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Defense Nominee's Business Ties Raise Concerns
Published on Saturday, December 2, 2006 by the Los Angeles Times
Defense Nominee's Business Ties Raise Concerns
Robert M. Gates' affiliations have some watchdogs worried about a revolving door between the private sector and government.
by Walter F. Roche Jr.
 

WASHINGTON — In the 14 years since he left government, former CIA director Robert M. Gates has jetted cross-country to advise 10 different companies, assessing issues as varied as Saudi oil drilling, mutual fund performance and restaurant sales at Romano's Macaroni Grill.


US President George W. Bush (R) listens as former CIA director Robert Gates speaks in the Oval Office of the White House. Gates, the man nominated by President George W. Bush to be the next US secretary of defense, recommended in the 1980s overt military action against Nicaragua, including air strikes and a naval quarantine of its ports, according to a document made public here. Photo:/AFP
"I first sought him out because I considered him to be of exceptional good judgment and intelligence," said Rodney B. Mitchell, president of the Mitchell Group, a Houston investment firm that used Gates as a senior advisor. Impressed with Gates' recent performance as president of Texas A&M University, Mitchell believed Gates offered "pragmatism" to a firm that aims "to exploit the rapidly changing dynamics of world energy markets."

But as Gates awaits Senate confirmation as President Bush's secretary of Defense, ethics watchdogs worry about the revolving door between government and private business that allowed Gates to align himself with defense contractors, investment houses and a global drilling company involved with Vice President Dick Cheney's former employer, Halliburton Co.

Companies with which Gates has been affiliated have secured hefty no-bid Pentagon contracts, and "you have to wonder if these companies will continue to get around bidding requirements once Gates is secretary," said Alex Knott, political director of the Center for Public Integrity, a Washington-based watchdog group.

Common Cause, another nonprofit watchdog, believes Gates should take steps now to insulate himself, including placing his stock holdings — some of which he acquired in return for board service — in a blind trust to avoid conflicts of interest with companies seeking federal work.

A criticized administration

The Bush administration has been dogged by allegations that past corporate affiliations of administration officials led to favored treatment in federal contract awards. Much of the criticism has focused on Cheney's relationship with Houston oil services giant Halliburton, which has secured $1.5 billion in no-bid contracts for reconstruction in Iraq. Cheney was the firm's chief executive and retained Halliburton stock when he became vice president.

The Senate Armed Services Committee required outgoing Defense Secretary Donald H. Rumsfeld to divest himself of defense-related stocks to avoid conflicts. But it allowed him to keep holdings worth as much as $25 million in Gilead Sciences Inc., a California company that developed a drug used to treat bird flu.

Gilead, for which Rumsfeld served as board chairman, has seen its stock prices soar with sales to the Pentagon and other government customers. Rumsfeld, who through the Pentagon has denied any conflict, reported $5 million in Gilead capital gains in 2005.

In preparation for hearings set to begin next week, the armed services panel has asked Gates to complete a standard questionnaire about his corporate affiliations and stock holdings. Gates, in a 1994 opinion piece, compared the process of Senate confirmation to a "root canal," warning prospective public officials to prepare for scrutiny of every aspect of their personal finances and corporate relationships.

Financial disclosure forms filed in recent years with the Texas Ethics Commission show that Gates juggled various corporate relationships with his job as Texas A&M president. The university last year paid him $525,000 in salary, and he nearly doubled his income through outside directorships, Securities and Exchange Commission documents show.

Gates' personal holdings have grown substantially since he left government, when he had no more than $165,000 in savings and retirement accounts. Now, he has $1.1 million in holdings with Fidelity Investments, as well as stock holdings in some of the companies where he has served as director.

Links to contractors

Gates' relationships with defense companies date to 1993, soon after he left government after 27 years in intelligence work. He joined the board of SAIC, which is a contractor for the Pentagon, CIA and other federal agencies. Gates' brief tenure came as the company weathered a Justice Department investigation into defense contract irregularities that it eventually settled for $2.5 million.

Gates later served on the advisory board for VoteHere, an electronic voting machine firm tied to SAIC, and on the boards of defense contractors TRW, now part of Northrop Grumann Corp., and the Massachusetts-based Charles Stark Draper Laboratory.

Gates' knowledge of international issues won him a place on the board of Houston-based Parker Drilling Co., a global firm with 3,000 employees and operations in 10 countries. Gates earned $52,000 last year from the company, which values his "unique background and experience," spokeswoman Rose Bratton said. A Parker proxy statement reports that Gates owns 12,000 shares — worth more than $115,000 at Friday's stock price — with rights to acquire 60,000 more.

Parker reports that Halliburton is a "significant customer," often leasing equipment for international projects. Parker has partnered with Halliburton in a major drilling project in southern Mexico and in smaller efforts, such as a rig worker training program in Russia.

Gates' largest source of outside income last year, at $373,000, was from Boston-based Fidelity Investments, one of the world's largest investment houses. Gates' Fidelity holdings are described as deferred compensation, according to his disclosures.

Gates said recently that he would resign from Fidelity's board, on which he has served for nine years. Elected last year as chairman of the board's independent directors, Gates and his group oversee 345 mutual funds, including ones featuring U.S. defense and energy stocks.

He commuted from Texas for 11 board meetings a year, once noting that he had missed only one meeting because of a conflict with a college event. Gates' Fidelity salary was set by the independent directors.

Independent directors are charged with protecting the interests of individual investors, but, Fidelity spokesman Vin Loporchio said, the directors "are not involved in stock selection."

Gates also is on the board of Ohio-based NACCO Industries Inc., which has a mining division and manufactures forklift trucks and household appliances. Gates holds at least 1,000 shares of NACCO stock, according to his disclosures, worth about $149,000 Friday.

Gates reports other fees as a board member of Brinker International, a food service company with 1,400 family-style restaurants, including Chili's and Macaroni Grill.

Times researcher Janet Lundblad and staff writers Tom Petruno in Los Angeles and Julian Barnes in Washington contributed to this report.

Copyright © 2006 Los Angeles Times

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