Commentary: Now Aig Can Get Serious About Successionby
It's tough to take on a legend. And for a third of a century, Maurice R. "Hank" Greenberg has been just that. An often blunt, bellicose executive, he has built American International Group Inc. into one of the country's most successful companies, a global insurance and financial-services giant whose earnings have grown annually at double-digit rates. And with AIG's stock tripling over the past five years, investors love him. But when it comes to family, Greenberg seems to suspend his razor-sharp judgment--and his board of directors has let him get away with it.
In almost Shakespearean fashion, Greenberg has pitted one son against the other even as he guaranteed their quick ascension up AIG's executive ranks. Yet both eventually left the company. The latest son to leave, 45-year old president and heir apparent Evan, resigned on Sept. 19, leaving the company with no successor to the 75-year-old Hank. Five years earlier, older brother Jeffrey, 49, stormed off in a huff when Hank elevated Evan to an equal rank.
PERSONAL FIEFDOM. With both of his sons now out of the picture, AIG's board has the opportunity to do what it should have done years ago: require the elder Greenberg to stop running the insurer as a personal fiefdom and to set up a succession plan that befits a public company of its size and stature. The time has come to create an independent, board-run search committee that will cast a wide net to find someone who has the expertise and leadership to carry on AIG's success. And at the same time, AIG's directors should consider reforming the board itself.
For too long, AIG investors have tolerated a weak board that acceded to Greenberg's promotion of his sons because the company delivered predictable and strong results. But while the AIG chief is still a vigorous man who plays tennis regularly, he is not going to be around forever. Now, AIG could face a serious management crisis. Not only does it lack a successor, many of its brightest lights have left the company in recent years when it became clear that they had no chance at the top job.
The obvious question: Where has the board been while so much talent was heading out the door? "Most boards see succession as their primary responsibility and they don't defer to the incumbent CEO," says M. Evan Lindsay, partner in charge of recruiter Heidrick & Struggles' insurance practice. That AIG's board has failed to live up to that responsibility is clear. One reason: Including Evan and Hank, 10 of the 18 members have been company insiders. And according to the most recent proxy, two other directors get consulting or legal fees from AIG--something governance experts warn can compromise independence.
The weak oversight that appears to have resulted is increasingly bothering some AIG shareholders. Several protested Evan's assumed ascension to the throne at this spring's annual meeting, although they were waved off by the elder Greenberg with a curt "That's already been decided." A shareholder proposal to elect more independent members of the board won the support of 25% of AIG shareholders--an impressive showing, considering that Hank owns or controls more than one-fifth of the company's stock. "We don't want succession rubber-stamped by the board," says Brandon Rees, an analyst for the AFL-CIO staff retirement plan, which sponsored the resolution. Complains another large shareholder: "The guy acts like he's king."
It's hard not to contrast Greenberg's approach to succession with that of another iconic leader--General Electric Co. Chairman Jack Welch. Set to retire early next year at 65, Welch has taken pains to ensure a seamless succession, working with his board to develop an extensive and objective process to evaluate strong contenders within GE's ranks. "Hank Greenberg has not done that type of groundwork," says John T. Waterman, managing director of investments for Rittenhouse Financial Services Inc., which owns shares in both GE and AIG. Worse yet, there are unsettling rumors that Greenberg might try to woo back his Ivy League-bred son, Jeffrey, who is now CEO and chairman of New York's Marsh & McLennan Cos., parent of the world's largest insurance brokerage, as well as asset management and consulting operations. The well-respected younger Greenberg might be the man for the job. But that decision should be made by an independent board--conducting its own search--not by a father looking to keep his considerable legend alive.