Portrait of a Business Generalist
Successful corporate lawyers like to be described these days as “generalists.” This new term has a touch of magic for them—it seems to catch the essence of their drastically changed role in shepherding money and men of money through the green pastures of the new American property system. The word is not derived from any military analogy, but comes directly from “general”—meaning not specific or particular. We have come so far along the road of specialization and “expertise” that it is now a new and somehow different thing not to be an expert. The role I speak of is really that of a pseudo-non-expert, since the lawyer-as-generalist must be quite currently knowledgeable about tax law, corporate law, the securities market, and what’s going on around town and in Washington. He is in fact quite expert about the broadest matters affecting the fortunes of men and corporations; but his expertness is not attuned primarily to specificities. So he is a generalist—one of the more significant forces creating and caring for our managerial system. He kind of manages the managers, with their permission.
The root distinction to be made here (which of course goes far beyond the role of lawyers) is between the manager of actual production and the manager of the purpose of production. If we were talking about the Soviet Union, the difference would be easier to describe: in that special society, all the managers who manage the managers are hierarchically organized in the Communist party; their roles are more easily identified. The production superintendent of a factory in Russia may very possibly be a member of the Communist party, but if so, he is still under the direction of someone above him in the party who is charged with managing the purpose of production. In America the distinction is not so clear; and the confusion comes from the fact that no one will admit that he is doing anything other than trying to make a profit. Making a profit means making money, and money is made both in producing and selling goods and in orienting a corporation more effectively to the selling of paper. First you produce goods and sell them at a profit; and then, in effect, you sell the profit. The latter is sometimes referred to as selling paper, and managing it is a very different matter from managing the actual production of goods. Here enters the generalist.
Now, among generalists, each individual is special, and can serve only as a rough example of the type. Yet, looking for a real generalist, whose actual career I could portray, I think I’ve found a good one.
Arnold M. Grant is what one might call a “pure” generalist, who has pursued his role with a creative vengeance, probably because it suits him so neatly in a personal way. A highly trained lawyer who helped build a substantial New York-Los Angeles law firm, he doesn’t “practice” law as that term is understood by most other lawyers who do. For example, if there is a federal securities registration to be accomplished as a part of an over-all transaction which he is engineering, he acts like a client and hires a law firm to do it. (But he acts like a lawyer toward the corporate client in coming to the decision that a registration is called for in the first place.) Of course, he also edits the work turned out by the law firm he has seen fit to hire. The generalist’s own staff consists largely of himself (with his briefcase) and a harassed secretary. He has relations, however, with more than one leading New York law firm; and on a five o’clock phone call from him, a complement of several men will be put to work for the night, drafting the necessary papers. The generalist certainly offers ordinary legal advice, but quite incidentally. What he actually does, sitting tense and urgent at the corporation president’s elbow, is to guide the asset value and earning power—his truest, most important clients—into that reality of realities, After-Tax Money; with this ultimate purpose of production consummated, his work is done—except for the mop-up job of making sure the new values are not lost.
Mr. Grant’s own description of his work is somewhat simpler: when asked point-blank, he says that he “merchandises paper” or “packages property.” But most of us need to have the meaning of these laconic phrases spelled out. And to elaborate them is to tell the long, intricate, important story of our entire business system. Most values in our business civilization are represented by various pieces of paper—money, bank deposits, stock certificates, debt instruments, deeds, and other contracts—and the heart of the whole story is how and why the value of a particular piece of paper is established. In our paper economy, merchandising paper and packaging property is the most highly rewarded activity open to men of mind and talent. No wonder, then, that it has become a fine creative art and undergone exquisite development.
Mr. Grant is a tall, trim, high-voltage individual in his early fifties, a man of considerable charm, and a talker to call the wind down. As if to complete the symbol of the special (yet general) career he was to mark out for himself, he got out of law school in 1929—that last-of-the-old-world year. In those woebegone days it was something of a curse to be a lawyer; many young lawyers took it as a favor to work for peanuts or even promises of peanuts, in order to get experience. But litigation was also a bigger thing in those un-prosperous days before the New Deal and taxes, and anybody with a license could litigate. Like other determined young men of that time, Arnold Grant amassed a considerable amount of trial experience.
In 1943 he went out to California on behalf of a big electrical outfit in New York to negotiate a contract with the Kaiser shipbuilding interests. This agreement, which covered the construction of thirty C-4 troopships in Richmond, California, turned out to be so complicated that Grant was induced to stay out there to interpret its provisions and supervise operations under it. He worked around the clock for nearly six months—and learned the lessons of a lifetime. (So often a man gains insight or perspective that amounts almost to a spiritual conversion as a result of an extended and concentrated involvement in something, anything.) Grant dates a major turn in his career from the time of this experience as a production supervisor; he began then to learn his trade as a generalist. The primary insight he derived (with considerable surprise) from this engagement was that you didn’t have to be a highly seasoned production man to understand costs or efficiency and make actual contributions to production. Without ever putting on a construction helmet, dealing only with paper and job-foremen, Grant found that the “general point of view” could be crucially helpful in the building of ships. He discovered, for example, that it had previously been necessary to rip out the electrical installation in a hull, because the sheet metal—or maybe it was the plumbing—had to but hadn’t gone in first. You don’t have to go to engineering school to solve that problem—just find out who is responsible for initiating installations of electricity, sheet metal, plumbing or whatever, call them in and introduce them to each other, and procure a statement from each as to what job precedes what other job. The general point of view is not always complicated—but it is always general.
In the course of his California experience, Grant also had the opportunity to appreciate the inner financial workings of the creation of the Kaiser empire, which was one of the first and certainly the most flamboyant in the new context of government procurement together with deadly high taxes. It was his introduction to the overriding importance of public relations, to credit as the true way of business life, and to what he calls “astute” tax thinking.
About this time he was, along with many others in the business world, contemplating the revolutionary new facts of life—the 90 per cent-plus tax rate on personal income and the corporate excess profits tax. It was obvious that money wasn’t money any more, and that any wealth to be acquired would have to come by way of capital gains. But the consequences of the new situation were so startling and extensive that, the human mind being the habitual thing it is, not everyone—even among those who were trying—could think the problem through at the time. For example, if capital gains were to be the new source of wealth, then both the demand for capital gains opportunities and their value would spiral up. That certainly meant a new bull market in stocks was in the making—the market was still low, so buy. Grant called a meeting of a dozen well-to-do clients and put to them the proposition of forming a substantial syndicate. They turned him down—and worse, talked him out of going in on his own modest net worth. He admits that he has ever since been a very difficult fellow to talk out of anything that he has seriously figured for himself.
California looked good to him—the new air travel put the attractive climate within national reach—and at the end of the war he opened a branch office there. He became quite successful in short order. His modest explanation (he is not a particularly modest person) is that Hollywood is like a small town in that news travels fast, and a reputation can be made overnight. He notes another special thing about Hollywood—that the big earners out there live with the knowledge or fear that their days are numbered (“You’re as good as your last picture”), and therefore they are under a compulsion to do what’s right and do it right away—all of which makes them superlative devotees of fashion. Being one of the first New York lawyers on the scene, he quickly became fashionable. (There is a nice vignette to be written about the popular displacement in the past few decades of the historic phrase “Philadelphia lawyer” by the new and more magical “New York lawyer.”) Without disagreeing with Grant’s own explanation of his success, I think at least two additional factors should be noted. One is his personal charm and vitality, along with the generalist’s aura of knowingness; and the other is that Hollywood was at that time practically a sanitarium for big-income people near-fatally wounded by the new tax rates. They needed a modern tax-thinker, and Grant was it.
He was, in fact, one of the first to incorporate personal income in Hollywood—i.e., to expand the use of the corporate device to translate personal income into appreciation of corporate shares which could be disposed of at capital gains rates. The way this worked—mostly for the very biggest stars—was to set up a corporation which then employed the star, and produced and owned the movie—all this done, however, under elaborate contracts with the studio. These independent companies (in the 40’s, not today) were little more than tax and bookkeeping forms, since the studio retained control over everything important. But when the movie was completed, and before the corporation began to take in any income, the shares held by the star could be sold to the studio at a price reflecting the appreciated value of the completed film. The gain was taxed at the comfortable 25 per cent rate. It was a wonderful lawful loophole while it lasted. So good, in fact, that the success of Grant and others in its use led to the adoption in the late 40’s of the “collapsible corporation” provision of the Internal Revenue Code, which was supposed to make the maneuver impossible, and in fact did make it considerably more difficult.
Once the gorgeous vision of “capital gains” caught on, however, the enthusiasts became irrepressible. Everybody wanted to be a corporation—and in fashionable Hollywood if you were not one, you were just not with it. Although the high-C phase of this song ended in the late 40’s, the deeper music of capital gains has of course lingered on.
But the generalist moves with the times: indeed, he is in a kind of lock step—but a step or two ahead—with the gentlemen in Washington. He is charged with appraising the general situation, meaning the whole situation, and properly relating the different factors thereof. The logic of inversion (the basic logic of psychoanalysis and detective stories) is central to his role: it is incumbent on him to remember what everybody else is forgetting, to look for what isn’t there, and to test every proposition by formulating and fooling around with its opposite. Capital gains became such a thing that Grant’s biggest problem with non-corporate clients was to get them to take another look at the possibilities of ordinary income, which had been more or less lost sight of in the frantic shuffle. (An entree to this prosaic approach was to remind the client that there had to be actual gain along with a good capital gains plan—that some of the latter just looked good on paper.)
A lively producer, director, or star would come to him in a creative panic demanding that the government take less. He wanted capital gains—a percentage deal, options, something big-business like that. Grant would say in effect, What are you going to do with your capital gains and how much do you want? (It is really astounding how effective simple questions are in this esoteric area: perhaps a generalist is simply the person who retains an ordinary capacity to ask simple questions in extraordinary circumstances.) Invariably the answer would be, I want to be a millionaire—to be secure. Whereupon Grant would patiently explain that in order to accumulate $1,000,000 at the capital gains rate one had to take in $1,330,000-plus; that the safe return on $1,000,000 capital was $50,000 gross, or not much better than $25,000 after taxes—an income that would keep somebody else very comfortably in a 4½ room apartment. (The explanation might continue much longer, for the magic lure of Being a Millionaire expires slowly.)
The answer, after that, would be deferred compensation, which incorporates incontestable delights. Grant would advise the favored client that an employment deal with the studio could be worked out whereby he could get one, two, or three thousand a week until hell froze over, which is excellent day-to-day money even after taxes—and as secure as mundane things can be. One of the beauties of this deal, and a great selling point to the studio, is that the difference between what the recipient gets now and what he gets eventually is interest-free money for the studio to work with; and part of the risk can be covered by cheap term insurance.
First item: with x thousand dollars a week, after completing the multi-picture stint, you can lose your job or even experience reasonable failures without undue panic (in other words, you earn the long view). Second item: with, say, $2,000 a week you have an income equal to 5 per cent on $2,000,000, and you can afford to speculate on real capital gains opportunities as they come along. Third item: your family is, without further question, utterly taken care of. To sum up: it isn’t the millions, but the income on the millions, that makes life beautiful. The charming thing about this is that it is still a fresh idea, as the capital-gains panic continues.1
High-income individuals are obviously a dramatic part of a lawyer’s work; and the ordinary mortal, in his casual or bemused efforts to comprehend wealth and the property system that produces it, finds it easy enough to identify with those anointed ones who possess the fabled incomes. But the real call upon the capacities of the generalist is made by the asset value and earning power of corporations. In our generalist-lawyer’s relation to these, people are only intermediaries—the client you talk to is a person, but the Real Thing you work for is not.
In 1948, Grant made perhaps the most crucial “generalist” decision of his career. He was at that time a senior partner of a sizable New York-Los Angeles law firm, and making more money than he could spend. But not more than the government could spend; he says he felt like a slave to overhead. So he in effect walked away from it and put himself on what he calls “50 per cent free time”—meaning he is committed to clients of his firm for only half his time, the golden remainder being available to “anything good that comes up.” Plenty has.
He has designed, engineered, and executed a substantial number of big deals—including the purchase of the Empire State Building from the Raskob estate, a $50 million private transaction. But of course there are a lot of people around who put deals together—I suppose a Murchison hears from several of them every day. What Grant has done more especially has been to create for himself a role as a kind of total adviser to corporations—a role which, as far as I know, is duplicated only by similar quintessential generalists and by the more imaginative investment bankers. He is usually retained as financial and legal consultant to the board of directors, and frequently goes on the board itself. His generalist purpose is to alter, orient, and organize both the enterprise itself and its appearance to the financial public, so that the inherent values will be recognized and will become marketable. The Wall Street term for this is “merchandising paper.”
The kinds of situations and solutions involved in the process of “merchandising paper” are too numerous to tell about, or even to catalogue. I shall content myself with offering two case histories in which Grant played an important role. The first concerns a leading company in the postwar office-building boom in the revolutionized urban real estate market, which in New York City alone has transformed the face of midtown Park Avenue and Fifth Avenue in a single decade.
The company I speak of is the Tishman Realty & Construction Co., Inc., a third-generation family enterprise (Julian Tishman began building tenements in 1898), which is currently 53.5 per cent publicly owned. Tishman claims several firsts in the new bonanza market—that the 22-story office building it put up at 445 Park Avenue in 1947 was the first to be erected on that street of streets since the late 20’s (and thus started the fabulous trend); that it was the first fully air-conditioned structure in New York City; and more important still, that it was “one of the first” to be financed by the “sale-lease-back” method, which perhaps more than anything else distinguishes the current real estate market from the ill-remembered one of the 20’s.
Just as people were slow to get into the postwar stock market because of the lingering odor of 1929, although it was a totally different market, so also it took effort and clever merchandising to get across the even greater differences between the two real estate markets. But to tell the complicated story briefly, the difference from which all other differences flow is the present practice of major corporations of signing long-term leases for substantial prime office space, frequently several full floors. (One has only to stroll up Park Avenue from Grand Central to 57th Street to realize that this small stretch is becoming the plush headquarters of the corporate world, comparable to the blocks of Wall Street which for nearly a century have been known as the center of the financial world.) The corporations go for the long-term leases these days probably because they have greater confidence they will be in business fifteen or twenty years from now; the government in effect pays half the cost of fancier, fully integrated headquarter offices; there is no good reason any longer (and a number of disadvantages) for leaving the main office in Keokuk where the first plant happened by chance to be located. Business, as distinct from production, is concentrated in the largest cities, with New York first.
A lease for twenty years with the signature of General Motors on it is as good as money—better in fact, since the new leases include escalator clauses which provide against rising taxes and labor costs, and so contain a built-in hedge against inflation. Before the era of the big lease, the amount of money a builder could borrow on a mortgage was ordinarily two-thirds of the appraised value of the land acquired and the building to be constructed. The additional one-third had to be supplied out of the builder’s own pocket (equity capital) or by means of an expensive second mortgage, when that was available. Today, the mortgage lender will take into consideration the value of the long-term leases as well as the land and building, and so is willing to lend more than two-thirds. This of course reduces the builder’s investment—and there have been some wonderful instances where, after a brief period, the builder’s investment has been reduced to zero by the time construction was completed.
The legal device for effectuating this marvelous maneuver is the “sale-and-leaseback,” which substitutes for the conventional mortgage. What happens is that instead of mortgaging the land and building, the builder sells it and simultaneously leases it back from the purchaser, usually an insurance company. Because of the added value of the long-term corporate leases, the insurance company is willing to pay a purchase price of more than two-thirds of the cost of the completed building—on some occasions, the full cost. The rental that the builder is required to pay to the insurance company under the leaseback is sufficiently smaller than the net operating income on the fully rented building to allow for a good profit. The margin of profit on the leaseback is like an owner’s equity under conventional mortgage financing. Instead of paying mortgage interest and amortization, the builder—now a lessee—pays rental. This gives him a tax advantage in that he pays deductible rent rather than non-deductible amortization. In a reversal of roles, the insurance company—now an owner—gets the right to depreciate the cost of the building, which is just about as good, taxwise, as amortization of a mortgage. In the year 2000-something, the insurance company ends up owning the land and building free of any leasehold. (Grant himself half believes the big life insurance companies will finally own the better part of Manhattan island in fee simple in 50 or 100 years.) This whole financial operation is in effect underwritten by major corporate tenants. It’s a beautiful thing.
In fact, it’s so good that a lot of people who should have known better wouldn’t believe it at first. They just couldn’t see it: they remembered the 30’s as a dreary procession of reorganizations in bankruptcy of almost every major building put up in the 20’s in New York City. Many investors were determined not to be burned again. One consequence of this backwardness was that Tishman’s stock was selling for $8 million in 1955 (400,000 shares at $20 a share), although the new proposition had already been proven in practice. Two years later, when Grant’s generalist work was done, the stock sold for $37 million. Recently, 1,900,000 shares were selling at about $25 a share, or better than $47 million. The $29 or $39 million difference is “merchandised paper,” and real as rain.
How was it done? On one level, it can be said that the existing values of the business were properly presented. On another, that conventional backwardness was overcome by conventional forwardness. But the heart of the matter was the merchandising of corporate values—bringing certain facts about the operation, and their interrelations, to the attention of the financial public. For example:
- People were overlooking the highly important fact that substantial cash was being generated by the company under the guise of depreciation charges. Depreciation deductions are taken and allowed for tax purposes on the theory that as each year passes buildings “wear out” and decrease in value—but in the postwar real estate market almost all buildings, including the oldest, have increased in value. Viewed practically rather than conventionally, this depreciation-cash was similar to net profits after taxes and dividends—and on this basis the company had developed over $23 million from 1945 to 1956 which (cash alone) was $15 million more than the stock was selling for.
- Tishman regularly showed important profit in capital gains on the sale of older properties, but apparently the public discounted this because such profits usually appear on operating statements under the heading “non-recurring gain,” which is the conventional accounting designation. It took the financial community a little while to realize that these profitable sales were a recurrent feature of Tishman’s business—and that they also indicated a significant upgrading of the company’s inventory (that is, the company was replacing not as good old buildings with better new buildings).
- The better this inventory became, and the more depreciation (really profit) that was taken, the more the company’s assets were undervalued on its books—balance sheet entries are conventionally set at depreciated cost. With the most successful sale-leaseback deal, no cost at all would appear on the books, because the future profit was based on a lease that entailed no continuing investment, and so would not be an asset at all! Since the balance sheet understated the appreciated value of properties, $29 million of assets actually had a market value of about $70 million.
- In the real estate market of the 20’s the big danger, and what ended up by collapsing the whole endeavor, was that the builder had to hock everything to get the necessary second mortgage and equity money. But in the new market, based on long-term leases and sale-leaseback, lenders have allowed the builder to insulate each transaction in a separate corporation, without any extra guaranties or collateral. So if a particular deal goes sour, other profitable enterprises are not dragged down with it. A very important difference.
The pattern of concealed values was brought out in the open, and the means of trading in the paper representing them were facilitated. First, the annual report to Tishman stockholders was overhauled (the one for 1955 began, unpardonably, with a “Submitted herewith” and went on to the deadly “I am pleased to report” and “It is most gratifying to note”) and turned into a potent exposition of the new market and Tishman’s position in it. These reports, which are required by the SEC, have come to be recognized as a blessing rather than an imposition, and now are widely used as publicity vehicles. Also, Norman Tishman as president of the company told the new story with considerable effect to the influential New York Society of Security Analysts—and, as usual with addresses to this group, copies were distributed to the market community and through them to the buying public. So the story got around.
Then, the floating supply of stock was too small—only 400,000 shares, well over half of which were held by the Tishman family, employees, and so on—with the result that infrequent trading and erratic price changes marred the market for the stock. So the 400,000 shares, selling at $20 a share in 1955, were split 2-for-l in December of that year; a 10 per cent stock dividend was declared in January 1956; another 5 per cent increase in December; a second 2-for-l split in June 1957; and another 5 per cent dividend in January 1958. All this cutting up came to about a 385 per cent increase in paper, better than 1,500,000 additional potential pieces of it—each of which has been selling recently for $23—$25 apiece! During most of this time, the aggregate cash dividend was not noticeably increased—although after awhile there were some extras.
(Stock splits—and stock dividends, which have the same effect—are among the weirdest phenomena of the current market. In 1944, there were twenty-two splits-or-dividends on the Big Board, six in the popular 2-for-1 range. The movement hit its peak in 1956 when there were two hundred and ninety in all, including sixty-five 2-for-1’ers. Again and again, the increased aggregate of shares will sell for more after the split, although nothing real has happened except that paper has been cut up. The whole strange phenomenon is supposed to have started big after a 2-for-1 by General Motors in 1950, when it was noticed that twice as many pieces of paper were somehow more valuable. Cheaper stock and more of it increases the floating supply and trading volume generally—you might say it enlarges the game by letting the pikers in. Tradition has always made the round-lot—multiples of 100 shares—somewhat magical, and cheaper stock broadens the base of round-lot trading. So all by itself more paper means greater volume which, in this market, moves the price up.)
So, complicated values inhering in the whirl of modern paper property were coherently presented, and the Tishman company had an up-to-date coming-out party. This “merchandising” program was not at all hurt, of course, by the fact that 1956—58 were Tishman’s best years for earnings. But there’s the whole point, for the business generalist, who knows that earning potential is the heart of paper-value. He feels sometimes it is downright wicked to allow innocent stockholders to sell a piece of paper, all unknowing, at a fraction of its value. But you have to get up and move, to make it clear to the stockholder.
Grant has a firm belief that property must be made available in the proper “package” in order to be appreciated, in order to be taken at its inherent value. This has nothing to do with hustling stock through excessive puff in the selling, or indeed with any of the various elements of a Madison Avenue hard sell. Proper packaging of paper values is comparable, rather, to effective writing: instead of lumping together a miscellany of ideas, moods, and burble, one can, by prior analysis and sensitive use of language, present a rhetorically coherent expression. The analogy to the classical sense of rhetoric is quite apt: by packaging, one creates a rhetorical bridge between the existence of property values and the market for them. (The old word “rhetoric” does not have the same meaning of falsification as the modern word “propaganda”: the Greeks understood that it was one thing to discover the truth and something else again to make it known.)
Packaging means—to be academic for a moment—both the legal form property values are given, and the combination of actual values within a legal form. As in the previous real estate example, the legal form would be a conventional mortgage or the newer sale-and-leaseback device; the values within the legal form would be land-bricks-and-mortar alone, or those usual elements along with long-term leases. In one sense, the story of packaging is probably co-equal with the history of property and contract law; but in modern times at least we are becoming much more aware of what this history of our law was all about—especially under the bursting proliferation of corporate and tax forms.
One of Grant’s fondest feats of packaging was the “spin-off” of S. Klein Department Stores, Inc., from its parent, Grayson-Robinson Stores, Inc. (A spin-off is more or less the opposite of a merger—an approved device under the Internal Revenue Code for making two companies out of one, in a tax-free transaction.) Klein’s is a famous and very profitable low-price store located in New York City’s Union Square district. This fast-action department store—which has more than one “discount riot” to its credit—pioneered a number of modern merchandising concepts, including low-overhead self-service, cash-and-carry department store selling, and what came to be known as the discount house operation. It is a cash business that turns over its inventory money twelve times a year, and has a bare minimum of fixed assets.
Grayson-Robinson is a chain of nationwide specialty stores which started out in California and is still concentrated in the West. It runs a good business, but has nothing like the fast profitable turnover of Klein’s. Grayson, again unlike its former subsidiary, has a high asset value—mostly leasehold improvements on its more than 120 stores. The market value of its stock has always been less than its book value (net worth according to the balance sheet). After the spin-off, Grayson sold on the New York Stock Exchange for about one-third of book value—Klein’s sold on the American at thirteen times book.
Grayson acquired the Union Square store from the estate of the founder in 1946. The new management up-dated and expanded the low-price, mass-selling policies initiated by Samuel Klein decades before in New York’s famous working class area. And they made a lot of money. But the Klein operation was, so to speak, under the lid of the more widely known (outside of New York) and less flamboyant Grayson-Robinson business. Moreover, Klein’s profit capacity was seen always in relation to Grayson’s heavy asset investment. (Following the usual practice, Klein was carried on Grayson’s books at cost; and the management prepared consolidated financial statements which lumped together the operations of the two businesses.
When he came into the situation, Grant recognized that this was clearly the wrong package. Utilizing one of the generalist’s first principles—that two plus two seldom equals an obvious four in financial matters—and being a tax man aware of the spin-off technique, he decided to lift the lid and present Klein in its own true package. It took a year of hard work to accomplish this: the details make interesting lawyer-talk, but would probably bore or confuse the lay reader. As an example, there was a large insurance company loan the obligation on which had to be parceled out between the divided companies, and that took months of negotiation. It is much easier to merge two separate companies than to make two out of an existing one.
But it was worth all the work, because Grant’s idea about the proper package turned out to be right. From the announcement of the intention to separate the companies to the date of the actual spin-off, when new shares of Klein were distributed share-for-share to Grayson stockholders (and while the lawyer-work was going on), the price of Grayson stock went from $7 to better than $20. After the spin-off, Klein sold at $13 while Grayson (without Klein) stayed at $7. There were about 800,000 shares of Grayson outstanding, worth $5.6 million at $7 a share—and when 800,000 shares of Klein emerged from out of the Janus-head, $10.4 million in paper value appeared from “nowhere.” Three years after the spin-off, the range of Grayson averaged about $12 and that of Klein about $18, so the whole fresh package went from $5.4 to $24 million.
That’s an example of “packaging.” (There are many others.) Perhaps the concept can be summed up in this way: never sell a pregnant mare for the price of an ordinary horse. Or: the whole is equal to the sum of its parts—yes, but only for the generalist who ignores the given whole, studies the parts carefully, and does his own addition.
Grant is so completely the general expert that he can both enjoy and profit immensely from his nice involvement in our property system, and also stand off and look at it objectively. When in a mellow mood, his favorite image is that in our business system we are playing a “kitty” poker game—the kind he says he played throughout college. In this sort of poker, something from every pot goes into a kitty, and after enough action has been had the kitty is divided up among the losers—and you can start playing again. Otherwise, there would be one or two big winners and no more poker game. By the percentage to the kitty, of course, he means to refer to the annual tax-bite, which the government in effect distributes to the losers.
But as with a lot of people these days who are perceptive as well as successful, not all of his moods are mellow, and he is both uneasy and discouraged that Americans are continuing the conventional poker game even after the Russians have challenged us to a much more serious—and exciting—competition. For production rather than merely paper profit. (He takes the continuing bull market as proof of our lack of seriousness in meeting this challenge, of our concentration on paper rather than production: and maybe in his musings he also remembers those wartime days back in Richmond, California, and 30 important troopships.) A lifelong liberal Democrat, and active in both of Stevenson’s campaigns, he is not one of those in his party who have been lulled or enticed into a spiritual me-too-ism by eight years of Prosperous Nothing. He thinks we’re in trouble and that we ought to get busy doing something about it. In the present unusual circumstances, too much business as usual could end up ruining the business system.
It is strong medicine for a man who has prospered under this exciting productive system to stand witness to its fall into ignominious second place. I suppose he feels he did not become a successful generalist, a “pure” manager in the liveliest managerial system of them all, to see “his” enterprise lose out almost without a struggle to imitative and amateurish upstarts. But he is enough of a generalist to be able to see that exactly that is happening. And like many others in his fraternity, he will ponder the question, Why?
1 Grant worked out his first deferred compensation arrangement for a leading male star in 1946. The technique caught on. In its annual reports on executive compensation (based on studies of half or more of the companies listed on the New York Stock Exchange), the Harvard Business Review states that 17 per cent of the companies had deferred compensation deals going for top executives in 1955, 26 per cent in 1956, and a full one-third in 1957. Quite recently, the Internal Revenue Service stopped struggling and has abandoned its finickiness in reviewing these arrangements, which means they are finally “in.”