British AIG chief pays the price

After two quarters of massive losses, giant US insurer AIG has parted ways with British CEO Martin Sullivan...

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Last Updated: 31 Aug 2010

This weekend AIG said it had handed over the executive reins to chairman Robert Willumstad, an ex-Citigroup veteran, as it looks to recover from the disastrous losses of the last two quarters. The US insurer has seen its market value chopped in half after losing a whopping $13bn on its sub-prime investments – which meant that British-born CEO Martin Sullivan had been living on a borrowed time for a while…

The move may not please the corporate governance lobby (although it’s also appointed a ‘lead director’ to safeguard shareholder interests) – but then it only split the CEO and chairman roles at the behest of Eliot Spitzer, and his moral authority isn’t what it used to be… But it’s gone down well with investors, who have been getting increasingly antsy about the group’s miserable performance. Three of them recently sent a letter to the board demanding a management overhaul, and have since started agitating for board changes too. This should buy the company a bit more time to put its house in order.

Sullivan, an AIG lifer who joined as a desk clerk aged 17 (35 years in insurance - he's a better man than we are), was the protégé of former boss Hank Greenberg, the man that spent four decades building AIG into a global powerhouse before retiring in 2005 in the midst of an accounting probe. Sullivan, who was hand-picked to succeed him, successfully piloted AIG through that storm – but it didn’t seem to earn him too many brownie points with his old mentor, who’s been hounding the new management team incessantly ever since. Sounds like he’s had some problems letting go...

In fact, dealing with the old boss – who still owns a 12.5% stake – is likely to be one of the biggest challenges for new boss Willumstad, who only joined the board in 2006. Still, after 40 years at Citigroup, he’s got plenty of experience running vast unwieldy organisations, which should stand him in good stead now he’s in charge of AIG. He’s given himself three months to come up with a turnaround plan (good luck with that one).

And as far as Sullivan’s concerned, every cloud has a silver lining. Fellow casualties of the US sub-prime crisis – like Citi’s Chuck Prince and Merrill’s Stan O’Neal – have all walked away with a hefty sum to compensate them for their failures. And according to the Wall Street Journal, Sullivan could be in line for an AIG severance package worth $35m-$50m. Should ease the pain somewhat..


Click here to check out MT's Global Salary Survey, from the June issue - which includes some impressive rewards for failure...

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