Learn a Big Lesson From AIG
Note From Rand
Toyota’s quality is going into the tank. Suspicion that its executives are hiding the truth is running rampant. Our Federal government has incurred $10 trillion in new debt in a year. The last time I looked, that represented over $300,000 in new, uncovered tax liability from every man, woman and child in the U.S. (expressed in present value). The risk of the dollar’s value diminishing to zero is only mitigated by the financial plight of foreign governments and currencies. This is unconscionable. Distrust of large institutions grows daily. These are big issues!
What can you do?
Make some decisions about how you will comport yourself in your business and life. Never concede to pressure, delusion, excuses, blame or justification. Never relinquish your integrity. Never discard virtue for expediency.
I have a resource that can help you during challenging times. The Josephson Institute develops resources to help organizations and individuals examine issues related to integrity and ethics. They are the big player in their field and a SPECTACULAR resource. One of their “subsidiaries,” called Character Counts, develops resources for school-age children. You should check them out; it’ll be worth your time. A number of Fortune 100 companies utilize their resources heavily, as do some large, successful public school systems.
My first article this month examines the AIG implosion from a different perspective than any I suspect you’ve read. It includes an implication or two for you and your business. The second piece identifies some things you need to do to establish firm footing with your new boss. Please share your thoughts in the comment area below.
As you read this, I’m sitting on Palm Beach in Aruba. I now think of it as my second home. No pressure to play tourist, because I no longer am one. I hope I don’t get sand in my hard drive!!
Until next month, get real, get tough and get going!
The Overlooked Lesson From AIG
About 15 years ago, I got a call from a lead partner at one of the largest executive recruiting firms asking if I’d be interested in talking to Mr. Hank Greenburg about a senior level job at AIG. That company was the big dog in property and casualty insurance and was led by an iconic figure (Hank) that took a small insurance company in the 1960s and built it into a Fortune 10 in a few decades.
The job we discussed was running AIG in the Far East out of Tokyo. I was interested, but after a couple of month of dancing, we were unable to overcome my primary hurdle: I was willing to make a three-year commitment to Japan; they wanted five.
If you’re asking yourself, “Why would someone want to go to work for AIG?” my answer is this: The AIG that Greenburg built was not the same company that essentially folded under his successor, Martin Sullivan. Here’s what the business press didn’t talk about:
Hank Greenburg ran AIG with an iron fist. Some associates joked that the company didn’t need a strategy; it had Greenburg. Every decision of consequence crossed his desk. Autocracy was the order of the day and at AIG it worked. Although he had begun his career as an attorney and insurance guy, Greenburg became both an incredibly successful entrepreneur and operator – a rare combination – and boy, did he ring the cash register. He could navigate between long-term strategy and day-to-day operations with ease. For thirty years, many people got wealthy at the company as both its top and bottom lines grew at a breathtaking pace. Then, in a well-documented act of spite, jealousy, revenge and political opportunism, Elliot Spitzer, that paragon of propriety, got Greenburg ousted. Martin Sullivan became the CEO.
Sullivan was a really accomplished insurance guy. He had successfully run a large number of AIG businesses, both domestically and internationally. He had no experience, however, outside of insurance at a company whose businesses, by the early 1990s, also included derivatives trading and aircraft leasing. If Sullivan had taken the reigns twenty years earlier, when insurance represented the overwhelming share of the company’s business, it would have been a good fit, but as I’m fond of saying, “That’s true…and if I had wheels I’d be a bicycle.”
Sullivan’s style was much more collaborative, consensual and collegial than his predecessor. He delegated many more (and much bigger) decisions to other executives. “What’s wrong with that?” you ask. In this case, plenty.
Stay with me!
Delegation is a good thing; abdication is not a good thing. After their leadership change, AIG migrated (maybe leaped is a better word in this case) from autocracy to democracy, overnight. Executives in far-flung areas of their business – areas that Greenburg controlled with a tight reign – suddenly assumed more control of their own destiny. They began incrementally making riskier decisions – not because they were incompetent or immoral but because their new “freedom” allowed them to do that. Their entrepreneurial instincts were no longer tempered by Greenburg’s multi-dimensional approach. The most egregious case of that was in derivatives trading – most notably in credit default swaps.
CDFs were created to enable creditors to insure their risk of default (and boy, is THAT a simplistic definition). They were labeled as derivatives rather than insurance to enable companies to sidestep state regulation; it worked. Over time at AIG after Greenburg departed, CDFs were used to cover increasingly risky portfolios of mortgages. At the end, sub-prime loans (or worse) represented an irresponsible proportion of this business for AIG. If Greenburg had been there during the two years before it “hit the fan,” it wouldn’t have hit the fan.
Blame Spitzer, not Greenburg, and, oh yes, blame AIG’s Board of Directors. Prior to Greenburg’s ouster, there was no real succession plan in place and at the time of his ouster, there was no one ready to assume accountability for his or her diverse cadre of businesses. Sullivan was not prepared to assume the reigns of this sprawling company. Other than Jamie Dimon (and even that would probably have been a stretch), the right executive for this challenge did not exist.
Here’s the lesson: You cannot migrate from one culture to its direct opposite with a “plug-and-play” approach. Changing cultures is not akin to changing the oil in your car. In this case, all of AIG’s executives were not equally capable of contextualizing, and then executing, decisions with $billion consequences.
Cultures are durable. Destabilize them quickly; change the rules of the game with a “flick of the switch”; impose order on chaos or chaos on order all at once and you will probably face deadly consequences – the loss of your reputation or company. Massive change must be planned and executed in a precise, systematic way. It doesn’t have to drag on for years, but it can’t happen overnight. “Transformation” and “upheaval” are not synonymous.
Your First 90 Days With Your New Boss
In any new job, you face a multitude of challenges… all of which have to be addressed “on the run” and simultaneously. One of the biggest of these is “managing up” – that is, working with your new boss.
For too many people, including senior level executives, this becomes a random process. They don’t want to engage their bosses in a specific, granular discussion that might make them uncomfortable. Here’s my bias: The priority of achieving clarity should trump any and all other concerns. To that end, the following are five conversations that you should have with your new boss – regardless of your level/job title – early in your tenure:
The Situational Conversation. Seek to understand (and reach agreement on) your new boss’s context for the business. Is this a turnaround, start-up, realignment or sustaining success? What are the strategic priorities?
The Expectation Conversation. Seek to understand and negotiate expectations. What needs to be done and how quickly? What does the objective–setting process look like? What will you need to achieve, and how soon?
Style Conversation. What will the “interaction model” look like? What kind of decisions does he/she want to be involved in, how often, and on what types of issues and to what degree?
Resource Conversation. What will you need to be successful – especially money and talent? What kind of support will you need from your new boss (selling and socializing ideas and initiatives, “clearing the runway,” etc.)?
Personal Development Conversation. How will your tenure in the new job contribute to your personal development and career aspirations?
Obviously, these questions will spark others. Your new boss may not have even had a discussion of this type with anyone in the past. That shouldn’t ever diminish the priority of your having it, however.
