Executives move from from one company to another all the time -- that's a normal proceeding of the business world. But when several high-ranking executives leave all at once for the same company, we're often seeing a piece of a larger puzzle. That's what we saw this past Friday, when it was announced that four top employees were defecting from AIG (AIG 0.50%) to join the team at Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B).
The moves pose several questions for AIG investors: Are the people in the know fleeing because they know something we don't? Does this leave AIG vulnerable? How will the company move forward? Let's look at the people that left, how it may effect AIG, and what you should consider for your investment.
Name that executive!
A quick lineup of the defecting executives gives you a good idea of how Berkshire will be using their talent:
- Peter Eastwood, head of AIG's U.S. property-casualty operations.
- David Bresnahan, president of Lexington Insurance, the excess and surplus insurance division of AIG.
- Sanjay Godhwani, president for Latin America and the Caribbean for AIG's property-casualty operations.
- David Fields, another top property-casualty executive.
Berkshire is ranked seventh overall in the property-casualty providers as of year-end 2012, with 3.88% of the market share, while AIG is ranked fifth with 4.58%. So with three of the new employees heading major P&C units for AIG, their knowledge will surely help Berkshire to expand where necessary. The final member, Bresnahan, led the excess and surplus operations -- one of AIG's most successful segments, with the company dominating the market with an estimated 20% share. Berkshire's E&S operations are only a fraction of AIG's, with an estimated 1.6% of the $25 billion market.
So with that info, we can see what Berkshire's objectives might be, but where does that leave AIG? The company itself has stated that it possesses a "deep bench," with lots of talented and capable people willing to step up and take over added responsibilities after the departures. Since the business operations of the P&C and E&S divisions are so established, there is little to fear that the whole house of cards will fall because of the changes in personnel. But regardless, the move is a big hit to AIG whether it realizes it or not.
It's all a matter of perception
In investing, perception of a company can oftentimes sway someone's opinion enough to make or abstain from a buy. With AIG, the company's involvement in the financial crisis has created a lasting impression on investors that the company is bad, weak, deceiving, and the like. And with the news that four top players are leaving, investors' perception of the company may be sustaining that impression further.
If you note the timing of this news, it's easy to guess that these executives stayed with AIG throughout the resolution of the bailout and now think it's an appropriate time to seek new positions since the company has paid off all of the governmental money. In that case, their loyalty to the cause is admirable and gives them every right to leave without there being an underlying problem. But since there hasn't been any formal comment, there is little support that will keep investors on that track of thinking.
Looking forward
As a long-term investor, whether you hold AIG stock now or are thinking about buying some shares, keep in mind that you should really focus on whether this will effect the fundamentals of the company. With established operations, there may be little change with new management, or a new leader could step up and change things for the better (or worse). This is where you have to decide what's important to you and your portfolio. AIG will be reporting its first-quarter earnings on Thursday, so keep and ear out for whether the company discusses any of the recent personnel moves and how AIG will move forward.
