The Billionaire Who Wasn't (8 page)

Feeney organized electronic data processing to compile alphabetical lists showing the name and address of each consignee, the contents of each package, and a consignee reference number. Shipments averaging 2,000 packets, each labeled to show the name and address of the consignees, were forwarded from Amsterdam to the port of New York in steel containers. After clearance by customs, they were collected by the Railway Express Agency for delivery to the tourists' homes. Tourists International never owned the liquor, so there was no need for warehouses or capital investment in stock or inventories.

Mahlstedt went to Canada and set up a duty-free outlet at the Park Hotel in Niagara Falls. Within a year he had established six shops across the border, where American travelers could order five-bottle packs of duty-free booze. He distributed brochures at gas stations. He appointed area agents to go to hotels and motels frequented by American visitors and give out leaflets with order forms. The forms were numbered so that agents and hotel clerks were entitled to a commission when the orders came in. As the business grew, Feeney also got Lee Sterling to come over from Europe to help out. They opened display shops to promote a variety of other merchandise, such as hand-knit Norwegian sweaters that would arrive in the mail months later. But the big money was in liquor sales, which made what Mahlstedt called “a gigantic amount” of profit in its early days. The first summer, they were practically the only duty-free people in Canada selling liquor by mail order. Soon they were shipping half a million bottles of spirits a year into the United States. The Ontario authorities, who had a liquor monopoly in the state, saw their sales go down. Royal Canadian Mounted Police followed Mahlstedt as he went around distributing brochures, but found he was doing nothing illegal.

Some of the brochures were “politically incorrect” by today's standards. They had a drawing of a smiling family—mother, father, and child of about ten—with five bottles of liquor stacked in front of each, and the message, “Each family member can order one gallon.” One was illustrated with a sketch of the Eiffel Tower in Paris with the claim that if all the liquor bottles ordered through Tourists International in a year were placed one on top of another, they would reach a height 115 times higher than the tower.

Then the competition arrived. “We didn't realize when we started up this five-bottle-pack business that we didn't have any exclusivity on it, and in no time at all there were fifteen other companies trying to do the same as we were doing,” said Feeney. Hotels and motels near the Canadian border were inundated with flyers and order forms from other operators. There was also growing resistance to their business in the United States.

“In Buffalo the retail liquor people said they were just being clobbered by us,” said Mahlstedt. “It was very typical that once people knew about us, they would drive across one bridge, order their booze, and drive back over another bridge saying they had been gone forty-eight hours. There was no age limit. They would put ten little kids in the car and declare all their stuff.”

Inundated by complaints from American retailers, the attorneys general in U.S. states looked for legal ways to stop the booze-ordering frenzy. One day, a Liquor Authority official came into their New York office and confronted Harry Adler. “Mr. Adler, you are selling liquor to people in the State of New York without a license,” he asserted. “We are not, only to tourists,” retorted Adler. The New York State Liquor Authority took Tourists International to court and lost.

Soon afterward, Adler left to run a furniture business in Phoenix. “I had fun with Chuck,” he reminisced. “Chuck lived out of his briefcase. Everything was connected with business. We did a lot of screwy things. I became part of what he called his ‘teen-age frontier' approach to business, because he surrounded himself with smart college youngsters, mostly single and aggressive ‘conquerors of the world.' I was the oldest of his ‘cowboys,' always the damper, saying to him, ‘Are you out of your mind?' But it was a very exciting chapter in my life.”

In those days, Chuck and Danielle Feeney divided their time between New York and Paris, where they had an apartment in Montmartre. There was business to attend to all over Europe. Feeney was traveling around so much that he had no permanent address. “I didn't have a domicile at that stage; it would have been superfluous,” he recalled. But the need for a family home was becoming urgent. Their first daughter, Juliette, was born in January 1962, and their second daughter, Caroleen, in December the same year, both in Paris.

On his visits home to New Jersey, Feeney did not flaunt his success—it was not in his nature and would not have gone down well with his old school pals in Elizabeth, with whom he kept in touch. But he did decide to
give his parents an expensive treat. In November 1963, he persuaded his mother and father to go on a cruise. He had secretly arranged to refurbish their house on Palisade Road while they were gone. He and Arlene's husband, Jim Fitzpatrick, cleared out the house before the workmen moved in. “We went down into the cellar and threw a lot of stuff away,” recalled Fitzpatrick. “Mr. Feeney would never throw stuff away. He would save newspapers and they were stacked to the ceiling. It was kind of a fire hazard. And the attic was the same way. So Chuck and I rented a truck, and we got rid of it all. Mrs. Feeney, when she got back from the cruise, was just delighted. The house was sparkling, new drapes and furniture and all that stuff. She said, ‘If I had known it was going to look like this I would have brought the captain home with us!' Mr. Feeney went right down to the cellar. He wanted to kill somebody! I got out of that house in a hurry.”

CHAPTER 6

The Perfect Storm

By mid-1964, Tourists International was operating in twenty-seven countries and had 200 employees. In New York, they had moved their headquarters into a bigger office on Lexington Avenue. But the four Cornellians running this sprawling multinational enterprise, which included Cars International and the two airport duty-free shops, had never once been together in one room. In September that year, Feeney called them to New York for their first annual directors' meeting. The company consisted of semi-independent citadels, registered under different company names in different countries, with Feeney at the center providing the drive, vision, and ideas. They needed a proper management structure.

Taking the chair, Chuck Feeney told his three partners, Bob Miller, Jeff Mahlstedt, and Lee Sterling, that he was worried about how unwieldy Tourists International had become. The prime objective, he told them, was to establish a base for the orderly growth and overall expansion of the company. The four Americans had achieved astonishing success in just five years, but they had no plan for growth, no organizational chart, no company history, no corporate objective, not even a list of company employees. “It must grow into a more efficient and vital organization,” he said. To streamline operations, he assigned them each the role of managing director: Miller for the Far East, Mahlstedt for North America, and Sterling for Europe. Feeney's responsibility would be to coordinate the reports of the other three and determine policy.

As cofounders, Feeney and Miller also decided what would be a fair division of the shareholding of the business. They agreed that they would take 38.75 percent each; Jeffrey Mahlstedt would have 12.5 percent, and Lee Sterling 10 percent. Lee wasn't happy about that, as he felt he should have gotten equal treatment with Mahlstedt. It was a handshake agreement. Nothing was put in writing.

Everybody thought the company was making big profits. They were selling up to 4,000 cars a month. Cash flowed through the system. But without a balance sheet, there was no way of knowing exactly how well they were doing. They appointed Desmond Byrne, a heavyset and rather bombastic English accountant hired by Bob Miller in Hong Kong, as company treasurer and directed him to bring the accounting procedures under centralized control and report directly to Feeney.

Around that time, Feeney ran into one of his buddies from New Jersey and said something about having twenty-seven companies around the world. The friend remarked: “But are you making any money?” It was a pertinent question. When the four directors met together again, at the next board meeting in January 1965, this time at their office at 76 Boulevard Helvetique in Geneva, Desmond Byrne reported on what he had found in his tour of the branches. The company was booming but was chronically short of cash. “We ain't got no money, boys,” Byrne said bluntly. “Where's the money?”

There were severe problems in the auto sales division, disclosed Byrne. There were long delays before cash was found to pay for cars when delivery time came. They were taking deposits from service personnel and using the money to pay for expenses and car deliveries.

The directors were stunned. They thought they had an excess of funds and that it was just moving around the company network. They decided to slash costs and figure out what to do. Feeney suggested that they cut their salaries as a start. They were drawing $2,000 a month each, the tax-free limit for Americans living abroad. They agreed to reduce their pay to $1,200 a month.

“We had no idea what we were doing financially,” recalled Mahlstedt. “If an office was opened somewhere, whoever had money sent them money. It was crazy. There was no accounting. It was not that we weren't keeping a record. We sent money to Hong Kong, or Hong Kong sent money to Canada, but there was no tying together.” With the business expanding so
rapidly, they hadn't paid enough attention to bookkeeping. “We hadn't spent any time on corporate structuring or anything like that, we were just simply busy selling cars, duty-free liquor, making the cash, putting the cash in the bank, cash in, and cash out,” recalled Miller.

The Cornell graduates had learned well how to operate hotels and restaurants in the Hotel School, but they were now having to master the principles of managing a global business network on the run. They passed around among themselves Alfred P. Sloan's 1963 bestseller,
My Years with General Motors,
in which Sloan attributed his success in running GM to decentralized management and financial controls. Tourists International had the former but not the latter. “Financial controls weren't necessary,” quipped Feeney, looking back. “We didn't have any money!”

One of their problems was that the car business was now coming up against serious competition from the U.S. military. Before 1960, the Army Exchange Service stores overseas, known as PXs, did not sell automobiles and luxury goods made in the United States. Now the PXs had begun selling American cars—duty free—to military personnel in Europe, for delivery back home. They gave showroom space to the three American car manufacturers: General Motors, Ford, and Chrysler. “And of course they had very attractive deals,” said Feeney. “You arrived back from your overseas tour, went to your local Ford dealer, and picked up your car, which you had ordered in Europe. They sort of closed us out of that.”

In Hong Kong, car sales were also coming up against other competition. Feeney and Miller's salesmen had the Pacific to themselves until a ship from the Seventh Fleet was transferred from the Pacific to the Mediterranean and docked at Naples in Italy, and the first rival car salesman to come on board found that the officers had already bought cars in Hong Kong. With that, the secret was blown.

Money had been pumped into the arteries of Cars International from Feeney's mail-order liquor business on the Canadian border, but as it had been assailed by copycat competitors, it too was in decline. It went from $20 million per year in 1963 to $5 million per year in 1964.

Through a chance encounter on a New York street a year earlier, the partners had learned that they were in deep trouble of a different kind—that could land them in court. Lee Sterling bumped into a rookie lawyer, Harvey Dale, an old school friend from Great Neck, New York, and a fellow Cornellian, and told him about the car business in which he was involved. Dale
had just started work with the law firm Curtis, Mallet-Prevost, Colt & Mosle in New York. The rookie lawyer knew enough about international law to realize that the entrepreneurs had potentially serious tax problems. “You guys better get yourselves sorted out, because the laws are changing,” he said.

When Lee Sterling reported back what he had heard, Feeney and Bob Miller went to the Curtis Mallet office at 101 Park Avenue to find out more. The lawyers shook their heads in amazement when Feeney outlined how they financed their operations. They explained that the United States had that year tightened tax regulations for U.S. citizens living and doing business abroad and that the partners in the car and liquor business faced enormous tax and liability issues.

Harvey Dale sat in on the meeting. The young lawyer knew Feeney slightly from Cornell, where he had studied philosophy before going on to graduate cum laude from Harvard Law School. Feeney and Miller asked him to do a tour of their global operations to see how the company could be restructured to avoid crippling tax liabilities. It was the start of a relationship that would eventually make Harvey Dale the most influential person in Chuck Feeney's life.

The tax problem also brought Chuck Feeney into contact with another lawyer, a colorful and voluble Italian American, who too would play a large role in Feeney's business affairs. Anthony M. Pilaro, fresh out of the University of Virginia Law School, had just joined the law firm and had been brought into the meeting to take notes. Despite his diminutive size, Tony Pilaro had been captain of his high school baseball, football, and basketball teams. Feeney was impressed by the smart, cocksure, junior associate, and later, in December 1964, when he heard that Pilaro was planning to take a job with a law firm in the Bahamas, he persuaded him to join Tourists International instead. Sensing that Feeney was a gifted entrepreneur and destined to be enormously successful, Pilaro agreed. He didn't quite know what was expected of him, but he guessed he would be a tax consultant and deal maker.