Posted on 12-5-2004

The Spin Doctor Is In - Bechtel

In the face of criticism over its controversial construction projects,
Bechtel has taken media manipulation to the next level, employing a
three-pronged approach to weaving a rosy story for the public and
investors.

By A.C. Thompson, CorpWatch, April 28, 2004. Photo: Cartoonist: Khalil Bendib

The Bechtel Group, Inc., the massive San Francisco-based construction and
engineering firm, has played a leading role in some of the most
controversial construction projects in modern history: California's San
Onofre nuclear reactor, Boston's budget-busting "Big Dig," the failed
attempt to rebuild and privatize Bolivia's water system, the ongoing
corporate takeover of the London subway system, and now a $3 billion
reconstruction job in Iraq.

This week, the Associated Press revealed that Bechtel's troubles are far
from over: The company has been forced to pay $110,000 to settle safety
and environmental violations in recent years, and in Iraq, the
subcontractors it hired have shelled out $86 million in fines. A lesser
firm would be sunk by all the bad publicity, but somehow the
well-connected, privately held corporation always seems to emerge
unscathed and ready to score more big-ticket public works jobs.

So how does Bechtel do it?

Laura Miller, managing editor of PR Watch, a quarterly publication that
tracks the public-relations industry, compares the firm's savvy media
tactics to those of "the tobacco and chemical industries."

Though any corporation of Bechtel's size-it boasted $16.3 billion in
revenue for 2003-works hard to control spin, Bechtel has taken media
manipulation to the next level, expending vast amounts of energy trying to
squelch negative press. Judging from a raft of high-level internal memos
and e-mails obtained by CorpWatch , Bechtel is big on obfuscation,
massaging data meant for financial institutions who lend the company
money, and trashing the reputations of critical journalists.

The documents, which include several e-mails to and from CEO Riley P.
Bechtel, offer a rare insight into the strategic workings of one America's
most secretive corporations. The confidential materials outline the
company's response to a 4,700-word expos on the firm's disastrous dot-bomb
and energy ventures that ran in the March issue of Business 2.0, a glossy
San Francisco-based magazine covering the tech industry.

Business 2.0 reporters Ralph King and Charlie McCoy learned from company
insiders that Bechtel's finances were in a precarious state. The firm had
lost some $300 million on bad investments and had taken on a staggering
debt load of $500 million, according to Bechtel documents that were leaked
to the reporters. In early 2003, the reporters discovered, things were so
grim that top executives were asked to pony up $50 million in personal
funds to keep the firm afloat.

Bechtel vigorously denied the allegations-and continues to deny them. The
story was "absolutely" inaccurate, according to company spokesman Jonathan
Marshall. "It portrayed the company as being in financial crisis when in
fact we're in a very healthy position. The basic premise was wrong."

This isn't the first time Bechtel has aggressively challenged its critics.
Last year, after The Boston Globe published a three-part series on
gargantuan cost overruns on the Big Dig-a mammoth highway-tunnel
project-Bechtel shot back with an 18-page response labeling the stories "a
disservice to the truth" and accusing the paper of failing to grasp the
basics of the construction trade. When the San Francisco Bay Guardian ran
a pair of scathing stories about its water privatization ventures in 2000,
Bechtel officials spammed their own staff with an e-mail faulting the
weekly paper for "relying on well-worn innuendoes, falsehoods, and quotes
from biased or incredible sources to round out their negative portrait."

Even before the Business 2.0 story was printed, Bechtel's pr machine was
running full power. When King first contacted the firm about the money
crunch late last year, company officials promptly put together a file on
him, pulling together a raft of his stories, checking out the work he did
for other publications, and scoping out Business 2.0. "King is a former
banking reporter for The Wall Street Journal," Jock Covey, Bechtel's
director of corporate and external affairs, wrote in a November 2003 memo
to Riley Bechtel and other officials. "King does not have a record as a
muckraker."

Bechtel also tried to "craft a response" that would convince the King and
McCoy to drop their investigation. In interviews with King, Bechtel
officials revealed little. A spokesperson sought to give King "a more
balanced perspective," but offered no substantive information about its
finances, because doing so "would require an unprecedented surrender of
privacy," according to the November memo.

Covey decided to put out a canned statement claiming Bechtel was doing
fine financially. "It will help persuade many if not all journalists that
Bechtel is doing no worse, and possibly better, than other major industry
players-thereby reducing the incentive to invest time and resources in
following up the Business 2.0 story," he theorized in the memo.

While downplaying the charges to outsiders, Bechtel was actually reeling
from the journalistic probe. The company, internal e-mails indicate, ran
an exhaustive search of its phone and e-mail logs hoping to root out the
employees who were feeding information to the reporters.

At a November 2003 meeting of company executives, Riley Bechtel directly
addressed the looming exposé, and President and Chief Operating Officer
Adrian Zaccaria described the upcoming story as "disturbing," adding that
"we are going to suffer real, tangible harm from this story," according to
a written copy of his prepared remarks.

Zaccaria's chief worry was the company's bankers, and that's where another
piece of Bechtel's spin strategy came into play.

Zaccaria's comments suggest the company has a habit of showing some of its
lenders only a portion of its total financial picture. "I am not worried
about being able to explain or calm our key banks and customers, but I am
concerned that our newer and smaller stakeholders will demand more from
us," he said, according to his prepared remarks. Zaccaria added that
lenders might start asking for more detailed financial statements or
attach more conditions to loans made to the company.

In December, Covey came up with a solution, which he emailed to Riley
Becthel and other executives: Draft a dummy financial document to assuage
the doubts of lending institutions. Bechtel's finance division was ordered
to prepare a "dummy for contingency use with financial institutions," the
memo says. There's no indication that the document was fraudulent in any
way, but the discussion in Covey's memo and other emails among top
officials raises questions about Bechtel's approach to balance-sheet
calculations.

Bechtel officials also planned to attack the credibility of King and
McCoy, in an effort to win the pr game with its investors. "We can take
the initiative with key lenders, and perhaps others, to say that Business
2.0 is about to print a story we (and they) know to be highly misleading,"
Covey wrote in an internal e-mail sent in November.

Meanwhile, Deputy Chief Operating Officer Jude Laspa was tasked with
"rehearsing" answers to "tough questions" from the press, correspondence
shows.

Writing a story on Bechtel's PR machine involves, necessarily, interfacing
directly with that apparatus. Interviewed last week, Marshall, the Bechtel
spokesperson, said the firm is completely forthright with lenders. "They
get extremely detailed financial information," he said.

Marshall portrayed Bechtel's PR tactics as little more than common sense.
"Our approach to media relations and public affairs is straightforward: We
aim to provide accurate and timely information to journalists and the
public about our projects, while respecting our right to keep competitive
business information and internal discussions private," he said.

Those discussions haven't always been positive . Despite Bechtel's many
protestations, the company's own documents make it clear the firm was
going through rough times before landing the Iraq gig and other work
overseas. A "strictly confidential" December 2003 report authored by Riley
Bechtel explains the company's overall net worth plummeted by $175 million
in 2002, mostly due to power plant investments that soured-confirming the
thrust of the Business 2.0 story.

Bechtel's business has since rebounded: In April, the company reported a
major surge in revenue, thanks in part to its work in Iraq.

PR Watch's Miller isn't surprised by the company's keen interest in
calming its creditors. "They don't have a product," she noted. "They don't
have to worry about their image with consumers. Their concern lies
primarily with investors and the financial industry."

A.C. Thompson is the writer/researcher for CorpWatch.