AIG’s CEO Sullivan Resigns; Willmustad Named CEO

In a board meeting where it was believed that Martin Sullivan, AIG CEO, would resign, the expected took place. Robert Willmustad has been designated CEO of the insurer. From the Wall Street Journal:

Robert Willumstad, a former Citigroup Inc. executive and chairman of the board of American International Group Inc., has been appointed chief executive of AIG, effective immediately….

Stephen Bollenbach, a director of AIG who is well-liked by some dissident AIG shareholders, including billionaire Eli Broad, will be named lead director….

The decision to put Mr. Willumstad in charge and make Mr. Bollenbach lead director appeared to be designed to placate big shareholders who were frustrated with the board’s performance and had wanted fresh blood to lead the company. Some had wanted the board to conduct a search for an outside successor to Mr. Sullivan…..

Mr. Willumstad’s background makes him uniquely qualified for that role. As the former president of Citigroup and a longtime lieutenant to its onetime chief executive, Sanford I. Weill, Mr. Willumstad brought to AIG extensive experience with sprawling financial empires built by strong-willed leaders…

Investors in the other companies have called for breakups, but it’s not clear how AIG could be easily broken up. Another issue facing a new leader would be dealing with AIG’s entrenched culture, where many employees have been for their entire careers.

Since when is Citi under Sandy Weill a model of good management? Weill was very good at doing deals and integrating them successfully, but that it is a different skill set than running an operation on an ongoing basis.

What the Journal’s report fails to stress is that the multi-billion losses posted the last two quarters, which undid Sullivan’s credibility, were the the result of writedowns on credit default swaps on subprime deals. AIG has taken issue with the mark-to-market treatment, saying, for instance, in the case of the insurer’s 4Q writedown, that the economic losses were only $900 million, less than 10% of the $11.1 billion writedown. However, auditors also cited faulty accounting.

A friend who had the misfortune to join AIG in a senior role right before Maurice Greenberg’s departure said his exit made insurer like a car where the axles had been removed: it was still rolling on but the wheels were about to come off. All decisions, even trivial ones, had to be approved by Greenberg, and the lack of normal decision making processes was paralyzing the company. I do not know how far Sullivan got in delegating authority, but it would be very difficult for someone who did not know AIG from the inside to step into the CEO slot if Sullivan has not made much progress on that issue.

From an earlier report in the Wall Street Journal:

It’s not clear what a new chief executive, interim or permanent, can do to solve those problems [writedowns and depressed stock price] amid ongoing upheaval in the mortgage and credit markets. No new CEO can cure what ails American real estate…

And a new leader who isn’t closely tied to the Greenberg era could also have room to maneuver. Even as Mr. Sullivan tried to steer AIG past the accounting scandal, he had to contend with the fact that Mr. Greenberg – his onetime mentor – leads another firm, Starr International Co., that is AIG’s largest shareholder.

AIG and Mr. Greenberg are also engaged in a number of ongoing and contentious legal battles. Someone without that shared history and who hasn’t been fighting those battles for the past three years might have an easier time negotiating an end to the tensions…

Mr. Sullivan spent his first year or so on the job merely trying to steady the ship. That’s a monumental undertaking, given that AIG has operations in over 100 countries and a diverse range of businesses that runs from car insurance to consumer loans to aircraft leasing.

A successor who came from outside the company would have to tackle that stabilizing job again, most likely without Mr. Sullivan’s long-standing relationships with the leaders of many of those varied businesses, or detailed knowledge of their operations.

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