Herbert M. Allison Jr.
1943–



President, chief executive officer, and chairman, TIAA-CREF

Nationality: American.

Born: August 24, 1943, in Pittsburgh, Pennsylvania.

Education: Yale University, BA, 1965; Stanford University, MBA, 1971.

Family: Son of Herbert M. Allison Sr. (FBI agent) and Mary B. Boardman Ellison; married Simin Nazemi, 1974; children: two.

Career: Merrill Lynch & Company, 1971–1978, investment banker; 1978–1980, assistant to the president; 1980–1983, manager, market planning; 1983–1986, treasurer; 1986-1993, senior vice president, director of human resources; 1993–1997, chief financial officer; 1997–1999, president and chief operating officer; AllLearn.org, 2000–2002, president and chief executive officer; TIAA-CREF, 2002–, president, chief executive officer, chairman.

Address: TIAA-CREF, 730 Third Avenue, New York, New York 10017; http://www.tiaa-cref.org.

■ Herbert M. Allison Jr. brought equilibrium and creative, problem-solving abilities to his executive responsibilities at Merrill Lynch & Company and TIAA-CREF. Allison contributed solutions that helped the freewheeling, competitive culture at Merrill to generate better, more reliable financial results. Conversely, at the nonprofit TIAA-CREF, a pension fund and insurance company, Allison added a profit orientation in an effort to improve and expand customer service and to increase that company's share of its core market—employees of colleges, universities, and nonprofit organizations. While Allison attended well the financial aspects of business, coworkers and employees considered him less adept in employee relations, finding him unlikely to give praise or build employee confidence.

Herbert M. Allison Jr. Evan Agostini/Getty Images.
Herbert M. Allison Jr.
Evan Agostini/Getty Images
.

MERRILL LYNCH

After serving in the Navy during the Vietnam War and obtaining a master of business administration degree at Stanford University, Allison began a 28-year career with Merrill Lynch & Company in 1971. He worked as an investment banker in New York City, Paris, London, and Tehran, Iran, until 1978, then he returned to New York City to become assistant to the president. Although he never worked as a stockbroker, Allison rose to positions of greater responsibility as Merrill diversified during the 1980s from primarily a stock brokerage to a fullservice investment bank. Allison was promoted to manager of market planning in 1980 then to other positions that broadened his experience and increased his responsibilities.

Allison brought a methodical but creative approach to problem solving and was instrumental in bringing balance to Merrill's individualistic, permissive culture during difficult times. As director of human resources from 1986 to 1993, Allison changed the cash bonus structure for the company's stockbrokers after the stock market crash of 1987. Much to the dismay of the brokers, Allison eliminated the excesses of bonuses based on individual performance and replaced them with bonuses based on team performance. These options, referred to as "Herbies," were tied to return on equity of the company as a whole on the basis of a 12.5 percent benchmark as well as to return on equity for the business unit under which an employee worked. Although unhappy with the program initially, by 1990 the brokers received more bonus pay under the program than under the previous bonus structure.

In another situation Allison introduced a strategy to eliminate the extreme high and lows in Merrill's earnings, a consequence of the company's culture. With leveling of the extremes the company's stock valuation improved, particularly compared with those of competitors. During an organizational restructuring in 1993 Allison, already the treasurer, became the chief financial officer in the then-new office of the chief executive. Allison also worked as head of the investment banking, debt, and equity divisions worldwide from 1993 until 1997. In April 1997 the CEO David Komansky promoted Allison to president and chief operating officer, placing him in line for possible succession to CEO.

Despite a record of success a few obstacles prevented Allison from becoming chief executive. Foremost was that he had never worked as a broker but had risen through the company on the merits of his accounting abilities. Second, Allison pared the staff of the fixed income division to a bare minimum, which had seriously negative effects for Merrill. Observers speculated about conflicts over Internet business, a strong interest of Allison's. Another possible problem involved a risk management initiative that involved ending payment of an annual $100,000 consulting fee to a popular former executive.

In July 1999, after Komansky bypassed Allison for chief executive, Allison resigned from Merrill Lynch, ending a 28-year career with the company. Allison became a financial manager for the presidential campaign of John McCain then became chief executive of the nonprofit online education company called AllLearn.org, which had been formed through a joint venture of Yale, Oxford, and Stanford universities. Allison's interest in Internet business led to his election to the board of directors of Financial Engines, a provider of online investment advice. Allison was elected to the board of the New York Stock Exchange in June 2002. After that board was largely discredited owing to excess CEO pay, Allison was reelected in November 2003.

TIAA-CREF

Allison's experience at a full-service investment house, his nonprofit experience at AllLearn.org, and his credential of integrity in the investment business led to his being hired as CEO at TIAA-CREF, Teachers Insurance and Annuity Association College Retirement Equities Fund. A nonprofit investment house, TIAA-CREF was the largest provider of pension plans for universities and nonprofit organizations. On the surface it seemed that Allison's career at competitive, profit oriented Merrill Lynch would conflict with the atmosphere of tradition and stability at TIAA-CREF; however, Allison's career at Merrill paralleled that company's diversification into a broad range of investment services, a strategy TIAA-CREF considered when the board hired Allison in October 2002.

Before taking action in his new position Allison initiated a study of TIAA-CREF's organization, practices, and market potential, called Decisions 2003. With McKinsey & Company consulting, six task forces analyzed the company's market positions and rising expenses and conducted customer surveys. The central issue that arose involved a lack of responsiveness to TIAA-CREF's customers in terms of bureaucratic processes and demand for services. Customers turned to other financial planning companies for investment advice, because TIAA CREF did not provide it. Allison found that the company's share of its core market—employees of colleges and universities, private schools for kindergarten through twelfth grade, and nonprofit hospitals—had declined from 70 percent to 50 percent.

To address these issues Allison made changes directed at returning the company to its core market, focusing on markets and services within that core. To create closer contact with customers Allison shifted the company's emphasis from back office functions to front office sales and service, a move that resulted in 500 layoffs in September 2003. Allison reorganized TIAA-CREF into several business units with decentralized accountability, a structure that allowed each segment to grow simultaneously.

Allison instituted a practice common to investment firms—dividing customer groups on the basis of assets. The "rich lecturers" owned more than $1 million in assets, the "affluent class" owned assets from $250,000 to $1 million, and an unnamed category owned less than $250,000 in assets. Within these groups Allison sought to provide better service to small investors, in the $2,000 to $100,000 asset range. New services under consideration included hedge funds, financing services to institutions, and endowment management for mid-sized universities.

See also entry on Merrill Lynch & Co., Inc. and Teachers Insurance and Annuity Association-College Retirement Equities Fund in International Directory of Company Histories .

sources for further information

McGee, Suzanne, "Stranger in a Strange Land: The Unexpected New Leader at TIAA-CREF," Financial Planning , October 1, 2003.

Targett, Simon, "Face to Face: Working to Make Trust a Matter of Principle," Financial Times , November 24, 2004.

Thornton, Emily, "More Service, Fewer Silos at TIAA-CREF," BusinessWeek Online , October 3, 2003.

—Mary Tradii

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