Learn a Big Lesson From AIG

About 15 years ago, I got a call from a lead partner at one of the largest executive recruiting firms asking if I’d be interested in talking to Mr. Hank Greenburg about a senior level job at AIG. That company was the big dog in property and casualty insurance and was led by an iconic figure (Hank) that took a small insurance company in the 1960s and built it into a Fortune 10 in a few decades. The job we discussed was running AIG in the Far East out of Tokyo. I was interested, but after a couple of month of dancing, we were unable to overcome my primary hurdle: I was willing to make a three-year commitment to Japan; they wanted five. If you’re asking yourself, “Why would someone want to go to work for AIG?” my answer is this: The AIG that Greenburg built was not the same company that essentially folded under his successor, Martin Sullivan. Here’s what the business press didn’t talk about: Hank Greenburg ran AIG with an iron fist. Some associates joked that the company didn’t need a strategy; it had Greenburg. Every decision of consequence crossed his desk. Autocracy was the order of the day and at AIG it worked. Although he had begun his career as an attorney and insurance guy, Greenburg became both an incredibly successful entrepreneur and operator – a rare combination – and boy, did he ring the cash register. He could navigate between long-term strategy and day-to-day operations with ease. For thirty years, many people got wealthy at the company as both its top and bottom lines grew at a breathtaking pace. Then, in a well-documented act of spite, jealousy, revenge and political opportunism, Elliot Spitzer, that paragon of propriety, got Greenburg ousted. Martin Sullivan became the CEO. Sullivan was a really accomplished insurance guy. He had successfully run a large number of AIG businesses, both domestically and internationally. He had no experience, however, outside of insurance at a company whose businesses, by the early 1990s, also included derivatives trading and aircraft leasing. If Sullivan had taken the reigns twenty years earlier, when insurance represented the overwhelming share of the company’s business, it would have been a good fit, but as I’m fond of saying, “That’s true…and if I had wheels I’d be a bicycle.” Sullivan’s style was much more collaborative, consensual and collegial than his predecessor. He delegated many more (and much bigger) decisions to other executives. “What’s wrong with that?” you ask. In this case, plenty. Stay with me! Delegation is a good thing; abdication is not a good thing. After their leadership change, AIG migrated (maybe leaped is a better word in this case) from autocracy to democracy, overnight. Executives in far-flung areas of their business – areas that Greenburg controlled with a tight reign – suddenly assumed more control of their own destiny. They began incrementally making riskier decisions – not because they were incompetent or immoral but because their new “freedom” allowed them to do that. Their entrepreneurial instincts were no longer tempered by Greenburg’s multi-dimensional approach. The most egregious case of that was in derivatives trading – most notably in credit default swaps. CDFs were created to enable creditors to insure their risk of default (and boy, is THAT a simplistic definition). They were labeled as derivatives rather than insurance to enable companies to sidestep state regulation; it worked. Over time at AIG after Greenburg departed, CDFs were used to cover increasingly risky portfolios of mortgages. At the end, sub-prime loans (or worse) represented an irresponsible proportion of this business for AIG. If Greenburg had been there during the two years before it “hit the fan,” it wouldn’t have hit the fan. Blame Spitzer, not Greenburg, and, oh yes, blame AIG’s Board of Directors. Prior to Greenburg’s ouster, there was no real succession plan in place and at the time of his ouster, there was no one ready to assume accountability for his or her diverse cadre of businesses. Sullivan was not prepared to assume the reigns of this sprawling company. Other than Jamie Dimon (and even that would probably have been a stretch), the right executive for this challenge did not exist. Here’s the lesson: You cannot migrate from one culture to its direct opposite with a “plug-and-play” approach. Changing cultures is not akin to changing the oil in your car. In this case, all of AIG’s executives were not equally capable of contextualizing, and then executing, decisions with $billion consequences. Cultures are durable. Destabilize them quickly; change the rules of the game with a “flick of the switch”; impose order on chaos or chaos on order all at once and you will probably face deadly consequences – the loss of your reputation or company. Massive change must be planned and executed in a precise, systematic way. It doesn’t have to drag on for years, but it can’t happen overnight. “Transformation” and “upheaval” are not synonymous. Copyright 2010 Rand Golletz. All rights reserved.