Barbarians at the Gate (7 page)

Nabisco stagnated. No one was fired. No one worked past five. No one raised a voice. No one, not even the new chief executive, Bob Schaeberle, had doors on his office. No one, not even Schaeberle, had a company car or a corporate country club membership.

Then along came Ross Johnson. It was, one wag noted, as if Hell’s Angels had merged with the Rotary Club.

For one thing, Nabisco’s morning meetings began around eight-thirty, in the midst of their hangovers. In contrast to Standard Brands’s free-for-all bull sessions, Nabisco’s deliberations were carefully choreographed. Executives sat around a table, each making a fifteen-minute presentation on a particular cookie or cracker. At the end of each, questions were invited. Rarely were there any; it seemed bad form. It would drone on like this into midafternoon, with a break for lunch. Johnson often arranged to be summoned from the room by a phone call, never to return, leaving
Rogers and Carbonell and the others to silently squirm.

Then one day, John Murray, the Standard Brands vice president for sales, could stand no more. It came during an especially tiresome discourse on procedures for closing company offices during snowstorms. In the event of a bad storm, a Nabisco executive said, workers would be given notice that offices would close in a matter of hours. That enabled those who needed rides a chance to line them up, and gave the company a chance to organize van pools and bring the day to an orderly conclusion. Obviously pleased with himself, the executive invited questions.

“I can’t fucking believe this!” Murray exploded. “If it’s dangerous out there, don’t wait two hours; close the place down. Nobody’s going to do shit for those two hours, anyway. That’s fucking ridiculous.” A stunned silence ensued. Finally Jim Welch, a senior Nabisco executive chairing the meeting, broke it. “I agree with John one hundred percent,” he said.

It was one of the first shots of the cultural revolution that would transform Nabisco. Meetings began to loosen up. Murray would be detailing the performance of Fleischmann’s Margarine, only to be interrupted by a shout from Peter Rogers: “Tell ’em about Blue Bonnet Baking Margarine.” That brand, of course, was faring poorly. Nabisco executives prided themselves on the company’s elaborate planning procedures, compiled in thick, multiyear projections and operations outlooks. Johnson chucked them all. “Planning, gentlemen, is ‘What are you going to do next year that’s different from what you did this year?’” he told them. “All I want is five items.”

On paper Schaeberle remained the top executive of Nabisco Brands, but Johnson found it easy to get his way. Their offices were adjacent, and Johnson wasted no time ingratiating himself with the boss. He deferred to Schaeberle in every regard, obsequiously addressing him in meetings as “Mr. Chairman.” Johnson’s many country club memberships were paid for by the company; he insisted that Schaeberle’s dues be picked up, too. They were. Johnson and his executives drove flashy company cars; he insisted Schaeberle and his aides do so, too. They did. Johnson donated $250,000 to Pace University to endow a Robert M. Schaeberle Chair in accounting. Surprised by the announcement at a Pace dinner, an honored but stunned Schaeberle said, “Who’s going to pay for this?”

The company was, of course. The company also had to vastly upgrade its pay scale, since thirty-six Standard Brands executives made more than $100,000 compared to fifteen Nabisco ones. Johnson’s base pay was more
than double Schaeberle’s, requiring a vast raise for the chairman. He accepted it reluctantly, but later balked when told his 1983 salary and bonus would total more than $1 million. What would the shareholders say? Schaeberle ordered that his bonus be cut enough to get him back into six figures. Johnson talked him out of it, saying he had it coming to him. If Schaeberle made a million, Johnson had it coming to him as well, of course.

Johnson continued to upgrade his own life-style, buying a huge French chateau-style house with a forty-acre estate in Sparta, New Jersey. He attempted to commute via helicopter to Nabisco’s headquarters in East Hanover, New Jersey, but was thwarted when town fathers repeatedly refused to allow helicopters to land there.

Slowly but surely, Johnson closed his grip around Schaeberle’s company. One by one, veteran Nabisco executives began to vanish, replaced by Johnson men. The fall of Nabisco’s powerful chief financial officer, Dick Owens, was a prime example of the way Johnson worked. At the time of the merger, Owens appeared to be at the height of his powers. He was made an executive vice president and sat on the combined companies’ board. Whatever Owens wanted, Johnson got him. He approved a steady stream of Owens’s requests for new aides: a senior vice president here, a vice president there, a veritable raft of assistant vice presidents. In Johnson’s warm embrace, Owens’s financial fiefdom grew steadily.

Then one day Johnson walked into Schaeberle’s office with his brow furrowed. “Dick is building up a huge financial organization,” Johnson fretted. With unassailable logic, he laid out the dangers of substituting the analysis and judgments of people at headquarters for those of line managers. “We shouldn’t be doing the numbers for the business managers,” Johnson suggested.

“Well,” Schaeberle asked, “what should we do?”

“I think Dick is congenitally incapable of decentralizing,” replied Johnson. “I think we need to make a change.”

And so Owens was shunted aside, replaced, for a time, by Johnson himself. Johnson immediately installed Standard Brands people beneath him, and replaced Nabisco’s financial controls with a system devised at Standard Brands. Only Standard Brands people seemed to understand the new system, which suited Johnson fine. Having changed the playbook, Johnson’s troops now emerged victorious in a string of minor bureaucratic battles. “At any meeting,” recalled a former Johnson lieutenant, “you
could embarrass the Nabisco guys.”

Johnson had Standard Brands’s Dean Posvar named planning director, a job that put Posvar—and thus Johnson—in charge of board presentations and enabled the Johnson troops to define and thus control board discussion. Johnson’s crony Mike Masterpool took over public relations, giving him control of the outward dissemination of information as surely as Posvar’s planning group and the financial apparatus regulated the inner flow.

It was the same story all the way down the line, thanks to another Johnson move. Schaeberle had originally planned to keep Nabisco and Standard Brands operations separate within the combined company. But on Johnson’s suggestion, they were integrated. As departments were combined, the timid Nabisco executives were forced to swim with the Standard Brands sharks. When choices for a top position had to be made, Johnson walked into Schaeberle’s office and, while insisting he wasn’t playing favorites, laid out a compelling case for the Standard Brands man. “You’re right,” Schaeberle would say. “This guy is better.”

To some who caught Johnson’s act during this period, he was less a business dynamo than a corporate Eddie Haskell, sucking up to Schaeberle while kicking the Beaver in the teeth. Whatever the case, it worked: Within three years, twenty-one of the company’s top twenty-four officers were Standard Brands men. The Nabisco officers had been killed so softly that Schaeberle never realized what had happened. At meetings, he would say, “It’s so great to see all these young people around the table.”

As Johnson’s power grew, much of Nabisco’s future began to be planned at all-night drinking sessions at his apartment. The roster hadn’t changed much in ten years. There was Peter Rogers, still The Rook; Martin Emmett, The Big E; and Bob Carbonell, El Supremo, among others. Johnson, The Pope, used the sessions to throw out all manner of ideas—for restructuring the company, for hastening the Old Guard’s exit, for new products. Many were profanely hooted down, and Johnson, sipping Scotch, would cheerfully withdraw and move to the next.

Even as he reshaped its executive suite, Johnson moved to mold Nabisco’s business mix to his own tastes. On its face it was an impossible task—Nabisco’s vast, entrenched bureaucracy seemed impervious to change—but with his newfound sway over Schaeberle, Johnson made steady progress. It was always Johnson initiating, Schaeberle assenting; Johnson spinning out sweet reason, Schaeberle accepting it. “You know,
it just doesn’t make sense to have anything that’s not number one or number two in its industry,” Johnson would say. “That’s right, Ross,” Schaeberle would reply.

In the last quarter of 1982 alone, Johnson sold J. B. Williams, Freezer Queen frozen foods, Julius Wile wine and spirits, Hygiene Industries shower curtains, and Everlon Fabrics draperies. At the same time, he cut loose some of Standard Brands’s old businesses: Chase & Sanborn and high-fructose syrup. Johnson discovered he was an excellent auctioneer. Nobody thought that J. B. Williams, home of over-the-hill brands such as Geritol and Aqua Velva, would fetch more than $50 million. But Johnson unloaded it for twice that, applying his usual charm and telling potential buyers how badly Nabisco had been running the business. He convinced them that Williams had worlds of unexploited potential. “I learned,” he said, “you always tell people how badly you’ve been running the goddamned company, so they’ve got some upside.”

As successful as his manipulations were, Johnson could see it would take something like wartime conditions to attain a complete overhaul of Nabisco Brands. To his surprise, he soon reached that juncture in a period that came to be known as “the cookie wars.”

Nabisco had fairly invited attack on its position atop the multibillion-dollar cookie business. It had grown soft: Its bakeries were old, its profit margins were big, and it dominated its few competitors. The company’s Pearl Harbor came in Kansas City. The attacker was Frito-Lay, the nation’s premier salty-snack maker, home of brands such as Ruffles, Doritos, and Tostitos. Frito-Lay hit the Kansas City shelves in mid-1982 with a new line of soft cookies called Grandma’s. Cocky Frito executives boasted publicly how quickly Grandma’s would thrash Nabisco, which didn’t make a soft cookie. Nabisco’s lock on the cookie business, they predicted, would break, and the $2.5 billion market would become “a Coke-Pepsi kind of thing.” The Frito generals looked as good as their word in the early days, capturing 20 percent of the Kansas City market.

Even as Johnson scrambled to meet that onslaught, another attacker struck. Procter & Gamble, the Cincinnati consumer goods giant, unveiled its own Duncan Hines line of soft cookies. P&G began construction on a massive bakery, applied for a patent on its cookies, and started its own assault on Kansas City. Within days the city became a cookie-crazed battleground. Spurred on by coupons, special displays, and advertising, Kansas City consumers were buying 20 percent more cookies.

Nabisco was getting clobbered. But Johnson, as always, remained upbeat and confident. There were problems with soft cookies nobody had yet focused on, he assured Nabisco’s worried directors. He told them how he had eaten some of the competitors’ cookies late one morning, then gone off to lunch depressed because they tasted so good. When he returned later, he found the remaining cookies stale.

“Well, how stale were they?” a director asked.

“Ever try biting into a hockey puck?” Johnson replied. Everyone roared. The Pope was already a board favorite.

At first all Johnson could do to retaliate was to cram more chips into Nabisco’s Chips Ahoy chocolate chip cookies. In the meantime, he used the wartime footing as an excuse to rid the company’s top echelons of its remaining Nabisco veterans. “Look,” he told Schaeberle, “the guys that got you in trouble aren’t going to get you out of it.” Schaeberle, as always, agreed. Peter Rogers was brought in to head the war effort, while Carbonell flogged the R&D people to develop Nabisco’s own soft cookie.

By mid-1983, Nabisco was ready to counterattack. With the introduction of its own soft cookie entry, Almost Home, it joined the battle for Kansas City. “It was a holocaust,” Johnson would later recall. “P&G would coupon one dollar, we’d coupon a dollar fifty. Bodies flying all over the place.” Johnson didn’t care what the coupons cost. He didn’t care what overtime his salesman put in for. Nabisco was going to take back those shelves.

In the end Johnson and Nabisco lost the struggle for Kansas City. But they won the war. The two newcomers didn’t have the mass production and distribution systems in place to quickly go national. Once Nabisco had a product, it established impenetrable beachheads in city after city before the competition could arrive. By 1984, the cookie wars were all but over.

As the smoke cleared, Johnson emerged triumphant, both inside and outside Nabisco. As far as Schaeberle and the board were concerned, he could do no wrong. That year Schaeberle rewarded Johnson by ceding him the title of chief executive. Nabisco’s huge new research center was about to be unveiled, and Johnson, in a spasm of flattery, repaid the favor by naming it the Robert M. Schaeberle Technology Center. Schaeberle was moved. The Merry Men thought it was a brilliant way to put Schaeberle out to pasture. A man who had his name on a building, they reasoned, might as well be dead.