American International Group Inc.'s announcement last week that it was parting ways with incoming President John Neal stunned insurance industry observers and raised questions about what caused the veteran executive to lose a $17 million (approx. Rs 1,50,68,80,000) job before he'd even started.
This week, they got an answer.
Lloyd's of London, the giant insurance marketplace where Neal served as chief executive officer until earlier this year, said Wednesday that it has been investigating his conduct since last month. The Wall Street Journal reported the same day that AIG withdrew its offer to Neal after learning of the probe, which centered on a relationship he allegedly had with a Lloyd's employee.
That appeared to be one office romance too many. It was already publicly known the board of Australian insurer QBE Insurance Group Ltd., where Neal was previously CEO, docked his 2016 bonus by more than A$550,000 ($354,000) after it learned he hadn't disclosed a relationship with a subordinate. And Bloomberg had previously reported that the woman in question had replaced Neal's previous assistant - after he had married her.
AIG declined to comment, and Neal didn't reply to messages seeking comment.
The swift reversal underscores the fraught nature of workplace relationships. Recent instances have felled CEOs at companies including Nestle SA, Kohl's Corp. and Astronomer, where Andy Byron lost the top job in July after being caught on a stadium "kiss cam" with the firm's chief people officer at a Coldplay concert.
It's also a particularly stark example of how even the world's largest companies can be caught out when it comes to high-stakes hires - even ones that have been headhunted, vetted and promised millions of dollars in compensation.
"Workplace culture has become one of the biggest risk factors in the financial sector," Ian Hargreaves, partner at commercial disputes specialist Quillon Law, told Bloomberg.
"Many firms have rewritten rules on workplace relationships, and some have moved close to outright bans," Hargreaves said. "With that level of scrutiny, the idea that this latest issue slipped through the gaps is surprising."
A potential $17.2 million pay package had been awaiting Neal at AIG. He would have collected roughly $5 million in salary and bonuses for his first year, along with a target annual equity award of $5 million, a Day 1 restricted-stock grant of $4.5 million with a three-year vesting period, and a $2.7 million cash bonus.
Insurance Career
Neal, 60, started his career in 1986 as a trainee commercial motor underwriter for Lloyd's, according to a post on LinkedIn when he left the firm. He later ran Ensign, Lloyd's specialist commercial motor underwriter, which was in turn bought by QBE. After about eight years with the Australian insurer, Neal's focus on profitability helped catapult him to CEO.
But the insurer trailed its peers in the Australian markets during his time as CEO. QBE shares delivered investors an annualised total return of about 1% during Neal's tenure, compared to about 21% from its peers, according to data compiled by Bloomberg at the time of Neal's exit.
Before his exit from QBE, Neal said he had failed to disclose a relationship with his personal assistant - causing the board to cut his bonus.
In 2018, Neal was named the CEO of Lloyd's of London as the company struggled to turn a profit after Brexit. While the insurance exchange returned to profitability under Neal within a year, the firm was also rattled by a 2019 Bloomberg Businessweek article exposing widespread sexual harassment at Lloyd's.
The Businessweek report spurred Neal to implement systemic changes to combat sexual harassment in the workplace, including lifetime bans, a whistleblower hotline and an independent survey of sexual-harassment claims.
"This is not the Lloyd's that I want to be part of," Neal said in an interview with Bloomberg in March 2019. "We have got to ensure that everybody, whether it's a woman or a man, should feel safe at any time of day doing anything that's associated with the Lloyd's market. I'm determined that will be the case."
Neal's departure from Lloyd's was announced in January of this year. He agreed to take on a new role leading insurance broker Aon Plc's global reinsurance unit, before AIG swooped in to offer him a sweeter deal, announcing in July he would be its president and lead its property and casualty business.
But as Neal prepared for one of the industry's top jobs, rumors about the nature of his relationship with a subordinate were reaching the upper echelons of his former employer. Lloyd's Chairman Charles Roxburgh "became aware of market speculation concerning possible historic breaches of policy" and initiated an independent fact-finding review in October, the firm said in a statement Wednesday.
Inga Beale, Neal's predecessor at Lloyd's, was CEO from 2014 to 2018. During her tenure, she launched diversity and inclusion initiatives of her own, but encountered resistance among the rank-and-file.
"My initial reaction is disappointment," Beale said in an interview on learning of the investigation. "I thought we had made a lot of progress and these sorts of things were not going to be happening in this day and age."
On Friday, AIG said it reached a "mutual agreement" with Neal and that he would no longer join the insurer as president. He had been set to start on Dec. 1.
James Berkeley, a London-based adviser to insurance executives, said the announcement raises questions about AIG's vetting process, given that Neal had been set to take over many of the duties previously performed by David McElroy.
Previously AIG's chairman of general insurance, McElroy was charged by state prosecutors in Vermont late last year with three counts of sexual assault and one count of lewd and lascivious conduct against a woman who attended an AIG conference last March at a resort in Stowe. AIG announced last April that McElroy, who is distantly related to AIG Chief Executive Officer Peter Zaffino, would "accelerate his retirement date for personal reasons."
"The evidence that has developed since the case was filed more than a year ago continues to show that David McElroy has been wrongfully charged and is innocent," David Kirby, McElroy's attorney, wrote in an emailed statement. "He looks forward to his day in court; until then, the charges should be seen for what they are - mere allegations that are vehemently denied."
Given that matter, AIG shareholders would have expected the board "to have conducted effective due diligence, and weighed up the risk of a CEO with past weaknesses," Berkeley said. "Perhaps they were so convinced of John Neal's hugely scarce, and compelling value, as president that they were willing to roll the dice."
Still, Berkeley wasn't shocked by AIG's sudden reversal. Given Neal's history, he said, "my only surprise is that we are surprised."
