Foot-in-Mouth Syndrome Strikes AIG's CEO

Foot-in-Mouth Syndrome Strikes AIG's CEO

Earlier this week, American International Group 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 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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Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends American International Group and BlackRock. The Motley Fool owns shares of American International Group and has the following options: long January 2014 $25 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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