Saturday, July 18, 2009

What I’ll Do with My Bonus…

Published by the Institute for Global Ethics®

Jul 13th, 2009 • Posted in: Commentary

by Rushworth M. Kidder

To: Mr. Kenneth R. Feinberg
United States Department of the Treasury
Washington, DC

Dear Mr. Feinberg:

You don’t know my name, but you’ll recognize my position. I’m one of those executives at AIG who, amid immense public outrage, received a bonus last March. At the suggestion of our chairman, Edward M. Liddy, I returned my payment to the company, as did most of my colleagues. Of my own free will? Yes. But also, I suspect, because I was receiving death threats.

That probably hasn’t happened to you in your current role as President Obama’s “compensation czar.” They never talked about this situation in my MBA program. It’s made me ask the tough moral questions: Why am I in this career? What does it all mean? Who am I?

A couple of years ago, I could answer that last question proudly: I’m an exec at AIG, the major global insurance company. I’m providing a needed service to customers. I’m part of an enormous flowering of global capitalism. And (let’s not kid ourselves) I’m getting a handsome paycheck.

Then came the public uproar after it was discovered that people in my division, Financial Products, were collecting massive bonuses for wrecking the company. You know the history. You know how we invented and sold mortgage-backed derivatives. You know how their value evaporated, how AIG had to accept a $180-billion bailout from taxpayers, and how, when it looked like taxpayer funds were paying our bonuses, the public went bananas.

Next March, as you also know, about $200 million in scheduled bonus payments will be due to our Financial Products team. That’s going to raise a tough choice for you. The lawyers agree these contracts are valid and the bonuses are legal. But Congress wants to tax them at 90 percent. You’ve got a dilemma: You don’t want to break the law by disallowing these bonuses, but you don’t want to be party to morally suspect legislation that uses the tax code to attack specific individuals.

So here’s my proposal — a kind of trilemma option, if you will. When I’m paid my next bonus, I won’t return it to AIG. I’ll accept it and then distribute it — all of it — to municipalities and nonprofits in need of funds. No law will make me do it. Instead, I’ll do it because it’s the right thing to do. Given AIG’s reputation, you may not trust me, so let me explain my reasoning.

For starters, we should have seen this collapse coming — all of us, including the leadership at AIG, Wall Street, Treasury, and Congress. But none of us did. Sure, we sensed a downturn, but we all thought it would be another straightforward economic recession. So we addressed it in the language of numbers — assessing risk, determining probabilities, and measuring markets.

There was only one problem: This wasn’t an economic recession, but an ethics recession. What collapsed wasn’t math but integrity. Over at AIG, as we bundled mortgages, we trusted the banks. We took it on faith that, in millions of conversations between loan officers and potential customers, the information was essentially honest — no lying by customers about income, no cover-ups by bankers about fine print. We thought these mortgages had been well vetted. We didn’t know they were improvised explosive devices with time-delay fuses.

I’m not saying we were innocent. We looked the other way, especially when we had doubts. We pushed our products hard, even though they were too complex to explain to our bosses. We thought we were doing what the culture wanted us to do: make money by taking risks.

And we got it wrong. But that’s also part of capitalism: When you fail, you lose money. So I’m prepared to give up the bonus money — but not to give it back.

The reason? I want AIG to succeed. I don’t mean to sound arrogant, but as the company winds down its exposure on these new products, it needs my AIG-specific knowledge and experience, so it needs to continue compensating me well. But the real key to AIG’s success doesn’t lie in the numbers. It lies in turning around its shockingly unethical public image. Unless that changes, none of us, no matter how well paid, can save AIG.

How to start that turnaround? Why not right where we live? I have in mind not my own home town (we’re plenty upscale) but a much grittier place three towns away, where education, police, and charities serving the elderly have taken enormous hits. That’s where I’ll make my contributions.

Will my name be attached to the gifts? Yes, but only in connection with AIG. The IRS will see the money coming from me, but the public will see it coming from an AIG executive.

Will my colleagues join me? I hope so: The $200 million in AIG bonuses being projected for next March could make a real dent in some of America’s poorer communities.

But wouldn’t it be simpler just to give my bonus back to AIG? Sure. But that would only help heal the economic recession. We need to heal the ethics recession. We need the country to realize that real individuals, not just faceless corporations or government agencies, are responding to real needs with real philanthropy.

And face it: I need to heal my doubts about my own integrity — the gnawing fear that I really don’t have much of a moral compass left, that ethics has somehow passed me by. Because that’s something else they never talked about in my MBA program: the crucial role of ethics in capitalism, and the need for all of us to give back.

I know I’m awfully late in asking, but can you let me play an active role in making the world a better place?


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