Flawed Leadership Values: The AIG Lesson

There is an old business adage that says, "Organizations are perfectly aligned to get the results that they get." Case in point: AIG. The blunders of their leadership on the global economic stage highlighted the staggering audacity of AIG executives who were willing to accept (or even demand) ludicrous bonuses to be delivered from the backs of U.S. workers.

Thanks in no small part to public outcry, a number of executives have agreed to return their bonuses. (And it should be noted the AIG bonuses were agreed to before current CEO Edward M. Liddy was in charge.) That it took such a visceral reaction from the American people to have bonuses returned shines an unflattering but revealing light on the operating values of the company and raises the question why taxpayers should support and bail out an organization whose flawed value system created the morass in which the company finds itself. At the same time, this disturbing example of corporate greed provides an important reminder to all business leaders about the power of values in shaping behavior and their personal obligation to lead from a platform tightly tethered to the purpose of the organization and the customers, community, and shareholders it serves.

Corporations are much more than legal entities; they are living systems that require nourishment and structure in order to thrive. Like biological systems, they will morph and change in response to their environment. What the system is fed on one end, it delivers on the other. Or, in very blunt terms, garbage in leads to garbage out. It follows, then, that the values an organization espouses—in its internal publications to employees, on its Web site, or in communications to shareholders—are nothing more than hollow promises if the leadership team does not embody those values. Even more dangerous to the health of the organization are leaders with flawed values who become the benchmark for the talent recruited into the company. This, in essence, becomes an open invitation for a terminal malignancy to spread throughout the organization.

Better on Paper

If you visit the AIG Web site, you'll find a section entitled "Code of Conduct," which includes a handbook that features AIG's values. Those values are focused around six core tenets: People, Customer Focus, Performance, Integrity, Respect, and Entrepreneurship. Having done a fair amount of work in my career helping corporations develop their visions, missions, and values, I can say the AIG values seem like appropriate standard fare for an organization of its size. What we find, however, when we deconstruct these values and examine how past leadership has operated, is that AIG's values look much better on paper than they do in action.

As I see it, there were business decisions made by AIG leadership, especially former CEOs Hank Greenberg and Martin Sullivan, which set the stage for gross violation of all of their core values, but three in particular stand out. First, the value centered on People requires that the organization "develop diverse talent and reward excellence." Paying exorbitant bonuses to employees whose business decisions helped to bring about a staggering fourth-quarter loss last year of $61.7 billion and to cause the company stock to decline precipitously from a high of $50 in May 2008 to just over $1 per share today is an action that defies all compensation logic. It is certainly unaligned with the first of the stated core values.

Too Much Finger-Pointing

The second obvious breech of AIG values relates to Performance, where the code of conduct indicates that employees should "be accountable and manage risks." Among all the behaviors we've seen AIG executives exhibit recently, accepting accountability for the risks that they so poorly managed was not in the repertoire. At one point, the finger-pointing escalated to such an absurd degree that President Barack Obama stepped in to assume the blame that should rightfully reside squarely on the shoulders of company leaders.

Integrity is the final breech in this triad of errors. In the company's own words, acting with integrity means "working honestly" and operating in a way that "enhances AIG's reputation." What we can say for sure is that the company's reputation has been widely reviewed around the globe; unfortunately, it has been found sorely lacking. If leaders had been working with integrity, the system of checks and balances twould have operated effectively and prevented AIG's decline.

This is a mammoth and complex company, operating in 130 countries around the world, which undoubtedly contributed to some of its current challenges. Managing successfully in a huge globally dispersed organization requires a culture that is deeply rooted in robust values, where every leader wholly embodies those values. Had this been in place at AIG, it might have prevented the abysmal decisions that have led to the company's present state. The leadership behaviors we have observed in recent days are symptoms of a profound cultural cancer, one that will require major surgery and more than money to remedy.

Like many organizations navigating a crisis, this is a time for AIG to pause and examine its values while actively choosing to deliver on their intent. It's a debt owed to the millions of stakeholders who are footing the bill for past mistakes. Let's hope that current CEO Edward Liddy appoints a team of courageous and value-focused leaders to help him author a better next chapter in this company's history. The American taxpayer will be carefully reading every word.

Before it's here, it's on the Bloomberg Terminal.