AIG rethinks pricey events

From Bloomberg News

American International Group Inc. said Thursday that it would cancel most of its planned events after lawmakers castigated the insurer for hosting a $440,000 function at a resort while benefiting from an $85-billion government bailout.

The cancellations include an event that was scheduled for next week at the Ritz-Carlton in Northern California’s Half Moon Bay. The gathering that drew the rebukes was held last month at the St. Regis Resort in Dana Point. About 100 independent insurance agents who sell coverage for New York-based AIG attended, spending $23,000 on spa services, among other things.

“Earlier today, I ordered the immediate cancellation of all outside meetings, conferences and recognition events across AIG, except those that are required by law or that are deemed absolutely critical to sustain our ongoing business needs,” AIG Chief Executive Edward Liddy said in a statement. “We recognize the need to be sensitive about all company expenditures.”


AIG, once the world’s largest insurer by market value, accepted the government takeover last month after being on the brink of collapse. The company ran short on cash after incurring more than $18 billion in losses tied to the housing slump. On Sept. 16, it agreed to hand the U.S. a 79.9% stake in exchange for an $85-billion credit line.

Events such as those that were hosted by AIG to reward top salesmen are common at financial firms. Wachovia Corp., the lender that has suffered $9.5 billion in losses this year, had planned to send 75 top brokers and their spouses on a Greek cruise. The bank canceled the cruise Thursday, citing sliding financial markets, said spokesman Jim Griffin.

“Incentives for sales departments have proven over time that they work, and that’s true in every business that depends on the selling effort,” said Dean Bare, managing director of Stanton Chase International, an executive search firm. “If these trips didn’t work, they would have stopped doing them a long time ago.”

Even so, perceptions matter, said Heather Elms, a business professor at the Kogod School of Business at American University in Washington.

“Whether the company’s behavior is wrong on an absolute basis doesn’t really matter right now,” she said. “It seems that they’re being viewed as behaving unethically.”

AIG’s decision Thursday followed rebukes from Congress, the White House and Democratic presidential nominee Barack Obama. Senate Finance Committee Chairman Max Baucus demanded more details from the Federal Reserve on the canceled Ritz-Carlton event, saying he wanted to know “who we can fire.”


“This kind of behavior is an insult to taxpayers,” the Montana Democrat wrote in a letter to Fed Chairman Ben S. Bernanke. Baucus asked for a response by Oct. 23.

“I cannot fathom how in the same day -- the very same day -- that AIG asked the government for another $37.8-billion loan, the company would even consider moving forward with plans to host another large conference at another luxury resort,” said Rep. Elijah E. Cummings, a Maryland Democrat.

The event next week aimed to “motivate and educate” about 150 independent agents who sell AIG coverage to high-end clients, AIG spokesman Nicholas Ashooh said Wednesday.

AIG decided against it a day after striking an agreement that would enable it to access an additional $37.8 billion from the Federal Reserve Bank of New York. Liddy, the CEO, told Treasury Secretary Henry M. Paulson on Wednesday that the company would rethink expenses.

AIG considered buying advertisements to explain its position, only to be told by its public relations consultant, George Sard, that it would be “a really bad idea.”

“To spend the taxpayer’s money on an expensive ad campaign to apologize for how you used taxpayer money leaves you open to further attacks,” Sard wrote in an e-mail Wednesday to Ashooh.


Sard, chief executive of New York-based Sard Verbinnen & Co., said the message was a private e-mail mistakenly sent to Bloomberg and wasn’t intended to be a public statement.