Columns / Discourse / January 23, 2013

Debating columnists: A.I.G. potential lawsuit

On Jan. 7, A.I.G. drew the world’s ire when it considered joining a lawsuit against the federal government for rescuing it during the 2008 financial crisis. Former A.I.G. CEO Maurice Greenberg, acting on behalf of A.I.G. shareholders, filed the suit, alleging that the unfavorable terms of the government rescue constituted an illegal takings.

This gathering coincided perfectly with the debut of A.I.G.’s “Thank You America” ad campaign. The 60 second commercials feature real A.I.G. employees who highlight the firm’s work paying claims to customers affected by natural disasters. The ad also mentions that the firm repaid its $182 billion debt to the federal government with an added $22 billion in profit.

This message contrasts starkly with Greenberg’s lawsuit. As a public, we’re left wondering: is this the thanks we get from A.I.G.? A lawsuit? Has modern capitalism really become so morally bankrupt?

Yes and no.

First, don’t confuse Maurice Greenberg and the cranky shareholders he represents with A.I.G. itself. Greenberg has a vendetta against his former employer. The former CEO resigned his position (at the board’s request) in 2005 amidst allegations of securities fraud. He did, however, remain a major shareholder in the company.

This lawsuit, filed in 2011, can be seen as a ploy by Greenberg to discredit the leadership of the firm, vindicate himself against the board that fired him, and, of course, to make $25 billion along the way.

Although Greenberg’s motives — revenge and greed — are not incomprehensible, what should we think of A.I.G. itself?

From a strictly legal perspective, A.I.G.’s board had to consider the suit. They have a fiduciary responsibility to bring the highest possible shareholder return. Refusing to consider the suit could open the firm up to a bevy of shareholder lawsuits alleging a breach of this duty. The $25 billion at stake is no small sum and would be a windfall in the event of a favorable ruling.

But, after hearing Greenberg’s case, A.I.G. didn’t join the suit. Why?

Simply because the public relations fallout and soured relationships with legislators and regulators would put A.I.G. at an incredible competitive disadvantage. Almost universally excoriated in the press for just considering the lawsuit, the ill will they would have engendered for joining the suit might have been fatal for their corporate reputation.

In a Jan. 15 Politico story, legislators and PR consultants sounded off about how the financial industry needs to maintain a good working relationship with Washington. After the 2008 crisis, Democrats and Republicans alike criticized Wall Street players for their irresponsible behavior. This engendered a culture much more favorable to financial regulation, which culminated in the passage of the Dodd-Frank Wall Street Reform Act. Given that the effects of the act are currently under scrutiny, and the law could be revised by Congress, financial industry players cannot afford to lose any legislative allies.

Rep. Joe Courtney (D-Conn.) told Politico, “Until we complete the circle of setting up a safer system of financial regulations, there’s going to be a lot of mistrust out there about companies like AIG which still is engaged in pretty exotic forms of financial transactions.”

In an ideal world, A.I.G. would have dismissed the suit outright, distancing themselves from the vengeful Greenberg and avoiding all the bad press of the past two weeks.

But I feel pretty good about the whole ordeal, actually. It shows that public opinion still has the power to prevent corporations from doing enormously stupid things. Vastly underreported by the media, this angle of the story should give us a modicum of hope that the voice of the people still carries weight in the halls of commerce.

Joshua Gunter
Joshua Gunter was the liberal half of "Debating Columnists" during fall 2012 and winter 2013. He graduated in winter 2013 with a degree in art history and currently works as an account researcher for the Brunswick Group in New York City. At Knox, he also served as co-editor-in-chief of Catch magazine.

Tags:  A.I.G. bailout Bush financial lawsuit market shares stocks tax

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