Bouncing back Featured

8:00pm EDT July 26, 2009

In the late 1990s, growth was good at Meadowbrook Insurance Group Inc.

At that point, Bob Cubbin was the president and COO and in charge of managing the company’s day-to-day operations. The short-term outlook was rosy as the insurance provider glided toward the start of the 21st century, and the company was in the process of branching into new noncore business areas, attempting to increase the breadth of its product offerings.

But then, the situation rapidly changed.

Fast growth coupled with a period of low pricing in the insurance industry led to financial strain at Meadowbrook. The company could no longer adequately support its growth, which caused profits to drop and, in turn, industry ratings agencies to downgrade Meadowbrook’s standing.

“This was all caused by a drive to grow too fast, particularly at a time when pricing in the insurance business was at a low,” says Cubbin, now Meadowbrook’s president and CEO. “Our company really deviated from the business plan, and on top of that, it really wasn’t a favorable environment (for rapid growth).”

The company’s financial situation was stabilized by what Cubbin calls a “get back to basics” approach. It required a willingness on the part of the management team to pull together, evaluate the state of Meadowbrook, reaffirm the vision and mission to the entire company, and refocus everyone on the building blocks that helped construct the company in the first place.

What Cubbin and his leadership team learned then are lessons that last a career. The principles that drove Meadowbrook’s turnaround a decade ago are also helping the company weather the current economic storm.

This is what Cubbin learned then and how it’s still helping Meadowbrook now.

Communicate early and often

The first steps Cubbin and the rest of Meadowbrook’s leadership team took in facilitating the company’s late-’90s turnaround are the first steps your organization can take to remain stable in the current economy: identify the areas on which you want to focus, develop a plan of attack and keep everyone companywide in the loop through constant communication.

It’s a process that needs to start at the top.

“For starters, we sat down with everybody on the executive team, talked through their specific areas of expertise, identified the things that were working and weren’t working, and determined what we needed to do to get back into a profitable mode,” Cubbin says. “Our plan ended up centering on our effort to exit the businesses that we had veered off into and were not profitable or consistent with our traditional game plan. Then we had to take advantage of and work to generate more profits from the businesses that had remained profitable through the tough economic times.”

The plan was to refocus Meadowbrook, which had $457 million in gross written premiums last year, on what had built the company — primarily risk management services to self-insured groups, agent-based insurance services and insurance for groups. It might seem easy to grasp, but implementing it required a mentality shift for 950 employees in multiple locations.

It was an example of the often-used business analogy of turning a battleship. And the only way to make the lengthy pivot move is through extensive communication.

Cubbin says the first thing you need to remember about communicating throughout your organization in tough times is to keep your messages simple and effective.

“Employees want to know that you have a game plan, that you have a strategy and vision for the business,” Cubbin says. “They want to know that what they’re doing is consistent with the company’s strategy and with the business plan. They want to hear what your thoughts are, what is happening in the market, and what you are doing to grow the business and make it successful.”

In the initial phase of the turnaround, Meadowbrook’s leaders traveled to each of the company’s locations for in-person engagement of employees. It’s a practice Cubbin continues today, through multiple communication avenues.

As your company grows, you can’t let communication break down. Particularly in a challenging economy, you might feel that employees need to hear news straight from the top. But even if you can’t engage them in person as often as you would like, you cannot let your communication lag.

Cubbin relies on multiple methods of communication to keep the organization focused.

“We have over 20 offices throughout the country, and I do try to have a number of in-person meetings,” he says. “But you can’t be out there all the time. I rely on my management team, which has been great with communicating to both our customers and our employees.

“We try to keep a steady flow of information coming from the home office, and on a quarterly basis, we report on the state of the entire company. In the interim, we stay connected through conference calls, including monthly conference calls with our branch managers. Through setting up multiple means of communication with different areas of the company, you find out what is happening in the marketplace, what strategies are working or not working in certain segments of the business, and others hear it, as well. You want everybody on the same page, hearing what is successful or isn’t successful in other parts of the company. That approach has been very effective for us.”

How you communicate in challenging times is only part of the battle. To get your employees on board with your plans and maintain their confidence in management, you also have to know what to communicate.

A straightforward, blunt answer is sometimes the toughest to give, but Cubbin says it is the right path to choose. When negative news is inundating the senses of your employees, spawning anxiety and rumors, they want the unvarnished truth from management before they want anything else.

“You have to communicate often, but when you do, you can’t be afraid to deliver bad news,” Cubbin says. “People start to fear the worst if they’re kept in the dark. If all they’re doing is watching CNBC or reading the newspapers in this environment, then all they’re hearing about is companies laying workers off and cutting salaries.

“People are going to feel the way they’re going to feel when they’re away from the office. But when they’re at the office, we just want to give them a steady stream of information. We try to have our financial statements available to them, but go beyond that and try to explain what is behind the financial statements and what is going to drive our profitability.

“If you’re going to talk to people and be in front of them in times like these, that is some important information that you can give them. If you withhold information from employees, people start to worry about the company’s balance sheet and whether their jobs are stable. That is a very common fear among employees at companies where information from senior management is lacking.”

Manage risk

In much the same way that Meadowbrook spread itself too thin a decade ago, companies that are feeling the sting of the current recession are, in many cases, suffering a backlash from accelerated growth when times were better.

Risk is an inherent part of leading a business, and some situations call for taking a calculated risk, such as branching into a new market. But when you decide to take a risk, make sure that you manage it and always wonder about the consequences if the economy falters and revenue starts to dry up.

“Companies that got into trouble during the current economy were overleveraged,” Cubbin says. “They were taking far more risks than they could afford. And if we didn’t learn from our past here at Meadowbrook, we might have been doomed to make the same mistakes all over again. The lessons we learned from the past helped us stick to the basics, stick to our core values in the company, and we’re not taking undue risk.”

Risk management starts with maintaining discipline during good economic times. It was a challenge for Meadowbrook’s leaders to renew the company’s focus on its core businesses during the turnaround, when the company’s future was at stake. But perhaps an even more critical test is keeping your company focused on risk management when times are good and employees don’t fear for their jobs.

If you prepare for bad times during good times, you can develop risk-management skills in your employees before the economy forces them to do it on short notice.

Preparation comes back to communicating the financial status of your business to employees and seeing to it that you always keep your finger on the pulse of profits and expenses.

“It’s really all about measuring and metrics,” Cubbin says. “If you’re measuring something, it gets looked at. If you look at the metrics of your business, you see variances from what your expectations are. Then, you can take steps to change those things.

“The second tip is to not anticipate growth and new business when putting your expense structure together. If you build your budget around a status quo or even factoring in a little erosion in your business, you’re going to build discipline with regard to looking at expenses. If you are able to achieve new business and grow revenues without adding expenses, that is when your margins are going to expand.

“At the end of the day, you need to always look at your business expenses as if times are always tough. Then, if you have to shrink, you have an expense structure that can support a smaller revenue base.”

Build on success

When the economy is struggling, victories for your business can become smaller and less frequent. But they can still occur, and when they do, you need to leverage them to build momentum and confidence throughout your organization.

“You have to celebrate those little wins along the way, so that people understand that things are working out,” Cubbin says.

When an employee secures an account, makes a key sale or achieves anything of note, he or she should be rewarded. At Meadowbrook, Cubbin has helped institute an incentive program to reward employees who help create wins for the company, no matter how big or small the win might be.

“As we moved through some of the more difficult times, we would reward people in small incremental improvements,” he says. “You have to put in a bonus and incentive plan that rewards the right things. That’s basic management, but you have to do it immediately: give spot bonuses, send e-mail messages, anything to reward good performance. It goes a long, long way with employees.

“We have been fortunate enough to have bonuses and create incentive plans that are positive for our employees. But most importantly, we’ve been able to build a steady, stable company with a strong balance sheet and strong liquidity. That gives employees the confidence and comfort that they and their families are going to continue to have a source of income.

“All of these things build a company: If you’re consistent with communication, if you’re finding ways to grow the business, increasing your profitability and rewarding people through an incentive system — if you do that, you’re going to continue to have well-motivated and happy employees.”

How to reach: Meadowbrook Insurance Group Inc., (248) 358-1100 or www.meadowbrook.com