Introduction

According to Dess et.al. 2014, strategic case management analysis should follow the following

five steps which is used here also for this assignment a case on American investment group

following the 2008 economic incident on American financial system. The steps are becoming

familiar with the material, identifying the problems, analyzing the strategic issues using the tools

and insights of strategic management, proposing alternative solutions, and making

recommendations.1

Brief Summary of the case

U.S. financial system came crashing down in the second half of 2008. Some of the major

banking companies found their equity base wiped out by loan losses. And Some Investment

banking firms which operate outside the regulatory framework of the Federal Reserve were in

even bigger trouble because they were highly leveraged.

Following this crisis secretary of the Treasury arranged a financial aid of $750 billion to restore

the banks so that they may jump-start the credit markets. One of the benefactors of this bailout

package was American Investment Group (AIG) since it was also one of the victims of the

financial crisis. AIG was funded total of $122.8biliion with a loan of first $85 billion and

$37.8billion second.

The same year it was reported that executives spent $86,000 on a luxurious English hunting trip,

$444,000 on a lavish retreat in California that featured spa treatments, banquets, and golf

outings, $218 million in bonus payments to employees of the financial services division.

1
Gregory G. Dess, Gerry McNamara, and Alan B. Eisner, Strategic Management: Text and Cases, Eighth Edition
(New York: McGraw-Hill Education, 2016), 506.
These expenses raised a public outrage, critics from the US President, a threatening from

Attorney General to subpoena the executives and a law issued by congress to tax the bonus up to

90%.

The result of the public response also alarmed the employees with intent that no one should

reject their payment since they worked for it and it even made the executive vice president to

oppose the public response by resignation.

Statement of the Problem

The reason stated for the company to be the victim of financial distress is lowering its credit

rating which caused the cost of borrowing to go up for AIG, which even triggered the

requirement that the company post collateral with its counterparties but could not. The timely

match of allowing Credit default swap by the company and the occurrence of financial meltdown

all over the country caused the company to face the financial distress. This problem needs a

solution. However, AIG is funded by the secretary of treasury department of the government as a

bailout so that the company may recover, do a thorough analysis for the cause of being a victim

of financial crisis, prepare a solution to get out of the crisis, make a profit and reimburse the

government.

The Company way of spending expenses created a public outrage and critics by government

which needs a solution so that the company executives may continue their work in peace and

quiet.

The reply of the employees due to the public outrage is critical on some level since it led to

resignation of the executive vice president of AIG financial product unit.

In summary the company has faced a financial distress, an external threat due to way of spending

and an internal problem that the employees did not like the public outrage and the response of

the CEO which even made the VP of financial product to resign.

Strategic analysis

In order to have a strategic solution we first need to analyze the case strategically using SWOT

analysis.

Strength

 The company has strength in motivating employees with promised bonuses to perform

better.

 It has a good brand in presenting a financial option with lower risk to the clients.

Weakness

 Exposing their financial distribution like bonus to the employees of financial division and

executives’ lavish retreat in California to the media

 A financial proposal (Credit default swap) that didn’t consider the financial crisis that is

about to come at the time.

 A Chief executive officer who does not stand by the decision the company does and get

easily scared on public opinion.

Threat

 Financial Crisis

 The Company is now a victim of external group think effect which is reflected in the

politics.
  Critics on the company by President Barack Obama for “recklessness and greed.”

 Threatening to subpoena the executives and engage in a “name and shame” campaign by

the New York State’s attorney general,

 Congress act to impose a punitive 90 percent tax on the bonuses.

 Employees were disappointed that the bonus was to be violated due to public outrage

which even resulted in resignation of an executive vice president of the AIG financial

products unit.

Opportunities

 Loan about $122.8biliion from government so financial issue may not be a problem at

this point.

 The external threat from the government needs to be dealt with.

 A good opportunity to review the employee contract agreement and financial

methodology so that a new solution might be assessed and implemented

Alternative solutions for decision

 The Company should work on external relations and public affairs to have a better way of

handling the media.

 The Company should revise the contract agreement of the employees and have the HR

department start to replace the employees that have left the company.

 The company should hire a consultant that can work together with the financial product

unit to overcome the financial crisis and move to profit.

Recommendation

 The Company should have a reasonable way of providing payments to internal activities

with a better way of Justification. And also use the loan provided to get out of the

financial crisis to a profiting company with much better financial procedures.