A decadent, old-growth timber baron is chopped down
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Cartoon of ax buried in a stump
Diane Sylvain
Harry Merlo was brought down last month by his hand-picked board because he was in the process of destroying both it and the company it was supposed to oversee. Toward the end, the 22-year chief executive officer and chairman of Louisiana-Pacific was a grotesque ruin, bellowing threats to relocate his company across the Columbia River from Portland, Ore., to Vancouver, Wash.
Meanwhile, across four conspiracy-packed weeks, L-P board members plotted Merlo's ouster. Finally, they summoned him from his 40th floor eyrie in the tallest office building in Portland, hauled him halfway across the country to Chicago - where the timber industry was headquartered before it moved to the Northwest 80 years ago - and threw him out of the company and out of the 7,300-square-foot mansion furnished him by L-P.
What brought Merlo down?
The lawsuits in which L-P was mired break into five species. First are suits reluctantly brought by a federal government yearning to ignore the company's crimes. The feds charged willful violations of environmental laws such as the Clean Air and Clean Water acts. A grand jury indictment alleged tampering with emission monitoring equipment and alteration of plant records and fraud in presenting samples of siding for certification by an industry trade group.
Then there were civil suits brought by citizens living next to L-P's oriented strand-board mills, charging toxic emissions. There was the avalanche of suits from customers who had bought siding (Inner Seal brand, made from oriented strand board), only to find that after a year's exposure to humidity, L-P's patented siding warped, broke apart and exuded a poisonous gas. Finally, there were the L-P shareholder suits alleging manipulation and failure to disclose significant liabilities, estimated by some analysts to be as high as $5 billion. Pendant to these allegations came charges of sexual harassment against Merlo and his two top executives.
Most of these indictments, either actual or prospective, were inconveniences that Merlo and his board had lived with for years and which they regarded as a minor cost of doing business. The environmental counts concerning air and water regulations L-P faced in Virginia, Alaska and Colorado were no different from the suit brought by the Surfrider Foundation against L-P's pulp mill in Samoa, Calif., six years ago. In that affair L-P took the fall, paid out $12 million and turned decades of flushing billions of gallons of dioxin-laced effluent into Humboldt Bay into a public relations coup, with a handsome grant from the feds to upgrade its facilities.
As far back as 1980, L-P had been convicted of monopolistic practices in southeast Alaska, in a suit brought by a small logging company, Reid Brothers, of the Tlingit Tribe. Today, L-P is the only company buying timber off the Tongass National Forest. In the meantime, another 80 small sawmills in that region have gone under, courtesy of these same monopolistic practices.
But under Merlo's manic autocracy, L-P had made serious enemies in recent years. As the largest logger of public forests in the country, L-P was often at odds with big timber landowners like Weyerhaeuser and L-P's own parent company, Georgia-Pacific. By pillaging the underpriced public resource, L-P drove down profits for companies taking logs from private lands. This trend began in earnest in the early 1980s when Ronald Reagan made former L-P general counsel John Crowell Assistant Secretary of Agriculture in charge of the Forest Service. Crowell promptly demanded that the national forests double their annual cut, much of it destined for L-P's mills.
Even on L-P's own lands Merlo brought predation to a new pitch by using what had been previously regarded as non-commercial junk trees: small-in-diameter piss fir, alder, live oak, aspen, and the like, giving rise to Merlo's famous quote: "We log to infinity."
In marketing the plywood and siding products from such timber, Merlo angered a second powerful force in the industry: the lumber wholesalers. Merlo was selling directly to national outlets like Home Depot, thus cutting out the wholesalers and stealing another edge on his competitors. Finally, Merlo infuriated trade groups such as the American Plywood Association, which L-P deliberately deceived, faking the durability of its Inner Seal siding.
One counterattack pondered by Merlo's corporate opponents was a takeover. In the days before Merlo fell, there were rumors on Wall Street that either Weyerhaeuser or International Paper was maneuvering for such a bid. At all events, in his hours of extremity Merlo had no big-time corporate friends, despite receiving the 1990 Man of the Year award from Ron Arnold's wise-use movement.
What terrified Merlo's board above all else was the product with which Merlo had most closely identified himself and the company, namely oriented strand board, the second generation of L-P's wafer board, which had been used in plywood. Stories in The Oregonian in June enraged Merlo: They featured plant managers, cloaked in prudent anonymity, saying bluntly that they knew the product was worthless, Merlo knew the product was worthless, but was demanding that they run the mills at 120 percent of operating capacity.
Merlo may have thought that even $5 billion in potential liability payouts was something the company could live with. L-P has enormous cash reserves, something on the order of a half-billion dollars at any given moment. And he was planning to off-load the poisonous siding on Third World customers such as Vietnam and Bolivia.
Whatever his private calculation, Merlo lied to his board and L-P's stockholders. It is as though the chief executive of the Ford Motor Company, back in the 1950s, had refused to abandon the Edsel and was instead determined to make it the only available model for the next decade. Such was the degree of Merlo's obsession.
In that last week, a dark shadow fell across the path of the chief executive of L-P as he fought for survival. The shadow took the form of a corporate tyrant even more predatory and egotistical than Merlo himself: Pierre DuPont, a member of the L-P board, who had been conducting a private investigation.
In a traditional corporate interlock, L-P was giving most of its liability suit business to the DuPont law firm. After scrutinizing L-P's second quarter report, the DuPont law firm concluded that Merlo had inflated second-quarter earnings by nearly $30 million. Merlo was forced to issue a revised statement of second-quarter earnings, thereby in effect pleading guilty to the charges - which will undoubtedly materialize - of fraud on a majestic scale. This is what destroyed him. The board, had it permitted Merlo to continue his tenure, would have been complicit in his deceptions and therefore personally liable.
There have been some sentimental elegies in the corporate press this month about Merlo as the last of the timber barons, "rags-to-riches" giant in a Cloverdale, Calif.-to-Portland saga of rugged individualism, finally run aground by post-titan corporate America.
The truth is bleaker.
With the hearty sanction of his corporate accomplices and their political flunkies, Merlo presided over the looting of the public domain, the poisoning of people with the misfortune to live next to one of his plants, and the betrayal of his workers whom he abandoned as soon as he had savaged the resource or spotted cheaper labor farther south. He presided over criminal legal harassment of his opponents in the environmental movement and over the sale of rotten, dangerous products. He flourished amid all the crimes and was handsomely rewarded for them. He fell not because of his predations on the citizenry, but because he menaced the bank balance and the peace of mind of a financial interest more powerful than himself.
The man has gone. The corporate malpractices will survive him and Third World people will soon be breathing the fumes of Merlo's toxic legacy.
Jeffrey St. Clair edits Wild Forest Review in Oregon City, Oregon. Alexander Cockburn is the author of a recently published book, The Golden Age Is In Us. He lives in Petrolia, California.
