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American International Group Inc. Chief Executive Officer Peter Hancock won short-term relief at the risk of longer-term challenges by striking an accord with activist investors who want to shrink the company, former CEO Maurice “Hank” Greenberg said.

“By doing that, he let a fox in the henhouse” to avoid a proxy fight, Greenberg said in a phone interview Friday, a day after ÌìÃÀÍøÕ¾´«Ã½´«Ã½ nominated hedge fund manager John Paulson and a representative from Carl Icahn’s firm to the insurer’s board.

Greenberg built ÌìÃÀÍøÕ¾´«Ã½´«Ã½ into the world’s largest insurer before leaving in 2005, and criticized management as the company lost most of its market value and then sold prized assets to repay a 2008 government rescue.

Icahn says ÌìÃÀÍøÕ¾´«Ã½´«Ã½ is still too big, and he wrote to Hancock in October demanding that he split ÌìÃÀÍøÕ¾´«Ã½´«Ã½ into three companies, one offering life insurance, another backing mortgages, and a third providing property-casualty coverage.

“I think that’s a mistake,” Greenberg, 90, said of Icahn’s plan in a televised interview on Jan. 26. “I agree with Peter” about the benefits of a diversified company.

Icahn, 79, didn’t immediately return a message seeking comment. He said in a statement Thursday that he looks forward to working with the board and that “smaller and simpler is better.”

Hancock said in a conference call Friday that he was pleased to have an accord that “will add an extra degree of scrutiny,” at ÌìÃÀÍøÕ¾´«Ã½´«Ã½. “We have reached a solution that averts a very distracting proxy fight,” he said.

–With assistance from Lily Katz.

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