Greenberg, Broad on AIG's Latest Upheaval

Hank Greenberg, the man who built the insurance behemoth, and billionaire investor Eli Broad talk about the company's change of command

by Maria Bartiromo

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Broad: He has great faith in newly appointed lead diretor Steve Bollenback Damon Winter / The New York TImes / Redux

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Diane Bondareff/Polaris

A little more than three years ago, Hank Greenberg, the architect of insurance giant (AIG), stepped down as chairman and CEO amid investigations by the feds and then-New York Attorney General Eliot Spitzer into alleged accounting irregularities. Greenberg was replaced as CEO by Martin Sullivan, a longtime lieutenant, and former Nasdaq chief Frank Zarb became interim chairman. In January, 2006, Robert Willumstad, who left his job as COO of Citigroup (C) after Chuck Prince succeeded Sandy Weill as CEO, replaced Zarb as chairman. If that wasn't enough shuffling in a short time, on June 8, with AIG stock having lost more than half its value since October, Sullivan was ousted, and Willumstad became CEO, too. AIG Director Stephen Bollenbach, backed by billionaire investor Eli Broad, was named lead director. For an inside perspective on this dramatic turn of events, I talked separately with Greenberg and Broad. What follows is a compilation of those two interviews.

Is Bob Willumstad up to the job?

Hank Greenberg: I don't know Bob that well. I knew him briefly at Citigroup, when he managed the consumer finance business, so clearly he has management experience. I hope he's up to the job. I just don't know. The jury is out until you have a chance to see what he can do. The fact is he's been chairman of AIG now for about 20 months, so he should have some knowledge of the company. The company needs strong leadership desperately. It cannot be in a vacuum for very long.

Eli Broad: It's clearly a step forward. Look, Bob Willumstad is an experienced, successful financial-services executive. He's 62 years of age. He's had a lot of experience, and it's an improvement over what was there.

According to press reports, Willumstad is hinting at a sale or a radical overhaul of AIG's financial products division. Would that be worthwhile?

Greenberg: I think no company the size of AIG should remain intact with all units because events and times change. You have to change the mix of assets that you own. I have some thoughts on that, and I expect to meet with him. But he shouldn't just do a wholesale distribution of the assets of the company. The financial-services division serves AIG very well. It's not that many of the units, or even some of the units, should be sold because of poor results. Poor results are a result of management failure—not the result of the business.

Broad: I would not be at all surprised if financial products was wound down and disappeared. Then you've got ILFC [the airline leasing outfit International Lease Finance Corp.], which is a great company run by Steve Udvar-Hazy, who, as we've read about, would like his freedom. If they can work something out that made sense for AIG and ILFC, that could happen also. I'm going to meet with Willum­stad, and based upon my experience and…having been on the board until four or five years ago, I'll give him whatever advice I can. But he's the CEO.

Why couldn't Martin Sullivan get the job done?

Greenberg: Well, there are several reasons. First of all, his experience was principally in the property/casualty area, dealing with brokers. He was promoted, but there was always access to somebody more senior, and so it was difficult, in hindsight, to see how he would perform on his own. Actually, the plan was that if he was going to be elevated to CEO, I would remain as chairman to determine whether or not he had the skill sets to run the company. But Frank Zarb, who I think wanted to be chairman for a very long time, could hardly add anything to the company. He was as knowledgeable about the company as somebody off the street. And so you had a chairman who couldn't oversee what was going on, and a disaster was brewing. You have to ask yourself, where was the board all this time? AIG financial products had a separate board of directors, a number of them outside members. Were they just sitting and listening and not asking penetrating questions? The board elevated their fees by three times, literally, for all the, quote, "hard work they were doing," unquote. So it was a perfect storm.