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The Rise and Fall of Pacific Enterprises : Corporate strategy: Despite criticism over 'extravagances,' new leaders of Southern California Gas Co.'s parent have faith in the future.

February 16, 1992|MICHAEL PARRISH | TIMES STAFF WRITER

When executives of Pacific Enterprises moved their headquarters in 1990, they went first-class.

They chose the new Library Tower, then the most expensive--and still the tallest--office building in downtown Los Angeles.

To furnish the new offices, they installed custom wood paneling from Africa, a dramatic circular stairway to connect eight of the 12 floors and a $3-million art collection. Boardroom chairs for 16 directors cost $8,000 each.

Chief Executive James R. Ukropina reserved for himself a 3,000-square-foot office complex with more than $300,000 in furnishings. As soon as he took over, in 1989, the company leased a $10-million, top-of-the-line corporate jet.

"Where did he need to fly?," asked a fellow utility executive, "San Diego?"

But Ukropina and his colleagues had dreams beyond life as the drowsy parent company of Southern California Gas Co., a giant, conservative, regional utility. Since 1986, they had aggressively pushed Pacific Enterprises into oil and gas exploration, drugstores and sporting goods retailing.

Now, the best of the paintings are for sale. Ukropina has resigned for undisclosed health reasons. The corporate jet is on the block. And a new chief executive is working to sell off the retail and exploration businesses.

Investors are angry. For the first time in 75 years, they will get no dividends until Pacific Enterprises' fortunes turn around. The company's stock price has fallen 25%, from $24.75 on Feb. 4 when its restructuring was announced to $18.50 on Friday.

Some shareholders already have filed lawsuits against the board and top officers.

"You tell me why a corporate director needs to be surrounded by an art collection like that to make good decisions," demands William S. Lerach,a San Diego attorney representing shareholders in two suits filed earlier this month.

Meanwhile, several Southland cities, along with the gas company's biggest labor union, are angry at what they consider efforts to get ratepayers to shoulder the cost of extravagances at the gas company itself--even as the utility has scaled back some of its services.

Pacific Enterprises executives declined to elaborate on the company's new headquarters and other issues involved in pending lawsuits. But, spokesman Tom Sanger noted that, "When the (office) space was being planned five years ago, the world looked like a very different place."

Willis B. Wood Jr., Pacific Enterprises' new chief executive, has faith in the "new strategy" he has adopted for the company. "In my discussions with people in the financial community and our shareholders, people feel we are on the right course," Wood said Thursday.

Executives vow to shrink the company's operations; in the process, they may even move from Library Tower, formally the First Interstate World Center. Particularly in light of the economy's malaise, they point out, the moves of many U.S. companies look far different in hindsight.

The state Public Utilities Commission, which regulates the gas company, believes that ratepayers are shielded from its parent company's misadventures. But many observers maintain that utilities, as publicly regulated monopolies, ought to meet a higher standard than other corporations.

"The fact is, such crucial decisions as . . . the rate of return are set in a political arena," said Robert G. Harris, a specialist in regulated industries at UC Berkeley's Haas School of Business. "Even the hint of perceived excesses, or any kind of behavior that's considered inappropriate, can be an important factor in the decisions regulators make."

Adding insult to shareholders' injury, critics say, the executives most blamed for the failed strategies at Pacific Enterprises and its retail subsidiary, Thrifty Corp., are still receiving compensation from the company.

Ukropina, despite his December resignation, will stay on until June as a consultant at $30,000 to $35,000 a month. He also receives about $400,000 as part of his departure agreement with Pacific Enterprises. Leonard H. Straus, retired CEO of Thrifty and still a director of Pacific Enterprises, has a two-year consultant's contract with the parent company--at $30,000 a month for the first year and $15,000 a month for the second, ending in May, 1993, the company said.

Company officials defend the payments as standard arrangements with departing chief executives. Still, such dealings are the inflammatory symbols of an ill-starred diversification that now is being challenged in court.

One shareholder suit filed by Lerach in Los Angeles Superior Court charges breach of fiduciary duties, mismanagement and a waste of corporate assets both from the diversification program--which it terms "horribly ill-advised"--and the move to expensive new offices.

Lerach also filed a class-action suit in U.S. District Court in Los Angeles alleging securities violations that, it says, artificially inflated Pacific Enterprises' stock price between June, 1991, and the suspension of the dividend last week.

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