Business article analysis and key findings

¶ … seismic crisis has shaken the foundation of corporate America, in this case, in the highly profitable yet chancy climate of the insurance industry. "Staggered" by accusations that it cheated its customers, Marsh & McLenan Companies, "the world's biggest broker of commercial insurance," released a statement on November 9, 2001 that it was going to be forced to lay off 3,000 employees in the coming months. To give a reader an idea of the magnitude of such a layoff, this comprises five percent of the overall staff and total workforce of the company. (Treaster, 2004) Poor profits and poor stock performance were cited as reasons -- all the result of a continuing investigation into the company's dodgy legers and questionable business ethics. The company has undergone a change of recent leadership since the scandal, but can the company continue to keep employee morale, motivation, and job performance high, at an acceptable industry standard?

Symptoms

Since allegations about fraud on the part of the insurance company came to light, as raised by Elliot Spitzer at the Security and Exchange Commission (the same individual, incidentally, who prosecuted Martha Stewart) company stock has been falling to record lows. However, the need for layoffs is not simply a cost cutting measure, but an ethical cleaning of the company's house and staff. The allegations regarding cheating of customers are, company insiders state, reflective of the free and loose ethical climate at the institution in recent years, particularly regarding executive perks.

The new chief executive, Michael G. Cherkasky was chosen to lead the company into an uncertain future because his former job was as a prosecutor. He said in an interview he was, as his first action as CEO, selling the previous CEO's "Falcon 900 corporate jet" and getting rid of a company fleet of half a dozen Mercedes and BMW sedans with chauffeurs. Also, he would end "the company's long tradition of a free lunch for two dozen top executives in the company's 44th-floor executive suite." (Treaster, 2004) Doing so, he stated, would eradicate the corporate climate of greed, increase morale and motivation amongst lower-level employees and executives, and do away with the 'free lunch' mentality that had stretched far beyond that of the dining hall, into the organization's overall sense of leadership and ethics.

Goals

Such cutbacks of company perks may seem to be symbolic, rather than real cost cutting measures. But the cutbacks of long-standing employees in the form of layoffs "are expected to save Marsh $400 million a year, or nearly half of the $845 million in incentive fees in 2003 alone that have been at the heart of Mr. Spitzer's investigation." More importantly, many of these employees were implicated in the scandal, and thus their job performance had suffered greatly over the past several months. The layoffs, it is hoped, will increase shareholder confidence in the company and eliminate unnecessary and unethical staff.

The company stands accused of "rigging bids and fixing prices." However, Spitzer's actions have yielded dividends for his own agency, as "Marsh also said it paid $40 million to settle a complaint from the Securities and Exchange Commission over the Putnam mutual funds division's disclosure of certain brokerage practices," as a result of Spitzer's investigation. (Treaster, 2004)

Regardless of Spitzer's motivation, the goal of showing a short-term profit at the insurance giant got in the way of what should have been the company's overall goal of showing a long-term profit and generating long-term company leadership and stability in the organizational structure. Instead, a high tolerance of unethical behavior permeated the company from the top down.

Analysis

Thus March & McLenan's goals of ethical profit making for shareholders and employees were supplanted by the desire for a showy and cushy lifestyle on the part of company leaders and of showing a quick profit for company shareholders. The result, however, has been neither happy nor profitable for anyone involved in the company. Part of the toll upon the company's profits "was seen in yesterday's delayed report on third-quarter results. Marsh, whose other two main businesses are the mutual fund group Putnam Investments and Mercer consulting, said third-quarter earnings fell 94% from a year ago, as the company set aside a reserve of $232 million toward an eventual settlement. Because of the investigation, Marsh said, it was able to collect only $46 million of $177 million that insurers had contracted to pay in incentives." (Treaster, 2004) Also, investor confidence has naturally been eroded as a result.

Diagnosis

Even now, certain members of the company are seen as acting in a high-handed fashion, part of the reason it got into such trouble in the first place. The inclusive and enclosed hothouse organizational environment contributed to a paranoid atmosphere that facilitated rather than kept fraud in check. Those briefed on the case said that the company has been acting unilaterally and not seeking approval for changes from Mr. Spitzer, although Marsh has informed the Securities and Exchange Commission of major changes like the ouster of executives. "Talks toward a settlement have progressed, with lawyers for both sides in frequent contact, but there isn't any kind of running dialogue, said one person briefed on the case." (Treaster, 2004)

Although the ultimate goal of the organization may be showing a profit, the internal goal of company organizers to exercise total independence and control was so pervasive that greed and corruption became rife. Thus, by using the conflict of goals to identify and analyze three types of difficulties present in this situation, one could say the fears of 'under-meeting' short-term goal of profits were circumvented by fraud. This created the current untenable legal situation. Currenlty, the predicament of investigation and prosecution is now cutting into company profits and forcing a cleaning house of long standing employees.

Action Planning

To solve the company's legal and organizational woes, Marsh & McLenan is attempting to reinvent itself, ethically as well as an insurance institution. The current, new CEO, whom is mercifully not implicated in any of the scandals, notes that with the ousters of Mr. Greenberg and other top executives, there is no more need for any top-level upheaval of the company ranks, although "more midlevel executives might lose their jobs and that criminal charges against individuals at Marsh certainly can't be ruled out." (Treaster, 2004)

Marsh, which earlier forced out its chief executive and three high-level executives, is thus shaking up its business model to create a leaner, more economical and efficient workforce. It is eliminating unnecessary and overly indulgent executive perks, and streamlining its workforce in an attempt to bring in new and more ethical corporate blood, "in an effort to eliminate potential conflicts of interest and to offset losses resulting from an investigation by Eliot Spitzer, the New York attorney general." (Treaster, 2004)