Jeff Montgomery

Duration: 2hrs
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Uncorrected Transcript

Interview with: Jeff Montgomery
Interviewed by: Unknown Interviewer
Date: November 7, 1975

Archive Number: OH 203_01

 

 

I:         (00:03)  Interview with Mr. Jeff Montgomery on November 7, 1975. Mr. Montgomery, when did you first come to Houston?

JM:     In the spring of 1957.

I:         Where did you live before that?

JM:     Dallas.

I:         And what careers had you pursued at that time?

JM:     I had started a career while I was in college and immediately after as a petroleum engineer. I did a year’s graduate work at Harvard Business School and following that was called to active duty in the Army Air Force.

I:         This was at what time?

JM:     1942. I spent 4 years in the Air Force and after that went to law school, and then practiced law in Midland, Texas for nearly 3 years, at which time I went back into the oil business as General Manager of Texas Crude Oil Company in Fort Worth. I stayed in that position for 3 years, and then I did consulting engineering work for about a year. Then I became Vice President in charge of oil and gas matters for Birmingham Corporation in Dallas and then joined Kirby in 1957. Kirby at that time was a company that was formed by the merger or amalgamation of several other companies.

I:         What were those companies? Do you recall?

JM:     Kirby Oil and Gas Company, Venezuela Syndicate, Tobruk Royalty Company were the primary ones that went into it.

I:         These were all petrochemical companies?

JM:     No, they were none of them petrochemical companies. They were oil and gas producing companies.

I:         (02:12) So the firm did not really start out to be as diversified as it is now.

JM:     That’s right.

I:         Before I get into the process of diversification, would you describe the different areas the firm participated in as of 1975? This covers a lot of ground.

JM:     We were in the business of exploring for and producing oil and gas. We were in the marine transportation business through Dixie Carriers, primarily in the inland waters, but to some extent also in the Gulf of Mexico and, essentially, barge transportation. Then we were in the prefabricated or pre-engineered steel building business through Kirby Building Systems; and were in the automotive finance business through Kirby and Finance Company in Puerto Rico. To a small degree, we were in the data processing business through Davenport Data Processors, and in the high technology coding business in Dallas through Material Technology Corporation.

I:         In 1975 I believe your firm recorded record profits and yet liquidation has been very much a prospect recently. Why is this so?

JM:     The Board of Directors—I’ll just quote you out of the proxy statement on that line. I believe that’s the most correct answer I can tell you. “The Board of Directors and the management of the corporation have determined that certain assets of the corporation should be sold for reasons relating to current developments in the natural resource industry, the uncertain state of securities market, and the opportunity for disposition of the corporation’s oil and gas reserves at a value which is in the best interest of the stockholders. To elaborate on that a bit, the Congress of the United States has under consideration various changes in taxation, including recent enactments limiting the depletion allowance and regulation of corporations engaged in the development of natural resources, which changes, if enacted, could have a materially adverse bearing on the future of the industry. The uncertainties for the oil and gas producers generated by the growing energy crisis and the possible Congressional reactions to the energy situation were among factors considered by management in arriving at a decision that the sale of most of Kirby’s oil and gas properties is in the best interest of the stockholders and that the price negotiated with Dell Incorporation is a favorable one. Further than that, management believes that due to the holding company structure of the corporation and the uncertain state of the securities market, the real value of the corporation’s assets has not been properly reflected in the market price of its stock and that the debt assets of the corporation will probably have a greater value to the stockholders upon distribution than the trading values of the corporation’s common stock general prevailing prior to the Board’s public announcement of its intention to consider liquidation.”

I:         (06:07) This is curious because as late as 1973 you had decided that the risk to reward ratio in oil and gas exploration had so changed that such exploration was then advantageous. That was in 1973. Has the situation turned around that rapidly?

JM:     It’s changed quite materially since then. I would say that we haven’t abandoned that position and although we are selling a substantial part of our producing oil and gas properties, we have put in a subsidiary which will be distributed to the stockholders; all of our producing, all of the interest, and all of our exploration properties, and we are continuing in that subsidiary. We will continue to conduct a substantial exploration operation. One of the things that’s influenced our thinking there—as I’ve described, there are conditions of very substantial political uncertainty. One technique of dealing with uncertainty is to hedge. So while there are recognizable satisfactory values we are selling some properties. On the other hand, we are keeping the properties necessary to go back and find more oil and gas. We haven’t completely gotten out of the business. We’ve just recognized that increase of political risk which we find unattractive.

I:         Of what would an intelligent energy policy for this country consist?

JM:     I suppose that might be a bit more complex than I could come up with as far as in an interview, but the main aspect of an intelligent energy policy at the present moment would seem to me to be to pursue less dependence on foreign sources of energy. We have a perfectly adequate domestic base off of which to develop the energy needed by an industrial economy. A substantial part of that base, of course, is in oil and gas and an additional substantial part of it is in uranium. And then we have just a perfectly tremendous resource base in coal. The policy to be pursued by the government that would let us reduce dependence, particularly on Middle East oil, would be to turn loose and let the free market operate. It’s true that would increase the cost of oil and gas to the consumer by a modest amount but that increase would be the most effective way to encourage conservation of energy. At the same time, it would make it possible to economically develop a domestic energy base. Essentially, the policy the administration has attempted to pursue, which is a free market private economy solution, I think is the correct one. And essentially the policy that has been dominant in the thinking of the Congress today, which is to control prices and therefore encourage consumption and discourage production and lead us to shortages which will require rationing unless we are willing to become increasingly dependent on the Middle East sources. I think it’s just very detrimental to the economy and, in turn, to society.

cue point

I:         (10:22) Decontrol has been a key phrase in a number of interviews of  businessmen that I have conducted, especially those business in the oil and gas field. Why is it that Congress will not decontrol prices, especially on gas?

JM:     We have lived in an economy in which cheap energy has been an outstanding characteristic. I suppose that there are many Congressmen who perceive the movement to more expensive energy as being unfavorable to their political futures. And then I would say that there are others who are ideologically unfriendly to the private economy and who believe that government is a better holder of power and allocator and administrator of resources.

My personal feeling is that a free society, a relatively free society, can’t survive without a private economy. In other words, if all economic power is concentrated in the hands of one institution, to whit, government, I don’t believe that individual freedom will survive. Consequently, I have a philosophical bias in favor of the free economy because I prefer a free society. I think that if you look at what is a free, or private, economy, you can have a private economy which is so controlled by government that it doesn’t end up being a free and effective economy. I think in political terms if the government owns the means of production and controls the economic activities in that fashion, you have socialism. If the government allows private ownership but in effect controls it, you have fascism, neither of which historically has been conducive to personal freedom. Consequently, I’m not in favor of going in either direction.

I:         (12:59) While the control of gas prices is a rather good example for your case—

JM:     Yes.

I:         —and it is extremely inefficient, aren’t there some areas of the market economy which require some regulation? In other words, can the market economy always be expected to offer a quick—

JM:     In other words, are you saying am I in favor of 100% less and fair approach to things?

I:         Right.

JM:     No, I think that you have some, what have traditionally been called, natural monopolies which require some government regulation. And the problem there is what kind of regulation? Perhaps an outstanding example of that in our community might be the issue of the Houston Lighting & Power Company today. I think it would be inefficient to have multiple and competing power companies. So it makes sense to have a licensed monopoly in the power generation and distribution business. That then implies some kind of regulation. I have no objection to the regulation on the ropes of the power company, although I think that the program articulated by the current City administration is detrimental to the citizenry of the community. For instance, the administration has recognized that to raise sewer rates, improve the credit rating of the city; and therefore lets us really have services cheaper in the long run than if we tried to have cheap sewer rates which got us into financial difficulty. On the other hand, they seem to think that you can run against the power company without having adverse effects on its credit rating. I think that the program being pursued will damage the credit rating of the power company and end up costing the consumer more than if we had had a cooperative approach to rate setting here and had done what I would call a reasonable job of regulation. There’s no question that the power to regulate is the power to destroy. If those in control of the regulation choose to destroy, it will be very unfortunate for us as members of the society and the community.

I:         (15:39) One other set of regulations which occurred to me that might pose a difficulty for your industry are the pollution regulations, both county, state and federal. Have you had any difficulties with those?

JM:     I think that’s an appropriate area for government involvement. We haven’t had any unreasonable difficulties there. I would say that some of the regulations I think are unreasonable but to date we haven’t had any particular difficulties. One of the issues, for instance, that I think is being handled poorly there—you’ve got regulations and a prospect of coming out which will require that all boats, including pleasure boats, have sewage treating facilities aboard or that you bring it back to shore. Right now, for instance, in the Potomac Basin, you’ve got boats including pleasure craft, I understand, which bring the sewage to shore and dump it in the municipal sewage system which pumps it back into the Potomac Basin.

I:         [laughs]

JM:     At the same time here, let’s say that you’re arguing about maybe a few hundred gallons a day of sewage going into the bay out of boats. The City of Houston is dumping millions of gallons in. The rationality of some of the government approach to regulation doesn’t impress me.

I:         Was there ever an instance of a government—county, state, or local—saying to you—you shall install “x” device or you will follow “y” procedure to prevent pollution? Did that ever happen to you?

JM:     Oh, yeah.

I:         Could you give us a specific instance?

JM:     I suppose I should check on it to be absolutely certain, but I believe that in boats, for instance, the practice up until a few years ago was to pump bilges overboard. You have fittings through the hull in which water gets into the boat and you pump it back out. You also have engines in there and there’s oil in the engines and some of that oil gets into the bilges and so in the process of pumping out the bilges you inadvertently pump out some petroleum products. I believe that we are required now to pump those bilges into holding tanks in which the oil can skim off and then we can pump some of the water out of the bottom and the rest has to be pumped of ashore. Those are probably reasonable. I don’t know that we’re complaining about things like that. In other words, if the regulation is reasonable and is calculated to achieve a goal which is worth the effort, I’m for it. I like to hunt and fish, I sail, and I like the bay as well as anybody. My objection, I suppose, is to the regulators getting uptight about the dumping of 10 gallons of sewage privately while millions of gallons of it are dumped publicly. The government—it seems to me if it’s going to act effectively in the role of regulator of pollution—should get its own house in shape first and not claim a privilege right to pollute.

cue point

I:         (19:26) What I was getting at is what kind of costs are you looking at, as the president of a diversified company, from pollution? Do you perceive this to be an expensive item?

JM:     Oh, yes. Yes. Our cost is not just what we have to do. It’s what everybody from whom we buy supplies and services has to do. The consumer pays for everything in the end. There’s nobody else to pay for it. As an intermediary in the production chain, we pay it and pass it on. Or else we’ll go out of business. If it’s something we have to pay and can’t pass on then we have to quit doing that. And society may prefer not to have some goods or services, and that’s all right. We’re in the business of producing goods and services which we think society wants and needs. If it doesn’t want them or doesn’t need it, we’ll do something else.

I:         While we’re on the subject of the government, there’s one other thing I’d like to bring up.

JM:     Okay.

I:         In 1974 the FTC accused 12 energy corporations of interlocking directorates in violation of the Clayton Act, which prohibits anyone from serving on the Boards of Directors of 2 competing corporations if either has $1 million or more in capital surplus and undeposited profits. Did this affect your industry in any way?

JM:     Oh, no, I don’t think so. You mean were people named in that? I’m not sure that’s an accurate quote of the Clayton Act, as a matter of fact. I ‘d suggest that be checked. I don’t think that’s right. But, nonetheless, I was named in that in the beginning because at one time I had been the director of Florida Gas Company at the same time I was director of Kirby Industries. At the time the issue was brought up, I had not been a director of Florida Gas for over 2 years and so when I brought that to their attention I didn’t get any further adverse publicity out of it. There were other cases in which people resigned from directorships that were not that important to the individual and were not worth the argument. I suppose there are some interlocking directorships which could be anti-competitive in nature. In the oil industry I don’t really know of any anti-competitive results of interlocking directorships.

I:         (22:11) So this was not, then, a significant fault?

JM:     No, I don’t think so.

I:         I’d like to back up now, back to 1957 when Kirby Industries was formed. It’s striking to think about the company in 1957 and think about what it looks like in 1975. Diversity—why did the company first begin to gather industries other than strictly oil and gas companies?

            [telephone rings]

JM:     We became interested in that in 1964. The history to that was this. When Kirby was put together in 1957 we were an exploration-oriented company. That was at the time when the industry, for example, was drilling 55,000 to 56,000 wells a year to find and produce oil and gas. It was also at that time that substantial production was becoming available overseas in the Middle East and also in Venezuela. The country was importing increasing amounts of oil because it could be produced cheaper overseas than it could here. Also we had the Federal Fire Commission controlling the price of gas, which could’ve gone up domestically because the prices had been set when there was excess of gas and they were too low. It was priced on a marginal cost basis rather than a full cost basis. With the holding of the gas price by regulation, and the actual reduction in real oil price as a result of foreign competition, the domestic industry’s greater return went down to a figure which didn’t justify the reinvestment going on and it began to shrink. Actually, over a period of 15 years, the industry shrank from drilling 57,000 wells to drilling 25. We could see in the late ‘50s what was going on. What first became apparent to us is that you could buy oil in the ground that someone else had already found cheaper than you could go out and find it. So we cut back drastically on exploration and began to buy reserves in the ground.

            By 1964 about everybody in the industry figured that out and were trying to do it and so the price of oil in the ground went up to the point that the rate of return on capital invested in that fashion was unsatisfactory. By 1964, we concluded that we were faced with, one, going out of business; liquidating at that point and selling assets and distributing the proceeds to the stockholders; or taking the capital that had been accumulated and the management people that we had and see if we could do something else worthwhile. The price for what you could sell the oil in the ground was good. In other words, were there other goods and services society wanted that they were willing to pay a reasonable rate of return to get that would justify the reinvestment in our structure of the capital alone? The conclusion was that that’s what we wanted to do so we began to diversify at that point.

I:         (25:59) When you considered acquiring new business, what did you look for? Specifically, did you look for things that were related to oil and gas, for example, your barges could be used to transport your oil?

JM:     No, we didn’t, because what we were looking for was diversity which would give us alternative avenues of reinvesting cash flow, in other words, of employing capital. So we were more or less looking for things that were not specifically related or at least had a different twist to them in some fashion.

I:         This explains the building system, the data processing, and the financing.

JM:     Right. Now the things we did look for, first of all, [telephone rings] the oil and gas industry is a capital-intensive industry and we felt comfortable with capital-intensive operations so we looked for capital-intensive things. In addition to that, our appraisal was that the power, political power achieved by organized labor was increasing labor costs out of relation to what they should have been generally in the economy. In other words, labor prices are set to some degree by monopolistic power and therefore a business which uses high amount of labor is going to be difficult. We didn’t have in our management team people as experienced with coping with the problem as we did with coping with the problems in the capital market, so we tended to go to industries that were capital-intensive rather than labor-intensive. Then we looked for businesses which had some growth potential to them. In other words, were providing a good or a service which we thought people would continue to want in increasing quantities and net something we thought we could successfully manage.

cue point

I:         (28:18) One question which occurs to me that might interest people in the future listening to this tape is how you go about your decisions when you sit down with your calculator. Do you do it formally? Do you do it mathematically? Or are these more intuitive decisions?

JM:     There is a very substantial intuitive component to it. In the last 20 years, I’d say the mathematical approaches to decision-making have been improved. Electronic computers have given better tools with which to manipulate data, or mash the figures, as we say. So there is more that you can do at the mathematical and purely rational level than, let’s say, there were 50 years ago. But the intuitive component is very critical because the variables are so numerous and so complex and so unpredictable at the rational level that I’m a believer that the intuitive component has to be critical. That doesn’t mean that I downplay whatever you can get at the rational level. I think it should be used where you can. There’s been a lot of attempts to do more in the mathematical, analytical area than I think is possible. And it’s very easy to get seduced by it. When it comes out of an IBM machine in all these big long pages of printout, it looks very impressive.

It’s kind of analogous to a problem that I noticed in the oil industry a long time ago in looking for projects, exploration projects. For instance, one of them, you’ll have what we call subservice geology. That’s men who work on what’s known on the subsurface as the result of wells that have already been drilled down there. They make maps of what they think the subsurface looks like. Ordinarily, their maps have the contour lines on them in pencil because they feel tentative about what’s really down there. They think the next well that’s drilled is going to change this and they will have to change these lines.

(30:46) On the other hand, another technique is geophysical—seismology. Seismologists work an area, the do up a prospect, and they go on. They don’t sit and continue to watch it particularly and they’re not so interested in the wells that are drilled. They tend to make their maps and put the lines on in ink because they’re not going to go back and change them.

When you get to the management levels that are not technologically oriented, it impressed me that the ink lines are psychologically more impressive than the pencil lines. They look right. It’s very easy to get seduced by that. The same thing with these IBM printouts; you take a program and put a lot of stuff in it and then it prints a lot of things back and it comes out with an answer and you think, gee, it looks so pretty it must be right. But it’s all subject to this garbage in, garbage out factor. It’s very easy to be seduced by the technique. So I’m impressed by what can be done with the techniques, but I try hard not to be over-impressed. I think, what I think you’re describing as intuitive plays a big part. It may not be so much completely intuitive as it’s a subrational integration of knowledge into your outlook on things.

I:         That’s a good way of putting it. Do you find a kind of theoretical gap between older executives and younger executives? For example, the executives come out now well-versed in game theory, or something like that; or these more formal mathematical techniques we’ve been talking about. Have you noticed this in your own corporation?

JM:     Yes, to some extent.

            [telephone rings]

JM:     I don’t say that it’s been a serious problem to us, but if you were to take 15 top executives through the organization and take age span, you would see some correlation there. Some of the older ones have less respect for analytical techniques than the younger ones do. I would say that maybe with age there’s a tendency to rely more on this integrated experience and when you’re younger to rely more on the rational or analytical approach. Partially that’s because you don’t have the experience when you’re younger and it’s partially a result of the fact that the older people haven’t been exposed, let’s say, as much to some of the analytical data.

I:         (33:51) How does a man rise through the organization? Or how did you come to be president?

JM:     [laughs] I started at the top. I started as president when the company was small.

I:         But prior to that? What did you do? How does a man rise to a top executive position? Not everyone gets to start as president.

JM:     I started work in the oil fields with a shovel in 1938. I went through World War II which was a sort of forced-feeding process of giving people responsibility. I find that nothing makes people responsible like responsibility. One of the keys to becoming a chief executive, I think, is to have a taste for taking and then carrying out responsibility; in other words, gravitating toward responsibility and a willingness to be accountable.

I:         Can you spot a young executive that you think may make good?

JM:     Before he’s been given responsibility?

I:         After. Well, assuming that he has some small measure of responsibility.

JM:     Well, I don’t know that you can spot them too well on a small measure. There was a movement in the ‘50s in which it was thought that you could identify people very early that were going to be the leaders of the future and could sort of force-feed them and that would all work out fine and in corporations you had sort of separate tracks of progression for them. That’s been to a very substantial degree abandoned for the reason that the special tracking didn’t work. As far as picking profiles just analytically in the beginning and saying who’s going to do it and who’s not, I suppose I might think I’d be willing to try to pick but I wouldn’t have a great deal of confidence. My observation is that you find out who are going to be the executives by giving them responsibility and seeing how they react to it. If he takes it and carries it out and has a yen for it.

I:         (36:19) This reminds me—do you administer any tests to prospective employees?

JM:     No.

I:         Have you observed among your peers if this is a common practice?

JM:     Oh, some people do it. We have from time to time at some levels. Some in the organization have done it. For instance, we once had a department in which the man in charge of it had great confidence in psychological testing and he ran prospective employees through psychological tests. I think there were some benefits to it. We’ve had other screening programs. I think they may be helpful. It depends on what you’re trying to learn. I think they can identify—certainly you can identify certain manual skills. I think you can identify certain preferences among people. But I’m not overly impressed with the effect of testing. Take the standardized tests for college admission, the SATs—they correlate well with how people perform in college. So as a test to determine who can do college work as it’s currently conceived and presented, they’re good tests and they’re useful for that. As far as telling whether a man is going to be a productive employee, they tell you probably if he has good intelligence. For instance if a guy came in with a 300 score and another guy with a 600, I would guess I could teach the 600 guy something a whole lot quicker and that even he’s apt to have more zest for it.

So it’s not the testing that’s not useful, it’s just that we haven’t found a great need for it. We have a greater tendency to take people at sort of face value and see what they’ve done in the past and put them to work and see how they perform. Then we move people based on their performance. That’s what we try to do. And we’re small enough to be more individualistic. If we had 600,000 employees like General Motors, I expect we’d try to institutionalize things and get more formal ways to do it. As long as we can be small enough to not have to do it that way, I think we can be probably more effective. In other words, I think you come out better treating people as individuals and promoting and compensating as far as possible based on performance. Not on potential performance or on what they ought to be able to do, which tests might give you. It’s what they actually do that’s important to us.

cue point

I:         I hope these last few questions haven’t seemed sort of mundane and matter of fact to you, but it occurs to me that Americans spend a great deal of their week in their working hours on the job. So I want to ask some of these questions—what goes on? It’s a valuable social history. With that in mind, how do you spend your working day? Of what does a typical day consist for you?

JM:     (39:55) Well, I don’t know that I live with typical days. They are all different. I spend a certain amount of time visiting with other people in the company, seeing what they’re doing and what their problems are. Then I spend a certain amount of time concerned with external matters. Just physically, in a day I spend most of my time reading or talking with people. Sometimes sitting and staring out the window thinking. When it’s that general, I suppose that’s typical. I do a certain amount of traveling, but again it’s to see people or something else. It depends on what phases we’re in as to where my attention gets riveted. Our problems may be: Do we have the money to do what we’re already trying to do? Do we have problems doing what we’re already trying to do? Do we have people problems? Do we have government problems? Community problems? Money problems? All those things have to be coped with.

I:         Problems—so your job is problem-oriented?

JM:     That’s a part of it. Now, if I am just reacting to problems which exist, then in my job I’m not doing a good job. The other part of it and what’s probably more important, is the determination of goals. What is it we want to do? What should we want to do? I would say that I probably spend—I spend more time really concerned with that than I do with solving day to day problems. If I’m down to solving too many day to day problems, it means I’ve got staff problems because somebody else I would want to be doing more of that. As president or chairman of the board I need to be more concerned with the future.

I:         You used the word “goals” in plural.

JM:     Yes.

I:         An economist might say that your job consisted of basically one goal and that is profit maximization. Do you think that’s true?

JM:     No. I think that the articulation of the function of business in those terms is one of the things which is leading to the destruction of the private economy because that’s not a socially acceptable goal. Nor is a personal acceptable goal. If I tried to lead this organization on the basis that our function is to maximize profit, I would not be able to attract the kind of people I want to be in business with and we would not succeed. Man does not live by bread alone, if I may put it in other terms. I state our goals differently. We are here as managers, as fiduciaries of the capital owned by our stockholders. Our purpose is to use that capital and to use the people and services towards ends which I would state in this fashion. Our primary purpose is to produce goods and services needed and wanted by our society. Now, that’s our goal. There are several conditions to the accomplishment of that goal. An adequate profit is a necessary but not a sufficient condition to a successful economic venture.

(44:27) Profit in the private economy serves a number of functions. One—it’s the way we denominate things. We pay the price of equity capital out of the profits. To me, that’s an expense of the business, but nevertheless an accounting parlance. It’s called “profit.” To the extent that we make a profit in excess of that, it allows us to expand the business, it allows us to do different things, it allows us to take risks, and the fact that we can make a profit above what’s merely necessary to compensate for capital is a measure of our performance. It says if we are doing an efficient job. If we’re out here producing goods and services which the public is not willing to pay enough for to let us make a profit, it raises the question, are we making the right goods and services? It’s an allocator of capital.

If you take the socialist systems of eastern Europe, one of the most serious problems they have is how to allocate capital because they’ve got no index as to what the economy really considers important. All you know is what the bureaucracy considers important and that can be very different from what the society really wants or really considers important. So they don’t have a guide to allocation of capital and they use it with magnificent inefficiency.

We use it much more efficiently. So profit is not an end in itself. It’s a means to an end and it is a measure of performance. It’s critically important in those functions and very few people understand that.

I:         (46:20) One other thing that might lead to some public confusion that occur to me is the fact that you are a diversified company. After the adventures of Mr. Lane a few years ago, there was some question about how big and how diversified companies could become, or should become, rather. Has that been a problem for you? Have you been criticized on the basis of the fact that you are diversified?

JM:     I think probably that’s one reason the market doesn’t value our stock, or didn’t value our stock any more highly than it did.

I:         Would you elaborate on that a little. Why diversification in and of itself would be cause for that phenomenon?

JM:     Perhaps Mr. Lane gave the idea a bad name, for one thing. Also, I think there were some people who diversified without regard to their competence to manage the assets they were acquiring. Therefore, they did a poor job of it and so the whole idea got a bad name. We diversified so that we could employ capital more efficiently from time to time. The tax structure in which we exist makes it very disadvantageous for us to take excess capital and give it back to the stockholder and have him reinvest it in something else because the government wants 70% of it at that point. It’s very difficult for him to take it, give the government 70% of it, and reinvest the other 30% in something that will do as much for him as leaving it inefficiently invested here.

            If we were a one business company, we’d have the choices of reinvesting it in that business or giving it to the stockholder, who then gives a big chunk of it to the government. If we are a diversified company, we have the choice without going through the tax collector, of taking capital out of one enterprise and putting it in another which will then, we hope, produce goods or services which are more desired by society.

I:          Well, I must say that I have the impression that your company was very controlled. It was intelligent diversification.

JM:      Well, that was our aim. In other words, we did not grow for growth alone. That was not our aim. We used very little stock in the process. We mostly used internally generated funds and borrowed funds.

I:         (48:55) Given these problems, what is the future of the diversified company in general? Not this company in particular. Would you care to share some thoughts with us about the future—the genre?

JM:     Let’s say that the go-go approach to it that some people took in the ‘60s is past. I don’t think we’ll see that again. Maybe we will, but at least we shouldn’t. But the idea that a company should only produce in one market, I don’t think is a sound one either. There are some other advantages to some diversity. It’s very educational to management to be able to see how things perform in more than one area of the economy. For instance, some people in the economy do things better than others. If you get exposed to more areas, you’re apt to learn faster; learn more and be a better manager. You’re apt to be a better trustee of capital and labor. I don’t take the position that the reasons for which we did what we did were invalid. I’m saying we exist in an environment in which they were not as advantageous as I think they should have been.

cue point

I:         Having asked you about the future for this sort of company in general, let me ask you now specifically about your future. What happens now after the stockholders vote?

JM:     We have sold the building systems company. We closed that transaction earlier this week. We have a contract to sell the producing leasehold interest that are owned by Kirby Trading Company. Assuming that sale is closed, there are some conditions to its closing, we’ve also indicated that we might sell the finance company operations although the environment for such a sale is adverse at the present time so that may not happen. We will distribute a substantial amount of cash to our stockholders, then we will probably end up distributing to them a share of stock in Caribbean Finance Company which will then be freestanding. We will distribute a share of stock in Kirby Exploration Company which will be the parent company of the rest of the operations—Dixie, Carriers, Davenport, and NTC. So what our stockholders will have supposedly a year from now, if all this goes through as expected, there are conditions that may not be met and there may be something else happen, but what our intention to accomplish our stockholders would have a substantial amount of cash. Let’s say for a share stock which a stockholder owned a year ago that was selling for $15, by the end of this year our hope is that he will have gotten $25 to $30 in cash [telephone rings] plus a share of stock in Caribbean Finance plus a share of stock in Kirby Exploration Company, which will own the rest of the assets.

I:         (52:33) Is there a possibility that the process will start all over again? That there will be more mergers?

JM:     Do you mean diversification?

I:         Yes, right.

JM:     I suppose anything is possible. I don’t think that is a plan.

I:         The building systems division was sold to a Kuwait businessman? Is that correct?

JM:     Well, it was sold to 2 corporations created by a Kuwait businessman.

I:         When I noted that in my research, it called him a prospect of Arab investment in Houston. Is this—I know this might be out of your area of expertise—but I thought I’d ask anyway. Is this a typical transaction now? Are Arabs increasingly investing in Houston?

JM:     Well, it’s apparently so atypical that it’s the only one anybody can find. [laughs]

I:         [laughs] I was afraid of that.

JM:     I think it’s a good thing. It seems to me that some mutuality of interests with the Middle East oil producers would be highly advantageous to them because even if we adopt a good energy policy domestically I think it makes sense for us to import some crude from the Middle East. I just don’t think we should be as dependent as we are now. For instance, if we were importing 20% or 25% even of our crude oil, I wouldn’t be too concerned about it. But when we start importing 50% it gives me pause. Right now we’re importing about 40%. I think that’s too much. In other words, it can be taken away arbitrarily. [telephone rings] When it gets to be too big a point, it becomes too domestically disruptive.

Even the embargo in ’73 was disruptive to a degree that we’re still paying the price. A lot of the controversy in Congress and the inability of Congress to do the rational thing is a result of political pressures which they feel, which resulted in the embargo of ’73 when people had to wait in lines to get to the gas pump and prices jumped from 35 cents a gallon to 50 cents a gallon in a 6 month period. Any time you have that kind of disruptive thing, I guess the politicians feel the brunt of it and it makes it difficult for our society. I’d like to see us not be subject to that. So to get more dependent than we were then seems very unwise.

But to the degree that we’re going to have Arab oil, if they have interests in our economy to where there were a mutuality of interests and if they hurt us it hurts them back, I think it makes sense. Somebody has described it as having mutual hostages. Well, I don’t think that things are necessarily that unfriendly. I would call it interdependence or mutuality of beneficial interests. I think it’s a good thing.

I:         (55:49) I did not anticipate that there was extensive Arab investment in Houston but I thought that I would be remiss if I didn’t at least follow up that clue.

JM:     There have been Arab investments in real estate, I understand, but I don’t really know anything about that. The only thing I know they’ve bought is an island off of North Carolina. And they got a lot from this deal. But there’s been talk of some Arab investment in real estate in Houston but I don’t really know anything personally about it. I’ve not run across any personally myself.

I:         Well, I have now gone through all of my prepared questions. But perhaps I missed something that you would like to put down on tape? Any other thoughts you would like to share with us?

JM:     I don’t think of anything. I suppose that if I were going to say more it would be at least in part repetitious. I might add one other comment that comes out of my experience. One discouraging aspect of being in the business world and particularly in the oil and gas business is that the businessman, and the oil man particularly, I think, is a target for exploitation by the intellectual and political communities in our society. I think in most situations there is some justification and some truth. It think that grain is inadequate to justify the animosity that I feel as a businessman, both from government and from the intellectual community, and I’ve spent a fair amount of time in both areas. I think it’s destructive. It’s not that I’m arguing that the business community is perfect or does a perfect job, [telephone rings] but I think it gets more criticism than it deserves and I think the reputation of the businessman is lesser than it should be, than it justifies. For instance, the businessman is usually depicted by the cartoonist as a bloated guy given to sharp practice. That’s not my experience in the business world. There are those people. I think there are people, in any area of endeavor, that don’t meet adequate standards of humanity. But as far as finding people of honesty and whole integrity, I find more of them in the business world than any arena in which I find myself. And I find no difficulty in the business world in finding men of integrity to do business with from inside the organization and outside.

I:         (59:11) Would the word “ingratitude” be too strong to describe this?

JM:     Oh, I don’t really expect gratitude. [laughs] Yeah, I would describe it that way.

I:         A lecturer recently noted that one solution to the problems of our economy might be to train businessmen who were statesmen, not just profit maximizers—there’s that ugly word again. Do you consider yourself to be such a statesman?

JM:     No. Nor do I consider myself to be a profit maximizer. I think the businessman’s function is to provide the goods and services needed and wanted by the society in which he lives. And I that’s a very admirable goal and a very adequate one to live a satisfactory life. Man works for several things. He works for money. That money may represent necessities; it may represent power; it may represent prestige or other things. But you can say worse for money.

But you can’t motivate a man with money alone. In addition to that, he works because he wants to see something done that he can feel proud about. He wants to be a part of something that he considers worthwhile. In addition to that, he wants to accomplish things individually that he can look back and say, “I did something worthwhile.” In other words, that’s a good piece of work I did; that was a good piece of thinking. Or that’s a good widget I turned out; that’s a good piece of machining that I did; that’s a good weld I laid down. I got this boat from point “A” to point “B” without crashing into anybody or anything else and that was a good job and there were adverse circumstances. And I got it through bad weather and nobody got hurt. You know? And the equipment wasn’t torn up. And I feel good about that. That’s altogether independent from what he was paid for doing it. Now it’s not that you don’t have to pay a going wage; you want to. But that’s not the whole thing. There’s just a solid misconception about economic enterprise, I think, currently, in the intellectual community in our society.

I:         (1:01:33) Oh, there a lot of misconceptions about a lot of things in the intellectual society, certainly.

JM:     Yeah.

I:         Well, it’s been very informative. I want to thank you for your time. I know you are a very busy man. And on behalf of the Houston Metropolitan Archives and Research Center, I’d like to thank you very much for this interview.

JM:     You’re welcome. I enjoyed visiting with you.

(end of tape)