Governance and Control at AXA
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Case Code: BSTR224 Case Length: 18 Pages Period: 1991-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: AXA Industry: Banking and Financial Services Countries: India, Japan Themes: Corporate Governance, Control |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Going Global
In 1991, AXA formulated a vision of becoming a global company. According to Bébéar, "To become a multinational, an enterprise must outgrow the very notion of nationality: all its entities, whatever their market, its employees, whatever their nationality, must be dealt with on equal terms and must pursue one single identical object: the considered interest of the whole enterprise." At that time, the total revenues of AXA were €8.1 billion, with France accounting for a total share of 60%, followed by the rest of Europe with 30.2%, Canada with 0.5%, and revenues from reinsurance at 9.3%...
The AXA Board
AXA had achieved much of its growth through various mergers and acquisitions over a period of two decades. Its acquisitions brought several companies into its fold. These resulted in complex holding structures and companies under different names in different countries. The products and processes too differed from country to country. Bébéar wanted to make AXA a truly global company rather than letting it remain a French company with several international subsidiaries. To achieve the objective of becoming a global company, there were several management issues that AXA had to face. These included cultural and communication issues, legal compliance, capital allocation, and integrating people and processes. AXA operated in many countries across the world and had to take into account several kinds of statutory, regulatory and legal, systems and accounting and tax systems as these differed from country to country. AXA firmly believed that in order to reduce the complexity of its operations, it needed to stick to a single business model of financial protection...
AXA - Centralizing Business Functions
Though AXA aimed at becoming a decentralized organization, it felt it was necessary to centralize some functions in order to achieve better synergy and coordination. AXA centralized functions like procurement and technology services...
AXA - Efforts To Decentralize
AXA ensured that the principles of good corporate governance were implemented across the group. All the subsidiaries were governed by a board, which included non-executive directors. An audit committee with independent members also oversaw the functioning of the subsidiaries. All the subsidiaries were made aware of the group's strategy, operational objectives, reporting lines and accountability for organizational objectives. Formal guidelines for business and operations were in place along with a written code of ethics, anti-fraud, and anti-laundering policies. All the subsidiaries of AXA prepared three-year forecasts. AXA aimed at exercising control over the forecasts developed by the subsidiaries by subjecting the forecasts to critical review.
After the review, any adjustments that were required were made. A consolidated forecast was prepared that was used as the group's budget. Based on these, the objectives and annual targets of each of the operating units were arrived at. The subsidiaries of AXA presented details of their strategic position, performance review, quantitative targets like revenue, expenses, profitability, etc., about each of their business segments. Also forming part of the presentation was sensitivity analysis considering macro-economic conditions and specific plans for HR, IT, and other aspects...
The Benefits
AXA reaped several benefits by striking a balance between centralization and decentralization of its operations. The company had firm control over some of the most important activities and was able to steer the subsidiaries toward the growth path. At the same time, the subsidiaries were free to carry out their day-to-day operations. Due to geographical diversification, the group's volatility of earnings went down. AXA was able to replicate the best practices in one country in other countries and thus obtain a competitive advantage over local players...
Exhibits
Exhibit I: AXA - Business Segments
Exhibit II: AXA - Insurance Revenue by Region/Country
Exhibit III: AXA - Supervisory Board Committees
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