So back to the original question: Why did the Knicks need Steve Mills for that? The team is trying to sell Grunwald's ouster and Mills' return as some sort of conscious change of direction. Never mind that a team coming off a 54-win season and its first playoff victory in 13 years seemed to be going in a good direction.
When James Dolan suddenly approached him about the job, Mills said the Garden chairman spoke about "rebuilding the basketball organization into the best basketball organization in the NBA." This would imply that Dolan finally recognized that something was wrong and in need of repair -- that the Knicks aren't the "storied franchise" they are often portrayed to be.
The Knicks are a storied franchise, all right; one rife with horror stories, some of the worst of which occurred toward the end of Mills' run as the Garden president from 2003-08. (Google: "Isiah Thomas Knicks Garden Anucha Browne Sanders.)