South pacific timber price list

Pacific Lumber Case

Who are the material stakeholders of Pacific Lumber, and what is the primary concern for each?
How close was Pacific Lumber to a sustainable enterprise?
From the perspective of the workers, what might be the 'Tragedy of Choice' between conflicting values regarding the merger?
Were the board’s actions ethical?

Pacific Lumber Company

Michael V. Russo and Cindy Noblitt
Traditions and Forestry Practices at Pacific Lumber Company
Pacific Lumber Company was the final destination of a circuitous journey that brought Simon Jones Murphy from Penobscot, Maine to Scotia, California. As he searched for new timber resources and moved west, Murphy’s Irish roots seemed to bring him luck. While logging in Minnesota, he discovered iron ore beneath the trees; ranches purchased in Arizona turned out to sit above huge deposits of copper. The redwoods of northwest California next caught his eye. At the time, redwood trees carpeted much of northern California’s and southern Oregon’s coastal hills. It was not unusual for the oldest redwoods to measure 15 feet across at their base and to have been seeded in the Middle Ages. Coast redwoods, the world’s tallest living things, often soared to over 300 feet. Coveted for their wood, which was rot-resistant, often knot-free, and strong enough for construction, they were felled with abandon during the late 1800s and early 1900s. The first to fall were stands within reach of San Francisco. Attention then turned to the cornucopia of these giants that stood to the north, and its bounty fed sawmills as railroads gradually linked mills and forests. To gain a toehold in the march of development, Murphy first purchased a number of small logging railroad lines near Eureka, California. By trading these lines to the Southern Pacific Railroad, he won his prize, a lumber mill and town, surrounded by over 100,000 acres of virgin redwood trees. In 1905, Pacific Lumber Company was founded, incorporated in Murphy’s old state of Maine.

The company was the province of the Murphy clan until late in its life, with Gene Elam’s ascendancy as Chief Executive Officer in 1982 marking the first time that a top manager without strong ties to the Murphys was hired. The company owed its sustenance to policies instituted by A. Stanwood Murphy, who assumed the president’s position in 1931 at the age of 39. He instituted two key policies. At the time, Pacific Lumber engaged in clearcutting, a practice wherein large sections of forest are completely cut and cleared. Murphy’s first policy was to end clearcutting, and instead to cut “selectively,” harvesting no more than 70% of the mature trees in a stand. There were key environmental advantages to this practice, including the ability of the remaining trees to stabilize the often-steep hillsides on which they remained, and to more rapidly regenerate the forest. Murphy was also cognizant of the westward movement of other lumber companies. Driven by their own rapid rate of cutting to seek new forests to exploit, they had sawn their way to the country’s west coast. He felt that these companies would never reduce their cut rate, even as resources were depleted. Murphy decide to cut only at the rate at which the forest could regenerate itself, in theory leading to a perpetual harvest called a sustained yield. To the extent that other companies over-harvested, such a strategy would also increase the value of his holdings over time.

Scotia, California, was Pacific Lumber’s center of operations. The combination of sustained yield practices and the geographical isolation of Scotia created an insular world. The entire town was owned by Pacific Lumber, down to the rows of small bungalows in which it housed workers and their families. Lovingly portrayed as “Paradise with a Waiting List” in 1951, there were two families waiting to get a chance to live in company housing for every one family then in the town. The polar opposite of prototypical mill towns that had suffered through cycles of boom and bust, Scotia had a steady population of roughly 1000, a hotel, theater, and a number of other businesses established to serve the residents. Within this setting, Stan Murphy had become a legendary figure, the patriarch of a company that wore its paternalism on its corporate sleeve. A well-respected leader, he never wavered in his commitment to the Pacific Lumber or Scotia. Pacific Lumber “lost money on the town,” but considered the investment essential to a happy work force. In 1969, at a company-wide party to celebrate Pacific Lumber’s hundredth year, he promised that “we will never, ever, sell Pacific Lumber.” Riotous applause erupted.

Stability was a hallmark of the workforce, with multiple generations of the same family often working side-by-side. This constancy offered the luxury of a long-term perspective. In 1971, Corky Kemp, a 24-year old timekeeper in the machine shop said “I got forty-one years to go, and I can’t see any reason I’d leave.” Workers were not unionized, but received raises matching those negotiated by unions representing mill workers at nearby operations. A scholarship plan guaranteed each child of a worker substantial support in meeting college tuition. Those who could handle the small-town atmosphere found Scotia a nearly ideal place to live and work. This was aided by an absence of the trappings of hierarchy: almost no workers wore ties, and all employees at Scotia greeted each other by first name. Mutuality was also bolstered by actions taken during downturns. During a period of slack lumber demand in the 1970s, Pacific Lumber workers went to a four-day work week to avoid layoffs.

In an industry marked by severe environmental impacts, dominated by firms that routinely battled environmentalists in court, Pacific Lumber stood out as an exception. In a 1982 documentary, Mad River: Hard Times in Humboldt County, the entire wood products industry was taken to task for poor business management, abuse of workers, and wholesale destruction of forest resources. Yet Pacific Lumber was held up as “proof that good business and good citizenship could, with wise management, go hand in hand.” Indeed, by the 1980s, Pacific Lumber controlled most of the nation’s remaining privately-owned virgin redwood stands. Its sustainability was to be enhanced when its new on-site power plant, designed to burn wood chips to produce electricity, went on line.

The Ecology of Old-Growth Forests

Old growth forests represent unique ecosystems that have evolved over millions of years into specialized habitats for numerous plant and animal species. In the tropics and in temperate areas, forests perform valuable ecological functions that maintain the planet's life‑supporting systems. In temperate areas of the Northwest, remaining old growth stands protect and regulate water supplies, support healthy fish populations, anchor unstable steep slopes, and provide a home to many old‑growth dependent species such as the spotted owl and the marbled murrelet. Now an endangered species, the marbled murrelet makes a hollow in moss and other debris which has accumulated on a high branch of an old‑growth tree instead of building a nest.

An old‑growth forest is characterized by a multi‑story canopy of trees at different stages of growth and of various species. Once an established forest of dominant Douglas Fir or Coast Redwood grows large enough to shade out many other vegetation, shade tolerant species like the Western Hemlock or Cedar thrive. It may take 350 years for for an old‑growth forest to reach its prime state of growth and diversity. The temperate old‑growth forests of the Pacific Northwest are unusually rich in wildlife for their latitude. They are able to hold vast amounts of moisture so that flooding is moderated and the forests are not devastated by fire.

Along the edges of forests, such as where the dark forest meets the river, abundant wildlife can be found. These areas receive more sunlight and support plants that many of the animals use for food, such as berries eaten by Black bears or willow leaves coveted by Blacktail deer. These animals rely on the cover and shelter that the forest furnishes. Predators like the gray fox and bobcat prey on small mammals such as brush rabbits and deer mice. Amphibians, such as the Pacific tree frog or the yellow‑legged frog, are able to live in the pure streams flowing through the forests. Biodiversity thrives.

In life and in death, every piece of organic matter contributes to the complex web of inter‑relationships that bind plants and wildlife together in mutually supportive and cooperative roles. The old growth forests of the northwest contain the highest accumulation of dead standing and fallen trees. When a tree finally succumbs to age or a windstorm and falls to the ground, it begins a new life as a log. The downed log serves as homes for many animals. Many plants will take root and grow on these logs, which become spongy and thick with water as they gradually decompose. As a log rots, it releases nutrients to the soil and to other plants. Decomposers such as banana slugs, redwood snails and numerous kinds of fungi, begin to break down the leaves into nutrients which will be leached back into the soil by the rain. These nutrients can then be used by other trees and plants.

Small mammals, such as red tree voles, bats, flying squirrels, chipmunks and squirrels, find shelter in the trees. The standing dead trees, or snags, serve as places for birds to nest. Ospreys along the river build their nests on the tops of these spiketop trees where they will have a view of the river. Spotted owls use snags as nest sites as well.

The Unique Redwood Forest Ecosystem

Coastal redwoods (Sequoia sempervirens) were once a dominant tree of the Western hemisphere in the days of the dinosaur. Now their range is restricted to a narrow coastal redwood belt, extending 500 miles up the coast from Central California to Southern Oregon, and almost never more than 30 miles wide. Redwoods thrive in the fog belt along the Pacific Coast from Monterrey County in mid-California to the Southern-most area of Southwest Oregon, in a range that varies in width from 10 to 40 miles, although its north-south continuity is broken in several places. With less than four percent of the original two million acres of redwood forest that covered the West Coast when Europeans arrived still standing, the remaining redwood ecosystem is severely fragmented.

Redwoods (and sequoias) have evolved a number of unique characteristics. They are one of the plant world's most efficient practitioners of photosynthesis, and can grow in spots where only one percent of the incoming sunlight ever makes it down to the leaves. Because most of their bulk is contained in their trunk and because they grow arrow-straight, the trees can get very tall yet still remain stable. Aiding balance is a network of roots on all sides. Measuring 50 feet in each direction, it anchors trees firmly into the ground. These roots are intertwined with the roots of other trees and plants within the area to further stabilize the trees.

Redwoods require vast amounts of water daily, at least 300 gallons of water in a 24‑hour period. An extraordinary network of vertical capillaries moves this water, 2500 pounds worth, from the roots to the leaves. Hundreds of these tiny passageways fill every square inch of the wapwood, each only a few cells wide but hundreds of feet long. The region receives large amounts of rainfall during parts of the year, but during dry spells or droughts, redwoods rely on the fog that moves inland from the coast to quench their thirst. Through a phenomenon known as "fog drip" sea fog condenses on the trees' foliage and is steadily absorbed through the needles or falls to the ground as rain drops. In especially wet periods, a single tree can also release up to 500 gallons of moisture into the air per day.

Through these processes, a coastal redwood forest creates its own localized climate upon which the other plant and animal life associated with a redwood forest depends. The redwoods influence the climate of the river canyons by transpiring moisture, which keeps the humidity high. Extremes of temperatures are moderated. The forests stay cool in the summer and warmer in the winter than surrounding open areas. Pure stands of redwood exist naturally, but more commonly redwood forests contain numerous other species like Douglas fir, Sitka spruce, Port‑Orford cedar, grand fir, western hemlock, western red cedar, California laurel, tanoak, red alder, bigleaf maple and torreya. The red tree vole and the northern flying squirrel live in the forest canopy. Under the canopy, animals such as bats and birds find shelter in the bark of the trees. In the water, river otters hunt for fish. Steelhead (sea‑run rainbow trout), salmon (Coho and Chinook), California roach and the non‑native Sacramento squawfish, eat the many insects in the water. Redwood forests are complex ecosystems of which the giant trees are just one component.

Redwoods may by killed by windthrow, floods or fire. But when these trees are alive and healthy, they are remarkably resistant to the natural forces that tend to kill other trees. Many insects and fungi are repelled by the high level of tannic acid in the bark of live trees, which is bitter. The bark can be up to a foot thick, which provides the tree with excellent insulation from fires. Floods, which deposit soil around the base of the trees, do not smother the roots of redwoods as can occur with other trees. Instead, redwoods can grow new roots up into the newly deposited soil.

Fire plays an important role in the ecology of a redwood forest and has historically been a natural part of the cycle of life. Every quarter century or so, a big fire would burn some sections of the forest, with subsequent beneficial consequences for the redwoods, for other plants and animals, and for the Native Americans who once lived in the region.

Low‑intensity fires clear away undergrowth and material that has accumulated on the ground. This opens clear areas on the forest floor and allows seeds to germinate on clear soil. The ash from the burned material provides nutrients for the soil. Periodic fires burn off the downed limbs and small trees. If these are not burned off, the material will accumulate to a dangerous level and create a fuel ladder which may allow a fire to spread to the crowns of the trees. The increased sunlight on the forest floor creates an opportunity for other plants to grow ‑ plants which provide food and shelter for wildlife. This cleared ground also gives redwood seeds a place to grow. Since approximately 90% of all redwood seeds are killed by fungus before they ever sprout, having a cleared place to grow increases the chances of survival of the seeds. Sprouting, where new shoots come up from trees damaged or killed by logging or fire, is also an important method of reproduction for redwoods. The redwood is the only western conifer that will stump sprout, making this an important method of natural regeneration. Although redwoods produce copious amounts of cones, each containing 90-150 seeds, many seeds are empty and normal redwood germination rates are as low as 3-10 percent. Additionally few seedlings survive beyond the first 3 years, and natural regeneration of redwoods is a slow process.

Fire also hollows out the inside of many trees, leaving behind cavernous holes. This does not kill the tree, since the major part burned is the heartwood, the dead wood inside a tree. The only living part of the wood is the cambium, a thin layer between the bark and the heartwood where all growth takes place. This is why trees have growth rings. Each year, a new layer of cells grows and produces a growth ring. Trees damaged by intense or repeated fires are able to sprout new trunks from tissue in their root collars called burl. Burl is bud tissue which remains dormant until some kind of damage occurs to the trunk of the parent tree. When the parent tree is damaged, the burl tissue begins to grow. A tree that has lost its top due to wind can grow a new top in this way. Redwoods also sprout from the base, much the same way as rose bushes grow suckers. When the trunk is cut off, such as when a tree is logged or burned by fire, the tree will often develop a ring of sprouts around the stump. In areas that were logged many years ago, you can find these rings of trees, called "fairy rings" or "fire rings.

Charles Hurwitz: Unwelcome Suitor

It was 5:30 a.m. when the phone rang, jolting Gene Elam, Pacific Lumber’s CEO, out of a sound sleep. On the other end of the line, some fellow by the name of Charles Hurwitz introduced himself. He was a Texan, in the oil and gas business, and he said his call was a courtesy to Elam. In just a few minutes, he would announce a tender offer to purchase all outstanding shares of Pacific Lumber, and wanted to fly out to San Francisco immediately to finalize negotiations on a friendly basis. After some apprehension, Elam agreed to meet late that afternoon. Hurwitz closed the conversation by noting that Elam probably wouldn’t need a shower to wake up that morning.

Just who was Charles Hurwitz? In 1985, by the age of 45, someone with a personal history dense with financial success—and controversy. The son of a prosperous businessman in Kilgore, Texas, Hurwitz attended the University of Oklahoma and worked as a stockbroker initially. From the start, his sales skills were superlative, and other salesmen would “crowd around his desk, just to hear him work the phones, his drawl softening all the rough edges,” until the sale was closed. Yet, despite the professional success he was to enjoy in later life, from the beginning he placed a premium on his personal life, and made time for his wife and sons. And he was not ostentatious; while other figures in the fields enjoyed first-class air travel and other perks, he eschewed them.

But was a magnet for litigation, which at times appeared to mount almost as quickly as his personal fortune. His first brush with the law came in 1971, when the Securities and Exchange Commission charged Hurwitz and 40 others with conspiring to inflate the price of a stock. A consent decree resulted. In 1978, Hurwitz was charged with fraud by New York regulators after an insurance company he controlled folded; those charges were later dropped. In the years leading up to the Pacific Lumber buyout, he had grown wealthy by buying undervalued, often poorly-managed companies, stripping assets, and improving the bottom line of the remaining divisions.

He began with McCullough Oil in 1978. After taking a substantial position with the company, he was named CEO and returned the energy and real estate concern to profitability--taking control of the corporation as he did so. Hurwitz used McCullough Oil, renamed MCO Holdings, to purchase control of Simplicity Pattern Company in 1982. Hurwitz took control of the second-largest savings and loan company in Texas, United Financial Group, in 1983, and turned it into an aggressive force in the Texas real estate market. Later that year, however, his umbrella company for these investments, Federated Development, was accused of using arcane methods to “freeze people out” and take Federated private for a fraction of its value. United eventually failed, leaving the federal government with $1.6 billion in uncollectable debts. In 1984, after a run at Castle and Cooke, he was sued for acquiring his stake illegally, but the suit was dropped after Hurwitz accepted a premium for stock he had accumulated. Hurwitz also found himself in court in the early 1980’s when he sued the resort city of Rancho Mirage, California, as well as its city council members individually, for trying to stop his plan to build a hotel, housing, and a golf course on a bluff above the town. The city’s master plan had precluded building on the skyline, and Hurwitz’s tract also invaded areas populated by the rare and protected Santa Rosa peninsular bighorn sheep. Eventually, the project moved ahead.

But regardless of his means, under his new umbrella company, Maxxam, Inc., Hurwitz had consolidated a major portfolio of assets by 1985. He bristled at the idea that he was a prototypical corporate raider who was interested in short-term gains. In a 1984 interview, Hurwitz said, “I invest in companies with intrinsic value and, often, where we can offer help. I buy to build, not to sell.” Still, questions about his character and litigious background haunted him. Barron’s said about Hurwitz, “everything he touches seems to turn to litigation.” Another source in the investment business later said that Hurwitz’s penchant for favoring himself over stockholders had led to Maxxam’s stock price reflecting a “Hurwitz discount,” due to the risk of Hurwitz’s agenda diverging from his shareholders.” But both critics and admirers agreed that in Hurwitz, Pacific Lumber Company had drawn an astute, well-seasoned, and extremely tenacious adversary.

Pacific Lumber Company as a Target

Why did Charles Hurwitz find Pacific Lumber attractive? As with many companies that are viewed as takeover candidates, an argument could be made that the company was undervalued. Perhaps the most obvious indication was that the company really had only a vague idea of how much redwood it actually owned. The last aerial cruise to establish its reserves was undertaken in 1956. The estimate of marketable wood from the 1956 cruise was subsequently adjusted for growth and removal of trees annually, and in 1985, the company estimated that it owned 5.2 billion board-feet of timber. Hurwitz, however, had secretly performed his own cruise, which suggested that the company owned 30% more timber and 45% more old growth timber than it thought it had.

A second reason why Pacific Lumber was attractive came from a look at its financial condition. While not wildly profitable, its allure lay in other areas. It had very little long-term debt, and was so cash-rich that it was able to repurchase a large number of outstanding shares in 1984. One other aspect caught Hurwitz’s eye: its pension fund was grossly overfunded. In fact, cash on hand exceeded expected payouts by at least $50 million. While Pacific Lumber had seen this as a way of ensuring pensions for its workers regardless of future conditions, a less conservative approach would free up the excess cash to help finance the takeover. A final reason to pursue Pacific Lumber was that several of its business units could be disposed to help pay for the acquisition. Pacific Lumber had diversified since the late 1960s, in order to “provide a means of achieving real growth in excess of the long-term average growth expected from the company’s forest products operations.” And though these operations were profitable, they were peripheral to its core business, and could easily be spun off.

Still, for Hurwitz to finance the proposed acquisition, no small measure of daring would be necessary.

The Takeover Battle

Although Pacific Lumber’s stock had been trading in the $25 dollar per share range during early 1985, a slow but perceptible rise began early in the summer. This movement had not escaped the scrutiny of Pacific Lumber’s executives, whose perfunctory search for the source of the inflation turned up empty. But it was then that Hurwitz began to accumulate shares in Pacific Lumber, using the services and advice of Drexel Burnham Lambert. At the time, Drexel was highly controversial for its role in popularizing the use of high-risk, high-yield bonds, widely referred to as junk bonds.

Purchases in small blocks leading to a roughly $15 million stake in Pacific Lumber were accumulated for Hurwitz by Drexel through the summer. Because going beyond this level of ownership would force Hurwitz to file public documents and expose his intentions, he chose to have further stock purchased for him by Boyd Jeffries, a Wall Street broker. The nature of this provocative agreement was never clarified, and became the subject of hearings before Congress on the legality of Hurwitz’s role in the takeover. Specifically, accusations that Jeffries had “parked” the stock for Hurwitz under an informal agreement could never be proven. When the stock price had risen into the $33-$34 per share range by late summer, this block of stock was sold to Hurwitz for $19.20 per share, for no apparent reason.

By late summer, Hurwitz was ready to announce a bid for Pacific Lumber. Just prior to the takeover, however, a significant threat emerged. In the week before Hurwitz was to formally announce his tender office, the price of Pacific Lumber stock suddenly gyrated higher. On Thursday, September 26, in the last two hours of the session, the stock, which had opened at $29 per share, shot up and closed at $33. Hurwitz, suspecting loose talk, angrily telephoned Drexel, but was told that there was no such leak. Yet, speculators were on to the deal, and were buying the stock in anticipation of a tender offer. They were led by Ivan Boesky, who had made a fortune by purchasing shares of companies just prior to takeover announcements. It would later be revealed that Boesky’s timing indeed was too good to be true, and that he was trading with inside information. In this case, and in others, suspicions arose that the information was funneled to him directly by Drexel’s staff. The spike in the stock price struck fear in Hurwitz, who was preparing a $36 per share offer for Pacific Lumber. That price now represented a dwindling premium over the market’s price. The whole deal could collapse if he was forced to increase his bid substantially to attract shares he did not already control. He dreaded what would happen to stock price on Friday, certain that Thursday’s jump would release a blood scent to Wall Street sharks.

Then, fate intervened. Hurricane Gloria, which was to hit New York with gale force winds and rain, forced the closing of the stock market on Friday. Given this reprieve, after phoning Elam, Hurwitz hurriedly finalized and announced his $36 bid on Monday, September 30, increasing it to $38.50 per share later in the week after the stock continued to rise. But would Pacific Lumber’s corporate board agree to negotiate with him on a friendly basis?

Pacific Lumber’s Response

This was a critical question, for Pacific Lumber had defenses against undesired aggression. In 1981, its board had enacted several charter provisions that protected it from unwanted suitors, including one that required that 80% of shareholders approve a hostile takeover. While such provisions could be attacked legally, and Hurwitz had moved to do so, negotiating his way to a friendly takeover would smooth the process considerably. Pacific Lumber had retained Salomon Brothers, a New York investment house, to represent it in its attempt to remain independent. In the case that the takeover took place anyway, Salomon would continue to represent Pacific Lumber. Under the terms of its agreement, however, Salomon, hired to defend Pacific Lumber, would actually earn substantially higher fees if the takeover proceeded, when it would earn a pre-specified percentage of the deal’s value.

Ultimately, after several meetings, the board capitulated, accepting a slightly-sweetened bid of $40 per share, despite a Salomon Brothers valuation that set the company’s worth “in excess of $60 per share.” One reason for this acquiescence was rooted in the arcane legal doctrine surrounding takeovers, the fiduciary responsibilities of board members, and the culpability of board members as individuals. Because they had no idea of the true worth of the company, publicizing the Salomon Brothers estimate of timber holdings would have been “equivalent to pleading guilty to incompetence,” “invoking the wrath—and lawsuits—of shareholders.” But there was a way for the board members to protect themselves personally: by requiring Hurwitz to indemnify them for subsequent lawsuits. This turned out be prescient, for in the end, the actions of the board did elicit several suits, including one from dissident members of the Murphy family. Eventually, these actions resulted in a $52 million settlement in which Maxxam agreed to compensate former Pacific Lumber stockholders for the fraud, deception, and breach of fiduciary duties by the Pacific Lumber board during the takeover.

There were other reasons for the board’s decision to agree to a friendly acquisition. One was the lack of clear alternatives. Despite its pleas of distress, only one “white knight” emerged, offering only a weakly competitive counteroffer to Hurwitz’s. Another reason was the potential value that some board members saw in Hurwitz as an agent for change. For some time, it was hinted that philosophical differences had split the board between allies of the Murphy family, including his widow, and a cadre of newer members, led by Elam, who wanted to revitalize a company that they felt had fallen behind the times. The takeover offered such an opportunity.

The total price tag for Pacific Lumber was $868 million dollars. The transaction was financed almost exclusively with debt. A bridge loan of up to $300 million dollars was arranged with Irving Trust, to cover expenses until some assets could be sold, and roughly $450 of high-yield, or junk bonds, were offered by Drexel Burnham Lambert. The remaining costs would be funded with Maxxam equity and a plan to pull out roughly $50 million from Pacific Lumber’s overfunded pension plan. With this plan, a company whose balance sheet showed very little debt was metamorphosed into a risky, highly-leveraged enterprise. A pivotal question remained: with interest costs running in the neighborhood of $70-90 million annually, and Pacific Lumber’s net income running in the $30-50 million range historically, how would the debt be serviced? Contemplated sales of assets, including the cutting tools division of Pacific Lumber (eventually sold for $320 million) as well as the sale of its San Francisco office building for $30 million, reduced the debt substantially. But questions still remained.

Employee Reactions to the Takeover

The initial reaction throughout Scotia to Hurwitz’s move was surprise, since most workers simply did not understand how someone could buy a company that was not for sale. When the details of the plan came to light, the mood became feisty. Who was this guy from Houston? How could Elam have let Hurwitz pull this stunt? Why, if Stan Murphy was alive when Hurwitz came along, “he would have kicked his ass all the way back to Texas, end of story.” Workers signed a petition protesting the takeover, and hung Gene Elam in effigy for bowing to Hurwitz. But the deal was consummated, and workers crowded into the Winema Theater in Scotia in late October for the opportunity to see their nemesis, Charles Hurwitz, who had flown in to address them.

After assuring the workers of his long-term commitment to the company, Hurwitz took questions from the workers filling the redwood-paneled theater. The general thrust of his responses was that little would change, except perhaps a small increase in the rate of cutting. Combining humor with evasion of the more pointed questions, he offered a glimpse of his philosophy by offering his version of the golden rule: “those who have the gold rule.” That line drew a roar of laughter from the attendees. Hurwitz’s performance, often recounted in the press, marked a turning point in his relationship with workers. His rehabilitation in their eyes was aided by his commitment to guarantee their wages and benefits for three years. While many of the workers continued to fear the long-term consequences of his actions and profoundly distrusted him, others approved of the prospects for overtime wages and the sustenance of their cherished fringe benefits.

In retrospect, it was easy to understand Hurwitz’s guarantees to workers—he needed them. In early 1986, Pacific Lumber moved to increase cash flow from timber operations. The company announced that it would double the redwood harvest on Pacific Lumber lands. The idea was that clearcutting of remaining old growth redwoods could take place for twenty years, and that rotation of cutting thereafter could be sustained indefinitely. To put this plan into action, Pacific Lumber purchased a nearby sawmill in Carlotta, California, and invested millions in productivity improvements. But all did not go as planned, for in staffing up to increase the cut, it hired inexperienced loggers that sometimes ruined redwoods through poor cutting and felling techniques.

The Controversy Over Clearcutting

In contemporary times, the most common practice of harvesting conifers such as redwoods has been clearcutting--the total removal of all trees. But this practice can be particularly detrimental to a redwood forest as the sudden exposure causes rapid deterioration of the special forest environment on which redwoods depend. Even residual, isolated, mature trees die within 10-15 years once this environment is destroyed, weakened through gradual deterioration to the point that wind can easily blow them down. Formerly more common selective harvesting allowed for abundant resprouting from cut redwood stumps and maintained to some extent the essential elements of the protective forest environment.

Mudslides occur more frequently and are much more severe on heavily logged slopes and areas associated with road building. In addition to the economic and sometimes personal losses that flooding and slides incur, critical wildlife habitat is also damaged. The precipitous decline of Coho Salmon is in large part due to clearcutting within their habitat. Northern California runs of Coho salmon were recently put on the Endangered Species list.

The support provided by the root systems of large trees given to holding

soil in place, especially on steep mountain slopes, cannot be overstated. The volume of water that the ground can absorb when it is covered with vegetation is also much greater than in a clearcut. Ground cover slows the flow of water, root systems carry it up, and trees transpire moisture into the air. The volume of soil gripped by a coastal redwood's roots is capable of holding more than 130,000 gallons of water. After logging, the roots of the stumps that once were trees gradually decompose over a period of years (around 10 in a Douglas Fir forest, closer to 20 for a Redwood forest) and lose their ability to hold soil in place. The soil is more quickly saturated and water not absorbed runs off down hill, causing damaging erosion and the runoff of topsoil. Often this silt and debris runs into streams and rivers, damaging critical fish habitat and spawning grounds. The redwood's ability to sprout from stumps has led foresters to believe that slope failure is less likely after a redwood forest is logged than a Doug fir‑dominant forest, but conditions that promote the unique forest environment in which redwoods thrive do not exist after an area is clearcut.