From that moment on, no reporting piece on the contract wrangle—and there was a never-ending stream of them—was complete without the words “Critics of the contract have noted that Oracle has long been known for sales tactics considered aggressive even in the high-stakes, high-pressure world of corporate software sales.” According to Ellison, Oracle’s sales team “simply agreed to take over a contract that had been fully negotiated and agreed to by both Logicon and the state. The state asked us to take over the contract, and that’s what we did. I don’t think that our sales team met with the state for more than a couple of hours. Yet they were accused of using such ‘aggressive, high-pressure tactics’ that they had ‘forced the state to buy more software than the state needed.’ Just how did they manage to do that in a couple of hours?”
Horrified by the likely impact of Howle’s report, Ellison claims that he immediately told General Services’ Barry Keene that he was prepared to scrap the deal. “I said we’d be happy to undo the deal if they want to undo it. But they said, ‘No, we love the deal. We don’t want to undo it. We’ll stick by it.’ ” That is consistent with Keene’s official response to the auditor. While agreeing that there were some steps that needed to be taken to ensure that the state received full value, he continued to maintain that the savings would be very substantial.4
The auditor’s report was all Florez needed for his committee to embark upon lengthy and politically charged hearings that would last more than two months. Of course, Oracle wasn’t the primary target; that was Governor Davis. Florez made no bones about his belief that Davis ran an incompetent and greedy administration. The fact that he was handing ammunition to Davis’s Republican rival, Bill Simon, in an election year troubled him not at all. If he could use Oracle to damage and embarrass Davis, he would be happy to do so. Ellison said, “It was like a drive-by shooting. Florez was aiming at Davis, but he hit us. We were in the wrong place at the wrong time.” The first casualty, however, was Keene. One of the committee’s early witnesses, he was forced to concede that his decision to proceed with the deal had been “an error of judgment.” A few days later, Davis pushed Keene, a sixty-two-year-old former State Senate majority leader, out of his job.
From the governor’s point of view, one of the most dangerous developments was the connection Florez was making between Oracle’s $25,000 campaign check and what was now officially a profligate misuse of taxpayers’ money. While trying to push through a $2 billion tax hike during the state’s energy crisis, Davis had also managed to accumulate a $40 million reelection war chest. Davis now felt highly exposed. Ellison said, “Bill Simon accused Governor Davis of running a coin-operated government. The Republicans and some Democrats in Sacramento were jumping up and down saying the governor was selling contracts for campaign contributions. First the governor wastes the taxpayers’ money on energy, now on software. We found ourselves in the middle of a no-holds-barred political battle. I couldn’t believe it. How the hell did we get to be a part of the campaign to defeat Governor Davis in the upcoming election?”
Davis had to show that he was just as mad as anybody about what had happened and that he was going to make things right. By firing or suspending underlings, demanding that the state should get its money back from the rapacious Oracle, raiding the offices of DOIT, and endorsing an investigation by the state attorney general, Bill Lockyer, Davis was able to present himself as being both valiant for truth and the victim of his subordinates’ wrongdoing. When Oracle’s press spokesman, Jim Finn, said that not only was his company ready to rescind the contract but it had made the offer several weeks earlier, nobody in Davis’s office could recollect such an offer being made.
Another interpretation of Davis’s actions is that he panicked. From Oracle’s point of view, Davis had helped stir in a further dash of toxicity to the already seething cauldron by lending his weight to the idea that some kind of crime had been committed. By talking about “shredding” because of the “need to preserve evidence in our investigation” at the doomed DOIT, Barry Goode, the governor’s chief counsel, was throwing fuel on the flames.
As far as the $25,000 check from Oracle was concerned, although it was made to look bad, it’s doubtful whether anyone really believed that there was a connection between it and the ELA. In the first place, compared with the size of the contract, not to mention Oracle’s size and profitability, it was a piddling amount. Second, the check had been promised at a fund-raising dinner organized by EDS, the big systems integrator. It was neither the biggest nor the smallest amount pledged that night by thirty tech firms. Ken Glueck points out that as well as being a rather small scale political contributor, the only states where Oracle made any contributions at all were California and Virginia, where, in both cases, it was a substantial employer. If Oracle was in the business of buying contracts, surely it would be politically active everywhere it sold software?
But for a number of reasons, the check still didn’t look good. Although it had been issued in March, the fact that it had been handed over just as a major deal was closing was enough to raise suspicions. Glueck says, “Ravi Mehta did nothing illegal, but he showed bad judgment: first, by holding on to the check when he shouldn’t have; second, by giving it to Baheti in a restaurant—which of course became a bar in the newspaper reports.”
Meanwhile, the circus in Sacramento, with Dean Florez as ringmaster, dragged on, working its way through a mass of evidence and witnesses, all calculated to denigrate the Davis administration and to add further to Oracle’s misery. Not all of it went Florez’s way: he had boasted that Ohio, North Dakota, and Montana, as well as the city of Toronto, would testify damningly about their experiences of working with Oracle. But having seen what was going on in Sacramento, those states elected to put their relationship with Oracle ahead of participating in the JLAC inquisition. Ben Piscitelli, a spokesman for the Ohio Department of Administrative Services, said, “We continue to have a normal business relationship with Oracle. This really is a California-versus-Oracle issue, and we’re leaving it at that.”
But Florez was winning some rounds. Committee investigators dug up some incriminating e-mails from the unfortunate Mehta. Dated January 5, Mehta’s e-mail to Robert Hoffman, Oracle’s director of legislative affairs, listed nine state politicians who, in Mehta’s view, were important to Oracle and should be given money. Oracle’s response was to say that Mehta’s suggestions had, at the time, been ignored. But when Mehta, appearing under subpoena, took the Fifth Amendment, it made it look as if there had been some kind of cover-up. Glueck suspected that Mehta refused to testify because of irregularities in his reporting of invoices. Glueck reckoned that he must have been ripping off Oracle by claiming expenses that he hadn’t incurred, or that he had failed to report them and was guilty of noncompliance. Glueck didn’t think (and certainly hoped) that Mehta’s reticence had anything to do with the ELA contract. On May 31, Glueck terminated Mehta’s contract with Oracle. He said, “In hindsight, Ravi working for us was probably a mistake.”
If Mehta was an embarrassment, everyone at Oracle was furious that the committee attacked their company mercilessly but gave it no opportunity to defend itself. There were two particular bones of contention. The first was Florez’s intention to call only five relatively junior Oracle salesmen who had been involved in the deal to testify and his refusal to allow them to make any opening statement. Oracle insisted that a senior sales executive, Kevin Fitzgerald, accompany them and be allowed at least fifteen minutes to state Oracle’s position. Oracle was also adamant that information that Florez was demanding about the salesmen’s personal remuneration on the deal was a breach of confidentiality that would leave it open to legal action by its own employees. The second spat was over Florez’s lack of interest in hearing former state auditor Kurt Sjoberg’s very different analysis of the value of the deal to the state. At the end of May, the usually mild-mannered Jeff Henley fired off a splenetic letter to Florez.
Dear Chairman Florez and Members of the
Committee:
This letter is a formal complaint regarding the manner in which the Joint Legislative Audit Committee (“JLAC” or “Committee”) has conducted its inquiry into the May 31, 2001 Enterprise License Agreement between Oracle Corporation and the State of California (“ELA”) and the Bureau of State Audits Report regarding the ELA (“BSA Report”).
For nearly six weeks, the JLAC has conducted numerous hearings that have been severely critical of Oracle and the ELA. Despite repeated attempts by Oracle to be heard by the JLAC, the Committee has yet to hear directly from Oracle, and Oracle has not been given a single opportunity to defend itself against the baseless allegations in the BSA Report relating to the value of the ELA.
For the reasons listed below, we respectfully request that the Committee immediately give Oracle an opportunity to have a senior company executive, Mr. Kevin Fitzgerald, Senior Vice President, Oracle Government, Education and Healthcare Sales, testify before the JLAC as to why the ELA is an extraordinary value for the State of California.
• As the Committee is aware, Oracle has voluntarily produced thousands of pages of documents pursuant to the Committee’s requests, voluntarily agreed to have five Oracle employees testify at the previously scheduled hearings on June 4th and 5th, and voluntarily agreed to make these five individuals available for interviews with Committee staff prior to the hearings. Oracle’s cooperation with this Committee cannot be placed in question. Despite that cooperation, we have been told repeatedly by members of the media that you, as Chairman of the JLAC, have characterized Oracle as uncooperative. Nothing could be further from the truth.
• On April 18, 2002, just two days after the BSA Report was released, Oracle wrote to the State Auditor and the JLAC pointing out a specific material error in the BSA Report. This single error changes the value of the ELA from the State Auditor’s estimate of a net loss for California taxpayers to a net benefit. The Auditor has not answered our letter, has refused to meet with Oracle, and has referred us to the JLAC to discuss questions related to the value proposition of the ELA. We have asked the JLAC for the opportunity to discuss this material error in public at the Committee’s hearings, and we have been told by your staff that the Committee has no interest in having that discussion. Moreover, we have requested numerous meetings with the JLAC and have been told that you, as Chairman, will not meet with Oracle. It is unheard of—perhaps unprecedented—that the subject of an audit report is not given a single opportunity to engage in a thoughtful discussion about the report. We believe that the material error identified in our letter of April 18th is only one of many such issues that deserve serious and thoughtful attention from the JLAC.
• During the process of these hearings, you, as Chairman, have unjustly accused Oracle of many things and have permitted the hearing record to be filled with reams of undocumented innuendo and speculation. Oracle has repeatedly asked you, as Chairman, for the opportunity to have a senior Oracle executive address the Committee. It is inconceivable to Oracle that after nearly 75 hours of Committee hearings in six weeks, the Committee cannot find the time to give the subject of those hearings a single opportunity to present its views. We believe that as a historical matter of legislative investigations—in Sacramento and nationally—this position is unprecedented. Your refusal to schedule this hearing reflects poorly on the entire legislature and calls directly into question your motives for holding these hearings.
• Oracle has been informed by the Committee that when Oracle’s sales staff do testify, they will not be allowed to address the Committee with even a brief opening statement. Again, this is unprecedented. Even the most notoriously unfair legislative investigations in the history of our country, such as the House Un-American Activities Committee or its Senate counterparts, allowed its witnesses to make opening statements. A fifteen minute opening statement by the witness would permit Oracle to at least frame those issues it believes the Committee should review in any search for the truth about the ELA.
• Oracle has formally asked you, as Chairman, if Oracle’s sales staff will be permitted to address the value proposition of the ELA during the hearings, as this is the central issue in the BSA Report. As we have sought to explain to the Committee, Oracle firmly believes that the ELA will save California taxpayers in excess of $100 million. This request was rejected by your staff.
• Oracle asked former State Auditor, Mr. Kurt Sjoburg, to perform an independent analysis of the ELA. That analysis confirms the value proposition presented to the Department of Information Technology, the Department of General Services, and the Department of Finance last year. Again, we have asked you, as Chairman, for the opportunity to address this report, and that request was also rejected.
• On May 20, 2002, Oracle sent you, as Chairman, and JLAC a very clear letter requesting that Oracle’s Senior Vice President, Mr. Kevin Fitzgerald, be permitted to testify at the June 4th hearing. In addition, we were very clear in that letter that Oracle was not refusing to provide other witnesses that the Committee was requesting. Rather than work with us to come to a mutually acceptable resolution, you, as Chairman of the JLAC, misstated and misrepresented Oracle’s position before the Joint Rules Committee. As a result, in our view, you, as Chairman, sought to seek subpoenas for no substantive cause; other than to create a media opportunity for the Chair.
Last, let me turn to the Committee’s most recent document request dated May 23, 2002, which continues the pattern of trying to create issues rather than address facts. The JLAC letter requests:
“ . . . communications and documents related to the retained services by Oracle through Manatt, Phelps & Phillips or the consulting firm of Sjoberg Evanshank. The requested documents include, but are not limited to, requests for proposals, letters of engagement, contracts for services, and all analyses prepared by Sjoberg Evanshank in relation to the Oracle ELA and State Audit Report #2001-128.”
As you know, the Sjoberg firm was retained by Oracle’s outside counsel to provide expert advice to Oracle. Oracle has delivered to the JLAC copies of the report prepared by that firm, which confirms that the State’s savings from the ELA are $110–163 million, and a further $33 million in savings to local governments. In addition, Oracle has provided you with a copy of Mr. Sjoberg’s letter of April 29, 2002, confirming his analysis of the savings despite the contrary findings of the BSA Report.
As we indicated above, you, as Chairman, have told us that you will not permit any discussion of Mr. Sjoberg’s report or his analysis of the savings to the State to be achieved under the ELA. However, you are well aware that you are seeking to invade the attorney/client privilege and attorney work product doctrine to obtain attorney communications and other materials that are plainly protected by the law. By making this request for information, which is clearly beyond the limits of permissible legal discovery, it is clear to us that you, as Chairman, are seeking a subpoena confrontation with Oracle (and its more than 10,000 California-based employees).
You, as Chairman, also requested:
“records of all commissions recorded, promised or paid to any individuals related to the Enterprise License Agreement entered into on May 31, 2001, between the State of California and the Oracle Corporation.”
This material pertains to intensely private personal financial information of four individual salesmen of the company that the company is not free to disclose without the employees’ consent. In fact, a private attorney representing one of those individuals has advised Oracle that he wishes to invoke the salesman’s right under the California Constitution’s right to privacy not to have his client’s personal financial records produced by the corporation. Your request and the employees’ rights cannot both be met.
There is a significant body of California case law that specifically prohibits employers from violating the privacy rights of their employees. In addition, Oracle Corporation’s sales commissions structure and compensation programs are proprietary trade secrets of Oracle.
Again, you, as Chairman
, are well aware of these rights and privileges. As there is clearly no reasonable basis for the request, we can only view this as a punitive attempt to seek an unnecessary confrontation with Oracle in order to further the Chair’s media strategy. It appears that no amount of cooperation, including voluntarily producing documents, witnesses for interviews, or witnesses for hearings will satisfy the ever increasing demands placed upon Oracle in this matter.
•
It is now very clear to Oracle that the merits of the ELA do not matter to the JLAC. For the reasons stated above, Oracle formally requests the right to be heard immediately, before the Committee continues its punitive abuse of one of California’s most successful companies and employers.
Very truly yours,
Jeffrey O. Henley
Executive Vice President and Chief Financial Officer
cc: Senator Alarcon, Vice Chair, Joint Legislative Audit Committee
Members, Joint Legislative Audit Committee
Members, Joint Rules Committee
Although Florez described Henley’s charge (in a letter to Ellison) that Oracle had not received a fair shake from his committee as “utter nonsense” and said that the overall tone of his complaint was one of “harsh and inaccurate criticism” of both him and the JLAC, for the first time he admitted on the record that it was state officials who were in the dock, not Oracle. And, albeit very late in the day, Oracle did get a hearing for its side of the story. On June 5, after Elaine Howle had testified that she was standing by her numbers, her former boss, Kurt Sjoberg, finally took the stand for Oracle. Sjoberg walked the committee through his rigorously conducted twenty-five-page audit on the deal, patiently trying to explain the difference between his conclusions and Howle’s. He pointed out that Howle had not actually attempted to analyze the value of the contract but instead had simply tried to check the accuracy of the projections originally made at the time the state first considered the contract. Not only did the audit bureau have far less complete information than his team had been able to extract from Oracle, but its whole methodology had been fundamentally different and, in his view, consequently flawed.
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