Brad DeLong's Semi-Daily Journal (2004)

Really, Professor DeLong.

The very first thing a good chief executive learns to do is being unaware of anything that might be illegal. Even if his own left hand is the perpetrator.

Don't call it lying. It's more like keeping multiple universes in your head.

Or books, in the case of Cheney.

So the SEC believes that Cheney as the CEO just stood there chewing his cud with a bovine look on his face while these accounting changes were made that caused Halliburton to magically go from deep in the hole to turning a nice profit and not only did Cheney not know about it at the time but, that he never once got curious enough to ask about the sudden, dramatic change in the fortunes of his company? The SEC either just called Cheney stupid or us.

The first officer of the White Star liner noted that the commodore was probably not aware of the iceberg that came perilously close to the ship, the RMS Titanic, calling the evasive manoeuvre a "routine decision". So routine that even after the sound of shearing metal could be heard throughout the ship the commodore refused to appear on the bridge, preferring to entertain his first class passengers instead.

Could the SEC be leaving action against Cheney to the courts? (Well, of course, but I mean could that be the SEC's intention?) That will make anything that happens a post-election issue, and will take it out of the arena of the highly politically vulnerable SEC an into the only moderately politically vulnerable judiciary.

Oh brother!

This is indeed a routine matter, and as I have mentioned in another post, is more properly the responsibility of the CFO, not the CEO. There is nothing improper, nothing illegal, nothing even remotely unusual about matching revenues to expenses in the period they happen.

In fact, to do otherwise would leave one open to charges of income tax evasion.

Patrick,

Your use of "this" leaves a bit of ambiguity about what exactly you consider to be a routine matter. The decision to change accounting methods without informing stock holders was sufficient to trigger an SEC investigation, and a finding of fault. At this point, arguing that "this" is routine, and further that your "otherwise" would have been actionable, ignores just about everything that has happened as regards the issue at hand. Just because you have argued that something is true does not make it so.

kharris says to Mr. Sullivan that "Just because you have argued that something is true does not make it so."

I think my comment about keeping multiple universes in one's head applies here, k. In the Law as Applied to Dick Cheney Universe, the man who approves the financial statements is free of blame, while the man who prepares them is completely to blame. In the Law as Applied to Bill Clinton Universe, the passive investor is to blame, while the man who prepares and approves the financial statements is a victim.

It's a new kind of relativity.

"Why or why are we ruled by these liars?" Maybe one of the reasons Dick Cheney chose himself to be Bush's running mate (and what an Alice-in-Wonderland selection process that was), was to ensure that his misdeeds at Halliburton would never catch up with him. Would the SEC be more inclined to include him in its findings if he weren't the second most powerful elected official in the United States? In the Law as Applied to Bill Clinton universe, a special prosecutor, one with impeccable Democratic Party connections, would be pursuing Mr. Cheney across time and space.

Time to dig out the Arthur Anderson ad where Cheney (at the time, CEO of Halliburton) praises AA's "creative accounting".

It is most and very definitely the job of the CEO to verify and approve such major changes. if a CEO claims not to know such a major and serious event, then he is either incompetent or lying or both.

Under Sarbanes-Oxley, the CEO would be an indicted felon. Too bad -- Cheney would have looked really good in prison grey.

Patrick Sullivan writes: "There is nothing improper, nothing illegal, nothing even remotely unusual about matching revenues to expenses in the period they happen."

Read it again.

That's not what they were doing. They were crediting *projected* - ie, NONEXISTENT, FICTIONAL - cost-overrun payments as CURRENT revenues.

The (future) overrun payments would not be credited in the (future) period in which they occur, but in the *current* period, when the non-existent revenue could be used to bolster the firm's financial results.

I'm trying to understand this. The motto "Not my job" is an acceptable way to disavow responsibility if you're the CEO, but presumably not if you're a unionized employee.

I think that Patrick Sullivan may be right about the de facto role of CEOs in giant corporations that practically run on autopilot. But this notion is at least 30 years out of date and not at all in line with the "star salaries for star executives" mantra of today. Naive and gullible that I am, I thought that anyone who makes a clear delineation of his job responsibilities as CEO is not fit to compete in our new business culture.

I think the actual reasons for put Cheney at the helm of Halliburton are so obvious that there are no big surprises in the story. He wasn't picked for his business acumen, but for his rolodex. It probably seemed like a good idea at the time.

Paul, I'd agree that there's a lot of stuff that CEO's miss, and a lot that they deliberately miss. However, IIRC, this change in accounting led to a 46% increase in earnings. That's a huge increase; how can a CEO not notice that? And if Cheney was personally involved in negotiating cost overrun payments with his crony customers, he'd be even more involved with this than many CEO's.

I would submit that any company for which this is a "routine matter" is deserving of love notes from the SEC and the counsels of deceived shareholders.

"That's not what they were doing. They were crediting *projected* - ie, NONEXISTENT, FICTIONAL - cost-overrun payments as CURRENT revenues."

This is not only factually wrong, it is ignorant of accrual accounting principles. These were CHANGE ORDER receivables. As such they properly belong in the period when the work was done, and that is what Arthur Andersen was doing. Footnoting that in the financials is an administrative task, not something a CEO does (especially a CEO who isn't a CPA).

' As such they properly belong in the period when the work was done, and that is what Arthur Andersen was doing. Footnoting that in the financials is an administrative task, not something a CEO does (especially a CEO who isn't a CPA).'

Ah yes, Arthur Andersen -- that model of professional excellence.

A CEO who does not notice or question a 46% leap in a subsidiary profits ie either incompetent or a crook or both.

Come on, erg - 46% is less than 100%. I'm surprised that Patrick thinks that such petty cash is worth even a CFO's time. CEO's, of course, should only be informed when the increase hits at least 200%.

Given that Bush/Cheney's assessment of the costs of the IRaq war were off by at least 200%, I would say that its very likely that Cheney and Co. are simply innumerate (except of course, when their own salaries or portfolios are considered).

Yes the accounting practices were legal. But the point is that they didn't tell stockholders about the change. That's how the SEC found fault. Most CEO's I know are very careful about keeping track of what stockholders are told and what they are thinking. Cheney's feigned ignorance of the accounting change and what the stockholders were told is consistent with his feigned ignorance about the potential asbestos liability Dresser had when it was merged with Halliburton. It is also consistent with his feigned ignorance that his subsidiaries were doing $73 million in business with Iraq. He's pretty good at feigning ignorance.

Guess Cheney's following (or is walking hand in hand) with Ken Lay in developing the "who me, I didn't know what was happening, wasn't my job" theory of CEO exculpation. Yet CEOs continue to command huge compensation and Cheney is still receiving his what, $150,000/year? Perhaps the French court will bring Cheney to some kind of better justice. Seems as though the fix is in in the US.

It is perfectly credible that Cheney did not have a clue what was going on in the accounting department at Haliburton. Remember, this is the guy who damn near destroyed the company by failing to do his due diligence when he aquired Dresser Industries from a buddy, and failed to notice that it owed its ass to the world for asbestos claims.

We are talking here about a man who quite regularly doesn't have a clue -- and it's only fair to allow him to claim that in his defence in the rare case when it's to his benefit.