California Rich

by Birmingham, Stephen;

  The next item of business concerned the way the company was to make the inevitable transition from farming to urban development. It had to come, Joan argued, and she accused the board of dragging its feet. She produced population-growth studies showing that the company’s Orange County land was the next logical extension of the urban growth of Los Angeles, and yet at the ranch very little had been done to prepare for this lucrative tide of building. The board replied that real estate development required careful study and should be approached with great caution and the advice of experts. Harvesting Valencia oranges was one thing, but building cities was quite another. There were also tax problems. Since most of the company’s business was still agricultural, whatever sales of land had occurred had been taxed at the farm rate of 25 percent, rather than the higher corporate rate applied to housing and business.

  Joan asked that a top-flight architect or city planner be engaged to provide an over-all plan for the development of the land. She had other complaints. It struck her as absurd that on the company’s balance sheet the property of the Irvine ranch still carried a value of less than a dollar an acre—the appraised value in 1894, when the company was incorporated—when the land was clearly worth much more than that. She claimed that the company’s stock was greatly undervalued. (Later an Internal Revenue Service appraisal would prove her quite right.) But most of all she objected to the fact that, though the company had annual profits after taxes of $5,500,000, out of a total income of $28,600,000, only $2,400,000 was paid out to shareholders in dividends by an organization that was worth at least $200,000,000. This meant that Joan’s stock in the company paid her only $496,000 a year, or just slightly more than 1 percent of the value of her holdings. Most other stocks, of course, pay at least 6 percent.

  The board, which had begun referring to Joan as “the princess pretender” (while she referred to them as “McLaren and Company,” and “the Foundation bozos”), countered by saying that Joan’s real problem was that she was greedy.

  It is always hard to feel sorry for a girl who has a yacht, and an attractive young woman with an income of half a million dollars a year has a hard time presenting herself as a figure for pity. But with Joan Irvine it was not easy to make the greedy label stick. She was, after all, merely asking for a return on her money commensurate with its earning power if invested elsewhere. At the most conservative estimate, her Irvine stock was worth more than forty million dollars, and in fact she had been offered a hundred million for it and had refused to sell. She pointed out that the Irvine Foundation, with its majority interest in the company, was also being grievously shortchanged. With a higher yield the foundation would have greatly increased funds to expend on its charitable operations. She charged that the foundation had become merely a device by which huge sums of corporate money were being hoarded tax-free, since foundations pay no taxes. But more than just money was involved. There was also a spiritual side to her crusade and her girlhood dream on horseback of great cities rising out of the empty land. She had good reason to believe that she was her grandfather’s favorite heir, and she believed that she was his spiritual heir as well, with a mission to carry his creation into the twentieth and twenty-first centuries, to deliver his land to what she saw—and felt he would approve of—as its manifest destiny. As his surrogate she was merely trying to express his will.

  And in the process she was proving herself to be just as stubborn and strong-willed—and, yes, as difficult to get along with—as old J.I. The University of California had been casting about for possible sites for a new campus south of Los Angeles, and a search committee had settled on a one-thousand-acre stretch of the Irvine ranch. Some twenty other communities and property owners meanwhile had offered to donate land to the university, and Joan strongly urged the company’s board to do the same. Her motives were not entirely altruistic. She had watched the University of California at Los Angeles being built and had noticed the building boom in the immediate vicinity that accompanied it. She had seen how the Janss family, among others, who had developed the Village of Westwood hard by the U.C.L.A. campus, had become very rich. But the board of directors, who now routinely voted against anything Joan proposed, said no. They would sell the land to the university, but they would not give it away.

  So Joan Irvine, backed up by a small flotilla of public relations people, took her case to the public. She helped organize and attended a rally in Orange County at which she spoke out strongly in favor of the Irvine campus, citing all the benefits it would bring to the immediate community. She made more speeches and gave newspaper, radio, and television interviews. She proved remarkably skillful at manipulating the media, gathering them for formal press conferences as well as for chatty meetings, with drinks, at her house on Emerald Bay in Laguna Beach. She succeeded in getting press coverage of normally closed board meetings through the whimsical device of issuing temporary proxy votes to reporters—infuriating the board, of course, in the process; a key reporter for the Orange County Illustrated was once assigned a thousand shares of voting stock, making him a tycoon for a day. She had also begun carrying a tape recorder tucked under her suit jacket in order to record the acrimonious and often chaotic proceedings at board meetings. In the minutes of its meetings the board had often failed to record her negative votes. Now she had them on tape. She once brought a radio transmitter to a board meeting so that the goings-on could be broadcast outside the board room, but the signal got picked up by a car radio and Loyall McLaren heard about it and installed a special generator to jam her signal—or so she claimed. In the course of her publicity barrage she charged the majority stockholders with illegally taking over the company after her grandfather’s death, with mismanagement, with lack of leadership, and with setting up cozy deals with each other that benefited themselves more than the shareholders. She made the Irvine Company’s directors sound like miserly curmudgeons, narrow-minded enemies of higher education and the public weal. Her pretty but unsmiling face was soon familiar to readers and viewers throughout southern California.

  Whether or not her well-publicized efforts were directly responsible for embarrassing the company into capitulation is a moot point, but it finally announced that it would give the university most of the acreage it wanted, and in the end gave all of it. Joan, understandably, took this as another personal victory in her battle with the “bozos.”

  Two months after Myford Irvine’s death Loyall McLaren reported to the board on a visit he had made to Roger Stevens of New York, one of the country’s shrewdest real estate developers, and recommended that Stevens be retained by the company to draw up a development proposal. For once the board unanimously agreed. Stevens visited and toured the land and came up with a plan providing for the board to set up a separate development company, of which the Irvine Company would own 70 percent and the Stevens group 30 percent. The subsidiary would periodically buy land from the Irvine Company and pay the tax on the profits. Joan immediately objected. This, she said, would be fine for the foundation—which paid no taxes anyway—but it offered no tax shelter to her as an individual. She proposed an alternate plan, involving wholly owned subsidiaries that could be sold after five years with their shares distributed tax-free to shareholders. Once more the board voted her down.

  After a hasty huddle with her lawyers Joan announced that she would sue to liquidate the Irvine Company if the board accepted the Stevens plan. Her lawyers had discovered an interesting loophole. For some reason that has never been quite clear to his heirs, old J.I. had had his company incorporated in the state of West Virginia. The lawyers had unearthed an arcane West Virginia law under which a shareholder of 20 percent or more stock could force the liquidation of a company if “sufficient cause” could be proved. Faced with this threat, the Stevens group withdrew from the rancorous arena, and Loyall McLaren angrily denounced Joan Irvine for disrupting the company’s attempts to carry on an orderly business.

  Joan’s next important victory occurred in 1969. She had taken her case—along w
ith her lawyers and public relations staff—to Washington, where, as a result of vigorous lobbying (and, reportedly, about a million dollars of her own money), she succeeded in getting certain clauses inserted into the Tax Reform Act of that year. According to the act as it pertained to foundations, a foundation could now own only a certain percentage of any given company—2 percent in the case of the Irvine Foundation’s ownership of Irvine Company stock. Furthermore, the act stated that all foundations must contribute to charities an amount equal to at least 6 percent of its holdings every year. The Tax Reform Act was passed by Congress and signed into law by President Nixon. Joan was delighted.

  But the foundation’s lawyers then succeeded in postponing the foundation’s stock-divestiture date until 1983, and Joan was less pleased. In 1969 the citizens of Orange County were surprised to learn that their airport had become the sixth-busiest in the nation. What the experts on population growth had predicted had been right. Orange County was being overrun by Los Angeles. In 1970 the Irvine Company announced its ambitious plans for the largest totally master-planned city on the North American continent—the city of Irvine, to cover 53,000 acres, with a population of 430,000 predicted by the year 2000. Designed by the celebrated California architect and planner William Pereira—who, among other projects, designed the Los Angeles County Museum of Art and the Houston Center—it sounded like Joan’s visionary dream come true.

  But throughout the 1970s, California building laws and codes changed so rapidly that often, no sooner had the ink dried on a builder’s sheaf of permits than new rules had been laid down. Environmentalist groups had to be given their say about development. The Irvine Company and Pereira had originally envisioned a kind of Space Odyssey luxury city for the rich, or at least the upper middle crust. But new laws specified that in any development provisions had to be made for economic and ethnic balances. In all these new regulations the Irvine Company found itself caught in the middle, and development did not proceed as smoothly or as speedily as had been hoped. And on top of all the other nuisances, there were the proliferating lawsuits—many of them instituted by Joan—and each new lawsuit seemed to set off half a dozen other actions.

  The foundation meanwhile was somewhat grudgingly going about its business of conforming to the new Tax Reform law and exploring ways to divest itself of most of its company stock. Just how carefully the foundation was examining its options was not clear because of the directors’ fondness for secrecy; as one of the directors had once exploded to a reporter, “What goes on at Irvine is nobody else’s business!” But in the spring of 1974 an Irvine Foundation spokesman hinted broadly that the foundation had decided to offer its shares for sale on the open market.

  For Joan this sounded as though final victory was in sight. On the open market the foundation’s holdings would certainly end up divided among many different buyers, and her 22 percent would very likely give her effective control of the company. But then, at the moment when her hopes were highest, they were dashed. The foundation spokesman, it seemed, had spoken with a forked tongue. Some months earlier the foundation had begun secret negotiations which, by the fall of 1974, had led to a tentative agreement with Mobil Oil for Mobil to buy out the foundation for $110,000,000. For Joan this spelled utter defeat. If the Mobil deal went through she would be forced into a merger and would have to accept Mobil shares in exchange for her Irvine shares. She would wind up as a small shareholder in a giant multinational corporation where she would have no power whatever. Naturally, the foundation had not apprised her of the pending Mobil deal; she had learned of it quite by accident. She promptly filed another lawsuit.

  She alleged that the sale price was unreasonably low and therefore constituted a breach of faith with both the company’s minority stockholders and the foundation’s charity beneficiaries. Others joined her objections in Orange County. It was charged that Mobil was “fronting for the Arabs.” The Sierra Club claimed that Mobil would promote sprawling, automobile-dependent suburban growth so it could sell more gasoline, though there was no real evidence that Mobil had such a scheme in mind. Other loyal Orange Countians protested that their county was being invaded by “New York city slickers and foreigners.” (Mobil’s land-development subsidiary had its headquarters in Canada.) Mobil raised its price to $200,000,000, and by May 1976 the rest of the minority stockholders, most of whom were Joan’s cousins, had signed agreements to sell their shares to Mobil, thereby earning the boundless wrath of their embattled relative. It began to seem that “little jumping Joan”—now supported only by her mother, her stepfather, and her lawyers—was at last all alone and fifteen years of struggle had been for naught.

  But then, just when things looked darkest, they suddenly turned brighter again. Unexpected support came from the office of the California attorney general, which joined Joan in a lawsuit of its own on behalf of the recipients of the charities. Mobil, the attorney general claimed, was trying to buy a billion dollars’ worth of California assets for only two hundred million. The people of California, the state contended, would lose the difference. The courts declared an injunction against the sale; the foundation appealed to have the injunction reversed, and their appeal was denied.

  In January 1977 the case was back in the courts again, with Joan doing her best to block the Mobil takeover. Meanwhile two other bidders had entered the fray. One was Cadillac-Fairview, Ltd., a Toronto-based real estate development company controlled by the Bronfman family of Seagram’s. The second was Taubman-Allen, a group of investors headed by A. Alfred Taubman, a Michigan shopping-center developer, and Charles Allen, a New York investment banker. In addition to Messrs. Taubman and Allen the group included such heavyweight partners as Henry Ford II and Donald L. Bren, a wealthy California builder and developer.

  In February 1977, suspecting that the key to success might lie in having Joan Irvine join forces with them, Taubman-Allen invited Joan to be a member of their consortium. It was intended as a gesture of goodwill toward her, and Joan graciously accepted the invitation. With that, Taubman-Allen became Taubman-Allen-Irvine. In the months that followed, a lively bidding battle for the company broke out among the three suitors. New bids were submitted every two or three days, and Mobil’s original $200,000,000 offer inched steadily upward. In April, Cadillac-Fairview dropped out, and the bidding between Mobil and Taubman-Allen-Irvine became heated, with a new bid coming in each day by noon. Finally, on May 20, 1977, Mobil dropped out, refusing to top a bid of $337,400,000 by Taubman-Allen-Irvine. In July 1977 the sale was completed. Taubman-Allen-Irvine merged the Irvine Company into itself, as a Michigan corporation, and changed its name back to the Irvine Company.

  At last, it seemed, Joan had achieved total victory, including her aim of ousting the directors of the James Irvine Foundation. She also won a commitment from the new directors to speed up the pace of development of the land, as she had wanted the foundation to do, and immediately a seven-thousand-acre planned development was announced, to include marinas, golf courses, a dozen shopping centers, scores of new industrial, residential, and agricultural sites. Two thousand new housing units a year would be built on the Irvine property. From the sale of her Irvine stock Joan received $72,000,000 in cash plus 10 percent of the new company, making her one of eleven charter owners, and she was given a seat on the new company’s executive committee, where her “zeal and historical perspective” toward the Irvine property were intended to be put to full use. Surely, everyone thought, she must now be satisfied.

  Alas, it seemed, she was not. The honeymoon with the new company lasted less than a year before she was back to her old habits, barraging the new board of directors with questions, challenges, accusations of mismanagement, and threats of lawsuits. Her activities placed a particular strain on the new company’s president, thirty-eight-year-old Peter Kremer, who began receiving as many as ten hand-delivered messages a day from Joan; over an eighteen-month period in 1978 and 1979, Kremer’s office had to cope with more than 1200 of her letters and angry memoran
da. Her behavior on the executive committee was so uncooperative that she was removed from it. If anything, she was harassing the new board of directors even more enthuisastically than she had the old foundation.

  In March 1979 she sued the company to block a $3,800,000 expansion of a pipeline designed to bring water to the development from northern California and the Colorado River. When a judge refused to grant her a restraining order, Joan sued Mr. Kremer and eight directors—who owned roughly 80 percent of the development company, including Mr. Bren, who owned 35 percent—for $1,000,000,000. All this friction came at a particularly bad time for the new Irvine Company owners, who, in spite of a refinanced debt of $240,000,000, were still not in the clear. A year earlier, trying to convince doubters that the heavy borrowing undertaken by the new owners was under control, Mr. Kremer had released glowing figures that showed a 60 percent revenue growth for the fiscal year 1978. By 1979, however, he was releasing no figures.

  Today, Joan Irvine Smith is approaching fifty, still slim and attractive but with a touch of gray in her blond hair and new lines of determination around her wide mouth and large, hooded eyes, which she inherited from her grandfather. She spends as much as eighteen hours a day preparing for the various hearings, giving depositions, going over the fine points of her litigations with her team of attorneys, dictating her endless stream of letters. Meetings of the board of directors of the Irvine Company are still stormy affairs, full of reproach and bitterness and insults. Joan used to fly back and forth—piloting her own jet—between her beach house in southern California and her horse farm in Virginia, her legal residence. But now she has more or less permanently settled in her California camp—an armed camp, literally—to fight the fight she says she will never give up while there is any fight left in her.