Mr. Robert Benmosche April 6 Remarks
Mr. Robert Benmosche
Remarks at The Brown Forum
April 6, 2011 Dubrovnik, Croatia
Good morning everyone. I guess I’m your wake up call. I appreciate you getting up so early to come hear me speak. By the way, this is a special day, the day after Bura. If you are ever in Dubrovnik and you want to take picture, today is the day to do it.
I was asked to talk with all of you about my experiences, but the biggest question people thought I could answer for all you is why would I ever come to Croatia and why would I ever buy a home here in Dubrovnik and what drove me to do that. Now that you have been here, you understand. Probably before you got here you did not understand. It’s a beautiful place in the world, but it came with some challenges.
I never thought of myself as a pioneer. I came here in 1987 on an incentive trip. We put together a trip, and I used to like to teach my stock brokers on Wall Street that there were places, more beautiful places, in the world than Naples, Florida and Miami, Florida and that San Diego, California is not the end all and be all. Those are the places people would go and think wow, we have it all. And the problem with America is that we think we have it all. And as all of you that travel the world know, we don’t have it all. We have some good stuff, but we don’t have it all.
So, you can image in 1987 when we announced the incentive trip this year for the best producers would be to Dubrovnik, and somebody said well where is that and we said Yugoslavia, it didn’t go over very well. People thought I was joking that we were really going to take them to a communist country. They were dumbfounded. Actually they were so excited about the absurdity of what I proposed that we had a record year. And they came to Dubrovnik. To this day, people talk about that as the most incredible trip they’ve ever been on to see a thousand year old city with all of its heritage and all of its history still there intact.
We think we invented, and that happens to societies that get strong, we think we invented everything in America. I share with my friends in the U.S. that in 1416 the Republic of Dubrovnik outlawed the transportation of slaves on their ships because it was inhumane and wrong. 1416. If you look at the fort overlooking the old city, inscribed in the wall is our most important thing is our liberty. That’s the 14th century. So when we talk about liberty and America and so on, we may have roots elsewhere.
In fact, I share with people that the Potomac river, which people think is an Indian tribe, but there’s a Croatian word,potomak, that means our next spirited generation and if you hear stories about the fact that Dubrovnik was the first to recognize the United States of America as a country, they were looking for a society, and a vision and a people who believed in what they believed in. And so therefore if you think about the word potomak, maybe that’s how the river got its name. We know that the pillars on the White House came from Croatia. So there is some kind of a nice connection, and somehow I feel a little bit at home here when I return to Dubrovnik.
So I came back in 2000 thinking about my retirement and in 2000 I still had nine years to go. But one of the mistakes men make in particular is that we actually don’t think about retirement until it’s too late. You wake up one day and say, oh my god, I’m 65 or 70 years old now what do I do, and you look around for some help and the men around you they can’t help you any more than they can help themselves, and the women, they say I’ve been trying to tell you that for 10 years and you don’t listen to me! You don’t listen, you never listen! So we all struggle with that as we go through our life. So I decided to be ahead of the game.
I came here in 2000 with the idea that if zinfandel wine actually originated in Croatia, what if I were to bring the wine, the vines from California and actually started to be a vintner here and become a wine maker when I retire someday. I knew you needed lead time to do that, so that’s what I came to do. I couldn’t find any vineyard land, but I did find a home. That’s actually, for those of you if you look out that window, that’s my view, as two properties down that’s my house. At one time it was known as the most popular bar in this part of the world, the Splendid Bar. It was a strip disco, so you can imagine why it was … It doesn’t do that anymore. And if you want to get excited, it’s just me stripping to go to bed, it isn’t very exciting. Trust me.
So the house was for sale and I said you know what, I think it is worth a shot. I thought about it. It was very expensive at the time. I said the down side is that I could lose half my money. The issue I had at that point in time, if you could back to where I call myself a maybe pioneer, is that Milosevic was still in power in Serbia and the question was, was the civil wars over or is this thing going to boil back over again. Remember Kosovo had just ended. There were a lot of issues. We were going from the Clinton administration into the Bush administration. People weren’t exactly sure what was going to happen in this region. I said the worse case I could lose half my money, but you can’t buy a view like this in a city like this. And that’s the gamble I took back in 2000. It took me six years to complete the house and I learned how to work here in Croatia under Croatian rules.
You have to understand that this is a country that probably for the modern time for the last 300 years, I would think that the greatest influence came from the Austro-Hungarian empire. They keep records. They keep records of everything. On one of my vineyards, we found a bunker and a little barracks all old and destroyed and in the war museum in Vienna it says it was built in 1823. It tells you what it looked liked and who was there. It’s all there in the records. And they also said you have to have rules. Strict rules. And in this country there are really strict rules about how you do things.
Keep in mind that in Dubrovnik, in I think the 13th century, a lot of the homes were built out of wood. They had a massive fire and they changed the building codes. They said you could no longer build out of wood, you had to build out of stone. Well they didn’t have enough stone in the old city. What they did for all the people selling their goods, they said you can come into the old city to sell your goods, but you’ll now have to pay an entrance fee. Two stones. And they collected millions of stones to build the houses again. That’s how they got their stones to recreate the Old City.
The problem is that part of the Stradun was filled in because there was a bay right there and other parts were filled in. In 1667 when the earthquake came, people don’t realize that when you do that, that the earth and what you have filled in, unless you have deep piles drilled into the ground, will actually liquefy. And it did. And that’s why so many people died in 1667, because the buildings collapsed on them.
Since 1667, they have had earthquake building codes here in Dubrovnik, and you have to live to those standards. So when you build here, every day there is work at my house here in Dubrovnik for six years. Don’t cheat. And I tell you it is very tempting. Somebody came every day to my house and I paid them to come every day to sign the book that says this was what was done today and that everything is done according to the rules. Now you could say the person came and signed and didn’t look. You can say whatever you want to say. The fact is that is the rule. Now if you want to pay someone a little extra and not come by every day, you can get yourself into trouble.
Part of the challenge for us as you build a home and a business here is first to understand the rules, know that you will play by the rules. And in the end anyone who says they can take care of it for you and you think the government is taking graft, you’re being stupid. Because most people have very little influence over the person who has control and if you want to know a little secret, you want to know who has control, it’s the person with the stamp. Whoever has the stamp, that’s the person that you have to find out what they want in order to go “pft,” because they don’t go “pft” until they are satisfied with the rules. You can say this one says and that one says, but you have to know who has the stamp, what they require, and follow the rules. It will take a long time, but you can get there.
The other thing, as I think about my experience here, is that people are well intended. And you have to make sure you show some respect to the people that are here that are well intended. They take great pride in what they do and they just take longer to get there.
Now in addition to building my home, I decided to buy some vineyard land and I retired in 2006 and we built two vineyards one up in Pelješac and one in Dingaĉ in Pelješac.
And there again when you buy land you have to know what you are doing. You really have to know what you are doing. Therefore, you have to know the book of deeds which is very complicated and antiquated and you have to understand how to research the book of deeds. The parcels I had to buy were many little pieces because over many generations it goes to the sons, who goes to the sons, who goes to the sons. So you have all these little pieces of land. If one stayed in Croatia and one stayed in New Zealand, you have to get to New Zealand to find him; if one went to Australia, you have to find him; if one when to Chile, you have to find him.
If you don’t find him and you buy the property, you are at risk of them coming back and there is no statute of limitations and you have a new partner. Even though you didn’t think you were going to have a partner. There you have to be real careful about how you do your analysis and so on. I was fortunate and have a wonderful lawyer; I have a wonderful business partner. And her family is helping me. In fact, her family bought their first land, and they have been producing wine for many years, in Pelješac. They bought their land in 1360. We now have the 21st or 22nd generation of the family to make wine here in Croatia. So there are a lot of people with strong roots and strong background here in Croatia. If you find them, work with them, and you are patient, I think you can do some business here.
So I was having a wonderful time here. Enjoying myself. Life was great. I was retired. And all of a sudden out of the blue the world financial system decided to blow itself up and we had a catastrophe back in America. And I got a call from some people in, I guess it was June of 2009, who said we would really like you to consider that the government would like you to come and run AIG. And at Met Life, you should know that we took Met Life, in the years I was CEO, from one of the larger life insurance companies in the United States to the largest life insurer in all of North America. So we went from a 10 billion dollar company to a 40 billion dollar company. And I thought that was enough. And you know, I wanted to take it easy. Enough is enough.
But with AIG blowing up, which you know is the largest insurance company in the world, it caused some concern on my part. All of the companies and all of the stocks began to fall dramatically. And it wasn’t until, and some of you may have seen it reported back in August on the internet, that I was sitting overlooking Zaton, the little bay, beautiful bay outside those windows, with a friend from Sarajevo … And I keep telling him that if he doesn’t treat me right, I’m going to tell the world who he is. You will see why in a minute. Everybody keeps asking who is this friend who called America socialist? And I keep saying I’m not telling, but one day I will tell if he misbehaves. … So, we were sitting there having lunch and I was saying I don’t want to go back to work and I say why would I give this up and go back to work. This is unbelievable. He said, I know, I know but it seems America is struggling. We here in the former Yugoslavia (and he’s from Sarajevo and Bosnia), we are trying to become capitalist, and it looks like your country is deciding maybe socialism is the way to go. (And that of course got in the headlines.) And that’s why everybody wants to know who he is, but he didn’t call America socialist, he just said it looks like we’re moving in that direction. And so I said I don’t understand and he said “Bob, General Motors, the largest, at that time, the largest auto company in the world, nationalized; Chrysler, nationalized; Citibank, looking like it’s getting nationalized; the Bank of America, nationalized; AIG, nationalized. It looks like the government is buying and taking all these companies over because they can’t make it on their own.” And I thought about that for a minute and I said, you know, if you think about Dubrovnik and the model that Dubrovnik was, keep in mind that in the 15th century and 16th century the second highest per capita income in the world was Dubrovnik. This was the second highest per capita income in the world. You think about it and I say you know what, things can change and maybe America won’t be that icon of the other system that works.
And so I was really left with that challenge to give this up for a period of time, go back work with AIG and begin to see what I could do to turn around a great company and get it to survive and pay back the American taxpayers all that they had given the company and restore it to independence, which we’re about to do (I’ve been there 20 months so far) and to make it become an icon of things that can be right. As well as an icon of things that can go wrong. And that was really very important. And as you begin to see us emerge people are saying and the government and the country is saying I can’t believe they did it.
And, what I think is important for Croatia and for this region is that everyone has to understand the world you are in. Now for me, I grew up in a little town in New York State, two hours from New York City, it was a resort. You made your money in 10 weeks. Your season was July and August. A little like Dubrovnik has become unfortunately: two months and that’s your season. And you think about how does a kid in upstate New York, in a little town in upstate New York wind up becoming CEO of two of the largest insurance companies. For me it was the way I was raised and my life situation.
My dad died when I was ten. I had a sister 12 and a sister 5 and a brother 3. My mom, in 1954, with four children, a husband who had just died, no will and $250,000 in debt. My father had these big ideas of building motels, borrowed money, built them and died. And what my mother taught us is that if you are not afraid of tomorrow and if want to go get it then you can go get it. Seize the opportunities of life and you can be successful. And all four of us actually went through college. Mind you we had to work for it. I used to come home and complain. I’d say I don’t get this deal. I don’t want to go to college. I want to make money. Why do I have to go to college and work to pay for it. If you want me to go to college, you pay for it. If you knew my mother, that’s about as far as I got. I got a little whipping and told you do what you have to do. So you learn that there are a lot of things you can do with yourself if you seize the opportunity and that’s what an entrepreneur does.
When I came here I assessed the risks. I realized when I got here that you can’t buy this anywhere. You can’t buy this beauty. You can’t buy the peacefulness of this city. My only risk was Milosevic. And I had to decide whether he would actually make it in this society going forward. And once you make these judgments, you figure the downside of where you go.
But if I were to really come into this country in a big way, we have to fix some things in a big way. My biggest concern is that we have to, as a country, have a supervision system for the judges. We have a country with outstanding law. You have outstanding laws. This is a country that as I shared with you from what started in Dubrovnik, you go through the laws of this country and what has happened over the last 5 or 6 centuries. We’ve have great laws. The question is how do we administer the law?
And if you are at the vagaries of a judge who can put your complaint in his desk drawer saying you are not on my side, that makes it very difficult for the entrepreneur to say ok I understand the business risks and I understand the political risk, but I am now in the hands of that judge and there is no way around it.
Let me give you an example. Somebody here in town, someone I know, has been struggling with a commercial property. She had a tenant, signed a contract with that tenant. The tenant decided after about a year it would be better if I didn’t pay the rent. I could make more profit.
Let me think about that for a minute, if I don’t pay your rent for my building then I could make more money. What’s the down side to that? The downside is you could cancel my lease and throw me out. But this is Croatia so you can’t do that. So I stop paying the rent. Then you go to the judges. Now all of a sudden you find yourself after a year that the tenants there, doesn’t pay the rent, no court supports you, you have to put that tenant into bankruptcy. I have to learn that one; I have to go back to school to figure that one out. Meanwhile, we’re into the second year, the tenant is now out, but refuses to give up the keys, so now they can’t use the space until that is resolved.
I am now in the position of having to help that person out because they’re about to lose their home, which is part of the business. And I said ok, I’ll give you some loans and help you through that period of crisis.
But I can’t imagine, if I wanted to buy a big building here, that I have to sit down and everyone says, this is great, bob’s got some money, he could afford it and I’m not making as much money as I would like, so I just think I should stop paying rent. And then the legal system here and the supervision of judges don’t allow a very fast eviction. Now we have a movie theater in New York that we bought it, it’s an old Vaudeville theater, to save it from destruction. It’s a thousand seat theater built in 1924 with a beautiful organ in it and so on. And the tenant stopped paying. And my son went over, put giant chains around the door and said you are out. That was it. Very simple. He called and said give me more time. We said when you pay me, you get more time. In the meanwhile, it’s closed, we told the sheriff it’s closed and if he goes near the building, arrest him. He didn’t go near the building; he went to Florida and started a new life.
We need to… in Croatia, while we have the laws, you can say Bob, we have the laws. We have to supervise them. It is hard for me to want to invest money in that kind of climate.
We have to clean up the book of deeds in this country. I am fortunate to have a great team. I have confidence in that team. If you do not have a good team of people that know how to do that research the right way you could be investing improperly. As I have heard the stories there is hotel just north of here. A big complex. They built a big part of that hotel and then found out there was a question of the deed. The question was who actually owned the land. And they had already put in millions, tens of millions of dollars into rebuilding that complex. As an investor, I don’t want to worry about that.
And so a test would be if I said that … and 20 percent, 18 percent let me not exaggerate, 18 percent of home mortgages in the U.S. are insured by AIG. We have a huge mortgage insurance business…. That we would not put that business in Croatia. We wouldn’t even start down that road, because we don’t even understand the validity of the land that the house was built on that has the mortgage that we would insure. So as part of not only Croatia, but the whole Southeast Europe region, you’ve got to have it to the point that you are absolutely confident that when people buy something that you have title insurance, clear access to title and the information associated with title. And that I believe will get you to where you have to go in the beginning of bringing entrepreneurs here who will take the business risk but then not have to take the risk of the system.
The other thing is, for everybody here, is you have to understand the world in which you are competing. And it’s not against each other I have to tell you. I shared with people last night that if you think about one simple statistic, as you know AIG is very large in China, in fact we are large between states and around the world. We are in about 160 countries and states. We are around the world. We have a big operation in Shanghai; big in Beijing. You think about where we are in this region. The world is flat as Thomas Friedman wrote and I was with him about a month ago talking about his next book about the world and so on. He was really talking about America and America’s ability to compete in the world. The title of his new book is “That Used to Be Us.” He talks about building a million square meter site for a hotel and convention hall. One million square meters. They got the idea, got the permits, did the design and opened it up in less than twelve month. There is no one here to even give you the first stamp within twelve months. You can’t get that first stamp that says ok we’ll do a plan, and there they have a building up and running.
When you think about language, one of the things you should be most concerned about is, and my theory, and the Chinese have assured me I’m on the right road, there is no science to this, so it’s Bob’s idea, and people say to me anecdotally it’s pretty good. When Nixon opened up China it was 1975. Fifteen years later, China began to realize they have to succeed, and I had a chance to meet with Jiang Zemin during that period of time, and he said, look we have to become a market economy, we understand that, China must be a market economy, but we must never ever lose sight of the fact that we have 900 million farmers who are poor and they have to eat every day. (That’s why this whole issue today in China is the concern of inflation.) We’ve got to deal with 900 million farmers, keep them ok, and the 400 million moving into the middle class will be ok. That’s the balance of China.
And so the Chinese realized that they had to start teaching English in the elementary schools. For those of you in this region, I know many of you that are my age had to learn Russian. That was the important language of the day. Well, today it’s English if you want to be in global commerce. If you want to understand the internet it’s English. So if you do the math, around 1990, because in 1990 at Paine Weber on Wall Street we created one of the first funds to invest in China, the Greater China Fund, because we saw China now emerging as a market that made sense over the next decade. We had no idea how fast that growth was going to be. We thought it was going to be pretty good. Today it’s like a rocket.
So if you go start 1990 to 2011, that’s 21 years. The kids that are graduating university today in China grew up learning English in the school system, early in life which gave them stronger English skills. So in America this year, last couple of years, on average America will graduate 60,000 engineers this year, maybe 70,000. And in India, which has a population of 1.2 billion now, in India, they will graduate 240,000 engineers this year. And I can tell you it’s harder to get into school in India than in America, it’s just the competition is greater for kids. 240,000 versus 60,000. But in China, they will graduate 400,000 engineers. 400,000. Ten percent of the population of Croatia. Ten percent of the population of Croatia will graduate in China, who speak English better than most people here in this country, who have very sophisticated skills and degrees and many of them will go on to get PhDs.
So for people here, we are not competing against each other, it’s a question of how do we leverage what we have and make the most of it. And that’s my basic message here. If you make it easy for me to do business and I don’t mean you break down the rules. I applaud the difficulty of anyone, me included, of building along the water, if I’m going to do something along the water, I should do something that is pleasing to the eye. So for example, my winery I’m proposing here, will be underground, with only a small part above ground so that we don’t destroy the beauty of the sea. And as we build buildings here in Dubrovnik, I think it is terrible that we allow buildings to be built without tile roofs. If you go up the Eiffel Tower in Paris, Paris is a little bit bigger and if you look out, you see a consistency of roofs. That used to be the case in Dubrovnik. Let’s not lose our charm. That doesn’t mean we can’t become more advance.
If you make it easy and appropriate for me to do business, which will break down the perception of corruption, because corruption is not the person with the stamp, it is the person who says I know the person with the stamp. And then we blame the guy with the stamp, saying why did you have that person making me pay all that? Because I didn’t know.
So those are the issues. That our system if we just tighten it up, get it right, get the administration right, I believe this whole region is a region where you can appeal to tourism and things that are related to tourism. That’s why I think wine, and cheese, and prosciutto and other things you do really well you could magnify that and create that kind of economy.
Are you going to succeed in a people to people business? It’s going to be hard. But you have to find a way to keep your youth here. If you lose your youth, you lose your country. I can tell you that’s a problem we have in America. Right now, we bring all these bright young people to our university, the Harvards and Princetons and so on. We educate them and because of our concerns of terrorism, we send them home. And we want to protect jobs in America, those should be for Americans.
What we don’t understand is that for me, I have to find the best people to bring the work to. If they are not in America, I don’t care. We’re opening up a center for technology in Malaysia, because they have an incredible infrastructure of technology. We’re doing more in Korea, because they have the best technology platform in the world. When you look at AIG’s operation in Thailand, we earned in Thailand alone, last year 400 million pre tax, in little Thailand alone, because they are building an infrastructure. You come to Croatia and you get on the internet … let’s hope.
So those are some of the challenges. You have to be more technologically advanced and then I can bring my work here. Because I can bring my work anywhere in the world anytime I want to with a high degree of security and reliability. So if you send that person back to China, back to Korea, back to Vietnam and I need that skill, I will send the work to Vietnam because I don’t have to build a big infrastructure to do that anymore because the country has built that for me. And so I can be as global as I want and if America wants the jobs, it better find a way to change the immigration law and make it easy and convenient for kids to come and stay. And for Croatia, you got to make sure, and this whole region of Southeastern Europe, you have to find a way to keep the kids here with their heritage and their families. And that’s how you begin to grow.
