Interview with T. Boone Pickens, Jr.

The takeover king defends his passion and talks about why foreign oil is okay, who's ruining U.S. industry, and more

T. Boone Pickens, Jr., speaks softly in a friendly Texas drawl, but the toughness of his words belies his low-key manner. Corporate managers, he says, are "crybabies" who run to Washington when the going gets tough. They "lie about what their motives are." And, he hints, they are afraid of Boone Pickens.

For good reason. In three decades, the Oklahoma-born geologist has built a $2,500 stake into Mesa Petroleum, of Amarillo, Texas, the nation's largest independent oil company. And he has become the country's best-known corporate raider—a term he despises. Along the way, he has made friends and enemies, lots of headlines and millions of dollars for himself and his shareholders. His new autobiography, Boone, has become a bestseller, the most successful of this year's crop of business biographies.

In 1982, Pickens launched the first of a string of takeover battles—for Cities Service, an oil company six times Mesa's size. Occidental Petroleum wound up with Cities, and, as Cities' largest shareholder, Mesa made a $32-million profit in the company's stock. Other losing but profitable takeover attempts followed: Gulf Oil, Phillips Petroleum, and Unocal. Pickens's most recent proposal, to take over Diamond Shamrock for $2 billion in cash, was flatly refused by that company's board of directors. And there are rumors of future targets, including Texaco.

Such takeovers have sparked a backlash, including efforts to restrict them by law. A year ago, Pickens formed the United Shareholders Association to lobby against such laws and for changes that would strengthen shareholder control.

With his boyish but weathered face, Pickens looks at once older and younger than his 58 years. A high-school basketball star despite his relatively short stature, he now keeps in shape with daily games of racquetball.

Assistant Editor Virginia I. Postrel interviewed Pickens—with occasional interjections from his wife of 15 years, Bea—in the living room of their two-story suite at the Beverly Hills hotel L'Ermitage during a recent trip to promote his book.

Reason: More than most entrepreneurs, you seem very interested in getting the press and also the academic community to understand what you're doing. Why do you think that's important?

Pickens: I have to work with the press—I have no choice. Sometimes I'm disappointed in how they see things, but I still have to work with them. I don't think anybody is going to argue that I'm usually the little guy in these deals. And there are certain tools that I can work with to help my situation—and one is to explain what I am up to.

Two, I always feel that I'm on the right side of the issue. I don't mind being questioned, and Tom Braden on "Crossfire" asked me one time, "Why are you on this show? Are you running for public office?" I said, "No, I'm not. I guess it's because you invited me. Also, I'm controversial, and the way to clear up controversy is to be available to take questions—any kind of questions—and answer all the questions. And never get upset about the line of questioning."

Academia? I think they come from a totally different direction and that is they should have no conflicts of interest. They should be able to examine the empirical data. I want it to be made available to them. If I'm wrong, I want an independent analysis, and I'm very keen about what they come up with.

Reason: I think most academic economists would tend to agree with you.

Pickens: Sure they do. Because the data when analyzed will come up on this side. There really is some horrible deficiency in corporate America.

What you have to continue to build in is accountability. It should scare the hell out of everybody when you have somebody spending somebody else's money. It's the same with politicians. If we will allow economics to drive the corporate sector, it will restructure to the point where accountability will be brought back in the system. It will not be total, but it will be satisfactory to the majority.

At the same time that it happens, I think that there is an opportunity here to see it roll off into the government sector and see accountability come back in there—not as great because it's not driven by economics. But you have the same thread that runs clear through. You have politicians spending taxpayers' money and you have management spending stockholders' money. If you can keep pounding away on accountability, accountability, accountability, you're going to eventually get that in place, to some degree, everywhere.

Reason: What can you do in the government to create accountability?

Pickens: Well, they have got to do something about the spending. The dollar that is charged to the taxpayer is pennies when it gets to the recipient. Whoever it is, wherever it is. The slippage is just unbelievably bad.

To sit up there and have a Senate or congressional committee question you about what your approach to business is and whether you're being responsible or not by borrowing money and doing certain things—it's almost amusing to sit there. Here these same people who are asking the questions aren't even close to balancing a budget.

The one place that just cries for attention is the Defense Department. A $350-billion budget? Whew, I hate to think what is wasted in that $350 billion. Half of it? What is the figure? You know that it's billions and billions of dollars.

So, someplace in there somebody gets up and says we're going to bring accountability back into the system. And people are going to respond to it. They'll say, That's right, that's exactly what we need. Look what happened over in corporate America back in the '80s—maybe we're up in the '90s when this happens—we brought accountability back in, we got our market share back, we're now competitive, the stockholder is happy, the market is above 3,000. And they'll say, Now we're going to do it over in the government sector.

Reason: It's a little harder to get people to try and take over Congress.

Pickens: You can take over spots, and I think that if you had an attitude switch in this country—which may be in the making right now—with the people starting to say, Well, that person just stands up and says it like it is, that person says we're going to be accountable for what we're going to do, that person says we're not going to spend unless we have the revenues, that we're going to reduce the debt—all this makes sense to people and they're going to say, Well hell, let's give him a try. About the time you get a few of those people elected, then find out they'll go out and do just exactly what they said they'll do, it opens it up to others.

Reason: You noted in your book numerous examples where the "Good Ol' Boys"—heads of major corporations in general and the Business Roundtable lobbying group in particular—had used political influence to thwart shareholders' wishes.

Pickens: It amazes me that these people have as much power as they have—I'm talking about the CEOs of major corporations—because one, they personally give very little money to candidates for public office. And they won't stand up and be counted. They are afraid that they are going to pick the wrong side and be out. So what they'll try to do is ride two horses right down to the wire and then, immediately on knowing the winner, they'll then make whatever contribution personally.

Reason: How do they get so much power?

Pickens: I think Congress is impressed with the companies that they head. And of course, a tremendous amount of money is poured through the Business Roundtable into Washington to lobby. They lobby for their special interests continually. It's really some rather old thinking that's gotten in place, that makes you think that these people are very powerful. The Republicans have been really stuck for years with the big business label. So it's incredible now that you have [Democratic] Senator Proxmire and Senator Metzenbaum fighting the battle for entrenched management.

Reason: Could you discuss some of the takeover legislation proposed by Proxmire, Metzenbaum, and others? Which proposals are particularly good and which are particularly dangerous?

Pickens: It is disappointing when you see managements pay greenmail [use company funds to buy a potential acquirer's stock at a large premium to prevent a takeover]. And managements are the culprits in that, clearly. They're just taking someone else's money and spending it so that they can keep their jobs. And it's disappointing that managements can't just come out and say, "We are not going to pay greenmail. That's all there is to it. And if somebody takes a large position in the company, they can come on the board of directors and help us do the things that are necessary to maximize value. If they don't want to do that they can sell their stock just like they got it, in the open market." But it looks like we are going to have to have some greenmail legislation, because we don't have managements that have enough backbone to stand up to those situations.

Second, probably the best thing that Congress could do would be to completely remove the 13-d reporting requirement. [Under current law, anyone who has acquired 5 percent of a company must file a public statement, called a 13-d, with the SEC.] But in the event that they aren't going to do that…

Reason: They're talking about making you file the 13-d even sooner.

Pickens: All that is is an entrenchment device for managements. It's to be sure they can keep their job or give them a notice sooner that somebody is accumulating stock in the company. Proxmire even mentions that you should announce before you buy any shares of stock.

Reason: One share?

Pickens: Yes. I don't think that has a prayer, but still, extending 13-d is going to take away stockholders' rights.

Reason: What do you think would be the effect if some of these measures passed?

Pickens: If they'll put enough entrenching devices in, they'll cut off offers. If that is the case, naturally it is going to be against stockholders' interests. It could certainly have an effect on the economy. Right now there are still offers around—not nearly as many offers, because the Dow's up to 2300 and it's too expensive.

Reason: In your book you say "20 years ago if a company took a billion dollar write off, that stock would have gone through the floor and a CEO would be on the street." Why have things changed?

Pickens: Well, because I think the CEOs have clearly gotten more entrenched in their positions. They're tenured. You can't get rid of them for just making a stupid billion-dollar error—you can't flush one for that reason. All of us, me included, all the companies that you run are your private fiefdoms. Because you select the board and the board is beholden to you and they are just not going to fire you for losing a billion dollars. That won't get you bounced. If some things we're doing, in our United Shareholders Association—if we get those in place and we do establish again that stockholders own companies, you could see people fired for things like that.

Reason: What types of things are you trying to accomplish?

Pickens: What we'd like to do now is to get a confidential vote [a secret ballot for shareholders voting on directors, changes in company bylaws, merger proposals, and so forth]. If we can get a confidential vote, we think it could make a lot of difference, because institutional investors have so much pressure put on them to vote with management that they can't—they won't vote in their fiduciary role.

Reason: What would it take to acquire a confidential vote?

Pickens: I think it should start with the SEC. And second, ERISA [which regulates pension funds] has got to get into it too, over at the Labor Department.

Reason: What besides the confidential vote are you concerned with?

Pickens: The proxy process has to be changed. There are two things about the ballot—one is that there is no confidentiality to it. The incumbent sends the ballot to you, you mark it and send it back, they count it and tell you what happened—which is worse than the Philippine election, because they can do it all in their office behind closed doors. They don't even have to do it with a gun to anybody's head. But the second thing that concerns me is that you have no choice on the ballot. It's like Russia.

Reason: These guys or no.

Pickens: That's right. It's real hard to run a separate slate on a ballot. I just wonder how long it's going to be before the people in this country catch on.

Reason: A lot of them throw their proxies in the trash can.

Pickens: Because they think it's a fixed deal. What's happened is that at some place back in the past the management stole the company—with no financial risk. They have no stock, but they own the company. And of course their old pitch was, "If you don't like the way I'm running it, sell your stock." Well, it isn't their company to say that. That's like having an estate and you don't like the way the gardener cuts the lawn—you don't sell the estate, you get rid of the gardener. And for anybody to say that to a stockholder just epitomizes the arrogance of the whole system.

Reason: How much stock do you think CEOs should own?

Pickens: You can't go by the number of shares. They have tried to come back to me on that and they say, "You don't think that we should own a big percentage of General Motors or something do you?" No, I don't think that. It would be nice if you did, but you're not in a position to do that. I think they should have 75 percent of their net worth tied to the companies they run.

Reason: Is that realistic in terms of their wanting to diversify their own portfolio? How would you get people to do that?

Pickens: I don't see why they'd hesitate to do it. If you're going to run one of these companies, my God, I'd think that had better be an easy call. How could you ask somebody to buy stock in the company, for one thing? See, I own 90 percent of my net worth in Mesa. If you really believe in what you're doing, that ought to be easy for you.

You take Roger Smith of General Motors. He has 35,000 shares of stock and he's been there 39 years. He gets compensated up to $5 million a year at times, and his 35,000 shares of stock represents less than six months of one annual compensation. There's something wrong with the system when he's sitting there, you say diversified, I'd say he's really diversified.

Reason: In your book, you called the SEC "the one government agency that deserves praise." What do you think of their current war on insider trading, and why do you like that particular agency?

Pickens: Can you tell me where they've messed up? I don't agree with them all the time. They've had their deficiencies like other government agencies. But nonetheless, I think that they're cleaning up the insider trading. I think they were slow getting started. But government agencies are slow getting started. I think once they've gotten in they've acted the role of bulldog and have really clamped down and hung on and are doing a good job.

Reason: Do you think there is a risk that they'll go too far?

Pickens: Don't give me that Chicken Little argument. You don't like it because they didn't go, now they've gone, now you think well maybe they'll go too far. It may happen, but our system straightens itself out pretty well. It's like somebody telling me that they knew of one takeover that didn't work. Well there isn't any part of our system that's going to be perfect. But for every one that didn't work I can show you 100 that did work. So we're not going to shut down the banks because Jesse James robbed one of them. You just drive on and make the system better.

Reason: You're opposed to import tariffs and quotas. Why?

Pickens: If you go back and look at any industry in America that received protection in Washington, they come out of that period weaker than when they went in. You're either going to compete and sit on your own bottom, or you're going to have to step down and play in a different league. Now I do think you open up trade to other countries. I think that is important—that they should be as fair with us as far as access as we are to them. I think that's something the government can do.

Reason: How?

Pickens: Just tell them that they have to give the same access and if they don't then we'll operate off of their rules. Maybe that's a form of protection, but I don't identify it that way. If they won't let our goods into their country, then why should we let their goods into our country?

I just don't think that you can go in and start handing out umbrellas in Washington and expect anything good to come out. Overall, you'll be a net loser. Of course, the consumer in America is going to raise hell when they see what some of this protection does to them. And they should.

Reason: Do you think the government should do anything to reduce American dependence on foreign oil?

Pickens: The people that want protection for the oil industry are the same people who run to Washington and want protection from Boone Pickens, too. They want to be protected from everything. You're talking about great big companies. They ought to be able to take care of themselves. And the way they can take care of themselves is to take care of the stockholders and to compete in world trade. It isn't running to Washington every time you find yourself behind in the third quarter. Those are also the same people who run to Washington just as soon as the price of crude oil goes up and say, We want to be decontrolled. Just watch their path to Washington. Just about anything will send them in that direction.

Reason: Do you favor decontrol, though?

Pickens: Sure I do. The less regulation you can have, the better off you are. It just makes stronger industries. Plus the consumer is better off because they don't have the cost of regulation.

Reason: What do you see ahead for the oil industry?

Pickens: It's going to be a very slow situation. But if somebody's willing to sell this country $18 crude oil, I think you ought to take their $18 crude oil. I'm not fearful of "now they've got you and they're going to run the price up." They've got you anyway. You're importing over 30 percent of the crude oil right now, so they've got you now. As far as I'm concerned there's not much difference between 30 percent and 50 percent. If they want to run the price up, they can do it. But what happens when they do that? Then you'll bring other energy sources on line. So it's all driven by economics. And there are a lot of untapped energy sources in the United States. They'll be there when the price rises.

So why rush to develop your last remaining oil reserve, when somebody is willing to let you have theirs for $18? Why do you want to encourage the industry to go out and drill? That is the most short-term thinking I've ever seen. What are we going to do 10 years from now? There is not much oil left to be found in this country. If you look at an average well in the U.S. today, it's 14 barrels a day. An average well in the North Sea is 4,000 barrels a day, and an average well in Saudi Arabia is 10,000 barrels a day. We're a high-cost producer. That is what it is. And why people can't get this through their heads, I don't know.

Reason: You've not only said that CEOs should own stock, but you've also supported the idea of employees owning stock. What would the effect of that be?

Pickens: If you go back to Adam Smith's The Wealth of Nations, he says that a corporation may not be the best structure to operate under. I think what he was saying is that the stockholders, being the owners, have a different attitude about how the earnings should be treated. They would like to have the profits of the corporation themselves. The management would like to retain those earnings and make the corporation grow.

The irony of the whole thing is that there are a lot of mature corporations in America that have no, absolutely no, business diversifying. If you look back over the diversifications for the last 20 years in corporate America probably 90 percent of them have failed. What does that tell you? The economy, the stockholders, and America would have been a lot better off had you taken those earnings and, instead of making poor investments with them, had you pushed them out in dividends and let that money then pay taxes, create jobs, and move the economy forward. We might be shocked at what could have happened. I think that potential still is there. What you have to do is cut out diversification by mature industries. I think managements have to understand that size is meaningless and results are everything. Consequently, good core businesses like Goodyear should have never gotten in the oil business, for instance. It was stupid.

Right now, you've got these same crybabies around in Washington telling about how they're put under so much pressure from takeovers. They say they have rusting-out plants and everything else because they have had to have quarter-by-quarter comparisons and they couldn't rebuild. That's hogwash. They've had great opportunities to rebuild their plants and modernize. But they haven't done it, because they are very greedy personally, and they've let their employee count go down.

Let's just take companies that haven't been under any pressure, and start with Exxon. They cut out 82,000 jobs in three years—from 182,000 to 100,000 jobs. General Electric, no pressure on them, they've cut out 90,000 jobs. Look at General Motors—nobody's trying to take over GM, and in just one week they shut down 11 plants and cut out 39,000 jobs.

Reason: Is there a danger though in counting business success by counting jobs? You noted in your book that Mesa had 600 employees and Unocal, 20,000, and you suggested that perhaps Unocal was a bit overstaffed.

Pickens: What you want is good solid jobs. What happens is, many of these are not solid jobs because management has not done solid planning. It's the same group every time. It's inept management that has caused you the problem. Why is it we lose market share overall? Inept management. Why is it we lose the jobs? Inept management. You can go back every time and you take it back to one place. It's not circumstances that caused it, it's the stupidity of managers that have let it happen.

Reason: I'd like you to respond to this quote. It summarizes some of your critics' views. A Washington Post reviewer of your book called you "One of those people who sees life as essentially composed of pieces of paper to be shuffled and traded."

Pickens: What is it talking about?

Reason: There is frequently a criticism that people who are involved in takeovers are "paper entrepreneurs," that making deals as opposed to overseeing operations…

Pickens: There is one common entity in all real business people. They try to buy something cheaper than what it's worth. When you bought that dress, if you could have bought it next door for $20 less than what you'd paid…

Reason: It went on sale a week later.

Pickens: Yeah, and so you felt a little bit stupid, didn't you? But everybody tries to buy something cheaper than the value of it. That is what you try to do—when you go out and buy a ranch, or that lot across the street, or whatever it is. My job is to do the best I can with the capital I have available. If I see where I can buy a company and I get oil in the ground for $3 a barrel, well I'm a fool to go over and drill a hole in the ground and get it for $15.

Reason: In your book, you give numerous examples of either good or bad luck on your part. The bad luck that comes to mind is your losing $3 million because of phones being broken on the golf course.

Pickens: I don't identify that as bad luck. I would identify it as I wasn't very smart. I should have pulled out of the golf tournament and found someplace where I could get on the telephone and look after my business. It's my fault. You make your own luck. If you're hustling, I find you're a lot luckier. If you're playing golf, well, you get unlucky.

Reason: The Wall Street Journal's reviewer noted that you criticize CEOs in major companies for in some cases terrific abuses of their corporate responsibilities—taking the company plane to Europe to go hunting and that kind of thing. And yet, in your book, you describe a lot of time spent hunting, playing golf, and flying on jets…

Pickens: I spent a lot of time hunting and playing golf?

Reason: It seemed like it in the book.

Bea Pickens: You ought to go along with him. You wouldn't think that.

Reason: Because when you are ostensibly hunting or playing golf you are really doing business?

Pickens: What she is telling you is that I don't normally play golf.

Bea Pickens: If he hunts or plays golf, 90 percent of the hunting is on our own ranch. And the golf, 90 percent of that is in Amarillo.

Reason: I didn't mean to imply that you use the company airplane to go play golf. But you do use it to save time.

Pickens: Absolutely. There is no way that I can operate with 625 people without moving people fast to different places. Today I have instead of eight vice-presidents that I had in 1984, only two officers, a president and one vice-president. I stretch my people. Listen, anybody can check our logs anytime they want to on those airplanes. Arthur Anderson [the Big Eight accounting firm] says we grade 9-plus on corporate use of company aircraft.

For instance, Friday, Good Friday, Bea used a Mesa Lear Jet to pick up our grandson in Dallas and go to see our daughter in southeast Oklahoma. That trip's on us personally—that's cost plus 25 percent. The only way she gets to use the airplane is if the airplane is not being used.

Reason: I'd like to talk about how you balance your personal and business lives.

Pickens: I don't see that as nearly as much of a problem as a lot of people do. I'm very well organized. One of our pilots said one time that we fly more on schedule than a scheduled airline does. They aren't sitting out there waiting and waiting and you don't show, and you don't show, and five hours later you show up.

It's the same way with our lives too. Well, some people say, that's too structured, we want something more relaxed. You can relax it. All you do is you just say, I'll be there at a certain time or near a certain time—and if you want to stay home for two days, well you do that. It's people that are not organized that are confused. We're never confused. If we're going to the ranch at seven o'clock in the morning, we're at the airport—we have our own airplane—and we go to the ranch.

Reason: What would you say has been the high point and the low point of your career?

Pickens: I don't know. Everything just sorta goes along, and I neither get up or down. It's disappointing to my family sometimes when I'm not more excited about something, and also I think they don't think about the other side of the coin—that I don't get down when things go haywire either. The low point? Gosh, I don't know. We've had some real disasters sometimes.

Reason: Do you think that even-temperedness is important in these big-stake deals?

Pickens: Well see, again, the big-stake deals, all those are, are just undervalued assets that are available in the public marketplace because of inept management. That is all it is. When you say even-temperedness helps, I think that helps anytime, because it doesn't cause your personality to get worked up or excited. What is it you want to see in an athletic contest that is very close? You want to see it under control. You want to see the coach of the team out there telling them that this is the way it's going to be.

Reason: You don't want fights breaking out.

Pickens: No, you don't want that, you don't want him throwing a towel or a chair or anything else. And he says, Now listen real close, this is exactly the way we are going to go. That naturally has a settling effect and people do like to see it. I think it is important for a leader to have himself under control. It does help, sure.