Call to Duty: Why Morrison Board Fired Agee
By Joan E. Rigdon and Joann S. Lublin
The Wall Street Journal
(Copyright (c) 1995, Dow Jones & Co., Inc.)
In his last hours as chief of Morrison Knudsen Corp., William J. Agee
was still displaying his trademark tenacity as he fought to keep his job.
As Morrison's directors checked into hotel rooms in San Francisco
Thursday morning for a board meeting, Mr. Agee worked the phones
and the hotel hallways, pleading for just one more chance to keep the job
they had already decided he should lose. Board members say that, right
up until the meeting began, Mr. Agee told them he could fix Morrison's
recently disclosed financial fiasco with action plans detailed in the
burgundy-colored folders his staff had prepared for the board meeting.
Unfailing optimism and suave salesmanship had propelled the 57-year-old
Mr. Agee through careers at Boise Cascade Corp. and Bendix Corp.
Though he left each company in a controversy over performance, these
skills helped him to emerge relatively unscathed. But they failed Mr. Agee
Immediately after he convened the board meeting at Morrison's offices
here, the other directors asked him to leave the room. Three and a half
hours later, board members Peter Lynch and Lindsay E. Fox slipped out
to tell Mr. Agee he was fired as chief executive officer, chairman,
president and board member, a decision key members had reached
earlier in the day under pressure from lenders. Mr. Agee re-entered the
room and shook hands with the directors, hugging several whom he
considered old friends. "It was an extraordinarily emotional evening," says
Despite the warm embraces, the verdict on Mr. Agee's six-year reign at
the Boise, Idaho, construction-and-engineering company was harsh and
clear. "He has ruined our company," says Velma Morrison, a former
director and widow of the company's founder, Harry Morrison.
Mr. Agee's ouster was the last act in a sharp about-face by Morrison's
board, which began 1994 as a complacent group of hand-picked Agee
friends -- with the exception of New York financier Robert McCabe, the
only director who wasn't chosen by Mr. Agee -- and considered
Morrison a conservative, "quiet company," says one board member. By
this year, the board had transformed itself into a band of critics that
methodically plotted Mr. Agee's exit with the allegiance of many
Morrison executives, including Mr. Agee's trusted friend, Stephen G.
Hanks. Mr. Hanks, the company's chief financial officer, is now acting
Mr. Agee, who declined to be interviewed, sowed the seeds of his own
demise last summer when he added two new board members whose
careers were built on gathering and analyzing intelligence: William P.
Clark, a former Reagan Administration trouble-shooter and one-time
California Superior Court justice, and Zbigniew Brzezinski, President
Carter's national security adviser.
More than the others, the newcomers became alarmed by a spate of
warning signs. Among them: an unexpected second-quarter loss
announced in July; the sudden resignation of director Peter V. Uebberoth
in November; and, later that month, a letter from mutinous Morrison
managers alleging financial improprieties by Mr. Agee.
After the board launched its own fact-finding mission last month, it came
to realize that its optimistic chief was running the company into the ground
-- a predicament punctuated by a warning from Morrison's bankers the
first week in February. Morrison was close to defaulting on $225 million
of loan covenants, warned the lenders, and the covenants wouldn't be
extended without a change of top management.
Having stood behind Mr. Agee until a crisis forced them to act,
Morrison's directors are now left with their friend's legacy. As Mr. Agee
headed back Thursday night to his sprawling estate abutting California's
famed Pebble Beach golf course, the company's reins were taken up by
two of his understudies, leaving some critics to question whether the
board went far enough in cleaning house. The 44-year-old Mr. Hanks
was considered inside the company as Mr. Agee's biggest cheerleader.
Robert Tinstman, the 48-year-old head of Morrison's mining unit, was
named acting chief operating officer. Both men, Mrs. Morrison wrote in a
letter to the board, are "Agee clones."
Besides the loan covenants, Mr. Agee leaves behind a company that is
behind schedule on major contracts and about to report a major
fourth-quarter operating loss that board members say is more than $150
million, more than double what analysts had projected. Morrison's stock,
which ended Friday trading at $10.25, is down from a 52-week high of
$29.875 and isn't recommended, writes Smith Barney analyst Tobias
Levkovich, "even for bottom fishers."
Morrison's stock was selling for nearly triple today's price when Messrs.
Brzezinski and Clark joined the board last summer, and little wonder. In a
letter to shareholders in Morrison's latest annual report, Mr. Agee
proclaimed 1993 a "banner year" and a "watershed period" for the
company's drive into railroad and mass-transit industries. The report
boasted $1.18 billion in order backlog, up from $1.16 billion a year
earlier, but didn't flag this other figure: New business in rail systems had
plummeted to $450 million in 1993, less than half the $1.05 billion logged
the year before.
Based on Mr. Agee's sales job, the company's directors considered
themselves lucky to sit on the board of a company known for grand
projects like the Hoover Dam. Some board members were novices at
corporate governance. But others were heavy hitters who were well
equipped to spot trouble: Mr. Lynch, Fidelity Investments' vice chairman,
for one, is widely considered an investment guru. "Some people are
surprised at guys like Peter Uebberoth and Peter Lynch letting things go,"
says Smith Barney's Mr. Levkovich. "The question as to where was the
board is not a bad one." Messrs. Uebberoth and Lynch have declined to
comment on the matter.
The first hint of trouble came in July, when Mr. Agee announced an
unexpected second-quarter loss of $40.5 million, after $73 million in
transit write-offs and a $5 million write-off for a hazardous-waste
Morrison directors say Mr. Agee told them that the setback was
temporary; they say that they didn't know more writedowns were likely.
As they later found out, Mr. Agee had bid low on several rail-car
contracts, gambling that customers would exercise options for additional
cars and allow Morrison to recoup the initial loss and make a profit. The
plan backfired, as customers either failed to exercise the options, or
waited too long to decide. This had caused the second-quarter write-offs,
and was one factor in the expected fourth-quarter loss, insiders say.
In October, with just 14 months until the end of his contract, Mr. Agee
informed the board that he would retire sometime in 1995, but that he
planned to stay on as chairman until his 60th birthday, in 1998. The board
gave the search assignment to one of their own, Gerard R. Roche,
chairman of Heidrick & Struggles Inc., a New York executive-recruiting
Mr. Uebberoth, head of the board's succession committee, resigned in
November, shortly after a board meeting in Denver, in which directors
got their first wind of fourth-quarter transit losses. Morrison said Mr.
Uebberoth left because he didn't have enough time to be on the board.
But Mr. Uebberoth was disappointed with Mr. Agee's management and
lack of progress and help in choosing a successor, board members say.
Over the years Mr. Agee had presented the board with several potential
successors, including some they liked. But he habitually dropped the old
ones for new ones, saying the old ones were no longer performing well,
people close to the board said.
After Mr. Uebberoth's departure came a more jarring incident. In the last
days of November, each director received an anonymous letter from a
group of Morrison executives calling themselves the "MK Committee for
The letter was the eruption of rank-and-file hostility against Mr. Agee that
had been simmering since he joined Morrison in 1988. Right off,
Morrison executives say, Mr. Agee irked subordinates by rejecting the
chief executive's office as too small and commandeering the board room,
which is nearly three times bigger. He offended old timers by removing
from headquarters the portrait of company founder Harry Morrison,
storing it in the basement and replacing it with a near life-size portrait of
himself and his wife, Mary Cunningham.
Mr. Agee further estranged insiders by quietly moving the CEO's office to
his Pebble Beach estate, and worse, scoffing at the company's
engineer-oriented culture. "You construction guys have been trying to run
the company for 75 years," Keith Price, who headed Morrison
Knudsen's MK Ferguson unit until he retired in April 1991, recalls Mr.
Agee telling him. "Now I'm going to show you how the financial guys do
The November letter pointed out just how the financial guy did his
numbers. Using numbers available from earnings reports and filings with
the Securities and Exchange Commission, the letter writers pointed out
that the percentage of the company's pretax income from nonoperating
sources such as asset sales and interest for the five years ending 1993
averaged 43%. In other words, Mr. Agee was sweetening profit reports
by selling Morrison off piece by piece, and investing Morrison's cash.
Meanwhile, lease obligations had rocketed. During the five years ended
1993, they had jumped, to $266 million at the end of 1993 from $38
million at the end of 1988. (To shore up cash, Mr. Agee had begun
selling assets, such as equipment, and leasing them back, Morrison
The letter also said that Mr. Agee was spending Morrison cash on
personal items: $7,050 for the Bill-and-Mary portrait, $7,000 for
Waterford crystal. In May 1992, Morrison paid $16,796.45 in legal
expenses for services "rendered on behalf of Mary Cunningham Agee,"
according to documents obtained by this newspaper.
And in a single paragraph, the letter foreshadowed the latest crisis: In last
year's second quarter, "initial projections of loss reserves to be booked
were at least $50 million greater than the approximately $90 million
actually booked. The obvious question is -- what happened to the
balance?" The loss is making its debut, senior insiders say, in the
soon-to-be announced fourth-quarter charge. Mr. Hanks says the initial
projection was a worst-case scenario that didn't materialize.
Such losses were partly the fruit of Mr. Agee's zeal for pushing for high
profit projections. Morrison executives say that Mr. Agee called up his
business managers every quarter and asked them what profit they
planned to deliver for the quarter; whatever the answer, he pushed for
more. "If they hemmed and hawed, he nagged them until they said,
`Yeah, I could do that,'" says one former Morrison manager. By the time
Mr. Agee finished the calls, the quarterly profit projections would be
nearly double the original managers' targets, the executives say.
According to one person close to the company, Mr. Hanks once told a
group of more than two dozen finance employees about this practice
during a staff meeting. Late yesterday, Mr. Hanks said the difference
between his management style and Mr. Agee's is "like night and day."
The first week in December, the succession committee sent a copy of the
letter to Mr. Agee, who hadn't received one. He referred the matter to
Mr. Hanks, who never responded. Mr. Hanks said they didn't do so
because the board never specifically asked them to.
Meanwhile, Mr. Agee saw that Morrison's fourth-quarter loss would be
huge, and began scrambling for one-time gains to offset it, Morrison
executives say. He sold the corporate jet, which cost $4 million a year.
When he learned the sale would be delayed over a weekend, he slammed
his fist on a table, exclaiming, "This is costing $4,000 a day!" insiders say.
Before the end of the year, he also sold an empty lot across the street
from the company's headquarters and accelerated talks to sell Morrison's
MK Gold unit.
Rather than pursue Mr. Agee for answers to the committee's letter, the
board did its own detective work. With Mr. Agee's knowledge, Mr.
Clark met with five group presidents, board members say, ostensibly to
learn more about the business and use the knowledge to help find a
successor to Mr. Agee as CEO.
In off-the-record telephone conversations and one meeting in San
Francisco, Mr. Clark individually questioned them and Mr. Hanks about
the company and Mr. Agee, people close to the process say.
Their answer, says one board member: Mr. Agee had lost the confidence
of his senior managers. After the interviews, Mr. Clark "felt the
management wasn't comfortable with Bill going forward," the board
member says. Mr. Clark declined all comment on the meetings.
On Thursday, Jan. 26, Mr. Clark shared his findings with his fellow
members of the succession committee. Then he called a special board
teleconference for Saturday, Jan. 28, to fill in the entire board, members
say. It lasted two hours.
While board members were irked by Mr. Agee's lavish spending, they
say their chief beef was that Mr. Agee hadn't warned them about the
perilous state of the balance sheet. "People felt they should have gotten
more of a heads up" from Mr. Agee, a board member says.
In the telephone meeting, with Mr. Agee on the line, Mssrs. Clark and
McCabe pushed for his ouster. Mr. Agee directed Mr. McCabe to
prepare a news release, board members say, but then developed his own
version, sparking two more telephone conference calls on Tuesday, Jan.
31 to haggle over wording.
The board wanted to strip Mr. Agee of all his titles, but Mr. Agee
resisted. Some board members argued that "how he would like to
announce his exit is up to him," says one director. Other members "were
clearly pushing for a different kind of press release," this director says.
In the end, the company settled for language board members describe as
"vague": Mr. Agee would retire as CEO when a successor was named,
but he would sit on the committee to choose his successor. There was no
mention of whether he would resign as chairman, president, or board
member. Mr. Agee planned to stay on the board through 1998.
If any one thing pushed the directors to act, it was an outside event: After
the Feb. 1 news release, lenders led by J.P. Morgan and Bank of
America informed Morrison that the company was close to default on
$225 million of loan covenants, and that they would decide in the next
two weeks whether to extend the covenants. "They said,`We could
extend it. But we aren't going to do it under current management,'" says
one person close to the board. Another threat: the banks said they
wouldn't provide cash in the future unless Mr. Agee was entirely removed
from the board.
After hearing this, key directors decided in phone calls that Mr. Agee
should be stripped of all his posts at Thursday's board meeting. By the
time they met in executive session, it was apparent to other board
members that a decision had been made. The putsch leaders met little
resistance. But in a sign of Mr. Agee's continuing popularity, they spent
three-and-a-half hours discussing the decision. "People care about him
personally, as a human being," a board member explains.
After Mr. Agee learned that he had lost and left the room, the directors
debated over who should become chairman. Several urged Mr. Clark to
do it, because of his active board role. He urged Mr. McCabe, the
longest-standing board member, to take the post, but Mr. McCabe
declined. That's how Mr. Clark became acting chairman.
Mr. Clark says his first priority is "to determine the true facts surrounding
the company and proceed accordingly." To that end, he flew to Boise
Shareholders haven't sued over the recent news, Morrison officials say,
but the board is preparing itself for the worst. It has retained two law
firms to represent it.
Morrison's auditors will also bear scrutiny. Deloitte & Touche, retained
by Mr. Agee in 1988, is in charge of Morrison's external and internal
audit, following a layoff last November of most of the internal audit
department. This effectively removes a layer of review that is considered
crucial for most corporations.
Deloitte's double duty isn't a conflict of interest because the accounting
firm has a "Chinese wall," so in essence it does two audits, a Morrison
spokesman said. Mr. Clark is dubious. "I'm studying the issue this
weekend," he said Saturday.
Morrison's search for a new chief may also raise eyebrows. Board
member Mr. Roche, who is conducting the search, is a friend of Mr.
Agee's and placed his wife at Seagram & Co. after she resigned from
Bendix amid rumors of an affair with Mr. Agee. (The couple got married
after she resigned, and have denied that they were romantically involved
before then). Mr. Clark says this isn't a conflict of interest, because Mr.
Roche doesn't sit on the succession committee. Mr. Roche declines to
In the meantime, there is some internal debate about who is running the
company. Mr. Hanks told a news conference Friday that he may be the
man for the job. "If, in coming months, [Mr. Hanks and acting chief
operating office Mr. Tinstman] demonstrate that we can run the company,
[the board] will change it from an acting CEO-ship to a permanent
The board thinks differently. Apparently, he overstepped his bounds with
that statement. Board members say they chose Mr. Hanks mostly
because of his close relationship with Morrison's antsy lenders, not
because they want him long term. "While he's expected to do a good job
under any conditions, that does not ensure his permanence," one member
Adds Smith Barney's Mr. Levkovich, "Morrison's management credibility
has not been high on Wall Street and Mr. Hanks has not done anything to
change that." Mr. Hanks, who has been CFO for one year, says he hasn't
had a chance to do so.
"For the moment, the board is managing the company," says Mr. Clark,
who is moving to Boise temporarily where he will meet with the five
group presidents daily and will conduct weekly telephonic board
meetings. He expects a permanent CEO to be named in "weeks or
months" and adds, "I'm anxious to get back to the ranch" where he lives
in Shandon, Calif.
Asked why the board didn't act sooner, Mr. Clark says, "I have no
As he leaves, Mr. Agee can look back on a company that is still run by
friends. But there is one sure sign he is really gone: After years of exile in
the basement, Harry Morrison's portrait mysteriously reappeared Friday
on a wall at corporate headquarters. Says Carol Monnot, wife of 31-year
Morrison veteran: "It was time to put Harry back on top."
John Dorfman contributed to this article.
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