Memoirs of a child of the past century - 16. Chapter 16 Too big and fail

The period from 1973 to 1978 represents the most 'disordered' 5 years in all my life.

I began to realize that I was doing too many things . I had to look simultaneously at my engineering and management consulting firm (GREPAL), my film distribution company (IDEAL), the Franco-Swiss management company (LEHART) and the clinic I bought with my friend from Zurich (CHAMBLANDES).

For clarity in my story, I will deal separately with each of these companies, hoping the reader will recall that this separation did not exist in fact.

I had no overall strategy. I acted on a daily basis. Instead of proper, controlled delegating, I was putting way too much faith in the various managers that I’set up and I let others make decisions for me.

Today, I know I should have chosen my partners and assistants more carefully.

They were either not skilled enough for what I wanted from them, or even dishonest. Some of them saw me as a 'cash cow', just good to bear the 'mess' and pay for their mistakes . The capital inherited from my father and the benefits brought by IDEAL melted before our eyes and I didn’t know how to stop this bleeding.

CHAMBLANDES

As stated in a previous chapter, we bought the clinic of Chamblandes, which at first was an obstetrics clinic and a maternity hospital. It was located by the lake in a beautiful location and able to be enlarged. We first transformed it into a rehabilitation centre for young people injured during the unrest and attacks in Lebanon, with the help of a specialized surgeon. But this 'humanitarian' activity did not cover its costs and the clinic was losing money.

So I had to 'take over' the destiny of the clinic and find ways to make it a profitable operation. Even more important, I considered Chamblandes as a test bed for a larger project that a German investor based near Lausanne had entrusted to me.

This man, whom I had met through mutual friends, was the son of a German industrialist who made his fortune at the end of WWII through his flair. He owned a small factory producing knives, forks and spoons for household use. In 1945, in most German families, all household equipment had disappeared in the ruined houses as a result of years of intensive bombing by Allied aircraft. He therefore created new models and sold them with great success. All German households bought its products.

His son had moved to Switzerland to escape the German tax authorities and sought how to invest his fortune. He had not inherited his father's talent for business and was more interested to expand its collection of modern Austrian painters. Some of them have now become famous painters and his collection is worth more than the fortune he’d received from his father! Art is sometimes more interesting than financial affairs, provided you know how to choose wisely.

Interested in my activities, he’d confided to me the study of a project of a private clinic in Geneva, five times as big Chamblandes. It therefore needed to better understand the constraints of the operation of a private hospital. Improvinge the profitability of Chamblandes was the best way for me to demonstrate my skill in this new field.

The only way to make Chamblandes profitable was to expand it to a size sufficient to reach breakeven, with at least 40 rooms for patients and two operating rooms. The existing building was too small and the site was too small to enlarge. A residential building with 3 floors, situated on land adjacent to the clinic was for sale. We could buy it at a reasonable price and initiate engineering studies for its transformation into the clinic annex, with rooms for patients and studios for nurses, while expanding the technical areas of the existing building.The clinic gave me a double income. As administrator, I was paid for my work and my management company was receiving fees for studies of expansion. So I took my job as leader of clinical development seriously and immersed myself in the medical community. I met surgeons and other hospital managers and I soon learned to know the habits of the medical corps and especially their particular language, as I needed to be recognized as one of theirs.

The doctors I’d met were a curious mixture of dedication, expediency and profit motive. For most of them, they tend to operate as independent managers and all were holding to build their businesses, especially among the-net-worth clients and earn enough to get the most from the costs of their studies.

Through the management of the clinic, my daily interactions with physicians completely changed. As patients, we often tend to regard them as supermen on whom our lives depen,but they are only men, likely to present the same flaws as anybody.

Here's an example:

One evening, the director of the clinic called me and asked me to come to the clinic immediately A surgeon who had operated on the knee of a patient for a meniscus problem, had operated on the wrong leg, the good one! We invented a story and told the patient his other leg was also sick and also needed to be operated on. The following day the patient was again put in the operating room. The surgeon agreed to bear all dditional costs and our silence has earned us his recognition.

Through the technical direction of the clinic and the management of the nurses, I discovered a pearl, a girl dynamic and eager to be trained as an executive director. She was a nurse in a retirement home in the mountains. I engaged her despite her inexperience. She learned her new job in a very short time and became an outstanding executive director. After closing the clinic (I will write about this later)), she became responsible for all the nursing personnel of the University Hospital of Lausanne. Thanks to her, my daughter Cathy later escaped a series of
medication errors in this hospital.

On this occasion, I became very sensitive to human errors made by the staff of large hospitals. Each year, the University Hospital of Lausanne. hosts nearly 45,000 patients with an average of 10 days of hospitalization per patient. The annual average number of errors in diagnosis or treatment exceeds 1,500 cases or almost 3% of the number of patients! Some of these errors are comical, but others are much more serious.

Here are two examples:

Lausanne is a city on slopes. The various buildings of the hospital are not all at the same altitude The paramedics responsible for transporting patients in their ambulance placed a patient in, securely strapped to a stretcher (with wheels). They went up the road to their destination in another building located above. Unfortunately, they’d forgotten to close the back door of the vehicle and were busy listening, on their radio, a football game. Because of the slope of the road, the stretcher started to roll back, leaving the ambulance and hurtled-down the road, to the point of departure. Imagine the terror of the patient! Fortunately, his cries alerted passers-by who stopped the stretcher.

In the central pharmacy of the hospital, drugs are identified by code numbers, without specifying the trade mark or the nature of the active molecule. If the nurse does not pay attention to the doctor's prescription, she may often choose the wrong product. If the internal service does not control the drug before giving it to the patient, it can ometimes, depending on the nature of the drug, have adverse consequences. Such a mistake can even be fatal!

In my case, I became, for me and my family, very careful with doctors .The Swiss law allows the patient to consult his own medical records, even if the physician does not agree with it. He may also refuse the proposed treatment, and require another doctor to confirm the diagnosis and the treatment.

We are now able to obtain enough information on the Internet. Have confidence in a doctor? Yes, but knowingly and with caution. Words do not always have the same meaning in the mouth of a doctor and it is worth learning to decipher his language. I learnt it by experience.

But back to the clinic of Chamblandes.

Again, I had aimed too high. To increase the occupancy rate, I had absolutely to attract more surgeons, and if possible surgeons of high reputation. I was thinking especially of foreign professionals interested in the low Swiss tax conditions. I started my researches and met several surgeons in Madrid, Barcelona, Milan and Rome. They were all interested to come and practice in Switzerland, but the banker who helped me buy the clinic also required that the new surgeons should take parts of the share capital, that, they all declined to do.

Since our acquisition of the clinic, the local market had changed. International groups of owners of large private clinics had settled in the area. They were planning to open new luxury clinics and were competitors against which it was impossible to fight.

Finally, I had to close the clinic All staff could easily 'resettle' and immediately found jobs. I could sell all the equipment to the university hospital The buildings were bought by investors looking for objects well placed at the lake. The clinic became an office building and the annex recovered its vocation of luxury apartments. It was what I would call 'a beautiful landing '.

In fact, I was completely wrong in my objectives. I had listened to the advice of my staff, anxious to develop Chamblandes and wishing to participate in a great adventure The early operations of the clinic, with only the equipment needed for deliveries, was perfectly profitable. I should have stayed modest, first keeping the clinic in its initial state, and making a real market research before starting costly changes. But I was obsessed with our grandiose plans in Geneva and had completely lost all sense of proportion.

LEHART
(the story of Lehart inc. Paris, Lausanne and Geneva).

One day I received a visit from an Alsatian engineer, attracted by the success of my company, who offered to bring me into contact with a group of French unemployed engineers, seeking a new employer. The leading international consulting companies were engaged to each other in a ferocious war, waging a battle to find big business customers in Europe. Bankruptcies of smaller companies, including the one that had employed them, were not uncommon.

These were engineers who specialized in rescuing firms in difficulty and the marriage business. Their Intervention was to take the place of leaders of the company losing ground, to reorganize the company by reducing costs, mainly by the dismissal of some staff and to seek new investors or buyers that could restart activity. The disadvantage of this type of activity was that they were only paid for their intervention in case of success.

The two leaders of this group, Hartmann (the 'brain) and Leclerc (the 'hunter'), were looking especially for a sponsor that may fund them. Those two complemented each other beautifully to 'roll the Client'. Hartmann was the mastermind, always in search of new methods of management, admirable in appearance, but in fact impossible to implement successfully. He was imbued with himself, believing himself an organizational genius. Leclerc was the henchman, a vendor of dreams capable of 'chattting up' a client until he could extort his consent.

They saw in me immediately the chump to be suckered. They began to invite us, my wife and me, to Paris in a prestigious restaurant and showed us all the advantages of a collaboration with them, especially the availability in private, of an apartment for me and my family, in a nice district of Paris. This argument greatly pleased me. It gave me the opportunity to travel to Paris for a 'business travel' and also enjoy opportunities for meetings in the Marais, the gay district of Paris.

The processes used by Hartmann were evil. His intention was to create a new company, to hire all the engineers of his former band, to keep control of the whole activity of this new company, while leaving me all the responsibility as an administrator, especially providing the cash to pay salaries and the other charges.

I let them 'swindle’ me easily. I created a Swiss public company, providing myself all the capital. Hartmann and Leclerc each received from me, as a gift, a third of the shares. The company opened a branch in Paris, of which I was also in charge! The branch offices were 'magnificent', spread over 3 floors and occupied by about 60 employees, engineers, secretaries and assistants.

To celebrate the establishment of the new company, called Lehart Inc. (the name was chosen by contraction of the name of the two buddies Leclerc and Hartmann), we organized a big party in Epalinges and Hartmann invited (at my expense of course) all engineers of his group (about fifty people, with their wives). An example of his marketing savvy and his extravagance: he ordered for the occasion ties (for men) and scarves (for women) with the new colors and the logo of the company and distributed them to all guests.

I also remember a working session to find sales pitches that could impress potential clients. Hartmann thought it was important to pretend we’d develope new methods of organization and designate them by 'scientific' names, invented for the occasion. In fact, these methods were well known techniques with new names, selected to attract customers. At that time, the goodwill of Switzerland was very popular in France. Hartmann opened a map of Switzerland, choose names, unfamiliar to French people, of major Swiss cities and thus created the 'Method of Interlaken'. Needless to say, all this was 'bullshit'.

Hartmann had delusions of grandeur. He was constantly prospecting for new customers, spending thousands of francs in advertising. His specialty was to approach the Commercial Court and to obtain official mandates to 'rescue' large companies that were going bankrupt. His methods involved drastic reduction of expenses by the dismissal of personnel and researching buyers ready to buy the company for one franc and to bailout with new capital.

In themselves, his methods were not bad, but his haughty manners (and often dishonesty about their application,) were sources of conflict both with the Courts and with potential buyers.

As Lehart inc. was only paid in case of success, we often didn’t have sufficient cash at end of month to pay salaries, and Hartmann didn’t fail to call me for help. I had to cover the monthly shortfall in cash. He was always talking about the big contracts he was negotiating and that would be able surely next month to pay me back my advances.

It was a vicious circle. In my mind, the only way to get my money back was to continue running forward by spending even more, which in fact was the latest thing to do.

In August 1977, I decided to stop paying and I let Lehart inc. go bankrupt. Hartmann and Leclerc tried to keep the Paris branch in operation for some time, but I managed to get rid of them.

I heard nothing more from these two crooks. I later learned that Leclerc had committed suicide. As for Hartmann, I tracked him down a few years later. He was alone, occupying alone a tiny office of one room in a ‘cheap’ popular district of Paris and could not even pay its rent.

IDEAL FILM

The work of a film distribution company at that time had various aspects, financial, commercial and technical.

Financially, it was first to invest heavily in the acquisition of operating rights (film, television and video) of a film, in the purchase of copies and promotional materials, in advertisements in newspapers and on radio and in posters for cinemas.

The cinema exhibition was made with lamps or arc projectors on photographic films of 35 mm. There were not removable hard drives with digital recorded movies and electronic automated projection equipment, as there are today. .A copy of 35mm film cost the equivalent of nearly 8,000 dollars and the normal distribution of a film over the entire Swiss territory required at least 5 to 10 copies. We had a particular problem in Switzerland with our three national languages. To show a film in the German speaking part, you had to either buy copies from the German distributor 'dubbed' in German, if the film was 'released' in Germany, or 'subtitle' the French copy with German subtitles translated from the French dialogues. This represented an additional cost of a few thousand dollars.

The purchase price of the exploitation rights of a film for seven years, the normal contract period, could range from 20,000 Swiss francs for an art house film (that was the name given to independent films made by unknown filmmakers) to 350,000 Swiss francs for a commercial film with known actors, sums we had to pay well before cashing revenues from the rental of films to cinemas.

The financial part was therefore to manage annual amounts over 20 million Swiss francs with bank interest often up to 500,000. -.

Commercially, the Swiss cinema was virtually nonexistent, but the government, wanting to develop it, had restricted the importation of foreign films. Each distribution Swiss company, including subsidiaries of U.S. producers, was only allowed to import a limited number of films. Ideal had a quota of 20 units. To recoup the total investment of each unit (between 100,000. - for an art house film and nearly 400,000. - for a commercial film), the film had to be screened for at least 3 weeks in most Swiss cities.

Each distribution company had 'travelling salesmen', who visited the owners of movie theaters to conclude in advance leases for each film, forcing them to accept films of lesser importance if they wanted to broadcast commercial films with larger revenues . By these contracts, the operator agreed to pay 30 to 50% of its revenue to the distributor. The revenues of the movie theaters were verified by the distributors, some theater owners often trying to minimize the revenue pledged in an attempt to pay to the distributor less than his due.

Technically, the distributor's work was twofold. He had to manage the stock of film copies to provide timely films requested by exhibitors. He had also to keep copies in good shape, manage their condition and repair them, if necessary, on their return. The first thing I did after becoming the owner of Ideal was to acquire powerful machines for testing and repairing of the copies. Storing prints, packaging for sending the film copies to cinemas was also enhanced by the acquisition of storage facilities and automatic packaging machines.

Ideal had in France and Italy sales agents responsible for reporting the films that could interest us long before they were produced. As we became more and more successful, we had the chance to buy movies that brought lots of money. In 1973 our turnover was the most important of all distribution companies in Switzerland. Even subsidiaries of U.S. producers were beaten!

This success rushed to my head! While I should have been content to remain an happy distributor, I began to dream of becoming a film producer.

At random encounters during the 1974 Cannes Film Festival, I made the acquaintance of François de Lannurien, a producer whose company, -Les ProductionsFDL- had produced five films between 1970 and 1973, with some famous actors (including Orson Wells! ). These films had met a certain success, and for two of them even won awards at several festivals.

François was looking for a partner to produce a great film about the fight during the French occupation (WWII) between the Gestapo and the French 'Résistance'. As guarantee, he brought the worldwide rights of his previous films and the project was promising.

In addition, he had a very endearing personality. He was an adventurer who had fought in WWII with the German Army in the Legion of French Volunteers against the Bolsheviks. He had to flee France at the 'Libération' and had gone to Africa as a consultant for various potentates. Later, he returned to France and became the owner of a stable of racehorses, after winning his first horse in poker . He was, at first, completely ignorant of the value of this horse and was surprised to see him finish first in a famous race in Longchamp, the race field in Paris. This earned him several million francs.

I agreed to associate myself with him and Ideal Film became a 50% shareholder of FDL Productions. Preparing his film engulfed a lot of money, that he financed with short term bank loans contracted in the form of bills (bill of exchange). He asked me, as is partner, to endorse these bills on behalf of Ideal . Endorsing means 'to vouch for the reimbursement’ !

Very quickly. the total amount of bills exceeded six millions French francs. On expiry of the bills, Les Productions FDL was unable to repay the creditors and they presented the note to Ideal !

Thus I found myself in Paris with my lawyer, a childhood friend, with François de Lannurien and his own lawyer at my side. Facing us were the representatives of the six French banks holding the bills I had endorsed. We were all very tense but everyone was trying to be polite and no one raised his voice.

The session was opened by the bankers, with a very simple question, posed both to François and me : "when and how will you pay? " After some hesitation, François was the first to answer, without looking at me, "I do not have the resources to pay you back and I will declare bankruptcy." And without waiting for any reply, he rose and left the room, followed by his lawyer.

Then it was my turn to speak. Looking at all the others in front, I said there was no question I would defect like him: "I assume my responsibilities and I will carry them through I just ask you to give me time to find a solution.” The bankers appreciated the difference in behavior between François's cowardice and my courage. To facilitate future negotiations, they agreed to designate one of them as the representative of all, because they understood that I had made it clear they would all be treated equally. And we parted shaking hands.

The bankers had, indeed, understood that I had been swindled by Lannurien. Once again, I had been too confident! But I avenged myself later. More than 10 years later, I met him again when he had rebuilt a fortune with his stable of racehorses, and I sued him.. The courts proved me right and he was sentenced to pay me a very substantial amount. But that is another story that I shall tell you later.

Negotiations with the bankers were long and hard.. The bankers, however, had no interest in putting Ideal into bankruptcy. We finally found an arrangement. Based on the true value of Ideal , I managed to borrow 1,000,000, which I paid to the bankers. In exchange, they abandoned their claims against Ideal on the remaining 6,000,000. -.

However, the result of this arrangement was that I had almost no money to buy new movies. So I decided to specialize in a kind of 'cheap' movies that could still bring enough cash to allow the company to continue to exist: the erotic films (soft porn).

I began to experience an unique environment, the one of producers and movie theaters that specialized in 'legal' pornography. I made many friends there and I learned about a hidden but highly present aspect of human nature : sex addiction, something which constitutes a huge market existing since the dawn of time.

Subsequently, Idéal continued to exist and even to grow. I will discuss it more fully in another chapter.

GREPAL

As I said in the previous chapter, Grepal experienced, until 1973, a gratifying growth. This did not, however, bring only benefits.

The community of engineers , the CET,, was actually composed of three groups: those who favored us (the minority!), those who wanted to use us and those who were jealous of us.

The first group included my personal friends and close relatives of my wife. Our ties were strong enough to have them always on my side. They disagreed with the attitudes of the other

groups but had almost no influence on the policy of the CET in its contacts with us.

The second group were aware that the operation SOMERI, of which I personally was the initiator, was an important part of the turnover of the CET. So they counted on my influence with the Algerian authorities to facilitate the friendly relations between the Swiss and the Algerians.

The third group, the most important was frankly against us.

An example of its attitude :

The consolidation into a single entity, the CET, of engineering companies with attitudes, interests and activities very different from each other was the occasion of power struggles.

We all therefore decided to appoint a management consultant to analyze these conflicts and asked him to propose reforms, intended to improve the operation of the CET. This consultant excluded me at once from this study.. and the conclusions of his report suggested that the CET should separate itself from GREPAL, as he considered my business to be the main source of these conflicts.

In fact, the other members of the CET did not approve of Grepal's activity. We single handedly satisfied multiple functions, the sponsor providing the funding, the architect, conducting studies and managing the construction; and finally the manager responsible for the holding of the constructed object. While the other members , as specialists only, were at the service of outside architects, for which GREPAL was actually a competitor.

For these members, GREPAL was a 'foreign body' in this community.

By mid-1974, Grepal suffered the full brunt of the global economic crisis. It should be recalled that in October 1973, a war between Israel and the coalition of Egypt and Syria broke out: the "Yom Kippur War." The Arab members of the Organization of Petroleum Exporting Countries (OPEC) pronounced an embargo on oil shipments to countries supporting Israel. This decision had a direct impact on the price of oil which was then multiplied by four, thereby triggering a general economic crisis which lasted several years.

Grepal's increase in turnover from 1972 to 1973 (over 23%) had led , despite the emerging crisis in early 1974, to maintain the staff engaged in 1973 based on favorable forecasts .

However, in April 1974, a number of important mandates were cancelled or postponed. In October 1974 we had to dismiss nearly half the staff. Despite our efforts, the result events of 1974 was a catastrophe, more than 200,000 francs of losses.

The worst was that I did not have enough time to focus on the rescue of Grepal. All my energy and all the funds I could dispose were absorbed by the problems of Léhart, Ideal and the clinic Chamblandes.

So I let my associates to carry out the task of leading Grepal as best they could, and ensuring its survival, both by reducing spending and by looking for new mandates. I contented myself with ensuring at each end of month at least the payment of salaries and the most urgent expenditures, seeking liquidity where I could hope to find them, either taking it in my pocket or in those of friendly banks .

It was at this point that I realized I had taken as associates engineers certainly skilled in their specialities,, but not gifted enough for running a business. In fact, they had rather the mentality of junior managers, anxious to do their job well, but waiting for a head above them to define the way forward for the future of the company. Once again, I was overconfident, blinded by the desire to maintain the friendship of my interlocutors instead of judging them coldly, and forgetting the reality of their limitations.

With nearly 40 years apart, I re-read today the activity reports that I sent to the banks in 1974 and 1975, to make them wait. I forced myself to be optimistic, but in fact I was well aware that unless a major change in economic conditions, it would be impossible to find enough new mandates to cover our charges.

We managed to hold until 1978, but my difficulties with Chamblandes, Idéal and Lehart prevented me 'to plug the holes' of Grepal. Despite our efforts to reduce our charges, we did not have enough revenue to ensure our survival.

May 25, 1978, Grepal had to declare bankruptcy Accumulated losses exceed the capital of the company. I managed however to pay all debts of the company and resettle the employees (7 remained) and the minority shareholders. All found soon another work and did not have to be affected by the consequences of the bankruptcy.

My balance at the end of this period was not difficult to establish.

The liability was summarized in a few words: I had lost the fortune inherited from my father and the one I had created myself. I had to sell my house of the Conversion in order to pay my debts. I lost my apartment in Paris.
With few exceptions, all my relations and friends had abandoned me and I found myself alone with my wife, to try to regain normalcy.

On the asset side, I had still some friends. To survive, I could count on Ideal, with its new specialty as distributor of porn movies. I also kept numerous contacts in the film business, particularly in France, England and Germany. The obligation to repay the loan of one million was also an advantage. To be sure of being repaid, my creditors were obliged to support me, particularly by funding the purchase of new movies. I will tell you later how I could, thanks to them and to my contacts, restore Idéal and regaining an important place in the distribution in Switzerland.

I had also an other asset in my sleeve. Through my activities in the Junior Chamber International,, I had met an Israeli entrepreneur who needed a Swiss intermediary for trading with Iran. We had founded together a small company which could make all kinds of services: Planorga inc. Meanwhile, the Israeli had changed his mind after several unsuccessful attempts. I bought his shares and became the sole owner of this company, keeping it in reserve. It became the starting point of my new activities.

I still add a few words for those who are interested in my sex life (!).

My wife and I spent our nights over the pillow more time talking about my financial problems rather than anything else. All my energy was devoted to my business and there remained very little for my 'libido'. My meetings in Paris were primarily used to remind me that I was 'bi' and never lasted long.

As I said above, the activities of Ideal in the field of 'porn' movies brought me later to manage a group of movie theaters equipped with 'individual' cabins (with a very large seat for two people !), whose equipment included a 'large' club chair and a big screen for over 300 films 'straight' (MF) and gay (MM) with a button to watch movies one after the other.

Among the customers of these theaters, many were gay 'in the closet' and I saw the suffering and often the drama of those old people unable to accept and live their true nature. But I'll come back later!

End of chapter 16.