A Ceo Undone By Fungus

He nearly doubled Louisiana-Pacific's sales in three years, increasing profits five times. But ultimately, Chairman Harry Merlo, who resigned abruptly on July 31 with two other LP executives, was undone by mushrooms.

The forest products company has spent $46 million over 10 years to fight and settle claims that a wood-siding product sprouts mushrooms after installation. Also, a federal grand jury in Denver recently indicted LP and two former mill workers for alleged Clean Air Act violations and fraud, sparking several shareholder suits. Then there's a pending suit against Merlo and other execs by a former secretary alleging sexual harassment against female employees.

The litigation sparked an internal probe by a committee of outside directors. The upshot: Directors "lacked confidence" in management, said Donald Kayser, a director and retired Morrison Knudsen exec who will act as LP's chairman and CEO. Merlo, 70, a maverick well known in Portland (Ore.) for sporting Italian suits with cowboy boots and hammered gold jewelry, won't comment.