News: Analysis & Commentary: EXECUTIVE SUITE
THE MORASS ENGULFING MORRISON KNUDSEN
As former National Security Advisers, Zbigniew Brzezinski and William P. Clark are no strangers to power struggles. Under Presidents Carter and Reagan, they proved formidable cold warriors. As outside directors at engineering and construction giant Morrison Knudsen Corp., Clark, backed by Brzezinski, masterminded the coup that ousted Chairman and CEO William J. Agee. But when it came time to rebuild deeply troubled MK, facing down the Russians almost seems easier. "I much preferred dealing with Brezhnev," says Brzezinski.
In five weeks as acting chairman, Clark worked to expose MK's true financial state. But on Mar. 20, he abruptly resigned as chairman and director. Brzezinski followed a day later. Both moves stunned a board still reeling from the dismissal of the free-spending and autocratic Agee in early February and the surprise appointment in early March of a new CEO, Robert A. Tinstman, who headed MK's mining unit. The company, hemorrhaging red ink, is involved in touchy talks with its banks to avoid bankruptcy. "This doesn't help us with our customers, our employees, or our banks," says a source close to the board.
RAIL TROUBLE. Not that all of Clark's moves to overhaul the company had gone down well. One of his first decisions was to bring in Arthur Andersen as the company's internal auditor, replacing Deloitte & Touche. But Clark irritated several directors on Mar. 5 when he recommended hiring an insider as CEO, without bothering to interview three outside candidates offered by headhunters Heidrick & Struggles Inc. That firm is headed by board member Gerard R. Roche. The reason for the hasty move, say several sources: bank pressure to get a CEO in place, plus middle-management preference for an insider.
The day before Clark resigned, he called board members to alert them to the announcement on Mar. 20 of widening preliminary losses for 1994 of $310 million, up from estimates of $135 million just five weeks before. The chief culprit: the mass-transit railcar business, which had grown fast by dangerously underbidding contracts, say rivals and analysts. At no point, say several sources, was there mention by Clark of plans to resign. Then, moments before the board was to meet by phone on Mar. 21, Brzezinski stepped down.
Clark and Brzezinski say it was time to go. Clark insists he always intended to leave early "to return to prior family and professional commitments." Other sources suggest he may have tired of sometimes rancorous discussions with other directors over the pace of change and the severity of MK's problems. Clark denies any frustration. One touchy issue he leaves behind: some $140,000 in fees he has billed for five months' work.
With Clark gone, Brzezinski says he felt "all by myself without any business background." The threat of future lawsuits also played a factor, he says. Already, shareholders have filed 18 suits against MK, executives, and directors, seeking more than $200 million for allegedly misleading financial forecasts. MK stock has plummeted from nearly 30 a year ago to about 61/2.
MK's immediate concern: gaining time from banks. It seeks to restructure $235 million in short-term debt on which it is in technical default and to raise $125 million in new loans. A source close to the board says MK thinks it can get a bridge loan by Mar. 31 to carry it through May and allow it time to sell off five noncore businesses, possibly raising $150 million. But dodging bankruptcy may yet be tricky, says Smith Barney Shearson Inc. analyst Tobias Levkovich. Sources close to the board say it hasn't seriously considered bankruptcy.
Longer-term, MK's mass-transit business poses the biggest problem. Sources say the board would consider a partnership or outright sale to offload the risk left from aggressive bidding for contracts. Meanwhile, though, MK is a year late on delivery of 113 transit cars, worth $215 million, for the California Transportation Dept. A $370 million contract for Chicago has been plagued by production glitches, and only 6 of 50 wheelchair-equipped cars due this summer have been shipped.
From his ranch in central California, Clark says: "This 83-year-old company has great vitality. I have no doubt about its survival." Even so, Velma V. Morrison, widow of MK co-founder Harry Morrison, worries about a board dominated by Agee's former supporters. "I'm praying and hoping we can get our feet on the ground," says Morrison, owner of 100 shares. Keep those prayers coming.By Richard A. Melcher in Chicago and Dori Jones Yang in Seattle, with William C. Symonds in Toronto