NEW YORK—While it's better to lose a chairman than a CEO, the boardroom clash that forced another change at the top at American International Group Inc. is still an unwelcome development for the troubled company, observers say.

Harvey Golub resigned as chairman last week following a showdown with president and CEO Robert Benmosche. Turnaround specialist Robert S. Miller was named AIG's sixth chairman since 2005.

Separately, AIG's board reportedly has decided to go forward with an initial public offering for its Asian life insurance unit, AIA Group Ltd. AIG declined to comment.

“Bob Benmosche has informed the board that he believes our working relationship as chairman and CEO to be ineffective and unsustainable,” Mr. Golub said in his resignation letter.

“At this point, 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—particularly a company in the midst of two major activities: (1) a major corporate restructuring and (2) development of an exit plan from government control, both of which involve executing a long list of difficult tasks,” Mr. Golub wrote.

Tensions between Messrs. Benmosche and Golub reportedly escalated after the board decided to reject a lower offer from London-based Prudential P.L.C when its shareholders balked at the $35.5 billion price for AIA Group (BI, June 7).

Mr. Benmosche, who supported accepting the lower bid, reportedly told the board at a meeting last month that he wanted Mr. Golub to leave AIG and would resign if it did not happen.

The men, however, reportedly later resolved their differences and agreed to work together.

Mr. Golub, who was chairman and CEO of American Express Co. from 1993 to 2001, joined the AIG's board along with Mr. Benmosche in August 2009. Mr. Miller joined AIG's board in June 2009 (see story).

Observers generally agree with Mr. Golub that a change of chairman is less traumatic for AIG than changing the CEO. Mr. Benmosche is AIG's third CEO since its late 2008 bailout.

Clark Troy, Chapel Hill, N.C.-based senior analyst with a research and consulting firm Aite Group L.L.C., said Mr. Golub's “judgment was pretty good on that.” AIG would have a “difficult time finding another insurance executive with the experience and breadth of relationships and the force of will to keep the ball running forward at AIG.”

Mr. Benmosche is “as good a fit for the job at AIG as is likely to be found for now,” Mr. Troy said.

However, “There is some sort of moral hazard issue in allowing Benmosche to get into a situation where he can stamp his feet and complain and threaten to quit” unless he gets his way, Mr. Troy said. “I think that there are legitimate concerns about that, but on balance, nonetheless, there's not an obvious other course for AIG to take.”

But Stewart Johnson, a portfolio manager with Stamford, Conn,.-based Philo Smith & Co., said, this “does not bother me because I think Benmosche is the right guy to do this, and he's never been known for soft-peddling his views and he does what he thinks is right, and the way he conveys that sometimes isn't the most gentle.”

John Wicher, principal of John Wicher & Associates Inc. in San Francisco, agreed that a “change at this point in CEO would certainly be more disruptive than the loss of the chairman.”

However, he said, AIG needs to “create some stability around the leadership team and position the company to look forward rather than look back, and return to its core operations.” This “sort of instability at the top certainly isn't constructive in trying to achieve that level of stability.”

Mr. Benmosche is important to AIG but the dispute creates a difficult situation for the company, said Bill Bergman, an analyst with Morningstar Inc., in Chicago.

Mr. Benmosche is “still helpful in terms of cementing morale and confidence within and without the firm, but it isn't helpful for the continuing revival and confidence in the firm for this turnover to happen,” he said.

Cathy Seifert, an equities analyst with Standard & Poor's Corp. in New York, said, Mr. Golub's departure “looks like sort of a vote of confidence for Mr. Benmosche, for his vision and strategy.” But there is execution risk concerning the strategy and she said now is “show-me time” for Mr. Benmosche.

The change will not have a significant impact on the company, said Mark Rouck, senior director at Fitch Ratings in Chicago.

“I don't really see there being a change in direction and an overall change in what the company is trying to accomplish in terms of repaying amounts owed the Federal Reserve Bank and ultimately emerging a private company” due to the change in chairman, Mr. Rouck said.

Mr. Miller, AIG's new chairman, is also chairman of New York- and London-based MidOcean Partners, an investment firm. He retired as executive chairman of Troy, Mich.-based Delphi Corp. in 2009, according to AIG. In addition to also serving as chairman and CEO at Delphi, he has held positions at Bethlehem Steel Corp., Federal-Mogul Corp., Waste Management Inc., Morrison Knudsen Corp. and Chrysler Corp.

While at Chrysler, he led financial negotiations with 400 bank lenders and the federal government that resulted in the Loan Guarantee Act bailout package in 1980 that saved the auto manufacturer, according to his MidOcean biography.

Pointing to Mr. Miller's Chrysler experience, Mr. Troy said, “His ability to deal with Washington and Washington's interaction with the financial community is the key set of skill sets that makes him a good choice.”

“Why not have an auto guy?” said Mr. Bergman. “He's been in tough situations and dealt with them.”

As far as the IPO for AIA, Mr. Troy said he believes the plan may have been motivated by the recent success of the Agricultural Bank of China IPO, which raised $19.2 billion. “It is not inconceivable that there are other bidders waiting in the wings,” he said of AIA. But, “there needs to be a plan in place to progress on AIG” and an IPO is “plausible.”