It was not one of corporate America's prouder moments when Robert J. Buckley, chairman, president and chief executive of Allegheny International Inc., resigned last Friday. Buckley, 62, leaves under a cloud of derision, if not worse--a Securities and Exchange Commission inquiry is continuing and four shareholder lawsuits are pending--for the lavish style in which he and Allegheny executives comported themselves at shareholders' expense, for the failure of investments made in his nine-year tenure at the top and for the company's worrisome losses.
The immediate impetus for his resignation apparently was an article in Business Week magazine that reported on Allegheny management's opulent ways--such as five corporate jets to whisk executives to expensive management conferences that the Pittsburgh-based small appliance company held in Boca Raton, Fla., and the Bahamas. Corporate expenses at Allegheny ran to more than $50 million a year while net income declined from $81 million in 1981 to $14.9 million in 1984 and then became a loss of $109 million last year. Allegheny stock, which sold at more than $55 a share in 1981, sells now at around $16 a share. Stockholders are understandably angry.
Exemplify Unfortunate Trends
But why should anyone not involved, either as stockholder or employee, care about the company or its now departed boss? Because Allegheny and Buckley exemplify several unfortunate trends in American business: deal-happy managements whose acquisition and divestiture "strategies" result in debt-ridden companies whose perilous condition threatens jobs and communities, overpaid executives who get stock options and low-interest loans in addition to high salaries, and boards of directors composed of prominent individuals who for all their big names do little to curb management excesses until it is too late.
Make no mistake, Allegheny is not representative of all U.S. business, or even a majority of it. But it represents something like a virus, which perhaps we can curb or eliminate if we can recognize the symptoms.
First of all there is Buckley himself, a reputedly bright law graduate of Cornell who built a successful career in manufacturing at several companies, including the tough training ground of General Electric's Schenectady, N.Y., facility. He joined Allegheny in 1971, when it was Allegheny Ludlum Steel. But Buckley seemed no longer interested in the traditional business once he became chief executive in 1977. He sold the specialty steel operation to its managers in 1980, and the following year he acquired the Sunbeam small appliance business for the company that he now named Allegheny International (AI).
Typically, executives like Buckley don't talk about ordinary things like small appliances. What he was doing, Buckley told shareholders, was "transforming AI from a cyclical metals business to a technology-driven--and market-driven--consumer products business."
Jargon aside, however, it remains the fiercely competitive business of steam irons, food processors and electric blankets. And while it has been AI's main business, contributing $883 million of the company's $2 billion in sales in 1985, operating profits have declined to $54 million last year from $76 million in 1983 under the pressure of price cutting in the marketplace.
Most of the rest of AI has proved a shambles. Acquisitions made early in Buckley's tenure have been sold at a loss in recent years; investments that he made in oil and gas and real estate have led to further losses.
Don't cry for Buckley. He was paid $573,000 last year, when the company lost money, after getting more than $1 million in salary and bonus in 1984, when AI made all of $14.9 million in net profit. In addition, he has a $2.9-million loan from the company at 2% interest, one of a total of more than $30 million in low-interest loans that the company made to its executives.
Why do executives get concessionary credit? According to the company's official explanation, so that they will be able to exercise their stock options and thereby be motivated to work hard to increase overall shareholders' equity.
In AI's case, the policy has proved a stunning failure: Stockholders' equity has gone down, not up, and now stands at $86 million, compared to almost $500 million in long-term debt. The company will probably have to sell assets to meet an accelerating repayment schedule on that debt in the next two years. Cutbacks and layoffs are likely.
One wonders if the board of directors--which features such prominent names as former Secretary of State Alexander Haig, H. J. Heinz Co. Chairman Anthony J. F. O'Reilly and French author and thinker Jean-Jacques Servan-Schreiber--will now vote 2% loans so that $18,000-a-year factory hands at Sunbeam can continue to make their mortgage payments.
If they did, it would be the most useful thing the Allegheny International board has done in a long time.