With this report, the Policyowners' Examining Committee begins a second century. Since 1907, a group of three to five policyowners has been given unrestricted access to the company to independently evaluate operations, management, and strategic plans. Each year, the Committee's findings are published in the Annual Report. The 2007 Committee's report, completed in December, is reprinted below in its entirety.
As members of the 2007 Policyowners Examining Committee, we are pleased to submit this report of our observations and recommendations as independent representatives of a committee structure which has been in effect since 1907. We have taken our responsibilities very seriously, and sincerely hope these contributions will strengthen the Company's reputation and performance in the future.
In conducting our work, we interacted with senior management, newer employees of the Company, financial representatives from the field and Managing Partners and also reviewed written documentation and reports. We appreciate the strong support and open access provided to us throughout this process.
Financial Security Strategy
It was clear to us that the Company's integrated strategy of "financial security" has been thoughtfully developed and reflects:
- an enterprise approach versus separately managed product lines
- thinking and acting as one team versus internal competition for resources
- aligned messages throughout the Company
- well understood capabilities, drivers, metrics and outcomes
We were impressed with the effort and attention that senior leadership has placed in formulating its financial security strategy to acknowledge changing markets, client needs, and competitor capabilities. We encourage the Company to finalize the development of its strategy and communicate it extensively to both the home office and the field. The goal will be to ensure common understanding and alignment, as well as provide focus and direction for each individual in the Company. We encourage the Company to ensure a proper balance between maintaining continuity and embracing change. The number of simultaneous strategic initiatives underway warrants careful consideration to prioritization and execution to leverage the positive aspects of a stable, mutual business while positioning the company for an even brighter future. In light of the 150-year history of the company, the current initiatives should provide great comfort to policyowners and employees about the future.
Human Capital
Strategy is executed by people. We were impressed with the high caliber of the people we met in the home office and the field. Individuals are committed, talented, proud and passionate about the organization and its goals and strategies. We have a feeling of confidence that the leadership of the Company is in good hands, and that the Company has a well-established succession planning process. We encourage continued attention to succession planning and an active management development process.
Field Growth and Home Office Support of That Growth
We believe that the financial representative distribution system through which the Company markets its products is fundamentally sound and provides a unique competitive advantage. We concur with the Company's belief that there is an opportunity to more actively grow the number of financial representatives, and we support the notion of penetrating underdeveloped U.S. geographical markets as part of this growth. There appear to be two key levers. First, we were encouraged by, and support the continued investment in, expansion of the field infrastructure by redesigning the Managing Partner contract to support development of second-line management. Second, we believe that field support activities, such as training, recognition, rewards, and administrative infrastructure, are critical to future development. While these activities appear to be well developed for newer representatives during years one to four of their tenure, we believe further emphasis should be given to representatives in years five and beyond as they seek to build their own practices and consider field management opportunities. A balanced focus on both newer and more seasoned representatives should lead to both greater numbers of representatives, and greater representative productivity over the long term.
Integration of Investment Products and Services
We agree with the Company's strategic decision to pursue an integrated model in which investment products are included in the overall value proposition for client needs. The Company's financial security approach incorporates the ability to offer investment solutions along with insurance and risk solutions over an individual's financial life cycle. Today's financial representatives understand the need to deliver complete solutions to clients; therefore, the integrated financial security strategy should help with the continued retention and growth of the Company's field force. The challenge of aligning the insurance and financial products businesses and systems to achieve a truly integrated approach is a major undertaking. A mutual company which is able to offer world-class risk products and top-tier investments within a single comprehensive distribution delivery system represents a unique and powerful advantage in the marketplace. It will serve our Company and clients well. Our observation is that management understands the need to continue the integration process, while keeping a close eye on the financial performance of the investment product line to ensure longer term economic returns for the Company.
Service Enhancements and Operational Efficiencies
We were pleased to learn of recent developments in process efficiencies within enterprise operations and customer service, which were driven by the vision of commonality and a "one company" experience. There are early indications that combinations of service platforms could yield meaningful benefits in service levels and productivity. We encourage the company to approach business integration as expeditiously as possible in order to benefit from greater efficiencies as soon as possible.
Marketing
We believe Northwestern Mutual has a strong brand name that exemplifies trust. However, we recognize that there are similar product offerings in the marketplace, as well as a number of competitors communicating similar messages that impede the Company's ability to sufficiently differentiate itself. We encourage the Company to focus more resources on communicating its industry-leading strengths and unique value proposition to today's consumers. In addition, given that our financial representatives are the exclusive means for clients to purchase our products, we believe a differentiated marketing campaign may have ancillary benefits in supporting recruiting activities in the field.
Diversity
We note that the past two POEC reports have highlighted the need for continued attention to diversity, both in the home office and the field, and we concur with this emphasis, as we believe that diversity attracts even greater diversity. We specifically applaud efforts to increase gender, racial and ethnic diversity in the corporate leadership and the home office workforce overall. However, the field faces more challenges regarding increasing diversity. Therefore, we encourage the Company to more fully understand the business drivers of diverse growth and the market opportunity in its field operations. We believe that leveraging of specialized role models and stronger mentoring practices could further support diversity initiatives. These activities will ultimately benefit Northwestern Mutual as it competes for client business in an era of changing market demographics.
Conclusion
As the Company's 150th year draws to a close, we acknowledge that Northwestern Mutual is on pace for a record year in product sales, dividend payout, client retention, and financial strength and stability as measured by Company surplus. In times like these, it may be tempting to scale back its efforts and ambitions. However, our observation is of a Company proud of its past yet exhibiting a willingness to forge new tomorrows with excellent performance for its policyowners and employees. We trust that our observations will contribute to that restless pursuit of continual improvement.