2

Cold War, Hot Art

Dieter Bührle arrived the next day at the Tudor-style office at the Bucheggplatz tram station in Zurich, Switzerland. The reclusive businessman, who had spent more than half his life in his father’s shadow, carried troubling news in his briefcase. Feeling frost redden his cheeks, he eyed the opaque sunlight trapped behind an overcast sky and wondered what he was going to tell the board, on which his sister Hortense Anda-Bührle sat as a director.

Oerlikon-Bührle Group, a holding company that oversaw military arms manufacturing, Bally Shoes, and industrial coating systems, was in the red and hemorrhaging money from three speculative defense projects that struggled to find traction. The Reagan-era arms didn’t produce the windfall in military contracts Dieter had envisioned, nor did the strong Japanese yen help manufacturers in the West—most tools and arms factories in the United States were up for sale.

Where were the wars? he wondered, straightening the knot in his scarlet tie. Were the only conflicts fueled by terrorist bombings and hijackings? Had the 1980s become the decade of transition and short-lived skirmishes?

Despite being an old professional, whose father served in World War I, made weapons for the rearmament of Germany in the 1920s, and then sold weapons to the Nazis and Allies during World War II, Dieter had failed to see the signs of the Cold War receding, of power in flux. How could he not see? Perhaps it was because Russia was still a nuclear-armed superpower threat.

Dieter didn’t let the bad news overwhelm him—he had trekked through deeper financial valleys before and always found a way out. Yet he couldn’t brush off the losses, as the numbers would be exposed in the financial statements. They wouldn’t lie. He also knew they wouldn’t be released to the public for another month—not until January 1987. That gave him time to dance like a Russian bear: spin, maneuver, manipulate, strategize, and build a winning story. Before any of that could happen, however, he had to address the first loss in the company since his father Emil Georg Bührle took over as managing director in 1924.

The company had been in the black for a span of sixty-two years, since Dieter was three years old. Dieter Bührle reminded himself of that fact while striving to steer the company back to profitability. He would conduct this meeting in his usual stoic, businesslike manner. He would weather the storm, as long as he laid out a clear path and upbeat message with strong business prospects to come in the New Year.

Focus on the near-term success, he thought as he strolled up the sidewalk, watching the icy vapor of his breath dissipate in the cold air.

The quiet on that cold, gray Saturday morning served him well. So did the empty roads with low-rise office buildings, tucked in a bowl of crags and trees, the stillness broken by the infrequent rumble of a tram arriving at the station. Dieter liked the silence. Board meetings on Saturdays meant no phone calls, no faxes, no media to ask probing questions, and no inquiries from the worldwide 30,000-plus Oerlikon employees of the publicly traded company his father had built from the ashes of a dying German tool manufacturer.

Dieter knew he could contain the bad news until good news arose in the spring. The only issue he had to contend with was that there would be no dividends for the investors for Christmas. His chief of finance, Ernst Winkler, who was in charge of the company’s pension fund, had alluded to that cold reality.

Dieter entered the office, placing his cashmere overcoat, scarf, and gloves on an Italian leather sofa in the lobby, and headed to the conference room to start the meeting. The graying, chubby-faced chief executive officer, wearing a three-piece wool suit, sat down at the head of the table, as he was also the chairman of the board. Seated across from him was his sixty-year-old younger sister Hortense; a cunning Italian businessman with a round face from the Contraves Group, Marco Genoni, the CEO of Oerlikon Aerospace, Inc., a Canadian arms concern; and an engineer named Michael Funk, who was being groomed as Dieter’s replacement to lead the conglomerate within a year. Also present were four other board members, including Ernst Winkler.

As Dieter read through the meeting minutes, he dispensed with pleasantries and small talk. He broke the bad news without emotion. Oerlikon-Bührle Group was not, as he had suggested in September, in the black, but deep in the red. He eyed Ernst as he read the words 250 million francs in losses. The huge losses came from several business units, but mostly from the military arms manufacturing division.

Two hundred and fifty million francs swept through the board like a cold breeze. Looks of disbelief, slackened jaws, and gasps ran around the table. It was a shock to the directors, especially after the company had delivered a modest profit of 37 million Swiss francs in 1985. Without reacting to or making eye contact with any of the board members, Dieter handed out copies of Oerlikon-Bührle’s financial statements, pointing out that:

The main culprits were the armament division, which was 200 million francs in the red as against the 100 million that had been expected and the Contraves division, which was faced with a 50 million franc deficit as against an anticipated 50 million profit.1

Dieter had obfuscated the bad news earlier that fall by explaining that profits would be smaller, not that the company was bleeding money. Before he got to the question-and-answer phase of the meeting, he flipped the minutes over, letting the board members know he was going to speak off the record. Dieter leaned forward, tapping his index finger on the table. He looked around at the board members and said, “This has been a tough year for us. Yes, we overpaid for the land in Canada to build Oerlikon Aerospace’s new manufacturing plant. It was an expensive transaction, but it’s the cost of doing business.”

“We began the bidding process for the ADATS [Air Defense Antitank System] project almost a year ago, and had to surpass six other Canadian firms aiming to secure the same multimillion-dollar contract,” Michael Funk interjected.

“Will the project be a success?” Hortense asked, adjusting her shoulder-length, dyed brown hair.

“Of course,” Dieter replied with a look of reassurance. “Our man in Canada, André Bissonnette, will be elected to be a senator in the prime minister’s cabinet at the start of the year. But we want to keep that quiet, keep that ace card in our back pocket.”

Dieter’s right-hand man, Michael Funk, nodded in agreement.

“What does that mean for Oerlikon-Bührle?” Hortense asked.

“The future is promising. The new facility is on schedule to open next autumn,” Dieter answered. “Once the Americans see us deliver the ADATS guided-missile system to the Canadians, our orders will go through the roof.”

“What are the risks?” his sister asked.

“Hortense, there are political risks. But they are behind us. Once the plant is operational, Oerlikon-Bührle will do what we do best—build.”

“How much profit did André Bissonnette make?” she asked, continuing to press.

“One-point-six million dollars,” he replied.

“Actually, it was Bissonnette’s wife, Anita Laflamme, whose name was on the deed of sale. The property was flipped three times in eleven days before we executed the purchase,” Funk clarified. “We closed on the land last April.”

Hortense made a face as she ran the numbers through her head. Bribing officials, this time Canadian, had always been part of Dieter’s world, just like it was the norm during her father’s era. Grease the palms with under-the-table money, and be first in line on many projects and contracts. She remembered that her brother had been tried and convicted in Switzerland in 1970 for breaking several international and Swiss laws by illegally selling arms to apartheid South Africa, and to Mideastern enemies of Israel and the United States, by using false sales certificates from a French shell corporation. So bribing Canada to secure the ADATS contract was a coup that locked out competitors, at a time when no other country was buying the anti-tank missile system. Had Dieter not won the Canadian bid, the financial statements would have bled red for years to come.

Hortense understood and accepted that the Swiss muscle—cash—was needed to make the deal work. As her father was fond of saying, if you can’t be good, be careful. In other words, don’t get caught.

Satisfied with the explanations on the Canadian land deal, Hortense turned the minutes back over and asked about the accounting issues, with losses not only on the anti-tank ADATS battery, but also Seaguard and the old R&D weapon Escorter, an experiment that was finally shelved after a costly thirteen-year run, having attracted few buyers.

“After the worst-case projection,” Dieter said, “you get into the whole matter of write-offs and the liquidation of reserves—and these are major changes.”2 Taking a one-time loss in the company’s books was one way to stem the financial bleeding ahead of questions from nosy journalists and concerned investors.

What Dieter and Michael Funk wouldn’t say on the record was that the military technology division, headed by Funk, consolidated a turnover in 1985 that amounted to 1.08 billion Swiss francs. So even that year’s “modest profit” of 37 million francs was suspect. Without that accounting dexterity of consolidation in a division that eliminated duplicate jobs, the profits might have turned into a loss. They’d be in trouble if a forensic accountant raked through the numbers.

Ernst Winkler then discussed the “unexpected” cost overruns for the Contraves division with its Seaguard system. “We project a 50 million francs write-off for the Seaguard,” he said flatly.

Hortense pored over the balance sheets and was about to ask a question when Winkler spoke up again. He reminded the board that the step had to be taken in accordance with the company’s strict regulations governing capital write-offs. “Since there are no customers, the price of the product must be set at a lower figure. And by your own admission, Dieter, there are no other customers for Seaguard at this time beyond the systems that have been installed on six Turkish frigates.”3 Hortense then also brought up Oerlikon-Bührle buying an Ohio manufacturing company, Motch, reminding her brother that the once “prize catch” had turned into a business failure after seven years.

Ernst moved on to Oerlikon-Bührle’s 1978 acquisition of Bally, the struggling Swiss company, which bought leather during World War II from the Nazis, and said:

In contrast to these indigestible chunks, the picture at Bally, the third leg of the Bührle triad, looks positively gratifying. Although the ups and downs on the currency market and the absence of American tourists have resulted in a drop in sales and earnings, they are “undramatic.”4

“Then the problem going into 1987 is not with Bally, but the military group,” Hortense stated.

“Nonsense. The military contracts are where the future lies,” Dieter said, adding, “From what I know, virtually all American machine tool manufacturers are up for sale, because given their cost structure they cannot compete against the Japanese. Oerlikon Motch Corp in Cleveland, Ohio, is faced with a situation of this kind.”5

“Will the company be showing a loss again this year?” Hortense asked.

“Things should get back to normal in 1987. We already know that we will not be running into the kind of one-time write-offs or unusual restructuring expenditures that we did this year. I am saying all this on the assumption that the dollar does not decline any further,” Dieter answered.

“We should put that in the annual letter to our stockholders,” Winkler said.

“And then we can return to paying a dividend?” Hortense asked.

“Sure. But remember, one military contract worth two billion francs will change everything,” Dieter replied, with a bit of confidence returning.

“Dieter, don’t get ahead of yourself, which is your tendency, brother. Remember our stockholders meeting earlier this year?” Hortense said.

Dieter nodded, trying to figure out where she was going with the question.

“You said you would quit the board of directors,” she reminded him. “But you and Michael will stay in charge next year?”

“Let me put it this way: I have certain ambitions, too. When I leave my post, I would like the concern to be in the black again so that we can pay a dividend once more. I will let people know in plenty of time when I am ready to leave. Funk has his hands full with the military technology division as matters stand,”6 Dieter said.

Satisfied with the board meeting in preparation for the stockholders’ letter at the end of January, Dieter ended the meeting and wished everyone a merry Christmas. He left first, grabbing his coat and scarf on the way out, still plagued by a gnawing feeling that he had better come up with a plan B for himself if things blew up and went off the rails in 1987.

The Vincent van Gogh painting he owned was looking more and more like a plan B.