New Yorkers are lucky to have an attorney general keeping a close eye on companies caught up in the current financial maelstrom, particularly when, as in the case of American International Group, there is an appearance of its executives living large while taxpayers foot the bill.
In the past two weeks, Andrew Cuomo has successfully pressured AIG to suspend compensation and bonus payments to current and former executives, essentially turning off the tap, at least for now, on the company’s $600 million bonus fund, and freezing a $19 million payout to the company’s former chief executive, Martin Sullivan.
“There should not even be any contemplation of bonuses for executive performance, because I find it hard to conceive of a situation that you could justify a performance bonus for management that virtually bankrupted the company,” he told reporters. His office gives Mr. Cuomo the kind of unambiguous tools that get attention: He’d threatened to bring legal action against AIG under New York’s debtor and creditor law. The company quickly said it would cooperate.
AIG, of course, is an irresistible target. The now infamous partridge-hunting junket in England (cost: $90,000) could not have been better scripted by a Hollywood screenwriter looking for a symbol of callous greed. Then there was the $23,000 spa bill at a weeklong California retreat, where AIG employees racked up a $150,000 food tab. Given that these indulgences occurred after the federal government bailed AIG out with tens of billions of dollars in loans, Mr. Cuomo’s outrage was perfectly pitched to the occasion.
That said, we encourage the attorney general to be careful he doesn’t squeeze AIG so hard that they lose their top talent and the company unravels—making it impossible that the government will ever be paid back. There are a lot of functioning and profitable divisions within AIG with many talented and hardworking people. The way to fix the company is with the right leadership: someone who can take control of the ship and put it on the right course. If the government is too quick and determined to punish the company; if honestly earned compensation is seized; if the desire for headlines outstrips the need for common sense, they may end up punishing themselves and taxpayers, by making it far less likely that AIG will be able to repay the massive loans.
We’re confident that Andrew Cuomo will exercise the judgment to help AIG maintain its role as a great New York-based firm while rooting out the handful of financial wizards who put the entire company at risk.