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Bmus+12+Editorial[1]

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  • 1. MUTUALLY BENEFICIAL (item # 53-0126) 76 www.busmanagement.com
  • 2. Northwestern Mutual may be known as the “quiet company” but, as CEO Ed Zore explains in an exclusive interview, the insurer’s unique relationship with its policyholders and employees means they’re far from silent partners. By Ben Thompson I t’s a pretty good time to be a Northwestern Mutual cus- “It’s different than just about everybody else’s in the industry tomer right now. This year the company – one of the na- and it works very well,” he says. “We don’t sell our products through tion’s largest providers of insurance, wealth management any channel but our own fi eld force, meaning they are aligned with and business planning with over $1 trillion of life insurance our values. We call it the circle of success. We’ve been practicing it protection in force – expects to pay out dividends of more for 150 years and it gets more complicated and more difficult every than $5 billion to participating policyowners this year. The year, but we want to link everybody together so that our customers, company recently topped a customer satisfaction survey our field representatives and employees all have a common interest carried out by the American Customer Satisfaction Index, in the outcome. We’re a mutual company, so we don’t have to worry and has also won plaudits for the quality of its products and about short-term earnings volatility or quarterly earnings per share, services. Satisfied customers? Check. which gives us an advantage. And because our business model is so It’s a pretty good time to work for the company, too. BusinessWeek successful, the latest industry fads or trends don’t distract us. We has called it one of the 50 best places to launch a career, its internship don’t have our head in the sand, we just continue to keep getting program has just been voted one of the 10 best in the country and it better at what we do.” regularly wins kudos for being among the best companies to work for in America. In a recent Fortune survey, the company’s people manage- Recipe for success ment practices also won top marks, and the company is rightly proud It certainly appears to be a winning formula. “I think our of the fact that in its 150-year history it has never laid off an employee. competitors look at us and think that we’ve got it all figured out,” Happy workers? You bet. laughs Zore. “My peers often say to me All of which suggests it’s a great time Number crunching that they don’t even think we have the to be Ed Zore, Northwestern’s President same problems. They think that we’re and CEO. “Things are going pretty well somehow immune to the issues they $1 TRILLION + of life insurance at the moment,” he acknowledges with a deal with. The fact of the matter is we’re protection in force modest smile. “We’re No. 1 in individual not; we just deal with them on a differ- life insurance. We’re No. 2 in disability ent basis. And because we have our own $157 BILLION in total assets income insurance. We’re No. 4 in long- aligned field force, we don’t have to pro- term care. We’re gaining market share in duce the product de jour. We don’t have $21 BILLION in revenues investment products. So all in all we’re to come up with mispriced products if we pretty pleased with the ways things are don’t think they’re going to be viable in 3.3 MILLION life insurance policy- going right now.” A contented chief ex- the long-term.” owners with more than five million ecutive, then? Absolutely. After all, who The most recent example of this policies wouldn’t be pleased with being named commitment can be seen in Northwest- America’s Most Admired insurer in For- ern’s recent foray into the long-term care $5.6 BILLION in benefits paid to tune’s prestigious annual survey for a market. “We did all the risk analysis and policy-owners or their beneficiaries landmark 25th year – the only company looked at claims expectations, and we in 2007 to have led its industry every year it has came out with a product that was priced been included? 85 percent above the market,” says Zore. $5 BILLION in dividends expected Zore attributes much of the com- “Our field force thought we were nuts. to be paid to policy-owners in 2008 pany’s sustained success to its unique But we kept running the numbers and felt during 2007 business model. that we had the price pretty much nailed www.busmanagement.com 77
  • 3. the company’s core values,” says Zore. “They know that in the long-term we’re going to produce the right products at the right prices; that’s the bottom line. Everybody understands that we’re not in the business of making the most money, we’re in the business of deliv- ering the best long-term value to our policyowners – and as a result, every- body involved with the organization is going to be a beneficiary of that.” No place like home In many ways, the company can be considered an extended commu- nity of stakeholders – and like any community, it has a real sense of place. For instance, unlike other in- surers, Northwestern has taken the strategic decision to focus on the US market rather than expand overseas. I a bold move in an already saturated market, but one that Zore It’s b believes can reap enormous returns. “We took a look around the w world at how products are sold and what kind of products are of offered, and they don’t match with what our core competency is – delivering solutions through an aligned distribution system and bu building long-term customer relationships,” he explains. “On the oth hand, we already have a big footprint in the US and we’re other gai gaining market share in all of our products, so why should we go wan wandering around the rest of the globe when we’re gaining market sha here? It’s a huge market. I think we can probably double or share trip where we are right now, and the only thing holding us back is triple get getting more people out in the field to interact with prospects and clients and take care of their needs.” clie “We’re trying to Playing to Northwestern’s strengths is a strategy that Zore hopes deliver long-term else had it wrong. What hap wrong hap- will minimize unnecessary risks for its customers – a key consideration product value and pened next? Everybody else in the current climate. “Pretty interesting times, aren’t they?” he says solutions to our either left the business or with a wry smile. The company has a long-held reputation for safety, customers, and had to raise their prices to stability and performance during difficult times, and with fears over a the extent that we’re actu- global recession growing he believes this will stand his firm in good that involves a lot of ally now very competitive.” stead – and that Northwestern is well placed to weather any potential innovation internally” The result is that North- financial crisis. “We’ve got a well-balanced investment portfolio and western Long Term Care now in the long run it does very well,” he explains. “But we’ve also got has a healthy four percent a huge capital base. One of our overall goals is to remain as strong market share in a competitive environment, and is growing at double- financially as we can in anticipation of rough times, so that in troubled digit rates in an industry that has seen declines in sales over the last few markets we know the capital is there to support the business, to help years. “Our sales force criticized us at first for pricing the product so high, us grow and to cover any potential problems.” but because they believed in what we do they just got on with selling it In fact, he feels the current climate actually provides a time of and now business is booming. They’re getting real traction with it.” opportunity for operators such as Northwestern. “The weak play- As you would expect from a company that has built its reputation ers will get flushed out, and we know we’re going to come out of over a hugely successful 150-year history, being in it for the long-haul this thing in much better shape than most others. We don’t have is critical to its plans for the future, too. “It’s really about having every- leveraged investments. We’re very good at selecting our invest- one – our employees, our field force and our policyowners – buy into ments. And we don’t sell products to attract hot money so we don’t 78 www.busmanagement.com
  • 4. risk a run on the bank. The whole business is managed towards tion,” he says. “We’ve been managing money on a different basis to long-term financial strength and economic viability.” our competitors for as long as I can remember – for instance, we were managing for total return in 1980 before most people in our business Keeping ahead of the competition even knew what that term meant. But, as with any business, resting on your laurels will only result in “We try to be at the forefront of operating efficiency and we bench- complacency. So how does a firm such as Northwestern, a byword for mark ourselves against other operators in any activity that we do. So, steadfast reliability, keep evolving to keep up with the times and stay we continually try to improve how we do things to deliver long-term fi- ahead of the chasing pack? “We’re not trying to nancial security. And for us, that’s innovation. come out with new, fancy, gizmos that nobody It’s not coming out with complicated options understands. We’re trying to deliver long-term Northwestern’s $121 bil- and products that nobody understands. It’s product value and solutions to our customers, lion investment portfolio just doing a good job of keeping the business and that involves a lot of innovation internally,” relevant. To us, innovation is not necessarily says Zore. “It’s about innovation in our busi- • 80% fixed income about the fancy bells and the whistles. It’s ness model. For example, everybody thinks • 20% equities about what you do to your internal processes of us as a life insurance company, but we’re • 8% average annual growth and your business model, and it’s all about really a financial security company. Our field over 10-year period keeping the customers satisfied.” force activity delivers financial investment so- So where next for America’s most ad- lutions to fit our clients’ needs, and this is one mired insurer? How do you keep improving of our fastest growing areas – if they’re doing a good job of identifying on excellence? “I would like to think that the folks in our organization what people need, they’re not just selling life insurance anymore, they’re have the attitude now that no matter how good we are, we’re going to taking care of a lot more needs. And so we’re still delivering on the prom- get better,” he concludes. “We’re going to be in a different place by the ise of good value, but the business model keeps evolving to deliver what time the competition catches up with us, but we’re not going to lose our clients and customers need for long-term financial security.” our core values. We’re still going to be focused on the long term. We’re He cites the company’s operations as one such example of how still going to be focused on high quality. We’re still going to be focused Northwestern is thinking ahead of its rivals. “Our investment portfolio on integrity. We’re still going to be focused on relationships. But we’re here is much more innovative and creative than most of the competi- going to be better than anybody in the world at it.” Q&A: leadership brokerage activity, report to me. When I became mind. I’m very blunt, very direct, very open, CEO, I think the thing that gave me the edge and I expect people to be the same with me – BM. You’ve been in charge for seven years was my knowledge of the financial markets and in other words, I expect the communications now. Do you think the company in its current my old instincts as a trader. I’m action-oriented around this place to be very direct, very open incarnation is a reflection of your leadership and I have a lot of people around me that try to and very honest and continuous. So instead style, or were you chosen because your slow me down, which is good. It’s about putting of waiting for an internal press release about particular qualities embodied the long-held a bunch of skills and competencies together to what’s going on, I expect to have a stream of values of the company? get the right balance. communication so that there’re no surprises EZ. I think I was chosen because they believed And when I became CEO, my two and everybody understands what the deal that I had some skills that would be important competitors for that job stayed with me, which is. And I think that’s been successful. We’re at that juncture in the company’s history – is very unusual. I gave them big chunks of the much better now in terms of how we interact they being the trustees, who are like our board business because I needed them; they were with all of our of directors. happy, I was happy and the company basically constituencies I came up through the investment ranks. got the best of all three candidates. If every than we were 10 I started out trading stocks, and I still have company could do that I think it would work years ago. a Bloomberg on my desk. I love the markets well. I didn’t let my ego get in the way; I’ve and I know what’s going on, and I ended up learned over the years what I’m good at and creating a whole new investment activity in what I’m not good at, and I try to get really the company. As a result, I got to be intimately good people to take care of all the things that involved in the financial aspects of the they’re best at and that to me is what makes a company. I became chief investment officer, successful leadership style. then chief financial officer. I did a stint as head The other thing I was able to do was of insurance operations and even had the open up communications. I’m a no BS kind investment products area, which is our outside of person. I usually tell people what’s on my The Northwestern Mutual Life Insurance Company, (NM), of Milwaukee, Wisconsin, has subsidiaries and affiliates comprised of Northwestern Mutual Investment Services, LLC, a wholly-owned company, of NM, broker-dealer, member of FINRA and SIPC; Northwestern Mutual Wealth Management Company, a wholly-owned company of NM, and limited purpose federal savings bank; and Northwestern Long Term Care Insurance Company. www.busmanagement.com 79