“We will close this transaction come hell or high water,” Dan Glaser told JLT’s chairman during the expeditious run-up to acquiring the British multinational. Now, in an exclusive interview with Editor-in-Chief Shawn Moynihan, Marsh & McLennan’s President and CEO gives Reactions the inside story on one of the most talked-about deals in years – and what it means for MMC’s future.
Let’s go back to the inception of the idea of acquiring Jardine Lloyd Thompson (JLT). How and where did that conversation begin?
A couple of times a year for the last eight years I’d make it a point to reach out to Dominic and catch up. I’d go to his office, we’d go out to lunch, or I’d just come in and we’d shoot the breeze. Most of the time he would say, “Don’t expect that we’ll ever sell the business. We’ve got a 40% shareholder.”
In September, I was on my way to Monte Carlo and I went to London for a day and I reached out to Dominic three or four days before and said, “I’m going to be in town.” When we sat down together, within five minutes I noticed the tone was different. They’d reached a strategic inflection point and I saw an opportunity where there was a way to say, “This is a good time” for an acquisition for a variety of different reasons. That’s really where it started.
We pride ourselves here on being a meticulous company, trying to do things the right way. But I always view it as you don’t want to be just meticulous, but rather, meticulous and bold – and there are moments when you have to move fast and strike boldly.
Literally by the next Friday, we provided a come-hell-or-high-water offer. They were obviously concerned on their side if we would close the transaction: Would things come up through due diligence or otherwise that somehow would prevent it from closing? Or would a regulator in some jurisdiction say that we can’t have the aerospace business, so therefore we might say, “We don’t want anything, then”? So, they said, “What assurances can you give us?” The actual nomenclature in the letter I wrote to their chairman the following Friday was that “we will close this transaction come hell or high water.”
He was then probably scrambling for a Texan dictionary, going, “What the hell does that mean?” But we gave them every assurance that we will do this deal. We’re known as a company that when we say what we’re going to do, we do it. And of course, we were smart about it in that I said, “In exchange for closing the transaction no matter what, I want a firm undertaking from Jardine Matheson – who owned 40% of the shares – and from the management that no matter what other offer emerged, they would sell their shares to Marsh & McLennan.”
So, you can imagine how powerful it is on the day of an announcement when you’ve got not only the leadership team of the company pledge their shares to you, but you’ve also got 40% of the shares on the day of the announcement. That is a pretty big deal.
Indeed. Do you think part of what sealed that deal was that stated intent, that clear and direct communication?
No. It was that both companies looked at each other and knew we’re both clearly different, but both recognised the quality of the other over the years. Not over weeks or months, over years – so I think there was a sense of, this is the right outcome.
I’ve been very clear in all my town halls and those sorts of things here, and in all my written communication – I’m explicit that I’m not promising perfection. In fact, I’m promising the opposite. There are going to be hiccups, there will be bumps. It’s OK, relax. Things will be fixed, we’ll move on and we’re going to build something special here, so take the long view. We’re in this for the long haul, so, what are the decisions we have to make that create the right level of outcome? Those are the things we should focus on and not be overly concerned about the impact on next month.
People businesses are always complicated, but I think we started well in making this not about Marsh & McLennan and not about JLT; it’s about what we will combine together going forward. We each had our own path and each of those paths were good paths. We have elected to come together, so that’s the “why” in that, and we’ll go from there.
Going forward, how do you manage the process of building stronger teams and simultaneously avoid redundancies, in some cases? How do you give those marching orders?
One, you have to deal with strategy and structure first. It can’t be all about turning the company upside-down to try to say we have to solve for Sally, or we have to solve for Henry. It has to be what makes sense, first on a strategic basis and then, what are we trying to do here, what are the businesses and geographies we want to operate in? Then, what’s the structure, who’s the leadership?
Things naturally flow if you approach it with strategy in mind first, then structure, then leadership. Marsh & McLennan is well practised in acquisitions; we’ve done, surprisingly to some, 170 acquisitions since 1 January, 2009. We’ve committed about $14bn dollars to those acquisitions, and we also have Oliver Wyman. Oliver Wyman has a terrific management consulting capability and is very good at integration work as it relates to larger acquisitions, so I’ve engaged them in a significant way to help us through the planning.
This is a big, big exercise. There’s a lot of planning and there’s a lot of execution that has to take place. Just take the complexity of something like real estate: We’ve got something, like, 800 offices. I’ve stated that I want all of our people – particularly in major areas, but in all significant head-count cities – together by the end of 2019.
Now, that’s an easy thing to say if you’re in New York: When you’re going to be talking about more than 100 locations, between JLT, between Marsh & McLennan and the people moving, we’re talking about over 15,000 people moving, and then getting the technology right in the places they’re going to. It’s logistics, it’s execution, and you need quality in pulling that off.
Another area is finance: We have things like Sarbanes-Oxley and Dodd-Frank. JLT doesn’t have those same considerations. We’ve got a far more detailed financial reporting requirement based upon SEC regulations. So, from that standpoint, we’ve got to convert all of their accounts, countries and businesses into our requirements essentially within 12 months. That’s a large undertaking.
Now, to be fair, we’ve invested over the years in creating a fantastic finance function and we use one major enterprise software everywhere we operate, so we’re not starting from the standpoint of, “Oh, God, we have to figure out how this comes together and we’re starting with a clean piece of paper.”
When we think about delivering – you mentioned redundancy – we certainly don’t want too much redundancy in capability and we recognise in any big combination, in any industry where two large global firms come together there will be some overlaps and we’d want to work through those overlaps in the fastest way possible.
But I put it into context: We announced as part of the acquisition that we thought there was a 2%-5% global head count reduction. But the context of that is, if you look at Marsh & McLennan and then include JLT, in the last five years we’ve increased our head count by 50%. Also, if you look at 2018 and 2017, both Marsh & McLennan and JLT have ordinary course-of-business turnover, voluntary turnover of people just finding other jobs, of about 10%. So, for Marsh & McLennan, that means in 2018, there were about 6,500 people who left the organisation.
In that kind of context, you realise how small 2%-5% actually is. It really means within 24 months my expectation is the head count will be higher, and certainly in 36 months, than it is today.
One decision we made, which will likely cost us tens of millions of dollars – but it’s the way we operate the business, and we try to take the high road in everything we do – is we made a decision that on Day One, April 1st, the day the transaction
Which lines of business, in particular, are you excited about going forward in terms of gaining new clients?
I would say it’s both a lines-of-business and a geography story. On the line-of-business side, they are a specialised firm. If you think about it, in most markets they were number 4, 5 or 6. What are you, when you’re number 4, 5 or 6? You have to be more specialised, you have to be a little faster, and you have to have more of your senior people directly involved in client work. That’s just part of it. I love that injection of vim and vigour.
So, when I look at lines of business – direct insurance, reinsurance, employee benefits, and retirement – those are broadly the four categories. They match up pretty well with us in all of those areas. In terms of geography, the external focus is on the UK. However, places like Australia and New Zealand, Latin America and Asia, in particular, Hong Kong and Singapore are vitally important to us. The UK may be messy, but it is very important, and in the US, JLT supplements our skills. It’s a large talent injection into a business that’s already large and successful.
In Australia, as an example, we’re going to be near a billion-dollar business with 4,000 people. There’s a big on-the-ground business in the UK – we’ll be near $3bn dollars of revenue for Marsh & McLennan companies in the UK, and we’re going to have well more than 10,000 people. These are big operations.
When we look at where else JLT is large, they’re large in Hong Kong, Asia and Latin America. These regions are big growth areas of interest to us, and so the geographic capability of adding that level of talent to an existing high-talent organisation caused us not to hesitate at all. There was no hand-wringing of “should we do this?” It was all in the how, and not the “should.”
So, I would imagine then for years you were probably thinking that when and if the opportunity comes to pass to make this acquisition, you’re going to be ready to move.
Correct; and when you think about it, we started our efforts on a Friday and made a firm offer seven days later. We couldn’t have done that if they were a private company. And
This is really a combination based upon strength and strength. Both of us have been growing well. Both of us were positioned and felt we had bright futures, but in terms of growth in talent, capabilities, opportunities for colleagues, opportunities to invest more capital in data analytics and digitalisation, to service clients better, and ultimately grow revenues and profitability – all of that was there. For me, it was all about growth.
Price was something that we haggled over and came to a conclusion, and then, I was very interested in saying, “What are we asking our shareholders to give up?” Because we’ve had a great run for a decade, we’ve been a top decile performer in the S&P 500.
What it came down to is we’re basically saying for the next couple of years we’re not going to buy back as many shares as we’ve bought back over the last several years. That was one thing we were asking them to give up, to be willing to live with that. We said we would still grow our dividend double digit each year as we had committed to do and we’ll still buy back enough shares to where they won’t be diluted, but that we wouldn’t dramatically bend the share count down over the next couple of years.
Most importantly, what we said was we would preserve enough capital to have the capability of continuing Marsh & McLennan Agency’s development, because that’s been a complete home run for us. It’s now a $1.5bn-dollar annualised revenue business. We’ve done about 75 transactions and I’m sure many of our shareholders, many of our board, and many members of the executive team would have been wary of acquiring JLT if it meant that we had to somehow inhibit our Agency strategy.
We’ve done two large transactions this year of top 100 agent/brokers in America – Bouchard Insurance and Lovitt & Touché – since 1 January and we are continuing on that path.
We talked about some of the geographies. Are there any that you’re looking at in particular, perhaps Latin America?
Yes, Latin America is a huge opportunity. I went down and I visited our joint operations in Brazil and also in Colombia, and the excitement is palpable. These will be home-run combinations. When I was there we had events where, frankly, I could’ve walked out of the room after a half hour and nobody would miss me. The teams were already integrating well. (Editor’s note: Marsh & McLennan has since announced that Marsh’s, Guy Carpenter’s and JLT’s LatAm facultative reinsurance operations will unite as a single unit known as Carpenter Marsh Fac Re.)
Obviously, there are going to be some spots that are going to be a little messy, and that’s fine. Like I said, we’re building a company which will be among the finest professional services firms in the world. That’s our aspiration, and that’s what we’re developing. Right now, we are 55% risk and insurance services and 45% consulting, so it’s not that we’re just insurance brokering or an insurance organisation. We’re much broader than that.
Since I’ve become CEO, one of my objectives with the board is to continue making Marsh & McLennan a great place to work – and it’s not all about pay, it’s more about environment. We strive to be an open, transparent place of working, completely inclusive. Just come here and be yourself, because we’ve got plenty of challenges to solve for our clients.
How do you feel about blending the cultures of the two organisations? How is that best achieved?
Yes, the cultures of JLT and Marsh & McLennan are different. But at their very heart, both organisations try to do the right thing. No one is cutting corners, and the first step of doing the right thing is putting the client’s interest first and I think that’s a vital cultural attribute. I think for both companies, there’s a healthy respect for the individual but in a team environment.
There’s a lot of businesses in the industry where, frankly, the cultures aren’t as positive. Both JLT and Marsh & McLennan have very positive cultures, so the most highly nuanced thing that we really have to do is try to make it a best-of-both union – to take those cultural attributes that made JLT unique, that fierce competitive spirit, the speed at which they operate, and make sure that survives within Marsh & McLennan. Obviously, Marsh & McLennan is a lot bigger – JLT is about 15% of the combined size – but it can’t just be about Marsh & McLennan; it has to be our unique combination that works for the people of both firms as we move forward.
This is either going to be a very good combination or a spectacular one. It won’t be a bad one. There’s enough sentiment there on the ground that feels really good, and it’s really up to us, the leadership team, to make it spectacular. And that’s not going to be known in 12 months. It will take several years.
How does that whole process begin for you? Where do you start?
Well, for me, it has to start with the idea that there’s something new here. It’s not Marsh & McLennan acquiring JLT and integrating JLT. It has to be Marsh & McLennan reaching out to JLT and JLT saying, you know, because of more client capability on a combined basis, more depth of talent and resources, more opportunities for our colleagues, greater capacity to invest, that this makes sense.
You know, no one forced us into this. We chose to do this, so what do we need to do to build an organisation that’s a beacon to the industry. It’s blue chip. It takes the high road in everything it does. It’s a place that won’t be for everybody, but for those who choose to give us their career, there’s no better place to work. That’s what we have to do, and that’s going to take some time. It doesn’t happen in a day. But a lot of it is cultural.
It’s refreshing to hear you say that big promises up front of a quick and easy integration are not being made, because that’s just not realistic.
That’s right. In the last 10 years there’s been a lot of developments and improvements within the company, and our job as a collective team is to improve it. It’s not to make the company perfect, it’s to improve it, and a lot of that is attitude in terms of how Marsh & McLennan approaches things. Perfection is not the ideal. What we’re trying to do is make it a great place to work, attract and retain highly talented people, and always put clients’ interests first.
The world is filled with complicators, but it’s really more about simplifying things to the extent possible. People don’t come to work with the express view of, “Hey, I want to make more profit for the company.” Our fundamental “why” is about making a difference in those critical moments. Those moments that matter, those strategic inflection points. Those moments of peril. That’s when Marsh & McLennan shines. I really do feel that the question at the very heart of this place is, why do people come to work? The answer has to be about delivering that value, delivering that difference. We’re an advisory company. People hire us for our advice, so we always have to ask, how do we be that trusted advisor?
I think when we look back 25, 30 years from now, this will be one of those moments that will be pointed to that helped change this company’s trajectory.
Marsh & McLennan has greatly expanded its presence in the middle market in small commercial segments. Why are those segments important?
We love the large-account space; we count as clients 95% of the Fortune 1,000. It’s a great business, but it’s not necessarily a high-growth business. If you look at almost every insurance market in the world – the US, UK and others, it’s shaped like a pyramid. You have large accounts, you have mid-sized accounts, and you have small accounts. If you look at the premium opportunity, the brokerage opportunity of the number of accounts, most of the business is in small commercial followed by middle market, followed by large.
If you looked at us 10 years ago, you would’ve flipped that pyramid and what you saw was that our biggest market share was in the smallest part of the market. Strategically, we had to be in the middle market, so the question was, “How are we going to do that?”
We received the board’s approval to develop Marsh & McLennan Agency in July 2008. You show me another company that has had CEO changes and has had 11 years of operating experience and they’re still executing a strategy that was approved a decade before. There aren’t many.
The Marsh & McLennan Agency strategy was to push into the middle market predominantly in the US. Our first focus was the quality, A-ranked agencies around the country. Then we went out and we acquired Jelf and Bluefin in the UK. Now we’re the No. 2 middle market broker in the United Kingdom. So those are our two biggest markets, and we’re well-positioned.
You’ve been known to say, “There is no innovation without dissent.” How does that philosophy inform the culture at Marsh & McLennan, especially with you now expanding your talent base?
I believe culture is everything. When companies do well for long stretches of time like we have done over the last decade, there will be a tendency to become either arrogant or complacent. Culture is what insulates you, what protects you, and I do think that culture is probably the most unheralded but most important fabric of how a company operates.
So, to me, the attributes of mutual respect, inclusiveness and transparency extend to where I don’t have a call with managing directors or partners in the firm; my calls are with everybody, because it’s our company. It’s every individual who works here, and the best solutions haven’t been invented yet. They could just as likely come from somebody who has just joined us as someone who is senior or who has a lot of tenure.
My view starts with the notion that I don’t think there’s a status quo: I don’t think stability is a possibility. It would be nice if the world was stable and companies could be stable. I don’t think it’s true. I think that literally countries, companies and individuals are either striving, developing, creating and improving, or they’re doing the opposite – they’re deteriorating, they’re eroding. I want a culture where the most important challenge is, “Why do we do it that way?” Because if you have a culture where people are comfortable questioning, in creating that challenge, that is how you improve.
Oliver Wendell Holmes once wrote, “Most of us go to our graves with our music still inside us, unplayed.” I always say at town halls and to my people, “Don’t let that be you.” We want people to bring it all, bring their brains, bring their passion and bring their courage. We need to know what all of our people think. I’m positive that there are ways to improve the company in client capability, client service, revenue generation, making it a better place to work, creating a more flexible work environment – and all those ideas have to pop from our people; that’s where they should come from.
All over the world, business by business, we’re going to be integrating these groups together that do it differently, that achieve a similar outcome but they get there in a different way. I don’t want it to be, “Well, that’s how we do it at Marsh & McLennan.” I want it to be, “What’s the best approach? What’s better for the client, what’s better for the colleague?” If you take care of clients and colleagues well, the shareholders will be fine.
Additional key acquisitions, it would seem, will continue?
Absolutely. We’ll still be investing predominantly in the Marsh & McLennan Agency area, but we’re taking a break on the “big ticket” acquisition trail; we’re taking about 24 months.
I’m really proud of both JLT and Marsh & McLennan. The deal was announced this September and both companies had terrific fourth quarters because we’ve got good leaders and good managers that are focused on execution. It wasn’t, “Stop doing that and we’ll all focus on this.” No. You’ve got to do both.
I ended my inaugural speech as the CEO of Marsh & McLennan saying, “The best is yet to come,” and now, nearly seven years later, I absolutely believe the best is yet to come.