Sunday, October 26, 2008

Politcal Posturing May Kill AIG

AIG is on its way to being named poster child of the year for egregiously bad public relations. Activities that contribute to the likelihood of winning this award: first, the company throws a $440,000 days-long party on the West Coast about the time that two of the last three ousted CEOs of AIG are trying to explain to a Congressional Oversight Committee that it certainly wasn't their fault that the company got in trouble. Meantime, AIG was planning a second party, also on the West Coast, but the outcry over the first led to its cancellation. Then there was an uproar over the partridge shoot in the English countryside that AIG hosted around the same time.

Leading the list of those downsized at AIG should be the PR team. That department clearly deserves an award for incompetence and mismanagement of core corporate communications. They failed on two counts. First, given the timing, it was terribly dumb to have these parties at this moment in time, since they provide those lawmakers trying to protect the citizens' money a unique opportunity to lambast the company they bailed out. (I suppose you can't use as an excuse that with a company in crisis mode, it is not surprising that nobody remembered to cancel the parties scheduled long ago.) Second, they failed to keep their new key business partner – the Government – in the loop. Yet without these kinds of activities, AIG may not survive. Let me explain.

To show you the absurdity of having to repond to politicians who frankly are grandstanding at this point,
Edward Liddy, AIG GEO, announced that the company would cancel 600 conferences and meetings because they “weren't essential to business”. This was in response to the request of Attorney General Cuomo (an AG beginning to have the tinges of Eliot Spitzer about him as he holds a press conference in front of Federal Hall and announces: "The party is over. No more hunting trips. No more luxury resorts. They are not going to have the party and leave the hangover for taxpayers." How could Cuomo or Liddy possibly know how many of these events were or were not essential to business?

Take the party that caused the original uproar - the $400,000 party at a California resort. It was probably planned at least a year ago. It was not a party for AIG employees but an annual party for highly successful insurance agents of AIG American General, an AIG company. All agents were self-employed. The party was held to reward them for success, keep their spirits high and motivate them to do even better in the next year. Like it or not, that is the way business is done. And the same is true for most of the other events.

Customer and talent retention is even more important now that a weakened AIG is fighting to keep its business from going to competitors, and struggling to keep and motivate employees when the stock is worthless, bonuses are minimal and costs must be kept at a bare minimum. Other ways need be found to keep them happy. Social events work, even if it does appear to the outside eye like Nero fiddling while Rome burned. But if AIG loses large customers and top talent how will it make the money to ever repay the $$$ billions government loan?

And what doesn’t make the headlines, or even the news, is that the events are not financed by taxpayers’ money as they have been so loudly accused. Those funds are coming from the coffers of the hundreds of successful and profitable businesses that operate under the AIG umbrella. Almost all of government money is going to pay for the credit swaps that sunk the company - not for hunting parties.

It is time to cease hectoring AIG and let the company get on with recovering and building a strong business.