Risks taken, leadership shortcoming led to financial crisis: AIG exec
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AVENTURA, Fla. — The financial crisis of 2007 and 2008 was the product of too many people taking too many risks they didn't understand, the result of leadership and management shortcomings, an insurance industry executive said.
“To me, the financial crisis of 2007 and 2008 was ultimately a crisis of leadership born out of a failure of management,” Peter Eastwood, New York-based president and CEO of AIG Property Casualty-The Americas, said during the Tuesday keynote presentation at the 22nd Annual World Captive Forum.
Examining business sustainability through the lens of American International Group Inc.'s experience during the financial crisis, Mr. Eastwood said AIG at its peak was the seventh-most valuable company in the world by market capitalization with 116,000 employees operating in 92 countries and $1.2 trillion in assets.
But in September 2008, AIG “had a massive liquidity event … and we effectively ran out of cash,” Mr. Eastwood said during the address at the Turnberry Isle Hotel and Resort in Aventura, Fla.
“At AIG for many years, our objective was to grow the organization by 15%,” Mr. Eastwood said. “That worked extremely well for us as a company for a long period of time.”
For a company of AIG's size, however, meeting that 15% growth goal “was like giving birth to a Fortune 500 company every year.” The earnings of the company's capital markets subsidiary contributed significantly to that 15% objective, Mr. Eastwood said, but events of September 2008 showed the capital markets unit was taking too much risk to do so.
Ultimately, the issue for businesses is striking the proper balance between growth, profitability and risk, the AIG executive said, as well as balancing leadership and management and understanding the differences between the two.
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