Chapter 2

Shareholders: Ownership

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A scene in Barbarians at the Gate frames the problem of accountability of corporate management to investors. Then-RJR Nabisco CEO Ross Johnson, who somewhat impetuously initiated the leveraged buyout of his company, met with bidders Henry Kravis and George Roberts of Kohlberg, Kravis, Roberts, & Co. to discuss what the company would be like if it went private. There was a brief discussion of the business before Johnson's central question came up. “Now, Henry, if you guys get this, you're not going to get into [deleted] stuff about planes and golf courses are you?” Johnson's perquisites included corporate jets, having two domestic staff at his home on the company payroll, and membership fees at 24 country clubs.

Kravis was eager to gloss over this question, but Roberts was more candid. “Well, we don't want you to live a Spartan life. But we like to have things justified. We don't mind people using private airplanes to get places, if there's no ordinary way. It is important that a CEO sets the tone in any deal we do.”

Johnson stated his concern more directly. “I guess the deal we're looking for is a bit unusual.” Johnson, as it turned out, wanted to keep significant control of the company. Roberts responded even more directly: “We're not going to do any deal where management controls it. We'll work with you. But we have no interest in losing control.” ...

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