Aflac CEO Dan Amos on the Economy and Healthcare ReformPublished: September 30, 2009 in Knowledge@Emory
Though many in the U.S. are grapples with the possible implications of healthcare reform, international business firms are familiar with this terrain. Daniel Amos, chairman and CEO of the insurer Aflac, conducts a major share of his business in Japan, which has national health insurance. For the U.S., Amos does see the need for reform and doesn’t believe it will necessarily impact his company’s business. Amos spoke to Knowledge@Emory following the panel discussion "Lessons of the Global Financial Crisis and the Road Ahead," co-hosted by Emory University's Goizueta Business School and the New York Stock Exchange. Alongside Goizueta Dean Larry Benveniste and NYSE Euronext CEO Duncan Niederauer, a Goizueta alumnus, fellow participants included Amos, The Home Depot CEO Frank Blake, U.S. Sen. Saxby Chambliss (R-Ga.), Federal Reserve Bank CEO Dennis Lockhart, and moderator Susan Lisovicz, CNN's primary correspondent on the stock market.
Under Amos’s 19-year tenure as CEO, Aflac’s revenues have grown from $2.7 billion to $16.6 billion as of the end of 2008. He is also responsible for launching the popular Aflac duck advertising campaign and was named this year as America’s Best CEO in the insurance/life category by Institutional Investor magazine. Today the company is the leading provider of supplemental insurance policies at the worksite in the U.S., and it insures one out of four Japanese households.
In addition to his comments as a panelist, Amos spoke exclusively with Knowledge@Emory about healthcare, CEO salaries and the future of the economy. Remarks from both sessions are included below.
Knowledge@Emory: About a year ago, Lehman Brothers failed. Where are we now? What is happening in your business?
Amos: I’ve never seen anything like this in all my years as a CEO. I think we’re off the bottom, but I’m not sure we’re up to where we’d like to be yet. Seventy percent of Aflac’s business is from Japan, so we’re attuned to that economy. What is different between the two is, to use a sports analogy, if you’re hurt at first, you’re stunned and worried about using it again. From the U.S. perspective, we’re stunned, whereas Japan has had a bad economy my entire time as CEO. They’re used to living with it. As we go forward, we’ll get used to it; the layoffs will level off and we will gradually recover.
Knowledge@Emory: Where will we be in a year from now?
Amos: I think the economy will be better than it currently is. It depends on how the stimulus package works out. Do I think the unemployment rate will improve? It will be slow moving back, but America is entrepreneurial. Young people and young ideas will bring us back.
Knowledge@Emory: How would healthcare reform affect your business?
Amos: I don’t feel like we’ll be impacted. Japan has national health insurance, and we’ve seen co-pays and deductibles that used to be zero go to 10, 20 or 30 percent. In the rest of our business, we sell in an employer-employee environment, so whether it’s an HMO or Blue Cross, etc., people will still buy our insurance.
Knowledge@Emory: Why have you been so successful in Japan?
Amos: The increase in these co-pays and deductibles has created a need for additional health insurance, and we’ve been able to help fill those gaps. We were also the first insurance company to get licensed after the war [WWII]. It was very difficult to get licensed in Japan, but once you were, they wanted you to succeed. They helped by allowing us to do what we call corporate agency, where all the major companies on the Tokyo Stock Exchange offered our products to their employees. That’s what catapulted us to where we are today.
Knowledge@Emory: Would health care reform in the U.S. increase your business?
Amos: Not necessarily, because we want you to have insurance and then we want to add this on top of that. If you’ve got more deductibles, you’ll have more of a need for it. But Aflac’s sales do not focus on deductibles or co-pays. Most customers buy our insurance based on loss of income—you’re out of work or your spouse may have to take care of you and be out of work. We provide cash, and this can fill whatever void is there. We try to strike a fine balance. An appropriate number of out-of-pocket expenses allows the usage rate to drop, but if policy holders face too many out-of-pocket expenses, they don’t do the things they need to, like have cancer screenings. Our policies encourage screenings and things of that nature.
Knowledge@Emory: Do you think health care reform is needed?
Amos: Yes. I don’t know to what degree, but I absolutely think it is needed. I am no politician, so I don’t know how they are going to address it. We don’t want a lot of uninsured people. We want to find a way of limiting the number of exclusions based on preexisting conditions.
Knowledge@Emory: What do you think will happen if healthcare reform is not passed?
Amos: Employers have to find some way of taking care of workers. How and in what form, I don’t know. But there is a moral obligation to try and find it. Economic obligations of course have to be considered, but most employers are trying to find a way to resolve this. It may mean higher deductibles and catastrophic coverage, but at this point, I don’t think any of us know.
Knowledge@Emory: As a CEO, what are your thoughts on executive pay?
Amos: I’ve seen movie star-type salaries. But most of us are average people who worked our way up and are compensated for it. A couple of years ago I received a proposal from an outside source to consider a shareholder vote on executive compensation. Transparency is important, especially in times like these. After talking to the board, I concluded it was a good idea. Our stock last year was at an all-time high and our shareholders gave our executive compensation a 94% approval. This year our stock dropped to a very low point—it has come back—but interestingly, 97% of our shareholders voted for the same pay. My concern was whether shareholders would look at such compensation for the long run or say, “The stock is down, let’s get rid of it.” They looked at it in a bigger way. Whether other companies should put the salary to vote is a decision for them to make.
Knowledge@Emory: Why did the shareholders vote to keep your pay the same even though the stock market price tanked?
Amos: We pay for performance, and there’s a correlation between compensation and performance. When you do well, you make more money, and when you don’t, you don’t. They looked at our track record. And it only proves to me that they wanted to vote on it, but they didn’t want to vote against me. If you can get 93% to vote in favor of anything, that’s amazing. I think they felt good they had the opportunity to vote. Some may have even voted yes because they liked the idea that I, or the board, let them vote.
Knowledge@Emory: What is misunderstood about CEO pay in general?
Amos: If you look at a CEO’s tenure, the current average is about six years. Compare that with the job of a college football coach. They both make a lot of money, they both coach people, they’re in the forefront. But if the coach is fired, he can find another job. When a CEO leaves his job as a result of underperformance or frustration, other than going to a private company or a consultancy, they never go back to a job. So a person taking that CEO job knows it could be their last job. If they do well, they can go even higher at another company. But if they fail, they’re out.
To view the panel discussion in its entirety, click here.