The U.S. government wants to bring democracy to the Persian Gulf. It's starting with Halliburton, the oil-services company formerly run by Vice President Dick Cheney. The Securities and Exchange Commission this week took a small step to ensure that Halliburton can't ignore its shareholders' complaints about doing business in Iran.
At the core of the issue is an evocative conflict between the ghosts of 9/11 and the axis of evil. Halliburton faced a potentially embarrassing shareholder resolution at its annual meeting this May. A pension fund representing New York City policemen and firefighters proposed a resolution to force the company to reconsider its operations in Iran. Eager to avoid a public vote over its business in an axis-of-evil country—especially at a time when it's angling for government contracts to aid in the reconstruction of Iraq—Halliburton tried to weasel out of the controversy. It asked the SEC for a promise that it wouldn't take action against the company if it left the proposal out of its proxy. The SEC declined to issue such a "no-action letter," and Halliburton today caved to the shareholders' demands.
The fight illuminates the awkward compromises multinationals make to do business in scummy places. Back in 2000, when Cheney was still running Halliburton, the company opened an office in Tehran. A 1995 executive order by President Clinton banned virtually all American trade and investment in Iran and specifically warned companies not to help Iran's oil sector. But Halliburton, which opposed the sanctions against Iran and other oil-producing companies such as Libya, believed its operation was on sound legal footing. The Iran office operates under the name Halliburton Products and Services Ltd., a Cayman Island subsidiary. No U.S. citizens work in Tehran. And its clients are Persian Gulf drillers such as France's TotalFinaElf, to whom the sanctions didn't apply.
When President Bush entered office, large U.S. oil companies hoped he would relax the ban on U.S. involvement in Iran's vast oil fields. But any hope of that was dashed in the aftermath of 9/11 when President Bush lumped Iran with Iraq and North Korea in the axis of evil.
This didn't affect Halliburton till last month. In February, New York City Comptroller William Thompson Jr., who manages the pension funds of New York City employees, asked Halliburton and two other companies—General Electric and ConocoPhillips—to let shareholders vote on whether to review the companies' activities in Iran and other suspect nations. Noting the Iranian government's links to terrorist organizations, the resolutions asked the companies' boards of directors to set up special committees to gauge the reputational and marketplace damage the companies might suffer from continuing to do business in Iran.
ConocoPhillips asked the SEC to block the resolution, but soon entered talks with the pensions. GE agreed to include the proposal in the proxy. Halliburton sought the SEC's a priori approval to ignore the proposal.
Sure, Thompson was grandstanding. The resolutions are his transparent effort to gain attention and win support for future campaigns. Though he manages funds for all New York City employees, Thompson strategically chose to have the resolutions filed by the employees seen as the heroic victims of terror. "The New York City Police and Fire Department Pension Funds urge you to vote FOR this resolution," the resolution concludes.
Even so, Halliburton's defense was pretty lame. Public relations manager Wendy Hall said: "The activities of Halliburton subsidiaries in Iran are very limited, and are staffed and managed by non-U.S. personnel."But any work in Iran is ultimately backed by the resources of the U.S.-based parent company. The parent company and its shareholders benefit from any profit the operations deliver.
Second, the company claimed that it's not in a position to make moral choices about where to do business because it's simply a service provider. "It's important to remember that we're a services company," said Hall. "We're not an oil company." But Halliburton has no more obligation to take any contract anywhere than Exxon does to dig any well anywhere. Businesses make choices all the time, for economic, political, and moral reasons, about where they do business. Halliburton isn't exempt from those choices because it is a "services company."
The company seemed to be arguing that being American shouldn't hinder it from serving its customers anywhere, even in a country that our government regards as a pariah. But Halliburton's U.S. domicile isn't merely a flag of convenience. In fact, Halliburton derives all sorts of benefits from being an American company. Halliburton's engineering and construction division, KBR, was one of five U.S. firms asked by the government earlier this month to submit initial bids on Iraq reconstruction work.
It is, of course, a company's right to oppose government policy, lobby against it, and even denounce it as immoral—even while being a beneficiary of other government policies. Grain-processing giant ADM, for example, is simultaneously opposed to the trade embargo with Cuba and a huge beneficiary of agricultural subsidiaries. But that doesn't mean a company can ignore or skirt the policy it opposes.
Halliburton plainly acts as if it believes the current sanctions against Iran are wrong. But it has now recognized that it wouldn't look good to be doing dubious business with one sanctioned member of the axis of evil while it lobbies for billions in U.S. contracts in Iraq at the same time.
Today, in the wake of the SEC's refusal to grant it absolution in advance, Halliburton struck a deal with Thompson. It will form a board committee to study its Iran investments, and the pension funds will withdraw the resolution.
The ghosts of 9/11 have struck a small blow for shareholder democracy and made at least one company ponder the political consequences of its work in the Persian Gulf.