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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 2008 Committee's complete report is reprinted here. As representatives of the more than three million policyowners of Northwestern Mutual, we submit this report of our observations and recommendations. This process is unique in corporate America — to give an independent group of customers and owners full access to senior management, employees, financial representatives, field leadership and books of the Company. We appreciated this opportunity and hope that our contributions will support Northwestern in its mission to fulfill the financial security objectives of clients for many years to come. This report is being published in Spring 2009, but our work started on September 29, 2008, when the Dow Jones Industrial average had its largest single-day fall ever of 777 points. The Fall of 2008 was a time when many companies — in particular, banks, investment firms and insurance companies — felt the impact of tightening credit, declining stock markets and a global economic slowdown. This led to unprecedented government intervention aimed at easing these tough economic conditions. We therefore began our work by investigating the Company's financial strength and response to market dynamics. Financial and Economic Challenges
We believe the Company is strong, secure and in an enviable financial position. Northwestern Mutual entered 2008 with one of its strongest surplus positions in its 152-year history. Surplus can be thought of as assets set aside to protect against the unexpected, beyond the asset valuation reserve that provides a "cushion" against market volatility. In addition, the Company has very strong cash flow and liquidity that provide safety, flexibility and opportunity. Expenses are tightly managed. The mutual company structure enables the Company to take a longer-term approach to asset diversification and portfolio balance, with clear focus on what is in the best long-term interests of policyowners. Finally, the Company's teams of investment professionals have deep experience and tenure and are compensated on long-term rather than short-term results. All of these factors contribute to Northwestern having earned top ratings for financial strength from Fitch, Standard & Poor's, Moody's, and A.M. Best Company, the four key rating agencies for insurance companies. We encourage the Company to be more vocal about the many reasons why existing and new policyowners should take comfort in Northwestern's strong financial position and excellent long-term value proposition. We also recommend the Company maintains a watchful eye on economic and regulatory developments as the financial situation continues to unfold. |
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Lower center: John Balboni (chair), Senior Vice President, Information Technology and Chief Information Officer for International Paper Company, Memphis, Tennessee. From left: Kenneth Macias, Founder and Chairman of Macias Gini & O'Connell LLP, Sacramento, California; Jeffrey Hayzlett, Chief Business Officer and Vice President, Chairman's Office, Eastman Kodak Company, Rochester, New York; Mary Ellen Stanek, Managing Director and Director of Asset Management, Robert W. Baird & Company, Inc., Milwaukee, Wisconsin; Michael Hayford, Senior Executive Vice President and Chief Operating Officer of Metavante Corporation, Milwaukee, Wisconsin. |
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Integrated Financial Security Strategy
In recent years, the Company made a strategic decision to pursue an integrated model of addressing its clients' financial security needs. The aim of this strategy is to help clients achieve a feeling of confidence that they will realize their financial security goals. The Company's strategy incorporates appropriate insurance solutions, along with investment solutions, as a client progresses through cycles of risk management, wealth accumulation, and wealth preservation/distribution. It is spearheaded by an exclusive field organization that develops meaningful long-term relationships with clients. We found that the strategy is well-articulated and understood, and the Company is continuing its implementation. The field is committed to this focus on financial security and has embraced it as an important platform both for serving client needs and attracting and retaining high-quality financial representatives. Systems and development efforts are in alignment, and new metrics have been developed to track progress. Efforts are also underway to align compensation and incentives to support the strategy. We have three recommendations about the strategy: First, continue to utilize metrics for individual departments and performers aligned with the enterprise; second, accelerate full implementation of support and customer reporting systems; and third, continue focus on the unique servicing needs of the transactional investment business. Financial Network and Network Office of the Future
We believe the Company's sales arm, The Northwestern Mutual Financial Network, which operates through independently managed field offices, represents a key strategic asset. Northwestern Mutual representatives are highly productive, and the field offices are efficient. However, the number of full-time financial representatives has essentially remained level for over 10 years. Thus, the Company has embarked on an organic field growth strategy that includes adding greater numbers of financial representatives. This is supported by more second-line management and more significant Company investment in field office support — including revised field leadership contracts. We support this growth agenda as a driver of increased sales and therefore lower unit costs. Lower costs and healthy sustained sales revenue have provided and will continue to provide better financial value for all policyowners. We observed that some new growth initiatives are already showing signs of success. For example, the new Practice Management Roadmap has great potential and should continue to be emphasized. We also encourage the Company to look at ways to provide more support to field staff to improve productivity for both representatives and clients. Finally, we believe the Company should explore opportunities to further leverage the Northwestern Mutual brand in local markets versus the local and Company brand. Customer Centricity and Delivering the Integrated Strategy
We noted excellent progress in building out a service platform that supports the integrated Financial Security strategy. The Company is starting with the needs of the end client in mind: equipping financial representatives with tools and techniques to service their clients more efficiently and ensuring that representatives remain the primary service relationship providers. We were pleased to see the new Enterprise Operations team now functional and committed to "one" Northwestern Mutual, showing "one face" to the customer. As customers, we enjoyed seeing the vision for an integrated, consolidated statement that would show multiple product lines, as well as provide online viewing for clients. We recommend moving that work forward as quickly as possible, since we believe it will result in both better field efficiency and the ability to service a more complex client base. In addition, we encourage the exploration of a deeper self-service capability for clients that desire this approach. The development of self-service, however, must be consistent with the strong personal relationships developed and managed by financial representatives. Human Capital and Leadership Development
With the accelerating pace of employee retirements and a new integrated business strategy, it is clear that our 152-year-old Company will continue to change. Northwestern has made good strides in strengthening its leadership development programs, implementing a thoughtful and thorough succession plan, and refining a clear process to identify future leaders. While we applaud the Company for these steps, we would like to see more prominence given to leadership growth and diversity of thought in the home office culture, which can produce even better solutions and outcomes. Within the field, we encourage a heightened commitment to gender, racial and ethnic diversity to help the Company better capitalize on the demographics of the communities it serves. In particular, we commend the Company for recognizing the growth and potential of the Hispanic segment as clients and financial representatives. We also believe there are opportunities to more tightly align home office leadership development programs with those of the field to cross-leverage best practices and enhance leadership growth. Conclusion
The times in which Northwestern Mutual is operating can be characterized as turbulent, challenging and even chaotic. The competitive landscape is rapidly being reshaped. We certainly believe future generations will look back on 2008 and 2009 as historic in many ways. We felt reassured as policyowners that our trust in the Company is being honored by continued strong performance and a solid strategic plan for the future. We believe this financial strength can be leveraged even further. Even though the Company is navigating through difficult waters, we feel confident that Northwestern Mutual will continue to chart a successful course as The Policyowners' Company. |
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