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Along with Goldman Sachs, AIG (NYSE:AIG) was 2009's favorite whipping boy. AIG Financial Products exposed the global financial system as a whole to risks of which AIG corporate seemed blithely unaware until it was much too late to do anything about them. The scandal around bonus payments to AIG FP staff exposed deep and volatile fault lines around general attitudes towards compensation on Wall Street, and investigations into the AIG bailout and the fact that AIG FP's counterparties -- especially Goldman Sachs -- got paid out 100 cents on the dollar, poured more flames on the fire of populist ire.

As 2009 gave way to 2010 and AIG started to right its ship under the leadership of CEO Bob Benmosche, a core question remained: To what extent was AIG FP a reflection of AIG's corporate culture, and to what extent was it an aberration? AIG had surely already been in hot water since the accounting, bid-rigging, and finite reinsurance scandals had brought about the defenestration of Maurice Greenberg, who had been only the firm's second CEO since its 1919 founding. That said, one doesn't grow a company to $100 billion on sleight of hand and skullduggery alone. AIG was and remains a very real and world-leading insurance company. At the end of the day, was AIG FP the one bad apple that needn't have spoiled the whole bunch?

I read Ron Shelp's book Fallen Giant hoping it would shed light on that basic question, and it does indeed provide some, but not as much as I would have hoped. At the end of the day, Shelp, who had held senior positions at the firm, spends a little too much time narrating its legend and grandeur to really dig in to the quotidien details of how AIG distinguished itself as an insurance company. Here's a typical passage about a Filipino subsidiary:

Philamlife built a large, magnificent auditorium, carved of local wood in a traditional Filipino style. It is used frequently, generally for cultural events and the occasional political affair, having nothing to do with the company's business. It serves as a public reminder of the company's role in the life of the country.

Which is fine and dandy. But he spends about the same amount of time describing the 1999 acquisition of SunAmerica, which has been declared one of AIG's core businesses by current CEO Bob Benmosche. A little more detail might have been helpful. In general Shelp's book reads a little too much like an extended article in Vanity Fair: how grand were AIG's corporate holdings, how well connected were its employees, how dashing their exploits!

Shelp does go into considerable and altogether worthwhile detail on certain episodes, including when AIG spearheaded the formulation and recognition of the concept of a "services" industry from the mid-70s forward. AIG was having trouble getting the U.S. Government to go to bat to defend its interests when there was political turmoil abroad. With Shelp playing a key role, AIG led the formation of an industry organization and won official legislative recognition of services alongside goods and commodities as worthy of diplomatic intercession and retaliation in the event of discriminatory action by a foreign government. Shelp also relates less seemly interactions between AIG and government organs, including the flying of briefcases of cash to Washington when that was still legal, the flying of a briefcase of bonds out of Argentina when that was not legal, and general strong-arming of various legislators and regulators by AIG representatives.

Fallen Giant also addresses some of the core cultural issues within the insurance giant which seem to presage its fall from grace. Greenberg was a famously difficult and demanding fellow to work for, and he set high goals for his executives. Each was expected to achieve "3 15s": annual 15% revenue growth, 15% profit growth, and 15% return on equity. In return for hitting these numbers, AIG executives participated in an utterly sui generis compensation structure. They were awarded with shares in two outside companies, C.V. Starr and Starr International (SICO, sounds like "psycho"), each of which in turn owned shares in AIG. Interests in these firms vested only when executives turned 65, so their long-term interests were thought to be truly aligned with those of AIG as a whole.

This compensation scheme was "differentiated AIG from all other companies and created a culture that was unique in corporate America." Indeed, I conferred with a friend who is a compensation specialist, and he confirmed that he had never heard of anything like it, but he also noted that "you get what you pay for." Which is to say that an atypical compensation scheme would be expected to incent non-standard behavior (compare the more standard Rabbi Trust). And the AIG shares within SICO would in time prove to be the grounds for substantial litigation between AIG and SICO and Greenberg because, though AIG's board had the authority to remove the CEO from his position at AIG, it lacked authority to remove him from the helm of SICO, so Hank effectively held AIG's deferred compensation scheme hostage.

At the end of the day, then, Shelp paints a picture of a company that played by its own rules and, when necessary, bent or created new ones. What then of the new AIG under Benmosche? Benmosche has, himself, shown a remarkable ability to get what he wants and to at times refuse guidance from the government that owns the majority of his enterprise. Felix Salmon memorably characterized Benmosche's tactics -- particularly his role in the dislodging of AIG board chair Harvey Golub -- as "diva fits." Other commenters, including Seeking Alpha's Kid Dynamite, have questioned the clarity of some of the firm's financial disclosures.

And yet, at the same time, Benmosche is doing a good job restoring AIG's brand and its focus on its core businesses. In the spirit of full disclosure, I plain like the guy and would be happy to see him succeed. He's getting paid well, but he didn't need the money, and could have just stayed on his island in Croatia instead of coming out of retirement to run a very challenged enterprise. If he can stay at the helm of AIG through his current cancer treatment and make the taxpayer whole, which is not outside the realm of the possible, Benmosche could at once channel Steve Jobs and Lee Iacocca. I'd like to see him making TV commercials for AIG 9-12 months from now, presuming no further skeletons emerge from the firm's Imelda Marcos like closets.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: AIG shares are held by index funds in which I invest.

Source: Fallen Giant: The Amazing Story of Hank Greenberg and AIG