Thursday, March 19, 2009

Meet the New Boss - Same As the Old Boss

This week, attorney general Andrew Cuomo criticized AIG’s spending on executive compensation. “In the last several months, as A.I.G. was teetering toward bankruptcy, and operating with unreasonably small capital, A.I.G. nevertheless made numerous extraordinary expenditures in the form of executive compensation payments, junkets and perks for its executives.” He was particularly dismayed by a $5 million cash bonus and a $15 million “golden parachute” that were given in March to A.I.G.’s chief executive at the time, Martin J. Sullivan.

Cuomo denounced this spending as it violated New York State law. In addition, he threatened to take legal action against the company if needed. It was only after the subpoenas were issued that A.I.G., in turn, said it would “fully cooperate” with the attorney general’s office. This included, agreeing to cancel a $10 million severance package for its former chief financial officer, Steven J. Bensinger.

The agreement came a day after Attorney General Andrew M. Cuomo assailed A.I.G. for making “unwarranted and outrageous expenditures” which he said violated New York law and that he found particularly “irresponsible and damaging” especially in light of the federal government’s $123 billion rescue of the company. The terms of the agreement call for A.I.G. to provide the AG’s office with a complete accounting of all compensation paid to senior executives. A.I.G. also agreed to eliminate all activities not justified by legitimate business needs. AIG will immediately cancel more than 160 events with costs exceeding more than $750,000 per event, for a total savings of more than $8 million.

AIG CEO Edward Liddy, who testified before the sub committee commented on the public outrage: "Obviously, we are meeting today at a high point of public anger. I share that anger. As a businessman of some 37 years, I have seen the good side of capitalism. Over the last few months, in reviewing how AIG had been run in prior years, I have also seen evidence of its bad side. Mistakes were made at AIG on a scale few could have ever imagined possible. The most critical of those was the creation of a credit default swap portfolio, which eventually became subject to massive collateral calls that created a liquidity crisis for AIG.”

Liddy, who took the reigns last September after the company had turned to the U.S. Government for financial support, went on to thank the Federal Reserve and the U.S. Treasury, “…. for making the extraordinarily tough call to provide that support. It has meant that together we have been able to preserve jobs and businesses, and protect policyholders who rely on the promise of insurance to secure their well-being.”

With high hopes tempered with a measure of cynicism, we sit, we wait and we watch as the wind blown stench of the meltdown slowly invades and taints our entire world. We voted one administration out and another in, while we eliminated one group of CEO’s and anointed the next group in their place. Our new administration is still bailing out in a directionless manner while corporate America continues their attempt to take what they can only relenting under threat of subpoena. Meet the new boss, same as the old boss….

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