Jewish World Review August 12, 2002/ 4 Elul, 5762
Open season on Cheney
Three years ago, the CEO of Amazon was Time's Person of the Year. Bill Gates was G-d. Venture capitalists and dot-com entrepreneurs were American heroes. That was when the market was up.
Today the market is down, and CEOs are bums. So the cry has gone up, "Hey, wasn't Dick Cheney a CEO?"
The vice president was indeed CEO of Halliburton, an oil services company. As the Enron, WorldCom and other scandals unfold, his tenure has come under attack. Why?
- He took the money and ran. Cheney made millions when he sold his Halliburton stock in the summer of 2000. The stock then was worth more than $50 per share. It is now about $13. As the Los Angeles Times puts it: "Cheney seems to share one defining characteristic of ex-CEOs whose actions are now under intense scrutiny: He became a millionaire many times over by cashing in his stock options before problems came to light and ordinary shareholders began losing their shirts."
But wait. Cheney did not sell his stock because he had inside knowledge that the stock market -- and his company's shares -- were headed south. He was forced to sell his stock when he was chosen by George Bush to be his running mate.
He wasn't dumping. He didn't want to sell. In fact, the big brouhaha at the time was Cheney's wanting to retain some of his stock options. He sold purely to avoid conflicts of interest. Not from any foreknowledge. Certainly not from any guilty knowledge.
It is absurd to associate such forced selling with crooks cooking the books and then dumping stock before the cops arrive with the handcuffs. It's as if one described Tom Ridge's appointment as homeland security chief by saying, "Today Pennsylvania Gov. Ridge, like James Traficant and Richard Nixon, abruptly left office before the expiration of his term."
- Dresser. The latest charge is that Cheney engineered a merger with a competitor, Dresser Industries, that is now dragging down Halliburton because of asbestos liability. As the New York Times put it ominously in a front-page headline: "Cheney's Role in Acquisition Under Scrutiny."
But wait. How can this be construed as wrongdoing? Dresser may have learned about increased asbestos liability (from a subsidiary it had spun off six years earlier) just before the merger. But there is no evidence that Cheney knew. Moreover, the claims then brought against Halliburton by the former Dresser subsidiary "were largely resolved in Halliburton's favor" (New York Times, same story). The company is suffering now because of new claims from this ex-subsidiary that were not lodged until June 2001, long after Cheney had left the company.
There is not a shred of evidence that Cheney acted in bad faith. Moreover, as Mickey Kaus points out in Slate, there is the matter of perspective. The asbestos liability is estimated at $43 million a year (over 15 years). Halliburton's revenues are $13 billion a year.
- Accounting shenanigans. The charge that nicely associates Cheney with Enron-like thievery is an accounting rule that Halliburton changed during Cheney's tenure. Halliburton had been counting cost overruns on its construction projects as total losses (until payment was negotiated). In 1998 it began counting as revenue the estimated payments that it would likely get. The charge is that this prettied up Halliburton's bottom line.
But wait. The new method had become the industry norm. According to Halliburton, 10 of the 15 largest construction companies used it. Moreover, according to Business Week (citing Douglas R. Carmichael, an accounting professor at Baruch College), Halliburton's switch is supported by a 1981 accounting rule because it helps meet accountants' goals of matching revenues with associated costs as they occur.
So imagine Cheney's people coming to him in 1998 to propose the accounting method change. "Boss, the old method is less logical, less used in the industry, less in accord with accepted accounting rules and needlessly understates our profits."
What was Cheney to say, "Stick with it"?
Moreover, the effect on Halliburton's revenues was trivial. In 1998, the change increased them by $89 million -- on total revenues of $17 billion. The critics are right that Halliburton was a year late reporting the change. But it was reported. And it amounted to one-half of 1 percent of revenue.
It may turn out that there is damning evidence that we have not yet seen. But until someone produces it -- say, that Halliburton's cost overrun revenues were knowingly and crookedly inflated -- we are left with the following syllogism: It is open season on CEOs; Cheney was once a CEO; therefore, it is open season on Cheney.
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© 2002, Washington Post Writers' Group