AIG plumps for Willumstad: What took them so long?

Update

AIG came to the brink of disaaster in the credit crunch of September 2008. Its newly appointed leader Bob Willumstad may be just the sort of person to steer them out of the current crisis. But will he be given the opportunity?

Original post follows

Bob Willumstad at 62 seemed to have missed out on his dream of running a major corporation. Now he heads the troubled giant AIG. His track record is admirable. Which raises the question: what took appointment boards so long to pick him?

Robert Willumstad was one of the names in the hat in the leadership merry-go-round at City Group with Chuck Prince and Vikram Pandit. He then became part of AIG, another company with leadership difficulties, but still not in the top job.

The Economist

The Economist picks up the story

On June 15th [2008] Mr Willumstad was hastily installed as chief executive of AIG, following the forced resignation of Martin Sullivan after only three years at the helm. He comes with a pedigree few can match. He played a big part in assembling Citi, smoothing over difficult takeovers…But he was also good at the less glamorous stuff largely thanks to tight cost control.

He seems to have ruffled very few feathers along the way. Former colleagues put this down to a combination of unobtrusiveness and honesty. “He’s quiet but very effective,” says Jamie Dimon, chief executive of JPMorgan Chase, who worked alongside Mr Willumstad at Citi. “You get the truth with him. There’s no political agenda.”
Many Citibankers had hoped he would return to take the top job when Mr Prince resigned [November 2007 when]the board approached him but eventually plumped for Vikram Pandit. These qualities set the “quiet giant”, as the six-foot-three Mr Willumstad was once dubbed, in contrast to the blokeish Mr Sullivan and the imperious Mr Greenberg

What took them so long?

One possibility is that quiet competence is often trumped by the more visible characteristics and extraverted style associated with so-called charismatic leaders.

Leaderswedeserve has from time to time returned to the idea of the non-charismatic leader, modest and of fierce resolve. These features were considered to be under-appreciated in many successful leaders, who remained relatively invisible in the heroic accounts in the business press.

Willustad, the quiet giant, may be one more exemplar of the fifth level leader, (Jim Collins) who eventually succeeds, where more blokeish or imperious figures fail. If he does, he also illustrates how so often boards acquire the leaders they deserve.

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Bonfire of the vanities: Let’s burn another leader

The much-anticipated news of the departure of Chuck Prince at Citigroup broke on the eve of Guy Fawkes Day [November the 5th]. In England, it’s the day when Guy Fawkes is burned in effigy on bonfires around the land. It seems to be a time around the world when leaders are sacrificed as punishment for their misdeeds. Is this any more than a modern version of the old symbolic way of placing all guilt on a scapegoat?

In the space of a few weeks we have had the cases of Sam O’ Neal of Merill Lynch, and then Charles Prince of Citigroup.

The board of Citigroup paid tribute to Mr Prince, with Alain Belda saying: “We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders.”

In days of yore, the priestly caste prepared the leader for the ceremony of ultimate sacrifice. The leader was treated with the greatest of respect, dressed in sumptuous garments, and then dispatched with honor, thus appeasing the Gods, and saving the rest of the tribe from divine wrath.

It’s all different today, isn’t it? Or is it?

According to The Washington Post the departing leader made the following statement:

“It is my judgment that given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as Chief Executive Officer is to step down,”

He had to go, didn’t he?

The much-anticipated news of the departure of Chuck Prince broke on the eve of Guy Fawkes Day. The question was raised by the interviewer in first discussion I heard on the topic. He had to go, didn’t he? Of course, re-assured the financial expert. Citygroup has such massive losses. It has seriously under-performed. He had to go.

Citigroup has installed former Treasury secretary Robert Rubin as chairman after the widely anticipated resignation of Charles Prince, the embattled chairman and chief executive who faced mounting criticism in the wake of a $6.5 billion write-down for the third quarter. After an emergency board meeting Sunday, Citigroup, citing significant declines in the value of subprime-related securities in the past month, estimated that it would take additional write-downs of $8 billion to $11 billion. Yes, he had to go.

There are echoes in the Western understanding of the Japanese phenomenon of hara-kiri now identified in business life.

To survive the competitive business world, many Japanese companies have now embarked upon restructuring. It is those middle-age men, who contributed to the economic success of Japan since the Second World War, who are now, ironically, the target for restructuring. They have devoted almost all of their lives and often sacrificed their own family life for their companies. People have had the aisha-seisin (a deep spiritual attachment to their own company) exactly akin to that held by the samurai for the oie. The man who commited hara-kiri had trusted the company and believed that the company would not abandon the business warriors. He killed himself when he felt betrayed by the company.

But was this the same kind of ritualistic act that characterized the behavior of a discredited Japanese leader who accepted suicide, as atonement of his disgrace? Or was it more the consequence of the economic realities of modern organizations?

In our recent Western examples, the leaders are hardly treated with dishonor if we judge only the scale of remuneration involved, if the leader had failed in a contractual way. However, even within a strictly rational economic explanation, it is not difficult to see how contractually, a leader of a large organization would have negotiated a lucrative n exit, even if his performance had failed to meet targetrs and expectations.

We should look a little more deeply. It seems that Citigroup wants to reassure markets that it has no intention of changing its business model. That suggests we are operating more on the ancient symbolic model. An honorable resignation, with those sumptuous trappings to the departing leader, protects the others from disaster, and ‘rescues’ the rest of the tribe.

The real test will be whether the departure of the leader produces necessary structural changes, or seeks to avoid them.