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Combustion Engineering was a company I learned something about while at the Energy Research and Development Agency, because at the time it was one of four companies in the nuclear business-General Electric, Westinghouse, and Babcock & Wilcox being the other three. Arthur Santry, who grew up sailing in Marblehead, practiced law with his father in Boston for a number of years until his uncle, the chief executive officer of Combustion Engineering, asked him to join the company as in-house counsel. Eventually, the directors felt it was time for the uncle to retire, and they recommended that Arthur replace him. The uncle was reluctant to leave, but ultimately his nephew was asked to assume the mantle.
Arthur got in touch with me just after I had left ERDA and asked if I would both go on the board and serve as a consultant. This would make me an in-house director. At the same time I was asked to go on the board of General Electric. I clearly couldn't do both because of the competition between the companies in the nuclear area. GE couldn't believe it when I turned them down in favor of Arthur's company. I also had to quit the Air Products board when I joined Combustion because Air Products had acquired a design and construction company in Philadelphia that serviced nuclear plants.
At Combustion I felt I had a responsibility to do something other than go to board meetings. I started looking into the company's research and development effort and was disappointed to find that it was rather minimal-other than in the nuclear area, where there was competence and an interesting research effort. Combustion spent less. than 1 percent of sales on R&D. Charlie Leaper, with a doctorate from MIT, emerged as the most respected technical leader at Combustion and was made vice president for engineering. Charlie coordinated the company's R&D effort and was given a small budget to enhance research in the various divisions. A board committee, which I chaired, met with Charlie and the divisions on a rotating basis to review research results.
Arthur did a remarkably good job with the company. It grew while he was CEO, especially after he got the company into the oil and gas services business in time to catch the oil boom of the late 1970s. There
came a time, however, when the board started getting restive about Arthur's successor. Arthur was getting on in years, and though he did have an excellent chief operating officer, James Calvert, a retired admiral who had skippered the first nuclear submarine under the arctic ice pack, the board didn't consider him CEO timber because he lacked financial experience. Arthur finally got serious about finding an outsider and picked the number-three person at AT&T, Charles Hugel. We thought we were lucky to get him.
Charlie Hugel was an entrepreneur with a strong strategic sense. He recognized the limitations of Combustion's nuclear, oil, and gas businesses and bought Taylor Instruments and several other smaller businesses in order to generate a new base of operations. However, I saw my efforts to consolidate the company's research effort go up in smoke when Charlie Leaper was terminated. Without warning, Hugel also fired a number of key people on Arthur's staff, including the very capable Jim Calvert. Then Hugel was asked to become chairman of RJR Nabisco at the time that company's financial shenanigans were coming to a head. This limited the time he had available for Combustion Engineering.
Combustion Engineering's profits became losses. When Asea Brown Boverei (ABB), a Swiss-Swedish company, appeared over the horizon with a buyout offer, the directors listened carefully. In a matter of two months we sold out to them-a good move, to my mind. Charlie Hugel became vice chairman of the ABB board, but didn't stay there long. All in all, though, it was a sad ending for Combustion Engineering. In defense of Charlie Hugel, the business was rapidly changing, becoming more global and competitive. Strong medicine was needed.
While I was dean of the engineering school at MIT, Bill Pounds called me one day. I figured he wanted to talk about the management-of-technology program we were collaborating on or about something else at MIT. Instead, he began talking about the Putnam Funds, of which he was a director and the chairman of the nominating committee. He said his committee hoped that I would be willing to go on the board.
"I really don't know anything about the investment business
except through my own personal participation in it," I said. "The subtleties of it are entirely foreign to me."
He suggested that I chat with George Putnam. George pointed out, when we met, that technology was having such an impact on the development of new companies that it was very helpful to have someone like me on the board. Vannevar Bush, former dean of the engineering school at MIT, had filled this role for Putnam. During World War II, Bush, as head of the Office of Scientific Research and Development, had reported directly to President Roosevelt on all science and engineering for the war effort from his office at the Carnegie Institution of Washington. After the war he wrote a book, Science, the Endless Frontier, that generated a tremendous amount of favorable publicity and led to the establishment of the National Science Foundation. In the world of technology, he was top of the line. George wanted me to replace him.
"That," I told George, "is like saying you've had Ted Williams on your team and you're going to replace him with the Red Sox batboy!" But I appreciated the compliment and did agree to serve with Putnam. It was a great education. I joined just when mutual funds were starting to grow. When I arrived Putnam had fewer than ten funds with $5 billion in assets. When I left it had seventy funds with $45 billion in assets.
The board had about a dozen trustees who met once a month on Thursdays at two o'clock. The meetings ran through dinner, then resumed the following morning, running through lunch. One of the full board's many responsibilities was voting dividends for each of the funds. Between board meetings there were committee meetings. One committee was responsible for negotiating annual management fee with Marsh McClennan, which marketed the Putnam Funds and managed its operations. There was also a legal committee and a proxy committee, which I chaired. It was our job to determine a rationale for voting the proxies received each year by the Putnam Funds as shareholders in many thousands of companies. All in all, there was a tremendous amount of detailed work involved in all this. I complained periodically that there had to be a more efficient way to operate the board. Finally, I was made chairman of a small governance committee. I found that very interesting, and our committee came in with a series of recommendations to make the board more efficient. In this way, I felt I left my small mark on Putnam.
As chairman of the proxy committee, I also became involved in a number of interesting situations. In the 1985-87 timeframe, when leveraged buyouts were happening almost daily, shareholders were being asked to vote for or against them. Often a fund manager with a large stake in a company would favor the takeover on the grounds that current company management was not doing a good job. Of course, the fund manager liked to see the stock price shoot up, as a result of a takeover. Standing back a bit, one could say that in many cases a buyout was not good for a company-that many were being effected simply to break up companies, sell off their assets, and fire a lot of employees. In the long run, the value of a takeover target might actually decline, and this would ultimately be reflected in the stock price.
Bearing all this in mind, were we going to support the management of Gillette, one of the biggest companies in Boston? A group of financiers in the Henry Kravis [a corporate takeover specialist] mold began negotiating to take over the company. I felt that if they succeeded, Boston wasn't going to end up with anything more than a couple of old buildings with broken windows. The Putnam fund manager with the largest stake in Gillette was all for the takeover. As chairman of the proxy committee, I went against him (after consulting with George Putnam), and we decided to vote against the takeover. The final shareholder vote was extremely close, so that the voting of our large block of shares in support of management had an important bearing on the outcome. Soon afterwards, Gillette came out with the Sensor razor, and the company's growth accelerated.
During the last twenty-five years, especially since my return to MIT, I have had an inside view of a number of nonprofit organizations by serving as a director. My first major experience with a nonprofit was with the National Geographic Society in Washington. Founded in 1888 by Gardiner H. Hubbard, Alexander Graham Bell's father-inlaw, the National Geographic had been passed on in the Grosvenor family, descendants of Bell's daughter. At the time I became associated with it, the flagship magazine was being edited by Gil Grosvenor, Bell's great-grandson. His father, Mel Grosvenor, a wonderfully gregarious,
enthusiastic person, was chairman emeritus, and was still pulling down a salary. Mel Payne, who had been brought in by the Grosvenors, was chairman. The society had grown to the point where it could no longer be looked on merely as a family preserve, so a committee on governance was formed to analyze the succession question. The committee included Conrad Wirth, former director of the Park Service; former chairman of the Federal Reserve Board William McChesney Martin; Jim Webb; and a couple of others, including myself.
We determined that management of the society needed to be broadened out beyond the Grosvenor family. Not only did this make common sense, but also the Geographic was getting involved in areas other than its publications. It was producing television programs, organizing tours, distributing National Geographic merchandise, and so on. We recommended that instead of Mel Payne, an outsider (perhaps a sitting board member) be made chairman. We further felt that Gil Grosvenor, if promoted to president, ought not to continue as editor of the magazine. Finally, concluding that Mel Grosvenor's salary might appear unseemly, we recommended that it be phased out over a three-year period.
The board meeting at which our recommendations were discussed was one of the most dramatic I've ever attended. Conrad Wirth, chairman of the committee, wasn't there that day, so there was no single spokesman to explain the committee's decisions. We probably hadn't done enough to prepare everybody for our recommendations. Suddenly we were the devils. Mel Payne said he would never again put together a management committee, claiming that we were trying to sabotage the Geographic-taking a great institution and throwing it to the winds.
In the end, we won and we lost. Mel Grosvenor agreed to retire, and Gil agreed to take over the presidency without the editorship. Mel Payne, however, remained as chairman. Ultimately, Gil became chairman and president. He reviewed the society's strengths and weaknesses, while taking action to strengthen the society and to select goals appropriate to the twenty-first century.
One of the perquisites offered by the National Geographic has been the chance to participate in trips to remote places, staged by the research committee. The National Geographic Society gives grants to worthy projects around the world, and every three or four years members of the research committee visit some of these work sites. Gene and