A.I.G., Bailouts and Buyouts

Wow. Talk about March Madness. I spent some time yesterday watching the Beltway Blowhards grilling Edward Liddy, the head of A.I.G., about the “retention and performance” bonuses that have caused such a furor, putting Obama and team on the defensive and basically bringing discussion and action on other matters (remember education reform, health care?) to a halt.

These congressional hearings are really great moments in reality TV. And I can’t figure out why Fox or one of the other networks hasn’t figured out a way to get them on prime time as a continuing series. Certainly there are enough people and organizations these days to enter the dock and get jabbed with the verbal pitchfork. And I would think the American Idol judges, for instance, would do an entertaining job of grilling them. “Yo, Mr. CEO, dog.” I digress.

Liddy, by the way, was asked to oversee A.I.G. a year or so ago, following his retirement from running Allstate insurance — where his pay package was north of $20 million in 2007. So he knows something about megabuck compensation plans, justified or not. And Hank Paulson, former Treasury head, tapped Liddy to serve on the board of Goldman Sachs. OK. No surprise there, I guess. Wonder how Liddy is enjoying his retirement these days?

But this isn’t a criticism of Liddy. He strikes me as a competent manager who is in a tough spot now. And the A.I.G. mess goes back to Hammering Hank and members of Congress — and to A.I.G. execs and board members (some now defunct) whose greed was only matched by their incompetence.

Still, after all the rhetoric and reporting, I’m not sure how this bag of A.I.G. dung landed on the doorstep of the American public. But I know this: We have witnessed during these past few days what happens when organizations and individuals lose trust — and how hard it is to regain confidence and credibility.

This is a national shout-out.

Obama’s main job now:  restoring confidence and credibility. And he strikes me as being up to the task. His “town hall” meeting in California last night serving as an example. He was engaging, honest and I know some won’t like this, likable. For Geithner and members of Congress — well, some tough going ahead. Particularly when we start looking at more bailouts for G.M. (bankruptcy buzzards returning end of March, ready or not) and others. At this point, how many really trust — or have confidence — that we are getting any of this right? Or that we should be doing anything at all?

The point is that the A.I.G. debacle is going to make it much more difficult for many organizations — government, education, business, nonprofits — to gain support and trust on issues involving jobs and taxpayer money.

We’re seeing this start to play out here in Ohio when it comes to education. No secret that Ohio, like most states, faces a critical budget deficit — and even with the one-time-only (see comments above) relief from the federal stimulus bailout, there are some tough choices ahead. And that’s why  Ohio public universities are starting to position themselves for the coming shitstorm — an increase in student tuition in 2011 (coupled with a likely increase in individual income taxes, which is another story).

Student tuition in Ohio has been frozen for two years — and I haven’t seen much written about this recently. So I sent an e-mail to Amanda Wurtz, Gov. Strickland’s press secretary, to check. Here’s her reply:

“At Ohio’s community colleges and regional campuses, we will maintain the tuition freeze for the next two years.  At the main university campuses, we will ask that they continue the tuition freeze in 2010, and keep any tuition increase to no more than 3.5 percent in 2011.”

OK. Brace for impact, in 2011, if not before. And this is going to be a tough sell to students, parents and others in a state with high unemployment and a less-than-robust economic outlook.

So universities better start to get their public perception house in order.

Maybe that is behind the announcement by Kent State yesterday that a buyout offer is now on the table for long-service faculty, administrators and staff. The buyout package is relatively modest — and it’s not going to be an economic gamechanger for a university that according to the Akron Beacon Journal is losing money. But it will be a talking point when the notices about increased student tuition begin to circulate. (Note to university administrators and others: When the revenue side is basically frozen you have to address the expense side. Not sure that has happened quickly or robustly enough at Kent State or other universities. That, I think, is the public perception.)

And Kent State isn’t alone here. Ohio State announced last week that it would freeze the pay of Prez Gordon Gee and other top execs. And I expect that other universities — maybe even Kent State — will get onboard with similar freezes/pay cuts before the tuition increase train leaves the station. (Note to University of Akron: You may want to pay attention to all of this. Another big pay increase for Prez Luis Proenza next year — on top of the $85,000 compensation hike he just received — might be a little hard for the public to swallow and to digest.)

Anyway, the point of all this is that management actions really do speak louder than words. That’s true in business. It’s true in government. It’s true in education.  And we are in an era now that if (when?) the public thinks it is being duped and taken advantage of — it’s pretty difficult to get your message out over all the shouting. Better to establish trust, credibility and confidence at the beginning — and maintain for the long run.

Hope that message isn’t being lost on our public and education leaders in Ohio — in Washington — and elsewhere.

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One response to “A.I.G., Bailouts and Buyouts

  1. If you thought it couldn’t get any worse than Bush. The dems are spending more and making grossly incompetent mistakes. Here is the latest (quite shocking) of their trillion dollar blunders:

    Cap Schmap:
    http://www.butasforme.com/2009/03/17/obamas-stimulus-bill-explicitly-grants-aig-the-legal-right-to-hand-out-bonuses/

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