Perot Plotted to Paralyze GM, Former Aides Say : Business: During 1986 feud, they say, he sketched a plan to ‘pull the plug’ on auto giant’s computer systems.

In the fall of 1986, Ross Perot’s lieutenants at Electronic Data Systems were dumbfounded as they listened to the firm’s founder outline a strategy to “nuke” General Motors by shutting down its computer systems and thereby paralyzing its auto production.

Perot, who had sold EDS to GM two years earlier but was still in charge of the computer services firm, was locked in a power struggle with then-GM Chairman Roger B. Smith over the future course of the world’s biggest corporation. Their conflict, often portrayed as a heroic battle between a huge bureaucracy and an outside reformer, has become a critical element in the popular mythology surrounding Perot.

But to some of those who worked side by side with Perot before his stormy separation from GM, his motives were more complex--and his methods more extreme--than suggested by previous reports. While he was proclaiming publicly his desire to rehabilitate the ailing automotive company, Perot also was working behind the scenes to secure bigger profits for EDS and better pay for its executives, according to former associates. And he appeared willing to go to great lengths to accomplish his objectives, they say.

Perot outlined options for dealing with GM in a series of meetings with senior EDS officials in his Dallas office in 1986. The sessions were described in recent interviews with several former associates and in court records filed in a Virginia lawsuit brought by EDS aimed at enforcing the terms of the buyout agreement GM ultimately reached with Perot.

The EDS officials, all of whom spoke on the condition they not be identified, stayed at GM after Perot’s departure and can hardly be characterized as neutral observers. Still, their accounts raise questions about the undeclared presidential candidate’s approach to business and whether it would serve him well in Washington’s world of government and politics.

One radical option Perot proposed in his dispute with GM was to “pull the plug” on its vast computer systems, virtually all of which were operated by EDS, according to meeting participants. GM’s auto assembly operations would be crippled as EDS technicians walked out of GM offices and plants across the country. Perot, a GM board member, would then take his fight to GM’s shareholders and the public. Smith would have no choice but to accede to Perot’s wishes.

It was, Perot reportedly told the startled executives, the “nuke ‘em scenario.”

While the strategy was never carried out, several EDS officials said they were convinced he was deadly serious. “It was no joke; he was serious. Ross doesn’t bluff,” said one longtime associate who was present at the discussions.

A different interpretation was offered by former EDS President Morton H. Meyerson, now chairman of Perot’s new computer firm and a senior adviser to his undeclared presidential campaign. Meyerson confirmed that the possibility of shutting down GM’s computer systems was discussed in the 1986 strategy sessions but denied that it was given serious consideration.

“It was said in the heat of battle,” said Meyerson, suggesting that someone other than Perot may have raised the issue. “There was never any serious plan to implement these things.”

Perot himself declined to be interviewed for this article, referring all questions to Meyerson.

Perot’s critics among the EDS executives say his willingness to even consider a “nuke ‘em” scenario suggests a reckless style that might prove dangerous when applied to high-stakes presidential decision-making in the midst of a foreign or domestic crisis. Supporters, however, are likely to interpret the incident as further evidence of a bold management style that succeeds precisely because Perot will consider options that others would rule out as too unpopular or risky.

Perot frequently cites his experience at GM, especially his efforts to improve the quality of its cars, as an example of how he might tackle the problems facing the country and the federal government.

“Right now, when I look at my country, I feel like I’m looking at General Motors during that period of time,” Perot said in a recent television interview.

Reflecting on Perot’s dispute with GM, many of his former assistants at EDS say they were frightened by the way in which their boss seriously considered crippling the automotive giant. “It was bizarre; it was like ‘Alice in Wonderland,’ ” recalled one executive who attended many of the meetings on the dispute.

At one meeting, Perot suggested that EDS should “go out on strike and talked about shutting down GM,” EDS executive Les Alberthal said in a deposition in the lawsuit filed in Virginia. “The idea was that the only thing GM would listen to were strong positions and threats,” Alberthal later testified.

The “nuke ‘em” scenario, if carried out, not only would have damaged GM, it “would have killed EDS,” said one participant. After all, GM was EDS’ largest customer as well as its owner. What other firm would retain EDS’ services after it had trashed GM?

The discussions ended abruptly. Alberthal stood up and walked out of one meeting, telling Perot he was not going to entertain such ideas, according to other participants and legal depositions. The other executives were stunned. “It was unprecedented for someone to walk out like that,” recalled one participant. “It was the most courageous thing I’ve ever seen.”

Perot tends to evoke strong emotions among longtime associates--from passionate loyalty to extreme alienation.

As many as 200 former EDS executives followed him to Perot Systems, the competing computer services firm he founded after GM bought out his remaining stake in EDS. “It’s been rewarding and challenging,” said DeSoto Jordan, a top official at Perot Systems and one of his longtime aides at EDS. “I have always had other options, but I’ve always enjoyed working for Ross.”

Yet for many of the senior executives who worked at EDS--in some cases for 20 to 25 years--the public perception of Perot’s business career is often at odds with their personal experiences with a man they depict as a highly complex and domineering figure.

“Most of the people he has following him around now don’t know him,” said one former associate, referring to supporters of Perot’s independent presidential bid.

Among the senior executives who remained at EDS, Perot’s legacy is a bitter one. Even those trusted aides who were involved in the most celebrated incident in Perot’s career--the daring 1979 rescue of two EDS employees imprisoned in Iran--eventually bid him farewell.

The former aides say they are convinced that Perot’s famous fight with GM management was only superficially related to his headline-grabbing campaign to improve the quality of GM automobiles. They suggest that Perot also was pursuing a more personal agenda.

The EDS officials say that after GM acquired EDS, Perot soon sensed that it would be difficult for an outsider to change the company and began to look for ways to get out. He eventually decided to pick a fight, they contend, hoping to force GM to either accede to his wishes or buy him out.

“He began to do things and demand things that were ridiculous, that seemed designed to cause friction and create tension,” recalled one former associate. “He was trying to orchestrate his exit,” added another.

Perot, who founded EDS in 1962 with $1,000 of his wife’s savings, wrangled an unusual and highly lucrative deal when he sold EDS to GM in 1984 for $2.5 billion. GM preserved a separate corporate structure for EDS, with Perot as chairman. EDS also retained its own publicly traded common stock, called GM “Class E” shares, and Perot immediately became GM’s largest single shareholder.

Many longtime associates say Perot thought he had broad latitude to run EDS as if it were still his own company. He believed he could continue to set compensation for EDS executives and establish computer service contracts with GM that ensured large profit margins for the subsidiary. “He wanted to have his cake and eat it too,” said one former associate.

Perot also saw his new role as a GM board member as an opportunity to shake things up in Detroit. Perot and Smith soon found themselves on a collision course.

By 1985, Perot was clamoring for rapid improvements in the quality of GM vehicles and was challenging the overall direction set by Smith. In one high-stakes showdown, Perot angered Smith by casting the lone dissenting vote against GM’s acquisition of Hughes Aircraft.

While the high-toned debate over corporate policy captured the public’s attention, insiders say the battle also involved such narrow issues as EDS contracts and executive compensation. Smith became envious of the lucrative stock options provided to EDS executives. He said the benefits were far more generous than those available to GM’s upper management and that Perot had extended the package to employees who had not been eligible before the GM acquisition.

Ultimately, the compensation issue led to a dramatic confrontation when Smith flew alone to Dallas. At that well-documented meeting, Smith exploded with anger, stalking out and permanently damaging GM’s relations with Perot.

Later accounts of the meeting depicted Perot as the victim of Smith’s temper. But some longtime Perot associates who attended the meeting say the Texan “choreographed” the session for maximum effect, rehearsing with each of them what they would say in order to present a united front--and to rile Smith.

“Perot wanted to make it clear to Smith that he wasn’t just fighting him, that if he lost Perot he would lose all of EDS’ top management,” said one participant.

Meyerson, the former EDS president, disputed that account. “That meeting was not choreographed or pre-planned in any way. Smith just got frustrated and blew up.”

As relations between Dallas and Detroit deteriorated, associates say Perot began to see that he was in a no-win position at GM and that the company could not be turned around to his satisfaction. He quickly began to look for a way out, the former aides say.

“He saw that these guys were not going to change and Ross felt that he didn’t want to waste his time for the next few years,” said Tom Marquez, a former EDS official and longtime Perot friend.

Perot came to see confrontation as a way to either force GM to give in to his demands or buy him out, the former aides say.

Recalled one of them: “He said to us, ‘I’ve examined every alternative, and we can fight them totally, or acquiesce and surrender. If we do that (acquiesce), they will come down here and roll over us and take your stock options. But if you want to fight with me, we can barricade the doors.’ ”

Finally, in the fall of 1986, it apparently became clear to Perot that he was going to lose. Several of the senior EDS executives say they later learned that Perot, through his attorney, Tom Luce, opened secret talks with Smith about how to negotiate his departure.

When GM’s ouster of Perot became public, it enhanced his already considerable reputation as a fighter and reformer. Perot fanned the flames by denouncing the $700-million buyout deal as a colossal waste of GM’s money. His former aides contend he was grandstanding, convening a press conference to blast a deal after hammering it out in weeks of secret negotiations with GM.

Perot pledged publicly that he would hold the $700 million in escrow for two weeks until GM shareholders and the public had a chance to debate the buyout. But he later acknowledged that the escrow account never existed.

In his buyout contract with GM, Perot agreed not to compete with EDS for three years. But after only 18 months, he founded Perot Systems, set up shop in the shadows of EDS headquarters in Dallas and began raiding EDS for staffers, according to EDS officials.

“Ross never stopped talking to people at EDS, he never stopped talking to me,” said DeSoto Jordan of Perot Systems.

Besides pledging not to compete with GM for three years, Perot had agreed not to hire EDS executives until June 1, 1988, 18 months after his ouster from GM.

Pat Horner, a former EDS executive who became president of Perot Systems, acknowledged that he and other EDS officials began meeting with Perot to discuss corporate guidelines and to develop lists of EDS employees to be recruited for Perot Systems before the June 1 deadline.

EDS officials were outraged when they learned of those planning sessions. “We considered what they did as treason at best,” said one EDS official.

Meyerson defended Perot’s actions in establishing the new firm. “He had a legal right to start a company,” Meyerson said. “I think it is absolutely incorrect to say (Perot’s actions) were unethical.”

In response to the lawsuit filed in Virginia, Perot said he was simply taking advantage of a clause in the GM buyout agreement that allowed him to hire EDS officials to help with not-for-profit projects. His initial ventures at Perot Systems, he said, were deliberately designed to produce no profits until after the three years had passed.

But Elmer Johnson, the former chief legal counsel at GM who drafted the buyout contract, said he understood that language had been included so Perot could continue to work on such public efforts as his push for education reform in Texas.

The Virginia court also took a dim view of Perot’s actions, ordering him to refrain from entering into any profit-seeking business deals before the expiration of the three-year period, even if they would produce no initial earnings.

Perot’s former associates say they believe his actions contradict his public statements about loyalty and the importance of ethical behavior in business.

“Ross Perot has always said that he played right in the center of the ethical playing field,” said one former associate. “But a lot of what he did was, maybe not illegal, but on the ethical borderline.”