Northeastern Mutual Life: Preparing for Employee Terminations
Case Study: Northeastern Mutual Life: Preparing for Employee Terminations
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Introduction
Northeastern Mutual Life, the major subsidiary of the Calgary Insurance Group, is one of the largest life insurance providers in Canada. Northeastern Mutual Life has more than three million individual and business customers in Canada. Among its nine thousand employees, Northeastern Mutual Life employs two thousand six hundred administrative staff.
Gordon Gillingham is the president and chief executive officer (CEO) of Northeastern Mutual Life. From 1996 to 2000, the return on equity (ROE) of Northeastern Mutual Life has declined steadily from 11.5 per cent to 7 per cent. The constant decline in ROE has been brought to the shareholders’ attention. In early 2000, a meeting of Senior Management Partnerships (SMP), the management body of Northeastern Mutual Life, made a decision that administrative costs had to be cut by 20 per cent. Because employee salaries form the largest part of administrative expenses, employee terminations appear to be the only way to reduce expenses.
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Stakeholders
As noted above, Northeastern Mutual Life acquires more than three million individual and business customers in Canada. Moreover, Northeastern Mutual Life has almost three thousand members of the company’s sales in Canada, making it the largest among Canadian insurance companies. Despite of those facts, Northeastern Mutual Life still replies “heavily on its public image and reputation for new sales” (pg.5).
Gordon Gillingham, the president and CEO of Northeastern Mutual Life, faces a difficult decision of balancing shareholders and employee interests. CEO’s fundamental duty is profit-maximization for shareholders, and Gillingham is not an exception. Since the ROE of Northeastern Mutual Life has decreased from the past four years,
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Introduction
Northeastern Mutual Life, the major subsidiary of the Calgary Insurance Group, is one of the largest life insurance providers in Canada. Northeastern Mutual Life has more than three million individual and business customers in Canada. Among its nine thousand employees, Northeastern Mutual Life employs two thousand six hundred administrative staff.
Gordon Gillingham is the president and chief executive officer (CEO) of Northeastern Mutual Life. From 1996 to 2000, the return on equity (ROE) of Northeastern Mutual Life has declined steadily from 11.5 per cent to 7 per cent. The constant decline in ROE has been brought to the shareholders’ attention. In early 2000, a meeting of Senior Management Partnerships (SMP), the management body of Northeastern Mutual Life, made a decision that administrative costs had to be cut by 20 per cent. Because employee salaries form the largest part of administrative expenses, employee terminations appear to be the only way to reduce expenses.
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Stakeholders
As noted above, Northeastern Mutual Life acquires more than three million individual and business customers in Canada. Moreover, Northeastern Mutual Life has almost three thousand members of the company’s sales in Canada, making it the largest among Canadian insurance companies. Despite of those facts, Northeastern Mutual Life still replies “heavily on its public image and reputation for new sales” (pg.5).
Gordon Gillingham, the president and CEO of Northeastern Mutual Life, faces a difficult decision of balancing shareholders and employee interests. CEO’s fundamental duty is profit-maximization for shareholders, and Gillingham is not an exception. Since the ROE of Northeastern Mutual Life has decreased from the past four years,
References: Mark K. (2006). Northeastern Mutual Life: Preparing for Employee Terminations. Sharp, D. (Ed.), Cases in Business Ethics (pg. 4-9). California: Thousand Oaks. (Word Count: 1357)