J. Peter Grace

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When his secretary burst into his Manhattan office on a February afternoon in 1982, J. Peter Grace was having lunch with publisher Rupert Murdoch. And lucky it was that Murdoch was there. To have what transpired go unwitnessed would have been the supreme anticlimax of Grace's 70 years.

"The President wants you on the phone," Grace's secretary announced.

"Come on, Cynthia, we're busy," said the suspicious scion, who serves as chairman and chief executive officer of W. R. Grace & Co.

"But he's on the phone! He's on the phone! " Cynthia persisted.

Grace picked up the receiver and, sure enough, it was the President, calling from Washington, D.C. "Hi. How are you?" Reagan asked.

"I knew it was him," Grace remembers, "so I said, 'Oh, hi, Mr. President,' " calmly striking Murdoch speechless.

As it turned out, the President was calling to ask a favor. He explained that back in 1967 when he was governor of California, he had asked a group of private-sector executives to survey the state's bureaucracy and find ways to save some money. The scheme, he said, had worked well.

"I want to have that happening here," he said. "We had a poll this morning in my office as to who would be the best one to do it, and you won unanimously. Will you do it?"

Grace agreed without a moment's hesitation. "I'll come right down."

Thus did Grace wind up as the head of the President's Private Sector Survey on Cost Control, now better known as the Grace Commission. Gathering 161 of his peers, mostly CEOs, around him, he set about studying cost-effectiveness -- or, more to the point, the lack of it -- in government. On January 12, 1984, the commission submitted its 656-page report to the CEO of us all, and Peter Grace was photographed with a beaming Reagan. "We passed the whole bloody thing the night before we gave it to the President," Grace recalls. "It was unanimous. There wasn't a single adverse vote."

The President, for one, had reason to be pleased with the results. Granted, the report forecast a $2-trillion deficit for the year 2000 unless something was done and done soon, but it also pointed to 2,478 separate areas where something could be done -- ranging from cutting $58 billion from federal retirement benefits to paying less than the Pentagon's $91 each for screws that cost 3 cents in a hardware store. Indeed, the report promised that some $424.4 billion might be trimmed from federal expenditures in three years simply by making operations more businesslike.

The commission, however, couched its recommendations in the measured, if lackluster, prose of consultancy. That language is foreign to Grace, the commission's peremptory, gravel-voiced spokesman, who has occasionally been forced to eat his ill-considered words. Once, for example, he charged that the "food stamp program is a Puerto Rican program," whereupon W. R. Grace's corporate offices were picketed by irate New Yorkers. He apologized for that remark, but he takes nothing back from his searing criticism of government as a mass of fiscal ineptitude. "[The government] operates 105 million acres of timberland, and they lose their ass on it," Grace notes gloomily. "The government does everything worse than business does."

The multifarious examples of governmental waste form a kind of litany that Grace is given to recite like some pragmatic rite of exorcism. ". . . They operate 71,000 nursing-home beds which cost four times as much [to construct as those in] a private-sector nursing home. . . . Half of [the government's] 17,000 computers are so old that they can't even be maintained by the manufacturer. . . . Inventory is completely mismanaged. . . . They subsidize all the people. . . . They spend $5.2 billion on transportation, and they have no expertise; they don't use travel agents. . . . It costs $4.20 for the Army to issue a [payroll] check; it costs only a dollar in the private sector. . . . They spend $5 billion in freight handling, but they don't negotiate discounts and they don't even audit for two years after the transaction. . . . The spend almost 14 times as much per square foot [for building maintenance] than in the private sector. . . . Pension benefits are three times [greater] for the civil service than for the private sector, but the rate of return on their pension fund assets was 7.4%, versus 14% in the private sector. . . . They trade in vehicles at 9,000 miles, versus 25,000 miles for rental companies. . . . An Oak Ridge scientist has to go through 114 [Department of Energy] offices for funding approval. . . .

"That," sums up Grace, "is a conglomerate! The government is the most gigantic conglomerate in the world."

As it happens, Grace knows a thing or two about such creatures, being the thirdgenration head of what was arguably the country's first genuine conglomerate. Founded in 1854 as a ship's chandler for freighters calling on the west coast of South America, W. R. Grace & Co. today has annual revenues of about $6 billion and has 240 plants, 245 offices, 95 warehouses, 655 retail outlets, and 610 restaurants. Peter Grace himself has been running the whole shebang since 1945, when -- at the age of 32 -- he was called from the polo fields to take over the reins from his suddenly incapacitated father.

To Grace's way of thinking, this background makes him ideally suited to the job of streamlining the federal government conglomerate. "If you're a conglomerate executive, you have much more experience looking at diverse problems," he says. "A guy who did nothing but run one business, why, he wouldn't have the expertise."

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