Eliot Spitzer, the New York attorney general, has spent his time in office going after various big-time game from Wall Street analysts to mutual funds and, most recently, the insurance industry. In so doing, he's been likened to another famous lawman named Eliot, the incorruptible Eliot Ness, who brought down Chicago gangster Al Capone. But Mr. Spitzer's more recent decision regarding insurance brokerage giant Marsh & McLennan (NYSE:MMC) doesn't remind me so much of Ness, who used scant evidence to put away Capone.
More like the Knights Who Say "Ni," the absurd characters from Monty Python's Holy Grail.
"The Knights Who Say 'Ni' demand a sacrifice!"
Do you remember what the "sacrifice" was? Uh-huh, a shrubbery. Thank heavens there was a shrubber nearby to bail King Arthur out.
On Monday, the CEO of Marsh & McLennan, Jeffrey W. Greenberg, tendered his resignation to the company's board. That same day, Spitzer said that the board's decision to turn over the company to a new CEO, along with its decision to renounce its longstanding policy of taking contingent commissions for the policies it binds, has convinced him not to charge Marsh with any material wrongdoing.
Thus proving once again that if you're going to steal something in this world, make sure that it has a whole lot of zeroes on the end. Public officials get raked across the coals for accepting gifts that are only slightly larger than de minimis, while a multibillion-dollar institutional fraud goes on for more than a decade, Marsh & McLennan casts out a shrubbery, and suddenly we're not talking about criminal charges anymore.
Give me a break. The next thing you know, "finding religion" will be a valid reason for ordinary street criminals to have charges dropped against them.
A decade of fakery, fixed by the stroke of a pen
What I think Marsh & McLennan did, for years, was to price-fix insurance policies by having the carriers provide fake bids. Naturally since I've been covering the Marsh story, I've heard from people who have said that what Marsh did was simply capitalism; that if its clients lost, it was only because they were ignorant, and the law shouldn't protect you from your own ignorance.
Don't get me wrong -- Greenberg's dismissal from Marsh & McLennan is a positive step. Greenberg is to be replaced by Michael Cherkasky, who only came to Marsh in July after it bought Kroll, a risk management and security firm. Some think that Cherkasky was selected because he was the only top executive at Marsh who was not tainted by the bid-rigging scandal. Others think that he was put in place because of his long-standing professional relationship with Eliot Spitzer: Cherkasky was chief prosecutor for the District Attorney's Office for New York County, where he put a young Spitzer in charge of some high-profile gangster investigations.
Whatever the answer is, and I have to believe that both played into the decision to some degree, Cherkasky's long career as a protector of the law should come as some comfort to Marsh shareholders. He's an expert in white-collar and financial crime. That's a good thing, because he's got some cleaning out to do in his company.
One of the big problems with prosecuting a company is that the truly innocent are punished along with the wrongdoers. Just as there were plenty of people who had never so much as expropriated a pencil at Arthur Andersen and Enron, there are among Marsh's 60,000 employees plenty of good, clean, honest people who have done nothing wrong and have already been financially, if not emotionally, mauled by recent events at the company. But under the laws of incorporation in the United States, a company is treated as a separate entity. If the company was the vessel by which the law was broken, the company can be held liable.
Spitzer has called the policy of accepting these contingent commissions -- payments from carriers to brokers for passing business their way, "inherently corrupt." Further, the complaint that the attorney general's office has made available on its website asserts a pattern of absolutely disgusting behavior at Marsh. The bid rigging at Marsh wasn't about the American way. It was a rank abrogation of the company's responsibility to its clients. This behavior at the company started long before Jeff Greenberg took over as CEO in 1999. So why then is he the sacrificial shrubbery? Why is his defenestration enough to get the entire company off the hook as far as the State of New York is concerned? Other insurance industry companies, from Anthem (NYSE:ATH) to Arthur Gallagher (NYSE:AJG) to Aon (NYSE:AOC) to AIG (NYSE:AIG), are feeling the heat from various attorneys general, but is the answer that they simply pay a tribute, make a sacrifice, and get to, as Spitzer put it, "maintain a viable role in the marketplace?"
Crime pays
I have a theory. Just as the big investment banks and research houses paid fines for their misdeeds and corrupt research during the late 1990s and then moved on, the insurance industry isn't really going to have to face the music on this one from regulators or the criminal system. What will happen instead are a few fines, a pound of flesh, and some mea culpas, and then we move on. What those fines represent are little more than a cost of doing business, a mere fraction of the cost that these practices have cost the insured. That, by the way, is you. It's your employer, it's your doctor, it's your municipality, your state. How much has it cost all told in insurance overcharges? Who knows, but if the contingent commissions and any underlying corruption has been ongoing for more than a decade at the largest firms, including Marsh, that's a math problem that probably includes a lot more commas than it does decimals.
I'm not that excited to see Marsh & McLennan run out of business. The company, and especially its board and the executives who have been in charge, still have some enormous liabilities in front of them, including all manners of class action suits, civil, and potential criminal charges. New York isn't the only state in the union, either. But the law in this country is supposed to be applied evenly. A parent who leaves his child in a sweltering car by accident is still at risk of criminal charges, regardless of intent, remorse, or any other mitigating factor. A thief who recognizes he has done wrong still must face justice. Why, then, should a company that was institutionally corrupt for years be able to say, "Wow, we're going to change," and get a do-over? It's just not supposed to work that way.
I have no doubt that Cherkasky is a good man and that he's going to do his level best to clean up the joint. But does anyone among us honestly think that the board or management of Marsh would have changed its ways had the company not been accused of pillaging its customers?
"I'm sorry that we got caught" is simply not good enough.
Bill Mann owns none of the companies mentioned in this story. For a complete list of holdings, please check his profile. The opinions expressed here are those of the writer and not necessarily those of The Motley Fool. The Motley Fool is investors writing for investors. If you want to sound off on this article, come join us on the Marsh & McLennan discussion board. A free trial is required. Only on Fool.com.
