Kevin Van Paassen
On Sept. 8, Donald Guloien landed the job of a lifetime: chief executive officer of Manulife Financial Corp.
Mr. Guloien, a 28-year Manulife veteran, found himself charged with taking over from a Bay St. legend, the fiery and ambitious Dominic D'Alessandro, who had transformed Manulife from a stodgy Canadian life insurance player into a global financial services giant.
Within days, filling Mr. D'Alessandro's larger-than-life shoes became the least of Mr. Guloien's problems, as every expectation that Mr. Guloien had for his new job was shattered by the epoch-making collapse of Lehman Brothers.
"I had about a week of calm," Mr. Guloien, 52, who was then chief investment officer, recalls. "All hell broke loose around the 15th of September."
Stung by a $395-million exposure to Lehman, Mr. Guloien and his team worked around the clock to make sure the company's asset exposures were covered and collateral was posted on contracts.
But the real threat would prove to be a decision made years earlier by the indomitable Mr. D'Alessandro to strip downside protection from the company's equity positions in its high-growth variably annuity business.
That business had become an underpinning of the company's rise, helping to drive Manulife's wealth management business - and in turn, its return on equity and stock valuation, both of which surpassed rivals and cemented Mr. D'Alessandro's celebrated reputation.
When the market cratered in the wake of the Lehman collapse, though, Mr. D'Alessandro's push into this high-growth business segment- and his bid to boost profits further by stripping it of its protection - quickly soured.
And Don Guloien's job description turned inside out. Instead of burnishing the legend of Dominic D'Alessandro, Mr. Guloien found himself mired in its tarnish.
This week, Mr. Guloien took over the top job as Manulife reported its second consecutive $1-billion-plus quarterly loss, another hit stemming from the side effects of its massive exposure to stock markets. He's also faced with a $30-billion gap between the company's future obligations to its variable annuity customers and the amount left, after the market crash, in the portfolio backing that business - a shortfall that is forcing the company to put aside billions in reserves, and eating into its profits.
In a fluke of timing, the deal maker from Parry Sound, Ont., was forced to become the fix-it man.
Now, instead of tending Mr. D'Alessandro's legacy, Mr. Guloien's task is to restore it. And to do that, he's breaking from his predecessor's mould in some key ways.
Mr. D'Alessandro built a juggernaut by targeting select product lines and countries - including the U.S. wealth management business that has proved so costly - rather than pursuing broader-based growth.
Schooled by his years as chief investment officer, Mr. Guloien is taking the opposite tack. Mr. Guloien wants to apply the same theory of portfolio management that allowed him to manage nearly $300-billion in corporate and third-party funds.
His basic lesson, one hammered home by the aftermath of Sept. 15: Spread the risk.
Instead of charging full-throttle ahead in a few carefully chosen areas, Mr. Guloien is treading more cautiously, aiming to diversify into a variety of business lines and geographies, so that no one operation can do enough damage to take the company down.
Investors will need some convincing.
Where Manulife was once viewed as a premium financial services company, "now they're not, because they've made what some perceive to be one massive error in judgment," says Genuity Capital Markets analyst Mario Mendonca.
"Don's biggest challenge is to have investors and most analysts start to think and talk about Manulife in that way again, and that's going to be hard."
Beyond bread and butter
On Sept. 15, the newly minted Manulife CEO-designate boarded a 12:55 Air Canada flight to Boston. As the ramifications of the Lehman collapse touched off panic in markets around the world, Mr. Guloien (pronounced "Ga-LOYNE") kicked off a three-day conference of senior investment executives with a speech on the lessons of struggling insurer AIG.
Be aware of both explicit and hidden leverage. Don't take on too much risk. And if people say something will never happen, count on it happening, he told the executives.
His predecessor, Mr. D'Alessandro, was tripped up by that last one.
Nearly a decade ago, when the company went public, Mr. D'Alessandro's overriding goal was to boost Manulife's return on equity to make it competitive with other North American players.
Despite the stability of bread-and-butter life insurance, industry-wide sales have essentially stagnated since the 1970s. Wealth management held more promise. Baby boomers had savings to spare and were willing to pay professionals to take care of them. Manulife sprung a bank and plowed boldly into the variable annuity business.
Mr. D'Alessandro took the company's profitable variable annuity business from the U.S. to Japan and Canada, and it grew exponentially, with the amount it has guaranteed to customers rising to $103.8-billion at the end of March from $69.3-billion at the end of 2007.
The moves helped to spur growth. Manulife's return on equity was 16.8 per cent in 2006, and 18.4 per cent in 2007. Up to and including that year, Mr. D'Alessandro consistently delivered record earnings.
But the moves also heaped new risk onto the company. And then came the financial crisis.
When the company announced its latest billion-dollar quarterly loss on Thursday, Mr. Guloien sought to reassure investors that his focus would be different. His overriding goals, he promised, will be "balancing our business mix, reducing risk and strengthening our capital levels."
Mr. Guloien is looking to take the company into new international areas such as Europe, India and South Korea; Mr. D'Alessandro preferred to focus on North America and a couple of key Asian markets.
"It's logical to assume that Manulife, over the next five years, will break into one or more of those geographies, either through acquisition or through some sort of startup venture," Mr. Guloien said.
But the more immediate opportunities, served up by the financial crisis, are now likely to be in North America and Asia, where a number of insurers have taken a stronger beating than Manulife. And Mr. Guloien says he will push further into areas ranging from real estate management to private equity and third-party fund management.
"We offer reinsurance solutions, we manage real estate, timber, oil and gas, private equity and other assets," he told investors. "I would like to see these offerings increased in both breadth and depth."
One area where Mr. Guloien believes - based on his experience building up the investment portfolio - that Manulife has a major opportunity: third-party asset management. It's a business he knows well, because he built it almost from scratch. Manulife now has roughly $100-billion of other peoples' money under management, according to the company, not only in securities but in areas such as timber, agriculture, and oil and gas.
Mr. Guloien is still fine-tuning his acquisition strategy, in part because he believes many companies have yet to come to the kind of hard reckoning that will bring down their prices.
And in the aftermath of the global meltdown, even plain-vanilla insurance is starting to look a lot better. "People speak about wealth management, but since September a lot of people have no wealth to manage," says Frank Keating, CEO of the American Council of Life Insurers.
A summer job start
Mr. Guloien got his start working part-time at Household International Inc., the parent company of consumer loan and credit card company Household Finance Corp., while finishing his bachelor's degree at the University of Toronto.
Weekends, evenings and summers, he worked on the launch of a trust company. His trust experience led him to Manulife: A year after his graduation, Mr. Guloien was recruited by the insurer as a research analyst.
Mr. Guloien was running the insurer's U.S. individual business in the mid-1990s when Mr. D'Alessandro stepped in as CEO and presented him with a new opportunity.
The idea was to create an internal mergers-and-acquisitions group that would lead Manulife's own business development, similar to one that Mr. D'Alessandro had been involved with at Royal Bank of Canada. The team would play a key role in Mr. D'Alessandro's drive to turn the company into a global player.
Mr. Guloien established a small team that acted like an inward-looking investment bank. Over the next seven years he led a series of key divestitures, takeovers and initiatives, from the sale of the British operations to Manulife's demutualization (conversion to a public firm) and its entry into Japan.
An amateur photographer, skier and avid film buff, Mr. Guloien discovered his inner deal junkie. "It's very exciting," he says. "A call can come from Japan or China about an opportunity, and you need to deal with it in real time."
Mr. Guloien is credited for the company's hard-fought but ultimately successful push into Japan.
Daihyaku Mutual Life became the springboard for a Japanese business that looked precarious at first, but is now recognized as a success. Daihyaku "basically was a life insurance company, but Manulife has been able to add a number of products - savings products - to broaden the appeal of the company," says Michael Wilson, Canada's ambassador to the United States and a former director of Manulife.
In 2001, Mr. D'Alessandro had a new assignment for Mr. Guloien, one that would prove fateful. He wanted him to become chief investment officer and look after the company's balance sheet assets.
"I said I'd do that," Mr. Guloien recalls. "But, I said, 'I kind of want to build a business.' " If Manulife was good enough to manage its own assets, why not make a profit managing other peoples'?
Through acquisitions and broader forays into areas ranging from mutual funds to agricultural management, that business grew to manage roughly $100-billion
Blake Goldring, the chief executive of AGF Management Ltd., calls him "one of our country's sharpest and best investment minds."
It was Mr. Guloien's move into the investment business that actually sealed his current job for him.
Now Mr. Guloien must put the theories that he has gleaned from the investment world into action at the 122-year-old company and prove to investors that his plan will steer the company through the current chaos into the next phase of the industry's evolution.
He is likely to be granted a honeymoon period, but not for long. If stock markets swing south again, shareholders will crank up the temperature on the hot seat. If markets continue to recover, Mr. Guloien will be able to release some of the company's reserves back into its profits.
"He might have come in at a really good time," says Joseph Iannicelli, the CEO of Standard Life Assurance Co. of Canada. "If we've flattened out at all, he might catch a bit of a wave."