Fallen Giant: The Amazing Story of Hank Greenberg and the History of AIG

249 Pages·2006·1.54 MB·English

by  Ron Shelp

Fallen
Giant:
The Amazing Story
of Hank Greenberg
and the History of AIG
Ronald Shelp
with
Al Ehrbar
John Wiley & Sons,Inc.
Copyright © 2006 by Ronald Shelp.All rights reserved
Published by John Wiley & Sons,Inc.,Hoboken,New Jersey
Published simultaneously in Canada
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Library ofCongress Cataloging-in-Publication Data:
Shelp,Ronald Kent.
Fallen giant :the amazing story of Hank Greenberg and the history of AIG / Ronald Shelp
with Al Ehrbar.
p. cm.
Includes bibliographical references.
ISBN-13:978-0-471-91696-3 (cloth)
ISBN-10:0-471-91696-X (cloth)
1. Greenberg,Maurice R. 2. Businesspeople—United States—Biography. 3. Insurance
executives—United States—Biography. 4. Insurance companies—United States—History.
5. American International Group,Inc.—History. 6. Adler,Rodney. I. Ehrbar,Al.
II. Title.
HC102.5.G717S54 2006
368.0092—dc22
[B]
2006020338
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
For my wife,June,and my sons,
Kent and Russell,who also love to write.

Table of Contents
ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii
PROLOGUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix
CHAPTER I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
How Hank Greenberg Did It
CHAPTER II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Shanghai Starr
CHAPTER III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Secrets to Building the China Empire
CHAPTER IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Starr Joins “Wild Bill”Donovan to Fight the Japanese
CHAPTERV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Turning the War to Advantage
CHAPTERVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Business Is Pleasure and Pleasure Is Business
v
vi Contents
CHAPTERVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Preparing to Be a Public Company
CHAPTERVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
A Nobody Beats the Ivy Leaguers
CHAPTER IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
Life with Hank Greenberg
CHAPTER X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147
Morefar
CHAPTER XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153
The Mystery of What Happened at AIG
CHAPTER XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161
Greenberg’s Fall from Grace
CHAPTER XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183
The Great Survivor Vows to Bounce Back
THECASTOFCHARACTERS . . . . . . . . . . . . . . . . . . . . . . . . . . .205
TIMELINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .211
ENDNOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .215
Acknowledgments
Writing the kind of story I set out to write about AIG and the fascinating
charactersthatshapeditshistoryrequiredcooperationfromAIGexecutives
and alumni, some of whom I had not talked to for 20 years. Yet I never
doubtedtheywouldtalktome—andIwasnotdisappointed.First,wewere
andarefriendsandcolleagueswhohavebeenthroughourshareofAIGwars
together.Second,allofuslovedthecompanyandenjoyedexchangingtales
aboutouradventures.Asaresult,Imetwithortalkedtovirtuallyeveryone
onmylist.ThatmadeahugedifferenceinthebookIwasabletowrite.
First and foremost, I have to thank Hank Greenberg, CEO of AIG
for nearly 40 years, for meeting with me, along with Edward Matthews,
AIG CFO.Even though we are friends,I could understand that he might
hesitate seeing anyone writing about AIG.But he did not.
I also appreciate the generosity with his time that New York State
Attorney General Elliott Spitzer gave me.Running the attorney general’s
office is demanding enough.But also running for governor is even more so.
There are executives who prefer to go unidentified, even in the
acknowledgments,and I will respect that.I am deeply grateful to my old
friend Oakley Johnson,head of AIG’s government relations operations in
Washington, for his enthusiasm and encouragement and for obtaining
some background material about AIG for me.
Others I can identify are John Roberts,chairman of American Interna-
tional Underwriters and vice chairman of AIG;Houghton “Buck”Freemen,
president of AIU and an AIG director;and Ernest Stempel,former CEO of
AIRCO.All were full of wonderful stories about the history of the company.
Artemis Joukowsky, now at Brown University, but previously in charge of
operations in Eastern Europe,among other things,met me in Providence
and we had a great reunion.I had fun conversations with Ken Nottingham,
vii
viii Acknowledgments
chairman of ALICO and someone I worked with on many AIG problems.
Pat Foley,counsel and director of State Relations,was helpful,as was Robert
McCourt,advertising director.Finally,I talked to several directors,includ-
ing Bernard Aidenoff,retired from Sullivan and Cromwell.
Jeff Greenberg,Hank Greenberg’s son and formerly a top executive at
AIG and subsequently CEO of March McClennan,was generous with his
time.
My old friend Clare Tweedy,who grew up in the AIG family,told me
wonderful stories about the involvement of her father and mother and
about Starr.She directed me to people I did not know.
Robert Youngman,son of Bill Youngman,Starr’s original heir appar-
ent,and I spent considerable time together.My younger son and I had a
nice lunch with Mike Murphy in Bermuda.This visit with Mike, SICO
counsel, brought back memories of the work Mike and I used to do
together in Washington.I also had a helpful talk with T.C.Hsu,formerly
head of the Starr Foundation,and Marion Breen,Starr’s cousin and assis-
tant and a foundation officer
But I also had help outside the AIG family. Leslie Gelb, president
emeritus of the Council on Foreign Relations,gave me insights on Green-
berg’s involvement with and generosity to the council.Ronald Abramson,
partner with Hughes Hubbard and Reed,helped me sort through the many
lawsuits the AIG matter has engendered. And Doug Ellis, my long-time
financial advisor,worked with me in sorting through the AIG numbers and
the growth of the company.My good friend John Higgins provided guid-
ance, insight, marketing advice, and many other things throughout the
process.I appreciate the attitude of my business partner,Dwight Foster,in
understanding my neglect of our business and his enthusiasm for my book.
Working closely with Al Earbar has been a delight. He constantly
gave me good guidance and good ideas.
My executive editor, Debra Englander, and assistant editor, Greg
Friedman, helpfully guided me through this elaborate process, as did
Michael Lisk,senior production editor.None of this would have occurred
without the success of my agent,James Levine,of Levine/Greenberg Lit-
erary Agency,in selling the book.
When I look at the number of people involved,I conclude that the old
story about the lonely writer slaving away in his carrel is a bit of a canard.
Lots of people help write a book.It is not the product of one person.
Prologue
When Hank Greenberg had to resign as chairman and CEO of American
International Group (AIG) after 37 years,because of an apparent account-
ing scandal, those of us who knew and worked closely with Hank were
stunned.
If you read and believed what the headlines were claiming,more than
four decades of outstanding success in the global insurance industry were
being undone.A man who had walked and talked with kings,presidents,
and premiers was being turned out of the financial powerhouse that had
charmed Wall Street for decades.
The week after that announcement I took my young sons to Utah on
a skiing holiday. It struck me that while I was off enjoying one of Hank
Greenberg’s favorite pastimes, he was experiencing the most threatening
and humiliating challenge of a long and illustrious business career.
As luck would have it, I broke my leg on the first day, but since I
didn’t want to spoil my sons’holiday,we decided to stay for the week.While
they skied,I tried to stay busy by reading and catching up with the news.
As I continued to follow the daily AIG headlines closely, an idea
began to emerge and take shape:Why not write a book about the rise of
AIG? After all,I had been a trusted insider for many years and was likely
to be the only insider who would dare to write about the company’s diffi-
culties.I could bring a very different perspective from journalists or man-
agement observers.
At the time,I was thinking about writing a novel based on a thinly dis-
guised version of AIG—a company founded in China, the first reverse
multinational with operations in 130 countries,and zany adventures with
employees imprisoned in Iran and Nigeria. It had all the hallmarks of
ix