Barbie and Ruth: The Story of the World's Most Famous Doll and the Woman Who Created Her

by Robin Gerber

Ruth suspected that Rosenberg had cut a deal behind her back to be made president once the merger was done, knowing she would veto such a plan if she could.

  Barely controlling her anger, Ruth told the group that she would agree to serve as head of the toy division, but she would resign as soon as the president did. Elliot spoke up, asking how the elderly man, who had no active role, could be made president at all. The Kinney representatives erupted, insisting that Ruth was needed to run the toy division, but their distress only confirmed to Ruth what she suspected. “This whole thing is a farce,” she barked. Turning to Rosenberg, she accused him of disloyalty and orchestrating a takeover behind her back. He was the first person out the door. Later, executive vice president Art Spear would say that the merger failed over a “problem of politics and egos.”

  That spring, Rosenberg must have been desperate. A new operating committee had been formed to run Mattel, which included him, Elliot, Ruth, and three executive vice presidents. Were they going to talk about the failure of the bill-and-hold strategy? Were they going to try to find a way to make up for the false postings? If so, they never did. Rosenberg must have thought the Kinney merger could be his salvation, and he had almost gotten it. But Ruth upended the deal and any hopes he had of taking charge of the company and figuring out a way to cover the fraud that had been going on for more than a year.

  On Monday, after the aborted merger meeting, as Pat Schauer remembers, Ruth stormed into the office and ordered that the locks on Rosenberg’s office door be changed. She left instructions that he be told to leave when he showed up. But after she went into her office, Elliot came in and quietly told her, “Now, Ruth, you can’t do that.” They both feared the reaction on Wall Street if Rosenberg were precipitously thrown out. Angry but resigned, Ruth decided Elliot was right. She was livid for days after the incident but quietly negotiated a deal with Rosenberg. He agreed to retire in August, replaced by Robert Ehrlich, who was told to redo reporting systems and keep Ruth informed.

  Rosenberg, the forty-nine-year-old financial whiz kid would leave with a package that included sixty thousand dollars a year for twenty years and a promise to act as a consultant for Mattel. He agreed to surrender forty thousand shares of rapidly declining stock, sold another eighty thousand worth nearly two million dollars, and remained a board member. It seemed that he had gotten out just in time.

  At the end of March 1972, Mattel announced that for the first time in its history it had operated at a loss in the previous fiscal year. Elliot, as chairman, struggled to appear cheery about the future as he explained away a staggering $29.5 million deficit, compared to more than $17 million in profit the previous fiscal year. Large write-offs for restructuring of the European toy operation were blamed, as was the dock strike, surcharges, currency devaluation, and nonrecurring losses from inventory and retooling write-offs.

  Ruth and Elliot continued to act as if all was well or even better than ever. They announced a new fifty-million-dollar Circus World theme park in Florida, part of the deal they had made with Feld. At the May annual meeting, Elliot proclaimed, “We have many reasons to believe we are making a turnaround and are moving toward an innovative and profitable year in the traditional Mattel fashion.” But history was far from repeating itself, and Wall Street did not find his words persuasive.

  In June, 450,000 shares were dumped by Mattel’s biggest institutional investor, who had lost faith in the company’s management. The stock dove from $20 to $16 in one day. Paper losses were mounting. Ruth often vented about people she did not like, and she had a style of finding someone to blame when things went wrong. In frustration, Ruth fired the man she felt most responsible for the losses, next to Rosenberg, Bernie Loomis.

  Hoping to help the Handlers deal with the mess, the division heads and Art Spear arranged a dinner with Peter Drucker, the man who invented modern management. They met at the Los Angeles airport restaurant. While the instigators went off to the bar, Drucker and the Handlers talked for more than two hours. After Ruth and Elliot left, the others rushed back to the table to ask Drucker what he thought. “There are very, very few entrepreneurs that start big companies,” Drucker told them, “and can survive through the next phase.”

  In that long summer of 1972, millions were being lost in discontinued operations and special charges. In August shares slumped to their lowest price of the year after Mattel announced that sales for the first half of 1972 would be even worse than for the previous year.

  In October, the first of what would be a cascade of lawsuits was filed by a shareholder. Lawrence Seftel alleged that Elliot, Ruth, Rosenberg, and five others had sold $118,000 worth of their own Mattel stock, based on inside information, before the August announcement that caused the share price to sink by 10 to 15 percent. In Ruth’s case, she seemed to have sold the stock to help Barbara buy a bigger house, but there was still the appearance of insider trading. The attacks came from all sides, and they were about to grow more fierce and far more dangerous.

  Chapter 14

  The Plot Unravels

  We started getting hit with catastrophe.

  In early January 1973, Ruth and Elliot were on a cruise ship in the Caribbean. They had made a last-minute decision to join her brother Max and his wife, Lillian, flying to New York and staying at the Plaza Hotel before embarking on the SS France on December 21. They sailed to Port-au-Prince, Haiti, on Christmas Eve and on to Cristobal in the Panama Canal Zone on Christmas Day. From there they went to Curaçao, then Barbados, and docked for New Year’s Eve in Martinique. When they arrived in St. Thomas on January 2, Ruth phoned her secretary to check in. Something in the woman’s tone made her uneasy. The cruise was not scheduled to end for three more days, when Ruth and Elliot would fly to Sarasota, Florida. Ruth made an abrupt change. Leaving the ship in St. Thomas, she and Elliot made arrangements to get back to Los Angeles as quickly as possible.

  When they got back they discovered Ruth’s intuition was sound. About fifteen bankers were assembled in the boardroom along with Art Spear and some other executives when Ruth and Elliot made their unexpected appearance. “They were all very surprised and embarrassed to see us,” Ruth said. “Surreptitious meetings with the bankers had been going on for some time. There was a terrible plot going on.”

  Ruth was right. A crucial lunch meeting had already taken place at Mattel headquarters. Executive vice president Art Spear had asked Bob Ehrlich, who had taken Rosenberg’s place, and another Mattel executive to meet with a key group of bankers. The group included Dick Bingham, a partner at Kuhn, Loeb, the eminent investment bank. With two hundred million dollars in short-term financing outstanding, the banks that lent Mattel money were worried. Once the plates were cleared, the first order of business was a management shake-up focused on getting Ruth out of the president’s chair.

  The meeting was open and casual, but Spear wasted no time in getting to his main point. He and Ehrlich made clear that they considered Ruth the heart of the company’s problems. They did not believe that she understood the financial implications of her actions or that she had a strong enough commitment to controlling Mattel’s subsidiaries. Spear hoped to get her to agree to step down as president, but his relations with her were tense. He was closer with Elliot, but explained that Elliot could not be counted on. He would act as husband before chairman. Spear proposed that the bankers support efforts to pressure Ruth out of the president’s job.

  Bingham and the others agreed; they wanted to do whatever it would take to protect their investment. They would not agree to support Spear in a company takeover, but new management was certainly in order. They also pushed for an outside board, reasoning that no one would want to join a board with the Handlers as the majority shareholders. After the meeting, Spear started looking for ways to pressure Ruth to step aside. Within weeks, the crisis he needed broke into the financial news.

  Elliot and Ruth were at the Toy Show in February 1973, overseeing Mattel’s new toy line and talking to customers. They received a call from
Art Spear saying that he was coming in from Los Angeles and had to see them at their hotel the next morning. At the meeting Art, Ruth’s nephew Ron Loeb, and Ray Ferris told Ruth and Elliot that Mattel had run into a serious problem. A few weeks earlier, on February 5, 1973, Elliot had announced that the company would make a good profit for the fiscal year. His statement predicted a “definite turnaround” for Mattel. Earnings problems were blamed on Optigan, but Elliot predicted that the company report would show “satisfactory earnings from continued operations.”

  Spear told Ruth and Elliot that, contrary to the February 5 statement, the last quarter was going to show a substantial loss. A new statement had to be immediately released to the press. On February 23, Mattel issued another press release saying, “…the company now expects to incur a substantial operating loss for the fiscal year ending February 3, 1973, rather than a profit as previously anticipated.” The release should have read “spectacular loss.” It was thirty-two million dollars.

  Ruth remembered the conflicting reports as coming months, rather than weeks, apart, but she had a clear memory of the fallout. “All hell broke loose. That was like a bad dream; the nightmare came much later. That was the beginning. We were out of control and did not really know how badly, because when we finally did announce our loss it was quite obvious that we still hadn’t accounted for all of the things that had to be written off. [But] we did not know this until much later, unfortunately.”

  In full “who did it?” mode, Ruth blamed her financial and public relations staff for the reporting fiasco. She said that she and Elliot had relied on Mattel’s financial people for the numbers, and allowed the public relations staff to write the statement that was released to the press with Elliot’s signature. She argued that she was not a “financial pro,” but having remained as president, there was only one place for the blame to stop. Later she said she had been out of control of the company, at least from the time she returned from her surgery, but few people accepted that excuse. Ruth had built her power with staff much like her. She quickly dispatched those who could not keep up, and she had always stayed abreast of every company operation.

  The truth behind phony sales and false revenue was starting to leak out. Ruth was desperate for allies after Mattel’s Bank of America representative told her and Elliot that their creditors wanted Spear as president. She called Josh Denham into her office. He had always been apolitical, a slightly built, well-spoken peacemaker, and he worked for Spear. She asked him to help, but he told her there was nothing he could do, the problems were too deep.

  Ruth confronted the bankers, arguing that Spear did not know enough about marketing or the toy business to take over, but they had made up their minds. They threatened to shut off Mattel’s credit if she did not go along. On March 27, 1973, Spear was named president of Mattel. Ruth became a cochairman with Elliot. Three days later Fortune would list Ruth, alongside Washington Post owner Katharine Graham and Olive Ann Beech of Beech Aircraft, as one of the ten highest-paid women executives in the country. Unlike the others, however, Ruth now held a largely empty portfolio of duties, although she insisted publicly that the move was long planned.

  Full control of Mattel passed to Art Spear and other executives. Ruth came to work every day and sat in her office with little to do. She knew that everyone was avoiding her, sometimes in ways that were obvious and distressing. On one occasion, she was walking down the front hall past all of the executive offices. She was going in the direction of Jay Jones’s office just as he started to walk out his office door. Seeing Ruth, he turned around and went back into his office, closing the door behind him. Ruth saw his panicked look. He was hiding from her.

  In another humiliating incident, Ruth asked Ray Wagner to come to her office. She wanted to talk to him about a marketing plan that had landed on her desk, which she believed had flaws. He kept avoiding her. Finally, he came to her office. As they went over the plan, Wagner bit his fingernails, something Ruth knew he did when he was nervous. He was also shifting in his chair as if he could not sit still. When Ruth was half through going over the plan he told her that he had to leave for another appointment. He got up and left without waiting for her reply. “I was so hurt,” Ruth said. “He would never have done anything like that. He was a nice man.” When she thought about the incident years later, she said it still “hurts terribly.”

  Spear made quick work of a bloated conglomerate. By June he had done away with 125 marginal toy lines. One new toy line was doing well. Big Jim, a male nonmilitary action figure with flexing biceps, met with good reviews, and Barbie’s home furnishings, in the burnt orange and robin’s egg blue of the 1970s, sold briskly. Mistakes in foreign sales, like releasing Barbie clothes that did not reflect European tastes, were being corrected. “The previous management was preoccupied with achieving a big jump in growth,” Spear told the Wall Street Journal, “and did not pay attention to capital structure. We plan a moderate growth, and we have put in tighter financial controls, which will result in assured profits.” He was trying to reassure shareholders that the corporate ship had been steadied, but they were not mollified easily. After two fiscal years of losses totaling sixty-two million dollars, Mattel’s stock plunged like a plane that had lost its engines. From a high of $52.25 just eighteen months before, shares were trading at $5.

  Mattel had become the butt of insider humor. The Wall Street Journal printed a joke going around the financial community: “Have you heard about Mattel’s new talking doll? Wind it up and it forecasts a 100% increase in sales and profits. Then it falls flat on its face.” Five new class-action shareholder suits had been filed, including one by Ringling Bros., which Roy Hofheinz joined. Circus shareholders charged that at the time of the merger Mattel overstated earnings, understated losses, and misrepresented finances on the proxy statement used for the deal. Shareholder actions caught the interest of the SEC, ratcheting up the scrutiny of the previous years’ financial machinations.

  For Ruth, each day at the office turned into an exercise in pretense. Executives at all levels avoided her. No one threw her out of meetings, but when she spoke no one listened either. People she considered loyal friends, like division head Ray Wagner, were completely unavailable. “I went through a period,” Ruth said, “when I thought there was not a person in the world who wanted me or wanted anything from me, which was an absolute opposite from what it had been in my life for the prior thirty years.” She hated the feeling of not being wanted, of being rejected. She felt like a leper, and that people were not sincere in showing their respect for her. “It was a very demeaning, humiliating experience,” Ruth recalled. She told her lawyers that she wanted out of the company, that she hated being there, but they wanted her to stay. They felt she would weaken her legal position by leaving. They were not considering her emotional state. Every day she came to Mattel increased her sense of isolation and embarrassment.

  Ruth found some relief with her family. Ken and his wife, Suzie, had added three grandchildren to Barbara’s two, and the Malibu house became a haven for Ruth and Elliot to enjoy their grandchildren. Increasingly, however, Ruth left Los Angeles altogether.

  In January 1973, President Richard Nixon created an Advisory Committee on the Economic Role of Women and made Ruth one of sixteen inaugural members. “I remember her as a gutsy lady,” said Jacqueline Brandwynne, who also served on the committee. “She was a firecracker with bundles of energy and enthusiasm. We were both strong consumer and women’s advocates.” Besides attending meetings of the committee, Ruth began giving speeches. “The Challenges of Consumerism” and “Mandatory vs. Voluntary Regulation” for the Better Business Bureau. “Safety in the Marketplace” for the Business and Professional Women’s Clubs and manufacturers’ associations. She talked about what she knew: “Anything you do starts with identifying the consumer’s need and ends up with a product satisfying that need.” She traveled around California, to Wisconsin, to Hawaii, to Washington, D.C., and to Fort Worth, Texas. With Elliot, she travele
d around the world to some of Mattel’s plants and subsidiaries, but she always returned to an office cold with inactivity and a workplace turned increasingly hostile.

  In the summer of 1974, the SEC acted on the complaint that had been filed against Mattel. The company had been cooperating over the past year of investigation. Ruth had agreed that Art Spear should go to Washington, D.C., to work out the problems with the agency.

  She still believed Spear was an ally. Later she became convinced that he connived against her with the SEC. “Art was the worm in the woodpile,” she said. To her, he was much worse than Rosenberg because he betrayed her trust. When Spear went to Washington he negotiated a deal that changed Mattel’s board so that he was in charge of finding new board members, whose names would be submitted to the SEC for approval. Ruth said Spear chose his cronies for the board. She and Elliot were forced to acquiesce because of the pending lawsuits and threat of federal criminal action. Spear also agreed to the SEC’s appointment of a special counsel, Seth Hufstedler. Although there is no evidence to support her contention, Ruth suspected that Spear helped choose Hufstedler, paving the way for them to become, in her words, “bosom buddies.”

  Ruth believed Spear saw his chance to take over the company on the back of her and Elliot’s problems. He was establishing contacts with the government and the banks. She said she found documents that indicated that Spear felt that if he got Ruth to leave, Elliot would follow. In August, Mattel agreed that it had filed false and misleading financial reports. The Federal District Court ordered the appointment of unaffiliated directors and the creation of new committees to look deeper into the financial mess. The court gave the directors and committees several years’ worth of power, but it only took a month for the next blow to fall. Mattel announced that “information had been discovered,” about possible financial irregularities. The new committees were doing their work.