American International Group CEO Martin Sullivan stepped down from his post, as expected, after growing discontent among the board and shareholders with his management of the insurance giant.

Sullivan will be replaced by AIG Chairman Robert Willumstad, a former top Citigroup

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Martin Sullivan

On Friday, CNBC reported that the board of AIG

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[AIG  Loading...      ()   ] was considering whether to hold a meeting this weekend to decide whether Sullivan would continue as CEO.

Sullivan has come under intense criticism since AIG recently announced billions of dollars in writedowns from losses after Sullivan and the company assured investors the writedowns would be minimal.

As the new CEO, Willumstad will have to restore investor confidence, but that may be difficult considering he was chairman during AIG's recent troubles. AIG also will have to find a new chairman. The firm separated the CEO and chairman's jobs following an accounting scandal three years ago.

AIG's board had approached an executive recruitment firm to find a new CEO, but went with Willumstad after he lobbied for the job.

Victory for Greenberg

Sullivan's removal is a huge victory for Maurice "Hank" Greenberg, the man Sullivan replaced as CEO back in 2005.

Greenberg was ousted amid an accounting scandal that forced AIG to restate earnings, pay huge fines and craft civil settlements with the Securities and Exchange Commission and the then New York Attorney General, Eliot Spitzer.

Greenberg immediately went on the offensive, attacking AIG's board, and Sullivan, in particular, to caving into regulators' demands and costing shareholders billions of dollars. His criticism extended not just to regulatory matters.

Greenberg, who is still the company's largest shareholder, began attacking the management skills of the new team - and Sullivan, in particular - for not being able to grow AIG's business and for the firm's sagging share price.

Last year, in a Forbes magazine article on the battle, Greenberg sized up Sullivan this way: "He's Irish and good with insurance brokers...he has little education … I thought he had street smarts."

An AIG spokesman countered that Sullivan "is not Irish, but English," and said while Sullivan didn't graduate from college, he spent 34 years in many jobs at AIG.

Both AIG and Greenberg have taken their claims to court, and Greenberg at one point weighed whether to mount a proxy challenge to remove board members and even Sullivan.

New Attacks Come

The subprime crisis and its imapct on AIG's bottom line opened up a new line of attack for Greenberg. Sullivan initially said AIG's exposure to bad debt was minimal, but later he was proven wrong when AIG had to writedown billions of dollars in bad loans.

Once again, Greenberg went on the offensive, so forecfully, in fact, that he drew the attention of New York State Insurance Commissioner Eric Dinallo. Under New York State law, large shareholders of insurance companies cannot publicly attack management unless they register with the state.

Greenberg is not registered with the state, and his license would likely be denied since he faces possible civil charges from the SEC over the alleged accounting irregularities that AIG was forced to settle.

In recent weeks Greenberg has been negotiating with the office to possibly sell part of his stake, or put it in a trust, in order to enable him to continue his attacks.

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