The Taking of Getty Oil

by Coll, Steve;

  “I’m not sure that Gordon is here in his capacity as a director of Getty Oil,” Dave Copley responded. The implication was clear—Gordon had other loyalties besides the company, not the least of which was his family trust.

  “Well, I think what you’re suggesting, Dave,” Cohler responded, “is that somebody might later urge that Gordon was not here as a director if they were trying to challenge a claim of privilege.” The point could be argued, Cohler was saying, but there was no reason for the five of them to disagree.

  Gordon intervened, contradicting his own lawyer. “I’m not here solely as a director. I’m also here as a trustee of the Sarah Getty Trust and as a trustee of the J. Paul Getty Museum. I’m wearing three hats.”

  There was some more arguing among the lawyers about whether they had a mutuality of interest, and it became clear that the problem would not be easily resolved.

  “Look, we don’t know what Sid’s going to talk about,” Cohler finally said. “So I guess we ought to proceed on the theory that if it’s appropriate and it ever arises, we would consider claiming the privilege, but everybody speaking here should recognize that such a claim might fail and proceed in their best judgment.”

  Attention then turned to Sidney Petersen. Gordon and Cohler later recalled that Petersen seemed especially tense that evening; his jaw seemed locked shut and his lips were tightly pursed. But Cohler and Gordon both recognized immediately, as Petersen began to speak, that the Getty Oil chairman was doing his best to be gracious, cautious, and polite, however difficult it might be for him. It was not a soliloquy that Petersen delivered, but over the next half an hour, he began to repeat several themes to Gordon Getty, interrupted and augmented from time to time by Copley and Winokur. At first, Gordon said little. He watched Petersen closely. He watched Winokur. And he listened.

  “You know, Gordon, your father, Mr. Getty, was a very patient man,” Sid Petersen said. “He took his time accumulating an equity position in the various companies that ended up becoming Getty Oil. He started buying Tidewater stock back in the 1930s and he did not gain control until twenty years later. I just think that such patience, in accumulating a control position over time, has proven itself in the past by the experience of your father.”

  Cohler listened carefully to Petersen. This was the Getty Oil chairman at his most poised, he thought. But he wondered where Petersen was headed with this line of thought.

  “By the same token, Gordon, it might be appropriate for the company to consider getting back into the market, continuing the stock buy-back program that was authorized by the board, which we’ve suspended because of all these studies, as everyone knows. If we did that, if we kept buying the stock, that course might ultimately lead the trust to be in a majority position. Your percentage would increase from forty, and you could creep into control.”

  Soon Petersen was carrying his point further, making it stronger. Gordon had yet to respond. “We need a flat assurance that these studies are at an end, Gordon,” Petersen declared. “We have an alert board of directors. They know they’ve authorized the buy-back in the open market. The stock price has been in the range where they would expect that we would have been buying back. The information available to them will show them that we have not been in the market. And I expect somebody’s going to ask me why. What am I supposed to say, Gordon?”

  The heat of that question, which for the first time challenged Gordon directly, alarmed Cohler. He shot a glance at Copley, hoping to indicate that perhaps Sid should cool down a little, lest Gordon erupt in anger. There were a lot of concerned, questioning looks being passed privately around the room. They were trying to measure Gordon’s response, to gauge his silence.

  Whether in response to Cohler’s eye contact or not, shortly after Petersen’s accusatory question, Copley interjected, “You know, Gordon, it doesn’t necessarily have to be a commitment that, in the future, no studies would ever be resumed. It would just be a statement that no further studies were presently necessary.”

  “I appreciate everyone’s views,” Gordon finally responded. “I’m glad that the views have been exchanged. I think it’s my duty to listen to all the good thoughts that people might have. My father always welcomed people to Sutton Place and listened to their views and then made up his mind as to what was best. And I think that’s a way of conducting yourself that can’t be criticized. I’m an ethical guy and I know what my duties are, and I’m responsible. But I cannot in good conscience say to you that there have been a complete set of studies made. I cannot yet be sure that the shareholders as a whole would not benefit from further studies.”

  In his inimitable fashion, Gordon Getty had said no. He would not end the studies. The mood began to shift. Bart Winokur began to speak up more forcefully. He had been introduced by Petersen as a brilliant lawyer highly experienced in mergers and acquisitions, and now he began to tell stories from his legal career, stories about hostile takeovers that had arisen in situations similar to this one. He used some of the wild metaphors popular in his trade: by meeting with outsiders, Gordon was spreading “blood in the water,” Winokur said. Gordon was demonstrating to Wall Street that the company was bleeding, and once that blood hit the water, sharks would be sure to gather.

  “You should not be doing anything that anyone outside the company could interpret as encouraging them to make their proposals for control of the company,” Winokur said to Gordon. “You should not be talking to Corby Robertson at all.”

  It was Bart Winokur’s first meeting with Gordon Getty. As he spoke, it seemed to Tim Cohler and indeed to Gordon Getty himself that Winokur did not appreciate the delicacy of the situation. Gordon felt that Winokur was rude and abrasive, this in contrast to his view of Petersen, who had tried to present his points with some statesmanlike caution. But Winokur was aggressive. He described in vivid terms a variety of scenarios in which Gordon and the trust could be “squeezed” by an outsider like Robertson who could gain control of those Getty Oil shares not owned by the trust. Over and over, Winokur emphasized the squeeze.

  “Don’t you realize, Mr. Getty, that you could be the juice?” he asked Gordon.

  “I’ve had further conversations with Mr. Robertson about his buying the rest of the Getty Oil shares. We could run the company together,” Gordon said. “What Robertson proposed was a deal where he would buy sixty percent of Getty Oil stock, then we would run the company as partners. We didn’t discuss exactly how that would work.”

  “Have you been giving Robertson company information?”

  “Yes, I have been reviewing information with him. I have given him some documents. But I don’t think it will be used improperly. Mr. Robertson is a gentleman.”

  “What documents have you given him, exactly?”

  “Oh, some general things.”

  Copley, Petersen, Winokur, and even Cohler all told Gordon that this was not an issue he was entitled to decide on his own. “A director, if he’s acting as a director and not as a shareholder, doesn’t have the unilateral right to decide what company information should be made public. The board and management have to deal with that. You have to work through those institutional forums, Gordon,” one of the Getty Oil trio said.

  “I don’t agree with that.”

  “You have obvious conflicts, Gordon. You’re a trustee of the museum, and you’ve told us that Robertson might want to buy the museum’s shares, and yet you’re giving him company information as a Getty Oil director—and a shareholder. You’ve got a lot of conflicts.”

  “Well, it’s a real conundrum,” Gordon conceded. “It presents moral and ethical dilemmas.”

  Cohler asked Gordon if he could talk to him privately. It seemed clear to Petersen and Winokur that Cohler was uncomfortable with his client’s statements; any lawyer would be, they thought. Cohler and Gordon stepped into the bedroom and shut the door. When they returned to the living room a few moments later, Gordon seemed transformed—but not for the better. Instead he was more stubborn than eve
r. He now absolutely insisted that he had the right to determine what was confidential company information and what was not.

  Petersen had been encouraged by Cohler’s earlier comments on the issue—surely Gordon would listen to his own lawyer, and Cohler was saying now that it would be a grave mistake to turn over confidential documents to an outsider such as Robertson. This was a turning point, Petersen thought.

  “I feel an ethical obligation,” Gordon responded, referring apparently to a perceived obligation to Robertson.

  The tension began to rise; voices were growing louder and more taut. An ethical obligation! What did that mean? The ethics of the situation were clear: Gordon was misusing confidential Getty Oil information and perhaps was violating the law. What other ethics could prevail? They began to divide themselves in the hotel suite now, Gordon on one side of the room, Winokur, Petersen, Copley, and Cohler on the other, facing him, arguing urgently that Gordon had gotten it wrong, that he was not free to make up his own rules about the confidentiality of company financial data.

  But the more the others pressed him, the more defiant Gordon Getty became. They had touched a streak in him, it seemed—he simply would not concede their point, or any other point that implied that he was wrong. He argued intractably, insisting that he answered only to himself, and that he was a better judge of ethics and responsibilities than they were.

  “I answer to a higher morality,” Gordon said at one point after he returned to the living room with Cohler, and he was including the morality of his own lawyer in that judgment. Perhaps Gordon was referring to his various responsibilities—to the trust, to the Getty family, to the company, to the board of directors. But at that moment in the hotel suite, in the heat of the debate, it sounded as if he meant he was better than everyone else, possessed of a clearer moral vision.

  To Sid Petersen, that moment, that statement, was the turning point. He looked across the room at Gordon Getty and what he saw was selfishness, churlishness, blind rebellion. Gordon was out of control. He was wild. He was like a very rich and powerful child throwing a temper tantrum. Petersen felt sorry for Tim Cohler; the lawyer was clearly trying his best to serve his client, but Gordon was beyond anyone’s advice. Cohler and Gordon said later that it was not legal advice Gordon had rejected from Cohler that evening, with his references to higher morality, but rather it was business advice—Cohler thought the trust would be hurt by contacts with outsiders, whereas Gordon didn’t, and so they had a reasonable disagreement. But that was not Petersen, Copley, and Winokur’s interpretation. To them, Gordon was out on a limb, possibly violating federal laws against insider trading, and here he was telling Cohler, his own attorney, that he didn’t need his advice—he’d make his own laws. Was this the side of Gordon Getty that had caused him to be tossed out of the Neutral Zone by angry local government officials two decades earlier? The full details of that incident had never been revealed, but they suspected that it was.

  After about two hours, the meeting ended. Gordon had made his position starkly clear. They would have to trust his own judgment on matters of confidentiality. This Sid Petersen was not prepared to do. He had decided now that his own hopes were misplaced; there was no way he could work with Gordon Getty, it was impossible. On the tactical front, they had at least made some small progress by the end of the Bonaventure meeting; it was agreed that Copley and Cohler would draft a letter to Corby Robertson for Gordon’s signature, in which Gordon would ask for appropriate confidentiality assurances from Robertson and the Cullens.

  “During our conversation two days ago,” Gordon wrote to Robertson in the letter dated January 12, the day of the Bonaventure meeting, “you informally broached several of your ideas of possible transactions involving the stock of Getty Oil Company. In light of your statements to me, I felt ethically obliged to describe very generally to you a number of ideas about which I had been ruminating relative to Getty Oil Company. I shall greatly appreciate your confirming to me by your countersignature at the foot of this letter that you have not on Monday or since then and will not in the future … engage in the purchase, sale, or exchange, directly or indirectly, of Getty Oil Company stock.”

  In some ways, then, Robertson’s dealings with Gordon had backfired on Quintana and the Cullens. Because Gordon had disclosed company information, Robertson was now being forced to agree to stop privately buying company stock, or else risk violating the insider trading laws.

  So concerned were Gordon’s attorneys now about their client’s attitude toward confidential information that just four days after the Bonaventure meeting, Moses Lasky, appraised by Cohler of what had occurred the previous Wednesday in Los Angeles, sat down on a Sunday afternoon and wrote an eight-page, double-spaced letter to Gordon about the laws governing confidential information and insider trading. The Lasky, Haas firm itself had been placed in a precarious position by Gordon’s statements at the Bonaventure. If Gordon was now going to answer to a “higher morality,” if he was going to make up his own rules about what company information could be disclosed and what could not, then the Lasky firm was flirting with a malpractice predicament. They had to make it clear, if the need should later arise, that they had advised Gordon strongly and properly about the law. Early in Lasky’s letter that Sunday, the lawyer set down in writing, as much for his firm’s own protection as for Gordon’s edification, a brief history of his and Cohler’s advice to Gordon on the topic of insider trading.

  “I take this opportunity to put down in succinct writing some cautions and information about the state of the law which Tim, Tom, and I have told you about orally from time to time,” Lasky wrote. “For obvious reasons, I am not willing to entrust this letter to the mails. As Tim lives just around the corner from you, he has agreed to drop it by. As you know, we as lawyers do not presume to volunteer advice on business decisions or what would be a sound course of action financially. You therefore will find nothing in this letter that bears on the wisdom or prudence of any course of action. But business decisions have to be made in light of applicable law.… One of the most sensitive and trickiest aspects of the law has to do with inside information and insider trading. Class actions have been brought claiming multimillions in damages or profits on behalf of persons claiming that if they had known what the insiders knew, they would have bought or sold and thus made big profits or avoided big losses. Heretofore, we gave you legal advice about a proposal by a Mr. Robertson of Texas.…

  “The business world,” Lasky’s letter continued, “particularly the world of investors, is full of people seeking ‘tips’ or even bits of information that they can add together or add to publicly known facts to give them a basis of prediction that others do not have. In a grosser sense, there are ‘sharks’ and ‘barracudas.’ One court described the problems of an insider who talks to investment analysts as that of a person fighting a duel on a tightrope.… Specifically, I think it is imprudent to have any communications with security analysts at all. They seek to hear from you not to benefit you but themselves. Security analysts are notorious for trying to see hints in what they are told, and they and a jury could misconstrue your communications as giving them a subtle tip. If you are seeking an investment banker’s advice to engage his services, there is no reason why you may not do so. But otherwise, it is imprudent to talk to investment bankers unless they have been engaged as part of a serious discussion looking toward a transaction under serious consideration. I do not advise that you not talk to someone with whom you seriously have in mind to negotiate. But I am dubious about your telling any of these people about what discussions you have with Getty Oil Company management or about other possibilities of reorganization you have in mind.… No law prohibits you from doing that, but the law may then require Getty Oil to make all the information public, thus giving publicity to ideas that might in fact not jell. The effect on the company and its stockholders could be injurious.…

  “It takes a great foresight to thread one’s way through these thickets and because of t
hat fact most people in like situations proceed cautiously, and many do not even engage in discussions in the absence of counsel,” Lasky concluded, referring unsubtly to the fact that his firm had not been consulted by Gordon during his meetings with Robertson, Bass, and other outsiders. Lasky and Cohler had been as much in the dark as anyone else about those meetings. By talking and sharing company information with the outsiders, Gordon had placed himself “under the obligation to make the legal determination of whether the facts must be disclosed to the public. I do not see how you can make that determination without legal advice from specific case to specific case,” Lasky wrote.

  But four days earlier, at the Bonaventure, that was precisely what Gordon had said he would do. He would make his own determinations about ethics and morality and legality. Business, Gordon Getty believed, was a matter of intuition, like music. You just sensed what deal was possible, what was good, what was progress, what was a blind alley, what was proper, what was improper. Business evolved through inspiration, the way melodies came into your head. Ever since Lansing’s death, Gordon had felt himself pushing forward to some inevitable goal, what he described later as the light at the end of the tunnel. He did not know the exact form or direction of this goal, but he was driven by his own personal instincts—certainly not by the inflexible rules of those around him, including his lawyers. Gordon’s “rule,” he said, was that anyone in the room with him could pipe up with business advice, but generally, he listened to lawyers strictly for their legal opinions, and even then, he felt free to make his own decisions. After all, it was his responsibility. It was his trusteeship. It was his money.

  Or was it, really? Did the Getty family fortune now belong to Gordon, as sole trustee, as the Lasky firm contended, or did it really belong to the Getty family beneficiaries, the brother, half-brother, nieces, and nephews who shared the trust’s income and stood someday to inherit portions of its corpus? That was a theoretical and legal question long debated within the Getty family. That January, however, when Sid Petersen returned to company headquarters after his confrontation at the Bonaventure, the Getty Oil chairman decided he should test the issue once and for all. If Petersen had his way, the question of who owned the Sarah Getty Trust’s stock would no longer be a matter for abstract debate; it would become, in the months ahead, the center of a struggle for power within the Getty family itself.