Leadership – You have to “Walk the Walk”

by RonOpher on March 17, 2009

I have to get something off my chest.  I’m annoyed by the AIG bonus situation – the one where $165 million in bonuses was paid out to AIG employees (primarily executive-level) this past Friday, not long after the company was given another $30 billion of federal funds, so that now it is essentially 80% owned by the citizens of the United States of America.

First question – when do we, as taxpayers/shareholders, get to vote out the “leaders” at AIG?  I know it’s a rhetorical question, since by operation of law, the taxpayers have made the U.S. Treasury Department our proxy in making those decisions.  And, in turn, since the electorate “voted in” this administration and the Congress, the employees of the U.S. Treasury Department are our choices, too.

President Obama, when he addressed Congress on February 24, said something that I strongly agree with:  “We have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter or the next election.”  Maybe he and I simply attribute different meaning to this statement.

For me, I think that too many businesses have measured themselves over short periods of time – particularly when their shares are publicly traded.  Decisions are made with that reality in mind.  Those decisions can create significant conflicts of interest between a decision-maker trying to earn a bonus or even keep their job based on short-term performance measures, and the longer-term viability of their employer as a business entity.

For example, when investing in subprime collateral debt obligations that pay 50 basis points (.5%) higher return than prime mortgages was a path chosen by leaders of financial companies in order to wring out a little better return than its competitors – let’s just say that making that decision came with great risk, and that rewards should not flow when those decisions turn out to be bad ones.

We are hearing a lot of  “damage control” out of the Obama administration when it comes to the AIG bonus issue.  Things being said along the lines of “there’s nothing we can do, we’re contractually obligated, etc..”  And then AIG has the audacity to chime in with statements along the lines of how they can’t function properly in the future “if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”

Wait a minute.

Couldn’t anyone see this coming?  The federal government is looking more and more like a paper tiger with a printing press.  How could it be that when AIG needed $30 billion more to keep it afloat, there wasn’t more scrutiny of why it needed the money and how it would be used?  Doesn’t anyone in Washington understand the meaning of the term “leverage” in the context of negotiation?  I can’t imagine that the AIG bonuses couldn’t have been nixed as a precondition of the most recent phase of federal capital infusion.  Did our leaders in Washington really buy that explanation from AIG, when there are a lot of businesses in the U.S. who are not owned in part by the federal government who also have to scrutinize employees’ pay – sometimes in a continuing and even arbitrary way – in large part due to the current economic conditions in which AIG had a major part?  Federal Reserve chairman Ben Bernanke has said of his anger with AIG that he has “slammed the phone down more than a few times.”  Which makes me wonder – who was on the other end of the phone conversation and what did Chairman Bernanke say both during the call and after the call was ended?  It sure sounds like he has ideas, but does not have the power to implement them in this situation.

So instead, we get this explanation from White House press secretary Robert Gibbs:  “Asked why the administration is attempting to claw back the bonuses now but did not do more to block the payments earlier this month when it was authorizing the latest $30 billion in new loans to the struggling insurer, Gibbs was unresponsive.  ‘The administration is taking the steps today to go back and see what can be done,’ he said.”  www.washingtonpost.com/wp-dyn/content/article/2009/03/16/AR2009031600640_2.html?sid=ST2009031601415

Effective leadership is about having a plan and executing it.  Effective leadership is also very much about anticipating issues and dealing with them, adjusting the plan as necessary.  The failure to anticipate issues or the failure to deal with them promptly and effectively leads to “reactive leadership,” which is generally inferior to “proactive leadership.”

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