Reporting from Sacramento —
Meg Whitman says she became one of the world's wealthiest CEOs by always asking, "What is the right thing to do?"
In her recently released autobiography, the front-runner for the GOP gubernatorial nomination disavows Wall Street "self-dealing and fraud" and rejects as myth the idea that successful executives must "step on people, stretch the truth . . . and make heartless decisions based only on the bottom line."
Several of Whitman's actions while in corporate office and as an investor, however, raise questions about whether her conduct has squared with the image she has created in the book, on the stump and through tens of millions of dollars' worth of campaign commercials. Her ethical compass was tested repeatedly as she went from young Harvard MBA to chief executive of the online auction giant EBay, and some shareholders, regulators and business partners found it wanting.
A lucrative deal that Whitman cut for herself with investment banking giant Goldman Sachs was called "corrupt" by the U.S. House of Representatives Financial Services Committee. The partnership she forged between EBay and online rival Craigslist landed in court and is still there; Craigslist has accused EBay of stealing trade secrets and fraudulent advertising. At another company, her dismissal of a subordinate executive resulted in an age-discrimination lawsuit and a secret court settlement.
As an investor, she put millions of dollars into private equity firms with a reputation for callous business practices. Subsidiaries of one of the "distressed asset" firms in which she identifies herself as a limited partner foreclosed on dozens of victims of Hurricane Katrina.
"It's nice to say if you just behave ethically, you will make profits," said Meir Statman, a professor of finance at Santa Clara University who focuses on ethics. "If that were true, life would be really easy. But . . . there are tradeoffs. And if you are a politician, you have to account for them."
Whitman declined to be interviewed, referring questions to her campaign staff.
Her business practices came under intense scrutiny in the fall of 2002, when congressional investigators identified her as one of a handful of corporate executives who had made self-serving deals with Wall Street firms at the expense of shareholders.
After Whitman hired Goldman Sachs to handle EBay's investment banking business — deals that generated $8 million in fees for the bank, court records show — Goldman gave Whitman early access to initial public offerings of stock for her personal portfolio. The head start on the rest of the market allowed her to sell shares for a profit of $1.78 million.
The deals raised suspicions among regulators that Whitman and other executives, including Kenneth Lay of Enron, were trading shareholder assets — in the form of fees paid to investment banks, for example — for personal gain.
"It is effectively a bribe for future services," said Mercer Bullard, a law professor at the University of Mississippi and former Securities and Exchange Commission attorney who was not involved in the government investigation. "It was exactly the kind of thing crooked politicians engage in."
Goldman Sachs and nine other Wall Street firms agreed to stop giving executives they do business with early access to public offerings as part of a settlement with regulators in 2003. Whitman writes in her book that there was nothing illegal about the transaction and that "such investment opportunities were common at the time."
In a debate last week with her primary election opponent, state Insurance Commissioner Steve Poizner, Whitman said she "did not actually see a conflict of interest" in the deal. "It was a completely separate account that had nothing to do with EBay's banking business," she said. "But the truth is leaders have to be above reproach."
Whitman, who had joined the Goldman Sachs board in October 2001, resigned from it two months after she was named in the congressional investigation. She paid $1.78 million to settle a subsequent lawsuit brought by EBay shareholders who said the money she made on the stock deal belonged to them, not her.
She has since worked to restore her reputation, devoting substantial time and resources to charitable efforts. Her book says that in the aftermath of Hurricane Katrina, EBay dropped $1,000 credits into the accounts of 1,000 customers in New Orleans.
"It was the best million dollars we ever spent," she wrote.
Sometimes, however, the way she has managed her family's personal investments has contrasted with such efforts.
A disclosure of economic interests that the state requires of candidates shows that Whitman's family has placed at least $2 million in Fortress Investment Group, a private equity firm that gained notoriety a few years ago when subprime lenders it owned foreclosed on homeowners, including at least 34 Katrina victims.