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National
Journal

JUNE 22, 1985, VOL. 17, NO. 25, PAGES 1449-1500

**Chairman:** Anthony C. Stout
**President and Publisher:** John Fox Sullivan

**Editor:** Richard S. Frank
**Managing Editor:** Diana Huffman
**Executive Editor:** Margaret Roberts
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**Staff Correspondents:** Ronald Brownstein, Timothy B. Clark, Richard E. Cohen, Ann Cooper, Richard Corrigan, Michael R. Gordon, Dick Kirschten, Julie Kosterlitz, Christopher Madison, Jonathan Rauch, Burt Solomon, Rochelle L. Stanfield, Bruce Stokes

**Senior Contributing Editor:** Dom Bonafede
**Contributing Editors:** Linda E. Demkovich, Maxwell Glen, Robert Guskind, Jerry Hagstrom, John K. Iglehart, Michael J. Malbin, Lawrence Mosher, Neal R. Peirce, Daniel Rapoport, Jane Stein
**Polling Consultant:** William Schneider

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*National Journal®* (ISSN 0360-4217). Published weekly, except for the last week in August and the last week in December, by National Journal Inc., 1730 M St. NW, Washington, D.C., 20036. Telephone (202) 857-1400. Call toll free for subscription service, 800-424-2921. Available by subscription only at $546 per year (academic library rate $338), including semiannual indexes. Binders available at $28 for a set of two, prepaid. Second-class postage paid at Washington, D.C., and additional offices. Typesetting by Unicorn Graphics Inc. Printing by McArdle Printing Co.

©1985 by National Journal Inc. All rights reserved. Reproduction in whole or part without permission is strictly prohibited.

**INTERNATIONAL 1452 KISSINGER & COMPANY**
*By Christopher Madison*

Some fellow consultants say that Henry A. Kissinger's international consulting firm is only selling access to the former Secretary of State, but he and his colleagues say they provide useful business advice to U.S. and foreign corporations.

**CONGRESS 1458 DIFFERENT STROKES**
*By Richard E. Cohen*

Five Members of Congress who are considered presidential hopefuls in 1988 are trying to take advantage of the tax reform debate. Each one has adopted a different strategy for reacting to President Reagan's tax reform package.

**BUSINESS 1462 QUITE A MOUTHFUL**
*By Richard Corrigan*

In buying Hughes Aircraft Co., General Motors Corp. believes it is acquiring high-technology expertise that will be applicable to automobiles. But it is also buying its way into Hughes's weapons contract problems with the U.S. government.

**POLITICS 1467 IN THE BLACK**
*By Maxwell Glen*

At the end of the 1983-84 election cycle, 117 House Members had surplus campaign funds. It's evidence of a prevalent feeling that bulging treasuries mean greater job security.

**Departments**

<table><tr><td>WASHINGTON UPDATE</td><td>1451</td><td>Policy and politics in brief</td></tr><tr><td>INSIDE POLITICS</td><td>1481</td><td>Dispatches from Germond and Witcover</td></tr><tr><td>PEOPLE</td><td>1483</td><td>Washington's movers and shakers</td></tr><tr><td>OPINION OUTLOOK</td><td>1486</td><td>Trends affecting government policy</td></tr><tr><td>THE NUMBERS GAME</td><td>1488</td><td>The data behind the policy</td></tr><tr><td>AT A GLANCE</td><td>1490</td><td>Weekly checklist of major issues</td></tr><tr><td>INFOFILE</td><td>1492</td><td>Studies, surveys and books</td></tr></table>

**Focuses**

<table><tr><td>POLITICS</td><td>1493</td><td>CORPORATE HEROES<br/>By Ronald Brownstein<br/>This is the age of the entrepreneur.</td></tr><tr><td>DEFENSE</td><td>1494</td><td>KEEPING SECRETS<br/>By Michael R. Gordon<br/>A case against overclassification.</td></tr></table>

<table><tr><td>ENVIRONMENT</td><td>1495</td><td>ASSESSING THE RISK<br/>By Rochelle L. Stanfield<br/>EPA's standard is the threat of cancer.</td></tr></table>

WASHINGTON UPDATE

Push for Interstate Banking Law Loses Steam

By Burt Solomon

The forces in favor of letting banks speedily expand nationwide are showing signs of unraveling in the wake of recent court rulings. Despite a House committee's approval of a far-reaching interstate banking bill on June 12, there is considerable doubt that Congress will go along.

The banking industry's own support for nationwide banking a few years hence is fragile at best and will be challenged anew in coming weeks by bankers in Florida and elsewhere who fear the onslaught of the New York and California banking giants. High among the dissidents' arguments: legislation isn't needed because nationwide banking eventually will happen no matter what Congress decides. This presumed fact of life, plus the

judiciary's willingness to lay down some rules of the road, may well give Congress all the excuse it needs to sidestep a politically touchy matter.

The recent judicial verdicts, culminating in a unanimous Supreme Court decision on June 10, have bolstered the notion that a state may enter into regional banking compacts while still keeping out the big "money center" banks. Because interstate banking is otherwise barred by federal law, this leaves it to Congress or individual states to decide whether to allow expansion-minded banks to cross over state lines.

In a ruling earlier this year, the U.S. District Court for the Middle District of Florida barred the Comptroller of the Currency from issuing 39 charters, mostly in Florida, to "nonbank banks." The ruling deprived these in-

stitutions from using an increasingly popular loophole in federal banking law that permits them to expand into other states by offering most but not all commercial banking services.

In another case, the U.S. Court of Appeals for the 11th Circuit ruled last month that the Federal Reserve Board could not issue any charters for non-bank banks. The court acknowledged that a strict reading of federal law confers nonbank status—with its attendant regulatory privileges—on institutions that either don't make commercial loans or don't accept checking accounts. But it said the law was being interpreted too literally.

That decision, if it stands, would prevent big banks from expanding into states—such as Florida and Oklahoma—which don't want them but

(continued on p. 1471)

INSIDE WASHINGTON

After Stockman... The rumor mill predicting the imminent departure of Office of Management and Budget director Dave Stockman has been busier in the past few months than at any time since *The Atlantic* brought out Stockman's famous "Trojan horse" interview in 1981. Recently a Republican campaign official, speaking to reporters on condition that he not be identified, matter-of-factly said that Commerce Secretary Malcolm Baldrige is the likely choice for OMB when Stockman leaves at the end of the current budget cycle. Stockman has stayed longer than any budget director since World War II and recently became a father, two facts that have fueled the speculation.

On the air... Gov. Mario M. Cuomo, D-N.Y., and retired Senate Majority Leader Howard H. Baker Jr., R-Tenn., are the newest entry in the field of political odd couples. In July, they will launch a daily radio show called *Viewpoint* on the Mutual Broadcasting System. In contrast to Sens. Robert Dole, R-Kan., and Edward M. Kennedy, D-Mass.—who have a daily radio face-off program on Mutual—Cuomo and Baker will appear on alternate days.

They didn't say when... David Packard, the Hewlett-Packard Co. chairman just named by President Reagan to head a commission on Pentagon contracts, directed another

White House study on which progress reports have issued at a slow pace. In 1982, Packard was appointed chairman of the White House Science Council's Federal Laboratory Review Panel. The panel issued its report in May 1983; a two-volume progress report was then prepared, dated July 1984; the White House mailed out copies just a few weeks ago. Packard, 72, is a former deputy Defense secretary whose company ranked No. 98 on the Pentagon's latest list of top contractors, with $144 million in prime contracts.

Splattered... Presumably aware that it takes a billion dollars' worth of problems to get taken seriously in Washington, truckers' number-crunchers have toted up the cost of requiring mudflaps and side skirts on 18-wheelers: $1.18 billion. The American Trucking Associations Inc., in filing comments opposing a proposed Transportation Department rule, objected somberly: "The state of the art has not reached the point where a practical and reliable means of decreasing splash/spray exists."

INSIDE UPDATE 1471

Presidential cool on hostage crisis... Trade office vacancy favors protectionists... Who's up and down on business-climate scoreboard... State pension funds take aim at takeovers... Senate budgeteer Stephen E. Bell, in person ... Germond and Witcover on a Boston marathon

NATIONAL JOURNAL 6/22/85

1451

INTERNATIONAL REPORT

Kissinger Firm Hopes to Make Its Mark
As Risk Advisers to Corporate Chiefs

Is Kissinger Associates merely selling access to the former Secretary of State or is it
providing useful business advice to companies at home and abroad?

BY CHRISTOPHER MADISON

One of Henry A. Kissinger's former State Department associates, Joseph L. Sisco, himself a Washington consultant, summarizes the guts of the issue: "The phrase consultant can mean a great deal or it can mean practically nothing."

In the case of Kissinger Associates, a
New York-based firm begun in 1982,
that statement can be reworked into a
question. As an international consultant
and chairman of the firm, is Kissinger
doing a great deal or practically nothing?

Kissinger's fellow consultants, who are
skeptical, suspect he is merely selling his
access to foreign leaders and his broad
knowledge of world affairs.

They view the former Secretary of
State as a door opener, a hand holder and
a philosophizer for the chief executive
officers of U.S. and foreign corporations
and see these consulting services as of
questionable commercial value in the
long run. This view makes them more
than a little condescending toward the
most prominent entrant in the consulting
field.

"I'm fascinated by international politi-
cal trends, but I can't make a living at
that," said Harald B. Malmgren, a for-

mer government official and now a pri-
vate consultant who specializes in trade
and international economic trends.

Naturally, Kissinger and his asso-
ciates, most of whom first worked for him
in the Nixon Administration and have
kept up their relationship since, hope to
surprise the skeptics. They mean to fall
into the "great deal" category by, in
effect, transforming themselves from for-
mer foreign policy advisers into interna-
tional businessmen.

Why? If for no other reason than that
they, like Malmgren, realize that this is
the only way to make a living in their
trade.

Kissinger is frank on this point. In a
recent interview in his art-filled Park Av-
enue offices in Manhattan, he said:
"When I left government, I had endless
opportunities. But they wanted Henry
Kissinger for one thing: I should make the
introductions and someone else would do
the work.

"My knowledge of business was mini-
mal. For me to become a senior partner
[in an investment banking firm], every
one said it would be easy. But I did not
want to sell my contacts."

After a while in such a role, he said, he
would become "a nuisance."

Kissinger emphasized what his firm
will not do: It will not represent foreign
governments and will not lobby in Wash-
ington on behalf of clients, although it
will, if asked, recommend a good lobbyist
in the capital for its clients.

"We don't sell introductions. We don't
advertise. . . . All of our clients have
walked in the door," he said.

In short, Kissinger Associates aims to
do more than peddle its past. In addition
to offering broad-brush pictures of politi-
cal and economic conditions in particular
countries and regions, the firm is using its
ability to analyze political and economic
trends to help clients make concrete busi-
ness decisions.

By assessing the political outlook in
Greece over the next five years, for exam-
ple, the firm could help a client decide
whether to make new investments there
or whether to prepare to be forced out by
an increasingly hostile socialist govern-
ment.

In the same way, it could advise com-
panies doing business in the Middle East
on the prospects for peace, and, in the
case of Eastern Europe, assess U.S.-So-
viet relations for the next five years.

In addition, Kissinger's firm aims to be
involved in the kinds of international fi-

1452

NATIONAL JOURNAL 6/22/85

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financial deals—helping manufacturers locate markets, helping foreign clients find U.S. companies to acquire, locating merger partners—that have usually been the exclusive territory of Wall Street.

Kissinger's lack of business and economic expertise is well known, and neither of his principal partners, former undersecretary of State Lawrence S. Eagleburger, the firm's president, and former White House national security adviser Brent Scowcroft, its vice chairman, has any economic or financial credentials. (See box, p. 1456.) So the firm has brought on John Haley, an investment banker from Chase Manhattan Bank NA, as deputy chairman and Alan Stoga, an economist from First National Bank of Chicago, to fill in the gaps.

It's a long way from Foggy Bottom to Park Avenue, not so much in geography as in a way of thinking. But Kissinger and his colleagues, none of them excessively modest, show little doubt that they can find their way.

"You come out of government, and you quickly realize that what's relevant for a business is not the same as what's relevant if you're sitting in the State Department," Eagleburger said. "The one element that you have to keep bringing into your head is that there is a thing called profit and loss," he said.

## MEASURING RISK

Part of the skepticism in international consulting circles about Kissinger's firm is related to the doubts about the niche that the former Secretary of State and national security adviser has carved out—political risk analysis.

The concept is relatively simple: An analyst with broad knowledge of political conditions in a particular country attempts to assess the chances that foreign investments in the country will be jeopardized by political, economic or even military upheaval.

It is a field that came into vogue after the fall of the Shah of Iran in 1979. The international business community had established extensive economic stakes in Iran, based on the widely held belief that it was the pillar of security in an otherwise hostile Middle East. The Iranian revolution turned those assumptions into ashes, and business executives have been searching for solutions ever since.

"At the time Kissinger started to do this, U.S. companies were going through a period of considerable turbulence in international developments: oil shocks, exchange rate troubles, protectionism, debt crises," Malmgren said. "Behind all of those things were political trends—shifts to the left and the right."

This led in the late 1970s to an interest among businesses in asking outside consultants to analyze the risks that political upheaval posed in various countries, particularly developing nations.

"A number of firms tried to quantify political risks. But it was not very useful. You can't do it very scientifically," Malmgren said.

In *Managing International Political Risk: Strategies and Techniques* (Georgetown University, 1983), Georgetown professor Theodore H. Moran wrote: "Broad social revolution, while the greatest single source of injury to international investors, still accounts for much less than half and perhaps as low as 30 per cent of the losses due to the deliberate political actions of host authorities. Much greater damage... comes from business-

> *Some critics view Kissinger as merely a door opener, a hand holder and a philosopher for the chief executive officers of U.S. and foreign corporations and see these consulting services as of questionable commercial value.*

as-usual economic nationalism in the Third World...."

International consultants point out another essential difficulty in trying to make a living as a political risk adviser. "General analysis is not sufficient for most companies today," said Helmut Sonnenfeldt, a former Kissinger aide who is now a part-time consultant as well as a fellow at the Brookings Institution. "This type of advice is somewhat less in demand for high fees," he said, "than it was immediately following the crisis in Iran."

And it is available in newspapers and "tipsheets" at lower prices, Sonnenfeldt added.

William D. Rogers, a former undersecretary of State and now a lawyer at the Washington firm of Arnold & Porter, as well as Kissinger Associates' general counsel and a member of its board of directors, said: "Clients are fascinated for 5 or 10 minutes about the problems posed by succession in the Kremlin. What they

want to know about are the prospects for their product."

To some extent, large international banks and oil companies have been doing political risk analysis for years by virtue of their activities in other countries, particularly developing countries.

Kissinger Associates tapped into that expertise last year by bringing on Stoga as senior associate. Stoga, who met the former Secretary of State when he served as a consultant to the Kissinger-led National Bipartisan Commission on Central America during 1983, established and directed the First National Bank of Chicago's country-risk department.

"I think the work that has attempted to quantify risk has not been successful or good," Stoga said. "But it is possible to analyze risk and design a corporate strategy in the context of understanding the risk and managing the risk. What you're not trying to do is tell companies to avoid risks."

Skepticism aside, political risk analysis remains a going concern, and not just for Kissinger. Former Central Intelligence Agency directors William E. Colby and Richard A. Helms have been advising clients on political risk for more than a decade, and the hundreds of former government officials who have entered the consulting business practice some form of risk analysis. (See box, p. 1454.)

There is even an Association of Political Risk Analysts, which is based in Washington and has about 500 members.

There are practical reasons for the increase in risk assessment that fall under the blunt heading of "covering your ass" in consulting circles.

"These days, in case an investment goes sour, it is useful for a company to be able to say, 'We got this expert advice and acted on that basis,'" said Robert D. Hormats, another former Kissinger associate and now a vice president of Goldman Sachs & Co., a New York investment bank. They have to show "due diligence" in exercising their fiduciary responsibility, he said.

Political risk analysts are "performing a very useful service," Hormats said. "It's a perspective that companies don't have already. If you're investing today, you want a judgment, 'Is this a politically stable country?' You're basically paying for good judgment."

But an official of a major oil company that does not use outside political risk consultants said, "Hiring consultants today is often a matter of getting someone outside to confirm judgments already made inside."

And Georgetown's Moran said, "People are paying $10,000-$40,000 to be able

NATIONAL JOURNAL 6/22/85 1453

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Colby, Bailey, Werner: Another Way to Consult

If Kissinger Associates repre-
sents the "best and brightest"
of the foreign policy estab-
lishment of the 1970s, trans-
lated, the firm hopes, into
top-flight international busi-
ness consulting in the 1980s,
Colby, Bailey, Werner & As-
sociates represents another
kind of innovation, at least in
the technique of operating a
consulting firm.

For as much as it is a con-
sulting firm, Colby, Bailey is
a clearinghouse through
which potential clients can
have access to a broad range
of other consultants. It is
both a boutique—consulting
lingo for small firms that
serve a limited number of cli-
ents—and a catalogue store.

The Washington-based firm's three principals are well known in their own right: William E. Colby was a career intelligence official who capped his service with a stint as director of the Central Intelligence Agency from 1973-76. He is considered a premier international political analyst. Norman A. Bailey was most recently senior director for international economic affairs on the staff of the National Security Council and before that an international economic consultant and economics professor. Robert F. Werner, the new firm's managing partner, has been active in Washington consulting circles for about 15 years, and before that was in investment banking on Wall Street.

Among them, these three Washington veterans have a
broad range of expertise, experience and contacts, all key
ingredients in successful consulting.

But the real secret to the firm's future may be its unique
arrangement with independent consultants, known as spe-
cial partners, that can be called in on a project-by-project
basis. Hiring Colby, Bailey enables a client to tap into a
network of consultants and consulting firms that offer a
broader range of special intelligence and services, including
lobbying and "door opening." The network includes:

* William B. Dale, who, before he retired a year ago, served nearly 22 years at the International Monetary Fund, almost half that time as deputy managing director.

* Transnational Inc., an international trade consulting firm founded in 1976 that provides marketing and lobbying services for firms seeking to increase their access to foreign markets. Its chairman is Raymond J. Waldmann, a veteran of the Reagan, Ford and Nixon Administrations.

* Neill and Co. Inc., a relative newcomer on the Washing-
ton lobbying scene that nevertheless has carved out a
specialty in representing foreign governments here. In
addition to founder Denis M. Neill, a former Agency for
International Development official, its principals include
Alvin P. Drischler, a former aide to Sen. Paul Laxalt, R-
Nev.; Les Janka, a veteran of the White House staff, the
National Security Council and the Defense Department;
and Ernesto Rivas-Gallont, who until last year was El
Salvador's ambassador to the United States.

* Former Rep. Lester L. Wolff, D-N.Y., now an indepen-
dent public relations counsel, who built up extensive con-
tacts in Asia during his House service.

* Gregory R. Copley, publisher of *Defense and Foreign Affairs* and president of International Strategic Studies Association, a nonprofit Washington research and policy group specializing in defense and strategic policy.

* Consonant Ltd., a telecommunications consulting firm specializing in "information-age counseling." The firm's directors include Ronald B. Frankum, former deputy science adviser in the Reagan White House.

* The Naisbitt Group, headed by *Megatrends* author John Naisbitt, which specializes in forecasting social and economic trends.

* Control Risk Inc., a firm specializing in emergency planning and international security measures as well as hostage negotiations.

"We're setting up a situation where any U.S. or foreign company or foreign government can come to us and we can get it done" no matter what "it" is, Werner said. Eventually, the firm hopes to have 15-20 special partners.

If you sense that Colby, Bailey is not thinking small,
you're right. "Our goal, within a reasonable period of time,
based only on cash flow considerations, is to turn Colby,
Bailey, Werner & Associates into Washington's first true
investment banking firm," Werner said.

The firm has been approached by overseas clients with
capital that are looking for U.S. companies to acquire. It
can also help foreign clients make real estate acquisitions in
the United States, Werner said. It also considers itself a
specialist in mergers and acquisitions.

Colby believes the key to living in the information age is
knowing how to think about all of the available informa-
tion. Political risk consulting, he said, is a matter of making
judgments. "I've been telling my people for some time that
we're on the edge of a victory in El Salvador."

He will also offer foreign clients advice on other political
mysteries, including how Washington works. "It's the
toughest intelligence job around," Colby said," because
power is dispersed so much.

Robert F. Werner (left), Norman A. Bailey and William E. Colby

1454 NATIONAL JOURNAL 6/22/85

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to tell the board that Kissinger said it was not too risky."

"I couldn't say it isn't true," Eagleburger said. "I would still argue that the CEO was able to make a more informed judgment after listening to us than before."

## STARTING OUT

When the firm was established in 1982, Kissinger Associates had a limited scope. "When we started out, we did broad-brush advice on the political conditions in the countries in which our clients had to operate," Kissinger said. "We would tell them the risks. But to keep it at that level of abstraction is not fair to the client."

Consulting for corporate clients was blended in with Kissinger's many speaking engagements and, to an extent, the young firm, prestigious board of directors or not, was merely selling Kissinger himself, even by Kissinger's and Eagleburger's estimation.

But this began to change by the time Eagleburger joined the firm late last year. Although he was long associated with Kissinger—he served as an aide on the National Security Council staff during the first years of the Nixon Administration and later helped run the State Department for Kissinger—Eagleburger is energetic, ambitious, successful in his own right and in need of greater challenges than could be found in merely keeping Kissinger on schedule and out of trouble.

It is clear that Eagleburger would not have joined the firm if it were to be a limited operation.

"We turned it from a one-man show into a professional organization," Kissinger said, referring to Eagleburger's role. "He's trying to institutionalize the operation," Eagleburger said of Kissinger.

Eagleburger is also trying to unwrap some of the cloak of secrecy surrounding the firm, urging Kissinger to agree to more press interviews and to give a general picture of its operations.

Client identities and fees, however, are still closely guarded secrets, an arrangement aided by a standard mutual agreement between Kissinger Associates and the client not to make the relationship public. It not only protects the client but it also protects Kissinger from having his name bandied about by boastful clients.

At least two companies—Atlantic Richfield Co. and Fluor Corp.—have in

the past confirmed that they are clients but declined to discuss details. It can be inferred from discussion with Eagleburger and others in the firm that they also count a major U.S. auto company as well as other oil companies, a European manufacturer or two and more than a few banks among their estimated 30-35 clients.

Annual fees are reportedly in the vicinity of $200,000.

Another trademark of the firm's operations is that most consultations are conducted at the highest level. Kissinger, Eagleburger and Scowcroft usually meet about three times a year with a client's top officers.

According to Rogers, the risks of becoming "Henry Kissinger Inc." were identified early on, when ideas were first being put on paper. Rogers was involved in that planning.

"The conclusion was that if the group was only able to continue to discuss important global political and economic trends in the abstract without getting involved in the decisions of each client,

ment, getting to this point is usually a two-step process.

"My main asset at the time I started," Sonnenfeldt said, "was that I had judgments about particular countries. I maintained a certain level of information through a network of contacts among government officials and journalists. I still have those contacts. But a lot of the companies have more access to that kind of information" through various other sources.

Sonnenfeldt said that his value to his clients now is in his ability to help them make concrete business decisions and is derived as much from his knowledge of their operations and options as it is from his general knowledge of world affairs and contacts.

## WHAT THEY DO

Kissinger said his firm is moving in the same direction. "What we do now... is get involved in the strategic decisions that [clients] have to make, how to accomplish [their objectives] based on our knowledge," he said. "Our specialty is the rela-

> Some international consultants say that getting foreign policy information is not a mysterious process. "Everything you need is in the public domain," says consultant Joseph L. Sisco.

that would run thin pretty fast," he said in an interview. "The clients would become disinterested rapidly. You could do the same 'dog and pony show' for only so long."

That's a conclusion echoed by other international consultants.

According to Sonnenfeldt, who does a limited amount of international corporate consulting, there are two points at which a consultant can be involved: at the planning stage and in the decision stage.

To be worth his fee, a consultant has to get involved in the decision making, and to do that, has to learn about the client's business.

For a consultant coming out of govern-

tionship between political and economic conditions."

The firm still does the broad-brush analysis of world affairs that was its stock in trade when it began. Although Kissinger won't disclose client names, Eagleburger said a typical client is a foreign-based international bank that calls Kissinger in several times a year for a "strategic overview" not aimed at specific commercial issues but as a way to keep the bank's senior staff up to date.

The next level of specificity might involve Kissinger Associates in helping a large U.S.-based multinational firm evaluate its business potential in places such as Eastern Europe in which international

NATIONAL JOURNAL 6/22/85

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Kissinger's Associates at Kissinger Associates

Henry A. Kissinger's key colleagues at Kissinger Associates, the consulting firm that he chairs, were his top aides almost from the beginning of his government career during the Nixon and Ford Administrations.

Lawrence S. Eagleburger, president of the firm. . . . First worked for Kissinger as his executive assistant when the latter became President Nixon's national security adviser in 1969. . . . After a tour at NATO and at the Defense Department, rejoined Kissinger at the State Department in September 1973, again as his executive assistant. . . . In 1975, named undersecretary for management, a position from which he was said to "run" the department for the Secretary. . . . Served as ambassador to Yugoslavia during the Carter Administration and then, during the Reagan Administration, as undersecretary of State for political affairs under Alexander M. Haig Jr. and later George P. Shultz. . . . Has reputation for being smart, affable and an effective bureaucratic infighter. . . . Now 55.

Brent Scowcroft, the firm's vice chairman. . . . Stayed behind to run the National Security Council staff when Kissinger left the White House in 1973 to become Secretary of State but did not inherit Kissinger's title of assistant to the President for national security affairs until November 1975. . . . A career Air Force officer, he joined the White House staff in 1972 as Nixon's military assistant and became Kissinger's deputy a year later. . . . Always portrayed as the intensely loyal staffer. . . . Graduate of the U.S. Military Academy and taught Russian history there before being assigned overseas. . . . Later served as special assistant to the Joint Chiefs of Staff. . . . Resigned his commission in 1975. . . . Joined Kissinger in setting up Kissinger Associates in 1982. . . . Now 60.

William D. Rogers, though not a full-time member of Kissinger Associates, remains a close adviser to the former Secretary of State and has been active in helping shape the firm from the outside. . . . Member of its board of directors and its general counsel. . . . Washington lawyer at Arnold & Porter since the early 1950s. . . . Specialist in Latin American policy. . . . Held several foreign policy posts, including assistant secretary of State for interAmerican affairs and undersecretary of State for economic affairs under Kissinger. . . . Also a senior counselor to Kissinger's National Bipartisan Commission on Central America where, incidentally, he recruited economist Alan Stoga, now senior associate at the firm, to serve as a consultant. . . . Helped draft commission report. . . . Now 58.

political trends, such as East-West relations, have a great impact on business opportunities.

Although this type of work does not involve Kissinger's firm deeply in specific business decisions, it does require a knowledge of the client firm's goals.

On an even more specific level, Kissinger Associates might advise a U.S. company on its dealings with a Middle East country with which it is contemplating a specific transaction or project.

Kissinger, whose credentials in the region are unsurpassed, might help a U.S. oil company with limited Middle East experience in its attempts to negotiate

and work with a government in the region for the first time.

Consulting sources said the Kissinger firm also bills itself as a specialist in understanding world oil markets and world energy outlooks, both useful tools for businesses that are trying to plan intelligently. Stoga is a specialist in oil markets as well as international debt.

What Kissinger Associates is doing, in one sense, is very general—it will not, for example, negotiate financing for projects, although it may help a client find someone to do that.

On the other hand, the information is useful because it is coming from Henry

Kissinger and from those close to him, who have their own reputations as policy insiders. "People are buying big-name expertise," said Georgetown's Moran.

"They're advising on major political trends and questions," Hormats said. "If you're General Motors and you want to invest in Spain or Portugal or Italy, Kissinger's firm would sort out the likely political scenario over the next 10 years and predict how it would affect economic conditions. It's macro stuff, political risk assessment of the broadest sort."

Stoga said some companies, particularly oil companies and big banks, are more inclined than others to factor geo-

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political strategies into their decisions.
"If companies are going to operate on the
world stage, they have to have that kind
of analysis and are usually comfortable
thinking in those terms," he said.

In other instances, Stoga said, the firm's "country knowledge and expertise" is combined with the client's "product knowledge" to help a large European-based company evaluate new markets. Kissinger Associates will help devise the firm's risk-management strategy, he said.

Strategy has to be based on informa-
tion. "We have a singular ability to find
out what top people around the world are
thinking," Kissinger said.

In fact, one of the advantages of being
Kissinger is access: Whenever he travels
abroad, he tries to see the head of state, if
possible, to get a briefing on current
trends and concerns. Eagleburger
calls this keeping his "mental capital"
current. It certainly ensures a differ-
ent perspective from that held by the
average Washington analyst who gets
most of his information from public
sources.

"No one can predict the future," Eagleburger said. "What makes us unique is a feel for the sensitivity of the situation and where it is likely to go."

He and Kissinger also maintain that
it is not very difficult to stay plugged
in, as long as you don't try to guess
what will happen from day to day.

"When you leave Washington, the single most important lesson is to stop monkeying around in day-to-day decisions," he said. "You can't compete with government officials. On the other hand, if you have been in government and maintain a number of contacts, together with newspapers and other sources of information, you can get a 98 per cent accurate picture of the three-year situation.

"If you've been with it long enough in Washington, since the limits on anyone's foreign policy are fairly clear, you can be reasonably confident in predicting how things will be dealt with. I found that the [foreign policy] experience was transferable in ways I hadn't expected," Eagleburger said.

Other consultants agree that getting
the information is not a mysterious pro-
cess. "Everything you need is in the pub-
lic domain," said Sisco, who adds that
Washington is an ideal place to operate
because there are "experts" on every
conceiveable subject, as well as ample
information.

Kissinger Associates has four research-
ers to comb newspapers and other sources
for information, three of them Washing-
ton-based, as is Scowcroft, who preferred
to continue living in the capital.

CHANGING HATS

Making the transition from Kissinger
the geopolitical strategist to Kissinger the
international businessman is not without
its trials. An understanding of business
and economics is something the former
Secretary of State and other firm mem-
bers have been picking up haphazardly in
contact with clients. Sitting on corporate
boards also helps, Eagleburger said.

Rogers said Kissinger has become im-
mersed, for example, in the Latin Ameri-
can debt crisis. "He's radically beyond
where he was before," Rogers said, and
he is persuaded that what happens in the
economic realm has a major impact on
world events. That's not something Kis-
singer would have necessarily accepted a
decade ago, he added.

"When we started out, we
did broad-brush advice on
the political conditions in
the countries in which our
clients had to operate,"
Kissinger says. "We
would tell them the risks.
But to keep it at that level
of abstraction is not fair
to the client."

But can Kissinger think like a business-
man instead of a diplomat? Said Stoga: "I
don't know that I would say he thinks like
a businessman because I think clients
want him to think like Henry Kissinger
and [help them] understand the conse-
quences of that thinking. It's not a transi-
tion from foreign policy to business as
much as it is an addition to his interests.
He has been adding a dimension, not
shedding the past."

Ultimately, Stoga said, whether the
firm continues to attract clients will prove
whether it is giving corporations useful
information or merely interesting foot-
notes to recent history.

There always will be an element of the
firm's business that is based exclusively
on Kissinger's name recognition. Said
Georgetown's Moran, "A certain amount
of it is the people who simply want to hire
Henry, want to have lunch with him."

Are some clients signed up only so that
they can have access to Kissinger?

"Maybe 10 per cent," Eagleburger said.

It is also inevitable that the firm will
use its Washington knowledge and con-
tacts to do business. While Kissinger and
Eagleburger said they don't "milk" their
former associates still in the government
for information, they are not averse to
asking their Washington contacts for in-
formation about events they are analyz-
ing for a client. And while they don't
"open doors," they can certainly advise a
client on how to get them opened himself.

"Washington is, after all, the heart of
the foreign policy business," Scowcroft
said.

One of Scowcroft's tasks is to advise
clients on the atmosphere for arms con-
trol and of U.S.-Soviet relations. While
these events do not affect many specific
business decisions, he said, it is "part of

the international setting" for business.

On a more specific level, some for-
eign clients are interested in potential
business from the Strategic Defense
Initiative ("Star Wars") being devel-
oped by the Reagan Administration.
Even though he has publicly criticized
aspects of the program, Scowcroft
may advise clients "not on how do
they get a piece of the action but what
it means, how it might be affected by
the arms control negotiations and how
they can usefully participate yet pro-
tect themselves against the political
vagaries."

China could be another source of
lucrative business for the firm. Kissin-
ger, of course, was the central figure
in reestablishing U.S.-Chinese rela-
tions during the Nixon Administra-
tion, and Eagleburger said clients are
seeking the former Secretary's help in
developing commercial ties there.

"Henry's been very reluctant to get
involved," he said. His contacts there are
"not something he wants to trade on."

Perhaps not surprisingly, the most dif-
ficult aspect of the transition from gov-
ernment to business for Kissinger Asso-
ciates may be understanding the profit
motive of the corporate world. Scowcroft
called it "the most challenging" part of
the switch.

"Some of us who were in the govern-
ment felt it was important for the U.S.
national interest to maintain close rela-
tionships with Eastern Europe—to loosen
Eastern Europe-Soviet ties—through
economic relations," Eagleburger said.
"But when you change roles and advise
someone in business on whether to invest
there, [you have to say that] it's not the
best place to invest.

"It's the difference between a national
objective and a business priority. I would
have real trouble being involved in trying
to increase trade with the Soviet
Union." ☐

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CONGRESSIONAL REPORT

# Taking Advantage of Tax Reform Means Different Strokes for Different Folks

Five Members of Congress who are considered potential presidential candidates in 1988 have reacted in varying ways to President Reagan's tax reform package.

BY RICHARD E. COHEN

Members of Congress with ambition or prospects for a successful presidential campaign are showing that there is more than one way to take advantage of the tax reform debate.

Of the five Members rated as potential 1988 presidential candidates, three were among tax reform's earliest and most vocal legislative backers and all five consider themselves avid proponents of the idea. A review of their recent activities, their plans for the near future and their comments shows, however, that they have strikingly different approaches to handling the issue.

Take, for example, the initial responses to President Reagan's tax reform proposal by Sen. Bill Bradley of New Jersey and Rep. Richard A. Gephardt of Missouri, the Democratic co-sponsors of the legislation that launched the current debate in 1982. Both are high on their party's list of bright hopes for the future.

"How do I feel?" asked Bradley in a prepared statement on May 28. "I am elated. Tonight the President has committed himself to supporting tax reform and explaining what it means to the American people.... That will move the whole process and chance for tax reform a giant step forward."

Gephardt, by contrast, took a less charitable view in a statement distributed to other House Democrats the day that Reagan unveiled his plan. "Tonight I and my fellow Democrats feel like the parents of a child gone astray.... By retaining many deductions and preferences, the Reagan plan is not designed to simplify the tax code as Bradley-Gephardt does—it merely shifts the preferences around. What President Reagan is going to propose is not tax reform but tax retreat."

Since then, Gephardt has mixed criticism with some praise of Reagan's plan,

and Bradley has identified some areas of disagreement. But the initial impressions formed by some of their colleagues—both favorable and unfavorable—remain.

The Bradley and Gephardt comments highlight the fact that Members of Congress are guided in their responses by the political and legislative options that confront them. Thus on the day that House Ways and Means Committee chairman Dan Rostenkowski, D-Ill., gave a largely favorable Democratic response to Rea-

> Rep. Jack F. Kemp "is great at making speeches," says Senate Majority Leader Robert Dole. "Some of us have not only been advocating tax reform but voting for it."

gan, Gephardt—a committee member who had taken the initial lead on the issue—decided to focus on its failings that he said he had been discussing for months. Bradley, on the other hand, serves on the Finance Committee, where no member has rushed to echo his strong support for tax reform, and he felt more comfortable taking the high ground.

The two Democrats' different approaches also reflect the age-old dilemma of trying to establish or respond to a national audience and still assert influence in the congressional arena. Can an articulate lawmaker be an effective insider while trying to shape the national debate?

Rep. Jack F. Kemp of New York, the

leading Republican apostle of tax cuts and co-sponsor with Sen. Robert W. Kasten Jr. of Wisconsin of the major GOP tax reform plan, has sought for several years to play both roles and has scored some successes. He is on the short list of his party's leading candidates for the 1988 presidential nomination, and many House Republicans look to him for leadership on tax issues. Unlike Bradley and Gephardt, however, he does not sit on a congressional tax-writing committee; according to some Members who do, that will severely restrict his ability to shape the details of a tax bill.

Senate Majority Leader Robert Dole, R-Kan. has not proposed his own tax reform bill. But as a member and former chairman of the Finance Committee, as well as party leader, he may have more influence on the outcome of the current debate than almost any other Member of Congress. In an interview, Dole said it was too early to speculate on whether such a role could bolster his prospects for the 1988 Republican presidential nomination, in which he is interested.

But he took a shot at Kemp for having fought the passage of the 1982 and 1984 bills that increased taxes—Dole calls those bills tax reform measures—that the Kansas Senator played a major role in writing. "He's great at making speeches," Dole said of Kemp. "Some of us have not only been advocating tax reform but voting for it."

Noting that his differences with Dole are "not acrimonious" and result from their disagreement on the role that tax cuts play in fostering economic growth, Kemp responded that he opposed the two bills because "they did not do anything to lower rates."

And then there is Sen. Gary Hart of Colorado, the runner-up for the hard-fought 1984 Democratic presidential nomination. Hart neither has his own tax

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