The CEO Who Came in from the Cold

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Stunned by the turnaround, Rautenberg continued to demand that E-Systems comply with the terms of his original 1956 arrangement with Air Asia. At a minimum, he wanted continuous free legal protection and a written promise from E-Systems that it would pay for any liabilities, including state and local taxes, that had been created by the Valley branch. E-Systems ignored Rautenberg's demands, and 30 days later the ASF Valley branch metamorphosed into a branch of a freight-forwarding operation based in Taiwan. "The Taiwanese freight forwarder was just interested in overcharging the government," Rautenberg says, hinting at the kickbacks he says he refused to make. Rautenberg adds that he has kept all his records and invoices in good shape, should anyone ever wish to compare what he charged Uncle Sam with what his replacement charged.

Rautenberg sued E-Systems for breach of contract -- and began a life-and-death struggle to keep his remaining commercial business afloat. "The first months after the disaster," he recalls, "I almost went under."

The disaster was compounded by the fact that, initially, many Air Asia suppliers followed Air Asia's lead and also took their business to E-Systems' new Taiwan-based freight forwarder. The sudden, severe drop in sales forced Rautenberg to lay off more than 20% of ASF's work force. Those who remained, regardless of their official job titles, became salespeople. Bonuses, a routine yearly event at ASF, were canceled, and Rautenberg substantially reduced his own salary. He did manage to keep all the ASF offices open, albeit with overworked skeleton crews.

In a move that paid off handsomely, he established a crisis-management team made up of six of his top managers. "They saved the company," he says. The team met at least once each week to hone and implement marketing strategies. Every one of the commercial customers that had ever used ASF's services was contacted and its business solicited. Despite the layoffs, Rautenberg hired three new experienced salespeople. "Everyone was beating the bushes," he says. Fortunately, the sales push coincided with a boom in international shipments of computers and communications equipment, two market sectors ASF went after in a big way.

While aerospace shipments still constitute ASF's leading market segment, ASF customers now include music companies that ship tapes and compact discs overseas, pharmaceutical makers, apparel manufacturers, and many of Southern California's best-known communications-equipment and computer makers. It was a team put together by ASF, for example, that helped Microsoft get its first diskettes into Eastern Europe. Thanks to the surge of commercial business, ASF has opened offices in Atlanta, Boston, Chicago, Miami, and Munich since "the disaster."

Despite ASF's recent commercial success, some of Rautenberg's employees say the legal turmoil that has engulfed the company has kept its founder from concentrating fully on building the business. He has spent much more than $1 million in legal fees so far, and the meter is still running. The expenses, Rautenberg concedes, are substantially larger than the actual financial damages he suffered, especially since no one at the California state tax board has ever come after ASF for the unpaid back taxes -- although Rautenberg says he still worries that someone might.

"He works incredibly hard," notes Emil Justrich, 55, ASF's general manager, who joined the company as a shipping clerk 31 years ago. "He almost never leaves his apartment," Justrich says, using a favorite ASF euphemism for his boss's office, which does, in fact, have a cluttered suite behind what looks like a closet door. Inside, a small bathroom opens onto a larger room filled with couches and chairs. "He practically lives here," Justrich says.

"There is no doubt that we would be considerably larger with more offices than we have today if it weren't for this," says Justrich, who serves on the senior management team that still helps lead the company. "That fight sometimes consumes half of his [Rautenberg's] attention." And no end appears in sight.

Meanwhile, $11,910.73 sits in the old Valley-branch ASF bank account, abandoned when E-Systems canceled ASF's contract. The money technically belongs to Rautenberg, whose name appears on the account. "I won't touch that money," he says of the funds that have been on deposit for the last 13 years. "It's not mine. It belongs to the government."

Hal Plotkin is an independent journalist who covers business and science and is based in Palo Alto, Calif.

GIVE THE GUY HIS MEDAL

The piles of pulp in Erwin Rautenberg's office are a monument to the freight forwarder's nearly-13-year legal battle with his former client and silent business partner, the Central Intelligence Agency. Down the hall, Air-Sea Forwarders' long-haired office cat, Bloomie, shares a room with Rautenberg's mother lode: a half dozen file cabinets stuffed with additional documents, court pleadings, newspaper clips, and depositions.

Since filing his first lawsuit, in 1981 for breach of contract, Rautenberg has gone through seven law firms and about a dozen lawyers en route to winning two jury trials. In 1986 a federal jury awarded Rautenberg $6.2 million in punitive and compensatory damages, plus more than $1 million in legal expenses. That verdict was overturned by the presiding judge, Richard A. Gadbois Jr., after a private in-chambers meeting with CIA officials. Judge Gadbois, who was appointed to the bench by President Ronald Reagan in 1982, declared that Rautenberg had "blown cloak-and-dagger smoke at the jurors." A federal appeals court reversed that ruling and ordered a new trial, scheduled for June of this year. Additionally, in 1992 a California state court determined that an E-Systems countersuit, which alleged that Rautenberg had defrauded Air Asia and misappropriated shipments, constituted "malicious prosecution," and Rautenberg was awarded an additional $4.8 million in damages, although E-Systems has appealed, leaving that money sitting in an escrow account, where it's earning 10% interest.

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