Writings
Excerpts from Character at Work , page 5
Putting Principles into Practice
I offer the ideas in this book with the hope that they will help in the construction of corporate cultures that bring out the best in people, while delivering high customer satisfaction and superior financial performance, without which all “people-building” exercises in a corporate setting are either empty or temporary.
The ideas I’ve proposed are a significant departure from the ones on which the traditional corporate hierarchical pyramid is based. But the governance of business is a practical matter, and ideas ungrounded in practice, while they may be interesting philosophically, are not really very useful. So that you can judge for yourself the extent to which these ideas might be useful—and how they might be useful—I’ve included this section on my experience of putting these principles into practice at Hanover. I also think that ideas have more meaning when you understand the circumstances out of which they emerged and who the person espousing them is.
Roots
I am a Christian and a capitalist, in that order. The early formative experiences in my life were loving parents, a parochial school education followed by college at a Jesuit University, and two years of service in the U.S. Army as an enlisted man. The Jesuits imbued in me a lifelong appetite to go deeper into the causes of outcomes, while the Army introduced me to a “no-excuse” culture and taught me how to get along with and respect people from every walk of life. Additionally, the experience in the Army gave me a chance to see firsthand how a large organization actually works at the bottom, particularly in relation to human responses and interactions. I learned a lifelong lesson: you can’t B.S. the troops.
After completing my Army service, I went to work in the insurance industry. I loved it. The game of business was my calling. It was a field on which I could play out the two driving forces within me—to live my faith (grow spiritually) and to contribute to my fellow human’s well-being (grow professionally). I had a vehicle for integrating my Christianity with my occupation, though it was important to keep up the appearance of separation.
I started at the bottom as a clerk in an accounting department. Later, I spent a dozen years at the very top of a major corporation. What I learned at the bottom had a strong influence on what I did at the top. I saw myself more as an architect of culture and strategy than as a commander of a business, though I was always conscious of being in charge.
A Story about Performance
This story covers a twenty-two-year period, from 1969 to 1991. I was the CEO for twelve years, from 1979 to 1991. Jack Adam, under whom I served as head of marketing for eight years, was my predecessor from 1969 to 1979. Under our stewardship the philosophy of corporate governance described in this book was conceived, tested, implemented, and nourished.
A word about performance: In the insurance industry, companies can achieve high premium growth by lowering their underwriting standards and prices. If they take this route, they will grow like gangbusters for a while, but soon their profitability will sour. They will then usually tighten their selection standards (underwriting) so much that agents will reduce the volume and quality of business with them. This shift in approach to customers is behind the expressions “buyer’s market” and “seller’s market.”
Superior insurance companies are not immune from these cyclical forces, but they can significantly better the industry averages for combined ratios and premium growth in both adverse and prosperous phases of the cycle. When I refer to “bottom-of-theindustry” and “upper-quarter” results, I’m referring to our management of these ratios in comparison to industry averages.
Insurance companies also hold a lot of money from which they earn considerable investment income that either augments their earnings or offsets their losses from insurance operations. But the key to superior results and distinctiveness in the insurance business is on the operating side, and that is where ninety-nine percent of our people worked.