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Bob MacDonald Criticizes AIG for its Inept Handling of the Golub-Benmosche Affair

Bob MacDonald Criticizes AIG for its Inept Handling of the Golub-Benmosche Affair

Bob MacDonald

Minneapolis, MN (PRWEB) August 3, 2010

Bob MacDonald, former CEO of Allianz Life of North America and financial services contrarian, today chastised the AIG board and chairman for failure to perform duties.

Writing in his blog, http://www.bobmaconbusiness.com, MacDonald takes aim at besmirched insurance giant AIG’s CEO, its board, and Harvey Golub who recently resigned his board chairmanship. His action brought an end to an ongoing dispute with Chief Executive Robert Benmosche.

The crux of the Golub-Benmosche clash was, according to MacDonald, a fundamental issue faced by corporate management and boards of directors: Who has the power, responsibility and authority — the management or the board — to determine and implement the mission, values and vision of the organization?

MacDonald noted that the recent dispute came to a head over AIG’s need to sell assets to raise cash to repay billions of dollars of government bailout funds. The board approved Benmosche’s plan to sell an AIG unit to UK insurer Prudential PLC for more than $ 35 billion. However, when the shareholders of Prudential reacted negatively to the transaction, CEO Benmosche pushed to complete the deal at a lower price. The board balked at approving the lower price and recommended instead an IPO for the unit to raise cash.

The Golub-Benmosche dust-up, according to MacDonald, is an example of a new type of corporate power struggle. He noted that while there have always been power struggles among the management of corporations, seldom have there been such struggles between the board and the management of a company. They are rare, said MacDonald, because traditional boards of directors are made up of friends and associates of the CEO. “It was accepted practice for the head of the company to be both CEO and chairman of the board. Pampered with status, prestige and healthy pay packages, the board became little more than a cadre of yes-men armed with a rubber stamp for the CEO and his plans,” said MacDonald.

After the abuses caused by the collusive nature of the relationship between the boards and management became obvious, Congress passed the Sarbanes-Oxley bill clearly defining the responsibilities of the board as representatives of all stakeholders of the company. (everyone who can be affected by the actions of the company.) The legislation made it clear that the CEO and management worked for the board, not vice-versa. The responsibilities of a director were clearly defined and those who shirked their duties were exposed to civil and even criminal repercussions. Directors became legally liable and responsible for the actions of management.

The recent power struggle between the AIG board and its CEO shows that old habits die hard and that both company managements and boards are struggling to come to grips with the new environment.

CEO Benmosche was obviously chaffing under the concept that he worked for the board and not the other way around, wrote MacDonald. But Chairman Golub and the other AIG directors did not live up to their responsibilities either. It was widely rumored that Benmosche went behind the chairman’s back and told the board that he could not work with Golub. “That was a pure, old-fashioned power play,” said MacDonald. “The next thing we know, Golub resigns. It’s clear to see that in the AIG case, the board kow-towed to the CEO, rather than support its own chairman. It was sad ending.”

Well-formed corporate boards, said MacDonald, select management, ensure effective planning, determine and monitor company progress, etc. But more importantly the board should lead the way in fostering an environment of interaction, cooperation, support and parallel interests between the board and management. But that said, the directors should never lose sight of that fact that management works for the board, not the other way around.

Management’s duty is to develop the mission and vision of the company and the plan to achieve such. The board should use the combined experiences of board members to review, advise and approve the vision and plans of management. Once the board has approved the vision and plans, then management must be fully empowered to implement them without interference from the board.

The board’s responsibility then switches to monitoring, measuring and holding management accountable for the plans they themselves developed. Taking this approach to the board responsibility will create a positive, cooperative attitude that will enable both management and the board to be on the same page. “That’s something that AIG management and its board were unable to achieve. Shame on both!,” said MacDonald. “They failed in their basic responsibility.”

Bob MacDonald was formerly CEO of ITT Life, wholly-owned by The Hartford. He founded LifeUSA, which he sold to Allianz SE in 1999 $ 540 million and became CEO of Allianz Life of North America. Since 2002 MacDonald has headed CTW Consulting, LLC, a vehicle for offering his experience and unique approach to management and corporate culture development.

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