Gov. Pat McCrory had a rough week. It started with an Associated Press report that said he failed to properly disclose compensation he received in 2013 from Tree.com, an online mortgage broker and the Charlotte-based parent company of the website Lending Tree. It ended with his engaging in carefully selected media interviews during which he declared himself a feisty, upright businessman who doesn’t break the law.
Let’s start with his “I am not a crook” defense. It’s an odd defense because no one said he was a crook. What the AP story said was that the timing of the compensation to McCrory raised conflict-of-interest issues and that his reporting of that compensation on financial disclosure forms was at best sloppily incomplete and at worst deliberately obscure.
All that is true. And truth is the ultimate defense against libel no matter how much the governor hints at legal action against one of the story’s two reporters by declaring he reported with malice. Indeed, the actionable issue here may be the governor’s engaging in slander by impugning the reporter’s motives and ethics.
It appears McCrory got himself into this situation by being too hungry for easy money. He served on the board of Tree.com for four years and received more than $600,000 in director’s fees, dividends and stocks, the AP reported. His qualifications for that generous compensation apparently were his having been the mayor of Charlotte, a longtime employee of Duke Energy and, although not a lawyer, an employee of a large law and lobbying firm. Tree.com – a target of complaints, lawsuits and reviews by regulators – no doubt valued McCrory for his political status rather than his wisdom about online mortgage brokering.
Clearly political connections must have been the appeal in Tree.com’s selection of another board member who also got ill-timed compensation: disgraced former South Carolina Gov. Mark Sanford, now a U.S. representative. Did Tree.com want Sanford – a man who used public funds to fly to Argentina for trysts with his mistress – for his ethics and judgment?
The AP story cited McCrory and Sanford for cashing in Tree.com restricted stock options under special terms after they assumed public office. As directors, they were compensated with stock options, but to encourage stability on the board, the options are nullified if directors leave the board early. When both McCrory and Sanford did so, the Tree.com board voted to accelerate the vesting of their options so they wouldn’t go away uncompensated. The acceleration provided McCrory a $171,071 payout. Sanford received $108,539.
Thomas Lee Hazen, a professor who specializes in securities law at the University of North Carolina at Chapel Hill’s law school, said accelerated vesting is not unheard of and can be a matter of fairness. But Hazen said of the McCrory and Sanford deal, “What could make it unusual is the public official aspect of it.”
James D. Cox, a Duke law professor who is also an expert in securities law, was more emphatic. He said, “This whole thing has a very bad odor.” For one, Cox said, boards that are too willing to accelerate vesting may be abusing the terms of the stock options approved by the stockholders.
Cox added that the practice is even more questionable when it’s used to compensate directors who have assumed public office. And it’s exceptionally questionable when the departing director is becoming the governor who will appoint the company’s regulators, in this case the state’s banking director and the majority of the banking commissioners.
Of McCrory, Cox said, “That he was able to get a special benefit that was never contracted for before he became governor makes it a question of whether it was a payment for cooperation. It can easily be read that way.”
McCrory declined to give the AP an interview when it was preparing the story, but he jumped into a full media push after the story appeared. The governor’s interview with WRAL’s David Crabtree was a remarkable exercise in misdirection. McCrory took a few stabs at blaming the messenger. Then he assumed the role of victim, saying there’s a left-wing bias against people who come into government from business.
What McCrory should have done was close his relationship with Tree.com well before the election. Since he didn’t, he should have at least disclosed that in his first year in office he received more compensation from Tree.com than he did from the state of North Carolina. Having failed that, he should have admitted to the AP that the timing of the acceleration of his stock options – the board approved them weeks after he was inaugurated – was a mistake in terms of disclosure and appearance even if the compensation had no effect on his appointments.