Posted on 02 Nov 2009
Joe Plumeri, Chairman and CEO of Willis Group Holdings Limited, the global insurance broker, called on corporate America last week to embrace a new commitment to transparency and risk management to restore trust in business and the U.S. economy. Plumeri proposed four steps to re-establish that trust, which he said is necessary to support sustained economic recovery and real growth.
In a speech to the Executives' Club of Chicago, Plumeri pointed to respected public opinion surveys that show Americans now have less faith in business to do the right thing than after the Enron scandal or the dot-com bust. He urged business leaders to reject the opaque transactions and “lip service” transparency of the past in favor of a new commitment to accountability and openness.
“True transparency means being up-front with our various stakeholders – whether they’re shareholders, clients, partners, employees or the communities in which we do business – and explaining what’s in it for them and what’s in it for us. It means educating them in a clear and straightforward way about the risks and opportunities so they can make informed decisions based on their best interests,” Plumeri said.
To restore trust, Plumeri called on businesses to: 1. Create a real contract with their customers and address conflicts of interest in the way they do business; 2. Elevate risk awareness at the senior executive and board levels and embrace comprehensive Enterprise Risk Management; 3. Voluntarily disclose the risks they face and their levels of insurance coverage; and 4. Do a better of job of explaining to the American people the positive role of business in society and the economy.
“Senior executives and company boards need to take a far broader and more comprehensive view of risk than they currently do and reflect this in their decision-making and oversight. Companies should move to hire Chief Risk Officers and establish Risk Committees on their boards. They should demand true Enterprise Risk Management because they need it now more than ever before. The fact is that the risks of doing business are increasing – and they’ll continue to increase,” Plumeri said.
Plumeri urged businesses to manage conflicts of interest transparently and resolve them in the interests of their customers. As an example, he pointed to contingent commissions – payments from insurance companies to brokers based on the volume or profitability of business placed with clients – which remain a major source of conflict within the industry. “Many in our industry believe that simply telling clients that they are taking contingents makes it ok. I disagree. With contingents, telling your clients you take them does not resolve the conflict,” he said.
In October 2004, Willis became the first insurance broker to refuse to accept contingent commissions from insurance carriers when working for retail clients. Regulators later banned the major brokers from taking such commissions. Willis also established a Client Bill of Rights – a 10-point contract with clients codifying the company's commitment to client service, transparency and best practices.
“In my own business, a time could soon come when Willis and its big three competitors will be allowed to take contingent commissions again. One big insurance broker has already been given the green light by the insurance regulator here in Illinois to do just that. And New York-regulated brokers may be able to do so as well,” Plumeri told his audience at the Fairmont Hotel here.
“We’ve already decided at Willis that we’re not going to go back to the old ways – we’re looking to the future and we will continue to put in place the measures that will enhance trust and transparency, not undermine it. It may mean that Willis will be the only company not taking contingent commissions – but that's ok with me,” Plumeri said.