Listen When This Man Speaks (about his business)

I think he’s the greatest non-founder executive to have walked the earth, and Jim Lynch points us to an extended treatment of Hank Greenberg’s management style (the technical stuff, not the bombast), including an interview:

Greenberg said, “You don’t want to roll your company up with undefinable risk. You have to understand the risk. The insurance industry is the only industry where you never really know the results at the end of the year. You may think you know, but you don’t. The tail on a risk could be 10 years, so you don’t really know.”

So how do you mitigate that seeming lack of understanding? “Experience is very valuable to be able to predict those costs,” he said.

“I don’t want to wake up one morning and say ‘What happened?’ ” Greenberg said.

Felix Kloman, a former Towers Perrin partner and a well-known commenter on the subject of risk, said, “Organizations can easily become risk averse. You want them to take on risk in the future and too often risk management defines risk as a negative outcome.”

Kloman said that Greenberg is the exception. “Hank is much more of a risk-taker. The CEO coordinates and encourages intelligent risk-taking.”

Here’s how insurance works: clients hand insurers money and time-bombs, which they toss into a warehouse. Luckily, most time-bombs are duds and, when they do go off, the walls of the warehouse are strong enough to withstand the bang.

Obviously you want as many time-bombs as you can get because you want the money, too. You can use that money to build thicker walls on your warehouse, allowing you to stuff more bombs in there. The problem is that, all too often, insurers don’t find out they’ve overbought time-bombs until it’s too late.

All you can do then is sit there and watch them go off.

Striking that balance between growth and risk management absolutely boggles the mind and, frankly, gets the best of many, many executives.

Hank Greenberg was/is better at that balance than anyone else on earth.

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