Eliot Spitzer and MMC

Diane Francis column for Saturday Post June 2:

Michael Cherkasky gave Wall Street nemesis Eliot Spitzer his first job as a young prosecutor in New York City busting rapists, robbers and racketeers.

Today Mr. Spitzer is running for governor while Mr. Cherkasky is CEO of MMC, a US$12-billion conglomerate comprised of insurance broker Marsh; management consultant Mercer; risk consultant Kroll, among others.

Ironically, Mr. Spitzer sued MMC in October 2004, just three months after Mr. Cherkasky took over its reins. Eventually, MMC agreed to pay US$850 million restitution to clients.

"When I told my wife we settled for that huge amount she said only cigarette companies pay that much, then added sarcastically 'thank God Eliot's a friend'," said the jovial Mr. Cherkasky in an interview yesterday in Toronto.

"The allegation was that Marsh employees were steering business to underwriters who paid them higher fees, which was not necessarilly in the best interest of clients," he said. "The allegations were true and this involved a small group of Marsh employees and a breach of trust. The fallout was serious. MMC lost US$10 billion in market capitalization and there was concern about our survival. Now 18 months later, that's off the table. Our stock has been flat for 18 months [from mid-US$40s to US$28 now] but we are focusing and growing the business."

MMC is the world's only "risk play". Its professionals assess everything from financial to terrorist, logistical, climatic, legal, political, economic, currency, supplier and employee risks, then devise strategies to avoid, mitigate or insure against risks.

"We look at enterprise-wide risk. For instance, after 9/11 the bridge between Detroit and Canada was closed for three days, which disrupted just-in-time manufacturing at considerable cost to manufacturers," he said. "Recently, a corporation, in the Fortune 500, told me that if they received just one envelope of anthrax they would be out of business because of the structure of their mail center."

MMC itself was a victim of terrorism in 9/11 when 300 of its employees died in its World Trade Center offices. Despite the attack, Mr. Cherkasky said he wouldn't hesitate to rent space in that location once new towers are erected.

"In the last five years since 9/11, less than 5,000 people have died from terrorist attacks, excluding Iraq which is not terrorism but a war," he said. "About 250,000 people die worldwide in car accidents every year and three million die from smoking so I always say `do your seatbelt up, don't smoke and go about your business'."

On the other hand, there are enhanced risks in terms of doing business, he said.

"Take globalization. Imagine these days you give your intellectual property to someone you do not know, who you never met, who can't understand your language to use in a country with different laws," he said. "That's risk."

MMC helps companies assess country-specific risks, employee risks, logistical and outsourcing risks. It's foolish to put all your eggs in one basket, such as China, and not deal with suppliers in other jurisdictions to avoid total supply disruptions.

Other risks are internal and MMC's Mercer -- the world's third largest management consultant -- works with companies in a wide range of areas.

"Not paying the right amount to employees, pension assessment problems or increasing health care costs can impact the viability of any corporation," he said.

Then there's the change in the weather.

"We are in for a more aggressive storm season for the next ten years. The models are wrong," he said. "It's silly, as a world community, to not recognize that some of the things we're doing appear to be changing the climate."

The result is steep coverage in coastal regions of the United States and less underwriting capacity available. Another reason for shortages is the increased cost of real estate worldwide which is using up capacity too.

"In the 21st Century the insurance industry will be different. There are hedge funds and banks with plenty of capital who want to play a role," he said. "And they are." Currently, half of MMC's business is in North America and the rest divided around the world. Plans are to diversify and restructure. MMC has sold US$800 million worth of businesses.

"This company was built by acquisition and left in silos," he said. "We want to provide seamless solutions on a global basis." Plans are to expand in Greater China and Eastern Europe then grow the business organically.

"Unfortunately for the world, we're in the right spot," he said.