Just like Paul H. O'Neill, the man he expects to replace as Treasury secretary, John W. Snow has been chosen for President Bush's Cabinet after heading a major U.S. corporation and serving in a top executive-branch job in the Ford administration. When Snow was introduced yesterday as Bush's nominee for the Treasury post, Washington and Wall Street were abuzz over how he represented a smooth-mannered, politically savvy version of the pugnacious O'Neill.
"If you were looking for someone who was a clone of Paul O'Neill, you would probably find John Snow," said Bruce Bartlett, a conservative economist with the National Center for Policy Analysis. "It's the same person without the rough edges."
But while Snow's strong point may be that he brings an easygoing temperament and the keen political instincts that O'Neill famously lacks, his record as chief executive of CSX Corp., a giant railroad operator, has drawn less favorable reviews than O'Neill's tenure running Alcoa Inc. Some of the actions Snow took -- and failed to take -- while in charge of CSX may prove politically troublesome to the White House as his nomination proceeds to the Senate.
Two years ago, for example, the railroad was cited by federal authorities for significant track-safety violations -- a stark contrast with the situation at Alcoa, where O'Neill's obsession with eliminating workplace accidents made the aluminum company America's safest major firm. A merger that Snow engineered with Conrail, the freight line once owned by the government, has been plagued by problems. Perhaps most important, Snow's compensation and the ties between members of the company's board of directors are akin to some of the practices that have aroused public fury at business executives' behavior after a series of scandals over the past year.
Through an executive compensation program, as of late 1996 CSX had lent Snow $24.5 million toward the purchase of company stock valued at $32.3 million, according to a report the firm filed with the Securities and Exchange Commission. CSX's stock price stock subsequently declined, and in 2000 the company forgave outstanding loans to Snow and other executives.
Furthermore, the independence of the CSX board of directors' compensation committee was compromised, the AFL-CIO charged, because its chairman and one of its members had purchased millions of dollars of property from CSX subsidiaries in the real estate business.
White House spokeswoman Claire Buchan said the loan-forgiveness program "was available to a large number of senior [CSX] executives and was legal, appropriate and fully disclosed to shareholders at the time." Concerning the real estate purchases involving members of the compensation committee, the company said they "were at market prices and on an arm's-length basis."
Snow also sold 120,000 shares of CSX stock at $35.22 a share on Aug. 8, less than a month before the company announced that its third-quarter outlook was weakening because of slowing coal traffic -- a revelation that caused its shares to drop to about $29. The stock has hovered at $26 to $29 since then.
A company official said yesterday that Snow's sales came within the legally permitted time frame after a promising report that the company issued on July 25 stating, among other things, that the hot summer would cause utilities to order more coal. CSX executives were shocked when that forecast proved wrong, the official said.
Notwithstanding those controversies, Snow has been a leader in the corporate community on ethics issues, co-chairing the Conference Board's Blue-Ribbon Commission on Public Trust and Private Enterprise. Indeed, he has devoted an enormous amount of his time in recent years to public policy matters, including heading the Business Roundtable, a powerful organization of major corporations, in the mid-1990s. As a result, Snow tended not to engage in day-to-day operations of CSX except in crisis situations such as the charges of safety violations, when he moved swiftly and forcefully to rectify problems, according to company officials.
"His heart was not always in running a business," said one close friend, who said Snow has often expressed a desire to return to government service. "He's been looking for an exit strategy." Under an employment agreement signed last year, Snow may receive severance benefits worth millions of dollars if he left the company to "fulfill an appointment to public office," a company report shows.
Snow's record reveals why he would make such an appealing candidate to a White House seeking a smooth pitchman for its economic program. According to those who have watched him operate, Snow is disinclined by temperament to alienate important constituencies or blurt out zingers -- the sort of behavior that got O'Neill into trouble when, for example, he worried aloud on television that international loans to Latin America would be siphoned away into Swiss bank accounts.
"The most surprising thing is how much his background is substantively like O'Neill's," said William A. Niskanen, the former chief economist in the Reagan White House who is now chairman of the Cato Institute. "But he has a reputation for having good relations with Congress. He shepherded CSX through a period of substantial industry deregulation in the late '70s, and bought Conrail, which required political approval. Those are traits that I think will serve him well."
Much of Snow's career, from his time in government during the Ford administration to his management and sale of CSX's shipping subsidiary, Sea Land Services, was devoted to the deregulation of transportation, beginning with airlines and ending with ocean shipping in the 1990s. Snow, a PhD economist with a law degree, rose from assistant general counsel at the Transportation Department in 1972 to deputy undersecretary in 1975. He was administrator of the National Highway Traffic Safety Administration from 1976 to 1977.
Because of his salesmanship abilities and credibility, he was one of the Ford administration's principal champions of transportation deregulation.
"I think that John brings together all the skills and knowledge he needs to deal with Washington, combined with knowledge of how to run a big corporation," said Rush Loving, a Baltimore transportation consultant who is writing a book about the acquisition of Conrail by CSX and Norfolk Southern Corp.
But Snow's distant management style has led him to crisis after crisis. In the spring of 2000, when the Federal Railroad Administration cited CSX for deteriorating track conditions leading to a 60 percent increase in track-caused accidents over five years, Snow immediately announced that he would personally lead an internal review of CSX's maintenance practices.
"One of the things John can do is make big decisions," said Tom Hoppin, who worked with Snow in government and later served as one of his top corporate officials before retiring. "John never had any trouble saying no."
His boldest move by far, the surprise bid for Conrail in October 1996, triggered a bidding war with Norfolk Southern that ended with Conrail being split between the two. Because the price was bid so high -- to $10.5 billion -- both companies were saddled with enormous debt that has put a severe damper on CSX's profitability ever since.
Those troubles contributed to the decline in CSX stock that led to the company forgiving the millions of dollars in loans to Snow and other officers.
When CSX offered to forgive those loans, it also returned stock valued at more than $4 million that Snow had used as a down payment. The down payment was supposed to be "at risk," CSX reports said.
"The retroactive forgiveness of these loans that were used to buy CSX stock . . . has the appearance of rewarding failure," William B. Patterson, director of the AFL-CIO's investment office, wrote in a letter last year to the chairman of CSX's compensation committee.
"This is as egregious as any situation we encountered," Patterson said yesterday.
CSX Vice President Robert W. Shinn said yesterday that after CSX acquired Conrail, "the board recognized that the original expectations of this compensation plan were no longer valid" because "it often takes several years to realize the benefits of rail mergers."
Corporate loans to executives and directors were banned as part of the legislation passed this year in response to scandals at companies such as Enron Corp. and WorldCom Inc. The founder and onetime chief executive of WorldCom received loans of more than $400 million to buy stock.
In a July interview, Snow was asked by CNN anchor Aaron Brown whether he had gotten "any $400 million loans." Snow replied, "No, that's a pretty staggering number, isn't it?"
Asked if the proposal to ban such loans went too far, Snow said he could "see some valid uses for some loans under some circumstances . . . but certainly there's been abuse of this."