Did Dick Cheney Sink Halliburton (And Will It Sink Him?)

His record as CEO of the Texas-based oil-field-services giant has been marred by a government investigation into allegations that he fudged the books. His critics say it's another case of corporate malfeasance. But the worst thing the vice president was guilty of was mediocrity.
A Brown and Root-built platform.
Photograph by David Wood

THE FRIENDLY, SINCERE MAN IN the video is saying what an excellent company Arthur Andersen is and how much he values its counsel. "I get good advice, if you will, from their people based upon how we're doing business and how we're operating, over and above just sort of the normal by-the-books auditing arrangement," he says. "They've got the traditional role to fill as our auditors . . . . They do that extraordinarily well."

The man in the video is Richard B. "Dick" Cheney, the vice president of the United States. The year was 1996, when Cheney was the chairman and CEO of Halliburton Company, a multibillion-dollar oil-field-services company now based in Houston and Arthur Andersen's third-largest client. The 35-second spot was part of a promotional video that was distributed to Arthur Andersen's partners only last year, after Cheney had become vice president and before Andersen was convicted of obstruction of justice in July in the investigation of Enron (its second-largest client)—an event that destroyed what was left of its worldwide accounting business. The video was unearthed in May by the Wall Street Journal .

Cheney's endorsement of Arthur Andersen is typical of the back-scratching that goes on in the business world. It was done long before Andersen became a corporate felon. But as the Bush administration moves to smite the miscreants from Enron, WorldCom, and other companies for perpetrating fraud upon the American people, Cheney's cameo has taken on a new and more ominous meaning. That's because the vice president and his former employer are now themselves subjects of a preliminary inquiry by the Securities and Exchange Commission for possible accounting improprieties sanctioned by Arthur Andersen. Its purpose is to see if Halliburton made an accounting change in order to fudge its revenues and then failed to disclose the change at the appropriate time.

But the SEC probe is just part of Cheney's Halliburton-related problems. Cheney left the company in August 2000 with a stunning stock payoff of some $30 million. A little over a year later, Halliburton's stock went into free fall, largely the result of asbestos liabilities that the company acquired when Cheney engineered a 1998 merger with Dresser Industries, a Dallas-based provider of oil-field services. Those liabilities detonated in a series of whopping jury verdicts in late 2001. The 63 percent drop in Halliburton's stock price that year devastated ordinary shareholders. Some of those shareholders later joined in class-action lawsuits against Halliburton, claiming that Cheney and others artificially inflated the company's stock price and misrepresented its business condition. A watchdog group called Judicial Watch filed suit for similar reasons. And of course a sitting vice president under such scrutiny draws reporters like sugar draws ants: A query on the Google search engine specifying "Cheney" and "SEC" yields 30,000 hits. Unable to shake this legal and political tar baby, or to answer reporters' questions, Cheney has been noticeably absent from the national debate about corporate fraud.

Cheney, who declined through a spokesperson to be interviewed for this story, has addressed the SEC investigation only once, in an appearance at San Francisco's Commonwealth Club in August. "I am, of necessity, restrained in terms of what I can say about that matter," he said, "because there are editorial writers all over America poised to put pen to paper and condemn me for exercising undue, improper influence if I say too much about it." Halliburton, on the other hand, has displayed no such reluctance, insisting that it and its former chairman had obeyed both the letter and the spirit of accounting laws. "The basic assertion is that somehow Halliburton manufactured revenues and receivables out of midair," says David J. Lesar, the chairman, president, and CEO of Halliburton. "That's just wrong. We changed the accounting because the character of our business changed. We believe that we disclosed it when it needed to be disclosed. We're very much working with the SEC, and ultimately it will be between us and them to decide whether this disclosure was appropriate." Lesar, an affable, low-key Midwesterner who was formerly Cheney's right-hand man at Halliburton, says that his company has been treated unfairly in the media. "Halliburton has become the political vehicle to get at the vice president," he says. "It's hard to attack him on foreign policy and the handling of the war but very easy to get at him as CEO of a big public company in Texas."

With all of this adverse news, the usual surfeit of TV pundits speculating on Cheney's fate, and Halliburton's forceful denials, it is hard to separate fact from fiction. Lost in the swirling polemics of the political controversy is the less glamorous but far more revealing management story that lies behind it. Why did Halliburton's accounting policies change under Cheney? In what business context did he make that determination and the decision to merge with Dresser? What did Cheney and Halliburton know about the asbestos time bomb? Did he push his $30 million eject button because of insider knowledge or is there some other explanation? How accurate are the press accounts of Cheney's actions that led to the SEC inquiry? How serious is the SEC's investigation, and what is it likely to uncover? Those answers are found only in a thorough parsing of Cheney's tenure at Halliburton—something that, for all the breathless reportage on the subject, has never been done before. While all of these issues have been reported in some degree, what follows is an attempt to look beyond the sheer volume of writing and talk-show gas and put everything together into a single coherent narrative of Cheney's five-year term as CEO.

For high-ranking corporate leaders, the nineties were all about three things: mergers and acquisitions, which were carried out at a level unprecedented in history; keeping profits up, which sometimes depended upon changes in the way companies booked revenue; and making scads of money in the stock market from the sale of shares and options. Cheney did all of these, and he did them

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