Lies, lies, lies. Pathological liars.
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Taking Stock of Paul O'Neill
Treasury Secretary's Words Not Always Carefully Chosen
By Jonathan Weisman
Washington Post Staff Writer
Thursday, July 18, 2002; Page E01
Last week, Treasury Secretary Paul H. O'Neill stood before a packed audience at the U.S. Chamber of Commerce to address the continuing scandals of corporate irresponsibility, banking on his own history as chief executive of Alcoa Inc.
"When I was at Alcoa I never sold a single share of Alcoa stock," he said, repeating a claim he had made on CBS's "Early Show" the day before. "I wanted my financial success and the company's success inextricably linked. Other executives should do the same."
But O'Neill did sell Alcoa stock, 662,547 shares in April 1999 worth nearly $30 million, when he was the company's chairman and chief executive. The proceeds were used to pay the tax liability on stock options he had just purchased, said Treasury spokeswoman Michele Davis. And at the end of the transaction, he had more Alcoa stock, unlike many chief executives who have cashed out of the companies they run.
"This was one integrated transaction, and the net result of the transaction was to increase his holdings of Alcoa stock," she said.
Nonetheless, O'Neill's very public and disputable claim about the stock sale reinforces concerns about what critics say is the secretary's propensity to speak first and think about the consequences later.
No one has suggested any impropriety on O'Neill's part. Selling the stock to raise cash for a tax bill was wise and proper, said Stephen Gallagher, chief economist for SG Cowen. But to then say he had made no stock sales underscores an unflattering reputation, he added.
"He doesn't inspire much confidence," said Vincent Farrell, managing director of Spears, Benzak, Salomon & Farrell, an investment management firm in New York. "He seems to put his foot in his mouth and stumble. I don't think he's helping the cause."
Such comments are particularly vexing for the White House at a time when the financial markets are in turmoil and some observers say the administration needs a credible spokesman for its economic policies and its position on corporate malfeasance.
President Bush's tenure as a director of Harken Energy Corp. and Vice President Cheney's term as chief executive at Halliburton Co. are attracting renewed scrutiny. Harvey L. Pitt's effectiveness as chairman of the Securities and Exchange Commission has been questioned because of his prior work with the accounting industry he now regulates. Deputy Attorney General Larry Thompson, the man in charge of the president's corporate-crime "SWAT team," was a director of a credit card company that paid more than $400 million to settle allegations of consumer and securities fraud.
Administration officials "need to bring in someone with real credibility, with a good understanding of economics and who understands politics," said Stephen Moore, president of the Club for Growth, a conservative political action committee. "The administration is going to have to start seriously thinking about stock-market politics in a way that they haven't done yet."
"You need a Rubin-like figure that can talk to business, talk to the financial community, talk to investors, and really steady nerves," said a source with close ties to the White House economic team, referring to President Bill Clinton's Treasury secretary, Robert E. Rubin. "Right now, there is no economic leadership."
Some officials hoped O'Neill would be that point man. A straight-laced, straight-talking industrial chieftain, O'Neill has gotten near-unanimous praise for his stewardship at the world's largest aluminum company, which he took over in 1987 and turned into a model of efficiency, safety and dynamism.
"He was the kind of old-school CEO that we wish we had more of these days," said Sarah Teslik, executive director of the Council of Institutional Investors, which has been highly critical of more flashy executive behavior.
But his role as a spokesman on economic policy has always been problematic. Where Rubin made an art form out of cryptic comments designed to calm the markets, O'Neill prides himself on blunt talk that has at times rattled investors.
In February 2001, a German newspaper quoted O'Neill as saying: "We are not pursuing, as often said, a policy of a strong dollar. In my opinion, a strong dollar is the result of a strong economy." That day, the dollar lost a full percentage point of its value against the euro, and the Treasury rushed out a clarification.
After the Sept. 11 terrorist attacks sent the financial markets into a tailspin, O'Neill surprised Wall Street by encouraging people to buy stocks and predicted, "We will see new records in the not-too-distant future."
Last month, O'Neill sent Brazil's currency and financial markets into a swoon when he said "throwing the U.S. taxpayers' money" at Brazil "doesn't seem brilliant to me." Enraged, Brazilian President Fernando Henrique Cardoso called Bush's national security adviser, Condoleezza Rice, prompting a clarification issued under O'Neill's name.
"Rubin believed you had to be consistent and speak with balance. And from consistency and balance came credibility," said Gary Gensler, a Treasury official during the Clinton administration. "With O'Neill, the only consistency is you don't know what he's going to say next."
Such criticism has followed O'Neill ever since Bush passed over several Wall Street financiers to tap a captain of industry as Treasury chief. But it is returning loudly as the stock market slides.
"Industrialists and captains of industry have not generally been seen as the best people to run the Treasury," said Maury Harris, chief U.S. economist at UBS Warburg. "You would prefer someone from the world of finance."
One Wall Street executive, who describes himself as a longtime friend of O'Neill's, said: "O'Neill is no more suited to this job then I would be to writing for The Washington Post. It's a terrible mismatch."
Treasury spokeswoman Davis dismissed such comments, saying, "Anyone who knows him knows he's spent an awful lot of time on Wall Street."
Privately, administration officials rankle at Wall Street criticism. "When things aren't going well for them, it's nice for them to point their fingers and say, 'You do something about it.' But government doesn't run the economy," one administration official said.
Wall Street executives and some conservatives in Washington are also wondering just where the Treasury secretary has been during the recent stock tumble. During sharp declines in the stock market in late May, O'Neill was touring Africa with rock star Bono. As the stock market swung wildly on Monday, he was discussing Eastern European economic growth in Ukraine.
"Where has O'Neill been during an economic crisis? Africa? Ukraine?" Moore asked.
Davis said O'Neill is not about to change his policies or schedule because of short-term market fluctuations. And even some critics acknowledged a sudden move, such as a hasty return from abroad or an about-face on policy positions, could do more harm than good.
"Understanding how confidence is affected is a tricky thing," said Martin N. Baily, a chairman of Clinton's Council of Economic Advisers. "If they switch tack now, they may look like they're panicking."
Davis said O'Neill's stock sale was a routine transaction to cover a tax liability, not to cash in on high stock prices or to dump Alcoa shares. Teslik said that in the past 15 years, it has become routine for senior executives to be issued one set of stock options as a form of compensation, and another set of "grossing up" options to cover the tax liability when options are exercised.
An option allows an executive to buy company stock at a fixed price, called the strike price, even if the market price of the stock is considerably higher at the time of purchase. But an executive must pay taxes on the difference between the strike price and the market price on the day the option is exercised. O'Neill sold his shares to cover that tax liability.
Because O'Neill never saw the proceeds of the sale, Teslik said she understands his contention that he never sold Alcoa stock.
"Most executives would say they never got the second amount issued to cover taxes because it went to the government," Teslik said. "The average American would say he sold stock. The average executive would not."
But to other experts on executive compensation, the reason for the sale is not relevant to O'Neill's claim that he never sold a single share.
"He didn't sell a share. He sold a lot of shares," said Marc Steinberg, a law professor at Southern Methodist University and a former SEC enforcement lawyer.
O'Neill did eventually sell all his Alcoa stocks and options -- 2.37 million shares -- after joining the Bush administration. He did so from April through June 2001 in response to criticism that he would face a conflict of interest as Treasury secretary if he continued to maintain such large holdings. The sale was worth nearly $100 million.
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