Marsh On The Rebound
When Michael Cherkasky came to the Marsh & McLennan family of companies after his firm was acquired a year ago, he didn't expect to end up as top dog at the brokerage giant–charged with turning around a beleaguered industry leader.
This wasn't what he signed up for when Kroll Inc. was taken over by MMC in July 2004. However, despite the circumstances, Mr. Cherkasky has grabbed the troubled firm's reins with gusto and appears determined to stay as long as it takes to make things right again.
That is good news for MMC and its battered Marsh subsidiary, which established an $850 million client restitution fund to settle a suit filed by New York Attorney General Eliot Spitzer, charging Marsh with bid-rigging, improper steering of accounts and contingency fee abuse.
Mr. Cherkasky was the perfect choice to lead Marsh through these difficult times. Before his Kroll experience, he spent 16 years working in the criminal justice system, even serving for a time as Mr. Spitzer's boss at the New York County District Attorney's Office.
The familiarity and trust established between the two undoubtedly helped Marsh settle the suit. Indeed, if by some miracle Mr. Cherkasky's predecessor, Jeff Greenberg, had managed to hold onto his job, Mr. Spitzer would still be leading the charge to take down Marsh right now.
That doesn't mean that Marsh got off easy. Beyond the hundreds of millions in refunds to potentially harmed insureds, Marsh had to agree to fundamental changes in its business practices, including swearing off lucrative contingency fees for good.
The biggest challenges now for Mr. Cherkasky are to restore the broker's tarnished reputation, defend top accounts against poaching, maintain morale (and keep key employees) after a massive layoff, plus make up for the loss of nearly $1 billion in insurer fee income. It won't be a piece of cake to accomplish any of those goals, but Mr. Cherkasky has moved quickly to get Marsh's recovery off to a good start.
During an exclusive interview with NU's senior editors (see last week's lead story), Mr. Cherkasky emphasized that he's not going to recover whatever revenue the firm has lost by jacking up charges for customers. "We need to be paid at something that is fair value, but we have to also understand that we can't just walk in with the bloody nose we have and say, pay us more. It just doesn't work that way," he said.
The collateral damage of Mr. Spitzer's probes is stark at Marsh, which is focusing on cost control and boosts in account profitability to bridge the gap left by abandoning contingency fees. Some 5,500 employees have been let go–many of them responsible for servicing the 30,000 or so "non-profitable accounts" that Marsh is jettisoning as part of its efficiency drive.
"You can't charge commodity prices for value-added service," noted Mr. Cherkasky, who said Marsh is referring terminated accounts–many generating $10,000 or less in revenue–to regional and local brokers. "These are not bad clients. We are just not as efficient as we need to be to handle their business."
However, it's clear Mr. Cherkasky believes the worst is behind Marsh and that the broker's preeminent status will prevail over the long term.
"What I keep asking everyone is, what company do you believe offers the biggest upside opportunity, and everyone answers, it is Marsh," he said. "With all the blemishes and issues, if we get it right and handle it right and manage it right, we'll do just fine."
Sam Friedman
Editor-In-Chief
Quote Box:
"It's clear Michael Cherkasky believes the worst is behind Marsh and that the broker's preeminent status will prevail over the long term."
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