Go Ahead, Keep the Money

Over the past few weeks, hundreds of businesses have received emergency Covid 19-related funding under the Federal Government’s initial distribution of Paycheck Protection Program funds. Some chose to return the funds because of bad publicity.

Now, for the second round of grants, the Treasury Department has tightened the eligibility strings and added enforcement warnings, including possible audits of the largest recipients. Congressional leaders have also threatened to shame the guilty with investigations and hearings.

One target of both press and partisan political attacks, hotel conglomerate Ashford Hospitality, returned $126 million, one of the largest PPP awards. In defiantly worded press release, Ashford accused the government of “inconsistent guidance” that put the company at “compliance risk.”
CEOs who are weighing whether to return a grant, or apply before the June deadline, might want look at companies that, unlike Ashford, made a more compassionate, but no less defiant argument for keeping government money.

More than a decade ago, during the financial crisis, one executive famously refused to capitulate to public and partisan fury. Robert Benmosche, the CEO of AIG, calmly thumbed his nose at Capitol Hill and stood by his predecessor’s decision to pay bonuses to company employees, including the executives responsible for its infamous derivatives business because their bonuses were owed under legal contract. Benmosche also followed through on his predecessor’s efforts to convince certain executives to return their bonuses as an act of good faith (years later, the contractual bonus payment obligations were upheld in the courts).

On Capitol Hill, Benmosche dared Congress and the Administration to fire him, asserting that he represented the country’s only hope of AIG repaying its bailout. Benmosche kept his promise and saved thousands of jobs.

Of course, the coronavirus pandemic and the financial crisis are not equivalent. PPP monies were never intended for Harvard or The Lakers or Shake Shack. Back in 2008, in order to keep the financial system from collapse, bailouts were mandatory and reserved strictly for too-big-to-fail institutions. His employees may have appreciated Benmosche’s behavior, but his strategy could have backfired with catastrophic consequences.

While no CEO should gamble his or her reputation when there is panic in the streets, plenty currently believe their employees deserve help during the pandemic and need PPP grants to do so. Those who choose not to follow the path of least resistance, should be prepared to open their books and make their case for keeping PPP money. Instead of contrition, they can speak on behalf of their company’s business purpose and ethical standards.

“We are grateful to the government for this assistance at a time when we have no sources of revenue and our cash reserves are nearly gone. Our company closed to help fight the spread of corona virus. Thereafter, we cut all non-essential operating expenses, including executive salaries and bonuses. We applied for government aid in good faith and have used the money strictly to pay employees and cover overhead expenses.”

With certifications from accountants, this basic communication should help keep management out of the headlines.

Today’s corporate leaders are under pressure to align their businesses with public purpose missions. Social responsibility is now vital to building a strong brand, according to an emerging consensus in management circles. But sometimes, conventional thinking and profit-making operating principles are worth asserting and those businesspeople who are hard-headed folks like Benmosche, stand out by sticking up for employees and taking risks that create and preserve jobs.