And We Have a Winner...AIG is Now As Bad or Worse than Enron

We have a new poster child for poor reputation management--AIG. This is a company that insured the bad loans of the banks which nearly put them out of business. They required two different transfusions of money from the US government. We, the taxpayers, now own the majority of the company. Without our money, they would have failed.

What did this company do? Did it get rid of the group in its financial-product division that played fast and loose with its insurance coverage and never accrued enough money to cover its potential claims? No, they rewarded this group with bonuses. We have learned that 73 AIG executives got more than $1 million bonuses, including 11 who don't even work for the company any more. The company claims it signed employment agreements with the employees that guaranteed the bonuses and they are contractually obligated to pay them.

I think it is time we asked AIG management a simple question: "are you the dumbest people alive or just the most inept? To sign agreements to commit to bonuses without knowing the outcome is beyond stupidity. It is bad business. So, AIG would have to answer affirmatively to both parts of the question: they are both dumb and inept. We wouldn't let an undergrad come up with a plan to pay bonuses for negative performance, yet this is what we have learned has been happening at one of Wall Street's premier companies. Amazing!!

The brazennees of all of this boggles the mind. One has to just shake ones head and wonder where the moral compass of these people has gone. They were playing in a game with rules that few of us have ever played in. Most of us have believed that our actions have consequences. Now we recognize that AIG played with a rule book that said that actions do not have consequences. Do whatever you want and you still get bonused. Don't want you to give up that house in the Hamptons!

From a reputational standpoint, one has to question whether there is any potential redemption for AIG. They have so damaged the reputation of the company that it is really questionable whether the name AIG should survive. I suspect that the business will eventually be broken up and the best surviving piece will be forced to start anew under a new name.

Trust is the currency in a market economy. Who trusts AIG anymore? We know they take bad loans. We know that they have such a poor culture that they cannot manage themselves--remember that this is the same company recently chastised for throwing extravagent parties after receiving government money. They simply don't get it.

Reputational damage has consequences. Can you imagine how many good people want to stay employed there? Once the economy starts to turn up, the good people at AIG will be gone. There is no pride in the company and pride, or affinity, is a prime motivator in attraction and retention of talent. Their actions also make it more difficult for President Obama to ask Congress for more money to shore up the financial section. They have impacted perceptions far beyond their own door.

Bill Kristol, the neo-con columnist recently wrote a piece that asked one of the most important questions of our time: "can capitalism survive capitalists". If AIG is any indication, it cannot.