ITT: Present at the Creation

ITT Corp. is making its final endgame move in dismantling the historic behemoth that Harold Geneen built in the 1960s and '70s. It will separate its remaining major businesses into three specialized companies serving the industrial products, water treatment, and military equipment industries.

Renowned investment advisor Felix Rohatyn was present at the creation of the corporate empire that Hal Geneen built upon his joining ITT in 1959. He was a close counselor to Geneen and banker on the multitudinous deals that were to come. In fact, Rohatyn brought to Geneen the very first deal that started it all — a small company in California called Jennings Radio Manufacturing, which made vacuum switches and other products for the telecom industry.

Rohatyn recounts that first step in the launch of the ITT conglomerate in his memoir Dealings: A Political and Financial Life [Simon & Schuster, 2010]. It was a deal that came with a certain amount of boardroom drama and had crucial implications for the future of the company, as Rohatyn describes:

Here was an acquisition, I suggested, that made sense for ITT. Not only did it fit into Geneen's plan to build an economic core of American technological concerns, but Jennings was also a company with potential: its engineers were exploring new and profitable areas.

Geneen was intrigued. He ordered his staff to run the numbers and to investigate the science. Very quickly, they agreed: purchasing Jennings Radio made sense. It was a deal with a promising upside. And the $20 million price — a pittance for ITT— was reasonable.

It would be Geneen's first acquisition as CEO, and the first deal we had made together. But my excitement was abruptly dashed. When Hal proposed the purchase to his board of directors, he reported to me with a feisty bewilderment, they were reluctant. The board did not want ITT to make the deal.

Geneen realized at once that more was at stake than simply the acquisition of a small San Jose technology concern. The board was attempting to undermine his control — and all his large plans for the future growth of ITT. With a calm resolve, he gave the board members an ultimatum: either the deal is made, or I will resign.

The board capitulated. With the acquisition of Jennings Radio, the principle was established in the company that what Harold Geneen wanted, he would get. Hal was soon off and running on one of the largest acquisition sprees in American corporate history. And I was running with him.

Now that the Geneen empire is drawing its final curtain, how interesting to see how that first act set the stage for what was to come.

Rohatyn Returns to Lazard

Felix Rohatyn has returned to his old stomping ground, Lazard. He rejoined the firm on Feb. 1 as a special advisor to Chairman and CEO Kenneth Jacobs.

Directors & Boards lead columnist Hoffer Kaback had the pleasure of visiting with Rohatyn to do a Q&A cover story that appeared in the Spring 2003 edition (cover pictured). What boardroom experience to draw upon! The famed financier and strategic adviser's past directorships included ITT, MCA, Owens Illinois, Pechiney, Pfizer, Schlumberger, American Motors, Avis, Eastern Airlines, and Comcast. At the time of the interview, his board seats included Fiat, Suez, LVMH, Publicis, Lagardere Group, and EADS (owner of Airbus Industries). Three choice nuggets from the interview:

• On corporate crises: "The reason I believe things are usually worse than they appear is because people don't tell the CEO everything. Things get bad because people are not reporting that something's out of control or that something isn't working. By the time things come up to you as the CEO, they're a lot worse than they appear on the piece of paper that comes to you."

• On his early days on boards: "I first learned about corporate governance when I went on the board of Avis in the 1960s, when Lazard bought control of Avis. It was a public company, and we owned around 20% or 30%. I learned about corporate governance from the perspective of an owner, really, which is actually a pretty good perspective. I learned about other people's views about the role of directors. We had a very iconoclastic chief executive, Bob Townsend. He said to me, 'A really good board is one that only reduces the efficiency of the company by 20%.' "

• On accepting a board invitation: "You don't go on a board — nor should you go on a board — if you don't know the people. Because your only real protection against a Tyco or a WorldCom or an Enron is the ethics of the other members of the board and the management, the competence of the management, and the culture of the company."

The storied dealmaker had his own firm, Rohatyn Associates, at the time of this interview. He did not come back to Lazard after returning as U.S. ambassador to France in 2000. I 'd be remiss if I didn't share one dealmaking anecdote he told for our article:

"I remember one person came to hire me to be his financial adviser (this was when I was still at Lazard) and I said, 'Look, I don't really understand your business well enough; you should go someplace else.' He came back and I took it on, and we finally had to sell the company to somebody who made a hostile bid for us. I said, 'You should take it. The more quickly you take it, the better.' He was very unhappy with that. Finally, that's what we did, and it was the right advice. Afterwards he said to me, 'I don't quarrel with your advice; I just quarrel with your bedside manner.' "