Academics' Work Choices Raise Ethicists' Eyebrows
A high-powered academic team's work for a billionaire executive facing charges of improper accounting has raised questions about the appropriate relationship between academic consultants and the businesses they advise.
Business ethicists are questioning why the academics, affiliated with some of the top business and law schools, joined a campaign to repair the image of Maurice R. "Hank" Greenberg, who was forced to resign in February 2005 as chairman of American Insurance Group Inc., billing him at rates of $400 to $1,000 an hour.
"Academics are supposed to be independent thinkers," said Jim Hoopes, professor of business ethics at Babson College in Wellesley. "Once academics start getting paid for their opinions in this way, there is less confidence in the integrity of their ideas."
The academics, working with eSapience, a little-known Cambridge company calling itself a new media and research firm, included Richard Schmalensee, dean of MIT's Sloan School of Management; David S. Evans, adjunct professor at University College London; and Richard Epstein, a University of Chicago law professor.
Their mission was "to change the public conversation about Maurice Greenberg," according to a confidential plan summary. This was to be accomplished, in part, by organizing invitation-only events where "influencers" would hear Greenberg weigh in on insurance issues and by penning papers, editorials, books, and other content aimed at putting the executive in a favorable light, the summary said.
The document was filed in US District Court in Boston last month as part of eSapience's lawsuit against Greenberg's current company, New York investment firm C.V. Starr & Co., for allegedly refusing to pay $2 million in bills from the image campaign.
Schmalensee, in an interview, said the eSapience plan summary was "a marketing document" he had never seen. But he defended his role in the project as legitimate academic work. "I don't think I did anything that went beyond the bounds," he said.
Evans and Epstein declined to comment on their involvement with the Greenberg campaign. The eSapience managing director, Karen Webster, who is Evans's wife, didn't return phone calls.
Several other academics listed in the document as part of eSapience's "core academic team," meanwhile, are distancing themselves from the Greenberg project, saying they played no role.
Although the suit focuses on the reimbursement battle between eSapience and C.V. Starr, its description of eSapience's plan to revive Greenberg's reputation is troubling to ethicists. Part of the plan called for eSapience "to raise questions about the effectiveness of the current legal and regulatory environment."
The eSapience plan, though it doesn't name him, seems aimed at discrediting Eliot Spitzer, the crusading former New York attorney general who is now the state's governor. As attorney general, Spitzer filed a half dozen civil charges against Greenberg, accusing him of using accounting tricks to mask AIG's underwriting losses and faltering reserves. Some of the charges were later dropped, and Greenberg continues to contest the remaining charges.
"Resurrecting the reputation of certain people who deserve a plaque in the hall of infamy because of past wrongdoing is not proper," said W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham. "That these are professors within universities that should be the last bastions of integrity is cause for question."
"It's odd to me that academics would be involved in that," said Sandra Waddock, senior research fellow at the Center for Corporate Citizenship at Boston College's Carroll School of Management. "It sounds like a PR campaign and the worst kind of PR campaign."
The lawsuit identifies Schmalensee as managing director of eSapience, Evans as chairman, and Epstein as an affiliate. It says they created two other organizations, the eSapience Center for Law and Business and the Barbon Institute, to distribute ideas favorable to Greenberg's case and to host events, like a symposium at New York's St. Regis Hotel last fall, at which Greenberg gave the keynote address.
Schmalensee acknowledged introducing Greenberg at the St. Regis and recruiting advisory members for the Barbon Institute. But he said his role was proper for an academic, noting that the conference dealt with issues such as insurance regulation.
"These are the kinds of things academics should be involved in," he said. "All I did was organize a conference of interest and value at which Greenberg spoke. It did give him a platform, but it was up to him to do what he wished with it. I don't see how that's public relations."
Schmalensee said Greenberg's company paid for the event, but he said he'd understood that other sponsors, which Greenberg would help to identify, would also underwrite the Barbon Institute. As to whether that institute would go forward now that Greenberg has pulled the plug on the financing, Schmalensee said, "I would bet against it."
While they aren't mentioned in the suit, the eSapience plan summary presented to C.V. Starr lists several other academics as members of what it calls its "core academic team and network," suggesting "they are ready to begin the development of the papers, articles, op eds, books, monographs, and other content related to our key themes," such as the onerous insurance regulatory environment.
Three of those listed, Harvard Business School professors Josh Lerner and Andrei Hagui and Boston University law professor Keith Hylton, last week said they played no role in the Greenberg campaign. Another, Robert Hahn, executive director of AEI-Brookings Center for Regulation, didn't respond to a request for comment.
Schmalensee said that, while they all have been affiliated with eSapience, he doubted the firm "checked with all these people to see how sympathetic they were" to the Greenberg project.
The ethicists said a key factor in assessing the motives of those involved with Greenberg is whether they believed he had been unjustly accused. "If they had not done any due diligence to determine whether Greenberg's character ought to be resurrected, then they do become sort of guns for hire," said Hoffman at Bentley.