From the WSJ Opinion Archives
MANAGER'S JOURNAL
The Candidate
Eliot Spitzer has a classic conflict of interest. He must resign.
When New York state's Attorney General Eliot Spitzer started prosecuting excesses in the financial markets, he was tough-minded but fair. But over time, it has become less clear that he is pursuing justice.
His treatment of AIG's Maurice R. Greenberg, coming on the heels of the forced ouster of Mr. Greenberg's son, Jeffrey, from Marsh & McLennan, is a case in point. Once again, Mr. Spitzer has charged in and discovered a pattern of practices he doesn't like. He is applying a new set of values to reinsurance practices that had been in place for years.
Although Mr. Greenberg was Chief Executive magazine's CEO of the Year in 2003, we are not defending him. Rather we want to ask whether CEOs have a right to due process. Reflecting their dismay at the high-handed conduct of King George, the Founding Fathers created a judicial system with a stringent set of procedural safeguards to protect against overzealous or arbitrary prosecution. Yet in the atmosphere that Mr. Spitzer has helped create, the presumption is that CEOs are guilty--if Eliot Spitzer says they're guilty.
In dispute in the AIG case are highly complex transactions that may have reduced the company's shareholder equity of $82.9 billion by as much as 2%. It's not yet known if the total losses will reach that level, nor if they were material to AIG as a whole. After Mr. Greenberg's departure, the board ran up the white flag to Attorney General Spitzer and declared the transactions "improper."
Were they? One proper way to resolve this would be to create a policy framework with clear rules, which does not currently exist. Another way would have been for the Securities and Exchange Commission to negotiate an earnings restatement with AIG.
But Mr. Spitzer reportedly threatened a criminal indictment, which in effect would have put AIG out of business. Then he went on television to pronounce that the AIG transactions were "wrong" and "illegal," which some legal scholars say is unusual. It's not yet clear what the charges are. Nor has Mr. Spitzer heard Mr. Greenberg's side of the story.
So the New York attorney general both charges and convicts in the court of public opinion. This pattern of overcriminalization is of deep concern to many chief executives. The proper process is for judges or juries to convict defendants only after convincing themselves that a charge has been proven "beyond a reasonable doubt." Too much publicity can be deemed prejudicial.
At the same time, Mr. Spitzer's political ambitions are increasingly clear. He wants to use his record to become governor of New York. Mr. Spitzer's campaign office even paid Google to link a search for "AIG" to a Web site promoting his campaign before it was quickly taken down. In the same television show where he discussed the AIG case, Mr. Spitzer said he was "very close" to presidential hopeful Hillary Clinton and didn't rule out a run for the vice presidency or presidency.
Mr. Spitzer has thus created a reasonable doubt about whether he is using the legal process for political gain. An attorney general running for higher office is different than a senator running because it creates a risk that the legal system becomes politicized and is no longer seen as adhering to principles of fair play and due process. In short, Mr. Spitzer has a classic conflict of interest. The only way to resolve it is to resign as attorney general.
Consider the appearance that the New York attorney general's fund-raising activities will increasingly create. If an industry or company that has not been targeted contributes to his campaign, is Mr. Spitzer accepting that money in exchange for not investigating them? And what if a CEO under fire makes a contribution and is able to resolve his or her legal problems? That might create the appearance that Mr. Spitzer softened his prosecution in exchange for a contribution. Because appearance is everything, Mr. Spitzer essentially cannot raise funds while serving as attorney general.
Ironically, the cornerstone of Mr. Spitzer's actions has been an attack on conflicts of interest and cozy relationships that had long been tolerated. He is attempting to create a new ethical standard. Yet he has turned a blind eye to his own ethical problem. If he wants to set new, higher standards of conduct in corporate America, he must himself adhere to those new expectations.
Mr. Holstein is editor in chief of Chief Executive magazine. This is adapted from an editorial in the forthcoming May issue.
