Nothing lasts forever…

Which former US corporate icon was founded by a legendary inventor in 1892; almost failed to survive its first year; and had been, until recently, an admired stalwart of US business? It is, of course, GE.

Yet, during the Great Financial Crisis, this corporate behemoth, once an “undoubted AAA”, had to be supported by the Federal government, and the Warren Buffett imprimatur (which helped save a few more institutions during the panic and turmoil), because its financial “evil twin”, GECC (which was backed by the holding company) had become so large and over-extended that a sudden liquidity crisis threatened to cause it to implode, dragging down the industrial businesses, and threatening corporate bankruptcy. The truism that “lack of liquidity kills companies” almost claimed another victim.

Such an outcome would have shocked the entire US corporate establishment, because, if anything, GE was associated with the quality, longevity and “interoperability” of its executive cadres, graduates of the company’s famed Crotonville management training centre, whose approach and seeming success others aspired to. The belief was that a GE management education equipped one with the ability to manage anything. Perhaps, someone should have pointed to the example of Robert McNamara (one of the products of Ford Motor Company post-WW II “Whiz Kids” generation) as an indication that there are limits to such capabilities, and that very few individuals are true “practical polymaths”.

In fact, one could argue that, partly because of the lack of trenchant criticism of its conglomerate approach, and the intimidating reputation of GE leaders such as Jack Welch, those who should have questioned the rate of growth and over-leverage of GECC, were unwilling to do so: the facts spoke for themselves, until they didn’t.

And now, following the recent debacle of its need to create billions of dollars of reserves and charges in respect of its legacy reinsurance exposure to US long term care obligations (GECC strikes again- a sting in the tail, if ever there were one!), the once unthinkable is being contemplated- the break-up of GE into 3 or more businesses.

However, anyone who feels a touch of schadenfreude at such a potential outcome, would be remarkably foolish. Adapting to change and carefully managing risks are essential for long term survival in any entity; and GE has survived at scale and through successful adaptation for far longer than most (although it is not remotely the world’s longest surviving business). However, its more recent history shows that, when there is a loss of focus and discipline, bad things can happen; with seemingly invincible enterprises forced to face the possibility of painful restructuring, fragmentation, or even demise. Their executives no longer have the unquestioned “magic touch”.

Awbury Group is only in the second half of its first decade as a business, and we certainly have no illusions of grandeur. Rather, in order to create a sustainable business model, we are relentlessly focused on honing what differentiates us from commoditized (re)insurance businesses, recognizing that adaptable specialization is one way of maintaining an edge, yet remaining paranoid about avoiding complacency and shifts in our operating environment.

The Awbury Team


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