UPDATE: AIG Trustees Promise Swift Changes To Company's Board

Trustees overseeing the government's nearly 80% ownership of American International Group Inc. (AIG) are promising swift changes to the company's board and pleading for lawmakers' cooperation as the rescued insurance giant aims to formulate "a fair and effective compensation system."

According to testimony prepared for a Wednesday hearing of the U.S. House Committee on Oversight and Government Reform, the three trustees will tell lawmakers they are actively seeking new board members for AIG and plan to make an announcement regarding those efforts shortly.

Echoing sentiments AIG Chief Executive Edward Liddy plans to make at the same hearing, the trustees will urge Congress - which in recent months has been heavily critical of AIG - to improve its relationship with the company. "It is imperative that we continue to support AIG's efforts for the additional reason that if we do not, billions of dollars in taxpayer money could be lost," their testimony reads.

While the furor has died down, AIG recently became the subject of sharp criticism from Congress and the American public for paying out millions in employee bonuses after receiving billions in government aid.

Trustees in their testimony vow to ensure that compensation, including bonuses, at AIG is addressed "in a thoughtful, prudent and fair manner." A compensation policy designed for success is crucial to ensuring that AIG isn't forced to sell certain entities at fire-sale prices, the trustees will say.

The trustees also plan to defend their own roles, calling the creation of their positions "a way to place the government's interest in AIG in the hands of experienced individuals who could act without risk of conflicts of interest" that could be posed by more direct government involvement.

That assertion comes as the committee's ranking member Darrell Issa, R-Calif., and other Republican committee members are referring to the AIG trust as "an unregulated and unaccountable entity responsible for $70 billion of taxpayer money invested in AIG stock."

The three trustees selected to oversee the government's AIG holdings are Jill M. Considine, a recent board member of the Federal Reserve Bank of New York, Chester B. Feldberg, a recently retired chairman of Barclays America and New York Fed veteran, and Douglas L. Foshee, chairman and chief executive of El Paso Corp. (EP) and chair of the Houston branch of the Federal Reserve Bank of Dallas.

The trustees are protected from liability related to losses the government could suffer as a result of its AIG holdings. That, combined with "the AIG Trustees' ambiguous duty to act in 'the best interests of the Treasury,' reduces confidence that the AIG Trustees will act in the best interests of the taxpayers," the oversight committee's Republican members maintain.

Those members on Tuesday exposed divisions within the committee, publicly criticizing Democratic colleagues for not including them in weekend interviews of AIG's trustees.

"I find this especially troubling since numerous assurances were given that minority staff would participate in these interviews," Issa said in a letter to committee chairman, Edolphus Towns, D-N.Y.

Issa said he is "deeply concerned that yet another breakdown in cooperation between our staff follows a pattern of missteps and miscommunications that ultimately harms our committee's ability to conduct oversight."

-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; [e-mail]