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"BARBARIANS AT THE GATE"
Term Paper ID:18908
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Essay Subject:
(Burrough & Helyar). "The Fall of RJR Nabisco." Reviews work on troubles of firm in the hands of Ross Johnson.... More...
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6 Pages / 1350 Words
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Paper Abstract:
(Burrough & Helyar). "The Fall of RJR Nabisco." Reviews work on troubles of firm in the hands of Ross Johnson.
Paper Introduction:
The purpose of this paper is to discuss the book, Barbarians at the Gate: The Fall of RJR Nabisco, by Bryan Burrough and John Helyar. This meaty volume is an excellent chronicle of the downfall of a company whose resources and success were legendary in American business circles, but whose leaders during the feverish Reagan years risked everything on a gambit to enrich themselves, and ended up losing all of it. The story centers around one man, Ross Johnson, the flamboyant, free-spending former chief of Standard Brands and R.J. Reynolds Tobacco, who wanted more and more control and money, to the point of self-destruction.
Ross Johnson was the perfect point man for such an ill-fated adventure. As the authors point out (13), Johnson was most creative in the area of his expense accounts. Even at Standard
Text of the Paper:
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Thismeaty volume is an excellent chronicle of the downfall of a company whoseresources and success were legendary in American business circles, butwhose leaders during the feverish Reagan years risked everything on agambit to enrich themselves, and ended up losing all of it. The other side of the story is that the kind of freewheelingactivity engaged in by risk-taking executives, a thirst for heavycompensation as the result of financial manipulation, will end up creatingmore government intervention into their activities, lessening the chancefor rewards for those who come later (35 ). One of the more interesting players in thegame under discussion is Linda Robinson, "flak" to the stars, in WallStreet terms. Business Week, in aneditorial, said that "LBOS, including a potential RJR deal, should stand orfall on their financial and economic merits, not on the childish behaviorof the principals" (35 ). What is distressing to the reader is the sheer amount ofintellect that is put into financial game-playing, much of which isdestructive to the American economy. On the other hand, if the executive takes care of the stockholders,he may be risking the only chance he ever has to become independentlywealthy on watching out for the interests of people he has never met, andnever will. He was also very self-deprecating, althoughhumorous about it. And this, in fact, is the problem with manydeals concocted by American business. In the end, all the sound and fury of the RJR Nabisco deal did notamount to nothing. This pattern consistedof Johnson's ingratiating himself with the powers-that-be at any company hefound himself a part of, then politically scheming to depose the ruler andplace himself on the throne. The media have come to play anincreasingly important role in financial activities, and their intrusioninto the affairs of the corporate giants frequently lead to the queering ofdeals and the embarrassment of many who otherwise would be fat and rich.The New York Times, for example, ran a headline, "Nabisco Executives totake Huge Gains in their Buyout," (341) which embarrassed the players to noend. Johnson worked up a scheme to take over the company, and Kravis wasinterested. Ross Johnson was the perfect point man for such an ill-fatedadventure. In 1984, he became CEO and he engineered the Nabisco-Reynoldsmerger in 1985, and in 1986 he became CEO of RJR Nabisco (78). LBOs involve managers raising the money to buy their companies,generally taking them private, and selling off assets to pay the debtincurred by the buyout. The storycenters around one man, Ross Johnson, the flamboyant, free-spending formerchief of Standard Brands and R.J. What the authors make clear in this book is that greed, runningrampant during the Reagan years, helped destroy the efficient production ofgoods and services the economy had to offer, in place of the "symboleconomy," the financial machinations of upper corporate executives whodesired to make quick killings from activities that had nothing to do with"honest" work. In this regard, he wasfaced with the decision that many corporate executives are faced with today--do what is best for the good of the stockholders, or what is best for theexecutive in question. Barbarians at the Gate: The Fall of RJR Nabisco. Manydifferent firms got into the bidding for RJR Nabisco, with many differentpredatory investors being represented by the best minds Wall Street couldmuster. Johnson was a party animal and likednothing better than to talk into the wee hours of the morning, with abottle of scotch on the table. He disliked being an accountant, preferring instead tothink of himself as a captain of industry, a corporate leader. Johnson did not livelike any Reynolds executive had lived before him. One of the reasons that a PR woman played such a significant roll inthe negotiations and the bidding for the corporate giant RJR Nabisco isthat all of the players had become extremely conscious of the public'sperception of Wall Street investors and corporate raiders as sharks, whosegreed knew no bounds and who were ruining America with their tactics forself-enrichment on the installment plan. If this book means anything in the large scheme of things, it meansthat the "captains of industry" in America should get back to what theyonce were--innovators and creators--rather than manipulative sharks tryingto get theirs while the going is good. Reynolds Tobacco, who wanted more andmore control and money, to the point of self-destruction. The players areall well educated and intelligent, ostensibly the "best" America has tooffer, in the way of management skills. And each player reacted to the news with a slightly different butmainly-the-same call for putting an end to leaks to the press. He elected totake the golden parachute route, sell to the highest bidder, cede controlof the company, and leave with his fortune intact. Julius Forstmann, of ForstmannLittle, seems to represent the old line, virtuous part of Wall Street, thepart that was not caught up in the junk bond frenzy but considered itdisgraceful (239). The authorsthink that, if he had stopped there and assumed the life of a countrysquire in North Carolina, his career might have gone in a totally differentdirection. Most of this book is taken up with the intricate financialmaneuvering of the men behind the RJR Nabisco takeover. Johnson andhis cronies came off as jerks whose reach had exceeded their grasp, andmany of Wall Street's most respected figures became known for what theyreally were--kids in a candy store running amok, palms extended, takingeverything in sight. The management rakes in the money, as doeseveryone else involved with the intricate financial maneuvering, but manytimes the LBO hurts the company, stripping it of its most valuable assetsand demoralizing employees (133-134). Thecompany he found himself in control of was big enough to cover any mistakesand to finance the wildest schemes imaginable (79). Forstmann went so far as to direct his anger againstthe king of junk bonds, Drexel Burnham Lambert (24 ). Unfortunately, most of them (asportrayed by the authors) come across as schoolyard bullies or otherchildish types, throwing tantrums, making scenes, screaming abuse, andengaging in other immature acts to get their way. Her public relations firm was the hottest on Wall Street, and shefrequently served as go-between among the investment giants who soughtcontrol of RJR Nabisco during the takeover battle (294). Smith Bagley, scion of the Reynolds fortune and utterly opposed tothe LBO, also figured as a major player in the fight against Johnson andother "quick-change artists," as the more stable and sturdy businessinterests labeled them (284). Marrying Jim Robinson, she gained attention becauseof her social-climbing ability and her contacts among the great and near-great. As the authors point out (13), Johnson was most creative in thearea of his expense accounts. Work CitedBurrough, Bryan and John Helyar. The financial maneuvers of those inthis book demonstrate no faith in America whatsoever--and that isdepressing. The authors clearly see a pattern in Johnson's behavior that wasultimately to lead to the debacle at RJR Nabisco. However, Johnson was a man who lived hard and played hard, andthe quiet life of a rural gentleman did not have any appeal for him. The purpose of this paper is to discuss the book, Barbarians at theGate: The Fall of RJR Nabisco, by Bryan Burrough and John Helyar. Johnson's rise in the Nabisco hierarchy happened with lightningspeed. Even at Standard Brands in the early 196 s,he entertained friends and associates with hundred dollar dinners, a hardsum to spend on a meal in those days. Once at the head of the table, Johnson wouldreplace key managers with his own people, and proceed to enjoy the fruitsof the company's labors, i.e., its profits, in the form of stock options,extra compensation, and lavish expense account expenditures. It amounted, in fact, to the wrecking of one ofAmerica's largest companies, a company upon which thousands of workersdepended for their livelihood, which was taken away from them. He had a bodyguard,constantly took trips to New York and Palm Beach, and gave his favoritemanagers lavish perks, like Rolls Royce cars and corporate planes to use(8 ). Johnson's watershed came when he met Henry Kravis, king of theleveraged buyout on Wall Street, a phenomenon whose time, it seemed, hadcome. New York: Harper Perennial, 1991.----------------------- 1 She was a somewhat rootless woman from California who founda job as Ronald Reaqan's deputy press secretary during his 198 presidential campaign. Johnson, finally besieged on all sides by the players and the media,had to decide what to do now that his company was in play. It is a hard choice, mainly because, in one deal,the executive can become richer than he ever thought possible--and thestockholders are left holding the bag. The problem was that, at the time, many investment firms hadjumped on the LBO bandwagon, and corporate raiders were running amok.
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