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.
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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 on a titanic scale. But does that mean that he did something wrong?
TO ANSWER THAT QUESTION, AND to understand Cheney's legacy at Halliburton, you have to go back a decade, to 1991. One of the heroes of the U.S. victory in Operation Desert Storm was the preternaturally calm, confident, and ultracompetent fifty-year-old Secretary of Defense. Having won the war, Cheney now had to try to restore order. This meant rebuilding parts of Kuwait and putting out the oil-field fires. To do this, he hired one of the few companies in the world that could do both: Halliburton. Its Houston subsidiary, Brown and Root, a large-scale construction and engineering firm, had built its early success on a relationship between its founders and a young Texas congressman named Lyndon Johnson. It had long been a de facto arm of the U.S. military. During the Vietnam War the company built ports and airstrips and housing for American troops. In the wake of Desert Storm, Cheney hired Halliburton to put out 320 wellhead fires and engaged Brown and Root to rebuild courthouses, schools, utilities, police stations, and computer systems in Kuwait.
Yet even while he was making war on Iraq, Cheney was carrying out the largest peacetime military-force reduction in history. By the time he left office in 1993, he had cut America's armed forces by half a million men and women. Key to this massive downsizing was hiring out traditional military jobs to companies like Brown and Root. Under Cheney, the Pentagon paid Brown and Root $8.9 million in 1992 for two studies on how this might be done. Shortly after that, the company won an exclusive worldwide contract for military logistical support, everything from runways to toilets, hamburgers, and laundry service—the first such contract ever given to a civilian group. In Blackhawk Down-era Somalia in 1993, Brown and Root had such a large U.S. Army support contract that it briefly became the largest employer in Africa. In 1996 fully 13 percent of the $1.9 billion budgeted by the Pentagon for Bosnia went to Brown and Root.
But by then Cheney was no longer working for the government: He was running Brown and Root, having taken a job in October 1995 as chairman of the board and CEO of Halliburton, whose Brown and Root subsidiary accounted for about a third of its revenue. (He had tested the waters for a run at the 1996 Republican presidential nomination but managed to raise only $1 million of the $20 million he thought he would need to win.) On paper, Halliburton and Cheney were a perfect match. The company's hard-boiled, ultraconservative Texas-based culture had spread itself throughout a world in which Dick Cheney was well known, if not always revered: More than 40 percent of Halliburton's revenues came from overseas, much of it from Arab nations and nations of the old Soviet bloc. "He would be able to open doors around the world and to have access practically anywhere," says Thomas H. Cruikshank, the former chairman of Halliburton who hired Cheney. "There was a lot that he could bring in the way of customer relationships." Cheney had never run a business before. But that's not what Halliburton's overseers wanted. They wanted a rainmaker.
Halliburton's origins go back to 1919 in Burkburnett, when a Tennesseean named Erle P. Halliburton invented a new cementing process that held a steel pipe in an oil well and thereby kept water out, strengthened well walls, and reduced explosions. The company went public in 1948, moved to Dallas in 1961 (where it stayed until August 2002, when it moved to Houston), and bought Brown and Root in 1962. By then Halliburton had evolved into a global company that provided oil producers with technology and equipment to help them explore for oil, drill for it, and pump it out of the ground. Before the oil industry went into a long decline in 1982, Halliburton had reached a peak of $8.5 billion in revenues and a workforce of 115,000 in more than one hundred countries. When Cheney moved to Dallas in 1995, the company was still impressively global: It had $5.7 billion in revenues and 57,200 employees. Under Cruikshank in 1993, the company had undergone one of many downsizings and reorganizations. "In 1995 the company was struggling and drifting," says chairman Lesar. "Cheney brought a sense of identity. We were just off the Gulf War, and he was kind of a superstar at that point, especially in the oil patch. He brought a sense of pride. People could say, 'I work for Halliburton and, by the way, so does Dick Cheney, the ex-Secretary of Defense.'"
For Cheney, Halliburton was an unlikely evolution. He was emphatically not a creature of the private sector. With the exception of one year working for an investment advisory firm in the early seventies, Cheney had been employed in either state or federal government positions since 1965. Though he had been White House chief of staff at age 34 and had run a 2.2 million person, $284 billion-a-year operation at the Pentagon, he had never—unlike his political patrons, the Bushes—met a payroll. But he was in the private sector, and the first thing that changed was the money. It came quickly and in large volumes. Over the next five years Cheney would make an estimated $45 million at Halliburton; he would average more than $2 million a year in salary. He served on the boards of Union Pacific, EDS, and Procter and Gamble, for which he was paid a total of $282,500 in 1999. His wife, Lynne, was writing and selling books, drawing a salary from a conservative think tank in Washington, and sitting on the boards of defense contractor Lockheed-Martin, American Express, Reader's Digest, and Union Pacific Resources Group. For her board-sitting work in 1999, she was paid $305,000. The Cheneys were making more than $600,000 a year from activities unrelated to Dick's lucrative job at Halliburton.
Cheney did not settle in at Halliburton so much as hit the road. In the decade of the nineties, Halliburton's foreign business would expand from 40 percent of its revenues to 70 percent, and though the company was heading in this direction anyway, Cheney accelerated the pace of change. He spent an enormous amount of time traveling overseas, gaining access where Halliburton had never had access before. "I spent five years traveling the globe with the vice president," says Lesar. "If I went to Egypt or Kuwait or Oman alone, I could see the energy minister. But when Cheney and I went to Oman, we would see the sultan. When we went to Kuwait, we would see the emir, and I mean it was not just a courtesy call. It was 'Let's go have tea and go off together.'"
"Halliburton was a neat company that lacked an international reputation," says Fred Mutalibov, an energy analyst with SWS Securities in Dallas. "Cheney changed that. In a lot of places his stature opened the door to the key guys—the ones who run the state oil companies. In countries like Azerbaijan or Kazakhstan, you bring Dick Cheney along and everyone knows him."
As Cheney traveled, the profits at Halliburton rolled in. In less than a year and a half of his tenure, Halliburton's revenues rose 30 percent. The company's stock finally took off, outpacing the S&P 500 in 1997 by 34 percent and its oil-field peers by nearly 40 percent. Some of its projects that year included the $250 million retractable-roof stadium in Houston that became the Astros' new home; a $600 million contract with the state-owned oil and gas company in Algeria for drilling, well services, and a gas-processing plant; and a $120 million, five-year contract with Shell Oil for drilling equipment. The company did business in Iran, Libya, and even a couple of jobs in Iraq, using foreign subsidiaries to circumvent—legally—U.S. laws against business activity in those countries. Cheney pumped up Halliburton's technology with acquisitions of companies such as Landmark Graphics and Numar.
While he personally abstained from lobbying any member of the U.S. government, Cheney believed in grabbing as much government business as he could. According to a study by the Center for Public Integrity in Washington, Cheney's tenure at Halliburton amounted to a Lucullan feast at the federal trough. From 1995 to 2000 Halliburton won $2.3 billion in federal contracts—almost double the total of the previous five years—and another $1.5 billion in taxpayer-insured loans. Stoking the fires were political donations, which increased from $534,750 between 1990 and 1995 to $1,212,000 under Cheney. From 1995 to 1998 the decision to hire Dick Cheney to run Halliburton looked positively brilliant: It was all high tide and green grass.
IN 1998 THAT WOULD CHANGE. That was the year Cheney pulled off his biggest feat—and the thing that has haunted him more than anything else he did at Halliburton: the Dresser merger. It was an acquisition, really, of the second-largest oil-field-services company in Texas by the largest. Dresser was in many of the same general lines of business Halliburton was in, and even owned its own construction and engineering firm, M. W. Kellogg. Its headquarters were a few blocks away from Halliburton's in Dallas. Together the companies formed a $17 billion behemoth with 103,000 employees, the largest oil-field-services company on the planet, larger than their traditional, hated rival Schlumberger. And it was Cheney's deal all the way. "Everybody was talking about Cheney," says William Bradle, the former treasurer of Dresser Industries. "Every conversation was about Cheney this and Cheney that. He charmed Bill [Dresser's chairman, Bill Bradford], and he brought a lot to the party."
The two companies had been circling each other for years, but in 1998 there were reasons to think more seriously about getting together. A massive consolidation was under way in the oil business—driven by such megamergers as Exxon Mobil and Chevron Texaco—which was beginning to drive mergers in the oil-field-services business. Cheney's idea was that Halliburton had to be bigger. He brought up the merger with Bradford while the two were on a quail hunt in South Texas in January 1998. The two men pursued it in a series of secret meetings over the next few weeks at the Crescent Court Hotel in Dallas. In February the companies' boards approved Halliburton's purchase of Dresser with stock; the new company would take Halliburton's name. Though Bradford was given the nominal chairmanship until he retired the following year (he was even allowed to smoke in the executive suite, a habit Cheney and other Halliburton execs didn't like), Halliburton executives were swept into power in most of the company's key positions. It was a striking display of Cheney's clout. "It was the wholesale end of Dresser's top management," says Bradle. "Four out of five heads of its operating divisions did not last more than a year. They were livid. This was not what they understood when the merger was announced."
The merger, second-guessed by Cheney's critics today, made good business sense at the time. "Halliburton was under pressure to merge because its competitors were doing it," says energy analyst Mutalibov. "The idea was to cut costs by eliminating offices and redundant infrastructure, and by consolidation." Indeed, two other megadeals involving Halliburton's competitors were concluded within a few months of the Halliburton-Dresser merger: Schlumberger bought Camco and Baker Hughes International bought Western Atlas. But the timing of the merger turned out to be horrendous: The price of oil came crashing to earth and with it came the oil-field-services business. After making $772 million in 1997, Halliburton lost $15 million in 1998. Stock prices sagged. Though Cheney had explicitly said that layoffs would be minimal and that he and Bradford "don't consider ourselves to be Chainsaw Al,"—referring to Al Dunlap, the former cost-slashing chairman of Sunbeam—Cheney fired more than 10,000 people within a year. Things did not improve quickly: In the second quarter of 1999, profits fell 66 percent.
It was in the third quarter of 1998, when Halliburton was losing $537 million as it tried to digest its giant acquisition, that the company made the accounting change that the SEC is now investigating. According to Halliburton executives, here is what happened: In 1997 and 1998 the ground rules changed for Brown and Root's energy-services business. Instead of cost-reimbursable contracts, in which the client took all the risk of cost overruns, more and more contracts were fixed price, meaning that any added costs had to be negotiated with the client (as would any home-improvement contract). Such claims were, almost by definition, always in dispute. Before 1998, Halliburton's practice was to book no revenue on fixed-price contracts until its clients had approved the claims. But from the third quarter of 1998 onward, Halliburton decided to book revenues it believed that it would collect, even though the client had not yet approved the added costs. "This is a legally acceptable accounting method in the construction business," says Halliburton chairman Lesar, who acknowledges that he and Cheney both knew about it. "At least ten of the top fifteen companies in the business use the same method."
Unfortunately for Halliburton, that is not how it looked to the New York Times, whose May 22, 2002, story on the subject single-handedly launched the SEC's investigation. The story was based in part on interviews with two former Dresser executives who, according to the Times, "said they concluded after the merger that Halliburton had instituted aggressive accounting practices to obscure its losses." Specifically, the story cited $89 million in additional 1998 revenues that the accounting change had generated and pointed out that Halliburton had not acknowledged this change in its annual report to the SEC until early 2000, more than a year later. The Times' story seemed to make sense: Halliburton was experiencing its first losses in many quarters and was desperate to add revenue.
But the Times got a couple of crucial facts wrong. The first was that what is known in the accounting business as "'accruals on unapproved claims' is indeed common in the construction business," as noted by the Wall Street Journal in a follow-up story that more or less dismissed the Times' piece. The second was the suggestion that, had Halliburton not booked the $89 million, it would have had to write the amount off its bottom line, creating a more than $100 million loss for the year. This was simply not true: Accounting for such receivables does not work that way. No additional loss would have resulted. In any case, $89 million out of $17 billion-plus in revenue is an amount so small as to be nearly invisible. Lesar points out that in 1998 the company took a $1 billion charge for costs related to the merger. "The reality is the $89 million was not believed to be significant," he says. "If you're trying to smooth out revenues, you sure as hell wouldn't do it in a quarter when you are taking a billion-dollar hit on something else." Michael Granof, an accounting professor at University of Texas' McCombs School of Business says of the change: "Is the accounting method used legitimate? The answer is yes. Is it blatant fraud like WorldCom? No. Is it aggressive? Probably. Should they have disclosed this the year it happened? The general answer is yes, even though the amounts are very small."
The real problem for Halliburton and Cheney lies in the timing and the method of the disclosure to the SEC. "Much of the noise is because the first time we did it was 1998 but we reported it later," executive vice president and chief financial officer Douglas L. Foshee told a group of analysts in a July 24, 2002, conference call. "With perfect hindsight, could someone disagree with that conclusion? Yes." Foshee says that the reason the company did not disclose the change in its 1998 10K is because it was such a tiny percent of revenues (around one half of one percent). The eventual disclosure amounted to a few lines in a hundred-page report that did not address the reason for waiting a year to do it. Foshee says it mentioned the change to be "extra conservative."
While it is unlikely that the SEC will find anything wrong with Halliburton's accounting change, it might well find fault with its disclosure. This is where the inquiry has been concentrating, according to Lesar. "It has really been a disclosure issue," he says. Though the SEC does not comment on any aspect of an ongoing investigation, Halliburton says it is providing the commission with documents, including Arthur Andersen's work papers, and that no senior executives at Halliburton have been contacted by SEC investigators. Nor has Vice President Cheney been contacted, according to his spokesperson, Jennifer Millerwise.
If the SEC finds that Halliburton violated a disclosure rule, what might it do? "There is a range of penalties the SEC can assess, depending on the facts," says John Heine, of the SEC, without specific reference to Halliburton. "We could go to court asking for an order prohibiting certain activities. We could seek to bar accountants from practicing before the commission or to bar people from serving as officers and directors. Then there is a range of civil monetary penalties." For Halliburton, this would likely amount to fines of between $50,000 and $500,000 per violation assessed against the corporation and $5,000 to $100,000 per violation against individuals, assuming the SEC found the company guilty of deceit for failing to make a timely disclosure. But that is pure speculation. It is impossible to know what the SEC will do, though a criminal referral to the Justice Department on a delayed disclosure of an accounting change affecting less than one half of one percent of revenue seems unimaginable.
BY FAR THE BIGGEST AND most shattering effect of the Dresser merger came from something Cheney and his staff did not see at the time: a mountain of asbestos liability from products and services both Halliburton and Dresser had provided—particularly from a company that Dresser had sold in 1992. Cheney knew about the claims against Halliburton and Dresser; he did not know about the liability that lay dormant in Harbison-Walker Refractories, the company Dresser had sold. He did not know in early 1998—no one did—what was about to happen to asbestos claims nationally. At that time, asbestos litigation of the sort that had run rampant in the seventies and early eighties was no longer considered the threat to corporate survival it had once been. Aggregate numbers of suits were declining. More than twenty years had passed since companies had stopped making most asbestos products, and potential victims were dying off. Cheney knew the company had a total of 70,500 open asbestos claims after he bought Dresser. Halliburton's insurance would cover most of these, and the company could easily manage the rest. Cheney and Lesar did not believe they had any post-1992 liabilities from Harbison-Walker, a Pittsburgh-based maker of high-temperature equipment: They had agreements in place that appeared to protect them.
They were wrong. Between 1998 and 2001 asbestos litigation swelled to unprecedented levels in the United States, driven mainly by a 1997 Supreme Court decision saying that victims of asbestos exposure could not bring class-action lawsuits because each exposure was unique. "That led to an explosion of new individual cases," says CFO Foshee. "And there was a group of defendants who decided that, rather than fight, they would just agree up front on amounts claimants would be paid and avoid the costs of litigation. The lawyers didn't have to go to trial, didn't have to prove much of anything. You saw a machine get created. Ninety percent or more of new claims are unimpaired, meaning the claimant alleges exposure to asbestos but has no symptoms or previous medical problems."
The result was astonishing, even by the high-stakes standards of American mass tort litigation. Since January 2000, the avalanche of new claims has forced sixteen major companies to seek the shelter of bankruptcy. Among them are multibillion-dollar corporations such as chemical manufacturer W. R. Grace, insulationmaker Owens Corning, auto-parts conglomerate Federal-Mogul, and boilermaker Babcock and Wilcox. These are otherwise viable, profitable firms. Halliburton saw the number of open claims it faced for asbestos rise from 70,500 in 1998 to 274,000 by the end of 2001 and 312,000 today. A series of jury verdicts in late 2001 involving claims against Harbison-Walker—$122 million between October 30 and December 10—sent Halliburton's stock price tumbling: On December 7 alone it fell 42 percent. On January 4 Halliburton's stock price, once as high as $64, hit $8.60. On January 23 Moody's Investor's Service cut the company's long-term credit rating. In February Harbison-Walker was forced into bankruptcy, jeopardizing Halliburton's own insurance and putting more downward pressure on the stock price. Obviously, Wall Street was beginning to wonder if the company could survive.
It was this price drop, which continued through the spring of 2002 and which was made worse by the revelation of the SEC investigation, that made Cheney's $30 million stock deal suddenly seem so suspicious to so many people. It looked, on the surface, as though he had done what so many other executives had done in the past few years: used his insider's knowledge to cash out just before the bubble burst and stick other shareholders with the losses. Criticism of Cheney comes in two buckets: first, that he should have known better than to buy Dresser; second, that by August 2000, when he joined Bush on the campaign trail, he did know better and that he was therefore dumping the stock of a company that was about to get into trouble.
But it is difficult, if not impossible, to make the case that Cheney ultimately had any control over the disposition of his stock. At the time he accepted Bush's offer to join him on the Republican ticket, Halliburton's stock was trading in the mid-fifties. This was a good price, by recent standards, reflecting the company's modest rebound from the doldrums of 1998 and 1999 and prospects for better times in the oil industry. Though Halliburton's earnings of $438 million were still 22 percent below the $558 million it had earned in Cheney's first full year, oil rig activity was increasing, the company seemed to be assimilating the Dresser merger, and things were looking up. Asbestos liabilities were on the rise—evidenced by larger sections of the company's 10K now devoted to it—but at this point no one, including Wall Street, was alarmed.
Cheney had once said, in response to an interviewer's question, that he would be taking a "financial bath" by giving up his job at Halliburton. That was an interesting comment, to say the least, since his departure netted him $30 million. He made that money selling stock and stock options for $54 a share, and though he was technically free to keep most of his stock, in reality he faced a Hobson's choice, made evident by the outcry from his political opponents when he balked at giving up $3.9 million in options that would vest in 2001 and 2002. The truth was that, having decided to join Bush on the ticket, Cheney had no choice but to liquidate his stake in Halliburton. That he sold that stock for a good price was a fortuitous coincidence. We will never know whether, if Halliburton's stock had been trading at $8.60 when Bush asked him to join the ticket, Cheney would have declined for purely financial reasons. In any case, Cheney's critics cannot have it both ways: They cannot insist that he sell his stock and forsake his options to avoid conflict of interest, then castigate him for selling out at the right time and making millions.
Two years later, Halliburton seems to have weathered the worst of the asbestos storm. In early 2002 the company hired an independent consulting firm to assess how much money in asbestos claims it would have to pay out over the next fifteen years. The estimate: about $2.2 billion, of which $1.6 billion is covered by insurance, leaving a net liability of $602 million. In July Halliburton took a $483 million charge to raise its total reserve for asbestos payments to $602 million. By all indications, Wall Street bought it. By early September the stock was up nearly 40 percent; of thirty leading analysts on a Web survey, most were recommending "buy," and the average price they believed the stock would be trading at in twelve months was $30. The company's lingering problem is Harbison-Walker, whose bankruptcy has temporarily stayed some 200,000 claims against Halliburton. "The big question is, Can Halliburton come to the table and negotiate a global resolution?" says Alan Rich, an attorney with Baron and Budd in Dallas, one of the leading asbestos plaintiffs law firms. "If they don't do a deal, they'll be kneecapped, the injunction will be lifted, and the 200,000 or so suits will start grinding forward again, and the market will beat 'em to death." Not surprisingly, Halliburton executives disagree with that assessment; they are continuing to negotiate a settlement with Harbison-Walker and its plaintiffs.
WHAT IS DICK CHENEY'S REAL legacy at Halliburton? Certainly, the company's hard luck in the stock market is related directly to the enormous media coverage it has received. In the nineties Halliburton's foreign business got a huge lift from Cheney's stature as a world statesman; since he left, the company's shareholders have paid dearly for that stature. By most estimates, Cheney did a decent, if unspectacular job of running Halliburton. He had the good fortune to hit an industry boom when he arrived at the company and the misfortune to hit a major downturn in 1998 and 1999—years in which he failed to get a bonus. By Wall Street standards, Cheney's performance was lukewarm at best. From December 31, 1995, to December 31, 2000 (before either the asbestos verdicts or the SEC inquiry), Halliburton underperformed the S&P 500 by 31 percent and the S&P Energy Composite stock index by 33 percent. Company executives estimate that asbestos alone has knocked $15 off the price of its stock, or 100 percent of its current value. On the other hand, the company is in a better competitive position. The merger with Dresser was probably necessary, and the acquisition of Landmark Graphics was superb: The company has performed brilliantly. Halliburton is now on the whole well capitalized, relatively debt-free, holding its market share against competitors, and potentially immune to the worst effects of the asbestos-litigation crisis. It is, however, no longer the world's largest oil-field-services company; after divesting Dresser's equipment group, it is again number two, behind Schlumberger. Perhaps more important, in assessing Cheney's performance, few people inside the company fault him for the company's stock price or the landslide of bad press. "The big question around the office is, How did we get here?" says a Texas-based project engineer with a Halliburton subsidiary. "But I have never once heard anyone blame Cheney for it. I would say in evaluating his legacy that it is not extraordinary and it is not poor." In the end, the worst that can be said of Dick Cheney is not that he is a cheat or a crook but that he was just ordinary.