Mastermind of global risk: having spent four decades building American International Group into a financial powerhouse with operations in 130 countries, Hank Greenberg is our CEO of the Year.

Maurice R. Greenberg stopped counting the hours he works a long time ago. It's probably somewhere around 80 or 90 a week, minimum, given his insane, globe-trotting schedule. But he just doesn't have a whole lot of time or patience to wax contemplative when asked where he gets his drive. "How the hell should I know?" whips the 78-year-old CEO of American International Group. "I was born with it." Pausing, he adds with a wry grin: "I grew up on a farm, so maybe that was it."

It may well have been the grueling work schedule on his family's farm in upstate New York during the Depression. Or it could have been his years in the military; Greenberg ran away at 17 to enlist, fought in World War II and later, after earning a law degree, returned to combat in Korea. Maybe, like he says, he was just born with it.

Whatever the source, it was clearly Greenberg's tenacity that built AIG into what it is today, a global insurance powerhouse that boasts some staggering numbers: more than half a trillion dollars in assets, $62 billion of shareholder's equity and a market cap of $150 billion. Over the past 11 years, AIG has achieved a steady 9 percent compound annual growth rate in net income. As the largest underwriter of commercial and industrial insurance in the United States, and the second largest U.S. life insurer, AIG operates in 130 countries and employs some 80,000 people around the world.

Add to that an impressive record of shareholder return. Over the long haul, AIG's stock has consistently outperformed the major indices. An investment in AIG in 1969 would be up around 19,000 percent today, compared with a 700 percent return in the S&P 500, according to Morningstar. "That's really a testament to [Greenberg's] managerial skill, the fact that he's been able to deliver such great results for so long," says Dreyfus Neenan an equity analyst with the global investment research firm.

The more recent numbers haven't been quite as heart-warming. In 2002, AIG'S common stock declined 27 percent, compared with a 23 percent decline for the S&P 500. Net profit declined by 1.4 percent in the first quarter, thanks to poor performance in retirement savings and lackluster market returns. Add to that claims expenses that have steadily eaten into profits. In February, AIG announced it would have to take a $1.8 billion charge to boost reserves to cover claims from casualty and directors' and officers' liability--a first for the 84-year-old company.

But these are no ordinary times. AIG, along with the rest of the insurance industry, has been assaulted with a barrage of new risks--terrorism, SARS, asbestos, class-action lawsuits--that, cumulatively, have made the world a very different--and frankly, scarier--place to do business. Hit with interest rate compression on one side and volatile equity markets on the other, insurance companies are having a hard time eking out any revenue or earnings growth, says Cynthia Soccocia, senior analyst with the Tower Group.

Yet AIG has a few unique weapons in its arsenal. Its tremendous size has consistently enabled it to escape the undertow that pulls smaller, less stable companies under. In 2002, not a stellar year for any industry, AIG saw net income rise 5 percent, to $5.5 billion. Thanks to decades of growth, acquisition and advances into new territories, AIG is now so thoroughly diversified across both geographies and businesses that no one earthquake--or SARS outbreak in the Far East, limping Latin American economy or continued recession at home--can really shake it. "It would be quite unlikely that something could happen that would impact each one of their businesses to a large extent for a long period of time," says Neenan. "The bigger they get, the stronger the company gets, because they get increasing interplay, cross sells and lower costs."

A handle on complexity

Of course, on the down side, the bigger AIG gets, the harder the task for analysts, who complain that the company's sprawling size and diversity make it impossible to accurately value it as an investment--which doesn't help AIG's price on the Big Board. "That's an excuse," counters Greenberg, who says Wall Street simply hasn't adapted adequately to the structure of multibusiness, multicontinent conglomerates. "You can't take an analyst who understands property-casualty insurance and say, 'You're the analyst for AIG.' That person may be fine for the property-casualty component, but what do they know about life insurance or airline leasing or retirement savings or derivatives?" The answer, he says, is a team approach to coverage. "But under their system, the lead analyst gets credit for everything," Greenberg says. "You have one analyst and the others don't want to help, because they're not going to get any benefit out of it."

Perhaps Greenberg has little sympathy for those trying to grasp AIG's complexity because he somehow manages to have his finger on the pulse of every far-flung AIG operation. His colleagues marvel at an uncanny ability to stay focused on myriad details simultaneously. "He can talk about production in Malaysia one minute, about the creative design recommendations of our ad agency the next, to the head of human resource thereafter--and he just doesn't miss a beat," says Martin Sullivan, AIG's co-chief operating officer. "His mind is shifting gears every half an hour. I'm sure it's more than that, actually." To save time, he'll finish your thought, answer your question and be on to the next topic before you've quite processed. Yet, says Tom Tizzio, AIG senior vice chairman: "You never walk away confused. You always know what the mission is. And that's half the battle."

The other half is delivering. Greenberg, a tough taskmaster, drives a culture of superior performance and perpetual motion that can be too much for some. "I had a guy who used to work for me," says Ed Matthews, AIG senior advisor. "He bruised easily and this just wasn't the right place for him."

But if AIG isn't for the faint at heart, it's also worth noting that most of Greenberg's top men have been with him for decades. Many joined AIG as underwriters or in other junior posts, and rose through the ranks. Talking with them about their sense of loyalty, one begins to hear a familiar theme: The boss would never ask anything of his people that he wouldn't do himself. "A lot of that comes out of the fact that I spent six years in the military," says Greenberg, a captain who earned a Bronze Star and briefly considered a military career. "As command of the company, I wouldn't ask anyone to do anything that I wouldn't be prepared to do."

That doesn't leave much. Perpetually on the clock, Greenberg is ready to discuss business any time, anywhere--and he expects his top executives to be equally available. "When I worked in the U.K., I used to get phone calls at all hours," recalls Sullivan, one of many Greenberg colleagues who can't figure out when the boss sleeps. "Where he physically is, and when he starts work--I don't think they correlate."

There isn't much time to sleep when you're constantly collecting knowledge. For Greenberg, the day-to-day details are as critical as the overarching strategy for AIG. "You can think about the five-year plan," he says, "but if you don't think about the details, you're not going to have a five-year plan." A voracious reader, Greenberg relies heavily on a steady stream of information flowing into the corner office--particularly when it's bad news. "They know good news will find me eventually," he says of his direct reports. "Bad news we need right away." And if they don't deliver? "They don't do it more than once," he says with a smile, but adds quickly: "I don't mean it in a threatening way, you know. But people around here understand you just have to deal with bad news. Things don't get better by festering."

To that, Greenberg's senior team can readily attest. "I think the thing that annoys him more than anything else is if there's an issue that should have been brought to his attention and wasn't for whatever reason," says Chief Financial Officer Howard Smith.

Exacting, but compassionate

Another pet peeve is when people marvel at his energy level--for someone his age. There are two kinds of age: There's chronological and biological," says Greenberg, who works out five days a week, plays plenty of tennis and keeps a stepclimber on the corporate jet. "I know people in their forties who couldn't keep up with people much older--on a tennis court or in business or anywhere else."

Smith calls his boss's grasp of the company's financials "mind-boggling" and says that as an accountant with Coopers & Lybrand 20 years ago, he worked with a number of CEOs who wouldn't touch accounting issues. But Greenberg regularly debates them. "And if there's an issue he doesn't understand, he's an extremely quick study," says Smith. But, he adds, one learns quickly with Greenberg to keep memos succinct. "The response time is absolutely incredible," says Smith. "I'll send a memo into him and I could get a response 10 minutes after he gets it."

The boss is also apt to check up on those to whom he's delegated, to make sure there's no slacking going on. "He hates to follow up and find out that people haven't done something, so you never want to be in that position," says Matthews.

But if Greenberg can be exacting and short on patience, he can be equally driven to take care of his people. Those who've stuck by him for 20-some years say they've benefited personally from his protective nature. "If you go to Hank with a personal problem, he's there for you easily--boom," says Matthews. "He could yell at you for something you've done and then you turn around and say, 'Hank, I've got a personal problem, I need your help,' and he'll move heaven and earth for you."

The pay isn't bad either. In addition to big salaries and sizeable options packages, AIG also has a unique form of compensation--one based on income growth rather than stock-price jumps. Its elite corps of 700 or so top-performing managers receive "units" from Starr International Co., one of two closely-held, Bermuda-based companies, which, together with directors and officers, own 21 percent of AIG's public shares. At the end of a two-year period, if the earnings-per share of AIG are up, a correlating number of shares of stock are then allocated to those managers holding the units. "But," Greenberg explains, "if the earnings went down and the stock went up, they get nothing." And they typically can't take any of it until they retire, which keeps them heavily invested in the stock's long term performance. "We also don't do things like reprice options," says Matthews. "The option I got two years ago is substantially underwater, but that's fine. It's a 10-year option and I'm going to make money on it in the long run."

A history of diversity and innovation

Greenberg credits the unique method of compensation for helping to maintain AIG's entrepreneurial culture, despite its colossal growth. But it also helps that the company's entrepreneurial roots run deep. It was founded in 1921 by a pioneering young American named Cornelius Vander Starr, who was drawn to Shanghai, known then as a city of entrepreneurs. There, Starr opened an insurance agency with two clerks in two rooms and called it the American Asiatic Underwriters. Within 10 years, AAU had offices across China and the Philippines, as well as a company in the U.S. called American International Underwriters Corp. In 1940, Starr expanded to Latin America, which had previously been dominated by European companies. The geographic diversity saved the company from potential wipeout during World War II. By the end of the 1950s, AIU was represented in about 75 countries.

In 1960, Starr tapped a young Hank Greenberg to develop AIU's domestic accident and health insurance business overseas. He was soon named president of one its struggling companies, American Home. He quickly determined that American Home was suffering under the constraints of its agent-only business. "If you do business with an agent, he binds the company. If you do business with a broker, you decide what you're going to write. You decide your own future, your own destiny," he says. "So we got rid of all the agency business overnight. People thought I was crazy."

Its autonomy restored, American Home began branching into different kinds of coverage. In a business where products tend to be supermarket shelf commodities, the key is to differentiate from your competitors, Greenberg says. "If everybody else is wearing black, do you want to wear black, or dress in green, blue or yellow? You want to be different. You have to be different."

Of course, one doesn't typically expect innovation and creativity from an insurance company. The word alone conjures up the colorless images of stiff, bespectacled salesmen selling stodgy, lifeless products. But challenge the notion that insurance can be innovative and Greenberg simply says with a grin: "It's doable."

For years, AIG has been surprising the industry with unique coverages--it was one of the first to insure off-shore oil rigs and the earliest player in D&O liability in the U.S. Greenberg has also had a keen eye for spotting future trends. Matthews recalls that back in 1986, a great year for AIG, Greenberg decided that insurance was never going to get any better, and said it was time to balance the volatility in insurance by building up a financial services business. That business now accounts for 16.2 percent of AIG's operating income, or 20.4 percent, including the $1.8 billion (after tax) charge to increase loss reserves.

Ordinarily, a big ship like AIG turns slowly, responding later to crises than its leaner, nimbler competitors. But AIG allows its companies to run independently; unfettered by heavy corporate bureaucracy, they can stay light on their feet. Though responsible to Greenberg for bottom-line results, each profit center is run like its own company, with its own president in charge of marketing, underwriting, budgeting and so on. AIG was able to respond quickly to the SARS outbreak, for example, which kept agents from getting in to see customers live. They immediately switched to direct marketing, telephone campaigns, holding conference calls and continuing to cross-sell products. Greenberg also attributes the quick response to a fundamental understanding of risk--knowing where you can move quickly, without unnecessary exposure.

Because the individual profit centers are also part of the larger organization, they can share information and ideas, and therefore cross-market more effectively, bringing the company's expense ratio down to below 19 percent, a good 10 points below competitors', says Greenberg. Where appropriate, products doing well in one country can be ported to another region--though not willy-nilly, cautions Greenberg. "You have to understand the culture, the ethics, the history of the country, the many different aspects that will determine whether the product will work," he says. AIG maintains a close local connection by employing predominantly local nationals.

To China and back again

Of all his global forays, none seems to be as great--or poetic--an accomplishment as AIG's return in 1992 to its birthplace, China. It was also a testament to Greenberg's tenacity. For 40 years, the Chinese government had refused to grant insurance licenses to foreign companies. Greenberg made his first trip to Shanghai in 1975 and spent the next 17 years stubbornly wedging open the door by establish ing a business relationship with the People's Insurance Company of China and helping the then-mayor of Shanghai, Zhu Rongji, develop the International Business Leaders' Advisory Council to the Mayor of Shanghai. Greenberg was certain China would be "one of the great powers on Earth," he says. "You don't ignore a country of that size." In short, he refused to give up. "He is the most persistent and persevering man in the world," says Carla Hills, chairman and CEO of Hills & Co. International Consultants, and an AIG board member. "If doors are slammed, he just keeps knocking." The Chinese government finally relented, and AIG won the first license granted to a foreign company. Today, the company is poised to benefit from an expected boom in life insurance in the region; Asia accounts for almost a third of revenue.

One challenge--and a concern to analysts--is whether AIG can maintain its edge as new players find their way into China and price products competitively. Greenberg brushes aside the question. "I don't worry about competition," he says, gruffly. But those who've gone up against Greenberg in foreign markets say his competitive drive can be, well, scary. Dan Amos, CEO of AFLAC (and a CEO of the Year selection committee judge) is a small rival to AIG in Japan. Still, Amos can tell he's being watched. "When we're having a good year, we hear from some of his people that he's been calling them, wanting to know why they aren't doing better," says Amos. "Let me tell you--never, ever turn your back on AIG, because they'll surprise you with something creative."

Right now, AIG is heavily focused on its cross-selling campaign. "Around the world, we probably have about 300,000 people selling AIG products to almost 40 million customers," says Smith. "If you could come up with vehicles to sell another AIG product to even some small percentage of those customers, you could take a fair amount of your growth just by doing that." Smith points to one recent example of a cancer insurance product that AIG began selling to customers of American General, a company it purchased in 2001. "In the first month that we introduced that to American General's distribution, they sold almost 30,000 policies," says Smith. "That's the kind of opportunity we haven't even scratched the surface on."

Asset management is another big opportunity, expected to be hotly contested in financial services in the years to come. AIG is currently focusing strongly on its institutional asset management, still undecided about how heavily it wants to play on the retail side. But analysts don't seem overly concerned, trusting Greenberg to work it out. After all, he's been managing those moving parts for a long, long time.

"Unfortunately," Neenan points out, "he's not immortal. So the real question is, is there anyone else in that business with the skills to manage such a large diverse empire?"

The succession question has long been a thorn in Greenberg's side. The company says management has identified a likely successor, though their choice has not been made public. Frank Hoenemeyer, an AIG director, says it would be wrong to make the name public until the CEO decides to retire. "There's nobody who's indispensable," he says. "They'll run [AIG] in a different way, but it isn't going to collapse when there is new management there."

But while few think AIG would go away, not everyone is as convinced that another human could manage the house that Hank built. Greenberg has been so inextricably tied to his company for so long, most analysts admit that until he leaves, it can't be known how much of AIG's success rests on him. If it's true that one of the ultimate tests of lasting value is in what a CEO leaves behind, the next several decades of AIG's life will be as telling as the last. As for Greenberg, he'd like to be remembered for AIG's future. "The greatest thing you can leave behind," he says, "is a legacy of an organization that is a great company, and will go on to even greater heights."

Cumulative Total
Shareholder Results *

              '97       '98       '99       '00       '01       '02

AIG         100.0    133.60    187.24    256.46    207.01    151.26
S&P 500     100.0    128.58    155.63    141.46    124.65     97.10
AIG peer    100.0     93.44     76.32    118.26    101.60     90.27
group

[GRAPHIC OMITTED]

Source: Standard & Poor's Compustat Services, Inc.

* Value of $100 invested on December 31, 1997, including
reinvested dividends.

Net Income

($ billions)

'98    5.05
'99    6.19
'00    6.64
'01    7.96 *   5.36
'02    8.91 *   5.52

Revenues

($ billions)

'98    45.6
'99    50.7
'00    56.3
'01    61.8
'02    67.5

Assets

($ billions)

'98    338.8
'99    383.7
'00    426.7
'01    493.1
'02    561.2

Capital Funds
(Shareholder's
Equity)

'98    38.9
'99    39.6
'00    47.4
'01    52.2
'02    59.1

Note: Table made from bar graph.

* Income, as adjusted, for 2001 and 2002

Greenberg on Good Governance 

As far as Hank Greenberg is concerned, AIG has always earned high marks for governance. And if great results are an outgrowth of good governance, it's hard to argue with him. Yet in the aftermath of Enron and other implosions, even AIG hasn't escaped criticism. Rather than defend its structure, Greenberg changed the board ratio and put all outside directors on its audit and governance committees. The company also announced it would expense options. "The whole ball of wax," says Greenberg, who talked with Chief Executive about the battle against perception and whether legislation now in development goes perhaps a bit overboard.

You've said for AIG, governance was fine, but "perception counts"? How do you fight perception when it's so intangible?

It's very vague. It's like fighting a cloud. You do the things that you think are hurting perception, even though what you were doing was not wrong--just like Warren Buffett has changed his board of directors. We senior managers are large holders of stock in AIG. It's historic. Of course we care about what happens in the company and how it's run. So we were doing things the right way, but they wanted more independent directors. Is it better to have independent directors who own very little stock or directors who own a lot of stock? I would have thought the latter. Common sense will tell you that. But that's perception, so we've done what perception would require us to do.

Will the change actually put AIG at a disadvantage?

No, because at AIG, we have six directors who are insiders and 10 from outside. Those six will exert a lot of influence. The culture of the company won't change.

So how will the perception issue--

Be overcome? Time. As the economy gets a little better--and it will get better--this will fade into the background. You're not going to hang on to the past forever. But the press has not done a good job of having this go away. First, they made heroes out of CEOs. Then, they made villains out of us. But all of corporate America are not villains.

The strength of the country is the creativeness of the companies and individuals--this market economy. Other countries envy what we have. We shouldn't be saying it's so terrible.

Is legislation going too far?

I just saw in the tax bill that's pending in the Senate that the CEO be required to sign the tax return of the company. Our tax return is seven feet tall. They have to wheel it out of here in bundles. I'm not exaggerating. It's almost idiotic to suggest that a CEO is going to take this time to go through all that. I'm not a tax expert to begin with and even tax experts differ on things. The head of our tax department has to bring in experts. So it's that kind of aftermath of Enron that is producing requirements that is stymieing companies from doing what they ought to be doing. But that will change. There's always an overreaction to things.

In the current environment, what is AIG's biggest advantage?

A lot of companies get complacent. There's no complacency here. When you look at many companies in our industry that were great companies yesterday, many of those names have disappeared. You look at the reasons why, it's complacency, they failed to manage change. They failed to recognize that things were not going to stay the way they were. We look at the future, not the past. Who cares what your record is for the last five years? Shareholders want to know what you're going to do this year and next year and the year after. One of the responsibilities any CEO has is to ensure that your name doesn't become history.