The Rittenhouse Review

A Philadelphia Journal of Politics, Finance, Ethics, and Culture

Wednesday, July 17, 2002  

“Fine Businessman” or Total Failure?

President George W. Bush today expressed confidence in Vice President Richard B. Cheney, telling reporters, “I’ve got great confidence in the vice president. He’s doing a heck of a good job. When I picked him, I knew he was a fine business leader and a fine, experienced man, and he’s doing a great job.” (“Bush Says SEC Probe Will Clear Cheney,” by Tom Raum, Associated Press.) [Ed.: Emphasis added.]

A fine business leader? That’s certainly debatable. Vice President Cheney’s record at Halliburton Co., where he was chief executive officer from 1998 to August 2000, can best be characterized as mediocre, and the more we learn the more he appears to have been on a par with founders Todd Krizelman and Stephan Paternot.

In a remarkable piece in yesterday’s Washington Post by Dana Milbank, “For Cheney, Tarnish From Halliburton,” the general outlines of Cheney’s unimpressive tenure are laid bare.

“When Cheney left Halliburton in August 2000 to be Bush’s running mate, the oil services firm was swelling with profits and approaching a two-year high in its stock price. Investors and the public (and possibly Cheney himself) did not know how sick the company really was, as became evident in the months after Cheney left.

“Whether through serendipity or shrewdness, Cheney made an $18.5 million profit selling his shares for more than $52 each in August 2000; 60 days later, the company surprised investors with a warning that its engineering and construction business was doing much worse than expected, driving shares down 11 percent in a day. About the same time, it announced it was under a grand jury investigation for overbilling the government.

“In the months that followed, it became clear that Halliburton’s liability for asbestos claims, stemming from a company Cheney acquired in 1998 [Ed.: Dresser Industries Inc.], were far greater than Halliburton realized. Then, in May of this year, the company announced it was under investigation by the Securities and Exchange Commission for controversial accounting under Cheney’s leadership that inflated profits. . . .

“There has been no serious allegation of wrongdoing by the vice president himself in all of this. But the highflying company Cheney hailed as a ‘great success story’ during the 2000 campaign is now a troubled behemoth fighting for its life. The humbling of Halliburton raises doubts about Cheney’s stewardship there and, by extension, his reputation as a smart executive bringing a businessman’s acumen to the White House.

“The developments at Halliburton since Cheney’s departure leave two possibilities: Either the vice president did not know of the magnitude of problems at the oilfield services company he ran for five years, or he sold his shares in August 2000 knowing the company was likely headed for a fall.” [Ed.: Emphasis added.]

Readers are free to take their pick from among the two scenarios Millbank offers: Either Cheney was a clueless CEO or Cheney was a crooked CEO. Neither is particularly comforting.

And what did Wall Street think of Cheney, the vaunted businessman who was said to counterbalance the utter failure at the top of the Republicans’ 2000 ticket? “Overall, financial analysts say Cheney was an unremarkable executive. ‘He came in at a time when any okay manager could ride the cyclical wave,’ said James Wicklund, an analyst with Banc of America Securities who has followed Halliburton for years,” reports Milbank. “‘He did okay. He did not blow anybody’s doors off.’”

The asbestos disaster

Halliburton faces potential disaster as a result of its $8 billion acquisition of Dresser Industries in 1998, a deal that Wall Street analysts and others tie directly to Cheney. The culprit: asbestos injuries by former employees of a Dresser subsidiary.

In the last quarterly report filed with the SEC before Cheney left Halliburton in August 2000, the firm said it had set aside $24 million of reserves to deal with asbestos-related legal claims, saying “we believe that the pending asbestos claims will be resolved without material effect on our financial position.”

Halliburton maintained an optimistic outlook for another 10 months when the company revealed Harbison-Walker Refractories, a 1992 Dresser spin-off, would be unable to pay asbestos-related claims filed against the firm, and that as a result, the claimants would turn to Halliburton for restitution. Only then (June 2001) did Halliburton increase its asbestos claims reserves to $125 million and it wasn’t until earlier this year that the company conceded “it has no idea what its asbestos liabilities may be and that its reserves ‘may not be sufficient,’” according to Milbank. “Investors . . . are betting the liability is $8 billion to $9 billion.”

Granted, legal liabilities can be very difficult to estimate, but asbestos claims have been discussed, argued, litigated, negotiated, and legislated this way and that, east coast to west, for at least 20 years now. As such, we find it very difficult to believe that Halliburton would so drastically underestimate its potential obligations by sheer accident.

This is a mess that cannot be ignored, that cannot be swept under the rug, and that cannot be dismissed with a flick of the wrist. The Cheney/Hallibuton issue will not go away quickly and we believe the odds favor more bad news and more embarrassing details emerging in the days ahead.

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