Arthur Levitt on Cleaning Up AIG

The 74-year-old Wall Street vet and ex-regulator thinks he can help the insurance giant put its woes behind it within a matter of months

Over a long career, Arthur Levitt has earned a reputation for fighting the good fight. As head of the U.S. Securities & Exchange Commission from 1993 to 2001, he championed the cause of the common investor, shining a spotlight on the potential conflicts of interest auditing firms faced in doing consulting work for clients. His concerns proved all too prescient -- witness the meltdowns at Enron, WorldCom, and elsewhere at the end of his tenure.

Now, he's stepping in to help American International Group (AIG ) clean up its accounting problems. As an adviser to AIG's board, Levitt is charged with aiding in the selection of new independent board members and offering recommendations on governance and best practices. It's a subject Levitt knows well, but it could be a tall order for the giant insurer, which in May erased $1.3 billion of previously reported net income and $2.3 billion of shareholders equity in a restatement.

BusinessWeek Senior Writer Nanette Byrnes reached Levitt by phone the day after the July 5 announcement that he was joining AIG. Here are edited excerpts from their conversation:

Q: Why are you taking on this job?


I've known [interim AIG board chairman] Frank Zarb for nearly 40 years, and AIG is one of the great American companies. It's fundamentally sound, and I hope I can be constructive with respect to governance there.

Q: Given AIG's sterling reputation for so many years, are you surprised to find the company now needs you in this capacity?


No. I'm head of the audit committee for the City of San Diego, and that's [an] even more unlikely [financial accounting problem]. My life has been filled with unlikely circumstances.

I don't feel surprised. I feel this is an opportunity and a challenge. I hope I can work effectively with institutional shareholders, Corporate America, and the excellent people that are running the company today.

Q: What do you hope to accomplish?


Clearly, I would hope that AIG emerges as a model of good governance. It's hard to be formulaic about that. What may be good governance for one company may not be for another. I'm going to help them find the kind of independent directors who have the talents to complement the board as it exists today. I want to examine the committee structure and make recommendations [to AIG CEO Martin Sullivan].

Q: There had been talk you might join the board. Why work as an adviser instead?


I don't want to be responsible to going to 6 or 8 or 10 meetings a year on a specific date. I think that if you're trying to help guide a company to be a model of corporate governance, you don't put on the board someone of my age. I'm 74. There were some conflicts with the Carlyle Group, to whom I'm also an adviser. I felt I could be far more effective as an adviser from the outside than as one of many board members inside.

Q: How long will this take?


I hope to complete [the job] in a matter of months.

Q: You've been on Wall Street as an executive, and you served as chairman of the American Stock Exchange prior to going to the SEC. What's your assessment of the reforms implemented in the wake of the corporate scandals and through the Sarbanes-Oxley law?


I think reform is a continuum. It's not something that's accomplished and you can rest on your laurels. I think the public is still disquieted by divisiveness at the SEC, the corporate scandals. I think a lot of work has to be done to restore public confidence, and it will never be totally restored.

Small steps must be taken to persuade investors their interests are important and synchronized with corporate behavior. Some companies do a better job of that than others.

Q: Are you at all concerned about the future direction of the SEC -- what the agency will do under President Bush's new choice as chairman, Christopher Cox?


The commission has been divided politically, if not ideologically, in ways that it hasn't been in recent memory, and I think that's been very demoralizing to the staff. Chris Cox is an interesting choice. He's extremely intelligent, he knows his way around politically. While he undoubtedly will have a conservative agenda, he has an extraordinary opportunity to replace retiring commission directors with people of undoubted quality. He knows the securities laws. He knows the issues.

Every chairman comes in with expectations, but they're often molded by the situation he's faced with. [Ronald Reagan appointee] Bill Casey came in with a deregulatory agenda, but he was the one who did away with fixed commissions. You never really know. I'm quite sanguine about Chris Cox.

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