Tuesday, March 29, 2011

(No.143) Manulife = another Elvis sighting

If executives equipped with something above room temperature IQ wish to understand post-2007 public attitudes to the financial crisis, its causes and aftermath and why financial services companies and those running them are regarded (variously) with suspicion, resentment, cynicism and even loathing, Canada's own Manulife is at hand to provide another illustration.

Specifically Manulife's board of directors, occupying a planet somewhere in a parallel universe, provided for another year a level of CEO compensation the origin of which can only be found to exist somewhere in cloud-cuckoo-land.

For 2009 the Manulife board lavished millions of dollars in special bonus money on departing CEO Dominic D'Alessandro and did so after Manulife had ended up in a very deep financial ditch. That serious financial position for the company resulted from D'Alessandro having decided, in the cause of further enhancing company profits, not only to vigorously pursue the sale of guaranteed variable policies in the $billions but to cease in 2004 hedging the company's large financial risk inherent in the sale of such products.

Donald Guloien became Manulife CEO in May 2009 and for that year earned total compensation of $9,658,433. Donald Stewart, the CEO of Sun Life Financial (which had not ended up in the same unhedged ditch as Manulife), Manulife's chief Canadian competitor, earned $3,836,334 for 2009. There was no rational justification for that differential even if it might have been at least partially explained by the curious 'thinking' of the Manulife board of directors.

Let's turn now to 2010, by the end of which Manulife had already been the reluctant recipient of three successive downgrades by the rating agencies. Had I been a Manulife shareholder I would have been outraged by Mr. Guloien's 2009 compensation. Happily I was not a shareholder and am even less likely than ever to become one. Had I been one now I might have been rendered speechless by Mr. Guloien's total compensation for 2010: $9.66 million.

Remember that Mr. Guloien's core role as chief executive officer of Manulife has been essentially janitorial -- i.e., trying to clean up the financial mess left by his predecessor. On the plus side he has at least acted to increase somewhat the proportion of Manulife's foolishly acquired variable business that is now hedged.

Still, in what sphere can his 2010 total compensation be justified when the company's 2010 results compared to objectives were as follows?

1. net income objective -- $2.6 billion; result -- net loss of $391 million

2. return on equity objective -- 11%; result -- 1.8%

Given these 2010 results, the rationale provided by the Manulife board for the CEO's bloated compensation package is not just weak, it is risible. Indeed it is about as convincing as another reported sighting of Elvis Presley, this time pumping gas at a Mobil station in Natchez, Mississippi.

One can only wonder how long Manulife's shareholders, especially its larger shareholders, will be prepared to tolerate ridiculous levels of senior executive compensation for inferior results.

As for the investing public (plus the public generally) a societal cynicism that already has little or no real regard for big business leadership has been provided by Manulife with yet more reinforcement.

Alastair Rickard


blog: RickardsRead.com

email: Alastair.Rickard@sympatico.ca

Access to previous columns on RickardsRead:

Any of the previous 142 columns (numbered consecutively beginning in Dec 2008) posted to RickardsRead can be accessed by going to www.RickardsRead.com

In the left margin (positioned beside each column) are shown the years during which the columns have been posted as well as the months of the current year in which columns have been posted.

An example:
to access column No.50 ("Pt 1 -- Sun Life: comments on its performance") posted Sept.10, 2009:

1. go to www.RickardsRead.com
2. the columns for the current month will be shown by number and title in the left margin
3. also in the margin, below the months shown for the current year, are links for the years 2009 & 2010
4. for column N0.50 which was posted on Sept.10, 2009: click on "2009", then click on the month of "Sept" and finally click on "No.50".


Wednesday, March 23, 2011

(No.142) Sun Life reactions pro & con

From time to time I write columns for RickardsRead.com about the financial services business and in particular Sun Life Financial, a company with which I was associated for a few years following its takeover of Clarica Life (the demutualized Mutual Life of Canada). It is therefore not surprising that some Sun Life agents, branch managers and head office executives (past and present) read the columns, some of which have been critical of Sun.

On Feb.23, 2011 I posted to RickardsRead.com a column (No.138) "Sun Life's Canadian jewel". It was, in part, positive about aspects of Sun's Canadian operation (especially recent improvements in the performance of its career agency distribution system) but again pointed out aspects of Sun's operation that were problematic. As usual I received a variety of email responses from current and former Sun people. In this column I will share excerpts from several.

A former member of Sun Life management said that "I think these comments indicate how thoroughly essential, indeed necessary, your blog is, for so many reasons." This flattering comment was more than balanced by an objection from a Sun Life agent in its Canadian career agency distribution system. Although a member of Sun's career system he is not a happy camper. Nor does he seem to have read, for example, my 5 column series on Sun's distribution and agency problems (column Nos. 50,52,60,61 & 62; posts began Sept.10, 2009)

"I read your columns with a grain of salt," he declared. "The following statement [from column N0. 138] is something I must wholeheartedly disagree with and I have found that there's a serious bias towards the career or captured sales force vs brokers are bad, just because they are bad.

"The statement in question is 'like selling and writing profitable insurance business, or the professionalism and productivity of Sun's Canadian career agents compared with policy pedlars overseas flowing in and out of the system monthly by the thousands [sic], are not synonymous ...

"You seem to have lost touch with the CSF in Canada [ i.e., Sun life's career sales force - ed.]. If you had current experience with the Sun crop, which is really the Clarica crew as most former 'Real' Sun agents are now in MGAs, you would realize that the professionalism which you talk of is a little different than what you remember.

"For instance in [my] branch, since I was contracted, 9 out of 10 new hires left in under 2 years, most of whom left within 8 months of signing. Further the Regional Training School which I attended has a retention rate of 3 for 22. Which when looking at Quickstart winners who have all left the company BEFORE they would be vested and therefore failed I would find it funny that you hold the system so high.

"Outside of a reasonably even handed approach to other things I think you are seriously biased towards the the CSF in Canada. We have been told that the [Sun] CSF has underperformed the [Sun] MGAs by quite a margin in 2010.

"Now if you are a member of the CSF how do you go to a client and tell them that now you are selling Permanent Policies and how great they are when 10 years ago you told them to cash them in [Sun recently reintroduced a participating whole life policy - ed.]?

"Not to mention the ridiculous commission structure that no one can explain, your group contracts don't count towards your bonuses, and that if you sold the same product with another carrier, say Investors Group, Investment Planning Counsel or MGAs etc, you would have made 15 years of your CORe in 2 years [ a reference to delayed commission under the Mutual Life now Sun Life lifetime level commission system - ed].

"The CSF has warts, they are numerous. Call it down the middle."

My reply to the agent began with my declaration that "I am indeed in favour of the career system -- although not only that system of distribution -- for a host of reasons about which I have written in various publications (including my own Canadian Journal of Life Insurance beginning 30+ years ago).

"For years some people in the [life insurance] brokerage business disliked as much as you apparently do certain comments I made about certain realities of the life insurance marketplace. For that matter so did executives of the then more numerous career companies. Disagreement with my views comes with the territory.

"I have spent as much time criticizing the management of the career system (including Sun's, going back to when Sun [pre-Mutual/Clarica] had a career system of its own in Canada) as I have 'brokerage'. Indeed I have written more paragraphs of criticism of agency distribution of all types and subsets than most agents (or brokers) have had hot dinners.

"You will search in vain for any argument made by me publicly or privately that career distribution is "perfect" or anything close to it. Indeed besides being an even smaller part of agency distribution in recent years, career agency has even more problems than ever. But then so does individual life insurance distribution generally; it is the industry's achilles heel."

There were a variety of errors and false assumptions stated by this disgruntled Sun career agent that I did not address in my reply. For example: the statement that the Sun Life MGA (managing general agent) distribution system outperforms Sun's career system in Canada; the reality is that its MGA system in a good year might aspire to account for 20% of Sun's individual total by selling a great deal of Sun's original universal life the profitability of which is at best degraded.

Sun's career system exceeded sales expectations in 2010; its recruiting is again in significant net gain territory; its 4 year agent retention rate should be approaching twice the industry average if it is not there already. The response by many of its career agents to the new Sun par whole life policy has been positive, not surprising since it is a policy type that many experienced agents had long wanted. In short Sun's CSF has not for some time had as good a year as it had in 2010.

A different reaction to Column No. 138 came from a member of Sun's current management: "I wanted to thank you for your vote of confidence. I feel that we are getting back on track to have the best career system in the country. I also just read your comments being captured in [ two articles published in the Feb 2010 issue of] Insurance and Investment Journal. A very important message to get out."

Finally, a former member of Sun's management team emailed in response to column No. 138 that "one may hope that either [Sun's] executive management or the analysts acting as advocates for the company shareholders will take some of your wisdom to make ongoing investments in the Canadian career system.

"I have distilled this down into the theorem," he concluded, "that to hit more home runs all you need is a bigger bat. Bigger bats look like product, [agent] support and well aligned [agent] compensation/recognition programs."


Alastair Rickard

blog: RickardsRead.com

email: Alastair.Rickard@sympatico.ca

Access to previous columns on RickardsRead:

Any of the previous 141 columns (numbered consecutively beginning Dec, 2008) posted to RickardsRead can be accessed by going to www.RickardsRead.com

In the left margin (positioned beside each column) are shown the years during which the columns have been posted as well as the individual months of the current year.

For example:
to access column No. 50 ("Pt 1 - Sun Life: comments on its performance") posted Sept.10, 2009:

1. go to www.RickardsRead.com
2. the columns for the current month will be shown by number and title in the left margin
3. also in the margin, below the months for the current year, are links for the years 2009
and 2010
4. for column No.50 which was posted on Sept.10, 2009: click on "2009", then click on the month of "Sept" and finally click on "No.50".


Monday, March 14, 2011

(No.141) Murder by rose petals

Paintings with subjects drawn from history are often the most interesting to me. I am a frequent visitor to art galleries but one with little interest in the work of, say, abstract expressionists such as the Americans Mark Rothko (1903-70) and Barnett Newman (1905-70), much less do I possess any willingness to subscribe to the view of those art critics who seek to confer "canonical status" on the creators of artistic rubbish. In fairness to my wife Pat, my companion in visiting galleries and museums, she has a broader and more sophisticated taste in art than I do.

The story behind a painting can interest me as much or more than the painting itself. This is perhaps the curse of one whose major was history. In my case it is one of the reasons I enjoy the paintings of the French artist Jacques-Joseph Tissot (1836-1902; also known as James because of his sojourn in England beginning ca 1871). I refer specifically to paintings done in England prior to Tissot's switch to religious subjects following the suicide of his companion Mrs Kathleen Newton in 1882. See for example, Tissot's "The Gallery of HMS Calcutta (Portsmouth)" ca. 1877 or "The Artist's Ladies" 1883.

Another painting of this period with historical allusion is "Roses of Heliogabalus" painted by Sir Lawrence Alma-Tadema (1836-1912), the Dutch painter who lived and worked in England from 1870 on. The painting fascinated and even shocked some English Victorians when it was first shown at the Royal Academy Summer Exhibition in 1888. It depicts an infamous dinner supposedly hosted by the Roman Emperor Heliogabalus -- also known as, among other names, Elagabalus and Marcus Aurelius Antoninus. [To view an online reproduction of the "Roses" painting, go to www.artcyclopedia.com]

Educated Victorians knew the stories of the lust and depravity of this Emperor whose short rule (218-222 AD) became a byword for excess, with a reference to him even making it into a line of a song in the 1879 Victorian comic opera by Gilbert and Sullivan "The Pirates of Penzance".

Heliogabalus is one of the Roman psychopaths less well known to history than Emperors Nero and Caligula. He was married to one of Rome's Vestal Virgins and to a boy-charioteer. He liked to eat camel heels and cocks-combs plucked from living birds. He fed his horses grapes and his dogs ate goose livers.

The painting "Roses of Heliogabalus" depicted the Emperor and some friends enjoying, from the perspective of a high table, the spectacle of an unusual murder: vast quantities of pink rose petals poured down on less important dinner guests reclining at tables below them. According to one Roman writer, some were smothered to death by the petals.

Does "Roses of Heliogabalus" deserve to be called a 'masterpiece'? Probably not but then there is still no agreement on what constitutes a masterpiece of art, or even on what the objective criteria for one might be. I agree with those who argue that it is more sensible to recognize that many people may know a masterpiece when they see one and therefore the discussion of the subject is more useful when the focus is on why they think so.

The "Roses" painting is not to be found among the 1000+ artworks in a new online site devoted to fine art. The site is a collaboration between Google and (thus far) 15 of the world's leading art museums. The Google Art Project (found at www.googleartproject.com) allows the viewer to explore art selected by each of the galleries from its own collection and made available on the site. One can move around a museum's galleries using a sort of 'street view technology' zooming in on paintings that are of interest.

Why did these museums agree to become involved with the art project? I think mainly because their directors understood that online viewers will be encouraged to visit their museums and see these and other art works up close in their reality. There are some very famous galleries involved in the project such as the Metropolitan Museum of Art (New York), the National Gallery and the Tate Britain (both in London) and the Rijksmuseum (Amsterdam). In any case the online approach to art is surely growing for the viewing and for the purchase of both new works and reproductions.

Oh yes. Why was the "Roses" painting not chosen -- or even considered -- for inclusion in the Art Project? It was originally purchased in the 1880s by a Tory MP and art collector named John Aird and the painting is still in private hands.

And finally an illustration that even fewer than '7 degrees of separation' are not confined just to movie stars like Kevin Bacon: the painter Alma-Tadema bought Tissot's former house in St John's Wood (London).



1. For a recent review article on abstract expressionism, see Patrick McCaughey, "Men of primordial mode", Times Literary Supplement, Feb.4, 2011.

2. For James Tissot's life and paintings see www.jamestissot.org

3. On the subject of art masterpieces see the recent book edited by Christopher Dell, What Makes A Masterpiece? Encounters with great works of art (Thames & Hudson, ca. 2010).

4. On what is fact and fiction in the life of Emperor Elagabalus, see the recent book by Leonardo de Arrizabalanga y Prado, The Emperor Elagabalus: Fact or Fiction? (Cambridge University Press, ca. 2010)

5. Google's Art Project involving the 15 galleries can be visited at www.googleartproject.com

6. Examples of Canadian new art websites:
-- www.Eyebuyart.com
-- www. Etsy.com

7. Examples of art reproduction websites (U.S.):
-- www.artsheaven.com
-- www.art-prints-on-demand.com

Alastair Rickard

blog: www.RickardsRead.com

email: Alastair.Rickard@sympatico.ca

Monday, March 7, 2011

(No.140) Graceless ingratitude & financial executives

In a recent column on the RickardsRead.com website ["Sun Life's Canadian jewel", No. 138, Feb.22, 2010] I referred to the importance to Sun Life Financial's profit total from its world wide operations of its business in Canada and the comparative insignificance of its extensive Asian operations [$92 million in 2010, 1.5% of Sun's total].

Manulife, Sun's leading rival among Canadian life insurance companies, also has extensive Asian operations about which it has long been bullish but, in my view, less than forthcoming over the years in terms of disclosing operational and revenue details and breakdowns.

Manulife is now musing publicly about expanding its Asian operations into South Korea and India (the latter being a country in which Sun Life has been active in the past decade via Birla Sun Life). Manulife predicts its Asian proift "may climb" to $1.5 billion from what it says was $623 million in 2010.

I am sceptical about the reported volume of Asian profit per se for Manulife (as indeed I have long been about the actual divisional breakdown of Manu's operations in various regions of the world). I wonder about Manu's reported Asian profit numbers and about whether the appropriate costs and pricing assumptions were or were not fully reflected in arriving at the 2010 profit figure for Asia.

In Sun Life's case its comparatively modest Asian profit numbers convey a reality: that its Asian operations are icing but they are a long way from being a cake. What about Manulife's Asian profit numbers?

[See also column No. 132 on the RickardsRead.com website: "Sun Life and Manulife: returns & departures", Jan. 15, 2010]


The Feb.2011 issue of The Insurance & Investment Journal had two extensive and interesting articles by freelance writer Rosemary McCracken about the life insurance industry's reaction to the (Toronto) Globe and Mail's series whose principal focus was the managing general agency (MGA) distribution system for life insurance.

I had written about The Globe's criticisms of the MGA system on RickardsRead.com [ see "The Globe looks at insurance distribution", column No.131, Jan. 10, 2010] and Ms. McCracken quoted from it in both her articles. She talked to a variety of industry people and did a fine job of covering a range of industry reaction to the Globe's critique. Her articles are well worth reading.


1. www.insurance-journal.ca
2. www.cailba.com [the website of the MGAs' trade association]


During the past two years plus of RickardsRead.com I have railed in numerous columns at the greed, incompetence and stupidity of certain senior executives in the financial services business, especially in the U.S., whose actions led the U.S. and other western economies to the edge of financial disaster.

This leads me to the Canadian writer Rick Salutin. He is one of the best columnists writing in any of the Canadian, American and British newspapers I have read over the years. He very often writes columns that prompt me to think in a different way about an issue or a topic. That is a talent not found often enough among today's columnists.

After many years of Salutin writing a Friday column for the Globe and Mail, that newspaper foolishly let him go -- perhaps as part of its 'redesign' to make the paper more appealing to those who prefer the appearance of USA Today and similar publications. Fortunately for me and many other readers Salutin is now writing a Friday column for Canada's largest circulation newspaper the Toronto Star.

In a recent column [The Star, March 4, 2010] about " the labour resurgence" his comments exemplified why I enjoy reading his columns. They also resonated with me because of my years in the financial services business.

Salutin referred to the "moral intensity" to be seen in "the widespread rage against the arrogant, greedy behaviour of big business and especially finance: the banksters and hedge fundies who demanded deregulation, peddled their useless monetary 'devices' that brought on the apocalypse, then demanded a bailout, then more bailouts, while continuing to gobble bonuses and call for cutbacks in underfunded basics like education to pay for their own bailouts."

"It's revolting," he continued. "It's not even their original sins that elict disgust, it's their subsequent graceless ingratitude."

I could not aspire to say it so well.



Alastair Rickard

website: www.RickardsRead.com

email: Alastair.Rickard@sympatico.ca