Waste Management Inc.

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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 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.
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. 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.
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 "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."