Chaos In Chile

In 1969, Ida and I moved to Honolulu for my new job. I worked for Elijah Chan, a native of Hawaii and the director of planning at Castle & Cooke (C&C). Ours was the largest company in the islands, the owner of enormous pineapple plantations whose output they marketed under the Dole brand.

In one week, Elijah taught me more about financial forecasting than I had learned in two years at Harvard. Our main job was to evaluate companies for acquisition, so it was critical to build an accurate model of how much cash we would have to invest and when it would come back to us.

The work was excruciating, but Elijah made it come alive. He likened each analysis to a detective story. When we projected income into the future and subtracted expenses, we exposed precisely when the acquisition would run out of money, and by how much. But that information was hidden and had to be dug out.

Elijah had two approaches for doing that. First, he said, project everything weekly. If you did it monthly, you would not uncover the actual cash shortage that lurked inside the month. Second, keep a running total from week to week. If you simply picked the week with the biggest one-week shortfall, you would likely be wrong—perhaps fatally for the business.

I was thrilled. Here was a robust, practical process I could use to face the real world head-on as my primary contribution to success. I latched on to it with steely-eyed determination.

One of the acquisitions Elijah had already decided on was Erdesa, a builder of earthquake-resistant steel-and-concrete houses in Chile. Elijah wanted his own man in Chile on the inside of Erdesa as VP and controller, and after I had been in Hawaii for just nine months, he gave me the job. My first task before I left for Chile was to buy a money belt.

“You’re going to smuggle $55,000 into Chile when you and Ida move down there. The clowns at Erdesa illegally took that much out of the company by using Chilean escudos to buy US dollars on the black market. So, there is a gaping hole in Erdesa’s local books. The only way to fill it is to reverse the process—black market and all—and you’re the only one I trust to do it right.”

C&C had shipped our household goods and our blue 1965 Chevy Nova coupe from Boston to Honolulu and now had to ship all of that again from Honolulu to the port of Valparaiso, near Santiago in Chile. In preparation, I had heavy-duty shock absorbers and springs added to the car so it could survive the local roads.

Only three of the four executives of Erdesa moved to Chile. Art Kipke remained in California. Bruce Fraser and his wife moved down to Santiago when Ida and I did. Bill Warneke was already living seven hundred miles to the north in Antofagasta to run our project there. I was glad he was so far away because he was a pain in the ass to deal with. Erdesa executive Bruce Fraser also moved to Chile, and we worked well together. He focused on chasing new projects while I managed the cash flow and kept Elijah Chan up to date on our progress.

I had quietly smuggled the $55,000 into the country and our insurance broker successfully converted the funds on the black market. Early on, Bruce had five new projects in the pipeline. I calculated the expected revenue, costs, and cash flow for each one using Elijah Chan’s method, then prepared a summary into which I fed the results of each project. This took weeks and filled more than a dozen thirteen-column pages of accounting paper. I shipped them air mail to Honolulu, and Elijah was astonished. He pinned all of them to the wall of his office so that as he looked from left to right, he could trace the money flow from each project into the summary.

The exercise proved to Bruce that I was the financial authority in Erdesa. Both Bruce and Art Kipke were highly extroverted and therefore prone to have less patience with detail than I had. My financial forecasting work focused their attention on the specifics in an engaging way.

It was not long before an unfamiliar, dark side of Chile started to appear. Overall, it would require more extroversion to confront than I could muster.

The triggering event occurred in November 1970, five months after our arrival, when Salvador Allende became president. A far-left socialist who got only 36 percent of the vote, he rapidly nationalized copper operations owned by US companies, and gave zero compensation to three of the five of them.

The action was popular with voters, as were the achievements of his first year in office—economic growth, lower inflation, less unemployment, and increased pay for workers. But Allende professed Marxism. A visit by Fidel Castro gradually led many Chileans to fear the president was putting the country on the same path as Cuba. Soon, sporadic riots started to occur. Despite that, Chile was a beautiful place. The cost of living was extremely low, the food and wine delicious, and the scenery magnificent.

From the day we arrived, Erdesa struggled to survive. My cash projections helped us to stay afloat, but for me, the work soon became miserable. Our main projects were building earthquake-resistant, low-cost houses out of steel and concrete in the Atacama Desert in Antofagasta and even farther north in Arica. When I went up there and looked across the terrain, it was so dry that I felt like I was on the moon.

Copper was Chile’s main export, and during 1971—President Allende’s first year—the world price fell. That, plus Allende’s populist policies, soon led to rampant inflation, shortages of consumer goods, and more riots.

These incidents terrified Ida and left me unsettled. Neither of us had ever been through anything like this. The unrest threatened our safety and left us with a feeling of helplessness. We talked about the physical side of what happened to us, but rarely spoke about the psychological impact.

It was clear that because of the political unrest, our business would not last long in Chile. The economy was sinking fast and taking us down with it. Despite support from C&C, our company had never been that strong to start with. By now, supplies were getting short, skilled labor was hard to find, and inflation grew every day. The currency seemed to depreciate by the hour.

In mid-1972, it became too difficult for Erdesa to function. We could not get materials. And the workers, egged on by the socialist Allende government, expropriated our most valuable piece of equipment, the high-volume concrete pump we had imported at great expense from the United States. Unable to build, and under pressure from C&C to get out, we made plans to abandon everything.

Because the government had implemented strict export controls, we had to leave with only the clothes on our backs plus the contents of one suitcase apiece and just a few hundred US dollars. A trip to the black market netted us several thousand dollars in hundred-dollar bills, so a most-important question became how to get the money out. Ida was now six months pregnant, and we would need the money wherever we went to make a new start.

We knew Allende had inspectors at Santiago’s Pudahuel airport who went through everyone’s luggage and presumably checked their wallets before they boarded an international flight. To get around that, I improvised a way to take the money out. It was risky because, if caught, I could be detained and funneled into the Chilean justice system. But out of desperation, I devised a little process to hide the funds.

In the office, I flattened the bills into two stacks. I put each one in a letter-sized envelope and folded the sides to reduce the envelope to the size of the bills. I then took off my shoes and socks to do a trial run. I placed one stack on the bottom of my right foot and put my sock over it and did the same with the left foot. And that was how I left Chile a bit taller than I’d arrived.

Obsession with my Elijah Chan–inspired cash forecasting model had not prevented our demise in Chile. Instead, it had distracted me from seeing how bad the situation outside our door really was. Far worse, I was so deeply into the model that I failed to provide enough psychological comfort to a wife who was enduring terrifying experiences thousands of miles from home.

In all of this, the relentless demands of my winning recipe kept me focused on the future instead of on the present reality we were facing. The solution to the danger would have been to “be here now,” in the New Age parlance of the day—to pay attention to the current situation instead of always concentrating on a future state that never came.

The Chilean story illustrates a truism: Even when the whole world is burning down, you will die in an effort to save your winning recipe.

My family back in California owned a little house on the beach in Malibu, and they offered it to us as an interim stop after Chile. That meant I had three choices: quitting Erdesa and trying to find a job in the US while living on the beach, transferring within C&C to an opening they had for me on a banana plantation in Honduras, or going with to the Republic of Panama for a new project Bruce had secured.

Given all Ida had been through, she wanted to have the baby in the US. But my career ambitions based on my financial forecasting method eclipsed everything else. The prospect of riches by building steel-based housing in a stable and prosperous country like Panama captivated my heart. I was certain that setting my financial forecasting method would finally pay off. And I knew that after Chile, Ida’s Spanish was fairly good, so she would be able to get around well.

Even though it further increased the distance between Ida and me, I selected the third option. She was six months pregnant, but I allowed her very little say in it. It was cruel and unforgivable of me to treat her like that. It might have extended our marriage if we had gone to Malibu. But we did not, and we would pay a harsh price for my choice.

We took off from Santiago with the cash still in my socks. I did not remove it until we were safe in Panama some seven hours and three thousand miles away. We had no idea that in Panama, we would face a new and even more serious physical threat to our safety than we had in Chile.