In early September, during the Republican National Convention, the GOP is almost certain to name Dick Cheney as its nominee for vice president of the United States. In the meantime, it’s clear that Cheney deserves another nomination: as one of the worst CEOs in recent American history.

Of course, there are plenty of CEOs that should to be on that list, including Enron’s Kenneth Lay, Tyco’s Dennis Kozlowski and Adelphia’s John Rigas. While those bosses certainly are being pilloried, Cheney’s disastrous five-year-long tenure at Halliburton deserves far more scrutiny than the mainstream business press has bothered to provide.

Cheney’s job at Halliburton is particularly newsworthy now that John Kerry has chosen John Edwards as his running mate. The Republicans have already begun hammering Edwards for his work as a trial lawyer; Democrats have an opportunity to bash Cheney’s performance at Halliburton. Given the wreckage that Cheney left behind, that record offers a target-rich environment.

Since Cheney’s departure, the company’s net worth has gone into free-fall, debt has soared, and it is now facing embarrassing legal entanglements that could hamper its profitability for years to come. Furthermore, despite being the largest oil-field services company on earth (last year, its revenues surpassed those of French giant Schlumberger), Halliburton hasn’t been able to make any money. Instead, it’s losing money — lots of money. In 2002, the company lost $1 billion. In 2003, despite revenues of $16.2 billion, it lost another $800 million. In the first quarter of this year, losses totaled $65 million. More bad news is expected when the company reports its second quarter results on Friday.

The latest dose of Cheney-related bad news came on Monday, when Halliburton announced that the Justice Department has begun a criminal investigation of the company in connection with the operations of one of its subsidiaries in Iran. Halliburton also said that it has received a subpoena from a federal grand jury that is seeking documents from its Iranian dealings. In early 2000, while Cheney was CEO, a Halliburton subsidiary located in the Cayman Islands opened an office in Tehran. U.S. regulations prohibit American companies from trading with Iran and Libya because of their links to terrorist organizations. While at Halliburton, Cheney lobbied against the sanctions, saying that they were “ineffective.”

A Halliburton spokesperson downplayed the investigation and the subpoena, telling the Wall Street Journal that it is “important to understand, especially in the current political environment, that this is not a condemnation of the company, but a method of further studying the facts.”

The news of the criminal investigation follows close on the heels of other bad news: In late June, Halliburton said that it will take an $815 million charge against earnings for the second quarter. Of that amount, $200 million stems from cost overruns on the Barracuda-Caratinga offshore project in Brazil, a $2.5 billion undertaking that was announced in January of 2000 — seven months before Cheney left Halliburton to become George W. Bush’s running mate. The rest of the charge against earnings — $615 million — will cover the asbestos-related legal claims that stem from Cheney’s decision to take over Dresser Industries in 1998.

Meanwhile, both the Securities and Exchange Commission and French investigators are investigating Halliburton for its alleged involvement in bribing Nigerian officials over a giant liquefied natural gas project. Much of the alleged bribery occurred on Cheney’s watch.

Add in a recent $106 million legal judgment against the company for its involvement in a Kazakh oil deal done during Cheney’s stint as CEO, along with the Pentagon’s ongoing investigations into Halliburton’s overbilling (investigators have recently found that Halliburton spent $11 million to house personnel at the five-star Kuwait Hilton), and it becomes clear that Halliburton may have trouble surviving Dick Cheney.

Indeed, nearly every malady now facing Halliburton follows from deals done during Cheney’s reign. Those deals are ultimately the responsibility of the Halliburton board of directors — who, rather than choose an experienced CEO who knew the oil-field services and construction business, picked a charter member of the Bush family’s crony network.

Halliburton’s board members have been candid in discussing the reasons for hiring Cheney — and his business acumen is never mentioned. Cheney, whose degrees are in political science, had virtually no business experience when he became CEO of Halliburton in 1995. Thomas H. Cruikshank, the former chairman of Halliburton, told one reporter that Cheney got the job because “he would be able to open doors around the world and to have access practically anywhere … There was a lot that he could bring in the way of customer relationships.”

But there’s little evidence to show that those relationships did Halliburton any good. Instead, Cheney’s ability to forge relationships got Halliburton into the worst acquisition in its history. In January of 1998, Cheney went quail hunting with Bill Bradford, the chairman of Dresser Industries, another big oil-field services company. During their shooting expedition on a ranch in South Texas, Cheney proposed a merger with Dresser. After a series of meetings, Bradford agreed.

But Cheney didn’t grasp the scope of Dresser’s legal liabilities. Dresser owned a subsidiary that was facing a mountain of legal bills stemming from its old asbestos business. That asbestos problem began catching up to Halliburton almost immediately. The year of the merger, Halliburton had about 70,000 outstanding claims on asbestos. By 2002, it was facing more than 300,000 lawsuits. In late 2001 alone, the company was hit by jury verdicts totaling $122 million. The company’s stock price fell like a rock — going from a high of more than $60 in the days after Cheney was named as Bush’s running mate to as low as $9. Credit rating agencies downgraded Halliburton’s debt, and there was open talk of bankruptcy.

Since then, Halliburton has been able to strike a deal with its insurers to cover much of the asbestos-related costs. But Halliburton is likely to suffer from its asbestos hangover for several years to come, as it works to pay down increased debt it took on to resolve the matter.

“The Dresser deal will go down as one of the worst deals in the modern energy business,” says a Houston-based energy analyst who has been following Halliburton for several years. The analyst asked that his name not be used — which is not surprising given Halliburton’s size and the staunch Republican leanings of most energy business personnel. Asked if Cheney was a good CEO for Halliburton, the analyst replied, “The answer is clearly no. He knows how to make decisions. But he wasn’t an energy guy. You can’t find anything good that comes out of his tenure.”

Another Cheney-era deal, the Brazilian offshore oil project known as Barracuda-Caratinga, is also draining the company’s cash. During Cheney’s time at the helm, Halliburton agreed to a fixed-price contract with the Brazilian oil company, Petrobras, to build the infrastructure needed for the two offshore oil fields — Barracuda and Caratinga, which are located in about 3,000 feet of water. But the project has spun out of control. In a June 29 research note, Merrill Lynch analyst Mark S. Urness wrote that the cost overruns and charges taken by Halliburton on the project have already totaled $675 million, and the company may still have to cough up another $272 million to resolve the mess.

Despite the problems, Urness still rates Halliburton a “buy,” saying that the company has a “solid fundamental outlook” that is based on its “leading oil services franchise, as we anticipate increased worldwide upstream capital spending by producers through 2004-05.”

Halliburton recently lost a $106 million legal judgment to a pair of Houston oil companies that had claimed the services giant violated confidentiality agreements in an oil deal in western Kazakhstan, near the Caspian Sea. Again, Cheney was involved.

Last month, the Financial Times reported that Cheney and his second in command, David Lesar (who succeeded Cheney as Halliburton’s CEO), were both aware of negotiations between Halliburton and the Houston companies — Anglo-Dutch Petroleum International and an affiliate — for the rights to develop a rich oil field in Kazakhstan. In 1997, Anglo-Dutch went to Halliburton and the two began negotiating. Anglo-Dutch later sued Halliburton because Halliburton kept confidential information about the oil field and then tried to buy out Anglo-Dutch’s interest in the project. Last October, a jury sided with Anglo-Dutch. Halliburton and a British company, Ramco Energy, were ordered to pay Anglo-Dutch. Halliburton was ordered to pay the majority of the judgment.

After the judgment was finalized, Scott Van Dyke, president and chief executive of Anglo-Dutch, told the Financial Times, “I think Halliburton thought I was just a little guy that they could walk all over.”

Perhaps the most serious legal problems now facing Halliburton — and Cheney — involve the alleged bribery in Nigeria. Halliburton got into the Nigerian construction project in 1999. French authorities are investigating a $180 million slush fund that may have been used to bribe Nigerian officials. Cheney is one of several former Halliburton officials who may face indictment by French courts thanks to his role in the $4 billion project, which was built by Halliburton and Technip, one of France’s largest engineering firms.

On June 18, Halliburton announced that it was “severing all ties” to Jack Stanley, the former president of Halliburton’s construction and services subsidiary, Kellogg, Brown & Root. Halliburton took action against Stanley and another Halliburton official because it said they had received “improper personal benefits.” Stanley allegedly received some $5 million in payments from the Nigerian project.

Halliburton has launched its own investigation into the Nigerian mess. The probe is being handled by the Houston law firm of Baker Botts, which has close ties to the Bush administration. The lawyer investigating the matter is James Doty, who represented George W. Bush when he was purchasing the Texas Rangers baseball team in the late 1980s. The Securities and Exchange Commission has launched its own investigation into the Nigerian bribery scandal, and it appears that Baker Botts is representing Halliburton in that inquiry as well. A spokesperson for the law firm referred questions to Halliburton’s spokeswoman, Wendy Hall. Hall did not respond to e-mails.

If the SEC finds that Halliburton did bribe Nigerian officials, the company and its officials could be charged under the Foreign Corrupt Practices Act. If it is convicted under FCPA, Halliburton will be barred from bidding on federal contracts. That would mean the company would lose all future contracts with the Pentagon — an area that is now one of its primary businesses.

Cheney had served as secretary of defense in the first Bush administration, and during his time as Halliburton’s CEO, he pushed the company to increase its contracting deals with the Pentagon. He hired a number of former high-ranking military officials, who then began aggressively pursuing deals with the U.S. Army and other branches of the military. In Iraq, Halliburton was awarded logistics and oil-field repair contracts worth some $8 billion.

But it’s not clear that all of that work has been good for the company’s bottom line. In fact, the opposite may be true. According to the company, in 2003 its Iraq-related work resulted in $3.6 billion in revenues. But those contracts accounted for just $85 million in operating profits.

Those profits may turn out to be very expensive. It appears that Halliburton has overcharged the Pentagon for everything from fuel and food to overnight stays for its personnel at the Kuwait Hilton. The Pentagon has launched wide-ranging audits of the company’s activities. The Department of Justice has launched its own inquiry into Halliburton, and the company could face fraud charges. In March, the company announced that the government audits of its contracts could “materially and adversely affect our liquidity” — that is, the ability of the company to meet its ongoing cash obligations.

A CEO of an energy research firm, who also asked not to be named, said that Halliburton’s lack of profits, given today’s high oil prices, is stunning. “How can they not be making money in a business that is minting money?” he asked. He also questioned Cheney’s push to get into the military contracting business. “The entitlements and all the attention on Halliburton’s connections with the Pentagon and the Iraq contracts hasn’t resulted in them getting anywhere. It’s not repeat business. It’s arguable whether they should even be in the business at all.”

Given all of Cheney’s blunders, it’s no surprise that Halliburton’s balance sheet is a disaster zone. Since the end of 2000, shareholder equity (the company’s net worth) has fallen from almost $4 billion to less than $2.5 billion. Long-term debt during that time period has increased nearly fourfold, going from $1 billion to more than $3.9 billion. Between the end of 2000 and the first quarter of 2004, Halliburton’s total liabilities went from $6.1 billion to $13.9 billion.

In short, Cheney’s mistakes have cost Halliburton billions of dollars. But Cheney himself did just fine. During his 58-month stint at Halliburton, Cheney was paid a total of $45 million. He continues to receive deferred compensation from the company. This year’s payout to Cheney is likely to exceed $100,000.


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