Ammo for the enemy

On July 28, former Gov. Robert McDonnell and former first lady Maureen McDonnell are scheduled to be tried on federal corruption charges at the U.S. District Courthouse in downtown Richmond, only a few blocks from the Executive Mansion,where they lived for four years.

In a state that has been largely free of political scandal, the trial has the potential to change the way that Virginians think about themselves and the leaders they elect.

But how will it affect business prospects weighing a move to Virginia?

“There’s no question in my mind that this situation is a setback,” says Hugh Keogh, the retired president of the Virginia Chamber of Commerce who once headed the state’s economic development agency. “The impact can’t be measured at this point in time. It will roll out over the next several months.”

Keogh believes that Virginia’s rivals in competition for business prospects will regard charges against the McDonnells as fair game in bad-mouthing the state and its business climate.

McDonnell is the only one of Virginia’s 72 governors ever to be indicted.

The government alleges in the 14-count indictment that the McDonnells received gifts and loans totaling more than $165,000 from Jonnie Williams Sr. in exchange for using the governor’s office to help the executive’s struggling dietary supplements company, Glen Allen-based Star Scientific Inc. Williams resigned as company CEO in late December.

The McDonnells have entered pleas of not guilty, and the former governor insists that he has done nothing illegal. “Not one penny of taxpayer money” went to Williams or Star Scientific during his administration, McDonnell said in a televised response to the indictment.

He maintains that the government has overreached in its interpretation of corruption laws.

The government’s case, McDonnell argues, hinges on the concept that “facilitating an introduction or a meeting, appearing at a reception or expressing support for a Virginia business is a serious federal crime if it involves a political donor or somebody who gave an official a gift.”

The trial is expected to be a media circus, covered by national and international news agencies.

Whatever the trial’s outcome, a state often proclaimed as “the best place to do business” will be in the public eye.

Greg Wingfield, president and CEO of the Greater Richmond Partnership Inc., a public-private regional economic development organization, agrees with Keogh that other states will make the most of the publicity generated by McDonnell’s indictment.

“I wouldn’t doubt that other states are using that ammunition. Depending on the issue, we have done that over time,” Wingfield says.

He recalled, for example, a time when California was having problems with providing enough electrical power.

“We sent a number of flashlights out to prospects we were dealing with,” he says. “We told them they might need them [in California].”

More recently, he made sure that prospects weighing Charleston, W.Va., against Richmond were aware of Charleston’s recent drinking water problems because of a chemical spill.

“To me, it’s not dirty tricks. It’s just informing and leveraging a situation,” Wingfield says. “We didn’t create it, but we took advantage of it.”

On the other hand, he has seen no indication from conversations with economic development teams in the field that McDonnell’s troubles are causing potential prospects to back away from Virginia.

Instead, they are getting questions concerning how a new Democratic governor and Democratic control of the state Senate will affect business.
“I tell them that in Virginia, you can’t tell a lot of difference between a Democrat and Republican when it comes to business. They’re all pro-business,” Wingfield says.

While the indictment against the McDonnells breaks new ground in Virginia, scandals involving governors in some other states are nothing new.

In Illinois, for example, four of the last seven governors were convicted of crimes and imprisoned. One of them is Democrat Rod Blagojevich, who was convicted of trying to sell Barack Obama’s Senate seat after he was elected president in 2008. The former governor is serving a 14-year sentence.

“Illinois is seen as a bad place to do business because it has a long history of corruption that goes above and beyond the norm,” observes Stephen Farnsworth, a professor and director of the Center for Leadership and Media Studies at the University of Mary Washington.

Some gubernatorial embarrassments, however, have not resulted from criminal charges. In South Carolina, Gov. Mark Sanford disappeared for a week in June 2009 for a rendezvous with his mistress in Argentina. Despite calls for his resignation and an impeachment threat, Sanford survived the scandal and served out his term as governor, which ended in 2011. He recently was elected to a congressional seat.

“It’s almost a comedy the way so many governors around the United States become embarrassed,” says C.R. “Buzz” Canup.

He is founder and president of Canup & Associates Inc., a Greenville, S.C., site location company that helps U.S. and foreign clients find the right place for their business.

On Sanford, Canup says that the governor’s policies preceding the incident with the mistress already were hurting economic development for South Carolina.
Judging from what he knows about the McDonnell case, however, Canup doesn’t believe it will have much of an impact on the commonwealth’s business reputation.

“A single incident would not hurt a state from an economic development perspective,” Canup says.

He added that if the indictment had come while McDonnell was still in office, clients might raise questions about his ability to deliver on incentives the state could offer to entice a company.

“But he’s out of office. He essentially has no authority,” Canup says.

Wingfield of the Greater Richmond Partnership says that, even when McDonnell was in office, and leaked accounts of his loans and gifts became the subject of news stories, economic development efforts went on as usual.

“We didn’t get a lot of questions or feedback, including prospects still meeting with the governor,” Wingfield says.

Stephen Fuller, director of the Center for Regional Analysis at George Mason University, also says he’s seen no hiccups in the economy related to the charges against McDonnell.

“I think there was more curiosity and some sadness,” Fuller says. “McDonnell was respected, but he got caught up in it. I don’t think it impugned his dedication to improving the state’s economy. He was viewed as a positive force.”

The revelations about the relationship between the McDonnells and Jonnie Williams will likely provide material for political scientists and historians to pore over for years to come.

Farnsworth of the University of Mary Washington already is thinking about what can be learned from this case.

“Virginia has gained from its reputation as a relatively clean state. The state is now under a bit more scrutiny. It would behoove the legislature to come up with a solution. I think it will help restore Virginia’s reputation,” Farnsworth says. “The good news for Virginia is that we live in a short attention span country.”

Keogh says the spotlight is on the General Assembly to produce ethics reform.

“The horse is out of the barn, and so any legislative treatment runs the risk of looking like window dressing,” Keogh says.

He adds that ethics reform must be a serious, long-term effort that gives the public confidence that the same kind of problems will not occur again.

Otherwise, the state might further damage its reputation.

In reaction to the scandal, ethics legislation is moving through the General Assembly.

Among other things, bills from both houses of the legislature would require lawmakers and public officials to disclose gifts to their immediate families and put a $250 cap on gifts from lobbyists.

On his first day in office in January, Gov. Terry McAuliffe signed a far-reaching executive order imposing a $100 limit on any gifts to him, his family and members of his administration.

Gifts from lobbyists are banned totally. In addition, the order established a three-member Executive Branch Ethics Commission to police possible violations, with $100,000 in startup money.

Brian Moriarty, an adjunct lecturer in management communications at the University of Virginia’s Darden School of Business and director at the Business Roundtable Institute for Corporate Ethics, talks about the Rule of 3s in ethical breeches.

“Once, it’s an aberration. If it happens twice, it’s on the radar. If it happens three times, people see a pattern,” he says.

Moriarty has seen no direct evidence that McDonnell’s missteps have had any serious impact on the state’s reputation. But the damage might not be known, he says, until the case undergoes a thorough academic study.

Still, he has reached some conclusions.

Former Gov. Bob McDonnell and his wife, Maureen, arrive at the U.S. District Court in Richmond to enter pleas of not guilty to a 14-count indictment.“The public trust in government is already pretty low. [And] for people who have a negative perception of business, it can only reinforce it,” he says.