Is AIG Spending Too Much on Public Relations?

AIG CEO Edward Liddy was a model of fiscal discipline. Appearing before Congress last month, he committed the bailout billionaire to pay back its government loans, clean up the financial mess it created and act as "good stewards of the public funds we have received."

So why is AIG spending tens of thousands of dollars every month on four big p.r. firms? Spokesman Nick Ashooh said his in-house communications team needs additional mouthpieces to respond to the "tsunami" of bad news from its collapse last September, including a lavish executive junket and hefty bonuses covered by the $180 billion taxpayer transfusion. (Read "The Bailout Bomb: Why AIG=WMD.")

But members of Congress who are overseeing the bailout funds question what spin doctors have to do with Liddy's stated mission. Representative Elijah E. Cummings, a Democrat on the House Oversight Committee that has investigated AIG, called the firm's p.r. payroll "a prime example of AIG misusing funds. Mr. Liddy should know, however, that all of the p.r. firms in the world will not distract us from getting to the bottom of what is really going on at AIG and how the company is spending taxpayer dollars."

It's not unusual for private companies to deploy outside p.r. flacks when they get into trouble. The biggest firms can charge as much as $40,000 a month to deal with fallout. AIG is now 80% owned by the government, which has pumped in public funds to allow the company to cover its claims and not bring down the world banking system with it. But some of that money appears to be financing damage control. Just how much, is the kind of question that publicly financed bodies are obligated to answer. When he was asked for AIG's p.r. tab, Ashooh gave a stock corporate response: "Contracts are proprietary."

"That's the whole culture of concealment that's helped some of our bigger financial enterprises get away with murder," Representative Peter Welch, a Vermont Democrat, told TIME. He said taxpayers are majority shareholders who are "entitled to know how company money is being spent" without the data's being "dressed up with the benefit of high-priced media folks." (Read "Five Lessons from the AIG Bonus Blowup.")

AIG retained only one full-time p.r. firm when it ruled the insurance world. Today's four firms, said Ashooh, have different missions: Sard Verbinnen & Co. helps to structure statements on the bailout, Kekst & Co. focuses on sales of assets to pay back federal loans, Burson-Marsteller handles controversial issues and Hill & Knowlton fields inquiries from Capitol Hill and prepares congressional testimony for company officials. "If the criticism was we were running image-advertising or doing sponsorships to make ourselves look better, I could see that," Ashooh said. "But we're doing a lot of information-processing. It's really been just responding to inquiries" from Congress and the media.

Last week, however, the p.r. team went on the attack. It came on the eve of ex-chairman Maurice (Hank) Greenberg's congressional testimony critical of the firm's current leaders and the bailout strategy. Reporters were given a document outlining Greenberg's role in creating a ruinous AIG unit and his 2005 ouster. A press release questioned why he should have "any credibility." Ashooh said the document was prepared internally, not by p.r. firms, and was intended to correct "misinformation" spread by Greenberg.

One of Greenberg's lawyers, Lee S. Wolosky, said the document appears to reflect the work of outside firms, representing a possible misuse of government funds. "I understand using a public relations firm as a place for reporters to call for basic information about the company and its current plans," he told TIME. "But when you're using taxpayer money to fund a campaign that attacks specific individuals by name, that is particularly egregious. Even if the screed was done entirely in-house, it still constitutes a questionable use of taxpayer money, since the in-house staff is essentially government employees. There's very little legitimate expenditure on public relations for AIG at this point."

Ashooh disagrees. He said the outside firms help AIG keep up with the pressing demand for information. "If we stopped doing what we're doing," he said, "there would be a worse outcry."

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