Martin Sullivan must have realized he had a hard act to follow when he took over for industry titan Maurice Greenberg as CEO of AIG, but I doubt he thought it was going to be this hard, after he was unceremoniously replaced on Sunday in the day-to-day command chair by Robert B. Willumstad, the beleaguered company's chairman.
Mr. Sullivan has taken a public beating of late, with recent shots from his predecessor perhaps serving as the death blow. Mr. Greenberg wrote a letter to the board last month, warning that "AIG is in crisis," and questioning the logic of a capital-raising plan, mounting losses and other performance issues on Mr. Sullivan's watch.
Mr. Greenberg even urged the postponement of AIG's recent annual meeting, calling for shareholders to be given more time to digest the company's plan to raise $12.5 billion in capital after enduring billions in losses and $15.3 billion in writedowns, prompted by subprime-related credit woes. The writedown alone, according to Mr. Greenberg, resulted in "a complete loss of credibility with the investment community and even further loss of value for shareholders."
You could forgive Mr. Sullivan for wondering where Hank comes off lecturing him about AIG's management after Mr. G left the company under a dark cloud following allegations by regulators and prosecutors that questionable finite reinsurance deals were used to help AIG artificially prop up its balance sheet--in other words, to cook the books. He still may face civil charges from the Securities and Exchange Commission over those bogus transactions, which have resulted in criminal convictions for five others involved at AIG and General Reinsurance.
In any case, I suppose Mr. Willumstad is an obvious choice to take over as CEO. Besides his familiarity with AIG--having served as the company's chairman since November 2006--he has had a long career in prominent posts in the financial services business. He was chairman and CEO of the Global Consumer Group at Citigroup, and earlier served as chairman and CEO of Travelers Group Consumer Financial Services before the ill-fated merger with Citigroup.
However, one point that bothers me is that Mr. Willumstad will take on the CEO position in addition to his role as chairman. He made it clear in a conference call for analysts this morning that his appointment as CEO is not on an interim basis, and he gave no indication that he's even thinking about stepping aside as chairman. That's a mistake, I think.
This is where American companies always get into trouble! The chair should be head of the board, independent of day-to-day operations, looking over the shoulder of the president, CEO and other operational officers.
Having the two posts together removes a critical check and balance, and lessens accountability at a firm where one-man rule went on for far too long. No matter how good or honest any man (or woman) might be in doing these two critical jobs, the roles of chairman and CEO should remain separate to assure someone independent is watching the store for shareholders.
In any case, I don't envy Mr. Willumstad the challenges he faces in either role. He promised that "a thorough strategic and operational review of AIG’s businesses and their performance" would take place “in the coming months," and vowed to hire a new CFO, but he shouldn't expect much slack from a jittery investment community.
Andrew Kligerman, managing director at UBS Investment Research, wrote that “before AIG rebounds, we think investors will need to see more than a new CEO--such as solid execution.”
Operating In the middle of a soft insurance market, a shaky stock market and a chokingly tight credit market, in an economy going into recession, he'll need more than a little skill and a whole lot of luck to pull off a quick turnaround.
What do you folks think?
Comments (3)
AiG needs to recreate the office of CEO with three executives with different expertise--insurance/reinsurance/finance.
No one could have the mind of Hank Greenberg, so you need three to take his place, because the stakes are bigger and you need more resources to cover the mistakes, should they occur.
AIG also needs more expertise at the board to ask probing questions. Board members who have no day-to-day insurance experience cannot even ask the difficult questions. I find they don't even know what to ask in the first place.
Posted by Andy Barile | June 16, 2008 8:41 PM
Posted on June 16, 2008 20:41
From the perspective of a former AIG profit-center manager with first-hand knowledge of the AIG corporate culture during the Greenberg years, I agree that no one could ever fill Hank Greenberg's shoes, and that it would be a mistake to ever dismiss him out of hand.
In attempting a rapprochement with Mr. Greenberg, Mr. Willumstad demonstrates that he understands both AIG and Mr. Greenberg--an important, if not crucial, trait for an AIG successor chief executive officer to possess if AIG is to rise from the ashes of its present legal and regulatory morass.
While a plausible and rational argument can be made that independent board oversight per se is being shortchanged by Mr. Willumstad's appointment, I don't agree that Mr. Willumstad's dual accountabilities necessarily create an insurmountable conflict of interest that would harm AIG and its shareholders.
The fact that dual accountabilities are not usual and may be contraindicated as a rule does not mean that Mr. Willumstad cannot successfully fill this role in these special and unique circumstances.
It may well be that Mr. Willumstad is not only the right person, but one of the few who is able to effectively serve and bring together AIG management, the AIG board of directors, and Maurice Greenberg at this time and in these circumstances.
I also believe that any long-term, meaningful attempt to rebuild AIG cannot and will not succeed without the involvement and cooperation of Maurice Greenberg.
Posted by Barbara Burns | June 18, 2008 9:53 AM
Posted on June 18, 2008 09:53
In all the discussions of this thing that I've seen in the press and on line, I have not seen any clear identification of excatly what it is that needs to be "rebuilt" at AIG.
Other than "investor confidence," which isn't some kind of a structure or process or policy susceptible to "rebuilding" anyway. It's a byproduct.
Or what it was, exactly, that Martin Sullivan failed to do, or did badly, that required him to get fired. Unlike the case of Hank Greenberg.
SAM RESPONDS:
I'm a big baseball fan, Mikk, and with Willie Randolph's midnight firing from the Mets gig very much on my mind, perhaps this is simply a case of the baseball axiom, you can't fire the team, so you fire the manager, and hope a fresh perspective will shake things up.
Basically, AIG was overexposed to the subprime mess, as were a lot of financial services firms. That was no doubt his biggest transgression.
But as Best pointed out in its rating downgrade today, the new CEO, as chairman, certainly was no innocent--as head of the board, he was supposed to be looking over Sullivan's shoulder. So, as they say, his hands aren't clean, either.
MIKK HAS THE FINAL WORD:
Yes, AIG was over-exposed to the subprime mess, but under whose watch did AIG enter into those transactions?
All I've heard was that it was under Hank Greenberg's watch--not exclusively, but overwhelmingly. I don't know this for a fact, but it strikes me as likely, that by the time Sullivan and Willumstad became aware of the exposure, they were already underwater. Nothing left to do but hold your breath.
Posted by Mikk | June 18, 2008 12:23 PM
Posted on June 18, 2008 12:23