NEW YORK — American International Group Inc. on Thursday said the chairman and chief executive hand-picked to lead the company when it was rescued by the government last fall will step down.
The company also said its board agreed with a recommendation from Edward M. Liddy, who took over the insurer in September, to separate the chairman and CEO roles.
Liddy, in an interview, said splitting the roles reflects not only the evolving standard for public companies, but practical matters as the giant insurance company moves to split off businesses and restructure. "It's not just corporate governance, it has to do with the work load going forward," he said.
AIG will be splitting off as many as three companies, Liddy explained, and the chairman will have to pick leadership for each. It will also be up to the chairman to help bring six new independent directors up to speed after they are elected at the company's annual shareholder meeting June 30.
Meanwhile, "being CEO of this organization is already a 24/7 job," Liddy said.
"When both those individuals are found, I will be able to return to retirement," he said. Noting that it is likely to take three or more years to turn the company around, he added, "I don't want to be doing this when I'm 67."
Liddy, now 63, retired as CEO of Allstate Corp. last year. He was named chairman and chief executive of AIG on Sept. 18, in connection with the federal bailout.
Treasury Secretary Timothy Geithner praised Liddy's public service.
"In accepting the stewardship of AIG at the request of the U.S. government, Mr. Liddy took on one of the most challenging jobs in the American financial system today," Geithner said. "He shouldered this burden out of a strong sense of duty and patriotism, and I am grateful for his hard work and service."
Geithner said the Treasury Department looks forward to continuing to work with Liddy as the new board searches for successors.
The plan to split the chairman and CEO roles comes as AIG's corporate governance practices continue to receive intense scrutiny, after it paid out millions in bonuses despite a huge bailout from taxpayers.
AIG has received $182.5 billion in financial support from the government since September. As part of the loan package, the government has also taken a roughly 80 percent stake in the huge insurance company.
Liddy, who agreed to run the company for an annual salary of $1, refused an equity grant he was expected to receive as compensation. According to a proxy filing with the Securities and Exchange Commission, Liddy received no bonus, stock-based compensation or other direct compensation from AIG last year.
He did receive about $460,500 worth of perquisites, notably an apartment in New York City paid for by AIG (Liddy lives in Chicago). He also received compensation for travel between New York and Chicago, financial, tax and legal planning and tax-related payments. The tax payments were made to avoid having Liddy end up paying to work at AIG, the filing said.
The proxy also contains a proposal for a reverse stock split of the company's outstanding common stock at a ratio of 1 for 20. Liddy said the move was intended to improve the position of AIG's beaten down stock. AIG shares, which traded over $100 earlier in the decade and were near $70 when the financial crisis began in late 2007, closed Thursday trading up 2 cents at $1.80.
"When you have a stock that's trading at $1.80, it's not a good thing," Liddy said. Shrinking the number of outstanding shares will protect the company's listing on the New York Stock Exchange, he noted.
AIG was devastated not by its traditional insurance operations, but by its financial products business, which underwrote risky credit derivatives contracts known as credit default swaps. The swaps are essentially insurance contracts protecting an investor against default on an underlying investment, such as mortgage-backed securities.
Rising defaults in the investments that AIG's contracts were insuring led to worries that the company would not be able to cover all of its obligations and that the ripple effects would touch off a new, even more intense phase of the credit crisis. That's when the government stepped in, fearing that without its help, AIG's collapse would cripple financial markets in the U.S. and around the world.
The company said the search for new leadership will include participation by both the reconstituted board and the trustees of the AIG Credit Facility Trust, which was established to represent government interests in the company.
AP Economics Writer Jeannine Aversa in Washington contributed to this story.