To oversimplify dramatically, let’s just say there are three kinds of people in business: people who make things, people who sell things and people who tell the people who make and sell things what to do — and what not to do. The members of this last group are known as managers.
The interplay among these types varies. Sometimes the makers rule the roost; sometimes the sellers do. Sometimes the makers and sellers become managers, because most times the managers hold the cards. In theory, they are all paid for the work they do to enrich the owners — the shareholders who hire them through the auspices of the most-senior managers, the chairmen and chief executives of companies, who are governed by boards of directors elected by the owners.
On Wall Street in recent years, senior managers appeared to know exactly what to tell everyone else to do: Make and sell more things! Any things you can get your hands on, to anyone! Don’t stop at Go! Then, when the subprime edifice collapsed and the credit crunch ensued, they kept their bonuses while shareholders lost billions.
To be fair, the pell-mell growth encouraged by such skewed financial incentives — and by ravenous shareholders — surely strained the managers’ abilities: After all, in a generation, Wall Street firms have grown from elite members of what was effectively a cottage industry into diversified global giants. Maybe they just got too big for their riches. Is it a coincidence that the one traditional Wall Street firm that has so far sidestepped the market debacle is also the one that resisted doing an IPO the longest: Goldman Sachs, which went public in 1999 but continues to cling to its partnership ways?
Maintaining management discipline while expanding globally is a subject we explore in two articles this month. In the cover story, “Invesco’s Mr. Fix-It,” beginning on page 32, Senior Writer Michael Shari describes the chaotic expansion of Invesco from modest roots as an Atlanta money manager in the 1970s into a London-based potpourri of boutiques at the start of this decade. When overexposure to tech stocks and in-volvement in the U.S. mutual fund trading scandal tarnished the firm’s returns and reputation, it turned to Martin Flanagan, then co-CEO of Franklin Templeton Investments. He razed the anarchic management structure, centralized support services, consolidated information technology platforms and rejiggered compensation to promote cross-selling. Profits and share price have recovered, but the turnaround remains a work in progress as Flanagan looks to restart growth.
In “Banking on Insurance” (page 42), Senior Editor Jo Wrighton describes Michael Diekmann’s no-less-daunting challenge of reenergizing giant German insurer Allianz. Since becoming CEO in 2003, he has slashed overhead and cut offices at home and is focusing abroad to turn the company from a confederation of largely autonomous national franchises into a coordinated global business. His job is hardly finished, though. He must still clean up the mess he inherited at Dresdner Bank. One option is to sell off its investment banking arm — if anyone will have it.
