Hot Features
Premium
Trade smarter, not harder: Unleash your inner pro with our toolkit and live discussions.
It’s been three months since shareholders demanded the head of former Aviva (LSE:AV.) CEO, David Moss, on a platter. He escaped with his head still attached. Chairman John McFarlane has guided Aviva through the last quarter relatively unscathed amidst shareholder-welcomed talks and efforts at restructuring and streamlining the FTSE 100 insurer’s business. Aviva’s share price has trended steadily upward since Moss’ departure, even despite a less than stellar performance in the duration. The share price dipped slightly this morning, however, on news of potential layoffs.
The Paradox of Restructuring
Shareholders usually respond well to the word “restructuring” because it typically means that the directors will be making changes that will ultimately generate increased revenues, reduced expenses, and increased profits from operations. Good management will use the improvements to increase the value of the company. Shareholders win. However, when actual details for restructuring are announced, shareholders tend to get skittish.
Unions often respond well to the word “restructuring,” especially in cases like Aviva. It’s a word that acts like an air freshener when things in the boardroom stink. The stink in the Aviva boardroom was the excessive CEO salary that continued to increase even with lackluster corporate performance. So the unions think restructuring is a good deal because there will be more money in the till to pay the union employees. However, when actual details of restructuring are announced, unions tend to act surprised that the restructuring is done for the benefit of the shareholders’ and stakeholders’ interests first.
Employees usually do NOT respond well to the word “restructuring” because their definition of the word is “I’m going to lose my job.” They seldom foresee any good and often expect at least a wage freeze. They enter into a state of near constant anxiety. When actual details for restructuring are announced, work force reductions are usually included, so “all the things I have feared have come to pass” (Job) from the employee perspective. Their anxiety increases.
Aviva Employees Prove the Point
Aviva announced yesterday that it would cut up to 800 jobs as it restructures its business in the UK. One report accurately said “thousands of Aviva’s UK employees are in fear for their jobs.” Whilst the loss may be “only 800”, it is true that thousands will be wondering if their name is on the list. The anxiety can often be as bad as the reality. Even after the cuts have been made and people move on, those who remain, anxiously wait for the other shoe to drop, wondering when the next cutback will occur.
Aviva Shareholders & Union Prove the Point
Investors revealed their skittishness with this morning’s decline in share price. The decline tends to reveal shareholder uncertainty of whether or not the board is doing the right things. Cutting jobs may not seem the right things to do, especially to private investors. Of course, the union (United) is upset, and vocally so. And they have a point. “Our members face being asked to pay the price of boardroom failure and Unites is dismayed that what started out as a shareholders’ revolt on executive pay will result in a jobs cull. This is totally unacceptable.”
Facing Reality
Everyone would like to have a magic wand to wave over the company to make everything better. Unfortunately fairy godmothers seldom visit boardrooms. The security and success of the company is dependent on the people who are in that room. If their focus turns to their own financial success, shareholders will demand their heads. When they make the tough decisions necessary to make a company prosper, they will stir the waters and have to endure some temporary criticism. And someone else, i.e., employees, will take a hit. It may not be entirely pleasant, but it is reality.
When Aviva returns to its former glory, everyone will cheer. And the people in the boardroom will breathe a temporary sigh of relief, and then get back to making more of the hard decisions.
