AIG: Why the Facts Don't Matter

There are many ways in which populist outrage can be appropriately expressed. Retroactively deploying the power to tax in an arbitrary manner should not be one of them, writes Rita McGrath

By Rita McGrath

Posted on Dynamic Strategies: March 26, 2009 3:35 PM

Thomas L. Friedman penned an opinion piece recently in the New York Times that captures the unease many of us feel about the populist feeding frenzy over a situation now with idiom status: "the AIG bonuses." Everybody, from the President on down, expressed outrage and disgust. More dangerously, the elected officials in whom we place our trust, as Friedman points out, seemed more than ready to throw time-honored principles of good government and sound democratic rule overboard in a frantic rush to appear more "one of the people" than the next guy. Among the poorly thought through proposals are a tax of 90% which would be applied retroactively to the bonuses, which not only fails to meet basic standards of fairness but opens the door to massive unintended consequences. Such behavior doesn't much fit with the President's inaugural message to "leave childish things behind." Temper tantrums do not make for sound public policy.

Daniel Webster, in the formative years of our nation, famously said, "the power to tax is the power to destroy"—an idea which has informed legal opinion for over 200 years. There are many ways in which populist outrage can be appropriately expressed. Retroactively deploying the power to tax in an arbitrary manner should not be one of them. When tempers are high and emotions are running at fever-pitch, it's easy to get carried away. Emotional responses can color decisions we make in our personal lives, often to our subsequent regret. They can color decisions we make at work. But altering the institutional framework we count on to establish the basic rules of business behavior on the basis of emotional responses is not good policymaking, and it's even worse leadership.

Let's think about emotion in the context of leadership under uncertainty. At Columbia Business School, we teach executives that symbols (such as a big bonus amidst a bailout, or corporate jets ferrying executives to ask for handouts) have meaning beyond their inherent substance (building on work that was originally published by Don Hambrick: Hambrick, D. C. & Cannella, A. A., Jr. 1989. Strategy Implementation As Substance And Selling. The Academy of Management Executive, 3(4): 278). Here's the problem: when faced with a symbolic, emotional challenge, the knee-jerk response of most red-blooded managers is to counter the issue with substance, with the facts. So in the case of AIG, we are told that the bonuses were contractual obligations, that they were essential to keep the talent necessary to wind down complex positions. And, even that without them the government bailout funds would be permanently lost because the company would not be able to function.

Here's the problem: when you are facing a symbolic challenge, the facts do not matter. Executives seem to either forget this or are reluctant to approach emotional issues with emotion. To counter a symbolic problem, you have to take on the meaning inherent in the symbolism, and to understand why the issue is triggering such an emotional backlash. You'll never succeed arguing substance when the real problem is a problem of emotional meaning. You need an emotional response that defuses the characteristics of the mess and meets the public where it lives. You need to show empathy and have a sense of where the wounded parties are coming from. Most of all, as a leader, you need to frame the issues in ways that further your agenda.

If you consider the truly great leaders throughout history, they have ways of re-framing the issues that acknowledge emotions but put them in a greater context. Consider a literary example, the "friends, Romans, Countrymen" speech written by Shakespeare, who describes the eulogy given by Mark Antony at Caesar's funeral. Caesar had been murdered in something of a populist rebellion himself (now that really is going much too far, despite undignified recent calls to murder bankers).