Insuring Values

Sunday, July 1, 2007 - 11:32

Michael Hawker, Managing Director and Chief Executive of insurance giant IAG, talks to Jennifer Alexander about value systems and integrating multiple corporate cultures.

Insurance Australia Group is a leading general insurance group with operations in Australia, New Zealand, Europe and Asia. It owns such brands as NRMA Insurance, SGIO, CGU and Swann Insurance in Australia, and State Insurance and NZI in New Zealand. IAG’s Chief Executive since late 2001, Michael Hawker, has overseen a period of acquisition and growth requiring the merging of different workplace cultures and values into a long-term common corporate culture.

Q: You had two key issues that you wanted to pursue when joining IAG, didn’t you?

A: Yes. One is to merge a number of different businesses, in the process creating a new corporate culture. We’ve now got people from about 16 different insurance companies who have come with different views of what a corporate culture is. We’re trying to form the best of those into a common long-term culture and set of values. The other issue is to follow a growth path to make the company internationally competitive and sustainable. I hope to leave a legacy for both.

Q: Can you say what the values are?

A: We’ve got five: honesty, meritocracy, teamwork, social responsibility and transparency. Values should be sustainable and stand the test of time. Ours have evolved from those values that are held by most insurance executives from the various companies we have.

It goes without saying that honesty is critical in a financial institution. If you can’t hold and use a customer’s information, you’ve lost your business.

Teamwork is critical because all aspects of the company need to be integrated: both because we sell our products through many channels, and because we must deal efficiently with customers when they claim.

Meritocracy is a standard value for any company that wants to be competitive internationally. You choose and reward people on merit. Meritocracy drives diversity into your business, which is essential to attract talent and to mirror the diversity of your customer base.

Social responsibility is a core value because, when you think about it, insurance is a social product. As it’s the sharing of risk across the community, having an understanding of social responsibility is critical in understanding the community aspects of our business.

The fifth one is transparency. We don’t like people holding information for power, so all news, good and bad, is dispersed throughout the company. And, as customers are able to get more and more information today, we see being transparent as critical to delivering information effectively to them.

Q: You’ve a large workforce. What’s the relationship between these values and someone at the front counter?

A: What your customers want is a consistency that they get to know and love. The only way to get five, 10 or 20,000 people to provide that consistency is to set expectations of them and provide a control structure that ensures consistent delivery of product and services. The challenge is to decide what those control frameworks are. In my view, there are two.

The strongest control is the values. They give our people clarity in what’s expected of them and define the things you cannot do: you cannot violate the values. So if you don’t want to be socially responsible, work in a team, or be honest, then you won’t fit in the organisation. The values are absolutes that drive the control structure, define who comes into the company and who leaves, and how we deal with our customers. If you can institutionalise values as absolutes over time, you build a consistency that drives your brand value.

The second control we have is a code of ethics that expands our values and provides international guidelines. These sit within a common vision of what we want the business to look like in the future.

Q: What are the key challenges facing IAG?

A: The challenges themselves are constant, it’s their execution that keeps changing. One key challenge is how to keep building a common culture when you’re continually expanding and bringing in new ones. It’s quite critical when we buy a business that its culture is aligned with the one we are trying to build here already. Otherwise, you’ll just lose a lot of the new people and a lot of the purchase value.

Q: So to make acquisitions successful you must manage on both economic and cultural dimensions?

A: Yes. Insurance is interesting. It takes a long time for an insurance executive to be very effective. It’s one of those businesses where it’s a simple product to buy but a complex product to manage. It’s intellectually stimulating to be in the insurance business and it takes a while for people to understand it. It’s a business where we sell our product before we know the cost of it. Most of the time your cost base is out of your control because you’ve got third parties managing the repair of the claim and factors like the weather, crime rates, public opinion, behaviours, government legislation and so on.

If you’re buying a business, essentially what you’re buying is the knowledge and know-how of the brand. If you lose a lot of the people quickly, then you’ve destroyed the value of what you’ve bought. Cultural matches are critical.

And, as we grow, there’s a challenge for the internal managers responsible for driving change. For example, as CEO you could probably know 1000 staff and communicate with them directly. But what if your business grows from 1000 to 10,000 people? You can no longer manage the business through your own personal interaction but have to manage through messages delivered by people in the executive team. Being a different communication dynamic for them, you need to change what you expect of those managers.

Q: Are leadership and management the same thing?

A: They’re different, but both skills are needed to be effective in running a big business. It’s taken me a long time to realise they are different because I’ve a sense that, in the very, very good executives, they’re intertwined. Leadership is being able to encourage people to follow you to a place that is better than where they are. Management is the operation and processes. Some people are better leaders than they are managers and vice versa. I suppose that’s why you’ve got some businesses that have chief executive officers and chief operating officers. I say a COO is a manager and a CEO a leader. For me, you should have one person who can do both.

Q: Is that how you see yourself?

A: I’d like to think that I can do both, although I’m constantly learning. I could be a better manager. If you think you excel at both and don’t need to learn more you’ve probably reached your use-by date.

Q: What have been your most compelling learning experiences in leading and managing?

A: It’s always the painful experiences that are the best learning experiences. I’ve had situations where I’ve made wrong decisions that have cost money; I think that is part of becoming a good business person. If you haven’t lost any money somewhere then I don’t think you learn many lessons.

A lot of people lost money in 1987 when the sharemarkets retreated 40 per cent in one day. Many were fired because they lost money. I thought that was shortsighted. After all, you’d just spent and lost the money anyway, but the person’s learned a fabulous lesson and they’ll understand risk to a far better degree than the day before. I think the challenge is to never fire someone for making a mistake while doing something in the best interests of the company. You fire them when they break the rules.

Q: So, in being knocked about yourself, can you distill these experiences for others?

A: That’s difficult. The majority of people don’t get to where they want to get to because of a few knock-backs. I had a grandfather who said “I don’t care how late you want to be out at night but you’ve got to be at breakfast at 7.30 in the morning”. You’ve got to front up.

Because you learn a different thing from every experience, I can’t really distill them. Maybe someone else can. To me the bigger issue is to keep getting the experiences themselves. The biggest challenge I face is where I have to make a decision and I don’t have the experience on which to base it. When you can argue intellectually both ways for something, you fall back on what your experience base is telling you. To me, the challenge is to build on your gut feel for things, the gut feel being the sum total of your experiences.

Q: What value do you put on learning from books?

A: People learn in very different ways. I probably get more out of spending time with people than reading. I haven’t read many text books for instance, although I have a cupboard full of them. What I do instead is for every person I work with or who works for me, I try to analyse what they do well. That’s why I always think if you get a change of bosses you shouldn’t be worried about it but look at it as another experience.

Q: Is there someone who gives you honest feedback?

A: I get a lot of it. Whether that’s my operating style I don’t know, but certainly all my executives tell me what they think. I think that’s very healthy. The board and chairman certainly do. The media do it unashamedly. Investors give it to you. Customers give it to you.

Q: Are there any common problems or issues you see in the younger people coming through?

A: No. I don’t think people have changed at all, but every generation thinks its young people are missing something. I think what has changed are communities. Young people live in a different community to the one we did. Ours were geographic communities framed by our neighbours, school and university mates. This current community is far broader; international through telecommunications, talking to people they’ve never physically met. As such, they have a broader view of community and life than my generation. So they have a different set of concerns and fears. This affects how they think about managing their own lives and careers: bringing our view of how to do it is wrong.

And they are far more capable at managing information from multiple sources and have a broader perspective about what the future’s going to hold for them than we did. What I think is changing is how information comes to people and their communities. Businesses need to change because of the nature of what our consumers are looking for. A fundamental shift has occurred because when a product can be sold online, your customer base has become international.

Q: Finally, why are issues of governance and ethics coming up more in business? What’s changed?

A: I don’t think anything’s changed. Thirty years ago, the chairman of CSR was saying how important it was to run a company taking into account customers, community and shareholders. I think society and the media have formulated a theory that you can only manage for your shareholders and, in doing so, you’re somehow not capable of doing anything for community. That’s not how I view it.

Ethics have always been there. All the great companies had or have very strong cultures, ones that take into account a set of values that are widely accepted by the communities in which they deal: it’s what drives their success. There’s been ethical issues in business for thousands of years. There’s just good businesses and bad businesses.

Michael Hawker was appointed MD and CEO of IAG in December 2001. Previous positions include Group Executive, Business and Consumer Banking at Westpac and Executive Director of Citibank International PLC in Europe. Hawker was listed by Euromoney as one of the top 50 bankers under the age of 40. He was awarded the Australian Banking & Finance magazine Millennium Banker of the Year award in 2000, and the Best Insurance Executive award in 2003 and 2004.

Hawker is the immediate Past President of the Insurance Council of Australia, Member of the Financial Sector Advisory Council, Chairman of the Australian Business in the Community Network, Member of the Business Council of Australia, Member of the Business Roundtable for Sustainable Development, and Member of the Australian Business and Arts Foundation (AbaF).