A 13-year developing story in the life insurance industry isn't much of a headline grabber. Nevertheless, it seems to me that the outstanding record Prudential Financial Inc. has enjoyed under Arthur F. Ryan, its chairman, president and chief executive officer, has not been adequately recognized by the business media. Perhaps I am biased because I do business with Prudential, but I know the story well and the facts speak for themselves. With Mr. Ryan retiring as CEO and president on Jan. 1 and planning to retire as chairman in May, it is an appropriate time for an assessment of his tenure.
CEO success means stock price, stakeholders and integrity. In my opinion, Mr. Ryan's performance based on these measures was simply off the charts.
When Mr. Ryan assumed leadership of the company in December 1994, Prudential was in disarray. The Prudential Insurance Co. of America was an old-fashioned mutual life insurer that had endured one crisis after another. In the 1980s and early 1990s, scandals involving limited partnership sales and agents churning policies had rocked the company and crushed employee morale. The board recognized that the company needed a change at the top. After a successful career at Chase Manhattan Bank where Mr. Ryan rose to president and chief operating officer, he crossed the river to New Jersey and started righting the Prudential ship. The company went through a seven-year overhaul that culminated in its 2001 demutualization and successful initial public offering. Businesses were sold or restructured, senior managers were replaced and the company was internationalized and refocused around the core mission of growing and protecting wealth.
What was Prudential worth when Mr. Ryan took over in 1994? We don't know exactly because the company wasn't publicly traded. What was its book value, based on generally accepted accounting principles? We don't even know that because, unbelievably, at that time the company didn't keep GAAP financial statements.
Based on Prudential's experience, what does it say about accountability and performance in mutual companies? Mutual companies are clearly less transparent; management is less accountable; and performance is harder to measure. Prudential's experience illustrates all of that.
Prudential's statutory book value in 1994 was approximately $10 billion. Because of all the company's problems as well as difficult market conditions in 1994, observers at the time valued Prudential around $5 billion, a steep but realistic discount to statutory book value.
Today, Prudential's market value is $46 billion. This number has not been enhanced over time by equity issuance (the IPO proceeds in 2001 were paid to policyholders). Counting stock buybacks, shareholder dividends, policyholder dividends and policyholder benefits received as a result of the demutualization, Mr. Ryan's track record at Prudential significantly exceeds a tenfold increase in market value over 13 years. Considering the company's core industry is the sleepy, single-digit-growth life insurance business, I believe Mr. Ryan's track record compares favorably to almost every top-tier CEO in America. The fact that the company has been public for only six years should not obscure an outstanding track record of nearly 13 years.
Of course, Mr. Ryan did not do it alone. Prudential's employees worked hard to achieve the ambitious goals. A strong sense of pride was noticeably absent in the 1990s. The shift to a public company and the resulting stock options have put smiles on many employee faces. The two current vice chairmen, who have been at Prudential the entire time and today run the major business areas, have in my opinion been especially key to Prudential's success. John R. Strangfeld Jr. the new CEO and a vice chairman who will replace Mr. Ryan as chairman achieved outstanding results, first in running real estate and then overseeing the entire investment area. Mark B. Grier, the other vice chairman, was responsible for overseeing dozens of critical projects, from the shift to GAAP accounting and the demutualization to keeping Prudential above the fray when prosecutors and regulators were focused on the industry. It is no surprise that Mr. Grier is being promoted to the board while giving the top spot to Mr. Strangfeld.
What about the customer, a typical policyholder? Well, Prudential's policyholders have done quite well over the last 13 years. Investment performance has been excellent, life insurance premium prices have fallen significantly, product offerings have expanded, the company's financial underpinnings have strengthened and the local agent or adviser still provides the same level of personal service. Also, in an industry where demutualizations historically did not benefit the policyholders, Prudential pointedly did its demutualization the right way and allowed the policyholders to reap the financial windfall. Policyholders that chose to hold Prudential stock after the demutualization were doubly rewarded.
Any stakeholder analysis also needs to consider the community. Has any major corporation done more for a needier community than Prudential has done for the city of Newark? Just by maintaining its headquarters in Newark, the company has done a tremendous service to its community. It is an act that is unmatched by the major financial services companies in the New York metropolitan area. Prudential is extremely generous to its Newark neighbors and I don't mean just the performing arts center and the new hockey arena. I have had the pleasure of seeing firsthand Prudential's support for a multitude of community-based social service and cultural institutions.
Most important, in my opinion, is what Prudential has not done. In a complete reversal from the era preceding Mr. Ryan, Prudential since 1994 has consistently avoided numerous scandals that have plagued corporate America. By maintaining a culture of high integrity, Mr. Ryan and his team enhanced the Prudential name and paved the way to shareholder and stakeholder success. In the past year the proof is in the pudding. While so many other financial services companies have wilted because of the turmoil in the credit markets, the Rock is more solid than ever.
Prudential's success under Mr. Ryan is a 13-year show that is coming to a close in Newark. I've been fortunate to have a seat in the audience, and it's time for some rave reviews. ?
Andrew S. Lerner is managing partner of Inter-Atlantic Group, a private equity firm specializing in the financial services industry, and chief executive officer of Inter-Atlantic Financial Inc., a publicly traded blank check company formed to acquire companies in the financial services industry.