AIG, Cuomo and the Board of Directors
J. Robert Brown | Wednesday, October 15, 2008 at 02:07PM Andrew Cuomo, the AG of New York, is angry about the behavior at AIG. Some of this may be politics but he is doing something no other regulator or government official so far has had the temerity to undertake. He is focusing on the role of the board of directors.
In his stinging letter, Cuomo has written to the Board of Directors of AIG. In it, he noted the "unwarranted and outrageous expenditures . . . even as the company slipped towards insolvency." He demanded that the board "cease and desist any such further expenditures, and review, rescind, and recover all past unreasonable expenditures." Among other things, the board "must also immediately institute policies, procedures, and protections that will ensure Board review of all such company expenditures going forward." More ominously, he concluded by noting that: "We hereby place AIG and its Board on notice that this Office will seek appropriate sanctions and remedies if the Board does not comply."
What we think is the most amazing thing about this step is the need for the State of New York and the Attorney General to cause the board to do what it ought to be doing in the first place. This all goes to oversight and supervision. Yet as we have seen from the posts today, Delaware does not impose meaningful supervisory obligations on boards of directors. Were there to be meaningful duties, the Attorney General of New York would not have to be threatening the board to engage in the behavior.
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