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INSURANCE
Knee-jerk Populism
Posted by Tim Reason | CFO.com | US
November 11, 2008 5:58 PM ET

An article in today's Arizona Republic reports that days ago, AIG hosted a $343,000 conference for 150 independent financial planners at the Pointe Hilton Squaw Peak resort in Phoenix.

Financial planners, of course, recommend insurance products to their clients, so this is a marketing event for AIG. Moreover, AIG managed to get 93 percent of the tab paid for by sponsors, and the financial planners paid a registration fee and their own travel. AIG paid the remaining cost — about $23,000 — out of pocket. That works out to about $153 per financial planner — an extraordinarily low cost.

But the gist of the article is that Congress is outraged by this extraordinarily cost-effective piece of marketing because it happened at a resort hotel.

In a statement posted on the Rep. Elijah Cummings's website, the congressman said he was "absolutely shocked and extremely disappointed" to learn about what he called "another executive day spa."

That's simply not an accurate description. The financial planners hosted by AIG aren't company executives, they're independent distributors of its products.

Second, what's AIG supposed to do, stop marketing? The AIG bailout had to be revised once already because its terms were too onerous. Is it now a de facto term of the revised bailout that marketing is prohibited?

Apparently it is. According to AIG, the company has canceled more than 160 meetings or conferences in the past month.

Now clearly, every company should be watching appearances and avoiding executive junkets, and no doubt some of those conferences deserved to be canceled. But let's remember, too, that the business of America is business. Cummings represents Maryland's 7th District. Perhaps he should take a quick lunchtime drive from the Capitol up I-95 up to his hometown of Baltimore, and take a look at the Inner Harbor, one of the most storied urban renewal programs in history. He might notice that its prominent features (and employers) include a conference center and several up-market hotels.

It's one thing to be a careful steward of taxpayer money. But if Congress makes legitimate business marketing the target of this sort of asinine, knee-jerk populism, it's not going to save taxpayers money, it is going to put AIG out of business.

And, if Congress isn't careful, airlines, hotels, taxi companies, restaurants, meeting planners, caterers, and plenty of other businesses will go under too.

Comments (7)


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Good for you

I think this political points game will backfire.

I thought the election was over?
Posted by Darla Sycamore | November 11, 2008 01:53pm

If it was so innocent then why didn't they have a logo displayed or want AIG mentioned by the hotel staff. I believe ABC said they had pictures of the execs in the pool. Maybe you CFOs better realize that the country put a 700 billion dollar mortgage on our kids future for the malfeasance of many companies like AIG that were gambling on CDS. Execs at large corporations have no problem axing thousands of jobs for the bottom line but god forbid they have to have conferences at the holiday inn express.
Morning star was one of the sponsors of the junket. Aren't they the ones that gave AIG a good credit rating even though they were making these outrageous bets.
I wrote my congressmen and told them I wanted t see people in jail. Only then will execs learn not be so cavalier playing with the taxpayers money.
Posted by Joseph Kalb | November 11, 2008 02:07pm

In response to the news reports I described above, AIG has put out a response from its CEO Ed Liddy making many of the same points I made in this blog.

Liddy (who has had a long career as a prudent finance chief) also had access to some additional important information: independent financial planners are responsible for generating almost $200 million in revenue year-to-date.

Again, that makes an event that cost $153 per planner look like a good investment to me.

I'm just as angry as reader Joseph Kalb that, as a taxpayer, I now own a chunk of AIG. But what's the point of bailing a company out and then crushing it?

As a taxpayer-turned-owner, I want to see AIG survive . . . for the sake of my kids' future.


Posted by CFO Staff: Tim Reason | November 11, 2008 03:19pm

I don't want to crush AIG. The execs at AIG are really tone deaf. They got caught once and you would think they would be smart enough to stay a million miles from a luxury resort. Don't tell me their aren't a million other ways they could educate/comp these people. That they are that insensitive makes me think our bailout dollars would be better spent elsewhere. I really think we need the same urgency for putting the culpable people in jail as we do spending the 700 billion, otherwise we are just going to get more of the same.
Posted by Joseph Kalb | November 11, 2008 03:48pm

Tim, unfortunately you are not going to win this battle. The public opinion is created by the voices of Congress for political gain, the voices of the media, who avoided the part of the story that pushed the cost to the sponsors, not AIG and that is what we face.

The real issue lies in the boardrooms of AIG, Goldman Sachs and the rest of Wall Street's big financial houses. The Board did not do their jobs, the auditors did not do their jobs, the upper management, including Fannie and Freddie did not do their jobs, the SEC overlooked the entire sythetic securities in enforcing regulation and on it goes. The American People keep hearing about big executives including the executives of Fannie and Freddie walked away with millions in salary and bonuses.

Truly, as we heard from the PCAOB and AICPA at CFO Rising West, the leadership failed. This is why the American people want someone's head on a platter.

AIG would be well served to put their public relations team on a transparency plan - let the people know how AIG got in trouble, what they are doing to clean up and what are they using the $150 Billion for - how will this keep insurance policies in place - that is what the American public cares about.

Sorry for the extended comment - great subject!
Posted by Diane Dutton | November 11, 2008 04:41pm

Thank you Tim and Dianne for the sensible posts.
It's a predictable shame something like this captures the media while ignoring the big fish of the boardroom, transparency etc. I would like to hear a lot more about the $200 billion+ in bonuses paid out to wall street, banking and mortgage related executives the last 5-6 years while this mess was created. I don't argue this sham was perpetuated unlawfully but that should hardly excuse those responsible from clearly negligent acts/behavior.
Posted by Chuck Bennett | November 12, 2008 11:14am

AIG had become a whipping boy symbol for the Barney Franks, and headline seeking journalists.
I am employed for 30 years in one of the insurance divisions before AIG bought us. We are the same company we were a year ago. But the association with the 2 segments of the giant corporation which brought it to its knees has unfairly spread to all its employees, and unfortunately, to clients.

Even though the National Association of State Insurance Commissioners issued strong statements to the public informing them that their accounts are safe, and have nothing to do with the mortgage problems at the top, many clients have been ill served by the media with the sky is falling mentality.

I have personally been on several conventions as a result of meeting production requirements. Yes, we were at luxurious resorts, and there were classroom activities to qualify it as a business meeting. But, in my example, only the top 10% of the sales force gets to make it, but they account for the majority of the money brought in. And, we get W10-99'd for it as well, so we actually pay taxes for the vacation.

On every one of these conventions, guess who else is there? Other insurance companies, car companies, and other businesses who have recognized the benefit of production rewards.

Plus, the resort industry runs on corporate entities. Generally, mom and pop don't have their families at a Maui resort. So, if we let the "knee jerkers" have there way, the resort industry will die without our business.

This recent "muckraking" article ignores the facts. Independent agents and financial advisors earned their own way to the convention, and sponsors and other vendors paid almost 90% of the cost. It is our responsibility and due diligence to keep our sales force up to date on the latest products and legal issues, and this is one way to do it.

Plus, unless one has totally soured on the capitalist order of things, it is sound and proven theory to offer incentives for sales excellence.

Do we not give our children incentives for bringing home good grades? Are not promotions at work a result of performance? When American business stops this old and proven way of giving incentive for production, we are making that slide towards the mediocrity that was a hallmark of that other economic system that has proven a flop: communism.

David B. Isgett, CFP
Posted by David Isgett | November 20, 2008 06:02pm

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