Finally, on Feb. 14, the board submitted a budget cut by $60 million to the School Finance Authority. In reviewing the budget for approval, Van Gorkom found $1 million that consisted of expected proceeds from the sale of real estate. ”That is not an expense reduction,” he snapped. The budget was returned to the school board.
It was a scene to be replayed constantly over the next eight years.
”What (the school board) needed was a father to spank it,” says McCoy, the Authority`s general counsel. And that is what it got.
In the ensuing years Van Gorkom issued stern warnings and prompt refusals, at times snickering in disgust. His favorite sayings were:
-”It is very important that you establish your credibility. You are an untried group in the eyes of the financial world.”
-”Next year will be a disaster. There is a grave possibility schools will not open on time.” (This statement was repeated year after year.)
-”You simply haven`t faced the problem. You`ve bought one more year by getting your hands on every damn dime to see that they open.”
-”You have indicated that you will not face up to your responsibilities if that means a confrontation with your employees. Instead, you have promised what you cannot deliver, knowing the Authority will have to overrule it and be viewed as the villain in the picture.”
He called for a study of the personnel department that found duplication of jobs, gaps in others. The study uncovered that the deputy superintendent for management services, who oversaw five departments, had at least two outside part-time jobs.
He called for an ombudsman for the school system to screen out the
”nuts” who would talk forever at the public sessions of school-board meetings. ”The meetings would go on for hours and hours with people getting up and saying the lunch was cold at school 456 last week,” Van Gorkom says.
”Or we don`t like the toilet paper in such and such a school.”
”I was making a big plea to get businessmen on the school board, and I remember after the pitch that a woman who was head of the PTA group came up to me and said, `Mr. Van Gorkom, any housewife who can manage her house budget today knows how to manage.` And that meant you could have housewives on the school board, and they could run an operation with 40,000 employees, 600 places of business and a budget of $1 1/2 billion? Insanity! That`s bigger than most businesses in the city, and yet you don`t have businessmen running it. Well, the business community is to blame for that.”
Van Gorkom never let up. Just last year, in August, days before school was to open, Gov. Thompson had not yet produced the promised state aid. Members of the School Finance Authority convened to vote the budget down.
”While our meeting was going on, I got an emergency call from the governor`s office,” McCoy remembers. ”They said the governor`s chief of staff is on his way. Moments later, in came the deputy governor, Jim Reilly, puffing into the conference room with a piece of paper in his hands. He was perspiring, and he announced, `I`ve got the governor`s commitment!` And Van Gorkom calmly said: `Thank you very much. Now that we`ve got this in hand, I think we need to study it. I might add that this is only a commitment. The money hasn`t been transferred yet. Also, this is only a copy. We need an original signed document. So we will adjourn our meeting until we have the money in place.` ”
Reilly was dumbfounded.
Then there was the last hour in 1982, when the union wanted a two-year contract, and the Authority refused to approve expected revenue for the second year. Expected revenue is not in Van Gorkom`s vocabulary. Mayor Byrne ordered an immediate meeting. Authority board member Jean Allard was on her way to Colorado and was summoned just before leaving. One accountant was turned around on the freeway by the state police while en route to a vacation in Wisconsin. Jay Pritzker, an Authority board member, flew back from New York, where he had been on business. He was met at the O`Hare tarmac by a Chicago police helicopter and whisked to Meigs Field. Two of Byrne`s bodyguards tapped Wayne McCoy`s shoulder at a birthday party he was attending for one of his colleagues. Van Gorkom unceremoniously drove in from home. The meeting began in a conference room in the Sears Tower with a stunning presentation made by Byrne. The money would be there in the second year; she could guarantee it.
The Authority voted the budget down. ”She wanted me to take her word that she would get us a certain amount of money for the second year,” Van Gorkom says. ”And I said, `I`m sure, your honor, you intend to do that, provide us with the money, but we can`t be sure that you`ll be here, and we can`t approve a budget based on that.` ” He meant, in all fortuity, that her promise hinged on her winning re-election the following year. Chaos reigned.
”Jane Byrne left the meeting and went down to the Metropolitan Club in the Sears Tower with her entourage and used the name of one of my partners: Larry Block,” McCoy remembers. ”She said: `Well, just put it on Block`s tab,”`
McCoy remembers. ”He didn`t even know it until he got the bill.”
Byrne indeed fulfilled Van Gorkom`s prophecy-she lost to Harold Washington in 1983.
Then there was the budget of 1981, which Pritzker voted down not too long after an interior walkway collapsed in a Hyatt Hotel in Kansas City, killing 113 people. ”She proceeded to raise holy hell,” Pritzker remembers. Byrne sent a city inspector to the Hyatt Regency Chicago who threatened to close down a portion of the hotel for ”inspections.”
”In one of my many interesting conversations with Byrne,” Perkins remembers, ”she called one day, and she was sore. She said: `You got me Van Gorkom. Now you get rid of him.”`
Of ex-Mayor Byrne, who declined to be interviewed for this article, Van Gorkom says: ”I thought Jane was going to do a lot of good. She was on her way to becoming an effective mayor, but in a couple of years she turned totally political. All she cared about then was getting elected. It was too bad.”
Of the teachers` union`s Healey, Van Gorkom says: ”He criticized me most unfairly many times. One time he said, `We`re down here negotiating, and Van Gorkom is in his swimming pool in Lake Forest.` Well, I don`t have a swimming pool. I do live in Lake Forest.”
Says Healey: ”I had some head-to-head combat with Van Gorkom based on some things that we interpreted differently. He was very tough and very stubborn, and he would not be moved by anything. No matter what kind of pressure, you just could not talk him into it. He and I had a big quarrel over the the fact that he wanted to have a $20-million reserve fund for a rainy day. I kept telling him the rainy day has come . . . . He was a strong adversary, but I respected him then, and I respect him now, because he was a straight talker.”
Still, Healey and others publicly painted Van Gorkom as insensitive-forever the doomsayer who lacked empathy for the plight of school children. He gets testy on the subject.
”People think that if you operate financially responsibly, you`re insensitive. We didn`t have any choice! The law says you have to balance your budget. That`s it. We had no right to tell them what to spend their money for. They could buy lottery tickets, and we couldn`t have said a word. Early on I said, `Now that we (the School Finance Authority) have been created, your job is to get rid of us as soon as possible.` How is that insensitive to the needs of the children? Should we say: `Go ahead? Spend $20 million more than you have so you can help the children out? Go broke again? Close the schools down` ?”
Much of Van Gorkom`s strident financial views stem from an impoverished upbringing. His grandparents were immigrants from Holland and Germany, and his parents, Abraham Van Gorkom and Elizabeth Laux, were separated when he was 7 years old. For about nine years, the Chicago-born lad and his mother lived with various aunts and uncles. He attended six different grammar schools. For a time, they survived on welfare.
When Van Gorkom was young, his mother would send him to the market with a shopping list of basic essentials. ”I`d take that list with me, and I was ashamed that people knew we were on welfare, so I`d try to wait until nobody was in the store.”
He remembers that the first thing he ever read in a newspaper, aside from the comics, was an article about the hundreds of men that lived under Wacker Drive. ”They wrapped themselves in newspapers in the wintertime for blankets and slept down there,” he says. ”I thought, God, that must be awful. People forget that the unemployment rate was then 25 percent.` He clearly enunciates ”25,” shuddering at his own indelible past and thereby acknowledging his good fortune. It is quite true, as he says, that ”the Depression made a very strong impression on me.” Later, he laughs at himself: ”I had this horrible feeling about being out of work all the time.”
Van Gorkom attended St. George`s High School in Evanston. Despite the family`s meager income, he took piano lessons and played the trombone in the school band. When he graduated, his mother sent him to live with his father in Elmhurst, who would send him to the University of Illinois. His father ran a small but lucrative lithography business. ”He may only have finished the 5th grade, but he was a curious man of reasonable intelligence,” Van Gorkom says. ”As I got older, I felt more that my father should have taken better care of my mother and me than he did, but I was faced with a fact: If I was going to go to college, I had to live with him. I don`t mean to imply that he didn`t love me. He was a good father. But it`s very difficult for children with divorced parents. There are certain innate reactions that you don`t change, regardless.”
For as long as Van Gorkom can remember, his mother pounded into him that he was going to be a lawyer. Perhaps, as his wife suggests, his mother felt she could have ameliorated her own problems with a lawyer in the family. Whatever the reason, and Van Gorkom gives only his mother`s insistence, he earned his law degree in 1941 after getting his undergraduate degree (chock full of accounting-course credits from the business school) in 1939.
During his law-school years he worked as a radio announcer for WDWS-AM 40 hours a week while attending school full time. He was paid $17.50 a week. He asked for a raise to $20 but didn`t get it.
The woman who was to become his wife lived across the street from his father. ”I was three years older than her, and so I didn`t have much to do with her. But then she grew up.”
Betty Jean Alexander was a senior at Northwestern University pursuing a degree in music education when she and Van Gorkom began dating in 1941. They were married the following year in her parents` garden. When he talks about her now, he calls her ”a fine girl, just a fine girl. We`ve been married 46 years, and we`re more in love now than we were when we got married,” he says. ”You don`t really understand what love is for the first 15 years, anyway. You get all flamed up and so forth. That`s why I laugh at these kids who want to go off and shack up for a weekend to have a meaningful relationship. It took us about 10 years to establish a meaningful relationship. She`s very supportive. She said once: `I`m going to write a book. It`s going to be called ”Hurry Up, Betty.”`
In 1941 Van Gorkom joined the Navy. He wanted to go overseas but couldn`t pass the eye exam because he was slightly nearsighted. He was assigned a desk job in the naval-intelligence offices in Chicago. He and his bride lived in a small apartment on Wisconsin Street for $65 a month. Two years later, Van Gorkom was restless (”One of my duties was reading the Daily Worker every day”), so he memorized the naval eye chart, passed the test and was shipped off to a destroyer as a gunnery officer. In what amounts to a comedy of errors, he was made chief engineering officer when one graduate engineer was transferred and the other came down with ulcers. He completed a correspondence course in engineering (”A very good one, I might add”).
By the time he was discharged, he had two daughters, Gayle and Lynne, the products of earlier leaves home. ”When the war was declared over and it was about six weeks before he was shipped home, his letters were consumed with worry over whether he would find a job,” Betty remembers. ”He was already an attorney, but he was so worried. Would he find a job, and who would hire him? He said there were so many men coming back, and when he came home, he said,
`I`m going to take about a month or so to recuperate, to get back into civilian life.` At the end of two weeks, he had a job and was working. He couldn`t wait. He was so nervous about it.”
After two years with a small law firm, Van Gorkom was hired in 1947 by the accounting firm of Arthur Andersen & Co. as a tax lawyer. He took courses at night and passed the CPA exam in 1950. Three years later, he was was transferred to Los Angeles. In 1955, William Browder, an old college buddy and an attorney then with Union Tank Car (which would later become Trans Union), was in California on business and went out to dinner with the Van Gorkoms. ”I told him we needed somebody like him at Union Tank Car,” Browder remembers.
”In those days the company had very few college-educated people. The previous president hadn`t gone beyond the 8th grade. We needed somebody like Van. He was a CPA and had a law degree, and I knew he was a ball of fire. Turned out I was right.”
Six months later, Van Gorkom packed up his family and moved back to Chicago to become controller of the company. Within six years, after holding various executive positions, he became president and chief executive officer, and a director in February, 1963. He was 46.
Within a year the huge losses suffered on a government contract to build missile silos were turned around by Van Gorkom. A period of growing profit and expansion continued for the rest of his 18-year tenure. Many other businesses, most of them lease-related, were acquired. In 1979 it had become a corporate giant with assets of $1.7 billion, annual revenues of $922 million and earnings of $60.6 million.
Van Gorkom ruled with a stiff upper hand. ”There was no question that Van Gorkom was the boss,” says Chelberg, who succeeded Van Gorkom as president in June, 1981. (Van Gorkom was named chairman emeritus, a position he held until he officially retired in August, 1982.) ”For many of those 17 years, there was no No. 2. There were a number of No. 2`s, if you want to look at it that way. Each of us knew what was required of us, but we did it without any politicking to succeed Van Gorkom. In hindsight, that`s a difficult thing to do with a bunch of people who all have ambitions and a bunch of egos to satisfy. But he accomplished that partly because of his general demeanor. He was almost studied in his attempt not to develop a personal relationship with people. He entrusted to me at one time that he was concerned that it would somehow influence his abilty to make hard decisions with regard to people. He was almost studied in his attempt not to confuse the working environment with whatever kind of a social relationship one might have.”
Van Gorkom`s style of management would not allow for any internal bickering, says Chelberg. ”First of all, he`s impatient as hell, and he just wouldn`t listen to it. If there was a problem, he did not hesitate to make a decison.”
The chief executive`s dominating persona, Chelberg says, led some of the corporate heads to feel that he was ”detached.”
”There was a feeling that he was perhaps less open to new ideas. He`s not one to let things germinate. My style was to sit down and talk about things. And I became a filter and a funnel for things that had to go up to Van Gorkom, or to the `old man,` as he was called with some affection. So it was a way of developing ideas without going up to Van Gorkom because he either had to say yes or no.”
It soon became well known around the company that Van Gorkom attended mass every day, even when out of the country. ”It generated, initially, I suppose, a little bit of a questioning, cynical attitude,” Chelberg says.
”But over time, you see that this guy is really practicing the principles. So the cynicism disappeared.”
By 1980, Van Gorkom saw that Trans Union`s glowing future as an independent company would soon be weakened by proposed federal tax
legislation.
In addition, he was scheduled to retire officially in August, 1982. ”It took a while for him to first accept the idea that he was mortal along with everybody else,” Chelberg says. ”It simply had to grow on him a little bit as he moved along in age, with some prompting from the board members, that the company needed some succession program.
Van Gorkom in 1980 was consumed with many thoughts. Trans Union had enjoyed a 20 percent return on its equity, but Congress was contemplating an increase in the depreciation rates for rail cars. Trans Union already had more depreciation available for tax purposes than it could use. In addition, that depreciation eliminated the firm`s income-tax liability and prevented it from using the investment tax credit because that credit could only be used to offset income-tax liabilities.
Some of Trans Union`s new competitors were able to use all of the depreciation and tax credits available as well as the new tax shelters being contemplated by Congress.
Trans Union had already made a number of acquisitions to increase its taxable income and enable it to use all of its depreciation and the investment tax credit, but they weren`t enough. To completely solve the problem, the acquisition of a company with $100 million in taxable income would be required. Such a substantial acquisition, Van Gorkom believed, would almost certainly result in a material dilution of earnings per share. It would also change the character to the company in the eyes of the investors, which could adversely affect the market price of its common stock.
The other alternative was to sell the company to someone who had adequate taxable income to use all the depreciation and the investment tax credit. Van Gorkom reasoned that Trans Union would probably be worth more to a private owner than to a publicly held company because a private owner would value the company on the basis of cash flow, rather than earnings per share. Trans Union`s cash flow per share was almost three times its earnings per share.
Van Gorkom turned to his friend, skiing companion and School Finance Authority board member Jay Pritzker, the man he once called one of the finest financial minds in the country.
”I wasn`t even sure that a company like Trans Union would even be interesting to private buyers, so I decided to talk to Jay on the general idea of the company`s appeal to a buyer such as the Pritzkers,” Van Gorkom says.
To Van Gorkom`s utter surprise, one week later, Pritzker offered to buy the company for $55 in cash per share or $690 million. The stock was then selling on the New York Stock Exchange for $37.
”I mean,” Van Gorkom says, ”how many people do you know who, without looking at anything, practically, would offer you $700 million for a company?”
