CHAPTER THIRTEENFunny thing about investor confidence: often as not it relies more on faith than facts. Give it a little unsettling heat, and it can just melt away. Belief turns to fear, then blind panic.Insight number two: the bigger you are, the more scared you tend to get. So what appeared to be a sudden Japanese loss of conviction regarding the U.S. Treasury's ability to meet its standing obligations received close attention from the world's bankers, fromZurichtoHong Kong. The Japanese securities outfits just kept dumping, and nervous phone inquirers from locales as diverse as the White House and Red Square were all advised that everybody was "in a meeting and will get back to you." As a natural consequence the world's major financial players succumbed to a terminal case of nerves.When the bond markets finally reopened on Wednesday, Treasury's thirty-year issue had scooted up four full interest points. There was still a market for Uncle Sam's IOUs—everything on this planet will move for a price—but buyers were wary. They wanted their newly perceived risk sweetened considerably.Predictably rates on corporate and municipal bonds did a similar tango north, leavingAmerica's conservative investors wondering what hit them. In fact, a lot of scheduled corporate debt offerings were scuttled to await more settled times and lower rates.The dollar also stayed on the critical list. Everybody was worried the U.S. Treasury might just rev up the printing presses to produce enough greenbacks to pay off all the foreigners who wanted their money back. Since Paul "tight money" Volcker—who probably would have thrown his robust torso onto the ink to prevent that from happening—was now gone, there was nobody at the Fed with a real commitment to holding back the flood.And the stock market. People weren't starting to call this Black November for nothing. A lot of players feared that the higher rates would hobble the economy, a perfect excuse to head for the exits while the getting was good. AsHendersonliked to observe: psychology is a fundamental too. The next day the Dow sank another two hundred points; the day after that a hundred more. (Where had those sellers been two days before?) The fourth and fifth days it slowed, heaved an audible sigh of exhaustion, and sort of peered up out of the bunker to see if the bombing runs had let up. The downward pressure was still evident, but it was finally losing some of its steam.Yours truly did a lot of thinking as the week wore on, while the country appeared to wobble on the brink of unprecedented disaster. I also conferred now and then with Jack O'Donnell and withHendersonin between their appearances on TV chat shows. Although Bill's bearish reading of the nation's estate had been vindicated well beyond what even he had envisioned, I can report he took small pleasure in his newfound celebrity; he was increasingly miserable over his own missed opportunities in the financial casino. Jack, for his part, had gained a profound appreciation of the helplessness of government to intervene when fear and greed seize the marketplace.My personal ruminations on the situation turned out to be too Machiavellian for anybody to entertain seriously. Question: If you wanted to pull all your money out of theU.S., is this how you'd do it? Answer: No way. Instead you'd go about it gradually, a little at a time, in order not to stampede the markets and cause exactly what was happening now.Ergo, I concluded, this isn't real. Noda just wants everyinvestor in the world to assume there's a Japanese pullout underway.But why the grandstand play? Sure, he'd made a pile, but he didn't seem like a guy who had to sweat his mortgage payments. Nor did this kind of market manipulation require a building in midtownManhattanand a computer setup to rival NORAD headquarters. Something more had to be coming. And the only thing I could think of was that Noda's something had a lot to do with my profession.This was not a welcome piece of prognostication to loose upon the world. Since the financial markets already had plenty of problems on their plate, there wasn't all that much interest in speculating about the next course. Consequently nobody made the slightest attempt to man the ramparts for what was ahead. Our financial battleship had been stopped dead in the water and its engines disabled, but nobody was even bothering to prime the guns. This couldn't be an all-out attack. Right?Wrong. The stage was now set for Noda's real move. The following Saturday I was summoned to Dai Nippon's midtown fortress where I watched my crazy theory become reality. Before anybody in our shell-shocked financial centers had time to digest what had happened, Matsuo Noda—his Dai Nippon Eight-Hundred-Year funds underwritten through a syndicate of Japanese banks and insurance companies led by the Dai-Ichi Credit Corporation, Ltd. ofTokyo—hit the beach.In the days to come I did manage to assemble a rough outline of how Noda pulled off his brilliant opening feint. It was elegant, and to savor it fully requires a quick peek at his reserves—Japan's bankbook.Start with personal savings, the hundreds of billions being squirreled away by individual Japanese. Then add to those monies the assets of Japanese pension funds, private savings organizations with several hundred billion dollars to lend out. Next come insurance companies and corporations, similarly awash in loose cash. Taken together, the total amount of excess capital inJapanis now well over five trillion dollars.If all those zeros befuddle you as much as they do me, try thinking of it like this: a trillion dollars is the size of the annualU.S.budget. So if the Japanese regulators opened the floodgates and let all that money roll, its citizens have the ready bucks to finance our government's entire budget—Lockheed, stockpiles, and pork barrel—for at least five years using just what's in their mattresses.As it happens, all this Japanese cash has become an important, nay, indispensable, component of the American financial scene. We and the Japanese are like an old married couple: they're the wife who scrimps and saves, we're the husband who borrows and squanders. The middlemen who rifle her purse and ship the proceeds to us are, increasingly, Japanese investment firms.At least half a dozen major Japanese securities dealers with offices inNew Yorkrun big bond departments. The foremost of these is, of course, Nomura Securities International, the world's largest brokerage house (having aced out Merrill Lynch). With over two hundred billion dollars in customer accounts, Nomura is now a primary dealer in U.S. Treasury issues, meaning they can buy directly from the government and sell to their clients. And since Treasuries pay several interest points better in return thanJapan's miserly savings accounts, their customers back home think they're getting a terrific deal. Little wonder Japanese investors finance a full third ofAmerica's budget overdrafts these days.Another major player is Daiwa Securities America, which also underwrites federal paper on its own. Nor should we overlook Nikko Securities and Yamaichi Securities, both handling money in the tens of billions. These outfits and others are well past the beachhead stage of entry into the world capital markets. They're entrenched; they're big; and they know how to play hardball. Were they involved in Noda's assault? Nobody ever knew for sure. But you figure it out.Banks. As it happens, the biggest one in the world is Japanese. The Dai-Ichi Kangyo Bank, Ltd. ofTokyohas unceremoniously reduced Citicorp to second banana. Rounding out the top five worldwide areFuji, Sumitomo, and Mitsubishi. And worldwide means everywhere.Japancontrols ten percent of theU.S.banking business, a quarter of all British banking. Of the ten largest banks in the sovereign state ofCalifornia, four are Japanese.Japanin brief has become banker to the world, with more ready money than anybody else, and it also has a battalion of financial samurai who know the game.What makes these Japanese players especially powerful is the kind of bucks they represent. It's called hot money—cash lent out short-term and therefore subject to immediate withdrawal. Instead of tying up their overseas bankroll for years, they stick to offshore investments that can be called in tomorrow. At homeJapaninvests for the long horizon, but abroad the bulk of the money is short. Hot money.Since foreign investors normally pick up well over half of a given Treasury refunding, the paralysis whenJapanbegan recalling its hot money, thereby spooking buyers worldwide, was as predictable as the sunrise. Matsuo Noda didn't have to be a Rhodes Scholar to realize how much mileage there'd be in a big Japanese sell-off program and a "no comment" from his dealers.Here's how he orchestrated the details. Apparently it had all been very Japanese, very consensus. A few phone calls, then a lot of meetings over green tea. Later on, some late nights with sake. Noda, thanks to his new clout, had been in the driver's seat from the start. The money managers inTokyowere all feeling the heat over demands by investors that they participate in the multiple Eight-Hundred-Year funds he'd floated. All acrossJapanpeople were starting to ask whether their savings were out there waving the flag too. A lot of those managers were starting to get edgy, so Noda thoughtfully struck a deal, a little consensus.Okay, hold your monies, but let's get organized. When the next Treasury collection plate comes by, don't roll over any more short-termU.S.T-bills and don't take a piece of the next sale of long bonds. In fact, that's the day you begin to divest. Staggering losses? No problem. I just happen to have everybody's portfolio insulated with futures contracts. Sell away, and even when the price plummets, nobody's gonna lose a yen. In fact, you can have a piece of the currency windfall I've set up. Apparently everybody shook hands on it, or whatever they do inJapannowadays.Consequently none of the big Japanese houses inNew Yorkhad to take a lot of risk. The sellers were covered by Noda's rate contracts, which I later discovered he'd passed along (at cost) to anybody who needed them. The rest he sold himself for a hefty profit. So in the course of his play, he incidentally raised several billions in additional operating capital for Dai Nippon while fully protecting the home team.When the dust had finally settled, it turned out he didn't actually liquidate very much Treasury paper after all. He didn't need to. In factJapandumped only about eight percent of itsholdings. If you think about it a minute you realize they couldn't possibly have hoped to divest everything they had in dollars. What would they do with all that cash? Loan it toBrazil?Veterans of world finance will tell you there were already precedents for this kind of Japanese muscle. Back in the mid- eighties, Nomura Securities had unsheathed its financial sword and totally controlled the Eurobond markets for about a fortnight. They were just letting everybody know they were in town. So there was nothing particularly unprecedented about a little number whereby a handful of Japanese banks and securities firms could, by concerted action, bring theU.S.financial system to its knees.Although I'd been convinced from the very first that Matsuo Noda had engineered the whole move, I had no hard proof. Besides, what was I supposed to do? No laws were broken. He was playing strictly by the rules. So I just took cover like everybody else and watched the marketplace disintegrate. My main preoccupation was a growing suspicion that Noda was now moving up his battery of guns for the next round of shelling.I was right. His Treasury sell-off had merely been a demonstration of firepower. Its effectiveness must have given confidence that his beachhead was secured, since he came ashore at the end of the week to take personal command of the real landing.He and his general staff hit town quietly and with no fanfare on Thursday, spent Friday in a strategy session, and on Saturday took over the computerized command HQ onThird Avenue. That afternoon Tanaka called and ordered me (very politely but curtly) to assemble my records and come uptown. The operation was being consolidated and Noda-san wanted me coordinated. From now on I would be working out of their offices.This was it. Just what I'd been waiting for. At last I could confront the bastard, one-on-one. No way was I going to be part of the big assault I saw directly ahead.My first look at the revised operation uptown confirmed my worst fears. The technical analysts had been replaced by a new set of troops: money men. Open collars were gone, supplanted by a lot of business-school types wearing thin black ties. Tanaka's office had been moved off to the side; the corner office now belonged to Dai Nippon's four-star commanding general: Matsuo Noda. After I'd cleared security, that's where I was led."Mr. Walton, how good to see you again." He looked up from a printout, his silver hair perfectly groomed. "I do hope today is convenient for you.""This is going to be brief." I ignored the chair he rose to adjust for me. "I'm only here to advise you that my participation is officially terminated as of this moment. I'll be sending you a final invoice next week. You can find yourself another attorney.""But your work has scarcely begun." He appeared to be mildly puzzled, as though I'd just made a small misstatement about the weather or some such. "We expect your participation to be crucial.""Surely you're joking." I was turning to leave."Mr. Walton." He shifted the printout around and shoved it across the desk. "Contrary to what you may presume, we are here to help this country. You might wish to look over our program for the near term.""This I've got to see." I came back and studied it for a few seconds . . . then stared back at him."Impossible." I finally realized he was serious. "Whatever you're thinking, I'll tell you right now you don't have a chance. These outfits have lawyers. Hundreds of them.""Ah, but that's why you are on our staff. This is your specialty." He smiled. "Remember the Book of Five Rings by the swordsman Miyamoto Musashi? In it he describes the three kinds of attack. There is the Ken no Sen, where you move first and catch your opponent unprepared; next is the Tai no Sen, whereby your initial move occurs a split second after your opponent's; and finally there is the Taitai no Sen, in which you and he attack at the same instant. What has happened up until today might be likened to the Ken no Sen. We have made sure that nothing was anticipated. Very soon, however, we will have to move to the Tai no Sen, responding with lightning speed to the moves of those who would thwart us. Miyamoto Musashi declared correctly that if you are attacked with force, you must counterattack with even greater force and thereby upset momentarily your opponent's rhythm. That moment can mean victory, but only if you are totally prepared." He leaned back. "We must be totally prepared.""Why in hell would I want to help you? I guess you didn't hear me. I've just resigned." I turned for the door. "Besides, nobody could pull off what you're planning. You're going to have battalions of attorneys moving against you.""I expect that." He stopped smiling. "But that area is your responsibility now, Mr. Walton. A good swordsman does not think, he acts. Intuitively.""And if I refuse?""You cannot possibly.""Try me.""Only you can handle this, Mr. Walton. Betray us, and you may well witness the disappearance ofAmericaas an industrial nation. The time is now or never."That zinger gave me pause. He meant it. But before I had a chance to tell him he was completely crazy, he went on to sketch out what he claimed was his objective. How he planned to address the American "crisis" and resolve it.Let me tell you my first impression of Matsuo Noda's scenario. It was legal, it was legit, and it was—as Joanna's teenage niece used to describe notable phenomena—totally fucking awesome.What's more, he wanted me to stay on as tail-gunner. The truth? I felt the disorientation of a kid who'd been fooling around in the Soap Box Derby suddenly being handed a slot in theIndianapolis500.The most astonishing part of all was, I had the feeling he just might pull it off.You're right. I should have said no, not on your life, this is way out of my league, never in a million years. . . .Instead I said I'd think about it.Good, he said. Why didn't I stick around till Monday and get a feeling for the operation?I didn't shake his hand. I just walked out and poured myself a cup of green tea from the huge urn there in the middle of the floor. Walton, you idiot, how did you get yourself into this?Which is when I spotted a sporty looking lady way across on the other side of the floor, over by the climate-controlled NEC mainframe. Something about her seemed vaguely familiar. Definitely not DNI staff. Wearing jeans, dark hair in a nice designer cut, handled herself like a mover. Not to mention a world-class bottom inside those tight, shapely Calvins. From all appearances she actually seemed to be second-in-command. She was reading the riot act to Tanaka about something to do with the computer, had the self-important little fucker bobbing and weaving. Who was that? Hadn't seen her around here before.Well, now, no time like the present to head on over and check into this. A fellowgaijin. Could be she'll explain what in hell's going on. Is Noda real?Suddenly she turned around, saw me, and stopped. I stopped. We both just stood there trying to remember. She hit pay dirt first, but I was only microseconds behind.Want to know my first thought, my very first thought? Matsuo Noda, you son of a bitch, you're even smarter than I'd given you credit for. You've hired the best, the very best."Is this how you pick up your women these days, Matt? Given up on vegetable stands?" She was walking toward me wearing a smile. I tried to grin back. "How are you, Matthew? Good to see you've still got your hair. Well, most of it.""TamRichardson, I don't believe this. Now I know it all is a dream. Please tell me you were kidnapped. None of this is really happening, right? It's just a very big, very bad dream. We'll all wake up tomorrow and go to the beach.""Welcome aboard, partner." She stuck out her hand. "It's going to be a wild trip.""No kidding." I looked her over as I took her hand. Nice and warm. Time had treated her well. Very well. "How long have you known Noda?""Less than a month." She was checking me over too. Wonder how I was doing. "How long have you been helping him?"It occurred to me that we both should have been using that classic hooker response when the guy asks his young companion how long she's been in her particular field of endeavor and she replies, "Long enough to know better.""Few months now. Noda is pretty impressive." I tried to sound casual. "Not to mention persuasive.""That he is.""Well, let's have a toast to winning this." I turned to the urn. "How about some tea, Professor?""Love it.""Tam, let's just hope these guys don't suddenly decide to eat us alive." I passed it over. "What do you think our chances of survival are?"That one startled her. I got the impression she was half thinking the same thing. Then she managed a thin laugh."We'll eat them first if they try.""You still talk tough. I always told you you should have been a lawyer."But she was right. Once the cards are dealt, you play to win.Which is exactly what I planned to do. Since my own part was still down the road, that weekend I just sat in their offices watching spellbound as Noda and Dr. Tamara Richardson reviewed the data and put together the financial details. Next, a lot of coded telexes were sent out to pile up somewhere inTokyowith instructions for routing of the funds.After I'd digested his opening move, I did have occasion to ask the boss a few pointed questions. Such as, wasn't he at all nervous that Wall Street might rebound before he could get rolling? He replied, correctly as usual, that the total collapse in the financial markets would last for a while. Even though the dollar was still down for the count (over forty percent), he figured only the most intrepid foreign speculators would go plunging into the American stock market looking for bargains. As for American investors, most of them, including the institutions, were still in shock. He rightly forecast that the herd mentality of the Street hadn't been repealed. War stories of '87 were going around and nobody wanted to make the textbooks as a fool. Better a little profit forgone than more money lost. The mutual fund managers, most of whom had been caught with their pants at half-mast, were devoting their energies that weekend to composing creative explanations.Events Monday proved him to be essentially on target. There was an eerie quiet over the financial landscape. Everybody was waiting for somebody else to try breathing life back into the corpse.Then a few analysts noticed something peculiar. Anonymous buy orders were coming in, more and more, for stocks in the sector hardest hit, high tech. Maybe it was bargain hunters, but the buyers weren't any of the "growth" mutual funds that might have been expected to lead the action. In fact, many of those hotshot managers were relieved to part with some of the dogs they'd ridden down that long, lonesome decline of the week before.Gradually the prices of certain securities began to edge upin this early thin trading, enticing more and more holders to "sell on strength." What issues? First off, anything to do with computers. Of course there weren't all that many hardware manufacturers left around by then, after the shakeout and mergers of the mid-eighties, but somebody was buying heavily into the few that remained. They were also actively purchasing little software outfits. Those stocks had taken a heavy beating over the past week, so prices were at an all-time low for most.Other industries they started to nibble at were telecommunications, aerospace, biotechnology. They seemed to be looking for outfits with substantial R&D operations: the focus was on creativity, growth sectors, the sunrise industries.Of course, what this mysterious new buyer was really doing was snapping up outfits loaded with labs and Ph.D.'s. Dr. Richardson and my new client Matsuo Noda had DNI acquiring companies short on competent management and market share but long on research, innovation—the one thing we were still halfway good at. Looked at differently, what Dai Nippon was really buying was underused brainpower, the American smarts currently going to waste thanks to inept corporate management.Explanations began to sprout all over the place—from the "Heard on the Street" column in the Journal to Dan Dorfman, a guy with a bloodhound's nose for Wall Street shenanigans. But the hard truth was nobody could put it together. Who could have? The play was too ambitious even to imagine.You guessed it. With the trillions and trillions now at its disposal,Japanwas about to take charge ofAmerica's future.CHAPTER FOURTEENThe task ahead can be described very simply. I was going to help Dai Nippon acquire controlling stock positions in a bevy of ineptly managed American high-tech companies, and she was going to be in charge of turning them around. I was DNI's takeover artist; Tam was the fix-it expert. That probably sounds a bit ambitious on everybody's part, but after watching the Dai Nippon juggernaut for a couple of days I knew one thing for sure: we'd have plenty of heavy backup.Why did I agree to ride shotgun for Matsuo Noda's "Save America" project? Because, if he meant what he said, such a program was long overdue. American industry was in trouble, and it was hurting a lot of good, hardworking people who didn't deserve to be hurt. Worse still, this wasn't some random act of God. It was largely the result of self-serving corporate management. Most occupiers of the executive suites these days were too busy merging and acquiring and leveraging to do what stockholders thought they were paying them for: building industry and creating American jobs. (Well, maybe that's an overstatement; they had kept Drexel Burnham's junk-bond cowboys working overtime.) In the mid-eighties, American corporations were spending two and three times more on mergers and acquisitions than on research and development. Most industrialists here no longer cared to try making anything as old-fashioned as competitive products; they preferred to make deals and sell imports. The net result was thatAmerica, the world's major economic locomotive, was veering off the track and seriously in danger of taking everybody else in the world along with it.That's where Matsuo Noda came in. Part of the arrangement he'd made with the Japanese institutions putting up the funds was that he would be given proxy to exercise all voting rights. Face it, he had a pretty impressive performance record overseeing the long-range planning and investment of well-run corporations. So after I'd helped Dai Nippon acquire control of a long list of poorly managed companies, he and Tam Richardson were planning to move in, clear out the deadwood, and lay down priorities for restructuring. She was Dai Nippon's technical director for all U.S. operations, which meant she was going to head up the team on the newly evacuated floor just above the financial section—Noda's management samurai.Enough theory. Here's how it actually went. On Friday the story was finally broken by The Wall Street Journal, a little squib in "What's News," with a short two-column analysis on page 3. The piece revealed that all the heavy new activity building in the high-tech sector of the market represented buys being coordinated by a new Japanese investment concern.This sudden, unexpected program of foreign investment was heralded at first as a salubrious omen, refuting those doomsayers who were claiming the world had lost confidence in theU.S.In fact, if anything it was proof that overseas enthusiasm was actually increasing.Japan's previous practice of focusing on debt instruments was at best passive investment. But buying heavily into a sector of the economy that appeared weak was something else entirely. It was a rousing endorsement ofAmerica's prospects.To be fair, there was still a modest case to be made in that direction. Our high-tech sector wasn't all struggling high fliers operating out of some one-story cinder block on Route 128 or the Washington Beltway.Americahad plenty of solid industry in high tech—computers, aerospace, office machinery—and American laboratories and universities were the envy of the world. The problem lay with the downside. We'd lost our lead in electronics, drugs, scientific instruments, plastics, communications equipment . . . it's a long list. In fact,America's overall trade balance in high-tech products had actually gone negative, shrunk from a twenty-five billion dollar surplus as recently as 1980. The ignored question, therefore: Given the direction things were headed, why were the Japanese suddenly supposed to be so impressed?The market's initial euphoria didn't last long however. By the end of the second week the SEC was sniffing the air and the lunch talk downtown, from the AMEX traders at Harry's to the expense-account crowd at historic Fraunces Tavern, wasfocused on what appeared to be a major shift inJapan's investment strategy. Now that the stock market was in shambles, they weren't just dabbling anymore; they were cashing in on the fire sale hand over fist.Thus the Street's early cheering melted into apprehension.Japanhad already taken apart our debt and currency markets, turned them upside down, and scored a bundle. Now Noda had Wall Street looking over its shoulder and reminiscing about the good old days when all it had to worry about was rich, crazy Arabs. When it became clear that Dai Nippon was assaulting theU.S.securities markets with high-speed computers and a checkbook that just kept coming, there weren't all that many wisecracks about camels and tents.Wall Street, however, merely counts; it doesn't think. The real disquiet was reserved for corporate boardrooms. Take it as a given that when the Securities and Exchange Commission reports some ten, twenty, or thirty percent of your company's stock has just been swallowed by a cash-rich Japanese raider, your attention can focus most exquisitely. In a word, Matsuo Noda was the talk of industrialAmerica. More to the point, and exactly what he had expected, the boards and CEOs of the companies being bought were beginning to be scared shitless. A major player with seemingly bottomless pockets was gobbling up heavy blocks of their publicly traded shares. Worse still, nobody had the slightest inkling why.What all those entrenched CEOs didn't realize, in their wildest paranoia, was that seven-figure salaries and cushy executive perks were about to go the way of Cadillac tail fins. World competition, not executive compensation, would be the new game. Playtime was over;Americawas about to get serious again.My early suspicions concerning my role in Noda's design had been precisely on the mark. I was indeed the freelance gunslinger he wanted by his side when the companies he was aiming at started to shoot back, which they surely would. Needless to say, if his plan was ever allowed to reach the courts, it would create a virtual "living trust" for half the corporate lawyers in the land. He'd be in litigation through the twenty-first century as managements fought to the last stockholder's dollar to keep their jobs.Enter Matt Walton. Time for some samurai-style legal swordsmanship.The rules: If you're CEO of a company and somebody starts buying up a major chunk of your stock with the intent of taking you over, you've got roughly four basic ways to stop him. The first is to try and bribe that buyer to go away, paying him a ransom—politely called greenmail—to sell his holdings and disappear. (More than one corporate raider you've read about in the papers has made millions in a couple of weeks using that very play.) The drawbacks of trying to buy off a potential acquirer are, (1) it's expensive, and (2) maybe he really does plan to eat you, in which case it won't work anyway. Matsuo Noda was in that category.A second popular means to thwart a hostile takeover is to go out and find somebody else to buy you first, the proverbial "white knight." Ideally this friendly buyer should be, (1) too big to be taken over himself, and (2) willing to let you keep your playpen.A third technique to stop somebody from acquiring a controlling chunk of your stock is to jack up the price, usually by offering to buy it yourself. Float some junk bonds, sell off a few divisions, do anything that will raise cash and then offer the shareholders more than the raider is willing to bid. This can be very expensive, but if you're a CEO with millions in compensation every year, why should you care if your stockholders' company is leveraged to the brink of ruin? You've still got your job and your goodies. It's used a lot.The fourth and most fashionable way these days to stop hostile mergers is to try and make yourself unmergeable. To do that, you get your board of directors to vote a poison pill. What this does is make sure that any company that swallows you is going to be ingesting a piranha that will eat said company's own guts instead. The newest twist on this is to use phony bonds with a so-called flip-over provision, a killer pill invented by a cleverNew Yorklaw operation I won't name but whose initials might be WLR&K. Their game is as follows. In order to protect yourself you invent some convertible bonds and stash them away somewhere, ready. Then, should a raiding company start acquiring your stock or make an unauthorized tender offer to your shareholders, you hand out these little bombs to everybody who owns your shares. If this unfriendly company is then unlucky enough to actually acquire you, those convertibles "flip over" into the stock of that buyer. Your stockholders suddenly have the right to exchange their funny paper for huge, discounted chunks of real stock in the acquiring company—which would, naturally, be ruined should that happen. And usually, just for good measure, you also vote through a few "golden parachutes" for you and all your cronies, giving everybody in the executive suite severance pay in the tens of millions.Those were the stakes. Now, a lot of outfits suddenly found themselves being bought by a mysterious Japanese entity named Dai Nippon, International. What were they going to do? At first of course everybody just assumed NDI was merely angling for a little greenmail. No such luck. After a couple of days went by and we hadn't returned anybody's phone call, they knew that wasn't it. Next, a few went looking for a white knight with more money than DNI (a tough assignment). Not surprisingly, however, most corporate managers very quickly decided to call a board meeting and ram through a poison pill.I got more than a few phone calls at my downtown office from CEOs wanting to know if I could pitch in and help them stave off what looked like an unfriendly Japanese buy-up. I had to say, sorry fellows, I'm unavailable. But why not give it your best shot and try the old "pill"?Most of them did. They had no option really.Which suited me fine.The time was late Friday—the afternoon was gorgeous, sunny and crisp—and the place was Noda's office. Naturally he understood all about poison pills, so he knew the problem. What he wanted to hear was our solution."I'd like to try something that's never been done before. A different battle plan." I glanced out at the blue sky and wished I was already inSt. Croixon holiday with Amy. "However, I think it's possibly just unconventional enough to fly.""It has to be legal, Mr. Walton." Noda leaned back in his chair, waiting."It is. But in order to lay the groundwork, we'll first need to set up a string of dummy corporations.""Any particular state?" He was listening closely now, his mind clicking away. I was never sure what the man was thinking, but I figured he'd probably seen it all before."That old standbyDelawareshould do fine, though you might want to consider going for some offshore tax-haven places, if only because the paperwork is minimal. In theCaribbeanI'd recommend theTurks and Caicos Islands, maybe theCayman Islands. Then there'sBermudaor theBahamasor theChannel Islands. If you really want to get esoteric, why notVanuatu—used to be theNew Hebrides—in the South Pacific.""I'm familiar with world geography, Mr. Walton." He was deadpan. A joke?"Fair enough. These dummy corporations of course will have no assets.""I understand." He smiled and ran his fingers through his silver hair, doubtless already miles ahead of me. "Absolutely no problem. Please proceed.""While those corporations are being set up, you continue buying stock in whatever companies you need to control, making sure in all cases that you acquire just enough to deliberately trigger their poison-pill mechanism. We force them to issue their flip-over bonds. They can't stop the process, since it's always set up to be automatic after a certain percentage of stock has been acquired. Not even the boards of directors can revoke it.""Yes, Mr. Walton. I'm aware of that." He didn't seem the slightest bit ruffled by my unorthodox opener."Well, let me elaborate. The reason we want to trigger their poison pill first is so that nobody can later come in as a white knight and save them. They're totally isolated. They'll have made themselves into sitting ducks.""Very good." He leaned back. Was he really that far ahead of me?"While that's happening, you 'sell' the stock acquired thus far to one of the dummy outfits we've set up, in return for debt paper. Which puts DNl at arm's length and untouchable. After that, you lend that dummy corporation the rest of the millions or billions necessary to acquire a controlling interest in the company, taking back as collateral more junk bonds at absurdly usurious rates. That makes it a financial leper, but you don't care: you're merely lending yourself the money. This paper corporation is all that can be touched when the acquired company's poison bonds flip over. So instead of being convertible into the stock of some cash-rich corporation, the way they were intended, those flip-bonds are going to give their holders a piece of some offshore phone booth with zero assets and enough debt to choke a horse. They're worthless paper. And you're in the clear."He smiled. "Which means our program can proceed on schedule?""Dai Nippon will be totally insulated from their poison pills. Like the guy who sells his house and boat to his company and then lets it file Chapter 11 bankruptcy in order to protect his personal assets from creditors. Nobody can lay a glove on you.""Mr. Walton"—he leaned back, a twinkle in his dark eyes—"that's exactly why I knew you were right for us. You have an intuitive grasp of tactics.""If you do this, there're going to be a lot of unhappy, unemployed lawyers in this town.""Most regrettable. Some of them might even have to go out and find productive work." He rose and shook my hand. "You've destroyed the prospect of years of legal roadblocks in a single stroke. It's elegant."It was. Sun Tzu and Miyamoto Musashi would definitely have approved. But there still had to be more. An unexpected opening is not enough in itself; it needs an equally deft follow-up. Bushido, the Way of the Sword, teaches that you should first surprise your antagonist, and then you must confound him. Both the initial attack and the carry-through are crucial to success. Among other things, that meant Noda's mechanism for calling a board meeting of the companies he'd be acquiring had to be instantaneous, without the usual niceties."This setup should do the job, but only if it's used with finesse. Otherwise the whole system gets buried in paperwork.""What do you mean?""You have to be fast, and flexible. Once you've taken ownership of a company, you've got to gain immediate control over its board of directors, in order to block any and all countermoves.""I understand.""Do you? I'm talking about the ability to call an executive session out of the blue. Thekesastroke of the sword. The power to cut a CEO in half before he can blink. No time for consensus and the usual Japanese niceties."He stood quietly, thinking. At last he spoke."In other words, I must be able to convene the board at a moment's notice. Is that the essence of what you are saying?""Nothing else is going to work.""Very well. After we have a commanding stock position, we can institute the necessary changes.""Good. Remember though, that's still merely half the battle. Besides being able to call board meetings, you need full authority to institute a shareholders' vote, which in this case will consist of nothing more than you signing your name.""Perfectly reasonable.""It is. But it also means you've got to be available to me at all times. Can I rely on that?"He turned and strolled to the window, pensively. "That may not always be possible.""Then you've got a potential problem."He revolved back and studied me a second, finally taking the bait. "There is, of course, one very simple solution. I can merely assign you power of attorney, allowing you to act in my name if I cannot be reached.""That would do it. But you'd be handing over a lot of authority.""I envision no difficulty." He looked me over with the self- assurance of a tiger contemplating a haunch of beef. "I have every reason to believe you would always act in DNI's best interest, Mr. Walton."It was possible he knew a few things I didn't. On the other hand, maybe Matsuo Noda had just overreached, taken too much for granted. Whichever it was, the maneuvering just completed had been one small step for Tam, and Matthew Walton. Should we ever need them, I'd just conned Matsuo Noda into giving me duplicates of the keys to his Kingdom. It was our protection and, in a way, my secret price for putting our heads into Dai Nippon's noose."Then it looks like we have everything we need to move forward." I nodded."Excellent."Upon which I absented his office, safety net in place. The play was on.Which brings us to Tam Richardson. If my approach to this new job was a little unconventional, what about the college prof who showed up in jeans as she readied to renovate corporateAmerica? One thing, we suited each other. It was a tag team made in heaven. After I'd pried open the door to the companies DNI was buying, she was going to roll in, guns blazing, and shove everybody against the wall.Let me add one important distinction, however. Whereas I may have been wary, even slightly skeptical, Tam was definitely the idealist. She was, by God, going to get this country moving again.Americawas once more going to lead, she declared, not follow. No defensive FortressAmericaclaptrap. Hers would be nothing less than a full-scale assault, intended to win back and keep a solid manufacturing base here, toe-to-toe with the world.Since no overall American program existed to rescue industries now being killed by foreign competition, she was going to do it herself, create a coordinated battle plan for our strategic sectors. Backed by Noda's Japanese billions, she was about to try and redeem this country's future, leading us back to number one. She also was quick to add she had no intention of merely copyingJapan's famous management techniques. Japanese industry, she insisted, hadn't invented long-term planning, sound capital investment, dedication. What they did over there these days was what theU.S.used to do. The American work ethic was alive and well; it was just temporarily on the wrong side of the globe. She was about to bring it home again.Maybe she could. One major impediment at least would be out of the way. Since the companies Dai Nippon was taking over would no longer have to answer to a lot of fickle fund managers every three months, they could start investing for the longer term. Also a lot of unnecessary fat was going to be sliced out of upper management. If things went as planned, Dr. Tamara Richardson and Dai Nippon were about to become the ruthless architects of a new corporateAmerica.Unless . . . well, there seemed no reason not to take things at face value, at least for now. DNI's new Industrial Management Section on the twelfth floor had already begun filling up with youngTokyoUniversitygraduates, guys who embodied the work ethic in human guise. They meant business. Nobody was sipping coffee and critiquing last night's rerun of Dynasty. I got the definite impression one of the unsmiling whiz kids in Noda's handpicked cadre could chew up about five American MBAs for breakfast. Tam currently had them working overtime, putting together a reorganization plan for an outfit inBoston, one of their new acquisitions, which I guess I'd better just call XYZ. The previous week Dai Nippon had purchased some twenty-four percent of its stock, presently at a historic low, and she was planning to make the company her showcase turnaround.Stock in hand, she'd buckled down with her new staff and using DNI's analytical machinery confirmed some alarming suspicions. It turned out XYZ was practically a terminal case, living at the moment off its real estate assets, which were being systematically dribbled away to mask heavy losses. Layoffs would be next.By Thursday of the second week, however, she'd put together a restructuring, including some painful austerity that might just salvage the company and its American jobs. She went home that night feeling quite proud of herself, and Friday she flew up toBostonfor her first official conference with XYZ's chief executive officer.Since a quarter of a company's shares gives the holder reasonably high recognition, the CEO was understandably nervous about who exactly had acquired a fourth of his company inside of a week and a half. He appeared atLoganwith his Rolls limo to receive Dr. Richardson personally.She explained right off that she was there merely to pass along a few of DNI's "recommendations." She took one look at the Rolls and added that, for example, one of the first was going to be to divest all limos forthwith, along with the new fifteen-million-dollar Gulfstream IV he'd bought for weekend fishing trips down in the Keys, and direct the proceeds toward capital investment.From there on things progressed pretty much as might be expected. By the time they reached his paneled office she had been obliged to explain that his options were either (1) to get in line, or (2) to watch DNI pick up another thirty percent of his company's O-T-C shares, then march him and his "golden parachute" past a stockholders' vote they would call to review his career options. After that she had claim to his unalloyed attention.It was a tough Friday. After she flew back late, she dropped by the office to pick up a few things and fill me in on how it went."Good. You're still here." She popped her head around my office door."Who won? The Christians or the lions?""Want to hear about it?" She came on in and dropped her briefcase on the desk."Wouldn't miss it for the world.""Matt, you should have seen the look on that man's face." She clicked open the case and pulled out the action plan she'd developed for XYZ. She was exhausted but still wired. "These CEOs forget it's shareholders who own the companies and pay their salaries. They start thinking they're little Caesars.""Hey, those are the kinds of operators who used to be my clients. Believe me, I know the type."She then proceeded to give me the rundown. Outfit XYZ specialized in high-tech widgets it sold in theU.S.,Latin America, andEurope. Problem: their widgets cost too much, broke down more than they should, and consequently folks didn't tend to buy them the way they once did. As a result XYZ had dropped about five million last quarter and (unbeknownst to its workers) was currently on the verge of closing two of its three U.S. plants and exporting the assembly operation someplace where it could exploit two-dollar labor, a move that would tank just over a thousand American jobs. Management says, gee, that's tragic, and awards itself another year-end financial tribute.Dr. Richardson had just dropped a bomb in the playpen. First off, she told them, XYZ's damned widgets cost too much not because American workers are overpaid, but because its assembly plants were a candidate for the Smithsonian. Therefore, starting immediately, short-term profits as well as dividends and all management compensation would be slashed and the resulting capital, together with a new offering of long- term corporate equities, would be invested in automating its facilities and retraining workers. There would, in fact, only be workers in future, since all freeloading middle managers, attorneys, and drones with titles such as 'administrative assistant' were to be terminated. She gave them a list.Henceforth, she went on, management would begin planning ten years ahead, not three months. XYZ would concern itself with world competition then, not now, and it would develop a substantially more diversified product line to cushion slumps. As part of that shift, it would double the budget for R&D immediately and expand the lab. Innovation would once again be brought to the product stage fast and adapted quickly to world markets. XYZ's new focus would be on making its market share grow in the decade ahead, which also meant cracking down on quality and halving the current customer-be-damned response time on deliveries and service. Concerning those last items, product managers would now be required to address customers' complaints personally. She figured that in itself would turn around XYZ's substantial quality control debacle overnight.
Funny thing about investor confidence: often as not it relies more on faith than facts. Give it a little unsettling heat, and it can just melt away. Belief turns to fear, then blind panic.
Insight number two: the bigger you are, the more scared you tend to get. So what appeared to be a sudden Japanese loss of conviction regarding the U.S. Treasury's ability to meet its standing obligations received close attention from the world's bankers, fromZurichtoHong Kong. The Japanese securities outfits just kept dumping, and nervous phone inquirers from locales as diverse as the White House and Red Square were all advised that everybody was "in a meeting and will get back to you." As a natural consequence the world's major financial players succumbed to a terminal case of nerves.
When the bond markets finally reopened on Wednesday, Treasury's thirty-year issue had scooted up four full interest points. There was still a market for Uncle Sam's IOUs—everything on this planet will move for a price—but buyers were wary. They wanted their newly perceived risk sweetened considerably.
Predictably rates on corporate and municipal bonds did a similar tango north, leavingAmerica's conservative investors wondering what hit them. In fact, a lot of scheduled corporate debt offerings were scuttled to await more settled times and lower rates.
The dollar also stayed on the critical list. Everybody was worried the U.S. Treasury might just rev up the printing presses to produce enough greenbacks to pay off all the foreigners who wanted their money back. Since Paul "tight money" Volcker—who probably would have thrown his robust torso onto the ink to prevent that from happening—was now gone, there was nobody at the Fed with a real commitment to holding back the flood.
And the stock market. People weren't starting to call this Black November for nothing. A lot of players feared that the higher rates would hobble the economy, a perfect excuse to head for the exits while the getting was good. AsHendersonliked to observe: psychology is a fundamental too. The next day the Dow sank another two hundred points; the day after that a hundred more. (Where had those sellers been two days before?) The fourth and fifth days it slowed, heaved an audible sigh of exhaustion, and sort of peered up out of the bunker to see if the bombing runs had let up. The downward pressure was still evident, but it was finally losing some of its steam.
Yours truly did a lot of thinking as the week wore on, while the country appeared to wobble on the brink of unprecedented disaster. I also conferred now and then with Jack O'Donnell and withHendersonin between their appearances on TV chat shows. Although Bill's bearish reading of the nation's estate had been vindicated well beyond what even he had envisioned, I can report he took small pleasure in his newfound celebrity; he was increasingly miserable over his own missed opportunities in the financial casino. Jack, for his part, had gained a profound appreciation of the helplessness of government to intervene when fear and greed seize the marketplace.
My personal ruminations on the situation turned out to be too Machiavellian for anybody to entertain seriously. Question: If you wanted to pull all your money out of theU.S., is this how you'd do it? Answer: No way. Instead you'd go about it gradually, a little at a time, in order not to stampede the markets and cause exactly what was happening now.
Ergo, I concluded, this isn't real. Noda just wants every
investor in the world to assume there's a Japanese pullout underway.
But why the grandstand play? Sure, he'd made a pile, but he didn't seem like a guy who had to sweat his mortgage payments. Nor did this kind of market manipulation require a building in midtownManhattanand a computer setup to rival NORAD headquarters. Something more had to be coming. And the only thing I could think of was that Noda's something had a lot to do with my profession.
This was not a welcome piece of prognostication to loose upon the world. Since the financial markets already had plenty of problems on their plate, there wasn't all that much interest in speculating about the next course. Consequently nobody made the slightest attempt to man the ramparts for what was ahead. Our financial battleship had been stopped dead in the water and its engines disabled, but nobody was even bothering to prime the guns. This couldn't be an all-out attack. Right?
Wrong. The stage was now set for Noda's real move. The following Saturday I was summoned to Dai Nippon's midtown fortress where I watched my crazy theory become reality. Before anybody in our shell-shocked financial centers had time to digest what had happened, Matsuo Noda—his Dai Nippon Eight-Hundred-Year funds underwritten through a syndicate of Japanese banks and insurance companies led by the Dai-Ichi Credit Corporation, Ltd. ofTokyo—hit the beach.
In the days to come I did manage to assemble a rough outline of how Noda pulled off his brilliant opening feint. It was elegant, and to savor it fully requires a quick peek at his reserves—Japan's bankbook.
Start with personal savings, the hundreds of billions being squirreled away by individual Japanese. Then add to those monies the assets of Japanese pension funds, private savings organizations with several hundred billion dollars to lend out. Next come insurance companies and corporations, similarly awash in loose cash. Taken together, the total amount of excess capital inJapanis now well over five trillion dollars.
If all those zeros befuddle you as much as they do me, try thinking of it like this: a trillion dollars is the size of the annualU.S.budget. So if the Japanese regulators opened the floodgates and let all that money roll, its citizens have the ready bucks to finance our government's entire budget—Lockheed, stockpiles, and pork barrel—for at least five years using just what's in their mattresses.
As it happens, all this Japanese cash has become an important, nay, indispensable, component of the American financial scene. We and the Japanese are like an old married couple: they're the wife who scrimps and saves, we're the husband who borrows and squanders. The middlemen who rifle her purse and ship the proceeds to us are, increasingly, Japanese investment firms.
At least half a dozen major Japanese securities dealers with offices inNew Yorkrun big bond departments. The foremost of these is, of course, Nomura Securities International, the world's largest brokerage house (having aced out Merrill Lynch). With over two hundred billion dollars in customer accounts, Nomura is now a primary dealer in U.S. Treasury issues, meaning they can buy directly from the government and sell to their clients. And since Treasuries pay several interest points better in return thanJapan's miserly savings accounts, their customers back home think they're getting a terrific deal. Little wonder Japanese investors finance a full third ofAmerica's budget overdrafts these days.
Another major player is Daiwa Securities America, which also underwrites federal paper on its own. Nor should we overlook Nikko Securities and Yamaichi Securities, both handling money in the tens of billions. These outfits and others are well past the beachhead stage of entry into the world capital markets. They're entrenched; they're big; and they know how to play hardball. Were they involved in Noda's assault? Nobody ever knew for sure. But you figure it out.
Banks. As it happens, the biggest one in the world is Japanese. The Dai-Ichi Kangyo Bank, Ltd. ofTokyohas unceremoniously reduced Citicorp to second banana. Rounding out the top five worldwide areFuji, Sumitomo, and Mitsubishi. And worldwide means everywhere.Japancontrols ten percent of theU.S.banking business, a quarter of all British banking. Of the ten largest banks in the sovereign state ofCalifornia, four are Japanese.Japanin brief has become banker to the world, with more ready money than anybody else, and it also has a battalion of financial samurai who know the game.
What makes these Japanese players especially powerful is the kind of bucks they represent. It's called hot money—cash lent out short-term and therefore subject to immediate withdrawal. Instead of tying up their overseas bankroll for years, they stick to offshore investments that can be called in tomorrow. At homeJapaninvests for the long horizon, but abroad the bulk of the money is short. Hot money.
Since foreign investors normally pick up well over half of a given Treasury refunding, the paralysis whenJapanbegan recalling its hot money, thereby spooking buyers worldwide, was as predictable as the sunrise. Matsuo Noda didn't have to be a Rhodes Scholar to realize how much mileage there'd be in a big Japanese sell-off program and a "no comment" from his dealers.
Here's how he orchestrated the details. Apparently it had all been very Japanese, very consensus. A few phone calls, then a lot of meetings over green tea. Later on, some late nights with sake. Noda, thanks to his new clout, had been in the driver's seat from the start. The money managers inTokyowere all feeling the heat over demands by investors that they participate in the multiple Eight-Hundred-Year funds he'd floated. All acrossJapanpeople were starting to ask whether their savings were out there waving the flag too. A lot of those managers were starting to get edgy, so Noda thoughtfully struck a deal, a little consensus.
Okay, hold your monies, but let's get organized. When the next Treasury collection plate comes by, don't roll over any more short-termU.S.T-bills and don't take a piece of the next sale of long bonds. In fact, that's the day you begin to divest. Staggering losses? No problem. I just happen to have everybody's portfolio insulated with futures contracts. Sell away, and even when the price plummets, nobody's gonna lose a yen. In fact, you can have a piece of the currency windfall I've set up. Apparently everybody shook hands on it, or whatever they do inJapannowadays.
Consequently none of the big Japanese houses inNew Yorkhad to take a lot of risk. The sellers were covered by Noda's rate contracts, which I later discovered he'd passed along (at cost) to anybody who needed them. The rest he sold himself for a hefty profit. So in the course of his play, he incidentally raised several billions in additional operating capital for Dai Nippon while fully protecting the home team.
When the dust had finally settled, it turned out he didn't actually liquidate very much Treasury paper after all. He didn't need to. In factJapandumped only about eight percent of its
holdings. If you think about it a minute you realize they couldn't possibly have hoped to divest everything they had in dollars. What would they do with all that cash? Loan it toBrazil?
Veterans of world finance will tell you there were already precedents for this kind of Japanese muscle. Back in the mid- eighties, Nomura Securities had unsheathed its financial sword and totally controlled the Eurobond markets for about a fortnight. They were just letting everybody know they were in town. So there was nothing particularly unprecedented about a little number whereby a handful of Japanese banks and securities firms could, by concerted action, bring theU.S.financial system to its knees.
Although I'd been convinced from the very first that Matsuo Noda had engineered the whole move, I had no hard proof. Besides, what was I supposed to do? No laws were broken. He was playing strictly by the rules. So I just took cover like everybody else and watched the marketplace disintegrate. My main preoccupation was a growing suspicion that Noda was now moving up his battery of guns for the next round of shelling.
I was right. His Treasury sell-off had merely been a demonstration of firepower. Its effectiveness must have given confidence that his beachhead was secured, since he came ashore at the end of the week to take personal command of the real landing.
He and his general staff hit town quietly and with no fanfare on Thursday, spent Friday in a strategy session, and on Saturday took over the computerized command HQ onThird Avenue. That afternoon Tanaka called and ordered me (very politely but curtly) to assemble my records and come uptown. The operation was being consolidated and Noda-san wanted me coordinated. From now on I would be working out of their offices.
This was it. Just what I'd been waiting for. At last I could confront the bastard, one-on-one. No way was I going to be part of the big assault I saw directly ahead.
My first look at the revised operation uptown confirmed my worst fears. The technical analysts had been replaced by a new set of troops: money men. Open collars were gone, supplanted by a lot of business-school types wearing thin black ties. Tanaka's office had been moved off to the side; the corner office now belonged to Dai Nippon's four-star commanding general: Matsuo Noda. After I'd cleared security, that's where I was led.
"Mr. Walton, how good to see you again." He looked up from a printout, his silver hair perfectly groomed. "I do hope today is convenient for you."
"This is going to be brief." I ignored the chair he rose to adjust for me. "I'm only here to advise you that my participation is officially terminated as of this moment. I'll be sending you a final invoice next week. You can find yourself another attorney."
"But your work has scarcely begun." He appeared to be mildly puzzled, as though I'd just made a small misstatement about the weather or some such. "We expect your participation to be crucial."
"Surely you're joking." I was turning to leave.
"Mr. Walton." He shifted the printout around and shoved it across the desk. "Contrary to what you may presume, we are here to help this country. You might wish to look over our program for the near term."
"This I've got to see." I came back and studied it for a few seconds . . . then stared back at him.
"Impossible." I finally realized he was serious. "Whatever you're thinking, I'll tell you right now you don't have a chance. These outfits have lawyers. Hundreds of them."
"Ah, but that's why you are on our staff. This is your specialty." He smiled. "Remember the Book of Five Rings by the swordsman Miyamoto Musashi? In it he describes the three kinds of attack. There is the Ken no Sen, where you move first and catch your opponent unprepared; next is the Tai no Sen, whereby your initial move occurs a split second after your opponent's; and finally there is the Taitai no Sen, in which you and he attack at the same instant. What has happened up until today might be likened to the Ken no Sen. We have made sure that nothing was anticipated. Very soon, however, we will have to move to the Tai no Sen, responding with lightning speed to the moves of those who would thwart us. Miyamoto Musashi declared correctly that if you are attacked with force, you must counterattack with even greater force and thereby upset momentarily your opponent's rhythm. That moment can mean victory, but only if you are totally prepared." He leaned back. "We must be totally prepared."
"Why in hell would I want to help you? I guess you didn't hear me. I've just resigned." I turned for the door. "Besides, nobody could pull off what you're planning. You're going to have battalions of attorneys moving against you."
"I expect that." He stopped smiling. "But that area is your responsibility now, Mr. Walton. A good swordsman does not think, he acts. Intuitively."
"And if I refuse?"
"You cannot possibly."
"Try me."
"Only you can handle this, Mr. Walton. Betray us, and you may well witness the disappearance ofAmericaas an industrial nation. The time is now or never."
That zinger gave me pause. He meant it. But before I had a chance to tell him he was completely crazy, he went on to sketch out what he claimed was his objective. How he planned to address the American "crisis" and resolve it.
Let me tell you my first impression of Matsuo Noda's scenario. It was legal, it was legit, and it was—as Joanna's teenage niece used to describe notable phenomena—totally fucking awesome.
What's more, he wanted me to stay on as tail-gunner. The truth? I felt the disorientation of a kid who'd been fooling around in the Soap Box Derby suddenly being handed a slot in theIndianapolis500.
The most astonishing part of all was, I had the feeling he just might pull it off.
You're right. I should have said no, not on your life, this is way out of my league, never in a million years. . . .
Instead I said I'd think about it.
Good, he said. Why didn't I stick around till Monday and get a feeling for the operation?
I didn't shake his hand. I just walked out and poured myself a cup of green tea from the huge urn there in the middle of the floor. Walton, you idiot, how did you get yourself into this?
Which is when I spotted a sporty looking lady way across on the other side of the floor, over by the climate-controlled NEC mainframe. Something about her seemed vaguely familiar. Definitely not DNI staff. Wearing jeans, dark hair in a nice designer cut, handled herself like a mover. Not to mention a world-class bottom inside those tight, shapely Calvins. From all appearances she actually seemed to be second-in-command. She was reading the riot act to Tanaka about something to do with the computer, had the self-important little fucker bobbing and weaving. Who was that? Hadn't seen her around here before.
Well, now, no time like the present to head on over and check into this. A fellowgaijin. Could be she'll explain what in hell's going on. Is Noda real?
Suddenly she turned around, saw me, and stopped. I stopped. We both just stood there trying to remember. She hit pay dirt first, but I was only microseconds behind.
Want to know my first thought, my very first thought? Matsuo Noda, you son of a bitch, you're even smarter than I'd given you credit for. You've hired the best, the very best.
"Is this how you pick up your women these days, Matt? Given up on vegetable stands?" She was walking toward me wearing a smile. I tried to grin back. "How are you, Matthew? Good to see you've still got your hair. Well, most of it."
"TamRichardson, I don't believe this. Now I know it all is a dream. Please tell me you were kidnapped. None of this is really happening, right? It's just a very big, very bad dream. We'll all wake up tomorrow and go to the beach."
"Welcome aboard, partner." She stuck out her hand. "It's going to be a wild trip."
"No kidding." I looked her over as I took her hand. Nice and warm. Time had treated her well. Very well. "How long have you known Noda?"
"Less than a month." She was checking me over too. Wonder how I was doing. "How long have you been helping him?"
It occurred to me that we both should have been using that classic hooker response when the guy asks his young companion how long she's been in her particular field of endeavor and she replies, "Long enough to know better."
"Few months now. Noda is pretty impressive." I tried to sound casual. "Not to mention persuasive."
"That he is."
"Well, let's have a toast to winning this." I turned to the urn. "How about some tea, Professor?"
"Love it."
"Tam, let's just hope these guys don't suddenly decide to eat us alive." I passed it over. "What do you think our chances of survival are?"
That one startled her. I got the impression she was half thinking the same thing. Then she managed a thin laugh.
"We'll eat them first if they try."
"You still talk tough. I always told you you should have been a lawyer."
But she was right. Once the cards are dealt, you play to win.
Which is exactly what I planned to do. Since my own part was still down the road, that weekend I just sat in their offices watching spellbound as Noda and Dr. Tamara Richardson reviewed the data and put together the financial details. Next, a lot of coded telexes were sent out to pile up somewhere inTokyowith instructions for routing of the funds.
After I'd digested his opening move, I did have occasion to ask the boss a few pointed questions. Such as, wasn't he at all nervous that Wall Street might rebound before he could get rolling? He replied, correctly as usual, that the total collapse in the financial markets would last for a while. Even though the dollar was still down for the count (over forty percent), he figured only the most intrepid foreign speculators would go plunging into the American stock market looking for bargains. As for American investors, most of them, including the institutions, were still in shock. He rightly forecast that the herd mentality of the Street hadn't been repealed. War stories of '87 were going around and nobody wanted to make the textbooks as a fool. Better a little profit forgone than more money lost. The mutual fund managers, most of whom had been caught with their pants at half-mast, were devoting their energies that weekend to composing creative explanations.
Events Monday proved him to be essentially on target. There was an eerie quiet over the financial landscape. Everybody was waiting for somebody else to try breathing life back into the corpse.
Then a few analysts noticed something peculiar. Anonymous buy orders were coming in, more and more, for stocks in the sector hardest hit, high tech. Maybe it was bargain hunters, but the buyers weren't any of the "growth" mutual funds that might have been expected to lead the action. In fact, many of those hotshot managers were relieved to part with some of the dogs they'd ridden down that long, lonesome decline of the week before.
Gradually the prices of certain securities began to edge up
in this early thin trading, enticing more and more holders to "sell on strength." What issues? First off, anything to do with computers. Of course there weren't all that many hardware manufacturers left around by then, after the shakeout and mergers of the mid-eighties, but somebody was buying heavily into the few that remained. They were also actively purchasing little software outfits. Those stocks had taken a heavy beating over the past week, so prices were at an all-time low for most.
Other industries they started to nibble at were telecommunications, aerospace, biotechnology. They seemed to be looking for outfits with substantial R&D operations: the focus was on creativity, growth sectors, the sunrise industries.
Of course, what this mysterious new buyer was really doing was snapping up outfits loaded with labs and Ph.D.'s. Dr. Richardson and my new client Matsuo Noda had DNI acquiring companies short on competent management and market share but long on research, innovation—the one thing we were still halfway good at. Looked at differently, what Dai Nippon was really buying was underused brainpower, the American smarts currently going to waste thanks to inept corporate management.
Explanations began to sprout all over the place—from the "Heard on the Street" column in the Journal to Dan Dorfman, a guy with a bloodhound's nose for Wall Street shenanigans. But the hard truth was nobody could put it together. Who could have? The play was too ambitious even to imagine.
You guessed it. With the trillions and trillions now at its disposal,Japanwas about to take charge ofAmerica's future.
The task ahead can be described very simply. I was going to help Dai Nippon acquire controlling stock positions in a bevy of ineptly managed American high-tech companies, and she was going to be in charge of turning them around. I was DNI's takeover artist; Tam was the fix-it expert. That probably sounds a bit ambitious on everybody's part, but after watching the Dai Nippon juggernaut for a couple of days I knew one thing for sure: we'd have plenty of heavy backup.
Why did I agree to ride shotgun for Matsuo Noda's "Save America" project? Because, if he meant what he said, such a program was long overdue. American industry was in trouble, and it was hurting a lot of good, hardworking people who didn't deserve to be hurt. Worse still, this wasn't some random act of God. It was largely the result of self-serving corporate management. Most occupiers of the executive suites these days were too busy merging and acquiring and leveraging to do what stockholders thought they were paying them for: building industry and creating American jobs. (Well, maybe that's an overstatement; they had kept Drexel Burnham's junk-bond cowboys working overtime.) In the mid-eighties, American corporations were spending two and three times more on mergers and acquisitions than on research and development. Most industrialists here no longer cared to try making anything as old-fashioned as competitive products; they preferred to make deals and sell imports. The net result was thatAmerica, the world's major economic locomotive, was veering off the track and seriously in danger of taking everybody else in the world along with it.
That's where Matsuo Noda came in. Part of the arrangement he'd made with the Japanese institutions putting up the funds was that he would be given proxy to exercise all voting rights. Face it, he had a pretty impressive performance record overseeing the long-range planning and investment of well-run corporations. So after I'd helped Dai Nippon acquire control of a long list of poorly managed companies, he and Tam Richardson were planning to move in, clear out the deadwood, and lay down priorities for restructuring. She was Dai Nippon's technical director for all U.S. operations, which meant she was going to head up the team on the newly evacuated floor just above the financial section—Noda's management samurai.
Enough theory. Here's how it actually went. On Friday the story was finally broken by The Wall Street Journal, a little squib in "What's News," with a short two-column analysis on page 3. The piece revealed that all the heavy new activity building in the high-tech sector of the market represented buys being coordinated by a new Japanese investment concern.
This sudden, unexpected program of foreign investment was heralded at first as a salubrious omen, refuting those doomsayers who were claiming the world had lost confidence in theU.S.In fact, if anything it was proof that overseas enthusiasm was actually increasing.Japan's previous practice of focusing on debt instruments was at best passive investment. But buying heavily into a sector of the economy that appeared weak was something else entirely. It was a rousing endorsement ofAmerica's prospects.
To be fair, there was still a modest case to be made in that direction. Our high-tech sector wasn't all struggling high fliers operating out of some one-story cinder block on Route 128 or the Washington Beltway.Americahad plenty of solid industry in high tech—computers, aerospace, office machinery—and American laboratories and universities were the envy of the world. The problem lay with the downside. We'd lost our lead in electronics, drugs, scientific instruments, plastics, communications equipment . . . it's a long list. In fact,America's overall trade balance in high-tech products had actually gone negative, shrunk from a twenty-five billion dollar surplus as recently as 1980. The ignored question, therefore: Given the direction things were headed, why were the Japanese suddenly supposed to be so impressed?
The market's initial euphoria didn't last long however. By the end of the second week the SEC was sniffing the air and the lunch talk downtown, from the AMEX traders at Harry's to the expense-account crowd at historic Fraunces Tavern, was
focused on what appeared to be a major shift inJapan's investment strategy. Now that the stock market was in shambles, they weren't just dabbling anymore; they were cashing in on the fire sale hand over fist.
Thus the Street's early cheering melted into apprehension.Japanhad already taken apart our debt and currency markets, turned them upside down, and scored a bundle. Now Noda had Wall Street looking over its shoulder and reminiscing about the good old days when all it had to worry about was rich, crazy Arabs. When it became clear that Dai Nippon was assaulting theU.S.securities markets with high-speed computers and a checkbook that just kept coming, there weren't all that many wisecracks about camels and tents.
Wall Street, however, merely counts; it doesn't think. The real disquiet was reserved for corporate boardrooms. Take it as a given that when the Securities and Exchange Commission reports some ten, twenty, or thirty percent of your company's stock has just been swallowed by a cash-rich Japanese raider, your attention can focus most exquisitely. In a word, Matsuo Noda was the talk of industrialAmerica. More to the point, and exactly what he had expected, the boards and CEOs of the companies being bought were beginning to be scared shitless. A major player with seemingly bottomless pockets was gobbling up heavy blocks of their publicly traded shares. Worse still, nobody had the slightest inkling why.
What all those entrenched CEOs didn't realize, in their wildest paranoia, was that seven-figure salaries and cushy executive perks were about to go the way of Cadillac tail fins. World competition, not executive compensation, would be the new game. Playtime was over;Americawas about to get serious again.
My early suspicions concerning my role in Noda's design had been precisely on the mark. I was indeed the freelance gunslinger he wanted by his side when the companies he was aiming at started to shoot back, which they surely would. Needless to say, if his plan was ever allowed to reach the courts, it would create a virtual "living trust" for half the corporate lawyers in the land. He'd be in litigation through the twenty-first century as managements fought to the last stockholder's dollar to keep their jobs.
Enter Matt Walton. Time for some samurai-style legal swordsmanship.
The rules: If you're CEO of a company and somebody starts buying up a major chunk of your stock with the intent of taking you over, you've got roughly four basic ways to stop him. The first is to try and bribe that buyer to go away, paying him a ransom—politely called greenmail—to sell his holdings and disappear. (More than one corporate raider you've read about in the papers has made millions in a couple of weeks using that very play.) The drawbacks of trying to buy off a potential acquirer are, (1) it's expensive, and (2) maybe he really does plan to eat you, in which case it won't work anyway. Matsuo Noda was in that category.
A second popular means to thwart a hostile takeover is to go out and find somebody else to buy you first, the proverbial "white knight." Ideally this friendly buyer should be, (1) too big to be taken over himself, and (2) willing to let you keep your playpen.
A third technique to stop somebody from acquiring a controlling chunk of your stock is to jack up the price, usually by offering to buy it yourself. Float some junk bonds, sell off a few divisions, do anything that will raise cash and then offer the shareholders more than the raider is willing to bid. This can be very expensive, but if you're a CEO with millions in compensation every year, why should you care if your stockholders' company is leveraged to the brink of ruin? You've still got your job and your goodies. It's used a lot.
The fourth and most fashionable way these days to stop hostile mergers is to try and make yourself unmergeable. To do that, you get your board of directors to vote a poison pill. What this does is make sure that any company that swallows you is going to be ingesting a piranha that will eat said company's own guts instead. The newest twist on this is to use phony bonds with a so-called flip-over provision, a killer pill invented by a cleverNew Yorklaw operation I won't name but whose initials might be WLR&K. Their game is as follows. In order to protect yourself you invent some convertible bonds and stash them away somewhere, ready. Then, should a raiding company start acquiring your stock or make an unauthorized tender offer to your shareholders, you hand out these little bombs to everybody who owns your shares. If this unfriendly company is then unlucky enough to actually acquire you, those convertibles "flip over" into the stock of that buyer. Your stockholders suddenly have the right to exchange their funny paper for huge, discounted chunks of real stock in the acquiring company—which would, naturally, be ruined should that happen. And usually, just for good measure, you also vote through a few "golden parachutes" for you and all your cronies, giving everybody in the executive suite severance pay in the tens of millions.
Those were the stakes. Now, a lot of outfits suddenly found themselves being bought by a mysterious Japanese entity named Dai Nippon, International. What were they going to do? At first of course everybody just assumed NDI was merely angling for a little greenmail. No such luck. After a couple of days went by and we hadn't returned anybody's phone call, they knew that wasn't it. Next, a few went looking for a white knight with more money than DNI (a tough assignment). Not surprisingly, however, most corporate managers very quickly decided to call a board meeting and ram through a poison pill.
I got more than a few phone calls at my downtown office from CEOs wanting to know if I could pitch in and help them stave off what looked like an unfriendly Japanese buy-up. I had to say, sorry fellows, I'm unavailable. But why not give it your best shot and try the old "pill"?
Most of them did. They had no option really.
Which suited me fine.
The time was late Friday—the afternoon was gorgeous, sunny and crisp—and the place was Noda's office. Naturally he understood all about poison pills, so he knew the problem. What he wanted to hear was our solution.
"I'd like to try something that's never been done before. A different battle plan." I glanced out at the blue sky and wished I was already inSt. Croixon holiday with Amy. "However, I think it's possibly just unconventional enough to fly."
"It has to be legal, Mr. Walton." Noda leaned back in his chair, waiting.
"It is. But in order to lay the groundwork, we'll first need to set up a string of dummy corporations."
"Any particular state?" He was listening closely now, his mind clicking away. I was never sure what the man was thinking, but I figured he'd probably seen it all before.
"That old standbyDelawareshould do fine, though you might want to consider going for some offshore tax-haven places, if only because the paperwork is minimal. In theCaribbeanI'd recommend theTurks and Caicos Islands, maybe theCayman Islands. Then there'sBermudaor theBahamasor theChannel Islands. If you really want to get esoteric, why notVanuatu—used to be theNew Hebrides—in the South Pacific."
"I'm familiar with world geography, Mr. Walton." He was deadpan. A joke?
"Fair enough. These dummy corporations of course will have no assets."
"I understand." He smiled and ran his fingers through his silver hair, doubtless already miles ahead of me. "Absolutely no problem. Please proceed."
"While those corporations are being set up, you continue buying stock in whatever companies you need to control, making sure in all cases that you acquire just enough to deliberately trigger their poison-pill mechanism. We force them to issue their flip-over bonds. They can't stop the process, since it's always set up to be automatic after a certain percentage of stock has been acquired. Not even the boards of directors can revoke it."
"Yes, Mr. Walton. I'm aware of that." He didn't seem the slightest bit ruffled by my unorthodox opener.
"Well, let me elaborate. The reason we want to trigger their poison pill first is so that nobody can later come in as a white knight and save them. They're totally isolated. They'll have made themselves into sitting ducks."
"Very good." He leaned back. Was he really that far ahead of me?
"While that's happening, you 'sell' the stock acquired thus far to one of the dummy outfits we've set up, in return for debt paper. Which puts DNl at arm's length and untouchable. After that, you lend that dummy corporation the rest of the millions or billions necessary to acquire a controlling interest in the company, taking back as collateral more junk bonds at absurdly usurious rates. That makes it a financial leper, but you don't care: you're merely lending yourself the money. This paper corporation is all that can be touched when the acquired company's poison bonds flip over. So instead of being convertible into the stock of some cash-rich corporation, the way they were intended, those flip-bonds are going to give their holders a piece of some offshore phone booth with zero assets and enough debt to choke a horse. They're worthless paper. And you're in the clear."
He smiled. "Which means our program can proceed on schedule?"
"Dai Nippon will be totally insulated from their poison pills. Like the guy who sells his house and boat to his company and then lets it file Chapter 11 bankruptcy in order to protect his personal assets from creditors. Nobody can lay a glove on you."
"Mr. Walton"—he leaned back, a twinkle in his dark eyes—"that's exactly why I knew you were right for us. You have an intuitive grasp of tactics."
"If you do this, there're going to be a lot of unhappy, unemployed lawyers in this town."
"Most regrettable. Some of them might even have to go out and find productive work." He rose and shook my hand. "You've destroyed the prospect of years of legal roadblocks in a single stroke. It's elegant."
It was. Sun Tzu and Miyamoto Musashi would definitely have approved. But there still had to be more. An unexpected opening is not enough in itself; it needs an equally deft follow-up. Bushido, the Way of the Sword, teaches that you should first surprise your antagonist, and then you must confound him. Both the initial attack and the carry-through are crucial to success. Among other things, that meant Noda's mechanism for calling a board meeting of the companies he'd be acquiring had to be instantaneous, without the usual niceties.
"This setup should do the job, but only if it's used with finesse. Otherwise the whole system gets buried in paperwork."
"What do you mean?"
"You have to be fast, and flexible. Once you've taken ownership of a company, you've got to gain immediate control over its board of directors, in order to block any and all countermoves."
"I understand."
"Do you? I'm talking about the ability to call an executive session out of the blue. Thekesastroke of the sword. The power to cut a CEO in half before he can blink. No time for consensus and the usual Japanese niceties."
He stood quietly, thinking. At last he spoke.
"In other words, I must be able to convene the board at a moment's notice. Is that the essence of what you are saying?"
"Nothing else is going to work."
"Very well. After we have a commanding stock position, we can institute the necessary changes."
"Good. Remember though, that's still merely half the battle. Besides being able to call board meetings, you need full authority to institute a shareholders' vote, which in this case will consist of nothing more than you signing your name."
"Perfectly reasonable."
"It is. But it also means you've got to be available to me at all times. Can I rely on that?"
He turned and strolled to the window, pensively. "That may not always be possible."
"Then you've got a potential problem."
He revolved back and studied me a second, finally taking the bait. "There is, of course, one very simple solution. I can merely assign you power of attorney, allowing you to act in my name if I cannot be reached."
"That would do it. But you'd be handing over a lot of authority."
"I envision no difficulty." He looked me over with the self- assurance of a tiger contemplating a haunch of beef. "I have every reason to believe you would always act in DNI's best interest, Mr. Walton."
It was possible he knew a few things I didn't. On the other hand, maybe Matsuo Noda had just overreached, taken too much for granted. Whichever it was, the maneuvering just completed had been one small step for Tam, and Matthew Walton. Should we ever need them, I'd just conned Matsuo Noda into giving me duplicates of the keys to his Kingdom. It was our protection and, in a way, my secret price for putting our heads into Dai Nippon's noose.
"Then it looks like we have everything we need to move forward." I nodded.
"Excellent."
Upon which I absented his office, safety net in place. The play was on.
Which brings us to Tam Richardson. If my approach to this new job was a little unconventional, what about the college prof who showed up in jeans as she readied to renovate corporateAmerica? One thing, we suited each other. It was a tag team made in heaven. After I'd pried open the door to the companies DNI was buying, she was going to roll in, guns blazing, and shove everybody against the wall.
Let me add one important distinction, however. Whereas I may have been wary, even slightly skeptical, Tam was definitely the idealist. She was, by God, going to get this country moving again.Americawas once more going to lead, she declared, not follow. No defensive FortressAmericaclaptrap. Hers would be nothing less than a full-scale assault, intended to win back and keep a solid manufacturing base here, toe-to-toe with the world.
Since no overall American program existed to rescue industries now being killed by foreign competition, she was going to do it herself, create a coordinated battle plan for our strategic sectors. Backed by Noda's Japanese billions, she was about to try and redeem this country's future, leading us back to number one. She also was quick to add she had no intention of merely copyingJapan's famous management techniques. Japanese industry, she insisted, hadn't invented long-term planning, sound capital investment, dedication. What they did over there these days was what theU.S.used to do. The American work ethic was alive and well; it was just temporarily on the wrong side of the globe. She was about to bring it home again.
Maybe she could. One major impediment at least would be out of the way. Since the companies Dai Nippon was taking over would no longer have to answer to a lot of fickle fund managers every three months, they could start investing for the longer term. Also a lot of unnecessary fat was going to be sliced out of upper management. If things went as planned, Dr. Tamara Richardson and Dai Nippon were about to become the ruthless architects of a new corporateAmerica.
Unless . . . well, there seemed no reason not to take things at face value, at least for now. DNI's new Industrial Management Section on the twelfth floor had already begun filling up with youngTokyoUniversitygraduates, guys who embodied the work ethic in human guise. They meant business. Nobody was sipping coffee and critiquing last night's rerun of Dynasty. I got the definite impression one of the unsmiling whiz kids in Noda's handpicked cadre could chew up about five American MBAs for breakfast. Tam currently had them working overtime, putting together a reorganization plan for an outfit inBoston, one of their new acquisitions, which I guess I'd better just call XYZ. The previous week Dai Nippon had purchased some twenty-four percent of its stock, presently at a historic low, and she was planning to make the company her showcase turnaround.
Stock in hand, she'd buckled down with her new staff and using DNI's analytical machinery confirmed some alarming suspicions. It turned out XYZ was practically a terminal case, living at the moment off its real estate assets, which were being systematically dribbled away to mask heavy losses. Layoffs would be next.
By Thursday of the second week, however, she'd put together a restructuring, including some painful austerity that might just salvage the company and its American jobs. She went home that night feeling quite proud of herself, and Friday she flew up toBostonfor her first official conference with XYZ's chief executive officer.
Since a quarter of a company's shares gives the holder reasonably high recognition, the CEO was understandably nervous about who exactly had acquired a fourth of his company inside of a week and a half. He appeared atLoganwith his Rolls limo to receive Dr. Richardson personally.
She explained right off that she was there merely to pass along a few of DNI's "recommendations." She took one look at the Rolls and added that, for example, one of the first was going to be to divest all limos forthwith, along with the new fifteen-million-dollar Gulfstream IV he'd bought for weekend fishing trips down in the Keys, and direct the proceeds toward capital investment.
From there on things progressed pretty much as might be expected. By the time they reached his paneled office she had been obliged to explain that his options were either (1) to get in line, or (2) to watch DNI pick up another thirty percent of his company's O-T-C shares, then march him and his "golden parachute" past a stockholders' vote they would call to review his career options. After that she had claim to his unalloyed attention.
It was a tough Friday. After she flew back late, she dropped by the office to pick up a few things and fill me in on how it went.
"Good. You're still here." She popped her head around my office door.
"Who won? The Christians or the lions?"
"Want to hear about it?" She came on in and dropped her briefcase on the desk.
"Wouldn't miss it for the world."
"Matt, you should have seen the look on that man's face." She clicked open the case and pulled out the action plan she'd developed for XYZ. She was exhausted but still wired. "These CEOs forget it's shareholders who own the companies and pay their salaries. They start thinking they're little Caesars."
"Hey, those are the kinds of operators who used to be my clients. Believe me, I know the type."
She then proceeded to give me the rundown. Outfit XYZ specialized in high-tech widgets it sold in theU.S.,Latin America, andEurope. Problem: their widgets cost too much, broke down more than they should, and consequently folks didn't tend to buy them the way they once did. As a result XYZ had dropped about five million last quarter and (unbeknownst to its workers) was currently on the verge of closing two of its three U.S. plants and exporting the assembly operation someplace where it could exploit two-dollar labor, a move that would tank just over a thousand American jobs. Management says, gee, that's tragic, and awards itself another year-end financial tribute.
Dr. Richardson had just dropped a bomb in the playpen. First off, she told them, XYZ's damned widgets cost too much not because American workers are overpaid, but because its assembly plants were a candidate for the Smithsonian. Therefore, starting immediately, short-term profits as well as dividends and all management compensation would be slashed and the resulting capital, together with a new offering of long- term corporate equities, would be invested in automating its facilities and retraining workers. There would, in fact, only be workers in future, since all freeloading middle managers, attorneys, and drones with titles such as 'administrative assistant' were to be terminated. She gave them a list.
Henceforth, she went on, management would begin planning ten years ahead, not three months. XYZ would concern itself with world competition then, not now, and it would develop a substantially more diversified product line to cushion slumps. As part of that shift, it would double the budget for R&D immediately and expand the lab. Innovation would once again be brought to the product stage fast and adapted quickly to world markets. XYZ's new focus would be on making its market share grow in the decade ahead, which also meant cracking down on quality and halving the current customer-be-damned response time on deliveries and service. Concerning those last items, product managers would now be required to address customers' complaints personally. She figured that in itself would turn around XYZ's substantial quality control debacle overnight.