The Billionaire Who Wasn't (18 page)

The foundation documents were lodged with the company registrar at 30 Parliament Street in Hamilton, and the Atlantic Foundation was officially set up on March 1, 1982, with an initial lodgment of $5 million and the declared aim of helping projects across the world to relieve poverty and suffering, to advance education, and to help causes such as health, children and youth, old age, and international justice. It did not limit its activities with respect to projects and directions. Its directors were listed as Chuck and Danielle Feeney, and Harvey Dale. Feeney recruited Ray Handlan, a former director of development for Cornell, to act as president and a board of advisers was recruited: three Cornellians—Chuck Rolles, Bob Beck, and Fred Eydt—and Jack Nordeman, a friend of George Parker.

Feeney gave all the people involved in the foundation a copy of Carnegie's essay on wealth to read. Although brilliant when talking about business, Feeney was never good at articulating his philosophy of life. It embarrassed him. He used quips as a defense mechanism against introspection. Acquaintances remarked that they never heard him engage in introspection and that he used his sense of humor to keep his inner self at a distance. Instead of explaining what was going on in his mind, he would give friends
and family members articles or cuttings from magazines and newspapers. They had to infer the message. Giving out copies of “Wealth” was a clever way of enlightening them on the essence of his giving. He also kept a copy of Carnegie's essay on his desk.

Andrew Carnegie was not a precise role model for Chuck Feeney. The Scottish philanthropist made his fortune through harsh and ruthless business methods, and he loved having his name on libraries and schools, neither of which applied to Feeney. But his basic message was clear—give while alive. Those to whom Feeney handed a copy of “Wealth” were left in no doubt that he was intent on giving away most if not all of the fortune he had accumulated in the duty-free business, and that he meant to turn his back on the conspicuous consumption that in the 1980s was coming to characterize what would be known as the “Decade of Greed.”

All Feeney's instincts, instilled in him by the example of his parents, by the sharing culture of his blue-collar upbringing in New Jersey, by his desire not to distance himself from his boyhood neighbors and friends, and by his own innate kindness and concern for others, undoubtedly shaped his decision. In New Jersey's Elmora neighborhood, you helped people and you didn't flaunt riches that came with success or boast about your good works.

Although the mechanism had been put in place, Dale was unwilling to let Feeney commit substantial assets to the foundation until he saw that it was working in the way they intended. He counseled Feeney to run it for a couple of years as a “pass-through entity” with money going in and being donated out. Also, there had not been complete discussion or agreement between Chuck and Danielle about the amount that would be set aside for her and the kids. “But Chuck was clear then that this was the only exception. Everything else was going to go in.”

There was an added consideration: as everything was in the name of Danielle Feeney, a French citizen, it would under French law all pass to the children, also French citizens, if anything should happen to Danielle. “They were potent tax problems in that Danielle was a French citizen and had residence in France and the children had French nationality,” explained Frank Mutch. “Chuck was an American citizen, taxable worldwide. If Danielle had died when she was owner there are rules under French law which would have dictated the inheritance of those shares to the children. You can't get round them unless you sell them. The question would be where do you put the ownership. The tradition would be to put it into a Bermuda trust, but
the trust would have to have beneficiaries. And there you fall right back into the French rules. The idea of the foundation or a charity got around that French problem and also relieved Chuck of any liabilities in the United States. It wasn't an unusual structure in that sense. The unique feature was the extent of the amount of assets that Chuck was putting into it. To put the whole share of the business in was unique. I've seen a number of European foundations where at least 30 percent of an international business was put in the foundation. The unusual factor was that it was substantially all of Feeney's wealth.”

Feeney and Dale had “serious conversations” about the enormity of what he was set to do. “One of the things we both understood was that whatever the value of the assets was, except for the amount that was set aside for Danielle and the kids, all of that was going in, and this was a very unusual decision, probably unique in the history of the world. I said, ‘You ought to be sure about this because if you change your mind in three weeks it's too bad. The assets are gone, and you can't get them back, and you can't use them,' and I was very stern with him about that. That made no impact on him because he knew that he understood that, and that was exactly and precisely what he wanted.”

CHAPTER 12

Four Guys in a Room

While Chuck Feeney was secretly setting up the philanthropy in Bermuda, some of his friends were conspiring with equal stealth to make sure he would be in New York on April 26, 1981. Jeff Mahlstedt and Ara Daglian, a Cornell alumnus and sometime sandwich maker for Feeney, were organizing a roast in the Metropolitan Club on Sixtieth Street and Fifth Avenue to celebrate Feeney's fiftieth birthday, which fell on April 23. They told Feeney the event was to be a surprise party for Bob Beck, given by the Cornell Society of Hoteliers, and it was his responsibility to get Beck to attend. As Feeney settled down at a table with Bob Beck, a curtain was drawn back to reveal a roomful of revelers, including Chuck Rolles and Lee Sterling. A fraternity brother, Tony Cashen, who acted as MC for the roast, gave a performance of the Sandwich Man in action, wearing an army field jacket like the one Feeney used to pocket coins when delivering sandwiches at Cornell. Mahlstedt recalled for the assembly that in 1960 Feeney had a Mercedes in Geneva that he took out for the only time one Saturday and was hit by a car driven by a Japanese tourist—“and he's been getting repaid by the Japanese ever since.”

None of Chuck Feeney's partners in the duty-free business were at his fiftieth birthday party in New York. All four owners had by then accumulated so much money that they were busy developing their own investment companies and family trusts in different parts of the world. The more successful they were, the weaker the bonds of friendship became. Things had
changed since the 1970s when, as Tom Harville remembered, the company was still “young, energetic, entrepreneurial, and fun, and we could argue and debate each other during the day and go out to dinner that night with our families and never mention work.” Alan Parker and Tony Pilaro maintained cordial relations with the two founders, but the bond between Feeney and Miller that they formed chasing the U.S. fleet in the Mediterranean was now practically nonexistent. The different courses their lives had taken emphasized the gulf between them. The former St. Mary's boy from Elizabeth, New Jersey, was domiciled in Bermuda trying to figure out how to get rid of his surplus wealth, while the salesman's son from Quincy, Massachusetts, was scaling the dizzy social heights of Hong Kong. Alan Parker, the son of a low-salaried Rhodesian civil servant, had settled in Switzerland and was quietly making investments that would multiply his riches, and Tony Pilaro, with just 2.5 percent of the equity, was well on the way to joining the
Forbes
400 list of the world's richest Americans.

The only thing that united them was the process of extracting money from their duty-free empire, and for that they still occasionally had to get together, just four guys in a room making a business decision. When the time came to renew the duty-free concessions, they had to get the bids right. This was the key to Duty Free Shoppers' continued success. The owners relied a lot on accounts and predictions from their financial staff, and they studied forecasts of Japanese travel, spending patterns, and yen-to-dollar rates. But they would entrust no one but themselves with the final throw of the dice. They made the judgment on how much the business was going to grow, and how much they wanted to split with a government. The need to renew concessions was both the strength and weakness of the business model. The sheer size and power of DFS, and its command of the duty-free system, was now sufficient to intimidate potential competitors. But the fear of being outbid pervaded the room when they met to do their final calculation.

“It was one of the greatest success stories in private enterprise and when it came down to it, it was four guys in a room, picking a number,” said Tony Pilaro. “The last person in the room who came up with a number prevailed, because no one would have the courage to say no. There's no second prize in bidding for airports.” They had learned to be bullish and had lots of cash reserves, which enabled them to succeed as often as they did. “We had big balls and big bucks,” said Pilaro.

“It was four guys in a room, without any doubt,” agreed Alan Parker. “We always did the bid, the four of us, with almost no involvement of anyone else. We would get together at least a week before a bid and start grinding through it. Chuck probably got his way more than anybody else, because Bob would fold. Chuck would sit down and say, ‘210,000 passengers times $302 with inflation, growth of passengers this, growth of spending this,' and I would do those maths. Bob is probably as bright as Chuck but never really applied himself in my view. He never spent the time—what Chuck always called ‘mulling.' Chuck used the term a lot, whatever it means. He would go off for the night and get back the next morning, and Bob would have spent five minutes on it and have had a few beers.”

When the four guys in the room finally decided on the number, they would put the tender in an envelope and seal it. Chuck would always produce a little shillelagh and rub the envelope. “I used to bless the bids,” he said with a chuckle.

In 1980, the four owners came together in Honolulu to decide on one of the most profitable concessions, that for Guam in the Pacific Ocean. Guam had become a top Japanese tourist resort. Every month, scores of planeloads of Japanese consumers arrived in what they almost regarded as a duty-free extension of Japan. DFS had become in effect a Japanese retailer, selling to Japanese in what amounted to an overseas “suburb” of Tokyo. It conducted its monopoly retail business in such “suburbs,” unencumbered with the multitude of impediments facing foreign companies doing business in Japan.

DFS had become so dominant in the Pacific that there were few competitors in the duty-free business big enough or bold enough to take them on in their strongholds. But there was one they feared. Host International had built up a chain of catering and shopping concessions at twenty-five U.S. airports and had eight duty-free shops at JFK airport in New York. It had beaten off DFS in Los Angeles and was now gearing up for an epic battle with DFS in their Pacific strongholds.

As the winner in Guam had a say in determining the length of the duty-free concession, Feeney took the view that a short-term concession was more desirable, as it would deter a competitor who would have to build a shop for twenty years without a guarantee of lasting that long. Pilaro disagreed. “Chuck thought if we have a two-to-three year bid, nobody else will come in because we have this huge downtown shop. But we also had the capacity to bid a lot because we had the money.” He wrote a memo headed
“Big balls, big bucks,” arguing that with a longer concession they would not have to risk losing it each time it came up for renewal. They finally agreed on a bid of $105 million for ten years, $2.75 million of which would be spent on construction of new airport facilities, and Feeney “blessed” it with his shillelagh. Pilaro set off from Honolulu on an island-hopper plane to Johnston Atoll, Truk, and eventually Guam, to lodge the sealed bid. In Guam, however, he picked up a tip from a consultant that Host International was preparing to outbid DFS for the concession. “I got on the phone and said, ‘Chuck I want to increase it by $10 million from $105 to $115,'” said Pilaro. “He didn't want to do it. I got hold of Alan. He said yes. Bob said yes. The rules of the game were that the majority controls, so we did it. We bid $115 million.”

The challenge from Host did not materialize. “They were there; they just said, we are not going to bid,” said Pilaro. “On the day the bids were opened, Host International chickened out and put in an empty envelope. So theoretically, Tony Pilaro pissed away $10 million.” But they got the concession for fifteen years, not ten, he said, “and we made a gazillion dollars.” Pilaro helped organize a finance package with a Dallas, Texas, investment bank so Governor Carlos G. Commacho could start building a new airport, right in the heart of Guam's business district. The state-of-the-art terminal was completed in 1982 with $43 million in revenue bonds. It was called a white elephant by island leaders because they thought it would never reach capacity. But in that year alone, over 300,000 visitors used the airport, of whom four out of five were Japanese. Five years after that, it was bursting at the seams as the annual number of Japanese vacationers soared toward 1 million and a second terminal had to be constructed. DFS had to invest in dozens of new cash registers.

The four DFS owners came together again later in the year in Honolulu to renew the Hawaii bid. There was no sign that anyone from Host International was in town. But the consequences of losing the concession there were so serious that they flew in months in advance to prepare. Hawaii was the mother ship, the beating, pulsing heart of their business and by then the biggest retailer in the state.

The Hawaiian concession was to be bid for another seven and a half years, but this time there was a complication. The Hawaiian Department of Transportation split it into two concessions to avoid possible federal antitrust violations. The department invited bids for the total minimum guaranteed
rent for airport shop space, with the highest bidder getting the best airport locations for selling duty-free merchandise, that is, right beside Japan Airlines' gates (concession A) and the loser getting secondary positions at the domestic gates, where business would be much slower (concession B). However, both top bidders—winner and second—could operate a duty-free store downtown.