Book Review: Fallen Giant
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Though the title would suggest that Fallen Giant dissects the collapse of AIG, nearly two-thirds of this book is given over to a chronological analysis of how AIG became an insurance powerhouse.
Author Ron Shelp, who worked for AIG and served on a number of the company’s boards, does a great job of delving into individual personalities and their motivations, leaving the reader with a front row seat to AIG’s genesis, growth, and fall from grace.
Shelp leaves no doubt that two people were the principal architects in creating and fostering AIG—first C. V. Starr, and later Hank Greenberg. An open-minded, ambitious Californian, Starr sought thrills outside the US in the early twentieth century. Settling in Shanghai, he became a trailblazer in insurance and was immensely rewarded for his energy and innovation. More importantly, his dynamism and energy translated into a blanket of insurance firms with a global presence. In the AIG saga, Starr is like the early morning fisherman who works hard to creatively cast a wide net and gains the precious first-mover advantage.
As his days came to a close, Starr had succeeded in creating a formidable network of enterprises spanning the globe, but he still ran AIG like a family-owned proprietorship. Starr’s efforts saw the reach but did not generate the profits that his widely cast net should have garnered. Inefficiency, rising expenses from loose management, and missed productivity were at the fore when AIG’s second ruler, Hank Greenberg, took control. While sharing Starr’s ambition, vision, and love for global expansion and the Asian markets, Greenberg was more intense, detail-oriented, and focused on operating efficiency than his predecessor. Greenberg’s overhaul of operations came at a ripe time in the AIG chronology, as did his push to take the firm public; he was single-handedly responsible for tapping the full potential of the AIG global franchise. He squeezed every cent of profitability out of the company, which translated into a vaunted 24% annual return for shareholders and firmly established the company in the Fortune 500. Greenberg was also a savvy political player and civic participant, winning concessions for AIG from political networks, both at home and abroad.
AIG grew tremendously in size and revenue under Greenberg’s leadership, but the 15% increase in profits year after year became statistically untenable. Fallen Giant explains how the pressure to produce outsized growth forced Greenberg to play from the baseline, winning needed points for AIG in gray areas such as accounting and regulation. Not realizing that the game rules had recently changed—with implementation of the Sarbanes-Oxley Act, among other changes—he paid dearly for this strategy. The ambitious attorney general Eliot Spitzer was gunning for political recognition and targeted Greenberg in his crosshairs, leaving no stone unturned. As Shelp points out, even though AIG’s individual trespasses were minor, a combination of events toppled the giant.
AIG is a complicated onion-like entity formed by many layers. While Shelp’s primary objective in exposing the two most prominent personalities—Starr and Greenberg—is achieved, at other times the reader is burdened with too many details. Shelp sometimes smothers the reader with his Rashomon-like approach to recounting events, burying us in the minutiae of secondary personalities and intermediate holding companies.
–Arjun Kondamani is a corporate trader with Northeast Securities. He is involved with the trading of credit instruments with institutional money managers.
This article was originally published in the Fall 2009 issue of the Investment Professional.