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AIG's Management Folly

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AIG's Management Folly
Executive Summary
There are many factors that lead to an organization’s success, but no matter the company’s strengths and weaknesses, it is necessary for it to build a framework that will advance long-term value creation. An extensive amount of literature indicates that compensation packages, organizational transparency, and managerial leadership and ethics are three factors which greatly influence the long-term success of any business enterprise. One such corporation that has failed to long-term value creation by neglecting these three factors is American International Group, Inc. (AIG). This article will investigate how AIG’s current management structure and value system is flawed and the impact of this flawed system on AIG’s long-term financial and productive health. If AIG were to implement a Value Driven Management (VDM) strategy, the company will experience developments in consumer trust, employee loyalty, managerial leadership, organizational ethics, long-term profitability, market share growth, and societal confidence that AIG is a valuable member of society. In the end, AIG’s past and current management structure and values are counterproductive for its future profitability, as displayed by AIG’s recent bailout by the U.S. federal government and for AIG to succeed, it needs to enforce comprehensive change.
Introduction
It is a well established fact that money is valued by everyone in society because money is what permits members throughout society to purchase and sell goods and services and conduct trade. Nevertheless, money can have perverse incentives and cause people to act illogical, reckless, or even criminal, especially within a business organization (Mitchell & Mickel, 1999). This is no more evident than in recent years with the 2007–09 global financial crisis, and AIG was at the forefront of this financial crisis and in need of U.S. government bailouts (Sjostrom, Jr., 2009). So how does a multi-billion dollar international corporation



References: American International Group (n.d.). AIG, 2008 Annual Report. Retrieved February 18, 2010, from AIG website: http://www.aigcorporate.com/investors/financial_reports.html. Anonoymous (2004). AIG forks up $126 million to SEC on PNC deals. Insurance Journal. Retrieved March 3, 2010, from Insurance Journal website: http://www.insurancejournal.com/news/national/2004/11/24/47993.htm. Balthazard, P. A., Cooke, R. A. & Potter, R. E. (2006). Dysfunctional culture, dysfunctional organization Berggren, E. & Bernshteyn, R. (2007). Organizational transparency drives company performance Brickley, J., Smith, C. & Zimmerman, J. (2009). Understanding the Business Environment: The Economics of Regulation. In B. Gordon (Eds.), Managerial Economics and Organizational Architecture (pp Bush, M. (2009). No easy PR fix for AIG’s bonus blowback. Advertising Age. Retrieved March 9, 2010, from Ad Age website: http://www.adage.com/. Cappelli, P. & Crocker-Hefter, A. (1996). Distinctive human resources are a firm’s core competencies Earle, J. E. (2009). The evolving role of risk management in the design and governance of compensation programs Financial Stability Forum (2009). FSF principles for sound compensation practices. Retrieved February 28, 2010, from Financial Stability Board website: http://www.financialstabilityboard.org/publications/r_0904b.pdf?noframes=1. Gable, W. & Ellig, G. (1994). Introduction to Market-Based Management. Fairfax, VA: Center for Market Processes. Graafland, J. J. (2009). Do markets crowd out virtues? An Aristotelian framework. Journal of Business Ethics. 91 (1), 1–19. Harrington, S. E. (2009). The financial crisis, systemic risk, and the future of insurance regulation Jahansoozi, J. (2006). Organization-stakeholder relationships: exploring trust and transparency. Journal of Management Development. 25 (10), 942–955. Jones, G. R. & George, J. M. (2008). Contemporary Management. New York, NY: McGraw- Hill Irwin. ISBN: 978-0-07-353043-7. Kandel, E. (2009). In search of reasonable executive compensation. CESifo Institute for Economic Research LaCapra, L. T. (2009). AIG competition can’t take advantage. TheStreet.com. Retrieved March 10, 2010, from TheStreet website: http://www.thestreet.com/story/10467245/aig-competition-cant-take-advantage.html. Mitchell, T. R. & Mickel, A. E. (1999). The meaning of money: an individual-difference perspective Office of the Special Inspector General for the Troubled Asset Relief Program (2009). Extent of federal agencies’ oversight of AIG compensation varied, and important challenges remain Palmer, D. E. (2009). Business leadership: three levels of ethical analysis. Journal of Business Ethics. 88 (3), 525–536. Pohlman, R. A. & Gardiner, G. S. (2000). Value-Driven Management: How to Create and Maximize Value over Time for Organizational Success Sjostrom, Jr., W. K. (2009). The AIG bailout. Washington and Lee Law Review. 66 (3), 943–991. U.S. Securities and Exchange Commission (2006). AIG to pay $800 million to settle securities fraud charges by SEC. Retrieved March 3, 2010, from U.S. SEC website: http://www.sec.gov/news/press/2006-19.htm. Verschoor, C. C. (2005). AIG remediation emphasizes compliance, but not ethics. Strategic Finance. 87 (3), 17–18. Wasserman, T. (2003). Strategy: commercial financial services firm AIG tries insuring consumer visibility

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