Combating The “OutrAIGe”

This was originally published on March 19, 2009 on the CNBC Guest Blog

The reasons to envy Edward Liddy, AIG Chairman and CEO[AIG  1.51    0.13  (+9.42%)   ], are few and far between these days.

It’s bad enough he has to defend $165 million in bonuses to senior AIG staff when the company just received more than $170 billion in federal taxpayer dollars. And in his defense, he did say he found the current bonus arrangements to be both “distasteful” and “difficult to recommend” given the current economic climate. But the fact that he did so with such cold, dispassionate language only adds salty insult to an already bloody injury.

But this isn’t meant to be another attack on AIG or the bonuses themselves, however “distasteful” they might be. Rather, there are some communication lessons to be learned from AIG’s fetid response that cut across every business or industry, both in good times and in bad.

The fallacy of fatal facts. Aside from the obviously painful position of being at the helm when that kind of money is going out in executive bonuses, Liddy makes one of the biggest (and most common) communication blunders possible: clinging to fatal facts.

Fatal facts are those we throw up in the air when a better, more palatable justification simply can’t be found. They come in a variety of shapes and sizes, but most often revolve around the theme of “It’s not up to us,” or “Legal obligations require us to do X.” Either way, and especially now, they hit the American ear with a shrillness worse than nails on a chalkboard.

What makes these fatal facts so tempting to use is that they generally are true. The problem is, in this age of mistrust — where faith in both government and institutions is at a minimum —credible communication is the key to gaining any kind of public support. Yet when it comes to “just the facts,” what is true is not always credible and very often undesirable.

More importantly, what you call the truth and what I call the truth aren’t always the same. We often tell our clients to think about Your Truth vs. Their Truth. When the two aren’t aligned, that’s where communication begins to break down because both sides are really talking about two different things—talking past each other, not to each other.

Liddy’s first fatal fact. When an executive is faced with having to defend the seemingly indefensible, one of the first tactics is often to turn facts into a shield—to hide behind the truth. In this case, Liddy tells Geithner that AIG doesn’t have a choice—these are contractual agreements that must be met, for the good of the business and to keep AIG out of legal hot water.

Fair enough.

But to a nation in recession, facing rising unemployment, struggling to make ends meet, and wondering where all of their tax dollars are going, “AIG’s hands are tied,” just doesn’t cut it. You can defend yourself with facts all day long, but just because something is true doesn’t mean you’re off the hook.

Liddy’s second fatal fact. Liddy claims that the “best and brightest talent” cannot be retained if AIG can’t offer a bonus structure competitive enough to get those people in the door and keep them there. Again, fair enough. Maybe it does take million-dollar bonuses to get the best and brightest to steward AIG and not go somewhere else.

But again, just because it’s true doesn’t mean it’s a defense the American people want to hear. In their eyes, these are the same “best and brightest” that caused all of these problems in the first place by creating exotic investment tools built on bad credit so they could make bigger bonuses quarter after quarter. They also aren’t buying that the fact that multi-million dollar bonuses are necessary when they’re working as hard as they can every day for far less money.

Liddy’s third fatal fact. Related to his complaint about bonus compensation, Liddy says AIG cannot attract and retain talent if they think their “compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”

What’s more arbitrary, giving a $4.6 million bonus to someone who helped develop the investment tools that contributed to our current economic collapse or the government requesting that billions of dollars of taxpayer bailout money not be used for lavish bonus compensation?

True or not, this fatal fact puts the final nail in the compensation coffin.

The lesson: the truth will NOT set you free. In Liddy’s case, he was simply giving the facts as he and AIG counsel saw them (AIG’s Truth). But to the American people, this was just one fat cat making excuses for more fat cats, plain and simple (The Public’s Truth). Rather than distancing himself fully from these caustic bonuses, he made fatal facts the centerpiece of his argument and tarnished AIG’s reputation further.

Scripture tells us that “the truth will set you free.” But when it comes to fatal facts, the truth can just as easily get you tarred and feathered at the hands of an angry, pitchfork-wielding mob.

This was written with Mike Phifer