Charles Hurwitz Is a Greedy Clear-cutter. Charles Hurwitz Is a Caring Environmentalist.
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The call came from Air Force One. It was February 25, and Charles Hurwitz, the chairman and chief executive officer of Houston-based Maxxam, had big reservations about a deal he’d been trying to cut with the federal government for years. The following day Maxxam’s board was going to vote on a historic agreement to save Northern California’s Headwaters Forest, the largest stand of ancient redwoods in private hands. For the considerable sum of $380 million, the feds and the State of California would buy the redwoods—some of which are one thousand years old—from Maxxam’s Pacific Lumber Company and protect them in a public preserve. Just as important to many environmentalists and the U.S. Department of the Interior was a provision for the strongest and most sweeping plan in history to protect wildlife habitats on private property.
The seeds of the agreement were first planted back in September 1996. It had taken nearly two and a half years of complex, contentious negotiations to reach a point where something—anything—could be approved. And yet at the very last minute the deal was on the verge of collapse, because state and federal agencies had proposed changes that Maxxam’s board feared would so greatly reduce the amount of timber Pacific Lumber could harvest that it couldn’t operate viably and keep its 1,400 employees on the payroll. A few days earlier Hurwitz had met with White House chief of staff John Podesta in Washington, D.C., to tell him that the board would likely reject it.
Then the phone rang. Bill Clinton said the transaction “was important for America,” Hurwitz recalled. “He wanted to make it very clear that he was behind it one hundred percent and that he’d be happy to work on any problems.” Hurwitz explained that he appreciated the gesture, but it didn’t change his mind. “I told him that if he were a director of this company, he would have voted against it the way it was constituted. And I proceeded to tell him why in a pretty lengthy conversation.” Not even the president of the United States could persuade Charles Hurwitz to sign an agreement he considered to be seriously flawed. On February 26 Maxxam’s board did indeed vote no.
Time was running out for the last, best chance to save Headwaters; congressional authorization for the federal government to spend its share of the purchase price—up to $250 million—was set to expire on March 1. Regulatory agencies quickly dispatched letters “clarifying” their earlier estimates as too conservative and promising that Pacific Lumber would be able to produce more lumber than previously projected. It wasn’t as much as Maxxam wanted, but it was enough to give the company and its workers long-term stability. Just before the deadline, Hurwitz stunned his friends and foes by reversing course. The deal was done.
Under the terms of the landmark agreement, the feds and the State of California will acquire 7,500 acres, including the Headwaters Forest and surrounding old-growth redwood groves. The deal is linked to a “habitat conservation plan” that governs how Pacific Lumber can log the rest of its 220,000 acres of forests for fifty years; it includes no-cut buffer zones near streams and other restrictions on where and how the company can harvest redwoods while allowing it to take down enough trees to keep its mills running. As it stands, Pacific Lumber will be the most strictly managed timber company in North America. California governor Gray Davis has pledged that his administration will enforce the conservation plan “to the letter.” Yet while some environmentalists applauded the deal, others had hoped for more. Groups like the Sierra Club wanted 60,000 acres of Pacific Lumber’s land around Headwaters to be set aside so that an entire ecosystem could be preserved. And they don’t believe that the habitat conservation plan, which assumes that some wildlife will be lost in the course of Pacific Lumber’s business, goes far enough to protect threatened and endangered species that live in the forests—among them, the northern spotted owl, the marbled murrelet (a small seabird that nests in the branches of old-growth redwoods), and the coho salmon.
“Many people are unhappy with it, including people in our company and including outside people,” Hurwitz told me in an exclusive interview. “Some think that we were paid too much. On the basis of appraised value, one could argue that we were paid too little. But there was a balance that was struck. I think time and history will show that it was the right thing to do.”
President Clinton said as much on national television. After the deal was signed, he called the saved redwoods “a natural treasure, as much a part of our legacy as the world’s great libraries and cathedrals.” Interior Secretary Bruce Babbitt said that Headwaters “will go down in history as one of the great achievements of our time, along with Yosemite and Sequoia and Kings Canyon national parks.”
For Hurwitz, it will go down as the deal of a lifetime, reaching far into the next millennium. And maybe the next.
I met Hurwitz at Maxxam’s offices in a high-rise tower near Houston’s Galleria a few weeks after the agreement was signed. A tall man with dark, slightly graying hair, the 59-year-old was dressed in a conservative business suit. He looked like he’d been making deals all his life. And, in fact, he has.
Born in Kilgore, the son of a prominent haberdasher, Hurwitz became a stock-broker after graduating from the University of Oklahoma. While still in his twenties he raised more than $54 million to start the country’s first publicly held hedge fund. Over the years, he acquired a series of businesses, including McCulloch Oil, which became MCO Holdings, Maxxam’s predecessor; Simplicity Pattern; and a resort in Puerto Rico. He’s a multimillionaire—he made Texas Monthly’s list of the one hundred richest Texans for four straight years, from 1990 to 1993, with his net worth at the time pegged at between $140 million and $200 million—but he doesn’t flaunt his wealth. His office is comfortably utilitarian. A small table holds a framed pencil drawing of a hawk owl made by U.S. senator Dianne Feinstein of California, who brokered the Headwaters deal for the government. Although Hurwitz’s political loyalties lean Republican, he has a good working relationship with Democrat Feinstein: He has called her “the glue” who kept the accord moving forward despite intense political pressure from some environmental groups in her state; she says he “showed unusual knowledge, staying power, and determination.”
During the hour and a half we talked, Hurwitz was measured in his responses to my questions but was much looser when the tape recorder was turned off. He rarely talks to the media and agreed to our interview only after, well, some serious dealmaking. But once he did, he went out of his way to be helpful. He suggested numerous things for me to read (such as David Harris’ The Last Stand, a book about the redwoods fight that doesn’t paint a favorable portrait of him) and put me in touch with various people he thought I should talk to (for instance, Washington, D.C., superlobbyist Tommy Boggs, the son of former Speaker of the House Hale Boggs and the brother of journalist Cokie Roberts).
Of course, the Headwaters issue wasn’t the first on which the famously controversial Hurwitz had taken flak. Maxxam’s holdings—they include the Sam Houston Race Park, a Class 1 horse-racing facility outside Houston in which the company has a 98.2 percent stake—tend to operate in areas that attract scrutiny and litigation. But Hurwitz himself was never demonized until Maxxam bought Pacific Lumber in a 1986 leveraged buyout financed largely with junk bonds floated by junk bond king Michael Milken. When Pacific Lumber gave notice that it planned to double timber harvests and cut in the Headwaters Forest, environmentalists declared war, filing a barrage of lawsuits to stop logging by Pacific Lumber. To them, Headwaters was sacred ground, one of the last places of its kind on earth.
These environmentalists weren’t just members of grass-roots groups. California’s green movement is big and sophisticated and holds great sway with politicians and the media—more than in any other state. And they weren’t just fighting for the forest; they were fighting against Hurwitz. “They need an enemy, somebody they can accuse of pillaging of the environment, whether it’s an oil company or a timber company,” Boggs says. Environmental activists have been “very smart” in the way they’ve positioned themselves, says California attorney Jared Carter, who worked on the trans-Alaska pipeline agreement as a deputy undersecretary of the Interior in the Nixon and Ford administrations and advised Pacific Lumber on the Headwaters deal: “They know that if you want to be effective in a public relations campaign, you’ve got to fight evil. It’s not adequate just to go do good things. You’ve got to be against things.”
Headwaters became a cause célèbre. Earth First!, the nation’s most radical environmental group, staged colorful protests. At one, actor Woody Harrelson (who used to live in Texas) scaled the tower of the Golden Gate Bridge, and demonstrators hung a banner that read “Hurwitz, aren’t redwoods more precious than gold?” At another, singers Don Henley (a Texas native) and Bonnie Raitt put on benefit concerts; Raitt was later one of several hundred people arrested for trespassing at a Pacific Lumber mill. In addition, virtual protests were in vogue, with several Internet sites attacking Hurwitz personally. One still up and running, jailhurwitz.com, offers $50,000 to anyone who can provide information that would result in his criminal indictment.
Predictably, the national media pounced on the story of the corporate raider from Texas versus the redwoods. The liberal political magazine Mother Jones—which is based in San Francisco, a few hours south of Headwaters—came right out and referred to Hurwitz as “the devil.” Even mainstream publications like the Wall Street Journal and the New York Times portrayed him, in essence, as a wily financier wielding a chain saw. Hurwitz shook it all off. “I’ve got some pretty thick hide,” he said. “When you think you’re doing something that’s right, it’s not so bad. Some people have to be leaders and stand up for what they believe in. We can’t please everybody.”
But while Hurwitz is a villain to some, he’s a hero to others for saving timber jobs in Northern California and enduring years of frustrating negotiations with the government to resolve a conflict that pitted neighbor against neighbor for decades. Pacific Lumber’s longtime president, John Campbell, notes that the company’s previous owners had planned to harvest trees in Headwaters too. “It was all going to be cut anyway,” he says. Hurwitz told me Pacific Lumber was simply asserting its legal right as a private property owner to use its property economically. After all, those tens of thousands of acres were zoned for commercial timber production. “The Constitution is very clear that somebody should get just compensation for his land,” he said. “Our position has always been that if the federal and state government wanted to preserve Headwaters, that was fine with us.”
Some observers didn’t think Hurwitz would settle. They expected him to take his chances in court with the so-called takings suit that Pacific Lumber had filed seeking hundreds of millions of dollars from the government for interfering with its right to harvest the redwoods; the company’s sales were falling, and its mills were shut down part of the time because of an inadequate flow of logs. In reality, though, the feds probably never would have let the case go to court. If Pacific Lumber had won, federal regulators would have been hard-pressed to stop environmentally harmful activity on private land anywhere, not just in Headwaters. Hurwitz knows he had them, as it were, up a tree. “I feel very comfortable that we would have won, and it would have been a huge amount of money,” he said. Doug Wheeler, who was the secretary of California’s Resources Agency under Governor Pete Wilson, agrees. If Hurwitz had won in court, he says, the government’s bill for Headwaters “could have been much bigger.”
U.S. 101 heading north from San Francisco is called the Redwood Highway for good reason. The farther I travel on this early April day, the bigger and denser the redwood groves become. By the time I reach the famous Avenue of the Giants, a scenic drive that cuts through an ancient forest, they tower twenty or thirty stories tall, with trunks as large as fifty feet around. They make the pines of East Texas look like toothpicks.
The town of Scotia, where Pacific Lumber is headquartered, is about 250 miles north of San Francisco, but it’s a five- to six-hour drive from the city through the Sonoma and Mendocino wine country across high passes and along the meandering Eel River. The area has been hit by a late-season snow, so the mountains are dusted with white powder. Fingers of fog creep through the valleys. Some of the hillsides show signs of clear-cutting, but Scotia is mostly surrounded by lush green forests.
I’ve come all this way to see the Headwaters Forest. Luckily the snow and recent rains haven’t closed the mountain road that leads to its edge. It’s a short hike into a forest of old-growth redwoods much wilder and less accessible than the Avenue of the Giants. The terrain is steep, and the forest is overgrown with Douglas firs, ferns, and other vegetation. The sun barely penetrates the thick green canopy. These virgin redwoods aren’t as big as those I saw on my drive, but some are more than three hundred feet tall. Several bear the blue slashes of paint that marked them for the saw blade.
This land is in the heart of California’s timber industry. Humboldt County leads the state in timber harvest values; a million acres, most of it private land, is devoted to growing and harvesting timber. More than 7,500 people work in the timber industry in jobs that paid an average of $31,200 a year in 1997. “Everybody loves redwoods, only fifty percent love them vertical and fifty percent love them horizontal,” says Doug Bosco, an attorney and former congressman from Santa Rosa, California, who was among the first to try to get the government interested in preserving Headwaters.
Clashes between environmentalists and timber employees are a fact of life here, and the timber wars aren’t over yet. New lawsuits have been filed since the Headwaters accord, challenging parts of the plan governing the rest of Pacific Lumber’s logging practices. Environmentalists say that the company can’t be trusted to protect endangered wildlife and that its practices are ruining fragile ecosystems. They point out that the California Department of Forestry revoked its timber operator license at the end of last year because of excessive violations. In February a conditional license was issued, and the company agreed to train its logging personnel and take other steps to improve its record. “Industrial logging techniques and profit levels are such that they’ve taken a diverse forest and, little by little, removed crucial elements of it,” says Kathy Bailey, the forest conservation chair of the Sierra Club in California. “So you end up getting two-by-four farms.”
Pacific Lumber officials insist that the company has been a good steward of the land over the years, growing and replanting more trees than it harvests. (Redwoods are among the fastest-growing trees; in thirty years they can grow to 130 feet.) They argue that last year they planted about 1.2 million redwood and Douglas fir seedlings, that they employ full-time wildlife and fisheries biologists, and that they raise salmon and steelhead trout in their fish hatchery and rearing ponds and release them into various waterways. And while habitat conservation plans are being written for other timber companies, none is on the scale of the massively complex one designed for Pacific Lumber, which has the kind of restrictions that could raise the bar for its competitors. “This is the prototype of the future,” Hurwitz said. “And if the state and federal governments want to use this as a prototype, then it’s in everybody’s interest to make this work or there won’t be any more.”
From the Headwaters Forest it’s a short drive to Scotia, which was originally named Forestville. It’s one of the last company towns in America. Pacific Lumber built and owns almost everything here, including several hundred bungalow-style homes that employees can rent, and provides power from a cogeneration plant that burns wood waste from the mills to produce steam and electricity. The town of 1,200 has a school, two churches, a bank, a hardware store, a supermarket, and a quaint country inn. After three earthquakes set off a fire that destroyed a fifties-era shopping center in 1992, Hurwitz ordered it rebuilt in redwood in keeping with the area’s rustic architecture. Since Maxxam bought Pacific Lumber, it has invested more than $100 million. “We’ve had more money in this company in the last ten years than had been spent in the last one hundred years,” Hurwitz said.
Pacific Lumber has logged in Northern California for 130 years and, until Maxxam took over, was praised by environmental groups for its responsible logging practices. As far back as the twenties the company worked with the Save-the-Redwoods League to set aside some of its old redwood groves until Save-the-Redwoods could acquire them for parks; part of the Avenue of the Giants is on former Pacific Lumber land, as is the spectacular Founders Grove, which has some of the oldest trees on earth. But soon after Maxxam bought the company, the protests began in the forests. Demonstrators blocked logging roads, chained themselves to trees, and even became “tree sitters,” occupying a tree so loggers wouldn’t cut it down. The best known tree sitter, Julia “Butterfly” Hill, has been living on top of a redwood for more than a year—not in Headwaters, but in another forest owned by Pacific Lumber. Initially the protests were just angry; then they got nasty. Campbell found a dead deer in his swimming pool, and his house was vandalized. During a 1997 protest, Humboldt County authorities doused protesters with pepper spray. And then last fall, protester David “Gypsy” Chain, a 24-year-old Earth First! activist from Austin, was killed on Pacific Lumber property when a logger felled a tree that hit him. “He was in a place where he shouldn’t have been,” Campbell says, adding that the company has had “tremendous numbers of trespassers” on its property. Chain’s family is expected to file a wrongful death suit against Pacific Lumber.
Hard-line environmentalists like these didn’t want the government to pay Hurwitz a dime for Headwaters. They wanted to force him to relinquish ownership of the forest in a so-called “debt for nature” swap to square a “debt” over the failed United Savings Association of Texas, one of the Texas S&Ls that toppled like dominoes during the real estate bust of the eighties. The Federal Deposit Insurance Corporation (FDIC) is suing Hurwitz for his role in the failed thrift; the Office of Thrift Supervision has brought a similar suit. Hurwitz’s attorneys say that he was merely the chairman and a minority stockholder in the S&L’s holding company and had no role in running the S&L per se.
Documents in the FDIC case, which is still pending in U.S. district court in Houston, showed that the government may have been pressured by the redwoods fight in bringing its suit. When a judge briefly unsealed them for a few days, the Houston Chronicle obtained and printed portions of them. Among other things, they revealed that environmental groups such as the Rose Foundation in California and the National Audubon Society began a campaign in 1995 to press Congress and the White House to consider a debt-for-nature swap. Leon Panetta, then the White House chief of staff, suggested in a letter to the Audubon Society that an exchange was “worth pursuing” given budget constraints that made purchasing the land difficult. The unsealed documents also showed that Interior Department and FDIC officials met to discuss such a settlement before the agency filed the suit against Hurwitz. His attorneys say the complicated case was clearly politically motivated. “Reason didn’t prevail,” says J. C. Nickens, one of the Houston lawyers who is defending Hurwitz in the FDIC suit. “Politics prevailed.” Because the case is still in litigation, FDIC spokesman Steve Katsanos declined to comment on its specifics but denied that it was politically motivated: “This case was brought based on the merits of what we felt were inappropriate activities in this institution.” As of now, the FDIC has no plans to drop the suit, and the Office of Thrift Supervision’s case against Hurwitz could drag on into next year. “It’s government at its worst,” Hurwitz maintained. “People talk about Ken Starr spending $40 million. Between the government and ourselves, we’ve spent more than $50 million—on no case.”
Near the end of the interview, Hurwitz told me a story about another controversial project that he worked long and hard to complete: the Ritz-Carlton Hotel in Rancho Mirage, California. Frank and Barbara Sinatra opposed the development because they had horseback riding trails in the area, but just as problematic were the environmentalists who argued that it would kill the bighorn sheep in the mountains. After years of battling, he got it built. “The biggest problem we’ve had at this hotel,” he said with a smile, “are these damn bighorn sheep that come and eat a million dollars of our shrubbery a year. The sheep population has exploded.”
It took a while, but Charles Hurwitz proved the naysayers wrong in the Southern California desert. He’s done it before, and he may do it again—this time, perhaps, in the foggy forests to the north.