The Billionaire Who Wasn't

by Conor O'Clery

  The head of Host’s duty-free operations, Ira Schechter, moved immediately to open a duty-free shop in the prime air terminal location, from which DFS was now ejected, and to construct a rival downtown store on the mezzanine level of the Waikiki Trade Center on Kuhio Avenue, a couple of blocks from the DFS shopping mall. Host’s downtown store opened on January 1, 1981, and was hailed as one of the most lavish duty-free outlets in the world. This was a real fight.

  Feeney called on his old friend Maurice Karamatsu, who for years had “looked after” the ten principal travel agents serving Hawaii to make sure they didn’t desert DFS. “I told him, ‘We have a second competitor here. We want to hold on to as much of the business as we can, 80 or 90 percent.’” Karamatsu replied, “I have been working with these people for a long time, and it would be bad for them in Japanese culture to walk, and start supporting someone new, especially as we have been giving them checks for all this time.” He went to the travel agents and said, “You have got to live with the people who put you in business.” Host International found out what DFS was paying in commissions and offered 20 percent more, but the agents stayed loyal and continued to bring the Japanese tour groups to the DFS stores directly from the airport.

  “DFS had the advantage of brand recognition,” said Phil Fong. “Chuck knew that the Japanese-speaking sales associates were very loyal and hardworking and hard to come by. There was a scarcity of such bilingual staff. We also had special arrangements with the tour guides, the local guides, the bus drivers, and the taxi drivers. We gave them lunch, and we had a comfortable TV lounge to encourage them to stay longer so their customers could shop. They knew they could relax, and that we had more to sell, and they would get more commission.”

  DFS employees also felt a loyalty to Feeney himself, which counted for a lot when the rival store began desperately looking for experienced Japanese-speaking assistants. Having a kind and considerate owner meant more than a salary increase. “He took a personal interest in everyone,” said Fong. “He called employees by their first name. He said, ‘Call me Chuck.’ He stopped by my office along with his children one Christmas to say Merry Christmas. That is more to me than any pay rise or bonus.”

  It was all over in nine months. Host International needed one-third of the Japanese market to break even. It didn’t get one-sixth. It closed the store in September with losses of $25 million. They could not entice the Japanese tour operators to shepherd their flocks through their doors, even by dropping prices. “In Hawaii they used to call us yoku bari, which means ‘the greedy ones,’ because we were always trying to close down any type of opportunity that came up,” recalled Feeney with a laugh.

  In November 1981, the action moved to New York. At Pilaro’s urging, DFS made a bid for their hard-hit rival and Host agreed to sell at $24.25 a share, but on the Friday afternoon they were to close the deal, the Marriott Hotel chain topped the offer with $29.00 a share. Feeney was nervous about getting into a bidding war, but on Monday DFS upped the ante again to $29.25 a share. Marriott topped that with an offer of $31.00 a share. The issue was resolved when Bill Marriott called DFS, and they agreed to divide up the company. DFS acquired Host’s duty-free concessions at Los Angeles, Boston, and JFK airports at $29.25 a share—a total of $31.6 million. Marriott got the hotels for $31.00 a share. They had been lucky again: Los Angeles turned out to be, in Pilaro’s words, “a gold mine.”

  The outcome of the whole thing, said Phil Fong, was that “it took DFS to a new level, strengthened our position on the Pacific Rim, gave us a stronger position on the West Coast and made us a legitimate operator on the mainland U.S.”

  It wasn’t long before a new front opened, this time in Anchorage, Alaska. In 1983, the four DFS owners bid $71 million to renew this lucrative concession for five years. Feeney was decisive in fixing the final amount. They were topped by a bid of $76.6 million, entered by an outfit calling itself International Duty Free Ltd., of Anchorage. Only someone with inside knowledge could have finessed them. It turned out to be Richard Wade, who had been Pacific regional president of DFS until two years before and had left with a generous settlement.

  The owners were outraged. They decided they would not take this lying down. “Chuck didn’t like to lose a bid,” recalled Adrian Bellamy, who took over as chief executive of DFS that year. “We moved in with lawyers all over the place to try and find some gap in Wade’s bid. Chuck was very much involved in marshaling everybody, and he was particularly good about keeping our chin up.” A handwritten note by Feeney, “It ain’t over till it’s over,” was pinned up on the wall of the Anchorage office. DFS filed a $20-million damage suit against Wade for allegedly violating a termination agreement not to compete against his old company.

  In the end, Wade was unable to come up with a required $17.2 million letter of credit, his bid was declared invalid, and DFS got the concession back by default. It was an important victory. The Anchorage store was ringing up about $100 in purchases from every international passenger, about ten times higher than the global average, in two bursts of frenzied shopping in the morning and the afternoon, when a dozen long-haul flights arrived on the way to or from Europe and Japan.

  CHAPTER 13

  Rich Man, Poor Man

  With the future of DFS secured for several years after the renewal of the Hawaii and Alaska concessions, Chuck Feeney reached an agreement with Danielle that when the day came to sign everything away, $40 million and the houses would be held back for her and the children, and the money paid out over a few years. It was the figure thought necessary to take care of “the houses and the kids and education and clothes and boats and artworks, jewelry,” recalled Harvey Dale.

  The Atlantic Foundation had worked well in the two years since its creation in 1982. The Feeneys channeled $15 million through the foundation in that time, of which $14 million went to Cornell. Cornell had given him everything, his Ivy League education, his launchpad to the world, his network of loyal friends. It would always have first call on his generosity. Feeney was overwhelmingly grateful to the Ivy League university for giving him the self-confidence to prosper in business. “I got a lot out of Cornell, more than a simple diploma,” he once explained to students on a visit back to the Hotel School. “It prepared me. When you come out of Cornell you have got good baggage. When you say ‘Cornell University,’ everybody knows it’s a damn good university, and the Hotel School is the best in the world.” Danielle was supportive, and was happy to receive thank-you letters addressed to Chuck and Danielle. They gave $2 million for a challenge grant to build a performing arts center at Cornell, for which Bob Miller put up a matching grant of $2 million. Their gifts also provided for scholarships for students from modest backgrounds to study at the Hotel School.

  By November 1984, they were ready to transfer everything into the foundation. But a wealth transfer of great magnitude in the territory of Bermuda would require the payment of stamp duty that their lawyer Frank Mutch reckoned could be in the region of $40 million. They decided to do the transaction in the Bahamas. There would be no stamp duty, if it was not a gift to the foundation but a purchase by the foundation, and if this occurred outside Bermuda. As everything was in Danielle’s name, it was arranged that the foundation would issue promissory notes to purchase the assets from her, namely, the DFS shareholding and the businesses, over a specific time period.

  They set a date for the transaction: Friday, November 23, the day after American Thanksgiving. It required the presence of Chuck and Danielle and the two lawyers, Frank Mutch and Harvey Dale. The Feeneys and Mutch arrived that morning at Nassau International Airport on flights from New York and Bermuda. Dale was due to fly in from West Palm Beach, but a thunderstorm lingered over the airport and delayed his flight. When the passengers were finally boarded and the captain announced, “I think there’s a window in the weather, and we can get out if you all are willing,” he found himself almost shouting, “We’re all ready to do it.” He remembered the occasion as being as near to a
disaster as he could imagine. “It was midafter-noon, almost four, when I arrived,” said Dale. “The Trust Company closes at 5:00 PM. The plane landed, I ran out of the plane, jumped into a taxi, ran up the stairs to the conference room, everybody was sitting around twiddling their fingers waiting for me. The closing had been scheduled to take two to three hours. We had one hour.” “Good to see you,” said Feeney as Dale entered, and they rushed through the closing.

  When all the documents were signed, the Atlantic Foundation had purchased the assets from Danielle by issuing non-negotiable promissory notes, through an underlying company called Exeter, for payment to her of $40 million over a number of years. In addition, Danielle retained the nonbusiness assets, principally the Feeney homes in various parts of the world, valued at $20-$30 million.

  With the stroke, or several strokes, of a pen in the law office, Chuck Feeney, at the age of fifty-three, had signed away his fortune, though as chairman of his foundation he could influence what was done with it. He was by no means a pauper, and he would also still be running the businesses as chairman of General Atlantic Group Ltd. and drawing an annual salary, even though his business empire was now wholly and irrevocably owned by his foundation. But he had gone from the cusp of billionaire status to someone with a net worth of less than $5 million. He would joke later: “How to become a millionaire? Become a billionaire first!”

  Although it was one of the biggest single transfers of wealth in history, not one of the people intimately involved could put a precise figure on what it was worth, even to the nearest hundred million. The foundation would later put it conservatively at $500 million. Frank Mutch believes that the total value of Feeney’s assets then could have been $600 million. Harvey Dale reckons it could have been as high as $800 million, a sum equivalent to the gross domestic product of Fiji or Barbados (that if invested at an annual return of 7 percent would be worth $3.8 billion in 2007). Paul Hannon, hired by Feeney as his general counsel two years earlier, suggested in a contemporaneous private memo that the assets were worth between $500 million and $1 billion, rivaling the capital of sizable investment banking firms such as Bear Stearns and far outstripping Morgan Stanley.

  The difficulty in making a precise calculation arose from the fact that DFS was a private multinational and the value of Feeney’s 38.75 percent shareholding was “in the eye of the beholder,” as he put it. On the basis of an offer for the company that Tony Pilaro had made that year to buy out the other owners for $610 million (in the end he couldn’t raise the cash), Feeney’s equity was worth some $236 million. But if DFS had been floated on the stock market, its value could have been much higher. On top of that, General Atlantic’s fast-growing holdings and investments were by this stage worth several hundred million dollars, perhaps half a billion or more.

  Among themselves, Feeney and Dale referred to the foundation’s assets as being divided into “church” and “state,” with “church” signifying liquid assets for making grants and “state” being the businesses and the DFS shareholding. With the transfer, 90 percent of the assets were in “state”—an unheard of proportion among modern charitable foundations, which rarely control any businesses at all.

  There was no celebratory drink or meal after the signing. Everyone rushed to catch their evening flights out of Nassau, Chuck and Danielle heading to New York, Harvey Dale back to West Palm Beach, Frank Mutch to Bermuda.

  As far as Danielle was concerned, it was just another of her husband’s business transactions, though one of great importance. She always did what her husband decided in such matters and she knew the assets weren’t hers, though they had been in her name. Harvey Dale was her lawyer, too, and they were both friendly with Dale’s family. She felt it was not for her to refuse, and she did not want it to become an issue in their marriage. She did not feel deprived in any way, though the $40 million was a fraction of the actual value of the assets.

  But she would not look back on it in time as a happy event. As the 1980s progressed, friends noted that she and Chuck were living increasingly separate lives. Feeney was always on the road, now more than ever, as his business and philanthropic interests consumed almost all his time. Sometime afterward, she began to feel resentful and confused about the future. She felt something very bad and serious had happened in her life. She began to worry about the children being disinherited. Her relationship with Harvey Dale became very strained. She believed that the lawyer had too great an influence on her husband, and she made her feelings known to him in verbal exchanges in no uncertain terms on a number of occasions when they met.

  The Feeney children were not sure what to make of their father’s relationship with the New York lawyer. They wondered among themselves about the extent of Harvey Dale’s influence, whether he had manipulated their father in any way, or if it was a case of Maimonides influencing Dale and Dale influencing their father. But they had little doubt that the idea of giving while living had germinated in their father’s mind for a long time.

  Feeney readily agreed that Harvey Dale was the most influential person in his life. “Yes, absolutely,” he said. “He is impeccably honest and is also a good person as a human being. He knew my motivations. The idea never changed in my mind—use your wealth to help people, use your wealth to create institutions to help people. I think he has the same pragmatic view that I have.”

  “Harvey was very influential,” said Frank Mutch. “He was the one behind it all, really. He espoused Chuck’s ideas. The unique feature was that Chuck never made any arrangement for himself to be provided for.” Feeney’s legal counsel, Paul Hannon, felt that Dale not only interpreted his wishes but “to some extent he created Chuck’s wishes.”

  Diane Feeney, the youngest daughter, recalled that sometime after 1984, Harvey Dale explained the implications of the creation of the foundation to family members. “I remember Harvey coming to see every single one of us,” she said. “I was in Cornell at the time. He dragged me out of a football game, so you knew it had to be pretty major, sat me down and explained that Dad wanted to give all his money away to charity, this was in the process of being implemented, and he wanted to tell us about it.”

  The cleverly constructed setup in Bermuda was flawed, however, as they discovered to their acute dismay a year later. Under Bermuda law, the Articles of the Foundation, lodged with the company registrar on Parliament Street, was a public document. Anybody could inspect it and ascertain that the members were Chuck Feeney, Danielle Feeney, Harvey Dale, Frank Mutch, and Cummings Zuill. There was no evidence that anyone undesirable—for example, a financial journalist—had inspected the register, but at any time Feeney could be “outed” as a member of the board of a secret philanthropy. There was only one solution—to have the law changed.

  Happily, the Bermuda attorney general was a former partner of Frank Mutch and understanding of their dilemma. The Atlantic Foundation lawyers drew up an amending act, inserting a new clause, 17A, into the Atlantic Foundation Company Act, 1982. This stated that only the attorney general, or a person named by the Charity Commissioners or by the Supreme Court, could inspect the register of Atlantic Foundation. Otherwise, it was to be kept secret from the public.

  “We put up a rationale,” said Mutch. “We said the members or the board didn’t want to receive solicitations; we didn’t want to be bothered with phone calls. We were a private foundation, but were not trying to hide anything.” The amending act went through before anyone noticed what was going on. “We closed the door before reporters got the names,” he said.

  It was a coup against freedom of information in Bermuda. The Royal Gazette, Bermuda’s daily newspaper, realizing what had happened, protested in an article about restricting the freedom of the press. It was too late. But for the first time, the name Atlantic Foundation came out in a newspaper report.

  In 1986, Feeney established a second foundation in Bermuda called the Atlantic Trust to handle U.S. giving. This was made necessary by new U.S. federal tax legislation that prompted the
four DFS owners to restructure the company into two groups: the U.S. and Guam operations and the non-U.S. and Pacific Rim operations. DFS holdings in the United States and Guam went into the Atlantic Trust and those in the non-U.S. and Pacific Rim into the Atlantic Foundation.

  No one in the world of philanthropy in the United States or elsewhere was aware that a major new player had come on the scene. Dale, who assumed the role of president and chief executive of the Atlantic Foundation, required everyone involved in setting up the foundation to sign a highly lawyered confidentiality agreement, drawn up by the Manhattan law firm Cadwalader, Wickersham & Taft, to protect Feeney’s privacy. Strict rules were formulated for the conduct of the foundation. No solicitations would be entertained. Gifts would be made anonymously, and those who received them would not be told where they came from. The recipients, too, would have to sign confidentiality agreements. If they found out anything about the Atlantic Foundation or Chuck Feeney and made it public, the money would stop. The Atlantic Foundation would be the biggest secret foundation of its size in the world.

  From the start, Chuck Feeney was adamant that he did not want recognition for his giving. There would be no plaques or names on buildings he funded, no black-tie “thank-you” dinners, no honorary degrees. People should not know that he was behind the foundation. Beneficiaries should not even be told its name.

  While this stemmed from the absence of a demanding ego, being secretive had become almost second nature to Feeney. Practically everything he undertook in his life depended on keeping confidences and maintaining a low profile. His family in New Jersey believe that it started with his intelligence work in Japan during the Korean War, which had been so sensitive he was not allowed to talk about it. In Europe, he had operated out of Lichtenstein like a character in a spy movie, always one step ahead of the immigration police. When selling booze to the fleet in Europe, he and Bob Miller had to rely on classified information on fleet movements, and their car sales in the Pacific depended on no one else knowing about it. Similarly, in the United States his monopoly on the five-bottle import scheme only flourished until competitors found out and muscled in. The whole edifice of DFS was based on secrecy. If a rival company learned how much DFS planned to bid for a major concession, it could outbid them and force them out of business. The key to getting some of the most profitable concessions was not letting airport authorities know just how much money they were making. As a private company, DFS did not have to declare its profits to anyone. Top managers in DFS had to sign strict confidentiality pledges about financial returns, and there was a written agreement among the four DFS owners that they would give only one response to press queries: “I would like to answer this question but I am bound not to.” John Monteiro recalled Feeney insisting at meetings, “Don’t go out and blow your horns about how big and successful we are.” And of course, when living in France, he was always apprehensive that his children might be kidnapped for ransom by some gang that thought, “Here is another guy who has got a lot of money.”