Columbia Pictures Industries Corp. just can't seem to shake the David Begelman affair.
Six months after the scandal firs erupted, and more than four months after Begelman's departure following admissions he stole more than $60,000 from the company. Columbia's board still is split with recriminations over how the affair was handled.
As a result, Alan Hirschfield, president and chief executive officer of the company, may well find himself out of work when his contract expires at the end of the year.
"The world out there thinks everything has calmed down because Begelman is gone, but it hasn't," said one Columbia official, who added "It doesn't look real good" for Hirschfield just now.
The credibility of Columbia's financial and audit controls was not helped either with the disclosure last week that the head accountant for the company's television commercials division, E.U.E.-Screen Gems, had embezzled $275,000 since 1975 by authorizing expense payments to film crews in travelers checks which she in turn cashed. She is being sought by Los Angeles authorities.
"We really laid down the law on controls but they weren't followed," said another Columbia official. "It casts a bad reflection on everybody in the company at a bad time."
Securities analysts meanwhile predict that booting Hirschfield could damage the company seriously in the eyes of investors at a time when Columbia's shares have emerged from behind the Begelman cloud, and following a positive reception on Wall Street to recent belated executive appointments at Columbia to fill the posts Begelman left vacant.
"Changing jockeys at this time could lose the company a tremendous amount of credibility and go to the long-term detriment of Columbia's stock," commented Lee Isgur, who watches movie company stocks for Paine Webber Mitchell Hutchins. "The Street would go into a catatonic fit."
Hirschfield's future is precarious because he intially opposed retaining Begelman, who was president of the company's movie studio and television units, following the embezzlement disclosures. But Hirschfield then reversed himself when Begelman was backed by other powerful members of Columbia's seven-person board - particularly Herbert Allen, President of Allen and Co., and Matthew Rosenhaus, vice chairman of Nabisco.
Allen and Rosenhaus between them control about 15 percent of Columbia's shares and are considered to be Hirschfield's main antagonists.
Begelman was reinstated last December, but he quit in February when the public furor refused to die down and brought press scrutiny to a wide range of business practices in Hollywood.
But he was retained by Columbia on an exclusive three-year production contract that is estimated will bring him a minimum of $500,000 a year compared with his $400,000 annual salary when he headed the studio.
The former agent, who has repaid the stolen fund plus interest to Columbia, pleaded no contest in May to a single charge of grand theft brought by the Los Angeles district attorney relating specifically to $40,000 in checks Begelman forged using the names of actor Cliff Robertson and others.
Begelman faces sentencing Wednesday in Burbank, Calif., and there is lively speculation in Hollywood as to whether he will receive a suspended sentence or face any time in jail. The maximum jail penalty for the charge is 10 years.
Meanwhile, Hirschfield's future also hangs in the balance. His employment contract with columbia calls for discussions "in good faith" not later than July 1 on a possible extension. If an agreement is not reached before Sept. 1, Hirschfield has the option to start looking elsewhere.
While pro forma talks have been initiated, sources say they haven't gone anywhere, and the question is whether they are indeed being conducted in good faith or whether the way is being paved for Hirschfield to be fired.
Among a litany of charges board members privately are hurling at Hirschfield are that "he has difficulty making decisions," he "tends to blame others when something goes wrong," "it is tough for him to have strong people around him," and he does not really deserve much credit for Columbia's financial turnaround in the last five years - going from near-bankruptcy to projected record earnings in the current fiscal year.
"The earnings are out and there's no question that it was all Begelman," one board member remarked, noting the overwhelming contribution of Columbia's movie and television operations - and particularly the success of "Close Encounters of the Third Kind," the high-budget science fiction epic that Begelman gambled on an which is already by far the most profitable movie Columbia ever released, with world-wide grosses above $100 million.
Columbia reported net income of $52.8 million for its first three quarters, nearly double earnings for the same period the year before. And for the fiscal year which ends June 30, net income is expected to exceed $60 million and set a record for Columbia. Much of it is due to the one-shot effect of "Close-Encounters."
But Wall Street analysts strongly disagree that it was "all Begelman," and credit Hirschfield with playing a significant role in restructuring the company's balance sheet.
"I would not view it as a mark of stability if Hirschfield were dumped," said Harold Vogel, the movie industry and entertainment analyst for Merrill Lynch, Pierece, Fenner & Smith. "There's more to this company thatn just the movie business. Certainly Begelman brought a certain amount to the party, there's no doubt about it. But this company is much bigger than Begelman."
"It would be nonproductive to change managers at this point," commented Paine Webbre's Isgur. "It's a very tender time for Columbia. The company is finally getting some investment acceptance from the major institutional investors. While it seems to me that board members like Allen and Rosenhaus are fairly sophisticated, they have the worst instinct in the world with regards to Wall Street. And this is just not the time to rock the boat."
"Thre's a lot of politicking going on both ways on this," Isgur added, making no bones about his active lobbying for Hirschfield's retention. Isgur said he is not doing it for personal reasons but because he thinks it could have a decisive effect on propsects for the stock, which he is recommending.
Isguar, who along with Vogel is one of the most highly regarded analysts in this area, predicted that, if Hirschfield is retained "Columbia's stock will be 100 percent higher in two years," but if he is let go, investor disenchantment wiil mean "the stock won't participate in this market cycle."
Columbia shares recently have been trading at just below $20.They had been as high as $22, after being stuck at about $15 during the Begelman brouhaha.
One would think such considerations would weigh heavily with directors who are also major shareholders in Columbia.
But a number of them clearly don't think retaining Hirschfield is as indispensible to the company's fortunes as the Wall Street analysts think, and they indicate that among Hirschfield's strengths is currying good relations with the investment community.
"To me it doesn't make a lot of difference if Hirschfield is in or if Hirschfield is out," said one director. "Before, it was a different matter. When Begelman left, we didn't have anyone to replace him. But now we've got Melnick, White and Levy in," he said, referring to recent executive appointments.
Because all of these promotions have been from within the company, there is some consternation that it took so long to fill the Begelman slots.
"Hirschfield spent 4 1/2 months trying to hire people already working here," this same Columbia director complained. "So there have been delays in talking about his contract until he got his house in order."
Hirschfield meanwhile was not returning any calls last week, another complaint the directors say they have with him.
Columbia Chairman Leo Jaffe, believed to be Hirschfield's major ally on the board, would say only that "nothing is going on. Hirschfield's option if for July 1. However, I can't answer questions about private conversations between the directors."