Shareholders are taking aim at the board of
American International Group Inc.
Activist investors hope to block the
re-election of AIG director James F. Orr, chairman of the board
compensation committee, in a move that poses a test for the three
little-known trustees who control the U.S. government's nearly 80% stake
in the tottering insurance titan.
Officials representing big union and public
pension funds wrote the trustees late Tuesday, urging them to unseat Mr.
Orr, saying he failed to adequately oversee $165 million in retention
bonuses approved in early 2008 that sparked a firestorm in recent weeks.
The bonuses were paid to employees in AIG's Financial Products unit, which
was responsible for the financial transactions that led to the company's
Mr. Orr, a retired chief executive of Unum
Corp., joined AIG's board in 2006. He couldn't be reached for comment
Tuesday. The pension funds aren't seeking to unseat three other members of
AIG's compensation committee because they joined the board last year, said
Richard Ferlauto, director of corporate governance and pension investment
at the American Federation of State, County and Municipal Employees union,
or AFSCME, which is one of the letter writers.
AIG's unusual corporate governance set-up,
including the three powerful government trustees overseeing the corporate
board, is an outgrowth of the U.S. rescue of the giant insurer. In
exchange for a sizable stake, the government offered an $85 billion loan
so AIG could avoid imminent bankruptcy last September. The government
later appointed three trustees, and in early March the voting rights for
the nearly 80% stake transferred to them. Now, the AIG board is
accountable mostly to the trustees representing U.S. taxpayers but also to
the other shareholders owning the remaining 20% stake. AIG's board remains
largely intact since the September rescue.
The letter to the trustees comes from
Gerald W. McEntee, president of AFSCME; Richard Trumka,
secretary-treasurer of the AFL-CIO; and Denise Nappier, treasurer for the
state of Connecticut. AFSCME members belong to public pension systems that
hold about 3% of AIG shares not owned by the government, according to the
The funds had also planned to target a
second member of AIG's compensation committee, Virginia M. Rometty. But
AIG said Tuesday that Ms. Rometty, an executive at International Business
Machines Corp., and fellow outside director Michael H. Sutton, a former
chief accountant for the Securities and Exchange Commission, won't stand
for re-election at the annual meeting this year.
The letter also recommends the trustees
cast an advisory vote against AIG's 2008 compensation practices. The
insurance company is required to give investors such a "say on pay" vote
as part of its government bailout.
AIG's annual meeting will be May 13. An AIG
spokeswoman declined to comment.
It is unclear when the 11-member AIG board
learned about the bonuses. The bonus plan was approved in early 2008 by
the board of the Financial Products unit, a person familiar with the
matter has said. The full AIG board was told of the plan but didn't vote
on it, that person said.
Harvard University economist Martin
Feldstein was a director of the Financial Products unit at the time of its
vote; he remains on the AIG board. He didn't return a call for comment
The trustees, who each are being paid
$100,000 a year, have operated largely in obscurity since their
mid-January appointment. They by and large haven't been targets of
criticism over the bonus flap, in part because they didn't take control of
the voting shares until early March.
The trustees are Jill Considine, Chester B.
Feldberg and Douglas L. Foshee. Ms. Considine is a former chairman of
Depository Trust & Clearing Corp. Mr. Feldberg is a former chairman of
Barclays Americas. Mr. Foshee runs El Paso Corp.
A lawyer for the trustees, Kevin Barnard of
Arnold & Porter LLP, said they haven't made any decisions on how they will
vote the trust's shares.
"They're considering how they ultimately
will vote on a number of issues, including a shareholder proposal on
compensation policy," he said.
The funds seeking Mr. Orr's defeat have
submitted a resolution suggesting that senior AIG executives hold a
significant percentage of equity awards until two years after they leave.
The trustees enjoy wide latitude to make
decisions about AIG's board and corporate-governance practices. They are
expected to vote on AIG directors and shareholder proposals at the annual
meeting. They "have a legally binding obligation to exercise all their
rights as majority owner of AIG in the best interests of the U.S.
taxpayer," said William Dudley, president of the New York Fed, in recent
At a recent congressional hearing, AIG
Chief Executive Edward Liddy acknowledged meeting the trustees "on a
number of occasions" but struggled to come up with their names.
Meanwhile, AIG is revamping the
compensation packages for its independent board members. AIG's nine
outside directors received cash fees in 2007 ranging from $93,750 for Ms.
Rometty to $275,000 for then-chairman Robert B. Willumstad, the 2008 proxy
statement said. Starting in May 2007, these directors also began receiving
$125,000 of deferred-stock units annually.
The directors, along with full-time
staffers at the company, won't get stock grants this year, one person
familiar with the matter said. A second person said the board also may cut
its cash fees. They "are going to look at the whole thing," that person
Write to Joann S. Lublin
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