It's mid-morning in this single-stoplight prairie town, and a metallic blue Jeep Wagoneer rolls out on a country road towards the local schoolhouse where eight kids wait, fidgeting anxiously for the kindly old gent at the wheel - for most of them, the richest man they've ever known.
W. E. "Bill" Grace sweeps the kids into the Jeep, and back they drive to an 88-acre ranch owned by the W. E. "Bill" Grace Foundation for another day's lesson in cattle-raising and in the free enterprise gospel according to W. E. "Bill" Grace - or, in Grace's words, "How to Become a Millionaire Before You're 50."
The kids don't know why Grace is spending so much time at Whitney High these days. To them, he is simply the wise, amusing and generous man who gave each boy a French Charolais calf to care for. "It's not everybody who can afford to do something like that," said Ron Eubank, one of the kids. "He told us once he's not interested in making it anymore, he just likes to give it away.".
A couple of hours' drive northeast of Whitney in Dallas, G. Tomas Rhodus, a former tax attorney for the U.S. Department of Justice, boils every time he thinks of Grace doing his grandfatherly stint here. Rhodus was part of a government team that spent 15 years investigating, prosecuting, and eventually convicting, Grace and Robert Rowan, chief officers of Fruehauf Corp., the world's largest maker of truck trailers and number 140 on Fortune's 500 list - in a first-of-its-kind tax conspiracy case.
"There's a very serious question in my mind about the appropriateness of having a convicted tax evader talk to kids about how to make a million bucks," Rhodus said in an interview.
The Detroit judge who heard the case - the prosecutors alone took 10 weeks to argue it - originally sentenced Grace and Rowan to 6 months in jail and fined each $10,000. That was in 1975. After a lengthy appeals process, the judge suspended their sentences last January and instead ordered them to do community service work for two years. Grace was allowed to work at the school here which his foundation had been assisting; Rowan was assigned to help out at a rehabilitation center for drunks and drug addicts in Detroit where Fruehauf is based.
Justice Department attorneys fiercely protested the probationary assignments. They charged that Grace and Rowan were getting off too easily. They said it was important for the two unapologetic executives to spend time in jail - not only to punish them but, even more importantly, to set an example.
Defense atttorneys argued for leniency. Their clients had suffered enough, they said. Grace and Rowan had been publicly embarrassed and shamed. Besides, they were first-time offenders who according to their attorneys had otherwise lived exemplary lives.
Because more corporate executives are being pulled into court, and in view of the increasing attention being given to community service assignments in place of jail for white collar crooks and others, the tale of this particular crime and punishment is worth a close look. It raises some tough questions: When should a felon go to jail? What's more important: deterring other criminals by punishing harshly those who get caught or serving society by assigning criminals to do good deeds? Do community service programs actually favor the rich and established?
The trucking business tends to develop characters who are as bullish and brawney as the rigs they work around, and Grace and Rowan are no exception. They are dogged, hard-nosed, gutsy. But beyond that, their personalities are as different as the places in which they were raised.
Grace is a Texas freewheeler who, at 71, still loves to talk deals and does so with a flourish. He can discuss investments, tax shelters and write-offs with the confidence of a man who has been there many times. He's alert, sharp and, as even his prosecutors will attest, easily charming. Standing in the hall-way during recesses in his trial, Grace would entertain by doing coin tricks or chatting about fishing.
His business life began low on the totem pole at Hobbs Trailer Co. in Ft. Worth. When the company slid into trouble, Grace and a partner took over, orchestrated a turnaround, then branched into finance and real estate. In 1955, Fruehauf acquired Hobbs. Two years later, Fruehauf itself was in trouble and the company's bankers summoned Grace to Detroit. Cutting costs and slashing inventories, he again engineered a classic turnaround and swung the company sensationally from a $5.5 million loss in 1958 to pre-tax profits of $27 million in 1959. That was more than enough to make Grace president and chief executive of Fruehauf.
Rowan, 56, climbed up by a different route. A certified public accountant, he came over to Fruehauf in 1955 from the accounting frim of Touche, Niven, Bailey & Smart (now Touche Ross & Co.). In contrast to Grace, Rowan is more the conventional corporate type. He is hard-working, Dutchman-tough and well-liked by his colleagues.
Both men are wealthy, with investments strung out around the country, though Grace seems to relish more the playing of the game. "I'm a fairly good authority on how to make a buck," he said. "I've been doing it all my life. It's simple. Some people make some things so hard. I don't know why there aren't more millionaires."
Good deals are everywhere, he says. You just need to have the right eye for them. While stopped at a gas station recently, he noticed an ad for a house - 3 bedrooms, 2 baths, 5 years old, for $27,500. It belonged to the station manager with whom Grace spent a few minutes talking.
Climbing back into his car, Grace said to a reporter, "I ought to buy that damn thing just to have fun showing some of those teachers at the school how to make money." Then and there, he made up his mind. "I will buy it. I'll give it to them and have them resell it, and we'll split the profit. They keep saying you can't make money down here."
The teachers in Whitney already are amazed by what they've seen of the Grace style. One of their favorite Grace stories is the time he took 10 kids out to breakfast and managed to talk the cafe owner into a 10 percent discount. They can't get over that one.
What does Grace tell the kids in his "How to . . ." talks? "In a nutshell, I tell them all you have some self discipline. Self discipline, I say, is instead of buying two Cokes, buy one and put the other 35 cents in an investment fund. By the time you're 50, that investment fund will be making you more than a million." (Grace had his own investment fund going when he was 15 and established a foundation at age 25.)
His talks and presence at the high school have had a definite impact. One boy cut his Coke consumption from four a week to one. Another shaved his shoulder-length hair at Grace's gentle urging. Even the calves got fatter this season.
"I've really seen a change in the boys," said Jimmy Box, one of the teachers. "I'm thinking of calling the judge and asking about getting his probation extended."
The Whitney School Board knows about Grace's conviction. So do the parents of some of the kids. But Grace hasn't told the boys because he doesn't think it's relevant. "These kids right now think I hung the moon," he said, "and I'd like to keep it that way."
While Grace is driving kids across the prairie, Rowan is steering antique fire trucks through the streets of Detroit. The trucks belong to the Sacred Heart Rehabilitation Center, a celebrated facility run by the unconventional Father Vaughan Quinn, who in addition to the fire trucks collects hearses and St. Bernards, strums a banjo and pays charity hockey games with a team of priests known as the Flying Fathers.
"When I came here, I knew I'd be doing things I never had before, but I never thought I'd wear a green hat and drive a 1918 fire engine on St. Patrick's Day," said Rowan.
The trucks are just to break the pain and dreariness of rehabilitation, and Rowan's contribution has been considerably more than playing green-hatted chauffeur. Drawing on his experience in personnel, he expanded the center's job placement program. His contacts in the Detroit area have been useful in boosting the center's fund-raising efforts. And he has rescued the center's record-keeping system from absolute chaos - with an assist from his friend, Burroughs Corp. President Paul Maribito who, at Rowan's request, has donated a computer to the center.
Rowan doesn't get involved in the actual counseling of patients. He lacks the background for that. But he does sometimes sit in on group sessions and often takes his meals at the center.
In contrast to the office suite he used to enjoy, he now shares two ex-addicts-turned-administrators. He still puts on a suit every day and speaks about his new assignment enthusiastically.
I've learned quite a bit," he said. "It's been an exhilarating experience." There's no question it beats jail which he had feared would have bored him to death. "My worst enemy is boredom," he explained. "I didn't want to go anywhere that I'd sit and do nothing."
The crime Grace and Rowan were convicted of was conspiring to defraud the government of excise taxes. It was a complicated case.
Manufacturers of truck tailers pay a 10 percent federal excise tax on the price they receive for each vehicle sold. That sounds simple enough but, in fact, computing excise taxes was and is a technical morass.
Back in 1956, when Grace was still in Texas and Rowan was just a junior member of Fruehauf's accounting department, the firm's officers devised a plan to hold their taxes to a minimum. They shaved the price of their trailers, the price on which the taxes were based, and at the same time raised the price of related services, including advertising and management and sales assistance. These services were billed for separately and dis not come under the excise tax.
At the time the scheme was thought up, the services were worth what Fruehauf was charging for them. But the plan was branded a fraud when, in subsequent years, the ratio between the price of the trailers and the price of the services remained fixed despite major changes in the kinds and costs of servies being provided.
The government had never before brought a tax fraud case against a public company because to get such a charge to stick, prosecutors have to prove a defendant in fact owes taxes - a difficult claim to establish against a large corporation that is expert at shifting entries around.
But in the Fruehauf case, Justice officials tried something different. They charged Grace and Rowan with conspiracy to commit tax fraud, which meant the prosecutors had only to prove that the executives agreed to cheat the government of taxes rather than actually paying too little tax.
This, too, had its hurdles. Historically, corporation executives have hid behind the claim of "advice of counsel" in defending questionable actions. But with Grace and Rowan, the government obtained evidence of deliberate deception - instances in which the two executives openly ignored the warnings of attorneys and accountants.
The IRS estimated that Fruehauf underpaid its taxes by $12.3 million between 1956 and 1965. Still, the service at first was reluctant to recommend prosecution.
"When the (investigating field) agents went to their supervisor and said they were going to file a fraud case against a public company, they were laughed at," said attorney Rhodus."It took a hell of a lot of pushing and shoving and crying and bitching by the agents just to get the case rolling."
It wasn't until last fall, after the Supreme Court declined to hear their case, that Grace and Rowan started scrambling for an alternative to jail. There were some precedents.
In a petition to the court asking for a change of sentence, the defense attorneys cited a few: An artist in Miami convicted on a drug charge was assigned to teach art to the mentally retarded; a doctor in Phoenix convicted of illegally selling amphetamines was required to serve for seven years as doctor for a small town; in California, rather than imprison five corporate executives convicted in 1974 of price fixing, a federal judge imposes substantial fines and required the defendants to give lectures to a variety of businesses and civic groups.
The defendants' petition was a well-articulated argument in favor of the concept of community service as an alternative to jail. "A presumption in favor of punishment less severe and less dehumanizing and degrading than incarceration is the focus and thrust of virtually all recent works and studies in penology," it said.
Fortunately, too, for Grace and Rowan, the U.S. District Court in Detroit recently had begun a formal community service program. The case was submitted to probation officials for comment, and they recommended service assignments for the Fruehauf executives.
Anne Merritt, probation supervisor, said in an interview, "What persuaded us was that if they went to (prison), the government takes care of them at tax-payer expense. Why do that if they can do something that will repay the community in the process?"
Still, the case received more attention than most."We weighed it very carefully," said Richard Maxwell, chief probation officer. "We were quite aware it's liable to hit the newspapers. We knew this case would cause a lot of flak."
Judge Thomas Thornton, who had presideed over the case throughout, finally ruled. A veteran of the bench, Thornton was appointed to the court by Harry Truman and had yet to grant a probationary community service sentence to a convicted felon. His nickname, "Tiger Tom," reached back to his football days at the University of Detroit, but could apply equally to his sentencing record. He is tough. He took a chance on Grace and Rowan.
"First and foremost, I thought the defendants' petition was beautifully prepared," he said in an interview. "Also, I had voted for the (court's community service) program so I thought I ought to try it." Later, he added: "People are critical of this sort of thing until they or someone close to them is involved. Then it's a different matter."
Alternative sentencing programs now exist in parts of at least 17 states. Opposition to them persists from people who hold the traditional view that if you do the crime, you do the time. Yet many law enforcement officials see a growing trend toward such programs. They are being used primarily in traffic cases and other misdemeanor violations, including petty theft and disorderly conduct, but their use is spreading to nonviolet felony cases as well.
Are such programs biased in favor of white collar criminals? Court officials concede they tend to be because white collar types often have the skills readily adaptable to community service assignments. In Detroit, the probation office if trying to offset this advantage through development of special training classes. Their case list covers a broad range of backgrounds, from laborers and welfare mothers to union officials and corporate chairmen.
In general, too, there is evidence the white collar is actually tightening around the necks of the nation's business executives. Corporate officers can now go to jail not only for fraud but for antitrust actions, securities crimes, and for violations of the Occupations Health and Safety, Toxic Substances Control and Foreign Corrupt Practices Acts. Businessmen spent more time in jail for price fixing in 1978 than in all the 89 years since passage of the Sherman Antitrust Act.
The fact that Grace and Rowan are enjoying their current assignments is particularly irksome to the government agents and attorneys who worked on the case.The Justice Department objected not only to the granting of community service sentences in this case, but specifically to the nature of the tasks given to Grace and Rowan. "A form of honorable martyrdom," the prosecutors called the sentence in a memo to the court, noting that the two executives have been permitted "to remain close to their homes, working in areas which they would most probably involve themselves in any event."
The case, while a victory for the government, proved to be a hollow one. "The government can't catch everyone who is guilty of tax fraud," said Rhodus. "And those it does are prosecuted to the fullest extent to set an example. If nobody is going to serve any time, than what's the use. Judge Thornton's courtroom was tied up for several months with this case, and there were lots of other pressing cases."
One other aspect to all this that bothers Rhodus: Grace and Rowan never showed any regret or apologized for their actions.
Both men are proud, and to this day maintain they were not guilty of any wrongdoing. "I felt like an innocent bystander who got shot," said Grace. So sure were they that the government had no case against them that neither took the stand during trial.
Grace, who was chairman, and Rowan, who was president and chief executive officer, expect to be back running Fruehauf soon. They have been on unsalaried leaves of absence from the company since resigning their posts in November. An "acting chairman and "acting president have been serving in their place, and both Grace and Rowan have kept in touch with company officials. Grace has left Texas twice since January to help close important deals for the firm.
Fruehauf's shareholders are expected to vote to reinstate them in May when the requirements of their probationary assignments drop from full time to part time.
One of the government's demands was that Murph's Hotel Corp. find a minimum of $400,000 from non-government investors. William has gone