Robert D. Krebs
Chief Executive Officer (retired)
Burlington Northern Santa Fe Railway
June 10, 2020
Brook Bentz: Hello everyone, and welcome to The Spirit of the Railroaders Interview with Robert Krebs. We’re in his home (his and Anne’s home) in Lake Forest, Illinois, and it is June 10th, 2020. We are going to have a hopefully lively conversation about Rob’s thirty-five-year career in the railroad business.
Our goal with this program is to gather oral histories of those people who have made an impact and contribution to the industry. With Rob’s long history in the business, we want to make sure we properly record and document those experiences he had coming up through the ranks and into the leadership of the company; dealing with not only becoming the head of Southern Pacific, but then going through the complexity and obstacles to getting the merger done with Burlington Northern and Santa Fe. We felt it was important to get it on the record here about your career, and your views and comments on the events you encountered as you went through all that in your time in the business.
Working in chronological order if we can, starting at the beginning, maybe when you were growing up in Sacramento, just talk a little bit about your experiences there. And I think one of the questions, if you could weave into that, is this: you, by reputation, clearly have a strong work ethic and a commitment to doing the job. The question related to that: did that come from your parents? Is that something you generated on your own? How did you become who you are?
Robert Krebs: Well, my parents had a lot to do with it. Unfortunately, I was a very entitled child, an only child. I thought that was a detriment, but I found out later when we had three of our own children, maybe it wasn’t so bad to be an only child.
I grew up in Sacramento. I thought the sun rose and set in Northern California. That’s where I always wanted to be. My dad moved around. He worked for Wells Fargo bank - - American Trust at the time - - and about every three years we moved from one branch bank to another branch bank. We maybe moved twenty miles, but for me it was like starting all over again; finding new friends and meeting new kids. I swore I’d never go to work for a big company and put my kids through that, which is exactly what I did.
But anyway, we settled in Sacramento. I went to C.K. McClatchy Senior High School: 2,300 kids, a public school, three grades senior high school. Sixty-five percent of those kids went on to four-year colleges. I got a great education. I went right into Stanford, and I had no trouble whatsoever. Another thing I thought at the time, Why would I ever send my kids to private schools? Because that school system was the envy of every state in the United States.
My dad was a banker, tried and true, and I watched him and thought I wanted to be a banker. Then when it came time, after I finished Stanford, I decided to go to business school. And I went back East to Harvard. I didn’t like the East Coast as much as I liked California. It just convinced me I wanted to go back to California.
My dad told me if I was going to be a banker I had to go to New York, because that was where all the action was. It was the global finance center of the world. Morgan Guarantee, my dad said, is the best bank in the world. So, I interviewed there. People I met were just like me. They hired twelve kids, or young adults, a year out of Harvard Business School. I just didn’t see how that was going to work.
Southern Pacific was interviewing at Harvard. A computer guy was doing the interviewing, and I thought it was really strange. I didn’t think he understood what Harvard Business School was all about, but I figured I’d go out to San Francisco, because that’s where I wanted to live anyway. I interviewed. So, that was how I ended up at Southern Pacific.
BB: How did you choose Harvard over, say, Stanford?
RK: Well, I went to Stanford for four years, and I had a great time. I went to Stanford in Italy. That changed my life. I got to go live in a foreign country, and I had to speak Italian. I saw a lot of art and history and architecture that amazed me, and that really started this life-long love I have for art. I was in a fraternity. I thought that was great. We had wonderful parties. We prided ourselves on having the highest social bill on campus. So, I just figured four years was enough. At that time, I think, Harvard probably had a better reputation than Stanford. I don’t think that’s true anymore. So, I went back East.
BB: And did you think about going out to work in between or just jumping…Today, I know when I went to MBA school, they said, We’d like it if you went out and worked for a little time before you come into the graduate school. Did you consider that, or did you just want to keep going?
RK: You know, I should have, because Harvard is all case-study, and besides common sense and hard work, it also takes some degree of knowing and being in instances like that, so you can equate that to what they’re asking you to do in a particular case. But I just figured I wanted to get it over with, and there was also a thing called Vietnam around that time. I just figured I might as well go to business school and get it over with.
BB: And you were registered for the draft, I guess, like we all were.
RK: Yeah. I had a deferment, and then after I graduated, I went into the Air National Guard.
BB: And when you went into the Air National Guard, was that…why did you pick air, any particular reason?
RK: Well, it was local. There was one in Hayward, California.
BB: So, it was pragmatic.
RK: Yeah, I was working in San Francisco; that was fine with me. I went to basic training in Lackland, Texas, at Lackland Air Force base in San Antonio. I went to tech school in Amarillo, where I learned how to type.
BB: That was tech school?
RK: That was tech school [laughing]. Yeah. You could work at your own speed. I think it was a four- or five-month course, and I got out of there in eleven weeks. They used to say about Amarillo that it’s the only place you could stand knee-deep in a snowstorm and get hit in the face by a sandstorm. That was pretty close to the truth.
BB: So, you’ve joined the SP (Southern Pacific). You said, I think, at one point that your roommates in school were kind of horrified that you were going to work for a railroad.
RK: Yeah, they were, because those were the days when there were serial bankruptcies. Everybody thought the industry was dying. They took me aside and said, Rob, we understand if you want to go work in transportation, but don’t you know the railroad industry is dying? If you want to go work for a transportation company, why don’t you go to work for a good one, like Pan-Am or TWA? [laughs]
BB: That’s right. You’ve said that since you retired (not to get ahead of ourselves) when you retired you really haven’t looked back at the industry and that you didn’t get into the industry because you had a love of trains or railroads. And you’ve explained why you ended up at the SP, but was there a tipping point at which you came to really get the industry in your blood, as the saying goes?
Or was this a job that…Because you have a reputation for being a fairly intense and focused individual. Did that come out of just, you would take that approach to any job? My example when I was asking Julie about this was, if you were making toaster ovens for Sunbeam, would you have operated the same way or did you really find that you got a feeling for the industry that really got in your blood?
RK: Well, that would be an overstatement. But I’ll tell you what did get my attention, though. I remember my first job was assistant train master out of Bakersfield - - we’re probably going to talk about that - - but, we were building these reefer trains with all these perishables that were going over the Sierras, over Donner Pass, and I got to ride one day. And, uh, I remember three locomotives in the front and there were two locomotives in the back. The whole mountain was shaking, and we were winding our way up these curves in this beautiful Blue Canyon looking at all this beautiful scenery, and you know, that got my attention.
Later, when I was in Oregon, I had a wonderful job that covered all the branches off the main line out to the coast. I used to ride the trains out there, ride the locals with the crews and it was idyllic, but it was never, Yeah, I just can’t leave this place or This is all I could ever really think or care about.
BB: But there’s a certain passion that comes across that you have, at least in your book, and I think most people in the industry who either know you or know of you who say exists in the way you attack the job. It almost feels as though it just crept up on you a little bit. It wasn’t by intent, necessarily, but it did get inside you, somehow.
RK: Yeah. But you know, I think I could’ve had the same thing if I worked for United Airlines or General Motors. Maybe General Motors even more, because I really do like cars.
BB: Well, I thought that was interesting when you commented about a passion for art, because at age, whatever it was…twenty-six, when you bought your first painting, that’s not a common thing to do. Maybe more common is to go out and buy a Corvette or something like that. It was an interesting choice.
RK: Well, I had a Porsche, so I was okay. [laughs]
BB: So, you already had the fast car.
BB: The training program… I went through the N&W’s training program in 1972 and 1973. And we had about 23 people in it, and the process was to send us out in the field through engineering and mechanical and yard operations and all of those sort of classical things to learn the job, and then you came out as an Assistant Train Master. Was the SP’s program similar to that? Yours was longer. I think we were twelve months.
RK: Yeah, we were twice as long.
BB: Twice as long?
RK: Two years, and you covered every facet of the railroad. You started out as a switchman for a summer. And I survived that one day when I fell off the side of a boxcar and broke my wrist. So, they put me at a desk job working on the testimony for the Rock Island merger; the UP buying Rock Island and then selling the southern half to the Southern Pacific. And then I went back, and I was a switchman again the next summer. I actually survived being a switchman; I only broke a toe that time. They couldn’t fix it, so I just kept working. [laughs]
BB: Where were you working?
RK: I started out over in west Oakland at the yard over there. You know, I had one day of training. So, the foreman says to me, Get on the side of this car. We’re going to shove it up this track and when we get over the switch, we stop, you get off, jump off, he’s gonna keep going…and then throw the switch, and then we shove it down the other track, shove the car down the other track. I said, Well, how do you get off? He said, Just do what’s natural. So, I did, and I put the wrong foot down and I stumbled, and I put my wrist out, put my hand out like that, and I could just tell.
BB: It cracked?
RK: Yeah. It was broken. So, we took lunch. We all took our lunches, and we sat there, and the union griever came by and he was talking about, you know, If you ever get any injuries or anything we’ve got lawyers. We can really help you. [laughs] I was sitting there with this broken wrist. S0, I didn’t say anything.
I went home. I was living with my parents at the time. I said, I gotta go see a doctor. And sure enough, I left that office with a cast on, and I had to call and say, I just broke my wrist.
My dad knew the head of the SP law department, Alan Firth, so he and Alan were talking about that and Alan said, Yeah, if he’d gotten a lawyer, he probably could’ve gotten $50,000. But that would have been the end of my railroad career. So anyway, that’s how that happened.
Then the second year, when I went back as a switchman, I worked a midnight shift in San Francisco. I could tell how that shift was going to go by how drunk my foreman was when he showed up for work. We’d go shoving boxcars down the middle of the streets because the tracks were right in the streets. At two or three o’clock in the morning, and he’d be up on top of a boxcar holding a fuse. There were two breweries, a Hamm’s and a Falstaff brewery, and we’d stop at each one, and all the guys would go in there and have a few beers except me, and there you go. But I survived that.
And then another part of the training program was you stayed in every department at Market Street. The place was full of clerks, and you would go and sit with every general and every chief clerk in every department and learn about rates and about billing and about --
BB: Divisions. SDs. [Statements of Difference]
RK: Yeah, all that good stuff. So, we were well-versed in everything.
BB: So, when you came out of the training program, you get assigned as assistant train master …someplace.
RK: No, it didn’t work that way. First of all, I was single and living in San Francisco, having a great time in a coach-house with two of my old Sacramento buddies up in Pacific Heights. That’s when computers were just being introduced to the transportation industry. IBM had its deal with American Airlines to put this Sabre program in place for them. And they had a deal with Southern Pacific to put TOPS in for us -- Total Operations Processing System. And I figured, Okay, I know computers are going to be important, and I’d like to know something about them, and I’m really not too keen on going out to Tucumcari, New Mexico, and being an assistant train master. So, I say, Can you put me in the computer department for a while so I can at least learn what these things do and how you make them work. So, they sent me to IBM school, and I learned how to program COBAL, and I went into the computer department.
The TOPS system was set up so that it only could have one entry for one car. So, if you had a trailer on a flat car, or if you had two trailers, it couldn’t identify the two trailers. Well, the guy that was running the intermodal department said, This is crazy. I’ve got to know. I’ve got to have information. They gave me the job of designing another program that could be added to this, so he could trace his trailers around the system.
BB: Was that Tom Fante?
RK: Tom Fante, right. Well, I don’t know, Tom Fante left, and my program never got implemented [laughs].
So, then I got called in by Dick Spence who was the Assistant Vice President of Operations at that time, and he was kind of the godfather looking over trainees. And the conversation went something like this: Rob, you’re single. You’re living in San Francisco. I know you’re having a good time. I was just like that once. Uhh, we have to figure out what we’re gonna do with you, and uh, the people who run the railroad in the future won’t be the people in the computer department. I said, Yeah, Mr. Spence. And he said, So, it would probably be good for you to go into the operating department. Now, we’ve got this giant General Motors plant right across the bay over here at Fremont. You could be Assistant Train Master there. You could still live in San Francisco, you can have a great time, and you can get some operating experience. I said, Yes, Mr. Spence. And then he said, But, if you really want to get tested, you’ll go someplace where it’s tough, where there’s a lot of pressure to make schedules. Someplace like the perishable district, where if we don’t make the schedule, we have to pay the difference if the prices go down to these people who are shipping their potatoes and melons and all the perishables. I said, Yes, Mr. Spence. So, he said, Rob, I was just like you at one time. I know exactly how you’re feeling. You tell me what you want to do. And I said, Well, Mr. Spence, I guess I ought to just shut up and go wherever you want me to go. He said, Rob, that’s great, because Monday you’re going to report to Bakersfield. [laughs] So there I went!
BB: From volunteer to volun-told.
BB: So, did you know him before he was in that position?
BB: So, that was your first meeting with him?
RK: Well, I’d met him. Yeah, sure. He was a charismatic guy, and he was an up-and-comer. I had a lot of confidence in his judgment and in his ability.
BB: So, when you went to Bakersfield…I know when I came out of the training program, we were constantly being chastised as being college men. You know, You didn’t come up through the ranks. Acceptance was a little bit hard, and there was a fair amount of resentment among the people who thought they should have had that position. Did you run into that as well from the field, or did acceptance come fairly quickly?
RK: Well, in Bakersfield they were used to a lot of young assistant train masters because it was seasonal, so they’d move a bunch of new people in, and the old heads would put up with it. My problem was, I just didn’t have a good lay of the land. The first thing is, I went down there, and I didn’t realize that they were actually going to pay for my lodging. So, I rented this place for fifty bucks a month. It was a little hovel out behind somebody’s house. One room. You walked in the door and there was a bathroom on the left, a refrigerator on the right. It was painted pink. There were two pictures of WWII bombers. That was it! And then I found out later, SP was paying for it. But anyway, I was there.
The first day I was on my job, they gave me three stations on the main line, the first three coming out of Bakersfield. So, what they would do every day is (this was when potato season was going on), they’d load these reefers all day long, cut them off about seven o’clock at night, and then the pick-up train would come out, heading north, and it would pick up at the three stations, and it would go up until it finally got up to Roseville, where they built these reefer trains, like I said, that would go over the Sierra mountains to Chicago and beyond.
So, my three stations were the first three, and if we weren’t ready, the train got delayed, and life was not good. The first day I was out there, and in my first station there was one lousy car of onions, and there wasn’t a waybill for it. Well, you can’t ship a car if you don’t have the paperwork. And that’s the first place we gotta stop and get a car. So, I was on my radio, and I was kinda yelling at the agent in the office – at Edison, I think it was.
And in the meantime, a brakeman had twisted his ankle or something, so I pick him up. I took him to the hospital, and I said, Are you okay? He said, Yeah, everything’s fine. So, I went back to work.
The next morning, I get a call from the assistant superintendent, Charlie Babers, and he says, I’d like you to come see me this afternoon. And I thought, Okay, I’d be happy to! That’s really great. I’m going to meet the assistant superintendent. This guy was about six-foot six and weighed something like two-hundred and eighty pounds. The superintendent is a guy by the name of Morris, and he was like a god; we never saw him. But Babers was really running the place.
So, I went in, and I sat down, thinking he was going to welcome me to the San Joaquin Division, and he said, Krebs, I’ve read your resume. I see you went to Harvard, and you’re a stumble-bum, you’re a smart-ass, and you’re just like a locomotive: if you don’t work I’m going to replace you! I went, Woah. [laughs] I was basically in tears. And it’s because, first of all, because of the Federal Liability Employer Act, and this thing about, I could’ve gotten fifty-thousand bucks for a broken wrist… When you take someone to the hospital, it’s like you’re their mother. You stay there with them. You don’t dare leave. Well, I made that mistake. And then he heard me on the radio, talking to this agent at Edison. So that got his attention.
BB: So, he heard the radio call to the agent?
RK: Oh, yeah. I mean, I survived. I just said, Okay, Mr. Babers, I got it. Turned out we ended up being good friends, and I made him General Manager on the western end of the railroad…I don’t know…a decade later.
BB: He remembered the beginning story pretty well?
RK: I’m sure. [laughs]
BB: That’s great. Well, so how long would you stay at seasonal, right, the produce season?
RK: Yeah, I was probably there three or four months, and then I went up to Coos Bay.
BB: You gave up your fifty dollar a month apartment?
RK: Yep, right. I went up to Coos Bay where I was assistant train master. It was a branch line that went from Eugene, which was the operating hub for the Southern Pacific in Oregon, over to the coast, and there were a bunch of sawmills and plywood producers and chip exporters. So, they would run a train of empties out there every day, and people would load them up and then run them back to Eugene and distribute them around the whole United States. But I wasn’t there very long either. I don’t know how many months that was…four or five. And that was another place they sent us as train masters. I think I was probably still acting at that time, acting assistant train master, but I became the assistant train master while I was there. And there was this guy, Artie Boureg who was the chief agent.
BB: Artie Burke? Like the Destroyer captain?
RK: Well, it was B-O-U-R-E-G or something. He pretty much ran the place. He explained to all us new people how things worked, and we said, Thank you very much! [laughs]
And then they promoted me to train master in Brooklyn, which was the yard right outside of Portland. I had four or five branches that went over to Tillamook and Toledo, down south in Oregon, on the west side of the main line which went through Eugene. That was great, and I had, I don’t know, a dozen locals every day that would wander around out there.
BB: Sixteen-hour jobs?
RK: Oh yeah. Except, once a week I would go ride one of them, and they really hated to see me because that meant they were more like ten-hour or twelve-hour jobs. But yeah, anybody that could make overtime, that was the name of the game. But that was beautiful, winding up over these redwood trestles and over the mountains and to the Pacific Ocean. It was all apple orchards, and now it is pinot noir wine country; probably the best known in the United States.
BB: So, when you got transferred, did they call you up and say, Where would you like to go next?
BB: It was more like, Be there on Monday.
RK: Yeah, that was the way it was my whole career. I was in the Brooklyn Yard office, getting ready to go out somewhere, and I got a call from the superintendent, Al Kilbourn, and uh, he said, Rob, are you sitting down? I said, No. He said, Well, sit down. So, I sat down and said, Yes, Mr. Kilbourn. And he said, Rob, you are now the terminal superintendent in East St. Louis. [laughs] I said, Well…thank you very much, Mr. Kilbourn.
BB: I’ll bet you were glad you were sitting down. Did you know the reputation of East St. Louis?
RK: Sure. The second-largest interchange in the United States for railroads. Absolute mess. Not only a mess because of the operating problems, but also because of the crime.
BB: I don’t know how much it’s changed.
RK: Well, I’ll tell you how it’s changed. All those yards are gone. I was really offended. I went back after being at BNSF to the Valley Yard there. It was the Cotton Belt Yard, and there were just a few tracks left. The tower we used to sweat it out in, you know, twenty-hour days, and watch this derailment after that derailment, this problem after that problem, it was torn down. The yard office wasn’t there. Everybody just runs through there now.
BB: So, that’s the two most interesting things I read in your book were about your time in East St. Louis, and the time in Houston, and the fact that you were coming into a hornet’s nest. Well, that’s probably a mischaracterization because hornets move quickly, and nothing apparently moved quickly at either place. Could you spend a little bit of time and talk about what it was like when you got there and the things you did to help improve it, change it for the better?
RK: Well, East St. Louis, the first problem I noticed right away was that, uh, there was a lot of thievery going on. There was a big ACME shed. It was kind of like what today, a UPS hub we’d use. It was right at the end of our yard. We used to get forty cars a night on a good night of what, in later years, would end up in trailers for UPS that would be shipped all the way across the country, most of them to California. While we were switching them out, they would sit there in the yard and then all of sudden somebody would break a door open, break the seal and loot the car.
It was also well-known back in those days…We had all these spaghetti routes, and you were traveling through interlockers, and the train would have to stop. It was well known that any clerk at any one of those railroads -- which must have been at least twenty-five or thirty of us -- If you were a clerk, and you could give somebody the car initial number of a car with cigarettes or booze, then you got a hundred-dollar bill.
What they would do, when a train had to stop at an interlocker, they’d spot the car. They’d go up right at the front of that car, they’d turn the angle-cock, they’d pull the pin, and then when the engineer could move, he took off and the rest of the train, including that car, stayed behind. And they’d just back their truck up and take whatever they could get.
I know one of the tower operators on the IC right outside of Valley Junction was shot right before I got there. The guy who ran our mechanical department caught one of these trucks in the act with the people trying to steal stuff. So, a guy pulled a gun on him, and he had to run through one of the houses in East St. Louis, through the back door and through the front door. It saved his life.
So, I said, This is crazy. We’ve got customers. We’re gonna take care of these customers. This is not going to happen to people who ship on Southern Pacific. So, we had our own police force. I got the head of it to take me down to Cahokia, where the police department sold me a gun. I had a colt-45. I’ve still got it upstairs. He took me out and we went to a practice range, and I learned how to shoot it. Fortunately, I put blanks in it because I didn’t want to kill anybody, and I didn’t want to kill myself. I never had to fire it, but I kept it under the front seat of my car, and that’s how I drove around East St. Louis.
We decided then, we were gonna go out, and we were gonna stake out our yard, and we were gonna catch these people who were doing violence. And we did, and they were our own switchmen. So, we got that straightened out.
BB: How many were there involved in it?
RK: About three of them, I think.
BB: Oh, ok.
RK: I don’t think they ever went to jail. I don’t know what happened. And then the other thing was, there was this mentality that management and workers were opposed to each other. There was this ongoing tension. I’d walk in there…I don’t know how old I am at that time, but probably still in my twenties. What I tried to do was to get to know some of these people, and I did.
And then we had, one Christmas Eve, we had a guy whose name was Bendt, and I can still picture him. And we were about ready to switch out the traffic for one of the fastest BSM’s, one of our fast trains. He’s coming on duty at 4 o’clock; supposed to come on duty at 4 o’clock. I wait for this crew to come out of the shanty and get on their engine and nobody’s coming out. And I say, Well, what happened? They said, Well, Bendt’s not here. I said, Where’s Bendt? They said, He’s here, but he’s just so upset because it’s Christmas Eve, and he hasn’t got any money to buy presents for his kids. I said, Well okay. I came down there and said, Bendt, do you need some money? He said, Yeah. Well, we went over to the beanery which was the hotel on our property we’d put up crews when they were away from home, and I wrote a check for fifty bucks and said, Give this guy fifty bucks. Go to work! And he did.
Then I was the laughingstock of the whole switchman group because he was the biggest, uh…uh, what do you call it…? Well, the point was, I was never going to get my money back. But he did pay me back. And that changed, that just changed everything when people saw that. And then, from then on, we were all kind of on the same team.
Then we had Rollin Bredenberg who I actually ended up working with for, I guess, thirty years. He was the head of the intermodal department, and he was a great guy. So, we finally got the place to work.
We also had railroads build us a lot of run-through trains, so we didn’t have to switch cars. We’d just change crews on the main line, and that helped us free up the yard. Not only was I responsible for the yard, but then I was responsible for the main line for the first crew district where we had trackage rights over the Missouri Pacific. That was a big problem because the Missouri Pacific had the DE, that was the Dupo El Paso high-speed train for intermodal, and we had the BSM, blue streak merchandise. And we competed. Well, we could get our train, our BSM, out on time or even ahead of time, and then the Missouri Pacific took control of it. They used to have a coal train, probably, stuck on one of the tracks or something would go wrong, and the next thing we knew, the DE would be way ahead of us. It would come down to where we took over the railroad, and we were in second place.
So, I spent a lot of time driving around, going to the tower to get us out of Valley Junction. Then I went down, if we were stuck at Dupo, I’d drive down to the trainmaster’s office. He didn’t like to see me coming.
Then we had the perishable coming in. About the same time the BSM was leaving, we had to ice some of the perishable because it wasn’t all mechanical cars. And then we’d deliver them to the Eastern carriers. This was the same perishable that I started out handling in the San Joaquin Valley a couple years before.
BB: When you iced cars, did you have to spot them at the ice rack or did you just pull in?
RK: No, no. Because they were mixed, we had to…I guess it wasn’t every other one, but they were kind of in blocks, so we had to shove them in.
Then we had the TRRA, which is a terminal association, a railroad association of St. Louis. We relied upon them to deliver these cars to the Norfolk & Western or Penn Central or, I guess it would’ve been L&N or the Chessie System; I don’t know… But anyway, I would get on their little caboose, and I’d ride with them to get these trains over there and deliver these cars by midnight. So, I would go to work at seven in the morning, and most of the time I’d go home after midnight. And I did that basically seven days a week.
BB: So, what did you do in your spare time?
RK: Well, I didn’t have any [laughs]. But I did, finally, have enough time to ask out Anne Lindstrom on a blind date, and that changed my life.
BB: So, how did that happen when you’re working those kinds of hours?
RK: What happened was, my cousin was married to a doctor, and he went back for some post-graduate work -- specialty work, I think -- at University of Washington. And she was working as a secretary at a company. And my to-be wife’s father was an electrical engineer in Sweden who helped invent a special kind of hospital operating table. Actually, it tripled as a gurney, an x-ray table, and an operating table, so you didn’t have to move the patient. They wanted to sell it in the US, and he came over on a two-year contract to introduce it to American hospitals, and he brought his family. His wife didn’t speak any English. Anne had a ten-year-old brother who didn’t speak any English. Anne spoke English. She was twenty years old at the time. She came over to help get them settled, and she used to drive her dad to work where my cousin was working, helping put her husband through graduate school.
And my cousin called me one day and said, I met this girl. You outta take her out. And I finally had a break. It took about a month. But there was a great big meeting. They flew in all the top executives from San Francisco and General Motors people from Detroit, because we were running these auto-trains out to the assembly plants in Southern California, and one up in Northern California. It wasn’t working well, and we had a big discussion about how we were going to build these trains, and finally everybody headed for the airport. At about four o’clock in the evening everyone was gone, and it was quiet, so I called her up. And I got her mother who only spoke Swedish, which didn’t work too well. And then she gave Anne the phone and I said, I know it’s a little strange, but my name’s Rob Krebs, and my cousin suggested I give you a call. She said, Yeah, you were supposed to call a month ago. [laughs]
I said, Okay, do you want to go out for dinner tomorrow night? And she said, Sure. So, I went over there, but I had to get the BSM out first. I was a little late, and she was really hacked off. She stayed in the bathroom, and she wouldn’t come out, and her mother finally went in and told her, Get out here! So that was a Thursday.
BB: Off to a good start.
RK: Yeah. We went out on a Thursday, and we went to this restaurant: Nantucket Cove. We had lobsters. I don’t know how we got talking about it, but we talked about life in Sweden. And she said, Oh, yeah, in Sweden we believe in long engagements. Two-year engagements. That’s how we conduct our lives. I said, Yeah, okay. And we went out Thursday, we went out Friday, we went out Saturday, we skipped Sunday because it was April, and I had to get my taxes in. We went out Monday, we went out Tuesday, and I finally gave her my car. Because I had a company car. I just said, Meet me at my apartment, because she was in South St. Louis, and I was in East St. Louis, and my apartment was in West St. Louis.
First of all, when I first started taking her out, her Dad, after a while, he didn’t leave the porch light on because it was light by the time we were getting home. And then I woke up one day, and I was actually driving down the freeway, driving between West St. Louis and East St. Louis, and I said, This has got to stop.
So, I asked for a week’s vacation. My dad was coming from a banking meeting in New York. He stopped. He met Anne and the family. We flew on and we met my mother. That was in May, by that time. Anne was actually going to go back to Sweden because she’d just come over to get her brother and her mother settled.
And then I got a call from Ralph Kirk, the general manager on the east end of the road saying he wanted me to come to his business car, and he wanted to have dinner with me. So, I told Anne, You’ve got my car. She was driving my little Porsche. Meet me over at my place. I’m going to be a little late, I’ve gotta have dinner with the big boss.
So, we’re sitting in the business car and he says, Rob, I’ve got some great news for you. I said, Well, what would that be, Mr. Kirk? He said, You’re going to become the superintendent of the Cotton Belt railroad in Pine Bluff, Arkansas. And you will be the youngest superintendent in the history of the railroad. Woah! Thank you very much, Mr. Kirk.
So, I went to meet Anne, and she said, Rob, I have some good news for you. And I said, What is that? She said, Well, I’ve decided to cash in my boat ticket and stay in the United States. I said, Woah, I’m moving to Arkansas! And she said, What’s Arkansas? [laughs] So anyway, we were engaged in June, and married in September. My parents who only had one child...
BB: Shorter than the two-year time commitment?
RK: Yeah. My parents who only had one child, a son…my mom got to put on a wedding out in California, because the Lindstrom’s didn’t know anybody. So, we all went out to California and got married out there.
BB: Wow. You could make a movie out of that story. And it’s obviously done well, because here you still are.
RK: Yeah. We’re working on forty-nine this year.
BB: Remarkable, I think. So how did she take the news about moving to Arkansas?
RK: Oh, it was fine. She was game enough to decide she wasn’t going to go back to Sweden, so she pretty much had her life set for her. So, go to Arkansas? Why not go to Arkansas!
What I was worried about was her dad because we weren’t married at the time. She was going to come down there and be with me, and this was in the seventies. Today, nobody would bat an eye.
RK: So, I went to him and I said, Mr. Lindstrom, I’m headed for Arkansas. Your daughter wants to come down there and be with me. I just don’t want you to be concerned. And he said, Well Rob, I am concerned. I don’t know what that will do for your job. [laughs] I said, I think I can handle that. So anyway, we got engaged in June and married in September.
BB: Did they explain to you how you got picked to go to Pine Bluff? I mean, obviously you’re being noticed and picked to do certain assignments. How did that one come about?
RK: Well, I think the real question, Brooks, is how did I get picked to go to East St. Louis?
RK: I mean, I’d barely been in the operating department. It was one of the toughest jobs on the railroad. They had no clue how I was gonna do there. But once I got to St. Louis and all of a sudden everything was running -- the perishable was being delivered on time; the BSM was leaving early; all the cars were on the train; the yard wasn’t plugged; I mean, everything was running -- then I could see the next step would be Pine Bluff.
BB: Okay. And you liked Pine Bluff?
RK: Yeah, we had a great time there.
BB: And how long were you there?
RK: A couple years; long enough for our first child to be born there. It was probably three years. Fifteen-hundred miles of railroad. We started in East St. Louis, and we went down to Corsicana where we connected with the SP for the Transcon route all the way to Los Angeles. We had a line that went off to Shreveport down to Houston to the chemical business. We had a line that went to Dallas-Fort Worth. And then we had a line from Memphis, which was another place where we got intermodal trains from Norfolk Southern and CSX. And they all came together in Pine Bluff. We built a couple BSMs, a couple auto-part trains a day, and then a whole bunch of other merchandise trains.
We were the largest employer in Pine Bluff. The only other thing close to us was the International Paper Mill there. I had my own business car. It was a Fairlane. It was we’d built by Henry Ford for his wife. I don’t know how the Cotton Belt ended up with it. I used to put it on the back of the BSM and ride the railroad. It was a private car, but it was really a business car. That’s what we used it for. I was still in the Air National Guard and I had to go to meetings in St. Louis once a month. So, on Friday night, I’d put it on a train, and we’d go up and park in the yard in East St. Louis. On Sunday, we’d put it on the BSM leaving about 5:00 p.m., and we’d wake up in the morning in Pine Bluff. We had Sylvester and Henry, a cook and a chef. Once when we were in St. Louis, Henry took a knife to Sylvester. They couldn’t get along very well together. [laughs] But they were good people and good cooks. It was enjoyable.
I actually…the Air National Guardian, in this little paper that they put out monthly, and they had a little article there. I still have a copy of it. I was probably the only staff sergeant in the air force who had his own business car.
BB: How often did you go over the railroad in it? Once a month?
RK: All the time, all the time. Either that, or on a high rail. We had so many branch-lines, that was a much better way to do it. Yeah, I knew the division engineer, Gary Lily, better than I knew my wife. I mean, we were on that railroad all the time.
BB: But it was generally in pretty good physical shape, wasn’t it, when you got there?
RK: It was okay. This will take us into another topic, which is how the railroad operated, how the whole Southern Pacific operated at that time. We had the fountain of knowledge in San Francisco. Their eyes and vision went about as far as El Paso, The Pacific Lines. Then there was this thing called the Texas & Louisiana Lines east of El Paso and the Cotton Belt. That was lumped together on the east end of the railroad under the direction of Ralph Kirk.
The people who always got everything they needed were the people on the Pacific lines. And D. J. Russell, and then later Biaggini, would make a trip once a year on an officer special across the T&L lines. Somehow, those people that were running the place on the east end of the railroad got the impression that it was their job never to ask for anything and never to admit that there was ever anything wrong with their railroad. So, they’d go stash cars out in the boonies, they’d pump the tracks up and go cruising along. Mr. Russell would say, Well Ralph, how is everything? And Ralph would say, Oh, we’re just in great shape here. But we weren’t. We weren’t getting enough ties, and the railroad was starting to get weak in some places. We were starting to have derailments.
Then I came along, and that was right at the time when Russell was retiring and Biaggini was becoming the CEO. I’d been on a couple of trips with Russell before because he always started out at the Union Station in St. Louis, and then came down through Pine Bluff on his way to Corsicana. This time I was the superintendent, not just the guy in charge of the first stop of the railroad on the East St. Louis yard. So, we stop in Pine Bluff, we get back on the train, we’re making our way south of Pine Bluff, and we have all these kind-of horseshoe curves, or the track curves one way and then it curves the other way, and we got humpbacks, and it was rough. So, Russell says, What’s the matter here? And Gary Lily and I were just two dumb people, you know. We just spoke the truth, We need more ties. He said, Well, what do you need? And Lily said, We need twenty-thousand more ties. And Russell got back to San Francisco, and we got twenty-thousand ties. And Kirk, he didn’t know what to think. He couldn’t believe, first of all, that we would say anything, and secondly, that somebody would actually do something about it. So that kind of changed all that.
BB: That’s a big job, that much territory for a couple of years. What’s next on the…
RK: Well, there’s another thing I want to say about the Cotton Belt. We had an operating ratio in the sixties, which is…
TOGETHER: … in those days unheard of.
RK: Probably the rest of the SP was like a hundred. We got it working so well, but one problem was locomotives. And it goes back to this thing that Pacific Lines was always taken care of, and the T&L lines would get what was left over. So, what would happen, if we had fifteen trains running a day in each direction and we’d switch most of them at Pine Bluff. And if you couldn’t get them out of the yard, you couldn’t take trains in, and pretty soon the crews would run out of time. The federal law, you know, they’d have to stop work and you’d have these trains sitting in sidings, blocking the main line. Lots of times we wouldn’t have enough power. So, I devised a system to take care of that. What we did is, we never held anything out of the yard. But when we’d build a train, and we didn’t have power, we hauled that out to a siding, took the engines off and came back and used the engines for the next train. So sometimes we’d wake up in the morning and there’d be three trains just poised to go to Los Angeles, and no power. I would just say, Send us some locomotives. And they couldn’t say, O Krebs, your yard is all screwed up. You can’t take these trains. I’d just say, There are your trains. And Spence figured that out, and we finally started to get the power we needed, and that’s what kept the railroad going.
BB: Interesting strategy.
RK: So, then I went down to Houston as assistant general manager. There were three of them. And the one that I replaced was a fellow who retired, and there really wasn’t much work to it. They had Ramsey, who was the head of operations, an assistant general manager, and a guy named Calvin Nelson, who was in administration. And I spent my time down there, which was probably around a year and a half, going out and getting to know the Texas & Louisiana lines and meeting people out there. I had a great time doing that. It was very helpful later when I had responsibility for that area.
The funny thing: we went down there house-hunting, and we had a realtor taking us around. The two guys who had told me I should never go work for a railroad were both living there, from Harvard Business School, and they told me where we should live. And we went out and looked at this area, and we saw a bunch of houses. As we were driving around, I saw this beautiful little house: white house, with little pine trees on a corner lot with a For Sale by Owner sign. So, I waited ‘til we got done with the realtor, I went back and got the rental car that we had and I wrote down the telephone number, and I called the people, and we bought the house. A year-and-a-half later, I took that very same sign. I painted-out the phone number that was on it and put my own phone number and stuck that same sign in that same corner and sold the house in two days. We had our daughter born there. We never really had any roots. We just weren’t there long enough to do it. Plus, we were going back to Mecca, which was San Francisco. That was the whole idea in the first place (it only took me ten years to do it) was to work for Southern Pacific so we could live in San Francisco. [laughs].
BB: I wanted to press rewind. When you were out of the room, I asked Anne a question that stemmed from the conversation last night. Because it was apparent to me, and I think to Julie as well, that you two seem to have a very collaborative relationship. And it seems to work really well. And I was curious, after forty-nine years, when you were fighting those battles in East St. Louis and in Houston and wherever, were those things that you talked about? Did you run strategy and ideas past her? You know, a lot of people leave work at work, and home is home. That’s hard to do when you’re working the kind of hours you do in the railroad business. So, I was just curious about how you used the fact that you were together to help the cause.
RK: Yeah, she always knew what was going on. She couldn’t help it. The phone would ring at three o’clock in the morning, and there’d be a tornado that just went through one of the stations up above Pine Bluff and derailed one of our trains. I had to get up and go head out there. She was intimately involved with the knowledge of what was going on. I didn’t sit down, though, at the dinner table and say, You know what? I think if we change the classification this way, and we send all the cars to Houston down this track, and all the cars to LA down that track, do you think that would make any difference? Or should we do that?
BB: No blocking-book dedicated to her?
RK: No [laughs]. And she probably could’ve cared less anyway. She basically raised our kids.
BB: Yeah, okay. So, you went back to Mecca, or the fountain of knowledge and truth.
RK: That’s right.
BB: So, how did that happen? What precipitated it? Somebody called up one day and said, We need you at headquarters? How did that occur?
RK: I don’t know. I’m trying to remember if Spence was still there then. Umm, no…Yeah! ,,, [laughs] I’m not sure. I don’t think so. I think he’d gone on to be the president of Conrail, because the big honcho there was R.L. King. That was probably Ahern’s idea. Ahern was this guy who had an office right next to Biaggini. He could actually go in through the back and enter into Biaggini’s office.
BB: Like the West Wing, the chief of staff?
RK: Yeah, sort of like that. He was a smart guy. And he was probably the only guy that I know of who could tell Biaggini, sometimes, the things he needed to hear. But he was very judicial about how he did that, because he figured if he told him too many things, then Biaggini wouldn’t listen to him anymore. Ahern kind of took over the trainees after Spence left. So, I think that was Ahern’s idea. I mean, everybody knew the job that I’d done on the Cotton Belt, and I got along really well with Kirk and Ramsey in Houston. So that was the logical thing, for me to go back there. They kind of created a job (Assistant Vice President) for me to go back. And it was a job where I was basically in charge of nothing.
BB: So, what did they tell you? We want you to come back and do nothing wasn’t the….
RK: Oh, yeah, I was going to be R.L. King’s right-hand man. I guess he had general managers reporting to him, too. I don’t remember who was general manager at the time on the Pacific LInes. So, we moved back to San Francisco, bought a place not too far from my parents. I was doing my normal job of working for my boss and doing what my boss told me to do. King, he’d come up the hard way. In his mind, he was like the general yardmaster for Southern Pacific. I mean, he’d get on the phone every morning, and he’d call around to all the big terminals, and he’d ask them about the yards. And he’d make fun of them if they didn’t do something right or if they gave him a stupid answer or if they hadn’t accomplished what they were supposed to accomplish. And he had this little group of people who would sit there in his office, and he’d put the speaker phone on, and everybody would sit there and chortle. So, he invited me in there to that. I was never really too much on the receiving end ‘cause I worked on the other end of the railroad. And I think Kirk probably told him, If you wanna screw with my railroad, you call me and I’ll talk to the people who work for me. But I’d heard the rumors and I saw first-hand what a mess it was. And the whole morning we’d sit there. We’d dial our way around the railroad. Then he asked me to go out and have lunch with him. As we’re walking out the door, he turned to me and said, Well, we accomplished a lot this morning. And I just blurted out, I don’t know what! And that was the last time I ever got invited to that meeting.
BB: Did he react when you said that?
RK: Well, yeah. He just looked at me, like…
RK: So, I just spent a lot of time, again, getting to know the railroad. I went out and high-railed all our divisions. Anne and I were building a house at that time in Hillsborough, and I had a lot of time to spend looking into that. And then, I went to Ahern and said, This is crazy, I’m sitting here doing nothing. This guy who’s running the place is a real jerk, and you need to do something. So, he made me assistant to Biaggini. So, then I went around carrying Biaggini’s bags when he went to AAR meetings and all that stuff. And Biaggini was put on this commission. It was a government commission. Bud Schuster, who was chairman of the House Committee of Transportation, was the chair of it. Biaggini was a public member, and I carried his bags to that. So, we went around the country, and we hob knobbed. We went to New Orleans so we could look at the trolley system. We went to Key West. God only knows what there was in Key West we were supposed to go look at. It was just a big giant boondoggle. And some of these Congressmen were a little shady… I remember, I think in New Orleans, the lobbyist for the waterways fixed some of these guys up with some young ladies.
RK: Yeah, that kind of stuff. It was just absolutely a disaster. But anyway, I thought …
BB: Did you know Biaggini before you went to work for him?
RK: Well, yeah. I mean, he went to our wedding.
BB: Oh, he did?
RK: Yeah, he was friends with my parents. Not really close, but close enough. I’d seen him on trips, I saw him on a lot of trips. Because, when he’d have an officer special, when it came to your territory, you got on and sat in the Sunset with him. Got to answer all the questions. So yeah, I knew him.
BB: Why is there a low joint at milepost thirty-two?
RK: Yeah, exactly. Or things like, when we were going into Kansas City after we’d fixed up the Tucumcari line, he got all upset because we weren’t serving Georges de Latour private reserve Cabernet Sauvignon at the shippers’ dinner.
BB: I’d be upset, too! [laughs]
RK: That came later, but I remember Bredenberg was on the train with me, and we walked back to the second car, and I said to, uh…Because the trip was just going perfect and everything. We’d spent a hundred million bucks fixing up that railroad. It was just like riding on glass; no delays, no nothing. So, I walked back with Bredenberg to get out of the Sunset for a minute, back into the second car, and I said to Bredenberg, You know, it’s pretty bad when all the old man can bitch about is the wine we’re serving for lunch. And his secretary heard me, and she told Biaggini I said that. When we got back to San Francisco I got called into the office. And he said, You’ll run this railroad soon enough. [laughs]. But anyway, the relationship I had with Biaggini was different than anybody else because I was so much younger, and because I always made a point, if I was telling him there was a problem, I would tell him how I was going to fix it.
RK: So, while I was there, running around, staying in these fancy hotels in Washington and all that stuff, the railroad was going to hell. The Texas & Louisiana Lines had finally crumbled because of years of neglect and nobody every saying, We need this. And then they moved King, who (this was another thing that Southern Pacific was really good at): if you didn't do well in one job, they’d put you in another job so you could not-do-well there. So, here we are, we’re going through deregulation where we needed marketing, right? So, they make R.L. King the Vice President of Marketing. I don’t even know if he knew how to spell it! Now we had Allen Demoss as Vice President of Operations, and his main claim to fame was being the purchasing manager. And the Texas & Louisiana Lines started falling apart, and the railroad slowed down. I guess they made me general manager then, after I had been assistant to Biaggini.
BB: How long did that last, working for Biaggini?
RK: Oh, probably a year, a year-and-a-half. I think I had three years between King and Biaggini.
BB: You said that it was purgatory.
RK: Yeah, it was. But I put it to good use.
BB: It sounds like it.
RK: I got to know the railroad, and I built a house. Then they made me General Manager of the Western Lines, and I thought that was a terrific job. I really enjoyed it. But while the east end of the railroad was crumbling, they were shooting all the power out there and everything they could to try to save it. And I woke up one day and we were holding, I think, eleven trains for power at Roseville, four trains at Colton, and three trains somewhere else. The place was just coming to a halt.
The ICC actually gave us a mandate that we had to move every freight car in thirty hours because there were so many complaints from shippers. I thought to myself, Do they really think we’re not trying to do that? [laughs] And I actually had to go testify, eventually, in front of a federal judge about the delays to Amtrak. This was, I think, after I became the Vice President of Transportation. So, what eventually happened is: after being general manager, they created a new job which was Vice President of Transportation. I reported to the Vice President of Operations, but my job was to clean up the railroad. So, the day after Christmas, in 1989…, no, that’s not right. Let me see. Yeah, it’s probably ‘79… Yeah, the day after Christmas in 1979, I left on a private jet to go straighten out Houston. I took with me Bill Lacy, who was another guy who was a fugitive, or a victim, of the R.L. King syndrome. Really smart guy. Came from Texarkana. He’d been superintendent of the Cotton Belt twice removed before I was, and Rollin Bredenberg, and another guy who had run the terminal at Pine Bluff, Lon Marsh. We flew down to Houston, and what finally happened is, things were so screwed up, somebody had to say something about it and we had this guy, Joe Neal who was really a character––
BB: I know Joe.
RK: Okay, they made him the head of, uh––
BB: He was a character [laughs].
RK: [Laughing] You never knew what he was up to. Lots of the time, you didn’t want to know.
RK: They made him the head of marketing in the east end of the railroad, and he finally told Biaggini, I can’t sell anything, I mean, [laughs], you don’t even have a product, nothing is moving. These people hate us, our customers hate us.
So, Biaggini got upset, and that’s when he made me Vice President of Transportation. So, I went down there with these guys, and Neal knew we were coming and he hired a helicopter, and we went out and we flew over the giant Inglewood Yard, and all we saw were thousands of railroad cars. There wasn’t that much of a track that didn’t have a car on it. [gestures] And nothing was moving. In the meantime, there were forty-two trains set out on the main lines, east and west of Houston, that couldn’t go anywhere because Houston was blocked.
So, Lacy, he gets this idea. He goes into the middle part of the classification yard, and he couples five tracks together, and…see, this is…okay, this is the day after Christmas. So, this is probably right around the first of the year now, and he couples them together, and he hauls them out on the Beliare sub, which is this old branch that we didn’t really use for anything. And there were cars in there, there were carloads of Christmas trees, and he just left them there. We delivered those Christmas trees in March. Because then he could…
BB: Tree season.
RK: …open up, yeah, he could open up a little, little avenue to get things going. And it took us four months. I stayed down there most of the time, and finally after four months, I called up one morning and there was not one train set out on the Texas & Louisiana Lines. And the first thing we tried to do was, Okay, we know Inglewood, we gotta get cars out of Inglewood that don’t have to be switched, so we went over to the Lafayette Division, on the east side, and we said to the Superintendent, What we want you to do is, every car you get from the east, we want you to make two blocks: one for Houston and one for beyond Houston. You got that? Yup, got that. So, then we thought, Okay, we’ll take the ones that don’t have to go to Houston, we’ll just run them right through and go over to San Antonio and switch them over there.
So, we went over to the San Antonio Superintendent, we said, We want you to make two blocks. Every car you get that’s going east, one block for Houston and one block for beyond Houston, and we’ll take the cars that are going beyond Houston, bring them to Lafayette and we’ll switch them there. [They] said, we got it, we got it, boss, we got it.
We’d come back, day later, [laughs], sitting in Houston every car would just be all jumbled up, and we’d come up and say, Didn’t you get that? And they were so shell-shocked after all this time, they just couldn’t do it. So, we… I think I changed out twenty-four of the twenty-six top operating people, and I didn’t fire one of them. Larry Phipps was the Superintendent of Lafayette Division. I went through the training program with him. H e’s a great guy. We made him the Superintendent of Oregon. He did a great job. But everybody was just absolutely…
BB: Worn out of it.
RK: …beside themselves, yeah. So that took, uh, it took four months to do that.
And there were two special trains, I remember very well where Biaggini would start out on this cruise around the railroad. And the first one wasn’t too long after I got down there, and we were still trying to clean the place out. And the train dead-headed to New Orleans and then we got on the train, and it was going to go all the way through to L.A. And we got close to Inglewood, and Lacy is by that time in command. He’s not on the train. He’s trying to maneuver things, and we got held out of Houston for an hour with the Chairman and CEO. And Biaggini took it pretty well… because he could see the progress and we told him exactly what the situation was. And then, a few years later, I guess when I was Vice President of Operations or maybe even President at that time, we made the same trip, and-- except we came-- we started out I guess in St. Louis, came down the Cotton Belt, came down through Shreveport, went to Houston, and then made a left turn and went to New Orleans, and the train was turned around and it was going to, not dead head because we were on it, but in the night, it was going to go back to Houston.
And so Biaggini after dinner, he said, You know, I just want to go back and look at the railroad. And I said, Okay, do you mind if I come back and sit with you? He said, No, fine. So here we are, cruising along, seventy-nine miles an hour, nothing but green signals. The track is just so smooth. And the moon, you could see the moon, and you could just see these steel beams, and Biaggini turned to me and he said, I can’t tell you how much I enjoy this. [Choked up] That’s about the nicest thing he ever said to anybody [laughs], but I remember when I gave the eulogy at his memorial service, I remember quoting that. That was the difference between Houston then and Houston before that.
BB: What struck me in-- in that is a comment I think you made about doing it by inches, right? There wasn’t a magic pill or a magic bullet. It was going down and doing everything that it took, inch by inch, to work your way out of it.
RK: Yeah, and there were a lot of things, a lot of smart things that Lacy did. We had all these grain cars coming in and we had to switch them from all the railroads and then deliver them to the big grain elevator on our property. So, Lacy made a deal. Instead of charging a hundred and fifty bucks, if you put them in a string of cars, in a block, I’ll only charge you seventy-five and we won’t have to switch them at Inglewood. He did that with rock trains. Hauling rock was, you know, you lose a dollar and make it up on volume.
RK: And…but so he put together these unit trains. The trains just kept turning, they never got switched in Inglewood. We had this situation where if you wanted the plastic business, these people that made plastic pellets, you had to store the cars because they would keep producing the…
RK: …the plastic and then they would sell it later. So, if you wanted their business, you had to have a place to store their cars. And we had them stuck all over the place, and the switch engines couldn’t get out on the main line. So, we took a yard and we made that a storage yard for plastic cars.
Just little by little, those things. The guy before me, DeMoss, he hired a whole bunch of clerks. He built a bunch of tracks, and we never ended up needing the tracks, and we got rid of all the clerks. Uh, so anyway, that was-- that was when I was the Vice President of Transportation. I came back to San Francisco and then got made Acting Vice President of Operations. So that would have been May 1980. Yeah. And that’s when the Staggers Act was passed.
RK: And… that was a really big deal. The industry under regulation, got dumb, fat, and happy, because we had this legalized collusion. We had these rate bureaus, and if we weren’t making enough money, we just raised the rates. We all agreed at the same time, we raised the rates. And of course, we got more money per car, but everybody started using trucks [laughs], so we were pricing ourselves out of business.
And then the Staggers Act came along, which was going to, uh, deregulate the railroad, and we thought, Aw, this is going to be great, now we’re going to be-- we can control our own lives, you know, We can-- we don’t have all this government regulation and… So yeah, Biaggini was all for it, a bunch of other CEOs in the railroad industry weren’t, but they passed the Staggers Act. And that was in 1980.
BB: That’s when Darius [W. Gaskins, Jr.] was the ICC Chairman.
RK: Yeah, well he probably had a lot to do with that! Yeah, well good for him… well, of course the railroad was still, I mean we were okay. We got Houston straightened out, but we had a backlog of maintenance that we needed to do on the railroad. We didn’t exactly have a shortage of locomotives, but there weren’t a whole lot to go around. And then we got the Staggers Act. And we weren’t making a lot of money. We probably weren’t making any money, really. But at least we were taking care of our customers and business was getting better and there was a better spirit in the railroad, and then the Staggers Act comes along, and what happens? They deregulate pricing. So, we used to get six thousand bucks for a carload of automobiles that we would get in St. Louis and deliver to L.A. Now, you can go out and you can compete, and you can sign a contract for all that business. First contract we signed we got fifteen hundred dollars a car, seventy-five percent rate reduction. That’s what the Staggers Act did.
RK: In the long run, it saved the industry. So, that’s when I just started, I think I cut off six thousand people in eighteen or twenty months.
BB: So, who did the analytics to help you figure out who to cut, take out? Did you have a staff of people that said, Hey, we can afford to eliminate these positions, or was it- - was it just observation of operations?
RK: See, it was just me. I would wake up in the morning and decide whether to close the Roseville mechanical facility, the roundhouse. Everybody said, You can’t do that. I said, Well, give them five-days’ notice. We’re going to do it. We have to because we’re, we’re running out of cash. And we did. Yeah, that was also at a time when there was this -- the railroad had this history of having its own medical department, you know. Because when they built the railroads, the railroads had to build hospitals because there weren’t any hospitals.
RK: Well, we didn’t have any hospitals anymore, but we still had a Chief Medical Officer, and and there was a cardiovascular physician in San Francisco who got tired of seeing people when they were about ready to die. And he said, I’m going to start a preventative medicine establishment to help people, so they don’t have heart problems. He called it Physis, and it was right on the Embarcadero not very far away from Market Street where our office was. And a bunch of corporations put a lot of executives into this thing, and our Chief Medical Officer wanted to start-- at least to have SP try it. So, he was going to put five people in this, and the first person he wanted to have was Charlie Babers because by that time Charlie Babers probably weighed over three hundred pounds, and he was a chain smoker. And Babers said, I can’t do this. I don’t have time to do this. And what you’re supposed to do is, I think, three or four days a week, you…at four o’clock, you’d go there and put your gym shorts on, and you’d go through exercises. You’d get on some kind of a machine, and then they would tell you––which we didn’t pay much attention to––what you should eat or what you shouldn’t eat. So, the Chief Medical Officer came to me and said, I want Babers to go in this thing, and he won’t do it. I say, Why won’t he do it? [The Chief Medical Officer replies,] Because he doesn’t have time. I say, Well, I’ll tell you what. You put me in it, and if I have time to do it, he’ll have time to do it. So, we became buddies––
RK: ––and we would go down there and put our gym shorts on and do all this stuff, and it changed my life, and I… lots of time, I’d be on a treadmill when I figured out what I was going to close next.
BB: How did he take to this?
RK: He did great! He lost eighty pounds. He never stopped smoking, then when the program was over in nine months or something like that -- he stopped. I kept exercising, and he gained back all his weight [laughs].
RK: [Chuckles] Yeah. Yeah. Before we started recording this, I was up there on an elliptical machine this morning. And I do that four times a week. My dad had his first heart attack when he was in his fifties, and I figured this is something you need to do.
RK: And even when I was working, I’d do it at lunch. Instead of having lunch, I’d go to the gym and we built a gym at Burlington Northern Santa Fe, we took an old building and converted it into one, and even in the Railway Exchange building here in Chicago, there was one machine up on the top floor, and I would go use that at lunchtime. But anyway, that’s what helped get me through this period because it took a lot of stress out of me, and it also was a nice time to think.
BB: So, King was VP of Marketing, deregulation comes along. He doesn’t sound like a guy that was probably in favor of it, just from what you said. How did that play out? Did he stay on there, did he move out, what was his trajectory?
RK: Well, I’ll tell you what. The greatest attribute, maybe it was an attribute, was his dedication to the railroad. And he died one Saturday morning of a massive heart attack down in the garage underneath the railroad office building on his way to work.
BB: Oh, boy.
RK: So, I guess, maybe that was just by the time I became President, but I wanted to get somebody who really knew what marketing was, and I hired this guy, Jack Edwards, who was…
BB: American Can?
RK: No, it was not American Can, California Can.
RK: Yeah, and he was just kind of fresh air, fresh look at everything. And they had tried before, they had brought Pete Vida in, who I think had worked for maybe IBM and that didn’t work out very well, and we hired guys from Harvard Business School who were going to be marketing experts, and they all got disappointed and left or were ineffective. But once we got Edwards in there, we actually started to understand what customers were all about and how we could take care of them. And we finally had the wherewithal to take care of them, and that was a big deal. And Edwards and I would set sail every year and go to Japan and China and call on all the steamship companies over there; go to Singapore, go to Hong Kong. And we got a lot of business.
BB: Well, you guys were the first ones with the double-stack…
BB: …train with Sealand.
RK: Yep. So, we were-- that was moving right along when, in 1980 Biaggini started talking about -- not really out loud to us, but, you know -- about merging, and he and the board… I guess I was kind of involved in that, because I used to get to sit in the back row at the board meetings and just listen to what was going on. And we decided to try to merge with Santa Fe, and it didn’t -- it didn’t work. And I think the main reason was because, if you put the two railroads together, especially if you’re looking at Southern Pacific, we had all this real estate, we had pipelines. If you bought gasoline in Arizona, there was an eighty-five percent chance it came on an SP pipeline, either from the Gulf or from the Los Angeles refineries. Biaggini had bought Ticor, a title insurance company. We never could figure that out. We actually owned a company that made clarinets. Anyway, that was part of Ticor. We were in the title insurance business, we were in the insurance/re-insurance business, we were in all this stuff.
BB: Was that an effort to diversify ––
BB: –– like some of the others?
RK: Yeah, he knew Rocco Siciliano, they were both on the Pay Board together, I guess when Nixon was President. And this Ticor company was under threat of being taken over, and Biaggini swooped in and bought it. We woke up one morning and we owned this thing. How does that work? So… where was I headed? Um…
BB: Merger time.
RK: Yeah, okay. So, the railroad was kind of second fiddle, and even though we got it up and running, it wasn’t carrying its own weight, and the idea was, let’s do a merger, and Santa Fe was the right one. And so we talked to John Schmidt, who had taken over from John Reed at Sante Fe, and I think we maybe came pretty close to a deal, except they were really worried about having to go through the ICC and that process. They couldn’t merge until the ICC said Okay, you know. It could have taken three or four years, and what would happen to all of Southern Pacific’s other assets? Would they atrophy? And, so as a result, Santa Fe broke off talks.
That was in ‘80. So, we just kept, you know, plugging along on the railroad, and in ‘82, that’s when I became President of Southern Pacific Transportation Company. But they did me the disfavor of having to continue to report to Denny McNeer. He had been the President, and they made him the Chairman.
BB: He was the President before Biaggini?
RK: Before…no, of the railroad.
RK: Not, not the holding company. Biaggini was the CEO of the holding company and Denny, I think they made him President of the railroad, but he didn’t do too well. And of course, I was in there talking to Ahern all the time and telling about how This is screwed up and That is screwed up and Why are we doing this and Why are we doing that, and so eventually Ahern went in that back way and told Biaggini, You probably need to make a change, and they didn’t have the heart to get rid of McNeer, so they just made me report to him.
BB: [Laughs] Congratulations.
RK: [Laughs] So I could just go in and scream at him. I mean, I’m embarrassed now. He’s the nicest guy, but he didn’t have the right background. That’s when I became President, in 1982.
BB: So how did that happen? A phone call from Biaggini, what’s the setting? So, they give you any advance notice, or…?
RK: No, I mean I guess I complained enough to Ahern that he got Biaggini to do it. I guess Biaggini called me in. I don’t know if Ahern gave me any warning or not, but all I know is it happened.
BB: So, no big ceremony, it was just––
RK: No, no, there was no big ceremony at all. And it was, it was written up in the press releases. Denny McNeer is stepping up into this job and Krebs is coming in. By this time, I got to go to all the board meetings. I just sat in the back row. Every once in a while, they’d call on me to answer some questions.
And the board was not content with the SP situation. All these other mergers had gone on. Burlington Northern had been created. I guess by that time we had the MoP/UP merger, and when I started out with SP, we were the biggest railroad in the country, and now we were like, fifth or something. And so, they said we needed to merge. So, we went back to Santa Fe, and this time they made a deal. And the way they satisfied the concern of Santa Fe was, we’ll merge the holding companies immediately so you can get control of the real estate and the pipelines and all that good stuff, but we’ll put the SP in trust. And we’ll go to the ICC, and we will have an independent SP. There’ll be a trustee that controls SP until the merger, which will certainly be approved, is finalized.
And so that happened, and then, what the SP got to do -- remember, this is really a takeover of SP by Santa Fe – and SP got to name the number-two guy. And I found out later from R.J. Miller…R.J. Miller was a pillar on the board at SP. He was one of the original whiz kids. He became the President of Ford Motor Company, and he got tired of doing that. He became the Dean of Stanford Business School, and they put him on the SP board, and I found out later from him… Okay, so SP got to name the number-two guy on this new Santa Fe-Southern Pacific corporation, and they named me the President and CEO. But I found out later from Miller that Biaggini wanted to name Alan Firth the Southern Pacific guy in the number two spot, and the board wouldn’t let him do it. So it was kind of funny because one of the last times I had lunch with Biaggini, at the Pacific Union Club in San Francisco, I remember walking out in the rotunda afterwards, and he said some good words, and he said, You know what, you never let me down [laughs], and I thought, Well yeah, but somebody else had to give me the chance [laughs] ––
RK: So anyway, that’s what happened. So, I met Schmidt in ’84, and we were this giant company. I mean, we were a conglomerate. We had two railroads (one in trust). We had a trucking company. We had four different pipelines. As I said, we had a very important one moving refined products into Arizona. We had a coal slurry pipeline, the only profitable one in the world. We had 450,000 acres of timber in Northern California. We had a million acres of timber in Texas and Louisiana. We were one of the largest producers of plywood in the country. We had Santa Fe Energy, which had a whole bunch of oil down in Southern California. It was the tenth largest independent producer of petroleum in the United States. We had a construction company. We had the company that managed Los Alamos, which was the place where they invented the atomic bomb. We had a fledgling mining company that was producing coal in New Mexico, and we were starting a gold mine in Northern California. All that under one roof.
And the stock was trading at about twenty-four bucks a share, and if you took all the assets and separated them out, it was probably worth sixty-five. And right on top of that, we were going through this process trying to get the railroad merger approved, and Schmidt made a bunch of really stupid mistakes that really upset the ICC. He started painting the color for the new locomotives and the merger wasn’t even approved!
BB: What was the saying the initials stood for, Shouldn’t Paint So Fast?
RK: [Laughs] Yeah, I never heard that! That’s really good. So, what happened was -- Schmidt was the kind of guy that, he had to do everything. He had to approve everything, and he never left the office on Michigan Avenue. So here are all these companies, and the guy who’s running the real estate wants to build a $20-million company’s warehouse in Southern California, rate of return 15-16 percent. Slam dunk. They have to write it up, then give it to me -- because after a while, I was supposed to be in charge of a bunch of the different subsidiaries -- and I would take it in to Schmidt. And Schmidt, because he didn’t want to make a decision, would write red ink all over it, and I’d turn it right around in twenty-four hours and ship it right back into him. And eventually, he would have to approve it.
And one time I said to him, I walked in there, and I said, You know, John, all these subsidiaries that we have, you know who their biggest enemy is? He said, No, who? I said, We. He said, You accusing me of being the biggest enemy?! I said, I didn’t say ‘you’, I said ‘we’. This holding company is holding these companies back from doing what they should be doing, and you’ve got good managers who know how to do it and they just want to do it. Well, that was kind of the end with me and Schmidt. So that’s when I went out and started just getting to know all the companies.
And then the ICC, lo and behold, we were at a board meeting…let’s see, that was on July 23rd, 1986…So we’re in the board meeting, and there were thirty people on the SFSP board because neither former company had the guts to fire anybody when we had the merger. Plus, Schwartz, and Firth, and me were board members as well, so we had thirty people. But it’s like addressing the United Nations. We had this giant board table and it wasn’t big enough. But anyway, so Schmidt’s sitting there at the end of the board meeting, and he says, I’m going to get on the corporate jet. I’m going to fly to Washington, D.C. Tomorrow morning I’m going to the Interstate Commerce Commission building. I’m going to go to Hearing Room B. I’m going to sit in the first row, and I’m going to watch the Interstate Commerce Commission approve the merger five-to-nothing with no conditions. We…y’know, people looked around… and he got most of it right. He got to Washington, got the right city, got the right building––
BB: Got on the right plane.
RK: -- he got the right room [laughs], and they turned him down cold, one-to-four. Oh, my God. And I was out at the pipeline headquarters in Los Angeles, and I get in the elevator to go to a meeting with the pipeline management, and Ray Hankes, the CEO of the pipelines said Did you hear the word? I said, What happened? [He replied] ICC turned down the merger. Well, that was kind of the beginning of the end for Schmidt. He’d had a lot of problems with the board. He was a really paranoid guy. He tried to fire Miller, Biaggini, and Bill Hanes, who had been the CEO of Chevron because he cooked up something about [how] they had a conflict and they got their own lawyer and beat him. So, Schmidt tried to make a deal to parcel out trackage rights and get rid of the anti-competitive situation and then go back to the ICC, and they turned him down again one-to-four. Actually, he was gone by the time they voted, but it got turned down one-to-four.
So, on April 17th in 1987, the board convened a special meeting, and we knew…I just knew from Biaggini, because Schwartz and Firth and I went around and talked to some of the directors, because we heard the idea about We’re going to fire Schmidt. And we said, Don’t do that. We can make some changes. We can do delegation. And we had the special board meeting. It was on Good Friday. And each one of us -- it was an executive board meeting so there was no staff – but Schwartz and Firth and I got called in one at a time to answer questions, and we all said the same thing: We can make this work. And about four o’clock, the board meeting is over, everybody’s running out to catch their flights back to wherever they’re going, and I walk into Schmidt’s office…the man has no job. And the way it came out, and the way it should be recognized as Schmidt saying, I’m stepping down, I have other things that I want to do. And that’s the way it was announced. So anyway, he’s gone. And they make Reed the Acting CEO and then start a search.
BB: So, he’d been retired for a little while.
RK: Yeah, he had been retired…well, let’s see. The merger was in ’83. This was in ’86. He was probably retired in ‘80, somewhere around that. Now Schmidt had been CEO for a few years before we made the merger. So…
BB: That’s quite a comeback, from, you know, being retired for five or six years to…
RK: Yeah, he’s a good guy, and we had this great big question mark: What the heck are we going to do? In the meantime, the Henley Group had started buying our stock. Michael Dingman was this guy…Allied and Signal merged, and the guy who was running the company wanted to get rid of Dingman. He had been the CEO of one of the two companies, and so he gave him a bunch of little subsidiaries. They called them Dingman’s Dogs, and they spun them off, and he called it the Henley Group because he was a great fan of rowing, and there’s this big regatta at Henley in England––
RK: So, the first thing that Dingman does is… This guy’s a dealmaker, and he looked at Santa Fe, Southern Pacific-Santa Fe, and he saw all these assets and the stock’s trading at twenty-four, so he started buying it. And he actually had some conversation, I guess with Schmidt, and then he went to see Reed when Reed was the CEO and said, I’d like to buy the company, and Reed said, No, thank you, but it’s not for sale.
So, then on Black Monday, October 19th, 1987, the market went down four hundred points or something. SPSF went down 35%, and Henley Group bought all the shares they could. Next thing we wake up and they own 14% of the company. And we had a poison pill so if they got too far, then they would have been diluted by the stockholders all getting to buy stock at half price except for Henley.
But I thought to myself, Okay, I’m… I don’t know if I’d been made CEO at that time or not. I probably was. And I thought, I’m working for the stockholders, and if we can get sixty-three or sixty-four bucks a share for the company, we’ve got to sell it. It’s just that simple. So, I worked with Goldman-Sachs. Hank Paulson was the Chicago rep at the time, and we were good friends, and I had a lot of confidence in him. And we put together a 24-page submission to give Dyman to buy the company at sixty-three bucks a share; ten billion dollars. And he was flabbergasted. I wasn’t there, we had Goldman-Sachs present it, I was at the symphony in Chicago when I went out and found out what happened and how it all went. And he said, I’m just really surprised you’d do this. I think this is something that we can make work. And he had a credit line of $6.6 billion. I think City Bank was probably the lead. But then he thought, Well, I don’t want to take on a lot more debt, so I want to do a part-stock transaction. So he came to see me, and we negotiated a deal where we valued the Henley Group stock at twenty bucks a share. They wanted twenty-five, but that meant our shareholders got the cash and more shares. And we shook hands on the deal.
And the next morning, he calls me, and he says, Rob, there’s a shitty part to every deal – his exact words -- and the shitty part to this deal is, I can’t do what I just told you, because he went back and told his people, We’re gonna do this deal and have a backend exchange valuing us at twenty bucks a share, and they said, You can’t do that, and so he reneged. So that’s when we started a fight to control SFSP. And he was going to wage a proxy battle.
About that time, Olympia & York, a company based in Toronto, big in the real estate business -- they also owned Gulf Oil of Canada -- they got interested in all of our non-railroad assets. And so, I got a call from Mickey Cohen, who had been the finance minister of Canada, and then they hired him, Olympia & York did, saying, We’re interested in SFSP. And I said, Oh, sure. So, they bought some shares, and together, the two of them, if they colluded, would have gone over the 15 percent limit where all our shareholders would have bought stock at bargain basement prices. And they couldn’t do that. Henley sued to get rid of our poison pill and lost. And then we got a call from Mickey Cohen saying, You know, we like what you’re doing. We want to be a passive investor, and we just want to work with the company, and we want to buy up the 15 percent. So, we gave them two seats on the board, and that was the end of Henley.
BB: Did you have outside advisors, investment bankers, advising you on all of these complex, potentially complex transactions?
RK: Yeah, I sure did. And see, the other thing that was going on at this time… I guess I skipped a few things here. But at this time, when we couldn’t do the deal with Henley, I called George Roberts at KKR because I had met him in San Francisco. I said, You want to take a look at buying our company? And he sent a bunch of people out, and they looked and they said, Yeah, we can give you fifty-two dollars a share. Well, I knew it was worth more than that. And I said, No, we don’t want to do that.
So finally I said to myself, Well, why don’t we just do to ourselves what somebody else is going to do and all the benefit goes to our shareholders instead of these private equity guys or somebody who is taking money away from the people who really should have it? And so, we did. We announced the restructuring, I mean, we gave our shareholders a 4.2 billion-dollar dividend. We borrowed 3.6 billion dollars to pay that dividend. We gave them a thirty-dollar a share dividend, part of which was a pay-in-kind debenture, a pick debenture, 11 percent interest, and you didn’t pay the dividend or the interest in cash, you just added it on to the principal. It was like a timebomb! We sold off a bunch of companies, and we got rid of our debt in about twenty-four months, four years early. And there was one time when we were close to missing a $400 million principal payment, but we made it.
In the meantime, Henley had to do something and he wanted to get out, and a guy by the name of Sam Zell, better known as the Graverobber, owned a car leasing company, railroad car leasing company, and so did Henley. And Zell took --- he wanted that car leasing company, and Dingman got him to take the Santa Fe stock as well because there was some tax advantage for him to make this part of this transaction. And so, I get this call one day from Sam Zell, who I knew because he was interested in buying the SP when we were going to sell the SP, so I was familiar with him. And I answer the phone, and I said, Krebs, and he said, Rob, and I said, Hey, Sam, what’s up? He said, Guess what? [I said], What, Sam? [He said], I just bought 15 percent of your company. [Laughs.] So, he comes over on his motorcycle and tells me how much he loves the Santa Fe and how great this is going to be. Oh, my God.
So, now I had Zell and Reichman, and we gave them both two seats on the board, so almost forty percent of the stockholders were represented on the board because they both owned about twenty percent of the company. And that’s when we went through and we finished the restructuring. We spun off the real estate. Zell knew the guys at CalPERS, the great big pension fund in California. He got them to pay thirty-five bucks a share for the real estate company. And then we spun off the eighty percent tax fees to our shareholders. That stock over time went down to… thirteen? We took the oil company public at eighteen bucks a share. Spun off the rest to our shareholders. And it went down to eight. We did a MLP [master limited partnership] of the big refined products pipeline. When the dust settled, all that was left was the poor little Santa Fe railroad and a fledgling mining company that we eventually built into the fifth largest gold producer in North America, but it was too small at the time to spin off. And you could have bought the stock in the company at five bucks a share, and it went up 50 percent, compounded annually for six years, while all these great natural resources that Zell and Reichman and Dingman and everybody wanted --
BB: Went the other way.
RK: Just went like that. [motions downward] Oh, and the other thing we did is we sold the SP, part of the way we paid off our debt was to sell the SP to Phil Anschutz. And that was a story in itself because Reed and I went around and used the company jet before I sold it, and we called all the CEOs of the big railroads saying, Would you like to buy one of our railroads? And none of them wanted to. So, we said, Well, okay, well, we just got to put the SP up for auction.
BB: Not even a nibble.
RK: Not even a nibble. We talked to Drew Lewis, who had just taken over UP. We talked to Arnold McKinnon at Norfolk. We talked to John, uh…the one who became Secretary of the Treasury…
RK: …Snow at CSX. Nobody wanted it. So, we also knew that-- I knew that the better of the two railroads was the Santa Fe by far. I never said this when I talked about showing up at the Santa Fe, but it just ran like a clock, day after day after day. As opposed to the SP, which was, you know, What calamity are we going to deal with this morning?
RK: So, we put the SP out for bid, and we had three, I’d say, legitimate buyers: KCS at a billion dollars, Melon at a billion (but I didn’t know where he was going to get the cash), and Phil Anschutz.
BB: Tim Melon?
RK: Yeah. And Anschutz, who had purchased the D&RG and made a killing… I mean, he bought the D&RG and basically paid for it with the cash they had in their bank account, and he had this guy Holtman running it who had run the D&RG, you know, before he bought it. He just left Holtman there. Holtman was a good guy. So, Anschutz, he tells Holtman, I’m thinking I might like to buy the SP. And Holtman says to him, Well, would you rather have a little railroad that makes a lot of money or a big railroad that loses a lot of money? And Anschutz said, Well, I think I’ll take the big railroad. So, he offered $625 million.
And everything was set up for us to accept the KCS offer because I knew they could get it approved, and I also knew they had the money. And they had hired Dick Spence as their coordinator or advisor. And I’m sitting in my office down at the Railway Exchange building on a Sunday with a pile of papers like that [gestures], just trying to get through them, and the phone rings, and it’s Anschutz. And I pick it up and he says, Rob, you’ve got to sell me the Southern Pacific railroad, and I said, Why, Phil? He said, Because I can get it approved. I said, Well, Phil, the KCS can get it approved. There’s only one thing that’s going to get the SP railroad, and that is cold, hard cash. And I hung up the phone. And the next morning––that was on a Sunday––the next morning, Anschutz bid a billion twenty-five million, and so we sold it to Anschutz.
So there we were, sitting there as the Santa Fe railroad. And I’ll tell you, people were scared to death. People thought the Santa Fe railroad couldn’t exist without all of these other assets. And we started to whittle it down. I didn’t ask, I just gave every person on the staff somewhere between a twenty-five and a four percent wage cut. I was the only one that took twenty-five. My admin, she took four percent. But we also gave them stock options. Every staff person on the railroad, every management person had stock options and a bonus plan based on safety, service, and profitability. And they all made back much more than they would have if they just had their same old salaries. And the Brotherhood of Locomotive Engineers was so skeptical about the railroad’s future and so scared that they actually agreed to a five year deal, with no wage increases except if there was inflation, and they were on the same bonus plan we were. And so, we started the beginning of building the Santa Fe.
BB: I think what’s interesting is you ended up at a job in San Francisco which was sort of a nothing job -- purgatory, you described it as. You end up at the Santa Fe in Chicago, and you’re not running the railroad. You end up with this sort of amorphous, nondescript job of trying to make sense out of the subsidiaries, but in each case, you managed to make something of the job. I mean, there’s some people who would have just sat there and said, Okay, I’ll wait for somebody to tell me what to do and if they don’t, I’m just going to hang around and collect my check. And you seem to be able to create opportunities out of whole cloth and make something out of it that was both good for the company and for you professionally in terms of development.
RK: Yeah. It wasn’t wasted time because in both cases, I got to know the company, and I got to find out things that were very helpful to me later. The Santa Fe, I was amazed at the Santa Fe. The Santa Fe was so politically oriented. I mean, it’s just who you know. Schmidt had this little coterie of people that were all lawyers, and it was just a constant battle, you know. Who does he like? Who’s this? And some of the departments were barely functioning. The Law Department…if you wanted to talk to the Head of the Railroad Law Department, you’d better get him before lunch, because they all went down to the Chicago Athletic Club, which was about two blocks down the street on Michigan Avenue, and they’d sit there and drink martinis at lunch! You know [laughs] --
BB: The good old days.
RK: –– in a railroad that has Rule G, and you know, you’re not even supposed to drink––
RK: I put a stop to all that. Yeah, it was just so politically motivated.
BB: So, it wasn’t tired from working out at the gym down there.
RK: No, it wasn’t.
BB: So, the trial.
BB: Yeah. That’s an interesting saga on its own.
RK: Yeah, we had two things that were really killers. So, I told you that Schmidt wanted to get rid of Bechdel and Hanes. Steve Bechdel was the Chairman of this big Bechdel Corporation––
BB: In San Francisco, right?
RK: Yeah. And Hanes was on his board. And ETSI was this pipeline, a coal slurry pipeline that was supposed to be built from the Powder River Basin down to Houston and other parts in the Southeastern part of the United States to deliver coal, coal slurry. And, of course, that was not a really happy thing for railroads because we were moving all the coal.
Well, we had the right-- they didn’t-- I don’t know how it worked out, whether they had the right of imminent domain or not because they had to cross over our tracks, or under our tracks, in order to get down to Houston. I guess they finally battled that out and they won that, but in the meantime, they never really had a customer. They never could get the water. There were so many environmentalists that were opposed to it.
It turned out the best thing they had was a lawsuit saying that the railroads colluded to keep them from building this pipeline. And they sued everybody but the Santa Fe. The Santa Fe was pretty much an innocent bystander, and by that time, Bechdel and Hanes were on our board. Well, Schmidt tries to kick them off, and they leave and the next thing we know we were added to the lawsuit. This is about the time I was becoming the CEO. I went through all the stuff. They had one little letter from Reed to somebody. It wasn’t really a smoking gun, it didn’t seem to me. All our lawyers were saying, Aw, you know, we’re innocent.
We were strapped for cash. We had our 4.2 billion-dollar dividend, and we were trying to pay down our debt and so we said, Okay, we’ll go to trial if we have to. We could have got out probably for 25 million bucks if we were the first railroad, and I know the first one to do it was maybe the UP or, I don’t know who it was, but anyway, it turned out everybody else settled for a grand total of 350 million bucks and we were the ones going to trial in Beaumont, Texas. This wasn’t some fly by night local court. This was a federal court. And I thought, Okay, well we’re going to get a fair chance here. And we hired this lawyer, Fred Firth, who was a plaintiff’s attorney from San Francisco to take our case.
And I went down there along with Jerry Donahue who was the head of our Legal Department and we watched the trial, and we hired a shadow jury. They’d sit and listen and then we’d go and hear what they had to say, and this guy Firth was just wowing everybody. He was just absolutely incredible. So Robert Parker, the judge, called us in after the trial had gone on for, I don’t know, maybe a month or so, and he says, You know what, you guys are just doing great here, and this thing is going to be over next week. We’re going to have our oral arguments next Monday and Tuesday and the jury’s going to take the case and it’ll be over. So, if I were you, if you want to settle the thing, if I were going to make an offer, I’d just do it over the weekend and then we’ll see what happens. So, we offered eighty million bucks to settle. And that just infuriated the judge.
BB: Why, do you think?
RK: [laughing] Well, because he was a good old boy down there with all the plaintiff’s attorneys from Beaumont, even though he was a federal judge! So, he issued a partially directed verdict, tossed it over the transom that Monday morning, which basically told the jury, Well, Santa Fe is guilty. So, you know, we just never could get-- we couldn’t get our arms around the impact that that had.
In the meantime, we had a board meeting out in L.A. and Zell really got incensed when we were talking about settling, and he got up, threw something down––his napkin down, it was a dinner meeting––onto the table and said, This is my money you’re spending and I’m not going to spend a penny more than a hundred and fifty million to settle this lawsuit! So, we offered a hundred and fifty million, and they came back with a hundred and sixty. And I took Zell’s word for it; Firth told me, Don’t settle, don’t settle, we’re going to win this! Well, we lost. The verdict was three hundred and fifty million and it was trebled. [Laughs.] Because it was an anti––
BB: Anti-trust case.
RK: Anti-trust, yeah. So that was like a billion dollars. We also had another lawsuit. This was when Schmidt was -- I guess before he was CEO, he made a deal with Texas Utilities to lease them a whole bunch of coal in New Mexico. We had all these coal deposits. And they did a lease because I think it was helpful to both companies for taxes. But this lease payment was a [take-or-pay contract], and it was escalating up to as much as seventy-two million a year, whether they’d mined a lump of coal or not. And it turned out they didn’t need the coal. And we were supposed to build a railroad up past where our existing coal mine was, and we never built the railroad because they never needed the coal. And they went to Schmidt, this guy Earl Nye, who was the CEO, went to Schmidt and said, You got to help me out here. I’m spending fifty million bucks a year now for nothing and it’s going to get higher and I just can’t do this. And Schmidt said, A deal is a deal, and just write the checks.
So, they sued us, and they said that the railroad and the holding company colluded to keep from allowing them to get to their coal. And after being burned once, my lawyers came and said, Aw, this is a slam dunk, not a chance in the world they’re going to win this! So, we hired a retired federal judge and we did a mock trial in Santa Fe. There were six jurors and six alternate jurors, and both sides presented their case. And I walked out of there, and I remember saying, Aw man, our guys are so good. They don’t have a chance!
The jurors came in the next day. There were ten who said we were guilty and two who said we were innocent. [Laughs.] So that’s when I said, We’re going to settle this case. We’re just going to settle this case. So, I sat down with Earl Nye, and he wrote us a check for a couple hundred million bucks, which we used to bargain down and pay the ETSI settlement. We got it down to 343 million, I think. And then they paid us seventeen million bucks a year, and we guaranteed them that we’d build the railroad and they never wanted the coal and they never will want the coal, so that was the end of that one.
BB: Did you build the railroad?
RK: No, we didn’t have to.
BB: Oh, okay.
RK: Because they never told us they wanted the coal. And, of course, now they’ll never want the coal.
RK: Using coal, that’s a bad deal, right?
BB: Yeah. Yeah.
RK: So those were those two cases.
BB: So can you talk a little bit about the management at SP, between Schwartz leaving and Haverty coming in and… ?
RK: Oh, at Santa Fe, you mean.
RK: Yeah. Well, Cena was long gone, and Schmidt made Schwartz the President of the railroad. Schwartz is a good guy. He’s another lawyer, he didn’t have any railroad experience. He never left the building. Well, maybe a little bit, but he was smart enough to let people who knew the railroad run the railroad. And Haverty was the Vice President of Operations, and Haverty I thought was a good guy, too. People liked him. He worked his way up. He knew the railroad. He had common sense. And so, when Schwartz decided he wanted to retire and move to Santa Fe or someplace out there in the desert, my recommendation was we make Haverty president, which we did. And that was while all this restructuring was going on and Zell was still an owner of the company. Zell thought the railroad was worth next to nothing. He said we should get rid of the railroad, and we just didn’t pay any attention to him. I guess we convinced him that we had all of these other things that we were doing, and they were coming out alright and so we’d just work on the railroad for a while.
As we set about to fix the Santa Fe, it never had to go through what SP went through with the downsizing and cutting off of people. But it was ripe for that kind of activity because everything was always just so wonderful, and nobody really worried too much about how much money it was making because it was making money. So, I said to Haverty, We’ve got to start making cuts. He didn’t do much. So, I just called the closest superintendent in––it was the guy running the Chicago Division––and I said, How many people you got at Corwith in the mechanical department? He said, I got thirty-five. I said, Great. Cut fifteen of ‘em. [Laughs.] Haverty’s sitting down at the end of the table, and after a while, he just got up and left. He couldn’t take it. But that’s what we did, we just worked through, and I cut off a couple thousand employees over a couple of years.
In the meantime, Haverty, he got the…he was kind of like Schmidt, he was a little paranoid, too. But he got the feeling that it was him or me, and he made a big mistake: he wrote a letter to the board and said that. So eventually he had to go. I tried to talk him out of it; he wouldn’t budge. So that was in ‘91, June of ‘91.
BB: So, had you given thought to double-tracking the Transcon at that time?
RK: Not yet. I just thought, there’s this great big main line that goes from Chicago to L.A., and it’s just not a problem, everything is smooth as it can be. We can put all the trains out there we want. I forgot…Oh, there’s 670 miles of single-track in the middle of that main line. See, Haverty was a genius in one respect. He’s the guy that got Hunt to come on the railroad. He took J. B. Hunt on a business car trip from Chicago down to Kansas City, on a big intermodal train with a Hunt trailer right behind the business car and signed up this Quantum thing. And today, the biggest customer on BNSF is Hunt. Bigger than all the grain, bigger than all the coal, bigger than everything.
BB: And it was a transformation for them. Now intermodal’s a bigger part of their business than over-the-road trucking.
RK: Oh, absolutely. Absolutely.
BB: It’s a contrast with Schneider, who, you know, Schneider was always, I’m not interested in competing with myself on intermodal or that sort of thing.
RK: He finally came around––
BB: Eventually they did.
RK: Yeah, and I knew him pretty well because he was from Green Bay, and we spent a lot of time in Door County. He was a nice guy.
BB: Mmm hmm. Yeah.
RK: A good guy. Okay, so where are we now? We’re 1991…
BB: Well, can I take you back?
BB: Because it’s something I forgot to ask before, but when you were at Pine Bluff, you started your own diversity program hiring Black switchmen and brakemen. Plus, I understood it was a one-for-one. And that’s 1973 or ‘4 or something like that.
BB: That was pretty avant-garde, particularly in that part of the world. How did that work and how did the field react to that kind of thing?
RK: Well, I was a California person, right? There was no segregation in California.
RK: And when I got the Cotton Belt, first thing I noticed [was] all these old broken-down stations had separate bathrooms for Black and White people. And we had only White people in train service. And that was the beginning of Equal Opportunity, and we did a lot of government work and the government was looking for us to make a change, and I felt like we should make a change, so when we were wrapping up all this business, we had to hire a whole lot of brakemen and switchmen. And I told the Assistant Superintendent in charge of Administration who was charge of hiring, What I want you to do, is I want you to hire some Black brakemen. He said, Okay, boss, we’ll do that. So then, he had to send all the applications that he had approved and were ready to hire to me so I could look at them. The first thirty, there were no Black people. So, I said to him, What’s the matter here? He said, Well, there are no qualified ones. I said, No, I know there must be, so try harder. So, the next thirty, there’s thirty more White people. And I said, I tell you what we’re going to do. We won’t hire one White brakeman until we hire a Black brakeman. And then we’ll go one for one for one. So, if we’re going to have any more employees hired on this railroad, it’s going to be fifty-fifty. And that broke it. And then––
BB: How did the people in the field react?
RK: I’m sure they didn’t like it.
BB: Yeah. You never got any… ?
RK: No, I’m sure it was tough for those first guys––
RK: ––but these were jobs made in Heaven for these people.
BB: Right. Right.
RK: That put them in the middle class.
BB: Sure. Good benefits.
BB: What about in engineering and mechanical? Did you do something similar there?
RK: Yeah, but-- I’ll tell you one thing. In the Engineering Department, we promoted a Black fellow to a management Roadmaster’s position. First time ever, probably, on the whole railroad. Maybe the whole system. And the guy was great. We always had this management meeting around Christmas time where we took spouses, and we got everybody together, and we had this little club right across from the condo where Anne and I lived. It was a private swimming club, but it had a nice banquet facility. So, we signed that thing up and it’s like two days before the meeting, I get a call from the Division engineer. He says to me, They do not allow Black people in this club, so I’m just going to tell this guy he can’t come.
RK: And I said, What? So, we moved the meeting! We moved it to Admiral Benbo. They had a banquet facility at the hotel, and we moved it there.
BB: And they were okay with that?
RK: Yeah. Yeah, ‘I’m just going to tell him he can’t come.’
BB: Geez. Well…
RK: It’s a different world.
BB: Yeah. It is. But did that spread across the system, gradually?
RK: Sure. Sure. Okay… where are we?
BB: So, 1991. The managing the Total Quality Initiative. I think that goes hand in hand with what you were saying about streamlining the workforce and so forth, but can you comment more about the things you did?
RK: Yeah, well we spent billions of dollars: starting the double-track, buying locomotives, building new terminals. We had two really fortunate things happen. UPS, which at that time I guess was probably our largest customer, built this Chicago-area consolidation hub. They bought an old General Motors stamping plant. That building was so big -- it was right next to our main line -- that building was so big, if you laid it on its…if you put it up and tipped the thing up, it would be taller than the Sears Tower. They could park twelve hundred trucks at their docks at one time. Big trucks, not little trucks. And we built a yard right next to it, and they didn’t even have to drive those trucks out on the public road to come back and forth between our railroad, and that’s when we started these intermodal trains, especially for UPS, that would get from Chicago to L.A. in about forty-eight hours.
BB: This is Willow Springs.
RK: Yeah. And then we also --- the Perot family bought a whole bunch of property up north of Fort Worth, and we ended up putting a railyard out at Alliance and that became a big hub for us, too. So, we had great hubs in both Houston and Chicago. And UPS, our service was so good that…their crunch time was the day after Thanksgiving to Christmas Eve, and we always handled about thirty-five thousand of their fifty, fifty-three-foot trailers during that period of time. One year, we did it without one, single failure. So, we moved fifty-five million packages without one single failure. And then we go ask them for a rate increase, and they beat us up and down [laughs]––
RK: –– they were the most thankless people. And then eventually when we tried to merge with the CN, they were all over shooting that down. But anyway, we got to the point where we were as good as trucks. Once we got to the point, the business started to grow, and it grew exponentially. I had some statistics here about Hunt…
BB: Oh, yeah. 14,300 units in 1990 to 125,000 in 1993.
RK: Yeah, and today, I know it’s probably half a million. So anyway, we started making good money, we fixed up the railroad, we took Haverty’s advice and painted all our locomotives in these war bonnet colors, and we were running a great railroad. And people were proud of it. But the problem was, we just weren’t big enough in the long run to survive and to get to the next step because railroading, it’s a network business.
RK: And the bigger your network, the more valuable you are to your customers. Which is why, ultimately, I wanted to do a Transcontinental merger, which I never got to do.
BB: But you talked about it with some of the Eastern carriers.
RK: Yeah, I did. I actually had an idea I was going to buy Conrail at one time. I went back to see the guy running that place. I don’t remember his name now, but he rode a Harley-Davidson motorcycle.
BB: Dave Levan.
RK: There you go, yeah. And he would have nothing to do with it, and thank God he would have nothing to do with it because that would have been a major calamity.
BB: He’s running the Harley-Davidson dealership in Gettysburg, Pennsylvania.
RK: Is he? [Laughs.]
RK: That’s probably the dream of his life.
BB: Yeah, I think so.
RK: Yeah, there was a time I wanted to merge with Norfolk Southern. That would have been perfect. But that came after BNSF.
Anyway, I looked around and I thought, the perfect railroad for us is Burlington Northern. Both Western railroads; they’re Northern tier, we’re Southern tier. They have all this grain and coal business; we have the premier intermodal franchise in the United States. There’s not a lot of overlap; should be easy to get it approved. So, that’s when I started talking to Gerry Grinstein, and I guess that was in ‘93.
BB: So, you initiated that with him?
RK: Yeah. And what I found out later-- you know, he wasn’t just jumping all over to do it -- but I found out later from Mike Yanney, who was one of the pillar board members on BN, that they weren’t happy with the way the railroad was running. And so Ben Love and Yanney and Danny Davison, who had run the US Trust Company, went to see Grinstein and said, Gerry, we want you to find somebody else to run the company. And he said, Are you firing me? And they said, No, we’re just telling you to get somebody else to run the company. And so, a merger with Santa Fe was a way for that to happen. But I also found out that he called up Dick Davidson and said, Do you want to be the CEO of Burlington Northern? And Davidson was about ready to take the job, and then the UP board found out about it, so they hustled him into a position to take over from Drew Lewis. And so now Grinstein had to go back to merging with the Santa Fe. We finally agreed to it, so we announced that…let’s see…we announced that on June 30th, 1994.
BB: What was interesting was the Drew Lewis interposing.
RK: Yeah. Well see, I called all the CEOs and gave them fair warning that we were going to do this. You know, originally maybe Lewis called me because this took a long time to get done, and the rumors were everywhere. And Lewis said, Fine with me, I like competition. I’m not going to get in your way. Well, okay. So, we announced it on June 30, 1994. And on October 5th, Drew Lewis called me up and said, I want to buy the Santa Fe. And I said, Well, Drew, we have a contract to sell it to Burlington Northern. He said, Well, you better listen to me because if you don’t, you’re just going to read about it. So, I said, Okay. He said, I’ll be in your office at two o’clock in the afternoon in Schaumburg.
I called Bob Helman, who was my Chief Legal Advisor, and he came running out, and we hashed out what we were going to say. Helman was going to start out by saying, You know we have a contract to sell the Santa Fe railroad, but we have a financial responsibility to our shareholders to get the best price and we have an out in the contract if we have a better offer.
So he comes…we’re standing up and we’re looking down at the front of the building, and these two black limousines pull up, and Lewis gets out and Davidson comes along and he gets out of the other. I guess he came from Omaha and Lewis came from Pennsylvania. And they come up in the elevator and as they walk in the room, all of a sudden it smells like we’re in a gin shop. This is two o’clock in the afternoon, and every indication was Lewis was… under the influence.
BB: Pre-tripped himself.
RK: Yes. So it starts out and Helman says, Drew, you know we have a contract to sell the Santa Fe to Burlington Northern, but–– and before he can get to the second half of the sentence, Lewis stands up, takes out an envelope from his breast pocket, throws it on the table, and says, You’re making a big mistake, I’ll pay twenty bucks a share! And with that, he turns around and walks out; walks around my desk. I had this great big long desk. It was a conference-table-like desk. And Davidson is sitting there, and finally Davidson gets up and as he walks out, he sticks his head back in and says, Bye! [Laughs.]
BB: And that was it.
RK: [Laughing] So, then I open the envelope and it’s like, fourteen dollars a share or something. So that was that. So, I told Gerry right away -- but the offer I think was a little bit more than…yeah, maybe it was seventeen bucks a share. But it was a little bit more than UP’s offer, I think. Or a little bit more than BN’s offer. So I told Grinstein, and they decided to up their offer because we’d done enough preliminary studies by then that we knew we were going to save a lot more money and that the BN could actually pay more.
BB: Now what was the strategy for UP to make that offer? It wasn’t a particularly good fit, there’s a lot of overlap in some of the major quarters and so forth.
RK: I’ll tell you what happened. A guy by the name of John Burns was running Alleghany Corporation. Alleghany had been in and out of railroads. I think they owned the Missouri Pacific at one time. And they owned a couple million shares of stock in Santa Fe and they thought we were selling it cheap, so they called up Dick Davidson and said, You ought to buy -- the BN’s getting away with murder here -- you ought to buy it, and then UP started looking at it and I guess they decided, Why not?
But it was a pretty overlapping merger, and it would have had a heck of a time getting approved at the ICC, or later, Surface Transportation Board. So anyway, that’s what they did and then right in the middle of it, Lewis exited the scene because he had to go to some rehabilitation place. And, the way Fred Frailey described it, it was like the BN and the UP played tennis with each other and Santa Fe was the ball. [Laughs.] We just keep going back and forth, and finally I made a deal with Burns and another guy who had a pretty good stake in the company that not only would the exchange rate produce a better price, but if over time the company was doing well while we were going through the merger, we would use our cash to buy more stock, which would make the stock that they eventually got more valuable.
So we worked all that out, and then we were going to go into a proxy fight, and I was out running around the country trying to get institutional investors to vote for us when my admin calls me -- I’m changing planes in O’Hare -- and reads me this letter, a week before the shareholder vote, that the UP is giving up. So that was that.
Oh, and then the other interesting thing is, while all this was going on, I get a call from Anschutz, and he said, Rob, I want to have lunch with you. I’m going to fly into O’Hare, and will you meet me at the Hyatt hotel and have lunch? I said, Sure, I’ll do it. We sit down, he says, I want to buy the Burlington Northern -- by this time, he owns SP -- I want to buy Burlington Northern, and I want you to come be the CEO. I said, Phil, first of all, that’s the two crummiest railroads on the West, and they’re going to be fighting the two best railroads. That’s just not going to work. Plus, I’m not going to let something happen that’s not good for my shareholders. I’m going to take the best deal. And so that was the end of that.
BB: So, he just backed off from there?
BB: Well, that’s interesting that he didn’t have more fight in him than that.
BB: Was it just a gambit, do you think, to see if you had an interest in coming over to be with him, or… ?
RK: Well, I don’t know. A lot of things had to happen to make it work, you know. First of all, the UP-Santa Fe deal would have to be approved and that was one of the reasons why I kept just telling the UP, We’re willing to sell you the Santa Fe, but we’re not going to put our shareholders in jeopardy. So, you want to pay for it up front and put it in trust, that’s fine. If you don’t want to do that, we think that the odds of approval are a great danger for our shareholders and we’re not going to sit there and wait to see what happens regardless of what you say you’re going to pay. Because I really don’t think it could’ve been approved without giving away an awful lot, maybe giving away so much that it wouldn’t have been worth it to have the merger.
BB: Or how long would it taken if you think about the UP trying to buy the Rock Island and what happened with that.
RK: Yeah, that was ten years.
BB: And ended up in––
BB: ––nothing. Yeah. So, now the deal gets done with BN, right?
BB: And you go to Fort Worth as CEO.
RK: Well, the deal was, I was supposed to go there as CEO and Gerry was supposed to be the non-executive Chair. I was going to be President and CEO. So, I called up Grinstein. I waited until both shareholders approved the merger, and the ICC approved the merger. And then I called Gerry up one day, and I said, Hey, we’re going to get together here, you got the right to appoint two-thirds of the board and I want to meet your board members and if you just give me their phone numbers, I can contact them. I’ll go around and talk to each one of the board members. I didn’t know any of them. He said, Alright, let me think about that. And he called me back and said, You don’t have to do that. There’s going to be a meeting this Sunday in Dallas, and they’ll all be there to meet you. So that was… it was in August of 1995, I don’t remember the exact date.
I was up in Wisconsin, I think I got picked up on an executive jet and flown down to Dallas the night before, and Sunday morning, I get up. Fortunately, I was smart enough to at least have a tie on and a blazer. I walk down, and there are all these BN board members in their coat and ties, and there’s a formal boardroom setup with all their black binders and everything. This wasn’t just “Get To Know Krebs,” this was a real board meeting. And they looked at me a little funny, like, What are we going to do with you? Finally, they asked me if I wanted to sit down and have breakfast with them and I said, Sure. Grinstein wasn’t around.
BB: So, they didn’t know why you were there?
RK: No, they knew why I was there, they just didn’t know I was supposed to be there at that time. [Laughs.]
BB: Oh, okay.
RK: And I didn’t know the whole reason why the meeting was called was because Grinstein wanted to get rid of me before I even had the job. So, I guess they must have called Gerry in his hotel room and said, Stay up there. And then they went into executive session and after about forty-five minutes or so, they called me in. And Ben Love, who had been the CEO at Texas Commerce Bank, was kind of the lead director and he was running the meeting, and he said, first words out of his mouth were, We’re all a fan of Rob Krebs. And I said, [laughing], What does that mean?
BB & RK [in unison]: But…!
RK: [laughing] Yeah. So, Whitaker, Ed Whitaker, who put AT&T back together, he’s sitting across the table from me, he said, What’s all this crap about moving the headquarters to Chicago? He might have used a stronger word than ‘crap’, I don’t remember. And I said, I work for you. I’ll do whatever you want. There’s a great big operation center here in Fort Worth. That’s where we’re going to run the railroad, but there might be some staff functions like finance that would be better in Chicago. I’d just like to take a look and see.
And then Yanney asked me something about, Well, okay, how’s the BN performing? And in my own, I thought, hospitable way or nicely put, I said it wasn’t working very well and it could be a lot better, which they all agreed to. They wanted to know what I thought the operating ratio would be. And then we talked about how to slim down, and Barbara Jordan was sitting across from me and I made sure I said that, We’re going to do this, we’re all going to do this together, and we’re not going to do this on the backs of the people who work for the railroad. I’m sure that got her vote. And then they said, Okay, thank you very much. You can go.
BB: How long did that last?
RK: Probably an hour. And I’m sitting outside again with Gerry’s admin, who is just nervous as hell. Still no Gerry. And then Whitaker goes out and he gets in the elevator and goes up in the hotel, and then he comes back down again and goes back in, and then they call me back in. And they say, Alright, we’re all for you being the President and CEO, and we have just a couple things we’d like you to consider. We’d like Ben Love to be the Chair of the executive committee, which will meet monthly, and we’d like Danny Davison to be a non-executive Chair of the corporation. So how do you feel about that? And I said, Well, I work for you. It’s fine with me. Not a word about Grinstein.
I flew back with Arnold Webber, who was the head of Northwestern University and was on the board. And he said, That was a good meeting. It went well. I went back to Chicago and I got a call the next day from Gerry saying, I’m going to retire. I said, Oh. Okay. I was very careful when we put the railroad together. I picked half the senior people from BN, half the people from Santa Fe. The head of the Personnel Department or Human Resources at BN was very well liked by the BN board members. And so, I picked him to run the whole personnel thing. That really smoothed everything out.
BB: How did you pick…when you go down the list of chief positions, senior executive positions, how did you… I mean, you probably knew the Santa Fe people intimately.
BB: Did you have a good feel for the BN people, and how did you make a decision between this guy for that or this guy for that?
RK: Well, first of all––
BB: Did you do interviews with them?
RK: Yeah, sure. I talked to each one individually and I said, This is what I’m going to propose for you to do. I think I remember meeting Greg Swinton here in Chicago, and we made him the Head of Marketing for coal and grain, or it was for grain and then when Anderson left, we gave him coal, too. But I started with the premise, it’s going to be fifty-fifty. I knew I wanted to have McInnis do Operations. I knew I wanted to have Shultz do intermodal because Santa Fe was the intermodal railroad. Doug Babb, who had been the head of the Law Department, I liked him, I trusted him, I had confidence in him, so I made him my Chief of Staff. And then we put Jeff Moreland in from the Santa Fe as the General Counsel. John Anderson, who had run coal, was coal. I divided Marketing up into these three different leaders. That was about it, I guess.
And the thing that really helped me was the Burlington Northern had this great severance program. And it wasn’t like you have to lose a job to take it. You could take it whether or not you were offered a job. So, I never even said word one to a lot of the BN people. They were fleeing. [Laughs.] A few stayed behind. There was a guy, a General Manager, Mueller, who I made General Manager of the Powder River Basin because I’d been on a train trip a number of times when I’d met him, and I thought, There’s a good guy, he knows whatever is going on. And this severance thing that they had lasted for two years from the time of the merger. So here’s Mueller, he’s in charge of the Powder River Basin. We got three big coal derailments in a row, and I finally said to him, Why don’t you get out there and find out what’s going on and fix it? Instead he just went home and phoned in and said, I quit. [Laughs.]
So, somewhere somebody said that not many people…although Krebs was tough, not many people left him voluntarily. Well, there’s one that did. Another guy was Mike Frankie, who had been the chief engineer at the Santa Fe, and one day he just quit. He didn’t even bother to call me. He just walked out of the building.
BB: Mike was the General Manager of the Chesapeake Western in Virginia when I was a trainee. It was a little short railroad that had three locomotives.
BB: He was a known iconoclast, I guess, a young man at the time, and I think he got-- that didn’t fly well in Roanoke, so he was exiled to there.
RK: But he was a good guy, I mean, he did everything we ever asked of him. He put in a hundred and fifty million bucks building Stampede Pass back up in the Pacific Northwest. Of course, I was on him all the time, Here’s your budget, this is your time table, and get it done. And he did, but he was living over in Indiana, and he never moved down to Fort Worth, even when he was working in Chicago. He had a car that looked like a cop car with a whole bunch of radio antennas on it––
RK: ––and every day, he would drive over to Indiana at ninety miles an hour. He’d pass cops and they’d wave at him. He just didn’t…he had a family life that was important to him, God bless him, and I guess that finally just… he couldn’t make it both work. I wish he just would have come into my office and said, Rob, I can’t do this anymore.
BB: Yeah. Right. Understandable. So, there were some notes that I was reading about when you took your son up to the Hyde School and you participated in a session up there that had an impact beyond just the school with you. You care to comment on that at all?
RK: Yeah, well two things happened that pretty much saved me from failure, I think. One of them was the Hyde School. My son was between his freshman and sophomore years. No, it must have been his sophomore and junior years in high school. He was the apple of Anne’s eye. The kid could do no wrong, except when he did do wrong, he did big time. [Laughs.] There was a fellow who was an educational counselor that helped both our older son Robert and Duncan, our youngest son. And he said, You ought to consider the Hyde School, a boarding school in Bath, Maine. It’s called Hyde because Mr. Hyde was the founder of Bath Iron Works, which General Dynamics eventually bought and was one of the largest shipbuilders in the world during World War II. And the school was in his old mansion. And a guy by the name of Joe Gauld, he was your typical teacher, coach, at a boarding school, and he woke up one day and said, Nah, this is just all wrong. I’m teaching kids how to repeat meaningless facts that they forget after they take a test, when what a secondary education is all about is building character. So he quit, and he started this Hyde School, and it was based on the premise that each one of us has our own unique potential and it is up to us to take the responsibility to develop that potential, and that you can teach character.
He started the school and he got a lot of kids that needed some character, and it all worked great except they went home for the summer and he lost them, and then he brought them back again and he had to start all over with them. So, he said, Okay, if you’re going to have a kid at Hyde School, you parents will also participate. And we, typical dummies, we think Hyde School is going to fix our kid, right? We dumped him off there. We had our interview that we had to have, a mandatory interview, the family had an interview, just my wife and me and Duncan. We dropped the suitcase off on the front porch of the dorm, went on our charter jet, and flew to Los Angeles so I could go to a meeting out there. And I found out two years later that the interviewer was walking down the hall after our interview and the wife of the Headmaster was walking by and she said something about, Well, how’s the Krebs kid? And the interviewer said, The Krebs’ kid’s just fine. It’s the old man who’s all screwed up. [Laughs.]
So, we go to the first meeting when we’re there. All the families show up, you know. It’s not your typical tailgate when you go to a football game. We walk in this room, and there’s a circle of chairs. There’s a Kleenex box on the floor in the middle of the room. I said, What the hell is that? Somebody’s going to trip over that. And we’re all sitting there with our kids and we go around, and everyone…the leader of this thing, the facilitator who’s one of the teachers, says, Okay, now we all have our issues, and what we’re here to do is to get these issues out in the open. And there were people from all walks of life, and when they got to us I said, We don’t have any issues, we just have a kid we need to get fixed, and they all looked at us like [laughing]––
RK: ––[laughing] ‘Holy cow, you don’t know anything!’ They also had this thing called an FLC, Family Learning Center, and you had to go individually with your kid for this four-day session where you got into, you know, What are the issues in your life? What is your background? My wife went first, she came home in tears. She was in tears for a week. Because they kept telling her, What are you doing with your life? Are you living up to your potential? And why aren’t you?
So, then I went to mine, and Joe Gauld was –– he was the founder of this school –– and the man is a genius, and he’s ninety-four years old now. I have so much respect for him. He came in and talked to us when I went to my FLC ––about when, Malcolm his son who later became Headmaster first went to work at the school -- I don’t know how our time is doing here, but this is worth talking about.
RK: Malcolm is going to teach geography, and the first day of class, he’s walking across the field back to the mansion, and he sees his dad and he’s got all these papers in his hand, and he goes to his dad, and he says, Dad, I don’t know what we’re doing here, but this is just not working. We don’t have the talent here. We don’t have people that we can even teach. And his dad said, Well, I don’t know, what do you mean? Let me see your papers. So, the paper had a diagram of the United States, and people were supposed to write in the states. And the most names that were written in were something like forty-three, and they included Israel [laughing] and Denmark and places like that. And the very least that were filled in, were two spaces, and that was Ohio and Maine. So, Joe pulls out this one, and he says, Now, look at this, Malcolm, I think you got a lot that you could work with here. Look at this guy. He said, Well, Dad, he only knows two states! This was from an inner-city school kid from Cleveland. He said, Yep, but he knows where he’s been, and he knows where he’s going. That was the attitude he had. So anyway, that rubbed off on me. I mean, this thing about ‘we must take responsibility for our lives’, ‘we cannot control our kids, our kids have to take their own responsibility’. They have some sayings: When in doubt, bet on the truth; still in doubt, bet on more truth. The truth will set you free, but first it will make you miserable.
RK: And it got so, I went back to BNSF, all I had to do was walk into the meeting and say, The truth will set you free, and everybody else would say, But first it will make you miserable. Eventually, forty thousand people at BNSF got a taste of Hyde.
RK: Yeah. And I’ll show you why in a minute.
BB: Well, I’m curious before you do that, just your earlier comment was about the hall conversation about, The kid’s fine, it’s the old man who is all screwed up. What was it that you said or did in that initial meeting that had him conclude that that was part of the issue?
RK: It’s the fact that I showed up dumping my kid on the doorstep there and saying, You’re going to fix him, and I’m sorry, I’m outta here.
BB: Got it.
RK: That was––
BB: That was enough.
RK: That was a good hint. [Laughs.]
BB: Yeah. Okay.
RK: Yeah. Well, Joe Gauld helped me. He mentored me as I was going through this -- trying to put together this company with these disparate views and people who didn’t like each other…
BB: Red team, green team kind of thing.
RK: Yeah, all the coal guys hated the intermodal people because they got locomotives, and all the intermodal people hated the coal people because they got the locomotives. But he made me understand that my main job was to get people to want to achieve their unique potential, for the good of themselves and also for the good of the institution that we all work for. Because I was so used on the Santa Fe, I mean, I would get in my car – – my house was right over here across the ravine at the time – – and I would drive to Schaumburg to go to work in the morning, and it would take me like forty-five minutes to do it. And I would have a tape recording from every part of the railroad as to exactly what went on that day while I was asleep. In fact, what I had the audio-visual guys do was speed up the sound because I couldn’t quite do it in forty-five minutes, so they’d be talking a little faster about everything that was going on. [Laughs.] And I could call every shot, and I was kind of like King in a way, you know, their General Manager, or the yardmaster of the railroad.
BB: Super Trainmaster.
RK: Yeah. But you couldn’t do it when you had forty thousand people and twenty-five thousand miles of railroad, especially when nobody was on the same team. So anyway, that was Hyde School, and then the other thing was the Aspen Institute, and Doug Babb, God bless him. I guess he asked me if I wanted to talk to them because this guy -- Walter Paepcke, I think his name was -- came from Germany, and he started Packaging Corporation of America. He saw what happened to his native land and Hitler and World War II and he said, This should never happen in America, so he founded this Aspen Institute. And it was based upon the traits that make America, or any community or civilization, great: liberty, equality, community, and efficiency.
So, you would go to the Aspen Institute, and you’d be there sitting with a guy from General Motors and a guy from General Foods and all the top executives, and you would do these readings. You would read about Plato and Aristotle and Machiavelli and Martin Luther King, Jr., and you would search for what the meaning of liberty, equality, community, and efficiency was. And at the end you would get divided up into separate little groups and everybody would pick one of those people they had read from and then explain to the rest of the group why that person should be the CEO of your company.
They explained all that to me, and I said, Yeah, I think it’s worth it. I’d like to do that with my senior management team. They said, No, no, you’re going to be with people from General Motors and General Electric and everybody and it’s going to be really good. I said, No, no, that’s not what I want to do. I want my senior management team there because we’re trying to build a team, and I want the spouses. [They said], Oh yeah, it’s possible they could come to Aspen, they’ll love to shop, it’s great. [laughing] I said, No, no, I want the spouses to be there and be in the meeting! Because I thought, there’s all this pillow talk going on, What’s Krebs doing? I’m telling everybody…this is a whole new world for people. We’re responsible, we have to get these things done. They said, Okay, sure, they can come to the meeting. So, I had them send out two binders to each family: one to the office to the executive, and one home to the spouse. And then we all showed up one day to start this program. I think there were probably six or seven couples.
BB: Did you do it in Aspen, or did you do it in Fort Worth?
RK: No, Aspen, we went to Aspen. We show up, and there’s this table, round table, and there’s about seven chairs and then there’s a bunch of chairs back around the outskirts or the wall of the room, and I said, No, no, no. This is not the way we’re going to do it. We want everybody at the table. They said, Well, we’ve never done that. I said, Well, fine, we’ll just wait here until you get a bigger table. You can figure out how you’re going to do it. And we did that. And everybody was involved.
What we ended up with––it took a couple more steps, but we ended up with this little book, Vision and Values. Because we talked during the day about liberty, equality, community, and efficiency, and then everybody went out––if it was the winter they went skiing, if it was the summer they went hiking or whatever. We did this with, I think, five different groups because it was so powerful with the first management layer, we went down to the second layer and did all them, too. I guess it was three more meetings. Anne and I went to all of them.
BB: And how many days were you there?
RK: It was three days, I think. Four nights maybe. But not only did we go through liberty, equality, community, and efficiency, but then in the afternoon, the execs came back, and we talked about, What kind of company do we want? What style? What shared values do we want? What’s the mission of the company? We had a guy from Stanford Business School lead that discussion. So, when we got all done, each one of these groups had: this is the style; this is what our shared values are; this is what liberty, equality, community, efficiency mean; and then finally, what are the evidences of success? In other words, how will we know that what we did, we really did?
Alright, so we had multiple versions of this, and then Babb also was smart enough to hire John Locke, Professor of Leadership from the Harvard Business School. I didn’t know you could be a Professor of Leadership. So, we had all the senior execs who had been to these four sessions and we were hammering out one version that would become what BNSF was. And it was just a mess. I mean, you still had the coal guys bitching about the intermodal guys, and I remember standing up and saying, I’ve never seen a company so screwed up in my life!
And Locke is just standing there [laughs] like, What the hell? So, he says––and Harvard Business School professors never tell you anything. It’s all case study. You have to figure it all out yourself––but he finally said, Okay, I’ve had enough. There are three overriding questions. The first one is: should it be an intermodal railroad or a coal and grain railroad? The second one is: should it be centralized or decentralized? And the third one is: should Krebs be Mary Poppins or Darth Vader? And he said, I’m going to tell you the answer to those questions, but first I want everybody to stand up and raise your right hand and repeat after me: I will never say the b-word or the s-word again because that’s BS. And then he said, Okay, intermodal versus coal, you’re going to be both! You got a great big railroad, you got different lines and different places where the business is and the more business you put on the railroad, the more money you’re going to make. Centralized or decentralized, you’ve got a computer system, you can be centralized, but you also can-- the people in the field can know what’s going on and become part of that system and you can put responsibility back in the field. And as far as Krebs being Darth Vader or Mary Poppins: take Jack Welch. He’s a wonderful, warm guy. If you don’t work well for his company, he’ll find you a job somewhere else. [Laughs.]
RK: And that was it. That’s what put the railroad together.
BB: Wow. May I see that? [referring to the booklet, Vision and Values]
BB: Well, that’s insightful stuff. Did that continue…? As people transitioned through jobs, did you go back and do that again?
RK: Oh, absolutely. I tell you what, that went out to forty thousand people. And we went on and we had town hall meetings. I personally went around to BN sites. This guy John Locke, he showed us two videos: one of Borman, who ran Eastern Airlines at the time they got deregulated and said, You will have to do this and we will have to cut this and we will do this, and the other one was SAS, and they put a little pamphlet like ours together with pictures and cartoons and they said, This is what’s going to happen in deregulation and this is how we’re going to have to respond and this what’s coming and this is the way we all have to work together. So, we kind of copied that SAS thing in a way.
But yeah, I went out to the town hall meeting one time, I went to the old headquarters of the GN&NP in St. Paul. I walked into the theatre, downtown theatre, and there were probably four hundred, five hundred people because that was the headquarters, the clerical headquarters of the railroad, so these clerks had jobs for life. And there were people with red t-shirts, union t-shirts, outside handing out leaflets, saying, The seven reasons why you should not believe President Krebs. They had never met me. I hadn’t said a word. So, I go in there and we have this knock down drag out meeting. I held this thing up [Vision and Values booklet] and said, How many of you people have seen this? I got a few hands, so I said, You better read it because it is the Declaration of Independence, it is the Constitution, and it is the Bill of Rights of this company, [chokes up] and if you ever want to know why we do something, it’s all right here. And I’m still emotional about it. Take community. BNSF is a community of over forty thousand mutually dependent members. Each one of us depends on BNSF for our livelihood and through our collective efforts, BNSF depends on us to defend, sustain, and strengthen our community. And then we had little quotes from people––
BB: Yeah, I read their-- the selection.
RK: Yeah. The style: as a community we’re tough-minded optimists, decisive yet thorough, open and supportive, confident and proud of our success. We read a quote from Chris Everett: You got to take initiative and play your game. In a decisive set, confidence is the big difference. We’ve got a quote from Roy Disney, we got a quote from Henry Ford, we got a quote from Thomas Jefferson. Equality: as a member of the BNSF community, I can expect to be treated with dignity and respect, to be given equal access to tools, training, and development opportunities, and have equal opportunity to achieve my full potential. You know where ‘full potential’ came from.
So anyway, just little by little, that brought the railroad together. It didn’t hurt that we spent billions of dollars buying locomotives, and it took a couple years before we didn’t have to hold a train for power. One year, I called up the guy running the GE Locomotive Division and said, I want to buy 500 locomotives. That was a billion dollars right there. And we painted them all in the color scheme I picked. I used the war bonnet Santa Fe design, but I did it in green and orange because that was Great Northern and Northern Pacific, so everybody had something that was part of their past companies.
BB: Yeah. So impactful helps transition into the modern era, then UP goes out and buys SP and you get to relive the Houston scenario from afar this time as it melts down again.
BB: How did that affect-- did Davidson call you for any counsel on how you fixed it the first time, or were they…?
RK: I offered. I went down there with Bredenberg and Buck Horn, and met him in Houston and we told him what had to be done and we told him what the mistakes were and we told him what we went through and we even gave him some locomotives, even though our business was up 10 percent because nobody could ship on the UP and we were hurting. It didn’t make a lot of difference.
BB: So, we get to the end. Things are going fairly well there, and you’ve decided that you’re going to move on to retirement of sorts. Maybe not as soon as you’d planned, but…
RK: Oh yeah, well, I’d planned I was going to retire at 55 and then the merger came along and then I said, I’m going to retire at 60. In the meantime, I went to see Arnold…no, Goode at this time to see if he wouldn’t merge with Norfolk Southern with BNSF, and he wouldn’t do it. It was the biggest disappointment I had in thirty-five years of working on the railroad.
BB: Do you understand why? Did he explain…?
RK: Who’s the guy that was his right hand and wrote a book a while ago?
BB: Jim McClellen?
RK: Yeah. Passed away. He said in his book something that really disturbed me, and it was that they thought -- because when I went to Goode, I said, This is a perfect opportunity. You got the Southern Pacific-Union Pacific merger in front of the Surface Transportation Board. You got Conrail sitting up there and the CSX made an offer for it. There’s no way they are going to have a monopoly up there. You can get all kinds of stuff. Trackage rights. You can get access to the Northeast. And in the meantime, as CSX and Conrail are getting their merger approved, we’ll just sneak in there with Norfolk Southern and BNSF, and we’ll be the first transcontinental railroad, and they’ll have to approve us if they approve the other ones because we are totally end-to-end. And they just couldn’t get this idea out of their mind that they had to have Conrail. I mean, Conrail [was] in a part of the country that was dying industrially. The best thing you could do with Conrail was get a couple of their really good main lines and run intermodal back and forth.
RK: And what really disturbed me in McClellen’s book… because I offered Goode, I said, Look, you run it! We’ll put the headquarters in Roanoke or wherever, and you run it, that’s fine with me. It’s worth it for me to see that happen, to not step up and run the railroad, and I’m very happy to do that. And then McClellen said in the book, We just thought Krebs was kidding and really wanted to run it. Which really irked me, I mean, because that’s not the way I act, you know. I don’t tell people things that aren’t true!
RK: Yeah, but anyway, we couldn’t do it, and so they had to go fight over Conrail and––
BB: And overpay.
RK: –– bid up the price, and then they shut down part of the country when they tried to break it up and put it together.
BB: Yeah, mergers are not easy for anybody.
RK: No. So, then the last one was, we heard that CN was going to buy KCS, and I didn’t want them down here, and I called up Tellier and I said, Okay, why don’t we merge? And so we agreed to that and then the whole world went to hell because all the railroads came out [against us]. I picked up the Wall Street Journal and there’s all the CEOs from the other railroads who have screwed up the country by the way they handled their mergers, saying ‘We do not want any more rail mergers’, and ‘We’re the only [merger] that really worked’. The politicians were against it. Even UPS came out against it. And there was a big problem because when they privatized CN, they wrote into the law that the headquarters always had to be in Canada, and we were going to have to explain to the American politicians, Oh yeah, this is probably one quarter of the rail system in America, but it’s going to be owned by Canadians. And anyway, it just was never going to work, but it did save the CN from buying KCS.
BB: How was Mr. Tellier to deal with?
RK: Good. He was very proud, you know. They were cocky, he and Hunter Harrison. They had a much better operating ratio than ours. I pointed out to them, we had a much lower cost per gross ton-mile of hauling traffic, and I always thought that part of the reason they had such a better operating ratio was that clubby little group of two up there in Canada could raise rates. I’m sure that was part of it, but he was a good guy.
BB: He’s one we’d like to interview sometime.
BB: He was, I think…it took a lot of fortitude or courage to take on what he did with the political ramifications and then downsize the company and make it lean and mean because it was over-bloated and…
RK: Yeah. Typical government entity.
BB: Yeah, and he and Hunter really did a good job on that.
RK: So fast forward. Okay, I decided I’d had enough. I had accomplished my purpose. So I looked around for someone to run the company, and I thought, Okay, there’s no more B and there’s no more S, but it would be nice if it was somebody who had been on the Burlington side of the business. And I didn’t really have anybody at Santa Fe. McInnes by that time, I think he was retired, and we were too close in age anyway.
I saw this guy, Matt Rose, who was down in the bowels of the marketing organization. I think he had Chemicals when we merged everything, he had that product line. He made a presentation to me. I had all these guys come and tell me about their businesses, and Rose impressed me. He impressed me because he was just ornery enough that it wasn’t like he was going to tell me what I wanted to hear. He was going to tell me what I needed to hear. And yet, people really respected him and liked working for him. He was not… it was like R.J. Miller told me one time when we were sitting in a campground somewhere up in the Redwoods that, You know, Krebs, you are not the typical CEO. And I said, Yeah, I know, I’m not six-foot-two or three. [Laughs.] So, I was five-foot-ten. Matt was probably five-foot-two or something [laughs], but he had what it takes.
I told the board, Okay, I’m ready. I think it’s time. The board really didn’t want me to leave, but on the other hand, they understood that I wanted to, so I just said, Here’s the person I think can do the job. I asked Matt to come see me in my office, and I said, Matt, I’ve looked around this company. I think you’re the one that could succeed me, and he said, Well, I’m surprised you say that because I don’t have any operating experience. I said, Well that’s great because Monday you are the Senior Vice President in charge of Operations. And he did a great job there for a couple years, and then we made him President and COO, and gave him a couple more staff responsibilities, and then I stepped away.
BB: And the board was fine with you not doing a formal search or…
RK: Oh yeah, because I did it the right way. I introduced them to him. I told them ahead of time, I think this is the man that can run the company, and then they saw him in action. So, it wasn’t any question about it. So then, he became CEO…
BB: ‘01? 2000? 2000, I guess.
RK: Yeah. December 7th, 2000, is my last day running BNSF. And they wanted me to stick around for a year as Chair, and I said, Okay, I’ll do it. But every time I walked in the room with Matt, everyone was looking at, you know, Who’s running this railroad? And I finally decided the best thing I could do is disappear, and I told the guy who was the Chair of the Comp Committee, Mike Yanney, All you’re doing this last year is paying me to take cruises with my wife because I have to get out of here. Xerox, I think they had had some big deal where there was a CEO succession -- I think it was Xerox -- and the CEO recommended this guy become their new CEO and he did, and the ex-CEO stayed on the board and then got him fired. [Laughs.] I didn’t want that happening. So, I retired then, on May 1st, 2001, one day before I turned 60…That’s it. [Laughs.]
BB: Well, not quite. It says, the quote that I read when you were asked if you missed the railroad, said, No, not a bit. I walked away in 2001 and thought I’d done my job. I put together a company that was running well and found a man to replace me who’s running it better. That’s a very, I think, gracious and heartfelt thought about picking the right guy, and Matt certainly had a stellar career there.
BB: I guess my question is: you did a lot to change the industry in many ways, in fixing systemic problems in the way leadership has, I think, moved away from the almost purely militaristic way. I mean, your comments about the people you were working for was always Mister Biaggini, Mister So-and-So. When I was a trainee at N&W, everybody above you was “Mister” and if you were in your office, you would get up and put your jacket on to go down and see anybody who outranked you. You would never think about walking in with your tie crooked or no coat on. And it was a very, almost like being in the Army. In fact, one of the trainees had to have his hair cut for the National Guard Service for summer camp, and when he got to the railroad, they told him it wasn’t short enough.
BB: So, that part of the industry, I think, it’s not entirely gone, but it’s largely gone, and I think you had a key part in that. So, one of the questions is: what about the industry changed you, if you can say?
RK: Well, I went through this, ‘be in charge of everything; shoot first, aim later’, to being more of a manager of people. I was probably still shooting first for…That CN merger was a long shot. But I think I was more of a manager of a people, and I mellowed as time went on.
BB: So, two follow-up questions. One is: if you had to say, This was my proudest moment, or moments, what would you put on that list? Doesn’t have to be one, it can be ten, but what are the things that you would like to be remembered for or just, even if you’re not, just internally feel good about?
RK: Well, I already told you one of them and that’s that ride on the back of the Sunset in the middle of the night with Biaggini. That made it all worthwhile.
BB: Just one simple sentence, right?
RK: Yeah, ‘I can’t tell you how much I enjoy this.’
BB: That’s quite a compliment, particularly from somebody who didn’t throw them out like candy.
RK: Right. But I guess -- I had to write the book to really understand that what I was -- I was right in the middle of the transformation of a dying industry into one that was the envy of every country in the world.
BB: Right, yeah.
RK: And I was right there in the middle of it.
BB: What was interesting to me is, for somebody who says, you know, I’ve walked away from it and I don’t really think about it a lot, to then write that book, which is clearly very detailed in the process you went through, I think. As somebody who spent time in the Operating Department, the Marketing Department, and the railroad business, I really related well to the challenges and the issues and so forth. So, what took you from, I’m done with this, I’m retired, to, I really want to tell this story?
RK: Well, I said that in the introduction. It was a unique experience, and it was just as sexy as ‘Barbarian at the Gates’ when KKR made a run and finally took over Nabisco, Reynolds-Nabisco or whatever it was. But it was always kind of under-the-radar because it was ‘just the old railroads.’ I mean, the stuff we did was just as significant as a lot of things that got a lot of publicity. This just happened. And the end result was gratifying. Good for the country.
RK: The Northwestern Transportation Center has a Patterson Lecture every year. You know, Patterson was the CEO of United Airlines, a legendary figure, and he gave money and they have somebody give a lecture every year. So, I gave it one a year, and I put together a bunch of slides. I showed that, if you look at the efficiencies that the American rail system made, and the way that rates dropped once we were deregulated, over a period of time –– I don’t know how many years it was, maybe six or seven –– that provided a one-trillion dollar kickstart to the American economy. That was meaningful.
BB: Yeah. Very. Yeah, it is remarkable the transformation of what happened––
BB: –– and it was similar in the airline and trucking industries once deregulation came, it changed dramatically the way the industry functioned. Do you have any comment on what…So, you mentioned the high points, what did you feel -- I probably should have started with the low points first and ended with the high points -- but do you have any things that were just really troublesome, saying, What am I doing here? Why am I doing this?
RK: Well, the main thing was, why didn’t I settle that ETSI lawsuit? [Laughs.]
BB: [Laughs.] Yeah.
RK: That was a billion-dollar judgment. Yeah, I didn’t sleep at night for a while. Especially since we were leveraged to the hilt after we just gave our shareholders a 4.2 billion-dollar dividend.
BB: But you are listening to people who were supposed to know the law and know the odds and, I mean, it wasn’t a solo decision, I presume.
RK: No, but all I had to do was tell Sam Zell to go to hell and give them ten million dollars more and life would have been ––
BB: So much easier.
RK: –– so much simpler.
BB: Were there times when you were a rookie coming up that you -- you know, you’re out there midnights in Roseville Yard or someplace like that saying, Is this the way life’s going to be?
RK: No. I took the job and all that came with it. You know, it’s just that simple.
BB: Yeah. Okay. Well, that’s good. I think I’m out of questions. Do you have anything you want to add that we didn’t cover? The one thing I didn’t ask about is this house, and from the standpoint of someone who grew up in California and lived all over the country, to build this place that is museum-like in quality and reminds me of being in Italy, which I presume was influenced by your time there ––
BB: –– do you want to spend a little bit of time and just talk about what thinking went into it and the process of doing that and what you’re doing with the property?
RK: Yeah, sure. Okay, well, this floor that you walk on, those tiles were made in Impruneta, south of Florence. That stone, right there in that window, came from Settignano, which is just above Florence, and it’s where Michelangelo went out and cut stone when he was a kid. You know, we always liked Italy. We always wanted to build a house -- and Anne and I have probably done ten different houses together because we moved all the time and we rehabilitated houses –– so we sat down, and we designed a house that had a central courtyard, like a palazzo would in Florence. Except the difference was, in the palazzos in Florence, there are no windows there because there’s a wall right next to it and the next palazzo is right there in the center of downtown. But they all had a central courtyard. We kind of drew this thing up, and we got an architect and we took him and his wife over to Florence twice. And he drew up the house, and then, the nicest thing happened. When I was retiring, I didn’t want a bonus. I didn’t want -- I always set my salary at the twentieth percentile of CEO salaries because I’m not -- I spent half my life, more than half my life running around telling people, We’ve got to take costs out, we’ve got to be… So, the worst thing I can do was to make a lot of money. I sold every corporate airplane that I ever inherited. But when I retired, the board said, We want to give you some money, and I said, I don’t want any money because I don’t want to see it in the proxy statement. We finally figured out that they could do it over two years, and they gave me five million bucks, and we built this house.
We started collecting antiques, we started buying paintings, and we just stored them away until the house was done. And so now we have the downstairs, the main big rooms are Renaissance art from some pretty good artists. We have one artist that I told you last night, Cosimo Rosselli, who Vasari, when he wrote The Lives of the Artists during the Renaissance, said, Cosimo Rosselli is the worst painter ever to paint in the Sistine Chapel. [Laughing] But he was painting in the Sistine Chapel!
BB: Right, he’s in good company.
RK: It is a giant picture, and he’s right alongside Gerandio and Boticelli and Perigina. So he was in good company. And then we started thinking, Okay, well, this is something worth preserving. I always had a warm spot in my heart for small liberal arts colleges. I was on the board of Lake Forest College, I was Chair of the board twice, and I love the guy who’s running the place. So, I said, Would you like this? And you can make it a Center for the Humanities. And we’ll give you the house. We’ll give you everything in it, and we’ll give you an endowment to run it. You just have to guarantee for twenty-five years you won’t sell it. [Laughs.] So that’s what we’re ready to do. We bought a lot, a house over here which hopefully we’re going to tear down, about a mile away, and we’re going to build a nice little house, and then we’re going to turn this over in about two years.
BB: That’s a great thing to do, and I’m sure they’ll be appreciative.
RK: Yeah. I think so. They’re already starting to use it. They’ve had meetings here. They bring a class over every once in a while. It’s in the perfect location for them. The house is surrounded by trees. When we bought this lot, it was nothing but just a grassy field. It was owned by the people who owned the house on the other side of the road. So, all we had to do is just plop this house down here and all these trees surrounding it, it looks like it’s been here forever.
RK: And it’s insulated, too. The neighbors don’t even know what’s going on here. We had all kinds of problems when we first said we were going to give it to the college. Oh my God, it’s going to be a co-ed dorm! Oh my God, the football team is going to take this over! You know, They’re going to put a big swimming pool in there––
BB: [Laughing] It’s a frat house.
RK: [Laughing] Yeah. So, we had a little trouble with that, but we finally gave it to the college anyway, and it’ll work out just fine.
BB: Well, I know the Phipps mansion at the University of Denver, you know, that was given to the university, and they use it for fundraising, for entertaining VIPs; not huge groups by any means, but I think there’s a real need for that kind of facility at a lot of universities and this would be perfect for that kind of thing.
RK: Yeah, their idea is, we got, let’s see, we got five bedrooms. If they could bring five ––maybe three or four –– visiting scholars and stay here and have a seminar in the Humanities. They could have maybe a Fellow, somebody maybe who’s studying for a doctorate degree down at Northwestern, live here and manage the house, and they could have classes come over here. They could take a couple of the rooms and make classrooms out of them. It will be a great Center for the Humanities.
BB: Yeah. It’s a great thing to do with it.
BB: Well, thank you for your time, investing with us in this, and retelling the story that people can read a lot of in the book, but I think you added quite a bit of color to it.
RK: You’re welcome. Happy to do it.