IN MARCH 2004 global insurance broker Willis Group Holdings unveiled the design of its new headquarters in London--a stunning showcase building that promises be an architectural icon (see illustration on page 20). To say that this announcement was a satisfying moment for the company's chairman and

CEO, Joe Plumeri, would be a supreme understatement. With characteristic frankness, Plumeri remembers only half-humorously that when he took the reins of Willis three and a half years ago, "We couldn't buy a candy bar, let alone build a building."

At the time, in October 2000, Willis was a private company owned by Kohlberg Kravis Roberts. Plumeri was a free agent, having just wrapped up 32 years working side by side with Sandy Weill in creating an ever-expanding financial services juggernaut. This was an arc of a career that took Plumeri, who was born in Trenton, N.J., from a Manhattan stock brokerage office in the 1960s to a job running the domestic banking business of Citigroup before retiring in early 2000. A chance meeting with Henry Kravis while on vacation in Paris led to an offer to take the helm of Willis, a firm that was founded in 1828 and is the insurance industry's third-largest broker.

Following a formula of building a sales culture, growing revenues, maintaining expense discipline, and expanding margins, Willis has booked 17 consecutive quarters of record results. Its revenues in 2003 were $2.1 billion, up from $1.3 billion in 2000. In a robust first quarter of 2004, revenues increased 20 percent year over year to $665 million, and long-term debt has been whittled down to $300 million from $1.2 billion when Plumeri arrived at the company. The company had returned to the public market in a June 2001 IPO--the third-best-performing IPO on the NYSE that year--and with subsequent secondary offerings KKR's ownership is now at 5.5 percent. Willis is also expanding with selective investments--increasing its stakes in global brokerages in which it already has an investment position and with such purchases as a 50 percent stake in China's leading insurance broker. A dividend initiated in February 2003 and raised by 15 percent earlier this year, and an increase in the stock buyback authorization, have also been part of the revitalization story at Willis.

"Who could have imagined that within just a few years we would have performed so well and grown so fast that we would be moving into what will be one of London's most impressive landmarks?" Plumeri remarked when the plans for the building were announced. While his initial assessment of the company's situation may have been solemn, the "will to succeed" spirit that he brought to Willis and infused throughout the organization, as illuminated in the following interview with DIRECTORS & BOARDS Editor James Kristie, shows that the answer to the above question, at least in his own mind, was never in doubt.

DIRECTORS & BOARDS: Would you be sitting here now as chairman and CEO of Willis Group if you had not run into Henry Kravis on the street in Paris?

Joseph Plumeri: No, not at all. When I left Sandy Weill and Citigroup in January 2000 I had no job. I had an office and an assistant, Dee, and I remember her saying to me in the first days, "What do we do now?" And I said, "I don't know." Well, within about a week my schedule started at seven in the morning and went till ten at night. I don't take many vacations, but finally my wife suggested that we go to France. I was walking on the Rue St. Honore, which is where our hotel was, when I ran into Henry. He asked me what I was doing and I told him, "I'm looking for my next adventure." My wife kiddingly said to him, "Find him a job." He called me a couple of weeks later and said, "I have just the job."

That's what you could call a serendipitous moment.

You call it serendipitous. I call it the law of playing in traffic. In life you've got to be out there playing in traffic. Something will usually happen. You might get hit, and that's okay, but you might also run into something good. I've had two such encounters. That was my second. The first lasted 32 years.

Tell us about that.

It was when I was in law school and looking for a job. I was going around knocking on any door that had three names on it, because I thought that if a firm had three names it was a law firm. So I paid a call on Carter Berlind & Weill. When I asked the receptionist who I could see about a job, she said the firm was very small and that they didn't really have anybody for me to talk to. But I persisted, and she eventually said that a Mr. Weill would see me. I went into a whole speech with him about how I wanted to learn about the law. He said, "That's a great idea, but what makes you think you'll learn the law here?" I said, "Well, this is a law firm." And he said, "No, it is a brokerage firm." Mr. Weill, of course, was Sandy Weill, and he hired me part-time. I was there all the way as Carter Berlind & Weill ultimately became Citigroup.

[ILLUSTRATION OMITTED]

I teach at Temple University, and I tell the students about the value of serendipity--about being open to it lest you miss a great opportunity.

You also have to have a sense of childlike enthusiasm about everything you do. The problem with adults is that the childlike enthusiasm goes away because you become easily embarrassed or intimidated. Children don't have that kind of fear. I don't think you can put yourself into what you call a serendipitous situation unless you have that childlike sense of flair and enthusiasm that doesn't fear being embarrassed. I got out in traffic and knocked on doors and made a mistake, but look what happened. What I tell everybody is, "Just go for it." It is the playing in traffic that causes serendipity.

The Adventurous Spirit

You said you were looking for your next adventure at the time of the offer to join Willis?

You've got to have an adventure all the time in your life. Companies are like that. People are like that. The adventure at Citigroup had kind of run out. Sandy and I were such good friends that I told him a year in advance. He asked me to run Citibank before I left, which I did, and then I went looking for another adventure.

Were you immediately attracted to the opportunity at Willis?

I had no interest whatsoever. None. But the more I looked at it and the more I thought about it, the more appealing it became.

Did you see it as a turnaround situation?

Yes. But I did not turn the place upside down. Most new CEOs in this position come in and change everybody. I didn't do that. Of all the senior executives at Willis when I got here, they are all still here except for two, who retired. They may have different jobs or roles, but they are still here. And interestingly, for those who thought I would bring a very American influence to the organization, all these executives are Brits. It was a case of coming here and finding great people but not a great company because there was a lack of vision and direction and unity.

My definition of leadership is to get people to do things that they didn't think they could do by themselves. You can inspire people. People are the way they are, whatever that may be, because of inspiration or lack of inspiration. Willis wasn't broken. What the people needed was direction and a vision of where they were going. It's like going up in the attic and finding an old silver vase. You blow on it and the dust comes off and you see a little bit of your image. And then the more you shine it the more you can see. That's what we did here. The more you shined it the more the people could see clearly what they were, and they were good people. I was the head "shiner," if you will.

So the vision thing is important?

You have to paint a vision for people. That doesn't happen enough in corporate America. We're talking about communications. Communications may be more important than financials. People have to understand why they come to work every day. If people don't understand why they are coming to work, there is no reason to be inspired. There is no reason to work harder. People have to understand that when you are building something great, there is something that they are going to have to do for the company to be great. If you do that--if you communicate that vision--then the financials will work.

The story I usually tell is how parents with children have to be great visionaries because sometime in your life you took those kids on a trip. They constantly asked you, "When are we going to get there?" And you, like I did, concocted some great story about what it was going to be like when we got to Grandma's house--you're going to have cake and ice cream and she's got new toys for you. You are building this vision so that if you endure the trip, then it is going to be great. That is what all parents do. I don't understand why CEOs don't do that--paint the picture of where the company is going so people can get excited about it. Then they'll endure the trip a little bit better.

Well, the organization seems to be responding, as it's been quite a trip so far with the strong numbers and growth that you've been posting.

Willis celebrated its 175th anniversary last year and, as I like to say, after 175 years we are kicking in.

So you haven't arrived yet?

No. If we were to have already arrived, then there is no need to have me here. There are two kinds of companies--destinational and adventurous. If you are the CEO of a destinational company, all you are is a tour guide. I am not a tour guide.

On Being No. 3

Can you have a good business being the third-largest insurance broker? Do you have to always follow Jack Welch's maxim that you need to be No. 1 or No. 2 to succeed?

I agree with him. I think you should be No. 1 or No. 2. We are No. 3 because that is where we happened to be when I got here. I wouldn't be content if you and I are sitting here five years from now and we are still No. 3. Even though it's going to be a heck of a jump, we are putting the building blocks in place.

As No. 3, there is certainly a lot of market share you can look at capturing for your own.

Yes. You have to build the right kind of inspired sales organization to go out and get that market share. We're in a business where everybody has to buy what we sell. No one here ever goes to see somebody who tells them, "I am not buying this year." For potential clients to leave their present brokers, we have to be able to get them to be comfortable with us. That means that we have to offer something different and exciting, and that is what we are doing.

And you are committed to being an insurance broker?

Oh, yes. I think anybody would love to be in a business where everyplace you look there is a potential client. I mean everything--buildings, cars, people. And we're living in a terrifying world that is filled with risk. There is a heightened sense of risk and a heightened enthusiasm for insurance.

In communicating the vision that I talked about, it is very important that everybody understands what it is that you do. Sometimes for the sake of diversity, or under the guise of diversity, people get confused about what they are. Instead of being committed to and getting real good at what you do, they go off and do other things. This is a great business that we're in, so why would I want to be in any other business?

The Building Block of the Future

You have under way the construction of a major new headquarters building in London. You have called this a defining moment in Willis's history.

Here is what I told our people when we first unveiled it. I said, "You all see a building. I don't see a building. I see a monument. You don't build buildings like this unless they are a monument to achievement." I see this as a monument to dedication, loyalty, commitment, courage, hard work--and to people who believe in what they do. You also don't build a building like this unless you have some recognition of tradition. Right across from the new building is Lloyd's. What is significant about that is that Willis was the first broker for Lloyd's. In a speech at Lloyd's I told everybody that "We love this business so much that after 175 years we decided to move into the neighborhood." So this is a monument to Willis's past and to its future. What is important is that you don't just live by the tradition, you build on the tradition. This new headquarters is the building block of the tradition that we are building on right now.

This has also been a defining moment in the governance of the company. You've had the opportunity to remake the board--adding individuals like Bill Bradley, Joe Califano, Gordon Bethune, and several others--and to institute a set of governance guidelines that match up to the Sarbanes-Oxley requirements.

Yes. As KKR's ownership scaled down to 5.5 percent of the company, we had the chance to transition the board. From my point of view, it is very helpful to have people on your board who come from other backgrounds. That is the best feature of independent boards. In fact, it's something that is missed in the debate over Sarbanes-Oxley. Much of the discussion is focused on the compliance aspects of the new law rather than the opportunity it opens up for boards to add very smart people who know a lot about other things and who will learn a lot about what you do so that they can be more helpful to you.

Does your board now have a majority of outsiders?

Yes. It is composed 80 percent of independent directors. [See box on facing page.]

An Involved Board

When you go into a board meeting, what is it that you want from your board?

I think it is all about what happens before the board meeting--in the preparation leading up to the board meeting, particularly in the interaction in the committee meetings. I would hate to think that everybody showed up for the board meeting without a lot of education in and contribution to the various subjects beforehand. I want the board members to know as much about the business as possible so we can have an engaging meeting and I get their good input.

My management sits in on the board meetings unless we are in executive session. I want everybody to know everybody. The more people who understand what is going on, the better off we are.

The insurance industry certainly has its cycles. Corporate governance has its cycles of active and quiescent periods. Where do you think we are right now in the governance cycle?

All the way to the right! In a theoretical spectrum going from left to right, people probably thought we were all the way to the left, and we've come all the way over to the right.

And the best spot is someplace in the middle?

Yes, but you never go to the middle. Businesses go through change and upheavals, and they go from all the way to the left or right and work their way back again. That is probably what is going on. A lot of people would say there is time being spent doing things that maybe aren't necessary. People have good intentions and are trying to respond to some of the critical issues of the day. I happen to believe that board members should be highly engaged in the business, should understand the business, and should not just be a rubber stamp when they come to a board meeting four or six times a year or whatever the schedule is. The process that you go through to get people more engaged and therefore make a better contribution may be a bit more cumbersome than people had intended but, like anything else, it will get straightened out.

Is there anything you vehemently disagree with in the new governance rules?

Not really. Once we get it established who is independent and who is not independent--which is a cumbersome issue--then like anything else you learn what the expectations are and can operate accordingly.

Wearing the Two Hats

As a chairman and CEO, how do you react to the notion of separating the two roles?

I ask the question, "Why?" I'm not sure what it is that boards who do that are trying to prove. I can understand doing this in a merger, in which you've got two executives and one will become chairman for a set time as part of the transition. That serves a purpose. But just as a matter of course I don't understand what the point is to have two different people hold these jobs. You are trying to make a statement that has no basis in practicality--as if you're saying, "We want the CEO to concentrate on being a CEO." Maybe I'm missing something, but there has never been a time when I've said, "Now I'm supposed to be the chairman," and then, "Now I'm supposed to be the CEO." I just do what I do. I stay close to my board. I stayed close to KKR when it had majority ownership. If you are smart, you are always talking to your board and flying things past them and getting their advice and suggestions. That's what makes sense to me.

So you must be a bit bemused by the Disney situation and what the board did in stripping Michael Eisner of the chairman role?

I don't know the ins and outs of that. I just know what I read in the newspaper. I'm sure George Mitchell is a fine fellow and a hell of a statesman. I don't think I could be the statesman he is, but I'm not sure he could be the operator that I am, and I don't mean that arrogantly. What was the point in what they did, other than to make some sort of a political settlement?

Another board reform to which you can speak with authority is the concept of the lead director--a role you once played on the board of Century Business Services Inc.

To be honest, I found it frustrating. I was only in this role for about six months after I retired before I had to leave the board, as the company's business was in conflict with Willis. The notion of a lead director assumes that you are highly involved in the business without actually being in the business every day. Everybody looks to you because you are supposed to be responsible, but you are not involved in the "plumbing" of the place. That's a very difficult position to be in, and my hat is off to anybody who is a lead director today.

You probably get asked quite often to be on boards. One that you've chosen to join is Commerce Bancorp, a fast-growing bank based in New Jersey. What attracted you to that board?

I have a lot of admiration for [Chairman and President] Vernon Hill. He built that company from scratch. I love people like that. Just as I believe in being in the insurance business, he believes in being in the banking business. With him, the whole idea is more deposits every month, and the more convenient you make it, the more people will show up and bring you their money. So the bank is open seven days a week and they keep opening up new branches, and they're seeing their deposits increase dramatically. This was actually a model that I used at Citibank. It was harder for me because I parachuted into a business that had been around a long time, whereas he started his business, so he did it the way he wanted to do it. I have always been a devotee of that model--of making customers feel special and welcome.

Routes to Growth

Let's wrap up by returning to the insurance business. What do you make of Eliot Spitzer's probe into the insurance industry's brokerage practices?

We have long believed that it is critical that clients be fully aware of contingent commissions, and we disclose the existence of contingency agreements both in our contracts and on our Web site. The entire industry is now taking a hard look at all of its practices, and that kind of self-assessment for an industry is invariably a good thing.

Do you foresee any impact on your company?

I can't predict what regulatory changes might come from the attorney general's investigation. However, we are taking a hard look at everything we do to ensure that all of our policies and practices support our goal of delivering maximum value for our clients. Certainly, if we find areas where we think we can enhance our practices, we will make changes.

While you've been increasing your ownership in firms in which you have had partial ownership, what about growth by acquisition? Are you a big believer in acquisitions?

I am a big enthusiast for acquisitions when the time is right. At this moment, a lot of companies are just too highly valued. Our global footprint is strong--we operate in over 180 countries, so we do not need to do an acquisition to get into a market. We are everywhere we want to be and everywhere our clients need us to be. I just want us to grow in all those markets.

So you are also a big believer in organic growth.

I am a believer in creating the right atmosphere and building a good company--and not misunderstanding the two. A lot of times when you are in the acquisition business you don't have time to actually build a great company. But I suspect that for us to gain more market share, aside from organic growth, there will be an acquisition or two that we would hope to make along the way. I haven't seen anything attractive lately, but I know where the dance is.

And you know how to play in traffic! Thank you, Joe.

RELATED ARTICLE: The continuing need for D & O insurance

Data compiled on the federal court system by Marc Galanter--who teaches law at the University of Wisconsin and the London School of Economics--for the American Bar Association reveal that while in 1962, 11.5 percent of all civil cases in federal court went to trial, by last year that number had dropped to 1.8 percent. Even with five times as many lawsuits today, the raw number of civil trials has also dropped, with a mere 4,569 civil cases tried last year in federal court.

The percentage of federal criminal prosecutions resolved by trial has also declined, to less than 5 percent last year from 15 percent in 1962. Although the number of prosecutions more than doubled in the last four decades, the number of criminal trials fell by 30 percent over that span.

The declining number of trials in the federal courts can largely be attributed to revisions in sentencing laws. With the increased minimum sentencing guidelines now in place for corporate fraud cases, defendants who insist on a trial may face much longer sentences than those who accept a plea bargain. This point was made dramatically with the sentencing [in March 2004] of a Dynergy financial officer to 24 years in jail.

Data from the state courts, which handle most lawsuits, are broadly consistent with that in the federal courts, according to legal experts at the National Center for State Courts.

All of this leads to the undeniable conclusion that more suits are being settled, a finding that underscores the need for D & O coverage for the simple reason that suits settled out of court often bring adverse outcomes for the individual outside director--outcomes that can be protected by D & O insurance.

Further supporting the point are the limits placed by many states on a company's ability to indemnify its directors and officers for certain settlements.

A recent decision that provides some predictive insight to independent directors is last year's Disney decision by the influential Delaware Chancery Court. The suit against the Disney compensation committee (all outside board members) alleges that they breached their fiduciary duty in agreeing to a compensation package without thorough review of its merits.

After granting the plaintiffs access to relevant company documents to form their case, the court is allowing the claim to proceed to trial. The allegations are strikingly similar to those of a number of other pending and likely suits.

Whatever the ultimate outcome, the Chancery Court has already determined that the company will not be permitted to indemnify the board member defendants. In the absence of D & O insurance, the personal net worth of each individual would be called into play.

                                    1962            2003

Criminal Trials in Federal Court     5,097 trials   3,574 trials
Civil Trials in Federal Court       12,259 trials   4,569 trials
Civil Cases Tried in Federal Court      11.5%           1.8%

Most suits are being settled out of court, often bringing adverse
outcomes for the individual outside director--outcomes that can be
protected by D & O insurance.

Source: Willis Group's Executive Risks Alert, April 2004

Note: Table made from bar graph.

RELATED ARTICLE: The Board of Willis Group Holdings

Joe Plumeri

Chairman and CEO

Gordon Bethune*

Chairman and CEO

Continental Airlines

Sen. William Bradley*

Managing Director

Allen & Co. Inc.

Joseph A. Califano*

Chairman and President

National Center on Addiction and Substance Abuse at Columbia University

James R. Fisher

Managing Member and Majority Owner

Fisher Capital Corp.

Perry Golkin

Executive

Kohlberg Kravis Roberts & Co. LLC

Paul M. Hazen

Retired Chairman

Wells Fargo & Co.

Wendy E. Lane*

Chairman

Lane Holdings Inc.

James F. McCann*

Chairman and CEO

1-800-Flowers.Com Inc.

Scott Nuttall

Executive

Kohlberg Kravis Roberts

Douglas B. Roberts*

Former Treasurer

State of Michigan

* Elected to the board following Joe Plumeri's appointment as chairman and CEO in October 2000.

INTERVIEW BY JAMES KRISTIE