Standing on his outdoor patio on the top of the skyscraper that is the headquarters of PZU, Poland’s largest insurance company, chief executive Andrzej Klesyk scans the Warsaw skyline, breathes deeply, and says: “This is the best job in the world!”
He has reason to feel that way.
Since leaving the Boston Consulting Group and taking over PZU more than two years ago, Mr Klesyk has been hamstrung by one of Poland’s longest-running commercial disputes – a fight for control of the company between the Polish government and Eureko, a Dutch insurer. But in early October, the fight was resolved, leaving Mr Klesyk to get on with building what he hopes will quickly become one of Europe’s top 10 insurers. The end of the battle will free up past profits and Mr Klesyk expects to have a war chest of about €2.5bn ($3.7bn) for acquisitions.
“I can imagine PZU taking over western companies,” he says. “I would really, really, have liked to buy AIG’s central and eastern European life insurance portfolio, but the conflict between our shareholders made that difficult.”
Eureko, together with a partner, was the surprise choice in 1999 to become PZU’s strategic investor. The centre-right government of the time was interested in selling state assets, including politically tricky ones such as banks and heavy industries, showing a determination unmatched by any subsequent government.
However, those governments have tried to roll back the privatisation and retain control of PZU. Eureko took Poland to international arbitration and won. Facing potential damages as large as a budget-breaking 36bn zlotys, the government managed to strike a deal last month, helped by the fact that the Dutch insurer had been dealt a blow by the crisis and was willing to settle for a smaller amount instead of fighting on. The treasury will now be the undisputed owner of PZU.
The botched privatisation has cast a long shadow over Poland’s credibility.
“For years, whenever we would go on fundraising trips, we would always get questions about PZU,” says Jacek Siwicki, president of Enterprise Investors, a Warsaw-based venture capital fund. “In places where we would have to take out a map to show them where Poland was, they would have heard of a country where a government was trying to undo a privatisation.”
It also created problems for Mr Klesyk. The treasury and Eureko warred over who would serve on the board, and management was chosen by the shareholders, not by the board, a situation Mr Klesyk calls “bizarre”.
Because of the high-stakes fight over control of the company, top management tended to be politically affiliated, most notoriously when Jaromir Netzel, a lawyer with political connections but no insurance experience, was nominated as chief executive by the previous right-wing Law and Justice party government. Mr Netzel was removed in August 2007 after being arrested in conjunction with a bungled corruption probe that ended up leading to the fall of the government. His replacement served only three months before being replaced in turn by Mr Klesyk.
The constant management turmoil made it very difficult to steer the company, with executives unwilling to devote time to long-term planning because they expected to serve only a few months before being ousted.
“Nobody was thinking ahead,” says Mr Klesyk, noting that since 1999 the average term of a chief executive was only 13 months. Mr Klesyk has now passed that date and Aleksander Grad, the treasury minister, shows no sign of wanting to remove him.
His first goal has been to stabilise PZU’s share of Poland’s insurance market at about 44 per cent. The company – which provides life, property and transportation insurance as well as asset management – has steadily been losing market share, although it is still the country’s dominant player. Mr Klesyk has restricted hiring, slashed costs, and is getting rid of loss-making ventures like partial ship insurance.
Last year, PZU earned 2.3bn zlotys. This year, despite the crisis, Mr Klesyk expects to break the company’s 2006 profit record of 3.7bn zlotys.
With the Polish business doing well, Mr Klesyk wants to strike out abroad. PZU’s previous attempts at international expansion, with subsidiaries in Lithuania and Ukraine, have been lacklustre. Setting up greenfield operations requires skills that Mr Klesyk admits PZU does not have. That leaves acquisitions.
“I see no reason why a company like PZU could not be a leader, not just in this region but in the whole of Europe,” he says.
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