Two months ago when the massive federal government’s bailout of large banks and financial service firms began, the largest flow of cash to a private company went to AIG (American International Group), the nation’s largest insurance organization that had its tentacles spread throughout the capital markets. AIG is an example of a firm too big to fail, in the view of the government officials driving the rescue and resuscitation process. And so $125 to $150 billion in taxpayer money is being directed to flow to AIG.
As AIG leaders and proponents of the rescue plan point out, this is not about a “free lunch” — there were terms (involving loans, preferred equity stakes, interest rates and eventual payback to the taxpayers, with return on the taxpayers’ investments). But AIG stuck out as being beyond the pack of commercial banks and brokerage houses gathered together in the massive rescue safety zone – the cordon sanitaire – created by the Federal Reserve, the Treasury Department, Capitol Hill leaders, and the White House.
AIG, for example, operates under many state licenses, and so came under the focus of the New York State attorney general, Andrew Cuomo, who has threatened to bring lawsuits. And the company has been thrust into the media spotlight: the pay packages of its leadership were examined – and reported on and editorialized about in the media. Then the party thrown by the company at a plush private resort in California became front page and broadcast headline news: There was the $500,000 cost, with the top brass entertaining themselves and their worthy employees. Critics of all political and economic persuasions gnashed their teeth at the sights (captured in living color on TV)…
Apparently this was not good enough warning of the public’s mood, and changes taking place – soon there were reports of a private hunt outing for top brass being scheduled in Jolly Old England – to the hounds, tally ho! (Understandable – gotta motivate the top performance, said the company.)
“Congressman Elijah Cummings, keeping watch on AIG CEO”
Then came another party – beautifully timed, of course, as the feds were ready to dish out more billions in rescue money to AIG. This time, the local ABC-TV affiliate – KNXV-15 in Phoenix – was tipped off and a classic camera team ambush took place as corporate leadership was filmed (lounging at the pool, eating at area top drawer restaurants, etc.). CNN picked it up, as did other cable channels. On MSNBC, Congressman Elijah Cummings (D-Maryland) (Pictured Above) thundered that AIG CEO Edward Liddy should immediately resign (he’s been on the job just seven weeks.).
The $350,000 affair was labeled an “Asset Management Conference,” to motivate independent private sector advisors who send AIG business. No AIG signs. (So much for transparency in the rescue effort?) To give the company its due, Chairman/CEO Liddy pointed out that this was an educational and motivational meeting of the company’s top independent producers, financial advisors who brought $200 million in business to AIG last year.
And, he explained, the actual cost would be recaptured through sponsorship fees.
Last night, CEO Liddy appeared on CNN’s Larry King Live Show, to explain (from his perspective) “the true facts.” The party cost — $350,000 – was going to be recaptured by AIG as “sponsors” and paying participants who stepped up with their checkbooks. The company has cancelled 150 other parties and outings, the company told CNN’s Larry King.
CEO Edward Liddy gets an “A” for his bold move to immediately use the national CNN platform and the Larry King program to air his side of the issues. The rescue was necessary, he said, because AIG “touches many other capital market players.” Every cent will be repaid to the government. The organization will be transformed, costs cut, every “outing” examined. This is the “new AIG,” he declared. Training is normal operating procedure and is very important, he stressed – the men and women who sell the company’s products (such as variable annuities) must be knowledgeable.
The Changed Public Mood
What this is signaling as the federal bail out rolls on is that (1) the American public is becoming absolutely outraged at the behavior of some of the private sector recipients of federal aid; (2) they are calling for action by the Congress and the new Administration, to address corporate behavior they don’t like; (3) responding to that, the media is all over the story, and will be doing lots of gotchastories as the economic and capital markets continue to be all bad news/all the time; (4) public officials at federal, state and local levels will focus on the corporate sector and especially the firms in the rescue plans; expect lively Capitol Hill hearings in 2009(5) activist investors are sure to be on top of the issues as the 2009 proxy season begins; (6) and the activists will attract the support of mainstream institutional investors (mutual funds, pension funds, etc.) who are fed up with examples of the Imperial CEOs and compliant boards of directors of recent years.
Talk about 1-2 punches – this is going to be rat-a-tat-tat on Corporate America and the financial industry as the economic chaos grinds on. Expect to hear about accountability many times in the coming week.
The laser beams focused by all of the above “watchers” as the government’s rescue programs continue to expand could create lots of political heat – and some of the “watchers” (we’ve identified) will mount vigorous proxy campaigns to change behavior in the private sector, and change players in the corporate suite and board rooms.
Oh, and the next round of media outrage (and public sector and voter and investor outrage) is just a few weeks away. That’s when the big Wall Street firms begin preparing to distribute the bonus checks – a very important event for employees of the banking / investment banking industries – for year-end distribution. Wait ‘till you see the news headlines and public outrage over that!
AIG today is the canary in the coal mine, signaling the financial sector, and other sectors that could be rescued, of what may be ahead. What kind of accountability will stakeholders demand of enterprises receiving government support? Stay Tuned!