THE RIGHT THING: `WITHOUT YOU, WE WOULDN'T BE WHERE WE ARE TODAY'

Years ago I wrote an article for a business magazine about the CEO of a company that remanufactured engine parts for jets. He had received word that 11 airline jets, some of which contained parts supplied by his company, had been grounded. The groundings were due to engine problems, the causes of which were at that point unclear.

When he received word of the groundings, the CEO was about to sign his annual financial-audit papers. These papers, which the CEO must sign, include a statement that he does not know of any issues that would adversely affect the financial condition of the company.

Should he sign the audit papers or not? All he had, after all, was incomplete information on the jet groundings. What if it turned out that it wasn't his company's parts that had caused the problems, but he caused a panic among his lenders by raising the subject at all?

The first lawyers he consulted advised him to note the jet grounding in the statement. Dissatisfied with this response, however, he consulted another set of lawyers. This time he got the answer he wanted: Don't report the incident and go ahead and sign the papers.

While many readers disagreed with me, I thought then -- and think now -- that the CEO had made the wrong decision. If there was the remotest cause for concern about other jets which used his company's parts and were still in the air, I believed, he had an obligation to make passenger safety his highest priority, even if that meant raising an alarm by reporting the groundings.

His ability to find lawyers who would give him the advice he was looking for strikes me as particularly salient in light of the recent brouhaha over the $165 million in bonuses that have been paid to AIG executives, despite the fact that the company would have collapsed if it hadn't received almost $200 billion in federal bailout money.

The bonuses had to be paid to retain top employees who could turn around the company, one explanation ran, ignoring the fact that 52 of those employees, people whose bonuses had totaled more than $33 million, had already left the company.

Last fall, shortly after the initial bailout money -- a now-trivial $85 million -- had been doled out to AIG, it was reported that the company had spent $440,000 on a California spa retreat for its executives. Strong public outrage greeted the revelation. The sequel, the bonus blowup, has proven even more controversial, enough to draw personal criticism from the president of the United States.

It need hardly be said that to accept a hefty bonus when the company's performance has been so dismal as to place it on the verge of bankruptcy is unethical on the face of it. Virtually nobody at AIG had the kind of year that merits a bonus.

The unethical conduct does not necessarily stop there, however. Apparently the bonuses were a matter of contractual record, and anyone running a company in financial trouble -- and the federal government now owns 80 percent of AIG -- should make it his or her business to be aware of proposed outlays of this magnitude.

The bailout was intended to keep a major company afloat as it found a responsible way to right its business affairs. It wasn't meant to buy new country houses for its executives. Those in the federal government who didn't care, didn't know or made it their business not to know how AIG intended to spend the money fell short of their ethical obligations to AIG, to the Congress and to their ultimate bosses, the taxpayers.

Mind you, like the airplane-parts executive I wrote about, the bosses of AIG ought to have reported this potential problem rather than waiting for it to hit the newspapers and splatter even more egg on their faces. In the current climate, it didn't take a business wizard to tell that people weren't going to be very pleased with the idea of failed executives taking home huge bonuses.

c.2009 The New York Times Syndicate (Distributed by The New York Times Syndicate)