothing over difficult takeovers…But he was also good at the less glamorous stuff largely thanks to tight cost control.

He seems to have ruffled very few feathers along the way. Former colleagues put this down to a combination of unobtrusiveness and honesty. “He’s quiet but very effective,” says Jamie Dimon, chief executive of JPMorgan Chase, who worked alongside Mr Willumstad at Citi. “You get the truth with him. There’s no political agenda.”
Many Citibankers had hoped he would return to take the top job when Mr Prince resigned [November 2007 when]the board approached him but eventually plumped for Vikram Pandit. These qualities set the “quiet giant”, as the six-foot-three Mr Willumstad was once dubbed, in contrast to the blokeish Mr Sullivan and the imperious Mr Greenberg

What took them so long?

One possibility is that quiet competence is often trumped by the more visible characteristics and extraverted style associated with so-called charismatic leaders.

Leaderswedeserve has from time to time returned to the idea of the non-charismatic leader, modest and of fierce resolve. These features were considered to be under-appreciated in many successful leaders, who remained relatively invisible in the heroic accounts in the business press.

Willustad, the quiet giant, may be one more exemplar of the fifth level leader, (Jim Collins) who eventually succeeds, where more blokeish or imperious figures fail. If he does, he also illustrates how so often boards acquire the leaders they deserve.


Northern Rock taken over by Manchester United: Official

October 27, 2007

michael-owen-northern-rock.jpg

Update:

The post was intended as a light-hearted comment on the bizarre worlds of football and high-finance. Later, during the European Championships, [June 2008] the traffic attracted to the post suggested the news may have taken on the authority of a football rumour. The original post follows…

What’s the difference between Manchester United and Newcastle United? Football supporters have their own answers to the question. What about this answer? Newcastle United Football Club are not (yet) financially connected with AIG

Leaders we deserve is not a site at which you might expect to find sensationalist stories. I am in awe of the creativity of headline writers. I could never compete with the genius who produced the all-time classic Freddie Starr ate my hampster.

Recently I have been inspired by the creative headlines and blogs of the BBC’s Robert Peston. He has outscooped, outwritten, and outheadlined all other financial journalists on the Northern Rock affair. Respect. In homage to such great headline makers and writers, here is my modest contribution to the Andy Warhol headline of the hour award:

Northern Rock taken over by Manchester United: Official

It’s such a liberating feeling to write something like that.

Creative headlines have the same relationship to literal accuracy as reality shows have to a Mills and Boon romance. So what am I getting at? Here’s the case as it was reported in more sober terms. And what could be more sober than parts of the BBC not yet inspired by the Peston putzvah?

Last week, Northern Rock said it was continuing to negotiate its position with a number of “potentially interested” suitors. They include the Virgin-led consortium, also featuring US insurance company AIG, which has offered to buy a majority stake in the bank and inject “hundreds of millions of pounds” of money in exchange for taking control and rebranding the business as Virgin Money.

AIG. Remember them? That vast American financial operation whose initials are now on our TV screens every time a Manchester United player runs on to a pitch, or stands in front of an advertizing hoarding in a post-match interview. AIG is as close to Manchester United Football Club as are its American bosses the Glazer family.

In some contrast, Northern Rock is culturally committed to the North East of England, to Newcastle, and Newcastle United sport. It is a key supporter of Newcastle United Football Club.

Or as The Guardian put it recently

The last decade has seen Northern Rock donate £175m to a range of charities and community ventures in the north east of England including youth football teams in Newcastle, opera in Leeds and local homeless projects … Northern Rock is also the main sponsor of Premier League football team Newcastle United in a deal that runs until 2010.

Fantasy Football

In the world of fantasy football I see the following scenario. Cast as the evil empire, Manchester United is bent on global domination. The unsuspecting Americans have been dragged into the plans of super-villain Sir Alec (Darth Vader) Ferguson. Jedi Knight Richard Branson is an innocent pawn in the game. Aided by his puppets AIG, Northern Rock will be captured.
At a crucial time, Michael (Luke Skywalker) Owen will be brought back to Manchester and forced into playing for Manchester United.

So when these events come to pass …Just remember where you heard about them first.