American International Group Inc. this week defended itself against claims that its meetings are wasteful. Under fire is an event at a luxury resort in Phoenix occurring around the same time the U.S. government announced details of an enormous, restructured bailout plan. This follows accusations that AIG, one of the world's largest insurers, held lavish events immediately following the first federal bailout package, crafted in October. After those reports surfaced, AIG chairman and CEO Edward Liddy on Oct. 10 issued a directive calling for the cancellation of "all nonessential conferences or meetings, unnecessary travel and excessive overhead." Since then, AIG cancelled 160 events, Liddy claimed, and he appeared on CNN's
Larry King Live on Tuesday.
When asked by
Larry King (transcript here) if he knew the Phoenix event would "create a public uproar," Liddy said, "We thought that there was a good chance that it would be received poorly. It certainly was." He explained that the "$23,000" event was "not an executive retreat," but rather an educational seminar for "150 independent financial planners. It wasn't AIG employees." He also noted that "90 percent of this was paid for by the participants who were there and our partners at this conference."
"When you have the organization the size of AIG, you really have to train the people who are selling the product," he added. "That's exactly what this was. We have attempted to explain this to all of the news media and journalists. Most of them got it, looked at the fact pattern and said, 'Oh, I understand it exactly for what it was.' One news agency did not."
King pressed Liddy on why there was no signage in the hotel to indicate AIG's presence. "You know, we've tried to do two things, Larry," Liddy said. "First, we are really cutting corners. We're doing the same thing the American taxpayer is doing. We are tightening our belts. We didn't use any signage. Second, we didn't want the participants there to be absolutely persuaded that they were doing something wrong. They weren't. So we had no signage whatsoever. It wasn't an attempt to be secretive. We just simply thought it was the right thing to do."
Earlier, after the initial government bailout was announced, AIG held an event in California. King noted that the event included "$7,000 in greens fees." Liddy responded by saying, "We looked at canceling that one. It would have cost more to cancel it than it did to hold it. And, once again, that was all independent financial counselors. It's the way we do business."
On Oct. 16, Liddy met with New York State Attorney General Andrew Cuomo, who "laid out his serious concerns regarding executive compensation issues and exorbitant expenses at AIG," according to a joint statement. During the meeting, AIG "agreed to immediately cancel all junkets or perks which are not strictly justified by legitimate business needs." In total, the company expected to save $80 million by canceling at least 160 conferences and events. The non-essential events included a "a 'Best Operator' Conference scheduled in Las Vegas and costing approximately $750,000; a Risk Management Conference scheduled for October 2008 at the Ritz Carlton in Half Moon Bay costing approximately $500,000; a sales conference at Sea Island scheduled for November 2008 costing approximately $350,000; and a meeting in Scottsdale, Arizona scheduled for January 2009 costing approximately $190,000."
AIG also agreed to set up "a Special Governance Committee" to establish "new expense management controls" and issue a new "Expense Policy Guidebook." Those measures are aimed at preventing "any future unwarranted expenditures, such as salaries, bonuses, stock options, severance payments, gratuities, benefits, junkets and perks."
Before Liddy appeared on
Larry King Live on Tuesday, Rep. Elijah E. Cummings (D-Md.) blasted AIG, Liddy and the bailout package. "I was absolutely shocked and extremely disappointed to hear of the new bailout package for AIG--just as I was shocked and disappointed to learn that the company held another executive spa day over the weekend in Phoenix. AIG is coming to the government claiming to be in critical condition and asking to be placed under intensive care, but they are still going out partying and acting as healthy as ever," according to Cummings' statement. “It is hard to sympathize with a company that was driven into the ground because of corporate greed, recklessness, and irresponsibility, and it is even harder to sympathize when this company’s executives continue to wade by luxury pools while the everyday American whose taxpayer dollars are being used to save the company are hard at work."
