The Very, Very Rich and How They Got That Way (10 page)

Nobody in his right mind wanted to buy IOS fund shares anymore. In fact, hordes of fund shareholders wanted to cash out as fast as possible. The once-rich salesmen could no longer earn a dime. The glory days were over. IOS began to come apart.

A group of directors and major stockholders got together in 1970, frantically sought a scapegoat and picked Bernie Cornfeld. Charging him with gross mismanagement and other failings, they voted him out of the company he had founded. He made several attempts to regain control. When those failed, he vanished from the IOS scene.

He went out with less wealth than he had once had. But he was by no means a poor man. According to one authoritative Zurich guess, the value of his personal holdings as he departed was about $50 million. “He certainly has enough,” one Zurich banker says, “to support him for the rest of his days in the rather lavish style he likes.”

The directors who blamed him for the company’s collapse were not altogether justified in their action. True, Cornfeld himself had performed much of the basic engineering on this huge and shaky structure. But dozens of other men helped, and it wasn’t fair to blame Cornfeld alone. Booting him out certainly didn’t solve the company’s problems. IOS continued to go downhill after Cornfeld left. The company ended the year 1970 by reporting a staggering loss of some $60 million.

The IOS shares, issued at ten dollars apiece in 1969, plummeted to a low of 38 cents in 1971. In fact, they were virtually unsalable. As this book goes to press, bickering groups of stockholders are still gloomily seeking ways to bring the shattered company back to life.

And Bernie Cornfeld? The poor boy from Brooklyn who started it all seems to be out of it for good. He may be glad he is. He may laugh secretly at the efforts to revive IOS. On the other hand, he may wish he were in there helping. He may miss the action.

He isn’t as visible as he used to be. He turns up once in a while at his favorite spots in Geneva, Acapulco and elsewhere. But he turns up quietly and often by himself. He prowls the world alone, a remote and brooding figure. His old friends sometimes feel sorry for him.

But perhaps there is no real reason to feel sorry for Bernie Cornfeld. He is certainly rich in terms of money. Not as rich as he might be, but quite rich enough to be reckoned an outstanding financial success. And he also has another form of wealth to enjoy. He has a 20-year hoard of memories richer than most men could pile up in 20 lifetimes.

But there are at least two sound reasons for including Hughes despite that disqualifying fact. For one thing, Hughes is so staggeringly, so monumentally rich that it is hard to ignore him no matter what qualifying rules one might setup. He is one of the two or three richest men in America – and, for all anybody knows, in the world. Ignoring him would be something like staring into a million-candlepower arc lamp and saying, “Never mind, it isn’t there, look at all those other pretty little lights down below.”

For another thing, it can be fairly said of Hughes that he made most of the colossal wealth himself, with his own brain and backbone. His life can therefore teach us something, perhaps. He didn’t become one of the world’s richest men simply by sitting on his father’s fortune and watching the dividends pile up around him. His inheritance was not that big, after all – roughly half a million dollars in appraised value. Howard Hughes, when he began his remarkable career in the 1920s, was only one of thousands of Texas sons and daughters whose fathers had struck it rich in the state’s oil boom. Most of those sons and daughters went nowhere in particular – went, in fact, to oblivion. Their names ring no bells today. Young Howard Hughes took a distinctly different route. He saw his father’s capital not as a cushion upon which to sit and grow fat but as a bag of seeds that could be made to grow – provided someone stood up, went out into the world and sowed them.

Howard Hughes did that. The forest he planted contained many peculiar and fascinating trees.

It is an illuminating fact about Howard Hughes that, throughout most of his life, he lacked anything resembling a headquarters office.

He conducted his business from public telephone booths, hotel rooms, wherever he happened to be. Most of the information he needed to run his bewilderingly diverse enterprises – information that the average systematic businessman would store in file cabinets – he stored in his head. His employees and even his close associates seldom knew where he was on any given day. He would dart about among his far-flung ventures with an apparent lack of plan and a total lack of formal scheduling that irritated and confounded the more orderly-minded of his executives.

If you wanted to get in touch with him, you called a phone number and were plugged into a switchboard that, at various stages of his career, might be in Hollywood, Las Vegas or Houston. You gave your message to a secretary. A few weeks might go by. Finally, if Hughes felt like talking to you, he would phone you back, perhaps from a neighboring city, perhaps from halfway around the world. The call might come at 1:00 A.M. your time. Hughes wouldn’t consider this important. It might be 4:00 A.M. his time.

The formal structures of the business world meant nothing to Hughes: its chains of command, its documents, its timetables. He worked when he wanted to work, sometimes 36 or more hours at a stretch. The fit of work might seize him as readily on a weekend as on a standard business day, as readily after midnight as between 9:00 A.M. and 5:00 P.M. “He was the kind of man,” says a Hollywood press agent who knew him in his moviemaking days, “who broke every rule taught by the Harvard Business School. Every rule except the one that says you should make money.”

He has often seemed like an extremely disordered man, even a scatterbrained one. The impression is wrong. Howard Hughes may be a genius. He has a mind that feeds on problems as greedily as a dog feeds on meat. When one problem has been swallowed and digested, Hughes goes out and looks for more. His range of interest is huge. He is curious about everything. His mind is immensely retentive, capable of being interested in a dozen things at once. He could never be satisfied operating in just one business, for there was always another business on the horizon that attracted his attention and demanded, by its very presence, that he assault it with his brain. Thus, he never had a headquarters office. His inquisitiveness, his hunger for facts and firsthand experience, was such that he couldn’t let other men run parts of his empire while he sat and counted money in a centralized palace. As the actress Katharine Hepburn once put it, “He was never anywhere; he was always en route to somewhere else.”

Today, in his late 60s, Hughes has apparently settled down somewhat. He never talks to the press and shrouds all his movements in elaborate secrecy; so it is hard to know at all times where he is. But he seems to spend part of his time in the Caribbean and part in Las Vegas, where he owns fabulously valuable real-estate holdings. He may be feeling old and tired. Perhaps some of his aircraft-crash injuries, of which he has had many in his lifetime, have been aggravated by age and are troubling him. On the other hand, perhaps this apparent hiatus in his life is nothing more than a period of reflection and reorientation. He may be planning bold new moves into still different lines of business.

Howard Hughes’s life is a lesson in how to get rich through diversity. Diversity is, of course, a time-honored technique of certain prudent stock-market players. It is also a technique for operating a corporation. (Harvard B-School types, with their penchant for adding unnecessary syllables, generally refer to it as “diversification”.) The idea is to have many things going for you and thus get the law of averages on your side. One thing may fail, but others, with luck, will succeed.

The technique isn’t foolproof, and, indeed, there are some who say it’s nonsense. Certainly, it can be carried too far. Your affairs can become so diverse that you have too little time to devote to any one of them, and some or all collapse. (Even Hughes seemed to have overdone it at one point.) Nor is diversity, even moderate diversity, everybody’s cup of tea. There are some men, such as Hughes, whose minds are capable of switching back and forth between wildly dissimilar fields of thought without getting confused or feeling pressured – in fact, who are bored and restless when denied the opportunity for such switching. There are other men, such as Conrad Hilton, who are more comfortable and effective when they can concentrate narrowly on one small, tight bundle of thoughts. Neither type of mind is necessarily superior to the other, but the two are distinctly different, and neither seems to operate well in the other’s milieu. Each man must recognize how his own mind works best. If you want to try Howard Hughes’s route to riches, first be sure you have Hughes’s type of mind.

Howard Hughes was born in Houston on December 24, 1905. His father was an oil speculator and wildcatter – not a notably successful one up to then. But there was a valuable idea in the senior Hughes’s head, and the idea came to fruition when young Howard was still a toddler. It was an idea for a new kind of oil-drilling bit – one which, if it worked, would cut through hard rock far beneath the earth’s surface and thus open up huge reservoirs of oil that so far had been unattainable.

It worked. The senior Hughes patented it and founded a company to manufacture and lease it. The enterprise evolved into the small but prosperous Hughes Tool Company.

The senior Hughes died in 1924, when Howard was 18. The estate, of which Hughes Tool was the main component, was appraised at slightly over $600,000. Under his father’s will, the teenage Howard received title to three-quarters of the company’s stock, with the remaining quarter going to a gaggle of relatives.

The law, under normal circumstances, is reluctant to let minors vote capital stock in cases where they inherit a controlling interest in a company. It was assumed that young Howard Hughes would follow the usual pattern in such cases: He’d allow his stock to be handled by some kind of voting trust until he reached 21.

“Most teenage boys would have taken that route,” says a New York banker who dealt with Hughes in later years. “After all, why not? What the hell, there were only three years to wait. What’s more those were boom times, and the company was doing nicely. It was running itself. The kid could assume dividends would keep piling up and the value of his stock would keep appreciating. Any normal kid would have been happy to sit on his ass for three years and spend the money without doing any work. But this particular kid, this Hughes – he wasn’t a normal kid.”

Indeed, he wasn’t. Curiously, up to that time, he hadn’t shown many signs of being out of the ordinary. Dozens of biographers have interviewed his schoolteachers and boyhood friends in the hope of spotting peculiarities, but the search has produced only dry holes. The people who knew Hughes in his youth can only shrug helplessly and say, “He was just – you know, an average kid.”

Like many of the very rich whom we’ve met and are yet to meet in the book, Hughes was decidedly a late bloomer. Except for a certain brilliance in mathematics and the physical sciences, he was a mediocre student in school. He liked to tinker with a ham radio set and other gadgetry in his spare time but, as far as anybody can recall, showed no particular inventiveness during his boyhood. Nor did he show any notably thrusting entrepreneurial spirit: He neither hawked newspapers nor did anything else that Horatio Alger would have considered worthy of mention. Socially he was just as drab. Girls seem to have been somewhat uninterested in him and the non-passion was reciprocated. (Photographs of Hughes in his late teens show a puppy-dog face that was just beginning to take on a masculine handsomeness, but he was too tall for his weight, gangly, awkward and shy.) Indeed, Hughes appears to have shambled dimly around the outer fringes of teen society. He was one of those quiet, ghostly youngsters who drift through a school without leaving any tracks. They come to class, they do their unspectacular work, they go home. Years later people say, “Who the hell was he? Did he really sit in
my
classroom?”

But suddenly, at the age of 18, for reasons that neither Hughes nor anyone else has ever explained satisfactorily, the quiet kid caught fire.

He decided he didn’t want to spend three years merely sitting. To the amazement of everybody (especially the relatives who held the remaining 25% of Hughes Tool’s stock), he went to court and argued that he was competent to vote his own shares. A seldom-invoked Texas law permitted the court to give him this voting power if he presented a reasonable case. He did.

“I would like to suggest, Mr. Hughes,” said the judge in handing down his decision, “that you find older men to help you carry the burden of your new responsibility for a few years. Your education should not stop here. You should go on to college.”

Hughes nodded politely but he had no intention of going back into any classroom. He was impatient to try himself against the real world. Like many others in our gallery of the rich, he never earned a college degree. But he did follow another part of the judge’s suggestion: He looked for able men to help him run Hughes Tool.

“Despite his tender years,” says John Keats in his biography
Howard Hughes
, “despite his awkward nervousness, his look of abstracted melancholy and his somewhat lonesome life, the youth was a rare judge of people...” Sitting in his father’s office at Hughes Tool a few weeks after the court decision, he interviewed men who were applying for an accountant’s job. The man he hired was Noah Dietrich. This hard, bright man quickly became Hughes Tool’s chief operating executive and, for the next three decades, ran it and the other Hughes enterprises when the boss was off doing something else – which was most of the time.

The teenage Hughes was already beginning to formulate a business methodology. “He treated a business something like a clock,” says a banker acquaintance. “He’d start by taking it apart to see what made it tick, and then he’d put it back together and tinker with it until it was in good working order, and finally he’d wind it up, walk away and forget it. He’d only come back to it after that if it broke down or needed rewinding.”

Thus with Hughes Tool. The young owner studied the business carefully, tinkered with it, adjusted this part and that. He fired some men and hired some, such as Dietrich. He bought his relatives’ shareholdings so as to gain 100% control. And finally, with Dietrich at the helm and everything running smoothly and money pouring in, Hughes went away.

A different kind of business had caught his eye and captured his restless curiosity: motion pictures.

An actor friend, learning of Hughes’s wealth, approached him with a movie idea and asked him to back it. Hughes agreed to invest about $50,000. The movie was a miserable failure, but Hughes extracted something of high value from it: an education. His curiosity was such that he hadn’t been able to sit in Houston, an anonymous angel, while the film was being made in Hollywood. He had watched and even participated in the entire process, from the first script discussions to the final film editing.

The experience exhilarated him. It seemed to him that, with luck and management, money could be made in Hollywood as easily as in Texas. Step by step he began investing in Hollywood companies of various kinds, including a production studio, a lab that was experimenting with color film and another that was dabbling with talkies. (In those days the public was watching only silent films.) The corporate setup behind all these speculations grew increasingly complex. In most cases Hughes Tool became the principal stockholder and/or creditor of each new movieland venture, but the tool company’s presence was shadowy, and there were many in Hollywood who didn’t know exactly who this brash young newcomer was or where he was getting his seemingly bottomless supply of capital.

Hughes’s next three films, following his initial failure, were financial successes. The critics considered them empty, rankly commercial and shallow, but Hughes didn’t seem to care – a fact that made the critics all the more irritable with him in later years. This once-lonesome young man, who in his teens had seemed to be learning very little about people, had somehow developed an almost unerring sense of public tastes in humor, sex, violence, gore and other salable items of film fare. His films were designed to grab the gut, not tickle the intellect. “This is a business,” he is said once to have snapped at an arty intellectual young woman who was carping at him during a Hollywood party. “The purpose of a business is to make money. If it happens to make art, too, that would be secondary and accidental.”