Damage Control (Revised & Updated). Eric Dezenhall

weakness of the commander who does not take the initiative, either in planning or attack, lies in his continual search for something, or indeed anything, to react to. He is therefore vulnerable to the ploys of his opponent.

      —THE CAMBRIDGE ILLUSTRATED HISTORY OF WARFARE

      State attorneys general wield frightening powers—and no one more so than New York’s former AG, Eliot Spitzer. Backed by an army of 500 state attorneys, the implicit support of the tort bar, and an ever-attentive press corps, “The High Executioner of Wall Street” (as the Wall Street Journal dubbed him) launched legal-PR blitzkriegs that were designed to bring his targets to their knees long before any prospect of an actual court appearance. It was the classic school-yard bully ploy: Talk tough. Swing first. And pray no one swings back.

      Marsh & McLennan certainly didn’t. In 2004, when Mr. Spitzer accused brokers at Marsh and other insurance companies of bid-rigging and steering contracts to preferred insurers, for which they allegedly received kickbacks, the company didn’t put up much of a fight. Marsh quickly surrendered and announced it would suspend contingent commissions—a longtime accepted and arguably legitimate practice. Soon thereafter, the CEO was fired (replaced by a friend of Mr. Spitzer), the stock price dropped 40 percent, and 3,000 workers were laid off. Much of the same happened at insurance giant AIG, where 11 days after a Spitzer attack the board caved in to the pressure, failed to contest any of the allegations, and tossed overboard its longtime CEO, the venerable Hank Greenberg. Even though Spitzer ultimately dropped his criminal charges against Greenberg, the media die was cast and the damage to his reputation was done.

      Just months earlier, Wall Street’s biggest securities firms had settled with the attorney general over his allegations that they were peddling biased stock research. His bounty: fines totaling a whopping $1.4 billion, the fruits of a yearlong pressure campaign. And so it went on Mr. Spitzer’s Wall Street: Call a press conference, launch a lawsuit, vilify the CEO, drive down the stock price, force capitulation. The Spitzer Reign of Terror.

      Then the tide began to turn, as it often does, because a few brave souls decided it was time to stand up to the bully, to get off the back foot and go on the offensive.

      When Mr. Spitzer decided in May of 2004 to take on New York Stock Exchange chairman Richard Grasso over his $187 million pay package, suing not only Mr. Grasso but also NYSE director Kenneth Langone, Spitzer got a taste of his own medicine. Messrs. Grasso and Langone, two men with the means and the muscle to stand up to him, fired back. Said Langone: “You tell Spitzer that if he’s going to try this case, he should try it himself because my lawyers will beat him like a rented mule.” Said Grasso: “... Spitzer’s decision to intervene in a commercial dispute between the New York Stock Exchange and me over my compensation and retirement benefits smacks of politics.” Said Langone: “Accustomed to bullying settlements, mistaking bluster for substance, Mr. Spitzer apparently expects I will capitulate, to the tune of $18 million. But his claims are false and his suit will fail.” Said Grasso: “Those who thought they could break me with their repeated media leaks badly underestimated my character and resolve. I look forward to addressing them in court where they can no longer hide behind Mr. Spitzer’s cloak.” Grasso and Langone were not simply responding to the AG’s attacks, they were launching a few of their own.

      But over time, it wasn’t just well-heeled tough guys like Grasso and Langone who were pushing back. Conservatively managed publicly traded companies such as H&R Block also went on the offensive in response to Mr. Spitzer’s charges. In early 2006, at the height of tax-filing season—when media interest would be greatest—Attorney General Spitzer charged the company with fraudulently selling retirement savings plans. He threatened the company with “vast fines” unless it capitulated. It didn’t. First, H&R Block let the media know that, despite the attorney general’s blustery threats of a $250 million fine, he had privately offered to settle for as little as $30 million—and the company had rejected it. It also fired back tit-for-tat in the media: “That the Attorney General’s office has chosen to ignore the facts, rely on information taken out of context, and continues to attack our company and our product seems tailored to objectives other than the merits of the case.... I [the company’s CEO] use the words ‘unfair attack’ deliberately, for that is exactly what I believe we are facing.”

      With his targets turning the tables and going from defense to offense, the bully of Wall Street found the going tougher when he sought to win lawsuits through intimidation versus trying them in court on their merits.

INTRODUCING RISK TO YOUR ATTACKER

      Offense nearly always trumps defense for several reasons. First, the news media are allegation-driven. Whoever is alleging is shaping the coverage. News reports lead with an allegation; to the extent “the other side” is included, it typically comes much later in the story. Getting to reporters first with your perspective doesn’t guarantee you positive coverage, but it does significantly increase your chances. Let’s be frank: If you are on the receiving end of an allegation and you hear from the press, in most cases their story is 90 percent written before they even call you.

      Second, we are conditioned to believe innocent people don’t run or hide from a problem, an accuser, or a crisis. O. J. Simpson, streaking down an L.A. freeway in his infamous white Bronco, trying to evade helicopters and squad cars for mile after mile, isn’t exactly sending a reassuring signal that he’s got nothing to hide. The public, the news media, politicians, and other audiences read body language as much as they do a carefully worded corporate statement. Equivocation spawns suspicion. Silence equals guilt. A passionless response to an unfounded attack makes one wonder how strongly the accused believes in his or her own innocence.

      Third, playing defense requires far more resources and is vastly less efficient than playing offense. Digging trenches and hoisting sandbags takes a lot more energy than tossing grenades. By making the other side play defense, you force them to consume time and money figuring out what hit them and what to do about it. If they’re locked away in meeting rooms and on conference calls bickering about how to respond to your offensive, they sure as heck aren’t working on launching one of their own.

      Finally, a demonstrated ability to throw punches sends an invaluable message to your adversary that their siege against you or your company “won’t be easy.” Most of today’s professional agitators know it is wisest to go after the company with the softest backbone. They can’t bring down the entire herd, so they pick on the most vulnerable. Your job is to convince them otherwise, to let them know they’ve picked on the wrong guy. And, surprisingly, the toughest corporate attackers often have glass jaws. They are so conditioned to attack, attack, attack that there is very little in their own personal or institutional experience that has prepared them for defense.