Call to Duty: Why Morrison Board Fired Agee
                   By Joan E. Rigdon and Joann S. Lublin

                   The Wall Street Journal
                   Page B1
                   (Copyright (c) 1995, Dow Jones & Co., Inc.)

                   In his last hours as chief of Morrison Knudsen Corp., William J. Agee
                   was still displaying his trademark tenacity as he fought to keep his job.

                   As Morrison's directors checked into hotel rooms in San Francisco
                   Thursday morning for a board meeting, Mr. Agee worked the phones
                   and the hotel hallways, pleading for just one more chance to keep the job
                   they had already decided he should lose. Board members say that, right
                   up until the meeting began, Mr. Agee told them he could fix Morrison's
                   recently disclosed financial fiasco with action plans detailed in the
                   burgundy-colored folders his staff had prepared for the board meeting.

                   Unfailing optimism and suave salesmanship had propelled the 57-year-old
                   Mr. Agee through careers at Boise Cascade Corp. and Bendix Corp.
                   Though he left each company in a controversy over performance, these
                   skills helped him to emerge relatively unscathed. But they failed Mr. Agee

                   Immediately after he convened the board meeting at Morrison's offices
                   here, the other directors asked him to leave the room. Three and a half
                   hours later, board members Peter Lynch and Lindsay E. Fox slipped out
                   to tell Mr. Agee he was fired as chief executive officer, chairman,
                   president and board member, a decision key members had reached
                   earlier in the day under pressure from lenders. Mr. Agee re-entered the
                   room and shook hands with the directors, hugging several whom he
                   considered old friends. "It was an extraordinarily emotional evening," says
                   one director.

                   Despite the warm embraces, the verdict on Mr. Agee's six-year reign at
                   the Boise, Idaho, construction-and-engineering company was harsh and
                  clear. "He has ruined our company," says Velma Morrison, a former
                   director and widow of the company's founder, Harry Morrison.

                   Mr. Agee's ouster was the last act in a sharp about-face by Morrison's
                   board, which began 1994 as a complacent group of hand-picked Agee
                   friends -- with the exception of New York financier Robert McCabe, the
                   only director who wasn't chosen by Mr. Agee -- and considered
                   Morrison a conservative, "quiet company," says one board member. By
                   this year, the board had transformed itself into a band of critics that
                   methodically plotted Mr. Agee's exit with the allegiance of many
                   Morrison executives, including Mr. Agee's trusted friend, Stephen G.
                   Hanks. Mr. Hanks, the company's chief financial officer, is now acting

                   Mr. Agee, who declined to be interviewed, sowed the seeds of his own
                   demise last summer when he added two new board members whose
                   careers were built on gathering and analyzing intelligence: William P.
                  Clark, a former Reagan Administration trouble-shooter and one-time
                   California Superior Court justice, and Zbigniew Brzezinski, President
                   Carter's national security adviser.

                   More than the others, the newcomers became alarmed by a spate of
                   warning signs. Among them: an unexpected second-quarter loss
                   announced in July; the sudden resignation of director Peter V. Uebberoth
                   in November; and, later that month, a letter from mutinous Morrison
                   managers alleging financial improprieties by Mr. Agee.

                   After the board launched its own fact-finding mission last month, it came
                   to realize that its optimistic chief was running the company into the ground
                   -- a predicament punctuated by a warning from Morrison's bankers the
                   first week in February. Morrison was close to defaulting on $225 million
                   of loan covenants, warned the lenders, and the covenants wouldn't be
                   extended without a change of top management.

                   Having stood behind Mr. Agee until a crisis forced them to act,
                   Morrison's directors are now left with their friend's legacy. As Mr. Agee
                   headed back Thursday night to his sprawling estate abutting California's
                   famed Pebble Beach golf course, the company's reins were taken up by
                   two of his understudies, leaving some critics to question whether the
                   board went far enough in cleaning house. The 44-year-old Mr. Hanks
                   was considered inside the company as Mr. Agee's biggest cheerleader.
                   Robert Tinstman, the 48-year-old head of Morrison's mining unit, was
                   named acting chief operating officer. Both men, Mrs. Morrison wrote in a
                   letter to the board, are "Agee clones."

                   Besides the loan covenants, Mr. Agee leaves behind a company that is
                   behind schedule on major contracts and about to report a major
                   fourth-quarter operating loss that board members say is more than $150
                   million, more than double what analysts had projected. Morrison's stock,
                   which ended Friday trading at $10.25, is down from a 52-week high of
                   $29.875 and isn't recommended, writes Smith Barney analyst Tobias
                   Levkovich, "even for bottom fishers."

                   Morrison's stock was selling for nearly triple today's price when Messrs.
                   Brzezinski and Clark joined the board last summer, and little wonder. In a
                   letter to shareholders in Morrison's latest annual report, Mr. Agee
                   proclaimed 1993 a "banner year" and a "watershed period" for the
                   company's drive into railroad and mass-transit industries. The report
                   boasted $1.18 billion in order backlog, up from $1.16 billion a year
                   earlier, but didn't flag this other figure: New business in rail systems had
                   plummeted to $450 million in 1993, less than half the $1.05 billion logged
                   the year before.

                   Based on Mr. Agee's sales job, the company's directors considered
                   themselves lucky to sit on the board of a company known for grand
                   projects like the Hoover Dam. Some board members were novices at
                   corporate governance. But others were heavy hitters who were well
                   equipped to spot trouble: Mr. Lynch, Fidelity Investments' vice chairman,
                   for one, is widely considered an investment guru. "Some people are
                   surprised at guys like Peter Uebberoth and Peter Lynch letting things go,"
                   says Smith Barney's Mr. Levkovich. "The question as to where was the
                   board is not a bad one." Messrs. Uebberoth and Lynch have declined to
                   comment on the matter.

                   The first hint of trouble came in July, when Mr. Agee announced an
                   unexpected second-quarter loss of $40.5 million, after $73 million in
                   transit write-offs and a $5 million write-off for a hazardous-waste
                   incineration facility.

                   Morrison directors say Mr. Agee told them that the setback was
                   temporary; they say that they didn't know more writedowns were likely.
                   As they later found out, Mr. Agee had bid low on several rail-car
                   contracts, gambling that customers would exercise options for additional
                   cars and allow Morrison to recoup the initial loss and make a profit. The
                   plan backfired, as customers either failed to exercise the options, or
                   waited too long to decide. This had caused the second-quarter write-offs,
                   and was one factor in the expected fourth-quarter loss, insiders say.

                   In October, with just 14 months until the end of his contract, Mr. Agee
                   informed the board that he would retire sometime in 1995, but that he
                   planned to stay on as chairman until his 60th birthday, in 1998. The board
                   gave the search assignment to one of their own, Gerard R. Roche,
                   chairman of Heidrick & Struggles Inc., a New York executive-recruiting

                   Mr. Uebberoth, head of the board's succession committee, resigned in
                   November, shortly after a board meeting in Denver, in which directors
                   got their first wind of fourth-quarter transit losses. Morrison said Mr.
                   Uebberoth left because he didn't have enough time to be on the board.
                   But Mr. Uebberoth was disappointed with Mr. Agee's management and
                   lack of progress and help in choosing a successor, board members say.

                   Over the years Mr. Agee had presented the board with several potential
                   successors, including some they liked. But he habitually dropped the old
                   ones for new ones, saying the old ones were no longer performing well,
                   people close to the board said.

                   After Mr. Uebberoth's departure came a more jarring incident. In the last
                   days of November, each director received an anonymous letter from a
                   group of Morrison executives calling themselves the "MK Committee for

                   The letter was the eruption of rank-and-file hostility against Mr. Agee that
                   had been simmering since he joined Morrison in 1988. Right off,
                   Morrison executives say, Mr. Agee irked subordinates by rejecting the
                   chief executive's office as too small and commandeering the board room,
                   which is nearly three times bigger. He offended old timers by removing
                   from headquarters the portrait of company founder Harry Morrison,
                   storing it in the basement and replacing it with a near life-size portrait of
                   himself and his wife, Mary Cunningham.

                   Mr. Agee further estranged insiders by quietly moving the CEO's office to
                   his Pebble Beach estate, and worse, scoffing at the company's
                   engineer-oriented culture. "You construction guys have been trying to run
                   the company for 75 years," Keith Price, who headed Morrison
                   Knudsen's MK Ferguson unit until he retired in April 1991, recalls Mr.
                   Agee telling him. "Now I'm going to show you how the financial guys do

                   The November letter pointed out just how the financial guy did his
                   numbers. Using numbers available from earnings reports and filings with
                   the Securities and Exchange Commission, the letter writers pointed out
                   that the percentage of the company's pretax income from nonoperating
                   sources such as asset sales and interest for the five years ending 1993
                   averaged 43%. In other words, Mr. Agee was sweetening profit reports
                   by selling Morrison off piece by piece, and investing Morrison's cash.

                   Meanwhile, lease obligations had rocketed. During the five years ended
                   1993, they had jumped, to $266 million at the end of 1993 from $38
                   million at the end of 1988. (To shore up cash, Mr. Agee had begun
                   selling assets, such as equipment, and leasing them back, Morrison
                   executives say.)

                   The letter also said that Mr. Agee was spending Morrison cash on
                   personal items: $7,050 for the Bill-and-Mary portrait, $7,000 for
                   Waterford crystal. In May 1992, Morrison paid $16,796.45 in legal
                   expenses for services "rendered on behalf of Mary Cunningham Agee,"
                   according to documents obtained by this newspaper.

                   And in a single paragraph, the letter foreshadowed the latest crisis: In last
                   year's second quarter, "initial projections of loss reserves to be booked
                   were at least $50 million greater than the approximately $90 million
                   actually booked. The obvious question is -- what happened to the
                   balance?" The loss is making its debut, senior insiders say, in the
                   soon-to-be announced fourth-quarter charge. Mr. Hanks says the initial
                   projection was a worst-case scenario that didn't materialize.

                   Such losses were partly the fruit of Mr. Agee's zeal for pushing for high
                   profit projections. Morrison executives say that Mr. Agee called up his
                   business managers every quarter and asked them what profit they
                   planned to deliver for the quarter; whatever the answer, he pushed for
                   more. "If they hemmed and hawed, he nagged them until they said,
                   `Yeah, I could do that,'" says one former Morrison manager. By the time
                   Mr. Agee finished the calls, the quarterly profit projections would be
                   nearly double the original managers' targets, the executives say.

                   According to one person close to the company, Mr. Hanks once told a
                   group of more than two dozen finance employees about this practice
                   during a staff meeting. Late yesterday, Mr. Hanks said the difference
                   between his management style and Mr. Agee's is "like night and day."

                   The first week in December, the succession committee sent a copy of the
                   letter to Mr. Agee, who hadn't received one. He referred the matter to
                   Mr. Hanks, who never responded. Mr. Hanks said they didn't do so
                   because the board never specifically asked them to.

                   Meanwhile, Mr. Agee saw that Morrison's fourth-quarter loss would be
                   huge, and began scrambling for one-time gains to offset it, Morrison
                   executives say. He sold the corporate jet, which cost $4 million a year.
                   When he learned the sale would be delayed over a weekend, he slammed
                   his fist on a table, exclaiming, "This is costing $4,000 a day!" insiders say.
                   Before the end of the year, he also sold an empty lot across the street
                   from the company's headquarters and accelerated talks to sell Morrison's
                   MK Gold unit.

                   Rather than pursue Mr. Agee for answers to the committee's letter, the
                   board did its own detective work. With Mr. Agee's knowledge, Mr.
                   Clark met with five group presidents, board members say, ostensibly to
                   learn more about the business and use the knowledge to help find a
                   successor to Mr. Agee as CEO.

                   In off-the-record telephone conversations and one meeting in San
                   Francisco, Mr. Clark individually questioned them and Mr. Hanks about
                   the company and Mr. Agee, people close to the process say.

                   Their answer, says one board member: Mr. Agee had lost the confidence
                   of his senior managers. After the interviews, Mr. Clark "felt the
                   management wasn't comfortable with Bill going forward," the board
                   member says. Mr. Clark declined all comment on the meetings.

                   On Thursday, Jan. 26, Mr. Clark shared his findings with his fellow
                   members of the succession committee. Then he called a special board
                   teleconference for Saturday, Jan. 28, to fill in the entire board, members
                   say. It lasted two hours.

                   While board members were irked by Mr. Agee's lavish spending, they
                   say their chief beef was that Mr. Agee hadn't warned them about the
                   perilous state of the balance sheet. "People felt they should have gotten
                   more of a heads up" from Mr. Agee, a board member says.

                   In the telephone meeting, with Mr. Agee on the line, Mssrs. Clark and
                   McCabe pushed for his ouster. Mr. Agee directed Mr. McCabe to
                   prepare a news release, board members say, but then developed his own
                   version, sparking two more telephone conference calls on Tuesday, Jan.
                   31 to haggle over wording.

                   The board wanted to strip Mr. Agee of all his titles, but Mr. Agee
                   resisted. Some board members argued that "how he would like to
                   announce his exit is up to him," says one director. Other members "were
                   clearly pushing for a different kind of press release," this director says.

                   In the end, the company settled for language board members describe as
                   "vague": Mr. Agee would retire as CEO when a successor was named,
                   but he would sit on the committee to choose his successor. There was no
                   mention of whether he would resign as chairman, president, or board
                   member. Mr. Agee planned to stay on the board through 1998.

                   If any one thing pushed the directors to act, it was an outside event: After
                   the Feb. 1 news release, lenders led by J.P. Morgan and Bank of
                   America informed Morrison that the company was close to default on
                   $225 million of loan covenants, and that they would decide in the next
                   two weeks whether to extend the covenants. "They said,`We could
                   extend it. But we aren't going to do it under current management,'" says
                   one person close to the board. Another threat: the banks said they
                   wouldn't provide cash in the future unless Mr. Agee was entirely removed
                   from the board.

                   After hearing this, key directors decided in phone calls that Mr. Agee
                   should be stripped of all his posts at Thursday's board meeting. By the
                   time they met in executive session, it was apparent to other board
                   members that a decision had been made. The putsch leaders met little
                   resistance. But in a sign of Mr. Agee's continuing popularity, they spent
                   three-and-a-half hours discussing the decision. "People care about him
                   personally, as a human being," a board member explains.

                   After Mr. Agee learned that he had lost and left the room, the directors
                   debated over who should become chairman. Several urged Mr. Clark to
                   do it, because of his active board role. He urged Mr. McCabe, the
                   longest-standing board member, to take the post, but Mr. McCabe
                   declined. That's how Mr. Clark became acting chairman.

                   Mr. Clark says his first priority is "to determine the true facts surrounding
                   the company and proceed accordingly." To that end, he flew to Boise

                   Shareholders haven't sued over the recent news, Morrison officials say,
                   but the board is preparing itself for the worst. It has retained two law
                   firms to represent it.

                   Morrison's auditors will also bear scrutiny. Deloitte & Touche, retained
                   by Mr. Agee in 1988, is in charge of Morrison's external and internal
                   audit, following a layoff last November of most of the internal audit
                   department. This effectively removes a layer of review that is considered
                   crucial for most corporations.

                   Deloitte's double duty isn't a conflict of interest because the accounting
                   firm has a "Chinese wall," so in essence it does two audits, a Morrison
                   spokesman said. Mr. Clark is dubious. "I'm studying the issue this
                   weekend," he said Saturday.

                   Morrison's search for a new chief may also raise eyebrows. Board
                   member Mr. Roche, who is conducting the search, is a friend of Mr.
                   Agee's and placed his wife at Seagram & Co. after she resigned from
                   Bendix amid rumors of an affair with Mr. Agee. (The couple got married
                   after she resigned, and have denied that they were romantically involved
                   before then). Mr. Clark says this isn't a conflict of interest, because Mr.
                   Roche doesn't sit on the succession committee. Mr. Roche declines to

                   In the meantime, there is some internal debate about who is running the
                   company. Mr. Hanks told a news conference Friday that he may be the
                   man for the job. "If, in coming months, [Mr. Hanks and acting chief
                   operating office Mr. Tinstman] demonstrate that we can run the company,
                   [the board] will change it from an acting CEO-ship to a permanent

                   The board thinks differently. Apparently, he overstepped his bounds with
                   that statement. Board members say they chose Mr. Hanks mostly
                   because of his close relationship with Morrison's antsy lenders, not
                   because they want him long term. "While he's expected to do a good job
                   under any conditions, that does not ensure his permanence," one member

                   Adds Smith Barney's Mr. Levkovich, "Morrison's management credibility
                   has not been high on Wall Street and Mr. Hanks has not done anything to
                   change that." Mr. Hanks, who has been CFO for one year, says he hasn't
                   had a chance to do so.

                   "For the moment, the board is managing the company," says Mr. Clark,
                   who is moving to Boise temporarily where he will meet with the five
                   group presidents daily and will conduct weekly telephonic board
                   meetings. He expects a permanent CEO to be named in "weeks or
                   months" and adds, "I'm anxious to get back to the ranch" where he lives
                   in Shandon, Calif.

                   Asked why the board didn't act sooner, Mr. Clark says, "I have no

                   As he leaves, Mr. Agee can look back on a company that is still run by
                   friends. But there is one sure sign he is really gone: After years of exile in
                   the basement, Harry Morrison's portrait mysteriously reappeared Friday
                   on a wall at corporate headquarters. Says Carol Monnot, wife of 31-year
                   Morrison veteran: "It was time to put Harry back on top."


                   John Dorfman contributed to this article.


                      Back to Joan's clips