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 AIGs 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?
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