ceoforum.com.au: How did you become interested in the sustainability issue as a CEO?
Hawker: I've always fundamentally believed that
businesses have to operate within the community, and that the community
effectively gives you a licence for your business to exist. With insurance
in particular, the nature of the business we run is, by definition, community-based.
Essentially, you have got individuals paying premiums so other individuals
can draw on them in need. It's a community pool of money, and we are given
the responsibility of managing that pool, pricing contributions and claims,
and making it efficient.
As a business person, sustainability to me is fundamentally about long-term economic sustainability. The organisational question then becomes "How do you manage your business in a sustainable way to ensure its survival for another 100 years?" This is also consistent with environmental and social sustainability.
As a CEO, you then need to create a culture within the organisation that is consistent with that sustainability goal. That essentially is my mission: to aggregate a diverse group of companies by building a common culture that has a long-term sustainable future, so we can operate in the market place in a sustainable way.
To do this, you have to find a purpose - why do you exist as an organisation? For IAG, our key organisational purpose is to pay claims, and everything we do as an organisation should be about how we do this more effectively. Everyone expects us to pay claims. The only time we won't is when someone is trying to be fraudulent and is trying to illicitly take the money from us inappropriately.
ceoforum.com.au: How did you arrive at that purpose?
Hawker: I think it was a distillation of current thinking within the organisation, and was also consistent with the broader history of the industry. Arguably some people in insurance lost sight of this for a while in recent years, but, going back further, there was always this understanding that this is what the community expected of us.
As an organisation, we really have to be here to pay clients. This is what the community expects when they make a claim, so, assuming the person is acting honestly, if we don't pay because, for example, there is something in the definitions, I think that is a failure upfront of the person who provided the original contract to the customer. We should be better at explaining to them what is and what is not in the contract.
ceoforum.com.au: Do you see defining purpose in simple terms as an important part of the CEO role?
Hawker: I do, but it can be very hard to define the purpose of an organisation. However, if you can, you are able to align all of your actions and behaviours with that purpose which gives you a wonderful self-reinforcing set of cycles, which make it far more likely you will meet your goal of long-term sustainability
A clearly defined and inspiring purpose also motivates staff. Most people in our organisation are not driven by the fact that they are working for a large company or that we make a lot of money. I think we all need another purpose to come to work every day. That's where the purpose of paying claims is very powerful. At the end of the day it is a wonderful feeling to be able to go to someone who has had a significant life event, such as a major car accident or losing their home in a fire, and be able to help them out financially. Having this purpose is also fundamental to how I personally operate. Once you've got the purpose defined, everything is driven by that and if there is anything I want to say, be it within or outside the organisation, I am trying to align what I say with the purpose of what we are doing as a company. Otherwise why say it?
ceoforum.com.au: What specific initiatives have you undertaken in the area of economic sustainability?
Hawker: We have set up an executive Culture & Reputation team, whose role is to make sure that everything we do in terms of external stakeholders, internal communication and HR align with an economically, environmentally and socially sustainable outcome. In government relations, for instance, we want to reduce the cost structure within the insurance industry, by trying to get some standardisation and industry legislation. If we can keep our cost infrastructure down as low as possible, that helps us improve our ability to pay claims and increases the likelihood of people being able to afford premiums. We've also formed a strategic alliance with MBF who will underwrite our health insurance products. While health insurance remains an important part of our customer proposition, our decision not to underwrite health insurance was linked to our belief that we can't sustainably pay claims within the health business in a way in which the community expects us to. There is a fundamental problem in that business because the community wants to claim but is not willing to pay the required premiums.
On the environment, we are doing a lot of work, both within our organisation and right across the supply chain. For instance, we are looking at how our suppliers impact on the environment when they are supplying goods and services to us. At the other end of our business we are looking at issues like the environmental friendliness of the goods we supply to our customers. If your fridge, for instance, gets damaged and you need to replace it, do you want the same one, or can we give you one that's more energy efficient? We are trying to create outcomes which are consumer choice-driven, economically and environmentally sound, and which are therefore sustainable.
Another example of activities related to environmental sustainability is our role in environmental advocacy and education. We have a very direct interest in this - for example, we pay claims as a result of environmental events, such as storms, bush fires, and so on, many of which have a direct relationship to global warming. One of the consequences of this is the increasing costs of claims in the market place, as insurers need to pay out on these events. We respond to that in two ways: the obvious one is to price the cost of insurance to reflect the increased risk, but the other is to explain to the community the likely costs of environmental warming, and therefore trying to change behaviours to prevent that cost occurring. And that message is more credible if we are implementing environmentally and socially sustainable business practices in our own organisation.
On the safety side we are the largest provider of the workplace insurance, so we have a very big vested interest in this issue. Our own workplace safety record was pretty poor, despite that fact that we are the largest supplier nationally of workplace insurance and that we provide a lot advice to other companies around the country on how to improve their occupational work place safety to reduce their premiums. So simply from a credibility point of view, we had to lift our game.
However, there is more to this issue of safety than credibility. To me it's very simple: If people are coming to work, getting hurt, and are feeling the issue is not being taken seriously, you have a fundamental problem with your business. If you have don't have happy people, then you are not going to have happy customers, irrespective of what you do. So you have to start with your own people and address the issues in your own backyard if you actually want to create an environment where people are enjoying what they are doing in the company. It was really very important to me that this issue be addressed. I'm actually the Chief Safety Officer, and, in that role, am very much involved in workplace safety issues internally. The fact that I have that role sends a message about the importance of the issue within the company.
ceoforum.com: How has your focus on sustainability affected employees?
Hawker: One major change has been in remuneration and reward systems. I think with any cultural change programme you have to be realistic and accept that, at the end of the day, people only see that you are serious when you change these systems around the new values.
The changes we are making are basically about broadening the criteria on which performance is assessed, away from simple financial outcomes and towards looking at the total performance of the business. We are now asking: What are you doing with your people? What are you doing with your customers? What is going on in the community? What is happening with your risk profile in the business you are running? This is all about having a more sophisticated view of performance, rather than simply looking at the numbers from the last six or 12 months. The reality is that, if you don't continue to perform on the people, customer/community and risk management dimensions of your role, it will erode your business in the medium term. You are not running your business in a sustainable way, you're simply cutting corners.
ceoforum.com.au: How have employees reacted to these new performance criteria?
Hawker: It is very hard at the beginning. Where you get the rub is where people say, 'I can't meet the financial targets you are giving me as well as these other things you are asking for!' What we have found is that we are requiring far more of our managers, and to be a good manager today is a very difficult role that should never be under-estimated. We've also realised that people need to have graded levels of experience with these type of accountabilities - if they aren't given any experience with them until they reach upper levels of management, they won't have enough capability. So you have to re-train or re-build a lot of middle management capability and it is not fully appreciated just how long that takes. Making this work across an organisation of 11,000 people is hugely challenging, but it can be done and we will persist for as long as it takes!
