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Was AIG’s Board of Directors asleep at the switch?
By Lauren | March 20, 2009
You have to pity the new CEO of embattled insurance company AIG, Edward M. Liddy, who was beaten up pretty badly this week in a Congressional hearing. Furious lawmakers pummelled Liddy with hostile questions in the wake of the revelation that AIG had paid enormous retention bonuses, some in excess of $6 million, to employees in the financial products unit that brought AIG to the brink of ruin. Liddy wasn’t at AIG when the contracts were signed six months ago, which left him in the unenviable position of having to defend his decision to honor contractual promises that, in hindsight, were grossly irresponsible, and that Liddy says he would never himself have made.
The bonuses have sparked a firestorm of anger not only in Congress but around the country - so much so, in fact, that Liddy said AIG’s executives and their families have received horrifically colorful death threats. (Put the piano wire down, please - we don’t solve problems in this country by garrotting children, for Heaven’s sake.) Many of the AIG executives who received those controversial bonuses have returned some or all of the money, and good for them. They may have been contractually entitled to the money but it wasn’t smart to take it, and they were wise to give it back.
As I watch the furious finger-pointing, however, I have to wonder where AIG’s Board of Directors was while the company was wading into a waist-deep swamp of toxic investments and entering into those irresponsible employment contracts. When a person agrees to serve on a Board, he or she takes on a fiduciary responsibility to oversee the company’s operations. A corporate board has the duty to ensure that the company is prudently managed, and board members can’t delegate that responsibility to paid staff. Based on what we’ve seen so far, it looks as though AIG’s Board may have been so busy counting phantom profits from its risky investments that it didn’t bother to ask the right questions about where the money was coming from. If so, that was a serious breach of fiduciary duty. If AIG’s Board members had stepped up to their oversight responsibilities, Edward Liddy and AIG might both be in a much better position today.
Topics: Business Ethics, Corporate Governance, corporate responsibility, ethics |