The Billionaire Who Wasn't (28 page)

Feeney himself was dismissive of their concerns. “There was a period when Bob was living in London, a bid came up for an airport, and Bob and Jean Gentzbourger bid for it themselves outside of DFS. They wanted to operate the concession. Nobody ever bitched about that. That was fair game,” he said.

Looking back, Paul Hannon argued that Feeney's business activities were in no way improper. There was no agreement among the DFS shareholders preventing it, and other shareholders had pursued similar private retail operations in the past, he maintained. Moreover, Feeney's Hawaiian retail stores were never important operations and they never made money. His assessment was that Alan Parker genuinely believed that what Chuck was doing was morally wrong, that Miller just saw another opportunity to “get at Chuck,” and that Tony didn't really care but that he tried hard to resolve it, as it gave him some control of a major issue among the “big boys.”

On the basis of advice from his lawyers that they had a legal right to oust Feeney's representatives from the DFS board, Parker had organized the extraordinary meeting at the Allen & Overy office in London.

“Finally they kicked us off the board,” said Hannon. “They thought that would pressure Chuck. It certainly pressured George and me. But Chuck said he didn't believe we were doing anything important on the board anyway. That was sort of insulting to me,” he added, laughing. “But there was no pressure at all on Chuck. He couldn't care less.”

But he did care. Chuck was very upset by the charge voiced by Miller at the meeting in Allen & Overy that he was “usurping DFS's corporate opportunities to earn profits outside of DFS.” “Chuck's view was that the businesses
were quite different, and there was no problem, so he didn't agree with Alan,” recalled Harvey Dale. “In hindsight it might have been more prudent not to do that [open stores next door to DFS in Hawaii] but the stores were selling things that weren't any important part of DFS business. I can understand why he did it. Remember that of the various passions that moved Chuck, this entrepreneurial thing is embedded in the bone marrow. It's very strong, so he saw an opportunity and he wasn't reflecting on whether it would be provocative or otherwise. It probably never even entered his mind. He thought this is a good thing to do, let's go and do it.”

Throwing Chuck's representatives off the board “was a huge overreaction and we obviously couldn't tolerate that,” continued Dale. “We were prepared to take legal action and consulted counsel in various countries of the world. We had meeting after meeting after meeting internally to talk about what to do.” Litigation would have blown anonymity, “but we were at an impasse and eyeball-to-eyeball and on the cusp of litigation with all of its risks.”

Saddam Hussein became the catalyst for resolving the dispute. On August 2, 1990, more than 100,000 Iraqi soldiers backed up by 700 tanks invaded Kuwait in the early hours of the morning. The Iraqi dictator threatened to turn Kuwait City into a “graveyard” if any country dared to challenge him. President George H.W. Bush condemned the attack as “a naked act of aggression.” War involving the United States was inevitable. The alarm bells rang throughout DFS. A war would send world tourism into a sharp decline—and with it DFS dividends. Feeney was in Dublin that day and he was told the news by John Healy, whom he met early in the morning. “His face turned absolutely white and he turned around and ran up the stairs and he didn't emerge from the apartment for the rest of the day,” said Healy. “He was glued to the television. He spotted immediately the implications of that great event for international travel and particularly the traveling habits of wealthy Japanese tourists and therefore their propensity to buy duty-free goods.”

On August 9, George Parker, who maintained good relations with all the owners despite being one of Feeney's close business associates, flew to San Francisco, where he knew Bob Miller was attending a DFS board meeting to discuss the crisis. He waylaid Miller in the lobby of the Park Hyatt Hotel. “Look, this is stupid,” he told Miller over a drink in the lobby bar. “We've got to solve this problem. Business is tanking. Let's meet without the lawyers and establish the ground rules on how we all work together.” Miller agreed it was
worth a try. “We wanted to protect the integrity of the company and not to have a shareholders' dispute that would tear DFS to shreds; it was too valuable an asset to play games with,” he recalled. Eight days later, George Parker sent a message to Miller to say Chuck had agreed. Tony Pilaro and Alan Parker fell into line. They all had bigger problems now. DFS cash registers were falling silent. Daily sales counts by the regional DFS president in Hawaii, John Reed, showed that takings in some weeks were down by 50 percent. “We were paying a million dollars a day in concession fees and we had no revenue, nothing coming in the door,” recalled Alan Parker.

Miller had acquired a big yacht, and he took George Parker for a sail around the Cape of Good Hope. Feeney's associate came back from the trip believing he had found a way out of the impasse. The proposed solution was arbitration rather than litigation. A “Wise Man” would be appointed to resolve the retail argument and future disputes. “We went back and forth, and George and I worked on it, and we finally got Chuck to agree to it,” said Hannon. On Wednesday, February 20, 1991, three days before the U.S.-led coalition forces began their ground offensive against Iraqi troops in Kuwait, the four DFS owners signed what became known as the Wise Man Agreement. “Then we were put back on the board,” said Hannon.

Under the Wise Man Agreement, Feeney agreed to sell General Atlantic's Hawaiian Retail Group to an unrelated third party by January 31, 1993. No shareholder would operate any retailing whatsoever in certain “dome” areas, including Hawaii and Guam. The owners would in no case invest in or develop any business interests that would directly and materially compete with either DFS or other DFS interests. They agreed on limitations to doing business with DFS suppliers. All shareholders were prohibited from operating on a worldwide basis any retail business aimed at Asian tourists. All disputes would be resolved by arbitration by the Wise Man. The agreement also mollified Miller by labeling the shareholdings A, B, C, and D. Bob got the A shares, Chuck the B shares, Alan the C shares, and Tony the D shares. Their value stayed the same. His co-owners suspected that Feeney had little intention of selling the Hawaiian Retail Group and would stubbornly hold out as long as he could. Events would prove them right. When challenged about obduracy in his character, he said, “I prefer another word—tenacity.”

Tony Pilaro found the Wise Man in the figure of Ira M. Millstein, one of New York's most prominent lawyers. A $500-an-hour senior partner in the
prestigious New York law firm Weil, Gotshal & Manges, the then sixty-four-year-old arbitrator with glasses and receding white hair had been called to counsel high-profile boards such as General Motors, Westinghouse, and Walt Disney on issues of corporate governance. He had negotiated the bankruptcy settlement of corporate raiders Drexel Burnham Lambert. Millstein had a peripheral association with DFS going back ten years. Now he sat the four partners down and, as Pilaro recalled it, told them, “You jerks! You have got the greatest thing going. Come on! You have got to get together and find a method of resolving disputes.”

Because of the disruption to travel caused by the Gulf War, dividends for the four DFS shareholders plummeted to a mere $12 million in 1991, compared to an average of $272 million a year over the previous four years. DFS had to negotiate with the Hawaiian authorities to defer $103 million in concession payments for two years.

With the fall in DFS sales, Feeney's rating in the
Forbes
rich list went down—from $1.9 billion in 1991 to $0.9 billion in 1992. Chuck Rolles had dinner with him in New York on the day the magazine came out with the new list. As they left the restaurant to return to the Cornell Club located twenty-four blocks away, he turned to Feeney and said, “Do you want to walk or take a cab?” “Well,” said Chuck. “
Forbes
just said I lost a billion in the past year so we'd better walk.” Which is what they did. In fact, in 1991 Feeney was personally worth less than $1 million, according to an audit by his accountants at Price Waterhouse.

The downturn in the duty-free business was a huge setback for the Atlantic Foundation, which had made charitable pledges it could not now meet. These were legally unenforceable, because of the structure put into place in Bermuda, but they were “morally enforceable,” said Harvey Dale. This caused “severe distress to those donees and to us.” Dale found it “personally very painful” to inform Cornell president Frank Rhodes that they had hit a big bump and were not going to be able to make their commitment that year. With DFS in the doldrums, General Atlantic Group had to secure a $60-million line of credit from Hanover Trust to guarantee cash commitments. More liquidity was found in 1991 when Feeney sold the Pacific Island Club Hotel in Guam to a Japanese company for $200 million; he had bought it for $80 million.

The tourist trade quickly recovered after the Gulf War, but the crisis, and the split among the DFS owners, reinforced an idea that Feeney had been
mulling over for some years. The time was coming to sell Atlantic Foundation's share in the duty-free business. The possibility of selling or going public had arisen before but never in a serious way. There had also been some discussions about splitting the company, with Bob taking Asia and Chuck taking the United States and Guam, but they had come to nothing.

Feeney's emotional ties to the company he had cofounded were also fraying. He was getting complaints about how the company ethos was changing for the worse as it expanded into a huge multinational. One senior executive wrote to Feeney in 1989 warning that the moral fiber of DFS had been corrupted. The owners had never asked DFS executives to do anything contrary to moral standards, and “we all sleep well at night,” he wrote, but now it had become like any other business, “insensitive, selfish and greedy.”

Feeney asked Paul Hannon to draw up a list of public and private entities with large enough cash reserves to buy DFS. Hannon identified twenty-four cash-rich companies and individuals worldwide that could put up the estimated $2 billion needed, ranging from American Express to the sultan of Brunei, but it was clear to Feeney that in reality only a very few companies, like Louis Vuitton Moët Hennessy (LVMH), the world leader in luxury goods, based in Paris, were capable of buying and operating a giant retail operation stretched across the globe such as DFS.

CHAPTER 19

Stepping Down

By 1991, the Atlantic Foundation and the Atlantic Trust had in secrecy made a total of $122 million in gifts over seven years. This spending was far below the 5 percent of assets required of American charities, but Feeney's operation was unique in that it was top-heavy with businesses and properties, and only a small percentage of assets was in liquid form. Feeney was, however, keen to increase giving substantially. He was approaching sixty years old and wished to get more involved in putting the foundation money to good use. He decided the time had come to think about stepping down as chief executive of General Atlantic Group and devoting himself full time to philanthropy. When he mentioned this to Paul Hannon, his counsel asked, “Do you think you will enjoy that more?” “No,” he replied. “It's much harder work because of the people you deal with and because there's no bottom line, but that's what I want to do.”

He still desired to do everything anonymously.
Forbes
reporter Paul Klebnikov had been trying to ferret out more information to update the rich list. If anything leaked about the foundation's obsessive secrecy and low level of giving, it could raise suspicions that it was up to no good. A new set of instructions to staff on dealing with the media was circulated by Harvey Dale and Paul Hannon in March 1991. Headed “When the News Media Call,” it gave several recommended responses to reporters' questions, starting with “Can I help you?” and ending with “Come on, we're a private company, and we simply don't give out that sort of information to the press. I've got to go. Good-bye!”

In early July 1991, Harvey Dale became alarmed when an unidentified woman phoned his secretary and asked how to contact “Harvey Dale of Exeter.” Exeter was the name of an unlisted entity known only to Atlantic insiders that had been used to facilitate the purchase of the foundation's assets from Danielle in 1984. Worried that an exposure was being planned by a media organization, Dale contacted Chuck, who was in London, and suggested that despite their reluctance they should speed up preparations for a controlled “unveiling” and start preparing a press release. Paul Hannon warned in a separate communication, “Our complicated, byzantine tax-efficient structure is a negative, and we should be prepared to answer questions in this regard when we go public.”

Several copies of an announcement were drafted in July and August 1991, disclosing the existence of the foundation and the fact that Feeney didn't own it but was planning to administer it full time. One version dated July 22 included a comment from Feeney that his goal was to stimulate the interest of wealthy people in “giving while living,” but “I couldn't do that while continuing to be known as a reclusive billionaire with no philanthropic interests.” Most drafts included French philosopher Blaise Pascal's observation that “noble deeds that are concealed are most esteemed” and American financier Bernard Baruch's remark that “there's no limit to what you can accomplish if you don't care who gets the credit.”

The following month, however, Chuck Feeney decided once again to do nothing. He would allow the misperception that he was “wealthy” to persist to preserve the anonymity of the charity. In any case, it was definitely not a good time for him to face a media firestorm.