The Corporate Hero Derailed : ‘Confidence Gap’ Called Agee’s Flaw

William Agee, best known for a hostile takeover attempt in the 1980s that backfired and gave rise to the notorious “Pac-Man defense,” could well go down in history as the textbook example of the brainy CEO with grand visions who never managed to turn them into reality.

The 57-year-old executive’s latest stumble--an ill-fated foray into rail car manufacturing at Morrison Knudsen Corp.--has buried the old-line construction and engineering firm under a mountain of debt and given rise to several shareholder lawsuits.

Officially, the Boise, Ida., company would not elaborate on several dramatic disclosures it made Wednesday: that it expects 1994 losses to be worse than anticipated, that it plans big write-downs on construction and transit projects, that it has defaulted on loans, that it will eliminate the fourth-quarter dividend--and that a search is under way for a successor to Agee.

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But frustrated employees who have chafed under what they view as Agee’s imperious, absentee management style are cheering at the thought of his departure.

“They can’t wait to get rid of the guy; they think he’s a maniac,” said one industry executive with close contacts at Morrison Knudsen.

Management consultants said Thursday that Agee appears to have broken many of the cardinal rules of corporate leadership, notably by spending too much time away from headquarters and at his Pebble Beach home, instilling an atmosphere of fear and paranoia rather than loyalty, and spending corporate funds on--among other items--landscaping for his home and a nearly life-sized bronze of him and his wife that adorns a company depot in Boise.

“There’s a confidence gap,” said Ellen R. Hart, vice president of Gemini Consulting, a management consultant firm in Morristown, N.J. “When much of what I do (as a leader) seems to be for my convenience, my messages about following me don’t ring true.”

Agee’s basic problem, USC business professor Warren Bennis said, is an inability to manage expectations--a difficulty, for that matter, that also afflicts another leader, President Clinton.

“Everywhere (Agee) goes, he chases horizons,” he said, but the results don’t meet the ambitions.

To Bennis, Agee has become a classic example of a current management trend: “failing upward.” No matter what corporate disasters he leaves in his wake, Agee’s resume shows that he always seems to end up with a bigger job.

A Boise native with a Harvard MBA, Agee first became publicly known in the late 1960s as chief financial officer of Boise Cascade, a free-form conglomerate that crashed after revelations that it had booked revenue upfront on land sales on which the buyers later reneged.

By the time the improprieties were discovered, Agee had left for Bendix Corp., a big auto industry supplier.

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There, after being named chairman and chief executive, he was romantically linked with Mary E. Cunningham, a protege whom he had rapidly promoted--but who at the time was married to someone else. She resigned, and the two later married. They have two children and spend much of their time in a Mediterranean-style home on 17 Mile Drive in Monterey, overlooking the 13th fairway of Pebble Beach Golf Links.

In 1983, Agee plunged into that decade’s merger craze, attempting a hostile takeover of Martin Marietta. When the aerospace giant turned around and began buying shares of Bendix, pundits dubbed the maneuver the “Pac-Man defense.” Allied Corp. ended the stalemate by intervening on Martin Marietta’s behalf and swallowing Bendix.

All three companies ended up with billions of dollars of debt. Agee departed under a $4.2-million golden parachute.

In 1988, Morrison Knudsen, under siege from cost overruns and slumps in heavy construction, asked Agee to head the company--and he agreed out of loyalty, he has said.

Harry Morrison, a co-founder of the company, had once help set up Agee’s father in the steel business.

At Morrison Knudsen, known for such brawny projects as the building of the Hoover Dam and the trans-Alaska oil pipeline, Agee cut the payroll and sold a money-losing shipbuilding operation.

He also embarked on a risky strategy of manufacturing rail cars.

Three years ago, capitalizing on a “Buy American” fever that he helped create, Agee began aggressively pursuing contracts with transit authorities in Texas, Illinois, New York and California that had been handing fat jobs to overseas manufacturers from Japan, Germany and other countries.

In a bitter blow, Los Angeles awarded its Green Line contract to a foreign team--Sumitomo of Japan and Siemens of Germany--even though Morrison Knudsen had submitted a lower bid. The Metropolitan Transportation Authority decided that Agee’s firm did not have the technical expertise to build the cars.

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But elsewhere, Morrison Knudsen documents and statements now reveal, Agee won contracts--at a heavy cost.

To undercut competition, he submitted unprofitably low bids that have come back to haunt the company. For the first nine months of 1994, it faced $59 million in anticipated losses on four transit division contracts. Debt ballooned in that period to $218 million, from $47 million at the end of 1993. The company also needs to borrow $150 million simply to complete the transit projects it has under way.

Meanwhile, Agee remains at the helm until a replacement is found. Then, he says, he plans to retire.

But Bennis wonders whether this “young 57-year-old” will give up the corporate whirl. Despite all the history, Bennis said, “I can’t believe he’s going to stay retired.”

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Bill Agee’s Checkered Career

* On the Rise: A Boise native and Harvard MBA, Agee first became publicly known as chief financial officer of Boise Cascade Corp., helping build it into a big conglomerate. The company suffered from irregularities discovered after Agee left in 1972.

* The Cunningham Affair: Agee rose to chairman and chief executive of Bendix Corp. in 1977, becoming one of the nation’s youngest CEOs. He was linked romantically with Mary Cunningham--a married protege whom he swiftly promoted. The two denied the romantic link at the time, but were later married and have two children.

* The “Pac-Man” Battle: When Agee and Bendix attempted a hostile takeover of Martin Marietta in 1983, the aerospace giant turned and began buying shares of Bendix, causing pundits to dub the maneuver the “Pac-Man” defense. Bendix was later swallowed by Allied Corp. (now AlliedSignal Inc.)

* Ill-fated Rail Venture: In 1988, Morrison Knudsen Corp. tapped Agee to head the struggling company. His foray into rail car manufacturing has buried the old-line construction and engineering firm under a mountain of debt and given rise to several shareholder lawsuits.

Researched by JENNIFER OLDHAM / Los Angeles Times