Marsh & McLennan Companies Inc. announced the departure of the head of its insurance brokerage unit as it sought to spur settlement talks with New York’s attorney general.
The resignation of Jeffrey W. Greenberg from the posts of chairman and chief executive was accepted at an emergency board meeting. The board also planned to detail “significant reforms” in the way its Marsh Inc. subsidiary does business.
Shortly after Greenberg’s departure was announced Monday, New York Attorney General Eliot Spitzer said the board’s action “permits Marsh and this office to move forward toward a civil resolution of our lawsuit.”
Spitzer added that any criminal action would not be against the company but against individuals.
The board said that Greenberg will be replaced by Michael Cherkasky, 54, who just last week was named head of Marsh Inc., the company’s insurance brokerage unit. Before that, Cherkasky had been chief executive of Marsh Kroll, the Marsh & McLennan risk consulting subsidiary.
Cherkasky had joined Kroll in 1994 after 16 years in the criminal justice system, some of them as Spitzer’s boss in the New York district attorney’s office. Kroll was purchased by Marsh & McLennan in July 2004.
The reforms, the board said, “will be rooted in transparency” and ensure that “Marsh will receive compensation for its services from only one party its clients.”
Spitzer filed a civil suit against Marsh & McLennan on Oct. 14, charging that the nation’s largest insurance brokerage was rigging bids and fixing prices in the sale of property and casualty insurance to businesses. Spitzer also charged that the company’s commission system which included payments from insurance companies in exchange for more deals was the equivalent of accepting payoffs.
Spitzer had said he wouldn’t negotiate with the Marsh & McLennan management team under Greenberg, alleging that the attorney general’s office was “misled at the very highest levels of that company.”
After Marsh & McLennan announced that Greenberg was leaving, Spitzer said in a statement: “We are persuaded that the goals that would have been advanced by a criminal prosecution of the corporation punishment, restitution, general deterrence and industry reform will be better accomplished by criminal prosecution of individuals, adoption by the company of dramatically new business procedures, installation of new leadership, a full examination of prior wrongdoing and a pledge of restitution to those harmed.”
Cherkasky told The Associated Press he met with Spitzer on Monday, then briefed the special committee of Marsh & McLennan board members who will oversee negotiations with Spitzer.
“I will work closely with them,” Cherkasky said of the committee members. “It is a new day in general in corporate governance.”
He declined to say what specific changes he expected Marsh & McLennan would make, saying “we need to do our fact-finding first.” But, he added: “We’re going to make the changes that we need not people changes, but process changes.”
The company already has said it will stop accepting contingent commissions, which are fees paid by insurance companies to brokers in exchange for more business. The company collected some $1.2 billion in these commissions over the last 18 months.
Cherkasky said new compensation strategies which he said would set new industry standards would be profitable for Marsh & McLennan.
“Right now the regulators are telling us they don’t like these contingent payments,” he said. “That doesn’t mean we won’t be paid for our services. We’re confident we’ll be paid appropriately for the work we do for our clients, and earn a fair return for our shareholders.”
The announcement came after several days of reported negotiations between Spitzer’s office and independent directors on Marsh & McLennan’s 16-member board.
Greenberg, 53, had been CEO of Marsh & McLennan since November 1999. He added the title of chairman in 2002.
He is a member of an insurance family dynasty that includes his father, Maurice Greenberg, who heads American Insurance Group Inc., and his brother Evan Greenberg, who heads ACE Ltd., which is based in Bermuda.
In other news related to Spitzer’s expanding investigation of the insurance industry:
The nation’s second largest insurance broker, Aon Inc., is being investigated by Spitzer’s office for allegedly “tying” coverage to limit competition, according to a source close to the investigation. Tying is the practice through which brokers require insurance companies to hire them to handle their reinsurance needs in exchange for steering more customers their way.
Aon spokesman Gary Sullivan had no comment Monday. The company is headquartered in Chicago.
St. Paul Travelers Cos. said Monday it has been subpoenaed in Spitzer’s investigation.
“Given the company’s size and position in the property casualty insurance industry, we do not believe it is surprising that St. Paul Travelers has been included among the companies asked to provide information,” the company said in a release. The company said it was cooperating.
American International Group, Inc. announced that it intends to seek a prompt resolution of outstanding issues with the Securities and Exchange Commission and the Department of Justice.
“The company has instructed its counsel to resolve the matters by reaching a prompt settlement in terms satisfactory to the government and the company,” AIG said in a statement.
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