The principle of a government-owned postal monopoly eventually survived Cromwell, as it did the end of the British monarchy and the British Empire itself, based on an academic theory known as economies of scale. According to this theory, private mail couriers would cherry-pick the most profitable routes, leaving the government-run service with the most undesirable and most expensive ones, thereby creating an inefficient and prohibitively expensive public postal system. The only alternative would be for people in rural areas, for example, to pay more for mail service or else go without. So embedded was this theory that the United States had adopted the concept of a postal monopoly from the beginning, meting out the occasional exemption to private carriers, like the Pony Express, who were willing to go where postal workers were not. Hillblom, however, having witnessed how DHL’s service had enabled companies to grow and trade across borders, suspected that the modern postal monopoly had survived more to protect the jobs of hundreds of thousands of unionized workers than in deference to some corn farmer deep in the heartland who deserved to get his Reader’s Digest as fast and as cheaply as his banker in Wichita. But Loomis had taught him that crafting the most compelling legal argument would not be enough to win.
Indeed, Litton says, the core of the legal issue was almost absurd in its simplicity: What was a “letter”? Was a “letter” of credit really a letter? What about a contract? Or a canceled check? Or a computer tape that happened to contain correspondence? What about an intercompany memo? He did his best to take such arcane questions seriously. And in Magistracy Court, before an audience that included Hillblom, Carla, and Steven Kroll, the overqualified QC made quick work of the Postal Department’s contention that the documents carried by DHL were covered by its monopoly. The Crown quickly ruled in DHL’s favor. Rather than appeal, the postmaster general decided on another tack.
“The postmaster general realized there was a loophole at that point,” Litton remembers, “and tried to stop it with a law expanding the postal monopoly to include business correspondence. Larry wanted me to work on the larger political argument, but I must have told him to get someone with PR expertise. I’m a forensic lawyer, not a politician. But he wouldn’t give up with me.”
Litton and his barrister flew from Hong Kong to San Francisco, laying over one day in Honolulu so that the QC could have a tour of DHL’s offices. (“All they had was a great big hangar, like a very large Quonset hut. I was amused by the great democracy of the company.”) At the San Francisco airport, Litton and his barrister were greeted by Hillblom and DHL’s twenty-four-year-old general counsel, Pat Lupo—maybe the first general counsel of a multimillion-dollar corporation who had not yet passed the bar exam. Hillblom drove them across the Bay Bridge to Berkeley, where the four men spent a week holed up in the stacks of Boalt Hall’s law library, researching postal statutes from all over the world during the day and trying out possible arguments on one another at night. “We would go hell-bent for leather for the research,” Lupo recalled. “Then we’d adjourn at night and go for a meal and talk about various things.” Hillblom’s food fixation of the moment was fish, so they met at Spenger’s, a popular fish market and tourist trap just off-campus. It was a terrible place to conduct a serious dialogue because the restaurant was always crowded and very loud. But the chaos seemed to energize the perpetually distracted Hillblom. As Litton tried to carry on a conversation with Lupo or his barrister, Hillblom would lean back in his chair, twist off squares of sourdough from the bread basket, and bean the eminent QC, who was not always amused.
“I remember Litton said, ‘I have represented the richest tycoons in Hong Kong, and the poorest buggers you could ever imagine,’” Lupo tells me. “‘But I’ve never represented an enfant terrible.’”
By the time Litton and his barrister returned to Hong Kong, the postmaster general’s bill expanding the definition of letter (and outlawing DHL) had passed its second reading in the Legislative Council. Hillblom finally took Litton’s advice to launch a public relations offensive. “So Larry got ahold of Ted Thomas,” Litton says, “a Brit PR guy who’d worked in radio, and he organized a campaign mobilizing big business.” Like Hillblom, Thomas was young and a little precocious. He had already handled PR for much larger multinationals like Otis Elevator, Matson Navigation, and Cathay Pacific Airways—Hong Kong’s flag carrier. DHL would be a unique addition to his client portfolio: a small company with a big problem.
“I met Larry at DHL’s office in Wan Chai, on Fenwick Street,” Thomas trills over the phone from Asia. “It was a street of bars. Wan Chai was the sailor’s playground, where all the whorehouses and massage parlors are located. The British [Royal] Navy put out an out-of-bounds south of Johnston Road, which blocked off most of Wan Chai.”
Thomas first brought Hillblom to one of Hong Kong’s legendary tailors for a proper suit and shoes. Only then was he presented to the island’s political elite at Government House in order to argue his case. By that time, the postmaster general’s bill was one reading away from becoming law. The consequences for DHL would have been disastrous; not only was China an increasingly important market (Nixon had lifted the embargo just four years earlier) but the Hong Kong station was the major entry point for shipments from the United States to anywhere in Asia. Finally, DHL’s station manager in Hong Kong was secretly holding Hillblom’s shares in the company’s international operations; if the network’s center suddenly shifted, Hillblom might have to conjure up another sleight of hand in order to maintain control of the network.
Thomas booked the ballroom of the elegant Furama Hotel downtown. He then contacted all of the important business leaders on the island, particularly the bankers and the big shippers, who had come to rely on DHL’s service and who, according to the PR man, “run Hong Kong,” to extend an invitation to what he called a meeting but what was really a performance—a debate between Henry Litton and the postmaster general. “On the evening of the event, the ballroom was literally spilling over,” Thomas crows. “Henry gave a presentation about the effect that expanding the postal monopoly would have, though he refused to speak Chinese, which I wanted him to. He wanted to remain more upmarket.” There was only one problem: the postmaster general had pointedly declined to attend. So Thomas placed an empty chair on the stage, and Litton proceeded to debate the empty chair, using the arguments that he and Hillblom and Lupo had crafted in the stacks of the Boalt Hall law library.
“The DHL guys and Larry and the PR company did a great job of whipping up the community,” Lupo says. “And Litton gave a very impassioned speech because he said, ‘I’ve done all this research and this law must change.’ His speech was great.”
“It was all over after that.” Thomas guffaws. “Everybody revolted!”
The PR guru cannot remember whether Hillblom attended the meeting at the Furama. If he had, DHL’s founder must have hidden himself in the crowd and slipped out before anyone noticed him. It is also possible that he tried to get in but that hotel security refused to allow such a strange individual into their ballroom. As Thomas concludes in his glib British accent: “He seemed to go a bit off the beam later in life, didn’t he?”
Nine
The Messiah
I heard Larry say many times that if he couldn’t be an entrepreneur, he’d be a criminal.
—Jim Campbell
Hillblom disappeared soon after the triumph in Hong Kong. Until then, only Carla had been allowed to penetrate every aspect of his life; now, no one was. Peter Donnici stopped by a DHL-owned apartment in San Francisco to find Hillblom crawling on the floor in the midst of hundreds of computer components, attempting to build a word processor that he’d christened the DHL-1000. Pat Lupo received a call from the Middle East that Hillblom had been in a motorcycle accident; twelve hours later, his boss emerged from customs at SFO in a wheelchair, his jaw wired shut. Russ Sands, DHL’s insurance agent, fielded a request to insure a Hatteras yacht parked near Bahrain, amid rumors of coke-fueled parties with sheikhs and high-end prostitutes fl
own in from London. When Helen and Andy flew into Honolulu, they received an audience; a close family friend, however, was declined. Even Marilyn Corral, the self-described “Larry girl,” was shut out. “I knew he was taking flying lessons,” she remembers, “which was like, ‘Oh my God! Heaven help all of us!’”
The problem was that Hillblom did not want to run a company. Not really. He wanted to control a revolutionary enterprise and, in the process, he wanted to be a reclusive billionaire like his idol, Howard Hughes. “He wanted to be able to dabble,” Carla recalls. “He couldn’t necessarily do the ho-hum stuff ad infinitum. As the president of the company, he would have had to deal with all of it, but otherwise he could pick and choose. He wanted someone else to be the front person and methodically take care of the needs that an organization has, but in terms of making policy decisions, he still wanted to do that.” Pat Lupo is more measured. “I guess you’d accuse him of flitting in and making all of these pronouncements and then jumping on an airplane,” he offers. “But somebody had to live with that. Somebody had to execute.”
Not everyone at DHL was so philosophical. A few of the original station-agents-turned-shareholders were beginning to grouse that Hillblom was running away—not only from his enemies at the CAB and Loomis, but from them. After all, he had convinced them to exchange their franchises for stock in DHL Corporation that they could not sell—because, he’d said, the CAB had demanded it. Then he had snatched DHL’s fast-growing international division off the table just as it was taking off, once again blaming the CAB. Yet DHL still had no operating certificate, and it was an open secret that Hillblom and Dalsey still owned their shares in the international stations. Hillblom had left them with the scraps and then hired a handful of MBAs to run the international division. The guys who’d built the original stations in L.A., Seattle, San Francisco, Houston, and even Honolulu didn’t know whether they’d been left behind or forced out.
No debate inspired more acrimony than whether the U.S. company should even expand at all. Most of the international executives, hired hands who had not been there from the beginning, felt that the money-losing domestic operation should be whittled down to a few stations in major cities capable of feeding the overseas profit machine, causing even the stoic Marilyn Corral to become resentful of Hillblom’s sudden indifference to what she and others had worked so hard to build. It didn’t help that, at the same time the U.S. company was starving for cash, Hillblom went on a buying spree, scooping up an interisland airline in Hawaii, a printing company in the Midwest, and a real estate management corporation. Or that, while the U.S. unit languished without a leader, Hillblom was devoting a great deal of time and money to ensure that his DHL-1000 word processor would be fluent in Arabic. But there was little that DHL’s stockholders could do. Only one person was in a position to know how the network’s money was being spent: Larry Hillblom.
In late 1974, Hillblom devised his boldest scheme yet. Once again, the bogeyman would be the CAB. The purpose, theoretically at least, was twofold: one, get rid of Adrian Dalsey, and, in doing so, disabuse Loomis of any delusions that they would be able to buy DHL, thereby forcing a settlement; and, two, provide DHL’s domestic operations with a strong leader. The means would be DHL’s first landlord and Hillblom and Kroll’s former Boalt Hall classmate Curt Carlsmith.
“Curt’s the only one who could come up with the money,” Marilyn Corral explains during our second phone conversation. What Larry needed was two or three hundred thousand dollars—the amount that Loomis’s vice president had offered Dalsey during their first meeting two years earlier. Even though DHL had grown substantially by then, the Loomis litigation was dragging on with no end in sight and Adrian Dalsey, tired from years of stress and having fallen in love with a young Filipina, wanted out. The other shareholders, Corral says, all wanted to buy him out but none of them had any cash—they’d invested it all starting their own stations, which were now owned by DHL. So Hillblom had reached out to Curt, whose father had started the largest law practice in the South Pacific. The Carlsmiths were also major landholders on Oahu and Curt had bragged of his family’s connections in the insurance and financial spheres. Although they were opposites—Carlsmith wore pin-striped suits and would not have been caught dead at the Tasty Broiler—the two law school classmates had developed a friendship from the time Hillblom had rented out his loft at 911 Alakea. Carlsmith had even done some work for DHL vis-à-vis the Loomis lawsuit. What he had not done up to that point was show any interest in working for the company itself. “Curt was a good-looking guy, kind of an Ivy League–looking guy—blond hair, blue-eyed,” Corral continues. “He was a surfer. He wasn’t real tall, maybe five-eleven. He was almost embarrassed or afraid of the rest of us, kind of shy. What I recall was that I would walk into a room and he would leave.”
The two-page agreement that Carlsmith drafted between himself, Hillblom, and the Dalseys was doomed from the start. One clause required that DHL obtain CAB certification before Carlsmith had to pay for the shares (he would, however, post collateral in the form of some family land on Oahu) while another called for Dalsey to turn over his shares in DHL’s international business—shares that he, like Hillblom, had supposedly given up in order to satisfy the CAB. Hillblom signed it anyway. And for a time, DHL’s managers were constantly told of the great things that Curt was going to do for the company, leading some to grumble that Larry had found the Messiah.
“They were really close at first,” Corral continues. “They’d spend a lot of time together when they were sharing the office. We’d gotten a big cargo warehouse at the airport and we had to modify it with walls for offices, but Curt dictated that he had to have the biggest office, and he would send out dictatorial memos of how things had to be. Keep in mind that the managers he was dictating to had become shareholders, so here’s this attorney who doesn’t know anything about how DHL operates but what he’s seen, telling them how to do their jobs. They were all in an uproar about it.”
Oddly, Hillblom himself quickly became the loudest member of the chorus ridiculing Carlsmith’s high-handedness—though never to his face, of course. “Right from the start, Curt was destined to fail.” Corral sighs. “Larry started riling everyone about Curt—about the dictatorial memos he felt that Curt was sending. Once it started it just didn’t stop. Larry sabotaged him. Finally, Curt just didn’t show up to the office one day. He kind of disappeared into the sunset.”
Hillblom abolished the office of the president, effective immediately. He told Corral that the title had gone to Curt’s head. Then he assigned Carlsmith’s side of the contract with Dalsey to DHL, effectively erasing his classmate from the company and making himself its dominant shareholder. Hillblom hadn’t spent a penny and, most important, his stroke of genius was someone else’s fault.
Ten
Washington, D.C.
I think when Congress considers the problem [of regulation] it should say: To what extent can we protect the consumer while still allowing the guy to get out of school, who has spent 4, 6 or 8 years paying for his education and whose parents are not going to support him for another 10 years to get an airfreight forwarding license or other license? And it just seems like this is a forgotten aspect in legislation whether it be tax legislation or whatever, that we are building a society of economic classes not unlike India and not unlike Britain and not unlike Italy. We are telling our youth, look, go to school and you can make it here but when they get out that is the end of the opportunity. And that seems to be in both our policies in treating our minorities and others that until we open economic opportunity in those areas that are feasible, that we in fact are having an education that turns out to be a lie. And that tends to be a discouraging process and causes the disillusionment that I think occurred in the 1960s and 1970s and will even occur more in the 1980s.
—Larry Hillblom, in testimony to Congress, 1975
In August 1975, a visibly frustrated Hillblom once again hopped the red-eye to Washington, D.C. Even thoug
h the CAB’s authority had been severely weakened by the Ninth Circuit’s decision, the agency had still not authorized DHL as a freight forwarder. Worse, Hillblom had recently found out that the CAB was conducting a secret review of his company, led by one of Loomis’s former attorneys.
Then Hillblom had gotten word that Senator Ted Kennedy was holding hearings on airline deregulation. Kennedy was a possible Democratic presidential candidate and JFK’s younger brother was eager to show Americans that he was not only a serious legislator but that he was pro-business as well. The hearing was to examine abuses of power at regulatory agencies, including the Civil Aeronautics Board. Several airline executives had accused the CAB of shaking them down for campaign contributions to the Committee to Re-Elect the President, aka CREEP. Its chairman and Charlie Loomis’s fraternity brother, Robert Timm, had also traveled on expensive golf junkets as a guest of a company under his agency’s purview. Timm had been forced to resign and the head of his enforcement bureau had just committed suicide. The rumor was that the CAB’s reputation was so sullied that it might be sunsetted, i.e., phased out or swallowed by another federal agency. After five years of flying hat in hand to the CAB’s headquarters on Connecticut Avenue and having spent half a million dollars in legal fees, wiping out his company’s profits, Hillblom had decided that the only solution was to kill the beast. Burn, Baby, Burn!
When his cab stopped at the curb in front of the vast Dirksen Senate Office Building early the next morning, Hillblom bounded over the hot pavement, onto the polished marble of the nearly empty foyer. He made a beeline for the gilded elevators, exited on the third floor, and found the door augustly marked:
King Larry Page 8
