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:


For more on process thinking go to :

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 .

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