Gordon Getty’s Gamble : Today, Two Giant Oil Companies Fight Over the Remains of Getty Oil, and the Multibillion-Dollar Getty Family Trust Is Tied Up in Lawsuits. That Isn’t Quite What Gordon Getty Planned.

FOR ALL PRACTICAL PURPOSES, THE GETTY OIL CO., A BASTION OF THE DOWNTOWN Los Angeles business community for decades, no longer exists--and perhaps no one regrets that more than Texaco, the New York-based oil giant that swallowed the company whole back in January, 1984. These days, Texaco is suffering from a kind of acute corporate food poisoning. Racked by a record-setting $10.53-billion jury verdict awarded to Pennzoil for damages suffered in the Getty Oil deal, Texaco last month filed for bankruptcy, the largest company ever to seek such protection.

That Texaco should face extinction because of its appetite for Getty Oil is a bitter irony for the deposed executives who once ran J. Paul Getty’s oil empire from its headquarters at Wilshire Boulevard and Western Avenue. For it was precisely their own overthrow at the hands of Gordon P. Getty, J. Paul’s youngest surviving son, that led to Texaco’s present troubles. What follows is the singular story of Gordon Getty’s foray into the treacherous waters of high finance, an adventure that would irrevocably change the landscape of corporate America.

ON MAY 10, 1982, A BOMBASTIC, curmudgeonly, little-known attorney named C. Lansing Hays died at the age of 66 in a Monterey hospital. With him passed the lingering ghost of J. Paul Getty, the tycoon once regarded as the world’s richest man, who through hardness of spirit and unfathomable devotion to profit built Getty Oil into a multibillion-dollar financial empire.

Ever since J. Paul Getty died in 1976, Lansing Hays had functioned as a kind of surrogate for the old man, as J. Paul was called, controlling both the direction of Getty Oil and the power of the Getty family trust’s 40% stock position. Hays’ aggressive personality had, in effect, postponed the impact of the old man’s death on the company and on the trust. Hays was, J. Paul once remarked, “my great friend and attorney par excellence,” and that endorsement endowed him with extraordinary power for someone who had never been an officer or employee of Getty Oil. For many years, Hays’ only official connection to the company was his role as chief outside counsel, based in New York. Later, he joined the board of directors and became co-trustee of the $4-billion Sarah C. Getty Trust, which held most of the Getty family fortune. But Hays’ power at Getty Oil had never been exercised through official channels. It depended not on title but on intimidation.

Hays often treated Sidney Petersen, Getty Oil’s chairman and chief executive, with open contempt. He publicly humiliated Dave Copley, the company’s vice president and the man ostensibly in charge of Getty Oil’s legal strategy. But Hays also effectively dominated his co-trustee, Gordon Getty, minimizing his influence on the company. Hays’ death left Getty in sole control of the immense trust, and if Getty Oil’s top executives thought they could manipulate the Getty scion the way Hays had, they were in for a surprise.

Ever since he had joined the Getty Oil board of directors at Lansing Hays’ insistence, Gordon, the old man’s second son by his fourth marriage, had been an inscrutable and sometimes distracting presence at the company. He was a tall, gangly man, 6 feet, 5 inches, with a curly mop of dark hair that draped over his brow, contributing to the general impression of an oversized Muppet. Graying sideburns added years to his otherwise boyish face. His nose and fingers were gracefully long and thin. His appearance, clothes and manner combined to create an image that the younger Getty himself enjoyed, and perhaps even cultivated: the absent-minded professor. High-ranking Getty Oil executives remarked that sometimes when you met Getty, he acted as if you were his dearest, oldest friend, but the next time he would seem not to remember your name. He was often late to meetings and, to veteran Getty Oil executives and directors, appeared to have little familiarity with business protocols. Once at a board meeting, he had gone into a side room to make a call on a then-new credit-card telephone. After what seemed a prolonged absence, a Getty Oil executive looked in, and there was Getty with half a dozen consumer and department store credit cards strewn on his lap, complaining that he couldn’t figure out how the damn phone worked.

He had been an awkward boy, intimidated by his father and overshadowed by his charming, self-destructive brother J. Paul Jr., and also by his half brother George, who before dying of a drug overdose in 1973 was the only one of J. Paul Getty’s five sons to succeed in the family business. Gordon Getty was quiet, introspective and something of a dreamer, particularly when it came to the principal passion of his life, music. He was an opera enthusiast from an early age and began to compose classical music in his late teens. But his father, who married five times and saw his sons only a few times a year, urged Gordon to pursue a career in business. Gordon was eager for his father’s approval, which the old man hoarded as tightly as he did his money. For 18 years, beginning in 1962, Gordon abandoned his composing. But his attempt to find a place in his father’s oil company was disastrous. He bounced from position to position, trailed by criticism from Getty Oil executives who found him immature, selfish, stubborn and poorly qualified. Finally, he gave it up and moved to San Francisco with his wife, Ann, a small-town girl raised on a ranch in Wheatland, north of Sacramento.

There were those at Getty Oil who believed that Ann dominated Gordon Getty the same way his father, and later, Lansing Hays, had. But Ann persuaded gently, and over the years, Getty seemed to mature. He took up his music again, composing a song cycle for female voice and piano based on a book of Emily Dickinson poems. Perhaps it was not a work of genius, but it was a spare, arresting piece, and it suggested authentic talent. By the time of Lansing Hays’ death, Gordon Getty was well into his 40s, and it seemed to some that he was finally coming into his own.

Getty and his wife lived in a six-story, 25-room mansion overlooking San Francisco Bay. The house reflected both the extravagance of their riches and the contrast in their personalities. For Ann, it was a manifestation of social position, and she paid close attention to its opulent details. The Gettys employed a butler and a footman and five other full-time servants, including a French chef. The ambiance was decidedly Old World--the dining room, for example, had no electricity, only candlelight. In all, it was a house that might properly be the center of society for San Francisco’s gilded upper class, and that was precisely what Ann Getty wanted.

Getty gladly accommodated Ann’s expensive tastes, but he did not share her enthusiasm for society. Often, while the upstairs parlors hummed with the conversation of her guests, he retreated to the basement and the privacy of his sound proofed study and music room, where he kept a Yamaha Grand piano, a stereo system and, on shelves lining two walls, thousands of classical recordings, some of them rare and old.

Once, a television interviewer asked Ann Getty what was the principal luxury of her husband’s life. “Music,” she answered.

“What is your luxury?” the interviewer asked her.

“All the rest of this, I guess,” Ann said, waving vaguely at the ornate splendor of her living room.

IT WAS with apprehension and relief that Sidney Petersen made a dinner reservation at the Los Angeles Club for the evening of Tuesday, May 18, 1982. When attorney Moses Lasky had called the Getty Oil chairman’s office to say that his firm was now representing Gordon Getty and the Sarah C. Getty Trust and to suggest that perhaps they should meet to discuss these new circumstances, Petersen had thought to himself that this was a positive development. Petersen knew Lasky well and hoped that the aging trial attorney would help contain Gordon Getty’s new-found power as sole trustee of his family’s fortune.

Friction between Petersen and Getty had arisen quickly after Lansing Hays’ death. Shortly after the funeral, Getty had flown down from San Francisco and had come to the chairman’s office on the 18th floor of the Getty Oil headquarters building for a private meeting. “Those of us in management, and more particularly the other directors of the company, will be looking to you for some signal or indication about what you feel your role will be at Getty Oil,” Petersen had said.

“I’m not going to make any changes in management--yet,” Getty had answered. “And the present slate of directors is OK for now.”

Petersen had been chilled by the response, and although Getty went on to say that even if he owned 99% of the company, he would still have to consider the interests of “all the stockholders,” Getty Oil’s chief executive was not reassured. He hoped that over dinner with Moses Lasky he would obtain a more concrete understanding of Getty’s intentions--as well as assurance that Lasky would help him keep Getty under control in the months ahead. But by the time their meeting was over, Petersen was more concerned than ever.

“It might be appropriate if Mr. Getty was named chairman of the company,” Lasky said not long after they got under way. “It would be more of an honorary title--Gordon is not interested in running the company day to day. But the title would be helpful in relations with management.” Lasky emphasized to Petersen that the chairman now had to be very careful about his manner and attitude toward Getty. “Look, if you fellows just drop these ideas that you have about Gordon, recognize that he does represent ownership of a large part of the company, and if you don’t treat him with disdain, you’re going to have no trouble at all,” he continued. “Gordon does not want your job, Sid. In my judgment, that shouldn’t even cross anybody’s mind.”

Petersen said little, but as the dinner went along, he became more and more alarmed. A company man who had risen through Getty Oil’s ranks during a 25-year career, he thought he saw the wheels turning in Moses Lasky’s head: Lasky, he believed, was out to be the power behind the throne. He was going to try to replace Lansing Hays as the man who controlled Gordon Getty’s wealth and power, and through Getty, the company. At the same time, Petersen was not in a panic about Getty’s new role. He believed that with patience and diplomacy and a little toughness, he could work with him, that he could control Gordon Getty on his own.

THAT PETERSEN WAS WRONG first became evident in September, 1982, when the chairman met Getty at the Phoenix airport one afternoon. The pair shared a cab to the headquarters of Greyhound Corp., where they were to interview a prospective Getty Oil director, John Teets, Greyhound’s chief executive. Getty had spent the previous two weeks in New York.

“I had a very interesting meeting with Bill Tavoulareas,” Getty said early on during the cab ride, referring to the iconoclastic president of Mobil Oil. “He made a number of interesting suggestions about what we should be doing.”

Suggestions? Visited by a 40% stockholder of a rich, rival oil company and asked for his opinions about what that company should do, the acquisitive Tavoulareas had made a few suggestions? Petersen could imagine the dollar signs dancing before the Mobil president’s eyes as he sat with Gordon Getty in his office. What had Getty been doing there? What could he have been thinking?

Petersen said nothing, and as Getty talked, it became clear that Tavoulareas was not the only one he had asked for advice during his Manhattan sojourn. Getty said that he had also met with some Wall Street investment bankers and had asked them what strategies Getty Oil should pursue to raise the price of its stock.

This news was nearly too much for Petersen to bear. Investment bankers--some of those people would sell their grandmothers to get a merger or takeover deal under way. That fall, Wall Street’s investment banking houses were at the center of an unprecedented merger mania encouraged by lax antitrust enforcement and the declining competitiveness of American industry. Merger fever was washing over industries like an irresistible tidal bore, shifting from sector to sector as Wall Street’s fashions turned. Media companies, food companies, paper companies, entertainment companies--whole industries became “hot,” in Wall Street parlance, as if the destiny of American business were like hemlines or tennis-shoe brands. Now oil companies were hot, scorching hot. For Gordon Getty, a 40% stockholder in one of America’s biggest oil companies, to wander through investment houses soliciting advice on how to raise the price of Getty Oil stock--well, he might as well have hung a “For Sale” sign around his neck.

The contrast between Gordon Getty’s blithe, open attitude and Sid Petersen’s tense, tight-lipped concern was growing wider as the days passed. In part, this gulf was a result of Petersen’s careful demeanor around Getty, his unwillingness to raise his voice, his attempt to show Getty the respect urged by Moses Lasky. It was also a reflection of Getty’s apparent inability to sense that Petersen was harboring anger and anxiety behind his respectful veneer. Later, Getty and his advisers would call Sid Petersen “two-faced,” and it was in some ways a just accusation, since Petersen felt deep misgivings about Gordon Getty and yet showed him little of his brewing emotion. Petersen festered, as Getty himself would put it. But after all, Lasky had warned in May that if the company’s management thought poorly of Gordon and his ideas, Lasky hoped they would not show their displeasure. Petersen was merely following Lasky’s advice.

In December, Petersen learned that Getty had contacted Corbin Robertson, head of Quintana Petroleum, a large, aggressive, privately held oil concern. Robertson had proposed that Getty combine with Quintana to take control of Getty Oil. This was worrisome enough, but Petersen also suspected that Getty was providing Robertson with confidential internal studies about Getty Oil’s operations, finances and oil reserves.

The studies, which had become a major distraction around Getty Oil headquarters, had been undertaken at Getty’s adamant insistence. Now it was feared that they would be used to launch a hostile takeover against the company. Somehow, Petersen believed, Getty had to be made to understand that he, too, was vulnerable in a takeover attempt. The trust owned only 40% of Getty Oil. If a raider acquired the 60% not controlled by Getty, the raider could “squeeze” the trust by either locking Getty in as a minority owner or forcing a merger at an unfavorable price. If Getty would only understand this, he would see that his best hope was to align with management, Petersen believed. And perhaps most important, they had to stop Getty from disseminating confidential company information to outsiders.

The chosen occasion was a private meeting with Getty at the Bonaventure Hotel in downtown Los Angeles on Wednesday evening, Jan. 12, 1983. Petersen, Copley and Bart Winokur, Getty Oil’s chief outside counsel since Hays’ death, drove over from company headquarters. Tim Cohler, of the Lasky firm, flew down from San Francisco.

It seemed to Getty and Cohler that Petersen was especially tense when they sat down together in the two-room suite that had been booked for the evening--Petersen’s jaw seemed locked shut and his lips were tightly pursed. But as Petersen began to speak, Cohler and Getty both recognized that he was doing his best to be gracious.

“You know, Gordon, your father, Mr. Getty, was a very patient man,” Petersen said. “He took his time accumulating an equity position in the various companies that ended up becoming Getty Oil. I just think that such patience, in accumulating a control position over time, has proven itself in the past by the experience of your father.” He went on to say that if Getty would bide his time, he might eventually creep into control of Getty Oil--with the company’s blessing. Soon Petersen was carrying his point further, making it stronger. Getty had yet to say a word. “We need a flat assurance that these studies are at an end,” Petersen declared.

“I appreciate everyone’s views,” Getty finally responded. “I’m glad that the views have been exchanged. I think it’s my duty to listen to all the good thoughts that people might have. My father always welcomed people to his estate and listened to their views and then made up his mind as to what was best. And I think that’s a way of conducting yourself that can’t be criticized. I’m an ethical guy and I know what my duties are, and I’m responsible. But I cannot in good conscience say to you that there has been a complete set of studies made. I cannot yet be sure that the shareholders as a whole would not benefit from further studies.”

In his inimitable fashion, Gordon Getty had said “No.” He would not end the studies. The mood began to shift. Bart Winokur began to speak up more forcefully. He had been introduced by Petersen as a brilliant lawyer experienced in mergers and acquisitions, and now he began to tell stories from his legal career, stories about hostile takeovers that had arisen in situations similar to this one. He used some of the wild metaphors popular in his trade: By meeting with outsiders, Getty was spreading “blood in the water,” Winokur said. By resisting Petersen, Getty was demonstrating to Wall Street that the company was bleeding, and once that blood hit the water, sharks would be sure to gather.

“You should not be doing anything that anyone outside the company could interpret as encouraging them to make their proposals for control of the company,” Winokur said to Getty. “You should not be talking to Corby Robertson at all.”

Winokur was aggressive. He described in vivid terms a variety of scenarios in which Getty and the trust could be “squeezed” by an outsider who might gain control of those Getty Oil shares not owned by the trust. Over and over, Winokur emphasized the squeeze.

“Don’t you realize, Mr. Getty, that you could be the juice?”

“I’ve had further conversations with Mr. Robertson about his buying the rest of the Getty Oil shares. We could run the company together,” Getty said. “What Robertson proposed was a deal where he would buy 60% of Getty Oil’s stock, then we would run the company as partners. We didn’t discuss exactly how that would work.”

“Have you been giving Robertson company information?”

“Yes, I have been reviewing information with him. I have given him some documents. But I don’t think it will be used improperly. Mr. Robertson is a gentleman.”

“What documents have you given him, exactly?”

“Oh, some general things.”

Copley, Petersen, Winokur and even Cohler all told Getty that this was not an issue he was entitled to decide on his own. “A director, if he’s acting as a director and not as a shareholder, doesn’t have the unilateral right to decide what company information should be made public,” one of them said. “The board and management have to deal with that. You have to work through those institutional forums, Gordon.”

“I don’t agree with that.”

“You have obvious conflicts, Gordon.”

“Well, it’s a real conundrum,” Getty conceded. “It presents moral and ethical dilemmas.”

Cohler asked Getty if he could talk to him privately. It seemed clear to Petersen and Winokur that the Lasky partner was uncomfortable with his client’s statements; any lawyer would be, they thought. Cohler and Getty stepped into the adjoining room and shut the door. When they returned, Getty seemed transformed--but not for the better, to the others’ way of thinking. He was more stubborn than ever. Contradicting his own attorney, he now insisted that he had the right to determine what was confidential company information and what was not, saying he felt an “ethical obligation” to Robertson.

The tension began to rise. An ethical obligation! What did that mean? The ethics were clear enough to those at the meeting: Gordon Getty was misusing confidential Getty Oil information, they believed. What other ethics could prevail?

They began to divide themselves in the hotel suite now--Getty on one side of the room; Winokur, Petersen, Copley, and Cohler on the other, facing him, arguing urgently that Getty had gotten it wrong, that he was not free to make up his own rules about the confidentiality of company financial data. The more they pressed him, the more defiant Getty became. He was convinced that he was acting properly as a fiduciary of the family trust and of the company as well. “I answer to a higher morality,” he said finally. Perhaps he was referring to his various responsibilities--to the trust, to the Getty family, to the company, to his father’s memory--but at that moment in the hotel suite, in the heat of the debate, it sounded to the others as if he meant that he was better than everyone else, possessed of a clearer moral vision. To Sid Petersen, that moment, that statement, was the turning point. He looked across the room at Gordon Getty and what he saw was selfishness, churlishness, blind rebellion. Getty was out of control. Somehow, Petersen felt, he had to be stopped.

Getty’s attorneys were also concerned. Four days after the Bonaventure meeting, Moses Lasky wrote an eight-page letter to Getty about the laws governing confidential information and illegal insider stock trading.

“For obvious reasons, I am not willing to trust this letter to the mails,” he wrote. “It takes great foresight to thread one’s way through these thickets, and because of that fact most people in like situations proceed cautiously, and many do not engage in discussions in the absence of counsel,” Lasky told his client, referring unsubtly to the fact that his firm had not been consulted by Getty about his meetings with Robertson and other outsiders. By sharing company information with outsiders, Getty had placed himself “under the obligation to make the legal determination of whether the facts must be disclosed to the public. I do not see how you can make that determination without legal advice from specific case to specific case.”

Of course, during the Bonaventure meeting, that was precisely what Getty had said he would do. He would make his own determinations about ethics and morality and legality. Business, Gordon Getty said, was a matter of intuition, like music. You just sensed what deal was possible, what was good, what was progress, what was a blind alley, what was proper, what was improper. Ever since Lansing Hays’ death, Getty had felt himself pushing toward some inevitable goal. He did not know the exact form or direction of this goal, but he was driven by his instincts--certainly not by the inflexible rules of those around him. After all, it was his responsibility. It was his trusteeship. It was his money.

Or was it? Did the Getty family fortune now belong to Gordon, as sole trustee, or did it belong to the Getty family beneficiaries--the brothers, half brothers, nieces and nephews who shared the trust’s income and stood someday to inherit portions of it? That was a theoretical and legal question long debated within the Getty family. That January, when Sid Petersen returned to company headquarters after the confrontation at the Bonaventure, he decided that he should test the issue once and for all. If Petersen succeeded, the question of who owned the Getty trust’s stock would no longer be a matter for abstract debate; it would become, in the months ahead, the center of a struggle for power within the Getty family.

The Sarah C. Getty Trust had been established in 1934 after a dispute over money and power between J. Paul Getty and his mother, Sarah. Over the years, the old man’s sons jockeyed for position within the family, sometimes suing their father or each other over the right to control or profit by the trust. Gordon had unsuccessfully sued his father during the 1960s, seeking a greater portion of its income in cash. The old man changed his mind a few times, but in the end he named Gordon, Lansing Hays and Security Pacific National Bank to serve as co-trustees upon his death. He also willed much of his personal estate--consisting principally of 12% of Getty Oil’s stock--to the J. Paul Getty Museum Trust, which ran the Getty Museum in Malibu. Harold Williams, a former corporate executive and former chairman of the Securities and Exchange Commission, was appointed to head the museum.

From Sid Petersen’s standpoint, the main difficulty with this arrangement had been the failure of Security Pacific to accept the co-trusteeship with Getty and Lansing Hays. Since 1973, when J. Paul selected the bank, Security Pacific had officially done nothing--it had neither accepted nor declined the co-trusteeship. On several occasions, Petersen and his lawyers had tried to persuade Security Pacific executives to accept the trust position in order to dilute Getty’s power. But the bank resisted these overtures. Its executives feared that if they accepted, Security Pacific would become entangled in a debilitating web of family lawsuits. Given the Gettys’ penchant for suing one another, it was not an unreasonable concern.

“The trust is huge,” one Security Pacific executive argued Feb. 9 at a meeting arranged by Petersen in the aftermath of the Bonaventure debacle. “Billions of dollars. The bank faces large risks of exposure if it deals in any way with the trust--just because of the trust’s size. What would happen to the bank if it made an error of some kind, or an omission? We could lose a substantial portion of our assets in a lawsuit.”

“But isn’t handling large trusts the business of a bank like Security Pacific?” Bart Winokur asked pointedly. His implication was clear: Security Pacific, after all, was a bank willing to lend billions to such Third World debtor nations as Mexico, Brazil and Argentina. Could supervising the Getty family fortune carry any more risk than that?

The banker only repeated himself: “The trust is just too large.”

With Security Pacific unwilling to go forward, Petersen and his advisers decided that a lawsuit challenging Getty’s sole trusteeship had to be instigated. A number of Getty family members might be willing to sponsor such a suit--Gordon’s drug-addicted brother J. Paul Jr., his half brother Ronald, and various nieces and nephews, all of whom depended on the trust for wealth and position. When word of Gordon’s Wall Street rounds had gotten back to family members, two of Gordon’s nieces had contacted Getty Oil, concerned about what their uncle was doing.

So Petersen and his advisers began shopping for a lawyer to handle the suit. They contacted two prestigious Los Angeles firms, O’Melveny & Myers and Gibson, Dunn & Crutcher, but were turned down. O’Melveny said it had a conflict of interest because it represented Security Pacific. A senior partner at Gibson, Dunn said the whole matter was too unseemly.

Undaunted, Petersen’s advisers telephoned Seth Hufstedler, a renowned Los Angeles criminal and civil trial attorney, and arranged a meeting. The Getty Oil lawyers brought along some documents, and they presented their version of the Getty family history and the company’s recent problems with Gordon Getty. Dave Copley did most of the talking. He explained the peculiar circumstances by which Getty had come to control the family fortune. He talked about Lansing Hays, what kind of influence he had been on Gordon Getty, and about the consequences of Hays’ death a year before. Finally, Copley ran through a list of Getty family members who were in a position to file a lawsuit against Gordon, commenting as he named them on their relative likelihood to do so, given their feelings about Gordon and the family’s tortuous history.

Hufstedler listened closely. At last, Copley asked him, “Would you be available or interested in serving as guardian ad litem (for the purposes of a lawsuit) should one of the members of the family nominate you?” If Hufstedler would agree to seek a court appointment as guardian of one of the young Gettys, he could then spearhead a family challenge to Getty’s sole control of the trust. “I’ll consider it,” Hufstedler answered. “I’ll have to look at the documents, and then I’ll let you know what I think.”

Two days later, Hufstedler called Copley with the good news: He was interested in pursuing the matter. They arranged another meeting.

“Everyone in this room should realize that he’s going to have his deposition taken,” Hufstedler announced when they had reassembled. “We’re not going to be able to hide the fact that there have been contacts with the company. Once a lawsuit is filed, Gordon is certain to allege that something improper has gone on here.”

Hufstedler’s remark was prescient. It was also, as it turned out, a vast understatement.

A note on sources: Characterizations of individuals and events described in this story are based on examination of thousands of pages of court documents and interviews with key players, including 12 former Getty Oil executives and directors, among them former Getty chief Sid Petersen and Gordon Getty. Accounts of meetings, conversations and states of mind are reconstructed from these interviews and from sworn depositions, handwritten notes submitted as exhibits in pending litigation, and memos-to-file written by company executives and their legal and financial advisers. Background material on the Getty family was drawn in part from such works as Robert Lenzner’s “The Great Getty,” published in 1986, and J. Paul Getty’s 1976 autobiography, “As I See It,” and from television interviews and periodicals. In addition, the author reviewed correspondence between several members of the Getty family.