Indecent Exposure (36 page)
- Board Chairman Jaffe opened the meeting and then turned it over to
Hirschfield
, whom he characterized as "the helmsman and driving force" of Columbia Pictures Industries. - "When I took this job four years ago," Hirschfield said when the applause faded, "I didn't think either Columbia or I would still be around at this point. I didn't know which of us would falter first. But we're still here and we have a lot of good news to report." He then sketched the company's bright financial picture.
- Operating earnings for the first quarter of the current fiscal year had risen 400 percent to new record levels from the same period of the previous year.
- The company hoped to resume the payment of cash dividends within several months. (It had not paid dividends since 1970.)
- Close Encounters of the Third Kind
had the potential to equal or surpass the performance of
Star Wars
at the box office and thereby achieve the highest gross revenues in the history of motion pictures. - The Gottlieb pinball machine company was manufacturing a
Close Encounters
pinball game. - Arista Records had the biggest month in its history in October and would be releasing the
Close Encounters
soundtrack album. - Columbia hoped to establish ongoing financial relationships with Time Incorporated and the General Cinema Corporation.
- In their back-row se
ats, Herbert Allen and Irwin Kramer whispered to each other frequently during the meeting and smiled at private jokes. - Most of the questions from the shareholders were soft and most comments complimentary.
Hirschfield
and Jaffe had cautioned at the beginning of the meeting that it would be inappropriate for them to comment on the David
Begelman
affair since it remained under investigation. "Mr.
Begelman
has made a most significant contribution,"
Hirschfield
said. "He is a friend
and remains a friend. On the ot
her hand, no one person constitutes an entire business. I would be derelict if I ran Columbia in that fashion. And I can assure all of you that there is capable management in all divisions of the company, including motion pictures and television." - A vociferous female stockholder suggested that Columbia might want to base a motion picture on the Begelman affair. "It would be greater than
The Last Tycoon,"
she said. - Hirschfield was asked why
The Greatest,
starring Muhammad Ali, had not done better at the box office. "It wasn't the greatest," he said. "We lost some money on
The Greatest.
You couldn't call it a flop. You couldn't call it a hit. It was just a mistake in terms of what we thought was a market. People are willing to pay to see Muhammad Ali fight. They aren't willing to pay to sec Muhammad Ali make love or whatever he does on screen.
...
We thought the picture would work well foreign. It didn't. We thought it would work well domestically. It didn't. We thought it would work well in black and white neighborhoods. It didn't work well in either."
Hirschfield ticked off future production plans. "We have pictures like
California Suite,
which is the Neil Simon play. . . . We have the new movie of Bob Fosse, who is, in my opinion, one of the most talented directors in America. It is called
All That Jazz.
It will be a semi
-
musical adventure. We have a movie that will, hopefully, at least on some levels, compete with sharks. This one is about bats. It's called
Nightwing.
We have a wonderful book that we
bought, which is called
Kramer vs. Kramer,
which is a dramatic portrayal of a family confronted by divorce. We think it is going to be a terrific movie for the company. We have the new Paddy Chayevsky book. I believe it is going to be called
The Experiment*
As you know, Paddy Chayevsky is one of the most talented play and screen writers. His last work was
Network.
This one will give Paddy the opportunity for an all-out commercial adventure, special-effects and fantasy film. It is just a spectacular project. It will be, hopefully, our major release for the summer of '79. It will become a very controversial show." - "It has been rumored," a stockholder said, "that Columbia is a candidate to be taken over by ITT, rumored at a price of twenty-two dollars a share."
- "I wouldn't want to do anything to dispel the rumor,"
Hirschfield
said. - "In other words, you haven't heard anything."
- "No, but it's always been a dream of mine to be caught between the countries of Kuwait and Saudi Arabia in a proxy fight." Hirschfield added, to prolonged laughter.
- ·The eventual title was
Altered States
. - * * *
- Hirschfield knew he had performed well and was pleased after the meeting when several stockholders approached and congratulated him on his leadership of the company. The board of directors then convened its own meeting and Hirschfield grew quietly furious when not one of the board complimented him on his good job before the shareholders. He returned to 711 Fifth Avenue alone.
- The board decided to assemble the following Wednesday, November 16, the morning after the premiere of
Close
Encounters,
to hear Peter Gruenberger's report on his investigation. They would then decide what to do about David Begelman.- TWENTY-FIVE
- "They're gonna shove him up your ass."
- Sipping a cocktail at the Hirschfields' in Scarsdale on Sunday evening, Marty Ransohoff was appraising the Columbia board of directors' attitude toward the
Begelman
issue. Ransohoff had discussed the problem with both Alan Hirschfield and Herbert Allen several times since
Begelman
had been suspended, and had been particularly attentive since his argument with Herbert in the Southampton sauna in October. Ransohoff continued to believe that Columbia Pictures had little to gain and much to lose by restoring
Begelman
to his studio position. He verified many of the things David Geffen had told Hirschfield about the growing criticism in Hollywood of
Hirschfield
's handling of the matter. And he told
Hirschfield
something that Alan had not heard elsewhere and that he had not figured out for himself: Herbert Allen appeared to have committed himself on an emotional level—something he rarely did in any business situation—to the reinstatement of David Begelman to the presidency of the studio. He seemed to have invested his ego on the side of those who felt that
Begelman
should be forgiven. And - Herbert was angry at Hirschfield for what he viewed as a failure of nerve—an inclination to base the decision on "what people will say" (the SEC, the press, the banks, et al.) instead of on "what is right" (showing compassion for a talented man whose crimes resulted from a mental illness which was being cured).
- "Herbie's steamed up and he doesn't usually get this steamed up," Ransohoff warned. "He's got his 'fuck you' shoes on. He's got the board primed. And they're gonna shove Begelman up your ass."
- "But they've promised to support my decision, whatever it is."
- "You just wait and see how they support your decision. That kind of support you don't need."
- "Good moming, Rona."
- "Good
morn
ing, David, and good morning, America. - "From the big business front . . . this Wednesday the board of directors of Columbia Pictures Industries Incorporated will meet in New York City to decide the corporate fate of David Begelman, former president of the studio, who admitted several weeks ago to financial wrongdoing. We understand that meeting will be particularly volatile due to the fact that half the board is reportedly in favor of reinstating
Begelman
, while the other half is determined to keep him out. It's interesting to note that Begelman's fate will be decided three days before the first box-office returns on his pet project.
Close Encounters of the Third Kind,
can be known." - Delivered by special certified messengers, the letter was on the official letterhead of the law firm of Weil, Gotshal & Manges and carried the heading:
- Privileged and Confidential. Attorney's Work Product.
- To the Board of Directors of Columbia Pictures Industries Inc.
- At the request of Irwin Kramer, chairman of the audit committee, I hand to you for your confidential information a legal memorandum which we prepared. . . . Irwin felt that this might be of interest to you in preparation for the meeting this Wednesday. . . .
- Sincerely yours, Robert Todd Lang
- In addition to depending on Weil, Gotshal & Manges to investigate David Begelman's crimes, Columbia Pictures Industries looked to the firm to outline and analyze the corporation's legal options for resolving the
Begelman
problem. Thus, while Peter Gruenberger and his team were poring over canceled checks at The Burbank Studios, other lawyers in New York, under the direction of Todd Lang, were preparing memoranda to aid the deliberations of the board of directors. Was the company legally required to fire Begelman? To sue him? To prosecute him? Could it reinstate him to his position in the company? If so, under what circumstances? What were the corporation's and the individual directors' potential liabilities under the various courses of action open to them? How much information had to be disclosed to the Securities and Exchange Commission and to the public? - In two confident
ial memoranda—a forty-eight-page
document laden with legal citations and an eleven-page tract that was less formal and more candid and pointed—Weil, Gotshal & Manges told the Columbia board that its actions in the
Begelman
matter were governed by the so-called "business-judgment rule"—a principle that has evolved in American corporate law and jurisprudence over many years. Under the rule, a corporate board of directors has considerable freedom in deciding any issue before it as long as the decision represents the board's genuine "business judgment" of what is best for the corporation. Courts ordinarily will not challenge such a judgment unless the board's ability to make the judgment is somehow impaired, or the judgment is tainted by bad faith, breach of trust or fraud, or the judgment can be shown to be "grossly unsound." To the extent that a judgment is flawed in any of these ways, the directors who made the judgment risk suits by shareholders, law-enforcement actions, and other assertions of legal liability. - The threshold decision of whether to sue or prosecute David
Begelman
was within the ambit of the business-judgment rule, Weil. Gotshal said, and since
Begelman
was in the process of repaying the money he had stolen from Columbia, the company was not legally obligated to sue or prosecute him. (Left unstated was the company's obvious right to sue or prosecute if it chose to do so.) - Beyond that, in the lawyers' opinion. Columbia had three options, each of which could be deemed a legitimate exercise of business judgment under certain conditions. The company could terminate
Begelman
's employment unequivocally. It could terminate his employment and retain him instead a
s an independent film producer,
without an employer-employee relationship. Or it could reinstate him as head of the studio. (The lawyers based their analysis on the assumption that Begelman would not be reinstated as a director or officer of the parent corporation under any circumstances.) - Since reinstating
Begelman
in his studio post obviously would raise the most questions about the company's business judgment, the lawyers devoted most of their analysis to that issue. Reinstatement was within Columbia's rights, the lawyers advised, if the company decided that Begelman was "in large measure" responsible for its success and that losing him therefore would harm the company. If it reinstated him, however, the company would have to take account of several potentially negative ramifications of that decision. It would be obliged to impose restraints on Begelman sufficient to prevent recurrence of his misdeeds—perhaps restricting his authority to sign checks and commit large sums of money. And in imposing such restrictions, it would be obliged to consider whether the restrictions would impair his ability to run the studio. - Apart from
Begelman
himself, the lawyers noted, certain negative effects on the company at large would be more likely if he were reinstated than if he were not reinstated. The SEC would be more likely to insist on public disclosure of the details of
Begelman
's embezzlements. The SEC also would be more likely to launch its own investigation of the company's handling of the
Begelman
affair, as well as a broader inquiry into Columbia's executive perquisites. An
d (he financial community, i.e.
Columbia's lenders and underwriters, would be more likely to react adversely, possibly impairing Columbia's ability to obtain financing and underwriting services. - Todd Lang disseminated the legal material on Monday afternoon. November 14.
- Since legal advice is not rendered in a vacuum, but instead is often given to people under the severe pressure of difficult decisions, the advice can have unpredictable, unexpected, and unintended results. Clients sometimes expect more from lawyers than can reasonably be expected. Clients sometimes want lawyers to make decisions that the clients must make themselves. In Columbia Pictures' case, Todd Lang's memoranda had the effect of further inflaming the already highly contentious atmosphere.
- By the middle of November, of course. Alan Hirschfield had discussed the
Begelman
case with Todd Lang many times in many se
ttings—their homes in Scarsdale,
their automobiles, their offices. - Lang, in several unguarded moments, when he was speaking personally rather than as the corporation's lawyer, had made clear that he felt that it would be unwise to reinstate Begelman. Hirschfield, eager for support, had tended to blur the distinction between Todd Lang, the person, and Todd Lang, the lawyer, and had come to expect that Lang, at the appropriate time, would take a formal stance against Begelman in advising the board of directors. Hirschfield depended on Lang's advice as a last resort if Alan's own sway with Herbert Allen proved insufficient, and indeed Alan had already begun predicting to Herbert that Lang would advise against reinstating
Begelman
for legal reasons. - When Lang's formal advice finally was committed to writing and disseminated, therefore, Hirschfield was surprised and deeply disappointed that the memoranda contained no clear recommendation that
Begelman
be fired. And Herbert Allen was delighted to see that the reinstatement of
Begelman
was after all a genuine legal alternative. He accused Hirschfield of having misled him for weeks on the legal issues involved. The memoranda, of course, contained no recommendation of what the board ultimately should decide. That would have exceeded the appropriate role of the legal advice under the circumstances. Alan and Herbert, however, proceeded to seize upon those portions of the memoranda that tended to support their respective points of view. And in the process their opposed positions hardened. - Newsweek
appeared Monday with an elaborate and lavishly illustrated seven-page cover story on
Close Encounters of the Third Kind.
Proclaiming that the film would command a "historic place in movie entertainment,"
critic
Jack Kroll wrote that
"Close Encounters
is the friendliest,
warmest
science fiction epic you've ever seen. It brings the heavens down to earth. . . . Never has a movie produced such an overwhelming, ever-changing rhapsody of light." There were separate articles on director Steven Spielberg, special-effects wizard Douglas Trumbull, and astronomer J. Allen Hynck, a UFO expert and the movie's technical adviser. - It was the sort of send-off that picture people constantly pray for and rarely get.
- Upset by the lawyers' memoranda and by the board's reaction to it, Alan
Hirschfield
also was angered to learn that the directors, without consulting him, had invited David
Begelman
to appear at the Wednesday board meeting and present his "side of the story." Begelman had had two days to answer the charges when Peter Gruenberger had interrogated him at the Beverly Hills Hotel the previous week. Inviting him to the board meeting, in
Hirschfield
's view, represented an effort by Herbert Allen and Matty Rosenhaus to inject emotion and sympathy for
Begelman
into a meeting that was supposed to be a dispassionate discussion of the investigators' report.
Hirschfield
stated his feelings to Allen and Rosenhaus late Tuesday afternoon. They were unmoved, but reassured
Hirschfield
that they would support whatever decision he made on the fate of
Begelman
. - "Have you made up your mind yet, Alan?" Herbert asked.
"No." - "If you had to decide right this minute, what would your decision be? I think we have a right to know." "I don't have to decide right this minute." "Just hypothetically." "I wouldn't take him back."
- "Will you still feel that way tomorrow, or next week." "I don't know."
- In this atmosphere of rancor, Hirschfield, Rosenhaus, and Allen parted and prepared for the events of the evening, the world premiere of
Close Encounters of the Third Kind,
the most i
mportant evening in the fifty-se
ven-year history of Columbia Pictures. - TWENTY-SIX
- The jarring juxtaposition of pleasure and pain on Tuesday night reminded Alan Hirschfield of the dinner at the Waldorf in September when he had received public acclaim from Brandeis University and private bad news from Mickey Rudin. It was much worse this time, however.
- Tuesday night was a night of wonder. It was a night when a new motion picture transfo
rmed a black-tie audience of see
n-it-all celebrities and tycoons into a gaggle of wide-eyed children. It was a night when Alan Hirschfield, standing before that audience, was honored for his work as a trustee of the esteemed Cancer Research Institute and witnessed the establishment of an institute scholarship in his name. It was a night when Alan
Hirschfield
, sitting in that audience watching the film, finally sensed with absolute certainty that the corporation which he had led from the brink of bankruptcy to respectable but still modest prosperity would shortly become very rich and take its place as a truly important purveyor of entertainment to the world. - Tuesday night also was a night of menace. It was a night when Alan Hirschfield received a signal that the smoldering dispute over David Begelman—a dispute over one man's misdeeds, a dispute that had grown so gradually from the chance discovery of a single forged check—was about to explode into something much more ominous and much more consuming than a dispute over one man. Though the full dimensions of the confrontation were not yet evident that evening, it appeared that the dispute was on the verge of degenerating into a bitter, ugly, personal clash of wills between Alan
Hirschfield
and the Allen family. The circumstances momentarily were baffling. But the signal could hardly have been more sinister: It seemed that the board of directors of Columbia Pictures Industries was about to launch a serious attack on Alan Hirschfield's personal integrity, and on the personal integrity of his wife, Berte. - Having made their way past television lights and popping flash bulbs, the gowns, furs, and tuxedos jamme
d the garish lobby of the Ziegfe
ld Theater on Fifty-fourth Street, one of the largest and technically best-equipped movie th
eaters in New York. Alan and Bert
e
Hirschfield
and other Columbia personages mixed with the crowd, appearing casual and relaxed but knowing that this was their biggest premiere. They had been through
Funny Lady, Shampoo, Taxi Driver,
and
The Deep
—big films all—but
Close Encounters
was the biggest and they were excited. - Just before 7:30. the scheduled starting time. Todd Lang sought out Hirschfield and took him aside. Lang had talked to Peter Gruenberger, who had gotten a phone call from Irwin Kramer, the Allen in-law who was chairman of the Columbia audit committee and was the board's overseer of ihe investigation of David
Begelman
. It seemed that the audit committee was going to broaden the investigation. In addition to investigating Begelman, it was
going to investigate Alan and Berte
Hirschfield. More precisely, it was going to investigate a possible conflict of
interest in the employment of Be
rte Hirschfield by a company that conducted market research for Columbia Pictures. - Alan was stunned. "That's absurd," he said to Lang. "We cleared that with the board two years ago. It was clean as a whistle. You said so yourself."
- "I know," Lang replied, "but they're determined to bring it up again. They claim they never got to the bottom of it."
- "This is blackmail," Hirschfield asserted. "This is nothing but a lever to get me to cave on
Begelman
. It's out-and-out blackmail!" - The conversation was interrupted. Hirschfield was due inside the theater where the festivities were about to begin. He quic
kly whispered Lang's news to Berte
, and then took his place in front of the auditorium for the ceremonies in which he was to be honored by the Cancer Research Institute.
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