Practicing what they preach

Risk & Insurance, Dec, 2004 by Jack Roberts

Despite the "shock and awe" that seems to have characterized Eliot Spitzer's attack on the insurance industry and Marsh Inc. in particular, the world's largest insurance broker looks like it will emerge from this crisis.

That might not have been the ease, if Marsh had failed to react quickly to the New York attorney general's complaint. As Michael Cherkasky, newly named CEO of Marsh Inc. and parent company MMC, observed: If the company had not taken quick action, Spitzer might have filed a criminal complaint. That would have put Marsh's very survival in doubt.

So far Marsh's response seems to be right out of a textbook on crisis management, something Cherkasky and Marsh should know a lot about. The new CEO headed Kroll International, the recently acquired Marsh subsidiary. He has had to advise a number of companies on what to do in such a crisis.

When the initial reports broke on the charges against Marsh, most clients, employees and shareholders reacted with horror. But, to be fair, the company has reacted with breathtaking speed, has acknowledged its problems, and has taken significant action. As Cherkasky put it, the executives accountable for the problems have left or will leave shortly. Marsh has taken a huge financial hit and 3,000 employees will lose their jobs in cost-cutting efforts. Marsh has adopted a new business model based on transparency, compliance and openness. It has promised financial restitution to those clients that were hurt. And it will pay a large fine.

What remains is for the Marsh corporate culture to change and, based on my recent conversation with Cherkasky, that looks to be in the offing.

Until now, Marsh hasn't been all that adept at following its own advice. More than a year ago, I wondered aloud how the Marsh subsidiary, Putnam Investments, could be at the heart of the mutual fund scandal, when it was owned by the world's largest risk management consultant. I had just finished attending a Marsh seminar on enterprise risk where much of the conversation and the speeches were about Sarbanes-Oxley and identifying those risks that could deep-six a firm like Arthur Anderson. When I asked about how this Putnam affair could happen at Marsh, I was greeted with remarks along the lines that it was an isolated issue only confined to Putnam. Such scandals could never happen at Marsh itself--or so it was implied.

As Cherkasky acknowledged in a recent interview, it's far too often the ease that companies often refuse to take their own advice.

That's the challenge for Marsh. As in so many other corporate scandals, the conditions are too frequently ripe for a breakdown in long-held values at the firm. If those values can be restored, then Marsh may emerge successful, maybe more successful, as the insurance industry also changes.

Jack Roberts

Editor-in-Chief