McGavick, Mike 1958–
Chairman, president, and chief executive officer, Safeco Corporation
Born: 1958, in Seattle, Washington.
Education: University of Washington, BA, 1983.
Career: The Rockey Company, 1983–1986, vice president; Washington Round Table, 1986–1988, vice president; U.S. Senator Slade Gorton, 1989–1991, chief of staff and campaign manager; The Gallatin Group, 1991–1992, partner; American Insurance Association, 1992–1995, director of Superfund Improvement Project; CNA, 1995–1996, vice president of New Ventures; 1996–1997, senior financial officer of Commercial Lines Group; 1997–2001, president and COO of Financial Corporation; Safeco Corporation, 2001–2003, president and CEO; 2003–, chairman, president, and CEO.
Address: Safeco Corporation, Safeco Plaza, 4333 Brooklyn Avenue Northeast, Seattle, Washington 98185; http://www.safeco.com.
■ In 2004 the insurance and financial-services company executive Michael S. (Mike) McGavick was president, chief executive officer, and chairman of the board of directors of the Seattle, Washington–based Safeco Corporation—the second-largest commercial insurance operation in the United States. When McGavick was selected as Safeco's new leader, the company was sinking rapidly due to severe operational and management problems. Safeco was in need of major retrenching—as phrased by technical analysts—and McGavick said of the company and its employees on the Safeco Web site, "I'm going to reach out to people throughout the company. Our employees' creative ideas and innovative thinking will unlock the full potential of Safeco, providing shareholders with the returns they deserve" (January 30, 2001). McGavick proved able to do just what he said he would do—but not without making many tough decisions, many of which were not well received. However, those decisions ultimately helped to bring Safeco back to its traditionally successful role as a major multiline insurance company in the United States.
INSURANCE THE SAFECO WAY
Safeco, a Fortune 500 company with annual revenues of about $7.36 billion as of 2003, sold a comprehensive array of insurance and financial investment products and services through a U.S. network of over 17,000 independent agents, brokers, and financial advisors. Its family of companies provided products that included auto, business, casualty, home, life, and property insurance; investments such as life-insurance annuities, mutual funds, and stock purchase plans; group excess-loss medical and retirement plans and services for businesses; and asset management, surety bonds, and trust services.
PUBLIC AFFAIRS STARTS CAREER
McGavick became vice president of The Rockey Company, the Seattle, Washington–based public-affairs firm in 1983. Through his early professional career, McGavick held a number of public-affairs positions, including, from 1986 to 1988, vice president of the Seattle-based Washington Round Table, a nonpartisan policy-research group composed of the top executives (including chief executive officers) of Washington's largest corporations; campaign manager for U.S. Senator Slade Gorton's successful reelection campaign in 1988; chief of staff for Gorton from 1989 to 1991; and partner with The Gallatin Group, the Seattle-based public affairs firm, from 1991 to 1992.
INSURING HIS PROFESSION
McGavick began his insurance career in 1992, spending three years as director of the Superfund Improvement Project for the American Insurance Association in Washington, D.C. In that position he worked as a prime negotiator for the insurance industry with the U.S. Congress, federal agencies, and groups concerned about reforming the country's superfund environmental laws.
Before joining Safeco, McGavick held a number of executive positions at the Chicago, Illinois–based CNA Financial Corporation starting in 1995. During this time he was responsible for managing and improving CNA's relationship with its independent-agent distribution system and engineering CNA's e-commerce strategy. McGavick served from 1995 to 1996 as vice president of New Ventures; from 1996 to late 1997 as senior financial officer of Commercial Lines Group; and from 1997 to 2001 as president and chief operating officer of Financial Corporation. As president and chief operating officer of CNA Financial, the company's largest operating unit, McGavick was responsible for the majority of the company's commercial insurance business. He began a successful turnaround of CNA's commercial operation when he reformulated the workforce distribution and implemented a completely new underwriting technique.
BEFORE MCGAVICK CAME ON BOARD
Unable to deal with the results of Safeco's traditional-business acquisitions, stock analysts, shareholders, and independent agents criticized company management, especially beginning in 1999 and throughout 2000. In particular, after Safeco announced in January 2001 that earnings were below expectations for the fifth consecutive quarter, Standard & Poor's removed the ratings of Safeco and its related entities from CreditWatch (S&P's service highlighting the potential direction of a rating). It lowered Safeco's credit rating and senior unsecured-debt rating from "A-" to "BBB+"; financial security was downgraded from "strong" to "good"; and the company was judged as having become much more likely to be negatively affected by adverse business conditions.
TAKING OVER AT A CRITICAL JUNCTION
The global management-search firm Russell Reynolds Associates, based in New York City, performed an extensive hiring process with Safeco in which the members of the board of directors reviewed over one hundred candidates for the position of chief executive officer; McGavick eventually won out. He took over the position of president and chief executive officer in January 2001 from William G. Reed Jr., who assumed the chairmanship of the board of directors. As found on the company Web site, Reed said of McGavick upon his appointment, "Mike understands the prestige Safeco has always enjoyed, and he has demonstrated the capacity to build and lead a strong team of executives" (January 30, 2001); Reed went on to say, "Mike's ideas, energy, and leadership ability clearly stood out among this field of proven business leaders."
McGavick joined Safeco at a difficult time in the company's history. In 1997 Safeco made a major acquisition when it bought the large property-casualty insurer American States. Instead of helping Safeco to become a more diversified, well-rounded financial-services leader, the acquisition nearly bankrupted the company, as the purchase was made for too much money and at the top of the underwriting cycle (such that Safeco had to reduce rates in order to maintain market share in an already unprofitable business climate). Operating earnings dropped throughout the next year, and by the end of 1999 Safeco's combined expense ratio of 108.4 percent was for the first time in its history worse than the industry average of 106.9 percent.
MANAGEMENT TEAM FORMED
McGavick assembled an outstanding management team in order to counter Safeco's problems and turn the company around for the benefit of shareholders, customers, and distribution partners alike. One of the most important members of his management team was Michael LaRocco, who was formerly GEICO's vice president. LaRocco was hired by McGavick to become the president and chief operating officer of Safeco's personal-lines business. LaRocco ultimately performed critical actions to help McGavick reverse Safeco's plummeting position.
RETURNING TO EXCELLENCE
From the start McGavick assured Safeco's independent agents that the company's primary distribution focus—that of an independent-agency brand—would remain as it had in the past; on the other hand, he implied that the company might eliminate its homeowners market due to tremendous losses.
McGavick immediately launched a series of initiatives to return Safeco to its long tradition of excellence. His first action was to reduce the company's stock dividend by about half in order to redirect the money toward the company's growth. His second move was to write off $1.2 billion ($911 million after taxes) in goodwill obtained from the American States acquisition. The huge one-time charge succeeded in clearing the balance sheet of negativity. Thirdly, McGavick sold the profitable Safeco Credit Company to GE Capital in order to reduce debt.
With short-term debt cut by 50 percent, McGavick began a series of layoffs and consolidations in order to reduce corporate expenses. He downsized Safeco's workforce by about 10 percent, or around 1,200 jobs. McGavick's next concern was the homeowners business, which was losing enormous amounts of money. McGavick told his troops that he did not intend to exit the market entirely but would if he were forced to do so. With McGavick guiding analysis and research, management members eventually decided to raise prices for all homeowner accounts. Another problem spot seen by McGavick was the property-casualty business unit. He assigned LaRocco to reorganize Safeco's direct-marketing strategy; LaRocco modeled the new strategy after GEICO's operations, resulting in lower business-model costs particularly with respect to distribution expenses.
McGavick also invested in technology during Safeco's turnaround. He directed Safeco management to install a common technology platform to handle homeowners, automobile, and small commercial businesses. McGavick rationalized this additional expense by assuming that once the company had recovered from its downturn it would be able to significantly reduce expenses associated with the new investment.
POSITIVE RESULTS WITHIN 11 MONTHS
Under McGavick's leadership, management at Safeco took strong actions to improve the performance of core business lines, strengthen the balance sheet with a noticeable turnaround in market capitalization, and reduce core distribution expenses, meanwhile investing in training and new technologies that were aimed at improving customer service and product distribution, respectively. McGavick accomplished this feat with five core directives in mind: to focus on the qualities that made an organization unique in its industry; to do whatever might be necessary, even if it involved performing "radical surgery," as phrased by McGavick; to "take the pain" earlier rather than later; to invest in new systems and infrastructures; and to communicate so that actions backed up words.
Safeco turned its financial performance around in 2002, generating net income of more than $300 million, the company's best results in four years.
See also entry on SAFECO Corporation in International Directory of Company Histories.
sources for further information
Mitchell, Jim, "SAFECO Names CNA Executive Mike McGavick New President and CEO: Gary Reed Elected Chairman," Safeco press release, January 30, 2001, http://www.safeco.com/safeco/news/archive/2001_0130.asp.
—William Arthur Atkins