Part
3: Dow Chemical asked Paula Liveris to advise on the renovation of a
company-owned hotel. Then a $13 million cost overrun spurred delicate
questions about how the project was run.
From 2006 through 2008, Dow turned the former Ashman Court Hotel into a luxury destination. Out went the tile in the lobby. In the rebranded H Hotel, guests walk on Crema Marfil marble from southeast Spain.
Also gone are the old restaurant and its $9.95 lunch buffet with dessert bar. Now the hotel boasts a fine-dining establishment where, planning documents show, prices would be “2 notches up” from what the market will bear. The H has a private dining room with bullet-proof glass, where CEO Andrew Liveris, a regular visitor to the White House, can entertain VIPs.
By most accounts, the H Hotel is a source of pride here in Dow’s hometown of Midland, population 42,000.
The remodeling didn’t go off without a hitch, though. At completion, it exceeded its $25 million budget by an estimated $13 million. This year, the company settled a lawsuit by one of its former investigators, Kimberly Wood. She alleged she was fired years after she investigated the H Hotel and other spending issues relating to CEO Liveris, according to documents filed in her case.
Wood was assigned to scrutinize the renovation after a senior manager complained about the role of a person who figured large in the project, but was neither an employee of Dow nor its contractors: the wife of Andrew Liveris, Dow’s chief executive.
In a whistleblower-retaliation complaint filed last year, Wood claimed that the “H Hotel cost overrun was the direct result of the meddling by the CEO’s wife, Paula Liveris.”
That view is rejected by Dow and by an outside law firm it hired to examine the matter in late 2009. After a three-week inquiry, the lawyers cleared the company of violating any of its own policies.
The firm disputed the notion that Paula Liveris exercised undue influence on spending decisions. Rather, its report concluded there were “misperceptions by some Dow employees about the role and authority of Ms. Liveris.”
Other project participants, including the chief architect, offer a different perspective.
“Once Paula became involved, the budget was taken off the table and we didn’t really talk about it anymore,” said David Greusel, a former principal at a unit of global architecture firm HOK, which headed up the renovation. “There was clearly a difference in the design direction. Paula Liveris definitely made choices that we had not made at the outset.”
A former Dow executive involved in the project kept for his own use a timeline that he said he created to chart cost increases. By his accounting, decisions advocated by Paula Liveris and a friend who assisted her, local artist Maria “Mica” Jones, led to cost increases totaling about $5.8 million.
Dow’s former top auditor, Doug Anderson, testified in Wood’s wrongful-termination lawsuit against the company that he grew concerned about the hotel project in 2009. That year, Wood and a supervisor reported at the time, a Dow manager involved in the hotel came forward to voice concern about the role Paula Liveris had played. He claimed that two employees had been pulled off the project and later left Dow, Wood reported, one after trying to limit the role of Paula Liveris and the other for proving “ineffective” in dealing with her.
Dow’s external report concluded that no employees were retaliated against. One of the two employees removed from the project provided Reuters with a statement saying he retired voluntarily. The external report also said that “Ms. Liveris did not exercise any authority, implied or actual, over the project budget, and that any perception to the contrary is erroneous and is not supported by the evidence.”
“COMPLETELY FALSE”
The H project provides insight into the way the Dow CEO’s personal life has intersected with his role as head of the company. Liveris, 61 years old, has led Dow for 11 years.
Cost overruns are common in construction, and the H’s were readily absorbed by Dow, with $58 billion in annual revenue in 2014. Still, governance specialists said it is rare for the CEO of a large publicly traded company to let a spouse play a prominent part in a deca-million-dollar capital project.
“I can’t think of a similar example,” said Robert Daines, co-director of the Rock Center on Corporate Governance at Stanford University. “The governance concern is whether she was picked for her expertise, or as sort of a perk for the CEO to give his wife a position of prominence.”
Former auditor Anderson said in his deposition that he believed the presence of Paula Liveris put other participants in a predicament. “Who is going to tell the CEO’s wife you don’t belong here, get out of here, I’m not going to do what you say, when by all appearances and everything else, she’s there with the blessing of the CEO?” he testified.
Anderson, who left Dow in 2013, said he was barred by a confidentiality agreement from commenting about the company.
UPGRADING MAIN
STREET: H Hotel planners chose to upgrade the Main Street facade with
brick and stonework encompassing two restaurants, a bar and an enclosed
clock tower – an integration of the former Ashman Court Hotel into
Midland's downtown business district. REUTERS/Rebecca Cook“Once Paula became involved, the budget was taken off the table and we didn't really talk about it anymore. There was clearly a difference in the design direction.”Dow says the company has a tradition of inviting executive spouses to pitch in on community projects. Members of the planning group that handled the renovation say Paula Liveris herself never signed off on expenditures. Those were submitted by the project team and approved by David Kepler, the Dow executive who was supervising the project.
Kepler, now retired, told Reuters that blame for going over budget rested with others, including two of his subordinates and outside architects.
Any notion that “there was significant overspending and that it was due to interior design choices made by Paula Liveris and Mica Jones is completely false,” Kepler said.
Documents detailing Dow’s handling of the renovation are among thousands of pages of records subpoenaed by the U.S. Securities and Exchange Commission. Reuters reported in June that the SEC is investigating allegations that CEO Liveris may have misused company funds for personal benefit.
Previously, Reuters reported about disputes Liveris had with Anderson and Wood over his spending, including Super Bowl getaways with family and friends.
Dow disclosed in 2011 that Liveris reimbursed the company $719,923 for expenses described as “not primarily business related,” without detailing them.
According to two people familiar with the matter, the SEC has sought information regarding the CEO’s spending. It has also inquired in recent months about the terms of confidential severance agreements that Dow has required former employees to sign. The agency, the people said, has asked whether these agreements contain provisions which could impede potential whistleblowers from bringing concerns to the SEC.
Dow declined to comment on the SEC investigation.
ADVISORY TEAM
About 130 miles northwest of Detroit, Midland is a prosperous community, thanks primarily to Dow, its largest employer.
But the city is served mainly by chain hotels and casual restaurants. Andrew and Paula Liveris, according to planning documents and interviews, wanted to create a first-class facility in line with Dow’s global stature and the couple’s exacting standards.
“Ms. Liveris did not exercise any authority, implied or actual, over the project budget, and … any perception to the contrary is erroneous and is not supported by the evidence.”The H would aid in revitalizing downtown Midland, wooing hires to the area and entertaining Dow clients and employees from around the world. The renovation also would accommodate a leadership training facility Dow wanted. That facility now occupies a wing of the H.
The initial scope was relatively modest. After architects were solicited to bid in January 2006, the estimated cost was less than $16 million. The proposal focused on Dow’s training academy and one “fine dining” restaurant.
Ahead of the first design meeting in February 2006, Liveris told project managers that his wife would act as his representative.
Her appointment wasn’t the CEO’s idea, according to the outside attorney’s review. It was suggested by Dow’s former head of human resources, Julie Fasone-Holder, who felt Liveris would be too busy to keep close watch over the project. In his stead, she recommended that Paula Liveris volunteer her time and talents.
The CEO endorsed the idea. A friend of the couple, Mica Jones, described by Dow as a “well-known local artist,” also joined the effort.
Paula Liveris attended the initial design session for the H in February 2006, meeting minutes show. In one early 2006 memo, she and Jones are listed as members of the “Design Advisory Team.”
Kepler told top architects and designers “to feed design information to Paula and Mica who will provide their perspective and counsel,” according to minutes from a June meeting. “Paula wants two to three options for the restaurant along the lines of the best restaurants from Chicago or New York.”
A NEW DESIGNER
That summer, Paula Liveris and Mica Jones recommended hiring a new design architect, according to Greusel: Mark Johnson, based in suburban Detroit.
“Once Mark Johnson was on the job, the design just became very different,” said Greusel, the lead architect. “To my impressions and tastes, we had gone up a notch from upscale. And it still went higher.”
The hiring of Johnson alone, according to the project timeline kept by the former Dow executive, cost an estimated $300,000 more in design fees. Johnson took on the key role of designing the restaurants and executive dining areas, “per Paula Liveris’s request,” the former executive wrote in an August 2006 entry in his timeline.
The former executive provided the information to Reuters on condition of anonymity, saying the severance agreement he signed contains a clause that bars him from discussing his experience at Dow.
Johnson declined to comment.
Dow says it concluded that more design expertise was needed because HOK’s team specialized in sports facilities.
