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

by Robin Gerber

  In October, just after Arthur Andersen resigned as Mattel’s auditor, the SEC made an unprecedented power play. More violations had been uncovered, and the agency asked to be given effective control over the corporation. Bypassing shareholders, who had the traditional role of picking directors, the SEC set criteria for appointing a new majority group of directors to the board. Agreeing, the court forced Mattel to pick directors unaffiliated with it or any company that had dealings with Mattel. Special Counsel Seth Hufstedler was charged with investigating the company’s financial dealings. He was given four months to interview employees and look at Mattel’s records for the crucial years of 1971 and 1972.

  Mattel shareholders had stopped receiving dividends eighteen months earlier. As the SEC closed in with the new order, Mattel asked for a halt on trading its shares on the New York Stock Exchange. New directors were announced before Christmas, even as two new lawsuits were filed. In one of its first acts, the board abolished Ruth’s and Elliot’s operational titles, leaving them only their diminished role on Mattel’s board. “The new board really shunned her and Elliot,” Tom Kalinske remembered. “They weren’t welcome.”

  Elliot found solace in his painting, getting a studio near their penthouse and going to Malibu to paint on weekends. Without an outlet, Ruth was consumed with bitterness and anger. She did not know what to do with herself. She hated the endless meetings with attorneys. She missed working. “Under the circumstances,” she told a reporter later, “some people would have seen a psychiatrist, other people would have blown their brains out, somebody else would have escaped to a desert island. I tried a little of each.” Too often, Ruth drove her red Rolls-Royce to Gardena, the gambling town on Los Angeles’s outskirts. She was known for her foulmouthed outbursts at the tables and general disregard for cash won or lost. On a trip to Las Vegas shortly after she and Elliot left Mattel, Ruth was playing craps and losing. Elliot told her to stop and then went to get the car. By the time he got back she had won back the fifty thousand dollars she had lost. “How do you cope?” she said. “You cry, get sick, feel terrible.” She tried teaching at the University of Southern California and UCLA, but she resented working for free. She felt that the universities did not think she was worth anything since they did not put a dollar value on her teaching. She started gambling every day, toying with the idea of becoming a professional gambler. Meanwhile, she and Elliot were required to give two million shares of stock to Mattel to settle class action suits. “There were days,” Ruth said, “when I could have done away with myself.”

  Hufstedler, the special counsel, was finding a more complicated web than the SEC had imagined. He needed a year to finish his work. Ruth was one of the last people he interviewed. He questioned her closely, occasionally recommending that she consult with counsel before answering, but she did not. What she did not deny she did not remember. “I don’t recall,” she told the special counsel. “I’m now having trouble separating recent recollections from past memory.”

  Ruth said she knew nothing about tooling or obsolescence calculations. She had only realized the magnitude of bill and hold after a “computer blow-up.” When she called Yoshida into her office to ask why her morning report had only “negative numbers,” he told her he was reversing out the bill-and-hold orders. She was shocked to learn the amount was eighteen to twenty million dollars, and ordered him to correct it. “I was an absolute nut on receiving accurate numbers so that I could review our quotas,” Ruth told Hufstedler. But the bill-and-hold numbers were put back into the computer and then taken out again. Had she talked to Yoshida about that? She did not think so. And she had not talked to any of the division heads. If shenanigans were going on with the numbers, it was news to Ruth.

  Hufstedler zeroed in on the connection between the circus deal and earnings pressure. “Did Seymour Rosenberg discuss with you any possible effect of a downturn in sales on the circus acquisition?” Hufstedler asked several times in various ways. Ruth’s answers never varied. She did not connect sales with the circus deal at all. She believed earnings at that time were fine. Rosenberg was secretive. Rosenberg was the financial mastermind, not her. Rosenberg was always pushing for higher targets; she hated that pressure. Rosenberg was the villain, with Bernie Loomis, the Wheels division head, in a supporting role.

  Years later Hufstedler remembered Ruth with some sympathy as “a tough lady,” but she had no kind words for him. She did not think he believed anything she told him. She was insulted when he told her that she was lying. She was certain that he was good friends with her attorney, Francis M. Wheat from the law firm of Gibson, Dunn & Crutcher. Wheat had worked for the SEC, which was the reason that he was recommended to the Handlers. He was one of the most respected attorneys in Los Angeles and a major power in his law firm, but Ruth was told that he had gone on mountain-climbing expeditions with Hufstedler. She said, “I don’t think Wheat believed I was innocent of many of the things I was accused of because his buddy Hufstedler had it all figured out that I was the guilty one. So I had a lawyer who did not believe in my innocence.” As Ruth’s legal problems increased, she saw conspiracies all around her.

  The month before Hufstedler announced his findings, Ruth and Elliot resigned from Mattel’s board, severing their remaining connection with the company. They announced that they were giving two and a half million shares of their stock to settle shareholders’ lawsuits. It was half of what they owned of their company, but in the end, thirty-four million dollars would be paid by Mattel for the civil actions. Ruth still hoped, however, to find a way to gain control, or at least wrest it from the man she felt had plotted against her—Art Spear.

  On December 16, 1975, Ruth met with Bob Ehrlich, the man who had taken Rosenberg’s place. Ehrlich said that he told the special counsel that Rosenberg and Loomis were the plotters of the fraud, but he was also certain that Spear knew about it. He told her that he had gone to Hufstedler after the report came out and told him that Spear had been involved and that much of the report was wrong. Supposedly, Hufstedler said he agreed, but it was too late to change the report.

  Ruth concluded that Hufstedler had not tried hard enough to find out the truth about Spear. In her notes from the meeting she wrote, “All [Spear] had to do was raise the issue to us and he could have stopped the whole thing.” Ehrlich offered to cut a deal with Ruth to take over Mattel by buying the Handler shares. He laid out his plan, assuring her that he would choose board members loyal to the Handlers. But she was not ready to sell out, even if she and Elliot were on the outside looking in.

  Finally Ruth realized that Mattel was out of her control. The pain of separation was acute. She had come to the lowest point of her life. “It was heartbreaking. By the time we left I was devastated. I couldn’t believe what was happening. I was actually traumatized and kept saying, ‘this can’t be happening.’” Elliot struggled as well, though he had an easier time accepting a quieter life. “It’s a heartbreaking thing to lose your baby; what you built over the years, and to lose stock. But the important thing was we lost our baby.” Ruth was about to take the first steps toward a different kind of salvation, one that only she could have conceived. But her long, painful fall from power was not over. She was about to be sent toward a terrifying abyss.

  Chapter 15

  Nearly Me

  I couldn’t just screech to a halt after racing my whole life.

  Ruth worked the presentation of her new product down to a studied and predictable performance during 1977. She knew when the uncomfortable looks would come, the nervous laughter, the shocked and embarrassed stares. She had first brought the show to Neiman Marcus, then Bonwit Teller and I. Magnin. She insisted that everyone take part: the company president, managers, sales staff, even stock boys, electricians, and warehouse workers. After all, they had mothers and sisters and wives, too. If she was not satisfied that a store could market her product exactly as she wanted, she would not sell to them.

  The show started with Ruth talking about her mastectomy.
She was matter-of-fact. That was important. She was remaking the marketing of prosthetic inserts, demystifying and taking the horror out of the process, all to give women like herself their dignity back. She would tell the story of driving her Rolls-Royce to the department store in Beverly Hills shortly after her cancer surgery. Elliot had urged her to do it, telling her to face up to the change in her body.

  Ruth had asked the sales clerks about a prosthetic. They had huddled, whispering and grimacing, and to Ruth’s mind, drawing straws for who would fit her. Finally, the “loser” showed her into a dressing room and closed the curtain. When the clerk came back, she dangled a surgical brassiere with built-in pockets over the top of the curtain rod, clearly unwilling to see Ruth undressed. Next came the ill-formed lumpy globs that were the inserts. Ruth struggled to get them into the pockets. The sizes had no relation to bra sizes. She tried a six—too big. A five looked less awful. She bought one for home and one for the beach house, and left feeling miserable. After that, Ruth explained to her audience, she gave away her form-fitting couture clothes and found anything shapeless and dull-colored that would cover the odd, malproportioned contours of her chest.

  Then she would throw her shoulders back a bit more, emphasizing her well-defined and balanced bustline and bright-colored tapered blouse. “I call it Nearly Me because it’s not me, but it’s a great improvement over what was available,” she would say. She would challenge the store staff to tell her which breast was fake. Sometimes, she would invite one of the men to step up to her. Taking their hands, she would put them on her breasts, telling them to feel free to squeeze, and demanding they guess which was the prosthetic. The crowd tittered. There were red faces, but Ruth made her point. Usually they guessed wrong. In the grand finale, Ruth would pull open her blouse or fitted suit so that her whole buxom bra could be seen. After buttoning up, she would reach inside and pull out the Nearly Me breast and pass it around.

  Once again, Ruth revolutionized not only a product but its marketing. Men designed the old prosthetics, she would explain scornfully. They did not realize that breasts have lefts and rights, just like feet. They were so embarrassed by their product that they called the inserts “pads” or “forms.” She insisted on calling hers “breasts.” Coining a new term, she called the women who came to her for help “mastectomees,” because “like amputees, we feel we have been amputated.” She wanted to remove the shame from the disfiguring surgery.

  Ruth remembered her unexpected fits of crying after her own surgery. One night at a cocktail party she started talking to a stranger about her cancer and mastectomy. She remembered, “The tears stopped and the hostility began to disappear.” She wanted to give other women that kind of relief by creating a place where they could be open about their feelings, their needs, and their struggle. She helped women with their pain in the way most natural to her—designing a product to sell and market. She pulled the marketing of breast prosthetics out of the shadows along with the women who needed them.

  After Ruth’s first awful visit to the department store in 1970, she tried other shops. “I bought everything I could find as prosthesis, and they were all globs,” she explained. “Your ego goes to hell then, and walking into a store to an untrained person who doesn’t understand your situation is torture. I decided the prosthesis fitting was worse than the surgery.” Then she heard about Peyton Massey, a world-famous arts sculptor in Santa Monica who specialized in making custom prosthetic noses, hands, legs, and breasts.

  Massey wrapped wet plaster-covered gauze bandages around Ruth to make an impression of her chest, designing a custom prosthetic that she found more comfortable and attractive than the egg-shaped lumps she was using. She bought two for $350 each. The new breast was contoured and stood up against Ruth’s chest wall, but there were problems. The breast material had a funny smell, and if Ruth had to take off her blouse, the edges showed outside her bra. And there was another error reminiscent of problems with the early Barbie dolls molded in Japan.

  In retrospect, Ruth found the story humorous, and often repeated it. Massey’s first prosthesis for her had large, distended nipples. Massey had placed the gauze for shaping the breast on Ruth as she stood in a cold room, which made her nipples become erect. Although some women have distended nipples much of the time, Ruth’s were normally flat. Massey formed the prosthetics based on his molds, and Ruth kept trying to find clothes that would hide the unnatural nipples.

  Just before she left Mattel in 1975, Ruth went on an aggressive weight-loss program as an attempt to pull herself out of her depression. She lost inches off her size, and when she went back to Massey for a new prosthesis she told him just how she wanted it. The new insert was more comfortable and natural looking. Ruth realized what needed to be done to make a prosthetic that worked for women, as opposed to the artificial breasts then on the market.

  One day after Ruth was no longer with Mattel, she drove about halfway to Gardena to gamble, but according to her, “my car turned itself around and went back to Massey’s place.” She walked in, unsure of what she wanted to say until she stood in front of Massey, and then blurted out, “Peyton, I’m going into the breast business.” She told him she wanted to make customized breasts that could be sold over the counter. She wanted stores to fit women to their size. She was not sure how many sizes would be needed, but she wanted to have them all available in stores to be tried on. She wanted to have separate right and left breasts, similar to the custom breasts Massey made for her, but able to be manufactured. Massey thought the idea was impractical, but Ruth was undeterred. She talked him into helping her, telling him that she would figure out how to manufacture them if he would do the sculpting.

  Ruth had found her salvation. As the meetings with lawyers over the myriad Mattel-related lawsuits ground on, and the threat of federal criminal charges loomed, she went full speed again into a new business. She had spent her life marketing and designing products. She had often lectured on defining a need and targeting consumers, on never going into business as me-too, but to solve a problem in a new way. You had to know why you were in business, Ruth lectured. “Every product has to have a reason to be.” She announced that making prostheses was what she wanted to do for the rest of her life.

  She had a loving husband and a close family, and she wanted to “spend my retirement years doing something that needed doing, and something that had to be done by a woman who had had a mastectomy.” Good intentions were part of the explanation, but she also needed an outlet for the entrepreneurial energy that had always driven her. She also needed something more. Tom Kalinske, who considers her a mentor, recalled, “No one was better at spotting trends, but she also had to get redemption, had to prove she was not a bad person.”

  Painting Ruth as a bad person, however, or at least a malfeasant corporate officer was just what Special Counsel Hufstedler’s report had done. The exhaustive five-hundred-page tome fell like a boulder into Ruth’s new world. She was working on her breast idea with a team of engineers, chemists, designers, material experts, and model makers, some of whom were Mattel retirees. Her attorneys showed her the special counsel’s report in mid-November, soon after it was filed. His implications were unmistakable and scrupulously documented.

  Hufstedler found that Mattel had sent to the SEC, and had publicly released, false and misleading financial information. The fraud arose from a desire to show a pattern of “ordered growth with regularly increasing sales and earnings.” Mattel’s accounting firm, Arthur Andersen & Co., should have discovered the fraud in the ordinary course of its work, but if it did, there was no evidence that it tried to stop it.

  Hufstedler gave a nod to the creativity and innovation that brought Mattel success through 1970. “The successes in turn generated a belief among management,” he wrote, “that the company’s growth would continue indefinitely.” But Mattel management showed an “inability to adjust its beliefs to changing realities,” which led to the decline in sales and profit that triggered the fraud.


  Hufstedler reconstructed a nearly day-by-day calendar of corporate meetings and actions over three years. He explained how the switch to the legitimate practice of annualized accounting, started after Mattel went public, set the stage for later abuse. He laid out the plan for sales incentive programs that turned sour, and the disastrous move to diversify that began after Mattel passed the hundred-million-dollar sales mark in 1965. That year Ruth had set a new corporate objective: “to increase earnings per share in a manner which will foster further growth and enhance our stockholder investment.” She was looking to increase sales volume by 10 percent per year, and earnings by 25 percent. To get there, Hufstedler wrote, Ruth had brought in Rosenberg. Rosenberg jumped on his mandate to improve Mattel’s image with the financial community and fulfill the objectives Ruth had set, quickly succeeding in creating more interest in Mattel stock. Meanwhile, the acquisition program went forward.

  Hufstedler pinpointed the problems with diversification. “Mattel as a toy manufacturer,” he wrote, “had little expertise in the fields represented by the acquired entities. As a result, these acquired companies had to be run in large part by the previous management, with little or no active supervision by Mattel.” In the case of Ringling Bros., the contract stated that Mattel would not interfere, and Feld continued to run the show.

  When it came to organization, Hufstedler was blunt. Organizational charts were a fiction, and “Mattel was operated in much the same manner as when it was a small company.” He noted that even Mattel officials had admitted that divisionalization was a mistake. He laid the blame for the $55 million loss in fiscal year 1972 on false hopes. The company had failed to “restrain its optimism of earlier years,” and “certain company officials wanted to keep up the growth rate of the past.” He was pointing his finger at Ruth, Elliot, Rosenberg, accountant Yas Yoshida, and the division heads. In a minor bright spot for Ruth, he saw no evidence of significant insider trading, except by Rosenberg.