AIG’s General Counsel Acts Against AIG’s Interest

If this Wall Street Journal account is true, AIG’s general counsel should be fired for cause:

Ms. Kelly, AIG’s general counsel, has been at the insurer since 2006 and was appointed vice chairman in January under former CEO Edward Liddy. Several people familiar with the matter say Ms. Kelly asked other employees to join her in indicating they were prepared to resign. Four executives agreed, and Ms. Kelly retained outside counsel to advise the group on their legal options, says one person familiar with what happened.

A spokesman for Ms. Kelly says she didn’t “instigate or encourage” the other four, but “only advised the other executives of what they needed to do to protect their rights” under AIG’s executive-severance plan, and helped them arrange for outside counsel.

Now I am not a corporate governance expert, but officers of a corporation have a duty of care. I would assume that Ms. Kelly is an officer of the corporation. She has no business advising fellow executives on how to take action that are contrary to those of AIG. And if she encouraged others to resign, I would think that would be actionable. I welcome comments from those who know the terrain.

But then again, AIG has long been a law unto itself, so nothing should surprise me.

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  1. Madi

    I would say it’s something even more serious than duty of care: she could have breached her duty of loyalty to the corporation. Who does she think are her clients? Her client is the corporation, not its executives. Geesh, definitely conflicts of interest at play. Good ethics would have required that she advise the executives no more than “get yourself independent counsel”

    Even if it doesn’t rise to that level, she could be acting in gross negligence or bad faith under the duty of care standard.

  2. Economics of Contempt

    Based on the facts in the article, I think Kelly would argue that advising the executives to submit written notice that they were prepared to resign if Feinberg cut their compensation was in AIG’s interests — the logic being that (1) the written notices would discourage Feinberg from imposing draconian pay cuts on the next 75 best-paid AIG employees, which (2) is in AIG’s interests because draconian pay cuts would harm AIG’s ability to retain “top talent.” She would argue that she was advising them on what they should do to protect AIG’s interests in its dispute with Feinberg, and that she wasn’t advising them in the context of a dispute between AIG and the executives over severance pay.

    It’s a pretty tenuous argument, but I’m sure that’s what it would be.

    The problem she’d run into is that while advising the executives to submit written notice that they’re prepared to resign if Feinberg’s decision on compensation for the next 75 employees harms their rights under the executive-severance plan, advising the other executives on whether a hypothetical Feinberg decision harms their rights under the executive-severage plan is a definite no-no. In other words, Kelly could only conceivably advise them to submit the written notices if the fact that Feinberg’s decision harms their rights under the severance plan is a foregone conclusion. But even then she might run afoul of her duties because there might be contractual interpretation arguments that she has a duty to pursue.

    I suppose it comes down to what Kelly’s spokesman meant when he said Kelly “advised the other executives of what they needed to do to protect their rights.” If the other executives came to Kelly and the only thing she said was, “I can’t advise you on this; you should retain outside counsel,” then she’s probably fine. But her spokesman makes it sound like she actually advised them on their rights under their severance plans with AIG — if that’s the case, then she’s got problems of her own.

    Kelly is really walking a fine line here, that’s for sure.

  3. Siggy

    The caveat to this little beauty is “if true”. Asking the executives to join her indicates that she would rendering contingent notice. She is flagrantly fomenting a mutiny. It should be severance with prejudice.

    As to the reported threats of senior people at AIG, let them go. No one is indispensible.

  4. Ina Pickle

    When the interests/actions of the control group differ from the interests of the corporation as an entity (assuming that it really exists separate from the control group, but that is a different issue), a corporate counsel needs to start treading very, very carefully.

    If it were me, I would have been sorely tempted to get myself outside counsel before I unlocked my door and agreed to see any of the employees. And agreed: all you can say is “I represent the company, and I cannot advise you on this. You must get outside counsel.”

  5. William

    I’m astonished by the expectation of the NC commenters that an employee must cast aside her humanity to serve only the interests of a corporation. Here at NC, corporate evils are being recounted daily in stark detail, yet in a human story like this everyone still sides with a sociopathic non-human entity. Look, sometimes you can’t have it both ways, you either serve your fellow humans or you serve a non-entity that has absolutely no regard for you.

    What would you do if your workplace friends came to you in a time of need–friends you have worked closely with, socialized with, ostensibly created real bonds of trust with? Really, would you so callously turn your back and say you “owe your allegiance to the corporation, go find your own help?”

    And as a practical matter, what is worth more, friends out there who will help you get your next job, or former friends who will forever bad mouth you for being cold and heartless?

    1. i on the ball patriot

      You play the Skip McGee card …

      This is a scam ‘rule of law’ pissing contest in the pernicious greed arena where the elite pigs involved gave up their claim to empathy from the masses long ago. Money and power will prevail … meanwhile … these poor people, whom the AIG executives have created through their selfish machinations, get selective enforcement of unconstitutional bull shit oppression and exploitation laws ..

      Deception is the strongest political force on the planet.

    2. Grinch

      And this is why illegal actions need to be prosecuted to the fullest extent of the law. To show that illegal actions have consequences beyond the anger of a few friends.

    3. Siggy

      The party in question has a dual obligation. First to her employer; second, to her profession as an attorney. Her malfeasance is not to refer her fellow workers to outside counsel. Her crime is to invite her fellow workers to engage in blackmail. Don’t muddy the water with bogus considerations of friendship.

      Wouldn’t want you alongside me in a foxhole, you’d never shoot back.

  6. Kay4

    It seems Kelly advised the other executives a little too much and while she does have arguments that it is the the best interest of AIG I agree with Economics of Good Contempt she is walking a very fine line.

  7. Ina Pickle

    William, it is always your friends who get you disbarred. There is the “human and right” thing to do, and then there is what a lawyer’s ethical requirements dictate. Run afoul of the latter, and you will no longer be earning a living — not just because the company fired you, but because they yank your bar card.

  8. Eric

    Employee seeks better pay, tries to consolidate efforts with other, like-minded employees. Sounds fair to me.

    My obligation to my corporate employer has its place and time. However, who really thinks that my obligation extends to not seeking to maximize my own compensation? Or are you saying that the sin comes from joining forces with others who are fighting the same battle?

    Unfortunately, it seems that the hostility here is unprincipled, based on nothing more than that the employee in question is an officer of the much-maligned AIG. I would quickly agree that many such officers could by duly criticized on many fronts, but it’s probably better to fire legitimate broadsides againt them instead of joining an unseemly pile-on. While some conservatives would certainly argue that an employee must subserve everything to his or her corporate master, I’m a little surprised to see that opinion so well-received here.

    1. Yves Smith Post author


      With all due respect, did you read the post? She is an officer of the corporation and its general counsel. She is held to particular standards of conduct. She is not a mere employee.

      1. charcad


        You’re right of course. Unfortunately another Norman Rockwellesque painting is starting to emerge in the background, this one titled “Fiduciary Duty”.

  9. Wendell

    But Yves, Eric is right: “employee seeks better pay, tries to consolidate efforts with other, like-minded employees”–in other words, they’re simply engaging in concerted action under Taft-Hartley.

    Oh, wait a minute: unionization isn’t available, under Taft-Hartley, to officers, let alone Vice Chairs of the corporation. (!)

    1. Dippy

      O curas hominum! O quantum est in rebus inane! O tempora, O mores!

      Stultior stulto fuisti, qui tabellis crederes!

      Silent enim leges inter arma.

      Sancta Susanna ROFL:

      Well looks like after 2,000 thousand years we still Haven’t figured out the conundrum of pacta sunt servanda or rebus sic stantibus ie: Contractus qui habent tractum succesivum et dependentiam de futurum, rebus sic stantibus intelligentur, and are left to the will of the winds aka he who plays with the sands of our lives (the person with the most monies)

      Personally I Honor the later as such is the make up of the Universe, she is my guide and not the musings of men, especially those that have the pecking order backwards (that edifice sure is hard eh).

      1. craazyman

        Sancta Susanna . . . ROTFLMAO . . . Lord Have Mercy, if I were Feinberg I’d put 5 Llamas from the Bronx Zoo in those jobs at AIG. A year later and you’d never know the difference.

        Quis hoc potest videre, quis potest pati,
        nisi impudicus et vorax et aleo,
        Mamurram habere quod Comata Gallia
        habebat uncti et ultima Britannia?
        cinaede Romule haec videbis et feres?

        -Catullus, Carmen XXIX

        1. Dippy

          Sodomite Romulus, will you see and endure this?
          You are shameless and voracious and a gambler. And shall he now, and full to overflowing, make a progress through the beds of all, like a white cock-pigeon or an Adonis?

  10. Mark

    Let’s keep it simple. She was there since 2006. She reaped the financial benefits. The company engaged in practices that were at best horrific business practices and at worst criminal. Where was she as general counsel from a risk oversight perspective? She helped tank the company – through inaction or incompetence. Say good-bye. Others can fill those shoes for $500k. That is how capitalism should work.

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