Did TechCrunch's Arrington Just Invest in an AOL Exit Strategy? [Update]

TechCrunch (AOL) founder and co-editor Michael Arrington said that his period of abstention from investing in companies that TechCrunch covers is over, and that he's actively investing again, both in individual companies and venture capital funds.

Arrington claims that the only reason he stopped before was that "accusations of conflicts of interest by our competitors became somewhat distracting," and that criticism now will only come from jealous competitors. The bluster is a nice try, but no more than that. Conflicts of interest are a journalistic bugaboo because of their potential to change coverage, whether intentionally or unconsciously. But the question is why now? Arrington's decision may be less about making money than setting the stage for his exit.

Arrington was already a wealthy man by most standards before he sold TechCrunch for a reputed $25 million to $40 million. Some may have gone to those who had helped him build the business (one would hope, at least), but he likely kept a big chunk.

In short, Arrington is not hurting for money, given the type of investing he's doing. As he backhandedly admitted in his post about investing again, TechCrunch has often weathered charges of conflicts of interest. For example, in 2009, some of MG Siegler's Kindle coverage failed to note that TechCrunch was funding a potential competitor to Amazon's e-reader. And that was a conflict of interest for the whole company, not just Arrington.

Here's how Arrington says he would handle conflicts of interest:

The easiest way for me to handle this is to be up front about all of these investments and disclose it in posts, which I've done and will continue to do.I think that this will all be fine. I'll still be very hard on companies I invest in when they deserve it (ask Seesmic founder Loic LeMeur about that sometime), and I will still be quick to high five a company that's doing well even if I'm not an investor, or if I'm an investor in a competitor.

Unfortunately, that hasn't always worked in the past. Even when someone else writes a post on a company in a sector that Arrington has invested, there are problems because he's the site's flipping site co-editor, one of the two people who has final editorial say. TechCrunch can't reasonably expect writers to act as though Arrington's connections don't exist. As Ryan Tate at Gawker points out, the investment conflicts have already show problems:

Rather than reporting on Napster creator Shawn Fanning's new startup "Yo" when he heard about it, Arrington jumped in as an investor. Only when one of his reporters uncovered the story independently, as Arrington describes it, did TechCrunch publish the news that the site's own editor had known for some time. And that is the flaw with trying to mitigate conflicts with disclosure: You can't disclose when you're sitting on information; otherwise you are, by definition, not sitting on the information. Likewise, it's hard to see how TechCrunch is going to disclose when it doesn't cover a competitor of one of Arrington's companies (Twitter, maybe?).

It's a trenchant point -- sins of omission versus sins of commission. What makes the Arrington-TechCrunch dynamic particularly interesting is that he no longer owns the site. AOL does, and the company may have rules about such conflicts of interest. (I've made enquiries and am waiting to hear back from the company.) Even if there is no formal rule -- or even contractual obligation, which is common in media â€" it's hard to believe that this would sit well with Arianna Huffington's attempts to rebrand the editorial operations as "real" journalism.

[Update: AOL said that it would answer the question, but never did. However, it did send a statement to Business Insider:

As a rule, in order to avoid conflicts of interests, AOL Huffington Post Media Group editors, writers, and reporters may not have a financial interest in a company or industry that they regularly cover. This does not include investments in mutual funds, money market funds, or other similar investments. If an editor or reporter is assigned to cover a company outside his or her usual beat, and has a financial interest in that company, including owning stock, he or she may maintain the investment but must transparently disclose it.
Michael Arrington operates from a unique position. He was an investor in technology companies and start-ups before he started TechCrunch, and his extensive knowledge of, and involvement with Silicon Valley is one of the very things that has made TechCrunch a must-read site. TechCrunch is committed to transparency. Michael Arrington has written about the guidelines he follows -- that he rarely writes about companies in which he is an investor, and that when he does, he clearly discloses this information. The same rules apply when TechCrunch's writers cover these companies.

So, AOL is a journalistic organization with all the usual ethical considerations -- unless the writer works for TechCrunch, which doesn't always announce the conflicts (like when not covering news so Arrington or someone else can invest). Well, maybe all those high-profile hires will make the rest of the organization forget that they're second class reporters in AOL's eyes.]

But maybe that's the whole point. Arrington sold TechCrunch to AOL. At the time, he wrote:

I fully intend to stay with AOL for a very, very long time. And the entire team has big incentives to stay on board for at least three years.

Time under someone else's control can weigh heavily, particularly when you can afford to walk away. Arrington has been in and around business long enough to realize that. In the long run, he'd no longer really be in charge, no matter how much freedom the company had promised. Maybe the head-on crash with AOL Moviefone was a reminder of what was bound to happen as part of a larger company.

Arrington's activity screams of setting up a career as part of an exit strategy. AOL likely only shackled him for a few years. Maybe he's already tired of big corporate life and is intentionally creating a situation that might nudge them into letting him out earlier. Call it negotiation by gluteus maximum distress.

Related:

Image: morgueFile user ppdigital, site standard license.

Erik Sherman

Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

Twitter Facebook

More from CBS News