Liddy on AIG's Long Road Ahead

In an exclusive interview with BusinessWeek, CEO Edward Liddy says he expects AIG's turnaround to take years, but adds, "This is not a life job for me"

By Joseph Weber

Edward M. Liddy, the would-be rescuer of American International Group (AIG) who has become a target of wrath over Wall Street excesses and the ravages of the recession, knows all too well what is driving that anger. "There's fear in America," says Liddy, who came out of retirement last September to run AIG for the government for $1 a year. "People are very concerned about their jobs, their homes, their pensions."

And Liddy, who is no fan of the multimillion-dollar bonuses agreed to by his predecessors at AIG even while he tolerates them, knows very personally what such fear and want mean. Liddy, who earned more than $130 million over eight years leading Allstate (ALL) until 2007, grew up so poor that he, his mother, and sister were thrown out of their homes at times after his father died when he was 12. There were days, he says, when food was short in his native New Brunswick, N.J. "We'd have dinner for three and food for two and my mother would say, 'I don't feel well right now. You two go ahead,' recalls Liddy, now 63. "You can believe I know the angst of the American taxpayer and what's happening in economically uncertain times."

But rage and fear, he says, should not blind people to the best way out of the AIG mess. In an exclusive interview with BusinessWeek, the reluctant AIG chief says he and others at the company want only to pay off the $80 billion that the government has poured into the company so far and help it make money on another $50 billion in investments the government has made in AIG-related operations.

A Very Difficult Case to Make

The approaches AIG management is taking, even if they seem to only ramp up the furor, should do just that over time, he says. And Liddy says they should also leave surviving companies that will be able to keep many of AIG's 116,000 global workers employed and its policyholders protected.

Making that case has been enormously difficult for Liddy, a tough-minded executive whose professional climb has been a modern Horatio Alger tale. He worked his way through Catholic University and launched his career at Ford (F) after collecting an MBA at George Washington University. He worked at pharmaceutical company G.D. Searle & Co. and later helped take Allstate out from under Sears, Roebuck and Co. He then led Allstate.

Liddy's tenure at AIG, since taking the helm at the request of former Treasury Secretary Hank Paulson, has been marked by public relations disasters that he didn't create. Only a few days after the federal government launched the bailout of AIG last September, top executives—not including Liddy—wined and dined independent agents at a posh California resort for a week, costing some $443,000. In more recent days, of course, disclosures about some $165 million in retention bonuses have drawn the ire of no less than President Barack Obama.

Liddy himself was skewered over the bonuses this week in a daylong hearing in which he was grilled by a couple dozen congresspeople. One, reflecting the public outcry, says AIG nowadays stands for "arrogance, incompetence, and greed." Says the chronically understated Liddy, "It was a very uncomfortable experience."

Would've Handled Bonuses Differently

Many critics have said the brouhaha over bonuses and marketing meetings also reflects populist rage against Wall Street, anger at how the pinstriped set seems to be making out lavishly at public expense in a game that's rigged against the public. But, as Liddy sees it, it also reflects the huge cultural gap between doing business in the private sector and doing it publicly and in ways answerable to politicians and bureaucrats.

Take the marketing meetings. Such meetings, he says, are the way business is done in the insurance world. Companies such as AIG want independent agents to pitch their policies and other products instead of those of rivals, and bringing those agents to resorts to both school them in the products and reward them for selling them is just ordinary business practice. "Do you hold them in nice places? Yes, because you want people to come," he says. While they are there, he adds, the agents get hefty doses of education in so-called suitability, so they don't wind up selling risky long-term products—say variable annuities—to 85-year-old widows.