Expert Perspective from Grahall’s OmniMedia Editorial Board
Two articles this week addressed the comments made by AIG’s CEO, Robert Benmosche, as a result of limitations imposed by Kenneth Fienberg, The Obama Administration’s “Pay Czar”. First on November 11, 2009 Wall Street Journal reporters Liam Pleven, Serena Ng and Joann S. Lublin tell us that “At a board meeting last week, the strong-willed industry executive told fellow AIG directors that he was “done” but agreed to think it over after other board members reacted with shock, according to the people.” (AIG’s Benmosche Threatens to Jump Ship Chafing Under Government Oversight, Chief Executive Tells Board He’s ‘Done’; ‘An Impossible Situation’).
Reaction: Cry baby! Come on. It’s not like Benmosche didn’t know that the government would intervene in the pay decision of its executives. It’s also not like Benmosche was unaware of a “simple” way to avoid being boot strapped by the Pay Czar: pay back the loan. Now sadly for AIG that loan was a lot of money. It is even possible that had AIG demonstrated a forceful effort to raise money to repay the loan (through business divestitures for example) that Fienberg might have been more lenient. We also surmise that this was simply public posturing. With a reputation for being both blunt and outspoken, Benmosche might be testing the limits of the various regulatory agencies either directly or indirectly impacting AIG to see if his veiled threat might ease some of the restrictions.
The article goes on to say that “Were Mr. Benmosche to depart, the move could be highly disruptive… A new CEO would be AIG’s third since the bailout in September 2008 and the fifth in less than 18 months.”
Reaction: Two Words: Succession Plan! But let’s first address what appear to be some reporting errors in the article. AIG was founded in 1919 by Cornelius Vander Starr who served as the CEO until 1968 when he picked Maurice (Hank) Greenberg as his successor. In 2005, Greenberg stepped down amidst a major accounting scandal and was replaced by Martin Sullivan. Sullivan served as CEO until June 2008 when he was replaced by Robert Willumstad. Willumstad, notoriously named one of the worst CEOs of all time by Portfolio Magazine only stayed 3 month and was replaced in September 2009 by Ed Liddy who survived until August 2009 when Robert Benmosche took over as CEO. That’s 6 CEOs in 90 years with 4 of those 6 taking the helm in the past 4 years. Vander Starr must be rolling in his grave.
Back to Succession Planning. Either there is a serious failure with succession planning at AIG since the illustrious founder Mr. Vander Starr left both his post and went to his greater reward (as it happens Vander Starr died the same year he turned the helm over to Greenberg) which translates into a grotesque failure on the part of the Board of Directors, or there is a serious failure in the CEO selection process, or both.
In our blog “Looking for CEOs in all the Wrong Places” we share that “Benmosche retired from MetLife in 2006 at the age of 65. Now at 68 he has taken up the reins at AIG. (The article suggests that his AIG pay is in line with his pay level at Met). But did the government and AIG look in all the right places for a new CEO? In our experience, a company in turnaround situation (and certainly AIG qualifies for that category) needs a CEO who is willing to be paid for performance. To get a company back on the right track, the Board needs the CEO to focus on near-term needs, using incentives to reinforce the correct behaviors.”
We believe that an organization is best served with a prerequisite role to the CEO position that:
• Integrates multi-country needs, for a successor CEO will not have the experience to integrate both domestic and international business strategy.
• Integrates staff and line positions, for a successor CEO will not have learned how to manage staff and line individuals.
• Coordinates multiple divisions developing different products, for a successor CEO will not have experience managing multiple business units prior to becoming CEO.
Our question to the AIG Board is “Who is that person in that prerequisite role at AIG?”
On November 12, 2009, New York Times reporter Mary Williams Walsh writes (in AIG Chief’s Mission: Save Executive Pay) : “The American International Group’s chief executive on Wednesday tried to calm fears that he was about to jump ship, with an open letter to employees announcing he was ‘totally committed to leading A.I.G. through its challenges.’”
Perhaps Benmosche’s outburst intended to frighten the regulators, instead frightened the AIG employees. Oops! Maybe it’s better to remember that discretion is the better part of valor and maybe the better part of leadership.
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