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CEO of AIG, Martin Sullivan
AIG Fires Another CEO
June 16, 2008 12:30 AM
by
Anne Szustek
Amid intense pressure, Martin Sullivan, the CEO of American International Group, resigns and is replaced by Robert Willumstad, a former Citigroup executive who has been chairman of the company's board since 2006.
30-Second Summary
On Sunday night, June 15, American International Group (AIG) announced that its Chief Executive Officer, Martin Sullivan, had resigned and been succeed by Robert Willumstad, a former Citigroup executive who has served as Chairman of the Board of Directors of AIG since 2006. The company also appointed Stephen Bollenbach, a current director, as its lead director. Many public companies today have a non-executive serve as Chairman of the Board, and where, as with AIG now, the Chairman is also the CEO, the company appoints a "lead director" to serve as the principal, non-executive voice of the board.
The moves follow reports earlier in the weekend of an emergency board meeting to address growing unrest among major shareholders of the company.
Just last Thursday, three shareholders, who collectively own 4 percent of the company, delivered a joint letter demanding changes at the management and board level.
These shareholders had previously sent a letter to the board in early May, complaining of the Company's performance. Willumstad and another director met with the three shareholders, with Willumstad telling the shareholders, “You’re not telling us anything we don’t know.”
The company also faced withering criticism from its former CEO, Maurice "Hank" Greenberg, who was pushed out as CEO under pressure from then-New York Attorney General Eliot Spitzer in October 2005 and was replaced by Sullivan. Greenberg still owns nearly 12 percent of AIG and asserts that the company would not have endured its recent problems if he were still at the helm. A recent Wall Street Journal editorial supported the view that Greenberg's removal was costly to AIG's shareholders, and was quickly rebutted in a public letter from counsel to the board, and supported in a public letter from counsel to Greenberg.
AIG's board tried to support Sullivan, an Englishman who spent 37 years at AIG, after starting as an 18-year old clerk in its London office. But the shareholder letter was merely the latest of Sullivan’s woes.
The Securities and Exchange Commission is examining whether AIG adequately marked down the value of credit-default swaps. And in the past two financial quarters, the company has announced $13 billion in losses and $20 billion in write-downs, resulting in the company needing to raise $20 billion in capital to shore up its balance sheet, vastly diluting its current shareholders.
But despite the influx of capital, Citigroup analyst Joshua Shanker wrote in a May 27 report that the billions put in may not be enough to keep AIG’s credit rating, already downgraded last month, from slumping further.
The moves follow reports earlier in the weekend of an emergency board meeting to address growing unrest among major shareholders of the company.
Just last Thursday, three shareholders, who collectively own 4 percent of the company, delivered a joint letter demanding changes at the management and board level.
These shareholders had previously sent a letter to the board in early May, complaining of the Company's performance. Willumstad and another director met with the three shareholders, with Willumstad telling the shareholders, “You’re not telling us anything we don’t know.”
The company also faced withering criticism from its former CEO, Maurice "Hank" Greenberg, who was pushed out as CEO under pressure from then-New York Attorney General Eliot Spitzer in October 2005 and was replaced by Sullivan. Greenberg still owns nearly 12 percent of AIG and asserts that the company would not have endured its recent problems if he were still at the helm. A recent Wall Street Journal editorial supported the view that Greenberg's removal was costly to AIG's shareholders, and was quickly rebutted in a public letter from counsel to the board, and supported in a public letter from counsel to Greenberg.
AIG's board tried to support Sullivan, an Englishman who spent 37 years at AIG, after starting as an 18-year old clerk in its London office. But the shareholder letter was merely the latest of Sullivan’s woes.
The Securities and Exchange Commission is examining whether AIG adequately marked down the value of credit-default swaps. And in the past two financial quarters, the company has announced $13 billion in losses and $20 billion in write-downs, resulting in the company needing to raise $20 billion in capital to shore up its balance sheet, vastly diluting its current shareholders.
But despite the influx of capital, Citigroup analyst Joshua Shanker wrote in a May 27 report that the billions put in may not be enough to keep AIG’s credit rating, already downgraded last month, from slumping further.
Headline Links: Major AIG shareholders protest; SEC launches accounting probe
Willumstad had spent most of his career in banking, leaving Citigroup in 2005 to seek a role as CEO of a major publicly traded company. While a major bank would have been a more logical choice for him, George Miles, chairman of AIG's nominating committee, said that "the board has determined that Bob's broad managerial and financial services experience makes him the right person to lead AIG through today's turbulent markets, drive further organizational change and rebuild shareholder value in the years ahead." Willumstad stated he intended to have a long career at AIG, asserting that "I am a very young 62."
Source: Reuters
Willumstad promised to Bloomberg Media that he would undertake "a thorough examination of the portfolio and risk-management processes," and that "[n]othing is off the table."
Source: Bloomberg
Sunday night's announcement followed reports from earlier in the weekend that AIG's board would hold an emergency meeting to discuss how to quell the shareholder revolt.
Source: Financial Times
The June 12 letter from shareholders Eli Broad, Shelby Davis and Bill Miller read, “Significant and immediate changes at both the management and board level are clearly called for. The only actions taken by the Board with regard to holding senior management accountable have been the public expression of praise and support for the CEO.”
Source: Bloomberg.com
Two of Sullivan’s main efforts since taking AIG’s helm were to open the company up to investors and regulators and to promote cross-selling of the conglomerate’s products to its consumers. But critics deem his perceived unwillingness to fire people or to meddle in individual divisions in the company a weakness in leadership. And with the recent losses, following on years of turmoil at the company, major shareholders have become impatient.
Source: The Wall Street Journal (registration may be required)
On May 14, 2008, right after AIG's annual shareholder meeting, Felix Salmon, wrote on SeekingAlpha.com that major shareholders had started grumbling to the press, rather than to the CEO. He opined that "when that happens, it's all over....[t]here's no way Sullivan survive this. The question isn't whether he'll be ousted, only when."
Source: Seeking Alpha
Video: ‘AIG’s Executive Storm’
Former AIG CEO Hank Greenberg, who still owns nearly 12 percent of the company, spoke harshly about it in an interview on CNBC on June 9: “Look, I think the company is falling apart. The price of the stock is very clear. The stock is down close to $60–70 billion since I left the company. If you tell me that’s good management, then I don’t know much about management.”
Source: CNBC
Related Topic: Greenberg Fighting Board Three Years After Ouster
A March 15, 2005 New York Times article reported that Hank Greenberg “said yesterday that he would yield as chief executive” after AIG’s board “pressed for … his resignation.” Ultimately it was Hank Greenberg’s defiance that would be his downfall, said Wall Street insiders interviewed for the article. One top executive said, “Greenberg would have been smart to just say ‘We want to work with you.’ But that’s not his style.”
Source: New York Times
In a March 2006 Business Week article “Hank Greenberg at War,” the former CEO expresses his rage at Spitzer, AIG’s board and executive team, and everyone else that he felt had betrayed him.
Source: Business Week
On May 16, 2008, a Wall Street Journal editorial stated that on the eve of AIG’s annual shareholder meeting two days earlier, “after a three-year experiment in Eliot Spitzer-imposed management that has cost them billions, more than a few shareholders were pining for the days of former CEO Hank Greenberg.” The paper argues that Spitzer’s investigation was unfounded, and “instead of uncovering some great fraud by a titan of industry, its main result has been to damage the company, and harm innocent managers and shareholders.”
Source: The Wall Street Journal
Richard Beattie, legal counsel to AIG’s independent directors, responded to the WSJ editoral by defending the decision to let Greenberg go. Beattie writes that, in 2005, “AIG’s auditors had determined that they could no longer rely on Mr. Greenberg’s certification of the company’s financial statements. This would have made it impossible for AIG to meet its filing requirements as a public company.” Beattie acknowledges Greenberg’s successes at AIG’s top spot, “but the events of 2005 made clear it was time for the company to move on to a new generation of leaders.”
Source: The Wall Street Journal
David Boies, the head of Greenberg’s legal team, wrote a rebuttal to Beattie’s remarks and pilloried the board for its decision to remove Greenberg. Boies also asserts that most of the sub-prime risks currently roiling AIG were undertaken after Greenberg had left.
Source: The Wall Street Journal
While Greenberg lays blame for his ouster on the board, the SEC recently sent him a "Wells Notice," indicating that it is seriously considering civil charges against Greenberg for his role in two financials transactions that were improperly accounted for.
Source: Reuters
Key Players: Robet Willumstad, Martin Sullivan
Robert Willumstad spent much of his career at Chemical Bank (now part of J.P. Morgan) and joined Citigroup in 1998 after it acquired a smaller bank to which he had moved. In January 2002, he was named President of Citigroup, and presumed heir-apparent to then-CEO Sandy Weill. When the CEO position went instead to Charles Prince in 2003, Willumstad remained with the company for another two years, resigning in July 2005. The New York Times noted that, at the time, Willumstad was being "mentioned for the top job in almost every high-profile Wall Street search," including at Fannie Mae and Morgan Stanley.
Source: New York Times
Martin Sullivan, an Englishman and son of a factory worker, began work for AIG in 1970 as a clerk in its London office. By 1996, he had ascended to an executive position that required him to move to the company's headquarters in New York, running the company's foreign property and casualty business. In 2002, he was chosen as Chief Operating Officer and heir-apparent. However, Greenberg, though 80, had no plans to retire and, after his ouster, greatly resented Sullivan.
Source: The New York Times
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