How business, doctors and journalists prey on your food anxieties I

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August 14, 1995 $4 .00 (Canada 54•50) 

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<strong>How</strong> <strong>business</strong>, <strong>doctors</strong> <strong>and</strong> <strong>journalists</strong> 

<strong>prey</strong> on your food anxieties 

I 

http://legacy.library.ucsf.edu/tid/agf97d00/pdf

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GUBUST 14. 1995 • VOLUME 156 • NUMBER 4 

I MONEY & INVESTMENTS 

122 Rpaciram 

caaldpmwRwan 

tM• weuW have 

174 Nas.ea 

bmn nn Pnad Nxr 

bor.Thulapaneae 

Rg:nad we 

Nln't figld . 

a nceatlon 

ahud .[hat 

mekeahYn 

buiBeha•hall . 

ON THE COVER 

130 Lies, Damned Lies And Medical Statistics 

Iry Frinp E .3 is ; 

Tha'c\ a ieim a~c¢P abuut u hu wc ear, drink <strong>and</strong> 

brcadm. 14ot thc scuo a¢ bucd on Itnghable smtutics . 

122 AnUnueccvsaryWar 

ByThumuSOweI 

Thc gnat Icssnn al Wurld 4Y .u II Is that the M1laughar 

rvu brnught nn be pacifiv :ui mueh as bv :niliradvm . 

163 WiBMicrosof[DominateBaWdngt 

ByP~7iaraA Sha.ier 

Unlikdv- Fnanc(al insdmdons are mo big, ron smarr 

xnd too enncnehed m be pushed aside bv hlicrosoft . 

168 WhyYouNeedA'Pmst 

Dy Gamlyn T .6eee 

?1o mlddlc-dass 6amilv shouW be rrsthout onc . 

176 The Yin And Yang Gf Overseas Investing 

By Jasan Lwag 

Snmc avm'sr.rs funds am country-pickcq sonm snxk 

pickurs. Scudder Glnhal Fond rs a thrnmpis#er . 

50 1/•fountl 

peradaealmk 

overflowing 

withPh.D .'santl 

fatsutwrtlles. 

~ 

MANABEMENT. 

STRATEGIES. TRENDS 

42 Dreyer'sGr<strong>and</strong>lce 

Crearn: Battling to he 

nuntber one nationwide . 

BySe5iludNe 

44 Perfumania:Itv 

plans to bring perfome 

to the masses went awry . 

3, Lna MaukBeha: 

46 CincivnatiBeO : 

Charthtgitsownconrse 

tostayomfrorrtin the 

telephone <strong>business</strong>. 

Byt;arySamuers 

47 WoniworHv Roger 

Farah made an easy 

$14 milliun last year . 

But this year he is going 

ta carn everydime he gets 

By Phyhs Bumn 

wrh Carahne Waxler 

81 UnionTeaaa 

PetroleuntHoldings : 

Nearly bankrupt ten years 

ago, it's Bush <strong>and</strong> seeking 

I billion barrels of oil. 

By fum Mack 

82 Comdisco :Itmust 

painfully adapt to a world 

where mainframes are 

replaced by PCs-<strong>and</strong> 

locker-room manncrs 

are po0tica0y incorrect . 

ByMaunew5ch~bm 

88 Ho.spiqiityFrancluse 

Systems :Invkeeper 

HenrySBvermanis 

about to lead his 

immigrantpartnersinm 

a second industry. 

Bylocl"dtllmar 

90 Mylan Laboratories : 

Still the leadm in generics. 

What's lts secret! 

BySrzanrz Oliver 

96 Unitedlbminion 

Industries : Its basses 

kuew what they wanted 

todo,butthevwentabout 

it rashly <strong>and</strong> fuo0shiy . 

kly Netl `Neimerg 

98 Fortverldving : 

Alce juice ruay not 

do pcople murh good, 

but Rea Maughan has 

gotten rich selBug it. 

5y C :rrutnpner Palmeri 

140 StartingYour 

Own Business 

Colinaire International : 

Underst<strong>and</strong>ing that people 

eat with their eyes as 

well as with their mouths . 

ByR LeSelrman 

144 Up& Comers 

WahlCBpperisinvading 

a msture, crowded market 

with "a better product ." 

ByJOiryFdnf 

145 Hi-LuAntomatlve 

revisited . 

ByCmdmeiNaxler 

166 FacesBehivd 

The Figures 

hmes Wcbcq O'&'icn 

Inamnrionul ; Crndria 

ICmvlcc, Pavhion designcr; 

Nancy Hxwthomq 

Conrincnnl Cablcvision- 

(AW AND ISSUES 

56 Bloating the deHcit: 

<strong>How</strong> importers are making 

the U .S. trade balanra 

look wnrse than it is. 

By Damon Damn 

INTERNATIONAL 

50 Nurlhernlyd<strong>and</strong>: 

Will the cease-fux huid 

<strong>and</strong>brbig peace at Iast7 

Smart<strong>business</strong>peopie 

are betting that it will. 

By Ricnad C. Morau 

54 Design:European 

kitchen makers are having 

a tough time establishing 

themselves in the U .S . 

By Peler Pihrnan 

156 Carbitrage: Making 

money off the spreada 

betweenluxnry-car 

priees around the worid . 

By Nma Mark 

CUMPUTERS/ 

COMMUNICATIONS . 

TECHNOLOGY 

158 Supedortechnology 

alone doesn't spell 

success.lLere's also the 

human factor . 

3y Flommg Mvv:hs 

162 Fred Gibbons once 

beat Bill Gates. Then it 

wasa0downhill . 

By Scth bcove 

164 Insights 

ByMeheelGrenWrre 

DEPARTMENTS 

10 Side Lines 

12 Folluw-Through 

18 Thelnformer 

20 ReadersSay 

23 Faet<strong>and</strong>Comment 

28 GtherComments 

33 Commentary 

37 What's Ahead For 

Business 

38 TheF'arbeatnAnx 

199 Flashbacks 

200 Thoughts 

Edirori,rl indcx is mi pagc 6 

174 The Money Men 

Bill Ehrnun antidpates 

a mild recessian but says 

he's a bull anyway. 

By JomasJaife 

179 The FarbesBarra 

WaBStreetReview 

180 Contmodities 

Review 

182 Streetwalker 

Salamnn Inc ; UC4er 

Tcchnoloqics; iahn 

gogle i markct predi.- 

tinns; Taurr Air . 

PERSONAL AFFAIRS 

190 Bargain0igitta 

overseas are nat aiways 

the smartest buyv. 

ByC6aC3nder5 

<strong>and</strong> Alerdncra Alger 

191 GneeBttlemore 

than gadgets, pagers have 

newuses . 

By M¢hael Noer 

192 StayingHeaithy 

Most °desiguer" watu 

is about aa pure as 

San Antonio tap water . 

By R . iee 3ullwa-i 

185 Statistical 

Spotlight 

Some real estate 

invesYment trosts 

look like good buys . 

By Enc S . Hardy 

COLUMNISTS 

136 PointOfl:ew 

SfeveH Ilanke 

146 RealityCheck 

RoledH Nelsan 

186 TheContrarian 

David Dreman 

187 WaB Street 

Irregula 

Mark Hulbed 

188 FinancialStntegy 

A .baryShiuing 

194 couectors 

The pros <strong>and</strong> cons of 

a reaale number . 

ByChnshe Brrvrn 

Cover tlloSraLon hy 

6urcGe D :;gzn Fksinglu 


Forbes 

I 117111114tilll++i1,/ltlb'l6'?'111- . 

EACH 

REFERENCE IS TO 

THE FIRST PAGE 

OF THE STORY IN 

WHICH THE 

COMPANYNAME 

APPEARS . 

A 

.-lir India . 190 

AliedSignal, 81 

a!Imilmii . 54 

Aloe Vera ofAnterlca, 98 

Alpha Publications, 168 

.vnbac, 176 

American Home Products .90 

dtrrrican Jornwnn of Pnb/ic Hznlth, 130 

American titotors Trenz . 156 

A.meritcch, 46 

AMR . 190 

drthur Andersen, 82, 168 

Anheuser-Busch, 42 

Apple Computer, 140, 162 

Bradlev Reul Estate, 185 

British dirrnavs, 190 

Brin;dl ,KA:rn! jomanl, 130 

Btddtauo,54 . 

Burlington Nbrthern, 174 

~ C 

Cable Radio Csen, 28 

Cadence Design Scstems .82 

Caesars Nor!d 174 

Cal:forrtia TerLrmluprv Stock L

M1i 

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eiCrcient . more productivr . 

more sensible ~rav to Larnlle 

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total staffing need+ . 

mutiun tem, p-•cannrl . 9 .111 Curnuluu 

to uur Otflae3lateS• gri-oup 

unqur.tionabl, more . The 

all ~-our staftis>c nr : rL•. 

a nd when N ou work .citlt 

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iasiea-Packard . 179 

Hi-I

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A 

Forbes 

~ Editor 

jAJ1E51V . \IICH .aELS 

~ .\tanagivg Editor 

LiR'RESCE?IINd'RD 

~ Exerutiss Editor 

WILLIAM B~LDSCIA 

Assistant Afanaging Editors : 

H,~"ard B.uks . /cxn A . Rriggs, 

Subrua A . Chakravarm,Stacart Pinkerton 

. Art <strong>and</strong> Dcsigo Directnn Et aree Halcursc :: 

Seniux Editors : Phcllis Rernvu", Pamr 3rin :c:o" 

'SYili :.m C . Fluvagm, ferr Flint, Be«}-F;anklic, *_Isa Cubrrnick, 

' Thum.u latlc, Stae k4ehen. Rubert Lcnc:rer, loshua Lc:inc, 

i>ana SS'cchs!er Lindcn, Alarkne .\l<strong>and</strong>cl, Fla :ing .\tecks, 

'?amcs R . \ounn . Hrnrard Rudr.¢ska . Laura Saundea, 

~ ,Alauiteu 5srriii A ~ughn,Jaum Zvvcig 

~ Contributing Editors : \brnt dls;cr. Gcorgc Gildcr, 

~ IUchard C . .Alur. .s, Ilicl•.ard phalon, t)cra A S .undcrs, 

ree'rec 1'oung 

associate Editors : Dalures 9keeI, Ch,^.xic Bro%en . 

Uacid C . Clh.urbuck, Inhn R . Haves, Paul lilebmi;ar, 

Rita Koselka, R<strong>and</strong>all E,ane, DoloresA . Latanion's. 

t)ran .\Lsh.an . \'ina 1Sunk, Peter \eumntb . Su ~nnc Olivrr, 

Pilip F . Russ, Leslie Spcnceq iCatazrna R'audrez 

Staff 1Pdters : R! ax .{tlas . Kate BoP.ocr Lev.is, Crahant 3unon, 

Amc Fe!dcian, Grolm T Geer, \lanlietlv Graccr, 

Erie S Hardv, Vlkhil Htr,hecnin¢, Brigid VIcAlena .min . 

Zina Mockheibur, VanaRmm"ier, YGchael SaSuman, 

Seil lVeinberg 

Reporters 11 smdra ilec\la _ . R hc \ara ha B .'igal: :pn, 

\S .ve'Y,lon l T .7111 .1f . fanLAL(h .S Ius .inDo o9c, 

I :

Sarah knows a lot about diabetes . She knows because 

she has it. Bur she doesn't know chat Eli Lilkv <strong>and</strong> 

Comoany devrloned the medicine she takes every day . Or tha : we keep her doctor up-ro-da!e abour the findings 

of health care nrofessionals all over the world ([ J(, who treat kids just like her . Why should she? 

She's busv just being a seven-year-old . If the last 119 y~e7arswhave taught us any°t} ;ing, it is simply this : knowledge is 

powerful medicine, So, while we continue our search ((~~ for innovative medicines . Lilly is also pioneering 

ways to use information techno2ogy to improve healnc ~ care . We're collecting, analyzing, <strong>and</strong> sharing in 

marion with thous<strong>and</strong>s of health care nmviders Ss 1!` /f <strong>and</strong> patienrs . And we're leading the search for 

better, more affordable treatments, preventions, anldcluYres-so people can live healthier, more active lives . 

Meanwhile, for Sarah, Lilly mav be only the name T on her medicine . . .<strong>and</strong> that's just fine with us . 

a 

KNOWLEDGE IS POWERPCL MEDICINE 


k iOLl 1:',6~ 

I - President <strong>and</strong> Editur-in-Cltief 

MALCOLM S . irOR3fiti IR . 

- Chalrznan 

C .ASP.{R l'J. tt'EINBERGER 

vice Chairman 

CHRi5TO2HERFOR3F.S 

~ Executive Pce President 

LEOA'ARD H . YA1310~ 

~ Publisher 

JEFFRES b5 . CCA'NISCIiid : 

Vice President-Administration : 

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Va Presfdent-Treunrer : 

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Denver franchise could relocate to 

Qucbec . Take note, David Stern . W 

Forbes m AuKust 14, 1995 


Bangkok . . . The beet of both worldd . 

'KrangthepmahanaRhort Anwnrattarta,Eoein 

rWahuttbarayattbaya r3fabadilakpbap Aoppbarat Ratcbatbani/rvirom 

Uatnratcbaniwe6nab~a[ban Amanpblmart dwatan .,atbe? 

SakFa tbat ti yawit.mnukampraeit 

07- 

t/ .4e capital with the longest name*also 

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Savoury Thai <strong>and</strong> international cuisine . Traditional 

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And as you explore T6ail<strong>and</strong>'s colourful traditions, 

you will also discover spectacular natural splendours 

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5o, please join us as we celebrate the 

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to the Throne throughout 1995-1996 . 

I 

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V ame: Ldzess : 


1 

God <strong>and</strong> man ~ 

in Japan Rupert 

RELtGioN-or ~ soRT-seems to be ~ mrupeel<strong>and</strong> 

making a comeback in Japan . Aum ~ BctrulNGA Gi.oB .at media empire 

Shin :ikvn, t7ev of dic goaon gas, can l<strong>and</strong> eou in some touch}° situagct 

the ink, but os'er 100 nessfaiths tions . On Rupert Alurdoeh's 100%- 

are being formed ecen%earabout 

one esen, diree daN °s, accord- ~ ago Aslwk Rosr Kavi, an Indian ho- 

osvned Star-n' neinN ork rn'o months 

ing to the go~entme:t's cultural moseaual rights actis-ist, called JIahatma 

G<strong>and</strong>hi a "bastard Ga :ria"- 

affairs agency . Happy Science, 

fot:nded nine years ago b' v a former thc latter \Nord a dcragatonterm for 

office «•orkcr at a general trading the merchant caste into x~hich the 

compam , is the largest ol the netie independence leader was born . Tushar 

G<strong>and</strong>hi, the saintly politician's 

sects, oith 5 million members . But 

nhere .Yum Shinrikso is chaucinistic, 

Happy Science offers to etnbrace b4urdoch's Star -,-~ nen . ork for oser 

great-gr<strong>and</strong>son, threatened to sue 

all ot mankind <strong>and</strong> even the universe 

. Is deities include Buddha, bailable «arrant reporzdly requir- 

S 15 miilion . An Indian court issued a 

Zeus, Jesus Christ <strong>and</strong> a space-tra - ing Murdoch to post 5,000 rupees 

eiing giant called El Kantare . 

(S161) to guarantee the media mogul's 

appearance in court . The atiair 

< 

gave yet another excuse for some 

members of the Indian parliament to 

carn, on about the supposed dangers 

ofcultural imperialism sia the 

form of foreign media . 

News Corp .'s Rupert Murdoch 

A legal hassle in India ; 

a touchdown in Los Angeles . 

~ 

Drop-lcicking L .A . 

Ltx ANc,E[-ES fans are notoriotu for 

neglecting their honietmrn sports . 

Ther see, are seen, <strong>and</strong> then lca\ e 

at halltinte So sshen the National 

Football League's L .A . Rams 

moved to St . Louis earlier this rear, 

follo" cd bv toe planned defcction 

of the L .A . Raiders to Oaklar.d . ehe 

mation's second-lareest telecision 

markct suddenlc found' itselftootbali-Icss 

. 

But Rupert \turdoch's Fox tti<strong>and</strong> 

General Electric's NBC, rvhidt 

jointle own the rights to Sunday 

ahernoon coceragc,couldn'tlracc 

cared less . Local ratings for the 

lousv Rams <strong>and</strong> mediocre Raidcrs 

N%cre, Well, lousy ;md mediocre, but 

the net«orks vore co ;rtracruallv oblig,ued 

to show the local teallis' 

gamcs . Since the cirino longer has a 

local team, the nem orks can no«oftcr Los Angelenos something better 

than their oA', n lackluster former 

football reams . 

Additionally, some NFL fine print, 

~chich forbids broadcasting games 

u~hen the odter netsvork is sho«ing 

a local team, no ionger applies, meaning 

Fox <strong>and</strong> Nec can tclcvisc rouagr 

Ir S0".6 more games in Los Angeles . 

Yet another boost : Ruings in the 

more partisan, tbotball-starled rosvns 

o : St . Louis <strong>and</strong> Oakl<strong>and</strong> are expected 

to soar .2.ll in all, looks like a touchdo«n 

for NIurdoch <strong>and</strong> c~ . 

Safety last 

A coert_ OF ~ ears ago Greyhound 

announced it was going to spend $5 

million to equip its 1,500 buses 

with rudar, as a safen ° decice to alert 

dri vers to unseen obstacles . Yet anotherway 

technologr was Qoina to 

make the roads safer . Aosr Greyhuund 

s pulling the equipment ourof 

its buses. It scems the gadgets 

causcd a svorse s:tfet~problcm than 

am° thcv might have solacd . It turns 

out tltce bus r dan «ould set off radar 

detecòrs' l pasCinQ autos lFhOSC 

drisers 1 ad placed the equipment on 

the ftoor to hide it ti'om the cups . 

Sct du eccuc : Joe Drivcr has just 

floored his ear to pass the Gre}- 

hound bus . He is starting to s%ring 

back into the tirst I :mc \shen his 

radar detector heeps . He>huns on his 

brakes, in front of the bus . The bus 

drher slams on his brakes . You gct the 

picau e . 

The accident 

finally happened 

Tiir iani~[ t rat First Capit,il 

\cho lost mnrc than S 130 million ot 

the 520 billion Comiaon Fund has 

triggered laresuits <strong>and</strong> .m im estigatiun 

btdie Securities 8, Ezchanvc 

Commissiorn . 

18 

9 f. j .~ : .~ J n+-y r' Fonccs . August 14 . 1995 

!.~ V=2ii?l 4h 


The disaster cane as no ereat surprise 

to some at the firm, «'ho claim 

that du top boss, Common Fund 

President David Storrs, is a terrible 

manager . As one emplovee puts it : 

"Da% id is constitutionall~unabie to 

gire up ehe reins on am[hing ." 

Stories about Storrs abound : tlrat 

his secretars ' once tound Srorrs in a 

darkened storeroom, editing ae underiine's 

internal memo, one of his 

fat'orite uastimes . 

Two vears ago Le did hire Robert 

Shtltz, a former manaeer oPtiTC S34 

billion i3st pension hmd, to introduce 

rislc-manaQement systems <strong>and</strong> 

rSde herd on the Pur.d's stable oE 

managers . But Shultz was eone in 15 

months. -llraN r\iaCP.3N 

Give the man 

credit 

C.n

I 1~;i1.111*1 .y'1'/ 

Houstcc :,aJryer John 0'Quinn 

<strong>How</strong> to nail Dow Chemical, too . 

No love lost 

Si'i : Re "A Texas gunslinger" (jatlv 

3i . The idea of a i,multi-] billiondoifar 

medical lu\~suit \\?tilout scientitic 

contirmation linking the breast 

prosthesis to a disease or a debilitating 

condition is a sad commentanon 

toda.•'s intellectual climate . A courtroom 

used to be a place for tacts ; now, 

emotions rule, evidence becomes secondan, 

<strong>and</strong> the successh:i <strong>business</strong>man 

or comoanv be danmed . These 

ambubance chasing la\\~ers are blata_t 

enemies of exen, honest person . 

-Jo~N L tv ;s 

EastG :zemnich . RI . 

SiR : As an M .D ., I am verV uncomfortable 

with the breast implant issue . 

Prior to dte Creation of implants tilled 

with silicon, injections or that verv 

same silicon \cere used <strong>and</strong> there \eas 

no surge in autoimmune discases . 

The techniauc was ab<strong>and</strong>oned for 

cosmetic reasons-the silicon shifted 

vlace . NoNr O'Quinn isn't satisfied 

vrith putting Dow Cornin=into bankruptcvbut 

is attenipting to do th.e 

same vvith Dovc Chemical! I an- begimting 

to dtin :t the indicidual vvho 

stated that a cour,tn's economic vitalin, 

is inverselv, rebated to the number 

o f lavcrers per capita mae vaell be right . 

-JAMES DiTCHIK, N5D . 

Encirm, Ca1if : 

More than skin-deep 

~ SIR : Re "Bosnia cs . Stanford" (Jshr 

- 17) . The same "self-inC.ulgcnt" student 

population that set a Guinness 

~codd record tor moor. : ;ig at Stan'rord 

also launched a giant bone mannudrive one u-eel later 

. Our caispus- 

VVide et}OFt to SaCe a telioR' Studetlt 

diagnosed m ;h leukemia netted the 

largest pool ofAsian dmerican donors 

in histon . College is a place \el :ere 

sociai norms are tested, nor simply 

indoctrinatcd . R'iiilc students todm• 

nta~not take thaaselces as seriousiv 

as bethre, thevare not "moral ezhi6itionists 

." Their sense of obligation 

<strong>and</strong> compassion remains ecen, bit as 

strung . 

-Cz U c S Koro AL 

Sc lior 

Strzrtfnrr! Gttircrsirl~ 

Stanford, Crclif. 

Japanese war chest 

SiR : Re Jude Ci'anniski's letter (jzih31) 

. At'annisi:i argues thet the reason 

the Japanese ntight stop buring U .S . 

assets is tlrat :hev vvou'thave dolLirs if 

the li .S purs a 100%, -aritf on lu .un' 

ears . [Bur] eNen if the huge Japanese 

current surplus accomit vvith the U .S . 

should fall to zero .. the Bank of Japan 

has accumula .ed a iear chest of about 

$157 billion in dollar-dertominatcd 

resen'es . This gi~es tl-_cm plentt ; of 

dollars [to buc L- .S . asse,s] . 

-Sr lE te H . H= N u 

Baltirnoz•e, Ald . 

Lower losses 

SiR : Re "Sqaeak,squeak" (Sfav32) . I 

deepiv regrct that shareholders of the 

Comr.uinit\ Bankers Fund i ;uurred 

anv ioss . The amotuu of the loss \~as 

3 .9'.:), not 6°h as stated in vour article . 

-loH~~ G . Gcre_~, ~ 

Di)crter 

Comrn rrn irt, Bn n kers Fu rr rl 

Chetw Chase, .YId . 

Ph.D .s on the dole? 

SIR : Re Fac : & Comtnent (Jvlv, 3) . 

The job :irat'ker for U .S . citizens with 

Ph .Ds <strong>and</strong> their \cor4inQ corw.itions 

have declined steadilv, o%er the',ast 20 

tears <strong>and</strong> plummeted since 1990 . Scientists 

tace scarce jobs, decreasing 

status, temporanemplo\ment, Io\\ 

vcages, lack of bene[its <strong>and</strong> hostile 

management conditions . Because of 

this, U .S . citizens are getting out of 

laboraton research br anq route possible 

. Others hace resorted to 

"ducibing doa-n" their resumes so 

they can apply for uork as technicans 

. Our resulting dependence on 

foreign Ph .D .s in criticai areas is not a 

solution but a symptom of a larger 

problem, 

-GREGG W . SILK, Ph .D . 

Beltrrille . ;bfd. 

Looking up 

SIR : Re "Newt Gingrich, meet Max 

Weber" (Jxlr 17) . Much as I flnd it 

ditTicult to take issue vvith someone 

\lho so skillful1v unmasked bias in the 

media, I am afraid I cannot agree vcith 

Stanley Rothmau's gloomc prognosis 

for dtnerican societv . The \'erv forces 

\\-hich threaten the elite <strong>and</strong> entrenched 

bureaucrats are a

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"With ail thy getting get underst<strong>and</strong>ing" 

Fact <strong>and</strong> Comment 

By Malcolm S . Forbes Jr., Editor-in-Chief 

CoNcltHS SHOULD DO to the Federal Communications 

Commission what it did to the Ci% il Aeronautics 

Board 17 years ago : Abolish ic 

The FCC has outli~ed its usefulness 

. The davs when airwaves were 

thought of as a scarce resource 

that had to be allocated <strong>and</strong> regu-d lated bv a federal authoriw <strong>and</strong> 

vahen telephones were thougitt of 

as a "natural" monopoly are long 

gone . In fact, this agency has become 

an obstacle to our gaining 

the full fruits of the exciting 

changes sweeping the communications 

field . The FCC delaved 

competition in long distance telephony 

by a decade <strong>and</strong> did the same with cellular phone 

semce. It hobbled the deveiopment ofcable tele~ision . 

Breakneck technology has obliterated natural monopolies 

<strong>and</strong> is increasing airwave capacin-the so-called 

THE STATE OF THE STOCK 14SARKET 

SEND IT TO THE S:ViITHSONLIN 

is now in the h<strong>and</strong>s of Washington . If a tax cut, particularly 

for capitai gains, becomes lacv- the impressive 

gain in equis values this vcar won't be wiped away . 

The economy will benefit, too . If the bill fails, get ready 

for the storm shelters, 

President Clinton mav srell veto a Lotisering of the 

capital gains levv as a way to bash Republicans for 

being overly friendLy to the "rich ." He saill hurt nimself 

more than he will hurt the GOP . :1 shakv econome 

is the last thing he needs before an election . 

Reoublicans <strong>and</strong> conservative Democrats don't have 

the strength in this Congress to override a veto, as a 

similar coalition did in 1948 . Presidcnt Truman had 

used all of his mig'nt to block two earlier Republicansponsored 

reductions in income taxes in 1947 . But by 

April of the nest rear, Congress overrode a third ceto . 

The resulting economic buo}âncy was no small factor in 

Truman's upset sictor}• later that l,car . 

spectrum-aimost exponentially . There is no way the 

FCC can keep up to speed on the implications of new 

technological dc~'elopments such 

as direct broadcast satellites, 

sehich may threaten the cerv existeuce 

ofcable companies . 

Bv ge¢ing rid of the FCC, we 

\sill get a fantastic surge of innovation 

<strong>and</strong> competition 

. GVhyshouldn't license-holders of spectrum 

capacity be able to use it 

for wlrate~er good purpose they 

wish : Communications companies 

should be free to compete 

in any market Local telephone 

companies should be open to 

competition from the likes of TCI, MCI <strong>and</strong> who 

knows who else . And telephone companies should be 

able to compete against cable companies . 

Price controls on interstate telephone prices are 

THE FLAT, YELLOW BRICK ROAD TO PROSPERITY 

Article by Mulcohn S . ForbesJx, published in the Spring 1995 issue of the 

Durell Journal of Money <strong>and</strong> Banking . 

Two FORMIDABLE OBSTACLES st<strong>and</strong> in the way of the 

U .S .' entering its greatest period of economic growth 

<strong>and</strong> opportunity. One is the unstable dollar, which has 

been without a gold anchor for a quarter of a century 

; the other is our numbingly complex, convoluted, 

incomprehensible, antigrowth tax code . 

The recent dollar crisis <strong>and</strong> the frightening collapse of 

Mexico's economy underscore the need for a return to 

a gold-based monetary system in the U .S . <strong>and</strong> globally . 

The %olatile dollar is a critical reason that real gains 

in wages tbr most Americans have not seen much 

growth since the late 1960s . With a reliable greenback, 

interest rates would be sharply lower than they are to- 

(continued on p . 153,) 

Forbes a August 14, 1995 23 


anaehronistic . Gro%%ing competition «ill do tite job ber- tial tn ~resening the public interest . Instead, the FCC 

ter. .lrtv anticompetitive activities could be h<strong>and</strong>led bc nas become an instrument of special interests trying to 

the Justice Department, shackle competitors <strong>and</strong> «ould-be competitors . 

The FCC <strong>and</strong> its apologists claim the ngencr is essen- This dinosJur should he put to sleep . 

PRINCII'LES FOR PROSPERITY 

THE BALT :C sT_~TES are demonstrating tiat countries tlat tax . It has put out dte «elcome mat for foreign incan 

make a fast *ecover~from the debacle of commu- vestment ; companies ha%e fe«' restrictions in bringing 

nism when they follo«proper principles . in moner or in repatriating it . Estonian <strong>business</strong>es have 

Estonia <strong>and</strong> Lithuania <strong>and</strong>, to a made impressive progress in 

lesser extent, Lania have dramac 'nestabltshing trade relations %eith 

ically loscered m4lation <strong>and</strong> are "f : Fml<strong>and</strong> <strong>and</strong> Y1'estern European 

experiencing impressive, real eco- nat :ons . Soon this once paupernomtc 

gro«th. These vuall srates ized nation «ill likeh exceed 

avoided the shock therape ihat - Portugal in its st<strong>and</strong>ard of licing% has so hobbled Pol<strong>and</strong>, Russia "_ The esperience of Estonia <strong>and</strong> 

<strong>and</strong> other parts of the former the other Baltic states underscores 

Soviet Empire . 

:hc xcritv of the basic principles of 

Both Estonia <strong>and</strong> Lithuania ha~ ; economic progress : sound money, 

instituted currency bo~ards. L'nder Io%~ taxes, propertv rights <strong>and</strong> 

this mechanism domestic monee is _~ minimal political interference in 

not issued unless backed ba hard rhe u-eration <strong>and</strong> conduct of busiforeign 

currency such as the dollar Increasingy affluent shoppers in Estonian de- nesses . Yet our Treasurc Departor 

the deutsche mark or by an asser partment stare : Free markets when tried, work . ment <strong>and</strong> international agencies 

like gold. CVhiie inflation remains such as the IMF continue to prehigh 

by our ste.ndards-around 25%these rates foo :k de saibe such toxic poiicies as higher taxes <strong>and</strong> devaluarninimis 

compared to Russia's <strong>and</strong> Ulcrainc's . tions to Mesico <strong>and</strong> scores of other countries, 

Estonia is particularly impressive . It has institttted a When «ill %ce learn? 

ZONING FOR GROWTH 

T4tCH :GAN Gos'_a .uos John Engler recent1v unveiled an would hacc no restrictions on usage, be it residential, 

exciting proposal that should be emulated bv his guber- industrial or commercial . As Engler put it, "This connatorial 

peers <strong>and</strong> by Congress . His tax-`ree zones are cept recognizes that jobs, housing <strong>and</strong> neighborhood 

designed to rejuvenate economicalk - distressed urban commercial sen'ices make Por a vital communit ." The 

<strong>and</strong> rural areas in his state, For cears Congress has con- big lure, of course, is the %vaiving of local propern° 

sidered Jack ICemp's national version but has never taxes . The state u•ould make up lost re\enues for local 

passed an effective variant of it. school eistricts . 

Under Engler's plan, a tax-free zone k~ould be re- Republicans should embrace the idea of Engler-like 

lieved of all state <strong>and</strong> local le~ies (except for the state enterprise zones to counter criticism from adhocates of 

sales tax, so as not to penalize <strong>business</strong>es bordering the affirmatice action that the Party isn't interested in 

zone) . Unlike other zone proposals, the goaernor's enhancing opportunities for all Atnericans . 

GOOD, BUT ULTMATELY A DANGEROUSLY INEFFECTUAL MAN 

Baldvvin-bk Ro}° Jenkins (Papermac, a blacmiiian vcould hav e happe :ied had Britain had a Nazi sympathiz- 

General Books imprint, Ca%-ave Place, London, SW10 er on the throne when the suoreme crisis came in 1940 . 

9PG, Engl<strong>and</strong>, _M .99) . R'eh-tcrittcn biographp of the The author obsiousVa likes his subject <strong>and</strong> is not neardominant 

political figure in Britain be[~\een the rno Iy stern enough in his final conclusions about Bald«°in's 

World Wars . The author, himself a prominent culpabilin' in learing Britain so unprepared . 

socialist politician in the 1960s <strong>and</strong> 1970s, - Fe%o men lett office as popular as Baldvcin ; fem 

skillfullY adds insights gained from his oo~n ' suffered such a rapid, ab~~smal fall . 

experience in [he public arena. Stanlet, Excerpt : At the Accession Council Baldwin 

Bald«in's emphasis on domestic issues <strong>and</strong> his ~ tolri Clement Attle•e that be rlonbted n,hether 

calming, good-natured srillingatess to assume ~~ the King (Edwmrd V17I! 

;:,oudd `star the 

the best in others was perfect tim Britain in the ~ cottrse' . It was nat rrzerelv 32rs . FlaUis Simpson, 

1920s but a disaster as the i tternational clouds althontgh minrsters were al eadr enforrned meld 

darkened in the 1930s . His easgoi,tg pato- t ;abont his relatzonshiB w+th h r, if not his rnarchialism <strong>and</strong> his focus on short-term 2oh 

:ical ital irueruions. It was hes pcnernl attitude of 

advantage made him singularlyill-equpped ~~ irraponsct iiitv, relfisbuess, <strong>and</strong> disiike for an,), 

to deal widh the groveing menace of Nazism . ofthe fiucctions of7îngship other than eso',pop- 

Baldsvin's best hour :cas his adroit h<strong>and</strong>ling of the ttiarirn <strong>and</strong> pet_conal Qrlrilerle . Nor iret'e these feeLinQs of 

1936 abdication crisis . One shudders to think %xhat tencasc contined to Baldiain. M 

24 ForScs ~ Aueusr i4 . 199F 

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Other Comments 

Waffling Away the Time 

THE 30 tto`-rEa of the Bill Clinton 

presidence have produced too many 

"The% had to use a truck to deliver 

it to the IRS ." 

-A .xDREIV FERGUSON, 

snapshots rather than larger portraits, 

too much focus on tactics <strong>and</strong> 

The LTasi3iugtonian 

too little on a strategic oNervie«', <strong>and</strong> '~ 

too much of a leader with an infinite j Peace is not the absence of confaith 

in his abilin• to recreate or repackage 

himself oaer <strong>and</strong> over . 

This is a White House that plays 

the angles, too often with a Sngerr up 

to test the political winds, leaving 

mam" voters baffled as to what, if 

anything, this President st<strong>and</strong>s for . 

Democrats, ranging from Capitol 

Hill !iberaLs to the most wise seniors 

of the partv in Washington, are despondent 

about the President these 

davs, [for] after two <strong>and</strong> a half years 

there's little confidencc that Bill 

Clinton has a set core of convictions . 

-ALaFRT R. HUNT, 

Wall Street Journal 

Argument for a Flat Tax 

S1Nca 1954, says Arthur Hall of the 

Tax Foundation, the income tax code 

has grown from 103 sections to 698 . 

The tax code itself is four inches 

thick ; additional regulations come to 

another nine inches-these are necessary 

to explain the first four inches . 

Former [RS commissioner Shirley 

Petersen sa~s one multinational corporation 

recently filcd a tax return 

of 21,000 pages in 30 volumes . 

28 . 

flict, but the ability to cope with 

conflict by peaceful means . 

-RONALD Rea.GAN, in Ronald 

Reagan : The Wisdom <strong>and</strong> 

Humor of the Great 

Communicator, edited by 

FaFDE ucsc J. Ri,an Jx. 

Why Not? 

OUR KIMD OFNATIOV 7$uln 'es not only 

on Gross National Product but on 

Gross National Happiness . We arc the 

only nation, so far as I know, that has 

included among its dedared purposes, 

"the pursuit of happiness ." 

-DdN'[EL B00fiSTIN, in foreword to 

Treasures of Tbe Librarr of Corr 

gress, by CFLk RLES A . GoooRVM1t 

Tune In to This 

"<strong>How</strong> long have you been feeling sluggish?" 

T~ F_ ,vitsstvF <strong>and</strong> largely hidden 

costs imposed by the [FCC] on the 

American consumer <strong>and</strong> economv 

should be tolerated no longer . In all 

sectors of the telecommunications 

industrv-«'ireline, «ireless, broadcast 

<strong>and</strong> satellite-the regulatorv system 

created by the 1934 Communi- 

cations Act is the greatest obstacle to 

competition, lower prices, new products 

<strong>and</strong> services . The FCC's recent, 

rapid growth has occurred at a time 

rvhen every sector of the industry has 

been growing more competitive . 

Americans are entitled to a modern, 

efficient, cost-ePfective government 

that furthers the traditionai 

American values of fair play <strong>and</strong> 

competition . A nesr approach is 

needed ,•'or a new time . NVithout massive 

government regulation, prices 

fall, technology develops quickly, 

new products <strong>and</strong> services are introduced 

<strong>and</strong> jobs are created . 

-JEFF EIScSacH, president, 

Progress & Freedom Foundation 

~eneration Net 

ScxF'S Docvti : Pereenrage of college 

students who have purchased products 

via the Internet, according to a study 

by the Hanigan Consulting Group : 

0 .3°/a . Percentage who use the Internet 

for e-mail only : 71 .7% . Percentage 

who plan to subscribe to an online 

service upon graduation : 32 .8% . 

-Nem York magazine 

Yen for Mischief 

J.aP:xNESE looking for a saav to misbehave 

<strong>and</strong> not get caught bv wives or 

other concerned parties have solved 

their problem in typical Japanese 

fashion, with technolog` . 

A Japanese cable radio nen work, 

Cable Raciio Usen, offers listeners several 

"alibi stations" that transmit hours 

of background noise, including the 

sound of pachinko pariors <strong>and</strong> train 

stations . "Many people ask bar o«ners 

to change the channel temporarihfrom music to an alibi station while 

thec make a call," says hami Aki,vami, 

a spokcswoman for the company . 

Other channels offer the sound of 

coffee shops, telephone booths <strong>and</strong> 

malrjongg games . The train station 

has the rumblings of mass transit 

complete with announcements like 

"watch 1'our feet ." The senice costs 

6,000 yen, or S71 a month . 

-J .',-VtfiS GoRMdN, 

Neiv York Times _Wagaaine ~ 

Forbes 0 August 14, 1995 


A'an Yamamote uses ,^Ja ceuular phone atl over the Hewaii8n ~thanCS . 

'•'/1ron he fmds sasier ttlan bymg to bnd a pttona o0o[0 op top of a mcuntalrt . 

5 

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Commentary 

on events at home <strong>and</strong> abroad 

By Caspar W. Weinberger, Cliaivinan 

AS THE U .N . PECEhBEPNG EFFORTS in Bosnia disappear 

into ignominy, it is apparent that bills designed to prevent 

U .S . involvement in this kind of fiasco must be passed <strong>and</strong> 

signed into law. Currently, there are bills before Congress 

requiring diat : (1) a President certify that the mission sen e 

the national securiryinterest before he can place U .S . forces 

under U .N . comm<strong>and</strong>; (2) Congress be told t;te purpose 

of such a mission, who else is taking part <strong>and</strong> wkat dac 

expected costs are ; <strong>and</strong> (3) America retain the right to 

withdraw its forces at any time <strong>and</strong> to take w hatever steps 

necessarv to protect them . If these requirements are met, 

a President can send troops to back up a U .N . mission . 

Yet the Clinton Adminisnztion 

has lened increasiuglv &antic charges 

that such proposals are isolationist 

<strong>and</strong> c otild . if implemented, m .vk 

the withdrawal of America fiom 

international activities of all kinds . 

The requirements in these bills 

essentially spell out what any President 

should specify before committing 

U .S . troops . If he cannot 

fulfill these requiremenzs, he should 

not commit our forces . The charge 

that these conditions constitute 

isolationism is not only maliciously 

ISOLATIONISM-OR COMMON SENSE? 

Refugees of Srehrenica : What must they think 

as the world watches <strong>and</strong> waits? 

foolish but also quite wrong . 

Isolationism is a totally flawed, impossibly NNrong policv . 

It would be turning our back on foreign events <strong>and</strong> retreating 

within what used to be called inculnerable "Fortress 

America ." Onlv a few fanatics propose a return to this 

ruinous policy . An accusation of isolationism is one of the 

cheapest <strong>and</strong> oldest political tricks, setting up a false association 

between P~publicanism <strong>and</strong> isolationism <strong>and</strong> then 

proceeding to attack as if the association were prm °en . 

The Administration's aim seems to be to enable the Pres 

ident to send U .S . troops to join so-called peacekeeping cfforts 

in hopeless situations where there is no peace . The 

aggressive arrogance with which the Serbs drove a few 

lightly armed U .N . peacekeepers from Srcbrcnica illustrates 

che absurd <strong>and</strong> highly dangerous missions to which brave 

-soldiers can be subjected . As the city came under attack <strong>and</strong> 

-some 30,000 Muslim civilians, along with dte peaeekeepers, 

were sent flecing north, the ailv punishment (after 

lC)ng negotiations) was another pinprick NATO air strike . 

Now- we have been promised `significant" air strikes if 

the Serbs attack Gorazde . Two days after this threat was 

made, the Serbs brazenly continued their heaw shelling of 

Sarajevo <strong>and</strong> Bihac <strong>and</strong> their ground attacks on Zepa, with 

no NATO response . It is not ket clear if U .N . civilian 

authority approval will be required to initiate strikes . If it is, 

the ne v threat will be as empty as all the others . Secretary 

General Boutros-Ghali, me :unvhile, has been in Afiica, 

demonstrating, as he said, that the crisis is overrated, making 

the battle for Srebrenica sound "like Stalingrad" A 

more likely explanation is that there are more votes in 

Afiica for his reelection than there are in Bosnia . 

The tragedv for Bosnia <strong>and</strong> for the 

bra\e U .N . soldiers there is that 

tltey oan do nothing to stop Serbian 

aggression . Mhen peacekeepers 

oet in the w °av of Serbia's \car plans, 

dte\, are brushed aside, jailed or 

chained to NATO targets . One 

«unders what tkotdd hase happened 

to Ku~sait if die West's oniv 

remed~had been using a U .N . 

peacekeeping force that had orders 

not to harm Saddam Hussein . 

President Bush's actions were the 

opposite of isolationism . The coalition 

of 30 nations that Bush put 

together, inspired be our decision to proceed alone if necessary, 

secured the defeat of Iraq . Nothing in the GOP bills 

would prevent any President from taking the same course . 

The Gulf «•as not a U .N . operation, <strong>and</strong> no one but Mr . 

Clinton would describe that cictorv as isolationism . 

There are two continuing problems : (I) the Clinton 

Administration's failure to exercise anv leadership in 

deterring Serbian aggression vvhile a1wa1•s seeking nmltilateral 

consensus ; <strong>and</strong> (2) the weakening of our armed 

forces through anemic budgeting, which, if continued 

for fi%e ntore pe :us, will make it impossible for us to take 

the type of effective action that ~~e took in the Gulf 

These problems are correctable, but not by Mr . Ciinton's 

frantic political attempts to raise the specter of 

isolationism against those who are trying to restrain the 

use of American forces in doomed <strong>and</strong> perilous efforts 

such as "peacekeeping" in Bosnia . Such restraint is not 

isolationism ; it is simple common sense. ~ 

r 

Forbes a August 14, 1995 


2046673290 

33 

ill 

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But our role at the Olympic Games 

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I 

"'I ~ 1 1~ 11111J r iiiil ;l~~~ 

ii 14 : i : I 

A White House challenge to telemedicine 

"W2 V6[IIASOTHER DAM\ COMMISSION On 

this like we need a hole in the head," complains 

one member of a ,roup stud\ ing te!emedicine-the 

apn!ication of tre!ecommunications 

<strong>and</strong> electronics to medicine . The group is 

headed br Dr . C . E\ erett Koop, the :ormer U .S . 

Surgeon General . 

What irked this corporate health care esecuti%c 

%cas a courtesr call b% Hillan- Clinton on the 

mostly pris'ate sector Koop group's meeting at 

the White House on July 11 . Bur courtesr 

wasn't at the top of the First Lad% 's agenda . 

Instead, she informed the group that the White 

House is about to create its o~~n commission 

to study telemedicine . The White House's 

group will be be chaired bv Health & Human 

Sen-ices Seaetan' Donna Shalala . 

Many of the Koop group's members suspect 

the White House is tning to delay remm - 

ing barriers to telemedicine . The members of 

the proposed Shalala commission arc not expected 

to be in place for six months or more . 

And Shalala's agenaseems to ha~e little interest 

in telemedicine : Probablc to protect cn il seraicejobs, 

die Ht-is' Heaith Care Finance Administration, 

uhich supen'ises the 5250 billion a 

year spent on bledicare <strong>and</strong> -Medicuid, refuses to 

hare anything to do ~k'ith telemedicine . 

P.11 of Nrhich is a shame- Telemedicine is 

esscntialhabout mocing X rays, CAT scans <strong>and</strong> 

Out of date indicator 

other test data di¢itallv, across phone lines . 

The Koop group's members are top health care 

people from such diserse companies asATeT, 

GI . Kaiser Permanente <strong>and</strong> sotrn are maker Oracle 

Corp . It also includes Defense Department 

medics aho ha~e considerable practical 

experience with telemedicine . 

Done right, telemcdicine has the potential 

to make top-grade second opinions (even priman7 

diagnosis) affordable <strong>and</strong> available more 

or less amlchere . Simple cost-cutting examples : 

eliminating duplicate patient records <strong>and</strong> duplicate 

X ravsTelemedicine is already a $20 

billion <strong>business</strong> in the U .S . <strong>and</strong> is expected by 

the Koop committee to gro%% to S 100 billion in 

the coming fik e vears or so . 

But there are barriers that need removal . 

For example, state licensing of <strong>doctors</strong> would 

ha e to be eliminated to allo« etficient crossborder 

diagnosis bv wire . And «hat about malpractice? 

Who sues whom <strong>and</strong> where over a 

problem a!legedh• eaused b~remote electronic 

diagnosisi 

The Koop group's people saN thet' intend to 

push on regardless of the ne«, Shalala commission 

. The group does have one potential 

weaoon : Thev were convened in the first place 

bN 1~ice President Albert Gore Jr . If the First 

Ladv becomes an obstacle . the First Renlacemenr 

might hare a word «ith her . 

WHAT i5 .4IIOL;T TO HdPP-\ to im-entorles in 

the coming months, whether stocks of unsold 

terpoint . His concern that excess <strong>business</strong> 

stocks might continue to put a severe crimp in 

cars or s weaters in retailers' w arehouses, is "a growth has been echoed by mam, other economic 

crucial element in the near-term outlook for the 

econonn _" Federal Resen°e Chairman Alan 

Greenspan warned Congressin mid-Juh,soon 

torecasters . 

Greenspan et al . can relax-on this point at 

least . The buildup of inventon• caused bv die 

after the Fed had cut interest rates bv a quar- 

slo~cing of demane9 that began in the fall of !ast 

year has already peaked (see chrtrr) 

The chart also suggests that imenton' leve!s 

~" have reached a lower plateau as computers are 

diffused into dte economs . "The combina- 

-t . .- rionofnearly instantinformationonsales,justt 

1 i n-time-de ! ivenststems <strong>and</strong> b rutal 

competi- 

'85- '87 '89 '91 '93 

_~ w4-Eabe!_Resax 6enF ut St. toud 

As computerized inventory systems 

spread, companies can adjust inventory 

levels faster <strong>and</strong> get by with less . 

tion means rhat %%•hat used to take 12 months of 

pain, to ~se>rk down excess stocks, now takes 

no more than 6 months," says Adrian Dillon, 2L 

vicc president, p!anning at Eaton Corp. O 

The speed svith schicl : <strong>business</strong> reacts these M(i 

dar's to changes iu dem<strong>and</strong> adds its own nesti' Ql; 

twist to economic volatilite . It also makes it O~ 

harder for the Fed to trv to micromanage the 1I 

econom v . These davs, the central bank's W 

«'eapons, mostly interest rate changes, take ~7 

much longer to have an effect, <strong>and</strong> exhibit GD 

more sariabie lags than decisions made in the 

nation's boardrooms . 111111111 

Forbes m August 14, 1995 37 


The Forbes Index ; :967=! 001 

275 ~. ---- -" 

Current 2E4 .7 ' 

265 --- 

V. Previous 255 .8' 

255 -" Percent chanye -0 d % 

245 _C. 

235 

225 

215 

205 

195 

185 

175 

165 

155 

The trade deficit hit an unexpectedly high S1L4 billion 

in Ma}', the latest month for which figures are availaUle . 

~ Sam Kahan, chief economist at Fuji Securities in 

: Chicago, notes that the Mesican financial crisis damp- 

+d ened dem<strong>and</strong> for U .Sgoods there <strong>and</strong> throughout 

Latin America . bieamvhile, the dollar remained «-eak 

{ against the yen . "A high yen is making Japan's trade surplus 

with the II .S, appear larger than it is," says Kahan, 

who thinks that within a year the dollar %yill rebound to 

; 100 yen, narrowing the trade gap . 

Other key rates Source Status ' 

`Mme ra[e ' Chau Manhat'an Bank 8,75% 

Artosalesyearlodaters1994' Ward'sAUhmolrrc -- -4 

' 

.4%IndexpfleadinLindicatorsMepvsApr DeptolCOmmerce -0.2% q 

irade balance' 12 months ended May 1995 Dept cI Cemmerce -5118 biI 3 

AII-commoditypraducerpriceindex'lunevsMay OeptcfLaJar 0,25, 

60P1stpuartervs4th-annualizedyrdwtb Oeptorfummurce 2 .7% 3 

MT'I7-month chanqel-annualized prawth Fcderal Rai 4 

.-~ 

.9% ~_ 

' 11 .5: b3Yd 

.',amul3t{ur852YGIUjeS'LT]YtSi a5 ]7 d)Q'95, aFdal "S 3rd avcd! 

'IntluGss M1(pub6e curenry <strong>and</strong> checY 

:og deuositsl plus uvlnR aecounis <strong>and</strong> mWSy market ùnEs . ? 

Index components 

'.he Forbes Index is a measure of U .S . ecoocmic act[viN 

composed of 8 equally weigh ;ed elements . The cost of 

services relative to all cor.sumer prices, the level of new 

orders for duratle goods compared with mam.factsrers' 

inventories, total industrial production, cew :-ousirg 

starts, perwnal income, new c',aims ter unemployment 

compensation, `.c :dl retail Sales, total consumer 

installment aedR. 

-a measure these 8 elements, FOeeES monitor ; 10 

serles of U .S . governmerS data . The last 14 months' 

data for each seles are presented :n these charts. 

0 Services • totalindex N Inventories • Newartlers 

260 _;= 

allurban rnnsumes,unaEfusted(Oau uflaYir) I ($bdlicrel .seasnally adlustedlC•AtofCnnrtvicel 

.'_ 

155 --'C.-1'- _ 3450 :" 

125 

95 

3250 

. . . 

114 

IndustrlalpraducllonIntlex(1997_!001, 

seascnal~y ajjus;k (i&eral Rererre) 

.vl++ . :.~-r .-~~~ ._ . . . . . 

385 

65 

~ tlewhoaslnQStartsltsous<strong>and</strong>slpnvatelro.netl, 

y unaujazlWNeptafianmercel 

200 :- 

~ 3i50 - - -- -`-`-"- _ _ _ _ _ 

~ Perspnallncomel$Jilllars/waaaarnsalary 

~ es0orsemants,seawnallyadlu4ed(OeptctCunmeul 

190 ~ 

i 

i80 

310 

New unemployment claims aaerap: Ir acnm 

ILlousa-ndsl.seawnaliy adjustetl(CeptcfLxr) 

17 

Netail sales j9bil torsl, 

seasenallywlusled IDept of Camaere 

825 

pnsumer installmenl credit (4SSbzsi 

sai adjusted IFccaral Rexrvel 

38 2046673295 

Forbes a August 14, 1995 


ie niercern.visenr 

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information, call 

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I 

; 

Can Rick Cronk <strong>and</strong> Gary Rogers do in the fragmented ice cream 

<strong>business</strong> what Anheuser-Busch did in beer? That's their goal . 

The Berserk-ley boys 

By Seth Luboce 

WIr.uA-M (RcK) CaoNt: III aud T . 

(for Thomas) Gan . Rogers attended 

the IInnersirn of California at Berkelev 

during the 1960s-"Berserkley;' 

as it was known during those 

cears of high radicalism . While many 

of their fellow alumni went in for ses, 

drugs <strong>and</strong> the Vict Cong, Rogers <strong>and</strong> 

Cronk drank beer at their fraternit\ 

house <strong>and</strong> became top athletes, 

Cronk as a varsitv water polo ola~er, 

Rogers a near-Oh'tnpic oarsman . 

After graduation Cronk became a 

stockbroker . Rogers sened in the 

Armv as an officer, then went to Harvard's 

<strong>business</strong> school <strong>and</strong> thence into 

consulting at McFinsey & Co . 

Eight years on, the two reunited to 

start a restaurant, which failed . Undaunted, 

the)decided to buy a local 

<strong>business</strong> . Drecer's Gr<strong>and</strong> Ice Cream 

Inc . of Oakl<strong>and</strong>, Calif. was for sale . 

Neither partner kte«much about ice 

cream, but the deal didn't reauire 

much cash . The price was S 1 million 

for the S6 million (saes) <strong>business</strong>, just 

$28,000 in cash, the restin bankloans 

<strong>and</strong> tlnancing from a New York investment 

firm . A bargain? Not nectssarilv 

. The compan}' was stagnant <strong>and</strong> 

bareh, making money . 

Within a decade Rogers <strong>and</strong> Cronk 

were sitting on a national br<strong>and</strong> 

(Edy's in the East) with 1994 sales of 

S5li-k million . Public since 1981 . 

Dre}'er's no%c has a market capitalization 

ofS468 million, with Rogers <strong>and</strong> 

Cronk owning 20% 

. DreNer's is no«neck <strong>and</strong> neck «'ith Unilever Plc .'s 

Brcvers in the prentiunt-pricedabout 

$4 .50 per half-gallon-ice 

cream market, cach with around 12% 

(see Gox, opposite) . 

The secret of Drever's spectacular 

gro«th : distribution . Truck bv truck, 

region by region, dtey builr a refrigerated 

tleet driven bV sales reps who ~isit 

large grocery stores, keeping the 

freezers well stocked not only with a 

growing line of Dreyer's products but 

also with competing superprcmium 

br<strong>and</strong>s, including Ben & Jeny's, 

Mars' Dove br<strong>and</strong>, ConAgra's 

Healthy Choice ice cream <strong>and</strong> Vestle's 

line of frozen no~elql treats . A 

third of I ast year's re~ enues came fro m 

sales of other makers' br<strong>and</strong>s . Why 

distribute rival br<strong>and</strong>s? Because the 

additional volume helps defrav the 

cost of running their $100,000 

refrigerated rigs . 

Armed Ncitlt h<strong>and</strong>held computers, 

the reps track irrventore <strong>and</strong> report to 

headquarters about flavors <strong>and</strong> products 

favored in local markets . Areas 

with lots of older people, for instance, 

prefer more sugar-free offerings, 

while urban consumers like coffee 

fla 'ors . 

Now the Berserk-ley boys are embarking 

on their boldest undertaking 

yet, a five-year campaign to make 

Dre}'er's the nation's largest br<strong>and</strong> of 

packaged ice cream . The plan calls for 

doubling sales by decade's end, to 

well over $1 billion . 

The plan imohes using Dreyer's 

highly effeaioe distribution sti'stem to 

knock our manv of the 500 small, 

regional ice cream br<strong>and</strong>s <strong>and</strong> take 

over theirvolume . P.lth(ugh Dreyer's 

<strong>and</strong> Unilc~er's Brcvers haNe a similar= 

Iv large share of the market, there is 

plenn' of room for both to grow . 

} ) 2046673299 For .,« . Au gu st1Y,1 9 y5 


Rogers <strong>and</strong> Cronk dream of repeating 

in ice cream what AnheuserBusch 

did in beer (Foaaes, Julv 31) . 

"Ice cream is fragmented to the nth 

degree," says Cronk,"<strong>and</strong>thereisthe 

opportunity ." 

To grab the opportunirv . Drever's 

has earmarked for 1995 about $50 

million for trade discounts, <strong>and</strong> budgeted 

another 550 million for consumer 

promotions <strong>and</strong> a series of 

humorous ads that are airing on re- 

LEFT . 

__ Dr,=r's Gr<strong>and</strong> Ice Cream's 

: T . Gary Rogers 

<strong>and</strong> William Cronk II :, 

6ELCvV : 

Making 

ice cream 

The boys have made 

their boldest bet yet . 

Drever's is competing against locally 

entrenched Blue Bell . Starting from 

nothing last rear, Dreper's has already 

gained 10% of dtemarket in the greater 

Houston area . 

To gain a potental ally, Cronk <strong>and</strong> 

Rogers brought in Nestle as a minoritv 

partner last year, selling the Swiss 

giant 3 million newlp issued Dreyer s 

shares <strong>and</strong> %carrants for another 2 

million shares ( exercisable at 32), raising 

in all S106 million . Nestl@ has 

clearlv been impressed with the way 

Dre,ler's distribution h<strong>and</strong>led ?]estl'e's 

Drumsticks, Bon Bons <strong>and</strong> other 

novelty treats . 

If the warrants are exercised, 

Nestle will ow n 22% of the company, 

to Rogers <strong>and</strong> Cronk's 20% . But 

there w ill be no dilution from the 

estra shares : The company has 

bought back 5 million shares on the 

open markcr . 

So far as the common capitalization 

is concerned, then, the deal is a 

wash . But the company is, in effect, 

replacing possibhy impatient public 

shareholders with a more patient 

corporate shareholder . That seems 

to indicate Rogers <strong>and</strong> Cronk are 

dead earnest about gaining a dominant 

market share, even at the expense 

of short-term earnings . 

Cronk <strong>and</strong> Rogers deny that they 

plan an e%emuai sale of the company 

to Nestle . They scarcely need the 

money : At a recent 361/a, their combined 

holdings of 2 .6 million shares 

have a market value of S94 million . 

Scll the <strong>business</strong>? Cronk chuckles : 

"This is not term life insurance . This 

is fun!" The small companies that are 

DreVer's intended k°ictims mav have 

another word for it. ~ 

k 

gional <strong>and</strong> national television . 

To put that spending in perspective, 

consider this : The entire 54 .6 

billion (retail sales) ice cream <strong>business</strong> 

spent just 525 million on ad~ertising 

in 1993, the most recent year for 

which figures are available . _ 

No gain, no pain : All this spending 

to drive competitors to the wall is 

hammering Dreyer's margins . Two 

vears ago the company earned nearlt' 

$17 million, $1 .15 a share, a 3 .6% net 

margin . Last year net plunged to just 

7 cents a share . 

Rogers <strong>and</strong> Cronk look on the lost 

profits as an investment . The heavv 

advertising, they claim, is alreadv delivering 

for them in Texas, where 

Dreyer's, 

Breyers 

<strong>and</strong> numbers 

E .vtuY [N February, Rick 

Cronk <strong>and</strong> Gary Rogers 

chartered three DC 10s 

to fly 1,250 Drever's Gr<strong>and</strong> 

Ice Cream emplo` ees to 

Oakl<strong>and</strong> for a partv at the 

citv''s com•ention center . 

They were celebrating passing 

archrival Brecers Ice 

Cream in market share . 

Bre%ers was founded in 

1866 by Philadelphia's 

William Breyer <strong>and</strong> purchased 

in 1993 by the 

U .K.'s Unilever Ple, 

which merged it with Unilever's 

Good Humor ice 

cream company . Based in 

Green Bay, Wis ., Good 

Humor-Breyers Ice Cream 

also markets Popsic[c <strong>and</strong> 

Klondike bars . 

Drever's was started in 

1928 in Oakl<strong>and</strong> bv a German 

immigrant, William 

Dreyer . Under a 1978 

agreement between the 

two companies, Dreher's 

must differentiate itself 

from Brcycrs cast of the 

Rockies-which is %rhy 

Dreyer's calls itself &i)'s in 

those markets . 

But was Dreycr's partv 

premature? "Brevers is indisputably 

the largeset " 

br<strong>and</strong> in the packaged ice 

cream <strong>business</strong>," claims 

Richard New'man, marketing 

vice president at 

Good Humor-Bre~ers . 

If Brepers is ahead, it 

isn't by much . Citing Nielsen 

market research, 

Newman says Breyers' dollar 

share of total packaged 

ice cre am w'as 12 .6% for the 

52 weeks ended Juh, 8, 

compared with nearly I146 

for Dreer's . He adds 

that the $500 million (estimated 

1994 sales) 

Brevers' revenues were up 

29 .7% for the first six 

months of 1995, compared 

with 25 .3% for Dreyer's . 

Responds Drever's 

Cronk : "Let them think 

what thet' want to think ." 

The seesaw battle is 

good for the media <strong>business</strong> 

. Both parties are fattening 

their ad budgets . 

Breyers' ne«' Viennetta 

concoction, a sort of ice 

cream <strong>and</strong> chocolate log, 

<strong>and</strong> Romantica ice cream 

cake are being hea%ily 

promoted . "vVe are more 

than prepared to fight fire 

with tire," says I!'e«man . 

-S .L. ~ 

20~#OS"r3300 r"3300 

4, ~ t 

Forba e rlugrust 14, 1995 i f ' ~ 


I 

By selling at big discounts <strong>and</strong> from no-frills stores, 

Perfumania was going to bring perfume to the masses . 

More than a few things went wrong . 

Scents off 

By Zina Moukheiber 

Perfumaria's 

= chairman, 

Simon ralic 

Getting away 

from deep 

discounts . 

BROTttsRS[N Lntv Ilia Lekach <strong>and</strong> Simon 

Falic took Perfumania Inc . public 

in December 1991 through Josephthal 

Lvon & Ross . wall Street 

loced the "concept"-pcrtume for 

the masses- Pertumania aas a chain of 

no-frills stores offering more than 

170 br<strong>and</strong>s of expensire pertt:me-- 

Estee Lauder, Cahin Klein, Chanelat 

20% to 700 off department store 

prices . The stock quickly surged from 

S850 to 525 .50 a share . 

Lekach talked about a smelle %ersion 

of ToNs "R" Us . He projected 

500 stores bv 1998, <strong>and</strong> e~'entually as 

manv as 4,000 . 

Four vears later Perfttmania has 

added a net total of 109 stores <strong>and</strong> its 

stock has sunk to 4s/sLekach <strong>and</strong> Falic <strong>and</strong> their partisans 

had overlooked one cogent fact : 

Manufacturers, ni %cere reluctant 

to sell to stores that undercut 

their dependable, full-price customers 

. So Perfumania depended for its 

supplies on the grav market, the net- 

~cork of unauthorized <strong>and</strong> authorized 

distributors, wholesalers <strong>and</strong> middlemen 

around the world . It also took 

advantage of price discrepancies benveen 

countries-a sort of arbitr:tge-since 

perfume makers tend to 

charge much higher prices in the U .S . 

than else" here . 

But grav markets are not ahvavs a 

dependablesourceofsupplc ;coutake 

stihat is available . At times Pertiimania 

had ample stock of, say, Volupte by 

Oscar de Ia Renta . but sometimes it 

didn't-<strong>and</strong> perfume buyers tend to 

be tinickv about their fa~rorite br<strong>and</strong>s . 

Neither could Pertiumania of}er the 

depth of assortment found in a department 

storc, the lotions <strong>and</strong> powders 

ofthe same scent . 

Then in 1992 Pertumani :t bought 

a lot of L'Oreal's Drakkar Noir from 

a supplier in France . The stut£alleged1v 

Was counterfeic L'Oreal sued, 

<strong>and</strong> Pertiimania «as forced to destrov 

its stock of the fake Drakkar 

Noir . To salvage its tarnished reputation, 

it aerced to reimbtuse customers 

. This~cost the company mer S3 

million, <strong>and</strong> the company lost monar 

in the fiscal vears endcd Januan' 1994 

<strong>and</strong> 1993 . Its reoutation ~%ras se% 'erelv 

damaged . 

All is not lost, hoscever . ktakers of 

ezpensi%re perfume arc incrcasingl% ' 

selling their products to the gray mar- 

44 



ket . They're reluctant but hase little 

choice, what ieith an overcrowded 

market <strong>and</strong> department store consolidations 

. Simon Falic, Perfumania's 

34-year-old chairman, claims lie now 

purchases oN er 70% of his merch<strong>and</strong>ise 

from manufacturers . 

But problems remain . As a condition 

for selling to Perfitmania, some 

perfumers insist that Falic not advertise 

their wares . Worse, he has to raise 

prices . Where once he offered a minimum 

discount of 20%, his mcrchair 

dise is noic priced as little as 5'7o below 

the competition's . "By discounting 

less to a certain extent, we iere able 

to exp<strong>and</strong> our assortments," Falic 

explains . 

Last tiscal rear Perfumania crept 

into the black : S L3 mii':ion, 21 cents a 

share, in net income on sales of 

5115 .5 million . Falic is opening 

stores now at the rate of 25 a yea.r . 

But the stores still h .ne limited 

stocks of man ' v items ; for many'ur<strong>and</strong>s 

the company still must depend upon 

the gray market . Over the past two 

vears Perhtmania has been sued by 

Givench v, Boucheron <strong>and</strong> Cosmair 

for copy right infringement <strong>and</strong> patent 

violations . Pending an outcome 

ofdu lawsuits, it has had to pull from 

its sheh'es Girenchv's Amarige <strong>and</strong> 

Ysatis perfumes as well as Boucheron, 

<strong>and</strong> Cosmair's Tresor <strong>and</strong> Paloma 

Picasso perfumes 

. No one is talking anv longer about 

h .tiing 4,000 stores or making comparisnns 

with Toys "R" Us. ~ 

Sha(k s of gray 

IN A nUStVESS where image 

is a major-perhaps the 

major-part of the product, 

perfume makers must 

spend heavily to launch a 

new scent . Tlte price of admission 

ranges from $5 

million to S20 million . To 

launch designer IG rl Lagerfeld's 

Sun Moon Stars 

last fall, Unilever flew actress 

Daryl Hannah to 

Monte Carlo, where for 

tnvo dars the fashion photographer 

Peter Lindbergh 

fussed over an advertising 

shoot to create that 

special "heavenly" feeling . 

At S200 an ounce, the 

stuff darned well has 

to seem heavenly to 

I customers . 

But how heavenly can a 

product seem in a rather 

'! shabby store <strong>and</strong> heavily 

marked do rn? Yet the fact 

remains that up to half 

the S5 billion perfume 

<strong>business</strong> is done by mass 

merchants, drugstores <strong>and</strong> 

supermarkets . 

Not all that product 

II comes off the gray market . 

Many manufacturers 

ii cannot resist ihe tempta- 

' tion to sell to the 

I dreaded discounters . After 

all, the gross profit per 

ounce is so huge <strong>and</strong> the 

overhead to be recovered 

so heast• that it pays 

them to do so . 

The traditional ot¢Iet, 

the department store, is 

getting harder to deal 

new fragrances were 

launched into this turbulent 

market, half again as 

many as was customary in 

the recent past . Occasiomall}° 

one is a blockbuster 

success-which is what 

keeps the launches com- 

Shcpping at Kreger 

Department stores are squeezing perFume makers' margins . 

with, dem<strong>and</strong>ing deals nnw 

<strong>and</strong> special promotions . 

It's often simpler to turn to 

a grocer like Kroger . 

Most of the 1,300 Kroger 

supermarkets have set up 

perfume counters serviced 

by a salesperson . "The 

designers want to keep 

their image, but they 

looked at the traffic in our 

stores . We have over 3 

million customers a Ns•eek," 

says Paul Bernish, Kroger's 

spokesman . "That's a 

big market ." 

Last year at least 30 

ing . Like Calvin Klein's CK 

oNE . Within four months 

of its introduction last September, 

csoNt sold S45 

million at wholesale, more 

than recouping the cost 

of its estimated S20 million 

launch . 

But 90% of new perfume 

launches are failures . 

The life span of a hot perfume 

is shrinking : five years 

compared with ten years a 

decade ago . 

An unintended beneficiary 

of all this is publich 

traded Model Imperial, 

based in Boca Raton, which 

sells in the gray market . 

Last year it sold S 160 million 

worth of perfume, 

including Yves Saint Laurent, 

Christian Dior <strong>and</strong> 

Ralph Lauren . 

Unilever unloads on 

the gray market an annual 

$40 million worth of its 

perfume, including True 

Love by Elizabeth Arden 

<strong>and</strong> Lagerteld's Sun Moon 

Stars . Elizabeth Arden 

Chief Executive IGmberlv 

Delsing refuses to comment 

. No surprise . In her 

public utterances she 

bashes the gray market . 

Givenchy slaps discounters 

with lawsuits for 

selling its Amarige <strong>and</strong> 

Ysatis perfumes, but negotiatcs 

with Model Imperial 

to sell some of its older 

br<strong>and</strong>s, including Givenchy 

III <strong>and</strong> Monsieurde 

Givenchy . 

Vincent Basden of Sanof 

Bcaute is dealing with an 

overcrowded market by 

dropping slow -selling 

scents . He has dumped 

22 lines-including Geoffrey 

Beene, Perry Ellis 

<strong>and</strong> Stendhal-<strong>and</strong> is concentrating 

on the eight 

remaining, which indude 

Yves Saint Laurent, Oscar 

de la Renta <strong>and</strong> Nina Ricci . 

"I don't want to sell to 

the gray market," says Bastien 

. "It's not a strategy . 

You kill your name ." 

-Z .iI,i. = 

Fnrhr, . A ag ,sr 14, 1995 

2 0 4 6 6 7 3 3 0 2 }s p ~' t. 


Let others rush to lay optic fiber <strong>and</strong> splurge on cel'ular 

licenses . Cinclnnati Bell Is playingthe game its own way . 

Playing without 

paying 

By Gary Samuels 

:1'`v scccssstr_ EXECt Tn°- will tell 

vou that some oEhis bestitnwstments 

were the ones lie didn't make-Cincitr 

nati Bell Inc . President <strong>and</strong> Chief 

Ececutive john LaMacchia Ccels that 

Ica% about tiber-optic <strong>and</strong> coaxial cable 

T st'stems . 

The smallest of tlte former Bell S%steni 

units-sTCT osvned onlc 33% of 

the shares-Cincinnati Bell has nearlc 1 

million lines In the greater Cincinnati 

area . Liice other phone companies, it 

will soon face competition in its basic 

Cinclnnati Bell's 'ohn LaMacchia 

"Direcrv looks to me like twoaway 

video on dem<strong>and</strong> on the cheap ." 

phone <strong>business</strong> trom cable-n' operators 

<strong>and</strong> others . Urilike most phone 

companies, it has no plans tn spend a lot 

oEmonev on a high-tech cable system . 

Ditto for cellular . Cincinnati Bell uaded 

its ft'ce eellular license For a minorininterest in a partnership controlled b\ 

Ameritech . which no«it would gladhswap for cash 

. 

But doii t think Larllaahia is out of 

it . Before Cincinnati Bell he u .ts a strategnc 

planner at .kTe- ; beture that, a rcsearch 

phcsicist at Bell Labs . He kno«s 

,chat s Ishat in telecommunicatlons, 

He also kno«s that his smallish Bell 

can't raise billions of dollars . Widt 

S12 billion in reNenues last cear <strong>and</strong> 

$90 million /S1?1 a slrarcl in carnings, 

Cincinnati Bell is a midget contpared 

scith S 14 billion Bell Atlantic or 

S17 billion BellSouth . 

But that, he reasons, isn't all bad . It 

means he must measure his risks more 

caretldh• . He is N~ 'elI aware diat during 

periods of rapid scientif'ic progress 

<strong>and</strong> regulatonchange, companies 

that inrest emiv in «hat appcar to be 

promising technologies o$en wish 

thet•'d «aited for the next technology 

. That's the «ac he teels about the 

FancN, two-\% a}' vicieo nenaorks being 

proposed bN some Bells . "wouldn't 

INc be better off «aiting to see ho%N 

this all pans out?" he savs mildly . 

While «alting, LaA4acchia is not 

sitting idly by . He notes that Hughes 

Electronics' Direc ;~', the satellite 

broadatsting sen,ice that beams ap to 

175 channels direcdy to homes 

equipped widi 3700 dishes, is alreade 

a good, relati%°ehy inexpensive alternati%e 

to cable T~' . So Cincinnati Bell has 

taken an indirect stake in Direc~''s 

suceess through its telemzrketing 

subsidiarv Matrixx A(arketing . Started 

in 1989, Matrixs began taking calls 

to Direeiv's toll-free hotline for General 

Motors' Hughes unit a vear jgo 

<strong>and</strong> now has nearh, 1,000 dedicated 

phone reps taking orders <strong>and</strong> ansvering 

yuestions about dte senice . 

"What am I n;issing?" LaMacchia 

dem<strong>and</strong>s . "This [DirecTt' ; looks to 

me like rn'ossat' aidco on dem<strong>and</strong> on 

the clxao . It's the market others are 

pursuing for $500 to S1,000 per 

home, onh• it's fulreadv] there, <strong>and</strong> 

the senice is spectacuFar ." 

The numhers support his N'ie%a . Matrisx's 

sales hace climbed front 388 

million in 1992 to S226 million last 

cear . Capital'uncestmeiu : negligible . 

La~~tacchia ]ra.s ulso found a«as to 

participate in cellular telephonr witlr 

out spending billions . Ocer the past 

decade Lalvlaechia has built a dicision 

ralled Cincinnati Beil Information 

SIstems that produces customer bills 

For cellular phone operators using internally 

designed software . So Ear this 

k6 Forbcs . Aueust 14, 1995 

2046673303 


~ear, cellular operators, dri%en bv intense 

competition, hace made 1 .000 

price changes, %chich means plennof 

sofncare updates for cats . 

This subsidian's sales last cear ~rere 

S3-k-I million . <strong>and</strong> last year Cus renewed 

its biggest contract, with 

~Cs:r/McCaN% ' Cellular to print its 

bills through 1999, a deal ssoreh an 

estimated S600 million . Although 

\fatriss Marketing, cais <strong>and</strong> a few 

smaller unregulated <strong>business</strong>es tie up 

just 35% of their parent's assets, the}nou• contribute about half the parent's 

total re% enues <strong>and</strong> operating 

protits . Meamtihile, LaAIacchia is 

girding for the expected onslaught on 

his basic telephone <strong>business</strong> . 

"Competition," sighs LabSaediia, 

"is inevitable ." Cincinnati Bell has 

been spending hea~ily-S113 million 

last vear-to upgrade its telephone 

s~6tching capacin• . It has also coaxed 

some 1 .300 workers into eaulv retirement, 

part of a plan to cut expenses bY 

at least S50 million a vear . 

He is fighting a rearguard action to 

delae the competition. When the 

Public Utilities Canmission of Ohio 

agreed to hold hearings in 14asto 

grant licenses to three ~could-be competitors-inciuding 

Time Wamer in 

the Cincinnati market-Laltacdiia 

sued the wmmission . 

Cincinnati Bell's opponents complain 

that La-Macchiais using his law- 

Yers to stall competition . La1V•Iacchia 

says he's merclv flghtuig for rules that 

will let his companv compete on an 

equal tooting . This cauld mean raising 

rates for some subsidized custonr 

ers-a political hot potato-while 

lowering rates to lucrative <strong>business</strong> 

<strong>and</strong> affluent residential customers . 

Othernise, competitors n°ithout the 

obligation to sene all consumers 

could simpiv undercut rates <strong>and</strong> take 

<strong>business</strong> awav, A Cincinnati Bell executive 

testitied to the commission that 

without the needed protections, it 

could lose uo to 60% of local market 

share . "For us, this (iocal phone ser- 

%-ice] is the whole bail game," savs 

LaMacchia . "No other compaiw our 

size has as much inrested in a single 

regulatnn'jurisdiction . Ifwe don't do 

it right, shame on us <strong>and</strong> shame on the 

regulators," _ 

In one sense John La.\Iacchia has a 

~ceak h<strong>and</strong>, but give him lots of credit, 

He's plm-ing it right smm-tk. M 

Roger Farah made an easy $14 million 

last year, But this year he is going 

to earn every dime he gets, 

Woolworth's 

woes 

By Phyllis Berman with Caroline Wzder 

\VEvE ALL HEARD <strong>and</strong> read about 

o erpaid e .ccuti ves, but Roger Farah 

takes the prize . Farah got S 14 million 

for less than four months' work . He 

began as president of RH . 'viacv & 

Co . in Julv 1994, <strong>and</strong> \Nas a couple of 

~reeks on the job when Macy agreed 

to merge with Federated Department 

VJaotrrorfh Chiei E;ecutive Xcer Roger Farah 

He wanted challenges . 

He's got them . 

Stores . Just before Christmas the deal 

«as done <strong>and</strong> Farah walked awav with 

the .S ] .-F miilion he had been guaranteed 

in the eent of a change of 

control ofthe compan} . 

Farah had no trouble l<strong>and</strong>ing anotherjoh 

. Asuave,confident42-cearold, 

his reputation was hrmh• cstab- 

Furh

Woolworth Corp . 

lished during his vears at Federated 

<strong>and</strong> elsewhere . Ralph Lauren offered 

him the m:mber m-o j ob at h is compam, 

<strong>and</strong>, according to headhunter 

Herbert il4ines, Farah had other offers, 

too . But they ~ceren't Mhat lie 

wanted . Says Mines : "He had already 

been burned by corporate politics-at 

Macv <strong>and</strong> Federated-<strong>and</strong> wanted to 

run his own show ." 

Woohaorth Corp ., the badlv tattcrcd 

58-billion-a-vear retailer, offered 

%rhat he %cas looking for . In ntici- 

December L•e became Woohanrth's 

chairman <strong>and</strong> chief executne . As an 

incentiNe he ~%as granted options on 

800,000 Woolworth shares at 

513 .63-recent price S15 .38-<strong>and</strong> 

200,000 shares in restricted stock . 

Woolworth was a mess, <strong>and</strong> Farah 

kne«it . Its sales <strong>and</strong> earnings had 

dropped since the earlv 1990s . Bv last 

year net earnings had almost vanished, 

the net profit margin was under 

a pennv on the sales doilar <strong>and</strong> its chief 

esecutice, lVilliam Lavin, had been 

forced out . By the beginning of dtis 

year the company was almost out of 

cash <strong>and</strong> its short-tern debt had 

ssvel!ed from just 516q million in 

1992 to S853 million in 1994 . "Profits 

had dwindled so much, it became 

impossible to pavdown that debt after 

the Christmas selling season," esplains 

Manin Behm ofDuff& Phelps 

Credit Rating Co . 

- Farah was looking for a challenge, 

but lie ma% ha~ e gotten more tlrut he 

bargained for . ~Voohvorth was facing 

A new Foct Locker in Manbattan 

Woolworth needs cash to update 

the rest of the chain . 

its annual bank re~ie« in the early 

summer, <strong>and</strong> Farah was concerned 

that the company might violate its 

loan co%enants-he needed some 

breathing room-so off he Nrent to 

meet with his bankers . With a respected 

merchant no\k running the company, 

the banks agreed to extend a S 1 .5 

billion reNolcing credit line-S1 billion 

for three ve ;trs Atd S500 million 

for one year . Farah then raised S200 

million by issuing long-term debt, 

<strong>and</strong> has another S430 million on the 

shc!f that he can issue if need be . 

To get Woohvorth solcent . Farah 

knocked out the sacred dividend-it 

had had an unbroken record of 83 

eears-slaslted capit.tl spending, 

`Basically Woolworth 

is a kennel club . 

Most of them are dogs ." 

wrote down inrentorv <strong>and</strong> began 

looking for asser; to sell . 

In short, he was functioning as a 

financier more than 3 merch<strong>and</strong>iser . 

But Woolworth's problems aren't 

purehfinancial . Thetare fundamental 

. 1W'oohwrth is not so much a 

retailing companr as a holding company 

for assorted retail chains . One of 

those is the Athletic Foonrear & Apparel 

di%ision led bv flagship Foot 

Locker, a 1,828-shop chain, long 

R'oohworth's star . That . svith the rest 

of the footwear division, accounts for 

some 70%of the companc's operating 

protits . But the market for athletic 

shoes has sloued to a 2%-a-%,ear 

growth rate from the 18% it enjored 

in the late 1980s, <strong>and</strong> Foot Locker's 

inventory control svstem is lacking 

sophistication, its stores in serious 

need of modernizing . 

Other Woolworth chains include 

the San Francisco Music Box Co ., a 

musical gift company, the Best of 

Times, a watch retailer, <strong>and</strong> Karuba, 

selling women's casual apparel . Farah 

«ould probabhlike to sell some of 

these, but that won't be easy . Many of 

these chains are failing ; some that 

might be able to succeed need extensive 

remodeling <strong>and</strong> a promotion 

budget . Few, if any, will comm<strong>and</strong> 

decent prices . Since they're ntallbased 

with short iive-y°ear leases, they 

don't even have leases to sell . Savs 

Alan \-[illstein, editor <strong>and</strong> pub!isherof 

Fashion Network Repor., `Basicallv, 

Woohrorth is a kennel club . Iv[ost of 

them are dogs ." 

Farah has unloaded a few of the 

dogs . [n the first quarter, ended Apr . 

29, Farah sold r ..Y Place, a chain of 

pharmacies, for 537 million in cash, 

notes <strong>and</strong> the assumption of liabilities 

. He also found a buver for Kids 

Mart/Little Folks, 331 children's 

clothing stores, for $ 15 million . 

Miat about the old varienr stores 

themselves? Their Euture is dim . Thev 

have been pared down from about 

950 to 428 . Afost ofthose left do ha~e 

valuable 20-% zar leases, but if riiev are 

to be sold, thcv must be sold one bv 

one . It is unlikelv that anv buver %%ants 

the whole group 

. Woohworth lost money in the first 

quarter, $80 million on 51 .8 billion in 

sales, <strong>and</strong> a return to past levels of 

profitability is still some way ol'r . 

Which means that Farah will haNe to 

continue keeping the financial wolves 

at bay for a witile longer . 

Rogcr Farah declined to be interviewed 

for this ston~, Who can blame 

him? With all the fires lie has to put 

out, lie probably has not yet had time 

to formulate merch<strong>and</strong>ising plans for 

his mishmash of <strong>business</strong>es, let alone 

draw up a clear strategy for a mrnuround. 

~ 

=s Fnrbes . August 14 .. 1995 

20466i3305 


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Will the cease -ire hold <strong>and</strong> bring peace at last 

to Northern Irel<strong>and</strong>? A lot of smart <strong>business</strong> people 

are betting hard cash that It wi!I . 

Irish renaissance 

By Richard C . Morais 

You THINK you'Ve got troubles running 

a <strong>business</strong>? Listen to the storti, of 

Michael McLaughlin, Mho ran a 

thriving, 19-emplot~ee hardaare store 

on William Street, Londonderry, 

Northern Irel<strong>and</strong> . The shop ~eas just 

outside the Bog, the Catholic slum 

where in 1972 British soldiers shot 

dead 13 rioting Catholics on "Black 

Sundav ." 

McLaughlin's <strong>business</strong> was burned 

<strong>and</strong> bombed to the ground eight 

times . "He hit a low point in 1975," 

recalls his son Seamus . "He had just 

much iaraersmrc ancf are snapoing up 

additional buildings on the street that 

tine %cars ago uas derelict . 

PJul Ferguson rea';ized life had renl- 

Iv changed since the cease-fire %siten a 

te" %reeks ago his aharm accidentailr 

tripped . Police were at the store betiore 

lie was . "For 20 \ears police 

w'ouldn't iurestigate robberies here 

:or ;eur of being set up <strong>and</strong> ambushcd," 

he savs . 

E~en before the August 1994 

cease-fire beneeen the unionist <strong>and</strong> 

been firebombed, <strong>and</strong> m% motherwas nationalist terrorists, Northern Irel<strong>and</strong>'s 

econoim' %cas reviNing . This 

dying . He reopened in a prefabiicated 

office, <strong>and</strong> that t•enday a gunman S20 billion economy grew 3% last 

robbed him ." But the McLaughlins vear-not a huge amount, but a%%elconie 

change from decades of decline 

are still in <strong>business</strong> on William Street 

selling hardware . 

<strong>and</strong> stagnation . 

Next door, the Ferguson hunil}' While politics still dominates the 

sells cycling shorts, jeans-<strong>and</strong> T shirts . news from Northcrn Irel<strong>and</strong>, <strong>business</strong> 

During the Troubles, sa}s Paul Fcrguson, 

"my mother sprinkled the as Catholic locals call Londonderrr, a 

is where the quiet action is . In Dern, 

shop with holy water ." But with proNinc :al capital of 100,000 just a 

peace slowhy settling o% er the en :battled 

northern proNinces, tlx Fergu- 

Republic ot Irel<strong>and</strong>, titerc's a building 

few miles from the border ~~idi the 

sons have exp<strong>and</strong>ed into a second, boom . On ecery block, construction 

is under wav . Rents Cor prime down- 

- toun retail space hare tripled dte last 

se~°eral vcars, to S70 a square foot . 

-_ "FoYlesidc," aS 120 million mall now 

being built bv Boston's O'Connell 

Brothers, is alreadv 100% rented . 

Tenants include A-ScDonald's, Bod% 

Shop, Boots, <strong>and</strong> Marks & Spencer . 

Familiar names to mosr, but exotic to 

this war-torn rown, long shunned bv 

outside imestors . Smiles real estate 

agent Patrick Aidrews : "Tluse are ill 

stores that «ouldn't ha%e looked at us 

pre~iouslv ." 

Du Pont was the tow-n's sole big 

The McLaugh~in bro .hers today in fron ;of thel, londcrderry hardware store . <strong>and</strong> the store after a 1972 bombing 

Bombed <strong>and</strong> burned to the ground eight times, but now exp<strong>and</strong>ing . 

2046 M3 0 ry / 

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Northern Irel<strong>and</strong> 

Soom'.own construction in Londonderry 

The war•weary will Flnally get a McDonald's . 

employe_r_ for 35 years . No longer . 

Fruit of the Loom, of Kencuckv, recentlv 

opened a state-of-the-art cotton-spinning 

plant to service all of 

Europe . Last year Seagate Tecluiology, 

the California-based disk-drive 

maker, opened the first stage of a 

$200 million plant nraking the latest 

generation of diin-film head ~safers 

for computer hard disks . 

Tourism is taking off, Se~en cears 

aQo the local council hired Harry 

Briston, the to«n's first tour guide . "I 

took around one tourist a«'eek," lie 

recalls . Todar he has nko assistants 

<strong>and</strong> guides 250 tourists a dav . It's 

hard to get a hotel room, <strong>and</strong> shoppers 

from Donegal• across the border, 

are again starting to tlow through the 

tm~ n's streets . 

Not t hat terrons m has klde d entire- 

Iv into memon . Local police stations 

remain covered in r azor %cire <strong>and</strong> antiterrorist 

grills . ia .~ graifiti scrawls 

across the grav public housing <strong>and</strong> 

hard men keep people in line at public 

housing projects by "kneecapping" 

them «ith baseball bats . Bur peace is 

in the air <strong>and</strong> vaith it money is comine 

out of hiditte <strong>and</strong> other money is 

flowing in . With Derrv's unemploament 

rate still close to 16%, there is a 

large, relatirelv losr cost labor pool to 

attract foreign imestment . 

In 1993 <strong>and</strong> 1994 the average 

hourlv manufacturingwage in Nortir 

em Irel<strong>and</strong>, inc!uding benefits, was 

$10 .68, Compare that with S 12 .-k0 in 

the U .K, 513 .62 in the L' .S, <strong>and</strong> 

522 .10 in Germam• . And yet Northern 

Irel<strong>and</strong> has bfar the best-cducar 

ed labor force in Britain, with tnore 

studens going on to higher education 

than am«herc else in the isles . 

"The high rmemployment is bad tor 

the region, bur it's nor bad for us," 

says Du Pont (U',K.1 Ltd . Managing 

Director William Walker . "It assures 

Cominonsense 

man 

WHILE GERRY ADAS-i5, 

leader of the political front 

of the Irish Republican 

Army, gets the media spotlight, 

his Sinn Fein political 

party lags at the polls, 

with the support of just 

10% of Northern Irel<strong>and</strong>'s 

popular vote . 

A more authentic voice 

of so-called Irish nationalism 

is John Hume, the 

soft-spoken leader of the 

social democratic So[.r . 

His parry'-seeking a negotiated 

middle ground benveen 

those who want unconditional 

reunion with 

the Irish Republic <strong>and</strong> 

those who «ant to remain 

part of Great Britain-gar- 

ners close to 30% of the 

popular votc, His condemnation 

ofN °iolenee put 

him on both unionist <strong>and</strong> 

nationalist paramiliranr 

hit lists . In 1987 his car <strong>and</strong> 

house went up in a firebomb 

attack . 

With peace talks benveen 

Britain <strong>and</strong> the Irish 

Republic, Sinn Fein <strong>and</strong> 

unionist parties under way, 

Hume remains under terrific 

pressure, his life's work 

riding on a satisfactory 

outcome of the talks . ~C'hen 

FoRisES intervie«ed him 

in June at the & erglades 

Hotel in Londonderry, 

he looked bedraggled <strong>and</strong> 

John Hume 

of SDLP 

The man who got 

Sinn Fein <strong>and</strong> 

the British 

government 

to talk . 

seemed nen-ous . But he 

relased for a moment to tell 

a ston• : 

DQ~father became 

unemployed when I ssas 8 

years old <strong>and</strong> was unemployed 

for the rest of his 

life . He was intelligent. 

People came to him for advice 

; to ~rrite their letters . 

"In those daN s thev 

held election meetings outside 

. One da}• my Dad 

<strong>and</strong> I went to a nationalist 

meeting <strong>and</strong> they were 

icaving the flag . Evcnbody 

was getting verp emotional, 

me included . 

"iviv father put his 

h<strong>and</strong> on my shoulder <strong>and</strong> 

said, 'Don't get involved 

in that, son .' 

" .Whv not . Dad?' I 

said . 

" `You can't cat a 

tlag."' -R.CN1I . M 

52 

Forbes / Acgest 14, 1995 


I 

~ 

, 

I 

SOUNDS SO REAL, PEOPLE WILLASK . . . 

"ARE You 

REALLY 

TALKING ON A 

SPEAKERPHONE ? " 

NO MOEE 

N 61PPE0 WORDS 

J MISSED SENTENCES 

J SNOIRING 

r IEStITATING E01OES 

A T 0 Ja 

Seagate's menagiag dlrector, Mochael CaulFleLd, in Derryclean raams 

The $200 million plant garnered plenty of subsidies . 

us a highlv qualified labor supply ." 

With feu• opportunities aN'ailable 

unril recentl y , there are more highl} r 

qualified people than there are jobs 

for them, Stephen Costello, running 

Marks & Spencer in Beltast, sars shop 

assistants often have universin' degrees 

. "We .tre ov ersubscribed o'ith 

Ph .D .s," says Seagate's local managing 

director, Michael Caulfield, "<strong>and</strong> 

a-c've exceeded all our producti % 'it}- 

targets ." 

Long before there «ere an . concrete 

signs of peace, Du Pont put one 

of onlq two Kev lar plants wodd%tide 

in Dern' . "In 35 5'ears vce have never 

missed a shipment due to worlk stop 

pages for anv reason," says Wall

! 

Designer kitchens are big <strong>business</strong> in Europe, but European kitchen 

makers are having a devil of a time establishing themselves in the U .S . 

Ho1d the 

Poggenpohl 

By Peter Pultrman 

IN EcftOP6Vi IiOnms the kirchen Ims 

generally hten a uznrpcd <strong>and</strong> airless 

n>Inn, not much bigger than a broonr 

clnset with pygtm size appliances- 

But in recent years Ewropcans have 

dcscloped a tasre for s{cck kinitcns 

fidl of cabinets, wot#space .s <strong>and</strong> 

tlmericon-siu :y>pG.mms. 11

Using phony invoices, importers are laundering dirty 

money, cheating the taxpayer <strong>and</strong>, incidentally, 

making the U .S . trade baiance look worse than it is . 

Salad oil, $720 

By Damon Darlin 

LAST rF AR's S 166 billion merch<strong>and</strong>ise 

trade deficit could ha~e been inflated 

by more than S100 billion . That's 

becausecrookedimport/exportfirms 

cheated the U .S . Treasurv out of 

more than S40 billion in tax resenues . 

This startling claim comes from John 

S. Zdani <strong>and</strong> Simon J . Pak, finznce 

professors at Florida International 

I ;nit-ersittin Miami . 

The amounts ineolved mas be 

much less than the nvo researchers 

claim, bttt the practice thev uncotered 

is distnrbing all the same . Four 

years ago the pair began using potrertul 

computer sofuvare the%, designed 

to examine the prices of 

23,000 different products imported 

from <strong>and</strong> exported to 235 countries 

ba the U 

.SThe profs originalle setout to ntea- 

Hmmm . . . 

Examples of abnormally low U .S. export prices 

Product 

Radial tires 

Snow plows 

Spark plugs 

Instant-print cameras 

Upright pianos 

Missile <strong>and</strong> rocket launchers 

Exported to 

Colombia 

Jamaiea 

Taiwan 

France 

France 

Egypt 

Examples of abnormally high U .S. importprices 

Product 

S<strong>and</strong> 

New truck tires 

Toilet paper 

Brassieres 

Spark plugs 

Instant-print cameras 

o0erreSAmor Pas ano /nM Zda~rwvi¢ 

N 

Imported from 

Japan 

SNeden 

Japan 

Italy 

Canada 

Japan 

sure the et ficiencv of the global market 

in pricing goodsThee stumbled 

ou ecidence that crooks are using 

international trade as cover tior massi% 

-c monet• launderin_e . 

Take razor blades imported rrom 

israe' <strong>and</strong> priced at 3 cents, «hile 

identical blades from Panama tere 

invoiced at S29 .35-each . The price 

of a simple telephone imported front 

Hong Kong ranged bemeen 53 .18 

<strong>and</strong> S2,400 . The profs found S720 

bottles ofimported salad dressing <strong>and</strong> 

S653 smoke detectors, while a helicopter 

exported to Kaea was invoiced 

for onlr S 15,609 . 

G .tn R. KcBt-ide, an accounting 

professor at California Srate C'nirersin', 

Hay~aard, uui an es-adNiser to the 

Internal Revenue Senice, esplains : 

"Bad guys are learning that banks are 

Price per unit 

$3 .03 

267 .70 

0 .01 

3 .05 

38 .00 

38 .20 

Price 

$6,025/ton 

2,266/unit 

6/roll 

1 .5761dozen 

70/unit 

2,538/unit 

Fraudulently over-invoicing imports <strong>and</strong> under-invoicing 

exports cost taxpayers $40 billion last year . 

Sources of lost 

U .S, taxes due to abnormal 

trade pricing (Smllllons) 

Total : $39,540 

9ingapore=g 

Germany 2;59I 

Mezico 

Canada 

Taiwan 

Fmnce 

2;448 

2,355 

1,609 

1,493 

China 1,345 

Flong Kong 1,278 

All other 15,434 

countries 

a hard place to launder monl so 

thev're turning to the export/import 

<strong>business</strong> ." FF'hY did that guy pac vou 

S 100,000? Because I sold him 200 

razor blades . 

The feds ita\ 'e alreada tracked a tew 

cases of suspected invoicing fraud . 

Sunrider International is a 5300 million 

direct-sales retailer ofherbal cosmetics 

<strong>and</strong> health foods based in Torrance, 

Calif. It is ou-ned bv Palos 

Verdes Estates, Calif. residents Tei- 

Fu Chen <strong>and</strong> his ~eife, Oi-Lin Chen . 

Federal custotms agents claim Sunrider 

imported raw materials from 

Taiwan, Japan <strong>and</strong> South America 

<strong>and</strong> inflated the imports' values on 

invoices bv as much as 900'Ye . Suruider 

paid a little extra in customs duty, 

Nchich generallv runs under 10% of 

inroiced value, but sa% ed much more 

in taxes . HoNv4 Simple . It had shipped 

most of the profits to Hong Kong 

disguisedastiieco_stofimports . A20- 

count indictment filed in March by' 

U .S . attornevs in Los Angeles against 

Sunrider <strong>and</strong> the Chens asserts rhev 

evaded paving almost S40 million in 

ta_ es bern'een 1986 <strong>and</strong> 1990 . 

Through an attornev the Chens denanp wrongdoing <strong>and</strong> insist the matter 

is a civil tax dispute . Originall ' ~ to have 

begun this fall, their trial has been 

postponed . 

In a similar case eark this vear, 

federal prosecutors in Virginia %ron 

convictions of four Pakistanis who 

used a Springfield, Va .-based medical 

supplies importer, Falcon Instruments, 

to funnel $1 .4 million to Pakisran 

. In one insrance cited br the 

prosecutors during the trial, Falcon 

imported equipment that probabt}cost it about $ 19,000 but itnoiced it 

at $42,000, sending the tull amount 

to Pakistan . The scheme had a second 

benetlc One of the men used the 

invoice scam to avoid paying his personal 

LCS- income taxes . 

Floricia International L'nicersin''s 

Zdanowicz <strong>and</strong> Pak claim softmare 

the\- hm e deN roloped could, «ith additional 

information mailable to the 

goaernmenr, put the cops on the trail 

oEinternational monec launderers oy 

tlagging suspicious imporr invoices . 

II,S . Treasw, Department officials 

have visited the professors for a dem- 

Ollstra[lon <strong>and</strong> expressed interest iil 

the sofm are but have no current plans 

to buv !t. 111111111 

i6 

~ ~ ~ ~ ~ ~ , s~ Forbes . Atrgust L4, 1995 

~ 


;pr_dAL ADVERITSI\G S[iP.4~ :tiiENT 


ADVERTISEMENT 2 

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G O I, F C H A hI P I O N S H I P 

A TRADITION OF GOOD PLAY AND GOOD DEEDS 

According to a 19th-century saying, "the 

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have been praised as a 

means to prep civilized people for 

success in serious endeavors . 

Though it's a far ycunger 

institution than the British 

public-school system, the SkyTel 

U .S . Corporate Golf Championship 

is a sporting program equally 

rooted in the connection between 

good play <strong>and</strong> good work . Since 

1993, the springtime series of 

regional golf qualifiers-capped 

by a national final in September, 

to be held this year at the Golden 

Horseshoe course in historic 

Williamsburg, Va .-has visited 

some of the country's finest golf 

facilities <strong>and</strong> brought together 

some of the most influential <strong>and</strong> 

successful <strong>business</strong> people in 

corporate Atrterica . 

Before SkyTel, the leader in global wireless messaging, 

By David Gould 

"The SkyTel U.S . Corporate 

Golf Championship offers 

launched its series, there were plenty of corporate golf outings, 

retreats <strong>and</strong> charity events . But one could never come away 

from them with any sense of which corporation's upper 

management could perform the best under a little bit of bacl 

senior executises a chance 

both to make personal 

contact with their peers 

; <strong>and</strong> to do great things 

nine pressure . There was, in short, no way of identifying the Z,* 

best team of corporate golfers in the U .S . O for charity . bV&ile SkyTePs 

The first year this championship was held, a foursome FP missron rs to keep people 

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from America West Airlines took the title . In year two, Cj 

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the best team of corporate golfers was a quartet from San ti we also appreciate this 

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champions will emerge from the 15 teams that have survived C,V rommunicate on a 

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For the participants, SkyTel U .S . Corporate Golf Championship IP 

regionals nominally constitute a day off from work . But since ' l`" BHrur' 

P 

PRESID`c>T nNe CEO, 

<strong>business</strong> dealings are alwavs bolstered by personal contact <strong>and</strong> ~ SKVTZL 

face-to-face familiarity, the long golf day naturally turn=s into 

a networking opportunity. Just by moving through the morning 

registration process <strong>and</strong> gathering the Full package of 

complimentary gear <strong>and</strong> items, contestants learn about a wide 

range of <strong>business</strong> services that can help their own companies 

operate more efficiently. Sprinkled in with these 

presentations are a few luxury consumer 

products to view, any of which cou]d be carried 

home that day at no chargethanks 

to great playing or a run 

of good luck . 

It isn i easy to spear one of 

the top three spots at a regional 

qualifier, but teams that keep their 

optimism <strong>and</strong> make a few putts 

always st<strong>and</strong> a chance . Out on the 

SkyTel links, just as in the office, the 

executive's duty is to make decisions 

that lead to success, which is why 

solid information comm<strong>and</strong>s such 

a high value . Faced with an uneven 

lie for a long approach shot over 

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scoreboard telling him whether his 

team should play conservatively or 

shoot for a miracle . Some crucial 

information about general scores 

or the play of a team's other twosome 

is delivered instantly through 

the SkyTel text-messaging pagers 

worn by each participant . Still, any 

decision about whether to gamble 

for birdie or lay up is left to instinct . 

Over three years of competition, 

1,000-plus corporate officers have 

competed in regional qualifiers . 

The vast majority comes out for 

the camaraderie . not for blood . 

The most serious <strong>business</strong> of 

the SkyTel series involves its 

philanthropy. In three years of 

play, nearly 50 different charitable 

causes have benefited from the 

more than $250,000 in gifts made 

directly from the toumament coffers 

or via matching funds graciously 

put up by the teams themselves . This year's regionals, building 

on momentum, were more exuberantly played than in the two 

previous years . Not everyone could reach the finals, but all . 

who played came away proud to have taken part . 


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The Golf Club of Georgia, Alpharetta, Georgia, April 11, 1995 

SHORT BUT SWEET IN THE SOUTH 

Shotgun start: 1 :15 p,m . Thunderclap ending: 4 :30 p 

.mA cluster of rain clouds the color of wet cement positioned 

itself over the eighth green of the Golf Club of Georgia's 

Lakeside course as Rick Weddington lit up a long, S7 cigar 

that would turn out to be Coca-Cola's token of victory . 

His partner, Jeff Dunn, scratched out a bogey 5 as 

NVeddington tidied up his par. Then it was off to the 

manorial clubhouse to escape a powerful downpour that 

wouid make the 1995 Southeast Regional the first 

rain-shortened event in the three-year history of the SkyTel 

U .S . Corporate Golf Championship . 

With four or five holes still to be played, the Southeast 

Regional became an official nine-holer . Soon the spikes 

were off, the SkyTel messaging pagers were turned in 

<strong>and</strong> the unplayed holes were swapped for an early shot 

at the G .C . of G .'s impressive buffet spread . Dunn <strong>and</strong> 

Weddington huddled with teammates Tom Ludwick <strong>and</strong> 

Mark O'Shaughnessy, putting the foursome in a positive 

frame of mind . Ludwick, a 9-h<strong>and</strong>icapper whose long <strong>and</strong> 

short games were both pumping that dav, had double-bogeyed 

the fifth but parred everything else . O'Shaughnessy, a 24, 

was 10 over par for the nine of his holes that counted, 

with a triple-bogey 8 on the 11th not counted due 

to nine-hole scoring . 

Ludwick <strong>and</strong> O'Shaughnessy got it going early with a 

pair of great par saves on the uphill fourth, their second 

hole. Playing into a pre-storm wind, three members of their 

foursome squeezed onto the front left portion of the green, 

while O'Shaughnessy Hred a 7-iron to 12 feet. 

"Yeah, but I'm 3 here," he admitted as he lined up 

the twisting, downhill putt . Following his caddie's read, 

O'Shaughnessy rolled it in perfectly for par . Inspired . 

Ludwick finished off his terrific 80-foot two-putt-over a 

swa':e, no less-by dropping a 10-footer for par . Ludwick's 

37 earned him honors as the day's Low Gross shooter . 

Coca-Cola, whose adjus-s «r,re was a stellar 7 .5 strokes 

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under par, matched a $3,000 first-place 

contribution to the United Way of 

Atlanta for a total donation of 56,000 . 

Second place, at net even par in a 

match-of-cards tiebreaker, was claimed 

by Marsh & McLennan, the 53 .5 billion 

insurance <strong>and</strong> financial-services giant . 

Ernie Thomasson, a calmly competitive 

14-h<strong>and</strong>icapper, took low-net honors 

at 3-under 32 <strong>and</strong> won a decorative 

rosewoo¢ putter courtesy of Productivity 

Rick Fireddington's all-around play helped 

Coca-Cala caplure the top quaiifying spot 

Point InternationaL Thomasson's tee 

shot on the par-3 third hung out to the 

right <strong>and</strong> caught the comer of a large, 

undulating, Arthur Hills-designed green . 

Despite coming up 8 feet short with his 

approach putt, Thomasson easily rolled 

in the finishing putt for a par . 

That was all his partner, Andy Daniels, 

needed to right a rickety boat <strong>and</strong> play 

the next five official holes in 4 over, 

Daniels, a UCLA a ad still fired up 

about his alma mater's NCAA hoops 

title, came out cold in the first quarter, 

so to speak, <strong>and</strong> walked off the third 

hole already 6 over. But making it to 

a SkyTel national final only heightened 

Daniels' sense of destiny . At the award=ceremonv, 

he fantasized : "If Marsh 

& McLennan ever made a big 

marketing move into golf, I could be 

the guy who plays the PGA tour <strong>and</strong> 

wears our visor ." 

Marsh & McLennan's other twosome 

included Craig Perry, a G .C . of Georgia 

member who plays to a 13 but didn't 

quite do as well on this occasion . 

Looal knowledge helped Perry to a net 

1 .5-over score of 385 . His playing 

partner, Rob Hunter, suffered through 

a quadruple-bogey 8 on the relatively 

easy eighth hole, but scrambled 

to shoot even par net . On two 

successive holes, Hunter wedged 

his ball from difficult spots 

to within tap-in range . 

The Marsh & MeLennan 

charity, Scottish Rite 

Children's Hospital, will 

receive $2,000 in SkyTel 

purse money plus 52,000 

in matching funds . Feeling 

not only generous but feisty, 

the Marsh & McLennan team 

vowed to be competitive at 

September's national finals 

in W'iltiamsburg, Va . Said 

Daniels, "What we need to 

do now is get team uniforms . 

At least shirts ." 

As for the third-place 

guys, Harris Corp ., regular readers 

of this space don't need a lot of 

background information . The Harris 

foursome of Jack Hartley, Phil Fatmer, 

Herb McCauley <strong>and</strong> Bob Fay has had 

a consistent run of success throughout 

SkyTei Southeast qualifying history . 

Fay was all smiles coming off the 10th 

because he <strong>and</strong> McCauley had put 

together a string of net pars 

on the previous four holes . 

"Except," Fay reported, 

"for my 6 on No . 6," where 

he made the maximum 

of twice-par gross . "But 

it was a real 6,° he hastened 

to add . 'All it took me was 

six strokes ." 

Farmer, a 9-h<strong>and</strong>icapper, 

shot a neat 41, net 36 .5, 

for his nine, <strong>and</strong> for a while 

was the inside man on 

closest-to-the-pin . Hartley, 

his stylish playing partner, 

rurned in a 46, net 39,5, 

with a triple-bogey on 

the difficult par-4 seventh, his only 

bad hole . Harris' charity, The Haven, 

received $1,000 from the purse, a sum 

matched dollar-for-dollar by Harris . 

Farmer's attempt at winning closestto-the-pin 

was scuttled when George 

Pace of Virginia-based food processor 

Rocco Inc . hammered a full 7-iron 

to 14 feet on the 138-yard third'nole 

of the Lakeside course . But Pace's 

shot was bettered by a yard in the 

tournament's closing hour, as Gary 

Gramkow of Maxfli snuck a 9-iron just 

inside Pace's marker. Gramkow's shot 

won him a deluxe Iaeger-LeCoultre 

stainless steel watch . Pace did claim an 

impressive overnight case by winning 

the Lark Luggage Long Haul award, 

which goes to the lowest-scoring 

member of the foursome that traveled 

the farthest to the tournament site . 

Among the teams that failed to 

qualify, Gulfstream Aerospace is most 

likely to return next year . Gulfstream 

was encouraged when three of its four 

players won prizes in a drawing of 

<strong>business</strong> cards . First Dick Whitaker 

won a three-day car-rental prize from 

National Car Rental . Next Bob Cooper 

won four dozen Maxfli balls with the 

Gulfstream logo to be imprinted on 

them . Then along came Buzz Yates 

to win the Cross Creek golf apparel 

ensemble . Robert O'Leary of Cox 

Communications stopped the Gulfstream 

sweep when his name was called as the 

winner of the Konica 710 home-office 

fax machine . Could one's <strong>business</strong> 

card be more important than one's 

scorecard? Nah . 

Proud winner of the Southeast Regional 

is Coca-Cola . 

L-R : 3fark O'Shaughnessy, 

Tan Ludwick, SkyTeYs Jack Haney, 

Jeff Dunn, Rick Weddington . 


At American Re, we're actually doing what 

others just talk about . Opening new markets, 

applying innovative technologies, forming 

productive relationships . Capitalizing on 

opportunities around the world . 

As a direct Writer of reinsurance with 

statutory surplus of over $1 billion, we 

offer more than financial security . We build 

partnerships that give our clients strategic 

security regardless of the road ahead . 

~ -.Ad'~LERICAN RE 

CORPORATION 

Atlanta, Bei ;ing, Bermuda, Bogaa Bcsten, Brussels, Calro, Chlcago, CcPlmbus, Dallss, Harttord, Karsas Ciy, London, Los Mgeles, Melbourne, 

.Nexico City. Mlnneapolis, Montreal, New York, Pnllaoelphle, Princeton, San Franolsco, Santl2go, Singepore, Sydney, Tokyo, Toronto, Yienea, 

' DJEi1la 

[I] i 

AMERICAN RE . 


Riviera Country Club, Pacijc Palisades, Caiifornia, April 17, 1995 

BY A SLIM MARGIN, IT'S COUNTRYWIDE 

For some FORBES 900s corporate officers, peeling off 

the pinstripes <strong>and</strong> donning golf clothes means bottling the 

competitive juices . Even at the SkyTel U .S . Corporate Golf 

Championship cegionaLs, there are 

those who turn out for the quality 

Stellar after a shaky start : 

Im Miller of 

Tovota Motor Sales . 

of the course <strong>and</strong> the fellowship 

of their peers-the leader board be 

damned . But this year's West Regional 

was at Riviera, baby. With the Nissan 

L .A . Open just concluded <strong>and</strong> . ahem, 

a PGA Championship soon to be staged . 

golfers like Marshall Gates, David 

Bradford, Ollie Nutt . Irv Miller <strong>and</strong> Eric 

Sieracki pulled the laces on their spikes 

a bit tighter . 

Here was the West qualitler; definitive 

sequence : Countrywide Funding Corp .'s 

Sieracki, worn down by raw Pacific 

winds <strong>and</strong> Riviera's hard-to-figure greens, shook off the chill 

of a triple-bogey 8 on the 1 I th hole <strong>and</strong>, quietly humming 

the Countrywide anthem, vowed he would par the 367-yard, 

dogleg-left 12th . His drive strayed a few yards into the right 

rough, where his lie was uneven <strong>and</strong> shaggy . 

On his way to the ball, he veered off the cart path toward 

his linebacker-shaped teammate, Marshall Gates . The two 

SkyTel veterans told each other they had met the enemy <strong>and</strong> 

the enemy was these tiny Riviera greens <strong>and</strong> massive eucalyptus 

trees . They quickly agreed they had nothing to fear but 

choking itself . And damned if they both didn't make par . 

Sieracki . to make his, had to paste a 3-wood out of his 

gunchy lie, chip his ball off a big hump on the right side of 

the green to 5 feet, then make the 5-footer . Gates, excuse the 

pun, had merely to keep swinging . His front-nine score had 

been a stellar 5-over-par 40, pacing the 15-h<strong>and</strong>icapper to an 

84 gross, 69 net . Gates's splendidly dressed playing partner, 

Rich Deleo, carded gross 48s on both the front <strong>and</strong> the back 



I 

ADVERTISEME*+'C 10 

I o~¢t~G0LPr9'~ 

I> ~T \~O 

for a net 81, falling short of his fine 

showing last year at Sherwood C .C . 

The fourth Countrywider, Tom 

Banks, did repeat his performance 

of last year by shooting exactly net par . 

Banks, a 15-h<strong>and</strong>icap, was a demon 

on the par-3s, playing the quartet 

in 1-under gross, 4-under net . 

Countrywide's team 

net of 8-over 292 

was good for a second 

consecutive first-place 

finish in the SkyTel 

West Regional . Their 

selected charity was, 

as always, the San 

Gabriel Valley Boy 

Scouts . The $3,000 

from this year's 

qualifier brings the 

troop's all-time SkyTelgenerated 

funding 

to over 510,000 . 

Second <strong>and</strong> third 

place were secured by 

two teams scoring net 

296 : Amdahl Corp . 

<strong>and</strong> Toyota Motor 

Sales . On a match of 

cards, Amdahl's team 

of Chuck Fonner, Ollie Nutt, Dave 

Anderson <strong>and</strong> Dave Chambers claimed 

second, allowing the team to donate a 

SkyTel check for S2,000 to the Second 

Harvest Food Bank. 

Amdahl arrived early <strong>and</strong> warmed 

up with jumbo baskets of range balls . 

Newcomer Anderson, an engaging, 

buoyant man who takes a huge rip 

at every ball, put in a solid rookie 

performance that resulted in an 8-over 

net 79 . His playing partner, Dave 

Chambers, "played 11 holes before 

hitting a fairway," but kept the wheels 

from falling off. On No, 1, Chambers 

recovered from an awful lie 2 feet 

in bounds to make a round-the-rim 

10-footer. On the long, par-3 fourth, 

Chambers drove weakly into the deep, 

half-acre bunker fronting the green, 

leaving himself 55 yards from the hole . 

He nipped a hellacious s<strong>and</strong> wedge 

to 20 inches, then tapped in for par . 

These two were paired with Novell 

Corporation's David Bradford <strong>and</strong> Jan 

Newman, who may have helped them 

I 

An hour-!ong team warmup session 

paid dividends for Chuck Fonner 

(above) <strong>and</strong> his Amdahl mates, 

stav focused. Bradford ground around 

Riviera with the same intensity he 

showed last year at Sherwood . For 

his efforts, he won the Lark Luggage 

Longest Haul award as the player with 

the lowest score net 

score (75) from the 

most distant team 

(Novell is based 

in Orem, Utah) . 

The other Amdahl 

twosome of Fonner 

<strong>and</strong> Ollie Nutt played 

well tee-to-green <strong>and</strong> 

did their scoring on 

holes where the short 

games were working . 

For Nutt, whose 

Gnishing kick had 

him 3-over gross on 

his last six holes, poor 

chipping ruined a 

birdie opportunity on 

No . I <strong>and</strong> produced 

a double-bogey on the 

par-3 fourth . Fonner, 

despite skillfully 

h<strong>and</strong>ling a long, downhill chip on that 

hole, missed his 7-footer <strong>and</strong> made 

bogey. An 8-h<strong>and</strong>icap with a tight, 

efficient swing, Fonner carded a gross 

score higher than bogey on only one 

hole : the second, Riviera's most difficult . 

Toyota's team was paced by the 

unflappable twosome of Irv 

Miller <strong>and</strong> Bob Romero . 

Starting on 5o . 17 proved 

to be a disadvantage for the 

6-foot 5-inch Miller, who can 

crush it 300-plus <strong>and</strong> was 

expected to win the Taylor 

Made Long Drive contest . 

Instead, Millers first shot 

found the trees on the left 

side, <strong>and</strong>-Jim Baker of Wyse 

Technologies captured the 

prize . Miller <strong>and</strong> Romero 

each started bogey, doublebogey, 

then Miller threw in a 

triple-bogey before the twosome found 

their stride en route to a combined net 

score of 1-under. On the difficult nar-4 

12th, Miller chipped in from 40 feet 

for a birdie 3, then Romero sank a 15- 

foot birdie putt, making the twosome a 

combined 4-under net on that hole . 

The other Toyota twosome came 

ready to play as well . Dave Danzer, 

who bogeyed No . 6, his opening hole, 

faced a longish putt on the next hole 

just to save another bogey. The putt 

made a 270-degree loop around the 

cup before dropping . "Right in the 

center," gasped Danzer, who came 

out I-under net on his next six holes . 

Mike Rocco had a similar streak on the 

following six holes before suffering the 

dreaded twice-par maximum on 

Riviera's historic 18th . He finished 

with a net 79 to Danzer's net 76 . The 

proceeds of the Toyota effort went 

to the Desert Jc Golf Association . 

Taylor Made distinguished itself as 

Mark King eamed America West Low 

Gross honors at 77 <strong>and</strong> Chuck Yash, 

who hit his tee shot to within 2 feet 

on No . 16, won a Jaeger-LeCoultre 

Reverso watch as the golfer closest to 

the pin . Ric Lebrecht of Unocal, with 

an adjusted score of 4-under 67, was 

the winner of the Productivity Point 

International Low Net prize . No golfer 

won a Cadillac by scoring an ace on 

the designated par-3 hole, the 14th, 

but many participants who took 

a pre-round Cadillac test drive were 

treated to interesting glimpses of the 

old L .A . estates off Sunset . Then it 

was time to remove the shades <strong>and</strong> 

play some golf . 

First place went to four experienced SkyTei golfers 

from Countrywide Funding . 

L-R: Tom Banks, Richard De(eo, SkyTei's 

Bob Vncent <strong>and</strong> Lisa Hatf~eid, :4larshaf! Gates 

<strong>and</strong> Eric Sieracki. 

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ADb'ER'TISESiEVf 12 

T H E S O U T H W ES T REG I O N A I, 

-I 

Gleneagles Country Club, Piano, Texas, May 8, 1995 

COME MONDAY, IT WOULD BE AI,I, RIGHT 

The morning air was gin-clear, but the corporate golfers 

gathering for the SkyTel Southwest Regjonal qualifier were 

a bit skeptical . Metro Dallas had just been through a storm 

of Biblical proportions, so how could they 

hold a golf outing? Entire Eleets of rental 

cars had been destroyed by baseball-size 

hail (as if baseball needed more bad 

publicity) <strong>and</strong> rivers of rainwater covered 

low-lying roads <strong>and</strong> neighborhoods . But 

the clubhouse at Gleneagles Country Club 

looked better than a sleek yacht motoring 

back from its hurricane mooring, <strong>and</strong> its 

Queens Course drained itself faster than 

a col<strong>and</strong>er of cooked ziti . 

The Queens is a well-designed, scenic 

18 that play 

s to just about 6 , 000 yards 

Jerry Toenies from 

Shell Oii won the day's from the white tees but dem<strong>and</strong>s 

Long Drive award. accuracy, especially down the stretch . 

Tom Goodman, a tall, silver-haired 13-h<strong>and</strong>icapper from the 

Dallas Athletic Club, whipped up a personal trove of birdies 

<strong>and</strong> pars that paced his team, Pilgrim's Pride, to a net score 

of 294, 10 over par <strong>and</strong> good for the top Southwest qualifying 

spot at the national 8nal . Goodman, who carded a stunning 

33 on the back nine, earned the free travel voucher that comes 

with America West Low Gross honors, though to win it he had 

to survive a match of cards with scratch golfer Richard Ellis of 

C1ubCorp, who also shot 73 . 

Goodman <strong>and</strong> his playing partner, Dennis Nichols, were 

grinning but still grinding when they reached the 417-yard fifth, 

their second-to-last hole . Goodman hit a strong dtive, then 

knocked a 9-iron shot hole-high, 30 feet from the cup . His 

birdie attempt was on line but short, leaving Goodman a tap-in 

par. Nichols bogeyed the hole despite hitting an excellent tee 

shot . His wedge to the green was pulled left, <strong>and</strong> the chip 

that would have put him safely into par range was too strong, 

roiling 10 feet past the hole . 

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The other Pilgrim's Pride twosome, 

Terry Berkenbile <strong>and</strong> David H<strong>and</strong>, 

played to scores beyond those that their 

h<strong>and</strong>icaps could offset, but not so high 

that Goodman's stellar play couldn't 

bring the team home No . 1 . On the 

seventh hole, H<strong>and</strong> had the poor luck 

to find one of 

the few muddy 

bunker lies on 

the course . Few 

scratch golfers 

can h<strong>and</strong>le that 

shot, <strong>and</strong> H<strong>and</strong>, 

a 10-h<strong>and</strong>icapper, 

was 

unable to avoid 

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On the bright 

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wants to send 

a documentas 

opposed 

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he'll be able 

to use the 

new Konica 

fax/phone 

he won in the 

raffle during 

post-round cocktails . Benefiting from 

Pilgrim's Pride's medalist status is the 

Shelton School . the recipient of a $3,000 

Sky'I'el donation plus matching funds . 

The second qualifier from the region 

was iC Penney Co . . a seasoned squad that 

had finished third in last year's Southwest 

Regional . The team's combined net 

score of 20-over 304 meant a trip to 

the finals in Williamsburg, Va ., as well 

as a $1,000 donation <strong>and</strong> matching 

funds to the Dallas Can Academy. On 

only their second hole, the twosome 

of Leo Gispanski <strong>and</strong> Tony Haake 

wimessed a bit of luck that should have 

augured well for the rest of the day . 

Gispanski's drive on the par-4 12th 

stopped just 4 feet short of the 

out-of-bounds stakes . He recovered 

beautifully with a knockdown 6-iron 

but foiled his own good deeds by 

throwing away three strokes with a 

series of bad chips around the green . 

Just a hole ahead was the other JC 

Penney twosome, Marshall Beere <strong>and</strong> 

Steve Walsh . Beere's best shot of the 

day may have come at the 398-yard 

18th, a 5-iron 

Bill Tolany from third-place Dr Pepper/SevemUp 

lines up a long putl . 

approach that 

came to rest just 

5 feet from the 

cup . His 4-foot 

birdie attempt 

had a fair amount 

of break, <strong>and</strong> 

Beere misread it . 

That's one thing . 

But lipping out 

the comebacker 

<strong>and</strong> settling for 

a bogey 5 after 

hitting such a 

terrific second 

shot made the 

10-h<strong>and</strong>icapper's 

cheeks temporarily 

match 

his red golf shirt . 

Walsh, a golfer 

who steps up 

to his shots <strong>and</strong> 

swings without 

hesitation, 

was seen making an easy par on the 

par-5 tenth after a tough downhill 

putt lagged to within a foot . 

Eight shots higher, at 312, was 

the foursome from Dr Pepper/Seven-Up . 

Two members of the thirdplace 

team, John Clarke 

<strong>and</strong> Tom Shuman . had the 

advantage of being Gleneagles 

members . The other two Dr 

Pepper players, Mike McGrath 

<strong>and</strong> Bill Tolany, play their golf 

just up the road from 

Gleneagles, at Stonebtiar C,C . 

The Clarke-Shuman pairing 

started on No . 15 <strong>and</strong> was 

in full swing by the time 

it reached No . 1, a 358-yard 

par-4 dogleg right with a tree 

that blocked Clarke's approach 

shot, forcing him to leave it a tad short . 

He chipped up skillfully to tap-in range 

for his par, then watched in frustration 

as Shuman, after recovering beautifully 

from over the green, missed a 3-foot 

par putt of his own . 

Closest-to-the-pin honors were 

claimed by Chris Sullivan of Outback 

Steakhouse, whose iron shot on the 

165-yard fourth hole snuck just inside 

the position staked out by Mike O'Neill 

of EDS . Sullivan won a Jaeger-LeCoultre 

wristwatch in the Reverso style favored 

by polo players of yore . The Low Gross 

prize, sponsored by America West 

Airlines <strong>and</strong> accompanied by free 

airline tickets, went to Goodman, 

while the Low Net award, sponsored 

by Productivity Point International, went 

to Billy Lenamond of NationsBank, 

an t I-h<strong>and</strong>icapper who carded a net 66 

(Goodman, per SkyTel rules, used up 

his prize eligibility when he took Low 

Gross) . Free travel also was in the cards 

for Clarke of Dr Pepper/Seven-Up when 

his <strong>business</strong> card was drawn from the 

raffle basket <strong>and</strong> $1,000 in vouchers 

from Carlson Wagonlit Travel were 

recorded in his name . 

Jerry Toenjes of Shell Oil hit a blast 

of a tee shot on the Longest Drive hole, 

No . 14, <strong>and</strong> walked off with a full set 

of Butner Bubble golf equipment from 

Taylor Made . Starting on the 17th, 

Toenjes caught the 14th fairway at just 

about its most <strong>and</strong> state . Realizing that 

the sun <strong>and</strong> wind had dried out central 

Texas <strong>and</strong> provided a tiny bit of extra 

roll, the 5-h<strong>and</strong>icap Toenjes just relaxed 

<strong>and</strong> "aired one out," as those long 

drivers like to say . 

First place Pilgrim's Pride . L-R: Dave H<strong>and</strong>. 

Torn Goodman, Sk/TeYs lack Hurvey, 

Terry Berkenbile, Dennis iVichols . 


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Wvnstone Golf Club, North Barrington, Illinois . June 5, 1995 

No TROUBLE IF YOU DIDN'T LOOK FOR IT 

On the scoreboard at Wynstone Golf Club, under the name 

Associated Banc-Corp, shimmered the four winning numbers : 

74-73-72-70 . They were by far the neatest, most consistent 

High-five for low team 

net . Tom li'alsh <strong>and</strong> 

Gordon Weber of 

Associated Sanc-Corp . 

set of net team scores ever to win a 

SkyTel U .S . Corporate Golf Championship 

regional qualifier . Two-time U .S . Open 

winner Curtis Strange, who was on 

h<strong>and</strong> at the Midwest regional for a 

morning clinic, then roamed the course 

taking a few swings with each group, 

would surely sign for those numbers 

before the next Open <strong>and</strong> take his chances . 

But they belonged, respectively, to Nick 

Conlon, Mike'_biahlik, Gordon Weber 

<strong>and</strong> Tom Walsh . And the $3,000 firstplace 

cash award those scores earnedalong 

with matching funds-belongs 

to the Boys & Girls Club of Milwaukee . 

Riding over from Green Bay for their second appearance 

in a Midwest qualifier, the Associated gang took advantage 

of perfect golf weather <strong>and</strong> "did what everybody tells you to 

do," according to Walsh . "We stayed out of trouble ." Gordon 

Weber looked back at his round <strong>and</strong> thought first of the 

chunked wedge shot that squirted into a creek <strong>and</strong> set up 

his double-bogey 7 at No, 3, which is a bona-fide birdie hole . 

Heck, what else would st<strong>and</strong> out in a round that otherwise 

consisted of four bogeys <strong>and</strong>-count 'em-13 pars? 

Walsh, Weber's playing partner 

. was a paradigm of consistency, shooting 86 gross, 70 net, <strong>and</strong> carding nothing 

higher than a gross 6 . He even made two birdies in a row, 

sinking 10-foot putts on both the fourth <strong>and</strong> the fifth holes . 

Then, at No . 6, he called on his short game to limit the damage 

from a semi-shanked approach shot to a mere net bogey . 

The other Associated twosome, Conlon <strong>and</strong> Mahlik, played 

close to their respective h<strong>and</strong>icaps of 11 <strong>and</strong> 13 without 

attracting much attention . Their pairing with Robert Burian 

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<strong>and</strong> Don Rader, two players from the 

highly competitive Safety-Kleen team, 

was typical of the jovial, gregarious 

spirit that suffused the entire field . 

"W'e weren't grinding at all . We were 

completely relaxed <strong>and</strong> enjoying the 

day," said Mahlik, preparing to light 

a complimentary Davidoff victory 

cigar. "We came in with a relaxed, 

positive attitude," said Conlon, 

Associated's chairman <strong>and</strong> chief 

executive officer. With 

irony Conlon added : "Of 

course, we carrte in with 

the same attitude last 

year <strong>and</strong> we stunk the 

place up, so go figure ." 

Watching the 

play of second-place 

Black & Veatch, one 

detected more Zen-like 

attitudes . The pairing of 

Dave Mahaffay <strong>and</strong> 

David Hall yielded the 

good-karma scores of 

76-net-70 <strong>and</strong> 79-net-72, 

but the way the twosome 

stayed in sync went 

beyond the mere score . 

For example, on the par-5 third hole, 

their drives l<strong>and</strong>ed 30 feet apart down 

the right side . Their layup shots l<strong>and</strong>ed 

15 feet apart, 80 yards in front of the 

green . Finally, their wedge shots l<strong>and</strong>ed 

2 feet apart on the back fringe . That 

goes beyond just "good cart golf ." 

Mahaffay's 76 was good for medalist 

honors in the field, which meant two 

free airline tickets for him on America 

West Airlines . In addition, for being 

low-net shooter on the team that 

traveled farthest to compete, Mahaffay 

won an attractive piece of carry-on 

luggage from Lark . 

Black&Veatch, a Kansas City-based 

engineering firm, used net scores of 

80 <strong>and</strong> 78 from Len Rodman <strong>and</strong> i 

Doug Smith, respectively, to bring 

home a team score of 12-over-par 300 . ! 

Rodman reached back for something ', 

extra after slicing his tee shot out of 'i 

bounds on the par-5 18th 

. He pounded his second drive a solid 250 yards, 

drilled an iron close to the green, then 

lobbed his 70-yard wedge shot to 7 feet 

Low shooter Dave a3ahaffay 

of Black & Yealch. 

<strong>and</strong> sank the putt for a net par. Smith, 

a bantamweight 5-h<strong>and</strong>icapper who 

swings the club like he means it, saved 

par on that hole with a sidehill 8-footer 

that made up for some shaky work 

with the wedge . The B & V group 

will be worth watching at the finals 

in Williamsburg, Va . With their 

shotmaking in the 

Midwest regional, 

they carried home 

a $2,000 check for 

the charity InRoads . 

They'll be joined by 

a confident team from 

National Car Rental : 

Barry Rosenberg, John 

Swanson, Terry Hardy 

<strong>and</strong> Robert Briggs . This 

quartet plays together 

at courses near the 

firm's Minneapolis 

headquarters whenever 

possible, <strong>and</strong> their 

camaraderie shows . 

The 16-h<strong>and</strong>icap 

Swanson hit for the cycle at Wynstone, 

making natural birdies on a par-3, 

par-4 <strong>and</strong> par-5 . 

"John was exceptional," said 

Rosenberg, who was in the mood 

to "spend some money on lessons" 

after managing only a net 85 . 

Meanwhile, Hardy <strong>and</strong> Briggs 

engaged in nonstop banter with their 

playing partners from R .R . Donnelley, 

<strong>and</strong> the jocular foursome 

made a brief ruckus on the 

tee where the hole-in-oneprize 

Cadillac was parked, 

as Hardy's laser-like 

shot enjoyed a brush Z,,~ 

with greatness . Briggs, O 

meanwhile , missed '~ 

badly to the right on 

that hole, the 162-yard 

11 th, but pitched delicately 

to within 8 feet <strong>and</strong> sank 

the putt for par. Their 

$1,000 SkyTel check 

went to the PSL Children's 

Charity in Minneapolis . 

The day's freewheeling atmosphere 

carried over to the awards party, 

where the spotlight turned on Carlson 

Wagonlit's Joe Concheck . With his 

monster 295-yard tee shot at the 18th 

<strong>and</strong> a flag-finding iron shot at No . 14, 

Concheck won both the Taylor Made 

Long Drive <strong>and</strong> the Jaeger-LeCoultre 

Closest-to-the-Pin awards . Being a 

member of an on-site sponsor team, 

the 6-foot 8-inch natural athlete 

graciously declined the Jaeger-LeCoultre 

watch he received as a reward, offering 

it as booty for a charity auction . Herb 

Getz of W"v1Y Technologies picked up 

the 52,800 wristwatch with his bid of 

$1,000 . Concheck, though, couldn't 

resist the Long Drive prize : a set of 

coveted Taylor Made Butner Bubble 

irons <strong>and</strong> woods . 

Low net honors, accompanied by 

a commemorative gift from sponsor 

Productivity Point International, went 

to Ron Agypt of Combined Insurance . 

Agypt was an instant fan of Wynstone 

<strong>and</strong> played with gusto from the getgo 

. On his way to an 85-net-62, 

Agypt set the SkyTel messaging pagers 

vibrating with a shot on No . 11 that 

came within 14 inches of winning him 

a new Cadillac . 

Among the raffle highlights was 

Jerry Mohan's piece of luck in winning 

a new Konica phone/fax machineMohan, representing Illinois Central 

Railroad, checked to see if the Konica 

held any messages for him from the 

office . Finding there were none, 

he happily accepted the prize . 

First place went to Associated Banc-Corp . 

L-R : Nick Conlon, Gordon St'eber, 

SkyTe1's Jack Hamey, Mike Mahlik, Torn lYalsh 

I 


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The Creek Club . Locusr Valley, New York, /une 26, 1995 

HE CAAIL TO THE ISLAND AND i'VIADE A ttONEir 

At day's end, the photographer found Roger 

Peters st<strong>and</strong>ing on the stone ver<strong>and</strong>a at The 

Creek Club in Locust Valley, N .Y. . staring in 

wonder-but not at the beautv of the club 

property as it rolled toward Long Isl<strong>and</strong> Sound 

in the medium distance . Instead, the senior vice 

president of Pittsburgh-based Dick Corp . fixed 

his gaze on the 139-yard 17th hole, where 

hours earlier he had launched an 8-iron shot 

that became the first hole-in-one in Sk :.Tel U .S . 

Corporate Golf Championship history <strong>and</strong> the 

catalyst for his team's qualifying third-place 

score of 295 net, 15 over pac Smile, Mr . Peters . 

Click . Ter-rifc . 

It was actually Petcrs' playing partner, David 

Dick, who tumed in his team's lowest net score, 

an even-par 70 . Both he <strong>and</strong> Peters began their 

rounds with irksome double-bogeys on the par-3 

Sh.yTel's Jlrst-ever acer 

was Roger Peters frortt 

Dick Corp . 

eighth-the place where an ace would have won 

them a 1995 Cadillac-after pulling their tee 

shots into a deep, difficult bunker on the left . 

But the two men dusted themselves off <strong>and</strong> 

played mostly solid golf from there, with David 

Dick sculpting an eight-hole stretch composed 

of seven pars <strong>and</strong> one birdie, all gross . 

The company's other twosome, Douglas Dick 

<strong>and</strong> John Kudrna, were a combined 12-over net, 

good enough on a day of shifting winds <strong>and</strong> fast 

greens to keep the team on pace for third . 

At the waterside tenth hole, Kudrna recovered 

roically from thigh-high reeds right of the 

'airway, then wasted the effort by skulling his 

wedge from in close to set up double-bogey . 

Nonetheless, he <strong>and</strong> Douglas Dick came 

right back on the next hole, a par-3 over 

marshl<strong>and</strong> to a huge sod nursery of a green, 

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I 

where they recorded a pair of pars . 

Dick Corp .'s chosen charity, the 

Epilepsy Foundation, will thanic them 

for the S 1,000 SkyTel donation that 

comes with third place . Neediess to 

say, Roger Peters also won closest-tothe-pin 

honors on the designated 17th, 

which brings with it a Jaeger-LeCoultre 

watch he will never tire of looking at . 

The foursome from Citicorp/CGIN 

didn't score any aces, but was 

anchored skillfully by Sal Chiat-monte 

<strong>and</strong> Alex Burbatsky, a combative pair 

of I 7-h<strong>and</strong>icappers who shot net 

scores of 74 <strong>and</strong> 71, respectively . 

Chiarmonte is the team's organizer, 

a slashing lefth<strong>and</strong>er who supervised 

pre-round practice for the team's 

less-experienced twosome, Dean 

DelVecchio <strong>and</strong> Angelo DeGenaro . 

On the troublesome par-5 seventh 

hole . Chiannonte chewed himself out 

for pull-hooking a 4-iron approach far 

right of the green . His lie, on the brow 

of a bunker, was so awkward that it 

would make a straight shot difficult for 

any golfer . Burbatsky, meanwhile, was 

roping two Gne, long wood shots to 

a spot iust 80 yards from the hole . 

His bid to get up <strong>and</strong> down for birdie 

fell just short, however, <strong>and</strong> Burbatsky 

settled for par. 

Chiarmonte recovered for a 6, net 

5, but as they walked off the greep he 

checked his SkyTel pager message to 

lean that Burbatsky's closest-to-the-pin 

effort on No . 17 had been bettered by 

2 feet bY Peters' 

hole-in-one . 

Burbatsky, ever the 

optimist, said, "At 

least, maybe, my 

longest-drive shot 

will st<strong>and</strong> up ." Alas, 

Jeff Heinicka of 

Florida Progress, 

who also made a 

natural eagle 2 on 

the 12th, would 

soon step up to the 

tee a : ò . 18 <strong>and</strong> 

rifle the day's 

longest drive . 

Heinicka's big blast 

earned him a prize 

catch of Taylor 

Made Burner Bubble woods <strong>and</strong> irons . 

So no individual loot ior Burbatsky, 

but with help from a holed bunker shot 

by DelVecchio, he 

will bring his team 

to the national finals 

in September. The 

Citicorp/CGIN charity, 

St . Jean-Baptiste High 

School, will accept a 

charitable contribution 

Sizing un the situation : 

Sal Chiannonte of Citicorp/CG/N 

with a Creek Club caddie . 

of $3,000 <strong>and</strong> await 

whatever the team can 

bring home from 

Williamsburg, Va . 

Second-place 

finishers in the Northeast were the 

golfers from Emerson Electric, who 

hopscotched from St . Louis with a team 

that had participated in two previous 

SkyTel regionals <strong>and</strong> in fact made it to 

last year's finals in Vail, Colo . Once 

again, the Emerson team was paced 

by Gerry Monken, who took low-gross 

honors at The Creek just as he had 

in 1994 at the Midwest qualifier . 

Monken's medal score this time was 

76, including a natural birdie at the 

difficult par-3 eighth hole <strong>and</strong> a 

snappy par on the backbreaking sixth, 

rated the most difficult hole at The 

Creek . Monken's reward this time 

was a pair of plane tickets to take 

him wherever America West tlies . 

Teaming with 

Monken was Bob 

C x, who played 

as a 15 <strong>and</strong> came in 

with 94, net 79 . Cox 

endured back-to-back 

8s on the 13th <strong>and</strong> 

- 14th holes, a pair 

of twin doglegs 

that wrap around 

marshl<strong>and</strong> <strong>and</strong> can 

ruin many a fine 

round . The other 

Emerson pairing, 

George Tamke <strong>and</strong> 

Ike Evans, called 

upon their SkyTel 

expetience to produce 

a combined net of 

only seven strokes over par. Tamke 

would have been exactly par-70 net if he 

hadn't missed a ridiculously short putt 

of about 15 inches on No . 12 . Evans 

also grimaced coming cff No . 12 : After 

his terrific iron shot left him with a 

First place was in die batik for Cificorp/CGL's' . 

C-R : Sal Chiarmonre, A1ex Burbatsky, 

SkyTe1's jack Han-ey, Dean DelYecchio 

<strong>and</strong> Angelo DeGenaro . 

12-footer for birdie, he was unable 

to get it within a yard of the hole . 

But he made his par <strong>and</strong> helped make 

possible a $2,000 SkyTel gift for 

the Diabetes Association . 

Low-net shooter on this sensationally 

sunny day was Stan Sauerhaft of 

Burson-Marsteller, who carded a net 

67 <strong>and</strong> went home with a rosewood 

putter from Productivity Point 

Intemational . Alex Burbatsky won the 

drawing for 31,000 in travel vouchers 

from Carlson Wagonlit, <strong>and</strong> Ed 

Burtner, representing the Virginia 

Department of Economic Developmcnt, 

had his card drawn for a Konica 

phone/fax machine . When the sun 

set over The Creek Club, the SkyTeL 

national finals were set <strong>and</strong> the Sweet 

15 were all chosen . Good luck to all, 

<strong>and</strong> play well . 

GOLDHN BEAR INTERNATIONAL, 

JACK NICKLAUS' BUSiNESS GNT[TY, 

15 RESPONSIBLE FOR PLANNING AND 

CONDLCTIIVG -HE $KYTEL U .S . CORPORATE 

GOtr CIi.4MrIONSH1P EVENTS . 

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COVER PHOTO COJRTESY OF THE 

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ALL OTHER PHOTOS : 

PAUL LESTER PHOTOGRAYHY 

DESIGN : LESLIE StN(JER DESIG,N, N1,'C 

2046673334 


IN IRGINIA , YOUR 

ACCOUNTANTS WILL FIND 

ANUMBEROF 

EXTRAORDINARY ITEMS . 

Extraordinary item : Virginia manufacturers 

pay the lowest average workers compensation 

rate in the country . 

Extraordinary item : Virginia is the northernmost 

right-to-work state in the Eastern U .S . 

Extraordinary item : Virginia's corporate 

income tax rate hasn't increased since 1972 . 

Extraordinary item : Virginia has 

been named the best fiscally managed state 

two years in a row* 

Extraordinary item : 60% of the U.S. market 

is located XN7ithin 750 miles of Virginia . 

VIRGINIA 

THE BOTiOM LINE STATE 

For more information contact : Wayne Sterling, CED, Director, Virginia Department 

of Economic Development, P.O. Box 798, Richmond, Virginia 23206-0798,1-804-371-8202 . 

*f nancial Wor/d . "The State of States"ranluh g, May 12, 1992; May 15, 1993 . 


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Nearly bankrupt ten years ago, Union Texas Petroleum 

is now flush with profits <strong>and</strong> on the trail 

of 1 billion barrels of oil . 

Elephant hunter 

By Toni Mack 

ON JULY 1, 1984 Clark Johnson was 

named chief esecud ve of Union Texas 

Petroleum Holdings . He didn't 

celebrate for long . Three days later 

Johnson «'as told that his parent company, 

the old Allied Corp„ wanted to 

start cashing out of Union Texas . 

Unless Johnson could find someone 

to buy half of Union Texas, Allied 

would sell the whole company, <strong>and</strong> 

Johnson would be out of a job . 

Thus began eight tumultuous e'ears 

during which Johnson fought to save 

not only his job bu t Union Texas, too . 

In July 1985 he convinced Kohlberg 

Kravis Roberts & Co . to pay Allied 

S250 million for 50% ofli nion Texas . 

KKR, of course, financed the deal bq 

borrowing heavily against 

the oil outfit's assets <strong>and</strong> i 

cash flow . But within a year 3 

the price ofoil crashed from ~ 

527 to $11 a barrel, <strong>and</strong> 

Union Texas' cash flow was 

barelv adequate to sen'ice 

its debts . 

Johnson kept Union 

Texas afloat bv slashing 

spending <strong>and</strong> selling assets . 

Debt was further reduced 

in September 1987, when 

Allied (which bv then had 

merged with Signal Cos . to 

form AlliedSignal Inc .) <strong>and</strong> 

'~lcti each sold a 12% stake in 

Union Texas to public 

investors . 

Unfortunatelv, Union 

Texas' two controlling 

shareholders argued over 

what to do with Union 

Texas . "AlliedSignal wanted 

to get its cash out, 

whereas ?

One of the great success stories of the 1980s, 

Comdisco must painfully adapt to a world where 

mainframe computers are replaced by PCs-<strong>and</strong> 

where locker-room manners are politically incorrect, 

Jack Slevin's 

ordeal 

By Matthew Schifrin 

Comeisca Chief Executive Jack Slevin 

Has he matured enough to face Comdisco's sobering challenges? 

JUST ocEaatEA .Reco Jack Slevin fell 

into the top job at Comdisco, Inc 

.t but his promotion was scant cause for 

ceiebration . The big (1994 re,;enues, 

52 .1 billion) computer leasing cornpanv's 

founder <strong>and</strong> guiding light, 

Kenneth Pontikes, had just died of 

colon cancer at age 54 . Pontikes was 

morc than a boss . He was idolized, 

<strong>and</strong> even todat' some staffers get mist_r-eyed 

chen diev t:ilk about him . 

Following an act like that is bad 

enough . &en worse, Slecin took over 

a company that's in the midst of 

reinventing itself in the face of a fastchanging 

computer market . At the 

same time he is trying to assure investors 

that Comdisco still justifies a lofq• 

stock price that recently hit 24 times 

earnings . 

In short, Comdisco is delicatel~poised at the point of change 

. 

Over a quarter of a centun' Comdisco 

had grown up «•ith the computer 

indusrrv, chiefly bc leasing IBM 

mainframes to users aw «ou1d rather 

rent than own- But tinus chaneed . 

Comdisco faces rough competition 

Ermn manufacturers like tsNi, schich 

does its own leasing, <strong>and</strong> from giant 

leasing competitors like GE Capital 

<strong>and</strong> st&7 Capital . Mean.vhile, corporations 

are converting en masse from 

mainframes to inexpensire personal 

computers linked in nenaorks . 

Little ofthis is vet obcious in Comdisco's 

numbers . Its core <strong>business</strong> has 

continued srosving, though more 

slowlv : Last t'ear it added a net $1-6 

billion in new leases to its portfolio, 

compared with increments of 51 .7 

billion in 1993 <strong>and</strong> S2 bilLion in 1991 . 

Comdisco's reported earnings, 

too, have held up . In 1994 it shoceed 

earnings of $1 59 million ( before taxes 

<strong>and</strong> a $70 million 1B1a litigation settlement 

charge), up from $144 million, 

pretax, on slightlp higher revenues 

than in 1993 . In the first hatfof 1995, 

its pretax profit is up another 4% . 

Probe beneath the numbers, <strong>and</strong> 

the rosv glow tedes . To see whv, you 

must underst<strong>and</strong> hoss• computer leasing 

a'orks . Comdisco has been essentiall}• 

a specialized financial companv, 

making its monev in nvo svars : 

1) On the spread benceen its cost of 

money <strong>and</strong> the implied interest rate 

embodied in its leases . That is, it 

borrows monev to brry equipment at 

lower rates than it charges customers . 

82 Forbcs nAueust 14,199, 

1146673340 


_ , 

nrhk :ng .~ss back duIge iri ethtuc lokes n ~was a goo i deal oFCOilegia[~ 

EqUal OppoT1U11i1Y r;rounds manyofthem for c .luding jokes about his drinking around the ~ 

~IISUltS_ . r,rr .athletes .Comdisco ovvnIrishbackground .Re- place .S(evin'sdrirtkingepi- 

"` n a,c ihll m rry nc-some hLhi cagcaerovrn:oes B, _, sd areegenaryn ld I 

< .pa cksufinerSl `He,isdefimtclyanequal Augustof1990henasarJ 

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~i Clali.ulm- l.iiuul ' u r-roo lit . ._ 4r

ADVERTISEiv1E:VT 

I 

he son of a freelance 

snilptor, David Hoffman 

learned ear),y that independent 

thinking <strong>and</strong> personal 

freedom were the cornerstones 

of a well-lived life . 

After 15 years as a Wall Street 

institutional money manager, 

Hoffman grew bored of pegging his 

performance against lifeless financial 

indexes . So in 1990, he set out 

on his own, trading futures from 

his home in Darien, Connecticut . 

His disciplined but creative style of 

speculating yielded him a sixry-fold 

return on his original investment 

in the fust year . 

A New Lifestyle 

<strong>and</strong> New Sensibilities 

The lifestyle change gave 

Hoffman time to start a family <strong>and</strong> 

help his wife Gale raise their three 

young children . It also gave him 

new sensibilities . It allowed 

Hoffman to take over the final 

stages of a year-long renovation of 

their 100-year-old home . "We dealt 

with many independent tradespeople 

in managing the job <strong>and</strong> a number 

of them drove Explorers . The 

dem<strong>and</strong>s of family life called for a 

new car, <strong>and</strong> the combined utility 

<strong>and</strong> recreation potential of the 

Explorer fit our needs perfectly . 

It's safe <strong>and</strong> substantial - what 

every young family needs ." 

The Explorer has accompanied 

Hoffman through another round 

of lifestyle <strong>and</strong> career changes . 

In May, Hoffman went to work for 

Br<strong>and</strong>ywine Asset Management, 

a management-owned firm 

based in Wilmington, 

Delaware, with $3 .2 

billion under management. 

His mission7 

To grow the $100 

million Global Fixed 

Income product to 

Breaking 

New 

Trails 

PROFILES OF AMERICA'S 

ENTREPRENEURS 

BROucltr To You Br THE FoRD ExPl.oal::e 

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HOFFMAN 

Porffodio Manager, Br<strong>and</strong> Ywine Asset Management 

DAVID F . 

billion by 1999 . Hoffman is 

right on the mark : After just two 

months, he already increased the 

portfolio's value by 10% . "Working 

here allows me to maintain the 

benefits I found working for myself 

- like the chance to pursue independent 

ideas - with the added 

resources of a larger firm <strong>and</strong> a 

group of bright <strong>and</strong> creative investor, 

to brainstorm with," says Hoffman . 

The balance of home <strong>and</strong> work 

has shifted somewhat, but the 

balance still includes summers on 

Martha's Vineyard for the family. 

"The Explorer is perfect for traveling 

wZth a summer's worth of 

paraphernalia . On weekends the 

Explorer takes us to the beach <strong>and</strong> 

anywhere else off the beaten trail ." 

A Safe Investment 

~ 

Back In the real world, Hoffman 

uses the Explorer to commute 

between the family home in Bryn 

Mawr . Pennsylvania <strong>and</strong> his office 

in Wilmington . Such versatility 

is no surprise to the million-plus 

Americans who already own a Ford 

Explorer. As America's top-selling 

four-wheel drive, compact sport 

utility vehicle, the Ford Explorer 

offers the right mix of safety, 

comfort, reliability <strong>and</strong> pure driving 

pleasure that hard-charging 

entrepreneurs require . 

"I couldn't have made a better 

investment," says Hoffman . 

"Everything about the Explorer 

works for me . The higher ride 

makes it easy to load <strong>and</strong> unload 

the kids . The ample interior 

space makes it easy to lug 

all of the paraphernalia a 

~ growing family requires . 

~ And at the same time, I am 

convinced of its safety - 

something a father with 

a young family just 

naturally - 

thinks about." ~ 



i 1_ 

Comdisco 

I 

9 

1 ~ 

!ohn Vos :cky, chiettinancial officer cf Comdisco 

Slevin counts on his cleverness to boost earnings. 

ein. "I need a lot more help ." 

A good deal ofhelp is coming f om 

John Vosickv, Comdisco's able chief 

financial or'Fcer . A former Peat Marwick 

CPA, Vosicky joined Comdisco 

the same vear Slevin did, <strong>and</strong> the two 

work %vell together . 

Vosicky is a clever man with a profit 

<strong>and</strong> loss starement . When Pontikes 

died last }°ear his insurance policy paid 

Comdisco S20 million . Rather than 

designate it as an extraordinary item, 

Vosicla lumped it into Comdisco's 

$§ 7 million in other revenues . He also 

apparently has thro cn into other revenues 

some S21 million in proceeds 

from the sale of stock <strong>and</strong> warrants 

held by Comdisco in Cadence Design 

Svstems . 

Comdisco still holds another $20 

million or so in unrealized gains on its 

Cadence position . Presumablv Vosickv 

can harvest them whenever the 

company's earnings or cash flow need 

a boost-%ehich rheyare likely to need 

in the next few vears . 

An example of Vosicky's cleverness 

is Comdisco's Venture Leasing division 

. This 12-person operation leases 

to startup companies <strong>and</strong>, in exchange 

for accepting the extra risk 

involved, dem<strong>and</strong>s wan-ants in the 

companv as a sweetener-answhere 

from 6% to 12% of the deal . This 

<strong>business</strong> accounts for only about 550 

million in lease deals per year, but if 

the startup takes off, the profitsspeculative 

though thea are-can be 

enormous . Clients of this Comdisco 

division haveincluded Sybase, Cyrix 

<strong>and</strong> Svnopsis, <strong>and</strong> its current portfolio 

includes over 250 startups . 

As long as there are unrealized 

profits in this portfolio, Vosicky has 

the flesihitiw to realize them as he 

needs to give Comdisco's profits a 

boost . Comdisco recentlv told venture 

capitalists that it would double its 

leasing commitments to startups to 

Comdisco wants to become a 

high-tech service company. Is 

Jack Slevin the man to run 

this tricky transition? 

5100 million a year . Comdisco 

doesn't break out earnings from this 

division, but FolutES believes that in 

1994 at least 315 million of Comdisco's 

S159 million in pretax profits 

came from cashing in warrants in this 

portfolio . 

Comdisco is now willing to finance 

riskier szat-tup deals <strong>and</strong> even throw in 

additional financing . In IMay it committed 

to leasing S1 million worth of 

equipment to Boulder, Colo . startup 

BioStar Inc .-maker ofa rest for strep 

throat-<strong>and</strong> in addition bought S2 .5 

- million in BioStar subordinated 

debentures . 

Profits, ofcourse, are profits, <strong>and</strong> as 

long as technology stocks are strong 

<strong>and</strong> Comdisco's judgment sound, 

these lease-sweeteners bring in real 

cash . But thev are not quite the same 

thing as a dependable earnings flow, 

Nor is the companv's recent effort to 

grow its earnings through an aggressive 

stock repurchase program . 

A more immediate worry for Jack 

Slevin is a recent exodus from the allimportant 

sales force . In the last 18 

months at least three dozen salespeople 

have left out of a total force of 

some 130, manv defecting to rivals 

like GE Capital . ~S'hile Comdisco has 

been cutting commission schedules 

<strong>and</strong> raising sales quotas, Ga Capital 

has been offering sign-on bonuses 

<strong>and</strong> guaranteed contracts . 

One reason commissions have dcdined 

is a change in Comdisco's 

product mix . Comdisco is leasing 

more res for client-seraer netnvorks . 

Of the $1 .6 billion in new leases 

Comdisco wrote last year, 14% were 

personal computers, up from 10% the 

year prior, while mainframe leases 

dropped from 44% tuo years ago to 

33% last year . 

linlike mainframes, which can cost 

$20 million, desktop computers are 

leased bv the *-hous<strong>and</strong> <strong>and</strong> cost 

around $2,500 new . Their residual 

value drops quickly <strong>and</strong> remarketing 

margins are thin-hence, skimpier 

commissions . 

Comdisco now leases other equipment-such 

as CAT scanners, semiconductor 

manufacturing equipment, 

tape drives <strong>and</strong> cash registersbut 

these, too, are highly competitive 

<strong>business</strong>es, some with thin margins . 

In the ticklish situation Slevin finds 

himself in, the last thing he needs is 

outside distraction . <strong>How</strong>ever, he may 

be facing it . A black former Comdisco 

salesman is suing the company for 

alleged racial discrimination <strong>and</strong> has 

identified Sievin as one of the main 

offenders . Regardless of the merits, a 

trial could be embarrassing to Conr 

disco, since it would reveal in a bad 

lighe the good-old-boy, macho atmosphere 

that has always prevailed in its 

sales organization (see box, p .83) . 

There are days when Jack Slevin must 

wish he were back on the road selling 

leases again. ~ 

86 

2046673344 

Forbes . August 14, 1995 


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Innkeeper Henry Silverman has hundreds of partners 

with the same surname . He's about to lead 

his immigrant army into another industry . 

Patel, Inc . 

By Joel Millman 

HFS' Henrv Silverman (left) w ;th rranchisee Hasmukh P . Rarna 

Eyeing the brokerage <strong>business</strong> as a new field to conquer . 

HosP[TALiTY F0.AVcHlsc SYSTHIDIS, 

Inc ., with oaer 4,000 Ramadas, Days 

Inns, Super 8s <strong>and</strong> <strong>How</strong>ard Johnsons, 

is the world's largest motel franchisor . 

Its re%enues last ccar were 5313 million, 

its profits 553 .5 million . 

Though it concentrates on the cheaper 

S25-to-S65 roadside room, its 

profits are among the highest in its 

end of the lodging <strong>business</strong> . In the 

past fi% e }'ears Chairman Hem}' Silverman 

has nearlv doubled the number 

of hotels under his banner at almost 

zero capitai cost . 4t'a11 Street loves 

him : E :fs' stock recentlv hit an alldmc 

high, S43 a share, from a split-adjustcd 

$8 at the 1992 iPO . 

What made Silaerman so successful? 

In a,cord, immigrants, immigrants 

from India . These people, 

more than half with the identical Gujarati 

surname "Patel," have been 

innkeepers to the nation's interstates 

since the earlv 1980s . The Patels are a 

widespread clan (whose last names 

include Desai <strong>and</strong> ~uninj who have 

been <strong>business</strong> people foi' centuries in 

their native l<strong>and</strong> . Thet° started here in 

$ 15=a-night di~es but moved quickly 

to the S45-to-$65 franchises . Today 

more than half of i-iFs' Dats Inns, <strong>and</strong> 

about a third of its Ramadas, Hokcard 

Johnsons <strong>and</strong> Super 8s, belong to 

these hardworking, penny-pinching 

Indians . Because their thrift generates 

so muci capital, thev ha%e been excellent 

partners to a chain seeking to 

exp<strong>and</strong> without raising fresh monet' . 

Silverman plavs down the role of 

ethnicity in xFS' success . "Thev were 

a stimulus to growth, but I think you 

get there an}'~vav," he says . Maybe so, 

but not as fast . Last eear oN er half of 

FFS' new motals-15,000 rooms- 

%~ ere built by immigrants from India . 

When FFS launc7es a new br<strong>and</strong>, 

Rringate Inn, next year, a third of the 

70 charter franchises will belong to 

Indians . Silverman acti%elv lures Pates 

from Choice, Promus <strong>and</strong> Holiday 

Inn, last vear providing refinancing 

to moteliers willing to convert 

from another banner to his . The HFs 

executive in charge of luring the convertsi 

1lanish Patel . 

FrFS' S20,000-ro-S35,000 initiation 

fees <strong>and</strong> its annual rovalties, 

about 8%, are bargains for immigrant 

moteliers . Thev need management 

guidance <strong>and</strong> the means ofattracung 

more customers . HFS can do both, 

routing lodgers through its reservation 

svstem <strong>and</strong> giving advice on everVthing 

from ashtra,vs to ice machines. 

After 111,11, it's up to the franchisee 

to work hard <strong>and</strong> eflicientle . 

PatcJs do both . 

Hes' arerage Patel holds at least one 

uni~ ersity degree, usually in accounting 

or engineering, but he or she isn't 

afraid to make beds or work the night 

shift when needed . The%• can raise 

cash, too . In ehe 1980s it wasn't 

tmcommon to raise capital through 

pools of Patel surgeons or engineers . 

Sometimes the monec came in cash ; 

there are even stories that it arrixed'ui 

suitcases . Setting a daughter orson up 

in a ne .c hotel with vour in-laws was a 

good wav to exp<strong>and</strong> holdings . 

Norwere the immigrants shy about 

cashing in on U .S . affirmative action 

programs . Though in no sense disad- 

%antaged, Patels qualified as a 

"minoriro" <strong>and</strong> tapped below-prime 

financing offered by the Small Business 

Administration . 

What next for Silverman <strong>and</strong> his 

Indian legions? HFs announced in 

June that it was buying Century 21 

Real Estate Corp . from Metropolitan 

Life . Where were the synergies in 

hotels <strong>and</strong> real estate? Look to places 

like Richmond Hill in \ewYork City, 

or Roswcll, Ga ., a suburb ofAtLanta, 

neighborhoods teherc the same immigrants 

are buying <strong>and</strong> selling 

homes . "There sxill be svnergies for 

Hts," saps Hasmukh P . Rama (ne 

88 Forbes s Augusr 14, 1995 

2046673346 


L!MISES. 

ITHEM 

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' ft's a formula for success in any <strong>business</strong> . -_ - 

When we first announced the transcontinen til E' I 

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eveit Eettet tfu7n eu3ue~tise{ . 

.lT'X' ~ R T'Fien, whcn the 20(/) was ccrtified aml opcrationa(-tt tue ou 

EL 

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cruise altirade, airfield performance <strong>and</strong> thrust reverser inaeallaiioa, 

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We believe that any <strong>business</strong> jefmust do everything weJl . The new 

Falcon 2C107 meets that st<strong>and</strong>ard-<strong>and</strong> goes beyond it . 

- For :nfo :mation-<strong>and</strong> our latest promises-call John Rosanvallon 

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tfif ;fliff f/ , 

R 


M

i 

i 

i 

Patel, Inc. 

Patel), whose company, !HH Enterprises 

of Greenville, S .C ., is HFS' biggest 

Indian franchisee . "HFS knows 

the strength <strong>and</strong> ability of this ethnic 

group <strong>and</strong> its potential ." 

Just as there once %rere witL+ motels, 

there are today hundreds of mom<strong>and</strong>-pop 

brokerages ready to listen to 

offers . .41any of them have already 

flocked to the Centun, 21 banner, but 

it so far has enlisted only about 8% of 

the nation's independent reilt}- brokerages, 

with rival nen orks hav ng 

enlisted another 12% . Says Silverman 

of the independents : "That's where 

the unit growth will come from ." 

Stephen Murray specializes in 

mergers <strong>and</strong> acquisitions of residential 

brokerages . Says he : "If this guy 

"There will be synergies . 

HFS knows the strength <strong>and</strong> 

ability of this ethnic group 

<strong>and</strong> its potential." 

For all their efforts, the big pharmaceutical companies 

have been unable to compete with Mylan Labs in 

generics . What's Milan Puskar's secret? 

Make a good 

product 

By Suzanne Oliver 

ONE Dnt' in 1993, shortly after Merck 

& Co . announced it was eso<strong>and</strong>ir.g in 

generics, Milan Puskar, chairman of 

Mvlan Laboratories, stood before a 

roomful of investors . "What are aou 

going to do when Merck sells a Rill 

line ofgenericsY" asked an analyst . "It 

will never happen," Puskar replied- 

Puskar ; 60, was right . Last December 

Merck drastically scaled back the 

[Sil~erman] has developed a system 

where immigrant investors can make 

monet• in hotels, he has a huge opportunirv 

in the real estate industry ." 

Murray says there has long been 

overcapacity among independent 

brokerages, with many part-timers . 

"You could snap up five mom-<strong>and</strong>pops 

<strong>and</strong> fold them into a Century 21 

franchisee," Diurra}• says, "for under 

$150,000-" 

According to Harvard's Joint Center 

for Housing Studies, immigrant 

households vill provide the next big 

spurt of ]tonre buving-300,000 to 

500,000 annualh• bv the aear 2000 . 

Fannie Mae now markets information 

in seven languages-including the 

latest, Haitian Creole . 

Patels <strong>and</strong> other immigrants can 

bring to the <strong>business</strong> fresh capital, 

shre\adness <strong>and</strong> a n illingness to work 

long hours . What can Century 21 

bring to the entrepreneurial immigrants? 

Kno%vhou <strong>and</strong> clout . Century 

21 generated $90 billion worth of 

home sales last vear . With that kind of 

volume-<strong>and</strong> growing-it can, 

among other things, wring higher 

origination fees for its franchisees . 

Perhaps more important, it can help 

them inteerate into the American 

malnstream, ~ 

90 

Mylan 

Chief Executive Milan Puskar 

West Point Pharma label under which 

it offers generic drags . Soon after- 

Geard Syntex pulled out of generics . 

Score two more wins for Mvlan 

against the br<strong>and</strong>ed drug companies . 

Founded in 1961 by Puskar <strong>and</strong> a 

colleague, Mvlan dominates the discount 

drug market as number one or 

number two in over half its 79 products 

.Atd a mighty prosperous domir+ 

; 

1 

W 

W 

~ 

40 

Early bird gets 

the prescription . 

Fom~es . August 14, 1995 


eu could make rubber b<strong>and</strong> balls for instance. ' 

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20466"r3340 


Mylan Laboratories 

Making tablets in 

Mcrgantown . W .Va . 

Seventy-nine 

pills, three 

processes . 

nance it has . In its last fiscal year, 

which ended Mar. 31, Mylan posted 

net earnings of $121 million on just 

S396 million in revenues . That figure 

is puny next to Merck's $15 billion . 

But if you count prescriptions dispensed, 

Mylan is second only to 

American Home Products . 

Mvlan's nominal headquarters is in 

Pittsburgh, but you'Il find Puskar's 

custom-built convertible parked outside 

tI3eMorgantowil, W.Va . manufacturing 

plant . This is where he 

hangs out, in simple digs . Here is the 

key to Mylan's huge profitability<strong>and</strong> 

to the inability of his big, highcost 

competitors to compete against 

him . "The key to our success is that 

we don't waste monev ." savs Puskar . 

MYlan uses just three manufacturing 

processes for a1179 of its products . 

That holds costs down <strong>and</strong> enables 

the company to meet any order wi thin 

five davs . 

In the generics <strong>business</strong>, being the 

first to market is a big deal . The first 

generic to steal <strong>business</strong> from a br<strong>and</strong>ed 

drug as the latter's patent expires is 

usually introduced at 70% of the price 

of the br<strong>and</strong> . Later, as many as 12 

generics will evenntallv enter the mar 

ket, driving the price down each time 

until it settles at as little as 10% of the 

br<strong>and</strong> price . The first comer reaps 

huge profits at 70% of the old price ; 

the latecomers get meager crumbs . 

In 1994 four of Mylan's six generic 

introductions were first to market . 

One of those firsts was ulcer drug 

cimeridine, known to customers of 

inventor SmithRline Beecham under 

92 

the name Tagamet . Mylan began selling 

cimetidine the ten, day Tagamet's 

patent expired in Maa . But it re~-ved 

up for the introduction five vears earlier 

. "We plan wav ahead," savs Puskar 

. "If you rush, rhings will end up 

costing you more ." 

There was only one supplier of 

cimeddine in the world, a Hungarian 

company, Lek . Even before it got 

Food & Drug Administration approeal 

for cimetidine, .biylan contracted 

with Lek to purchase most of 

its cimetidine supplv . When Du Pont- 

Merck <strong>and</strong> Teaa Pharmaccutical Industries 

tried to compete, they 

couldn't get enough cimetidine . BV 

May of 1995, Mylan was l<strong>and</strong>ing 39".% 

of new cimetidine prescriptions, with 

Tagamet itself down to 14%, according 

to market researcher axts America . 

The generic drug industny has always 

struggled with image problems, 

whether deserved or nor . Lawsuits 

pendingagain .st Copley Pharmaceutical 

blame the company-perhaps 

wrongly-for as manp as 100 deaths 

from a generic version of the astlvna 

drug albuterol . In 1989 a bribety 

sc<strong>and</strong>al erupted at the generic drug 

division of the FDa . 

In this tarnished <strong>business</strong>, Puskar is 

shining clean . He was the whistleblosver 

in the briben' case . He is a 

manufacturing perfectionist . The 

company has neeer received a warning 

letter fiom the FDa . Mylan's reputation 

for high quality enables it to 

charge 5% to 10% more than competing 

discounters . Pharmacists say that 

they never find smashed pills at the 

bottom of a Mylan bottle . 

Mylan's quality reputation <strong>and</strong> 

broad product line attracted Eli Lilly 

when it began looking for a generic 

partner . "Our managed care customers 

want generics, but we recognized 

it was a very different <strong>business</strong> <strong>and</strong> 

that we would probabl ' ~ not be very 

good at it," says Mitchell Daniels, 

p resident ofNorth Aune rican pharmaceutical 

operations at Lilly . _ 

Lillv came to Puskar saith a deal 

that, in effect, has Lilly helping to 

undercut its avn sales . It now manufactures 

its antibiotic cefaclor <strong>and</strong> 

painkiller propoxvphene for Mvlan to 

sell at lower prices under the Mvlan 

label while Lilly still sells the drugs as 

Ceclor <strong>and</strong> Darvon . Lilly's apparent 

reasoning : Someone is going to copycar 

these drugs, so it might as well be 

Mylan <strong>and</strong> we might as well capture at 

least a little of rhe manufacturing 

profit . 

Mranwhile, Puskar is inching into 

the br<strong>and</strong>ed drug market b% filling 

niches too small to interest the big 

drugmakers . He has licensed compounds 

that lie hopes to develop into 

patented drugs for migraine, rertigo 

<strong>and</strong> 'ourns . Mylan alreadv has two 

patented drugs on the market toda~ . 

One is hlaszide, an untih`pertensive 

drug developed as a knockoff. The 

pill's absorption bldte bodr so exceeded 

that of the b r<strong>and</strong>ed drug it was 

meant to imitate that Maxzide merited 

its ov, n patent . 

Now vou know vt-hy Milan Puskar 

wasn't worried about competing with 

Merck. 111111111 

c 

2046673350 F°rb 5 . .aug ust 11,1995 


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OUR FINANCIAL SIDLLS HELPED ONE COLD MINING COMPANY 

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_ . .. .___ . . . . . .__ _A~ _ 

I . .__ .__ . ._ . . ._ 


The folks at United Dominion Industries 

knew what they wanted to do, but they 

went about it rashly <strong>and</strong> foolishly . 

Staying power 

By Neil Weinberg 

Wllliam Holl<strong>and</strong>, chlef execctlve of Unl'ed Dominion Industries 

"The debt was like a disease ." 

THE SAGA of United Dominion Industries 

is a story of a company that 

embarked on a neupath without 

having a proper map . This $2 billion 

(sales ) company was almost destro}ed 

by a nrairagement too eager to mok e it 

into faster-growing <strong>business</strong>es . 

"I learned that when cou grow 

through acquisitions, a sound strate- 

R, alone isn't enough . Fou also need 

financial staving power." So savs William 

Holl<strong>and</strong>, the company veteran 

eho has headed United Dominion 

since 1986, 

Now headquartered in Charlotte . . 

N .C ., United Dominion is an outgrowth 

of an old Canadian consuvction 

company, Dominion Bridge . It is 

4146 owned by Canadian Pacific Ltd ., 

which plans to unload its stake bv 

year-end . 

Bogged dokk n in socialism, the Canadian 

economv seemed to be going 

nowhere in the 1970s, so United 

Dominion's then chairman, Kenneth 

Barclay, used borrowed ntoney to buy 

more than a dozen U .S . manutacturing 

outfits, doubling United Domim 

ion's sales to orer S 1 billion by 1981 . 

But with the 1980-82 recession, 

United Dominion began to sink under 

its acquisition debt . In 1986, the 

year Bill Holl<strong>and</strong> repLaced Barclay as 

chief executiM the company, burdened 

with S50 million in interest<strong>and</strong> 

preferred dividend payments, lost 

S73 million . 

"The debt was like a disease," saes 

Holl<strong>and</strong>, who .ras forced to r.lise cash 

by selling several of the best <strong>business</strong>es 

Barclay had acquired . These in- 

= cluded machine tool maker Giddings 

-& Lewis ; United Dominion sold it to 

= public investors for 5140 million in 

' 1989, <strong>and</strong> it is currently worth $600 

million . 

But shrinking the company saved 

it, <strong>and</strong> by 1989 United Dominion's 

debt was equal to 13% of capital, 

down from 60% four years earlier . It 

has been profitable ever since . 

Having injected some sraving power 

into United Dominion, Holl<strong>and</strong> 

began acquiring again, but this time 

in a more disciplined fashion . He 

would avoid excessive debt <strong>and</strong> would 

apply three strict criteria : An acquisition 

must be first or second in its 

markets, must have the potential to 

increase earnings immediately, <strong>and</strong> 

must in some %vav mesh with United 

Dominion's other holdings . 

The Marlev Co . passed the tests . A 

top maker of such industrial equipment 

as cooling towers <strong>and</strong> petroleum 

pumps, Kansas Citv, Mo .-based 

Marlev was purchased from Kohlberg 

Kravis Roberts in 1993 for S356 million 

. Holl<strong>and</strong> quickly reduced the 

ptvchase price by selling two of 94arley's 

six <strong>business</strong>es for nearlv $20 


Holl<strong>and</strong> also cut bfarlcv's annual 

operating costs S8 million by folding 

its headquarters into United Dominion's 

<strong>and</strong> pushed through a price 

increase at Sfarley Pump . 

After btq'ing bfarley in 1993, United 

Dominion last vear increased its 

operating income 24%, to S62 million 

. With joint ventures in China, 

Indonesia <strong>and</strong> Malavsia, .9larlev gives 

Holl<strong>and</strong> a strong start in his plan to 

push United Dominion's foreign 

sales front less than 20% of the total 

last year to 35% by 1999 . 

In 1993 Holl<strong>and</strong> sold United Dominion's 

original construction compan},, 

.biontreal-based Dominion 

96 

2446s id 3353 trorbw .August14,199 5 


, .1-1

IN voVATWE PROJECT FiNANciNG 

FOR A pOWER PLANT IN ASIA 

(We Helped With The Witing) 

Keeping a nation in power is beyond most banks . Bank of America accomplished 

the task by bringing financial partners together from around the world in a precedent-setting 

arrangement . We harnessed the power of people working together . 

Our client had the benefit ojrelationship 

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United Dominion Industries 

Unless you're a constipated horse, aloe juice probably 

won't cure your ailments . But a lot of people don't know 

that, <strong>and</strong> this has made Rex Maughan very rich . 

Jan Ver Hagen, UDI's eh7ef operedng ofFicer 

"I'li be like Pac•Man, nibbiing at costs ." 

Bridge . After years of losses, Dominion 

Bridge brought in someu'hat less 

than $20 million ; Holl<strong>and</strong> used the 

proceeds to help keep debt down to a 

minimum . 

While Holl<strong>and</strong>, now 56, restructures 

the corporation, Chief Operating 

Officer Jan Ver Hagen looks after 

the daily operations . Hired a« ay last 

year from Emerson Electric, where he 

was vice chairman, Ver Hagen, 57, 

says his goal is to increase United 

Dominion's 8 .5% operating margin 

to 11 .5% in 1997 <strong>and</strong> its 12 .7% return 

on equin, to 15% by 1999 . Grins Ver 

Hagen : "I plan to be like Pac-Manendlessly 

nibbling away at costs ." 

The results show . Last year United 

Dominion's sales rose 11%, to $2 

billion, <strong>and</strong> such is the operating leverage 

in the comparrv that net income 

jumped 56°%, to $62 million, 

SI .55 a share . 

With the sale of its service <strong>business</strong>es, 

United Dominion's revenues 

will probably remain around S2 

billion this year ; but earnings may 

climb another 23%, to around $1 .90 

a share . 

The folks who run United Dominion 

have no regrets about having 

pulled out of Canada's stagnant econome, 

burthev do «ish chey hadn't lost 

Giddings & Lewis along the way . The 

moral of this story is : It's not enough 

to know where you're going . You'd 

better have a good plan for getting 

there, too. m 

dccoafltNGTO Phoenix <strong>business</strong>man 

Rex Maughan, Alex<strong>and</strong>er the Great 

conquered the East African isl<strong>and</strong> of 

Socotra to obtain its aloe plants to 

soothe his soldiers' Nrounds . Never 

mind that Socotra is 1,500 miles 

southeast of dte southernmost point 

of Alex<strong>and</strong>er's conquests . Historv 

isn't Rex Maughan's <strong>business</strong> . Peddling 

products with supposed medicinal 

qualities is his <strong>business</strong> . 

Maughan, who is in his late 50s, is 

founder <strong>and</strong> sole owner of Phoenixbased 

Forever Lis, ing Products International 

. Forever Li ving sells deodorants, 

toothpaste, laundry detergent 

<strong>and</strong> three dozen other p roduas, nearly 

all of%chich contain estract ofaloe, a 

cactuslike succulent plant common to 

some desert areas . Half his <strong>business</strong> 

comes from a single product, drinkable 

aloe gel, a tart extract that looks 

like pineapple juice <strong>and</strong> tastes like 

turpentine . A quart ofthis stuff retails 

for ^J .14 .95 . People drink it straight or 

mixed with fruit juices. Forever Living 

also does a big <strong>business</strong> in bee 

pollen, which some people are persuaded 

cures hay fever (Foaaes, Apr . 24) . 

Forever Living is one of what are 

called multilevel sales organizationsor 

ppramids . These outfits recruit armies 

of fidl-time <strong>and</strong> part-time salespeople, 

who instead of working on 

com mission typically buy the products 

<strong>and</strong> then sell them at a profit .Acharao 

teristic of such outfits is that more 

money %i•orks its way to the top of the 

pyramid than stays at the bottom . The 

big money is notin selling the stuff, but 

in recruiting people to sell [Ite stuff . 

A new salesperson at Forever Livin g 

Forever ~_Iving's 

orcduc .s 

Rex Maughan 

says his 

distributors 

moved close to 

$1 billion worth . 

98 Forbes e August 14, 1995 i 


4 

__ ~

"With the Optra line, Lexmark has exceeded 

HP in quality <strong>and</strong> value, analysts say." -nt Mrrm n, LAN rm Es 

"Lexmark is ;iving Hewlett-Packard [Co.J a run for the money <strong>and</strong> will definitely capture some more 

market share with these printers. "-Marco Boer, International Data Corp . 

eAdd in the stunning quality of the PostScript 1,200 dpi prints <strong>and</strong> you 

have an all-around office workhorse or a powerful personal printer ." 

-PC Magazine, 11/22/94. 

W 

opra Fami(y 

© 

xsc+~L\e 

I 1995 W I N i 00 

Opna Lx 

"Lexmark's new Optra series of 12 <strong>and</strong> 16 ppm network laser printers set 

new st<strong>and</strong>ards for print quality, network capabilities, media h<strong>and</strong>ling <strong>and</strong> 

price/performance <strong>and</strong> represent a serious attack on HP's market dominance 

in network printing ." 

-John Mclntyre, BIS Strategic Decisions, quoted in LANT Times . 

"The 1200 dpi Lexmark Optra R boasts the best printing this side of typesetting 

with true grays, flawless hairlines, <strong>and</strong> crisp reverse type right down to 4 points ." 

-Eric Knorr, PC World . 

Optra R 

February 7995 

"The end result of the [industrial designJ team's work is arguably the best-looking 

laser printer in the industry . . .from a feature st<strong>and</strong>point, the Optra line is 

unsurpassed. "-Charles LeCompte, The Hard Copy Observer . 

"The Optra family is a breakthrough. Lexmark has not only introduced new 

/es,>/r nFrocn/e,tinn nt n romorb„hlc mirr-{~ut ~~'e 

the whole Optra package is a remarkable deal . " 

Angele Boyd International Data Corp. 

es 

o . ~/h 

Iv ./w e,l/wė.,l 

For more information about the award-winning quality 

of the true 1200 dpi' Optra' laser printer family by 

Lexmark, call 1 800 891-0411, ext . 322 . 

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Aoc-\ncwc Tiir: ART OF PeuartNa 

1zJOd .l~jIreeaEdl . I .ry .,~ p . Jes.HlRr.teenpr:L .,.eevnmtl'epennaslu'orcoGYrlpmo~unWe,Le%nLFpCLII .IcIwWuMY0uI5C90olzappmve]GC~aIItyVnK

The aloe king 

poited that a Fore%~er Liring distribuuon 

point in Hong Kong was so 

cro«'ded police had to line up distriburors 

on fire escapes . Foreier Li\ing nov 

sells its products in 40 countries . 

He has parlayed thr cash flood frorn 

Fore~er Lning into a pile of assets that 

includes a 120,00D-acre ranch north 

of Phoenix <strong>and</strong> a string of hotels <strong>and</strong> 

resort properties-one is Southfork 

Ranch, setting for the ~show Dallas . 

Maughan bought Southfork three 

vears ago <strong>and</strong> operates it as a catering 

hall <strong>and</strong> tourist attraction . He spent 

S2 million restoring Robert Louis 

Stevenson's home in Western Samoa, 

nhere Maughan served as aI'v[ormon 

missionare in the earlv 1960s . The 

house is run by a foundation created 

by Maughan <strong>and</strong> friends . 

That aloe has been eood to 

Maughan is beyond dispute . <strong>How</strong> 

good is it for the people n'ho pav 

55 .95 for a tube of his toothpaste? 

[n 1992 Fore~er Livin¢ settled 

charges brought by the Texas state 

attornev general's office <strong>and</strong> took off 

the air a Spanish-banguage infomercial 

that claimed aloe products could control 

diabetes . His wrist slapped, 

Maughan is careful to avoid specific 

health claims in promotion . Yet in a 

recent interview he recited anecdotes 

about the supposed therapeutic ef- 

Forever tiving Products Internatlonal Pcunder Rex Maughan, with alce plants fects of drinking aloe, about relief for 

His wrist slapped, Maughan is wreful to be vague on aloe's health benefits . ulcer sut}crers <strong>and</strong> Eor kidney patients 

keeps 48 % of the S 14 .95 retail price of 

an aloe gel jug . The manager %rho 

recruitedhergetsabonusof 13°,5ofthe 

retail price from :ite compmv . The 

manager's percentage shrinks as the 

salesperson sells more cases ; hokceacr, 

the salesperson <strong>and</strong> manager also get 

bonuses based on sales from anv new 

recruits brought in by the salesperson . 

But Maughan adds vet more lavers 

ofprofit . The stut7 Fore'er LiN °ingsdls 

is p rocessed <strong>and</strong> packaged by :~loe Y'era 

of :Arnerica, a second Maughan companv 

. This M turn buBs all of its raw 

material from .l-taughan's own aloe 

%era plantations, which corer 5,000 

acres in south Tesas, Mexico <strong>and</strong> tite 

Dominican Repttblic . 

;A[aughan duints lie moved close to 

S I billion f ret-ail N °alue ! worth of titese 

supposedhdierapeutic products last 

Near . His personal take must ha%-e 

becu in the tens of millions of dollars . 

Serenteen vearsago Rex Maughan 

n'.ts an executiN e at Del Webb Corp ., 

the Piioenix-based real estate developer, 

when friends dragged him to 

seminars pitching muLtile%°el marketing 

schemes . Coneerted, Maughan 

became a multile%'eI distributor of 

gasoline additives but shifted gears 

when a friend told him about a firm 

that sold aloe juice door-to-door . 

itlaughan found a company to make 

an aloe juice product <strong>and</strong> invited 

friends <strong>and</strong> <strong>business</strong> contacts to a 

series of 1veekly organizational meetings 

to start building up a sales force, 

Noticing that Latin <strong>and</strong>Asian immigrants 

were among Forerer Living's 

best customers <strong>and</strong> salespeople, 

~b[aughan took his products ocerseas . 

The companv entcred Japan <strong>and</strong> Ausnaliain 

1983, Hong Kong, Tan~an <strong>and</strong> 

Mezico soon a$er . The South China 

:1larnitq7 Post ne%rspaper recently rewho 

needed fewer diah-sis treaunents . 

"Our <strong>doctors</strong>," says Maughan, "tell us 

aloe vera helps our bodies perform like 

they are supposed to ." 

J-Saughan is vague about the health 

benefits of aloe, but Dr . Victor Herbert 

is not. A professor of medicine at 

New York's Mount Sinai School of 

Medicine <strong>and</strong> coauthor of uhe recent 

book TFie Vitamin Pazshcrs, Herbert 

says ofaloe : "It's a pure scam . Drinking 

aloe gel accomplishes nothing . It 

is used by veterinarians to induce 

diarrhea in se~'erely constipated horses, 

but there is no reason for humans 

to drink it ." Bee pollen? "It's dangerous," 

Dr . Herbert says . "It can kill 

people who are allergic to it ." 

Other <strong>doctors</strong> FoPBes talked with 

were less emphatic about aloe, most 

conceding there were no studies that 

would definiti~elv prove or disprove 

some of the claims made for it . That 

there are no such reputable studies is 

not a problem for Rex NIaughan . = 

100 

204G573357 Forbes . August 14, 1995 



A D V E R T i S E M E N T 2 

'asr year South 

Karea's dynamic economy grew a remarkable 8.3% in real terms, 

<strong>and</strong> its a owtb rate tbi year is erpected to be around 8%-so robust 

that the government is trying to keep the economy from overheating . 

South Korea is The world's 12rh-largesr 

economic vower in terms of GNP. It is 

also the world's 12th-ranked rrading 

nation, with exports last year of $96 .3 

billion <strong>and</strong> imports of $100 .3 billion, 

constituting about 2 .4% of total world 

trade . The U .S . is South Korea's most 

important export market, while Japan is 

South Koreas biggest import source . 

Minister of Trade, industry <strong>and</strong> 

Energy Park Jae Yoon forecasts that 

exports this year will grow 10% <strong>and</strong> 

imports 12°/0 . Despite this growing trade 

deficit, the South Korean government 

plans to drastically cut bureaucratic red 

tape to stimulate both exports <strong>and</strong> 

imports while seelung industrial <strong>and</strong> 

technological cooperation with its major 

trading partners, The U .S . <strong>and</strong> Japan . 

On the other h<strong>and</strong>, the nation's 30 

top <strong>business</strong> conglomerates, or chaebolr, 

the tune of some $40 

billion for new plants 

<strong>and</strong> expansion of 

production facilities, 

up 26 .1% over 

last year. 

Soum Korea is 

now the world's fifthranking 

automobile 

producer, with 2 .5 million 

units a year. It ranks 

the dynamos of Korean economic 

development, are increas- 

ing facility investment to 

third in semiconductor production, after 

Japan <strong>and</strong> The U .S . 

Its shipyards aim to secure more than 

30% of the world's total shipbuilding 

orders by developing high value-added 

ships <strong>and</strong> overwhelming Japanese shipbuilders 

now suffering &om The ven's rise . 

South Korea also ranks sixth in the 

world for production of crude iron, with 

33 million tons a year, while ranking fifth 

in ethylene production . 

South Korea formally applied in 

March to join the Organization of 

Economic Cooperation <strong>and</strong> 

Development (OECD) in 1996, so it is 

trying to accelerate the opening of its 

financial markets <strong>and</strong> liberalization of 

capital movement-two important 

requirements for OECD members . 

South Korea believes it is qualified to 

join the prestigious club of the advanced 

countries, since its per capita 

GNP will surpass the 

$10,000 mark this year . 

As South Korean 

President Kim Young- 

Sam set globalization 

as the foremost 

national goal for this 

vear, we inte rv iewed 

the countra's eight 

leading chaeboL leaders 

about their <strong>business</strong> 

strategies for 

further growth . 

20466'7335~9 


Our pilots have to fly 

over a million miles before 

they can fly you one . 

I 

Everyone's thinking globally these days . 

~,Vhich is not exactly a new idea for us . 

Because at Korean Air, our pilots have flown 

around the world about forty~ times . (And that 

was before we even hired them.) KrRiFA11TAM 

Plc the spirit of dedica t iod' 

Of course, a crew of this caliber deserves ~ 

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A D V E R T- S E M c- N T 

B 

HYu N 

DAI GROU F 

A. Locomotive Puliing the South Korean Economy Ahead 

- ' -~ - . yundai, South Koreas top 

<strong>business</strong> conglomerate, is proud to have 

played the role of a locomotive pulling the 

cotmrr,vs economy ahead in irs phenomenal 

development in Ihe last three decades, 

accotding to Chairman Chung Se-Yung . 

-Today it is a major global corporation 

producing a wide spectrum of goods ranging 

from computer chips to passenger cars 

<strong>and</strong> ships to super tankers, with annual sales 

over $60 billion . 

By emphasizing technological development, 

Hyundai has developed the 64M 

DRAM chip, the next-generation automobile, 

the Moss-[ype LNG carrier <strong>and</strong> a 

futuristic magnetic levitation vehicle . 

"Hav~ing secured such leading-edge technologies, 

we are full of hope for Hyundai's 

further development on a higher plane in 

the future," says Chung . 

Hyundai was born 48 years ago when 

Chung's elder brother, Chung Ju-Yung, now 

80, opened a construction firm in Seoul, 

which became the nation's biggest engineering 

<strong>and</strong> construction company by riding a 

domestic construction boom in the '60s 

<strong>and</strong> undertaking big projects in the Middle 

East in the'70s . 

Ar the same time, Chung built an auto 

plant in Ulsan in the mid-1960s, which 

today produces some 1 .2 million cars a year, 

with about 500,000 of them exported to 

160 countries around dte world . 

"Our goal is for Hyundai to become one 

of the world's best automobile manufacturers 

<strong>and</strong> one of the top ten in the world by 

the year 2000," Chairman Chung says confidently. 

A bold decision by founder Chung in 

the early'70s to build the world's biggesr 

shipyard has become legend, since at that 

time no one believed a developing country 

like South Korea could successfully operate 

a big shipyard . Today Hytrrrdai has grown 

to become one of the most competitive <strong>and</strong> 

advanced producers of all types of vessels . 

And in the'80s, H}vndai exp<strong>and</strong>ed into 

the petrochemical <strong>and</strong> electronics industries . 

In June it announced an ambitious Plan to 

build the 

world's 

iargestscale 

semiconductor 

plant on 

206 acres in 

Eugene, 

Oregon, at a cost 

of $1 .3 billion-rhe ~ 

largest foreign investment 

a South Korean firm 

has ever made . 

The plant, which will produce 64M 

DRAIvi (megabvte dynamic r<strong>and</strong>om access 

memory), is scheduled to begin commercial 

production in March 1997 <strong>and</strong> to generate 

annual turnover of $1 .6 billion by 1999 . 

Hyundai's electronics firm is also comr 

centrating on the development of new 

media products such as state-of-the-art 

audio/video systems <strong>and</strong> high-defrnition 

televisions applying digiral-data-compression 

technologies after having developed 

high-capaciry ODDs, high-speed G4 facsimile 

equipment <strong>and</strong> digital switching systenu 

for ISDN. 

Hyundai also runs an oil refinery capable 

of processing 110,000 barrels of crude 

a da}; <strong>and</strong> an iron-steel plant in Inchon producing 

three million tons a year . The company 

manufactures construction equipment 

<strong>and</strong> heavy electrical products, builds power 

<strong>and</strong> nudear plants, <strong>and</strong> is the largest aluminum 

producer in Korea . It also runs a 

securities company <strong>and</strong> a marine- <strong>and</strong> fireinsurance 

frrm . 

"It's too bad rhat Hyundai has been generally 

known in America <strong>and</strong> Europe only as 

an automaker since Hyundai's Pony/Excel 

subcompact car was named beso-selling 

import car of the year in the U .S . in 1986," 

says the younger Chung, who took over dre 

chairmanship from his older brother when 

the company founder decided to adopt the 

title of honorary chairman . 

Hyundai is stressing the growth oF its 

heavy industry, electronics, automobile, 

"Hawng 

secured 

leadingedge 

technologies, 

we are 

full of 

hope for 

Hyundai's further 

development on a 

higher plane .° 

petrochemical <strong>and</strong> machinery operations to 

strengthen its international competitiveness 

<strong>and</strong> make Hyundai, as Chung says, the 

world's top enterprise by the turn of the 

century. 

AS for automobiles, Chung says that its 

subcompact car of the new generation, 

Accent, made with 100°,~o Hyundai technologies 

including its engine <strong>and</strong> transmission 

s,vstem, is selling well in the U .S . 

He is very hopefui that when another 

new compact sedan, Avante, makes its 

debut in the U .S . early next year, it will 

stimulate another big take-off for Hyundai 

cars in the North American market . 

Chung says that Hyundai cars have technologies 

<strong>and</strong> performance comparable to 

cars produced in the advanced nations . 

He adds that Hyvndai is concentrating 

on research <strong>and</strong> development of advanced 

technoloyry for low firel consumption, low 

pollution <strong>and</strong> low noise as well as substitute 

fuels . "For this purpose, we plan to increase 

R&D investment to 7% of Hyundai 

Momrs' annual sales by the year 2000," 

Hyundai Group's total sales last year 

amounted to 50 trillion won (about $62 .5 

billion), including export sales of 510 billion, 

which accounted for 10% of South 

Korea's total exports . This year, its sales are 

expected to rise by 20% . 

~ 2046673362a 


unkyong, we are not 

awaiting the 21st century, 

we intend to shape it :' 

Jong-17),on Chep 

Cha/rnueu rjtbe Sunkpong ( :roup 

When the Sunkyong Group was founded in 1953, we 

were a small company produc'-ng voven textiles . 

Today, Sunkyong is one of the five largest conglomerates 

in Korea, with offices in all of 

. 

the world's major <strong>business</strong> centers The Sunkyong Group of annual revenues working with 

As the first Korean company to 

produce synthetic fibers, Sunkyong 

has grown into a verrically inregrated 

Korea, udth annual recserzues 

of more than $22 billion 

<strong>and</strong> over 22,000 emplo}wes on 

fi've continents, is a worlduide 

hundreds of American companies, 

<strong>and</strong> we have strategic alliances 

with such giants as Polaroid <strong>and</strong> 

manufacturer of a broad spec- 

trum of products ranging from 

petroleum to textiles . 

At present, Sunkyong is a major 

producer of petroleum-based 

products, a global trading compa- 

leader in the fields of 

energ1', international trade . 

petrocbemical products, 

telecornrnunicatioris, <strong>and</strong> engineering 

& construction . 

the Fleming Companies . 

These alliances reflect the 

focused application of time, 

energy, <strong>and</strong> resources required for 

a shared underst<strong>and</strong>ing of objectives 

- a shared vision of economic 

ny, <strong>and</strong> a leading manufacturer of polyester films globalization . A vision we at Sunk9ong are dedicated 

<strong>and</strong> magnetic <strong>and</strong> optical media . We also have a to making a reality . 

For more information, contact John Rich, Sunkyong U .S .A ., Inc ., 

110 East 55th Street, New York, N .Y, 10022, Fax : (212) 906-8137 

major major presence in telecommunications, distribution, 

financial services, <strong>and</strong> eng'meering & construction . 

The result in the United States - Sunkvong 

generates over 51 .5 billion in 

~ 

O 

tA 

~ 

~ 

W 

FOR SUCCESS 

WORLDWIDE, SAY SUNKYONl5 w 

SunkvongLi:ui :ed - YukongLimiree -SunkyongIndustries - SKC 

. Suckvoeg°ngineer'Ip<strong>and</strong>Cansrrucrion 


A D v- R T I S E M E N . 8 

THE I,G GROLIP 

Steadily Growing as a World-Class Business Group 

he 48-vear-old Luckp-Goldstar 

(LG) Group is steadily growing as a worldclass 

<strong>business</strong> group . The company 

changed its name ro LG in January bccause 

the world is changing <strong>and</strong> <strong>business</strong> must 

change with it, according to its new chairman, 

Koo Bon-Moo . 

LG is South Korea's third-largest <strong>business</strong> 

group in terms of sales after Hyvndai 

<strong>and</strong> Samsung, having achieved annual revenues 

of $38 .27 billion <strong>and</strong> pre-tax earnings 

of .ì 1 .3 billion last year. 

LG was established in 1947 by Koo's 

gr<strong>and</strong>father Koo In-Hwoi with a factor,v 

manufacturing facial cream, soap <strong>and</strong>, larer, 

toothpaste It has grown to become a global 

<strong>business</strong> group with 39 subsidiaries, 39 

joint venture subsidiaries <strong>and</strong> more than 

130 branch offices scatrered around the 

world, with a total oF 100,000 employees . 

"Now LG is refocusing its efforts on 

internationalization <strong>and</strong> globalization as it 

continues to evolve into a world-class <strong>business</strong> 

group in the 21st century," says the 

new chairman, who succeeded his father 

Koo Cha-Kyung in February . 

LG is a leader in the countay's chemical 

industry, producing everything from basic 

chemicals to processed products, <strong>and</strong> lately is 

concentrating on the advanced heids of high 

polymer chemicals, specialry chemicals <strong>and</strong> 

genetic engineering, exp<strong>and</strong>ing production 

capaciry for advanced new materials such as 

engineering plastics <strong>and</strong> silicone wafers . 

Its subsidiary LG Chemical Ltd. chalked 

up total sales of $3 .45 billion last year . 

Another subsidiary, LG Petrochemical Co . 

Ltd ., built a naphtha cracking plant in 1991 

that produces 400,000 tons annually of this 

high-qualiry petrochemical, while the start 

of operations at HDPE <strong>and</strong> BTX plants in 

1992 provides a stable supply of such basic 

peaochemicais as ethylene, propylene, butadiene, 

ultra-pure polyethyiene <strong>and</strong> BTX . 

LG also runs an oil refinery that has a 

daily crude oil refining capacity of 380,000 

barrels, an annual polypropylene oroduction 

capacity of 165,000 tons <strong>and</strong> an annual aromaric 

aroduction capacity of 600,000 tons . 

linder 

the motto 

"qualiry oil, 

clear air,° 

Honam Oil 

Refinery Co . 

Ltd . is 

exo<strong>and</strong>ing 

desulfurization 

facilities <strong>and</strong> 

adding heavy oil 

cracking facilities to 

reduce enviro.nmental pollution . 

As South Korea's first electric <strong>and</strong> electronics 

manufacturer <strong>and</strong> the domestic leader 

in these industries, LG Electronics Inc . is 

stepping up its globalization efforrs to manu- 

Fccure its oroducts <strong>and</strong> sell in markets 

around the world . 

Its Goldstar br<strong>and</strong> is produced in 23 

countries <strong>and</strong> is recognized in 171 countries 

. LG btrilt a plant in the American 

town of Hunrsville, Ala ., in 1991 which 

produces 20 million videotapes a year. In 

1986, it set up a plant in Worms, Germany, 

producing 150,000 color TV sets <strong>and</strong> 

500,000 VCRs a year. Its plant in Mexico, 

built in 1988, is turning our nvo million 

color TV sets annually. 

LG is running a plant in Indonesia in a 

joint venture with a local firm, producing 

180,000 color TV sea <strong>and</strong> 70,000 refrigerators 

a year. Similar joino-venture plants were set up 

in Manila, Bangkok, Cairo <strong>and</strong> Shanghai . 

LG is now pushing fnr a large-scale "China 

projea," which aims to manufacture electric 

<strong>and</strong> electronic products such as home appliances 

<strong>and</strong> semiconductors, <strong>and</strong> petrochemical 

products, dtereby generating an annual $6 biilion 

in revenue by the year 2000 . 

LG's telecommunications arm, LG Information 

& Communications Ltd., has gained 

fame for manufacnuing "Mugunghwa," 

Koreas first integrated communications <strong>and</strong> 

broadc ;csting satellite, named for Koreas 

national flower, the Rose of Sharon . 

It has successfully developed a CD .I'L4 

mobile cellular phone switching system, <strong>and</strong> 

ia own br<strong>and</strong>, STARE.`{-TXi, was selected 

"LG is refocusing 

its 

efforts on 

internationailZatlo[l 

<strong>and</strong> Qlobal- 

IZBfIOn as it 

evolves into a 

wor:d-class <strong>business</strong> 

group ." 

as the best st<strong>and</strong>ardized switching system in 

Korea. LG has exported a variety of switching 

systems <strong>and</strong> other communications 

equipment to more than 50 countries since 

it first exporred electronic switching systems 

to Vietnam six years ago . 

As Korea's first semiconductor maker, 

LG Semicon Co . Ltd . has enjoyed remarkable 

growth by developing a 64M DRAM 

in 1992, <strong>and</strong> is now pushing the boundaries 

of technoloy with highly integrated, multifunctional, 

high-speed semiconductors such 

as Giga DRAM <strong>and</strong> 256M DRA .'vI, while 

its software arm is striving to provide the 

world's finest software to its customers . The 

Korean government selected its Hana 

Wordprocessor <strong>and</strong> Han Spreadsheet as 

st<strong>and</strong>ard software for its administrative 

computer network . 

LG is also the largest domestic manufacturer 

of electronic components such as 

television nrners, magnetic heads, modulators, 

variable resistors <strong>and</strong> switches, while 

leading in the manufacture of precision 

eiectronic instruments for the Korean 

defense industr,v. It developed Korea's first 

low-altitude radar system in 1991 <strong>and</strong> won 

recognition for its advanced technoiogy 

with the development of frequencyalternating 

radio transceivers <strong>and</strong> artillery ' 

fire-control systems . 


NO POSTAGE 

VECESSARy 

IF StIILED 

IN THE 

UNITED STATES 


F7RST CL15S NAIL PERMIT NO . g10a DE AOINEi . G 

POSTAG'c \%'ILL BE PAID BF ADDRESSEE 

Forbes 

PO BOX l0'34 

DES MOINES IA 503"4-0"34 

2046673365, 



.. D . = R t 1 5 E M E N i 

5 A M SuNG 

~I, E CTRON I C 5 

South Kosea's Top Manufacturing Firm 

in Sales <strong>and</strong> Profits 

amsung Electronics Co . 

Ltd . (SEC) last year did exceptionally well 

in all four of its <strong>business</strong> dlvisions-semiconductors, 

telecommunications systems, 

information systems <strong>and</strong> consumer eleccronics-mal:ing 

1994 a year of prosperity 

<strong>and</strong> success . . . 

SEC has thus become South Korea's 

number one manufacturing firm by recording 

the highest sales <strong>and</strong> earnings in the 

country . 

SEC is also the first enterprise in the 

country to break through the magical 10 

trillion won mark in sales <strong>and</strong> achieve a 

profit figure surpassing I¢illion won . 

In terms of U .S . dollars, its total sales in 

1994 amount to $14.62 billion, up 41% 

from the previous year, with net earnings of 

$1 .199 billion, up a phenomenal 500% 

from 1993 . In particular, the semiconductor 

dlvisionrose.as the unchallenged leader 

in dre global semiconductor me.rker with 

sales growth of 61 % . 

Samsung President <strong>and</strong> CEO Kim 

Kwang-Ho says, "Currentl}; we hold the 

largest market share in memory products, 

<strong>and</strong> the development of the 256M 

DRAM (dynamic r<strong>and</strong>om access 

memory) in August last year has added a 

whole new dimension to the world semiconductor 

market ." 

Samsung Electronics, which last year was 

the world's seventh-largest manufacturer of 

semiconductors <strong>and</strong> the largest manufacturer 

of memory products, has set its sights 

firmly on the future . 

"In the coming years, we will maximize 

utilization of our stare-of-the-art semiconductor 

technology to reinforce our technological 

know-how in the areas of telecommunicarion 

systems, information systems 

<strong>and</strong> consumer electronics," says Kim . "We 

will also fine-tnne our <strong>business</strong> interests in 

the areas of high-definition-releted products, 

multimedia, color-imaging devices, 

video disc recorders, mobile telecommunications, 

PCNs, memory <strong>and</strong> micro devices, 

automobile electronics <strong>and</strong> test <strong>and</strong> measurement 

equipment." 

SEC is also the country's number one 

export firm: Its exports of $9 .984 billion 

account for 10% of South Koreas total 

exports . 

Last year, 37% of SEC's exported products 

went to North America, 30°/a to 

Asia/Oceania, 22% to Europe/CIS, 6% to 

AfricalMiddle East <strong>and</strong> 5°6 to Central/ 

South America . 

And this year, SEC is expected to do 

berter : $11 .2 billion in export sales, $5 .4 

billion in domestic sales . 

SEC's DR4M <strong>and</strong> color monitors enjoy 

mp-ranking global market shares with 

15% <strong>and</strong> 17°/b respectively, while its 

microwave ovens <strong>and</strong> VCRs occupy the 

number r.vo position with 18% <strong>and</strong> 11% 

shares respectively . 

SEC's color television division has a 6% 

share of the global market, <strong>and</strong> ranks sixth 

in the world. 

SEC annually invests 20% to 22% of its 

total sales in Eacilities <strong>and</strong> research <strong>and</strong> 

development. This year it is investing $1 .5 

billion to exp<strong>and</strong> semiconductor facilities, 

$375 million in overseas production compiexes 

in America, Europe <strong>and</strong> Asia, $250 

million for factory automation <strong>and</strong> production 

rationalization, <strong>and</strong> $375 

million for environmental 

protection . 

As for R&D, 

SEC is investing 

$375 million 

for semlconductors, 

$250 million 

for 

next-generation 

audio-visual 

products 

<strong>and</strong> household 

appliances, 

<strong>and</strong> 

,5250 million for 

multimedia 

products . 

SEC hopes to achieve 

an annual revenue of $50 billion <strong>and</strong> overseas 

manufacturing sales of .$8 .4 billion by 

the ,vear 2000 . Its growth strategy consists 

of globalized manufacturing, localized marketing 

strategy, localized management <strong>and</strong> 

globalizzd R&D . 

In addition, SEC, in a move to exp<strong>and</strong> 

its global operations, is acquiring or entering 

strategic alliances with several foreign 

electronics firms . 

SEC is one of 24 subsidiaries of the 

Samsung Business Group, South Koreas 

top-ranking conglomerate, whose revenue 

last year was 51,830 billion won (about 

$64 .8 billion) . 

"'VVe will reinforce 

our technological 

know-how in 

telecommunication 

systems, information 

systems <strong>and</strong> 

consumer 

electronlCs 

. " 

Mr . Kim 

Kwang-Ho. 

President & 

CEO, 

Sarnsung 

Electronics Co . 

Ltd . 


~

A D V E R T I g E M E N T 

C 

DAEWOO GROLIP 

Working Hard to Become a Trulv 

Global Enterprise 

he Daewoo Group, South 

Korea's third-largest <strong>business</strong> conglomerate 

in terms of assets <strong>and</strong> .ourth-largest in 

terms of sales, is in the micist of a campaign 

to become a truly global enterprise by the 

start of rhe new ceno,rry. Its VISION 2000 

strategy I•.;u set an ambitious goal of attaining 

total sales of $134 billion bv the year 

2000, a threefold increase in six years . 

The sales target total consists of $36 billion 

from trading, $28 billion from electronics 

<strong>and</strong> telecommunications, $26 billion 

from motor vehicles, $18 billion from 

machinery <strong>and</strong> shipbuilding, $17 billion 

from construction, $7 billion from financial 

services <strong>and</strong>, lastly, $2 billion from hotels . 

To achieve this target, Daewoo is pushing 

rapidly to have a worldwide network of 

650 offices <strong>and</strong> plants in more than 160 

countries around the world-including 430 

sales subsidiaries, 130 manufacturing subsidiaries, 

20 technical <strong>and</strong> design R&D centers 

<strong>and</strong> .'0 local branch of}ices, 

To foster competitiveness <strong>and</strong> efficiency, 

Daewoo founder <strong>and</strong> Chairmarr Kim Woo- 

Choong, 58, who has overseen managerial 

operations at all 21 principal group companies, 

carried our a sweeping managerial 

reform itr February- 

Under the reform, Kim will focus his 

managerial role mainly on automotive manufacturing 

<strong>and</strong> sales, while ten new chairmen 

will have full managerial responsibilities 

for major companies including Daewoo 

Corporation, Daewoo Electronics Co . Ltd., 

Daewoo Heavy Industries Ltd . <strong>and</strong> Daewoo 

Telecom Ltd . 

Chairman Kim says : "?unund ehe 

world, national economic policies <strong>and</strong> international 

accords such as the new GATT 

agreement are stimulating trade as never 

before. A genuinely global economy is 

emerging, <strong>and</strong> this means exceptional 

opportunities for ail the companies of the 

Daewoo Group .° 

Daewoo is Koreis-<strong>and</strong> perhaps the 

wodd's-fastest-growing wmpany . 

Daewoo has grown rapidly at an annual 

average race of 30°'0 . Last year, Daewoo's 

total sales 

grew an 

impressive 

29 .5% to 

$40 billion . 

Daewoo, 

which means 

"Great 

Universe" in 

Korean, sr.rted in 

1967 as a garmenr 

exporting firm with five 

employees . It has grown to 

become one of rhe worlds largest enrer 

prises, with more than 100,000 employees 

worldwide engaged in trading, constmction 

<strong>and</strong> shipbuilding, <strong>and</strong> in the manufacture 

of motor vehicles, heaty equipment, 

machine tools, home appliances, electronics 

products, computers <strong>and</strong> telecommunications 

equipment . It also runs hotels <strong>and</strong> is 

a provider of financial services . 

Chairman Kim is particularly determined 

to push his automobile <strong>and</strong> electronics 

subsidiaries into positions as world leaders 

in this era of fierce competition . 

Daewoo Motor Co, Ltd., managed independendy 

since ending a 14-year joint venture 

with General Ivfotors in 1992, recorded 

sales of $3 .53 billion last year. It produced 

332,429 passenger cars (models with 1 .5- 

liter to 3 .2-Gter engines), 3,895 heavy trucks 

<strong>and</strong> 4,265 large buses . In addition, Daewoo 

Heavy Industries Lcd . built 72,484 minicars, 

vans <strong>and</strong> trucks (powered by 800cc engines) . 

About one-fourth of rotal auto production 

was exported to 130 countries . 

Daewoo is to build a new plant at 

Kunsan, southwest of Seotd, which will 

have an annuai production capacity of 

300,000 passenger cars <strong>and</strong> 200,000 commercial 

vehicles . Partial ooeration will 

begin toward the end of this year. Dacwoo 

is also constructing overseas production 

bases in Uzbekiscan (200,000 units), 

Romania (200,000 units) <strong>and</strong> other plants 

in Iran, India, the Philippines, Vietnam, 

Indonesia <strong>and</strong> China to reach a total production 

capacity of two million units annu- 

g?obal 

eCor'r 

omy is 

"A genuinely 

emerging, 


this means 

exceptionai opportunities 

T'or all the companies o& the 

Daewoo Group ." 

ally, half overseas, by the year 2000 . This 

would place Daewoo among the world's top 

ten automakes . 

To globalize its technology <strong>and</strong> R&D, 

Daewoo Motor has exp<strong>and</strong>ed its automorive 

technical center in Pupyong, near 

Seoul, into a general research complex, <strong>and</strong> 

has established overseas R&D facilities for 

cars in Britain <strong>and</strong> Germanv. To achieve its 

ambitious goals for the automotive <strong>business</strong>, 

Daewoo plans to invest,S1I billion over the 

next five years . 

Daewoo is equally ambitious in the electronics 

<strong>business</strong>, as it plans to invest a total 

of $3 .9 billion by the year 2000 to become 

one of the world's largest manufacturers of 

consumer electronics products <strong>and</strong> home 

appliances with anticipated annual sales of 

$10 billion. 

Daewoo's aim is to capture 10°/n to 20% 

of world market share by the vear 2000 in 

its six core product areas : televisions, VCRs, 

refrigerators, washing machines, microwave 

ovens <strong>and</strong> color computer monitors . With 

expansion into new <strong>business</strong> areas, Daewoo 

Flectronics forecasts that it will become one 

of the world's top five electronics manufacturers 

with total annual sales of $50 billion 

by dte year 2010 . 

~2046673368 


I 

C~ Ithough we spend millions on the comfort of our passengers, 

they tend to remember us for something money can't buy . 

. Nothing can compare with the warmth 

!, of the Asiana smile. T7re result of 5000 uears 

! 

~. ~ssau~ ~ 

... __~ 

=0/4 

of traditional Korean hospitality, it is yours flight, dare we suggest that there are some 

to experience each <strong>and</strong> every time that you things rnoneyjust can't buy? 

board one of our fleet of steek new Boeing 747 

400s . Al though we would be the f rst to adndt 

~ The Jewel of Asia 

that we . invest ga reat deal on mak' 

rng sure MF 7 ~ 

you enjoy each <strong>and</strong> every moment of your W- 

AM 

As~ana 

,~s _ . .. _ , . . .~ : s . . ~ 


The relationship between father <strong>and</strong> daughter is very special : a unique bond that we at IL are dedicated to 

Our philosophy remains to provide complete satisfaction to our vast family of customers in over 120 

echoing through our relationship with our customers LG is the ne,v name for the Lucky-Coldstar Group 

countries around the world, through technologically advanced products of the very highest quality . 

A new name, but the same emphasis on what we do best-utllizing the most advanced technology to 

create products that enrich your life, making it healthier, safer, more comfortable <strong>and</strong> more satisfying . 

Satisfactlon has a new face . 

And fL is ensuring it wxars a smile . 

LG Group 

. .- ~. . . ~ . . . 

C1~mx.'~~~~ ,, ~Yi.ctrottits' Mqc3irnery F, Metals i 7FadE6 Servfces • Finaricet' 


A O V E R T I S E M 

1 4 

5LIN 

KYON G 

G ROU P 

Boasting a Unique Management Strategy 

unkyong got its Excellence 

stan in 1953, toward the end of the rulnous (SUPEX) . 

Korean War, as a small weaving company Under 

with 15 looms <strong>and</strong> 50 employees . SUPEX, a 

_ Today:. Sunkyong has grown into the 'super excelnation's 

fifth-largest <strong>business</strong> group, with lent' level 

22,581 employees <strong>and</strong> annual worldwide for a given 

sales of $25 .4 billion last year. goal is iden- 

A provider of a broad range of products, tified . This 

from textiles <strong>and</strong> petroleum to polyester goal is relentfilm 

<strong>and</strong> optical <strong>and</strong> magnetic media, iessly pursued 

Sunkyong has developed a strong global until it is 

presence in the fields of energy, petrochemi- reached . 

caCs, international trade, celecommunica- "Since we began 

tions, financial services <strong>and</strong> engineering/ implementing SKMS 

cons¢ucdon . <strong>and</strong> SUPEX, we have seen 

Sunkyong Chairman Chey Jong-Hyon, improvements in sales, profirabil- 

65, who studied chemical engineering at the ity <strong>and</strong> employee morale . Sunlyong's 

University of Wisconsin before obtaining a vision for the 21st century <strong>and</strong> beyond is, 

master's degree in economics from the through the continued practice of SKiofS 

University of Chicago, says : ".A unique <strong>and</strong> SUPEX, to outdistance our competitors 

management system, developed through my <strong>and</strong> become a world-class company ." 

own iniuauve, played a central role in He also points out that SK2>iS has conbringing 

about monumental <strong>business</strong> tributed to the development of a Sunkyong 

growth ." . corporate culture characterized as rational 

Sunkyong considers maximizing human <strong>and</strong> human-otiented And the fruirs of its 

resources, cooperation <strong>and</strong> coordination, commitment to encouraging willing <strong>and</strong> 

<strong>and</strong> harmonized centralization <strong>and</strong> decen- voluntary work are seen in labor relations : 

¢alization to be key success factors . "These Sunlryong has not had a single serious labor 

concepts have been incorporated into the dispure, even in turbulent 1987 when a 

fabric of how we manage our <strong>business</strong>," total of 3,'49 labor management disputes 

Chey says . were reported across the country . 

Anticipating the onset of limidess wm- Chey has devoted his entire corporate 

petition, Chey created the Sunlryong life for rne past 30 vears to completing 

Management Systems (SKMS) in 19,'9 . Sunkyong's vertical integration, under the 

SKMS was developed by studying conven- catchwords "from somyvs (fber) to ,ogyu 

tional <strong>business</strong> management methods prac- (petroleum) ." 

ticed by successful companies, adapting He dreams of repeating the same feat in 

them <strong>and</strong>, most impoa<strong>and</strong>y, adding China . A year ago, he went to Beijing to 

Sunlqongs operating concepts . see Chinese President Jiang Zemin to 

"We spent ten years refining SKMS so it undertake the construction of a$1 .5 billion 

could be applied as a practical tool, most oil refinerv as a jol.nt venture with two 

particularly in human resources manage- Chinese partners in Shenzhen . 

ment ." says Chey "Subsequendy, we saw Chey joined SunicvongTextile in 1962 

rhat SKMS was not enough in itself to after completing studies in the U .S . to 

secure <strong>and</strong> maintain competitive advantage help his elder brother <strong>and</strong> founder . Chev 

<strong>and</strong> achieve profit maximization . Jong-Kun, who desoerately needed a good 

"In 1989, to improve the effectiveness of manager . 

Mr. Chey Jong- 

Hyan, 

Chairman, 

Sunkyong 

Group 

"Sunkyong's 

vision for the 21 st 

SKIvfS, we launched our Quest for Super After raking the helm of the conglomercentury 

<strong>and</strong> beyond 

is to outdistance our 

competitors <strong>and</strong> 

become a worldclass 

company." 

are in 1973 upon his brother's death, Chey 

achieved big strides during each decade . 

First, he exp<strong>and</strong>ed Sunkyong Textile, 

which became South Koreas biggest polyester 

maker in the rarl,v'70s, <strong>and</strong> then 

acquired the stare-run Korea Oil Co. in the 

early'80s to establish Yukong Ltd . 

In the early'90s, he launched a telecommunications 

<strong>business</strong> by obtaining a controlling 

stake of the government-owned 

Korea Mobile Telecom . 

Che's goal for the 21st century is to 

lav the groundwork for Sunkyong to , 

become a worid-dass corporation in an era 

of globalization . 

Chey also heads the powerful Federation 

of Korean Industries (FKI), an influential i 

group of chaebol leaders <strong>and</strong> other leading <strong>business</strong>men 

. 

~ 2046673371 

~~~ 


Daewoo 

Sells Solutions 

11 r(,o o& Ew0o 

Global Trading & Project Organization 

Construction•Heaoy Macninery & Equipment 

Consumer Electronics & Home Appliances 

Teleccmmunicatlons Motor Uehicles & Automotive Components 

Shipbuilding • HoteLs-Fin<strong>and</strong>ai Services 

Solutions . That's what Daewoo delivers to 

millions of people around the globe. Here are some 

examples : Daewoo automotive plants, being 

established in a dozen countries, to produce highquality 

sub-compacts <strong>and</strong> mini-cars that people can 

afford ; Daewoo TVs, VCRs, video cameras, audio 

systems, computers <strong>and</strong> microwave ovens to meet the 

needs of consumers in over 100 countries ; <strong>and</strong>, 

Daewoo digital switching <strong>and</strong> transmission equipment 

that's helping to modernize the telecommunications tl\Z 

networks of a half-dozen nations . For a ship owner C5 

~. 

preparing for the 1995 introduction of tougher, ~ 

international environmental regulations, Daewoo has 0 

built two of the world's largest double-hulled 

W 

supertankers . For places in need of national _Q 

t": 

infrastuctures, Daewoo has provided diverse 

constructions services from roads <strong>and</strong> bridges to buildings 

<strong>and</strong> power plants . For American <strong>and</strong> European jet aircraft 

manufacturers, Daewoo produces airframe components 

that exceed stringent quality st<strong>and</strong>ards . And for 

customers around the world . Daewoo structures <strong>and</strong> 

arranges financing for complex multi-country trade deals . 


4 D V E R T I S E M 6 N 

T 

55ANGYO 

NG GROUP 

Conservat .ve Ssangyorg Turns Progressive Under New Chairman 

he Ssangyong Group is South 

Korea's sixrh-largest <strong>business</strong> group in terms 

of assets <strong>and</strong> sales. Traditionally considered 

conservative <strong>and</strong> slow in <strong>business</strong>, 

Ssangyong has become progressive under iu 

new chairman, who is determined to push 

Ssangyong into the ranks of the world's 50 

top enterprises by The year 2000 . 

New Chairman <strong>and</strong> CEO Kim Sukioon, 

42, rook the helm of Ssangongwhich 

means °Two Dragons" in Korean-on April 25 as his predecessor <strong>and</strong> elder 

brother, Kim Suk-Won, stepped down to 

join President Kim Young-Sarris ruling 

Democratic liberal Parrv <strong>and</strong> run for a 

National Assembly seat . 

"We will strive to become a world-class 

enterprise by the turn of the century by 

concentrating on three core manufacturing 

sectors: automobiles <strong>and</strong> machinery, cement 

<strong>and</strong> fine ceramics, <strong>and</strong> oil refining <strong>and</strong> related 

petrochemicals," says Kim, who had 

been the group's vice chairman for the last 

five years, To achieve this goal, Szangyong must 

discard its long-held image of being "conservative 

<strong>and</strong> slow" in <strong>business</strong> <strong>and</strong> immediately 

strive to be "aggressive <strong>and</strong> progressive," 

the youthful chiefexecutive officer 

told some 30,000 employees upon his 

assuming The top post . 

He told his directors to rhink, decide 

<strong>and</strong> put into action "always one step ahead" 

of competitors . 

According to The new chairman, 

Ssangyong is giving top priority to developing 

its automotive industry, already having 

invested 1 .2 trillion won ($1 .54 billion), 

<strong>and</strong> planning to pur in an additional 4 .8 

trillion won ($6 .15 billion) within The next 

flve years . 

For the 2lst century, Ssangyong has set a 

course to grow into a comprehensive worldclass 

automaker with a full line of products 

ranging from passenger cars to specialized 

heaw-dury vehicles, Kim says, adding 

rhat the automobile industry will become 

Ssangyongs new comerstone for the 

coming century . 

At present, 

the 

Ssangvong 

Motor 

Compan,vis 

producing 

50,000 fourwheel-drive 

utilirv 

vehicles a vear in 

a technical partnership 

with Germany~s Mercedes- 

Benz, which owns 5% of eauity worth 

14 .5 billion won ($18 .6 million) . 

With The new investment, Ssangynng 

plans to start producing mid-size passenger 

cars by 1997 with first-year production ot 

50,000 units, progressively increasing to 

300,000 units a yeas by 2000 . 

Ssangyong was founded by his father, 

Kim Sung-Kon, in 1939 as a soap-manufacturing 

firm, <strong>and</strong> it developed into a textile 

producer nine years later . Ssangyong 

has grown to become a network of 22 

afflliate companies ranging from cement, 

oil refining <strong>and</strong> general rrading to construccon 

<strong>and</strong> financial services, with 31 overseas 

subsidiaries . 

Its mtal annual revenues amounred to 

$18 .5 billion, including overseas sales of 

$3 .84 billion last year, with net earnings of 

$193 million . 

Ssangyong's cement company which 

operates the world's largest cement planr on 

Koreas east coast, producing 15 million 

tons a year, fortified its U.S . operations 

through a joint venture in California, 

CenCal Cement Inc ., <strong>and</strong> acquisition of 

Riverside Cement last year ro establish 

localized production . 

Ssangyong's engineering <strong>and</strong> construction 

company has become international in 

scope since building the Raffles City 

Complex in Singapore in 1986, the world's 

callest hotel, <strong>and</strong> undertaking construction 

<strong>and</strong> sales of Marriott Residence Inns in 

Anaheim, San Diego <strong>and</strong> Sacramento in 

California . 

It is now building what will be Singapore's 

largest national hospiral, Tan Tock Seng, at a 

"We wll 

become a 

worldclass 

enterorise 

by Concentrating 

On autos 

<strong>and</strong> machinery, 

cement <strong>and</strong> 

fine ceramics, <strong>and</strong> oil <strong>and</strong> 

related petrochemicais ." 

cost of S250 million, <strong>and</strong> just won the job 

of building Viemarris 25-story Hanoi 

Tower Center . 

Kim, who studied <strong>business</strong> administration 

at the University of Hartford in 

Connecticut before starting at Ssangyvng in 

1977, fl firmly believes that the development 

of high-value-added quality products is the 

sole way to survive in this era of unbounded 

competition following the birth of the 

World Trade Organization . 

Thus Ssangyong's cement industry will 

progress into general <strong>and</strong> new materials 

including fine ceramics, <strong>and</strong> its oil-refining 

<strong>business</strong> into petrochemicals . 

It plans massive investment in computers 

<strong>and</strong> special electronic communications 

so that these high-tech industries will serve 

as The new basis for continuing Ssangyong 

growth <strong>and</strong> development beyond the 

year 2000 . 

Ssang,vong's service industries will accelerate 

toward greater internationalization <strong>and</strong> 

advancement to meet the dem<strong>and</strong>s of the 

rimes, while in its trade <strong>and</strong> construction, it 

will grow to multinational status through 

full-fledged internarional investment . 

If all goes according to plan, says an 

ambitious Kim, Ssanv,,,vong will be among 

the world's 50 largest <strong>business</strong>es in the next 

millennium . 

1~l ~20466 ~~373 


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A D V E R T I S E M E N T 

KORE A N AIR 

The World's Fourteenth-Laraest Airline 

orean Air (KAL), with a 

fleet of 99 wide-bodied aircraft, last vear 

carried 18 .9 million passengers <strong>and</strong> 764,000 

tons of cargo at home <strong>and</strong> abroad, becoming 

the .vorld's 14th-largest airline . It is 

aiming to be among the world's top ten airlines 

in the near future . 

This year, with nine new aircraft, KAL 

<strong>and</strong>cipates transporting 20 milllon pasvengers 

<strong>and</strong> 784,000 tons .of cargo, with expected revenues 

of 3 ttillion won (roughlc .b4 billion) . 

KAL rcported a $46 .78 million net profit 

on total revenues of $3 .88 'oillion last year, 

up an impressive 221 % over its 1993 result . 

Now serving 72 cities in 28 countries 

including the U .S ., Japan, Soucheast Asia, 

Europe <strong>and</strong> the Middle East, this year K4IL 

plans to add passenger service from Seoul to 

Brussels, Nadi in Fiji, Tel Aviv <strong>and</strong> Mexico 

City, as well as new freight flights m San 

Francisco, Chicago, Atlanra, Beijing <strong>and</strong> 

Amsterdam . 

The Korean national flag carrier's overall 

growth has been phenomenal . In 1969, 

when Hanjin Group Chairman Cho 

Choone-Hoon took over the ailing stateowned 

Korean National Airlines, renaming 

it KAL, it only had one jet -a DG9-<strong>and</strong> 

seven propeller aircaft, <strong>and</strong> flew only to 

Japan <strong>and</strong> Hong Kong . 

Twenty-six years later, on March 24, 

1995, IiA1's 100th aircraft, a B747d00, 

l<strong>and</strong>ed at Seoul's Kimpo Airport, ushering 

KAlL into the ranks of the mega-carriers . 

Hanjin is South Koreas serenth-largest 

group . It operates an integrated l<strong>and</strong>/sealair 

transportation network including KAL, an 

oceangoing conrainer fleet <strong>and</strong> the largest 

trucking service in the country. It also has 

subsidiaries in construction, telecommunications, 

banking, insurance <strong>and</strong> securities . 

KAL President <strong>and</strong> CEO Cho Yang-Ho, 

46, who is the eldescson of Hanjids chairman, 

says KAL aims eventually to extend its 

routes across the American continent <strong>and</strong> 

then across the Atlantic to Europe, thereby 

making its long-cherished dream of offering 

around-the-world service come true . 

Cho attributes KAL's success to hard 

"3 J I 


work : "Koreans are very hard-wor'xing people, 

so we work harder than ocher airlines, 

<strong>and</strong> we always prepare for the worst since 

we are a private company. We don't expect 

any government subsidies in the event of a 

downtum . unlike some orher countries' airlines 

. We keep costs down <strong>and</strong> our product 

good, <strong>and</strong> in the event of a downturn, we're 

readv. We are ready to survive ." 

He has also had the foresight to invest 

heavily in KAL's cargo division over the 

years . KAL's cargo terminal at Los Angeles 

International Airpott is the largest cargo terminal 

on North Americas West Coast, 

while KAI- owns <strong>and</strong> operates huge rargo 

terminals at New York's JFK Airport <strong>and</strong> 

Tokyo's Narita Airport . 

KAL is investing $130 million to build a 

massive air freight terminal at Beijing 

International Airport in a joint venture with 

China's Civil Aviation Administration . 

Last vear, KA1's cargo revenue rose 16% 

<strong>and</strong> contributed one-third of the airline's 

total revenues of,53_88 billion . It is now 

the third-largest in the world in terms of 

international freight mn-kilometers. 

At rhe moment, KAL sees China as a 

market with huge potential . KAI's four 

routes are very-successful, with high load 

factors to Beijing <strong>and</strong> Qindao due to 

increasing South Korean <strong>business</strong> 

investments in China . 

"In the future, 

because of high 

growmh in China's 

economy <strong>and</strong> its 

big population, 

we expect a 

good outbound 

market from 

China," 

Cho savs . 

China just 

gave KAL permission 

to fly through 

its airspace to Moscow 

<strong>and</strong> Rome, enabling 

KAL to cut three hours off 

the trip <strong>and</strong> save millions of dol- 

lars annually in fuel alone . 

KAL is negotiating with major airlines in 

Europe, Asia <strong>and</strong> Norut Artterica with new 

deals in mind, <strong>and</strong> is seeking a quality 

alliance with a big U .S . operator. 

Last vear KAL carried 6 .4 million international 

passengers <strong>and</strong> 12 .6 million 

domestic ones, while competitor Asiana 

h<strong>and</strong>led 1 .5 million intemational <strong>and</strong> 4 .5 

million domestic passengers . 

KAL is phasing out old aircraft, which 

will be replaced by new B747-400s, B777s 

<strong>and</strong> Air'ous A330s, reducing operational 

costs through more efficient fuel performance 

<strong>and</strong> lower maintenance costs . 

KALs fleet today includes 37 3747s- 

17 of the 400 series jets <strong>and</strong> 11 freightersfive 

MID-11s, 31 Airbus A300s, nine b4D- 

82s <strong>and</strong> 12 Fokker F-l0os . 

On order up to the vear 2000 are 13 

B747-4DOs, four B777Bs, eight B777- 

stretches, seven Airbus 330s, two MD-82s 

<strong>and</strong> two Fokker-100s . . . 

u-it-h a young fleet, a high-quality product 

<strong>and</strong> an outbound tourist market that is 

the fastest-growing in rhe world, nor to 

mention the potential of the China market, 

KAL's future looks brighter than ever, 

204667,2376 

"We keep costs 

down <strong>and</strong> our 

product 

QOOdd 

in 

the 

event 

of a 

downtu"1, 

vfe're 

ready ."

Hyundai . Worl,c, ing Towards AlBeiter Tomorrow . 

A~Wa 

For half a century, Hyundai Business Group From chips to elecommunications satellites . From super-tankers to advanced LNG 

has been working towards a single goal The From a full line of passenger cars to all lypes of carriers . We've become a part of your lives in 

goal of making this wodd a more comfoatabb commercial vehicles . From subways to high more than 170 countries around the world . 

<strong>and</strong> better pkxe to live for everyone. Today we speed trains. From infrastructure to turn-key Hyundai, working together to create 

have earned a place in your daily lives . base engineering <strong>and</strong> canstruction projects . innovative synergies, innovative products . 

HYUNDAI 

emuing A esirerw,N mmugr L,rovairve kdmokgy 

AUiOMOBIIES.EIMBiINICS.SHIPBaIIllM(i .[NGINFEPI6GSCONSrkUCrI0N.AWHW[kV6EQNM/ENrPEi&KNGMIWS.IANMNGbfMN9CK[ArN)N . 1 Fw~mwnvHn-I .u- eamrp- 


A DV c R T I S E M E N T 2 0 

ASIANA AIRLI N r S 

Struggling Asiana Airlines in the Black for the 

First Tlme in Seven Years 

--_--- '- ' siana Airlines, quartered in 

launched by South Korea's Kumho Group Minneapolis, by 

in 1988, is hoping to become a world-class which the two 

a'rrline <strong>and</strong> one of the best in the industry airlines went 

by the turn of the centur,v, with three ele- . into joint 

ments as the keys to its success : perfor- operations 

mance, reliability <strong>and</strong> servicen on all 

Asiana Chairman Park Seong-Yawng is transpacific 

greatly encouraged by the airline's first prof- routes <strong>and</strong> 

it, which Asiana produced last year after los- started to 

ing nearly $300 million in six years . 

exchange 

Its first earnings were small-30 billion gateway trafwon 

($37 .5 million) over revenue of 794 .8 flc into each 

billion won ($993 .5 milGon)-but a tri- other's respecumph 

nonetheless. rive domestic <strong>and</strong> 

Beginning this year, Psiana will be solid- international route 

ly in the bLick. Revenue is expected to be networks . 

one aillionwon ($13 billion), says the This partnership is the 

chairman's younger brother, Park Sam-Koo, most comprehensive of anv internawho 

is Asianas president <strong>and</strong> CEO . tional code-share agreement within the 

At the same time, Asiana is pushing hard Pacific Rim to date, Park says . 

to nearly double its fleet to 60 aircraft by "W e are committed to linking the Asia 

the year 2000 . It has 38 aircraft, all of today with the world of tomorrow, 

Boeings, including six state-of-the-art B747- retaining our important traditions <strong>and</strong> her- 

400s, 20 B737s, ten B767Ps <strong>and</strong> two itage as we look to the future, <strong>and</strong> offering a 

B747Fs, according to President Park . bridge to the vast <strong>business</strong> <strong>and</strong> travel 

The upstart Asiana boldly challenged the resources of all our destinations in the 

much bigger Korean Air (K4L) <strong>and</strong> man- world's fastest-growing region," says Park, 

aged to snare a third of South Korea's who boldly ordered a complete smoking 

domestic market <strong>and</strong> 17 .5% of the inrarna- ban on all domestic <strong>and</strong> international flights 

tional traffic out of Seoul . Last year, it car- early this year. 

ried 5 .74 million domestic passengers <strong>and</strong> "The reaction to the smoking ban is sur- 

1 .98 million international passengers. prisingly favorable," he says, although lie 

Today Asiana flies from Seoul to ten appears rueful at having lost a $3 million-acities 

in Japan, two in China, <strong>and</strong> eight year cigarerte sales <strong>business</strong> aboard the 

U.S . descirrations: Detroit. Guam, Hono- planes . 

lulu, Los Angeles, New York, Saipan, San Business prospects are bright in Korea as 

Francisco <strong>and</strong> Seartle . affluent Koreans take vacations abroad in 

It also ser:es five countries in Southeast increasing numbers . More than three mil- 

Asia, as well as the Russian port city of lion Koreans traveled overseas last year, <strong>and</strong> 

Khabarovsk, not to mention domestic that number is expected to grow 10% to 

flights connecting 12 cities across the 20% a year . 

country. To become a top international airline, 

A .siana is set to open a new route to Asiana is striving to provide the highest- 

Europe Europe in November <strong>and</strong> is exploring quality service, <strong>and</strong> ensure maximum connew 

opportunities in Australia <strong>and</strong> the venience, comfort <strong>and</strong> reliability. 

Middle East. Kumho was founded in 1946 when 

A year ago, Asiana signed a comprehen- Park's ra[her, Park In-Chtm, starred a twosive 

alliance with Northwest Airlines, head- taxicab <strong>business</strong> in the southwestern provin- 

Mr. Park 

Sam-Koo, 

President & 

CEO, Asiana 

Airlines 

"We 

are commit*.ed 

to 

linkina the Asia of 

today with the world 

of tomorrow, retaining 

our important traditions 

<strong>and</strong> heritage as 

we look to the 

future ." 

cial cir,v of Kwangju, which grew into the 

countr,vs largest inrercity bus companv . By 

the 1960s, he was making auto tirea steel 

<strong>and</strong> consumer electronics <strong>and</strong> engaging in 

overseas consrmction . 

Kumho today is thar nation's 11thlargest 

<strong>business</strong> conglomerate, running 24 

subsidiaries, including chemicals <strong>and</strong> 

petrochemicals, with annual revenues of 

83 .5 billion . 

Asiana, however, will soon become 

Kumho's top core <strong>business</strong>, Park says . 

His immediate goal? To see Asiana 

named by Air Transport Lf/orld as Airline of 

the Yeaz in 1998, when ,•lsiana celebrates its 

tenth anniversarv. 

2046673378 


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251, Daewoo Group 

252. Hyundai Group 

253. Korean Air 

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255 . Samsung Group 

256 . Ssangyong Group 

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Ssangyong : Reliab' 'ty 

in a variety of <strong>business</strong> circles . 

c 

A corporation's survival depends on its reputation for 

reliability. 

Ssangyong has a 56-year history of reliability . 

Pariners in more than 120 countries depend on 

Ssangyong <strong>and</strong> we re doing our best to meet their needs . 

Ssangyong:s reputation in the fields of international 

trade, engineering <strong>and</strong> construction, automobiles, 

cemenk oil refining, investment <strong>and</strong> securities, heavy 

industries <strong>and</strong> machinery, paper, insurance, shipping 

<strong>and</strong> information systems has resulted in total sales of 

US$l9 billion in 1994 

Our capital <strong>and</strong> technical cooperation with 

4lercedes-Benz, the capital venture with Saudi 

Arabia's Aramco <strong>and</strong> the construction of over 7,000 

deluxe hotel guest rooms in the Pacific Rim are just a 

few examples of our successful partnershipsThese days, when reliable <strong>business</strong> partners are hard 

to find, you need a corporation that builds reliability 

in a variety of <strong>business</strong> circles . 

We re looking forward to talking <strong>business</strong> with you . 

~S SSANGYONG 

! 

InternationalTraoe, Engineering & Construction, Amomobiles, Cement, Oil Refining, Investment & Securities, Heavy Industries & Machinery, Paper, Insurance, Computers 

•C .P.0, Box 409 . Seoul. Korea • Phone : (822) 2708155-8, 270.8130 • Fax : (822) 273-0981, 2738297, 2742896 • Telex : TWINORA K24270, K28215, K28442 


The supreme irony of World War II-<strong>and</strong> its great lesson- 

Is that the slaughter was brought on 

by pacifism as much as by militarism . 

12 2 

WORLD WAa n tsas bnth the mutt whenhemmmittedthecrucialviolanecesttmmdthcmustumteccssarvnf 

donofthcTrexnofVersaillesin 1936 

ssam.Itoasdcsperarelvimpoaantto by rcmiliraiizing the Rhind<strong>and</strong> He 

win that war~rnd the Western de- said al ¢he rimc "We ehall now see 

mocmcics came de,speratclv clnse to rvhedxr or nur the Fmnch has'e real 

losing it-becauu the vierory of Hir- statesmcn ; ifsn thev will not give us 

Ier<strong>and</strong>hisallieswottldhavemeantrhe mtte, <strong>and</strong> will tnll upon u .v° Hu 

etdofnnythingwithanymotalprc- troopshadortlmmrctreatatd~elnsc 

ten.ve to ivilir don, hmvever much sign of French ntilitary acdou, such 

modern rechuolog?mitebt have stn- was the balance of miGtary powqat 

vitrcd to sene such puq>oscs a mass the time . Hiders darotg gamhlq 

extenninaGons of svhnlc pcoples, mhich visibly unnenA his urrm gen- 

Yet World War If was unnecessary crals, was hased on his asscssment of 

in 

the sense in which Winston Chur- FmncYs lack nf wilL 

cltill said of it at the end-"fhere oâe The )apanesc were equallv aware 

never a uvr in all Itisrarv wsier to thatrhevwerenomaechlitrrhe0uic 

picrcntbydmclvactionrlnntheone cd States mllitanly when they 

which h.is just dcsolated such great bombed &arlHarbur.Tlteygamblcd 

areas of the globt ." The reason whv that Nneriqsns did not have what it 

the war xzs not prevented had mudt takes m stay the comsc for a long <strong>and</strong> 

to do with the reason why rhe West dilTicolt wa. A generation larcr, thae 

ame so dosc ro losjng it . A svhole gamble might have paid off . 

vision ofwar <strong>and</strong> peace waz involvcd The German remilicuization of 

then, <strong>and</strong> that vision is still zlive <strong>and</strong> the Rltinel<strong>and</strong> in 1936 svas what 

melltodav,unchasmnedbyitsmonu- madetherestoftheNaziprztgramof 

mentalfsilurainthcycaisleadingup aggassinn possible . The Treary of 

to the Sccond Wodd War. perlups Vermilles required Gennanv ro keep 

thceupmmeironvofthanvarwasdtat all troops <strong>and</strong> milicin, insnllations 

patiflsrnhelpedbringiton<strong>and</strong>invas outnfitsawnindusorialRhinel<strong>and</strong>, 

linxlly ended hv the most desmucdvc as a wav of of}krting Gcrrn,rny's dcweapon 

in history-thc atomic mographic, industrial <strong>and</strong> military 

bomb-p'aluced because of aloci- advantages over France <strong>and</strong> odter 

Iist,NbertHinatein- European nations . Wirh its ovm in- 

Why was World War Il uuncces- duntrial heartl<strong>and</strong> defenseless, GerLftxsixrws, sapQ 13ecause 

AilasP . 

the nations anacked ntanv enuld uaer launch an attack 

wimth.BuY had vasdv greater military potentP21 on Fl'ancq or on any uthcr country 

oNCOm. .an . thanrheaggressornatiuns-<strong>and</strong>the allied with France, bevause the 

tim.dntlnubt, aggressorswe,cwellawareofit .Rut Frcnch army muld inarch into thc 

wwll«W .dwNh therveakness,vacillations<strong>and</strong>disar Rhind<strong>and</strong>unopposedaudparalpzc 

matarmal .umn mament uf ehe democratie uadons Gcimau indusny . All sides mcng- 

MruiJapennn convinced thc av.~rressor nations nizedthatrhiswasthekeptokeeping 

tMd .ekdtha dmt drep could be eonquered ur the peam<strong>and</strong>thatremilitarizarionuf 

0.5S .Mb .uud ncurmlizad be@o re they cntdd get the Lthincl<strong>and</strong> opened the road to 

SOyeana6uMe . readytofight 

y 

mar,Thennlvqucst'iunsvaswhatthe 

5.pt2. Hit'IcrlmdnoillusinnsthatGcrma- Westtvasguingmdoabuurit- 

9r1"Imp, iiiiiiim 

ne could hend off even Fianee adone ]he answer, a Hirler gueswd, wu 

2046673382 12 3 


Wrldwarn 

L<strong>and</strong>on burning 

11w nrsttrury total war, withthe Atnuat firnt gettingtlre wontof it . 

dtat thev were going to do nnching 

about it . More was rtnrolvod than a n 

isolarcd 5ilurc of ncn'c, Itmvctcr. 

Two scrr different vdsinns of war <strong>and</strong> 

I>eJce have auxisccd in the Western 

world 1'or utJ ,~st two ani . One 

vision sers the mad to Ixnm as bcing 

through disarmament <strong>and</strong> eompromisns 

uF inw'nanonal ddhrcnces . 

Tltis vlsion, which has Iong becn that 

of the Wcs'rem intclliguvsia, speaks 

sofdy <strong>and</strong> doesi t cmry a big sdck, 

This was the vision rhat prevailed in 

both intellectual <strong>and</strong> political circles 

within thc Wcs¢w dcntocracies hctween 

the two world svats . 

British 1'rintc Mininat Ncvillc 

Chamhetiain came to symholize rhis 

vieon as lie prrsided over a wcrics uf 

diplomatic fiascces wlt4ch Ied to up tn 

the war. Plowcver, lte was not nniquc 

burwasin fac[ highly represcnrativc of 

his era. 

Long before Charnberlain lxramc 

prime minister, there were a whole 

seass of intanatiowl disannununt 

wnfennces, beginning wieh the 

Washingmn naval agreement of 

192 1, in which Britain<strong>and</strong> the United 

Stams restriaed [heir uwn naval 

strcngth, whilc lapan agreed to'S'm 

strictimu" far in excess of its existing 

naval srrcngtlt or thc strength rltat it 

muld reach in tlte near furure . Now 

Inng-tirgotren inretyztiunal Jonthv'- 

cnzs at Geneva, I .acarnn <strong>and</strong> lau 

sannc gcnaratcd numnlv pious agrccmcnn 

Imt aku Icnent hupcs th .tt 

peace muld Ix kept nth ,cords . 

The opposire cision eccs pcicc w 

being primarils a result otsuccc .vl611e 

detnrnng rsar. "No peaec kccps it- 

SeIP i .v tha \vav Prnfzssrr Donald 

Kagau of Yale cxpresscd tltie v[sion ht 

WFlwallo's 

names6 

iMVebpeden 

the eve of tha war 

with wwncy 

wrengfrwmareluc 

taRParliament, 

{hese Spitfires 

h<strong>and</strong>eE the Gamamthebllrst 

Serleesdefeat, 

intheaedel 

Ba

World War II 

U,S . arfi`lery, 1938 

While Germany was creating panzer divisions <strong>and</strong> powerful howitzers, the U .S. Army still had horse-drawn cannon . 

The Nazi Holocaust against the 

Jews has left its indelible mark of 

infamy in the histonbooks, but other 

mass atrocities against other people, 

both by the Nazis <strong>and</strong> especially by 

the Japanese, ha%e tended 

to fade from memory . Japan 

has never publicly acknowledgcd 

to irs own people, 

<strong>and</strong> exhausted, but lighting for their ment . They bought time, not only for 

homel<strong>and</strong>, shot do«n enough enemv Britain, but also for an almost totally 

planes to keep Britain ali °e <strong>and</strong> to disarmed United States to begin to 

force postponement of the Nazi inva- build its military forces . 

sion that was expected at any mo- On the ground, the high price of 

prewar pacifist rhetoric <strong>and</strong> 

'_ policies continued to be 

paid with the blood <strong>and</strong> 

lives of British <strong>and</strong> Ameri- 

or to the world, the 

can ;ighting men, fighting 

atrocities it committed all 

overAsia, as post-Nazi German}' 

did in the y,ears folfosring 

the end of World 

War II . This war was not 

just another war . The Nazis, 

with the Japanese not 

far behind them, made it "a 

revolution aeainst the moral 

basis of civilization" <strong>and</strong> 

a "re%olution against the 

human soul," as Ti.ne mag 

azinc put it . 

A thous<strong>and</strong> voung men 

in their fighter planes over 

Engl<strong>and</strong>, outnumbered 

Ki-,g _eopold III of Belglum 

Hoping to placate Hitler, he refused staff talks with the Allies . 

gallant but losing battles 

around the N%orld against 

better armed, better 

equipped <strong>and</strong> batde-hardened 

German <strong>and</strong> Japanese 

military forces . Japan's 

modern naw <strong>and</strong> wellarmed 

troops swept down 

across Southeast Asia with a 

speed reminiscent of the 

Nazi blitzkreig in Europe 

Filipinos, Malays, Indonesians 

<strong>and</strong> other Southeast 

Asians fell victim to Japanese 

conquest <strong>and</strong> atrocities, 

~rhich rivaled those of 

126 Forbcs 0 dugust 14, 1995 


Mein Kamf 

Germany advertised her growing military might, hoping-with some success-to awe the democracies into acquiescence . 

their Nazi allics, .ihose armies w,erc 

storming across Eastern Europe <strong>and</strong> 

plunging deep into the Soviet Union . 

The militan' vulnerabilin, of the 

United States after losing se~eral bartlcships 

of its Pacific fleet at Pearl 

Harbor quickly became painfully apparent 

in many ways . The swift <strong>and</strong> 

brutal Japanese conquest of the Philippines 

was one of the most obvious 

examples . But the West Coast of the 

United States itself was so vulnerablc 

that a Japanese submarine surfaced oHrhe 

southern California coast <strong>and</strong> 

sank two tankers within sieht of horritied 

civilians on sltore-<strong>and</strong> with no 

re,apnnse whatever from American naval 

or militarv forces . The head of the 

American naval forces confided to 

then California attorne\ general Earl 

Warren that there w:i+ nothing he 

could do about it . The ancient planes 

under his comm<strong>and</strong> would have rcquired 

hours of repair work just to get 

them in condition to take off . 

American soldiers fighting for 

Forbes a dubust 14, 1995 

their ln es against the Japanesc in the 

Philippines were likewise using obsolete 

rifles left over from the First 

World War <strong>and</strong> grcnades so old that 

most did not go off. The hideous 

Had Britain fallen, the 

position of the U.S . would 

have been dire . Hitler had 

the U .S . on his list for 

attack in 1943, but the 

Japanese jumped the gun when 

they bombed Pearl Harbor . 

atrocities suffered bv both American 

<strong>and</strong> Filipino prisoners ofwar after the 

Japanese conquered the Philippines 

u•ere part of the ]tigh price paid for 

the pre%k ar moral preening of pacifists 

that had made it politically impossible 

to provide American fighting 

men with the weapnns needed to 

defend themseh•es- 

It was halftvav through World 

War II before the industrial production 

<strong>and</strong> the bclated rearmament of 

the United States began to turn all of 

this around . Not only were American 

troops now better equipped, 

British <strong>and</strong> Russian militarv forces 

were also being supplied with vast 

amounts of war matcricl from the 

United States . 

Amid all the celebrations of the 

tiftieth ann iversarvofvieton- in World 

War II, let us never forget how close 

the Western democracies came to being 

defeated-or what a horror it 

would ha% e been tor the whole world 

if thev had lost . Nor should ~~e ever 

forget what policies <strong>and</strong> illusions 

brought the Western nations to the 

brink of catastrophe . 

Those illusions, todav mi .xed ~N ith 

a barelv concealed hostilitv to Western 

civilization, have spaicned a 

whofe trend of revisionist historv, 

•,vhieh is not concerned with the 

20 4 6073385 

127 


_ 

World War II 

Humiliafion 

Forthese U .S . 

soldiers captured 

in the Philip• 

pines in 1942, sur, 

render was just 

the beginning of 

the price they 

paid for U .S. un• 

preparedness . 

No more war 

"The Yanks are 

not coming" 

expressed the 

overwhelming sentiment 

in the U.S . 

at the beginning 

of WWII . But it 

takes two to keep 

the peace . 

historic achievement that sa~ed cisilization 

in thc ~corld, <strong>and</strong> is more 

intent on denigrating the Wcst in 

general <strong>and</strong> the United States in 

particular . Svmbolic of this mindset 

Ila%c been tlle annual pilgrimages to 

Hiroshima <strong>and</strong> Nagasaki to denounce 

the dropping of atomic 

bombs on those cttles . 

The recisionist line is tllat Japan svas 

"Yeadv to surrender" am-svav <strong>and</strong> that 

the bombs were dropped for mere 

vengeance, or because the Japanesc 

s~ere of another race, or for aN arten, of 

other dishonorable reasons . Wlrat 

matters is Mhether Japan was prepared 

to make peace in 1945 on the terms 

being odered, Nrhich ~~cre "unconditional 

surrender ." Those terms-or 

something close to them, since the 

.Allies did relent to the extent ofallowing 

the emperor to remain titular head 

of sratc-Ncere essential to the historic 

transformation of Japan that has kept 

it a peaceful nation tbr halfa centurv, 

despire its manv wars of aggression 

against Aussia, Korea, Manchuria, 

C :hina, tlle United States <strong>and</strong> Southeasr 

Asian nations in the preceding 

halFtentun . 

As in Ciermane, the \trestcrn dcmoa-::cies 

rid themselces of ;t historic 

nnd d :tngcrous cnemy in Japan in the 

The a s A'OT._:Coroin~. . 

best wav possi ble-b~• tunling it into a 

democratic <strong>and</strong> peaceful nation . This 

enormous achicrement, for the West 

<strong>and</strong> for the ~eorld, depended on occupation 

<strong>and</strong> connrol of a~cholc societv, 

notsinlplv its militarVcapituiation . In 

short, the question is not whether 

Japan sras "rcad%" to make peace 

beture the atomic bomhs ssere 

dropped, as rerisionist historians 

daim, but ~ehedler du Japanese govcrnment 

was prepared to make peace 

11RVOU!vi~:~:~ 

rr" . auoccr 

~~~(MERICAN ptAwnas=+~t 

YOUTO CONGA ~ E 

p}t GRIMA 

}o14d4hi0~lOP }2tt9-I'2 

under the terms oflered-which is to 

say, the terms that made a lasting 

peace possible . 

With the fiftieth anni of 

the end of World War II being 

celebrated this month, ~~c must also 

recognize that this ~.~ar became nco 

essan- ouly becausc the democratic 

nations left thenlschcs dangerousle 

vulnerable . The cost of such \~ulncrabifiny 

is, of course, e%en greater in 

a nuclear age . IIIIIIIII 

128 Forbcs ∎ August 14, 1995 


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DO 

~ 


Lies, , 

damned lies 


Doctors, <strong>journalists</strong> <strong>and</strong> health food vendors have us 

scared to death about what we eat, drink <strong>and</strong> breathe . 

But most of their studies couldn't pass Statistics 101 . 

medical statistics 

By Philip E . Ross 

IN THE 1973 Ntovte Sleeper, Wood%, Allen plays a health 

food salesman who comes out of suspended animation in 

the year 2 173 <strong>and</strong> calls for wheat germ, organic honey <strong>and</strong> 

tiger's milk . His puzzled doctor asks a colleague wlry 

people had once orctcrred such sludge to steak, 

cream pics, hor fudge <strong>and</strong> deep tat . "Those were 

thought to be tmhcaithy," the colleague 

replies, "precisely the opposite of what we 

now know to be true ." 

Life imitates art . Twentv years too 

late, those of us o'caned from real 

butter to oilv margarine suddenle 

learn that the svntheticaily solidified 

oils of margarine, known as transt3m, 

acids, wcre worse for our arteries 

than any fat fintnd in nature . You 

would have been better oll enjoving 

nature'ss spread, after all . Just because 

something tastes good doesn't mean 

it's bad forcou . 

_ 

Such flip-tlops in the histonof health ~' 

adcice are the rule rather than the exception, 

Todav's bad-for-aou was probabiy once a good-for-N_-ou<strong>and</strong> 

\'ice versa . Yet e~en- ncw headline sends millions ofon 

a scarch-<strong>and</strong>-dcstrov mission in the pantry or a panicky 

visit to the doctor . We ha\e become a nation of nen,ous 

Nellies, ready to gi~e up cating pleasures at the drop of a 

medicaLreportl Mercun-laden tish is killing u .s, then mt}ee, then eggs, 

then it's too much chlorine in water, then it's too little . 

Ecen other people's pleasures aro supposed to be dangerous 

for us, like secondh<strong>and</strong> smoke . 

Strange, isn't it . bVc are living longer <strong>and</strong> healthier <strong>and</strong> 

are better nourished than ever beforc, ret imagine our- 

13U 

sehes beset with pnisons <strong>and</strong> cancer-causing substances . 

It's time :br us to recognize that a \~ hole industry exists 

to invent, propagate <strong>and</strong> then allcviatc health scares . 

Medical schools get thcir grant money by publishing 

studies, the Neia Engl<strong>and</strong> Journal of Afedicirae 

makes a living publishing them, popularizers 

make a nice licing re~rriting medical journal 

discoveries as books <strong>and</strong> articles . A large 

segment of the grocery products industrv 

makes it a <strong>business</strong> to sell so-called 

health tbods . Erer notice all the intelligent-looking 

folks carefully scrutinizing 

the fine print "nutritional" 

information on cereal boses, jamjars 

<strong>and</strong> soup cans? 

We're not against tblks making an 

honest dollar routing healthy diets, 

but as a publication %eith a he„Ithy 

respect for statistics, we can't resist 

looking down our editorial nose at some 

of the statistical contortions hiding behind 

these scares . 

Let's start with the most amazing flip-flop of recent 

years : alcohol . As the once aristocratic drv martini gace 

waa to a glass of «'hite wine, young Americans came to 

drink much less than their parents <strong>and</strong> gr<strong>and</strong>parents had . 

It had even become hip for some to teetotal . Then, last 

year, a group atT'iliatcd with the Hanard School of Public 

Health recommended that we consider taking a glass of 

svine a dav . The libation was to be part of the Nlcditerrancnn 

1)iet-so called because it mimics the low-meat, 

olive-oil-rich, mine-soakcd regimen of soudurn Europe, 

N.iierc heart disease is relati%ely rare . Further supporting 

ecidence came from Iaboettony findings that alcohol raises 

2 0 4 3 013 3 8 8 r

levels of high-densitv [ipoprotein, the "good" cholesterol 

that rids the bodv of the artery-clogging kind . 

Pass the bottle? Not so fast . The trouble with most of 

these medical studies is that thev look at a fiw factors in 

isolation . Okav, a little booze is good for vour heart . But 

what does it do for your chances of suttering cancer, 

stroke, cirrhosis of the liver or your chances of ending otF 

the road in an overturned car? 

The moral of the ston• is : Drink if you like, but not 

because it will make you live longer . 

In fact, the Ne~a+ Englarrd Journal ofMedicine-whose 

editorials continue to endorse the new drink-a-day-keepsthodoctor-away 

regimen-published a study in June 

showing that alcohol can raise blood pressure significantly . 

You can't make sense of such conflicting reports . 

Aren't medical journal articles peer-vetted, scientific 

<strong>and</strong> thereforc unimpeachable? Don't believe ir . A l<strong>and</strong>mark 

1972 article in the journal Pediatrics almost singleh<strong>and</strong>edly 

created an industry of sudden-infant-death prevention 

. A cluster of flve cases in one upstate New York 

family supposedly showed that there was a genetic component 

to the syndrome ; prevention included monitoring 

devices <strong>and</strong> varying advice for positioning sleeping babies 

in the crib . 

Whoops . Turns out that that New York mother nmrdered 

her five children . Pediatrics ran a retraction some 

20 years later . By then moms <strong>and</strong> dads had lost a lot of 

sleep rmnecessarilq . 

Porbcs . August 14. 1990 2 0 

4 6 b- 3 3 8 9 131 


Hcalth scare 

I 

Expect more such nonsense, 

because of the inherent 

limitarions in the 

cpidemiologv of noninfectious 

disease . Scientists 

could desise an expcriment 

that would realk 

proNe whethcr loodoses 

of secondh<strong>and</strong> smoke 

hurt children, but the experimentwould 

be unethical 

. To really I:now 

whether exercise makes 

people live longer, c .pcrimenters 

would have to 

r<strong>and</strong>omly select 1,000 

subjects <strong>and</strong> regiment 

their evero waking moment 

for decades . 

In default of such serious 

studies, distrust most 

sweeping conclusions 

linking diet <strong>and</strong> health . 

Yes, cou can proN e statisticallv 

that people who esercise Gve longer . But the corv.dusion-that 

exercise is good for you-mav put tJte cart 

before the horse . Think about it . Are people healdty 

because tluv esercisei Or do thev exercise because they arc 

healthv? The barc correlation proves nothing . Pltysiological 

<strong>and</strong> other e\ ;dence leads mariv <strong>doctors</strong> to conclude 

exercise helps . But even here, there's no clear proof 

The mass media punev health scare stories breath- 

!ess[v, treating each new paper in isolation t}om the ones 

that came betixe . E%en if the researchers concede that 

there are limitations to the validity of the study, the media 

usuallv bury the caveat . "You reporters take at face value 

eVerything the scientists tell vou-something y'ou would 

ne~er think of doing if the 

source «-ere industrv 

or the government," 

grouses one prominent 

cpidemiologist . 

There's too much at 

stake for the health scare 

industry to admit to the 

shortcomings ofepidemiology 

. The Berkeley, Har- 

% ard, Johns Hopkins, 

Tutis <strong>and</strong> L'niversit • of 

Texas medical schools are 

raising monev by publishing 

health tip nct%,slettcrs 

for the general puhlic- 

The Journal of the American 

Medical Association 

takes in S1, million in 

adsetZising a aenr . Jane 

Br ndv's Good Fod Book : 

Lirialt the HiAh Crtr6oht .- 

drnte SVav( 1985 ) is in its 

tenth printing . Sales of 

preparcd fr>ods ntaking 

health claims ("lo%c-tat," 

"no sugar added," '9o r 

sodium") account ;or 

S23 billion a vear . 

Let's go back to the 

butter/margarine argumcnt. 

In 1993 a group at 

Harvard linked trans-fatty 

acids to heart disease, 

adding, a year latcr, that 

the synthetic fats may be 

responsible for an estra 

30,000 deaths a vear in 

the U .S . Margarine, of 

course, is fu':l of regetable 

oil hardened by a process 

called hydrogemationtishich 

produces trans-fat- 

R, acids . The next year, 

murgarine sales dropped 

8 .2% by volumc, <strong>and</strong> butter 

sales rose 1-4% . 

Take eggs. "You'd 

think there were half a dozen studies saring to avoid eggs ; " 

sa~s Walter C Willett of the Han, ard School oF Public 

Health . "Guess how manv there n°erc? When we started 

looking at this question, zero . Now there's still ven little 

information . No one's cven slto~~n it in ut observational 

study [one where eou compare people who say they cat 

eggs with people who sac they don't] . The recommendation 

was based only on reasoning that cholesterol in diet 

affects blood cholesterol, <strong>and</strong> that eggs havc cholesterol ." 

Tell that to the chicken farmers . Thcr've watched dtolesterol-spooked 

consumers cut their egg consumption from 

a pc-ik of 402 eggs per capita in 1945 to 238 todac . 

The old eggs-are-bad theory was built on a pretty sseak 

connection, that cholesterol 

in foods affects 

blood cholesterol . But the 

fact is that gcnctic ntakeup 

is far more important 

than consumption ofcholesterol 

in determining 

blood cholesterol Ieels . 

Mavncltile, millions of 

children who could benetit 

from the cheap protein 

in eggs are being shooed 

awav troni it . 

Then there's the outrageous 

canipaign against 

"passivc" smoking . Some 

stndies 11,10 e purported to 

show that people exposed 

to other pcoplc's smokc 

arc more prone to lung 

caneer than the general 

population . The statistics 

are dubious . So-called 

passi~e smokers often 

1?2 

Porues . Au,ua 14 . 1995 


So what should I do? 

I CONFRONTED with a blizzard 

of conflicting advice 

about diet <strong>and</strong> health, 

you might either go crazy 

trying to follow it all or 

throw up your h<strong>and</strong>s in exaspcradon, 

pour yourself 

another beer <strong>and</strong> slump in 

front of the Tv set with a 

bowl ofgreasy potato chips . 

No, don't do that, either 

. Here's a middle 

ground : Take some of the 

advice seriously . Herewith 

a brief compilation of 

health advice according to 

~ whether it is well proven, 

i in "mavbe" territory or 

probably garbage . 

True 

∎ Smoking is bad f'or you . 

Period . The evidence is 

clear on this one, no matter 

what the tobacco comi 

pany stadsticians say . 

∎ Heavy drinking is bad _ 

for you . Enough alcohol to 

make you tipsy, if con- 

~'sumed every day, will grcat- 

' ly raise your chances of . . 

cirrhosis, cancer <strong>and</strong>-in 

many people-high 

blood pressure . 

∎ Sun is bad for you . Although 

you needn't shield 

yourself in lead foil every 

time you go outside, sun_ - 

block <strong>and</strong> a hat will lower 

your risk of getting skin 

cancer . Use ultraviolet- _ you're not a high-risk 

proofsunglasses to ward off case, there is no direct evicataracts. 

dence that such a dietary 

change will improve your 

Maybe life span . 

I∎ A little alcohol-a ∎ Salt may raise your 

drink a day-can lower blood pressure . Circumyour 

risk of coronary ar . stantial evidence from 

tery disease . <strong>How</strong>ever, cross-cultural studies sugwhether 

it is wise to actt gests that it may contribon 

this-correlation depends ute to hypertension . On the 

on whether light drinking other h<strong>and</strong>, attempts to 

increases your risk ofsome- reduce blood pressure by 

day becoming a heavy , means of low-salt diets 

drinker . It probably does, have been disappointing. 

<strong>and</strong> that probably elimi- Here's what's probably 

nates the statistical benefit going on . Some people are 

of light drinking, genetically sensitive to 

∎ Overeating is bad for salt <strong>and</strong> would benefit from 

you . Obese people definite- a low-salt diet . A lot of 

ly don't live as long as people aren't sensitive <strong>and</strong> 

others . But no one has real- gain nothing . There's no 

ly proved that losing easy way to know which 

weight will lengthen life group you fall .into . 

expectancy. Our advice : You will 

∎ Saturated fats seem to probably do yourself no 

contribute to hardening of harm avoiding salty 

the arteries . If you are at snacks, <strong>and</strong> you might do 

high risk for heart disease, some good . 

maybe you should cut ∎ Fruits <strong>and</strong> vegetables 

back on these foods . But if may lower your chance of 

getting cancer . It could 

be that vegetables contain 

antioxidants, which sop 

up a chemically active form 

of oxygen that seems to 

cause cell damage . Or it 

could be that vegetables 

themselves don't do a 

blessed thing ; the connection 

to cancer might 

merely be that ~egetable 

eaters consume less fat <strong>and</strong> 

fat contributes to cancer. 

Recent studies of the most 

likely antioxidants-vitamins 

C, E <strong>and</strong> A-have 

produced mixed results . 

Bunk 

∎ There's no evidence 

that eggs are bad for you . 

You gain nothing by giving 

them up in favor of other 

forms of saturated fat . 

Even researchers who endorse 

the current wisdom 

on saturated fat say that an 

egg a day's not bad . Besides, 

they contain highquality 

protein <strong>and</strong> 

they're cheap . 

∎ It's not wise to eat margarine 

. It turns out that 

butter's naturally saturat 

ed fat isn't as bad as the 

artificial trans-fat in most 

margarines . 

∎ Fish oil isn't the heart 

panacea it was bffled to be . 

The fish/heart connection 

was debunked in recent 

years . No wonder : 

One of the original study 

groups was Greenl<strong>and</strong>ic 

Eskimos, who differ from 

us in a whole lot of ways 

besides diet. 

∎ There's no good evidence 

that low-frequency 

electromagnetic waves 

(from power lines <strong>and</strong> 

toasters) cause cancer . 

∎ There's no evidence 

that a cup or two a day of 

coffee is bad for you . 

Again <strong>and</strong> again, attempts 

to deny us this humble 

pleasure by means of a statistical 

sun'ev have been 

overturned . 

∎ The EPA's conclusion 

that 3,000 people a year die 

from secondh<strong>and</strong> smoke 

is disputed by reputable 

epidemiologists . If 

there's a connection between 

secondh<strong>and</strong> 

smoke <strong>and</strong> cancer, it's an 

extremely faint one . . 

-P .E .R . ~ I 

Forbes . dueust 14, 1995 . " 0,4 V 

0 133 A 1 

133 


I 

∎ 

Health scare 

share a lot of things besides their neighbors' smoke-like 

genetic heritage <strong>and</strong> social class (Fo1utES, Jan . 31, 1994) . 

Both are extremehrelevant to cancer rsk- 

In other %,nrds, the 1992 declaration bthe Emironmenral 

Protection Agency that secondh<strong>and</strong> smoke kills 

mavbe 3,000 :lmericans avear is simplv nor credible . 

Some people even take serious,y the PanciPul connecion 

between high-tension electric wires <strong>and</strong> "cancer clusters," 

a scare promoted by journalist Paul Brodeur in the New 

Yorherin 1992 <strong>and</strong> in a book in 1993 . Most epidemiologists 

dismiss his scientific 

claims . "It's just garbage 

epidemiology," says Professor 

James Enstrom of 

UCL~1 . 

2.re lefties condemned 

to short liNes? In 1991 

two psachologists, Stanlev 

Coren of the University 

of British Columbia 

<strong>and</strong> Diane Halpern of 

California State Universitv 

in San Bernardino, 

questioned the relatives of 

deceased people in California 

<strong>and</strong> found that Pewer 

<strong>and</strong> fewer left-h<strong>and</strong>ers 

showed uo in ehe older 

age groups . They corr 

cluded that lefties were 

dving off at a greater i-ate . 

And they caladated that 

the average life expectanev 

of lefties was an astounding 

nine years less than that of righties . 

That's a bigger difference than that berneen smokers 

<strong>and</strong> nonsmokers . If true, it would have easihbeen the 

greatest epidemiological relationship to hase escaped 

notice up to that time . The Coren-Halpern findings ran in 

the New Era171<strong>and</strong> Journal aflledicine, giving them instant 

credibiliry ; the story even l<strong>and</strong>ed on the front page of the 

Wcuhexgtan Past . 

"I just laughed," says left-h<strong>and</strong>ed biostatistician Donald 

Hoover of the Johns Hopkins School of Public Health . 

"In fact, the older people had gone to school at a time 

sshen teachers forced lefties to ssrite with their right h<strong>and</strong>s . 

People of that generation ~seren't allowed to be lefth<strong>and</strong>cd 

." Hence the °surev" had covered onlv a fraction 

of those born left-h<strong>and</strong>ed . Furthermure, actuaries criticized 

the authors of the origittal stud}' for mish<strong>and</strong>ling 

their statistics . 

These subtleties escaped the <strong>journalists</strong> whn rushed to 

publish the discovery of the supposed nine-vear gap . 

Within a couple of years, protessional journals such as the 

Britz`sh hledicnl Josr-nal <strong>and</strong> the American Journal of 

PrrGlic Health published 

articles debunking the 

leftV hypothesis . But the 

IS'ashin,gton Post, so far as 

s~e can tell, never did a 

follo~~-up storv confessing 

that the earlicr one 

ssas bunk . 

In the 1980s a number 

of papers came out sho«'- 

ing a connection between 

coffee drinking <strong>and</strong> pam 

creatic cancer . The linkage 

had no physiological 

theon, to back it up, but it 

had scare value, considerine 

that tens of millions of 

Americans begin their dat 

with cups of rhe stut~~ . 

Coffee drinkers had about 

2 .5 times the risk of pancroatic 

cancer as otbers, 

claimed one 1981 studv . 

Its authors speculated 

that a bit more than half of all pancreatic cancers might 

stem from coffee . The theony made it into the Nem 

Engiaud Joru'sral af Mcdidne . 

Relax<strong>and</strong> sip awav . I .arer studies failed to reproduce the 

findings . Finally, in 1986, the authors of the origin°al study 

reported that further study had led them to conclude that 

"if there is any association bctween coffee consumptiorn 

<strong>and</strong> cancer of[he pancreas, it is not as strong as our earlier 

data suggested ." Translation : Coffee's as safe as orange 

juice, for all «'e know . 

<strong>How</strong> did this curious statistical correlation stuface? By a 

jOgging kills 

A[ i ntEniCNE has side effects~sgecially 

the medicine 

prescribed by health 

fanatics . 

Consider the not quite 

$2 bitlion a year people 

spend on organic foods . 

Has it bought anyone an 

extra day oflife? Bruce 

Ames, a biochemist at 

Berkeley, thinks not : "All 

this fuss about pesticide residues 

is counterproductive 

. If you drive an extra 

mile to go to your organic 

food store, your risk of dying 

in a car accident is 

enormously higher than 

any possible risk of those 

pesticides ." 

Do you jog? Have you 

figured out your expected 

benefit in years of life? 

Now allow for your risk of 

getting run over. It may 

be a losing game . 

A treadmill is no better . 

Consider the hour a day, 

three times a week, you 

spend sweating at the gym . 

Keep it up for 40 years, 

adding, say, a year to your 

lifespan . Guess what : The 

number of waking hours 

you gain in that year of 

life is less than the number 

of hours you lost to exercise 

. Yes, exercise is good 

for you, but overdoing it 

isn't. -P .E .R. M 

134 

20466 7 3392 F,rbe, . A ,g .,stly .f9y, 


scientific phenomenon 

kno~%n as daca dredging, a 

creature of the age of 

huge databases <strong>and</strong> cheap 

computing power . 

Data dredgers can just 

take 100 food items <strong>and</strong> 

personal habits <strong>and</strong> compare 

them with 100 dit£erent 

ailments . If necessan,, 

divide <strong>and</strong> subdivide diseases 

',ike cancer according 

to the organ it affects . 

Now you have a matrix 

with 10,000 cells . ENen if 

there is no cause-<strong>and</strong>-cffect 

relationship in any of 

those cells, you are still 

sure to find around 100 

stunning correlations 

about wluch vou can honesrlv 

make this claim : 

"The chance of this correlation 

arising by chance is 

less than 1 in 100 ." That's «hat rou publish . 

Good science attempts to comprehend natutr in a 

theon-, rhen to make predictions on the basis ofthe theon, 

then to test the predictions against obscnation or ezperiment 

. Firstvou set up the target, then eou shoot at it . Data 

dredging turns this on its ear . It finds data, then tries to 

build a dieon- around it . It looks for bullet holes, draws 

circles around them <strong>and</strong> proclaims : bull's-e~e . 

No, we're not saeing that all correlations benceen diet 

<strong>and</strong> health are bunk . There's the connection between 

cigarette smoking <strong>and</strong> lung cancer . Statistics \critied it 

across social classes <strong>and</strong> nations . ilnimal studies <strong>and</strong> tissueculture 

experiments provided a phcsiologic basis !or the 

connection . 

But too mana people 

verc quick to jump tirom 

this example to a broad 

indictment of e~en, new 

subStdnce introduced 

since the industrial recolution 

. Substances such as 

alar, formaldehnde <strong>and</strong> 

nEiT are often alleged to iie 

behind the so-called explosion 

in reported cancer 

cases . But, as many epidemiologists 

have pointed 

out, there is no such epidemic 

(except for lung 

eancerl . tiVhr then is cur 

cer increasing as industrialization 

spreads? Because 

industrialization general- 

Iv raises living st<strong>and</strong>ards, 

allowing ntore of us to live 

long enough to de%elop 

cancer <strong>and</strong> to allo«a 

o«-gro«ing tumor to 

sho%c itselE Indtutri .tlization 

also imens <strong>and</strong> then 

pn~'s for the high-tecS 

tests that find cancers :hat 

nouki Irare eluded the 

best diagnosticians of a 

seneration ago . 

Whiic suroeNs like the 

one going on in Framingham, 

Jtass . for the past .7 

vears can te!I tou tltatltieh 

cholesterol correlates 

with the derelopment of 

heart disease, that doesn't 

pro%e that lotcering cho- 

Iesterul will do any good . 

A correlated eariable mz 

be a marker, not a cause . 

Long hair correlates «ell 

widt the female sex, but 

cutting a %coman's l :.ur 

%ron't tu :-n her into ;: man . 

E\en ifcou coukd determine, 

once <strong>and</strong> lor .tll, that a gi\ en diet reduces ~'our risk of 

eetting or:e diseasc, vrou still cotdd not be sure that it 

~% •ould not raise rour risk of gett~.ng another . Some 

<strong>doctors</strong>-a small niinorirv, to be sure-belie%e that cholestcrol-loNxering 

programs push n:an .~ patients into depression, 

perhaps ibr reasons ofbrain chemisrt, . If thcr are 

right, some <strong>doctors</strong> maN be drix ing people to suicide in dic 

questionable name of reducing their risk of heart attack . 

A certain consenatism is in order here . Resist the 

temptation to ineoroorate a ncu :Èiding into %our 1 .eaLth 

regimen until it has beett examined thom mamattglos, for 

manp years . Wait out the long-term studies that acrualh' 

test theories under controlled conditions . Othentise Vou 

may 2dopt a cure that's 

o orse than the disease . To 

steel }•om-self in resisting 

such remptations, considcr 

that h}'pocltondria itself 

6 a disease, one that robs 

%,ou not of life but of its 

cnjolntent . 

We're strange people, 

ae ,-kmericans . Iu 1900 

our life e .pectmur at 

birth ~~-as 47 vcars . Aow, 

thanks largelv to imvrrned 

sanitation, rao 

cines <strong>and</strong> better nourishmenr-all 

made ~cidelv 

aeailable b% our indrtctrial 

econorrc-our life expectanc)' 

is 76 ~'ears . Do 

Wc rcjoice at our good 

tbrtunei No, we ure con- 

~inced a lot of people 

out there arc awing to 

paison u .s. M 

Forbu a August 14, 1y95 . . 13, 

2046673393 


, I , ,I I ,, 

i 

I 

L 

Unbundling nations 

Steve H . Hanke is a 

professor of Appliad 

Ecclomics al 

TheJotns Hopkms 

On+ers:ty In Baltimnre . 

136 

hlArMatieas hace been srorking oscrtime to 

accommodate the inclusion of 20 nc«countries 

in the past Five vears Most of thcse border 

adjustments ImN e resulted from the dismcmbermcnt 

of former communist countries . The 

bloodv events in Chechm°a <strong>and</strong> Bosnia indicate 

that the onbm,d!ing of the old cn :pire is far 

ti'om over 

. This trend is not limited to dze tormer communist 

countries, howcvcr . Political separatism 

is rampant in Canad-a, Mexico, India <strong>and</strong> _Afriean 

countries . Fcen Europe, which is struggling 

toward economic integration, Itarbors strong 

sep-aratistmoaements in Spain, Inile, Belgium 

<strong>and</strong> France . 

The driving force behind most separatist 

movemena is the dcsire or.' people to have a 

reasonably homogenous population in their 

general neighborhoods . In mosr parts of the 

world, support for the "ntelting pot" is not 

very, popular . Political sentiments faworing homogeneitv 

ha% e alwavs been around . What's 

changed siuce the end of the Cold R'ar is the 

spread of democracq <strong>and</strong> eonsequentlr the 

freedom to express political preferences . More 

democt-acv is likclv to lead m more cotmtt-ies 

<strong>and</strong> smaller ones . 

It is sometimes said bv those %% ho embrace 

the social planning paradigm that smnll couc 

tries are disad%anmged . According to the social 

planners, large countries can spread [he 

costs ofpi.iblic goods-Iegal <strong>and</strong> monetan, 

systems <strong>and</strong> the maintenance of national defensc-over 

mam, taspayers . Conscyuetttlv, 

the average cost of these goods for cach taxpayer 

is lo«er in large countries, giring them an 

edge over small cormtt-ies . That's the theotv . In 

practice, howc%er, the ratio of e%oe~ditures 

on public goods to gross national product is 

uncorrelated with the size of a couantq . When 

exposed to the light of da\, the economies of 

scale argument just doesn't hold %caterOther critics of the small is beautiful n'end 

in nations claim that manv new states-such as 

the Baltic republics-are jus too smatl to be 

economicallv viable . The evidcnce contradicts 

this assertion . Historicallr- therc has been no 

re!ation bcnwecn the growtlt or Ic\ cl of per capita 

inCOme <strong>and</strong> the SiZL' of a COUntR', sshether 

measured bv populatioti or area . Kenichi Ohmae's 

recent book, The Eraei or"the Nation 

Statr: The Rise af'Reftimtn! Ecnnamies, conclodes 

that the fhture lies «'ith the small, t:ot the 

argc, countrics . The Japanese managen .en[ 

guru supports his dicsis bv sho«ing that, in 

toda~-'s glohalized markets, the E,tstest-gros~ing 

counuries <strong>and</strong> regions arc actualhthe small 

ones that are open to international trade . 

Another specious argument that is thrown 

up ugainst the estabiishment of small states is the 

claim that tltec cannot prosper because of inadequatenatural 

resource bases . This is nothing 

ntore than em•iror.mental detetminism, Nehich 

is dcarh~ \cronglteaded . There is no relationship 

betrs'een economic performance attd the presenee 

of natural resources %cithin a countn,'s borders 

. Indeed, thedsian tigers <strong>and</strong> the citvstate 

of Singapore hu% e been the most rapidhgroc 

.'iug economics ocer the past 30 rears, 

<strong>and</strong> tlte%' don't hare much in d1e wav of natural 

resources . These economies e slee., taze ~' _n ~ w'r t at 

the}' do well <strong>and</strong> then trade their goods for 

contmuditics . 

Prosperity doesn't ha~e much, ifanything, 

to do with a counttl's size . To promote prosperin', 

eren in countries with as fc%N as a million 

inhabitants, the chicf ingredicnt is a good gocernmcnt 

drat maintains sound monev, the rule 

ofla«', open international trade <strong>and</strong> avoicis market 

distortions such as escessis°e tax rates <strong>and</strong> 

burdensome regulations . In sitort, it's stable, 

market-tiicndlp institutions that proride the 

necessartingrcdients for economic growth . 

Thus it seems clear that the modern developments 

ofglobalization <strong>and</strong> democratization 

are likeh, to lead to more counMes, not fewer . 

Some people think the 

proliferation of new, small 

countries is a step backward . 

In fact it is a by-product of the 

spread of economic <strong>and</strong> 

political liberty . 

These brcakma~states are not throwbacks but a 

ware ofthe future, a bc-product of the spread 

of economic <strong>and</strong> political libertt . But this 

thought is politically incorrect in America, 

where secession is a bad %lnrd . What else could 

explain Presidcnt George Bush's infan.ous 

"chicken I:ieN ~" address iu 1991 . in which he 

pledged allegiance to the presenuuon of the 

Soriet Union <strong>and</strong> lectured the Ukrainians on 

the danger of "suicidal nationalism"? No 

doubt President Clinton's flip-flopping on Bosnia 

has been simiiarlv itttluenced by bad civics 

lessons too uell learned . 

Read the Declaration ofIndependence .If 

secession kk as good for the colonists in 1776, 

«ha is it had for Bosnians or Quebecois in 

1995 : M 

,: , . A _tKast1 4 .1995 

2046673394 rl, 


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CONT~LS 


Uncle Tobia, who cooked for a pope, 

taught Richard Gussoni that people eat 

with their eyes as well as with their mouths, 

The family <strong>business</strong> 

By R Lee Sullivan 

Cu ~slre Internationa' founder R&ard Gussoni at tis restaurant Nicola's 

Bringing culinary art to institutional dining . 

? IN TxE THia1'tas Richard Gussoni's 

~ Uncle Tobia worked at the Vatican as 

a chef for Pope Pius XI, <strong>and</strong> shorth• 

before the war moved to Nenr York . 

where he cooked for aNIafia familv 

headed by syndicate boss Mllie Moretti 

. Sometimes Uncle Tobia visited 

his niece (Richard Gussoni's mother) 

in Tenanv, N .J ., where he made 

young Richard his sous chef. "Uncle 

Tobia never let anvone else in che 

kitchen when he was cooking except 

me," Gussoni recalls . "He preached 

to me about cooking <strong>and</strong> the mystfque 

of food ." 

Gussoni, now 40, has turned diese 

sermons into a thriving catering <strong>and</strong> 

restaurant management <strong>business</strong> : His 

Dallas-based Culinaire International 

operates the Texas state capitol building's 

cafeteria, three corporate cafeterias 

for the Texas branches of companies 

like Apple Computer as well as 

dining rooms at two local Embassy 

Suites hotels . He also caters about 

300 conventions a vear . 

What did Uncle Tobia teach him? 

That people taste with their eves as 

uell as nith their tongues . "Presentation 

is merch<strong>and</strong>ising, <strong>and</strong> merch<strong>and</strong>ising 

is criticai," is the wa .v Gussoni 

puts it. His stafl-s'cn•es stirordfish, for 

instance, tiered on a bed of threecolor 

pasta, with asparagus laid oaer 

the 5sh toward the front ofthe plate in 

a cascading effect, adding depth <strong>and</strong> 

contrast . 

Applying these principles, Cullnaire 

feeds 42,000 salespeople who 

attend !N-tan• Kav Cosmetics' annual 

comention-that's 160,000 meals 

o.-er a 12-dav period . That conrract is 

worth $1 .5 million . Culinaire International 

is privately owned by Gussoni, 

who expects the company to 

earn $1-I million this rear on revenues 

of $22 million . 

At the snack bar he runs at Dallas' 

140 Forbes 2 Augusr 14, 1995 

2046673398 


CUinaire staff 

preparing 

breakfast at the 

Texas state caplo! 

"Presentation is 

merch<strong>and</strong>ising, 

<strong>and</strong> merch<strong>and</strong>ising 

is everything." 

Lo .e Field airport, Gussoni displacs 

finished s<strong>and</strong>wiches placed in a glass 

case so travelers can examine the 

seltole-grair, brcad, meats, cheeses 

<strong>and</strong> dressings before m,ildng a sciection-visual 

tasting again . Asserts 

Gussoni : "Carercrs often box things 

for s•olume, but the customer c :m't 

see the fod ." 

Gussoni apprenticed Itimself to the 

fod b«,siness after graduating from 

The Citadel in 1976 . For the next 

three vears he «orlced 100-hour 

weeks as a maitre d' in South Carolina 

countr.clubs . From the clubs he 

graduated to running in-storc restaurants 

for Blooniingdale's <strong>and</strong> Federated 

Department Stores in Sen• York, 

Dallas <strong>and</strong> Miami . Gussoni introduced 

such dishes as pumpkin tortellini 

<strong>and</strong> rotisserie chicken, injecting 

k 'en e into *_'.te staid depattment store 

cuisine . 

His big break came in 1988 . Lucv 

Crow Billingsley, Mho then headed 

the Dallas Market Center (owned b- 

deceloper Trammell CrosN's childrenl, 

invited Gussoni to run catering 

services at the huge sho«-room <strong>and</strong> 

uade-show facilin', "~Ve wanted to 

establish another le~el of expecrr 

tion ;' Billingslesesplauns, 

Gussoni deiivered . He incigorated 

dte facilin"s tired hotdog-<strong>and</strong>-chili 

Forbes . dugust 14, 1995 

far'e with fniit drinks, fresh s<strong>and</strong>niches 

<strong>and</strong> Italian food . Mhen the 

Ramses the Great museum exhibit 

came to Daiias in 1989, he persuaded 

Billinasic}, to let the :blar'.cet Center 

run " restaurant kcved to the exhibit- 

Gussoni designed a restauiant completc 

%sith columns <strong>and</strong> hieroghphs, 

<strong>and</strong> semcd dishes inspired bv North 

Africa : iamb <strong>and</strong> okrastewserred orer 

couscous, for example, <strong>and</strong> grilled 

chicken with yogurt <strong>and</strong> pita bread 

s<strong>and</strong>wiches . "He's a salesman," says 

Billingslev, "<strong>and</strong> he's hmtgre .^ 

Under Gussoni the Market Center's 

food-sen'ices reaenues doubled, 

to $13 million bv 1992 . Gussoni 

-,vanted to e % p<strong>and</strong> the Market Ccnter's 

catering <strong>business</strong>, but manaeement 

«'asn't interested <strong>and</strong> agreed to 

Visual tasting: At the snack 

bar he runs at Dallas' Love 

Field airport, Gussoni 

displays fln.ished s<strong>and</strong>wiches 

placed in a glass case so 

travelers can examine the 

whole-grain bread, meats, 

cheeses <strong>and</strong> dressings before 

making a selection, 

sell the of}=sitc part of the <strong>business</strong> to 

him in \o%embcr 1993 . Gussoni scill 

sav onh• that the price was "less than 

S1 million" He got catering equipn 

:ent, 35 employees <strong>and</strong> a revenue 

stream saorth arotmd S3 million a year . 

Without a salan, for the first time ill 

his career, Gussoni had to mo °e fast . 

The tirst month he signed the Dallas 

Farmers Market to a food-sen°ices 

contract, Contracts ro run cafeterias 

at Ericsson Inc . <strong>and</strong> Apple Computer 

oliices followed, as Ncell as a contract 

to run food senices for the Dallas 

Comention Centcr . 

In 1994 Culinaire won a 15-vear 

contract to operate the dining facilities 

in two Embassv Suites hotels in 

tim Dallas area . The facilities were 

losing money, but instead of cutting 

costs Gussoni hired more staff <strong>and</strong> 

bctter mairagentent to improce service 

. This svas kcv, he says, to the fact 

that the operations were turning a 

profit within four months . 

Gussoni is trring to sign up new 

clients in institutions like hospitals . 

Late last vea; he opened a sir-down 

ltalian restaurant called Nicola's in 

the Dallas Galleria . The Dallaa-LtornirLlr 

Vewrs recently rated it one of the 

cin's best new spots . 

C ;ncle Tobia would have expected 

nothing less. ~ 

20466'7339,9 141 


TRW Today 

In 1994, 7RW's sales <strong>and</strong> wrninus reached record 

Ievels. Return on assets employed was the highest 

Fronl aulontobile safety to a network of data relay 

satellites, TRW is translating technology leadership 

"There is 

value in 

invention . 

TRW's history 

proves that 

the smart 

investor's 

best friend 

is a smart 

inventor." 

Prrer 5 .lldlman. 

Freidrm <strong>and</strong> Chie) 

operarinR o11i rrr 

in a decade, Total debt decllned by 20 percenl . 

I believe we am well positioned to contlnue gowutg 

faster Ihan the markets we serve . 

TRW's success is built on its ability to invent 

technologies that create high-growth <strong>business</strong> 

opportunities . In the 1984 for example.TRW 

automotive <strong>and</strong> aerospace engineers developed a 

superior aummobile satety system . The company 

into marketleadershlp. AndTRW inventiondefivers 

a growing return on investment . 

A COMPANY OF FtRSTs 

~ Firsriwopieceautomohilcengincnlve .l'Mlt 

. Fiat Siltrnmes9rcmllengmerxlve f921;huihcngiuc 

vslves for l.indhergh's uansennnlic AighL 19'27. 

~ Firstbull-jointsuspeu5onsyslrni .1953 . 

Fiat enmpmq m builn a spacen'sB, Pioveer I, 1958 . 

, F6stmnuolod khms,ttl¢tcngine,Apollolunsiiankr,19h9. 

~ FirsillS .ealGlilesysremforslaregicdefense,197p_ 

. F/rn to Inavduce a oxtionwide cnmpulenwl aedit 

rcpmtingsysmm,1971 . 

Invested a billion dollars in iLv,' aU bag capabifities . I pyryt Innsuioemm seet life nn uNcr pfanels, Pnq . 

Now,'fRW,wilhitsworldwidesubsidiaries,is 'Ftrnmre, ;llsocosnoan .ax°rysa'l6ms,19y7"1979 . 

~ Firstspecmallrolenveommisrsys¢m,Pionecr10,19g3 . ~ 

the global leader in air bag systems . We expect I Fiat r„uy tanrninnal vety thigh apom tncegam lla 

circuil chip . 1983. 

eScCllent returns to co0tinue well into the next ~ Firsteoai bel[ prttmisiPUny 

1 

vRe, t987 . 

Fiat °igvala{uipnmanauo-mwtivekeykssenvyrywan,1988 . 

centruyforfront<strong>and</strong>sideairbags,smarttCstraint5, I 

' Fi2tcampleRfromalnir ba gnndsemorsyeam, 1989 . 

stecringsystems,enginevnjves,<strong>and</strong>autOmotive 

. We are also putruig our aerospace 

; FirstamioNymmplimen4iywnsamercreduanon,1992, i 

I FyrstemnmwiwiansleylomlrothLaw sateWlesy9em,199'3, 'electronics 

skillstoworkondozensofnondefense,natiolal Autaininfive .Aerwparx .Infonnetion.lnnovlatinn. 

priority projects. 

Thereistialuchtinvention.TRW'shistaryprores ~ ∎~ s 

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Fmu7RW AnnualRepon, wri,e iRW fnr., Depr . L, 19W1 Richmond Rd ., Clrrdund .Ohiu J>l2ld]G0_ 

cnwi. . as sax .i erhn .a .,nm unin< 


i U j4ylJ A1 

Why's a tiny company you never heard of 

invading the crowded electric shaver market? 

Because It thinks it has a better product . 

Father says, 

! " l um " F p 

By Jerry' Flint 

} 

Lro WAHL began making electric 

hair clippers in 1919 . He kept his 

Wahl Clipper Corp . going for almost 

half a centnn,, selling to barbers <strong>and</strong> 

living otl' rovaldes <strong>and</strong> patent infringement 

fines . 

But then his son Jack took o%er in 

Jack Wahl, chief executJve of Wahl CI!pper Corp . 

Haven't you seen his "Dancing Mustache"7 

1977 <strong>and</strong> things started popping . 

When Jack R'ah1 took o% er, recenues 

were $7 million . Last vear they were 

5100 million-16% annual compounded 

growtll o~er neari\• trnn decades 

. The Sterling, I1L-based company 

now employs 1,100 ~corlters <strong>and</strong> is 

owned iock, stock <strong>and</strong> barrel bv Jack 

6t%ahl <strong>and</strong> his famif .- . 

Jack Wahl credits the grosr°rh to a 

simple principle : "I realized the difference 

bemeen sales <strong>and</strong> marketing-that's 

a big thing for a small 

companv ." Wahl explains that sales 

means simplv presenting 

_ the product <strong>and</strong> collecting 

the money . •`hiarketing," 

11e saxs "means stepping 

back <strong>and</strong> looking for the 

needs of the customer, <strong>and</strong> 

for the best way to get 

through to that user ." 

Jack FVahi decided the 

place to ewrcise his marketing 

skills was in the consumer 

market, his Pathcr 

ha~ing focused ot1 barbershops 

. The big move was 

the introduction, in 1984, 

of a batten~-operated 

beard-<strong>and</strong>-mustache trimn1er, 

the Groomsmun, It 

turned out to be % er ' v good 

at shaving heads, too . It's 

now the big product in 

10ahl Clipper's $50-million-a-vear 

domestic cottsumer 

products division . 

The Groomsman recenthgot 

a big plug from Pulp 

Fiction <strong>and</strong> Die Hard star 

6ruce Willis . When Dacid ~ 

Leaerman asked Willis how ~ 

11e acilieces his shaved-skull ~ 

look, Willis told Letter- Q„ 

man-<strong>and</strong> millions of late- ' 

night tv sietcers-that he T 

shaves his head even• other ~ 

day with Wahl Clipper's ~ ~ 

Groomsman . 

Today Jack 4Va11I is ob- ~ I 

I"t Forbes .August 14, 199i 


sessed with eiboscing his wasiato the 

5385-million-a-vcar (at rctaill electric 

shaver market . This is a <strong>business</strong> 

the Wahls ha~e long eved . "When I 

Survival of the biggest 

was 14 [in 19411, mv father shoued 

me an electric shacer he had partly put Hr-Lo ACTO)dOTi': F., I\'( : . looked 

together," sa}°s Wahl . "But he said like a uinner %i hen Fokr, ::s risited the 

ever•one was coining out w ith one, so auto parts <strong>and</strong> accessories retailer 

he didn't go ahead «ith it ." 

three 1cars ago (FotusFS, Au~q. 3, 

Wahl Clipper's neNc sha~ er came on 1992) . Based in Houston, Hi-Lo's 

the market at the end of 1993 . Called 122 stores in Texas <strong>and</strong> Louisiana 

the Custom Sha~e S~-stem, it comes generated S156 miilion of sales <strong>and</strong> 

with three different foils, die pertorated 

metal coNer above the cutting NYS~ stock later hit a high of 21?is in 

55 .7 million in earnings in 1991 ; the 

blades . The more holes in the foil, the December of 1992 . 

closer the shave . With three foils to But that mas before b[g competitorsAutoZone, 

Pep Boy°s <strong>and</strong> Chief 

choose from, the user can customizc 

his shme . "This [sharer] is just like Auto Pans rapidh esp<strong>and</strong>ed into 

the hair clipper," says Wahl . "It just Hi-Lo's ten:ton . Among them these 

cuts the hair a lot cioser ." 

interlopers Ira e opened in the past 

In tackling the electric shax er market, 

Wahl is either foolhardv or sen= Houston, Hi-Lo's biggest ntarker . 

couple of} ears about 20 ne%~ stores in 

smart . The market is dominated br Hi-Lo tried co'ght back byr exn<strong>and</strong>ing 

into Caiitbrnia, but that hailed to 

giant Philips' Norelco br<strong>and</strong>, with 

half the <strong>business</strong>, <strong>and</strong> Remington help earnings : On sales of S60 million 

Products Inc ., with 25"/a . Fighting for for the first quarter of 1995, Hi-Lo 

the rcmainder are companies like Gillette 

Co .'s Braun, Panasonic <strong>and</strong> been trading around 11 fur t'ne past 

earned just 5700 .000 . The stock'nas 

Conair . Tl:ec probabh• spend S40 nvo Vears . 

million to S50 million combined annualle 

to advertise their sha% ers . Young sa vs the cotapamy had nco 

Hi-Lo ChiefExecuti%, _%4ichael 

"Y ou r success or failure is not based 

on how much aou spend on rv," ? 

declares lVahl, "but ho«\\ell sou 3 

spend it ." When a reporter savs he ` 

hasn't seen a.n ad for the Wahl shaeers, 

he shoots back : "You lead a sheltered 

life . Haven't vou ecer seen our'Dancing 

Mustache' Ts' ads?" 

I f the shaver bo mbs [Y'ahl «°on't go 

out of <strong>business</strong> . Besides its cliopers far 

humans, Wahl makes electric clippers 

for animals . It also makes small power 

roois, such as drills for hobbyints . But 

Jack, Wahl savs the companl•'s future 

lies in electric shavers : "This is the 

product die next generation of Wahl 

Clipper people will end up selling ." 

The next generationi That's Jack's 

son Gregory . 44, the compam's chief 

operating ot}icer, <strong>and</strong> Gre~11on1's 

vounger brother Mark, \eho runs the 

animal products division . Greg sars 

he isn't zs Itot on the electric sha~er as 

his dad is, <strong>and</strong> wnuld prefer to push 

harder on small electric toots instead . 

"But when lather savs jump," he saes, 

"I jump ." After ill, if Dad hadn't 

jumped into consumer products 18 C :`,ef's David Esen,berg (IeY) <strong>and</strong> Ffi-Lo's Michae' Yor :ng 

cears ago, there :night not h ;tk e been "Get real, real big real fast or sell ." 

jobs for Greg <strong>and</strong> %lark todav. M 

choiees. "Get real, rcal big real Past 

or se9 ." Young chose the latter . Ou 

June 1 Hi-Lo announced it \\ill be 

acquired by D .illas-based rival Chief 

Auro Parts Inc . for about S121 milliorn 

in cash, S I 1 a siiare . The deal «'ill 

make Chief thc nation's secondargest 

auto parts chain i aher Auto- 

Zoncj, «ith more than 700 stores ; 

some 50 neu- stores will open by the 

end oftttis s°ear. The 5-f00 million 

f estimated sales) Chiefchain is owned 

bc Trust Co . of the T1'est . 

What does the future hoid for 

Young, 50, a formerArthtu Andersen 

partner %cho joined Hi-Lo ~chen 

Dillon, Read did a 573 million le%eraged 

buyrout ofthe chain in 1987? 

Posnnergcr,'.~e plans to stcp aside for 

Do i(i Eisenberg, chiefexecutire of 

Chiet; <strong>and</strong> soon start scouting for 

other bu}'out possibilities . "After 

~ou'l e run sometlting ~ourself ;" he 

sacs, "you want au oppor?unitv to 

continue to do so ." 

-CAROL 15L W .iSd .ER 

Forbes 0 Au,ust 14, 1995 145 


' jI L11J AJt1~ 

Cutting the budget 

with a wet noodle 

P 

Roêrt ~i . Nels2n is a 

professor in the SchWi 

of Public Affairs at the 

Universityof Maryl<strong>and</strong> 

<strong>and</strong> sen ior feJow of 

the Cainpethive Enierorise 

Instltute . His 

latest book is Public 

L<strong>and</strong>s <strong>and</strong> prNate 

Rignts . 

As aAR- of t.heir plans to eliminate the budget 

deficit bv 2002, House Republicans ha%e proposed 

to eliminate the Commerce, Education 

<strong>and</strong> Energy departments . But that «as too 

much for Senate Republicans . The\rould 

eliminate onlv Commerce . 

Even at that modest proposaL, the Clinton 

Uministration complained nboutestremism . 

Jud_w-nq fi-om my experience as a policy analast 

in the office of the Secreranof the Intetior from 

1975 to 1993, none of these measures is e treme 

enough . To the House Republicans' lut 6st I 

would add the Department of the Interior . 

Formed in 1849, Intenor is today a collection 

of ten di%erse agencies, induding the National 

Park Senice, Bureau of I<strong>and</strong> il4anagement, 

Bureau of Mines, Bureau of Reclanration, 

Bureau of Indian Affairs <strong>and</strong> the Geological 

Surrvey . We're talking ancient history here . The 

current Bureau of L<strong>and</strong> .Ltunagement goes 

back to the General L<strong>and</strong> Office, established in 

1812 to oversee disposal of pubiic l<strong>and</strong>s . Interior's 

Bureau of Reclamation ras created in 

1902 to promote farming in the West, but 

todav western water is much more valuable for 

rapidly increasing urban populations . Recla- 

When it comes to eliminating 

western pork, the Republican 

zeal for budget-cutting 

seems to wane . 

marion projects received large construction subsidies 

<strong>and</strong> then the Department of Agriculture 

had to turn around <strong>and</strong> subsidize crop production 

on sonie of rhe % ety same l<strong>and</strong>s . 

The Bureau of'vlines was created in 1910 to 

oversee the safetv of miners follo%~ ing a series of 

disastrous mining accidents, In the I 970s, 

hou•ever, safery responsibiliries were transferred 

to the Department of Labor, <strong>and</strong> mining todav plays a small part in the II 

.S, economy . 

The Bureau of Indian tltiairs has been steadile 

transferring responsibilities to tribal governments 

under its "self-determinarion" philosophv . But 

the size of the nc~L bureaucracy has yet to decline . 

Congress should recognize diat this is the 

end of the 20th cemmn , not the middle of the 

19th . These agencies ha% e long since outlived 

their purposes . Thev survive chiefly because 

dte}' Irare mastered the infamous °iron trianele 

." That's a political science term to describe 

the Iong-st<strong>and</strong>ing interaction of federal bureaucaacies 

. Congress <strong>and</strong> interest groups . 

In the 1970s Congress approved so many 

nevtdoubtful park units f7ar the process became 

known as the "park barrel ." Like the Bureau 

of Reclamation <strong>and</strong> other water agencies, the 

purpose was to subsidize local economies as 

part of the political pavoff svstem in Congress . 

Interior owr.s 26% of the l<strong>and</strong> in the 11 

westernmost':ower 48 states . The U .S . Forest 

Senice in the Department of 2.griculture 

o vns an additional 19% . Congress seems to like 

it this «a, v . If a rancher is unhappy about 

having to reduce the size of his cattle herd grazing 

on public l<strong>and</strong>s ., he goes to his congressman 

for help . Helping constituents is what getting 

reelected is all about . Nice svstem : First 

vou create obstacles, then vou do people a favor 

bv helping them through the obstacles . 

Members of Congress are today more important 

than state gocernors <strong>and</strong> legislators for 

mam, critical l<strong>and</strong> <strong>and</strong> infrastructure decisions 

in the rural West . The Interior Department 

functions ehere as a local planning <strong>and</strong> zoning 

board . Because the federal government picks up 

the tab, the home folks are even more grateful 

to their representatives . 

Nocr you know svhv the House <strong>and</strong> Senate 

budget plans for 2002 would eliminate onlyone 

Interior agency, the National Biological Service 

. You also know whp Senate Republicans 

don't want to kill Energy or Education . Republicans 

ma• be the majority party now, but 

thehae to get reelected, too . 

The writer Wallace Stegner once aptly described 

the tppical western attitude to~rard the 

federal government as "go away <strong>and</strong> send 

more money .° The West exalts the indn-idualism 

of the con•bov <strong>and</strong> miner, <strong>and</strong> then proceeds 

to li e off the federal government . The 

West can be counted upon to deplore government 

interference while insisting that its representatives 

lcecp the largesse flov~ing . 

Washington cynics argue that Democrats 

<strong>and</strong> Republicans differ less on ideology than on 

constituencv . The politics in this 104th Congress 

strengthens the cy'nics' case . Republicans 

tend to be gung ho fbr cutting urban programs 

but lukewarm about cutting rural programs 

that serve mosdy Republicans : the Interior 

Department, crop subsidies, the Rural Elecrr.ficarion 

Administration <strong>and</strong> manp more . 

The Republicans are going to look awfully 

hypocritical if they cut urban programs for the 

poor <strong>and</strong> leace their own pet giveaways intact . 

To prove their sincerin theg ought to go back to 

the House plan for eliminating agencies <strong>and</strong> 

then add Interior to their list. ~ 

146 

204CC73403 



SPECIAL ADYERTiS1NG SUPPLEMENT 

a 0 11 

C O M M 1 T M E N T T O G R O W T H 

It is now four <strong>and</strong> a half years since the U .S .- 

led coalition forces liberated Kuwait from the 

Iraqi invasion . Visitors are surprised how well 

the country has recovered from the mayhem 

that occurred, <strong>and</strong> how speedily normality has 

returned . The scars are healing, but 

psychologically, the shock that it could have 

happened at all, remains . 

Prior to 1990, Kuwait was very much a 

pampered society . Kuwaitis were entited to free 

housing, a job for 'ife <strong>and</strong> highly subs!dlzed 

utilities . With 10% of the world's cil reserves, a 

popula*.ion of 681,000 <strong>and</strong> a per capita gross 

naroral product of more than $23,000, the ìture 

seemed assured . More recently, Kuwaitis have 

had to reassess their post-Gulf War society . 

There was concern !ast October when 

Sacdam Hussein's forces once again began 

massing on the northern border, but, as with the 

August 1990 invasion, internatioczi reaction <strong>and</strong> 

support were both speedy <strong>and</strong> decisive . 

War <strong>and</strong> reconstruction costs have been 

es

Kuzvait SPECIAL ADVERTISING SUPPLEMENT P .S 

I 

As the Emir, Sheikh Jaber AI-Ahmad 

AI-Sabah, fresh from a successful 

visit to Europe, draws up plans for 

Kuwait's development, there are 

several points in his favor, KLwait is 

the most stable of the six Gulf 

Cooperation Council IGCCi countries ; 

it is also the most democratic, with 

the press enjoying a reasonable 

degree of =reedom . 

The National Assembly, disb<strong>and</strong>ed 

in 1986, is once again in operation, 

functioning well, <strong>and</strong> most 

commentators are of the opiaion that 

the sharing of power with an elected 

pariamentwill continue . 

There `.s a strong desire to move 

forward . Here, Kuwait's Chamber of 

Commerce-<strong>and</strong> Industry plays an 

active role . Director Gene .-al Ahmad 

AI-Haroun, who has nad i ' position 

since the Chamber's inception, points 

to the need for drastic economic 

reform . He stresses :he necessity for 

some movement away from the 

welfare state <strong>and</strong> the importance of 

balancing the country's budget, 

together cvith. increased privatization 

over the next few years . 

Increased privatization is leading to greeter8c9vit 

on the stock exchange <strong>and</strong> in the banking sector . 

An example of this Is the Moqle 

Telecommunications Company (MTC), 

wnich is 51% privately owned <strong>and</strong> 

has been a major success story in the 

latest tecnnological advances . The 

company virtually had to rebuild from 

scratch after the Guff War, but now 

has 110,000 mobile telephone 

subscribers <strong>and</strong> 150,000 pagers, prorata 

the highest ratio of sets to 

poculatior anywhere in the wond . 

<strong>How</strong>ever, Kuwait's commitment 

to growth will not come easily . As one 

of the longer-serving expatriate 

bankers explains, "a major public 

relations exercise nas to be 

Euromoney Awards for Excellence,l994 

"THE BEST 

BANK IN 

THE MIDDLE EAST 

FOR 1994" 

National Bank of Kuwait ~ 

undertaken by the government . State 

benevolence in its extreme formm is a 

thing of the past . Kuwaitis have to 

realize that they will have to work 

harder <strong>and</strong> pay more Por their 

services, particular:y water <strong>and</strong> 

electricitv." 

As the move towards privatization 

gathers momentum, employment is 

likely to become an increasingly 

important factor . The 1962 

Constitution guaranteed employment 

for all Kuwaitis, <strong>and</strong> some 97% have 

positions in the pub'ic sector . This has 

to change, <strong>and</strong> st<strong>and</strong>ards of education 

nave declined following the exodus 

of Palestinian teachers after the 

Gulf War . With!n a young population, 

graduates without serious career 

cpportunities may prove an 

added challenge . 

BANKING AND FINANCE 

The effect of the co!lapse of the Spuk 

AI-Manakh, Kuwait's unregulated 

stock market, in 1982, <strong>and</strong> the 

commercial losses stemming from 

the Iraqi invasion, which left 10,000 

companies <strong>and</strong> individuals owing up 

to $20 billion, are still being Pelt . 

Twenty-year government bonds 

issued in 1992 to the banks in 

return for these bad debts currently 

comprise some 36% of total bank 

assets, dcwn from 60% when they 

were first issued . They yield a little 

under 5%, but are a secure form 

of income . 

By Law 41 of 1993, the 

government set out a schedule for the 

repayment of debts . They 

could either be repaid in ùll by 

September 7, 1995, with an erticing 

discount of 46%, or alternatively 

settled in full over a period of 12 

years . Sources in Kuwait are now 

saying :ha : this may be extended to 

20 years . 

With !oans only making up a 

quarter of banks' total assets, <strong>and</strong> 

good lending oppoGtrnities limited, 

Shelkh Saiem Abdul Azlz A4-Sabah, 

the Governor of the Central 

Bank of Kuwait, is eager for some 

consolldatlon in the banking system . 

( LC 

Mergers are likely . Already two 

specialist banks - the Industrial 

Bank of Kuwait <strong>and</strong> the Kuwait 

Real Estate Bank - are expected 

to come together, <strong>and</strong> talks are 

proceeding between the Bark 


. 

SPECIAL ADVERTISING SUPPLEMENT P .S 

of Kuwait <strong>and</strong> the Mlddle East <strong>and</strong> the 

Commerclal Bank of Kuwait, 

National Bank of Kuwait (NBK) 

increased net profits in 1994 by 5 .8% 

to $178 .5 milGon . N8K has about 40% 

of the domestic market <strong>and</strong> moved 

into impressive new oremises at the 

beginning of the yea. it is particularly 

strong in the corporate finance field 

<strong>and</strong> has been successful in bidding for 

much of Kuwait Airways' <strong>business</strong> as it 

rebuilds its fleet . It is exp<strong>and</strong>ing its 

overseas network <strong>and</strong> has even 

opened a representative office 

in Vietnam . 

Gulf Bank a'iso advanced $80 million 

to finance an Airbus A300 in 1993 . 

John D . Harris, the chief generai 

manager, says that his bank 

"is concentrating on st<strong>and</strong>ards of 

service <strong>and</strong> improving our financial 

products . Branches are being 

redesigned <strong>and</strong> a fully automated 

computerized system will be installed 

by the end of 1996 . We have no plans to 

merge ." Guh Bar.k's profits increased 

by21%in 1994, 

Burgan Bank's managing director, 

Ahmed AI-Abdullah AI-Ahmed AI- 

Sabah, is positive about the futt :re . 

Loan syndications, pro ;ect finance <strong>and</strong> 

joint ventures figure in his plans, with 

Asia <strong>and</strong> South Africa being to the fore . 

The leading banks are developing 

new sevices, extending credit-card 

faciiities, consumer loans <strong>and</strong> 

telephone banking . 'With .43% of the 

population being under the age of 15, 

there is considerable concentration on 

the youth market . 

Kuwait Finance Center (KFC) was 

the first quoted mercnant bank on the 

Kuwait stock exchange in 1988, 

though its impressive chairman, Diraar 

Y. Alghanim, explains that its origins 

date back to ;he early 1970s when it 

worked closely with South Korea <strong>and</strong> 

Egypt <strong>and</strong> established a joint-venture 

merchant bank in Seoul, which last 

year was renamed Hyundai 

International Merchant Bank . KFC 

holds a unique license as an 

investment bank, undertakes advisory 

work for foreign clients <strong>and</strong> invests 

directly in the U .S . <strong>and</strong> Europe . 

Side by side with Western-style 

commercial banking, Islamic finance is 

growing in importance since-it started 

in Kuwait 18 years ago . Kuwait Finance 

House (KFH) was established as a 

retail bank, which operates according 

to Sharia law that forbids dealing in 

interest . It is 49% government-owned . 

PRIVATIZATION 

Sheikh Salem Abdul Az!z AI-Sabah, the 

Governor of the Central Bank of 

Kuwait, emphasized the necessity of 

providing the private sector with a 

b :gger role in the domestic economic 

activity to help solve chronic problems 

pertaining to monopclies witnessed in 

the public sector, in a recent interview 

in the English-language daily, the 

Kuwait Tirnes . 

"This will be very he':pful in 

des!gning <strong>and</strong> maintaining a balanced 

price pclicy, create incentives <strong>and</strong> 

increase the spirit of competition in the 

local market," he said . "The private sector 

would attract local investment, which 

will in turn ciscourage capital outflow," 

Like the other oil-producing 

countries, Kuwait has a large public 

sector that dcminates the economy 

<strong>and</strong> the private sector, <strong>and</strong> includes the 

bulk of oil acd o!I-sector-related 

activities as we,.'' as a wide range of 

nomoil-related activities including the 

major utilities . - 

In a shcr, space of time trading has resumed its 

place as a'rainstay of Kuwaic's development . 

In Kuwait's commitment to growth, 

the private sector has to play 

an increasingly important role, The 

Kuwait Investment Authority (KIA), 

which is responsibie for the 

management of the ongoing revenues 

from oil, request.ed that the World 

Bank prepare a comprehensive 

privatization strategy <strong>and</strong> 

implementation plan . 

Ali A . Rashaid Al-Bader, KIA's 

managing director <strong>and</strong> a former 

banker, expiains that privatization will 

go ahead on two fronts . "We have 

already begun the sale of government 

shareholdings in some local 

Your Bank in the 

State of Kuwait 

Burgan Bank, a dynamically 

poised institution in the 

State of Kuwait offers expert 

flnancial advice for all categories 

of projects, trade financing, merchant 

<strong>and</strong> investment banking needs . 

A highly dedicated <strong>and</strong> professional 

team offers consultancy services <strong>and</strong> 

financial packages to suit each 

<strong>business</strong> proh`le . 

Burgan Bank Q 

Ahmed Al Jeber Sven 

5uea of Kuwur ~ 

Td . :2a39W0 (20 6ncal 

Fex No. . 2

Kuwait 

SPECIAL ADVERTISING SUPPLEMENT P.4 

I 

4 

Cmde oil prodcccion 

;n Kuwait st<strong>and</strong>s at twc 

n :lllo, b«els a day, wi .h tie Burgsn field one of 

the T.ost pro'.ific in the woddA 

companies," he says, "Wlth the 

experierce gained, we will tackle 

the sale of utilities, of which 

telecommunications will be .he first, 

followed by the power <strong>and</strong> water 

industries, <strong>and</strong> eventually wholly 

stat.e-owned companies such. as 

Kuwait Airways ." 

The World Bar.k identified 74 

public or mixed companies as suitab' .e 

c<strong>and</strong>idates, including 62 In which KIA 

has shareholdings . It is estimated tnat 

^.he total value of the govemment's 


shareho'.d .ngs (excluding oil-sector 

enterprises) amounts to KD 3 .6 billion 

($11 .15 bil :ion), mctuding KD 2 .2 billion 

($7 .42 blilion) in electric power <strong>and</strong> 

water facilities, KD 200 million (5675 

million) in te,ecorrmunications, KD 420 

million ($1 .41 billion) in Kuwait Airways 

Corporation ard KD 800 million 

($2 .7 billion), representing KIA's 

shareholdings in !ts 62 companies . 

These have beer. grouped in three 

categories : 23 that could be privatized 

o,u :clGy with few complicatfons ; six that 

could be liqu[dated ; <strong>and</strong> 33 'hat need 

further analysls . Tce largest proportion 

of these conssts of 24 companies 

in the banking, real estate <strong>and</strong> 

financia : sectors . 

Privatzation of KIA companies began 

last Seotember with the sale o`f shares in 

the Commercial Facilities Company 

ICFCI, wNch was five times 

oversuoscribed <strong>and</strong> now trades at a 

heaithy premium . In December KIA 

auctioned 60 miaion of the 71 million 

shares it owned in A-Ahli Bank, -ealizing 

KD ;0 million ($33 .75 million) for me 

govemment . 

A Gulf Bank, we emphasize ttuee prLn dpal activities: providing 

banking services to international comoanies <strong>and</strong> institution5 

contributing to the development of Kuwait ; supporting the international 

requirements of the Bank's domestic customers ; <strong>and</strong> international 

lending to oil related <strong>business</strong> <strong>and</strong> the 

financin.g of international trade to Kuwait 

<strong>and</strong> the Gulf region . At KD 1 .39 billion 

(approximately US$ 4 .5 billion), we are just 

the right size to meet all your fin<strong>and</strong>al needs 

while giving you the personal attention <strong>and</strong> 

service you require to do <strong>business</strong> in Kuwait . So, when you are ready to do 

<strong>business</strong> with Kuwait, we cvlll be ready to do <strong>business</strong> with you . 

For more inforrnation <strong>and</strong> to obtain a copy e,f our annual report, fax your 

busness card to our International Division in Kuwait on (965) 242 2849, 

P.O.BOX 3200, SAFAT 13032, KUWAfT. TEL: (965) 2449501, FAX, (965) 2412849 

2046673407, 

With the domest:c Kiwait dinar market 

remaining strongly liquid, Al-Bader is 

hoping to fioat stock issues at monthly 

ri With seven companies 

already priva6zed, yielding KD 210 

million ($709 million), he expects that 

this part of the program can be 

completed by 1998, <strong>and</strong> he can then 

turn his attention to the major utilltles . 

The Kuwait stock exchange is 

playing an inportant role . At present it 

trades shares in 51 companies <strong>and</strong> two 

mutual funds . Its current director 

gerera, Hisram S . AI-Otaibi, has been 

in the job for eight years <strong>and</strong> is aiso 

Chairman of `he Arab Union of Stock 

Exchanges <strong>and</strong> Sacur3ies Commission . 

He sees a good future . "We have a 

new trading floor," he says, "<strong>and</strong> 

increasing stock volume in recent 

weeks, which should continue . 

Economica :ly we are in very good shape 

compared to what we were ." 

THE OIL INDUSTRY 

No one had really expected that 

Kuwait's return to cil produc'.ion after 

the Icdulf War would have been so 

quick . i t:at the 700-odd oil fires snould 

have been ext!nguished in seven 

months was little sho': o` a miracle . 

Damage done to pipelines <strong>and</strong> oil 

instal!a'ions, along with wanton 

pollution, cost the country up to $75 

billion . Yet'he countv, wi :h some 10% 

of world oil reserves, has the 

advantage of development costs that 

are among the lowest of the major 

producers . It also nas the highly prolific 

Burgan field . 

The Kuwait Petroieum Corporation 

IKPCI, which was established In 1980 

<strong>and</strong> is the umbrel!a organization for the 

industry, ri the Kuwait Oil Co . 

(KOC), responsible for the exploration 

<strong>and</strong> production of oil <strong>and</strong> gas within 

Kuwait ; Kuwait National Petroleum Co . 

(KNPCi, the refinery <strong>and</strong> marketing 

arm ; Petrochemical Industries Co . 

(P!C), responsib!e for fert!!izers <strong>and</strong> 

petrochemicals ; <strong>and</strong> Kuwait Oil Tanker 

Co ., the transportation arm . 

Minister of Oil <strong>and</strong> Chairman 

of the Board of KPC H . E . Dr. Abdul 

Mohsen Medej ArMedej points 

out that within two years KPC was 

in a position to produce oil at the same 

rate as before the war - 

2 million barrels a day . Of these, 

1 .2 mil!ion are exported as crude, 

<strong>and</strong> 800,000 as refined - up from 

700,000 prewar . 

__~

Oil is an essential component in economies around the world : 

driving industry <strong>and</strong> <strong>business</strong> ; sustaining communities ; touching all of our lives . 

Our experience in oil sourcing, processing <strong>and</strong> distribution is unrivalled . 

Our presence in the world unquestioned . Our heritage unmatched. ZI: 

Y 

e.iug._~!! Jg}i.s]f a swnà 

Kuwait Petroleum Corporation op 


SPECIAL ADVERTISING SUPPLEMENT P.6 „ 

I 

Crude oil production during the first 

quarter of 1995 was maintained at 2 

mil!ion barrels a day, the same as in 

the last quarter of 1994 . The spot 

price of Kuwait crude averaged 

$15 .30 per barrel, an increase of 11 % 

above the 1994 average . 

Besides potentialiy substantial 

expansion, there is also the possibility 

in the near future of foreign 

participation in domestlc oil 

production <strong>and</strong> exploration . Some 

recent reports indicate plans to invest 

uo to $15 billion over the next tan 

years to boost crude oil production 

capacity <strong>and</strong> exp<strong>and</strong> downstream 

operations . 

There should be a decision shortly 

on allowing foreign oil companies ;o 

participate in exploration <strong>and</strong> production 

operations for the first time since 1975 . 

The Oil Minister has indica:ed that the 

plan is to Invite bids from properly 

qualified international oil companies by 

open tender, <strong>and</strong> that the acreage or : 

offer will not include any already 

discovered oil-bearing structures . 

Foreign companies would be 

responsible for the technical <strong>and</strong> 

financial r,sks of their activities . 

Following the completion of repairs 

to Mina Al-Ahmadi refinery's third 

The !mpressive Kuwait parliamentary builtling-nome of the Natioral assemblyy 

crude distiGation unit last year. the 

upgrading of facilities there <strong>and</strong> at 

Mina Abdullah <strong>and</strong> Shuaiba Is likely to 

continue, together with the longer 

term aim of exp<strong>and</strong>ing capacity 

outside the countryThere is likely to be a considerab .e 

growth in KPC's international 

operations . In Europe it already markets 

400,000 barrels a day through its 6,400 

08 petrol stations, <strong>and</strong> an expansion in 

refinery capacity from 130,000 barrels a 

day to 300,000 barrels a day is 

envisioned . 

There are hopes that up to 400,000 

barrels a day refin :ng capacity will 

become available on a joint-venture 

basis in Asia . Talks are under way with 

1* 

I~ .P .LLa)alsud~uGl.a :9i iFYL 

N~ila 14lexetmunicatlava Ca 

. (ICS .C ) 

companies in China, Indonesia, South 

Korea <strong>and</strong> Thail<strong>and</strong> . 

Letters of intent for refinery 

projects in India <strong>and</strong> Pakistan have 

already beerr signed . In India the link is 

withh the state-owned Indian Oil 

Corporation (10C) for a joint-venture 

refinery with an initial capaciry of 

120,000 barrels a day <strong>and</strong> possible 

expansion to 250,000 barrels a day 

KPC <strong>and</strong> IOC would each hold a 26% 

stake, with the remaining shares to be 

offered to the public . In Pakistan the 

partner will be the State Oil Company, 

<strong>and</strong> the Initiat refining capacity would 

also be 120,000 barrels a day . 

WRITTEN BY STUART ARNOLD AND 

PRODUCED BY ADIL JILLA DF MEIAC, UK . 

ALWAYS AHEAD IN A 

FAST MOVING WORLD 

l 1 

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∎ 

(canrir.nrd frou: p . 23) 

dav. Before ab<strong>and</strong>oning the dollar's link to gold, the 

US . government could routineh borrow long-term 

monev at 4% or less <strong>and</strong> short-term funds at around 1% . 

Similar rates today would save the federal gocernment 

over 5100 billion a year in interest on the national debt . 

In other words, we could more than halve the budget 

deficit without cutting one penny from existing federal 

programs . Americans could once again (as thec could 

until the late 1960s) buy houses with 30-y'ear, fixed-rate 

mortgages under 5% . Such low, stable rates would be a 

powerful stimulus to the economy . 

Why, then, is gold the unmentionable, four-letter 

word of economics? Why does serious mention of gold 

br<strong>and</strong> the advocate in many circles as an ignoramus, as a 

crank? The answer is threefold : a misunderst<strong>and</strong>ing of 

the role of money, a misreading of history, <strong>and</strong>, finally, a 

visceral revulsion to the notion that a 

metal can do a better job of guiding j 

monetary policy than can a gaggle of 

finance ministers, central bankers <strong>and</strong> 

well-degreed economists . 

Let s take a look at the misunderst<strong>and</strong>ing 

of money . Money is a st<strong>and</strong>ard 

of ineasurement, like a ruler or a 

clock . Monev is meant to convev information 

about values of products <strong>and</strong> 

services <strong>and</strong> to facilitate trade bettveen 

willing parties . No one n°ould seriously 

entertain the notion of a ruler that constantly 

changed in length, say, from 12 

inches to 14 inches to 10 inches . No 

one would have much faith in timepieces 

where the number of minutes in 

an hour tluctuated dailv. When monev 

as a measurement becomes unstable, it creates huge inefficiencies, 

anxieties <strong>and</strong> diversions of energy from productive 

tasks to speculam e or proteaive ones . Fluctuating 

money also undermines people's faith in a moral 

order . John Mavnard Keynes put well the devastating 

impact of inflation in a 1920s essay : "There is no subtler, 

no surer means of overturning the existing basis of socierv 

than to debauch the currency ." 

To underst<strong>and</strong> the importance of stable money, think 

of a home buyer . The carpenter agrees to build the buyer 

a 2,000-square-foot house for a certain price . But instead 

of a foot's being 12 inches, it turns out to average 

14 inches during construction . The home buyer gets a 

windfall gain of a house 36% bigger than the contract 

specified . Conversely, the carpenter has suffered an 

unexpected loss . If the ruler were to average 10 inches, 

the reverse would happen : The carpenter would gain ; the 

home buyer would lose . 

Or take a~rorker who receives a wage of S 12 per hour . 

If the number of minutes in an hour fluctuated the way 

the dollar does now, an hour could be 90 minutes 

instead of 60 minutes . The emplover would come out 

ahead, having obtained $18 wordt of work for S12, If 

the "value" of an hour should drop to 45 minutes, then 

the worker would receive $12 for $9 worth of work . 

Changes in the value of money are just as disruptive as 

changes in the number of inchcs in a foot or minutes in 

Today you wouldn't need to hold gold 

to operate gold st<strong>and</strong>ard . 

an hour would be . Once you underst<strong>and</strong> this, you can 

readily grasp the need for stable money . The basic questions 

then are : Miat is the most reliable compass or guide 

for central banks, particularly for the Federal Reserve? 

And how does the Fed know ahether it is printing too 

many, too fe v or just the right number of dollars? 

The best, time-tested compass for stability is that disreputable 

commodit v, gold, Why? It is rare enough to 

have intrinsic value . It cannot be consumed as wheat can 

be ; virtuallv all of the gold that has ever been mined is 

with us todav. Annual production is but a small fraction 

of the outst<strong>and</strong>ing supply; thus, gold is not subject to 

the supply shocks that afflict other commoeuties such as 

oil or corn: A drought can send the price of corn soaring 

. Apart from a h<strong>and</strong>ful of industrial <strong>and</strong> dental uses, 

gold has no economic purpose other than being decorative 

or as a store of value . Therefore, 

gold's price is unaffected by the normal 

ebb <strong>and</strong> flow of economic activin' . 

Under a modern gold st<strong>and</strong>ard, a 

boost in the price of the yellow metal 

would tell the Fed to tighten . To do so, 

our central bank rould sell bonds from 

its portfolio . The sale would remove 

money from the banking system because 

the Fed would simply, sit on it 

<strong>and</strong> not deposit it . In other words, 

those dollars would disappear, <strong>and</strong> the 

supply of dollars in the economv would 

L 

thereby be reduced . The relative value 

of the dollar to gold would go up, <strong>and</strong>, 

ipso facto, gold's dollar price would 

go down . Economists too often see 

money as a "flexible" tool for "guiding" 

the economyc They don't underst<strong>and</strong> how destructive 

<strong>and</strong> pernicious such flexibilim is to socien° . 

The second reason serious people pooh-pooh what 

Keynes called die "barbarous relic" is that gold has had bad 

press for over a centurv . Many historians have associated 

gold with favoring flinty-eyed bankers, ruthless industrialists 

<strong>and</strong> pitiless men of property, not with favoring struggling 

farmers <strong>and</strong> workers . s:fany historians <strong>and</strong> economists 

believe that if gold were not in some way the cause of past 

economic distress, it at least deepened the contractions . 

After the Ci vil War, our return to the gold st<strong>and</strong>ard 

was blamed for the ruin of thous<strong>and</strong>s of farmers by raising 

the real costs of their debts <strong>and</strong> by depressing commodity 

prices . Critics have a point in that, afrer war-created 

inflation set in, the U .S . shotild have pegged the 

dollar-gold ratio to reflect that rise rather than going 

through a painful deflation to return to the prewar parity. 

But there was another cause of the farmers' distresstechnology 

. Advances in shipping <strong>and</strong> railroads made it 

possible to cultivate wheat fields in Ukraine, :~u'gentina, 

Australia <strong>and</strong> elsewhere for world markets, {'The introduction 

of winter u heat in the U .S . greatlv enhanced our 

own yields, <strong>and</strong> to this day fewer farmers are needed to 

produce more <strong>and</strong> more food .) 

Rural America's antigold sentiments reached fever 

pitch during the depression of the 1.890s <strong>and</strong> were articulated 

bv 6tlilliam Jennings Bryan . Although Bryan was 

Forbes . :lugust 14, 1995 

204667,3412 

._ 153 


trounced three times in presidential elections, his thesisthat 

gold was an oppressor of hardworking peoplestuck 

. But the events of the 1920s <strong>and</strong> 1930s drove the 

intellectual stake through the heart of the yellow metal . 

After World War 1, Britain made the same mistake that 

we had made after the Civil R-ar . London had gone off 

gold in 1914 at the start of WWI <strong>and</strong> had experienced 

serious inflation . In the 1920s Britain deflated credit in 

order to establish the prewar parity between sterling <strong>and</strong> 

gold . The return to gold in 1925 was blamed for the 

subsequent distress of Britain's large coal industry <strong>and</strong> 

the national general strike that followed a year later . 

Gold received its ultimate discrediting with the advent of 

the Great Depression in 1929 . In the wake of the collapse of 

world commerce <strong>and</strong> flrtance, brought on by the horrific 

Smoot-Hawley tariff, the U .S . <strong>and</strong> Britain adopted mistaken 

policies in the name of staying on the gold st<strong>and</strong>ard . Britain 

tightened credit instead of easing it. The U .S . enacted a subsrantial 

tax increase, deepening 

the contraction . Instead of utilizing 

tax <strong>and</strong> monetan, policies to 

help alleviate distress, Britain 

ab<strong>and</strong>oned the gold st<strong>and</strong>ard in 

1931, <strong>and</strong> the U .S . sharpiy devalued 

the dollar in 1934 . Ever 

since, the gold st<strong>and</strong>ard has been 

portrayed as a principal cause of 

the Depression instead of as a 

victim of misguided policy. 

In 1944 the U .S . <strong>and</strong> Britain 

created what became known as 

the Bretton Woods international 

monetary system . The dollar remained fieed to gold at 

$35 per ounce . Other currencies were tied to the dollar, 

with onle a small b<strong>and</strong> for fluctuadons . Institutions were 

created to help countries cope with fitture blance-of-pa y- 

ments problems <strong>and</strong> to stimulate recovery from the war . 

Bretton It%oods, GATT, NATO <strong>and</strong> other measures 

helped bring on the great boom of the 1950s <strong>and</strong> 1960s . 

There were exchange-rate crises, but, bv today's st<strong>and</strong>ards, 

devaluations were infrequent . When a cotmtry's 

currency came under attack, authorities took immediate 

remedial measures . Inflation, w-hen it flared, was quickly 

brought under control . Nonetheless, sentiment against 

gold grew, Most antigoldsters advocared letting all exchange 

rates float against one another, making money 

simplv another commodirv. Simultaneouslv, American 

policymakers got the notion that the dollar's role as a 

reserve currency posed intolerable financial burdens . As 

our trade surplus shrank, cries for devaluation grew . 

The U .S . began moving off gold in the late 1960s, 

formally severing the link when President Nixon 

imposed price <strong>and</strong> wage controls in 1971 . But the new 

regime of floats failed miserably. Instead of increased 

prosperitv, we got a debilitating decade of rising inflation, 

collapsing equity markets <strong>and</strong> declining st<strong>and</strong>ards 

of living . Even the economic recovery of the 1980s saw 

abnormally high interest rates by historic st<strong>and</strong>ards . 

The second major hurdle to a new era of prosperity~ 

our tax code . No human being underst<strong>and</strong>s it . The current 

code, which runs over 8,000 pages, with cotmtless 

Depression prime ministers <strong>and</strong> Treasury pooh-bahs meet on 

eve of Engl<strong>and</strong>'s ab<strong>and</strong>onment of gold st<strong>and</strong>ard . 

thous<strong>and</strong>s more IRS rulings <strong>and</strong> interpretations, is 

beyond redemption . The ans« er is to start all over again, 

which is what the flat-tax movement is all about . Fi'ith a 

flat tax, rates would be slashed <strong>and</strong> all deductions done 

awav with, except for generous personal allowances . 

T vo Hoover Institution economists, Robert Hall <strong>and</strong> 

Al in Rabushka, have done extensive, definitive work on 

the flat tax . Their new edition of ZSie Flat Tax brilliantly 

updates their 1985 original . Under their revenue-neutral 

plan, a family of four would pay no federal income tax on 

its first S25 .500 of income . Any income above that level 

would be taxed at the flat rate of 19% . For individuals, 

there would be no levies on interest, dividends, capital 

gains or estates . Businesses would also have a flat 19% rate 

<strong>and</strong> could write off all capital investments, including l<strong>and</strong>, 

in the year in which they were made . Any tax losses could 

be carried forward <strong>and</strong> applied against future profits . 

All variants being discussed take otTfrom the work of 

Hall <strong>and</strong> Rabushka . The most 

ambitious version is that of 

House biajoriry Leader Dick 

Armey (R-Tex .) . He proposes 

a three-year phase-in from 

20% to 17%, coupled with 

ambitious budget cuts . The 

exemption for a family of four 

would be 536,800 . Presidential 

aspirant Senator Arlen 

Specter (R-Pa .) advocates a 

20% level with modified 

deductions for interest on 

home mortgages <strong>and</strong> for charitable 

contribuaons . His plan, too, would exempt inteoest, 

dividends, capital gains <strong>and</strong> estates . 

The virtues of a flat tax are overwhelming : 

Produetivity. Enormous resources would be released 

for productive pursuits . Incalculable amounts of inrellectual 

brainpower arc devoted to the dead-end task of coping 

with the current tax code . Over 500,000 people in 

the U .S . make their living off it, whether in lobbying, 

law-yering, tax preparing or accounting . Americans spend 

5 .5 billion hours a year filling out tax forms . 

Faimess . Under a flat tax, the higher your salary, the 

more you pav in tax, in contrast to our current exemptionriddled 

system . The rich would pay a higher proportion of 

revenues collected . This has happened even time high rates 

have been low'ered . The generous personal allowances 

would lop millions ofArnericans offtederal income tax rolls . 

And the tax code n ould be transparent <strong>and</strong> underst<strong>and</strong>able . 

EfPiciency. The flat tax would be infinitely easier to 

collect . Experts estimate Americans spend between $100 

billion <strong>and</strong> 5300 billion to comply with the current code . 

Anticorruption . The flat tax would eliminate a large 

source of political manipulation at state <strong>and</strong> federal levels 

. The current monstrosity remains ripe for abuse <strong>and</strong> 

behind-the-scenes deals for powerful special interests . It 

is no coincidence that members of congressional taxwriting 

committees receive on average twice the political 

contributions of their non-tax-writing colleagues . 

The flat tax, combined with a new gold st<strong>and</strong>ard, would 

unleash a boom of unprecedented proportions. M 

154 

2046673413 i'orbes K August 14, 1995 


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i 

Agile brokers are makingfortunes off the spreads 

between luxury-car, prices around the world . 

Carbitrage 

BsNinaMunk ' 

A'ttrtrnurv .rcrvI lµ/aqllal Irm'( .harnkrcmS4?,972Lm- Saa,hcsass,havcdoublcdinca .hof 

ushipinTorontoaC,und(henke intapmhto1S73`0 .Trenzsayshe thcpastlourycars . 

LimiredV-8liststoitltecqulvalentit mmri60%othismetaltoGnmans, Thercareplenooff, emupl .ying 

US52R,125 .Acrosxrhebordeqintltc thch,ilancetobuccrsinRussia,Po- intciromttn'yrpriespreads .Jlagx- 

But}ulnsuburboPWestSeneca,thc I<strong>and</strong>,theCicchRapublic,SuudrA(ri- zineslikeGermam%sAuroMorornmd 

samc rnodcl tri¢h identical options ca,'llukev, Zairc <strong>and</strong> Kaeakhstan . 9portorepackedssithadvertixmenu 

aan'ies a sdck¢ pricc of 532,590 . 

Across tlte ocean, in Munich, Cemtuny, 

the price is Yb6,lA)0, 

Ondtescspreads dealers rvith inrernadonal 

mnnectiuns are rruking a 

bundle Tepical is WolWng Tnn2 

Bnsed in Weiherlrammer, about 112 

miles no¢h of \'tunich, Trenz's 

Americyn Morors Trenz GmbH sells dlc Gmnd Chcrokee i 

.imircd fisr 

aUaut 546,3§2, 17% Ic% than the 

official pdcn in Ccrntanp . StocHng 

almost e~dueivcly Iccps nnd Vopagar 

minitnns. Ticnz latt vcar sold 1,000 

nqv curs <strong>and</strong> 200 uscd ars . T¢nc 

says he ntadc abaut $3 mfllion, rnt 

saks of 536 niilllon . 

Hosv can he wdercut thc other 

dealas? Trcnz Is a cW'bitrager. Bypacsing 

Chryslcr dLstribudon ehanuds, 

lie buys ]ceps whcmver thcy arc 

cheapest, paytng trtail but knmvmg 

he can sell them for much ntore . 

These days nccchmpesr placcis Canada, 

whcrc tile dautzchc mark has 

dirnbcd hv 58%agvnst the Canadian 

dollar in the past four ycars . 

By tdephonc <strong>and</strong> fax, Tmnz tap 

into his neovork ofClnvsLer dealets in 

Ontano, Qaubec <strong>and</strong> Nova Scntia . 

Latcfy Itc's paid a Carudiar dcalcr 

stLcker, or$28,125, forzGr<strong>and</strong> Cberokee 

[imited . Transponatinn <strong>and</strong>' 

Gcnnunv's 10$durynnd 7 5°A'i s21cs tas 

add 510,000 to tlte msc . Trenz irr 

stalls nrn' lighrs, adjusrs the elecnical 

mtcm <strong>and</strong> chanb's the tires m ntect 

C rm:m vchidr- y c-ihcadons <strong>and</strong> 

oserodes a mmputcr chip that limits 

the North Americvt Chcmkec's prp 

sp ee d to 112 miles an hour. Finalp, 

Trcnz sats aside S I, L00 pervehicle to 

cnrer svarrann , costs . 

All this brinp tile nail cost uf 

al}'ering rlnterican unliq'rrhidcs <strong>and</strong> 

miuinns at big discuunrs . 

/4rd'not just Poncncan cars- In 

Russia a nmv 52ai purehxscd duoagh 

an o1licYal nwv dealcr mns abnur 

$73,755, sersus S38,SOf1-beforc 

raxcs-in Gcmun)r . Wolfgang Vollath, 

managing dimcror of nznv's 

Moxow ol&e, says Russia's grav 

nrukct BM tVd~ale isntnsplashytelcvisum 

ads <strong>and</strong> ouudl his licensed dcaltrs 

10-to L 

Taiwan is a ha makct for gray 

marker Volvos, Maecdes <strong>and</strong> n+nvs . 

Thanks tn mriffs<strong>and</strong> caxes omt importcd 

luxury cars, a Volvo 850 Turlw 

Wagon thatretails at 533,550 in l .os 

16001 eely have to eumyete wilh Chryflm Eeelers . I have to be wmething beHr, 

uy . WolfgengTrem .Rborerirenr, m .chaniu altar leeysto mM German 

dneecv p,oa for $62,535 in T,dpci . 

7ne gmc ma*cr broker eiisscrosses 

(amde md thc CIS . loaking lor rhe 

mudels lie needs schiLe his Taimsi¢se 

partner druou up customas . Within 

¢n days of an oiilcr coming in, rhe 

cars arc delivcred to the dosest port, 

r adv Ra shipmcnt ro Tuipei . 

"1Ne'ce got this busincss dosvn tn a 

scicncq" tile brokcr' says. "I'd buy 

ten tlmes as munyMerccdes if I mu/d 

pmgram, svhich dupliares Chnslds 

oll3eial eanzntr . His serci¢ departmene 

in Weihcrhmnmar r'arrics so 

many Clnvsler spare pans (purcha>cd 

on the gray market) that o/rioal 

Gtrysler duulers often cnmt ro Trcnz 

flsr part . 

Manuf5crwvs arc nving to crack 

dmmt on tile gray nraka trade . Last 

fall ent instituted a pulio, asking that 

Canadian dealers make all pm

In the success of new electronic gadgets, technology is only 

one side of the coin . Greg Blonder looks at the human factor<strong>and</strong> 

sees some surprising changes in store for <strong>business</strong> . 

what,lzind 

I 

i 

of computer 

will you wear? 

By Pleming Maka 

NoUONMER(IAI .AnSNR(;HOpemtlon somenfhisearlyeoncluxonE . 

. BE711ab5' 

is the match ofarnT Bell Laborato- Tclecnnkrencing will nover take GregBlonde 

ries, holder of 25,11/10 parents <strong>and</strong> muchbusi,as% awnyhomthcairlines ; wimaprolotype 

Itome,overthevems,tosevenNobe.l colvsumerswtllbepmtingrelativalv dAT&Tswrutprizewmners 

.Iasus,vansisrurs,so- lessmoncyintogeneralpnrposccom- watchphmn 

larcells<strong>and</strong>cellular[dephonyareBell putersaltdmoreintocheapmachines TMtttabpu 

Iabs invottirnls. This R&l, giant spccializedrolaarrvwta.sks;<strong>and</strong>wirr fa6lnn .hRmwd. 

speds $3 .4 Inlliun a year, 90% on Icss mcseaging madimcs wdl be a~~ 

pmduct devefopntcnt, 10 % on basic huge success . 

m.+earch. At first blush, teleconfetrndng 

Butdorsgreatsdelucmaliagrcat lookslikeantaaerofs

Thanks to Sprint Business, 

Rail Europe increased its speed 

to 256 kilobits per second . 

Real Problem . Rail Enrope, the exclusive sales agent for muat 

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<strong>and</strong> fare information to travel agents all over the world . 

Real Solution . Sprint Ruelnese put them on track with SprintNe[m, 

the world's largest publio data netwnrk, with acaesa from 45 countrtes . 

WhaPx more, with X .25 packet switching end highly reliable aeoese at 

up to 256kbps, Rail 8urape has quickly bcaome the only atop for thoue<strong>and</strong>s 

of havel agents In the U .S ., <strong>and</strong> as far away as Japan <strong>and</strong> Australia . 

All they need is a PC <strong>and</strong> the price of a local call to book virtually any traln 

in Hnrope <strong>and</strong> the farmer Soviet (Inlon . 24 hours a day . 

Sprint Bueinesa technology helped Rail Europe . 

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-.~ i 


tl 

Fred Gibbons beat Bill Gates to the PC software market 

with shrink-wrapped programs . His company was 

celebrated, then petered out . 

What might 

have been 

By Seth Lubove 

SoFIWARE PVBLtSHING CoRI' ., vendor 

of word processing, graphics <strong>and</strong> 

other desktop programs, was a classic 

Silicon Valley startup, right down to 

the Atherton, Calif. garagc in which it 

was born . It was a winner on Wall 

Street, going public at 7 in 1984 <strong>and</strong> 

climbing to 35'/a by 1991 . 

The stock recently traded at 3r/a, 

not much more than its cash on h<strong>and</strong> . 

Sales peaked at 5156 million in 1992 

but will probably be a fourth of that 

this fiscal year . A cautionarv tale for 

anyone who forgets how quickly the 

tables turn in technolog`, . 

Go back to 1977 . Fred M . Gibbons, 

a marketing manager at Hewlett-Packard, 

meers with Steven Jobs 

at a pizza shop to talk a bout a job for 

Gibbons as a product manager at 

then-fledgling Apple Computer . After 

lunch, they go next door to a Byte 

computer store to look at the Apple I 

computer . Gibbons, now 45, notices 

the rudimentary re software, hanging 

in plastic bags on a pegboard . 

"Isaid, 'Gee, I bet there would be 

an opportunity for someone to represent 

the [softwarej authors,"' Gibbons 

recalls . In his spare time, Gibbons 

started Softivare Publishing, <strong>and</strong> 

by 1981 it had revenues approaching 

51 million from sales of a software 

version of a Rolodex . Gibbons <strong>and</strong> 

nvo Hewlett-Packard colleagues quit 

their day jobs . 

Their "rFS" added a word processor, 

spellchecker <strong>and</strong> graphics program 

. It was a prescient forerunner of 

today's big marketing fad in the software 

industry, the sofnvare "suite ." 

Gibbons became a celebrity . 

"One of the best-run sofw'are companies 

in the <strong>business</strong>," Business 

162 

EM 

1 

Software Publishing's Irlan Sallm 

"It's an acceptance 

of what Is ." 

Week rhapsodized in a 1986 article . 

But already sales of the Pts serics 

were tapering off, as other companies 

entered the market w'ith morc-powerful 

programs . Gibbons' next inspiration 

was the Harvard Graphics presentation 

program, <strong>business</strong> sofnware 

that can create slick te t <strong>and</strong> slide 

presentations . Softwarc Publishing 

captured 70% of the market for nosbased 

presentation softtvare . 

And then Gibbons made a mistake . 

Betting on 13M's operating system 

rather than Microsoft's, he invested 

money in making OS/2 vcrsions of 

his products before tackling Windows 

versions . 

Gibbons wasn't the only developer 

to bet against Windows . Jim i`vfanzi at 

Lotus made the same mistake . Was it 

resentment over Bill Gates' success? 

Overconfidence in mm? Fortunatelv 

for Manzi, he also invested in a groupware 

program called Nores that saved 

the day <strong>and</strong> motivated IBM to buy 

Lotus for 53 .5 billion . 

What was Gibbons' Notes? He, 

too, made a play for the network 

market . He spent S20 million to develop 

software for servers, the computcr 

hubs around which nenvorks 

are built . But the <strong>business</strong> was very 

different from Sofnvare's usual offering 

of shrink-wrapped sofhvare . Network 

sofncare calls for higher prices 

<strong>and</strong> much more client h<strong>and</strong>holding . 

Gibbons spent another $25 million 

on a Windows database sofnvare 

company with a marketing <strong>and</strong> support 

staff that could deal with the 

corporate clients . Good money after 

bad . Gibbons sold the network software 

operations last year at a loss . 

Software Publishing's only strong 

product today is its Hanard Graphics 

program, which retails for 5330 . It 

still gets glowing reviews in computer 

magazines, but one good program is 

not good enough any more . Customers 

like to buy their programs in bundles 

. You get a fairly good presentation 

graphics package in Microsoft's 

$500 office suite that includes wellestablished 

word processor <strong>and</strong> 

spreadsheet programs as well . 

Gibbons says he was once invited 

by Borl<strong>and</strong> International's Philippe 

Kahn to team up in a best-of-breed 

suite that would have included Borl<strong>and</strong>'s 

spreadsheet <strong>and</strong> WordPerfect's 

word processor . He turned down the 

offer, Fearing compatibility problems . 

"That was probably a mistake," he 

says now. 

Too many such mistakes . Gibbons 

remains chairman but stepped aside 

last year as chief executive, leaving 

that job to Irfan Salim, who had 

previously run international sales . Salim 

has tired more than half the staff 

<strong>and</strong> subleased most of the company's 

320,000-square-foot headquarters in 

Santa Clara, Caiif 

Software Publishing, now focusing 

on visual presentations, sells programs 

that can run a slide show <strong>and</strong> 

organize computer images for easy 

recall . A comedown? "It realh', is an 

acceptance ofwhat is, instead ofwhat 

we want it to be," says Salim . 

Gibbons these days spends his rime 

piloting his personal airplane-he was 

lucky enough to sell sonic of his stock 

in better days-<strong>and</strong> lecturing on entrepreneurship 

at Stanford . Could he 

ha~e been anodier Bill Gates? "We 

were in the same place at the same 

time," he says wistfully . "He had one 

set ofcards . I had another." ~ 


'~p 

- . -.~_-__ 


. . . . . ._, . . . . _ . . . . . 

~

COMPUTERS/COMMUNICATIONS 

Who wins 

home banlzing? 

~ `. s, 

~ 

~ 

~ 

Richard A . ShaYer is 

founder of Technologlc 

'artners, a tecnnology 

consLliing com^.ary 

in New York City, 

antl publisher o'r 

iechnotogic Computer 

Lefler. 

TECHNOLOGY ISN'T EVE2YTHI\G . Often, it's 

not even the most importan t thing . I think we're 

going to see this vividly demonstrated in the 

home banking <strong>business</strong> . 

Truscbusters at the Justice Department 

scared offMicrosoR from its planned acquisition 

of Intuit, which sells soffirare that enables 

you to pay vour bills, balance your checkbook 

<strong>and</strong> do vour taxes by computer . The government 

complained that a combination of the 

companies would gice Microsoft an unfair advantage 

in the emerging world of electronic 

commerce . That would hurt banks, credit card 

companies <strong>and</strong> other financial institutions . 

I think the government is wrong, Years ago, 

when semiconductor companies created the 

digital watch, the experts assumed that chip 

companies (like Texas Instruments) nrould walk 

away ss-ith the natch <strong>business</strong> . After all, thev 

had the superior techni <strong>and</strong> those oldfashioned 

watchmakers in Switzerl<strong>and</strong> had the 

inferior technology . 

It didn't work out that way . Watch manufacturers 

just bought the semiconductors they 

needed <strong>and</strong> ran marketing circles around'I . 

Expect similar adapti ve behavior on the part 

of financial institutions . It's quite possible that 

Citicorp will end up using home banking software 

written by Microsoft . But Citicorp can buy 

technology elsewhere, or reinvent it itself if it 

has to . Citicorp has been using computers since 

before Bill Gates was born . 

During the next year, upstarts from the 

world of technology «'ill enjoy some successes in 

on-line commerce, capturing portions of the 

relationship between financial service institutions 

<strong>and</strong> their customers . The new, technology-based 

companies, however, probably won't 

make significant <strong>and</strong> lasring gains in financial 

<strong>business</strong>es . The banks, credit card companies, 

brokerages, mutual fund managers <strong>and</strong> insurers 

are too big, too smart <strong>and</strong> too entrenched to 

be pushed aside by Microsoti . 

In Germam <strong>and</strong> Japan about 90% of all 

banking transactions are alread~ being done online 

. The shift is coming more slowh- here, but 

we do have electronic bill payments through 

such companies as Intuit, Checkfree, National 

Payment Clearinghouse <strong>and</strong> Interactive Transaction 

Partners . 

Sexier on-line financial sercices will arrive 

here, probabh, in a vear or two . I'm hoping for 

an on-line service that would allow us-kith 

no added transaction fees-to inquire about our 

checking <strong>and</strong> sa% ings account balances, transfer 

ti nds, pay our bills, comparison-sitop for 

savings instruments, fuss over our Itt,~s, manage 

our credit card accounts, apply for loans, 

peruse our stock portfolios, execute trades <strong>and</strong> 

mavbe even settle our gambling debts at offshore 

Internet casinos with untraceable international 

currencV . 

The banks <strong>and</strong> brokers are preparing for 

that day . They have used computers for years in 

their back rooms to wire monev, clear securities 

<strong>and</strong> the like . Now, automation is coming to 

the front window . Recently, for example, NationsB 

;nk <strong>and</strong> Bank of America bought the 

rights to the klanaging Your Money personal 

finance sofnvare <strong>and</strong> intend to license it broadly, 

customizing it for other financial institutions 

to help them maintain ties with customers who 

want home banking . 

Credit card companies face competition in 

digital commerce from such voung companies 

as CyberCash, First Virtual Holctings <strong>and</strong> 

Banks, brokerages <strong>and</strong> 

mutual fund managers are 

too big <strong>and</strong> too smart to be 

blitzed by Microsoft . 

TelequipCorp . (see .ltichaelGiarttrrco ;column 

on the folloiving page) . The upstarts, however, 

won't find Visa <strong>and</strong> MasterCard to be pushovers 

. The card companies have 300 million 

users <strong>and</strong> tremendous br<strong>and</strong>-name recognition . 

Mutual fund giant Fidelity Investments is 

using the Internet's World Ylride Web to cut 

costs, primarilv in distributing prospectuses . 

The company looks at the Internet as an interesdng 

new interactive channel that can supplement 

existing mail, in-person <strong>and</strong> telephone 

services . Fidelitq also is using its on-line presence 

to find potential customers, as well as to do 

some market research . 

When, a year or so from now, big financial 

services companies have made clear their strategies 

for interactive electronic commerce, I expect 

their strengths to be all the more apparent . 

Among other advantages, financial institutions 

have experience with the pace at which 

consumers are willing to accept new technolog}, 

in such sensitiNe areas as personal finance . 

They remember, for example, that home 

banking didn't happen ten years ago, when it 

was widelv predicted, <strong>and</strong> that it has takcn 

three decades for automated teller machines to 

become commonplace . = 

For6es . August 14, 1995 

204ES73413 

163 


I 

1 

1 

EYHI~ ; ~? " , !LyJ 

INSIGHiS 

Digital cash 

Michael Gianturco a 

presaent of Tne 

Princeton Portfclios . 

His new COGk on 

invesnngin 

technclogs stxks 

<strong>and</strong> furtls is The 

Market that 2eats 

fhe Market ( Li11e 

Bro'Nn, ,895) . 

WHO's GOING TO BE THF SViND1ER when encrypted 

digital signals replace paper money? 

Some big outfits are making bets on cybercash 

. blicrosoft is working on sofnvare that will 

make financial transactions more secure on 

nenvorks . Visa International plans to introduce 

a cash card in time for the 1996 Summer 

Olympics . 

Some role in the coming world of digital 

cash is likely to be played by three public 

companies with related <strong>business</strong>es : Rainbow' 

Technologies, which is in data security ; 

eLSt, which sells encrvption chips ; <strong>and</strong> Securiry 

Dynamics, which sells software for corporate 

nettvork security . 

I think you should keep an eve on this 

exciting new <strong>business</strong> . One big uinner may 

be a companv that hasn't even gone public 

yet-although I expect it will someday-<strong>and</strong> 

that's Telequip Corp . in Hollis, N .H . Telequip 

will do $6 million this year in revenue, 

largely from coin-dispensing machines used in 

bank drive-throughs . Because these machines 

interact with the banks' computers, Telequip 

Yonr money cannot be stolen 

from the card, not even with 

electron microscopes . 

silicon, thev cannot be copied out (as the}• could 

be From a floppv or hard disk) by bad guvs . If the 

card fell out of your pocket at O'Hare, no problem 

. Your data, your code keys <strong>and</strong> vour monev 

cannot be extracted from the Cnypta PlusNot 

even with advanced instruments, codebreaking 

computers or electron microscopes . 

Whz do we need cards with flash memon<strong>and</strong> 

brains? Aren't plastic cards with magnetic 

strips enough? Credit cards are fairlv secure, 

but for electronic commerce, a new <strong>and</strong> higher 

level of security is essential . The securitv of the 

account number on a magnetic strip card has a 

lot to do with where cou plan to stick the card . 

If you push the card into a computer <strong>and</strong> the 

computer is on the phone to a nemork, you're 

asking for trouble from hackers . 

There are plenty of horror stories about 

traditional credit card theft . Shoulder surfers 

steal telephone credit card numbers bv peeking 

over your shoulder at the airport . One clever 

bunch of crooks planted a phony automatie 

teller machine in a shopping mall <strong>and</strong> used it to 

capture account numbers <strong>and</strong> passwords . 

But aTM cards are more secure than vour 

credit cards . The thief needs not only yotu account 

number but also a password number . In 

a similarvein, Telequip's Crypta Plus uses a tnropart 

secucirv system-the thief would need 

both a stolen card <strong>and</strong> a passw ord . To this basic 

system, Telequip adds the considerable power 

of a microprocessor dedicated to cryptography . 

The added securiq• is necessary because 

phone-based computer networks are less secure 

thanA'[m networks . That is, it would be pretty 

hard for a hoodlum to wiretap his vav into a 

bank nem ork, while legions of would-be 

hackers are lurking on the Internet . 

Wottld you tap vour Visa account number or 

got into securin' protocols <strong>and</strong>, ultimatelv, cryp- a bank card pass vord onto the Interneti I certainlv 

tographv . Telequip has invented a pocket-size wouldn't-at least not vet . This is wht, the Interpersonal 

encryption card called the Crypta Plus, net has not lived up to its commercial potenrial . 

It could one day replace your checkbook . The cybercash market is the big potential 

( The Crypta Plus card contains its own 32- 

, payoff for Cnpta Plus, but consumers are still a 

bit microprocessor, which is dedicated to cn_p- long way from accepting the notion that the 

? tographic processing, <strong>and</strong> 16 megabytes of public computer netvorks can safely mose sums 

~ semiconductor flash memorv . Flash memory is of caslt . In the meantime Telequip is selling 

the kind that doesn't forget when the po~aer the card to companies that want to protect sensigoes 

goes off. It's part of stored-value cards used tive databases . An executive on the road 

~ todav for small transactions, such as in vend- wotdd use the card, for example, if he stores 

- ing machines <strong>and</strong> pay phones . valuable engineering data on a laptop . Says 

~~ Telequip's card plugs into a slot on your Michael Jones, 39, president of Telequip, 

portable computer . It works like a floppv disk "Everything is encrypted by the Crypta Plus 

?~ with a brain-a suspicious brain . Stored data is card on its way into storage ." 

~ locked on the card until you presetu a password . Telequip is also working with a bank consor- 

Unlocking i Unlocking the card will also give vou access to tittm (members include Bank of Artterica <strong>and</strong> 

your own unique encrvption keys . Citibank on how to turn a card like this into an 

You can use the keys to securelv encode electronic checkbook . There are a number of 

information for transfer ~ia modem over the competing concepts for digital money, but 

phone-including financial transfers . Because the none is based on the familiar <strong>and</strong> already apencryption 

encryprion keys are essentially wTitten into the proved machinerv of the checking account . ~ 

164 2 0 4 6 6 7 34 2 0 )rbcs • A u 91J st 14,1995 


The award winning original . 

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~ ia y i LU g[gim 

I 

James Weber, president of 0'Brien Interna6anal 

Keeping Ronald Perelman's companies from going under . 

Sink or swim 

Jamss W=_aeR spent three 

cears at Pillsbur~before 

joining S7o0 million 

sales i Coleman Co . . a 

camping equipment outfit 

controlled bv Mae- 

Andrew's & Forbes,in 

1989 .After a vear 

dicestin^ unrelated <strong>business</strong>es, 

he tackled the mone~losing 

hot-tub unit . 

"The% thought thev'd 

shrink the balance sheet 

<strong>and</strong> close it," says W'eber, 

35 . "[nstcad, I created a 

real <strong>business</strong> ." 

He upgraded products, 

started a ne«ad canr 

paign <strong>and</strong> cut invcnton• 

bv $2 million . Result : S 1 

million profit in 1992 on 

S15 million in re%enue, 

That vear NSacAndresvs 

o«ner Ronald Pereiman 

mored him to Redmond, 

Wash .-based O'Brien International, 

a water-ski 

equipment maker that 

had lost 57 million in 

three vears . 

It had dated graphics, 

lousv dealer senice, <strong>and</strong> 

equipment }'ou had to be 

an expert to use . Weber redesigned 

the products, 

closed a factory <strong>and</strong> a distribution 

center <strong>and</strong> spent 

`5500,000 on a ne%r computer 

system . 

Last year, on 523 million 

in sales, O'Brien made 

a S1 million profit, its first 

in five years . 

Dress for success 

CYNrxI.1 ROWLEY st<strong>and</strong>s 

out in a crowd, donning 

high heels to ride her Suzuki 

DR125 motorcvcle to 

work each day in Manhattan 

. And in the cynical 

world of Seventh Aeenue, 

the designer's funky, updated 

retro fashions are 

turning heads . 

Her dresses, sportswear, 

shoes <strong>and</strong> accessories 

racked up S 12 million 

wholesale last fiscal year, to 

places like Saks Fifrh A~enue, 

Neiman Marcus <strong>and</strong> 

Bloomingdale's . That's 

up 30% from 1993 . 

Now, with fin<strong>and</strong>ng 

from cash flow, Rowley, 

37, is going retail-in the 

last ten months opening 

stores in New York <strong>and</strong> 

Chicago ; Tokyo, Maniia 

<strong>and</strong> Los Angeles open by 

year-end . 

Rowley, who attended 

the Art Institute of Chicago, 

produced her first 

collection in 1981 . 

Next : knitwear, jeans 

<strong>and</strong> fragrances . "Ijust can't 

say no," she says of new 

lines . "Because I 

can't believe I have the 

opportunity ." 

Hard-core girl 

"I SHOWED an interest in 

numbers earlv on," says 

Nanc}Hawthorne, 44, 

chief financial officer of 

Continental Cablaision 

since 1992 . 

The Han°ard-trained 

M .B .A . started out doing 

commercial lending at 

Citibank's broadcast <strong>and</strong> 

cable group, where Continental 

~ras a client . She 

mo 'ed brietly to Bankers 

_ 'I-antineitai 

- Cabievisloc's 

Nancy 

Havdhorne 

Despite 

Dad's dictum, 

she's 

A a financial 

success . 

i 

f 

Designer 

Cy^tnia Rwley 

"1 just can't 

say no ." 

"But m~~ father said 

such hard-core things 

weren'c appropriate for 

girls ." 

; Luckily , she didn't listen 

ten to Dad . Since joining 

~ the companv in 1982, she 

has helped increase cash 

tlo«° elevenfold, to an estimated 

$580 million this 

vear . Among her accomplishments 

: in 1992, a 

$600 million pricare equin 

placement, a high figure 

in the cable indusm . 

Trust . Then Continental 

offered her the treasurer's 

job in 1982 . 

Up next ; Ha~cthorne 

will help take Continental 

public by year-end . Atid 

rumors are t1ving that she is 

engineering an impending 

investment in the firm 

bv U 5 West or arRT, 

Hawthorne confirms 

there have been talks 

but no deal-vet . "You 

need major hmding for 

telephoni 

I 

166 

2046073422 

Forbee a August 14 . 1995 


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Trust a trust 

Have you set up a trust? If you haven't, get cracking . 

No middle-c!ass family should be without one . 

By Carolyn T. Geer 

Jo ttN HaWtcY, 77, necer considered himself the trust fimd 

type . A retired college itistonteacher <strong>and</strong> son of a high 

school pr ;ncipal, lie grew up during the Depression . Trusts 

Ncere for rich people . 

They u,ed to be for rich people .'Vo v the° are very' much 

for middle-class people like Ha%slec . After his wife died 

three years ago, Hawley set up two trusts at Charles 

Schwab & Co . to _nrovide tas <strong>and</strong> odier benefits :òr himself 

<strong>and</strong> his heirs . 

Think ofthat . A discount, mass-market stockbroker has 

gotten into the trust <strong>business</strong> <strong>and</strong> has people like retired 

teachers :is customers . From a st<strong>and</strong>ing start tive years ago, 

Schwab now has S23 billion in personal trust assets . 

Just since 1990 at least 60 indcpendent trust companies 

have been founded to capture the new %eavc of trust 

actiaitv-<strong>and</strong> t12at doesn't include all the brokeis <strong>and</strong> fund 

operators, like I'aineWebber <strong>and</strong> Fidetin1, that are rushing 

to set up trust companies . In Florida, revocable living 

trusts are so ssidespread, "you can't get into a counm ° club 

Niithout slto\~ing a copy of pour trust," jokes Gideon 

Rothschild, a Ven York la~~ver u ith sonie Florida clients . 

Trusts have been ~ staple of estate planning for dte likes 

ofthe Rockefelles for a century . What's suddenlc pushing 

trusts out into the mass market? Four things . 

First, minimizing taxes . Inflation has made the tax 

problems ofthe %cealthv into the tax problems of the upper 

middle dass . As will he explained below, a kev role here is 

played by the $600,000 estate tax exemption, which is not 

indexed for inflation . 

You can also saNe on income taaes iaith a trust, as 

Hairle\ did, bp transferring appreciated assets to it <strong>and</strong> 

naming a charinas a remainder benefician, . Yet another 

varietv of trust is a must if rou %rant to leave life insurance 

to your children \cidtout pa% ing wmecessan~ taxes . 

Secood reason to set up a trust : avoiding probate . 

Probate can be costlv <strong>and</strong> time-consuming . By opening a 

living trust i -ou arrange to have some or all of your assets 

delivered to heirs at your death iN ithout rel}'ing on a wiil . A 

liN ing trust is no big deal . It simpk means a trvst i ou set up 

~~hile rou m'e still alire . 

By keeping your tiiilled assets to a minimum, cou can 

save on la«~,ers' fees <strong>and</strong> probate court fees, <strong>and</strong> speed up 

the h<strong>and</strong>ing-o% er process in the bargain . "In effect, Nchat 

aou're doing is administering your estate before vou die," 

explains Richard Goldstein, a cPA in San 97ateo, Calif. 

7ust hoW much time or money cou can sa%'e by aroiding 

probate depends ou ~N here cou live-California, NewYork 

<strong>and</strong> Florida being prime tercitories for probate avoidance . 

But no matter where vou live, it is intperative to set up a 

trust if you own real estate in another state, says New York 

la«yer Edtcard Schlesinger. If ' vou make the mistake of 

holding an ottt-o :`-stare racation home in your oun name 

orvot¢spouse's name rather than through a trust, cou ~rill 

subject your heirs to the torture of having your caill 

probated in tseo places at once, using nvo sers of lau ~ ers . 

Third motne : privacy . The proceedings of probate 

courts are open to the public ; the doings oftrustees (unless 

the trust is created'ov a will) are not . Iu similar fashion, real 

estate deeds arc open to pubiic perusal in all states, %rhile 

the trust documents that soell our the true o«ner of a 

parcel held in trust are not. Trusts can keep others from 

knowing what vou have nhile vou're alive, <strong>and</strong> u•hom you 

leave it to cehen vou die . 

Chen~l Holl<strong>and</strong>, a tinancial planner at I .E . Wilson 

Adcisors in Columbia, S .C ., has a client whose son is 

diw)rced . The client set up a trust to prevent her son's cawife 

from knowing how much monet the son inherits <strong>and</strong> 

hitting him up for more chiid support . 

Fourth motive : protection from disgruntled heire . It's a 

lot harder for a retatite who has been cut out to atta_kvour 

trust than to attackaxcill . 1fian%, states restrictN our options 

in a vvill-tvpically you can't tornlly disinherit a spouse, for 

example . In some of these states (including Connecticut, 

Florida, Illinois, Michigan <strong>and</strong> Ohio I, you can use a trust 

to bypass the restrictions . If you want to minimize ~°our 

spouse's share, this is the way to go . 

Despite reffirms in sonic states, the probate system has 

been bent to scne the interests of l'mcers as much as the 

interest of participants . Trusts are your escape hatch . 

Example of ho" the law makes rou run up legal bills : 

You can't probate a will in Florida with an ourofstate 

executor m less it's a blood relative . It's a full-emplovment 

act for bankers <strong>and</strong> la«vers in Florida-the statutory 

executor fee runs $55,000 on a 52 million esrate . 

Ifyou plan to retire to Florida <strong>and</strong> don't «ant to name a 

relative as executor, set up a revocable living trust to hoid 

your assets-securities, real estate, whateeer . Make courself 

trttstee <strong>and</strong> hire whomever cou u ant, at whate%cr fee 

cou agree on, to be your successor trustee . When qou die, 

the successor trustee h<strong>and</strong>s out the assets in accordance 

with cour wishes, as spelled out in the trust document . If 

cou later Ita% e misgiN ings, just amend or re\ oke the trust . 

That's \% h-at uie °re~ocable" is all about . 

In many states tou catt serce as bodt trustee uid 

168 Forbrs A Ausust 14, 1995 

204ti673424 


eneticiat}-ofa licing trust . New York has aLcms insisted 

there be a cotrustee in such cases, but is considering 

legislation to scrap the requirement . Ohio took tiiat route 

in 1992 . 

Are you trusrless? You should be on the phone to rour 

la«i•er now . Here are ti\ e basic tlacors that trusts conie itr. 

The revocable lit4nT trust is a catchall that can h<strong>and</strong>le a 

lot of chores for rou . Tvpically, you n :mie vourself trustee, 

<strong>and</strong> make arrangements tor someone else (a relatiae, a 

lantier or bank) to sene as successor trustee if i•ou die or 

become incapacitated . 

Bv itself a re~ncable trust cannot saxz vou uues . The 

income is ta\able to vou during your life <strong>and</strong> the assets get 

included in vour taxable estate at death . 

So nhat do ~ou get out of iti In most 

states (Connecticut is an esceptionj, 

assets in the trust are not included 

in the estate subject to probate 

court tees, which run ttp to 

S2,400 on a $2 million 

estate in California . 

4Vith the trust, vou 

also escape the straitjacket 

of statutoryeaecutors' fees, on 

the books in some 

stams . To be sure . 

if vou are using a 

bank or la~wer as 

successor trustee, 

\on hare to psn that bank or la«1°er for the work of 

distributing tlie assets to cour beneficiaries . But at least 

}-ou or % our heirs are in a position to haggle over an hourlc 

rate . If pour estate consists of a 31 million brokerage 

account <strong>and</strong> not much else, the statuton . executor fce 

«ould be S3g,0Q0 ir.Ness1'ork, a°av out of line with the 

work involved . Worse, Nea- York permits la«1ers to 

extract rn•o fees ifnco exeattors are named . 

Ifaou are paving by the hour, t'ou seill be better off si•ith 

a trust because rour Iasvver ~Non't have to schedule 

appointments with the probate court to get things done . 

In recognition of this fact, Florida recently adopted 

suggested legal fees for trust liquidation that are 25% 

be!owthe suggested fees for administering an estate under 

a%~'ill, according to iltiami la«yer Shenvin 

Simmons . 

The re%ocable living trust is 

also the ideal vehicle for holding 

title to real estate outside 

your home state, 

notes Deborah Tedford, 

a Groton, Conn . 

la«1 er . 

Let's face it, 

though ii 'e li% e 

longer todav we 

are that much 

more likei% to be 

~ incapacitated at 

the end, b}a 


I ' LiiXl~yi 1l1 ;1 

i 

stroke, by Alzlteimer's, %'ou name it . One more big reason 

to ha% e a trust . Without a trust, vour assets fail into the 

control of the court . That's %N hat happened to Groucho 

Marx uhea he was in his 80s . A legal battle bemeen his 

compauion-secretan' <strong>and</strong> his son o\ 'er the management of 

his assets \s,as finallv settled %shen a gr<strong>and</strong>son was appoinc 

ed his personal conserator . Had he created a trust spelling 

out conditions for a successor rrustee, he could have been 

spared the embarrassment ofa public court proceeding . 

Nash~ille artoraey b4ichel Kaplan has as client a 72-pearold 

CPA <strong>and</strong> lifelong bachelor who is moving all ofhis assets 

into a revocable trust . His client is the trustee, <strong>and</strong> three 

nephews-all <strong>business</strong>men-are the successor trustees . If 

nvo <strong>doctors</strong> declare the uncle mentally or physicallv 

incapacitated, the nephews will step in . 

The next most common trust is the Grpass trust . This is 

the la%tcers' ansner to the estate tax laa enacted b• 

Congress in 1981 . That law gives husb<strong>and</strong> <strong>and</strong> wife a 

5600,000 exemption apiece for transfers to other heirs . 

If ~ou are married <strong>and</strong> fairlr prosperous but not extremeh, 

~cealthv, then the tbllowing strategy, as described 

be Gideon Rothschild, the New York artornev, is probabl yright for }'otr 

. First %'ou arrange your assets so that vou <strong>and</strong> 

your spouse each ha\e at least 5600,000 to x -our names . 

Then rou both ~rrite wills providing that the first 

$600,000 goes into a bvpass trust <strong>and</strong> the remainder 

outright to the other spouse . 

Income goes to the sun°iving spouse during his or her 

lifetime, after which principal goes to other heirs . The 

sun'Mng spouse can also get at the principal under fairlv 

liberal (but not unlimited) conditions . 

Protect your heirs from needless 

estate tax on your life insurance . 

Set up a trust to buy the policy . 

~ 

170 

Inflation has made the tax problems of the 

wealthy into the tax problems of the upper 

middle class . Trusts help solve the problems . 

Example : You <strong>and</strong> your husb<strong>and</strong> have S2 million <strong>and</strong> 

can live on the income . You neglect to set up trusts . Your 

mate dies first <strong>and</strong> you get all the assets outright . No estate 

tax is due then, but when you die the children have to pay 

estate tax on all but the 5600,000 protected by your own 

eNemption ; your husb<strong>and</strong>'s exemption went to waste . 

W ith a bypass trust, however, vour children would ha% e 

the benefit of $1 .2 million in estate tax exemptions . After 

aour husb<strong>and</strong>'s death, Vou would have the same incomethe 

income from vour $1 .4 million held outright plus dte 

income from the $600,000 trust . Then, when vou dic, the 

kids would get the 52 million but oue estate tax on only 

S800,000 . That's because the $600,000 sitting in the trust 

(plus anv appreciation ) would bypass your estate . 

You can create a b%,pass trust with a%~ ill . You can also 

create one under the terms of a revocable liN ing trust . 

Another popular item on the menu : a life insurance 

trxist. You create one ifvou want heirs to collect insurance 

on vour life estate tax free . 

In the p'pical case, you pae the insurance premiums, but 

keep the polinout of your estate by having the trust o«n 

it . The premiums are subject to gift tax, but the gift tax 

exclusion (510,000 per year per bcnetician,) enables vou 

to bu , a fairly large polict' without owing tax . 

The trust gets a little tricky . To avail yourself of the 

510,000 exclusion, vou have to give each beneticiary' the 

right every rear to grab his share of die premium as it's on 

its way to the insurance compane . OFcourse, vou make it 

clear that if he takes the cash, bad things cvill happen to 

him . This little charade is callcd a Crummey provision, in 

honor ofa tazpaver «ho beat the Internal Revenue Sen•ice 

in a 1968 court case . 

Next we have the charitable remainder trust-used bv 

o rhrs . Au g LlS tl4 .lyy5 

204G6-r3426 F 


0 VISA U .S.A. !na 199 

I 

0 

~ 

V111 ' 

X611 k I 

I 

21 : 1110 

a COURSE PREPARES 

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I a,va I , ol ~,l I ~1 I ~ ; 1 

Trusts can keep others from knowing 

what you have while you're alive, 

<strong>and</strong> whom you leave it to when you die . 

retired professor Hawley . It makes a lot of seuse for older 

people who \could like to Ieaw charitable bequests <strong>and</strong> 

novvhold appreciated securities or real estate thcN'd deariv 

love to cash in to btp' bonds for income . If thee do it in 

their own name, capital gains taxes vv'ill take a big bite <strong>and</strong> 

leave them that much less to liv-c on . 

You transfer assets to a trust that nan :es vou as income 

beneficiarv <strong>and</strong> one or more charities as rentainder benct]- 

ciaries . The trustee, who could be v1ou, sells the assets with 

no capital gain tax consequences, <strong>and</strong> plows the proceeds 

into income-producing investmen[s . When vnu die, [Ite 

principal goes to the charities . 

You get an immediate income tax deduction equal to 

the remainder interest you are gi\ing away . That's catcutated 

from oour expected lifcspan <strong>and</strong> the lecel of the 

income parout you Will be taking . Here's the beauty part : 

You get a full exemption from capital gain taxes even 

though the income interest you are caning out tixrourself 

may represent a large share of the trust's total value . 

Then there's the kir!die tr-iut, used to timd vour children's 

college tuition . The tax benetit, until the childis 14, 

is fairlv small,since all but S 1,300 of income earued by the 

trust is taxed at vour rate .After that age all the i ncome goes 

on the child's return . 

This kind of trust competes nith dle simpler e .\pedient 

of opening a Uniform Gifts to hlinors Act account for the 

child . With au eGt.tA, howe\er, the kid gets the moner, no 

strings attached, when he hits ?1 (18 in some stnres) . 

There's nothing to stop him from using it to join a 

commune, bua a tanc .~ car or indulge a drug habit. With a 

n'ust document Vou can specit ;'that if the monevisn't used 

for tuition it goes [o charitv . 

What ifv'ourdiild alreadr has a pile of moner in an t'cst.,L 

<strong>and</strong> cou vcant to lock it uu in a n-ust? For novv .Vou're stuck . 

l4hen lie rraches majoritr, cou can ask him to coluntarily 

sign du asscts orer to a u'ust . 

Some parents vv°ant a trust to trceze monabevond the 

age of majorinto age 30 . If that's vchat cou vvant, 

uu either havc to tbrgo the $ 10,000 gift tax exdtision or 

;-ive the child a 3tl-davvvindovvofoppornminto get at tLe 

moner as soon-as lie reaches adulthood . dssumine lie cmi 

resist the tempmtion for that inten-al, the trust can close 

aeain for anv numbcr of vears . 

Let's sae you urc reada to open a trust . Now mhaN ifvott 

need aNen, simple knd of trust <strong>and</strong> ha\'e no famile 

complications (like a divorce or stepchildren), vou might 

tny to draft the trust document v'ourself . Aolo Press in 

Berke,ev' . Calif. publishcs a book f .Llrske Your Ownt Lirintl 

Trust. S20 ) <strong>and</strong> a computer program ( LirisLa Trur .'vlaker 

2 .0, 5801 with sample trusts to copv, . Other do-it-vourself 

hooics'. <strong>How</strong> to Aroid Pro6ate (HarpcrCollins, S25 ) <strong>and</strong> 

The Nnn-Lrnrvrrs Lfning Trust Kit jlpha Publications of 

America . S 1~ 1 

. <strong>How</strong>ever, most people aould be better oftpaving the 51,000 to 53,000 it vvill take to ltav'e a lavv1er 

draft the papers . 

With a Iiring ttltst, v-ou'11 need to transfer assets into it . A 

general statement on a trust schedtle t'egarding "pcrsonal 

property <strong>and</strong> household tilruishings" Wi11 suffice to transfer 

items like clothes, books <strong>and</strong> je«eln . For things witit 

title documenrs-eal estate, bank accounts, securitiosqotrll 

hav'e to prep .ve nesc ovvnership papers, explains 

Ideal vehicle for holding title 

to real estate outside your home state : 

a revocable living trust . 

172 Porbes RAugust 14, 1995 


Exotic flavors 

IF 1'OC HdV ;; more than a 

~ fetv million dollars, or if 

cour Familv situation is 

complicated, your lai~~,er 

, will recommend creatiug 

~ as mane as six or a dozen 

different trtuts . `Y always 

~ svarn clients to expect an 

- awfulhy big stack ofpaper," 

savs Arthur Andersen 

cre David Bohl . 

Here are some of the 

more unusual tapes : 

Qualifled terminable 

interest prope••n-trusts arc 

all the rage with people in 

second marriages . These allow 

vou to leave monev 

I to your spouse under the 

' unlimited marital deduct 

on ~rhite still controllino 

I who gets the assets after ~ 

I he or she dies- The spouse 

~ gets the income only 

while alive ; aftenvards, 

~nur other heirs (such as 

children from the first marriage) 

get the principal, 

minus estate taxes . 

Generation akippi;tr7 

trusts are less po%cerful no%~ 

than years ago, but still 

fairly common . In the old 

d-avs a «ealdty couple 

«'ould lem e money to their 

gr<strong>and</strong>children rather 

than to their children, as a 

way of avoiding estate tax 

when the children die . 

Since 1986 such transfers 

(rare been subject to a 

"generation skipping" 

surtax that erases the benefit 

of skipping a generation 

. Ho i•ever, even donor 

gets a S I million e ..- 

cmDtion liom the surM . 

Grantor retained annuity 

trusts <strong>and</strong>,Frautor retainea' 

inconse trusts al- 

lo«'rou to gice au'ap ;tssets Example : You own SI 

«hile retaining a tempo- million of stock, paying 

rarv interest . If tl :e asset is a 530,000 a cear in divihouse 

. Vou might retain dcnds . You transfer it to a 

the rightto li%e in the house defecti~e trust, paying 

for a certain time ; if the gift tax on [he S I million . 

asset is a <strong>business</strong>, vou You also cover the annual 

might retain a fised annu- income tax hill of, say, 

al payout during y~our li ;e- $12,000 . After ten v_ ears 

time . Because the ;ifr is vnu hare eAecticely h<strong>and</strong>ed 

not ofpropern~ outright, 

but of a remainder interest, 

the ~aluc used to calculate 

the gift ras is loa' . 

A defectire trust is a gih 

to }our heirs, constructed 

in such aWae that cou are 

subject to gift tax immediatelc, 

vet the income 

from the assets is tlvoxin 

back on }our own tax return 

for as long as cou li% e . 

Did the trust backtire? 

Not at all . Your ulterior 

motive is to make a gih of 

thc income tax paNmcnts . 

anotherS120,000to ~ 

rour heirs, estate tax fiee . 

YYhy not just leave the . 

property in a«'ill? Because i 

then the 513,000 a s'ear 

in aftertax dis'idends lvould i 

be piling up in cour estate 

<strong>and</strong> would eventuall}' get 

hit mth an estate ta., savs 

Seattle la~,er itl alcolm 

Moore . Also, estate tases, 

because of the vay thin- arc 

calculated, arc higher 

than gifr taxes . Given a 

dtoice, aou would rather 

pay die latter, -C .T.G . ~ ~ 

Columbus, Oltio lawver Lanrence Fisher . 

.Somc adX 'iscrs reconvncnd xx aidne until vou're older to 

ftmd vour li~ins trust since it can pose some admi nistratiie 

hassles, especially u'ith mortgaged properry . You can hare 

a checking aceoun[ in die trust name, but Vou %cili need 

one in aour own name if t'ou «•ant to use the S 10,000 gift 

tax exclusion . The uu insists that you pa~the money to 

}'ourselE diett give it to the bcnefician, . 

O nce anv trttst is created, vou may need nro other kinds 

of protcssional sen'ices : money management <strong>and</strong> trusteeship 

. These can be bought in a bundle or a la carte . 

Fee-onlt' financial planners arc a\aibable to h<strong>and</strong>le dte 

investment side of trust work . Typically the\ ~cill park the 

poitfolio at an insrinnion like Chmies Sclxrab & Co, <strong>and</strong> 

charge 0 .0% to of assets per ~ear for selecting 

securities <strong>and</strong> no-load funds . At no additionai fee- 

Sch«ab makes its mone%7fi-ont commissions-Sch\cab acts 

as cusmdian <strong>and</strong> u~ill mail out checks to beneticiaties . 

T«w mutuai fund operators, Fidelity Inrestotents <strong>and</strong> 

Neuberger & Berman, Itavc gotten into the trust <strong>business</strong> 

in dte past tn•o pears . Slinimum accounr. S400,000 . For a 

S400,000 trust where Fidelitv acts as trustee <strong>and</strong> investment 

manager, the fee is 0 .75% per qear . At Neubergcr & 

Bernian the fee is 52,500 or whidie% er is greatcr, if a 

trust's assets are invested entirch• in house funds . With 

eithrt' conipam', you also incur the expense ratios on tiie 

fimds . Both shun illiquid ussets like real cstate . 

Thcn there are tull-senice brokerage firms . Merrill 

Lvnch <strong>and</strong> PaineS~'ebber take uvsts as smail as S 100,000 . 

The annual fee for a 5200,000 trust imcsted in Merrill 

Ltnclt funds is 1 .5°k,, escluding fund tccs . Merrill also 

h<strong>and</strong>les Iife insurance trusts . 

:lnodler option is to name relatices or friends as trustees 

or cotrustees to nr,tke dif}icult decisions . You could also 

hire a law tirm at an hourlc rare . Or, if vou haVe enough 

monek',l ou could appoint a bank ora trustcompanp . Bank 

trust departments tvpiealhha~c higher minintums than 

Fidel'tn~, burtheirfees are competitice, tltey accept unusu,il 

assets, <strong>and</strong> thea are tcil!iug to do much more h<strong>and</strong>holding . 

Mellon accepts n-uste ordt at least S 1 million . Besides 

the usual stocks <strong>and</strong> bonds, the bank has managed such 

assets as talc mine rorulties <strong>and</strong> apartment houses . Annual 

fee fbr a S1 million account : S 10 .000 . Bessemer Trust Co . 

has a S5 million minimun :, for which the fee ~tould be 

550,000 . It h<strong>and</strong>les secu ;ities, real estate, oil <strong>and</strong> gas 

partnerships <strong>and</strong> prirate companies . The fee geuerallv 

coNers moncv management, distributions <strong>and</strong> custoda, 

but other tasks (like filing M retnrns <strong>and</strong> writing oat-roll 

checks for Vour nucse ) will be billed srparately . 

One caveat, if Mu uame ;.1t institution as trustee~ Make 

sure rour heirs ifdiec are uuhappe, can fire the institution 

in faNnr of u suituble replacement . 

Anorltcr caveat'. Get good tas adeicc. For example, the 

preceding proriso should, for t .t .x reasons ssc tron't go into, 

be made subject to m'ersig':u ba disinterested cotrustee . 

Here's another ue subden' cou h-aeV to think about : A fat 

esacutor's tce could make cour heirs bettetotl: That motild be 

trtte if one of Vour heirs is %\ Ting to be ul executor, <strong>and</strong> has a 

cornbincd income <strong>and</strong> i\Icdiaare taa : brackct lower than your 

estate tax bracket . 

If vou haNc more than a fcumillion dollars or a complicated 

tmancial life, ask t'our ad~is'er to look into die more esotic 

u2tsrs listed in die box abo%n . But don't wait. Trusts todae 

are a middlc-dass necessit~. Mi 

Purbas 0 Augast 14, 1995 

20461 5 7-3429 

173 


1111111A, Ll~ I ;IIl :~ìI AA 

THE MONEY MEN 

Looking beyond 

the valle Y 

Bill Ehrman thinks we're at the end 

of a market cycle but expects the next 

cycle will be a winner, too, <strong>and</strong> soon . 

By Thomas Jaffe 

Wtt[ .tAs[ EHastaN dates his contempt 

for ~VaIJ Street to his first job out ot 

colle ge, as a research anah sr at Chernical 

Bank . He was told to prcoare a 

report on the rubber indusuv a[ the 

time when long-lived radial tires \\cre 

hitting the market . He conc .'uded 

people would need fevver repiacement 

tires, Mhich would slow earnings 

growth for ilte tire mmpanics . He 

recommended selling tire 

stocks . 

Rentembers the Hewlert, 

N .Y .-born Ehrman, 

stocky but still cherubiclooking 

at 46 : "~Vhen I 

presented ithe report], 

none of ahe investmcnt 

committee had read it . All 

thev did, around the rable, 

was open up a chart book ." 

Clearl\ the committee 

members didn't vvant to 

bother their heads about 

fundamentals. Rubber 

companies looked good ou 

the charts <strong>and</strong> that was 

enough fbr them . 

"To this dav', <strong>and</strong> I've 

been in the <strong>business</strong> 25 

years," Ehrman says, °I 

have never looked at a chart 

book. Never go out to 

dumb ~Vall Street lunches . 

All I uy to do is logically 

think through «hat's hnppening 

. I'm a fundamentalist, 

A to Z,°_ 

Passing up all those 

charts <strong>and</strong> luncheons dear- 

Iy hasn't hurt Bill Eltrman . 

lM1 th three partners, Frcd- 

Ketchc, he runs a 5250 million 

hedge fund, rGs Partners, L .P ., in 

Manhattan . Over tour eears EUs has 

siioun compounded annual recurns 

after fees of 18%, h<strong>and</strong>ihv beating the 

averages . This is the more impresske 

vvhen rou consider that EGS took a 

24% hit last cear, vchich it has just 

about made up this year . 

ÌVh'at Fuatdamental ciem is Bill Eltr- 

Nlilliarn Ehrman oi EGS Parfners 

eric Greenberg, Jonas No chart books, no dumb Wall Street lunches . 

Gerstl <strong>and</strong> Frederick ~ 

mar acrng on right now? BullishnessThough he expects the economv, to 

slovvsomc~vitnt, his fund is positioned 

partiallvin cvdical stocks <strong>and</strong> partially 

in sncci~al situations that haze nothing 

to do vcith thc economv~ . 

To underst<strong>and</strong> Eivman's bullishness 

you need to know something 

.tbout his vrav of thinking . He worked 

for master spcculator George Soros in 

the 1980s <strong>and</strong> considers Soros a kind 

ot model . Ehrman describes Soros as a 

°fbrnard thinker ." Essend'allv, it's an 

abilinto look over ralley,s to the hills 

beyond . While others fret about the 

descent into the v-allev, the Soros-typc 

anticipates the nice elimb up . It works 

both vrays, of course, since Ehrman's 

a hedge fund man : Sometimes you 

Look o\ er a hill <strong>and</strong> see a ca\ •ning hole 

on the other side . 

Ehrman cites his 1991 heavy cornmitmentin 

ivierck as an example of this 

kind of thutking: "Mhen \-lerck 

bought Medco Containmrtt, it took a 

vear-<strong>and</strong>-a-Italf's dilution to earnings . 

Dming that pcriod earnings plateaued 

<strong>and</strong> the stock vrent from the 

mid-30s to the 20s . That 

vvas the intlection point ." 

.Y1anv traders knew Merck 

\4as going to go through a 

period of carnings dilution 

<strong>and</strong> sold the stock, but Ehrman 

bou,ht . 

He \vas looking becond 

the vallev while others ~~ere 

starting dotVn into it . "Atter 

Merck ate through the 

dilution, earnings growth, 

Mtich had gone from 17% 

to zero, began to turn back 

up <strong>and</strong> so did the stock, 

vchich is now 50 . 

"what I've ahvavs done 

is look ft>r companies going 

through change, positive 

<strong>and</strong> ncgative," Ehrman 

gocs on . "The positive 

could be a managerial or a 

structural change . Or like 

ir;, where cou teel the value 

vtill be unlocked by 

managcment ." 

Right now he <strong>and</strong> his 

parrners like warner-Lambert 

(84), which he expects 

to be restructured or taken 

o\er . 

"I\vantstocksIcan make 

monea on in more than one 

~ 

C 

tr7 

~ 

174 ~ Forbcs E August 14, 1995- ~ -_ - . 


. --__ __ . 

- ..-_ . ._.,, . . 

.___ . . . . . . . . - , . . 

~

Fundamental 

Analysis 101 

To Ge .T AN ID E4 of a ostBill F 

.hrman analvzes a 

companr, let's look at 

one of his fanorites-IKansas 

City Southern Industries 

(KSU), recent NYSE 

price, 393/a . 

hse has three <strong>business</strong>es 

: the Kansas Citv Southem 

Raihs•ay; DST Systems, 

a providcr of on-line a . - 

cotrnting <strong>and</strong> recordkeeping 

to the mutual 

fund, flnancial sen-ices 

<strong>and</strong> insurance industries ; 

mutual funds-an 83% 

interest in Janus Capital, 

managing S27 billion, 

<strong>and</strong> 80% of Bcrger ~ssociates, 

uith S3 billion . 

The companc plans to 

sell 51'1~ of DsT Ssstems to 

the public in the fourth 

quarter . On the basis of recenr 

deals, Ehrman estimates 

DsT is worth 51 .2 billion 

. Ifhe's right, the ino 

Nrould raise over S600 million 

cash ;òr Ksc . He also 

expects a s:ile or public offering 

of Janus . Ehrrnan 

thinks it's %rotTh $1 .2 bil- 

Iion, caluing s5C's hold- 

ing at o~'er S I billion . 

Meantimc, the railroad 

just tinished a three-%'ear, 

S500 million capital 

spending program aimcd at 

reducing its operating ratio 

by seN en points during 

the next tno years . Looking 

at the recent Burlington 

Northern-Santa Fe merger, 

Ehrman thinks the Kansas 

Cin• Southern, if sold 

over the next ~ear or nen, 

may fetch 52 billion . An 

extra attraction : rsc's chief 

financial officer has said 

that if anothcr rail acquired 

the line $50 million in 

sG&a costs could he cut 

from the <strong>business</strong> 

through consolidation . 

Check it out . DST, the 

mutual funds <strong>and</strong> the railroad 

combined would be 

t% orth $4-2 billion . There's 

about S 1 billion in debt . 

That leaves a net worth of 

$3 .2 billion-around 

S70 per each of hsU's 45 

million shares . But 

there's more . With nearterm 

cash flow going to 

stock buvbacks, the net 

worth per share will go 

even higher o~er the next 

few years. -T . J. = 

wav," he savs . He cites the takcocer of 

Caesars World . "In the fourth quarter, 

wlten gaming stocks came under huge 

tax seiling, we «ere buting thcm at 3 to 

3!1z times cash flow . The risk/'etvard 

was so tarorable . W'e didn't know Caesarswould 

be acquired . SVejustkne vit 

was cheap . That's the luxun• of %ahat 

~re do . We don't kttow what's going to 

happen . But we do know something's 

going to happen ." 

He thinks Mobil ( I00a/e) is a good 

sornetiiing's-going-ro-happcit stock . 

"Ii s an ongoing coso-reduction cotnpany 

that's increasing its earnings bv 

15% avear ocer the next three years 

«ithout the price of oil going up a 

penny . I can buv Mobil on its omt 

merits <strong>and</strong> not pay for anc event, sav, 

political problems in the ~~tiddle East, 

that could cause the price of oil to 

spike up . Mobil's ai en' good part of 

my portfolio ." 

Another example : Conrail (62s/e) . 

"I think it'll be bought by Norfolk 

Southern or Union Pacific over the 

next year . Doesn't matter, Despite 

short-term blips, earnings n,ill continue 

to gro« despite weakness in the 

economv . Conrail's a cash machine . 

Great long-term pla% ." 

[VhatmakesEltrman so bullish? He 

sees a shallow vallev ahead, a slo\k 

doun in the economt'-<strong>and</strong> then another 

upslope . He prcdicts for d .e 

economv "zero-to-1%-ttpe gro~t'th 

tinthree or four quarrers"-<strong>and</strong> berond 

that, sunny upl<strong>and</strong>s . During the 

slok%down he ecpects <strong>business</strong> toslash 

inventories . "They're going to 


cleanse themselces, so that as Vou 

enter 1996 the economr will be on a 

healthier footing than today . 

"Remember," he adds, °~ahen tou 

sell rour imentony°ou get cash . So 

there's going to be a huge gush of 

corporate liouidintt that will go to 

btry'vacks, acquisitions <strong>and</strong> all that 

sort ofstufF." 

Ehrman becomes almost rhapsodic 

talking about what lies beyond the 

shallo%a recession . "Here xxe are at the 

end of the c_%cle, <strong>and</strong> balance sheets 

are the least le veraged, ocerhead the 

least amount in four ~°ears ; interest 

charges arc at the least !evel as a 

percent ofsales . 

"If a long-term deficit reduction 

package is passed, I believe the U .S . 

will become a net generator ofcapital . 

In that kind of ent-ironment, the risk 

premium on long-ternt bonds will 

decline . If inflation really has peaked 

at 3?1z% in this c}cle, it's likely that 

ocer the next vear <strong>and</strong> a half thev 

could decline to 6% or louer . 

"A 6% bond market would begin a 

ne«cvde in the stock muket, a period 

of much slower earnings growth 

but ofmuch higher qualitv earnings ." 

To ger readv for that new ci,cle, Ehrman's 

bu~ing so-called earllct'cle 

srocks-eompanies that tend to do 

well early in an up cycle . His fleorites 

include PPa, Tenneco, Dana, Goodrear, 

International Paper, Southern 

Pacific <strong>and</strong> Echlin . 

Yes, but didn't Ehrinan <strong>and</strong> his 

partucrs scre%c up last sear? "6Ve don't 

make our ntone~~°ear to year," replies 

Ehrman, %tho took o~,er EGS' porttolio 

in late 1990 . "We make our monev 

point to point . For us, long term 

means o%er a vear . Take Kansas ClqSou 

.hern, one of our largest long 

positions . It was down 30% last year, 

but ocer four %ears, including 1994, 

it's up three-<strong>and</strong>-a-halt=fold . Now, 

was I wrong o«'ning it last vear? Yes . 

But ~~as I right owning it for four 

years? Yes, more so ." 

He recouped in good part b}buving 

financial stocks early this year . 

"They do best when the econome is 

going down ; hig!rvielding stocks 

benefit from louer interest rates . In 

the first five months of 1995, I made 

27% in 12 financials . By May e eryone 

was talking about recession, <strong>and</strong> the 

stocks had become efficiently priced, 

so I sold ." 

And left a loc ofmoner on the table . 

Citicorp, which he sold at 45, is now 

at 61r/a . "That's my biggest problem-I 

haNe ants in my pants . I'm so 

earlv in most things that when it 

becomes apparent <strong>and</strong> thcw-'ee had 

their first move, I sat' good-bye ." 

Before Ieasing his otfice we asked 

Eritman %cltat it was like to work for 

the mercurial George Soros . Ehrman's 

answer was that Soros is a man 

«ho makes up his own mind <strong>and</strong> 

doesn't par a lot of attention to what 

other people think . Ehrman believes 

that's his strength, too . "When I 

worked for him, I didn't give a damn 

what he did . I nerer watched him . 

That's chy he <strong>and</strong> I had a good 

relationship." W 

9046137343 2 1 

7a 


I 

i 

i~l 111 ;1 4 'C71 ;1'I~i~ 

TNEFUNDS 

I ~ ; i ~. .i L0 . 

Yin <strong>and</strong> yang 

Some overseas funds are country-pickers, 

some stock-pickers . William Holzer's 

Scudder Global Fund is a theme-picker . 

j~,Sos7 GrosAiL <strong>and</strong> foreign funds divide 

into nvo camps : those that pick 

attracti~e countries, dien hunt for 

stocks domiciled there ; <strong>and</strong> those tirat 

pick aett .acdve stocks first <strong>and</strong> %~ nm 

about rhelr location later . WIlliam 

Holzeq the d6-rear-old Englishman 

who rtms the Scudde : Global Fund, 

takes a third ~car : He ruminatcs on the 

social, economic <strong>and</strong> political trends 

that are transforming the «nrld . Then 

he buvs stocks that he thinks ~cill best 

benefit from those trends . 

It seems to be working . Since inception 

in mid-19B6, tlte $l .2 billion 

Scudder Global has outlegged the 

Morgan Stanlcv Capital International 

World Index bv nearh2 percentage 

points annuallv, ~~'idi a 12% compound 

annual return . And it has done 

so isith roughh, onc-fourtlt less volatilitA 

than the npcal global fund . 

Holzer's big-picmrc thoughts 

tumble out tastcr than he evi speak . 

Almost as soon as Ite begins a sentence, 

another idea buthloes its wav 

into his head, bursting the sentence 

apart <strong>and</strong> sending die fragmcnts flving 

in sereral directions . But listen tor 

a u hile <strong>and</strong> it begins to make sense . 

Holzcr's t%orld is split into "ti e 

light side" <strong>and</strong> °tbe dark side ." The 

light side is l<strong>and</strong>s s% here Engiish is the 

mother tongee or the lingua frwca of 

<strong>business</strong> : the U .S ., U .K ., Canada, 

Australia, New Zeal<strong>and</strong>, Hong Kong . 

The dark side includes the ex-Soaiet 

states, China, Germanv, Japan, Korea 

<strong>and</strong> much of Latin America . 

On the light side of the %rorld, sat's 

Holzer_ "tiie indi~idual isparamomtt, 

<strong>and</strong> the marketplace makes the decision 

.s ." The dark side? "The dark side 

is disciplined, methodical, consenatire 

. Being a beucvolent employer can 

be more important than dividends or 

earnings gro%cth ." 

What does all this abstraction ha~e 

to do with portfolios? The risk-averse 

dark side, Holzer cxplains, hoards or 

"decpests" its capital, «-hile the light 

side funnels it into entrepreneurial, 

productice companies . As the West 

squeezes fat out ofthe scstem, Holzer 

asks . "What will people scant most? A 

healthv <strong>and</strong> n-calth% retiremenr . 

Companies that heal people <strong>and</strong> harvest 

savings \aell will prosper ." Thus 

in thc U .S . Holzer likes Biogen, a 

bioteclutolog\ firm, <strong>and</strong> such turancial 

stocks as Chemical Banking, J .P . 

Morgan <strong>and</strong> the municipal bond insurers 

Anlbac <strong>and</strong> pt81d . 

The dark side is not all bad, savs 

Holzer : "German companies barc 

huge amounts of buried capital . 

Eventually the%, will hace to surtace 

the tre.tlth," partly to finance the 

recovet~of Eastern F.urope . So he 

Wtlliam Holzer of Scudder Global Fuad 

From the big picture, big performance . 

oscirs sc\ eral Gernt,tn banks, insurers 

<strong>and</strong> utillt~:es, including Barerische 

\'ereinsbank, Jdiincltener Riickrcr 

sichcrung <strong>and</strong> nwE' . 

He noirts out that Rtct• ., the German 

electrical utilitv, has a market 

~alue of onlr S16 billion but o~cns a 

S9 billion fcnd to tniance ilte ciismantlingofitsatontic 

poNrerplants . If}ou 

dtink that nuclear po~cer alarmists are 

ovcrdoing their estimates of decommissioning 

costs-<strong>and</strong> that the monea 

won't be rebated to atstomersthen 

this stock is a bargain . 

He paints another corner of the big 

picture : "The emerging markets are 

being reinvented so they can absorb 

our savings <strong>and</strong> turn our capital into 

dieaper products ." So Holzer likes 

energv stocks like Australia's 65'oodside 

Petroleum <strong>and</strong> Eritain's cntcrprise 

Oil, lrhich will tzed the de~eloping 

x~nrld's furious appetite for fuel . 

Other picks : Denmark's ns Industries, 

which builds more than ltalf tiie 

world's cement plants <strong>and</strong> Cheil 

Foods & Chemicals of Korea, a big 

food processor <strong>and</strong> sugar refiner . 

Holzer nezt refers to what he calls 

the "ven endgame ." Translated from 

Holzerspeak this nteans that the aen 

can't keep going up fore%er . "I'm 

getting a bit bloodr impatient," he 

laughs . "Bur there are onh' t.Nro alternativcs 

: It will tall or it tkill fall ." Thar 

makes him bullish on gold <strong>and</strong> other 

precious metals stocks : If the yen falls 

graduallv, that ~~ill stimulate the 

n°orld econom~r, \ahich is bullish for 

gold ; if ihc ven plunges, the Japanese 

~cill hike their buVing of gold to hedge 

against the weakening currency . 

LastlY . Holzer likes "thoroughl\r 

modern companies" whose global 

marketing <strong>and</strong> technologtallow 

them to take quick advanrage of his 

other trends . One example : Bermuda-bascd, 

Nasdaq-traded ParnterRc, 

a catastrophe reinsurer with superb 

computer systems that enabled its 18 

emplovecs to generate S206 million 

in retenues-<strong>and</strong> S146 million in net 

income-last year . Another : dte border-leaping 

Swedish financial giant 

Sk<strong>and</strong>ia, ate of the biggest padcagers 

ot s'ariable annuities in the U .S . 

No-load Scudder Giobal has an 

espense ritio of 1 .45%, %wll belo«' 

aeerage for global funds . Its low costs 

<strong>and</strong> solid pertormance make it a 

Foa¢es Bcst Bu%,. -J .Z. M 

Forbu i August 14, 1995 


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-re mttv Se I'Itra Sezf-e ArcoimfFecs q . .s ur un I_r cerlatn eor~uionss pleiict co «it Ib^ rrr_ent fee whnlule ?r quali[~ m actlsx . au uecount must make F~ 

nt~atti,etcadener,ea, M1 . ;inuctiseao ~t .redi aAirnealfee 'B .cseun ;mlpnd ly"d m I ., pr '. still unpis'. Plc tse referto the earle :letr

~ . ~- 

~~. . O 

..~. 18 

ta .+s! f 

fffaiay ~• 

lfffi~~i~ ef~*i 

Narrow-Minded Thinker. He laurriscted a,first career 

already embraced the spirit of enterpriva : At age 23, he left grassroots 

for niches . Today, he <strong>and</strong> his colleagites are narrowing the aim of 

advertising . Making it faster, smarter <strong>and</strong> digital . They're riding the new° 

wave <strong>and</strong> the on-lookers have taken notice . Advertising Age's Business 

Marketing says Hensley Segal Rentschler is the Agency of the Year . 

Rick Segal read his first copy of Forbes in the 7970's, 

he's used Forbes to build his agency since 7994t 


UHaM E 1 U I U E q M 

INE FORBES/BARRA WAL! SiREE1 REVIEW 

"[nvestors fmallv realized that the 

Federal Reserve was looking at a 

stronger U .S . economy than Wall 

Street was, <strong>and</strong> that the Fed wouldn't 

be lowering interest rates again in the 

near future," claims Vattii7est Securitll's 

chief inN'estnlent strateglst, Peter 

Canelo . "Auto <strong>and</strong> retail sales are 

picking up again, so forget the soft 

[economic] l<strong>and</strong>ing theory." 

Ho r about expected losers : 

Canclo thinks that tcchnology stocks, 

as a group, still have a ways to fall . 

After the dust settles on this sector, 

Canelo suggests that a few wellentrenched 

hardware companiessuch 

as Comoaq Computer, Hewlett- 

Packard, Motorola <strong>and</strong> Cisco 

Systems-could be good buys . For 

now. he thinks the safest bet is with 

retail stocks such as Nordstrom, Dillard 

Department Stores <strong>and</strong> ao1av 

Department Stores . 

Sp eci81 fop15 

SVhile the whole market looks overralued 

bv most earnings measures, these 

eight companir_s-all of which have 

gained at least 50% in stock price since 

the start oP' the vear-look particularlv 

expensive . Each stock belox.sells for 

more than 50 times estimated 1996 

earnings-<strong>and</strong> forecasts that fac out 

otten prove to be overiv, optimisec . 

TIe orerall market 

3400 

3000 

2600 

22C0 

1800 

1400 

a5o0 

Performance Prica ToVl return 

last4nreks 7 .7% ~ .8% 

Since i2/31/94 19 .7 21 . : 

'85 '86 '87 '88 '89 '90 '9' '92 '93 '94 '95 

Closeup on the market 

Index orinvestment 

Barra AII-US Index 

S&PBarra Growth index' 

S&P/Barra Value index= 

Bowlenes industrials 

S&P 500 

NYSE 

Nasdap 

Amex 

EAFE' 

CRB futures index ' 

6aldÌCemesspot) 

Y

KnWit-Ridder-CRB spot indexes 

RnWRidderCRB futures indexes 

270 

230 

225 

1992 1993 1994 

1995 

190 

1992 1993 1994 !995 

"If it becomes clear the U .S . economy is avoiding a recession, 

commodities marlcets could explode," says Steee 

Strongin, oice president <strong>and</strong> commodities strategist at 

Goldman, Sachs . Strongin sees the price of aluminumcurrendv 

51,902 per metric ton on the spot marlcetdsing 

as ]tigh as S2,450 o%zr the ncct year. Strongin thinks 

oil prices will also strengthen, not because the Organization 

of Petroleum Esporting Countries (orec) will regain 

control of'er pricing, but because dem<strong>and</strong> will be strong . 

So far this vear, commodiq° prices are up 2 .7%, as measured 

bv I:night-Ridder's Commodity Research [3ureau 

spot price index of 23 industrial <strong>and</strong> agrieultural prod- 

ucts . Corn has been especially strong . Since the start of 

the t'ear, the price of a bushel of corn climbed 17%, from 

52 .49 to 52 .92 . And even higher corn prices may be on 

the horizon . 

Don Roose, president of U .S- Commodities, Inc ., an 

agricultural hedging <strong>and</strong> trading firm in West Des 

Moines, notes that o~er the past year U .S . corn plantings 

feil by 3 .3 million acres from original intentions . Thanks 

to unfa~orable spring weather, U .S . corn yields are also 

down-from a record higll in 1994 of 139 bushels pcr 

acre to 120 per acre so far this vear . Roose says that any 

more weather-related catastrophes could push corn prices 

to becsaeen 33 .50 <strong>and</strong> S4 a bushel by the end of the year . 

Commodity spotB$ht 

Cash <strong>and</strong> firtures prices 

Coffee'($ ~er pound) 

Spotindexes 

Futures indexes 

IndeX" Value 

All commo diti es 

293 . 57 

Raw industrials 341 .35 

Metals 313 .18 

Textiles 288 .74 

Foodstuffs 235 .93 

3-mo change 

3% 

-3 

3 

-4 

11 

Indez' 

. ._ .__ ._~. 

NA•CRBindex 

Precious metals 

Industrials 

Bralns 

Livestock & meat 

Value 3-mochange 

.W. . .__.T - ._._ 

276 .45 

263 .34 

228.28 

183 .15 

-6 . 

-8 . 

17 ; 

7 ~ 

Good news for Starbucks, Procter & 

Gamble, Philip Morris <strong>and</strong> other 

coffee ~ndors . After a dramatic 

suree in the sunlmer of 1994, coffee 

bean futures prices ha~e been falling 

for almost a}'car . The September 

1995 futures contract declined by 

half between July 1994 <strong>and</strong> July 6 

this ~ear, although the contract has 

since gained 17% . 

Spot commodity prices 

Futures prices 

index Price 3-mo change Index Price 3-mo change 

. . ._ ~ . 

- 

. __ .--"-- 

SteelscraP(shmtton) $140 .50 Z%- Octplatlnumftroyoz) 843D . 9D 5% 

Copper scrap (pound) 1 .12 

Printcloth(sqyad) 0,92 

8 

-3 . 

Bctcrudeail(6arrel) 

Sept copper (pound) 

16 .71 

Corn (hushep 2,8 : 17 Oct cotton (pound) 0 .76 -11 

Soybeanoii(pound) 0 .27 6 CecChiwheat(bus'ne'J 4 .70 28 

Note: Ad prices as of 7r20/95 .'Compcsed of 13 corrnodites.'Camposed of the 13 raw industrial commpdities plus 10 fecastufls .'3old, platmum <strong>and</strong> snve* . °Co,posee of 21 

commedmes . `Sep

America's Infrastructure Is Crumbling. There Is Not Enough Money 

in the Public Exchequer to Pay for Its Rebuilding . If You Supply, Construct 

or Finance Infrastructure, You Must Consider Attending or Sponsoring . 

]FoIbQ'S N1dgZ111L' presents 

~ Rebuildin ..~ 

-~1VIE C,,~ 

_ _ _ 

,N0V29-DEC 1,1995 •THE CAPITALHILTON •'WASHiNGTON, DC 

The Third Amual Conference of Business, 

Investment <strong>and</strong> Government Leaders 

on Rebuilding, Developing <strong>and</strong> 

Investing in America's Infrastructure 

FORBES ASagazine, in partnership with The 

National Association of State Development Agencies 

<strong>and</strong> the Edison Electric Institute has developed 

the Rebuilding America conference as a fontm to 

promote the exchange of views <strong>and</strong> strategies for 

developing, rebuilding <strong>and</strong> financing public/private 

construction projects . 

During this three-day event, eleven months before 

our national elections, <strong>business</strong> executives, investors 

<strong>and</strong> government representatives will exchange views 

on private-sector investment <strong>and</strong> privatization 

ofinfizstructure projects . 

∎ Previous Pardcipating Sponsors : 

= am eri can Int erna tiona 

l Group 

w AT&T Nenvark Systems 

= d1dr.T -Compagnie Gdnerale des Eau.c 

= Banue Nationale de Pars 

= Barba-.Arlthon Intemational Inc . 

= Bech:el Enterprises, Ir.c. 

- ~ B radley, arant, R ose & te 

~ Coopers & Lybr<strong>and</strong> 

~ CS First Boston 

- ~ Deutsche Bank AG 

Fngineering News-Record 

® ~ Enron Corporatioa 

~ Financial Guarznty Insurance Company 

.~ GE Capital 

∎ ~ Goldman, Sachs & Co . 

~ Goodwin . Procter & Hoar 

~ I-liil International, Inc . 

® = Johrson & Higgins 

W King & Spalding 

~ = Lehman Brothers 

= Maver. Brown & Platt 

® m 0¢den Corporation 

= Pepoer, Hamilton & Scheetz 

= Peterson Consulting Limited Parmerslilp 

~ = Port aurhoatv of New York <strong>and</strong> Veu~ Jersey 

= Price 6t'aterhouse 

. = Raytheon Company 

= Stone & Webster Enqineering Corporafion 

- = Thelen, ',Iarrin,Johnson & Br.dges 

∎ = Tucker dlan Ls . 

w Union Bank of Switzerb<strong>and</strong> 

® = United Infrasaucme Company 

= Rillls Corroon 

∎ ® 

- 

. .- 

r°~°~ Yes, please send me more informzson <strong>and</strong> a Eee aroqram brochure as soon vs t is msilable . 

~ .7fl~ I~tOb{ail chis coupon to CYiC 200 C'nnecdcur l~ enue, Norwalk, CT 06856-4990 

~~tlfi 

ftll i'~ 

. ....... Or call (800) 243-3238, tax (303) 857-1C75 or'mmrnet N evenr .consuldr.gwadeshox cnm. ,~ 

. . 

. . 

, i Name__________________________ _-_____.___-- Ti1c___________ .__ . .__ 

\ 

j , Cnmpanv--___ , _________________ ._ .__-._._ _ . - _-, . . - ._ . . . ., . 

._ 

_ 

. - ,- ._ 

.~-.~ 

. . 

. ~:4ddress-_____ __________ ._._- .-, __________ -_______________ `- 

_____ ._-_"are__Zip ____-____ Phone ___/___ Fax ___/___ ___ ~ . 

! I om in[ereacd in: amending or recei .ing in(o.-marion pecaining to p --h .p . znatrnagy~i -k 


I 

I 

STREETWALKER 

A Salomon bull 

Is ANYONE still bullish on Salomon 

Inc . (ss), which has deliN°ered incestors 

disappoinmtenr <strong>and</strong> continues 

to hemorrhage talene Streenvalker 

actuallv found a Salomon bull . He's 

Michael Flanagan, an analyst at Lipper 

Analytical Senices . 

Flanagan argues that the numbers 

indicate Salomon's <strong>business</strong> is 

becoming less ~olatile . It earned 

$81 million in the first quarter, a bit 

more than it lost in the second quarter. 

That was a swing of about S140 

million quarter to quarter, as compared 

with a swing ofa quarer-billion 

dollars in the same two quarters last 

year . Flanagan is persuaded that the 

lower % nlatilirv means Salomon's 

traders are taking fewer risks . 

At the same time, Salomon's 

nontrading <strong>business</strong>es are doing better, 

with investment banking reNenue 

up sevenfold over the first quarter 

. Salomon will split some 535 

million «~ith Dillon, Read & Co . for 

advising on the merger of Scott Paper 

with Kimberl%,-Clark . 

Flanagan points out that at a recent 

price of 35~/3, Salonton's shares 

are trading at just a shade oN er book 

value . Contrast that to Merrill 

Lynch's price of 1 .8 times hook . Of 

course, Merrill has been consistently 

profitable while Salomon has been 

consistently erratic, but Flanagan's 

point is that if Salomon can make 

money on a regular basis, there's ple n 

rv of room on the upside . 

The 1Vlicrosoft factor 

LIGHTHOCSS CAPITAL, a $135 million 

(assets) Houston investment 

firm, has been short a lot of technolog}'shares 

. One of its favorites is 5d8 

million (estimated 1995 sales) 

UUNet Technologies, which provides 

computer users with access to 

the Internet . Microsoft has hired 

tiUNet (eU NT) for its nesv Windo«°s 

95 . Microsoft oNrns 15% of 

UUNet . 

UUNet came public at 514 a 

share in May <strong>and</strong> climbed to 49 last 

month, giving UUNet a market 

capitalization of 51 .4 billion, although 

the company has Net to turn 

a profit . Even after failing to a recent 

182 

Hyping the net 

Uunet Techn°logies' stock price ( endine ]2595 ) 

50 

Nobody's 

~ making money 

1- ; 4 on the Internet? 

- ' UUNet's share 

40 ~ ' price has tripled 

- f since May . 

30 

20 

44r/, it is ovenalued, says Richard 

Hunter, an analvst at Lighthouse . 

Rakesh Sood, an analyst at Hambrecht 

& Quist, disagrees . He's recommending 

the stock . But even 

Sood concedes that li UNet %s-ill earn 

only 25 cents a share in 1996 . That 

would mean that the stock trades at 

178 times next }•ear's earnings, 

Killjoy 

RL:esaT THE sS.tNTRA : Stocks return 

on average 10% a cear . That mantra 

has lured lots of no N ice imestors 

into the stock market . Maybe the 

mantra is true, but only for the 

probably fictional long-term imestor . 

For }'ears on end stocks can do 

much worse than that . From 1966 to 

1982, on balance, the} \tent no- 

~chere in pr ce <strong>and</strong> returned only a 

modest amount in di~tdends . Then 

thcy put on a spurt . 

John Bogle, founder <strong>and</strong> chairman 

of the Vanguard Group of mutual 

funds, reminds us of this frightening 

<strong>and</strong> patience-testing irregularity . 

In an article to be uublished this 

month in the Journal of Porffnlin 

,4fasea,gerrzent, Bogle offers a method 

for predicting stock <strong>and</strong> bond returns 

. If he's right, people aho etoect 

10°b, returns on equities over the 

next decade or so are in for a shock . 

Bugle predicts stock returns will 

slip to 8% oser the next decade-on 

average, meaning in many years returns 

will be lo\% er or even negatiee . 

Bogle reached his estimate bv 

taking the current dividend yield of 

2 .5%, <strong>and</strong> adding to that one of m 'o 

sets of figures . For one set of figures 

L•e looks at data on di% idend growth 

~ 

rates, <strong>and</strong> what the impact on returns 

will be if the price-to-dkidend ratio 

recerts to its historical a% crage . 

His alternative method estimates 

probable earnings gro vth over the 

next decade, <strong>and</strong> figures in the impact 

of changes itt'/F mtdtiples back 

to their historical median . 

Surprisinglv, the two methods 

result in virtuallv the same total retLLr 

n forecast : an aCCrage 3°.o per 

annum . Since about 2 .5 points of 

that is dividend yield, he is looking 

for anerat7e appreciation of iust 5 .5% 

a }'ear-taking into account the 

growth of reinvested dividends <strong>and</strong> 

capital return . Not exactly ~x hat the 

ne%cer generation of investors has 

come to eapect . 

Ho~c seriouslp should one take 

Bogle's numbers Very . Using s milar 

metltods, he predicted that stocl s 

«ould show average returns of 8 .7% 

per year in 1990 9-4, <strong>and</strong> his estn 

matc N.as right on the nose . 

By Bogle's reckoning, bonds will 

be more competiti~e with stocks than 

they have been in recent years . He 

predicts that bonds will vieid a shade 

under 7% annuaih' over the decade . 

<strong>How</strong> does he flgure that? Simple . 

He just takes the current yield on 30- 

aear Treaswys, pointing out that 

changes in the market price of bonds 

even out over long periods, lea% ing 

income as the driving factor. 

Of course, tltat still leaaes stocks 

with a tax advantage os-er bonds so far 

as individual incestors are cottcerned 

. «ith bonds, the [as is your 

partner on ere :y interest payment . 

With stocks, most ofthe return is 

from capital gains, v~hidh are taxed 

at a lo%~°er-<strong>and</strong> deferred-rate . 

c ,rbes . A t, Su st 1 4 ,199, 

2046673438 F 


Passage to India 

.tiiss ouT on this vear's 50% rallv in 

airline stocks? Consider o-t-c-listed 

Tower Air, a 5500 million carrier 

offering discount fares on routes frequented 

bv ethnic groups . Tower 

sat our the rallv . It's dmrn bv half 

from its carh- 1994 high of 17?/:- 

But it might be readv to moce soon . 

To«er (TOWR) introduced service 

bern-een New York <strong>and</strong> India last 

vear . Gi~ en the large number of Indians 

resident in the U .S . <strong>and</strong> their 

general aEthience, that's a good 

route . To«er is one of the few airlines 

offering direct senice . 

To rer is strong in other ethnic 

markets, too . Nearly a quarter of 

Tower's <strong>business</strong> comes from 

flights benveen New York <strong>and</strong> Tel 

Aziv, <strong>and</strong>, in a spirit of ecumenism, 

it offers charter lights to Mecca . 

Tower's costs per available seat 

mile are just 5 cents, 40% less than the 

major U .S . airlines . And it's got just 

ro 

SCOTTY 13 CARISHA 16 ERICA 10 

RICARDO 13 YONKERS NY 

FOR AFTER SCHOOL ACTIVITY, YOUTH 

THEATRE INTERACTIONS DEVELOPS 

THEIR CREATIVE SKILLS AND GIVES 

THEM SELF-ESTEEM . 

~ u t ~~v~ 

a 

$27 million in debt, net of cash . 

So why did it sit out the markct 

ralh? Lousv sen,icc cost it <strong>business</strong>, 

even as other airlines were slashing 

their rates . Passenger complaints were 

ten times greater for Tower than for 

other airlines last summer . 

Goldman, Sachs analvst Glenn 

Engel thinks To%rer is back on track . 

It's hired Robert D4ann, once a 

na .a marketing executive, <strong>and</strong> doubled 

its spending on sales <strong>and</strong> promotion 

in the first quarter to S15 


Engel estimates To«er will earn 

;185 cents a share this vcar . That gires it 

a riE of just 10 at its recent price of 

8E/s . Engel expects To«'ers shares to 

rise to the low teens over the next six 

tnonths=up 50% or so. ~ 


YOUR HELP IS GETTING THROUGH THE UNITED WA' 

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I

STATISTICAL SPOTLIGHT 

The ground floor 

Real estate investmenttrusts haven't participated 

in the market's rally, but some look like good buys . 

By Eric S . Hardy 

Priced to sell 

6VF -% r DO short-sellers <strong>and</strong> holders of 

real estate investment trusts have in 

common? Ther haven't benefited 

from the bull market . 

The s&? 600 shons a 12-month 

return, including reinvested dividends, 

of 27% through mid-Julr . 

An index of 220 IrtTS compiled by 

Nareit, a Washington, D .C .-based 

trade association, has around a 6%n 

return . This slump is particularly frustrating 

for tt21T holders because this 

interest-rsste-sensitiec sector has been 

knos+n to prosper «hen interest rares 

are Calling . 

What ails the market? Lack ofinvestor 

confidence is one problem "The 

most recognized ne me in our industn' 

[Rockefeller Center Properties] went 

bankrupt . That really hurt," states 

Nareit President Lkfark Decker . But 

REITS are not without their supporters 

: "[nvesrors are either underestimating 

the growth potentiai [of 

~irs] or overestimating the risks," 

says real estate arralvst Kevin Comer at 

Bankers Trust in New York C:n . 

In evahtating real estate trusts . net 

income counts less than any of various 

measures of cash generation . One important 

measure is "fimds from ooerations," 

which is defined as net income 

plus depreciation <strong>and</strong> amortization, 

excluding gains (or lossesj ftom 

debt restructuring <strong>and</strong> sales of properties 

. ?nother measure is shown in 

the table as "cash flow," here defined 

to mean net income plus depreciation 

<strong>and</strong> amortization, less preferred dividends 

. Either ~raN, vou are looking at 

a measure of profits before depreciation, 

a charge that goes on the books 

but doesn't require the o%cner of the 

propern, to write out a check . 

As a group, RElrs are trading at ten 

times the funds from operations expeered 

br anahysts for 1995 . 

.U17s pay high disidends because 

they're required to distribute almost 

all their income to shareholders . This 

avoids double taxaeon, but it also has 

a donnside : Unlike most corporations, 

R&trs can't build up retained 

earnings . So you can't count on these 

stocks to hold their o«n against the 

overall market, although the best of 

them-in particular, New Plan Realn-have 

done so in the past . 

The table below lists ten 1tEi'rs with 

a%arving mix of real estate assets . 

Some have portfolios focused on 

properties like malls, strip shopping 

cenrers <strong>and</strong> office buildings . Some 

ox~n assets that are a bit less mainstream-such 

as public storage N .arehouses-atd 

son-te list aoartment 

buiidings among their holdings . 

The RPJTS listed in our table have 

veids of benveen 5% <strong>and</strong> 10% <strong>and</strong> sell 

for less than 19 times latest fiscal vear 

funds from operations . All these 

stocks .shoatotal debt that is no 

higher than 75%ofequity, when equity 

is measured by stock market value . 

Bruce Garrison, who follows RE1?s 

for PaineWebber in New Yorlc, likes 

Bradley Real Estate, which is accumu- 

!ating a portfolio of shopping malls in 

the,sSidwest<strong>and</strong>tiemEngl<strong>and</strong> . Bradev 

vields 8% <strong>and</strong> sells for nine times 

1995 estimated funds from operations 

. Garrison also likes New Plan 

Rcalty Trust, «itich has raised its dividend 

for 64 consecuti%e quarters <strong>and</strong> 

nearly tripled its book % alue over the 

past decade. ~ 

i REIHpcmaryassets P r mary R ecent °rice divided b y 

Yield Debt as % Revenues' 

region price book 

value 

earnings fundsfrom 

operations 

cash 

flow 

of market 

value 

($mip 

. 

Berkshire Realty/s~tppping centers ; apadmeots SoutheasPWest 9% 6,9 23 .5 9E 3. : 9 .4% 74% $72 

Bradley Real Estate/shaap'mg aanters 411dwest ;5 . 1 .4 15,4 i0 .5 9.3 8 .4 51 34 

Duke Realty Investmentallndustâl & pftice parks Midwest 28 13 ls .l 13 .6 :IA 6-7 45 108 

FranchiseFinanceofAmerica/rastaurans nationwide 21% 1 .7 32,4 ! 15 7.8 8.4 Il 97 

JP Realry/shooolcg oenter ; malls West 2011s 2.1 !7 .8 97 9.2 7 .9 39 54 

zsz 

Merry L<strong>and</strong> & Investment/apartme bulldings S)utheast 20% 1 .5 's86 124 11.3 68 26 !16 O 

MGIProperties/warehousavaprtrcents East 1416 0 .9 105 9 .2 7 .fi 65 43 43 J." 

New Plan Realty/shecpirg centers, aeadments Eas; 21Y. 2 .0 18 .6 184 15,4 6 .3 :1 i23 ~ 

StorageEquitles/tempcrarystmagefacPilies nat :onwce IB'h 1 .3 15 .9 112 7 .8 5 .3 14 157 ~ 

Washington REIT/ptfice hwltlings : anartments R'asaington.9.i. 14°/s 2 .6 17,3 15.8 14 .7 70 8 47 ~i 

'Lares:l2 montFs . Suumes . Mataet Gulae via Gnesource Intormatmn Serc,ces : .vanonal Assx ;atmn of Real Estere rnvestment?msts INarertJ . 

These REITs pay decent yields <strong>and</strong> are r easonably priced relative to the cash gen erated by th eir propert ies . t .:. 

Forbes . August ! 4 . 1995 185 


Ul N 1 1 4 E'7 ~ 1 111 ~ì i i , 11 1 1 

THE CONiRpR111N 

wiggle-watchers 

get whipsawed 

I 

Davtl Dreman is 

chairman of Dreman 

Value Management, 

L .F . . Investmert 

Counsel . New Jersey . 

<strong>and</strong> aLthorof The 

Nrced be 

scads ot supporting statistics, belie .ed the econorm; 

%vas cooling rapidly . But then it took onh' 

one contradictory indicator-home salesin 

above torecast in?vla% to cause long 

coming 

bonds to drop 2%in a single dat,, equiraient to 

almost a 100-point drop in the Dow' Jones 

industrial a~erage, 

A weelc iaterthe Fed lo~sered the discount 

rate a quarter ofa point, <strong>and</strong> the bond <strong>and</strong> stock 

markets soared . People who tried to play these 

economic numbers oere once again 

whipsawed . 

There's a lesson here . ENerv investor s~'anu 

an "edge," <strong>and</strong> many folks think they can get it 

by follo«ing economic indicators . Therein 

lies a snare <strong>and</strong> delusion . The market is constantly 

bombarded with hot-off-the-wire information 

on the c'.?[, the 2r[, the oDr, industrial 

production, housing starts-you name it . But 

much of the data are preliminan' <strong>and</strong> subject to 

rct'ision, <strong>and</strong> scant basis for buving or selling 

irnestments . These revisions occur so often 

vou'd think imestors, particularly the pros, 

would treat them witlt skepticism, but 

thev clon't . 

Too, the economv has a ti:nnc way of producing 

numerous indicators, al! appearing to 

substantiate the current trends, «'hieh are 

quickls'supcrseded bv new ones pointing the 

opprnsite uac . Look baek just ] .8 months . We 

have had inflation trends, deflation trends <strong>and</strong> 

recession trernis . But each "trend" %%°as shortlnrd, 

even though the in@lation/high-interest 

"trencd" produced in 1994 one of the +korst 

bond markets o[ the centun . 

Moral : Don't be a~eiggle-wutcher . Don't 

tn• to obav these currents <strong>and</strong> eddies . Don't be 

misled by mcre noise 

. Even the supposedl}omniscient head of thc Federal Resene, Alan 

Greenspan, gace up tI-ving to forecast the direaion 

of thc economv tirher% he ran a iucrative 

private economic consulting firm . The econome 

is a chamcieon : Gchat vou see one moment 

nray appear in a~en diflerent color soon atler . 

Tlte fac : is that dte <strong>business</strong> cVcle rareIV 

moves in a straight line for iong . .An apparent 

slosving in the eeonomv ma\be just an inrenton' 

udjustment, not the end of the arlical 

expansion . Remember : Economists know 

~+ith certaint\chetlter we are in or out of a 

recessiott onhavear or so after the fact . 

So, ~vhat should the investor do? Stop trs°ing 

to predict che unpredictable, insulate rourself 

against the screaming headlines <strong>and</strong> the 

glib ix' nc« sreaders . BuY stocks %ait6 good prospects 

that are moderatelv priced in relation to 

the rest of the market . Value endures %vhen 

trends <strong>and</strong> fads fade . 

Here are a number of stocks rhat I think tit 

this value description tod .rv . 

First Union Corp . (47), the nation's niudllargest 

bank, is continuing its expansion plans 

with the proposed acquisition of First Fidelity 

Bancorp . Earnings growth should continue at 

Folks who invest on the basis 

of the economic indicators 

make more money for their 

brokers than they do 

for themselves . 

about a 10% le% °el in the foreseeable future . 

FTU trades at a P/E of 9 <strong>and</strong> rields 4 .4% . 

~' Pharsnaceaticalr(16) is a small manufacturcr 

<strong>and</strong> distributor ofpharntaceuticals . 

Earnings should show a 30"/" rebound this 

year, Nrith furthcr gros~th in 1996 . The stock 

trades at a P/E of 17 <strong>and</strong> yiclds 1 .7"0 . 

Outboard 14arine (19 ), the world's largest 

manufacturer ofoutboard engines, is participating 

in the strong recocenof the boating indusm' 

. Earnings should shom a major rebound 

to orer 31 .75 a share in the current fiscal vear 

(ends Sept . 301, «idi another gain likely in 

1996 . The stock trades at a ; ie of 7 <strong>and</strong> 

viclds 2 .196 . 

Republic National Bank nJ'Nem Y'mk (54) is 

the m entv-second-largect bank in the U .S . Income 

has been improving steadily in the ~7 

1990s <strong>and</strong> sLould set a new record this year, O 

«ith continuing grovrtlt ahead . The stock t ;_ 

trades at a^/s of 11, onh, a43'n, premium to G~ 

book, <strong>and</strong> s'ields 2 .7%. O 

Union Catnp Corp . ( 561 is a major marm- ~I 

facmrer ofpaper, linerbuard <strong>and</strong> packaging. ~ 

Earnings are reco~ering rapidly <strong>and</strong> should hit tA 

record levcls this rear vcith another major gain in M? 

1996 . The stock trades at a P/ t!. of 12 on 1995 W ;lestimates 

<strong>and</strong> ~'ields 2 .9% . ~ 

186 

Forbcs . Aueust 14, 199o 


WAlL STREET IRREGULAR 

H<strong>and</strong>icapping 

the letters 

Mara Hulhvr. is edior 

e; tne Alexardria, Va .- 

based Hu/bert 

Pmancrar Digest . 

a montGly serv~ce 

:hat monitors the 

reriornance of 

InVestnentadVNsOfy 

etters . 

Is SUPERIOR L.'~sT rsRFORUASCE bc' an imestment 

adviser ana'assurance of titture superinr 

performance? Has the holder of ~esterdae's 

hot h<strong>and</strong> got a good chance of holding hot 

h<strong>and</strong>s in the future? Yes! That fact emerees 

clearlv fiom mv just-completed sun e% of investment 

letter performance oser the entire 15 

years tlte Hrdbe ;t Finaracial Dijsrt has monitored 

the industn . 

J1v findine flies in the face of the st<strong>and</strong>ard 

academic argnment that performance is r<strong>and</strong>om 

. If that were true, pou could more or less 

ignore past records chen pidcing a mut tal tund, 

an imestment ad~iser or a nmrket letter . Dog 

rodav would not necessarily mcan dog tomorrow 

. In fact, it might be better to go with the 

dogs because regression to the mean ~till e% entuaily 

gi~e the leaders their comeupnance . 

My new data provide a strong statistical 

basis for believing that going with the %rinners 

makes good im-estment sense . Not all Inngterm 

winners have continued to beat the market. 

but the spread bctw'een their average performance 

<strong>and</strong> the areragc performance of the 

losers has continued . 

One reason some obseners fail to detect 

this relationship between past <strong>and</strong> fimue oerformance 

is this : It depends crucially on how the 

past is defined . Focus on the short-term, <strong>and</strong> the 

relationship disappears altogether-thc good, 

the b'ad <strong>and</strong> the indifferent are indistinguishable 

short term . This holds true fur quartcrlc <strong>and</strong> 

even yearly performance . Remember *,his the 

next time you get an investment letter tdvertisement 

that attempts to capitalize on a short- 

2rni high ranking in the xEO. 

<strong>How</strong> manw aears of past performance are 

needed in order to increase ~-our chances okfutnre 

succes_c- Five is a minimum, <strong>and</strong> ten is e% -en 

better . Mc research sho%es that the letters that 

shine over flw- <strong>and</strong> ten-~ear periods arc likeh° to 

continue to do weil, While those that do badlr iu 

these periods are more likeh' to continuc to do 

badh . Intagine yourselfin the shoes ofan itwestor 

st'ho, in mid-1990, is pickin*an adaise_ to follow 

for the ti~e ~ears from theu until toden . Ho%~ 

best could you hare used the ten N ears of performance 

ratings then in the trFn databasc? 

You'd be happiest todatif N-ou had : sed all 

ten t,cars of performance data then asailable to 

separate winners irom losers . If in mid- 1990 

you had im-estcd with dte ten-% ear market beaters, 

Vou'd have made an acerage of 13-2% 

compounded bN noNN , cersus 12 .3% for the stock 

market itself You'd ha~e made just4 .1°6 bo, 

imesting in the ten-N ear market laggards . 

What would hat'e happened if in mid-1990 

you Itad picked fice-,,ear \\ inners rather than 

ten-% ear uinners? You %could h .ne made 

10 .0% compounded, relsus 8 .3% bv incesting 

~rith the tiN e-N car losers . Note that this 10 .0°/ato-8 

.3%o diP}ercntial issmailet-than [ha 13 .2%- 

to-4 .1% dif'tcrential fur ten vears . 

Or cou could have _flonc ~cith the three-vear 

t~inners . If cou had, cou Would ha%e gained a 

10 .3i, compounded reuun ocer Ihe next fi%e 

t•ears, Nersus 8 .8%a for in .'esting ~% ith tlu threet•ear 

losers . In ot9ler uards, going uith rite 

direc-%,ear markct bcaters oulr mareinalh~ increases 

tnur odds offuture success~ ~ 

Condusion : Go uith the ten-rear winners . 

Take Nt'i_th a grain of salt thingslike the Wall 

Sn~eet jarn,naPs rcporting ofshort-term muutat 

fund uerformancc, where one ciac oftheirfuedav 

reporting c%•cle is de%oted to performance 

oN °er the last 20 trading davs <strong>and</strong> anothcr to the 

last 65 trading dat•s . 

Who are the ten- ear «inners in the HFD 

sueepstalces? In tu'st place is trpi Rdpicw (edited 

b~' Louis \arellierl, tthich produced a 902°'~ 

return through mid-1995, versus a 268% total 

return for the Wilshire 5000 index , In second 

place is tlte Cilif'rnnia Technology Stock Letter 

(edited b~\-Iichael Slurphv <strong>and</strong> Lissa Morganthulerl, 

«ith a 440% remrn ; <strong>and</strong> in third 

place is the Cbrsi-fisz (edited bv Dan Sullit,an), 

10111 :129 1"%~ re*.urn . Rounding out the top h\z 

tor perfurmance ocer the last decade are nro 

published b~b-tartin Z~ceig : the Zvrip Forecast 

Here are the top five ~ 

investment letters over the p 

past ten years-<strong>and</strong> that's ~ 

long enough to really count. c 

<strong>and</strong> the Zirciq Per'frnrrnnnce Ratinns Report, yA 

«ith gains of 27s%r <strong>and</strong> 272%, respcctiseh . ~ 

Though the Ztteig letters' gains appc'ar to be .~ 

onhmodastk ahead aftiie markcr, this is deccp 

tive : The~ts-erc produced with 23% <strong>and</strong> 29% 

less % olatilin(or risk) than thc market itself-a 

srinning comitination . M 

Forbes. August 14, 1995 187 


UYL7.7J Li 

L 

FINANCIAL STRATEGY 

ja an's virulent 

de ation 

A . Cary Shilling Is 

presidentof A . Gary 

Shi7ing & ~o ., ecanomic 

consultants <strong>and</strong> 

rvestrrent adv :ser . 

His firm publ'ehes 

ins,f~5t a mi 

newsletter covering the 

<strong>business</strong> outlooi <strong>and</strong> 

nvest¢ent strategy . 

THE \t[cKL[ has rallied recendv, <strong>and</strong> some 

investors think Japanese stocks are screaming 

L uvs . In relation to cash flo%a <strong>and</strong> book ralue 

they are as cheap as they've beer. in the poi 

era . The Japanese faced do« n Clinton in the 

auto trade talks . The recession there is o~er three 

vears old <strong>and</strong> can't last forever . 

But think nrice before eou leap into Japanese 

equities . There is !nore bad ne,rs to come . 

As ~tith the U .S . in the 1930s, Japan's basic 

problem is the inabili7y to deal with self-feeding 

deflation . Prices of goods are falling, so consumers 

are delaying purchases in anticipation of 

still lm~'er costs . This curtails production, 

The widespread deflation 

in Japan has 

exalted the yen, 

not the reverse . 

hikes unemplovment <strong>and</strong> scares even those Japanese 

%cith lifetime emplotntent into further 

retrenchment . The 50% deciine irn real estate 

prices <strong>and</strong> the 60ib tall in stocks have compounded 

tlte problem . 

The Japanese banks are bv no means out of 

the %roods . Propern' <strong>and</strong> stocks arc the collateral 

for manv loans in Japan, <strong>and</strong> the value of this 

collateral is shrinking . The Japanese banks are in 

naice as bad a position as the U .S . savings <strong>and</strong> 

loans were half a decade ago . 

Here's the nub of the problem : W'ith detlation, 

real interest rates :u-e high, O2n though 

nominal short rates are about 14?~ . So there 

isn't nmch room to cut rates further . Falling 

corporate earnings <strong>and</strong> gobs of excess capacity 

mean that the solid companies to which banks 

want to lend aren't borrowing for capital 

spending . S-Seamehile, the go% ernment is too 

Weak to otercome the bureaucrats' abhor 

rcnce of rising deficits . This makes it tough to 

push through tiie big tax cuts <strong>and</strong> deficit 

spending needed to check the detlation 

. The Japanese deflation has helped drive the 

ven to levels where it is hard for Japanese exports 

to compete . Wcak companies have been selling 

foreign assets <strong>and</strong> concerting the proceeds 

to ycn to shore up their balance sheers at 

:iome, ,thich means thec sell dollars <strong>and</strong> buc 

ven . Japanese deflation has exalted the yen, 

not the recerse . The neaker ven against the 

dollar that we continue to foresee mathelp 

exporters <strong>and</strong> spur stocks, but onhbrietlc . 

Much more v~'ill he needed to solve Japan's 

basic «oc

vmToffler, Author <strong>and</strong> Futurist, to the Joint Economic Committee at the 

t Century Hearing" (June 12, 1995), on the Third Wave information revolution : 

er 9, 1995 FORBES ASAP : Paper vs . paperless technologies . 

We examine the options . AND 

Telecommuting: Does it work? Some surprising conclusions . . . 

a ve sing information call : Ted Gramkow, FORBES ASAP Director of Advertising, (415) 882-9600 

or Michael McCormack, FORBES ASAP Director of Advertising (East), (212) 620-2375 


' 1' I 'lJ! 111' 

Ticket consolidators offer bargain flights overseas 

but are not always the smartest buys . 

By Lisa S<strong>and</strong>ers <strong>and</strong> Alex<strong>and</strong>ra Alger 

"0WE'RG A FACTORY OL'-LET 

for airlines to close out inventon'," 

explains Gary 

Marshall, vice president of 

sales <strong>and</strong> marketing for Jetset 

Tours, a major ticket 

consolidator in Los Angeles 

. "An airline seat that 

goes empu• todas• can't be 

filled tomorro«' ." 

Like its competitors, Jetset 

has access to blocks of 

unsold airline seats at prices 

below those available to 

consumers . Some conso!idators 

retail some of those 

seats directly to bargainhunting 

traaelers . 

Sa~' vou want to fle New 

York to London Friday . 

Sept . 22, remrningon Sept . 

29 . The lowest fares «e 

were quoted, checking 

with a haif=dozen consoli- 

,dators, ranged from $403 

to 5440, th'ing name-br<strong>and</strong> 

carriers such as Air India, 

British

Front page 

Once just gadgets that beeped phone numbers, pagers 

now store messages, stock quotes, even voice mail . 

By Michael Noer 

P_4GSC5 HAVE SHRCNK in size, gotten that in a feN\ Pears remo-traxvoice 

smarter <strong>and</strong> have broader reach than messagers-no~e in derelopimnte~'er 

. Some 27 milfion Americans tote NNill dominate the pager market . 

thent around. These miniphones could be an alter- 

If Vou are in the market, here are nati~e for some cellular phone users 

some tips: (see story, p . 1581 . 

Go alphanrsrnesîc . Numeric pagers Alsopassoncellttlar'telephone/pager 

display numbers only <strong>and</strong> can't march conbisiations . Thev Irase this going 

the usefulness of the full-test (alpha- for thent : You don't hace to pa%, tor 

numeric) devices . Besides pri~ate lengthcincomingcellularpiionecalls, 

messages, t-ou can also get news head- which can realhacid up . And the 

lines, stock quotes, foreign exchange pager acts as a screener-you don't 

rates <strong>and</strong> n,en the air pollution index . ha~e to respond to mcssages right 

A text pager costs utilv betrn'een S6 a«a\ 

. ifat all- <strong>and</strong> S20 more per month, deoending But there are major drawbacks : 

on the npe of senice . Cwrentlc onk numeric paging is pro- 

A high-end text pager will displav vided ; <strong>and</strong> :k :e combo unit is a bit 

:our Iines of test of about 80 charac- buL'cv to carn~ around . 

ters on its screen,-<strong>and</strong> will store up to Cmasidcr going ultralight. Seiko 

50 messages along with the time <strong>and</strong> (800-456-5600) has integrated a 

date received . 

Rent, don'tbvr . A4otorola's 

top-of-the-line text 

pager sells for 5350 . But 

paging companies will rent 

one to Nou for about S3 a 

month . Insurance against 

damage, theft or loss is an 

additional S2 per month . 

Skip roice pagcrs Por natv . 

PageNet is about to introduce 

what are, in effect, 

pocket-size anavering mu 

chines . Thev can store four 

minutes of inessaees <strong>and</strong> 

will cost more than text 

pagers . But who wants to 

listen to a long verbal message 

%%'hen vou can silenthread 

a concise note? 

Also, take a pass £or now 

on the new "m-o-war" 

paging technology . Hyped 

as a«,av of responding to a 

page without scrambling to 

find a telephone, the current 

generation o .`' devices , ..-.a99MM, 

allows , vou onl}' a limited From watches to pens, pgers new come in various torms 

menu of responses. On the horizon : two-way voice pagers . 

Experts insist, however, ~ 

pager into its MessageWatch digital 

w .ttch . It has onle a tim- screen, of 

course . but scill still displav tinancial 

ne"s, stock quotes, local treather 

torecasts <strong>and</strong> eN en the «iwting lottei}, 

numbcr . It's uglr (see photo), but at 

580 for the %satcit plus about S12 a 

month for senice.n it's a bat'gain . Currendv 

the rVlessaeeSVatch is available 

onhon the West Coast, but should be 

in other markets «'ithin the % ear . 

Espectglitches. Remember, pagers 

use Em t radio fi'eauencies, <strong>and</strong> you will 

occasionalhY get static that makes gibbeish 

of inessages . So don't expect 

your pager to ah ays work in the 

sub«a% or in an tmdcrground p.; :-king 

garage- And thinlv populated areas of 

the C .S . are out of reach . Houcvcr, 

~our pager will ohen function on 

airplanes, <strong>and</strong> even on aour boat . 

IT'berc to rhop- b4ajor paging companies, 

all of~\ hich operate irationallr, 

are : Mobilemedin (800-z37-2.337), 

ylobilcComm (800-685-5555) . 

PageMart (800-324-4367), PageNet 

(800-724-3638) <strong>and</strong> Sk%Tel (800- 

-156-3333) . SksTcl also blankets 16 

foreign countries . If vou plan to be 

out of tlte counu-V for onlr a brief 

period of time, Sla•Tel offers a Follo«-Me 

senice for an udditional 

S7 .o0 per month 

plus about S4 per alphanumeric 

ntessage cou receice . 

Paging companies price 

their sen-ices based ou 

whether aou need local, regional 

(several states'), national 

or international service 

. Thec also tack on 

monthly charges for addons 

such as personal 800 

nuntbers, news senices <strong>and</strong> 

stock qnotes . 

1\iininuim seMce-numeric 

paging within a maior 

metropolitan area- 

-rrrs at about $12 a 

month . But if wu get the 

works, iou are looking at 

S200 per month, perhaps 

more, depending on how 

manv messsages }'ou receiee . 

Some providers allow vou 

up to 100 free 'est messages 

a month, houever . 

Note : Most pagers allow 

for silent operation-they 

\\on't beep at vou, thev'll 

~ibrate. ~ 

Forbess dugusu14,1995 

20466 

"344S 

191 


i'r'I1t`111 ;11111 1 1 ~ j!ll ; b7 

STAYING HEALTHY 

7i ' 

Snob water 

Most "designer" water has about the same minerals 

<strong>and</strong> purity as San Antonio tap water . 

By R Lee Sullivan 

Do roC Rt'T bottled water? 

Can you state plainly sshv 

you think this is a good 

investment? 

Don't feel abashed if 

rour anssrers, respectively, 

are }'es <strong>and</strong> no . It's a fair bet 

that most of the Americans 

who spent S3 billion last 

year on bottled water 

would have to ansscer in the 

same contradictonway . 

There are tsvo reasons 

people pay extra for botded 

water : The}• pav either for 

what's in it (minerals) or for 

what's not in it (contaminants) 

. Europeans tend to 

fall in the first group, Americans 

in the second .. <strong>and</strong> 

some people, no doubt, are moticated 

by both factors . 

Here are the facts, which nra~surprise 

both Europeans <strong>and</strong> Americans : 

Bottled water isn't much purer than 

tap water in big cities, <strong>and</strong> fesv br<strong>and</strong>s 

of bottled water offer a significant 

amount of minerals (see table) . 

Purin' first . American tap \tatcr is 

the cleanest in the world . 

~'Vhen was the last timeanvone 

Vou know had diolera'r 

The Centers for Disease 

Control & Presnnrion says 

that in most vears • .è wcr 

than 10,000 people report 

getting sick from drinking 

tap water in the U .S . There 

could be millions of unreported 

cases, but most of 

the illnesses are no u'orse 

than diarrhea . Repeated 

health violadons occur 

mainlv in small aamr scstems 

without adequate filtration 

<strong>and</strong> chlorination 

that sen'e fewer than 

20,000 people . 

Bottfing Aêsia br<strong>and</strong> vwater in San Antonio 

Comes from the same aquifer as the city's tap water . 

Getting soaked 

Btrt even' nou<strong>and</strong> thcn diere's a 

problem in a big-citr stilater supnlsr <strong>and</strong> 

it makes big h eadlines . Cnptosporidium 

parasites crept into the ~kIflsvaukee 

water stssm nso vear .s ago, 

causing400,000 cases uf diarrhea <strong>and</strong> 

nausea <strong>and</strong> perhaps 100 deaths, the 

latter among people with ~reakened 

immune sestems-namels•, cancer 

Bottled Calcium Magnesium Gntap Calcium Magnesium 

Apollinaris 9's 34% Chicago 4% 3% 

Crystal Geyser I . Ol 3 

Evian 8 5 Cetrm[ 3 2 

La Croix 5 n iuustcn 4 1 

Mendocino 38 30 LasAngein 4 4 

Perrier S 1 New Ycrk . 4 

San Pellegrino 23 14 San qmcnio 8 4 

Volvic i 2 3an Diego 9 6 

Soorces, FDAr cnty wafer departwents : batt)ed wate, compames, 

Some bottled waters contain significant doses of calcium <strong>and</strong> 

magnesium . Some don't. Depending on where you live, you could 

do as well drinking tap water . Amounts are percentages 

of the FDA's recommended daily Intake for adults, per liter . 

<strong>and</strong> AtUS patients . It could happen 

again, in some other cin . The parr 

site's asts are nor esil% killed by 

chlorine, so prevention is largely a 

mattu-of keeping animal feces out of 

the «'ater supplq- 

Do the possibilities of this kind of 

infetion ~sorn,you? Boiling rour 

ter tbr one minutc will deal u'ith that 

danger . Another thing to consider is 

that,«hile cn•ptosporidium isn't likely 

to sho~xup in underground springs 

<strong>and</strong> wells, current safetv 

regulations don't m<strong>and</strong>ate 

that bottled water companles 

filter for the parasite, 

either . Indeed, the iklihvaukee 

water ststem met all 

state <strong>and</strong> federal st<strong>and</strong>ards 

at the time of the outbreak . 

In a June report the Centers 

for Disease Control 

concluded, "For the vast 

majority of Americans, 

al,ptosporidium does nor 

pose a grave danger ." 

Okae, but suppose ~-ou 

think like a European <strong>and</strong> 

drink the bottled stuff for 

the minerals? "Another 

dav . :vtotherchancetofeel 

healdiv," promises the 

E\ian slogan . San Pellegrino 

distributes a booklet that eztols 

a litany of benetits : bicarbonates control 

acidin' in gastric juices <strong>and</strong> blood ; 

calcium is essential for sound bones ; 

magnesium produces energy ; <strong>and</strong> ponissium 

helps maintain proper cicctrolrte 

balance . 

There's sonic truth to all this . But 

bc mindfid that San Pellegrino is 

something of an exception 

in having noticeable levels 

of minerals . For example, 

you'd have to drink 34 gallons 

of Perrier to get the 

400 milligrams of magnesium 

the FDA recommends 

we get each day. As for 

potassium, mineral waters 

simplv don't hace enough 

to makc any dif}erence, sacs 

nutritionist Claudia Plaisted 

nf Duke IIni,ersity's 

Stednian Nutrition Center . 

Ifcou reallv have a calcium 

or magnesium deticiencc, 

there are better wars to 

deal rvidi it, such as eating 

spinach <strong>and</strong> yogurt . 11111111 

192 

Forbcs a August 14, 1995 

I 


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COLLECTORS 

"Pay the $2" 

A resale numoer is a h<strong>and</strong>y way to beat 

the sales tax when you buy art, but be careful : 

The taxman is closing in . 

By Christie Brown 

IT WAS tresxu dnt trippcd up I'enthourepublisher 

Robe¢Gnccianc . 

When hs svik, Hat,hy Heemn, appeared 

on the Oprah Winfrey £horo in 

1987, shecalked at great lurgth about 

their huge arr colleetion . Big mistake. 

A triggcnvent ndin the head of a tax 

auditor who tvu watching the show, 

<strong>and</strong> hc went digging .tn 1988 New 

York State slapped Guccione with a 

bill for $478,000, plus penalties <strong>and</strong> 

interest, tar nnpaid sales tax on inure 

than 53 .6 million worth of <strong>and</strong>ques 

<strong>and</strong> art . 

Gnccione fought the case in court, 

Irnt, <strong>and</strong> is now appealing . The 64- 

ycarrold publisher, who orsesmdied 

to be an artist <strong>and</strong> still Inints as a 

hobby, has long been a scnoru mllee 

tur. His impressivc callcctiott includcs 

works by Hans Holbein, Smulro Butucclli, 

Vlncent van Gogh <strong>and</strong> others, 

xud is estimated to be worth $35 

millioa 

In 1984 Gu

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~ MAN'S GUI0E !„ ;,, ; : U{APAUNUS 

She's expecting DIAMONDS . 

Don't PANIC . We can help . 

The way to a man's heart is through his stomach, 

but the way to a woman's usuallv involves a 

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T~ F rro~ rlLnjtnn l, r : ; M krw~: G,,r, Find out 

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out by browsing with her, window shopping, 

watehing her reactions to other women's jewelry . 

Go by body language, not just by what she 

saas . Then, once vou kno«the stvle, vou can 

concentrate on the diamond . 

/.i , ii, . r'n te'n dnt1Nonih ~1r(I ulid-,• . 

Formed in the earth millions of years ago 

<strong>and</strong> found in the most remote corners of the 

world, rough diamonds are sorted by DeBeers' 

experts into over 5,000 grades before they go 

on to be cur <strong>and</strong> polished . So be aware of what 

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Adiamondr fiirPVer. DeBeers 

2~~~~~~~~ }55 


°Tne more thirgs change . . ." 

70 years ago in FoxaEs 

~ Fanai ;: o=Atc . 15• 1923, 

"If you abolish the <strong>business</strong>men o(à 

nation, vou can still hare plentc of 

politics : but cou can't hace anyci%'ilization 

. Russia is the best e~ideuce of 

that . That is %% •h.• <strong>business</strong> is sttperior 

to militarism <strong>and</strong> to politics . Business 

creates, while militarism destrocs, <strong>and</strong> 

politics only takes from one person to 

give to another ." 

"Bobby Jones pla}'ed golf «ith me at 

Atlanta . During the first ihird of the 

game . I held mt• own . He % 1'on one 

hole, I won one <strong>and</strong> òur «•erc 

tia{ . ,, . But the ineritablc Itapucned : 

Bobbv Jones lickeei me seccrcic . lVhc 

the'inecitable'? Because Bobbv Jones 

has laid thc most solid toundations as 

a golter . . . ." B .C . Frnusrs 

60 years ago 

i FRnMTHe issct, n : A .e . 15 . 19351 

"Too many concerns, including 

esen s•eiti• large concerns, are acting as 

if neaer aeain srould rhev become as 

busN' as dtca were in 1928-29, as if 

ne\-er again woulei thec require the 

senices of harge numbers oPtechnical- 

Iv trained men . Thev will, ofcourse ." 

"The bitter fight to cut dm\n tiie 

appalling volume of trat}ic accidents is 

noM • approaching the proportiou5 of a 

national crusade, ivith public otfcials 

<strong>and</strong> the attomobile industn' leading 

the battle 1ine ." 

50 years ago 

: Fno~~l -xr7 is;vF oF' At'c . 15, 1945) 

"The British election result incites 

dread, apprelicnsion . Proi:aising to 

t ;tke care ofa %shole people `ti-om _hc 

cradle to the gra%e' is alluringh• idealistic, 

pos .-crtLllv aopeals to tl .e unthinking 

. But :dealism incohing im- 

Amid Florida's 

1925 l<strong>and</strong> boom . 

Fonses ran this 

nostalgic 1908 

view of Miami's 

Main Avenue <strong>and</strong> 

Flagler Street 

corner . 

measurable espenditures can, must, 

end only catasnnphicallr, if uor attuned 

to realism ." 

"Quick-frozen orange juice, in bricic 

form, !s the latest Ln dtirst-yuenchers . 

PrepareLi in one, tno <strong>and</strong> siz-pound 

bricks, the product is protecmd bc 

spe

I C i11i1HA t,41l : a C iITA l ;l~~411Ali ; ~ 

I 

The most fatnous self-made 

man in the world today is 

our own Edison . Talk rvitb 

Mr Edison <strong>and</strong> he will 

tell you he owes much if 

not most ofbis success 

to omnivorous reading . 

FotzsEs is one ofhis favorite 

publications. <strong>How</strong> 

closely he reads it can 

be pathered from a letter 

just received from him in 

which he asks the editor 

to forivard a lonjanalytical 

letter to the writer of 

a series ofarticles which 

contained tmo fzgaares Mr . 

Edison questions, <strong>and</strong> he 

wants to know exactly on 

what authority or investigation 

they were based . 

Both letters mere the product 

of :pfr : Edison <strong>and</strong> were 

signed by him . 

-B .C . FoaBrs 

A Text . . . 

As for God, his way is 

perfect: the word of 

the Lord is tried . He 

is a buckler to all 

those that trust 

in him . 

-PsALMS 18 :30 

Sentnn by Jonell E . Sarlund, 

Cranga, Calif. 

Kl~aPs your favorlte text? 

The Forbes Scrapbook 

of Thoughts on the Business 

of Life is presented to senders 

of texts used . 

States are made up 

of a considerable number 

of the ignorant <strong>and</strong> 

foolish, a small proportion 

of genuine knaves, 

<strong>and</strong> a sprinkling 

of capable <strong>and</strong> honest men, 

by whose efforts the former 

are kept in a reasonable 

state of guidance <strong>and</strong> the 

latter of repression . 

-Txontws Hu.eLEr 

The state is made for man, 

not man for the state . 

-ALBERT EINSTEIN 

There will never be a really 

free <strong>and</strong> enlightened state 

until the state comes to 

recognize the individual as 

a higher <strong>and</strong> independent 

power, from which all its 

ownn power <strong>and</strong> authority 

are derived, <strong>and</strong> treats 

him accordingly . 

-HENRY D :xv3D Txont_aU 

The state is the great 

fictitious entin, bv 

which eseryone seeks to 

live at the expense 

of everyone else . 

-CLr1UDE-FRED2RIC BASTIAT 

A thous<strong>and</strong> vears scarce serve 

to form a state ; an hour may 

lav it in the dust, 

-LoaD BYRON 

The modern state no longer 

has anything but rights, it 

does not recognize duties 

any more . 

-GEORGES BeR.`JANOS 

To commit violent <strong>and</strong> unjust 

acts, it is not enough for 

a government to have the will 

or even the power, the 

habits, ideas <strong>and</strong> passions 

of the time must lend themselves 

to their committal . 

.A L°_xls DE TOCQUEVILL F, 

200 

In the birth of societies it 

is the chiefs of states who 

give it its special character; 

<strong>and</strong> afterward it is this 

special character that forms 

the chiefs of state . 

-N'IONTESQL[EU 

Nothing doth more hurt in 

a state than that cmmning 

men pass for wise . 

-FRASCis BAr_oN 

Every actual state is 

corrupt. Good men must 

not obev the laws too well . 

-R+tPH iVALDO EMERSON 

More than 9,000 "Thoug .tits.` indexed by author <strong>and</strong> 

subject, are availaole in a three-volume boxed set at 

$69 .50 ($27 .50 per volume if p,,rchased separate- 

:y) . Also available, aane-wlume edition of over 

3,000'T~ouphts ." Price : $27.50 . Send check <strong>and</strong> 

order to Forbes Books, P.O. Box 11234, Des 14oines, 

:'A 50340 . Add sales tax cn orders in New York State 

<strong>and</strong> cther states where aoplicable For àster serrice 

call 1-800-234-4663 <strong>and</strong> charge to your credit czrd 

A state without some means 

of change is without the 

means of its conservation- 

-EDMUND BURKE 

The most essential mental 

qualitv for a free people, 

whose liberty is to be progressive, 

permanent, <strong>and</strong> on a 

large scale, is much stupidity . 

-WALTER BdCGEHOT 

A decent provision for the 

poor is the true test of 

civilization, 

-SAMUEL JO :iNSON 

The true wealth of a state 

consists in the number of 

its inhabitants, in their 

toil <strong>and</strong> industry . 

-NAPOLEON 

Whiskey is carried into 

[congressional] commitree 

rooms in demijohns <strong>and</strong> 

carried out in demagogues . 

-MvR[c Ttv.jiN 



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