Insurance company earnings calls are normally staid affairs. But Hartford Financial Group had a sudden burst of excitement yesterday as its largest shareholder, hedge fund titan John Paulson, joined the call. He hammered CEO Liam McGee for not being more specific about his plans for increasing shareholder value at the company, which saw its shares sink by 39% last year.
Paulson said:
“I know you’re doing a strategic review but there’s no slide talking what about what the potential would be, just that there’s challenges. Goldman Sachs came out with, I think, a very good analysis a few months ago where they showed this – they estimate the upside to doing a tax free spin-off of P&C could be over 70% of what the current stock price is trading at. Now, I agree that there’s going be challenges but isn’t your job to really overcome those challenges to achieve the maximum value for shareholders? Now, I would say that Hartford needs to do something drastic because the stock is the lowest valuation relative to book value of any major insurance company.”
And later:
“Well, I think you need to do a much better job of explaining that because Goldman’s report is a very good report on a path to separate the business and create what theyestimate as a 70% increase in shareholder value. And then you merely say there’s some obstacles and you don’t equate what the costs are to the benefit and what value do you think could be created. Because right now with the stock performing as poorly as it has relative to both P&C and life companies, I think you need a better explanation of what you’re going to do to enhance shareholder value. Merely that you’re working hard and you’re committed but there’s obstacles. What we need you to do is overcome the obstacles to enhance the valuation for your shareholders. Not merely point out that there’s obstacles.”
McGee handled the confrontation well and didn’t lose his composure, but he’s in a tough spot. He hasn’t provided details about the strategic review or the scope of what it is considering or conveyed any urgency about it.
He has relied for months on pat phrases to describe his strategy for increasing shareholder value (e.g., “We are aggressively managing the levers we control,” “We do not believe the current stock price reflects the true value of the company”). That language is fine for a while, but it sounds hollow now. McGee spoke about the strategic review in general terms at an investor day in early December. Now, two months later, it’s reasonable for investors to expect him to say more. He didn’t, and that’s a problem.
McGee needs a communication strategy. Here are four tips:
- Have something to say. Many CEOs are paralyzed by the fear that they can’t answer to all the questions investors might have. So they say nothing. In fact, there’s probably a lot McGee can say about how they’re approaching the review, the resources they’ve enlisted and the broad areas they’re exploring. Investors would welcome that, and they’ll accept that he can’t answer everything now. They won’t accept silence.
- Be ready to respond. Like it or not, this is a public process, and McGee needs to be prepared when others weigh in. For starters, he needs a thorough response to the analysis by Goldman Sachs, which suggested there were significant gains from splitting the life and P&C businesses. McGee was quick to dismiss the report but offered no specifics. He ought to say where the study is inaccurate or incomplete. It’s serious research by a smart analyst who’s respected on the street. It merits a thoughtful response.
- Speak to investors. If he’s not meeting with investors, he’d better start. It’s important that he be seen soliciting their views and building relationships. He’ll need all the goodwill he can get, especially if the turnaround takes longer than expected.
- Speak to the press. McGee has been trying to play it safe with the media, doing little beyond an occasional appearance on CNBC. That’s a mistake. He seems to have good communication skills and should put them to use. A couple of thoughtful interviews in high quality publications would give him a chance to outline his strategy and frame the issues. Right now, they’re being framed for him.
Having a communication strategy would give McGee a way to discuss the review in a consistent manner. He surely doesn’t want to tip his hand or lose control of the process, but that’s all the more reason to have a strong plan.
Otherwise, the earnings calls are going to get even tougher.