Profile: Maurice R. Greenberg ‘50, 1981 Distinguished Alumnus
NYLS in Brief, 1981
Baseball legend holds that one George Herman Ruth (brazenly, according to one version) pointed to the far reaches of Yankee Stadium and blasted the next pitch to that precise spot. George Herman Ruth’s nickname was ‘Babe”. He is not an NYLS Distinguished Alumnus.
Insurance industry legend has it that one Maurice Raymond Greenberg (brazenly, according to all versions) pointed to a distant financial fence—twenty percent earnings growth per annum—and reached it every year, even in 1974 and 1975, lamentable years in the property and casualty business.
Due to his having the same surname as the famous Detroit first baseman who was himself no slouch as a power-hitter, Maurice Raymond Greenberg’s nickname is “Hank”. He is an NYLS Distinguished Alumnus, the nineteenth graduate to be so honored.
The man whom the New York Times describes as a “legend” in the insurance industry has other titles and identities. He is one of America’s “10 Toughest Bosses,” according to Fortune (April 21, 1980), and he is the “Toughest Man in Insuranceland,” in the estimation of Institutional Investor (Sept. 1979).
Greenberg identifies himself with ease; he is, simply, the President, Director, and Chief Executive Officer of both AIG and the C. V. Starr Organization.
This emphasis on his corporate nature does no injustice to the man who labels himself a “workaholic” and explains, “I think the business; I dream it, and I work at it all the time.” An avid athlete who skis and plays tennis every chance he gets, the youthfully trim Greenberg could afford to retire many times over and devote himself to the athletic activities that he loves, but, as he told NYLS in Brief recently, “I’d enjoy it at first, but then I’d be bored to tears.” The man and the work are one.
Greenberg presides over America’s largest multinational insurance holding company. In addition to several major subsidiaries—among them, American Home Assurance Company, American International Underwriters, American Life Insurance Company, and the New Hampshire Insurance Company—AIG consists of a worldwide network of companies and branches. Collectively, this aggregate writes life and general insurance in the United States, Canada, and more than 135 overseas jurisdictions. This includes China, Greenberg having recently signed a 50-50 agreement with the People’s Insurance Company; AIG now does business in the country where, in 1919, Cornelius Vander Starr founded the company that would eventually become AIG.
A country childhood
Despite his current preeminence, Greenberg was born with neither an uncle in the business nor a silver spoon. Born in New York City in 1925 into a lower middle-class family, his father’s death when he was only five years old meant that he would grow up on his stepfather’s dairy farm in Swan Lake, N.Y. The trauma of his father’s death was somewhat eased, he says, by his having for a stepfather a “super person, a man of enormous personal integrity who had a great influence on me.”
For all the ambition and purposefulness that Greenberg was later to reveal, his early years were marked by ambivalence and indirection. After the Second World War broke out, nothing much motivated him to remain at home, so he dropped out of high school to join the Army.
As for reports that he lied about his age to get into military service, Greenberg coyly responds that “my age was a little younger than it turned out to be on the application.”
He served with the Army in Europe, and when he returned home, he then faced the ordeal of finishing high school. After graduating from the Rhodes School in New York, he then went to the University of Miami, which awarded him a Pre-Law Certificate in 1948. What possessed him to attend this particular institution of higher education? “I wanted to go someplace warm, and several of my Swan Lake friends were there.” As for career plans at that time, he simply didn’t have any, whether law-oriented or otherwise
He entered New York Law School because “I had been bored as an undergraduate, and I was seeking a greater challenge. I wasn’t sure that I wanted to be a lawyer or practice law, but I thought the discipline would be very good. Law school seemed a challenge that would be more acceptable to me than just continuing for a typical business degree. Remember that when you come out of the service, you're very disciplined.”
However vague his intentions, studying law proved to be “a great experience. As preparation for running a business, you can’t have a better educational background.”
Uncle Sam wanted him
He received his law degree just in time to use it—in Korea! Obligated as a reserve officer to participate in his second war in one decade, he prosecuted Chinese and North Koreans accused of committing atrocities. He received a Bronze Star and separated from military service once and for all with the rank of Captain.
An enormous juncture awaited him shortly after his return to America. “I wasn’t sure what I wanted to do. I considered careers in the military and the F.B.I., but with a wife and child to support, my first priority was just to get a job period.”
Greenberg wandered into the William St. offices of Continental Casualty and had a horrendous interview with the personnel director—a disaster that turned out to be probably the single most fortunate thing that ever happened to him.
“That personnel man was not only negative but rather rude. I had returned from Korea only about a week earlier, and I suppose I was a bit resentful.”
He was sufficiently resentful, in fact, to locate the executive offices and pay an unscheduled visit to one of the vice presidents. Greenberg used the opportunity to register the opinion that the personnel man was, among other things, “lousy.”
The vice president recognized a live wire in this brash, outspoken, obviously bright and energetic young man and hired him on the spot, starting him out in the aviation accident department.
Greenberg regarded the job as a temporary one, which it indeed turned out to be, but not in the manner he originally intended. He quickly became Continental’s east coast Counsel and then moved to the firm’s Chicago office, where he managed several nationwide units in the accident and health departments. Soon he became a Vice President, one of the youngest in the company’s history.
He believes that he was destined to become Continental’s chief executive had he remained, but in 1960 American Home’s C.V. Starr made him an offer that he couldn’t refuse.
Takes the helm
American Home was foundering and resistant to all efforts to salvage it. In desperation, Starr turned to an old friend for advice, J. Milburn Smith, a former President of Continental and the individual responsible for bringing Greenberg to Chicago. Smith recommended a double-barreled solution: turn the company into an American Lloyds of London, and put Hank Greenberg at its head. Smith’s confidence in Greenberg was so high that he championed him even knowing that the young man would be undergoing some of the highest-level on-the-job training imaginable.
For his part, Greenberg was attracted to the position because it would give him the opportunity to develop an overseas accident and health operation. Soon after, he revamped American Home’s domestic property-casualty business. Before long there was no area of the business that escaped his thorough involvement.
Greenberg was chosen to succeed Starr as Chief Executive Officer prior to the latter’s death in 1968. Not long after he assumed the position, earnings skyrocketed. After-tax income jumped from 27.7 million in 1970 to 282 million in 1980, an increase of 918 percent, for an annual compound growth of 26.1 percent.
According to Greenberg, “we were in the minority of companies that produced an underwriting profit in 1979 and 1980. In fact, industry underwriting losses reached $1.9 billion in 1979 and approximately $3.4 billion in 1980—a dramatic reversal from its 1.3 billion dollar profits in 1978.” In other words, AIG continues to score runs even when the pitching gets notoriously difficult and strikes out most of the opposition.
To some extent, of course, Greenberg was merely taking advantage of certain pre-existing corporate advantages. Fortune, for instance, noted AIG’s hammerlock on some kinds of international business: “Need workmen’s compensation for Korean divers working on a North Sea platform—written by a licensed Korean insurer? AIG can handle it.” And given the nationalistic surges in recent years, the global network that Starr built probably cannot be duplicated.
But inherited advantages hardly explain all of Greenberg’s success, which is clearly the product mostly of his own prodigious talent. Unlike other insurers, he will not countenance underwriting losses on the ground that investments and other earnings can compensate for them:
“Underwriting profit is the primary objective of a general insurance company. We believe that if you fail in achieving an underwriting profit, you’ve failed in the fundamental business. And if you fail in the fundamental business, you fail ultimately.” In simpler terms, “underwriting profits are the gods we cherish.” He insists on 20 percent growth and he governs his organization in a way that maximizes the chances of achieving this formidable goal.
When he first joined forces with Starr, American Home was losing money, so he converted it into a gross lines underwriter of commercial risks that would deal primarily with brokers. American Home’s losing ways, which no one else had been able to reverse, came to an end. Greenberg also effected a similarly wholesale reconditioning of National Union Fire Insurance Company.
AIG also cedes a substantial amount of its business to reinsurers, thereby surrendering a percentage of its premiums for a variety of other tangible benefits, such as greater control over the business it underwrites, insulation against a loss of wipe-out proportions, and increased margins on the business it retains.
AIG realizes extraordinary profits on some of its reinsurance deals (one subsidiary is so advantageously set up that it could theoretically make money even if the entire premium income on the business it wrote was annihilated), a tendency for which it incurs a certain amount of criticism. The reinsurers themselves, however, consistently give AIG votes of confidence in the form of considerable repeat business.
And it’s the reinsurers, of course, whose opinions are important. Several years ago, Greenberg created Transatlantic Reinsurance Company, mandating it to assume reinsurance from AIG subsidiaries. AIG enjoys 47 percent ownership of TransReco, a figure that takes on enormous significance when you realize that AIG put up only 20 percent of the capitalization. In the sardonic terminology of a former vice president of AIG, Greenberg was selling five-dollar bills at twenty dollars apiece. But if Greenberg was selling, others were buying, and those others were firms such as the prestigious Swiss Reinsurance, which, when it spends twenty dollars, does so in the expectation of getting more than twenty dollars back.
Sets workaholic example
Greenberg’s financial wizardry is still not the entire picture. According to Fortune, “Greenberg’s blueprints, as ingenious as they were, might well have gone nowhere had it not been for one more ingredient—Greenberg’s galvanic personality.”
He confesses to making other people into workaholics, an accomplishment that to some degree he probably achieves passively by sheer example. But his arsenal also contains weapons of a more active nature: “I’m human. My temper has a short fuse. I’m sure that there have been people who have trembled before me. I expect people to be prepared. I don’t like people who fail to accept responsibility for their actions. That’s one of the things that makes us different from others in our business. We delegate responsibility to many, many people, and we expect them to perform. Those who are unwilling or unable to pay the price to succeed are the ones, I suppose, who tremble. But my temper heals very quickly.”
When not on one of the frequent business trips that take him all over the world, Greenberg and his wife, Corinne, are usually at their Manhattan co-op. Their home in Brewster, New York, or a ski resort. They have four grown children.
Do any goals remain? “I don’t live my life by a series of goals. I simply see ever-expanding opportunities in what I’m currently doing. I find that to be very satisfying, and I’ve lost none of my motivation.”
Asked to explain his success in terms of his personal qualities, the first item he mentioned was “technical competence; you must know your business.” Himself a superlative underwriter, he often haggles over the details of a reinsurance treaty, immersing himself in the negotiations on a level that eludes rival executives, who must delegate such responsibilities to subordinates (thereby sacrificing a degree of control).
Other qualities he cited were energy, creativity, and managerial skill (see box). He added courage and principle, preferring these terms over chutzpah, the word which I suggested to describe the angry young job-seeker going directly to a Continental vice president.
Greenberg is not defensive about the inordinately hot kitchen in which he works. He doesn’t buy the suggestion that his tempestuousness is unduly hurtful to others: “No. If anything, I think that my success, which I hope has been that of the company, has made an awful lot of people happy. There are many satisfied shareholders, and many new jobs have been created that didn’t exist before. So I’d say ‘no,’ just the opposite. It’s impossible to do anything without somebody being disappointed, but I don’t think you can properly focus on that.” He might have added that, in the arena of chief executive officers who have not attained universal popularity and acceptance, he’d hardly be alone.
He doesn’t seem to mind—in fact, secretly appears to enjoy— his reputation as a tempest in a corporate teapot. The controversy that chronically swirls about him leaves him essentially unruffled: “You don’t build anything of value by trying to win popularity contests. Nor do I sit and think about the perception people would or would not have of me. That’s not the job of the Chief Executive Officer. He’s judged by results over a long period of time and by his building of an organization. And I think we have—and have built—the finest organization in our industry.”
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