Vice President Dick Cheney has spent most of the past year in hiding, ostensibly from terrorists, but increasingly it seems obvious that it is Congress, the Securities and Exchange Commission, the media and the public he fears. And for good reason: Cheney’s business behavior could serve as a textbook case of much of what’s wrong with the way corporate CEOs have come to play the game of business.
The game involves more than playing loose with accounting rules, as Halliburton Co. is accused of doing while Cheney was the Texas-based energy company’s chief executive.
On Sunday, SEC chairman Harvey Pitt, whom Cheney pushed for the job, reluctantly turned on his sponsor and announced a vigorous investigation of Halliburton’s accounting violations. Recent business scandals, however, are also the product of legal loopholes that allow firms to scoop up billions in unregulated profits.
It was just such loopholes that allowed the rise and subsequent fall of Enron and telecom heavyweights like WorldCom — in the process making CEOs like Dick Cheney very, very rich.
Recall that Cheney was a political hack for most of his professional life, first as a staffer in the Ford White House, then as a congressman for a decade and after that as secretary of defense under the current president’s father.
During the Clinton years, however, Cheney took an extremely lucrative five-year cruise into the private sector as chief executive of Halliburton.
After deciding, following an extensive search, that he would be George W. Bush’s best candidate for vice president, Cheney resigned from the energy services company with a $36 million payoff for his final year of corporate service.
This journey from the public payroll to the corporate towers and back left a slimy trail of conflict-of-interest questions. For example, Secretary of Defense Cheney conveniently changed the rules restricting private contractors doing work on U.S. military bases, allowing the Kellogg Brown & Root subsidiary of his future employer Halliburton to receive the first of $2.5 billion in contracts over the next decade. When Cheney left to become CEO of the entire company, he recruited his Pentagon military aide, Joe Lopez, to become senior vice president in charge of Pentagon dealings, which ultimately formed the most lucrative part of the otherwise ailing company’s business.
Since returning to public office, these disturbing patterns have continued. In a scathing exposé of Halliburton’s military contracts, for example, the New York Times revealed that the vice president’s old company had been the main beneficiary of the Pentagon’s rush to build anti-terrorism military bases around the world. This new work will cost taxpayers many billions, and, according to Pentagon investigators’ estimates, without any cost controls the final bill will be considerably higher than if the military’s own construction units do the work.
Cheney denies having a role in securing those recent contracts, as he denies any knowledge of Halliburton’s alleged accounting improprieties.
Unfortunately for Halliburton’s stockholders and employees, parlaying his Pentagon contacts into profit has proved to be Cheney’s only major business success.
In fact, CEO Cheney put Halliburton’s future in doubt by engineering the acquisition of rival Dresser Industries, a move ballyhooed at the time as justification of his $2.2 million annual salary and massive stock options.
But the acquisition has proved to be a disaster because Halliburton assumed Dresser’s long-term liability under asbestos lawsuits.
Even without the Dresser acquisition, Cheney was running a failing operation at Halliburton.
The company, despite the government gravy garnered, had earnings well below Wall Street’s expectations –until it suddenly changed its accounting rules. By assuming it would be able to collect on cost overruns on myriad construction projects, Cheney’s Halliburton was able to inflate profits by $234 million over a four-year period.
Halliburton failed to disclose its accounting shenanigans to the SEC or the company’s investors for more than a year afterward, leading to more than a dozen lawsuits alleging fraud, including one by Judicial Watch.
And why are we not surprised that Halliburton’s accounting firm was Arthur Andersen, earlier this year convicted of obstruction of justice for shredding documents in connection with Enron?
Andersen’s dubious methods have become the disgrace of American accounting. Cheney, however, was sufficiently enamored with it that in 1996 he glowingly endorsed the accounting firm in a video, thanking it for going “over and above the just-sort-of-normal, by-the-books audit arrangement.”
Of course, ordinary investors did not know they were getting less than “by-the-books” auditing.
It is especially ugly that the president and vice president — men in a position to know just how sketchy the accounting practices of public companies are — were so eager to make our Social Security system a vehicle for pouring individuals’ retirement money into a stock market they knew to be a house of cards.