The Crusader

Eliot Spitzer, the attorney general of New York, has risen to national prominence by emulating Teddy Roosevelt and fearlessly taking on powerful interests. His aggressiveness has made him a lot of enemies—but it may propel him to the governor's mansion and beyond

"For those of you that don't live here, you have no idea what we have to put up with," says Dan Boody, a representative of the Painters District Council #4. "We're fighting for our lives up here. We represent a lot of people; we have to provide a lot for them. Jobs are number one, but we keep losing our jobs—whether the company's been sold or they're being displaced. Somebody's gotta come into this town and take control. And it's not going to be the governor we have today. And if you're gonna be the guy, we've got some serious problems here and we need to make some changes."

As if he's inhaled all the disputes and predicaments and concerns and distresses of the room (and, beyond that, the region), Spitzer says, "What you're saying is right. We've got to somehow create a new economic model that's going to get new jobs here."

"Forget the individual cases," he tells the labor leaders. "There are two themes that run through everything: transportation and energy. You're simply not going to keep factories here, whether it's steel or GM or General Mills, if transportation and energy costs are high. Energy and transportation used to be our comparative advantage—business started here in the early part of the nineteenth century because of the Erie Canal, with proximity to lakes. We had cheap power. Now energy costs are higher, so they're moving to the Midwest and South, where they can be on the interstate with cheap energy that's paid for by the states."

"So those are the two things I can tell you where government can do better," Spitzer says. "And we have had completely misguided policies when it comes to them. And both are infrastructure issues. Government can't put a GM plant here, but government can go to GM and say, 'We'll give you [affordable] transportation and energy costs.' We haven't had coherent energy policies for twenty years."

Speaking softly, Kaczorowski says, "Things were rosy twenty years ago."

The next day Ken Langone, a co-founder of Home Depot and the chairman of the New York Stock Exchange's compensation committee from 1999 to 2003, is screaming in the Manhattan offices of his investment-banking firm, Invemed.

"I'm fighting for the little guy!" yelps Langone, whose wealth Forbes has estimated at $820 million. "How about some guy that doesn't have my resources or reputation? Or my track record? I'm proud of what I've done with my life."

One can understand, if not sympathize with, Langone's agitation: he is the only other person named in a suit Spitzer filed in May demanding that Richard Grasso, the former head of the NYSE, return more than $100 million of the $139.5 million compensation package he received in August of last year. (Three weeks after the size of his pay package was revealed, Grasso was forced to resign.) In his suit Spitzer charged that the NYSE compensation committee had been misled about aspects of Grasso's contract and that the formula whereby his compensation figure was derived did not accord with the rules that govern the state's not-for-profit status, under which the NYSE is registered. Frank Ashen, a top deputy of Grasso's, admitted to Spitzer's office that he had provided "incomplete, inaccurate and misleading" information regarding how much Grasso was making. An outside consulting firm, Mercer Human Resource Consulting, said in the suit that its analysis of the payment, which was submitted to the board, included "inaccuracies and omissions."

Langone, the son of a plumber and the first member of his family to go to college, was no longer a member of the compensation committee when it agreed to the $139.5 million, but he and his board recommended the payout. The figure, he says, was based on the internal recommendations of the NYSE board member Stanley Gault in 1995. Langone makes me read these recommendations from a black binder: in order to attract and retain "world class talent," the document says, Gault had advised that the NYSE needed to pay its executives the way top companies in the private sector paid theirs.

"When I turned over this committee to the new committee," Langone says, "I told them they had a complete free hand to do whatever they wanted to do with Grasso. They chose to go ahead and do what we would have done, but they had the freedom not to do it at all."

In the event, the committee voted unanimously for the $139.5 million payment. And Langone and Grasso (who sued the exchange in July for at least $50 million for defamation and breach of contract by his successor, John Reed) have found allies in both Spitzer's friend Jim Cramer and the Wall Street Journal editorial page.

"We've been very critical of the board of the NYSE and Spitzer," Paul Gigot says. "The attorney general has discretion on whether or not to follow up on a request. Let me put it this way: there's substantial political benefit in going after the poster child for executive compensation. That's easy."

"But if he loses in court," Gigot continues, "he'll have a black eye."

Pounding his hand against a table, the irate Langone, whom Spitzer is suing for $18 million, says, "Tell him this: Teddy Roosevelt would never do something like this. Teddy Roosevelt would never have filed the kind of complaint that he filed. You remember when Lloyd Bentsen was debating Dan Quayle, and Quayle was comparing himself to John F. Kennedy? Bentsen said, 'I knew John Kennedy; you're no John Kennedy.' I didn't know Teddy Roosevelt, but I've read a lot about Teddy Roosevelt. Eliot Spitzer's no Teddy Roosevelt."

It may very well not matter whether the state wins the case—not to Eliot Spitzer, anyway. The case may take years to reach court, and Spitzer (who, Newsweek reported, received a campaign contribution of $10,000 from the law firm now representing Langone) will be on the campaign trail, presenting himself as a man calling for accountability, for responsibility, for a new moral directive—helped along by government enforcement—in American life.

When I convey Langone's arguments to Spitzer, he replies flatly, "They can say whatever they want. They are not-for-profit, and they are bound by that structure. I've said repeatedly that I'll wait till we're in court to argue the facts. But this is one of the most unambiguous cases I've ever seen, where you have structure for determining compensation that was grotesquely flawed. Even if you were to accept their structure, what he was paid was tens and tens of millions of dollars above that flawed structure.

"We will win."

Sridhar Pappu is an Atlantic correspondent.
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