Friday 28 May 2010

Prudential - wins Bloop Award Stars!

Well I never! Not in all my days!
Who might have imagined that, within 18 days of winning our illustrious award, the unbelievably highly paid Mr Thiam, together with his team of the finest intellects in The City, would have managed to pull off not one but two more howlers.

On the 25th May, it was reported that AIA’s chief executive, Mark Wilson, had told friends and industry executives that he intended to quit if the deal completed. Press reports said Mr Wilson would leave because the combination of AIA and the Pru’s Asian business was “unworkable”. Two senior executives, AIA’s finance director, Steve Roder, and its legal head, Peter Cashin, have already quit the company. So Mr Thiam plans to spend billions of other peoples' money, and to put at risk the funds for which he already holds the stewardship responsibility (how close is that to his attention, we wonder?), to acquire a business from which the leadership and local operational management knowledge will be absent. So here is someone else, as well as the FSA, that Mr Thiam has failed to persuade to come on side. This is definitely worth our first ever award of a Bloop Star.

But, hardly have we put the newspaper down, when we learn that a significant number of the shareholders have expressed serious reservations about the financial feasibility of the proposed acquisition - and there is now doubt as to whether Mr Thiam will be able to get the 75% shareholder support he must win to go ahead. The usual excuses are being trotted out by the financial analyst experts (who had clustered around, hands out for their millions of commissions, to help Mr Thiam concoct the offer) - the markets have changed, the economy, blah, blah - ignoring the fundamental lack of resilience within the proposed deal. Now, say the experts, the price to AIA must be reduced, so the US Government must lean on the AIA management to accept a lower price, and then the deal will be OK again. Now we have yet another group, as well as the FSA and the AIA management, that Mr Thiam has failed to persuade to come on side. This is definitely worth our first ever award of a Bloop Star SQUARED.

It appears that this whole deal is so flimsy and fragile that the smallest unexpected external variation is enough to put it at risk. And if the construction process is so lacking in basic robustness, what confidence can anyone have in the resulting structure? Dodgy builder equals shoddy house. The comparisons with the RBS grab for ABN Amro catastrophe, and (has anyone spotted this even more scary similarity?) the Lloyds TSB/HBOS wrap up, are compelling. Any Comparative Competitive Strength advantage (see our related blogs here too) for this venture is not visible - precisely the opposite seems probable. This is an origami house built of tissue paper - what will happen when the first shower falls?

So the Business Bloop Star and Star SQUARED awards go to Tidjane Thiam and the lesson to the rest of us is:

POOR PROCESS ALWAYS PRODUCES POOR RESULTS

For more on process thinking go to :http://www.changeworld.co.uk/gettingresults.html

Business Bloop of the Month Award is brought to you by Steve Goodman & Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at“Exceeding Expectations", "You're having a laugh ... Seriously?, "Capitalism or ... Common Sense .






Monday 10 May 2010

Prudential – what went wrong with the rights.

Our Business Bloop award this month goes to Tidjane Thiam Chief Executive of Prudential for his most recent “dropped ball incident” in his proposed takeover of AIA.

The deal is one of the biggest ever ($35.5bn) coupled with a record rights issue ($21bn). At 6.00pm on May 6th Thiam squeezed one of the largest (and most expensive!) group of senior execs, advisors, lawyers and bankers into the Pru’s boardroom in the history of the game of sardines to set the price for the issue.

Then came the bombshell. At 7.30pm the FSA called saying they needed at least another 24 hours to clear the Pru’s plans for the capital it must hold to safeguard it against market shocks. For a further 3 hours Thiam and his Chairman tried to persuade the FSA to back down (what should you do when in a hole?). By 10.00pm with the FSA still not budging they took the only decision they could to abandon the rights issue and prospectus.

So as bloops go this was a mega and very public one. It has not only jeopardised the whole deal but it may be the end of Thiam’s career. Much has and will be said and written about what went wrong – is Thiam really up to making this deal work – did they really listen to the FSA’s concerns – surely they could see that a big cross border deal like this would go under the microscope – why such a tight timetable for such an enormous and high risk undertaking? All are valid questions but they do not answer the only question that matters. Why did it all go wrong?

The answer is - and you will only read this here – POOR PROCESS. Poor process will always deliver a poor result, except when it delivers a disastrous result.

Thiam’s proposal to buy AIA was a game breaking, bold and audacious idea. But that’s all it was, an idea, just one step beyond not having thought of it at all. To turn an idea, however good, into an effective reality that delivers the results you want needs a robust and sound process and this is what Thiam did not have.

He failed to assess his own and the Pru’s current reality in relation to the idea and consequently made poor decisions about how to take it forward. The tight timetable is just one example. Consequently planning was inadequate which in turn meant that who they needed on board, what they would want and how they could be persuaded was largely overlooked.

But why the poor process? The answer and again, you will only read this here, is that it stems directly from the deep seated managerial and behavioural values of the leadership of the business. These are always the main determinant of outcomes for any organisation. Thiam’s focus was and still is almost entirely on the idea and on driving it forward. This skewed the process around this one element and created a flawed process. This was compounded by the personal prestige and massive financial rewards involved. With all those juicy fees and commissions on offer which of the many advisors involved was going to tell Thiam he was getting it wrong?

So by the time he got to implementation disaster was pretty much built in and it was just a question of which wheel fell of first and when. Fortunately for the Pru’s shareholders it fell off before they stumped up $21bn.

So where does it go from here? Thiam and his colleagues are telling investors that the deal is still on but unless something changes expect more disasters, before and after. One factor that might concentrate minds is that if the Pru does not complete by August 31st it must pay AIA $104m per month until it is. Plenty of time yet, well we shall see.

So the Business Bloop award goes to Tidjane Thiam and the lesson to the rest of us is:

POOR PROCESS ALWAYS PRODUCES POOR RESULTS

For more on process thinking go to : http://www.changeworld.co.uk/gettingresults.html

Business Bloop of the Month Award is brought to you by Steve Goodman & Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at “Exceeding Expectations", "You're having a laugh ... Seriously?, "Capitalism or ... Common Sense .