The financial services industry, first under siege in 2007 with the sub-prime mortgage fiasco, then reeling from the collapse of Bear Stearns last spring, had really hit new depths by press time in mid-October. The collapse of Lehman Brothers, the takeover of Merrill Lynch by Bank of America, the failures of AIG and Washington Mutual, and the purchase of the troubled bank Wachovia by Wells Fargo were stepping stones on the way to a global crisis that hit financial services firms hard.
In the past year, 200,000 jobs were lost in the financial services sector, according to the U.S. Labor Department's Bureau of Labor Statistics. And New York Gov. David Patterson recently blamed the crisis for the loss of some 40,000 jobs in the New York City area.
While the news has been uniformly bad, Peter Ricchiuti, a professor and associate dean at Tulane University's Freeman School of Business and a frequent speaker for meetings industry groups, sees signs the economic downturn could be briefer than generally expected.
For example, Ricchiuti points out the yield curve on treasury notes (the difference between yields on short-term and long-term issues) is positive, which, he says, is a predictor of stronger economic growth. “I wouldn't be surprised to see an uptick in the economy in the first or second quarter of 2009,” he says.
Until then, however, it'll be really tough out there for financial advisers and insurance agents, which is something companies should keep in mind when they consider changes to their annual meeting calendars, Ricchiuti suggests. Financial services companies “are cutting back on meetings,” he observes. “But this is absolutely the wrong time to be canceling meetings with your sales forces. When times are good they don't need the oomph they get out of these meetings, but now they need answers more than ever. And they have to stay in front of their clients.”
Invective Over Incentives
Tell that to insurance giant American International Group, which, after losing billions of dollars and being rescued by a huge loan from the Federal Reserve, found itself excoriated for an AIG recognition program held just after the loan was announced. Under subsequent pressure, the company canceled a slew of meetings. (See page 15.)
Also facing failure, Wachovia in October announced it would cancel an incentive program during which it would have hosted top producers on a cruise to Greece.
Christi Gibson, CRP, executive director of Recognition Professionals International, says that while there was nothing wrong with the AIG event during “normal times,” the company was caught wrong-footed in this instance. “Recognizing [producers] generates motivation, which increases productivity, which influences the bottom line,” says Gibson. “The problem with AIG is that it was the very recent recipient of a federal bailout that has shaken the markets. It was irresponsible of them to recognize [producers] in this extravagant manner at this time.”
Where We Go From Here
AIG's decisions aside, incentive programs will continue. “Obviously the financial sector has been hit hard,” says Bill Boyd, president and CEO of Sunbelt Motivation & Travel Inc., Dallas. “The impact will probably be fewer qualifiers on trips, but the same number of trips. We aren't seeing insurance taking a hit yet, but there will be a trailing impact.”
Tom Wilson, group vice president, Maritz, notes that some insurance sectors are seeing a boost in incentive program activity. “Particularly on the property and casualty side of our business, companies are saying it's more important than ever to be in front of their clients,” he says.
Fay Beauchine, executive vice president of global meetings, incentives, and events, Carlson Cos., suggests that current corporate restructuring could drive executives to the meeting room more often. “I see a focus in the short term on more meetings to merge cultures,” she says.
Steve Bova, executive director of Financial & Insurance Conference Planners, agrees that “meetings are especially important during times like these, when sharing ideas and strategies is so critical. Incentive meetings are necessary to reward high performers and common to all industries.”addressed the chaos on Wall Street in a special report to members, including a letter from Ken Crerar, president, the Council of Independent Insurance Agents & Brokers. Crerar (whose opinions do not necessarily reflect those of FICP), said that while meetings will be more important than ever during this downturn, “events that do not have a specific purpose and a defined outcome are likely to fall by the wayside, because meetings take both the time and money of participants.”
Meanwhile, many hoteliers remain relatively upbeat about meetings and incentives moving forward. Isabel Mahon, global sales director, Fairmont/Raffles/Swissôtel, notes that business from companies with substantial exposure to the mortgage mess may have fallen; however, her insurance business “seems to be sticking,” she says. Some clients have canceled or merged meetings, she adds, “but my lead pace right now is huge. I'm busier than I was a year ago.” But she notes that the trend is regional. Some of her counterparts on the harder-hit East and West Coasts are slower in developing leads and completing, while those in the middle of the country have had more success.
AIG Cancels $8 Million Worth of Meetings in Agreement with NY A.G. Cuomo
Just days after insurance behemoth American International Group announced that it was being rescued by an $85 billion loan from the Federal Reserve, top-producing agents were checking into the luxury St. Regis Resort, Monarch Beach (Calif.), for a recognition event sponsored by AIG. When news of the conference broke, commentators had a field day and AIG found itself in a public relations nightmare. White House Press Secretary Dana Perino, for example, called AIG “despicable.”
The fallout continued right up to press time on October 17, when AIG Chairman and CEO Edward M. Liddy announced that the company had “agreed to immediately cancel all junkets or perks which are not strictly justified by legitimate business needs.” Included are more than 160 conferences and events with a total cost of more than $8 million. How much the company will pay in cancellation fees was not included in the announcement, which came as part of a joint statement from AIG and New York Attorney General Andrew Cuomo. Two days earlier, Cuomo had sent a letter threatening AIG with legal consequences if it failed to “recover improper bonuses and other payments and perks from its former executives.”
At first incorrectly referred to as an executive retreat, the St. Regis event was held by an AIG life insurance subsidiary to reward 100 independent agents who had qualified for the trip.
CEO Liddy initially wrote a letter to U.S. Treasury Secretary Henry Paulson stating that “while this sort of gathering has been standard practice in our industry for many years and was planned months before the Federal Reserve's loan to AIG, we understand that our company is now facing very different challenges. We owe our employees and the American public new standards and approaches.” At that point, only one upcoming incentive program — booked into The Ritz-Carlton, Half Moon Bay (Calif.) — was canceled.
Now AIG has scrapped all upcoming recognition programs and has agreed to account for all compensation paid to its senior executives. In agreeing to Cuomo's demands, Liddy stated, “We know that the Attorney General shares our commitment to rebuilding AIG's business and paying back the US taxpayer, and we will address [his] concerns expeditiously.”