A week ago today, Aon announced it was ending its controversial salary reduction scheme (and repaying the deferred sums, plus an additional five percent). Shortly afterwards, we asked CEO Greg Case whether he regretted the decision. 

Greg Case – Aon

After all, Aon’s rivals were quick to capitalise on the move. In the relentless war for broker talent, was it a strategic misstep to give its competitors an opportunity to signal their virtues at Aon’s expense?

His response was sober and measured. “Hope is not a strategy”. 

“Simply hoping the worst case scenario doesn’t occur is not acceptable for any business and certainly not for a global organisation which employs 50,000 colleagues and takes its responsibilities very seriously”. 

The decision, he explained, was made in March, the final component of a five-part strategy to prepare Aon in the event of a deep, global economic seizure caused by the Covid-19 lockdown measures (the first four - expense reductions, accelerating use of the firm’s Aon Business Services platform, pausing share buybacks and halting further M&A - are still in place). It also followed the (widely applauded) decision to preserve all of Aon’s 50,000 job roles during the crisis.

Three months on and there is some optimism, albeit marked with caution

When the news came, it was amidst whole swathes of the global economy shuddered to a halt. Equities fell further than in 2008 and an ice chill descended on the debt markets. Economists trawled through the history books to find equivalent shocks (in Europe, commentators seized on the Great Freeze of 1709 as a comparable rather than the parallel of the 1929 Wall Street crash and subsequent global depression).

Nasdaq-reaches-new-all-time-high-this-week...

Three months on and there is some optimism, albeit marked with caution. Equities have rebounded, the debt markets - who naturally tend towards greater pessimism than their stock counterparts - have reopened and most commentators are less pessimistic about 2H 2020 global economic forecasts than a few months earlier. Remarkably, Nasdaq even reached a new all-time high earlier this week - who would have thought that remotely possible three months earlier?

Of course, the principal reason for this is the level of stimulus injected into the global economies by terrified governments and their central bankers.

But this does not mean a prolonged economic disaster has been averted and there is not more pain to come, not least in the form of spiralling unemployment and a sharp contraction in household consumption. Case, himself, made this very point last week.

“It doesn’t mean that the world is going to be easy now, it will be challenged in every way, shape and form”, he explained.

There is still much uncertainty - not least in Europe - where post-Brexit trade terms are still unresolved and the EU is struggling to create a consensus between its northern member states (“the frugal five”) and those in the south and east on its proposed Eur750bn recovery fund.

Nonetheless, the very worst case scenarios look more remote and that should be cautiously welcomed by us all. Indeed, Case emphasised this himself last week.

“We were protecting against the most difficult scenarios. What’s evolved since then is that the probabilities of those most draconian scenarios have now diminished,” he told this publication.

Aon-share-price

He pointed to Aon’s investment in data and analytics which, he said, now informs every decision.

“We’ve spent over $400mn annually over the last decade to build an industry-leading capability. It informs how we advise our clients and shapes the decision-making of our leadership team. Rather than hope we didn’t encounter the worst-case scenario, we took decisive action in March based on the data in hand. We did so again in June”.

He also adds the move is a demonstration of the Aon United strategy that the firm has been investing in for the last decade.

“It’s one thing when you are together and delivering the best of your firm and times are good. But when times are challenged it turns out that Aon United was as strong as ever and that in many respects reinforces in every way what it means to lead Aon United.

“The leadership, resilience and belief in our firm is very humbling. The potential of Aon United and what it can mean in terms of the fabric and foundation of the firm has never been better illustrated,” he concludes.

Of course, Aon - with its acquisition of WTW still to be completed - has many challenges to overcome, just as the world’s governments and economies have. 

But for a global organisation, it showed remarkable operational flexibility in delivering the salary reductions decisively and in ending them so swiftly. Decisiveness, of course, has been a defining feature of Case’s tenure - a feature that has been on display ever since he flew into London in August 2008 and in three days agreed an all-cash deal to buy Benfield from under the nose of rival MMC.

Case says Aon will emerge stronger as a result. Assuming that’s the case, let’s hope the wider insurance industry - and, for that matter, the global economy - does so swiftly as well…