*OT* I'm under the impression that York retired and joined a couple of boards after his IBM stint. In either case, here is the article. Some 'colorful' language in several spots from Jerome...
Regards,
John
Scandal at Waste Management
Risks Payout for Retired CEO
By JEFF BAILEY
Staff Reporter of THE WALL STREET JOURNAL
A boardroom battle is shaping up at Waste Management Inc., the
giant trash hauler, over a question that is straightforward but
seldom asked in corporate America: If a chief executive presides
over disaster at the company he runs, should his personal fortune
be at risk?
In a highly unusual move that hasn't been
made public, Waste Management's board is
refusing to pay out about $40 million in
pension money and deferred compensation
due its retired chairman and chief executive
officer, Dean L. Buntrock, and other former
executives.
The action stems from an accounting
scandal that cost the company $3.5 billion in
charges to earnings and other adjustments.
That weakened the company, and it merged
last year with another big trash hauler, USA
Waste Services Inc. of Houston, which put in its own executive
team but retained the Waste Management name. As part of the
fallout, Waste Management and its outside auditors, Arthur
Andersen LLP, quickly agreed to pay $220 million to settle the
bulk of shareholder lawsuits.
Typically, when a company announces bad news that hammers
its stock -- Waste Management's stock fell in anticipation of its
February 1998 disclosure that it would restate results back to
1991 -- it adopts a circle-the-wagons approach to fend off the
inevitable shareholder litigation. Current and former officers and
directors and the company's auditors usually agree not to fight
among themselves over blame. Settlement money comes from
insurance policies and corporate coffers, almost never from
individuals.
But a strong and vocal group on Waste Management's 14-person
board, half of whom come from the USA Waste side, is arguing
that all or part of the $40 million -- which includes about $14
million owed to Mr. Buntrock -- ought to go toward the
shareholder settlement.
At dinner the night before this year's Jan. 12 board meeting,
Pastora San Juan Cafferty, a University of Chicago professor
brought onto the old Waste Management board by Mr. Buntrock
in 1994, made a plea on his behalf, lauding his character. "He is
an honest and good human being," Ms. Cafferty recalls saying.
That was too much for Jerome B. York, a director from the USA
Waste side and a tough-talking former finance chief at Chrysler
Corp. and International Business Machines Corp. According to
people who were there, Mr. York shot back: "The son-of-a-b____
ought to be in prison." The testy exchange "quieted the room,"
another director says.
Mr. York is among those wanting Mr. Buntrock to contribute to the
settlement.
Mr. York's chief ally is Roderick M. Hills, a
former chairman of the U.S. Securities and
Exchange Commission and head of Waste
Management's audit committee, which has
exercised sweeping control over the
company's investigation into the accounting
scandal. On at least one occasion, other
directors say, Mr. Hills has threatened to quit
the board if some or all of the $40 million is
paid out to Mr. Buntrock and his onetime
lieutenants before an SEC investigation into
the accounting mess is completed.
Mr. Buntrock, through his lawyer, John T. McCarthy at Bell Boyd &
Lloyd in Chicago, declines to make any comment. Beyond being
a defendant in shareholder litigation, Mr. Buntrock, 67 years old,
hasn't been accused of any wrongdoing.
"If there was ever a case for personal liability, this is it," says Nell
Minow, a partner at Lens Investment Management, Washington,
D.C., which was among the Waste Management shareholders
that sought Mr. Buntrock's ouster in 1997. Lens, which tries to
improve corporate governance at poor-performing companies,
refuses to accept the terms of the $220 million settlement. It is
pressing its own suit against the company, certain former and
current officers and directors, and Arthur Andersen.
No one has suggested trying to go after the executives' money
beyond the $40 million. Before the merger, Mr. Buntrock held
Waste Management stock that would now be valued at about
$100 million.
"It's an attractive proposition" to target highly paid executives for
personal liability, Ms. Cafferty, the board member, notes. But she
is against it, saying that personal liability shouldn't be pressed on
someone just because they have become a deep pocket.
In addition to Ms. Cafferty, Mr. Buntrock has support from a
surprising quarter: the current top two executives of
Houston-based Waste Management who came from USA
Waste, Chairman and CEO John E. Drury and President and
Chief Operating Officer Rodney R. Proto. Board members say
Mr. Buntrock attempted to derail the merger with USA Waste and
disparaged Messrs. Drury and Proto.
"He had concerns that they weren't up to
running a company of that size -- that they
were upstarts," says Robert S. "Steve"
Miller, a director. To press his opposition,
Mr. Buntrock wrote a letter to other board
members and "he also made a personal
visit to every one of the directors" in the
weeks leading up to the March 1998 merger
announcement, Mr. Miller says.
Still, Messrs. Drury and Proto, who won't
comment on the $40 million dispute, look
more favorably at a payout to Mr. Buntrock,
other directors say, because they view the continuing debate as a
distraction from their job of reaping huge cost savings from the
merged companies.
Corporate Shockwaves
The debate is likely to echo in the boardrooms of other
companies recently rocked by accounting messes. Cendant
Corp., which last year found pretax profits had been inflated by
$500 million through improper accounting, paid out the full $35
million in severance due Walter A. Forbes when he resigned last
July. But Sunbeam Corp. refuses to pay $5.5 million in
compensation that its former CEO, Albert J. Dunlap, says he is
due. Sunbeam restated results downward for 1996, 1997 and the
first quarter of 1998. Unlike Waste Management, Cendant and
Sunbeam have yet to agree to settle the large-scale shareholder
litigation they face. Messrs. Forbes and Dunlap have denied
wrongdoing or knowledge of any accounting irregularities.
For Mr. Buntrock, the strained relations with the company he built
from a tiny family-run trash hauler is a sad turn of events. He
retired in June 1996 as CEO, but remained chairman. His first
successor, longtime No. 2 Phillip B. Rooney, quit under pressure
from angry shareholders after just eight months on the job.
In July 1997, Mr. Buntrock gave up the chairman's title to his
second successor, Ronald T. LeMay, recruited from Sprint Corp.
Mr. LeMay quit after about three months, upon getting a whiff of
the accounting problems, says Mr. Miller, who as a newly named
outside director had helped recruit him. "He left because it was
deep enough and he hadn't hit bottom yet," Mr. Miller says. Mr.
LeMay declines to comment.
The board in October 1997 then turned to Mr. Miller, a former
Chrysler vice chairman and corporate-turnaround expert, to serve
as acting CEO. At that point, Mr. Miller says, "I was clueless"
about the accounting situation. One of Mr. Miller's first tasks was
to edge out Mr. Buntrock, who still hadn't moved from his old
corner office. But nicely.
As a token of the company's gratitude to Mr. Buntrock, Mr. Miller
agreed to have Waste Management donate $3 million to the
founder's alma mater, St. Olaf College in Northfield, Minn. Mr.
Miller says he planned to announce the gift at Waste
Management's spring 1998 annual meeting, "to give due honor."
In the intervening months, the board discovered the full extent of
the accounting problems, and the merger occurred. "It didn't
seem like a good time," during all that, to discuss the St. Olaf gift,
Mr. Miller says.
So it was a bit sheepishly that Mr. Miller, who served as board
chairman of the combined companies for a year after the merger,
finally broached the topic at the board dinner this past January.
He was hooted down. "What the f is that about?" Mr. York, the
director, loudly demanded to know, according to directors who
were there. "We were all surprised," another board member
says. Mr. Miller dropped the matter.
St. Olaf says it has separately received about $26 million in
personal gifts from Mr. Buntrock and his family, and is using the
funds to build a new student union. Mr. Buntrock, the school's No.
1 contributor, "is very quiet about these things," says Gordon
Soenksen, vice president of fund raising. The building will be
known as Buntrock Commons.
Awaiting Probe Results
For now, Waste Management's board has agreed to hold off on
any decision regarding the $40 million in pay until the results of
the SEC's investigation are known. That could take months. It
was only in recent weeks that the audit committee of Waste
Management's board handed over to the SEC the results of its
own yearlong probe into the matter.
The material given to the SEC, according to a person who
reviewed it, suggests that beginning in 1991, Waste
Management began using various accounting adjustments, such
as stretching out depreciation on trucks and going light on
reserves for environmental liabilities. That change had the effect
of propping up profits even as the waste industry went into a
deep slump. This person says the materials show that the
accounting adjustments, which took place at Waste
Management's headquarters then located in Oak Brook, Ill.,
provided $112 million, or 11%, of 1991 pretax profit, and that the
adjustments ballooned to $462 million, or about 44%, of 1996
pretax profits.
Within limits, companies can change accounting treatments,
including depreciation schedules and the level of environmental
reserves. But when that results in a meaningful change in profits,
disclosure is required. "You've got to disclose it, and they didn't
do that," says Richard J. Heckman, a member of Waste
Management's audit committee and chairman and chief
executive of U.S. Filter Corp.
Tight-Lipped
The SEC won't comment on its investigation. SEC enforcement
officials have been deposing former Waste Management
executives.
James E. Koenig, who was Waste Management's chief financial
officer during most of the period of the questionable accounting,
says, "I haven't talked to the SEC. Until I get through that, I can't
talk." Asked if the company is holding his supplemental pension
money, $2.6 million according to an SEC filing, he says, "Yes."
Thomas C. Hau, who was controller during most of the period in
question, declines to comment. He would be due about $1
million. Mr. Rooney, longtime No. 2 to Mr. Buntrock and currently
president and chief operating officer of ServiceMaster Co., won't
comment. He would be due about $12.5 million.
Waste Management's outside accounting firm, Arthur Andersen,
which agreed to pay $75 million of the $220 million settlement,
also declined to comment. At the insistence of Mr. Hills, the audit
committee chairman, the firm was kept on after the merger with
USA Waste, in part to help with the probe, Waste Management
directors say. If you want to find where the bones are buried, says
Mr. Heckman, the audit committee member, "you've got to use
the dog."
The magnitude and duration of Waste Management's accounting
discrepancies, however, made unappealing the idea of extending
the circle-the-wagons defense to former management. "We're not
going to defend the indefensible," a board member says.
Waste Management officials are nervous, however. The $220
million settlement hasn't been finalized; shareholders' lawyers are
reviewing company documents to determine if the amount is fair,
and a federal judge in Chicago must still approve it. The
settlement would apply to investors who bought Waste
Management stock between Nov. 3, 1994, and Feb. 24, 1998.
Mr. Proto, the president, says he worries that lawyers for
shareholders, should they become convinced the accounting
mess rises to the level of fraud, may still balk at the deal and
demand more money. "Were these guys to make a determination
of fraud," Mr. Proto says, "our deal could go to hell in a
handbasket, and could cost us zillions. None of us is going to be
content to whitewash" the accounting scandal, he says. "But we
don't want to penalize current shareholders, either." |
