Dick Cheney- Corporate Criminal

Aug. 29, 2004, 12:43PM
Cheney at Halliburton: A mixed record as CEO
He revitalized the company but also left the oil-service giant with some major headaches

DAVID IVANOVICHCopyright 2004 Houston Chronicle Washington Bureau

W ASHINGTON - Dick Cheney served as Halliburton Co.'s chief executive for five years. Not that you'd know it from the official White House Web site.

Vice President Cheney's biography notes his place of birth, Lincoln, Neb., refers to his many jobs in government, famous and obscure (assistant director at the Cost of Living Council, congressman from Wyoming, defense secretary) and describes his "distinguished career as a businessman and public servant."

The word "Halliburton" never appears.

The White House may downplay the connection, but Cheney's ties to Halliburton have become a huge political liability — for the company.

The billions spent on Halliburton's military contracts have come under constant attack. Indeed, the very name "Halliburton Co." has become a Democratic catchphrase suggesting cronyism.
So were Cheney's contributions to the company worth all the subsequent political fallout?
As chief executive officer of Halliburton from 1995 to 2000, Cheney piloted the company through some huge difficulties: a crash in oil prices, the Asian economic crisis and a painful wave of cost-cutting that saw Halliburton slash 9,000 jobs.

Under Cheney's watch, Halliburton also acquired a financial albatross — Dresser Industries and its huge asbestos liability. The company signed a major fixed-price contract that later proved costly, and it failed to clue investors in on a significant accounting change.

Indeed, four years after Cheney's departure, those missteps still plague the company's bottom line and stock performance.

Overall, Cheney wins above-average marks for his performance from some analysts, despite being a newcomer to the industry.

"I give him a B," said James Wicklund, managing director of energy research for Banc of America Securities in Houston.

Dave Lesar, who served as president of Halliburton under Cheney and is the company's current CEO, is more emphatic. Cheney, he says, was "an excellent CEO for Halliburton."
Others are less forgiving.

"The guy didn't do a great job," concludes one industry analyst who asked not to be named for fear of alienating the company. And after all, the analyst noted, Cheney is "the vice president of the United States."

Cheney declined to comment for this story.

The former colleagues, business associates and industry experts interviewed for this story differ on how much to hold Cheney responsible for the company's troubles.

But they paint a consistent portrait of a famous individual, willing to leave his ego aside to learn a business he knew little about.

Recruited for the jobCheney was recruited for the job by his predecessor in Halliburton's corner office, Thomas Cruikshank. While he could boast little experience in the private sector, he had run an organization as colossal as the Pentagon.

And, of course, he was known around the globe. "He had a lot of doors open to him," Cruikshank said in an interview. Halliburton officials hoped that would be especially true in the Middle East.
Government officials and company executives, after all, are human. And few could pass up the chance to shake hands with a man largely responsible for ousting Saddam Hussein from Kuwait.
"There's a natural curiosity if you have a bit of a celebrity CEO," noted Input/Output CEO Robert Peebler, who served for several years under Cheney after Halliburton purchased Landmark Graphics. "When you got in the meeting, it was about business."

It remains unclear, however, whether Halliburton landed deals the company would not have won if Cheney were not there shaking those hands.

"People assume that nobody in the oil patch had heard of Halliburton before Vice President Cheney came along. We'd been in business for nearly 80 years when he became our CEO," Lesar said.

Once at Halliburton, then based in Dallas, Cheney proved to be a "quick study" and a "decisive individual," Lesar said.

"One of his really strong attributes, for an individual who had been in very high government offices and also a CEO for a major corporation, he didn't have a very big ego," Lesar said.
"I think he understood what he knew and understood what he didn't know and didn't pretend to understand if he didn't," Lesar said.

Asbestos liabilityWhile heading up the oil-service giant, Cheney had to grapple with an energy market that saw oil prices dive below $10 a barrel and an engineering and construction industry racked by a currency crisis that began in Asia and ricocheted around the world.

One of the company's most successful moves while Cheney was at the helm was the purchase of Landmark Graphics, a high-tech operation whose advanced software is used to improve the odds of drilling for oil and gas.

Overall, Cheney gave new life to a company that was "on the cusp of really slipping into obscurity," argued Matthew Simmons, chief executive officer of Simmons & Co. International, a Houston-based energy investment banking firm.

"Cheney really did a fabulous job of revitalizing what had really been one of the greatest franchises in the oil field," Simmons said.

But many of Halliburton's biggest headaches today are the result of decisions made during Cheney's tenure.

In perhaps the most important event of Cheney's tenure, Halliburton acquired Dallas-based rival Dresser Industries in 1998. That move propelled the company to the top echelon of the oil-service sector with a broad array of products and services.

But the Dresser merger also saddled Halliburton subsidiary KBR with a staggering asbestos liability. Eventually, KBR had to seek bankruptcy court protection. Cost: a whopping $4.2 billion.
Wait and seeMost company observers are loathe to fault Cheney for not perceiving the potential flood of litigation filed by those exposed to asbestos.

After all, Dresser had spun off the company fighting those suits years before. The sales contract even included a clause that most thought would block any claims on the former parent company.
But Dresser retained a joint insurance policy with the operation, which enabled plaintiffs to seek damages against Halliburton.

Even at those companies where executives were aware of an asbestos exposure, few foresaw the impact asbestos litigation would have on American industry.
"I can't see how that tail could be pinned on anybody," Peebler said.

Lesar argues that 10 years from now, investors will look back and conclude the Dresser merger was a real plus.

"We're going to say we are absolutely glad we did it," Lesar said. "We got great people, great technology and great capability and are a stronger company."

Investors, however, aren't used to waiting so many years for a merger to turn out to be a positive. Indeed, the company's asbestos liability amounts to nearly eight times Hallilburton's 2003 earnings.

To cope with hard times in the oil business, Halliburton experimented with winning clients by offering a different approach to pricing major construction projects. The company agreed to be paid for major oil-field service contracts in a lump sum rather than typical reimbursement for costs, plus a profit margin.

Such turnkey contracts, which required Halliburton to eat cost overruns, also required it to keep a tight lid on costs and schedules. Changes to any plan required negotiations with the customer, which sometimes created more delays and cost overruns.

Not without riskHalliburton wasn't alone in offering such deals. The company's competitors were trying similar approaches.

But a big offshore project in Brazil known as Barracuda-Caratinga showed the dangers of such projects.

Cost overruns and delays on that project have forced Halliburton to take charges that reduced its earnings three times, including a $173 million pretax hit last quarter.

As Halliburton was signing these new kind of contracts, the company also adopted a new way to account for cost overruns.

This new method for accounting for cost overruns was permissible under generally accepted accounting principles. But Halliburton didn't tell shareholders about the change, even though the switch kicked up the company's pretax income for 1998 by 46 percent with no significant change in its operations.

Earlier this month, the Securities and Exchange Commission fined Halliburton $7.5 million for failing to notify investors of the change.

The SEC also slapped two former company executives, the one-time chief financial officer and the one-time controller.

A shareholder lawsuit over the accounting change appeared close to settlement this month. Attorneys for the Archdiocese of Milwaukee, however, have asked a judge in Dallas to reconsider, arguing their investigation suggests accounting problems were more widespread.
The SEC took no action against Cheney, noting that he had cooperated with the probe.

Still, that leaves the vice president on that unenviable list of top corporate executives who have to claim they were unaware of the accounting sleights of hand performed by subordinates.
As Cruikshank sees it, Cheney's performance can best be summed up by the stock price. During his tenure, amid volatile times in the industry, Halliburton's share price, accounting for a stock split, rose from less than $20 a share to $54.

That doesn't take into account the troubles he left behind. Today, Halilburton's stock is trading near $29 a share.

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