MacDougall sat back and waited for me to respond, but I didn’t. “One more thing,” he said. “Let me remind you we reserve the option to bring an action for foreclosure or maybe one personally against you and Steven as guarantors.” He rose. “I hope that’s not necessary.” He reached out to shake my hand. “Call me if you wish. In any event I'll see you the end of the week. Same time.”
I reached forward and grabbed his hand. “Ill confirm the day with your secretary.” We said good-bye, and I left, drained and exhausted.
16
THURSDAY evening, over drinks at the Lotos, Gushing Trout III told me all about the board meeting. Trout was on the board at Standard General, though better known for his storytelling flair than his business acumen. He never forgot to tell people that he’d majored in English at Yale, and sometimes hinted that he had the Great American Novel in him. “Boardroom drama is great drama,’ he once told me. His version of what went on earlier that afternoon led me to think he might be right.
Gushing was Phelan’s man, so I knew his story was not exactly objective, but he was, I also knew, a stickler for accuracy — except, of course, when the would-be novelist in him prevailed.
Thursday. Four in the afternoon. The forty-eighth floor of the sheer”, sculptured, metal-sheathed Standard General building. The shuffling sounds of papers, the swishing of folders being withdrawn from briefcases, chairs being pulled away from the long, curved, red oak conference table, the muffled noise of men and a few women shifting in leather chairs, a few nervous coughs.
John Calbraith Phelan, Jr., presiding, as he had for eight years. The consummate tactician, strategic planner, seasoned politician.
“To all of you, a very good afternoon,” he began. “This is indeed an important meeting. We must remember that whatever happens will be in the best interests of our fine company and its stockholders. “He gazed along the length of the table, stopping at the eyes of his directors, fixing on each for a moment. He had spent considerable time discussing his ideas and plans with many of them separately; some he saw in person, either for dinner, lunch, or breakfast, a few in his or their offices. Those who were not in town were reached by phone.
Jack Phelan, sounding very much the sovereign, was confident that he would, by the resounding repudiation of his primary detractor, Timothy Jordan, arrange for his elimination. Phelan had pulled Jordan from a middle-management position into the senior ranks. When a few board members pushed his candidacy, Phelan went along and selected Jordan to be president. Jordan was imposing. A quarterback at West Point, four years of military service ending with a place on a general’s staff, near the top of his class at Columbia Business School, where Phelan had originally met him, and before Standard General, a stint as assistant to Justin Diamond, Jr., chairman of R. Jackson Publishing Corp. Personable, blond, and tall, he had a handsome wife and three delightful young children.
But Jordan had become something of a pest and would now be summarily swatted away. Oh, not by an embarrassing vote by the board. It wasn’t done that way. Jordan would tender his resignation, recognizing he had nowhere else to go but out Phelan had already picked a successor. He had even lined up a few opportunities for Jordan — not in their industry but with companies where Jordan might be effective. Opportunities that would let him exercise his talents as chief executive officer, and make himself a bundle of money.
“This special meeting was called because we must vote on the G & E acquisition. You received your informational package several days ago. For the record, I will reiterate what appears on the summary page. Grayling and Elon is a distinguished old-line firm whose products fit nicely with ours. Their volume is quite respectable, $650 million, their profits attractive, five percent net after taxes. “He hesitated, staring at the faces turned toward him. He stopped at Jordan’s.
“I’m aware President Jordan opposes this and has talked separately with some of you. He and I have a major difference over this. “ He paused, adjusted his glasses, and ran his thumb slowly across his lower lip. “I shall entertain a motion. Some preliminary discussion may be in order to help clarify why we should seize upon this opportunity. Yes, Conrad, you first. “ Phelan remained standing.
Conrad Greenberg, something of a dandy and gadfly, headed a voracious management consulting firm and was Jordan s nomination to the board, a trade-off for the two new directors designated by Phelan. “Mr. Chairman, while I believe in making acquisitions that help expand us vertically, I do hold some serious reservations. ‘I’m not suggesting that I will vote against the motion, simply that I dont believe it has been demonstrated — with all due deference to the chairman —- that acquiring G & E is in our total best interests.
Damn you, Greenberg, Gushing thought, why didn’t you share your so-called concerns with Phelan before the meeting? With all the advice and help he’s given you, including consulting business from his friends, you owe him, damn you.
“… Fellow board members, it seems to me the kind of cash we’d have to segregate could jeopardize our liquidity. You will notice that in the last three quarters we’ve experienced a frontal erosion. These are difficult times, I believe our banks have set a limit on borrowing. Isn’t that correct, Jack?”
“No, that is not the case. Now really, Conrad,” Phelan responded, “I should think you’d understand that the increased line I’ve established with our banks was just one of several choices available to create the capital necessary for this acquisition. There are others. We could put out a debenture, float one of several types of stock issues, like a convertible, for example. “
‘Yes, but —” Greenberg complained.
Phelan cut him off. "I've already had several conversations with our lead underwriters, Morgan Stanley. “ He let that remark sink in. “And Goldman Sachs has been trying for years to get our account. I’ve talked with them, too. They’ve lined up major funds with their overseas sources. As much as we would need. “
Greenberg leaned back in his chair and folded his hands.
You’re such a jerk, Gushing thought.
“Anyone else wish to comment?” Phelan asked in a stern tone. “Please, don’t hesitate.” A hand went up from the far end of the table. It was Jordan’s.
“Of course, Tom. I was sure you would want to say something, “ Phelan said with a smile. “The fact that we differ on this is healthy. Discourse provides the directors with various opinions. Please, Tom. The floor is yours. “
Let the weasel have his say, Gushing thought. If it be his last. Jack made you president, and hell cut you down. You, Jordan, are one of his mistakes.
‘Ladies and gentlemen, “Jordan said in a tone that Phelan recognized had been rehearsed for this occasion. His infection was deeper, his pace more measured than normal. “Undoubtedly Chairman Phelan has been one of the best leaders in corporate America. Standard General has grown from a middle-sized company into a sophisticated giant. We offer a wide variety of consumer and industrial products, from metals to chemicals, from housing to lumber, from newsprint to computers. Few if any companies are so widely diversified, and we have to thank our chairman for his astute and brilliant leadership for all these years. “
Jordan cleared his throat and looked around. “However, even great leaders are prone to mistakes. It’s my judgment that we’d be putting ourselves at great exposure and risk were we to acquire Grayling and Elon." He motioned to one of the secretaries who had been taking minutes. She quickly went to the end of the room and pressed a button that caused a screen to drop. Another secretary turned down the lights and hit a button that turned on a projector. Jordan moved to its side and grabbed a pointer.
“This first chart conveys a historical analysis of the profitability Grayling and Elon has experienced over the last five years. As you can quickly see, a definite decline appears. It’s true, and Jack is correct, they did enjoy five percent net, but it looks very much like in a year or two, their profits will decline to one or two percent. Is that what we want? I don ‘t think so, fe
llow directors. As it turns out, they’ve done some acquiring of their own, as indicated in this next chart. Unfortunately for them, modernization of plants and particularly computerization wasn’t high on their list of priorities. They’re paying the price. “ He surveyed the room, pleased with what he had said. “Let me repeat, I don’t believe they are for us. However, lam prepared to offer two other companies, either one of which would make for superior acquisitions. “
What an ass! Gushing thought, looking around the boardroom at the sea of pale, grim faces. Give ‘em hell, Jack. I’m sure you still have a majority here. After all you’ve done for Standard General. He looked at Phelan. If Jack was angry, he sure wasn’t showing it.
“Please raise the light a little higher, Jennifer Anne, “ Phelan requested. “Thank you. All Tom has said is accurate, and I was completely aware of it. Buying a good company that has made a mistake, as they have, is exactly why we should acquire them. What you left out, Tom, is that the price we’re paying contemplated years of lower profitability. If s a steal, say five times earnings. The point is that when they are absorbed, our managers replacing most of theirs, we will turn them around. Grayling and Elon is a household name in consumer products. The buy is both timely and quite a bargain. “ Phelan smiled, as if he were dismissing an overzealous child.
“Now, if there are no more statements, “ he continued, “I think we can get on with the vote. “Another hand went up. Robert Ellington Prince’s. He was wearing an elegant three-piece suit and ornate gray cowboy boots that made him appear taller than his five foot seven. His hair was thick, wavy, and dyed black. Parker enjoyed considerable prestige and had recently given a series of seminars at the Harvard Business School, his alma mater. Phelan had confided to Gushing that Parker had had lunch with Jordan that day, together with two other vacillating board members.
“When we were at the business school, “ Parker started in an officious tone, “I remember my professors going over case after case in courses that dealt with mergers and acquisitions, about the histories of companies that did well and those whose appetites made them sick. But it was when James Fallberg, who at that time was CEO of General Production, came in for a seminar that a point was made that has stayed with me to this day. Unless a company’s profits are growing, their products and manufacturing at the leading edge, their viability will not be efficacious. “
That language, Gushing thought. What a pompous ass. Even more than Jordan.
“Such is the case, my friends, with Grayling and Elon,” Parker continued. “I’m afraid President Jordan is correct. We should not proceed with an acquisition. We don't need them, and I for one am against it because being able to turn them around is anything but a foregone conclusion. They are very sick. “ He sat down. Phelan observed a few of the others nodding in agreement, but the vast majority did not.
“Any other comments?” Phelan asked. A silent shaking of heads. “All right, ladies and gentlemen, it’s time to vote. Let me say that what’s at issue here is more than this acquisition. I believe it’s a referendum on the management of our company. “
Conrad Greenberg raised his hand. “Mr. Chairman, I wish you wouldn’t state it that way. I’m sure the board feels that although you and the president differ on this matter, it doesn't require that kind of vote, ah, and the implications that go with it. Perhaps it would be better if this were tabled, and we met in a week. “ He looked at Phelan as if he were pleading.
“I appreciate your suggestion, Conrad, but we gain nothing by waiting Everyone understands the issue. The vote will be closed, without signatures. That way, no one need be embarrassed. * Phelan sounded like the venerable sage, the leader who would obtain the result necessary with a minimum of fallout. He had recently given a lecture at his own alma mater, Columbia Business School, on key choices a CEO makes when he possesses power. How if s used, Phelan had said, requires vision together with a certain objectivity, coupled with a degree of maturity — but without vindictiveness.
“Jennifer Anne, pass out the envelopes, please. The closed ballot is preferable, everyone. “ He sat down at the end of the table. “After the meeting, Id like to invite you all for cocktails. And dinner afterward for any of you who can stay. “ Phelan smiled affably and said something quietly to the director sitting at his right He nodded when the person whispered something back. Phelan gazed around the room and smiled, the expression of a leader who had handled a difficult challenge in exactly the manner he had anticipated.
Allison Lee, secretary of the board, opened the envelopes as if she were handling eggs, unfolded the contents, and lay each of the ballots on top of the previous one until she was ready to tabulate the count. She noted in two precise columns votes in favor of the motion and those against. When she had finished, she rechecked her numbers. Then she looked up, her brow furrowed.
“I don V know what to say, “ she said slowly, trying to control the alarm in her voice. “The vote is against the motion!” She avoided looking at Phelan.
“What is the count?” Phelan asked calmly. When she didn’t respond. “Allison, what is the count?”
“Ten in favor, twelve against. “
In the silence that ensued, several mouths gaped, but on the majority offices were smiles, some only a flicker, but smiles nonetheless. But the broadest smile was on Phelan's face. He stifled a laugh. What those bastards wont get from me, he said to himself is any satisfaction.
“Well, now it seems that the majority has determined that my recommendation for the acquisition does not meet with your approval Oh well. ‘I’m sure you know what you're doing. “ He glanced around, but only a few of the directors returned his gaze. “As I said earlier, cocktails are being served. “ He stopped for a minute and added, “I have to admit I am a bit surprised. “
Somehow, Jordan and Greenberg had reached enough of the others to bring Phelan down. They probably had offered Parker something he couldn’t refuse. Phelan could have accepted the defeat and continued, but his authority and power had been so seriously damaged as to emasculate his leadership.
The following day, Phelan advised the board that he was submitting his resignation, effective immediately. At sixty-one, Phelan ended his career in afar different way than he had ever imagined. The Wall Street Journal and the New York Times carried the story on their frontpages. His termination was a huge shock to the international business world.
I called Phelan from the Lotos Club. He answered and, without talking about his resignation invited me to meet him early the next morning in front of his residence. He lived in a magnificent apartment building on the corner of Fifth Avenue and Sixty-eighth Street, overlooking the Central Park Zoo. From his penthouse duplex, one could see most of midtown Manhattan.
That morning a low, gray ceiling of clouds cut off the tops of the buildings. I had slept intermittently. Phelan smiled and shook hands with me. “No, not your car, we’ll go in mine.” We walked over to his limousine. I wondered where he was taking me. I wouldn’t have minded if we were going to his jet for a flight to Ireland.
“It’s most appropriate this morning to have some breakfast at O’Hallahan’s Diner,’ Phelan said when we were seated in his limo. He disconnected his phone. “Its been in the same family for generations. In the Bronx, of course. When I first went there, the only thing I could afford was coffee.” He laughed. ‘What amuses me, Henry, is remembering how I talked old man O’Hallahan into meals. I simply promised him a large increase in his business if he would do two things — give me twenty bucks a week for promotion and one good meal a day. What, are you daft, lad? I remember him saying. We Irish are not prone to pissing away hard-earned dollars on the likes of harebrained schemes like yours. And not to be duped by charmers the likes of you/ “
I wondered to myself how Phelan could handle his crushing defeat, as if today was just another day. Maybe he was simply trying to erase it from his mind. That or, more probably, he possessed tremendous inner strength.
“But I convinced O’Hallah
an, because I wouldn’t give up,” Phelan continued. “It took me weeks of hard work. What I did was get some of the folks in our neighborhood — oh, the Irish, to be sure — to take more of their meals at O’Hallahan’s. I told them that his food was the best in all of New York, and priced far below any others. I exaggerated a bit, but there was also truth to it. And I told them that if they were not totally satisfied, I would refund them each a dollar.
“Now about what happened yesterday. To be sure, it hurts. I wasn’t prepared but should have been. Anyway, it’s over, it’s done. One day we’re all finished. We move out or they throw us out. I forgot some of my own cardinal rules. If you’re in a fight, my boy, you’d better be damn sure of your support and your weapons. I never dreamed a majority would vote against me. I put them on the board. They were my people.
“Look,” he continued, “my mistake was assuming there was no way I would lose. I drew the line. Jordan won. I do give him credit for working hard and pulling it off. I plan to call him tomorrow.”
We were traveling up the East River Drive, just before the entrance to the Triboro Bridge. Phelan’s attention seemed to be taken with a heavily loaded barge being pulled on a long cable by a tugboat. After a few moments, he said, “I’m glad you called. It was very nice of you.” He smiled. “I’m afraid I can’t help you with that lease.” He searched my face, then said, “But, may I say to you, don’t give up. Fight like hell. Keep trying to create solutions with your bank. They’re better off working with you.”
“MacDougall laid it out at our meeting,” I responded, trying not to sound dejected. “They want my head. The only thing I can think of is to try to convert some of our assets into cash.” Then I added, “It’s like asking a bunch of hyenas to wait, even though they haven’t eaten for a week. Banks are also in trouble, as you doubtless know,”
Phelan nodded. He did know. He sat on Citicorp’s board. “Returning to the Bronx this morning is very important to me,’ he said. “Keeps things in view. Reminds me where I came from.” I thought I saw tears welling up in his eyes. “It’ll be difficult to adjust, I’ve no illusions about that. But I’m a healthy and vigorous sixty-one. Too many things I’ve not had time for. Family, fishing, trips to distant lands with my wife, those grandchildren. God, they’re absolutely precious.
The Ego Makers Page 14
