Another Titan Takes A Tumble

By Daniel Kadlec.

In the end, Maurice Greenberg, who over four decades built one of the world's largest global insurance companies and became an industry icon from Shanghai to New York, was dragged down by the same defiance that had made him so successful. Over 17 years, Greenberg inched American International Group (AIG) into China, even as critics said he would never open that market. Today China is one of AIG's most promising regions. Yet Greenberg's success was accompanied by arrogance. He thought nothing of dressing down an analyst who asked tough questions, and when AIG came under siege early this year--accused of questionable bookkeeping--he responded with disdain and publicly chided regulators for investigating "foot faults."

The prickly side of "Hank" Greenberg helped bring his reign to an end last week. Faced with continuing probes by the Securities and Exchange Commission (SEC) and New York attorney general Eliot Spitzer, the AIG board thought it best to stop antagonizing regulators and pushed Greenberg, who will turn 80 in May, to resign. Otherwise he might have survived the mess, which centers on a deal that AIG cut with General Re, a company that insures insurers. Investigators say AIG bought insurance from Gen Re and accounted for it in a way that overstated revenue.

What Greenberg may have failed to understand was that the business climate had shifted around him as pressure increased for more disclosure in financial dealings and for greater accountability at the management level. For decades the insurance industry had done similar deals; indeed, the product that took down Greenberg is legal and still used by others. "Accounting rules have an enormous amount of subjectivity," says analyst J. Paul Newsome at brokerage firm A.G. Edwards. "What nobody had an issue with 15 years ago is very much not O.K. post-Enron, post-WorldCom."

That's not to say there's nothing wrong with what AIG is alleged to have done. "Jiggling the numbers may have become commonplace, but that doesn't mean it's legal," Spitzer says. And if Greenberg misled investors intentionally, it would be fraud. But most believe he was swallowed by the shifting sand. Ethical lapses that regulators all but ignored yesterday now get their full attention--which should give executives everywhere pause. Even squeaky-clean Warren Buffett, whose Berkshire Hathaway owns Gen Re, has been sullied. Buffett is not under investigation, but TIME has learned he will be interviewed by Spitzer's office in coming weeks. AIG and Buffett's office declined to comment.

Following Spitzer's playbook, the SEC intends to launch more probes of suspicious practices even if they are widely used and have "no clear road map to wrongdoing," Stephen Cutler, head of the enforcement division, has said. Next up may be radio, where Spitzer is looking into kickbacks for airtime. Greenberg, meanwhile, is still worth $3.2 billion, according to Forbes, and for now remains at AIG as chairman. But "the most powerful executive in the history of insurance is no longer CEO of his company," says analyst Andrew Kligerman at UBS. "That sends a very clear message." "Everybody does it" is no defense. By Daniel Kadlec. With reporting by Coco Masters

With reporting by Coco Masters