It was 2008, and I was a guest on the Today show when the host asked me an unexpected question about a recent decision my company had made: “Are you crazy?”
Aflac had just announced the first say-on-pay vote in the history of American public companies. We were going to lay all the pertinent information out there in order for our shareholders to vote on the compensation of our top executives.
I laughed at the question, because from an outside perspective it did seem a bit crazy.
Today, being a CEO is more tenuous than ever. According to outplacement firm Challenger, Gray & Christmas, which started tracking CEO departures in 2002, 2019 set an ominous record with 1,640 CEOs of U.S. companies leaving their positions. This represented a 12.9% increase over 2018. In fact, according to a 2017 study by Equilar, the median tenure of an S&P 500 CEO is five years.
Yet some CEOs stand the test of time, such as Warren Buffett with over 50 years as CEO of Berkshire Hathaway. I myself have been a CEO for 30 years, and when asked how I lasted this long, I say that at Aflac, we take risks, but measured risks.
Buffett once said, “Risk comes from not knowing what you’re doing.” I agree.
While majoring in risk management and insurance at the University of Georgia, I learned three principles for approaching risk that stuck with me for life. I still use these and often share them with my management team—the decision matrix guides every important decision we make at Aflac. In short, they help us know what we’re doing.
The principles are as follows: Don’t risk a lot for a little. Don’t risk more than you can afford to lose. Always consider the odds.
The best way to understand the value of these principles is to see how they work in practice. The say-on-pay vote was most definitely a risk, but the three principles told us it was a worthwhile risk. Certainly, rejection from our shareholders would have hurt our brand and caused us to modify our compensation processes. On the other hand, an affirmative vote would give us confidence in our processes, generate positive public and media reactions, and establish us a model for strong corporate governance.
The vote was putting a spotlight on executive pay, a third rail issue then and now, but we felt that our process was both transparent and reasonable and shareholders would see that the company was being well managed. Returns were strong and investors were generally pleased, so we felt that we weren’t risking more than we could afford, and the odds were in our favor.
That risk paid off: The vote was overwhelmingly positive, and Aflac made corporate history.
Risk comes in many forms. In 1999, Aflac U.S. sales were stagnant. Our brand identification was mired at near single digits in spite of a multiyear national ad campaign. Our commercials were indistinguishable from those of other financial institutions and insurance companies. We needed to break through with something different and bold.
Initial testing of what would become the first Aflac Duck commercial showed consumer recall scoring at a 26 rating, which was more than twice as high as anything we had ever done. Yet we still wrestled with the potential peril of making fun of our company name on national television, the brash screaming duck versus getting a piece of the rock (Prudential) or the good hands people (Allstate). We were about to risk our brand on something unprecedented in our industry.
It was time to go back to the principles.
While there was a lot at stake, the potential reward was significant. The million-dollar price tag wasn’t money we wanted to lose, but we could afford it. The upside was that if our consumer testing numbers proved to be true, we’d significantly expand the reach of our media spending. As for the odds, we didn’t know if people would like the ad, but the statistics regarding brand recall were strong. We decided to take the risk. Today, Aflac’s brand identification hovers around 90%, according to an internal study by Hall & Partners. Our sales doubled in three years and annual adjusted revenues grew from $8.6 billion in 1999 to nearly $23 billion today.
Our risk strategy was put to the test again in March 2011, after a tsunami struck the coast of Japan. Aflac’s operations in Japan account for nearly 70% of our revenues. In fact, we insure one out of every four households there. So when the celebrity voice of the Aflac Duck tweeted tasteless “jokes” about the tsunami victims, it created a major challenge for us.
The decision to fire him took only minutes, but the question was, how do we do it, and what are the risks?
First, acting swiftly to pull all of our ads meant that for a time, we would have no television ads to run in the U.S. That was risking a lot, but the potential damage to our brand posed an even greater risk—so we were not risking a lot for a little. On the heels of the global financial meltdown, when companies across the world were still reeling, we could not afford a PR disaster, and the odds were high that this would escalate in the media. We fired him within an hour, and in the aftermath, Aflac received positive press for being a good corporate citizen.
Applying proven principles in making decisions about which risks to take and when to take them has helped Aflac remain relevant for decades, and has helped me grow as a CEO. Today the clock begins ticking on a new CEO almost the moment they accept the job, so it is easy to see how they can become overly cautious. My advice? Resist the urge to duck risk (pun intended); instead, manage it.
In every situation, Aflac carefully determines if potential benefits exceed possible consequences. We ensure that we are in fact taking a risk rather gambling resources, and we always make sure we are more likely to win than lose. It has been 50 years since I learned this enduring lesson in a classroom in Athens, Ga., but it is as sound today as it was then.
The three principles of risk management help Aflac mitigate risks for its stakeholders. That is the job of every chief executive officer.
Dan Amos is CEO of Aflac. He is the second-longest-tenured CEO in the Fortune 200.
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