Sticky Business

When President Bush came to Wall Street to jawbone chief executives about corporate responsibility, Dick Cheney, the vice president and a former CEO himself, wasn't with him. When Bush met at the White House with his new Justice Department corporate-crime "SWAT team," Cheney was elsewhere--at a national-security meeting, his aides said. Two cabinet CEOs--Paul O'Neill of Treasury and Don Evans of Commerce--headlined televised town-hall meetings after Bush's speech, and were headed to the Sunday TV talk shows to pitch the president's program. Cheney's only comments on the need for tougher oversight of business were made at Republican fundraisers.

Cheney's aides say it's all business as usual, that the veep normally doesn't play this kind of public role. But his absence from the debate about corporate behavior and CEO misdeeds is striking. After all, he seems to be more than qualified to work the mahogany pulpit. He ran Halliburton, the huge oil-services company, for five years. During the presidential campaign, he touted that experience as an asset, a CEO-M.B.A. ticket. At a campaign news conference in Oregon, Cheney said: "By any measure you want to use, Halliburton has been a great success story."

Today, though, his record at Halliburton seems hardly the stuff of bragging rights, which may go a long way toward explaining his recent low profile. Halliburton is enmeshed in a Securities and Exchange Commission investigation about accounting practices during his tenure. And its stock has fallen 75 percent since Cheney left to run for vice president--twice as much as the market as a whole during that period--in large part because of fallout from a huge takeover he orchestrated in 1998. Cheney's tenure at Halliburton raises some of the issues that have enraged investors in companies such as Global Crossing and Enron: big fish making millions from stock sales while small-fry shareholders and employees get swallowed. Cheney's response? "We don't discuss Halliburton issues," says Mary Matalin, Cheney's chief political aide. "His view is that it would be a distraction from what he's trying to get done here." Cheney's office has been referring questions to Halliburton, which doesn't appreciate the attention. "At some point, [Cheney] is going to have to address these [accounting] questions," says Wendy Hall, a Halliburton spokeswoman.

Cheney may not have a choice. The SEC may seek his testimony in the accounting matter, which involves how Halliburton booked revenues and profits from fixed-price projects that incur cost overruns. Halliburton counts projected overrun reimbursements as revenues while the work is underway, rather than waiting until the projects are completed. Critics allege that the company changed its accounting method for such contracts in 1998, boosting revenue and profits considerably.

But in his first extensive interview on Cheney's tenure, Halliburton CEO David Lesar defended the firm's bookkeeping and said Cheney was aware that the firm was counting projected cost-overrun payments as revenue. "The vice president was aware of who owed us money, and he helped us collect it," Lesar told NEWSWEEK. The firm says it has always accounted for overrun revenues the same way, but the amounts weren't significant until late 1998. "We stand behind the accounting treatment," Lesar said. Doug Foshee, Halliburton's chief financial officer, says the SEC is investigating whether the company accounted for these revenues properly, and whether it adequately disclosed the information. He says the disclosure consisted of changing some footnotes in financial filings from one year to the next. However, few people outside the company seem to have picked up on the wording change. It's impossible to predict what the SEC, which declined to comment, will decide. Cheney, as CEO, signed Halliburton's 1998 and 1999 financial statements, which is why he may find himself chatting to the SEC someday. (His staff says he hasn't been contacted.)

The Paula Jones precedent--you remember, the Supreme Court ruling that a president has no immunity from civil litigation--may break Cheney's silence, too. He's a defendant in a lawsuit filed by Judicial Watch, which alleges that investors were defrauded by Halliburton's accounting. Judicial Watch plagued the Clinton administration with more than 100 suits. But now it's after the Bush crowd. Larry Klayman, the group's president, says he wants to question Cheney under oath. "We'll want to talk to him first, he's the CEO," Klayman says. Cheney may also have to testify in suits over Halliburton's asbestos problems.

Cheney's stint at Halliburton offers a glaring example of how CEOs can make tons of money while shareholders lose out. Cheney averaged about $2 million a year in salary and bonuses. But, like other CEOs, he made the real big money from Halliburton stock. By NEWSWEEK's count, based on Halliburton's filings and data from Thomson Wealth Management, Cheney made about $45 million in just under five years at Halliburton. Almost two thirds of his total take--$18.5 million in stock-option profits and about $10 million from stock sales--came in August of 2000, after he'd resigned from Halliburton. When Cheney left on Aug. 16, 2000, Halliburton stock fetched $54.02 a share. Friday's close: $13.52. At that price, all of Cheney's options would have been underwater and his stock would have fetched only about $2.5 million. Selling when he did, in order to avoid conflict-of-interest accusations, left him $26 million better off than he'd be today. Meanwhile, investors have seen the value of their shares plummet.

Cheney started out at Halliburton on a promising note. When the company hired him in 1995, the former Defense secretary who had overseen the gulf war was going to use his entree to emirs, kings and oil ministers to help transform Halliburton from a medium-size firm into a multi-national giant. And he did. Lesar, who is a big Cheney fan, was Mr. Inside to the globe-trotting CEO. "He never pitched a particular contract or closed a piece of business," Lesar says. "He opened the door."

But the most fateful door Cheney opened was the one that led to the takeover of crosstown Dallas rival Dresser Industries. The companies' energy and construction businesses complemented each other, and according to their SEC filings they had discussed joining forces as early as 1994. Cheney, a consummate male-bonder--he spent quality time with Dresser's CEO at a Texas quail hunt--was integral to making the final push to do the deal.

Before the marriage, Halliburton had a relatively small exposure to damages from asbestos litigants. But hooking up with Dresser opened Halliburton up to huge asbestos problems that Dresser thought it had unloaded in 1992. That's when it spun off its Harbison-Walker business, which worked with asbestos, as part of the creation of a company called Indresco. Everyone knew that if Indresco (later to be called Global Industrial Technologies) couldn't or wouldn't satisfy asbestos claimants, it would become Dresser's problem. But the chances seemed remote. "It was an old problem," says former Dresser president Donald Vaughn. "And we thought it was under control."

But it wasn't. Global Industrial was struggling with business problems and asbestos claims at the time of Halliburton's takeover of Dresser. It tried to offload Harbison-Walker's problems onto Halliburton in June of 2001--less than a year after Cheney's departure--and filed for bankruptcy this past February. Halliburton, which lost some big asbestos suits it chose to fight rather than settle, is trying to keep the asbestos problem contained at Harbison-Walker. It's attempting to get a permanent settlement with current and future claimants under a special provision of the bankruptcy code without going into bankruptcy itself.

Cheney's backers and some industry experts say he's not to be blamed for the asbestos problem, which exploded after Halliburton bought Dresser. But it's not clear how much time, if any, Halliburton spent checking out the asbestos question beyond talking with Dresser. Halliburton won't discuss how much it investigated the potential threat. "There's no benefit in trying to look back," says Lesar. Asbestos and bankruptcy experts say Halliburton messed up. "No one with a scintilla of sense would have bought a company with asbestos problems in 1998," says Elizabeth Warren, a bankruptcy professor at Harvard Law School. Even so, several other companies have exposed themselves to asbestos since Halliburton did. Dow bought Union Carbide and a big asbestos problem in 1999, and Viacom incurred a potential problem in 2000 by buying CBS, which was formerly part of Westinghouse. An Austrian company, RHI AG, bought Harbison-Walker's owner at the end of 1999, a $500 million mistake.

The rules of business are different from the rules of politics. In Washington, it's standard operating procedure to blame others, a script now playing out over the market's ills. In business, the CEO makes the big bucks and has the big responsibility. If his deals work, he's a genius. If they don't, he's a failure. Stonewalling won't change that rule. Even if you're the vice president of the United States.