Growing an international insurance business requires people with a broad skill set: competitive, innovative, daring, risk savvy. The group must feel part of something important, not merely an organization, but a business team with a shared vision. AIG gathered together a large group of like-minded people sharing those traits and reinforcing their effects in colleagues.
There was no single trait that Greenberg looked for but these employees tended to fit a model type that he called the “white blackbird.”1 These were individuals with an entrepreneurial conviction and a unique tenacity to forge profitable change. At work, they pioneered the development of desirable products in a demanding environment that was based on innovation, political astuteness, market awareness and technical discipline. This entrepreneurial spirit would define AIG’s culture.
Decades before networking became a household term, Greenberg invested substantially in developing relationships—with regulatory authorities, insurance brokers, customers, foreign ministers, other executives, and AIG employees. Personal relationships are essential to obtaining opportunities and overcoming obstacles. For AIG, Greenberg worked closely with insurance departments from New York to China to speed product approval and open new profit centers.
One relationship proved valuable in 1970 when AIG was looking for a new acquisition in Taiwan. Starr’s longtime colleague, K. K. Tse, led the hunt. The Nan Shan Life Insurance Company was ailing financially but had a license in a locale poised for economic prosperity.2 Tse, a Chinese citizen, was respected in Taiwan and paved the way for AIG to acquire Nan Shan, though it would take delicate negotiations. Above all, Tse knew, as a matter of culture, that it would be important for all constituents of Nan Shan to meet the top person of any company proposing to acquire it.
Tse introduced Greenberg to Nan Shan’s board of directors and senior managers, and to Taiwan’s prime minister, finance minister, and other officials. The prime minister, who had admired Starr and trusted Tse, advised on the legal and cultural steps they needed to follow. Government officials suggested having Tse become the nominal owner of the company, which could not be owned by foreigners. Tse then escorted Greenberg to meet owners of other local Taiwanese insurance companies, many of whom worked in tiny offices run by one or two people writing out contract policies by hand. Greenberg and Tse walked up countless back alleys and rickety stairs on the journey, talking to company after company, sipping tea and learning how to bridge cultural differences.
The painstaking personal effort worked. Within months of the start of the search, AIG acquired Nan Shan. Tse became chairman, and it steadily grew into the second-largest life insurer in Taiwan, adding a substantial profit stream to AIG. This success was possible only by the combination of Tse’s excellent relationship with the leaders in Taiwan, Greenberg’s commitment to meet and embrace them one by one, and the passion of Nan Shan’s personnel in the field.
AIG developed passion in teams like that at Nan Shan in all of its businesses, from Taiwan to America, by stressing throughout the organization that AIG was a meritocracy. From AIG’s inception, managers were trained that nothing but effectiveness mattered, so employees were hired, rewarded, and promoted without regard to other litmus tests, such as pedigree or politics. AIG invested heavily in employee training programs at all levels, in all countries. At training sessions, presentations would be made by AIG’s top global executives, including Greenberg. These programs stressed professionalism, referring to the importance of good judgment, integrity, and personal responsibility.
Dominant traits of many of Starr’s senior executives, which carried over to AIG, were deep desires to succeed and to excel, never to disappoint or come up short. There were no employment contracts at AIG, and employees would sink or swim on the merits. The company would try to reassign employees to match their abilities to the company’s needs. That created incentives for employees and protection for the company from being bound to ineffective personnel. A sense of permanence and mutual loyalty was provided through the compensation program administered by SICO, where employees could earn substantial fortunes, though not liquid until retirement from AIG at age 65. Though many retired at that age, AIG welcomed people interested in working beyond the retirement age typical at other companies, and many did—including senior executives who worked productively well into their 70s and 80s.
Many of AIG’s senior managers were former U.S. military officers—including Freeman, Greenberg, and Roberts. Most of these executives were influenced by this experience. The command-and-control hierarchy of military discipline, loyalty, and organization became part of AIG’s culture. Managers and employees assumed that corporate directives would be followed. There was no hand-wringing and little debate. Once decisions were made, discussion or dissension down the ranks was essentially unheard of. Employees knew that the company’s senior management would support them in the field, whatever danger might come.
AIG’s culture of effectiveness was reinforced by the profit center model and the cardinal principle of earning an underwriting profit. That primary objective meant aggressive control of expenses and constant risk assessment. In a historic shift for the industry, emphasis allocated more corporate power to actuaries, statisticians, and underwriters, as headquarters made clear that the company valued such technical skills.3 The industry began to employ models and data analysis in all lines, with pricing determined accordingly. There is no substitute for human judgment, and overreliance on data and models can mislead inexperienced analysts. So AIG relied on both the new science and the ancient art of underwriting proficiency.
AIG’s culture was characterized by a relentless quest to be first—first to develop and launch products, first to open and grow markets, first in performance from earnings to growth to assets. The culture spawned a commitment to innovation unlike the culture at any other insurance company. People appreciated that insurance was a service that could not be patented, requiring constant invention, swift product introduction, and promotion, endlessly repeated. Creativity was ignited by paying close attention to trends and pockets of hazards where insurance was needed.
Headlines from the early 1970s told of harrowing tales from aircraft hijacking to kidnapping. Governments responded by investing in security; American Home developed an insurance product. During 1970 to 1972, hijackings were common. While a few posed serious threats of death or bodily injury, most exposed passengers to the more quotidian risks of diverted flights, an overnight hotel stay in an undesired destination and general aggravation. Hijackers were more often protestors rather than terrorists in those days and got away with transgressions due to the primitive state of airport security and prevailing sense that the risks centered on annoyance rather than destruction.4
The airlines had long used insurance to cover damage to aircraft, and AIG grew a substantial aviation division that wrote many of the policies.5 The Nixon administration created a federal program to backstop this private insurance.6 But no one was looking out for passengers. They were protected only when they had a claim against an airline for personal injuries. The costs of inconvenience to hijacked passengers had not been covered, although a frequent passenger complaint. So American Home created passenger insurance to compensate for inconvenience.7
This insurance enabled passengers, for a few dollars per ticket, to buy peace of mind for their flights, receiving compensation when costly and inconvenient diversions occurred. For distribution, American Home offered adding the product onto the accident and health policies of its existing customers. The company also developed relationships with the airlines through the ticket purchase process, making it easy for passengers to buy the insurance with their tickets. The innovation did not deter hijackings—improved security did that. However, the insurance comforted passengers, kept them traveling, and repaid some portion of the cost of flying in the unfriendly skies of the early 1970s.
In the quest to bring to the U.S. insurance coverage traditionally available only through Lloyd’s of London, National Union developed protection for another problem beginning to ravage some Americans: kidnapping for ransom. Well-known kidnappings making front-page news in the early 1970s struck affluent targets such as the Getty, Hearst, and Bronfman families. On July 10, 1973, in Rome, the kidnappers of 16-year-old John Paul Getty III demanded a ransom of $17 million (about $83 million in today’s dollars). The family balked, as Getty’s grandfather and namesake, the oil tycoon, refused to pay. Negotiations only concluded four months later, after the captors severed one of the boy’s ears and sent it to a local newspaper. The family reportedly paid $2.2 million for the return of the permanently traumatized lad.8
The elder Getty explained that his resistance to paying stemmed from concern that capitulation would encourage copycat kidnappings and add incentives for the period’s wave of terrorist campaigns. Although a small market in kidnap and ransom insurance had existed at Lloyd’s since the 1920s, U.S. demand for coverage grew in the early 1970s. Demand soared as domestic corporations expanded globally, increasingly placing factories and plants abroad, and often in countries where kidnappings recurred. Guerilla warriors in Colombia once abducted an American business executive stationed there and demanded millions in ransom from his employer—a fictionalized adaptation of which is retold in the 2001 film, Proof of Life.9
In response, National Union brought kidnapping and ransom insurance to the U.S. market. National Union’s policies were offered both to families and to multinational corporations. It enlisted expert assistance in this dicey field by partnering with Clayton Consultants, a private firm specializing in kidnapping prevention, hostage negotiations, and rescue. Together with Clayton Consultants,10 National Union trained customers in how to reduce the risk of kidnapping. The policies required both sides to keep their existence strictly confidential, lest the policy’s existence encourage kidnappers to target the policyholder. The policies included an agreement to involve law enforcement authorities in any kidnapping that occurred.
As AIG built business from a diverse range of products in the 1970s, the company sought a way to shed some of the risk. Managers also wanted a way to assure plenty of capital to continually expand the insurance businesses. To achieve both objectives, in 1977, AIG led several other insurers to build a reinsurance company. For this task, they commissioned Transatlantic, the underutilized business acquired for a song back in December 1967, courtesy of Guy Carpenter.11 The group of insurance companies together invested $100 million. AIG retained a disproportionate percentage of ownership compared to AIG’s capital invested: AIG staked one-fifth of the capital investment but retained a two-fifths ownership interest. Renamed Trans Re, the company became a force in the market.
Though Greenberg earned a reputation as being a tough boss to work for, if something happened to an employee, he would assist in any way he could. If someone had grave health or marital problems or children with serious illness, he would make himself available and provide resources that might help. If an employee halfway around the world was in trouble, he would send a plane with aid. Creating such a sense of closeness in such a sprawling enterprise was difficult but worthwhile as it bred a powerful sense of loyalty among employees.
There were few secrets at AIG. When something happened—a covered catastrophe, a competitor’s advance, a regulatory snafu—AIG managers knew Greenberg would hear about it. The sooner he knew about bad news, the better off those involved would be. Greenberg’s wrath befell those who delayed or deceived, and he had no problems chewing out deviant personnel in front of their peers. Managers could always gauge the gravity of a situation by how quickly Greenberg called to give his impression of it.
Greenberg regularly called scores of executives to check in, even if only for a few minutes, though sometimes for much longer, to give his view of the state of things and ask others what they thought. Often, these overtures were intended less to add his two cents substantively than to make people aware that he knew what was going on. Greenberg demonstrated passion and a belief that presence meant something. He set an example of being there, never “mailing it in,” so employees got the message that they could not mail it in either. Passion cannot be bestowed on employees, but demonstrating it can be contagious.
AIG was not an easy place to work and was certainly not for the complacent. There was a kind of self-filtering employee base: few who were not up for what AIG demanded would accept a job there in the first place, and those who found themselves unprepared quickly moved on. The investor and writer Phil Fisher once analogized corporate culture to a restaurant offering a menu that would attract or repel a certain kind of investor. AIG attracted competitive, type-A personalities.
Perhaps AIG’s ultimate cultural distinction was its appeal to talented professionals.12 Brian Duperreault, who began working at AIG in the early 1970s, rising to run the AIU for two decades before becoming CEO of ACE, a competitor, reflected on his years at AIG in an industry retrospective:13
Professionalism and excellence were the standard and there was a certain relentlessness to it—a relentless desire for excellence and to be the best. [Greenberg] was an iconoclast too, so he was not going to do something that everybody else did. He was going to do something different. So there was this feeling of innovation, of changing the way things were done. That became the core ethos of the company and we all bought into it. We all thought about new products and changing how we approached the business, to try something innovative. Whether it was technology or products or sales, we felt we were supposed to change, not protect the status quo. That was the difference.
Greenberg said for the same retrospective:
We [built] a great organization, a great team. One person doesn’t do that. It was a team of many, many great people. It helped build a great culture in an organization that was best in class. It doesn’t happen easily, and it doesn’t happen in every company. We bred a lot of people for the industry. If you look around the industry a lot of people came from AIG.
Like Dupperault, at least a dozen AIG executives went on to serve as CEOs of other major insurance companies. Given its size measured by employee numbers, that yield put AIG among the leading progenitors of CEOs in corporate America, rivaling the likes of larger companies such as General Electric and IBM.14 AIG alumni who became CEOs elsewhere include two of Greenberg’s sons, Jeffrey and Evan, who became CEO at Marsh & McLennan and ACE, respectively.15
In addition, a number of associated senior executives were inducted into the International Insurance Hall of Fame maintained by the University of Alabama. Begun in 1957, this honors some 100 insurance industry innovators, starting with Benjamin Franklin, who established America’s first fire insurance company, and including Starr (1975), Greenberg (1989), and Manton (1999)—as well as Duperreault (2011).16
Complementing these executives and staff was a truly distinctive breed of AIG executive, epitomized by John Roberts, called the “mobile overseas personnel” or MOP. This group did service stints in numerous countries during their career, as many as 10 to 15, taking two-to-three year terms in each place. It was almost like the foreign service of the United States. They were corporate ambassadors who became legends within AIG. An experienced MOP could walk into any AIG office in the world, from Taiwan to Santiago, and know just about everyone. Having traveled widely, he could troubleshoot the thorniest problem successfully anywhere in the world, whether obtaining the release of colleagues captured by hostile governments or negotiating with customers perceived to have fabricated claims. The personality type could vary, from the diplomatic to the irascible, the elegant to the brusque. But they tended all to be wise, urbane, and multilingual—cowboys, pioneers, Indians, a cadre of colorful actors that made the company tick.
During the 1970s, AIG was growing: from Trans Re to Nan Shan and American Home and dozens of other businesses. One challenge was aggregating the financial and insurance information from the scores of countries and several different kinds of businesses (such as accident and health, life, property and casualty, or travel insurance) engaged in millions of transactions annually. Spearheading this task was Peter Dalia, the company’s chief accounting officer from 1969 to 1985. Dalia spent the 1970s building an elaborate system of internal control over financial reporting and insurance reserve estimates.17 Information had to be prepared in multiple formats, one complying with local practices in every locale where the company operated and a parallel set complying with U.S. laws and Securities and Exchange Commission requirements. Dalia established an audit committee, led by members of the board of directors and staffed by senior accounting officials. He divided AIG’s operational world into 30 reporting regions, appointed controllers of each, and established foreign and domestic internal auditors to oversee everything. Dalia organized annual meetings for the regional controllers to discuss challenges and share solutions and sponsored regional seminars to assure adequate training and reviews.
In addition, Dalia formalized the existing internal audit systems to support the profit center model in every business unit, assuring that it worked to promote accountability as intended. Dalia created a system of budgetary reporting so that every region’s financial statements were compared to the most recent budget, the next budget in relation to those financial statements, and so on. All these systems and controls not only enabled AIG to prepare reliable and relevant financial statements in accordance with local and U.S. accounting requirements, but to avoid surprises and assure managerial accountability for their budgets. Any prospective deviation between a budget and a financial statement was flagged beforehand and the manager summoned to account for it. AIG continued this impressive commitment to internal controls over the ensuing decades, both before and after passage of the Sarbanes-Oxley Act of 2002, which emphasized internal accounting controls in corporate America.
AIG’s workforce grew considerably during the 1970s, with its New York City personnel alone spread over four buildings in Lower Manhattan, including the 102 Maiden Lane building, which Starr had acquired in 1947, and 90,000 square feet in the Cities Service (Citgo) Building nearby at 70 Pine Street. Just as it had been important to consolidate AIG’s worldwide businesses and related controls, it was more efficient to put its 2,000 New York City employees under one roof in a new global headquarters. In the early 1970s, New York City was in the midst of a deep economic crisis, and corporations had been moving to the suburbs. Companies such as General Foods, IBM, and Pepsi had left, and several of AIG’s fellow tenants at 70 Pine were considering departing, including Marsh & McLennan, Merrill Lynch, and Peat Marwick Mitchell. Citgo’s chairman and president both passed away and the reigning CEO wanted to live in Tulsa, closer to corporate field operations.
A member of Citgo’s board, a partner at Loeb Rhoades, in which C. V. Starr & Company had an investment, informed Greenberg of this situation. AIG saw an appealing opportunity, given its needs and the building’s location, so long as the price was right. AIG told Citgo that unless the rent was lowered, AIG would move out or, alternatively, would buy the building. Citgo asked $34 million for a sale. It noted its recent $22 million overhaul and upgrading project—new air conditioning, elevators, and plumbing. AIG countered at $10 million, part cash, part financed. The deal closed at $15 million all cash, a big New York real estate transaction given the city’s fiscal woes. Mayor Abraham Beame symbolized the significance by hosting the signing at a press conference in his office and informed the media he was “grateful” for AIG’s commitment.18
AIG renamed 70 Pine the American International Building and moved into this venerable piece of the New York skyline, the last of the great prewar Art Deco towers, completed in April 1932. The timing of AIG’s purchase, if not the event, marked the turning point for the city. Mayor Beame began to reinvigorate New York, and his successor, Ed Koch, amplified the effort, which dovetailed with the success of the memorable national campaign: “I love New York.” The troubled New York of the 1970s turned into the prosperous New York of the 1980s.
The American International Building in Lower Manhattan soared 952 feet, making it the seventh-tallest U.S. building when AIG bought it, and third in New York, after other Manhattan landmarks the Empire State Building (1,250 feet) and the Chrysler Building (1,046 feet). The base at 70 Pine is of dark granite and the rest is brick, in tones that lighten as the tower rises, and where, at upper floors, every third brick is rounded instead of squared.19 The landmark building’s skyline drama is highlighted by massive floodlights from the 55th to the top (66th floor) where an enclosed room reached by a single small elevator offers sweeping panoramic views of New York City and beyond. The facility was tastefully decorated, from metal Art Deco butterflies in a vast two-story orange marble lobby, to rich mahogany furniture in the offices and conference rooms above. The senior executive suite was on the 18th floor, with offices housing Greenberg, Manton, and Roberts, along with furnishings that once belonged to Starr.
Seventy Pine became the professional home to many thousands of dedicated AIG employees, building the largest insurance company in the world. Greenberg had pulled a diverse set of companies together under a single corporate umbrella and united its New York–based employees under one roof. His vision of building a global insurance fortress was being realized.
Notes
1. Decades later, the inverse notion of the black swan was popularized in the 2007 book of that title by Nassim N. Taleb.
2. “Taking Risks,” chap. 9, p. 16 ff.
3. Michael Loney, “30 Years in Insurance: Learning the Hard Way,” Reactions: Euromoney Institutional Investor (April 1, 2011).
4. See Richard Witkin, “Methods to Avert Hijacking Studied,” New York Times (September 8, 1970).
5. Politically motivated destructions were within those policies, not excluded by war-related exceptions. Pan American World Airways, Inc. v. Aetna Casualty and Surety Co., 368 F. Supp. 1098 (S.D.N.Y. 1973), aff’d, 505 F.2d 989 (2d Cir. 1974).
6. See Christopher Lydon, “Nixon Names Gen. Davis to Head Hijacking Fight,” New York Times (September 21, 1970).
7. See Robert J. Cole, “Personal Finance: A Hijacking Rider on Travel Insurance Is Planned to Pay for ‘Inconvenience,’” New York Times (July 20, 1972).
8. Getty died in 2011 at the age of 54, after spending a life battling alcohol and drugs.
9. Proof of Life, starring Meg Ryan and Russell Crowe, is a fictional adaptation of a factual Vanity Fair article called “Adventures in the Ransom Trade” and the book by Thomas Hargrove, The Long March to Freedom (New York: Ballantine Books, 1995).
10. In the film, Proof of Life, the character played by Russell Crowe, the hostage rescuer, is based on Mr. Clayton.
11. These were, in addition to American Home: Metropolitan Tower, Swiss Re, Walton Insurance, United States Fidelity and Guaranty, Daido Mutual, Nichido Fire & Marine, and Compagnie Financiere et de Reassurance du Group.
12. Michael Loney, “30 Years in Insurance: Learning the Hard Way,” Reactions: Euromoney Institutional Investor (April 1, 2011).
13. Ibid.
14. See Del Jones, “Some Firms’ Fertile Soil Grows Crop of Future CEOs,” USA Today (January 9, 2008) (though not listing AIG in a ranking of 19 progenitors of CEOs in corporate America, noting 26 GE alums became CEO elsewhere from an employee base of 300,000 and 18 such IBM alums from among 366,000).
15. Evan was the third AIG alum to become CEO of ACE, having been preceded by John Keogh and Brian Duperreault—the latter also having been CEO of Marsh, as was yet another AIG alum, Dan Glaser. In addition to those five are seven other AIG alums who have served as CEO of other insurance companies: Joe Taranto, Everest RE; Scott Carmilani and Gordon Knight, AWAC; Dinos Iordanou, Arch Capital; Stan Galanski, Navigators; Tony Galioto, York Risk Services; and Kevin Kelley, Ironshore.
16. See www.insurancehalloffame.org/laureates.php. Other notable inductees mentioned in this book include Guy Carpenter (2001) and, another AIG executive, Edmund Tse (2003).
17. This discussion of the system of internal controls AIG established during the 1970s is based on Cunningham telephone interviews with Peter Dalia, August 30, 2011, and October 13, 2011.
18. See Carter B. Horsley, “Insurance Concern to Buy Skyscraper Headquarters,” New York Times (May 7, 1976).
19. See Christopher Gray, “Streetscapes/70 Pine Street; An Art Deco Tower with Double-Deck Elevators,” New York Times (March 8, 1998).