There was an interesting development that happened a few weeks ago which surprisingly really didn’t get much attention. A high profile CEO had a disagreement with the Chairman of the Board of the same company and this power struggle ended up in the resignation of the Chairman of the Board due to a “him or me” ultimatum by the CEO. Just a few years ago this might not have been such a big deal, given this new environment with the SEC pushing for CEO’s to be more accountable to “independent” boards with more checks and balances and the fact that the company is the infamous AIG whose majority (80%) shareholder is the US Government I am amazed that this was not a higher profile story.

Harvey Golub stepped down after what has been reported as a “contentious” two day board of directors meeting in which AIG CEO Bob Benmosche had told the board that their relationship was “ineffective and unsustainable” and that they would have to choose between the two of them. The Wall Street Journal reported that Mr Benmosche told the recent Chairman Golub that “there was leadership confusion at AIG” which was apparently resolved when Mr Golub abruptly resigned. In his resignation letter Mr Golub stated “I view asking the board to choose between us would be an abdication of my responsibility to lead. Consequently I’m resigning for the simple reason I believe it is easier to replace a Chairman than a CEO.” The apparent “leadership confusion” came from the recent failed sale of AIA , AIG’s large Asian arm to Prudential. The Board overwhelming rejected an opportunity to sell the unit at lower price to Prudential, an idea supported by Mr Benmosche. This is not the first time Mr Benmosche has threatened to quit. In the last few months Mr Benmosche has also clashed with Kenneth Feinberg, the Obama Administrations “pay czar”, over compensation and had threatened to leave if Mr Feinberg did not change his position.  

This situation puts the administration in a very difficult position as the government has already overhauled the senior management team once since bailing out the insurer in 2008. Having more trouble at the CEO position could jeopardize the speed in which the repayment of the bailout funds occurs. This also puts the SEC in an interesting position as it works through drafting many of the sweeping governance regulations that is tasked for implementing with the passage of the recent financial reform bill. One of the major initiatives that the SEC has been pushing for even before the bill’s passage was a separation of the Chairman and CEO roles. This was a requirement of the bailout terms the Government required when it bailed out AIG originally. There are also  “say on pay’ initiatives, proxy access, and other sweeping reforms designed to scale back some of the power from the CEO role and eliminate the chances of a CEO “fiefdom” in a company. 
 
So I assume the new SEC regulations will look something like this; As a public company you will be required to allow your shareholders to dictate and vote on compensation for company executives, you will break up the chairman and CEO roles and not allow the board to be pushed around by a strong CEO EXCEPT in the case where the Government is your largest shareholder. In that case our regulations are meaningless and the CEO can tell the largest shareholder to “back off” when it comes to his/her pay packages, and if the CEO does not agree with boards decisions or get along with the Chairman then that Chairman needs to go or the board needs to accommodate the needs of the CEO as not to generate “leadership confusion”. If not he/she may quit which would be a political embarrassment for an embattled political administration and potentially jeopardize the repayment of taxpayer funds.

I find it ironic that one of the main reasons the financial reform bill was passed was to eliminate companies that were “too big to fail” and yet one of the outcomes is a company supported by the federal government with a CEO who has become too big to fail.