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Foot-in-Mouth Syndrome Strikes AIG's CEO

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Earlier this week, American International Group (NYSE: AIG  ) CEO Robert Benmosche came under fire for comments he made while discussing his views of the backlash seen after the company announced it would pay retention bonuses to employees several years ago. With some calling for his resignation following the comments, a look at the context surrounding his statement may shed some light on how his thought process went so wrong.

The words
While discussing both the congressional and public response to AIG's payment of retention bonuses back in 2009, after the insurance giant had been rescued from near-collapse by a governmental bailout, Benmosche made the poor decision to equate the outcry to public lynchings that occurred in the Deep South decades ago.

The uproar led by some politicians, according to Benmosche, "was intended to stir public anger, to get everybody out there with their pitchforks and their hangman nooses, and all that -- sort of like what we did in the Deep South. And I think it was just as bad and just as wrong."

The backlash
As the ranking member of the House Committee on Oversight and Government Reform, Maryland Democratic Representative Elijah E. Cummings called for Benmosche to resign from his post for making the comments.

"As the leading critic of AIG's lavish spending before and after its taxpayer funded bailout -- and as the son of sharecroppers who actually experienced lynchings in their communities -- I find it unbelievably appalling that Mr. Benmosche equates the violent repression of the African American people with congressional efforts to prevent the waste of taxpayer dollars."

The lawmaker added, "If these statements are true, I believe he has demonstrated a fundamental inability to lead this modern global company in a responsible manner -- a company that exists today only because it was rescued by the American taxpayers -- and that he should resign his position as CEO immediately."

Benmosche has already issued an apology for his "poor choice of words," stating that he never meant to offend anyone. Though this might not be enough for Cummings or others who were deeply offended by Benmosche's statement, I don't believe he should submit a letter of resignation yet.

A quick word
I'd like to preface my argument by saying I think Benmosche's statement was not only offensive, but insensitive. And I will even say that I believe his apology could have gone a little further than just stating that he merely chose his words poorly. But I also believe the argument against Benmosche as a leader of a global firm is a bit of a stretch when you examine the context of his complaint.

The context
Benmosche isn't the first CEO to equate govenmental scrutiny or regulatory actions with violent historical oppression. In 2008, Blackstone Group  (NYSE: BX  ) CEO Stephen Schwarzman compared the Obama administration's push to increase taxes on private equity firms with Hitler's invasion of Poland in 1939. He, of course, later apologized. But the situation with AIG's case was a bit different.

Though he became CEO of AIG after the bailout and controversial bonus payments, Benmosche adopted a workforce that was afraid of the public backlash. There was scrutiny over whether the bonuses were warranted, especially from Congress, but the American public also took it a step further.

Employees were being followed to their homes, harassed, and threatened by people who took offense at the company's payment of the disputed bonuses. This includes employees who didn't receive any of the extra money in question. One particularly disturbing case came from the Midwest, where a third-grade girl was told to stand up in front of her class while the teacher told the other students that her father worked for AIG and was part of the reason the country was brought to its knees. There was even a bus tour of employees' homes near the company's Connecticut headquarters.

The heart of the matter
Based on the context of his statement, I believe Benmosche's biggest complaint, and ultimately the reason for his misguided statement, revolved around the extreme measures the public took after seeing some politicians' verbal assaults on the company for its lavish spending, which encompassed the bonuses paid. Though he might argue it wasn't necessary, I don't think Benmosche was specifically stating that the government's inquiries into the bonuses were the ultimate issue. It was the appeal to the American public that led the company, and more specifically its employees, to become scapegoats of the financial crisis.

In the end, the financial crisis was a difficult time for Americans, and AIG was a guilty party that became central to the story. This led to extreme acts that not only threatened the company's employees, but the company as a whole -- and that is why Benmosche paired this experience with such a strong reference to the Deep South's history of public sentiment leading to threats and violence.

Stay where you are
People say really stupid things when they're heated about a subject. In Benmosche's case, I believe he was expressing his anger for the poor treatment of his employees -- something a responsible CEO should do. Should he have said what he said? Of course not. But the call for his resignation, and stating that he's not fit to run a global firm because of this matter, is grossly unjust to a man who is largely responsible for the great things AIG has accomplished since the financial crisis.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 27, 2013, at 2:39 PM, TEBuddy wrote:

    I call for the resignation of this Democratic Representative Elijah E. Cummings, for wasting all of our time and being incompetent. The American Government wastes more tax dollars than anything, so lets call for the furlough of lawmakers, stop paying all of them, stop them from manipulating the American people and how the country works. AIG did not cause the recession, and in fact was instrumental in preventing a depression. AIG bailed out the companies at the heart of the problem, and the US made them.

    The American people are the ones that borrowed the money, and did not pay their debts, so I am outraged at those sorry excuses for American citizens being offended by AIG. I am outraged that we continually make excuses for these people that live off the work of others, don't work, don't pay their debts, and then we bail them out without a second thought. We give them years of unemployment payments. We give them thousands of dollars for living free in a home they didnt pay the mortgage for years and got foreclosed on. So pardon me for respecting a CEO that knows what hard work is, puts in his time, guides a successful company to improvement and then gets lambasted by a bunch of crooked politicians.

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