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