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Johnny Appleseed's

Another commercial involvement was with a Bosson family business interest, the Boston and Lockport Block Company, originally suppliers of pulleys or "blocks" for America's sail-powered merchant fleet. It was first located in East Boston, by virtue of the fact that Gordon McKay, famous designer of clipper ships, had his vessels built there. It merged with the Lockport Block Company and eventually designed blocks for other uses, including freighters and drilling rigs.

The company had its ups and downs. As a result of a near-bankruptcy and my Grandfather Bosson's presidency of the County Savings Bank, my mother's family ended with approximately a third interest in the company. Uncle Campbell Bosson took over management of the family interest when Grandpa died. In time, my brother Peter took over from him, and my brother Donny became president and general manager.

The company had not done a very good job of reinvesting its profits in new machinery and technology, and Peter and Donny together tried to revitalize the company-against the wishes of the other two families who had significant interests. In time, my brothers managed to wrest control of the company from these families by buying out their shares. My brothers were fortunate to have Frank Browning, a very astute person, as an outside director. Frank pointed out that the company had a large amount of cash sitting on the sidelines and suggested that the company put it to work. Perhaps the natural solution would have been to buy a cable or rope company to complement the block operations, but Frank Browning steered the effort in an entirely different direction.

He found that Sam Batchelder, our neighbor and my sailing partner, might want to divest ownership of Johnny Appleseed's, the clothing retailer, while retaining the management. This proved to be the case, and Peter and Donny bought the company at a most opportune time. The block business became nearly moribund with the advent of the container ship, but Peter and Donny managed to sell the block business to a Chicago firm before the bottom fell out. This gave them additional funds to invest in Appleseed's.

Sam Batchelder stayed on as president at Appleseed's, a role in which he exercised his real expertise, buying. He had a tremendous

flair for knowing what people wanted. Jim Shaughnessy, an excellent financial officer who had worked with Donny at Boston and Lockport, moved into the Appleseed's operation and did a fine job reconfiguring the financial end of the business. Frank Browning died, and his son, Frank Jr., successfully replaced him. The company flourished under its new ownership and management. It had entered early into the mail-order business and did extremely well there. It also successfully expanded the number of stores and outlets.

There came a time when a decision had to be made. Other upscale retailers like the Talbots were aggressively expanding and reinvesting large sums in their operations. It became clear to us that to stay in the ballgame, we would have to make another round of major investments. We were all getting older-Peter, Donny, Frank Jr., and I—and didn't feel up to the task of raising the necessary capital and pushing the operation to a higher level. We decided the company could be much better served by new ownership, and we let it be known in the business community that this was our intention. We received inquiries but felt the company was worth much more than we were being offered.

One wonderful day my brother was in his office when he got a call from a New York business broker who had been working with him on the sale. "I've got someone from Switzerland in my office here in New York who wants to come up and chat with you this week about the possibility of buying Appleseed's."

"I'm so busy," Peter said. "I don't think that would be possible." "I think it would be worth your while," the broker said.

The man visited Peter the next day, and they spent a couple of hours together. The man then asked to see the company, with the proviso that he speak with Peter again when he was through with his visit. While the man was off seeing the company, Peter did some back-ofthe-envelope calculations and decided that a high but fair price for the company would be about twice what he had been offered previously. When the man from Switzerland returned, he came up with the same number! Within a couple of months, we had an offer in writing with one condition attached. The deal was dependent on growth continuing at the same pace for another quarter. We watched the numbers (very closely!) for the next three months, and fortunately they lived up to all expectations. The Swiss company bought us out.

In retrospect, we got out of the mail-order business at the peak of that market. With our successful exit from the block business just before that collapsed, we seem to have been one step ahead of the sheriff all the way along.

Directorships

In 1968, just after leaving NASA, I joined the board of a corporation for the first time, when I became a director of Aerospace Corporation. A Los Angeles outfit, Aerospace came into being as a spinoff of RamoWoolridge, itself a predecessor of TRW, Inc. Ivan Getting, formerly of MIT and Raytheon, was its president, and the board was a remarkable collection of people, including Dr. James H. ("Jimmy") Doolittle, Dr. Charles C. Lauritsen, and Frederick R. Kappel, the chairman of AT&T. I left the Aerospace board as soon as I joined the Air Force, then returned in 1977 upon leaving government service. In 1981, I became chairman, retiring three years later.

Other boards I've sat on include Pneumo Company, which made pneumatic actuators used in aircraft; the Lord Company in Erie, Pennsylvania, which makes shock mounts; and Air Products Corporation, which sells liquid oxygen, liquid hydrogen (fuel for the Saturn rocket and the space shuttle), and other specialty liquids and gases derived from air. Keith Glennan, also on the Air Products board, got me involved while I was at the National Academy of Engineering. While at the Energy Research and Development Agency, I was not allowed outside interests, so I left Air Products, only to return as soon as I had left ERDA. Air Products came from a single family, the Pooles of Allentown, Pennsylvania. It was a very well-run scientific-based organization, a perfect example of how to keep growing rapidly without going heavily into debt. They reinvested a large percentage of profits in research and development (R&D) in an intelligent fashion that resulted in new and improved products.

Eli Lilly and Company

A much larger, better-known example of this phenomenon is Eli Lilly and Company, a family-run business that, through R&D, became one of the

world's largest pharmaceutical firms. Yet by 1975 Lilly, a multibilliondollar company, had no outside directors. Company lawyers finally told Eli Lilly, the old gentleman himself, that he had to have outside directors. Why? He knew how to run the company! The lawyers reminded him that his was a public company, and that in order to be responsible to all shareholders, the board needed outside representation.

Lilly finally agreed on the condition that the outsider be William McChesney Martin, just-retired chairman of the Federal Reserve Board. A brilliant man (and superior tennis player), Martin had been head of the New York Stock Exchange at age thirty-two. But Bill Martin said he couldn't go along with being the only outside director. Lilly had to have at least one more, so the company picked as its second outside director Albert L. Williams, the chief operating officer of IBM. When George Bush temporarily left the government during the Carter administration, he became the third.

When Bill Martin reached seventy, mandatory retirement age, a replacement had to be found. Bill, who had known me through the National Geographic Society, suggested me. Richard Wood, Lilly's chief executive officer, gave me a call, saying he'd like to chat with me in Washington. When we met, I said, "I don't know anything about pharmaceuticals. What can I do to help you?"

He said that he felt my government experience and my expertise in managing technical endeavors would be of benefit to the company. Eli Lilly proved to be a great firm to work for. It was definitely an ingrown company, but it had wonderful teamwork. Things went along swimmingly until the early 1980s, when the company brought out a new product called Oraflex, an anti-arthritic drug. It was a nonsteroid that seemed to have remarkable characteristics. People who hadn't played golf for years were taking it and suddenly shooting in the 90s! Oraflex was the first drug Lilly had marketed directly to the public rather than through doctors. The company expected that it would be one of its biggest moneymakers ever. A big one to Lilly was a product that grossed over $100 million a year. Oraflex looked as though it might do two to three times that if properly marketed. The company hired a Madison Avenue agency and placed ads in print and on television.

The drug had been brought to market in Great Britain about a year before getting Food and Drug Administration (FDA) approval in this

country. Within a month of the FDA's approval, a Scottish doctor wrote a letter claiming that patients for whom he had prescribed Oraflex had died with kidney problems. The British agency that regulated pharmaceuticals immediately took Oraflex off the market. It soon was taken off the market in this country as well, but not before enough people had used the drug to trigger more than $100 million in lawsuits. It was a bad situation, the kind of thing that turns up on 60 Minutes, with a woman in Scotland crying at her mother's gravesite. A grand jury was ordered to investigate.

Lilly's Washington law firm suggested that the company empower its outside directors to investigate what had happened and to fire any member of the corporation deemed responsible for improprieties. By then there were six outside directors, and I was made chairman. We got Cyrus Vance as our legal counsel and hired outside medical experts as well. A junior assistant to Vance interviewed people in this country and in England to find out what really had happened. The company had known from tests that there was a lesser problem with the drug. Between 5 and 10 percent of all users became very sensitive to the Sun and experienced a violent rash. The label had printed warnings to this effect. But the alleged renal complications took the company completely by surprise.

We found that all of the Scottish patients who had allegedly suffered from taking Oraflex had been taking a number of other drugs in addition, so that it could not be proved that Oraflex had been the agent of death. Still, there was some question as to whether Lilly's director of research in England had been forthcoming about his findings prior to FDA approval, even though this was not a legal requirement. The result of our deliberations was a report delivered by me (with Cy Vance at my side) to the full board in Indianapolis. When we had finished, Dick Woods said, “That's the last time Lilly will market a drug publicly. We'll never do it again.” The director of research in England was fired. Fortunately for the company, the grand jury investigation was called off-in large part because the company was able to show that it had conducted an in-house investigation in good faith. The lawsuits were settled one by one.

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