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Charles Wohlstetter, Contel Corp.

Charles Wohlstetter, Contel Corp.

I am probably only a minor league curmudgeon. But the general definition of curmudgeon - someone who is crusty, irritable, and mean-spirited - is all wrong. Actually, a curmudgeon is somebody who detests hypocrisy and punishes it where he sees it - and tends to say it in ways that startle people. People know what I think. I'm upfront. I believe that everybody has the right to make a damn fool of themselves. Most people just overplay their hand and get carried away. When that happens, I like to be around.

I have large questions about how people construct their boards. The usual 1940s, '50s, '60s board, and even into the '70s, were fellows in marvelous double-breasted blue suits with gray hair who nodded in accord and synchronization with the chairman. You got the chairman of this, the chairman of that, and the chairman of the other. If you look at an American Telephone, almost forever they've had the chairman of Metropolitan Life, the chairman of U.S. Steel, the chairman of Mobil Oil, and a whole group of people like that - good fellows all, I'm sure, but what the hell they know about the communications business escapes me. I don't know that a CEO, who himself has to be a leader, is helped at all by 19 chiefs.

I suspect that my own board is one of the few that makes any sense, at least to me. I have a board that you will find in very few corporations.

We're a high technology business - higher than anybody dreams. I have a technology committee of the board, and on that committee are Jim McDonald, our chief scientist; Robert Long, the former commander in chief of the Pacific Fleet, a graduate of Annapolis who is a brilliant strategist and engineer; and Howard Frank, the chairman of a very good software company. They judge the technological problems that are brought for funding. If you don't have that kind of intelligence on the board, people can sell you a piece of cake.

I remember the first business that I started was in what would today be a very low-tech business. We manufactured subfractional horsepower motors during the war. It was my first intimate contact with engineers, and I found an amazing thing. Every engineer with whom I spoke thought he was Steinmetz - in fact, assured me that he was school at NYU and studied electrical engineering. Then I found out they were not Steinmetz, they were Steinberg - entirely different.

In one year we built as many as 52 buildings. I believe that's being in the real estate and construction business. Questions arise. Who decides what the building is going to look like? Who selects the contractors? How are comparative analyses done? Who is going to do the interior of the building? Well, I have Bob Caverly on the board. Bob conceptualized Hilton International. Conrad Hilton gave him $350,000 and what you see - such as the Athens Hilton, the Istanbul Hilton - are products of Bob's idea. When we built the Contel Technology Center in Fairfax, Va., we had Bob see that things were going in the right direction. We brought the building in $7 million under budget and two months early.

One of the biggest costs in my business is insurance. We have Howard Sloan, one of the leading experts in the world on insurance. One of the things that telephone companies do terribly is market. Their idea of marketing is to sit down and wait for a phone to ring. I have Jerry Wind from the Wharton School of Business: Jerry is magic to me. I have marketing forums in Atlanta or other offices and Jerry will spend two or three days with the marketing group from all over the world.

Every director has to have a discriminator. Why is he here? What can he do? And I think my board answers that test. I don't know too many that do.

Now you tell me how these institutions are going to bring to the party people who will be useful rather than difficult. You have to have a cohesive board with an open mind. I've been involved in situations in which there was a schism on the board. It's terrible for a corporation. After a lot of years, I've learned some things. Boards don't manage. You can't mark your own examination papers. Boards set policy. Managers manage. The minute you break that line, you're making a bad mistake.

I had dinner a couple of months ago with Peter Drucker. Peter said, |My God! Everybody in the whole world is trying to think in terms of developing into the American model, and we're backing into a pension fund socialism.' Think of it. New York State Controller Ned Regan has $44 billion to manage. Dale Hanson at CalPERS, $60 billion. I have a belief that nobody in the world can manage $60 billion. One hundred people like that control not only the Fortune 500 but the major industries in America. Do you think that's healthy? I think it's horribly dangerous, particularly when you consider the intellectual level of the bureaucrat. If you believe that this is a risk-reward society, you're not going to go to a bureaucracy to take risks, are you?

Most astonished fellow

The day before I went into the telephone business I thought there was one telephone company. When I found out there were 4,650, I was the most astonished fellow you ever met. They hated me when I went into this business. I didn't know what you couldn't do. Somebody would say, |Hey, you can't do this.' I would say, |Who says so, and why?'

It turned out that you could do it because the world had changed, technology had changed. Most of the conventional wisdom was based upon Alexander Graham Bell and Kingsbury. That's why we really were successful. Everybody was reaching for the past, and we were reaching for the future. That's been the difficulty that some large corporations have had. They are not susceptible or friendly to change.

I think we're living in a time where daring is prudence. Where people who, in effect, are protective of situations, who try to monitor or maintain a situation in its present condition, are fated for disaster. You are in a changing environment, in my business, in particular. The day of the plain old telephone man is long since gone. They just won't lay down and die. The companies that are run exclusively by this kind of a bureaucrat surely are not making any progress now, nor will they ever. They are going to be out-stripped by young people who have new ideas, who have visions, and, moreover, who have the charisma to make employees believe in the substance of what their vision is. That does not answer the manager who is merely there to put his arms around assets to protect them.

Institutional investors keep saying. |I own the stock.' They don't own a damn thing. What they do is pretend to manage funds that don't belong to them - over which they have no ownership - so that if things go well, they can't profit by it, and if they go badly, they'll just blame it on the marketplace. They frequently can't even be fired because they have civil service tenure. What they are is the same things as a trustee would be in a will. They have a fiduciary responsibility. But there is no God-given information to them. They are not at birth injected with some kind of smart fluid that suggests that they even know how to run anything.

If an institutional investor is unhappy with management, he should sell out. That's all he has to do. Say |whoops,' admit that you made a mistake, and get out. It is not to say, |I made a mistake, therefore I'm going to punish you, and the way I'm going to do that is I'll scratch my head and look in the phone book and get somebody who is going to tell you how to run your business.' What foolishness.

What advice would I have for a CEO who is being targeted by a CalPERS? Fight them as hard as you can. Make them get up and tell you what their skills are, what their history has been that suggests that they would even recognize a good manager if they tripped over him in the street. Question them on why now want to sell it. Ask them about the future. How are things going to go in Europe? Ask them what they know about the communications business, or why they think someone else can make the M-1 tank any better than Lockheed. They don't know anything.

Did we get any institutions objecting to the merger? Initially, we had one fool who simply couldn't understand it. He screamed that the stock was worth $85 and I was selling it for $42. I called him and said, |That's marvelous. How would you like to pay me $76?'

He ultimately voted his stock for the merger, but he put out a terrible letter that I simply wanted to make a deal. The day I formed Contel I was worth more millions than I ever wanted in my life. I don't believe money is worth anything until you spend it, and there was nothing I wanted. I have a nice family existence, and mostly we're interested in intellectual pursuits. We're not jet setters. I'm not a great fan of owing money. I was born in 1910. I grew up between two wars and the biggest depression we ever had. I learned a lesson, and I never forgot it. I've never owed money myself. My kids don't owe any money. I tell my kids, |If I ever catch you owing money, I will kick your ass from here to Mecca.'

I was a great friend of Ben Graham's, and I used to sit at the feet of his wisdom. He once said to me, |Sonny, let me tell you something. Stocks are not worth book value. They're not worth intrinsic value. They're not worth any of the labels these people give down on Wall Street. They're worth what you can sell them for.' And do you know what? He was right!

Our merger with GTE, in theory, is the perfect marriage. General Telephone has $34 billion in assets. They are the paradigm of bureaucracy, and they know it. They have very competent people, but ideas did not spring like a phoenix from the ashes. We are very entrepreneurial. We have good people, but we also have stars. We have people who have been brought up in an environment that says, |Do something, get an idea, run with it, I'll support you.' They're used to that. If we can make a sensible marriage of these two cultures, we'll have the finest company in the history of the business. We'll have the biggest anyway, but big is not good enough.
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Publication:Directors & Boards
Article Type:column
Date:Mar 22, 1991
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