Topic: Business & Commercial

AIG, the Bonuses and the President’s Parties
(1/31/2009)

President Obama has chided corporate executives for awarding themselves almost as much in bonuses as they have received in federal bail-out money. His condemnation was accurate and deserved.

But it is often easier to see the ethical flaws in the conduct of others than to identify it in ourselves. Let us compare, for example, the justly criticized extravagances of insurance giant and federal supplicant AIG, and the recent inauguration festivities indulged in by the financially strapped federal government.

Mere days after the U.S. government stepped in to save AIG with a $85 billion taxpayer-funded loan, the company spent $440,000 tab for a week-long retreat at a luxurious California resort for top-performing insurance agents. The companyís explanation, after it was savaged in Congress, on the airwaves, and in the editorial pages, was that the trip had been planned for a long time, and that only a few of the beneficiaries had been AIG employees. And those beneficiaries were important individuals whose contributions to the companyís success (?) needed to be recognized. It didnít add, but could have, that this was a long established way of doing business for AIG. Just because the company was desperate didnít mean the culture could change in an instant.

But of course, AIG could have changed in an instant, if it wanted to. It could have cancelled the event for an abundance of obvious reasons. When a company has less money than it needs to stay in business, the niceties and perks have to go. When a company is borrowing money from the taxpayers, that money canít be spent on anything that isnít critical to the companyís survival. The expenditure is a waste of scarce resources. And it looks terrible.

Now letís look at the inauguration, which came in at a whopping $150 million dollars, or about three times what the last inaugural bash cost. With trillion dollar deficits looming, the country deeply in debt, with tax increases being readied, how can this kind of expenditure on pomp, parties, and security be justified? Because it was planned? Thatís an AIG excuse, and a lot of hooey. We always do it this way? Thatís how the execs with the million dollar bonuses in the same year their companies go belly up explain their haul, and nobody, especially the President, is buying it. The incoming administration needed to show appreciation to those who made their success possible. Another AIG argument, unconvincing for AIG, and not enough for the country.

When you are broke, the niceties and perks have to go. Nobody is suggesting that the swearing in should have taken place in hotel lobby and a party be held in a firehouse hall with an accordion player. But restraint and frugality is dictated by the conditions that prevail, if you want to be responsible. And the inevitable argument that President Obama had to have a blow-out bash costing mega-millions because the non-black presidents before him got them? Obama addressed that argument in his inaugural address: itís time to stop being childish. As with AIG and the Wall Street bonuses, the expenditure was a waste of scarce resources. And it also looks terrible.

So I expect a little more empathy from the Obama administration with the likes of AIG, the other boondoggling corporations and the bonus-grabbing executives who simultaneously beg for handouts. Employing the discipline, sacrifice and restraint necessary to change extravagant practices when resources get tight isnít so easy. Forgoing goodies, like big parties for everybody you know and everybody they know, that are just sitting there waiting for you to say ďYes!Ē is hard. Everybody likes parties. Everybody likes golf weekend. Everybody really likes million dollar bonuses.

But saying no is the only responsible thing to do, when times are difficult, answers are elusive and resources are short. The President, quite correctly, expects corporate leaders to set a good example.

But he failed to set a good example himself. When the goodies were there, he didnít say no. Condemning others is not enough. President Obama has to show the way.

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