Profile of entrepreneur Ross Perot, how he created EDS, and why he would create a start-up which is threatened by EDS.
Inside the private world of America's most public entrepreneur
H. Ross Perot is one of the most extraordinary -- and publicized -- company builders of our time. His recent decision -- after a quarter century of building Electronic Data Systems -- to start yet another business from scratch, raises some very provocative and unanswered questions. And so we decided to use this annual feature to examine just how Perot built EDS in the first place, and why he appears hell-bent on destroying his own creation now. -- The Editors
It is, to all appearances, just another episode in the Amazin' Adventures of H. Ross Perot. Call it "David v. Goliath."
This time the drama unfolds in a packed Dallas courtroom. At issue is the fate of Perot Systems Corp., a four-month-old start-up with 75 employees, under attack by the World's Largest Industrial Corporation. That's General Motors Corp., represented in this instance by its Electronic Data Systems Corp. (EDS) subsidiary, a 48,000-employee giant in its own right, generating some $4.5 billion in sales.
To hear the lawyer for Perot Systems tell it, his client is the victim of a kind of corporate child molestation. The company, he avers, is a mere "infant in its cradle." Its leaders, all former EDS employees, are simply "prepared to step out and build a better mousetrap," he says. "They're entitled to try to do that without having some big bully -- and this is the biggest bully I have seen -- pushing them off the street."
Smiles ripple through the phalanx of more than two dozen of America's highest-priced attorneys packed before the bar. A few reporters in the throng laugh out loud. What amuses them, of course, is that the lawyer has got it backward. After all, this "infant" belongs to Ross Perot, the jug-eared man in suspenders and a belt sitting stiff-necked in the second row. As everyone in the courtroom knows, this legendary patriot and entrepreneur-turned-populist scourge of GM isn't just working on a better mousetrap. He is threatening to ravage EDS, a company he built and sold to GM for $2.5 billion.
Goliath, it seems, has been snookered. Again.
"Bigger than life" is perhaps the best way to describe Ross Perot, although "Texas billionaire" is the more common appellation. He is, at 58, America's quintessential cowboy capitalist. It is an image he has been cultivating for some 20 years now, since he first stepped into the limelight, traveling to Laos in an attempt to fly supplies to U.S. prisoners of war in North Vietnam. Then there was the thrilling rescue of two EDS employees from an Iranian prison in 1979. That episode became the subject of Ken Follett's best-seller, On Wings of Eagles, as well as a television miniseries starring Richard Crenna as Perot.
When Perot wasn't sponsoring secret missions, he was fighting for education reform in Texas. Or attempting to move the Museum of the American Indian from New York City to Dallas. Or buying the Magna Charta from the British for $1.5 million, then donating it to the National Archives. Or waging a battle against the Dallas Citizens Police Review Board. But always there, in the background, was EDS.
Like most aspects of the legend, the story of Electronic Data Systems had a mythic tinge. Starting in 1962 with $1,000, Perot -- it has been said -- had created one of the world's great service companies, virtually inventing the systems-integration industry in the process. Just how he had done this was never quite clear, certainly not in the accounts of his extracurricular exploits. Indeed, it was only in 1984, when he sold EDS to General Motors, that he began to gain widespread recognition for his business accomplishments, as opposed to his various adventures.
At the time Perot was widely heralded as the savior of Detroit: the can-do entrepreneur who would help get Roger Smith's stumbling behemoth in shape to compete in the twenty-first century. Instead, he became its most im-placable public critic. Frustrated by the GM bureaucracy, he accused its executives of caring more about their chauffeured limousines than building cars. By 1986 his fellow GM board members had had their fill and voted to pay Perot approximately $750 million for his remaining interest in EDS, hoping he would shut up and go away.
He did neither. From the day the agreement was signed, he kept his fire on GM, while observing the clause that forbade him to hire away EDS employees before June 1988. Then on June 1 he announced that eight EDS managers were joining him to form Perot Systems -- and that the start-up already had a deal to help the U.S. Postal Service bring its costs under control.
There was a touch of whimsy to the launch. Capital came from a Perot family group dubbed HWGA, for "here we go again." The logo was a simple P.S., as if the company were a postscript to an earlier message. But Perot stated that he did not intend to compete directly with EDS. And in accordance with the buyout agreement, he noted, his company would earn no profits under the Postal Service contract until after December 1, 1989. From then on, Perot Systems would share a percentage of whatever savings it found in the system.
EDS gagged. Lester M. Alberthal Jr., a 21-year veteran of the company and Perot's hand-picked successor as CEO, said he felt "betrayed." For one thing, the post-office contract would shut EDS out of a market it had wanted to get into. For another, Perot would undoubtedly try to recruit other EDS employees. Granted, that conformed to the letter of the buyout agreement, but the whole deal violated its spirit -- or so Alberthal would contend. In any event, he launched a full-scale attack against the post-office contract in the courts and on Capitol Hill. In the ensuing firestorm, Postmaster General Anthony Frank backed off, agreeing to open the contract up to competition.
Perot's response was predictable: he declared war. Comparing the EDS contract challenge to "the sneak attack on Pearl Harbor," he vowed to go after every contract EDS had, and left no doubt who would win. "It will be like turning a bunch of bulldogs loose on a bunch of poodles," he sneered, accusing the EDS leadership of becoming "wimps" and "lapdogs," who "can't order toothpicks" without GM's approval.
The name-calling must have hurt. It hurt even more when Perot Systems won the first marketplace competition, a contract to automate a division of McGraw-Hall Inc. Perot Systems also won in federal court, beating back EDS's legal challenge to the post-office contract. Meanwhile, Alberthal had filed another suit, charging Perot with violating the buyout agreement. And Perot countersued.
