Martin Sullivan, the CEO of AIG (AIG), was sent to the guillotine yesterday. The beheading of financial company chiefs is now so commonplace that crowds don’t even gather anymore to witness the practice. As the media points out, Sullivan worked at the insurance company since he was 17 years old. That gave him three decades to absorb the firm’s culture and learn its complexities.

Sullivan was a convenient dupe. He will be replace by Robert Willumstad, who has been AIG’s chairman and used to work at high levels at Citigroup (C).

The knock against Sullivan is that he and his people did not see all of the trouble which would come out of the company’s credit swaps business. That exposure and the failure of mortgage-related paper caused AIG to lose $18 billion in six months. The net from it was that over $20 billion had to be raised and old shareholders were diluted.

Outside stockholders and former CEO Hank Greenberg called for blood, and they got it.

Willumstad gets to ride to the rescue on his white horse. In reality, as chairman, he should have seen most of AIG’s problems coming. He should have done something about it. He did run the board, which has some significant responsibility for risk management. No investor should take comfort in the appointment.

The real villain in the matter is Hank Greenberg, who ran AIG for four decades. No one with any sense could believe that Sullivan learned his taste for risk from any other mentor. Greenberg may have built the company into a colossus, but he took huge chances in the process. It charges brought against him by Eliot Spitzer are to be believed, Greenberg set up special deals with re-insurance companies to improve his company’s earnings. How much larger a risk can a man take?

When Greenberg was pushed out, Sullivan was picked from the ranks, Greenberg’s ranks, to run the company. No on ever accused Sullivan of being an innovator or an executive with the talent to change a 40-year-old culture in a matter of months.

AIG has well over 100,000 employees. Almost all of them learned their trade under Greenberg. His finger prints are all over the current disaster.

Douglas A. McIntyre

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