By Erin Sherbert
By Erin Sherbert
By Leif Haven
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By Chris Roberts
By Kate Conger
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By Rachel Swan
Within hours of the United States military's invasion of Iraq, San Franciscans of a certain political bent went on the offensive against one of the city's home-grown businesses: the Bechtel Group Inc. The public heat only intensified with news that the engineering and construction firm had been included in the handful of companies chosen in secret to bid on the government's reconstruction efforts in Iraq -- and subsequently won the job. And as late as two weeks ago, 43 people were arrested protesting in front of Bechtel's headquarters near Beale and Market streets.
Indeed, Bechtel has long been the firm that anti-corporate San Franciscans love to hate. Protesters descended on the company's headquarters after a controversial utility project Bechtel and its partners built for the Bolivian government resulted in soaring water rates in 2000. (The company left Bolivia, but remains in litigation over the project.) But the attention that came with the Iraq contract put Bechtel, the nation's largest construction firm, the largest privately held company in California, and one of the most secretive businesses in the developed world, into a rare and clearly uncomfortable spotlight.
In April, Bechtel chief Riley Bechtel issued the following statement to his employees: "We have a decades-long record of experience and performance on tough jobs under tough conditions, including the Kuwait oil fires and scores of other projects in the Middle East and around the world. It's a record that few, if any, companies in the world can match. Any implication that we won this work as a result of anything other than our capabilities discredits our record, and the great work you do and will continue to do."
Critics, of course, see the situation another way, using slogans like "No blood for oil" to underscore their contentions that the firm is profiting from a Republican war through the political connections of its most prominent board member and past president, George P. Shultz. As bigwigs go, Shultz, who's served in multiple GOP administrations as secretary of state, treasury, and labor, brings a lot to the table.
But to assume that George Shultz somehow was single-handedly responsible for Bechtel's Iraq contract, or, for that matter, that his involvement was necessary for the company to get the job, is to ignore Bechtel's all but permanent place in the global power structure.
In the network of Bechtel, George Shultz is but one officer (albeit an important one) in an army of notables who have long-standing business and personal contacts in government, and in the social circles that form what's often called "the permanent government," around the globe. In the world where Bechtel competes, the orientation of a government -- whether it is Republican or Democratic, Baathist or monarchical or Islamic -- can be less important than the business that government might generate. For more than 70 years, Bechtel has been a serious player on the field of global commerce by staying connected to and friendly with, or at least maintaining friends who are connected to and friendly with, everyone who might have anything to do with rounding up a game.
Rightly or wrongly, Bechtel may be thecase study that explains how business is done between multinational construction giants and the governments that approve and fund the projects those giants engineer and build. In that case study -- at least, as it has been written to date -- the protests of ordinary citizens, regardless of how passionate or creative, remain footnotes.
To consider Bechtel's $680 million, insider contract to rebuild Iraq a shocking or grand instance of influence-mongering is simplistic. What's shocking is the relative routineness of the transaction. Bechtel has become so skilled at the worldwide pursuit of profit that it regularly wins projects many times the size of the Iraq contract -- and then, because it is one of the few firms that can build on such a grand scale, is in a position to negotiate, as payment, ownership of the very public works it builds.
The W.A. Bechtel Co. was founded in Oakland during the late 1800s, doing construction work for the railroads' expansion into the west. Still largely undeveloped, California was booming in the wake of the Gold Rush, and, with the recent addition of the steam engine, railroads couldn't lay track fast enough to link the new west to the rest of the country.
A century later, the Bechtel Group has revenues of $11.6 billion a year and manages more than 900 projects in 60 countries. All the while, the firm has remained privately owned and tightly controlled by four generations of the Bechtel family, making it a rarity among American family-founded corporations, most of which were sold or taken public as squabbling descendants of the founders succumbed to the lure of cash-producing stock offerings.
Through the generations, Bechtel has solidified its image as the company that can build anything, anywhere. During the first half of the 20th century, the firm built oil refineries and pipelines, ships for World War II, and a variety of other infrastructure projects. As the size of those projects grew, so did Bechtel's geographical reach. Its frequently touted domestic accomplishments include Hoover Dam -- a massive engineering feat that used some 45 million pounds of reinforced steel and 3.25 million yards of concrete to block the mighty Colorado River -- the Bay Bridge, and the BART rail system. The company also has secured billions in work from the U.S. Department of Energy, including contracts to manage the Nevada Nuclear Test Site and parts of a massive radioactive-waste cleanup at the former Hanford Nuclear Test Site.
But over time, Bechtel also became a truly global player, leading construction of the Channel Tunnel between England and France and building several major airports, including a $20 billion project at Hong Kong International, among other efforts.
In the Middle East, particularly, Bechtel is a household name; it has a long history of work in Saudi Arabia, beginning with construction of the trans-Arabian pipeline in the 1940s for Standard Oil Company of California (SoCal).
SoCal was granted exploration rights in Saudi Arabia in the early 1930s. After limited success on its own, the outfit joined with Texas Oil Co. (Texaco), Standard Oil Company of New Jersey, and Mobil Oil Co. in a new venture called the Arabian American Oil Co. (Aramco). The company eventually was nationalized and renamed Saudi Aramco.
Thanks, in part, to Steven Bechtel Sr.'s established relationship with the heads of his San Francisco business neighbor SoCal, his firm was contracted to build an 850-mile pipeline to get oil out of Saudi Arabia.
From that early beginning, Bechtel developed a decades-long relationship with the Saudi royal family that few other American companies have been able to match, winning billions of dollars of infrastructure contracts as the kingdom's wealth grew. More recently, for instance, Bechtel was the primary contractor in a $20 billion project to create two industrial port cities in Saudi Arabia, the largest civil engineering project in history.
Once established in the Middle East, Bechtel expanded its work into Kuwait, and then Iran, Yemen, Lebanon, and Iraq, where, in 1984, Bechtel was involved in a deal that would have let the firm build a $1 billion pipeline to move oil out of the country through the port of Aqaba, Jordan.
According to a report published by the Institute for Policy Studies earlier this year, the Export-Import Bank of the United States approved a preliminary commitment of nearly $500 million for the project -- an unprecedented loan to Iraq -- and negotiations to assure the pipeline's safety were under way with then-Israeli Prime Minister Shimon Peres, through an intermediary. Donald Rumsfeld (now an outspoken secretary of defense, but then an envoy of the Reagan administration) met with representatives of Saddam Hussein in an attempt to close the deal, but in the end, Hussein rejected the plan.
As Bechtel's projects have grown larger and more complicated, its owners and managers have manufactured opportunity through carefully cultivated relationships with political and business power brokers. And that network started long before there was a man named Bush in high office or a war in an oil-rich country called Iraq.
In the 1930s, Bechtel founder W.A. Bechtel joined his buddy, Henry J. Kaiser, another Bay Area legend engaged in building the roadways and infrastructure that would shape the west, and Frank Crowe, a former U.S. Bureau of Reclamation superintendent, in the successful bid for a government contract to build Hoover Dam.
Some years later, W.A. Bechtel's son, Stephen D. Bechtel, created a partnership with his college chum John A. McCone to build pipelines and refineries for oil companies. During World War II, that firm, Bechtel-McCone Corp., entered into the business of building ships for the government, with the help of a land grant at Terminal Island in Los Angeles. (Bechtel-McCone also had sites near Sausalito and Richmond.) According to Laton McCarthy, author of Friends in High Places: The Bechtel Story, the Bechtel-McCone firm also built an oil pipeline through the Alaskan wilderness in secret for the War Department. McCone later became director of the Stanford Research Institute, a nonprofit concern studying government and business applications of science and technology, and was chairman of the Atomic Energy Commission and head of the CIA during the Kennedy administration. He remained a close friend and golf partner of Bechtel, and brought the likes of Allen Dulles, who succeeded McCone at the CIA, and Dwight Eisenhower into their social circle.
And so it has gone for decades. During the era of Stephen Bechtel Jr., a grandson of the firm's founder who ran it from 1960 to 1990, the company hired George Shultz, who'd been on Bechtel's board of directors, as president. (He later returned to a board seat.) Shultz had already served in the Nixon administration as secretary of labor and treasury secretary, and would go on to be Ronald Reagan's secretary of state in 1982. The younger Bechtel also hired Caspar Weinberger, who had been Richard Nixon's budget manager and secretary of health, education, and welfare, to be Bechtel's general counsel. Weinberger, of course, subsequently became Ronald Reagan's secretary of defense.
But Shultz and Weinberger were hardly alone in their use of the revolving door between Bechtel and federal office. Bechtel has been both a jumping-off and landing point for countless high- and midlevel government operators during the last 60 years.
Much of the corporation's overseas work in particular has been aided relatively directly by Bechtel's government connections. The Export-Import Bank of the United States, which loans money to foreign countries for the export of American goods and services, counted Stephen D. Bechtel Sr. among the members of its advisory committee from 1969 to 1972, and the engineering firm has maintained numerous ties since, with a company vice president now on the bank's advisory committee.
Outside the realm of what might be considered business-related fraternizing, the Bechtels remain virtually off the social radar, certainly for folks worth a reported $3 billion. (Forbesmagazine ranks Riley Bechtel as the 104th wealthiest man in the world.) They are not among the usual suspects who grace the pages of the Nob Hill Gazette, Gentry magazine, or Town & Country at symphony fetes, art galas, and charity balls.
In fact, concerned about security, the family is so secretive that it successfully petitioned courts to seal the Bechtels' voter registration records some years ago, and their personal assets are held primarily in the name of a private corporation. Just the same, as owners of one of the largest private companies in the world, the Bechtels have a permanent place in the social order of high-level business.
Riley Bechtel, who is Stephen D. Bechtel Jr.'s son and the reigning chairman and CEO of his family's firm, is also a third-generation member of San Francisco's all-male Bohemian Club, best known for its Bohemian Grove encampment near the tiny town of Monte Rio in Sonoma County. Every year, the most powerful men in America gather at the Grove for what amounts to elite summer camp, where they produce skits and musical shows, listen to keynote speakers, eat, drink, and socialize. Officially, business discussions are taboo, but certainly camp kinship has evolved into many a serious deal.
A recent Bohemian roster shows that Riley Bechtel and his father are joined in membership by Riley's brother Gary, brother-in-law Alan Dachs (head of the family investment firm the Fremont Group), Shultz, and a few other Bechtel insiders. Of course, Bohemian Grove is long famous for the rest of its membership, which has included virtually every Republican president (Ronald Reagan and George H.W. Bush remain members), numerous secretaries of state (Shultz, Henry Kissinger, and Colin Powell are listed on a recent roster in the same camp with Riley and Stephen Bechtel), and innumerable political leaders.
In his 1994 doctoral dissertation, A Relative Advantage: Sociology of the San Francisco Bohemian Club, Peter Phillips, a professor of sociology at Sonoma State University, noted more than 175 directors of major corporations on the membership roll of the Bohemian Club.
For decades, Bechtel has been closely aligned with Stanford University. Stephen Bechtel Jr. graduated from the university's MBA program, as did Riley, who also has a law degree from Stanford. A major donor, Bechtel has a conspicuous presence on campus with the Bechtel International Center and Bechtel Conference Center. Shultz, meanwhile, is a distinguished fellow at Stanford's Hoover Institution, a conservative think tank with close ties to the Bush administration that also is the recipient of Bechtel family funding.
The social connections even extend to golf; Riley and Stephen are members of the Augusta National golf club in Georgia, home to the storied Masters tournament and recent subject of protest because of its refusal to admit women as members. Again, the membership roster here is filled with directors of major corporations and big political donors. Closer to home, Riley Bechtel is a regular at Pebble Beach and plays in the PGA's celebrity Pro-Am tournament there.
In addition to its revolving door leading to and from government and its social club connections, Bechtel gains influence over the governments that give it projects through the perfectly ordinary and legal process known as campaign contributions. Once again, however, Bechtel plays the political funding game at a higher level than even many multinational giants.
In one way, Bechtel's campaign funding is quite run-of-the-mill. Although many who criticize the company from the left stress its Republican connections, Bechtel's political contributions tend to relate more to its business interests than ideology. Between 1999 and 2002, Bechtel gave $1.3 million in individual, PAC, and soft money contributions, according to the Center for Responsive Politics, a nonpartisan research group in Washington, D.C. Bechtel has spread its contributions among both Republicans and Democrats, leaning slightly more to the Republicans. In 2002, for instance, 52 percent of Bechtel's soft money contributions went to Republicans. But in 1998, when Democrats controlled the White House, some 67 percent of Bechtel's contributions went to their party. The family's personal giving, however, is consistently Republican.
Bechtel contributed $685,125 to California politics during the past decade, $65,000 of which was directly related to the BART system, in which Bechtel is a contractor. Another $60,000 went toward defeating a proposition that would have required that state construction projects use Caltrans engineers exclusively, significantly cutting work to private contractors such as Bechtel.
And, if Republicanism taints Bechtel's money, that same tainted money has landed heavily in the coffers of San Francisco Democrats. During the past three years, Bechtel (the corporation and family members) has given $95,000 to Mayor Willie Brown, a longtime power in the California Democratic Party, and to Brown-supported candidates -- Sophie Maxwell, Mabel Teng, and Mark Leno to name a few -- and political action committees. Congressional Democrats have fared well, too: U.S. Sen. Barbara Boxer has received $26,000 in contributions from Bechtel during the past decade, while U.S. Rep. Nancy Pelosi received $22,000 and Sen. Dianne Feinstein took $16,000.
The firm gave more than $20,000 to Hetch Hetchy ballot issues between 2000 and 2002, when the company was a contractor there.
Even Bechtel's charitable gifts, through the Bechtel Foundation, seem related to business, often going to the universities with engineering schools that accept and then graduate Bechtel employees. The foundation has also given $3 million to charities in countries where the company has projects.
Riley Bechtel's grandfather, Stephen D. Bechtel, once famously said that his company was as much about making money as it was constructing things. Because Bechtel is a private company, the firm's books are out of public view, but the Bechtel fortune is an industry -- and a power -- unto itself.
In 1986, Bechtel spun off its Bechtel Investments subsidiary into a separate corporation called the Fremont Group, headed by Alan Dachs, Riley Bechtel's brother-in-law. Board members include Riley Bechtel, Stephen Bechtel Jr., Shultz, Dachs, Cordell Hull (a retired Bechtel executive and board member distantly related to Franklin Roosevelt's secretary of state of the same name), and Harold J. Haynes, a Bechtel board member and former chairman of Standard Oil Company of California.
A decade later, the firm began investing money for clients other than Bechtel; as The New Yorker magazine reported earlier this year, Osama bin Laden's estranged family, with whom Bechtel has had construction business in Saudi Arabia, was among those clients. Fremont, according to its Web site, currently has $11 billion in assets. Its real estate arm, Fremont Properties, owns some 4 million square feet of commercial real estate, including the 23-story Bechtel Building, five other office buildings in San Francisco, and IBM's Internet division headquarters in Somers, N.Y.
During the past several years, Bechtel has expanded its role into that of shareholder in several projects. Through its Bechtel Enterprises, the firm finances construction and other jobs in exchange for an ownership stake. The result, often, is Bechtel's effective privatization of public infrastructure, something that has garnered the firm a great deal of criticism.
For instance, a Bechtel partnership is improving the Jorge Chávez International Airport in Lima, Peru, and holds a contract to operate the airport for 30 years. In a similar sort of contract, the same partnership has taken over operations of Costa Rica's San Jose International Airport. Another Bechtel public-private partnership is building and modernizing rail lines in and around London, where Bechtel and its partners will operate parts of the rail lines.
By far the most infamous scenario, however, involves a water system in Cochabamba, Bolivia. Three years ago, Bechtel took over the public water system in an improvement project that the government could not otherwise afford. But the result was that water rates rose beyond what Cochabamba's citizens could pay, leaving many without water and sparking violent riots. Bechtel was eventually forced to leave the project, and has filed a $25 million claim against the Bolivian government in a World Bank court. The move prompted demonstrations in front of Bechtel's San Francisco headquarters and helped lead, politically, to the demise of a contract with San Francisco to refurbish the city's Hetch Hetchy water system.
Certainly, Bechtel has weathered its share of negative publicity. In fact, the company's work as contractor of a major project to build the Central Artery, commonly known as "the Big Dig," to replace the central highway in Boston is under investigation for significant cost overruns. The company's work supporting the government's nuclear power plants over the years also hasn't earned it points in liberal political circles. A relatively new project, undertaken with defense contractor Lockheed Martin Corp., to manage parts of a new ballistic missile defense test site near the Marshall Islands for the U.S. Department of Defense has likewise drawn some negative attention.
At the same time, Bechtel has achieved the vision of its early leaders -- to be the company that can build anything, anywhere, any time. Like it or not, there really are only a few companies that can build an industrial city in a Middle Eastern country, or create a $20 billion airport complex from the ground up, or erect a refinery in the dead of winter in a former Soviet-bloc country.
Depending on ideology, one could view the company as either a shining success or a horrific monster. But it can't be seen as a rogue firm playing outside the rules, because Bechtel is the textbook example of business as usual.