The Devastating Effect of not Taking “Bright Young Things” Seriously.
In the midst of all the corporate scandals and alleged shenanigans across the globe in the past few years, the name of Halliburton features quite prominently. This is due to some alleged dodgy dealings in oil and Iraq – two issues that have been heavily scrutinised by investigative journalists – and also because of its link with the current Vice President of the United States, Dick Cheney, who was CE of Halliburton from 1995 to 2000 (Cheney currently still holds nearly half a million stock options in the company).
Halliburton is primarily a multi-national, Texas-based oil services company. Its primary business activities relate to the provision of services linked to the oil industry, but it really is able to offer all sorts of logistical backup to any major project, including, for example, the provision of food and cleaning services to the US troops in Iraq. It seems to always skate very close to edge of the law, sometimes maybe going across the line.
Its charge sheet reads like the seedy side of a John Grisham novel. Although there have been no major court judgements against it, allegations seem to be numerous, and well substantiated. A short summary will illustrate the point:
- Halliburton was awarded a “no bid” contract for reconstruction work in Iraq. It appears as if this contract was agreed before the war even began. If that was not bad enough, an email from a Pentagon official to the undersecretary of defence policy said that the Iraqi reconstruction contract “was contingent on informing WH (White House) tomorrow. We anticipate no issues since action has been coordinated w(ith) VP’s office.” [Washington Post, June 2, 2004]
- Halliburton itself has acknowledged that it “accepted up to $6 million in kickbacks” in its no-bid contract work in Iraq. [Boston Globe, 1/23/04]
- Although claiming to have severed all links with Halliburton, Dick Cheney still owns shares, share options, and “receives about $150,000 a year” from Halliburton. [CNN, 10/25/03]. In addition, he retired “with a package worth an estimated $20 million, according to people who have reviewed the deal.” [NY Times, 8/12/00]
- Halliburton paid $7.5 million to settle an SEC probe of the company’s Enron-style accounting practices. In 1998, the company failed to disclose a change in the way it accounted for revenue from some construction work. The SEC said “the company misled investors and violated federal securities laws.” [Washington Post, 8/4/04; Complaint of SEC vs. Halliburton Company and Robert Charles Muchmore Jr., 8/3/04]
- While feeding soldiers in Iraq, Halliburton billed the US government for $186 million for meals that were never served. [United Press International, 7/22/04].
- Halliburton is under investigation by Justice Department for overcharging in the Balkans, from 1996 to 2000, while Cheney ran the company. The charges stem from a General Accounting Office report that found in 1997 that Halliburton billed the Army for questionable expenses, including, for example, charges of $85.98 per sheet of plywood that cost $14.06, and charges for cleaning some offices up to 4 times a day. [New Yorker, 2/16/04; Associated Press, 12/12/03, New York Times, 8/6/04]
- The company potentially faces criminal charges in a $180 million international bribery scandal during the time Cheney was CEO of the company. [Washington Post, 1/22/04].
- The US has official sanctions in place against Iran. Under laws signed in by Bill Clinton, no US company may directly invest in Iran. Subsidiaries of US companies may do so, and all foreign companies are limited to $ 40 million investment. Iran has been labelled by the current US Administration as part of the “axis of evil”, and is the next country the US is most likely to invade. Yet, Halliburton maintains an office in Tehran (although it is secretive about this) and has won a contract with an Iranian oil company, Oriental Kish Oil, worth $308 million, to drill for gas in Iran’s giant South Pars field. [Fortune, 11 Feb 2005].
Nowhere on Halliburton’s webpage is there any hint of these scandals, or any official response. It’s as if these scandals do not exist, or that the company feels if it ignores them, they’ll just go away.
Judging the Impact
Whether true or not, these charges are sticky at the moment, and are being continuously reported and repeated in top class international business publications. The long term effect of such bad press is incalculable. But the real downside is the horrible downward spiral of “bright young thing”, and the death of Halliburton’s available talent pool.
Imagine you’re a rising star, or just an “average” recent graduate. Would you choose to work at Halliburton at the moment? Probably not – especially if you have even one other option. Why take a chance? Why put yourself and your career in a place that has such an ethical cloud hanging over it.
So, Halliburton is likely to only get applications from those people who don’t care too much about ethical issues, or will need to pay an extraordinary premium for quality recruits (who, frankly, might still be the type of people who don’t worry too much about ethics). When these people get into decision making situations within Halliburton, where there are subtle ethical lines, which side will they come down on? Already possibly predisposed to flying close to the line, within a culture that clearly flies close to the line, it seems fairly obvious that they will simply further entrench Halliburton’s current situation.
This could have disastrous long term effects on the company, leading to legal and civil actions and claims against it. In an era of transparency, corporate governance and citizenship, Halliburton has more of a hole to climb out of than it can possibly imagine. How do you turn such a mess around? Well, you start acting transparently, and at least acknowledge where you’ve come from. If this is issue does not consume a lot of the current CEOs time, then Halliburton’s days are numbered.
This is lesson for all companies and every industry. The ability to attract and retain the best talent in your industry – the “bright young things” – is critical to your future success. It must be part of the job function of the strategic leaders within the organisation. Issues of trust, transparency and good corporate citizenship must be rabidly established and maintained, if the future is to be assured.
In addition to the newspapers listed, the following websites were helpful: