Despite being called Baby Bells from their inception, the telecommunications companies created from the breakup of AT&T retained several major hallmarks of a hidebound, old-economy sector that includes a large capital-heavy infrastructures and a huge unionized workforces active in multiple states.
But despite the legacy of a monopoly, at least one Ma Bell successor, SBC Communications, has taken an ambitious, aggressive, and comprehensive approach to risk management that continues to evolve.
The major change took place about 18 months ago when Paul Stephens was brought in to the newly-created post of vice president for Financial Investment and Risk Management. The strategy was twofold. It served to unite, or at least coordinate, risk management functions around the far-flung corporation. It also served to increase control at the managerial level. Those might seem like antithetical goals, but Stephens and most of the senior executives embraced the philosophy, and it has largely worked.
The creation of Stephens' group united investments, including pensions and savings, with all risk management, including corporate risk financing, workers' compensation, and claims.
"The biggest difference," says Stephens, "is that claims were not part of risk management?either claims against the company, or the company's own claims against outside parties." Claims now belong in the risk management fold, under the responsibility of Ron Walton, SBC's director of risk management.
Both Stephens and Walton, who had been with SBC in risk management for several years when his new boss came into the group, work closely at the firm's corporate headquarters in San Antonio, Texas.
"Baby," Bell or otherwise, is also a misnomer for a company with $41 billion in revenues in 2003, 167,000 employees, 54 million local access lines, and 25 million wireless customers through its 60 percent holding in Cingular. On the corporate side SBC is a Fortune 50 stock, is included as a component of the Dow Jones Industrial Average, and in January announced its intention to buy AT&T, one of corporate America's most storied brands.
Structurally SBC has been among the most acquisitive of the AT&T spinoffs, acquiring in one quick burst Pacific Telesis in 1997, Southern New England Telecommunications the next year, and Ameritech the following year. Little wonder, then, that Stephens inherited a convoluted risk-management structure.
"What was called 'Risk Management Services,' had bounced around several places in the controller's office," says Walton. "The group was not with the rest of risk management reporting to the treasurer. General liability claims were coming through the door from our own wire lines. We have a large service fleet, so there were automobile claims, third-party claims similar to workers' comp. There was a great potential for subrogation."
The silos did not necessarily represent turf battles so much as a legacy of a complex organization formed before risk management was recognized as a senior-executive level responsibility. Further, both Stephens and Walton stress that most of the disparate operations were fairly well conducted.
"Communication was very important," says Stephens. "And we needed to stabilize liability claims. We also needed people with more of an insurance background. Clearly there was a big opportunity with me coming in to take that other group and stop them from looking like they were running regional shops. Loads varied from region to region, but the idea was to shift the load to a national approach."
Surprisingly, there was little resistance, indicating that wise minds at every level of the organization were happy to take on a more comprehensive and integrated approach to risk management. As can be imagined, there was some unwillingness by the controller's group about the shift of one group to treasury.
"There was a good, healthy discussion," says Stephens, "but results are what counts. And even with the force count reductions, we are still achieving results." That has left the door open to examine similar consolidations, or at least closer coordination with other related operations. "There are still considerable opportunities for discussions where things can be changed to a more direct tie. For example, the real estate safety group is not part of our operation." Adds Walton, "No one understands the logic of that."
Stephens is quick to stress that he is operating with a mandate and seeks the active involvement of all risk managers throughout the organization. "Ron and I see the important issue as the opportunity to have more direct discussions and to improve communication and action to prevent accidents from happening in the first place. The object is not to make this into a turf battle. We could have more drastic reorganizations, but nothing is planned at this moment."
Disability is another important area where the new risk management team is seeing closer coordination. At present the group handling that area is within human resources, while workers' comp is in risk management.
"From a personal standpoint, top management trusts me to go through our entire risk management approach on a rational basis--not making snap decisions," Stephens says.
Since the initial reorganization under Stephens 18 months ago, the head count under him has actually decreased--one indication that the new risk management is looking for efficiency rather than territory.
There has also been a thorough review of process as well as structure. In one case an 18-month insurance policy was taken out shortly after the terrorist attacks of Sept. 11, 2001. "I asked if year-and-a-half policies were standard for that coverage and was told that it was not," Stephens recalls, "but in the wake of the attacks, it was thought at the time that premiums would go up and we were locking in the rate. That was fine. But here we were, well into the term and rates had not gone up much. So I asked if we could cancel and rewrite. Again, I was told that we don't do it every day, but we could. As a result, we saved $2.5 million in premiums."
Stephens is a CPA and an attorney. He has an undergraduate degree from Millikin University in Decatur, Ill., and took his law degree at Washington University in St. Louis. From 1988 to 1997 he was with Ernst & Young as a tax advisor. At that point he joined SBC as head of the state and local tax group. He then moved to CFO of one of the firm's operating subsidiaries before taking over risk management in July 2003.
Walton notes that Stephens has an unusual resume for a risk manager. "Generally, tax people are very technical," Walton says, "but certain folks can demonstrate a broader skill set: organization, communication, law and interpersonal skills. The previous risk manager was here for 20 years, and he did a good job. But it is good to get in new blood. And Paul has great people skills. He has been able to blend departments and groups without much confrontation."
Walton also cheers, "Go Bears!" on Saturdays, but for Baylor rather than Washington University. There is a Washington connection, though. Walton has an MBA from George Washington University in Washington D.C. He also holds a property and casualty charter, and is an associate in risk management and in claims. That is where he started, as a claims adjustor for The Travelers in 1988.
In only six years he advanced to supervisor, then litigation supervisor for three years until joining SBC's risk management group in 1998, a year after Stephens joined the firm.
"Paul, without a risk-management background, has been able to challenge me and all of us on our expertise."
With SBC's announcement that it would buy AT&T, Stephens and his team will looking for ways to integrate the risk functions of the long-distance carrier. This will surely stand as his most challenging assignment yet.
GREGORY DL MORRIS, a former executive editor, is an freelance writer and editor in New York. He contributes regularly to Risk & Insurance®.
March 1, 2005
Copyright 2005© LRP Publications