The Billionaire Who Wasn't

by Conor O'Clery

  The nuns were delighted with the arrangement and were profuse in their thanks to Chuck Feeney. “They pray for him every day,” said Jiri Vidim.

  CHAPTER 18

  The Wise Man Cometh

  While Chuck Feeney was exploring new ventures in post-Communist Europe, his partners in DFS were ganging up on him. On May 12, 1990, Bob Miller, Alan Parker, and Tony Pilaro filed into the office of the international law firm Allen & Overy, at 40 Bank Street in London, for an extraordinary directors’ meeting of DFS. Chuck Feeney was not there. He had long since stopped attending regular DFS board meetings. In his place were George Parker and legal counsel Paul Hannon, and it was they who took their seats around the conference table at the law firm.

  There was no small talk. The principals and the lawyers read from scripted legal documents. Miller put on a large pair of spectacles, and, as he recalled, “read the riot act.” After thirty minutes, the three shareholders voted to throw Feeney’s representatives off the board that managed and controlled DFS’s retail activities. They believed they had the legal power to do so. As Tony Pilaro put it, the will of the majority “can and does control.”

  George Parker and Paul Hannon furiously gathered up their papers and left the room. “It was a searing experience,” said Hannon. Chuck Feeney, cofounder, visionary, and owner (through his foundation) of 38.75 percent of DFS, no longer had a voice in the governance of the company.

  The four guys in a room had never really been four buddies in a room, but now they were embroiled in a dispute that threatened to break up the partnership. Alan Parker, the least excitable and the most high-minded of the three shareholders, had orchestrated the ousting of Feeney’s representatives from the board. It was the culmination of a campaign he and the other two had waged to get Chuck Feeney to stop his independent retail activities in Hawaii, which the co-owners maintained was competing for the same tourist dollars as DFS, and was therefore unethical competition.

  “It was awful,” said Alan Parker. “I felt very badly about doing this. Chuck was the visionary, the brains behind it, and there we were throwing him off.”

  The dispute had its origins in Feeney’s purchase in 1976 of Andrade, the retail chain in Hawaii that sold ready-to-wear clothes and casual gear such as aloha shirts and muumuus, popular items with tourists. Three years later Feeney had opened a big Andrade store in a new shopping center in the heart of Waikiki, just across the road from the DFS Galleria. In 1985, Feeney acquired three other Hawaiian clothing stores called Carol & Mary and four Honolulu fashion shops purchased from the Japanese trading group Seibu, which he figured “were losing their asses running it.” These stores, trading under the name of their Irish immigrant founder, Patrick Michael McInerny, had traditionally provided garments for Honolulu’s kings and high-society shoppers. One of the McInerny stores was located at the Royal Hawaiian Shopping Center in Waikiki, only two blocks from the DFS downtown mall. InterPacific, through which the purchases were made, had by 1990 become the second-biggest retailer in Hawaii, after DFS. Grouped together as the Hawaiian Retail Group, it had 600 employees and also held leases in the Royal Hawaiian Shopping Center, which catered to tourists. “Once they got into the Royal Hawaiian, I think that created the issue,” said Tony Pilaro. “If the customer is a Japanese who has $100, and you are after that, and we are after that, we are in competition.”

  Feeney reckoned that he had also gotten up his partners’ noses with his 1978 purchase of the 800-room hotel in Guam, where everyone was chasing the Japanese customer. The disagreement had been exacerbated after Feeney hired Paul Slawson, former chairman of the American University in Paris, to run InterPacific, in 1986. Slawson adopted a more aggressive approach to raking in tourist dollars in Waikiki, and Feeney didn’t rein him in. Always immaculately dressed and exuding a sense of corporate leadership, Slawson for a time represented Feeney on the DFS board, where his attitude grated on the mild-mannered Alan Parker like sandpaper. “He made himself persona non grata [with DFS directors] because he was clearly competing with them,” said Paul Hannon.

  Things got so tense that in mid-1988, Paul Hannon initiated discussions with William Norris, a lawyer representing the other three DFS owners, to see if they could resolve the problem. In five months of meetings they got nowhere. Feeney was clearly not going to budge. In January 1989, the co-owners engaged Mark Kaplan, a lawyer from the Skadden, Arps, Slate, Meagher & Flom law firm in New York who had formerly been Tony Pilaro’s designated representative on the DFS board and who had a reputation as a rainmaker, to act as intermediary. Kaplan made a swing through Europe, canvassed the views of the three co-owners, and presented their concerns to Feeney through Hannon. He came up with a series of recommendations, but they were never acceptable to all the parties. Miller thought they were “too legalistic.”

  Parker believed Feeney saw no problem with what he was doing. “The bottom line was that Chuck saw himself making a greater contribution to DFS than anyone else. Therefore he could do on the side whatever he wanted to do. I saw it as morally wrong. Chuck never saw it that way.” He also maintained that Feeney’s retail business “was increasingly concentrating on selling to Japanese tourists and obtaining supplies from existing or potential DFS suppliers,” and he was concerned that Feeney was using his “DFS hat” in dealings with suppliers to gain favorable price terms for his businesses. Feeney said this was simply not true. His retail business was 90 percent for the local and not the Japanese tourist market, and they never advertised for Japanese customers.

  Bob Miller didn’t see Feeney’s actions as unethical or immoral. He saw the situation as “a sort of ego” play between himself and Feeney, of which Andrade was the manifestation. Why else would he want to compete when he was making 100 times more money out of DFS, he wondered. They all knew Andrade wasn’t making any real money. When Feeney set up Andrade “right in our front yard in Hawaii,” Miller said he told him, “You can’t do this, Chuck. For Christ’s sake, there are plenty of opportunities where you can invest your money on a noncompetitive basis. Why do you want to crawl up our backside?” But he reckoned he knew the answer. “I always figured that deep down beneath the surface he sort of resented the fact that he didn’t own more shares of the company [DFS]. This is my own personal opinion.”

  Some of Feeney’s friends were also critical. “You don’t open another store in competition, chasing the same money,” said Jean Gentzbourger. “I think basically that is not a fair way of doing business. I wouldn’t do it. Chuck should have stopped.”

  The huge bid of $1.151 billion for the Hawaii concession in 1988 had worsened relations. Parker was “outraged” by having Chuck compete with DFS at this time in Honolulu, Pilaro said.

  Adrian Bellamy, who was running DFS for the owners, thought it was a storm in a teacup. He didn’t think Andrade was taking money out of their pocket, though it was “pissing in your soup to some degree.” He believed Feeney did it because it was what he liked doing. “He has always done various things. Andrade came along and he bought into it. He was fascinated by it.” The truth was, Andrade never made any money, except from Ferragamo shoes, said Mike Windsor, who ran InterPacific before Slawson took over, and many of their stores were on the other Hawaiian islands where there was no DFS presence.

  Feeney himself was dismissive of their concerns. “There was a period when Bob was living in London, a bid came up for an airport, and Bob and Jean Gentzbourger bid for it themselves outside of DFS. They wanted to operate the concession. Nobody ever bitched about that. That was fair game,” he said.

  Looking back, Paul Hannon argued that Feeney’s business activities were in no way improper. There was no agreement among the DFS shareholders preventing it, and other shareholders had pursued similar private retail operations in the past, he maintained. Moreover, Feeney’s Hawaiian retail stores were never important operations and they never made money. His assessment was that Alan Parker genuinely believed that what Chuck was doing was morally wrong, that Miller just saw ano
ther opportunity to “get at Chuck,” and that Tony didn’t really care but that he tried hard to resolve it, as it gave him some control of a major issue among the “big boys.”

  On the basis of advice from his lawyers that they had a legal right to oust Feeney’s representatives from the DFS board, Parker had organized the extraordinary meeting at the Allen & Overy office in London.

  “Finally they kicked us off the board,” said Hannon. “They thought that would pressure Chuck. It certainly pressured George and me. But Chuck said he didn’t believe we were doing anything important on the board anyway. That was sort of insulting to me,” he added, laughing. “But there was no pressure at all on Chuck. He couldn’t care less.”

  But he did care. Chuck was very upset by the charge voiced by Miller at the meeting in Allen & Overy that he was “usurping DFS’s corporate opportunities to earn profits outside of DFS.” “Chuck’s view was that the businesses were quite different, and there was no problem, so he didn’t agree with Alan,” recalled Harvey Dale. “In hindsight it might have been more prudent not to do that [open stores next door to DFS in Hawaii] but the stores were selling things that weren’t any important part of DFS business. I can understand why he did it. Remember that of the various passions that moved Chuck, this entrepreneurial thing is embedded in the bone marrow. It’s very strong, so he saw an opportunity and he wasn’t reflecting on whether it would be provocative or otherwise. It probably never even entered his mind. He thought this is a good thing to do, let’s go and do it.”

  Throwing Chuck’s representatives off the board “was a huge overreaction and we obviously couldn’t tolerate that,” continued Dale. “We were prepared to take legal action and consulted counsel in various countries of the world. We had meeting after meeting after meeting internally to talk about what to do.” Litigation would have blown anonymity, “but we were at an impasse and eyeball-to-eyeball and on the cusp of litigation with all of its risks.”

  Saddam Hussein became the catalyst for resolving the dispute. On August 2, 1990, more than 100,000 Iraqi soldiers backed up by 700 tanks invaded Kuwait in the early hours of the morning. The Iraqi dictator threatened to turn Kuwait City into a “graveyard” if any country dared to challenge him. President George H.W. Bush condemned the attack as “a naked act of aggression.” War involving the United States was inevitable. The alarm bells rang throughout DFS. A war would send world tourism into a sharp decline—and with it DFS dividends. Feeney was in Dublin that day and he was told the news by John Healy, whom he met early in the morning. “His face turned absolutely white and he turned around and ran up the stairs and he didn’t emerge from the apartment for the rest of the day,” said Healy. “He was glued to the television. He spotted immediately the implications of that great event for international travel and particularly the traveling habits of wealthy Japanese tourists and therefore their propensity to buy duty-free goods.”

  On August 9, George Parker, who maintained good relations with all the owners despite being one of Feeney’s close business associates, flew to San Francisco, where he knew Bob Miller was attending a DFS board meeting to discuss the crisis. He waylaid Miller in the lobby of the Park Hyatt Hotel. “Look, this is stupid,” he told Miller over a drink in the lobby bar. “We’ve got to solve this problem. Business is tanking. Let’s meet without the lawyers and establish the ground rules on how we all work together.” Miller agreed it was worth a try. “We wanted to protect the integrity of the company and not to have a shareholders’ dispute that would tear DFS to shreds; it was too valuable an asset to play games with,” he recalled. Eight days later, George Parker sent a message to Miller to say Chuck had agreed. Tony Pilaro and Alan Parker fell into line. They all had bigger problems now. DFS cash registers were falling silent. Daily sales counts by the regional DFS president in Hawaii, John Reed, showed that takings in some weeks were down by 50 percent. “We were paying a million dollars a day in concession fees and we had no revenue, nothing coming in the door,” recalled Alan Parker.

  Miller had acquired a big yacht, and he took George Parker for a sail around the Cape of Good Hope. Feeney’s associate came back from the trip believing he had found a way out of the impasse. The proposed solution was arbitration rather than litigation. A “Wise Man” would be appointed to resolve the retail argument and future disputes. “We went back and forth, and George and I worked on it, and we finally got Chuck to agree to it,” said Hannon. On Wednesday, February 20, 1991, three days before the U.S.-led coalition forces began their ground offensive against Iraqi troops in Kuwait, the four DFS owners signed what became known as the Wise Man Agreement. “Then we were put back on the board,” said Hannon.

  Under the Wise Man Agreement, Feeney agreed to sell General Atlantic’s Hawaiian Retail Group to an unrelated third party by January 31, 1993. No shareholder would operate any retailing whatsoever in certain “dome” areas, including Hawaii and Guam. The owners would in no case invest in or develop any business interests that would directly and materially compete with either DFS or other DFS interests. They agreed on limitations to doing business with DFS suppliers. All shareholders were prohibited from operating on a worldwide basis any retail business aimed at Asian tourists. All disputes would be resolved by arbitration by the Wise Man. The agreement also mollified Miller by labeling the shareholdings A, B, C, and D. Bob got the A shares, Chuck the B shares, Alan the C shares, and Tony the D shares. Their value stayed the same. His co-owners suspected that Feeney had little intention of selling the Hawaiian Retail Group and would stubbornly hold out as long as he could. Events would prove them right. When challenged about obduracy in his character, he said, “I prefer another word—tenacity.”

  Tony Pilaro found the Wise Man in the figure of Ira M. Millstein, one of New York’s most prominent lawyers. A $500-an-hour senior partner in the prestigious New York law firm Weil, Gotshal & Manges, the then sixty-four-year-old arbitrator with glasses and receding white hair had been called to counsel high-profile boards such as General Motors, Westinghouse, and Walt Disney on issues of corporate governance. He had negotiated the bankruptcy settlement of corporate raiders Drexel Burnham Lambert. Millstein had a peripheral association with DFS going back ten years. Now he sat the four partners down and, as Pilaro recalled it, told them, “You jerks! You have got the greatest thing going. Come on! You have got to get together and find a method of resolving disputes.”

  Because of the disruption to travel caused by the Gulf War, dividends for the four DFS shareholders plummeted to a mere $12 million in 1991, compared to an average of $272 million a year over the previous four years. DFS had to negotiate with the Hawaiian authorities to defer $103 million in concession payments for two years.

  With the fall in DFS sales, Feeney’s rating in the Forbes rich list went down—from $1.9 billion in 1991 to $0.9 billion in 1992. Chuck Rolles had dinner with him in New York on the day the magazine came out with the new list. As they left the restaurant to return to the Cornell Club located twenty-four blocks away, he turned to Feeney and said, “Do you want to walk or take a cab?” “Well,” said Chuck. “Forbes just said I lost a billion in the past year so we’d better walk.” Which is what they did. In fact, in 1991 Feeney was personally worth less than $1 million, according to an audit by his accountants at Price Waterhouse.

  The downturn in the duty-free business was a huge setback for the Atlantic Foundation, which had made charitable pledges it could not now meet. These were legally unenforceable, because of the structure put into place in Bermuda, but they were “morally enforceable,” said Harvey Dale. This caused “severe distress to those donees and to us.” Dale found it “personally very painful” to inform Cornell president Frank Rhodes that they had hit a big bump and were not going to be able to make their commitment that year. With DFS in the doldrums, General Atlantic Group had to secure a $60-million line of credit from Hanover Trust to guarantee cash commitments. More liquidity was found in 1991 when Feeney sold the Pacific Island Club Hotel in Guam to a Japa
nese company for $200 million; he had bought it for $80 million.

  The tourist trade quickly recovered after the Gulf War, but the crisis, and the split among the DFS owners, reinforced an idea that Feeney had been mulling over for some years. The time was coming to sell Atlantic Foundation’s share in the duty-free business. The possibility of selling or going public had arisen before but never in a serious way. There had also been some discussions about splitting the company, with Bob taking Asia and Chuck taking the United States and Guam, but they had come to nothing.

  Feeney’s emotional ties to the company he had cofounded were also fraying. He was getting complaints about how the company ethos was changing for the worse as it expanded into a huge multinational. One senior executive wrote to Feeney in 1989 warning that the moral fiber of DFS had been corrupted. The owners had never asked DFS executives to do anything contrary to moral standards, and “we all sleep well at night,” he wrote, but now it had become like any other business, “insensitive, selfish and greedy.”

  Feeney asked Paul Hannon to draw up a list of public and private entities with large enough cash reserves to buy DFS. Hannon identified twenty-four cash-rich companies and individuals worldwide that could put up the estimated $2 billion needed, ranging from American Express to the sultan of Brunei, but it was clear to Feeney that in reality only a very few companies, like Louis Vuitton Moët Hennessy (LVMH), the world leader in luxury goods, based in Paris, were capable of buying and operating a giant retail operation stretched across the globe such as DFS.

  CHAPTER 19

  Stepping Down

  By 1991, the Atlantic Foundation and the Atlantic Trust had in secrecy made a total of $122 million in gifts over seven years. This spending was far below the 5 percent of assets required of American charities, but Feeney’s operation was unique in that it was top-heavy with businesses and properties, and only a small percentage of assets was in liquid form. Feeney was, however, keen to increase giving substantially. He was approaching sixty years old and wished to get more involved in putting the foundation money to good use. He decided the time had come to think about stepping down as chief executive of General Atlantic Group and devoting himself full time to philanthropy. When he mentioned this to Paul Hannon, his counsel asked, “Do you think you will enjoy that more?” “No,” he replied. “It’s much harder work because of the people you deal with and because there’s no bottom line, but that’s what I want to do.”