NU Online News Service, Oct. 25, 7:34 p.m. EDT — Jeffrey W. Greenberg, the chief executive officer of scandal-hit Marsh & McLennan Companies Inc., resigned from that post today to be replaced by Michael G. Cherkasky, a former prosecutor.
The board of directors' announcement of Mr. Greenberg's departure and Mr. Cherkasky's second recent elevation in the company's ranks came 12 days after MMC was hit by New York Attorney General Eliot Spitzer with a civil suit charging fraud and bid rigging. The announcement did not disclose what compensation arrangement there will be for Mr. Greenberg.
Mr. Spitzer in revealing the legal action had called on the board to examine its management. In reaction to the board's move he issued a statement saying it would permit the company and his office to move forward toward a civil resolution of the lawsuit and he will now not bring criminal charges against MMC.
"We are persuaded that the goals that would have been advanced by a criminal prosecution of the corporation- punishment, restitution, general deterrence, and industry reform- will be better accomplished by criminal prosecution of individuals, adoption by the company of dramatically new business procedures, installation of new leadership, a full examination of prior wrongdoing and a pledge of restitution to those harmed," Mr. Spitzer said.
The MMC board in addition to its leadership change said that tomorrow it will announce "significant reforms" in the business model of its Marsh Inc. brokerage subsidiary "under which Marsh will receive compensation for its services from only one party: its clients."
Mr. Cherkasky said he wanted to assure clients and shareholders "we will resolve our problems and move forward." The much reported organizational change was officially announced after the close of stock market trading.
In his suit against MMC, Mr. Spitzer had charged that the incentive fees paid to Marsh Inc. by big name insurers were payoffs rewarding Marsh as part of a system of bid rigging and price fixing that steered the brokers' unwitting commercial insurance clients to cooperating carriers.
Mr. Cherkasky was named to the post of MMC CEO and president and Robert F. Erburu, former chairman of the Times Mirror Company was named lead MMC director. Mr. Cherkasky as recently as Oct. 15 was promoted to Marsh Inc. chairman and chief executive replacing Ray J. Groves.
Mr. Cherkasky was moved up to the Marsh brokerage post from his slot as CEO of Marsh Kroll, MMC's risk consulting subsidiary, which he joined in 1994. He became CEO there in 2001.
Mr. Greenberg's elimination as the public face of MMC began Oct. 17 when his company abruptly cancelled an investors conference he was scheduled to hold the next day to discuss the charges made by Mr. Spitzer.
Two days before the conference call was aborted, Marsh said it would suspend taking the fees known as market service agreements from insurance carriers. The company later revealed that $845 million of Marsh's earnings were attributable to such contingent commission payments.
The civil complaint against Marsh, in a suit seeking punitive damages for violations of state business fraud and anti-trust statutes, states that the brokerage "never disclosed to its shareholders how contingent commissions constitute the lifeblood of its business."
Mr. Cherkasky, who was formerly a chief of the investigation division in the office of Manhattan District Attorney Robert Morgenthau, was moved into his new post from as spot as CEO of Marsh Kroll, MMC's risk consulting subsidiary that was acquired in July.
During the period that Mr. Spitzer was with Mr. Morgenthau's office, Mr. Cherkasky was Mr. Spitzer's boss.
The directors said that Mr. Cherkasky is continuing to hold his titles at Marsh Inc. and is still at the helm of an internal investigation with help from Davis Polk & Wardwell law firm partner Robert B. Fiske Jr., a former Manhattan U.S. Attorney.
Actions taken by the MMC directors were done to "enable the company to resolve its legal and regulatory issue while continuing to provide high-quality service to its clients," the directors said.
They also announced that they had formed a special committee of outside directors to spearhead efforts to end the company's legal and regulatory difficulties.
In addition to Mr. Spitzer's lawsuit, the company was ordered on Friday to appear for a hearing before the New York Insurance Department to answer for the conduct alleged in Mr. Spitzer's lawsuit.
The committee working to solve MMC's problems consists of Mr. Erburu as chairman with Lewis W. Bernard, formerly of Morgan Stanley & Co. Inc.; Zachary W. Carter, formerly Brooklyn U.S. Attorney and now a partner at Dorsey & Whitney in New York and Stephen R. Hardis, former chairman of Eaton Corp.
The MMC board said that Mr. Greenberg had served with dedication as chairman and CEO for four and a half years and had led the 63,000-employee company through significant challenges including the Sept. 11 terrorist attacks.
They added that they "respect the fact that Jeff has placed the interests of the company first."
In addition to the civil action against Marsh, Mr. Spitzer's probe has resulted in three guilty pleas from individuals working with insurers accused as part of the scheme.
Karen Radke, a senior vice president and Jean-Baptist Tateossian both with American International Group subsidiary American Home Insurance Company have pled guilty to felony fraud charges in New York State Supreme Court. Both remain on the payroll while their sentence is pending. The charges are due to be reduced to a misdemeanor in exchange for their cooperation.
Also, Patricia Abrams, a desk underwriter with ACE Ltd. has pled guilty to a misdemeanor in Manhattan Criminal Court. She has been suspended on paid leave.
Broker fee arrangements, which ACE calls placement service agreements, have been discontinued throughout ACE.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.