Let's get this straight. In the second quarter of 1998, Halliburton Co. made a big change in the way it accounted for cost overruns at its massive global construction projects. As a result, it received a boost to its pretax income for the year of 46.1%, to $278.8 million -- even though its underlying business had not changed at all.
The accounting maneuver was legal, but it's certainly the kind of major news investors have a right to know. Nonetheless, somebody at the company decided not to tell them about it. Not a word was breathed in Halliburton's securities filings, earnings releases, or analyst teleconferences for the next six quarters.
Who's accountable? According to the Securities & Exchange Commission, the buck stops with Halliburton's former controller and chief financial officer, who are being fined and sued, respectively, for their roles in the debacle. But the one person whom the agency specifically excluded from blame is the man who served as CEO at the time: Vice-President Dick Cheney. In a rare move for federal law enforcers, the SEC issued a press release on Aug. 3 declaring that "the investigative record developed by its staff" did not justify any further charges.
This resolution raises more questions than it answers. The second most important political executive in our country claims to be ignorant of one of the key business decisions his company made during his tenure as CEO. It may well be that an underling was willing to make such an important call without telling Cheney, but make no mistake: This type of scenario would be very rare, even in pre-Sarbanes-Oxley Corporate America. "The thing executives care the most about is how they look in terms of the numbers," says University of Texas School of Law securities expert Henry T.C. Hu. "An accounting decision that is going to affect performance by nearly half is usually the type of thing the CFO would discuss with the head of the company."
Even if Cheney didn't know about the disclosure decision, he should have. CEOs are paid big bucks for a reason: to stay on top of the important events going on in their companies. When it comes to maneuvers that have such a critical -- and obvious -- impact on earnings, ignorance is no excuse.
While Cheney's lack of knowledge may well have kept him out of court, where proof of state of mind is critical, it should not spare him from the wrath of investors. Moreover, he would never get away with such a head-in-the-sand defense now that Sarbanes-Oxley is law. In fact, one of the main reasons the law was passed was to force CEOs to assume more responsibility for their companies' public statements.
Will the issue of what Cheney knew, and when he knew it, ever be resolved? So far as the feds are concerned, it already is. One source close to the case says that Cheney was not a hands-on operation manager. Instead, this source says, he was "more of a chairman than a CEO, flying around the world making nice to governments so that he could land these big contracts."
But because of the obvious political sensitivity surrounding Halliburton, the SEC's verdict probably won't be accepted by many -- at least until the underlying records in the case are released. Indeed, that's just what former Assistant Secretary of Defense John White, an informal adviser to the Kerry-Edwards campaign, was calling for on Aug. 4. "There are a lot of questions here that simply aren't being answered," he said in a press conference. "Why the secrecy?"
It will be a long time before the facts behind this case emerge, if ever. But it's hard to imagine any way in which Cheney will come out looking good. Even if the decision to hide the company's accounting change was made below his grade level, the Vice-President is likely go down in corporate history as yet another know-nothing CEO of the late 1990s -- hardly a distinguished group.
By Michael France with Stephanie Forest Anderson in Dallas and Mike McNamee in Washington