Down...But Not Out

By Daniel Kadlec

Judging from his daily routine, you'd hardly know that Hank Greenberg's life has been turned inside out. Sure, he works in a makeshift office on Park Avenue, with boxes piled as deep as the lawyers outside his door and with the nasty business of potential indictments--not insurance--front of mind. But the man who over four decades built and ran American International Group, the global insurance giant, is as focused as ever. He still manages two AIG offshoots, Starr International and C.V. Starr, investment firms that control billions of dollars of AIG stock. He's a regular on the Manhattan dinner circuit, where society's glitterati greet him warmly. He works out daily with the same discipline that guided his long career. The only thing that's changed is the way the 80-year-old does his daily push-ups: using a "slow burn" strategy of fewer repetitions but a painstaking pace.

Yet Greenberg is in deep trouble. State and federal investigators have been poring over AIG's books for months. Greenberg's own board--led by longtime peer and pal Frank Zarb, who for years was his quietly designated successor should the worst happen--lost faith and pushed him to resign, first as CEO and then as chairman, in March. New York State Attorney General Eliot Spitzer filed civil fraud charges in May, accusing Greenberg of orchestrating "sham transactions" that hid losses and inflated AIG's net worth. Just last week he resigned from AIG's board, ending his last official tie to the company--the same week two executives at General Re, a unit of Warren Buffett's Berkshire Hathaway that did business with AIG, pleaded guilty to civil fraud charges that name Greenberg as a co-conspirator.

How did a man revered by government leaders and CEOs around the globe fall so far, so fast? Multiple investigations continue, and criminal charges have not been ruled out. Greenberg, who on advice from his attorneys declined to comment, has denied any fraudulent conduct and vowed to fight for his name. Months ago, he famously derided regulators' concerns as inconsequential "foot faults." Say this about him: he's never lacked for confidence. It's said that he once hopped into his limo after a board meeting and, when the driver asked where to go, responded, "Take me anywhere--everybody needs me." But for the foreseeable future, he will be spending a lot of time with his lawyers.

Is Greenberg really a power-hungry crook who would do anything to win--and who was bound to be discovered as his deceits escalated? Or is he a quintessential hard-driving businessman so used to winning and so sure of his judgment that he didn't notice how close his toes had got to the line? Spitzer has been criticized in the business community for overzealousness, and last week brought the first hard evidence that the criticism may have merit: a former Bank of America broker was acquitted in a courtroom test of Spitzer's crusade against the financial industry. That can't help pleasing Greenberg's lawyers. Still, Greenberg's hardheadedness may have invited some of the scrutiny he's under. In the end, his legal and professional predicament may be as much about his personality as his actions.

An industry giant lionized for his steel will and feared for his short fuse, Greenberg landed at Omaha Beach on D-day and was awarded a Bronze Star in the Korean War. Many say he is an enigma, that nobody really knows him. But perhaps he is not all that complicated. Everything he's done at AIG--hobnobbing with the elite, constant globe trotting, charitable giving, his 24/7 schedule--was aimed at one thing: making the company a more formidable global competitor. This is a man who knew how to play hardball to get what he wanted. A lawyer before he was an insurance man, he thought nothing of phoning members of Congress or even Cabinet-level officials at the White House to express his views on tort reform, insurance legislation or international trade.

Such was Greenberg's clout that after 15 years of contentious negotiations to allow China into the World Trade Organization in 2001, U.S. officials handed off the final sticking point--access to the insurance markets--to...Greenberg. After some tough meetings, he put his demands in a terse letter to Chinese Premier Zhu Rongji, who after reading them angrily summoned one of his top trade representatives and, according to that official, declared, "I would never, never see this old man."

But the vow was short lived. In less than an hour Zhu reconsidered, according to the trade official, Long Yongtu, who told this story at the Institute for International Economics in Washington last month. It was clear to Zhu that Greenberg, a private U.S. citizen with deep knowledge of China, had been given extraordinary authority. So Zhu sent Long to the "Greenberg suite" of a Shanghai hotel partly owned by AIG, and the two began working out the final pieces of a historic trade pact that, incidentally, gave Greenberg what he wanted: the right to keep running wholly owned subsidiaries.

That's the way he operated. Greenberg was legendary for taking his business into countries that no foreigners would try and for underwriting insurance policies that no competitors would risk--and squeezing the most out of every opportunity. His global heft was so valued by the government that in the 1980s he was dispatched on state business to the Philippines, where AIG subsidiary Philippine American Life Insurance is the largest insurer. His mission: make clear to President Ferdinand Marcos that foreign investors were uneasy with the unstable government; he should step down or conduct fair elections. (Marcos didn't listen and ultimately fled in disgrace.) In the early 1990s Greenberg met with Russian President Boris Yeltsin at the Kremlin and won approval for an AIG investment there.

He had plenty of influence in his backyard too. "I learned to respect his opinion," says Albert Lewis, superintendent of the New York Insurance Department in the late 1970s, who had several run-ins with him. "Many times he was right; the department was wrong." In one such case, says Lewis, state lawmakers resisted efforts to ease the regulation of insurance premiums paid by big business; Greenberg argued that these were sophisticated clients who could protect themselves. "He would absolutely get in your face," says Lewis. "But he was right."

If Greenberg was able to persuade foreign leaders and regulators to do his bidding, he was at times a tyrant too. He demanded loyalty and was capable of terrorizing the people who worked for him. "I always prepared myself to the hilt when I was to see him," says Gerard Roche, veteran executive recruiter at Heidrick & Struggles, which has placed executives at AIG. Greenberg liked to keep his meetings short--say, 10 minutes--and quickly lost patience with anyone not prepared. Then would come the famous Greenberg tongue lashing. His former daughter-in-law Nikki Finke, who knew the family throughout the 1970s and was married to eldest son Jeffrey in the early 1980s, recalls family ski vacations in Stowe, Vt., where Greenberg would settle into his big easy chair and ottoman next to the phone and spend hours dialing subordinates. "He'd be screaming into the phone, cursing at people and calling them idiots," she says. "I never heard anything like it."

"Would he yell at me? Absolutely," says Edward Matthews, a longtime AIG senior executive. "I always told people when we were hiring them, 'If you have thin skin this is the wrong place.' Did he drive people hard? Absolutely. But who did he drive the hardest? Himself."

Greenberg, whose net worth has been estimated at more than $3 billion, certainly didn't need more money. Indeed, he and the entities he controls have given away hundreds of millions of dollars to charities. It's no coincidence that on the New York social scene, few people are willing to criticize Greenberg: he's still way too rich and powerful to alienate. Yet even in this sphere, Greenberg is known as quick-tempered--even yelling at people who dared to ask him to boost his giving.

It was his demanding personality, combined with an almost regal confidence, that enabled Greenberg to build the AIG empire. In the early days he used to drive through New York telling independent insurance agents that if they had clients no one would insure, he'd write the policy that day. "If he could comprehend it, he'd underwrite it," says Joe Coughlin, a risk consultant at Corporate Risk Solutions. That confidence, which still permeates the culture at AIG, led the firm to embrace businesses that others would turn down, from firearms dealers to makers of football helmets to school-bus companies.

Today AIG operates in 130 countries, has a stock-market value of $143 billion and nearly $100 billion of annual revenue. It's had a staggering transformation from the obscure firm that Greenberg took command of in 1967 and took public two years later with just $13 million of annual profit--a figure that swelled to $11 billion by last year. While building AIG in the 1970s and '80s, Greenberg often was the only foreigner in sight in politically combustible countries like Romania, Iran, Vietnam and other parts of the Far East, and would draw a curious crowd just crossing the street.

Nowhere is Greenberg's standing more firm than in China, where the forerunner company to AIG was founded in 1919 in Shanghai by the most important figure in his career, Cornelius Vander Starr, who hired Greenberg in 1960. Even though AIG had to shut down its operations in China in 1950 after the communists took over, Greenberg never lost sight of those roots and was thrilled when his company in 1998 reclaimed one of its original offices on the Bund in Shanghai. Ahead of most, he understood the vast economic potential of China and advocated for better relations to every U.S. President since Kennedy.

He has played a lead role in promoting China's capitalist transition, serving as chairman of the Asia Society and chairman of the U.S.-China Business Council, and creating and chairing the International Business Leaders' Advisory Council in Shanghai. The Chinese remain so enamored of Greenberg that this year they honored him with their prestigious Marco Polo Prize for promoting Sino-American relations. "Hank Greenberg is perhaps the best known and most admired American businessman at both top government and top business levels in [India and China]," says Peter G. Peterson, who was an economic adviser to Richard Nixon and has known Greenberg for years.

Maurice Raymond Greenberg was born in New York City on May 4, 1925, the son of a cabdriver. His obsessive desire to reach the top and stay there may be rooted in a once-poor kid's inferiority complex. His father died in a car accident when he was only 6. His mother, a manicurist, remarried and moved to a dairy farm near the Catskill Mountains of New York. On the farm, he had daily chores that included milking the cows twice a day. Greenberg soon proved his talents and his competitive drive. He was a starting football player--his athletic ability earned him the nickname Hank, after the baseball great of that era with the same name. He quit school to go to war in 1942 and, after his battalion landed on Omaha Beach under fire, went on to liberate the Dachau concentration camp. After the war, he finished high school supported only by the "52-20" unemployment package for ex-G.I.s: $20 a week for a year.

His time in the service reinforced his instinctive sense of discipline. But it also reinforced that those smart enough to work the system could get special rewards. As a new recruit in London during World War II, he frequently took advantage of a policy that gave soldiers an extra day off if, instead of boozing it up at the pubs, they enjoyed a night of culture at the theater. Greenberg's tactic: buy a ticket, grab a playbill, walk in the front door--and right out the side door.

Of course, cutting corners to get an extra day with a lady friend, as was the case in London, is one thing. But now Greenberg faces serious charges of cutting corners to make AIG's financial might appear greater than reality, and in so doing ripping off shareholders who have lost nearly $50 billion in the value of their stock since Spitzer served the first subpoena. In Spitzer's suit, he alleges that AIG, through bogus transactions, inflated the reserves it keeps to pay claims by hundreds of millions of dollars; that Greenberg repeatedly directed AIG traders late in the day to buy AIG shares to prop up its price; and that AIG booked underwriting losses as investment losses to project a healthier core business.

Greenberg's board members, some of them old friends and people whose institutions had benefited from his charitable largesse, stuck by their CEO as long as they could. But when the firm's accountants said they might not certify the company's finances because they didn't have confidence in the leadership, the board moved to protect the company and ousted Greenberg.

Across town from his old office, Greenberg is far from finished. He's trim and fit. People who stay in touch with him say he's reading a lot--he's about halfway through The Da Vinci Code--and that he feels in these trying times that his family has grown closer. Son Jeffrey, the former CEO of insurance broker Marsh & McLennan, ran into his own legal problems last year and resigned after Spitzer charged that he steered business to favored clients. Son Evan remains CEO of insurer Ace.

Did Greenberg cross one line too many with AIG's books? Some say his combative tone back in February so raised the New York AG's hackles that it precipitated much of his current trouble. Now Greenberg, who hasn't given an inch in 80 years, is lawyered up and digging in--for a battle that will make or break his legacy.