# Nixon Administration Split on Cambodian Question

By PAUL SCOTT

President Nixon's military and foreign policy advisers are sharply split over the type of aid that the U.S. should give the new anti-Communist government in Cambodia.

The outcome of this vital policy dispute, now raging at the highest levels of government, could determine how effective President Nixon's new Asian doctrine is in protecting friendly countries from Communist aggression.

The President's military advisers are urging him to provide Cambodia with the necessary air and naval help needed to oust the 70,000 North Vietnamese now using that country as a base for military operations against South Viet Nam.

As an immediate measure, the Joint Chiefs of Staff want the President to offer U.S. naval help to Cambodia to help block Hanoi's use of Sihanoukville, the country's chief port, and nearby coastal areas.

These regions are now being used by North Viet Nam as the main supply route for the Communist forces operating from Cambodia and in the Mekong River Delta provinces of South Viet Nam.

While the Cambodian government has begun moving to shut off the port to the Communists, the Joint Chiefs of Staff have warned that the blockade cannot be effective without the help of U.S. and South Viet Nam's navies.

The closing of this North Viet Nam supply route, according to the Joint

Chiefs, would not only put pressure on Hanoi to withdraw its forces from Cambodia, but would greatly help the U.S. war effort in South Viet Nam.

The Communist supplies now come by ship to the Cambodian coast from North Viet Nam, north Korea, Russia and Communist China. They are then brought to South Viet Nam's borders by trucks, sampans, bicycles and human porter.

The President's foreign policy advisers headed by Henry Kissinger, White House aide for national security affairs, have cautioned the President against providing direct U.S. military help to Cambodia.

The Kissinger group wants the President to use political rather than military measures to try to get the invading North Vietnamese troops to leave Cambodia.

Direct U.S. military help to Cambodia, the Kissinger group argues, could result in the expansion of the war in Southeast Asia and would force a halt to President Nixon's plans for withdrawing American forces from South Viet Nam.

The Kissinger group is concerned that any U.S. military involvement in Cambodia would touch off a new wave of anti-war demonstrations in the U.S. They believe that the coming protests were signaled by Sen. J. W. Fulbright's (D.-Ark.) latest attack on the Administration's Viet Nam policy. The leading dove in the Senate made his strong-

White House aide Henry Kissinger is among those warning President Nixon against getting too involved in Cambodia at the risk of jeopardizing the American position in South Viet Nam and elsewhere in Southeast Asia.

est speech against the war two weeks ago.

"It simply does not matter very much for the U.S. who rules the states of Indochina," he declared.

President Nixon has temporarily delayed making any decision on the grounds that the new government of Cambodia has not yet officially asked for either U.S. military or political help.

While several Cambodian government officials have privately indicated that extensive U.S. aid will be sought, no formal request has been submitted.

The Cambodian request is expected to be made before the end of April. White House aides say then the President will make his decision.

In private conversations with key GOP congressional leaders, the President already has made it clear that no U.S. ground forces will be sent to Cambodia. However, he has left open the possible use of American naval and air units should they be requested.

Administration insiders say the closing of Sihanoukville to the Communists could become as big an issue in the future as was the debate over what the U.S. should do about Haiphong, the main North Vietnamese supply port.

Note: More than $50 million in U.S. foreign aid was used to develop Sihanoukville into a deep-water port capable of handling ocean-going vessels.

## Fulbright Is Confused

# New 'Realities' Are Really Old Myths

By GEN. THOMAS A. LANE

The known initiatives of the Nixon Administration with regard to recent Communist aggression in Laos show a touch of bewilderment. Reports that it has urged Britain and the Soviet Union to reconvene the Geneva conference on Laos suggest that the Johnson confusion is still rampant in the State Department.

The 1962 Geneva treaty on Laos was unilateral surrender. The United States withdrew its troops from the country, but the Communists did not. To suppose that more talk would now restrain the Communists is moronic. The problem is to devise a new course which will stop the Communist drive;

Sen. J. William Fulbright (D.-Ark.) has again changed his mind about what is really going on in Southeast Asia.

and such a course will not get the approval of Britain or the Soviet Union.

The new Pompidou initiative is simply fatuous. To suppose at this state that the Communists would agree to a genuine neutralization of Indochina is sheer deception. Why would they give away what they have conquered at such cost in blood and treasure? The French president has been listening to Chinese fairy tales.

Asking Communists to accept neutralization is like asking them to accept capitalism. No Communist can ever be neutral. He can only pretend to be neutral when that is expedient. Neutrality of communism is a facade for our surrender.

Sen. J. William Fulbright, who knows what we are doing, is desperately afraid that the Nixon Administration will try somehow to stop the Communist aggression. On April 2 he addressed the Senate once again about "Old Myths and New Realities," giving a talk for men with short memories and scant knowledge. He continued his relentless campaign for Communist victory in Southeast Asia.

If I did not know that Sen. Fulbright was a chief architect of the disastrous 1962 Geneva treaty which sprang the attack on South Viet Nam, if I did not know that he was a mover and shaker in the disastrous overthrow of President Diem in 1963, I might be misled by his unctuous sallies. It is the Fulbright conception of restraint in the use of power and not our resistance to aggression which has involved us in long and costly wars.

The senator's new realities are just the old myths heated over and served again. He said to the Senate: "Puny as it is by great power standards, North Viet Nam is the paramount power in Indochina. In undarned strategic terms, it is 'their' part of the world in exactly the same way--except on a much more modest scale--that Eastern Europe is Russia's part of the world and that Latin America is ours. ..."

This statement reveals the confused state of the Fulbright mind. He cannot distinguish between the Soviet dominion over its satellites, so recently demonstrated in Czechoslovakia, and our relationship with our sister American republics. That is why he could say, "We ought in a way to welcome North Viet Nam's pre-eminence in Indochina. ..." He thinks North Viet Nam will resist Chinese domination!

The senator is wrong in fact as well as in judgment. There is not the power relationship he suggests. North Viet Nam is a minority power within Indochina. It is aggressive. The senator admires fighters only when they are on the other side.

The issue in Indochina is power. The Communists control a minority. The United States has prohibited the government of South Viet Nam from joining with the Laotians and the Cambodians to repel the Communist aggression. The resistance has been fractured by United States policy.

The free countries of Indochina will defend themselves if we can just liberate United States foreign policy from the domination of Sen. Fulbright and his British mentors.

East German security officials are writing a tragic chapter to West German Chancellor Willy Brandt's meeting with Premier Willi Stoph of Communist East Germany.

They have arrested more than 100 East Germans who took advantage of Brandt's visit to Erfurt last month to publicly display their pro-West feelings by breaking through police lines and cheering the West German delegation.

The terrible irony of the East German crackdown is that it came last week while Brandt was urging President Nixon to throw the full weight of the U.S. government behind his policy of reconciliation with the East German government.

While expressing sadness in private about the fate of the courageous East Germans, Brandt has refused to publicly condemn the East German government for their repressive action.

His reasoning, as explained to officials here, is that such a condemnation would upset the dialogue between the two Germans which is the heart of his new foreign policy.

In his private talks with Nixon Administration officials, Brandt took the position that the West should not take any action that might encourage the East Germans to revolt against the Communist regime.

The policy of all Western nations, Brandt stated, should be to try to establish better relations with the Communist governments of Eastern Europe through diplomatic contacts.

When questioned about conditions in East Germany, Brandt admitted that a little encouragement from the West could trigger widespread demonstrations against Stoph's Red regime.

Brandt also threw cold water on a proposed U.S. plan to use the current talks with the Soviet Union on West Berlin to call on the East Germans to tear down the Berlin Wall.

It was his strange position that the proposal might upset his efforts to establish better relations with the East German government.

10

Human Events

April 25, 1970

314

["'Earth Day' Forces Ignore Ecological Pioneers", "By JOHN CHAMBERLAIN", "The rumbles about the plans for \"Earth Day\" on April 22 are, in one sense, disturbing. Veterans of the \"ecological struggle,\" who have been working for years to promote what they call the \"science of survival,\" have been ignored by the high school and college crowd that is trying to make the anti-pollution crusade \"their thing.\"", "On the other hand, there are the science\nteachers in the 4,000 schools that intend to\nparticipate in \"Earth Day\" exercises-", "Publisher Devin Garrity is among\nthose whose work has been ignored\nby the new ecology radicals.", "and these represent a stable element in\npromoting an awareness of the need to\nclean up the environment. They will be\nthere next year after this year's crusade,\nwhich threatens to become a shortsighted\nanti-capitalist binge, has given way to\nsomething else.", "It disturbed me to learn that my friend,\nDevin Garrity, who, as the head of the\nDevin Adair Publishing Co., has been\npublishing ecological books for years and\nis now promoting an Ecological Book\nClub, has not been asked to do a blessed\nthing in connection with the \"Earth Day\nprogram. Nor has Mrs. Joy Lee, who\nstarted the conservation group known as\nPYE (Protect Your Environment) at the\nThomas School in Rowayton, Conn.", "Either the young don't know who\ntheir natural allies are, or they are\nnot sincere about working with in-\ndividuals or groups which have\nshown some success in pushing the\nconservation cause within the frame-\nwork of the only political and eco-\nnomic system that we have, or are\nlikely to have for years to come.", "The saga of Mrs. Lee ought to get top\nbilling this April 22. It wasn't so very", "long ago that there was only one PYE\nclub, the one formed at the Thomas\nSchool to preserve Connecticut coastal\nwetlands from the indiscriminate dump-\ning of old tires and rusty iron. The\nThomas School club did yeoman work\nin persuading the Connecticut Legisla-\nture to pass a law calling for a survey\nand preservation of Connecticut's salt\nmarshes, which are important spawning\ngrounds for fish.", "This is a local story, but the subse-\nquent adventures of the PYE clubs is na-\ntional. Almost within the space of a year\nthe number of PYE groups has jumped\nfrom a solitary one to a busy 60. And\n77,000 PYE buttons have been sold to the\nclubs' supporters. Mrs. Lee has since\ntransferred her efforts to Georgia, where\nshe has persuaded Gov. Lester Maddox\nto support new legislation designed to\nsave the famous Glynn marshes, which\nmake Connecticut salt meadows look\npygmy-size by comparison.", "Mrs. Lee, in a telephone conversation, said she felt sad that she hadn't been asked to do anything in connection with \"Earth Day.\" But she refuses to be downcast about the long-term chances for a sound anti-pollution movement. The young people, she said, would ultimately learn that you don't spread a gospel very efficiently by \"backing people into corners.\"", "Her Thomas School girls in Connecti-\ncut moved through existing community\nchannels to pressure the state legislature\ninto doing something about preserving\nthe tidelands. They deluged the legisla-\ntors with some 800 personal handwritten\nletters. They got the commuters, many\nof whom are fishing and sailing fanatics,\ninterested in something that would be\ngood for their own hobbies, which de-\npend on a clean Long Island Sound.", "She would like to drive it home\nto the Students for a Democratic\nSociety crowd that they are depen-\ndent on capitalistic industry for the\ntechnological information and meth-\nods that will, some day, get pollu-\ntion out of our air and streams.\nAnd, even more important, there are\nthose teachers of \"Earth Sciences\"\nwho will be the backbone of any\ncontinuing interest in the conserva-\ntion movement.", "As for Mr. Garrity and his publish-\ning company, which, because it is con-\nservatively oriented, has struggled ever\nsince the '30s without getting much\nhelp from our liberal review media, they\naren't surprised that the \"Earth Day\"\norganizers haven't asked them for help\nin promoting the \"ecological view.\"", "They are used to a lonely fight. But it\ncould be of interest that one of the De-\nvin Adair ecological books, *The Web of\nLife* by John Storer, has sold more than\na million copies in paperback. Or that\nMarjory Bartlett Sanger's *World of the\nGreat White Heron*, a study of the\necology of the Florida keys, has been\none factor in the success of the move-\nment to save the Everglades, which are\njust to the north of the keys.", "The fight for a clean environment\nwasn't born yesterday, and the \"Earth\nDay\" demonstrators owe it to them-\nselves to learn something about the\npioneers who have made their move-\nment possible.", "Copyright 1970, King Features Syndicate", "THE GOLDEN AGE?—\"Remember\nthe good old days when it was consid-\nered poor etiquette to refer to police-\nmen as 'cops'?\"—From the Indianapolis\nStar", "PATRONIZE OUR ADVERTISERS", "and tell them you read their message\nin HUMAN EVENTS.", "I always have my escorts take me\nstraight to the STOCKHOLM\nwhere the smart young execu-\ntives love the two smorgasbord\ntables, each a dining master-\npiece.... The unlimited choice of\nfamous Swedish specialties and\nunique Italian dishes served in\nthe Scandinavian manner are\nsimply the greatest!", "The Stockholm", "151 West 51 St., N.Y.C. • CI 6-6560", "OPEN FOR LUNCHEON & DINNER", "PHILIP ROSEN, Managing Director", "With the PERMATOGRAPHY process we have been able to capture in metal immortal words of one of our great presidents.", "Your home or office will be enhanced by the beauty and veracity of this quality\nplaque.", "The 8\" X 10\" plaque is available in solid walnut or walnut finish. The engraved\nplate is bordered by red felt.", "Solid Walnut ... $10.00 Walnut Finish ... $8.50", "Please rush solid walnut plaques @ $10.00 per plaque to:", "Name: \t\t\t\t\t\t\t\t\t\t

FORTUNE
July 1970

PERSONAL WHITE HOUSE

The inner life of the President's
Office is meticulously planned
and very private. But pressures
and clamor from the world
outside are forcing change.

by Juan Cameron

Students of the presidency have an adage that the White House is properly organized only when it suits the incumbent's personality and experience. By that standard, the Nixon White House is very well organized indeed. Richard Nixon has stumped the political circuits widely and intensively, but he has never felt at ease with the elliptical windiness of other politicians, or with the kind of easy access to elected officials that voters demand. Recently, speaking of his daughter Tricia, he remarked: "She has a passion for privacy—like me. Neither of us likes to have a lot of people around." By design and inclination the thirty-seventh President of the United States runs a very private presidency.

The Nixon White House is like a well-managed law
firm: orderly, restrained, and decorous. It is quite unlike
the chaotic operation that Lyndon B. Johnson carried
with him from his long Senate tenure, or the rigid style
that reflected Dwight D. Eisenhower's forty years in the
military bureaucracy. Nixon's style is that of a judge.
On important matters, he insists on carefully constructed
written briefs, which often are followed with oral argu-
ments by his staff and Cabinet officers. "He loves the oral
arguments," says one aide who has watched him work.
"I've seen him smile with pleasure while two Cabinet
officers slug it out in front of him." As the arguments go
on, the President jots down major points of the discussion
on a yellow pad. Then, with the main points of an issue
in focus, he retires, in a manner of speaking, to chambers,
where he chews the tips of his reading glasses—or a pencil
—as he ponders his decision in solitude.

The desire for privacy in chambers coincides with the
President's feeling that an aura of pomp and inaccessibil-
ity about the White House is necessary to restore the pres-
tige of the presidency, which Nixon—like many other
observers—believes to have become tarnished in recent
years. The assassination of John Kennedy weakened the
presidency by revealing the terrible vulnerability of the
chief executive. The conduct of the war in Southeast Asia
has led to widespread public questioning as to whether a
President's words and motives are always to be believed.
In addition, the vast social revolution the nation is under-
going has shaken even the institution of the presidency;
a President cannot appear on the streets today without
fear of provoking a disturbance.

Even before the backlash from the Cambodian venture,

President Nixon and his principal aide, Bob Haldeman, in the Oval Office

FORTUNE July 1970 57

some presidential aides speculated that it could take any-
where from four to twenty years to restore the presi-
dency to what it was under Eisenhower and Kennedy. The
Sunday morning religious services, the frequent white-tie
dinners, the new portico and waiting rooms that surround
visitors to West Wing offices with an atmosphere of greater
grandeur, even the overdone new dress uniforms of the
White House police—all are part of Nixon's effort to re-
establish the prestige of his office. Taking a cue from
General de Gaulle of France, the President seeks to com-
bine more dignity with less visibility—one hopes with
more lasting results than de Gaulle achieved.

“Sweet Old Bob”

The man who has molded the White House operation to
the Nixon manner, and today oversees its taut operation,
is Harry Robbins (Bob) Haldeman, forty-three, a former
Los Angeles advertising executive. Haldeman's is not the
popularly conceived style of the advertising world. The
reputation he brought to the White House still holds: a
competent, methodical, and intense executive, who can
charm as easily as he can antagonize. Sometimes, Halde-
man said jokingly in a recent speech to some fellow
U.C.L.A. alumni, "I feel very much like Robert Benchley,

who said all his associates just loved him. They called him
Sweet Old Bob—and often they just used the initials."
As head of J. Walter Thompson's solid, well-established
Los Angeles office from 1960 to 1968, Haldeman complete-
ly revamped its staff and line operations. Traces of his
Los Angeles experience can be seen in the White House
setup today, fused with Haldeman's intimate knowledge
of Nixon's work style—knowledge gained from working
in Nixon campaigns since 1956. From this background
he has molded a White House staff that is as orderly as
it is controversial.

Careful advance planning and conservation of the Presi-
dent's time are Haldeman's two guiding principles. Every
paper must "track" properly; the "input" to the President
must be complete. Nixon's day, whenever possible, is or-
ganized into half-hour segments, with time to read, dis-
cuss, and, above all, with lots of time to think and decide.
Any matter, be it a legislative proposal or a letter of a
substantive nature, must be meticulously "staffed out"
before it goes to the President's desk. Each request for
an appointment with the President is put through a fine-
mesh screen. The staff prepares a "script" on each visitor
to the Oval Office telling who the visitor is and describing
the nature of his business. The scenario even provides

TWO VIEWS OF NIXON'S STAFF: AS THE WHITE HOUSE SEES IT...

The White House staff was once small, fluid, and general. No longer. Today the President has 548 people working within a complex staff structure designed by Nixon aide Bob Haldeman. The chart above, prepared by FORTUNE with White House guidance, represents an "official" diagram of the staff organization, and takes due account of protocol. It shows both the size of Nixon's staff and the small number of people—chiefly three presidential assistants, John Ehrlichman, Henry Kissinger, and Haldeman—who have direct, routine access to the

President. The chart shows that the era of the White House generalist is passing. Counselors Bryce Harlow, Pat Moynihan, and Robert Finch are the only free-ranging advisers. Each of Haldeman's and Ehrlichman's principal deputies—Kissinger's assistants are the N.S.C. staff—cover specific areas, and seldom see the President. The consumer and science advisers, as well as the special counsels whose work is mainly with state and national Republican groups, also are removed from the President's daily routine.

FORTUNE July 1970

suggested subjects for small talk and tells how long the audience is to last. "We don't run a revolving-door policy on appointments here," says one of the President's gatekeepers. "We don't worry about isolation from people, but from ideas. And the best of these, we have found, come in on paper, not through conversations."

To the world looking in at the carefully guarded pre-cincts of Nixon's White House, however, it often seems that the President is isolated from ideas as well as people. In the storm kicked up last spring by the Cambodian invasion, the troubled economy, and the seesawing stock market, even Cabinet officers were heard to complain that Nixon's elite guard of Haldeman, John Ehrlichman, and Henry Kissinger had erected a Berlin wall around the President and, in addition, usurped the powers of the Cabinet in policy making.

Senators and Congressmen, including some Republicans, complained that they were not consulted in advance on decisions that involved war or peace. Lesser bureaucrats let it be known that their access to junior White House staff men was increasingly difficult.

Much of this criticism has been misplaced. The Nixon staff has served as a convenient lightning rod for criticism that is actually inspired by the President's policies.

In most instances the staff has been the instrument of frustration, not its cause, and has merely done the job set forth by the President. It prides itself on having avoided failures of staff work such as led to the Bay of Pigs disaster and prompted President Kennedy to say to Clark Clifford: "I have made a strategic mistake. Not only were our facts in error, but our policy was wrong because the premises on which it was built were wrong."

## Cambodian countdown

Many believe the President made the decision to invade the Cambodian sanctuaries without adequate consultation with his advisers or adequate consideration of the domestic consequences. Within the White House this accusation is regarded as outlandish. A look at the President's log of meetings and telephone calls in the days between April 20 and April 28, when this decision was hammered out, illustrates why. In that period, and before reaching his decision, the President consulted directly with more than a hundred key advisers, and indirectly with scores of others inside and outside the government. Clearly there are elements of a numbers game here, but the log does show that he conferred daily with Secretary of State Rogers, Secretary of Defense Laird, and Richard Helms, director

continued page 104

## AND AS FORTUNE SEES IT

Protocol was put aside in preparing the chart at right. It depicts FORTUNE's view of actual lines of power within the White House. Haldeman, who controls all traffic to and from the President and sees that his orders are carried out, has the key position. Ehrlichman and Kissinger, each with a staff of seventy-five, are most influential on policy. These three aides, plus Bryce Harlow, are the only ones with daily access to the President. All of Nixon's communications to his staff, the government, and the public are channeled through them.

FORTUNE July 1970

59

In the
President's
Service

Hub of the world's greatest power, the White House is subjected to enormous pressures. Politicians, generals, newsmen, foreign statesmen, special-interest groups, citizens who just want to rub shoulders with power — all urgently seek access to its occupants. Two million pieces of mail, 226,000 telegrams, and hundreds of thousands of telephone calls pour in on the President each year. Speeches and messages, letters and phone calls flow out in response. The crush of communications helps explain why President Nixon has an office staff of 548.

Still, order and calm prevail—except, perhaps, in Henry Kissinger's situation room, where high-speed teleprinters deliver 1,000 pages of messages from U.S. Embassies and military command posts each day.

In the West Wing, where the President and most of his chief aides work, the offices have been freshly done up under the guidance of Colonial Williamsburg decorators and look like elegant sitting rooms. Along the red-carpeted corridors hang paintings and etchings by French and American artists. In the Roosevelt Room, formerly the Fish Room, staff conferences are held beneath an oil painting by Frederic Remington depicting T.R.'s charge up San Juan Hill. Muzak flows softly through the West Wing, even in the dimly lit, dark-paneled White House Mess.

Much of the drudgery of White House business—the speech writing and correspondence, the endless personnel screening, the burdensome liaison work with Congress and the executive departments—is done in the Executive Office Building across the street to the west, or in the East Wing. These offices have a charm of their own, but White House aides who work outside the West Wing find that they miss out to some extent on the reflected glory that comes from being near eminence, part of the psychological wage of being one of the President's men.

Photographs by Alfred Eisenstaedt

FORTUNE July 1970 61

William Timmons, thirty-nine, handles the tough job of congressional relations with a soft southern style. A former political aide to Representative Bill Brock of Tennessee, Timmons has had a close association with Nixon since 1966. Mostly he works by telephone; he seldom gets to Capitol Hill and has been out to lunch only once in eighteen months.

A former Procter & Gamble lobbyist, Bryce Harlow, fifty-three, has been in the Washington orbit for over thirty years. He served the Eisenhower Administration as chief congressional liaison and filled the same post for Nixon until last fall, when he was made counselor with Cabinet rank. One reason for handing day-to-day operations over to Timmons was that Harlow's reputation on Capitol Hill was almost too high; no Congressman or Senator wanted to deal with anyone but Harlow himself, and it was impossible for one man to keep ahead of the work load. Now he acts as a behind-the-scenes emissary of the President to congressional leaders on only the most important issues.

reduce the portion of an individual's earned income that is covered by the new maximum tax rate. Because of this, at least one eminent New York tax lawyer dismisses the earned-income maximum as "a sneer and a delusion." That may be an overstatement, since the maximum *could* provide some relief to highly paid executives, given the proper circumstances.

There seems to be some doubt, however, that the earned-income maximum will ever become fully effective. The nation's tax experts are abuzz with rumors that Congress will repeal, postpone, or dilute the provision before 1972. The Treasury Department is carrying on a study of the tax system right now, and in a few months will submit proposals for further legislation to the House Ways and Means Committee, chaired by Representative Wilbur Mills, of Arkansas. Both Mills and the Treasury supported the 50 percent earned-income maximum, and Mills has said that he will not introduce any more tax bills this year. But the demands upon the budget by the nation's military adventures, combined with the pressures of domestic politics, could doom the earned-income provision. "I've been around taxes long enough," says one New York tax consultant, "to know that when the government is searching for areas of new revenue, they look for the line of least resistance politically. There are more voters in the lower brackets than in the high ones."

John M. Martin Jr., chief counsel for the Ways and Means Committee, stops short of promising that the 50 percent maximum will be retained. He says there are "no plans" to change it, and that it is "not likely" to be changed, but that the recommendations in the Treasury study might have a bearing on it, and that the committee could decide to act on those recommendations.

Even if the Tax Reform Act remains intact, the men who manage American business will suffer considerable discomfort. Because the act still is vague to many businessmen, it seems appropriate to discuss in detail the changes in the law that will have the most powerful impact on executive compensation.

## Earned income

The most common form of earned income is cash salary, paid during or shortly after the year in which it is earned. But there are several other types of executive compensation that also are considered earned income. For example: (1) cash or stock bonuses, if they are paid within a year after they are earned; in the case of stock, the tax would be assessed on the market value at the time the executive took possession; (2) cash or stock paid in installments over a period of years, if each payment occurs within a year after the executive's rights to it are no longer subject to a substantial risk of forfeiture; (3) cash or stock bonuses that become vested within a year before being distributed in a lump sum.

The earned-income maximum can save a highly paid executive a fair amount of money, provided his return isn't cluttered with a lot of tax-preference income as well. Suppose, for example, that an executive reports taxable earned income of $150,000 on a joint return, and that he has no other income. During 1970 he would be in the 66 percent tax bracket, and his total tax bill would come to $76,980. In 1971 the maximum rate on earned income is scheduled to decline to 60 percent. Since part of the executive's income—the top $50,000, to be exact—had previously been taxed at more than 60 percent, he would pay a lower tax in 1971; the tax on that top $50,000 would drop

## "Phantom" Stock But Real Gains

"Phantom" stock, one of the more obscure forms of executive compensation, could enjoy a tremendous surge in popularity in the wake of the Tax Reform Act. Phantom stock does not qualify for capital-gains treatment, which is probably the main reason it has remained obscure. But the new law makes capital-gains income much less appealing than it was under the old law.

As the name implies, phantom-stock awards do not consist of actual stock. Instead, the company credits the executive with a number of stock "units," which rise or fall in value as the company's stock rises or falls in the market. Under some phantom plans the full value of the fictitious stock is eventually distributed to the executive, while under others only the amount of any gain in market value is paid out. Either way, the executive can profit from the performance of his company's stock without risking any of his own capital. The phantom plan also provides an advantage to the company, since any distributions are tax-deductible; qualified stock options, by contrast, do not provide tax deductions for the company.

Some companies have been adding phantom stock to their compensation packages this year. Among them is International Telephone & Telegraph, whose phantom plan, known formally as the Performance Stock Unit Plan, was approved by shareholders at the annual meeting in May. Under the I.T.T. plan, an executive will be awarded a certain number of fictitious shares of common stock, and the market value of an equivalent number of *actual* shares will be recorded in his account at that time. When the company pays dividends, it will be assumed that each of the phantom shares is generating dividends at the full rate. The cash value of these dividends will be credited to the executive's account, and at the end of each calendar year the dividends will be converted to additional stock units. After five years, one-fifth of the executive's phantom account will become vested. At that time, he can take a payment equal to one-fifth of the *gain* in market value of the original

grant, plus one-fifth of any dividends, whether they have been converted to stock or are still in cash form. Another fifth of the phantom account becomes vested

at the end of the following year, and at the end of each succeeding year until the full amount is vested.

Any payments made from the account are taxable in the year they are received. The executive has the option of deferring payment—and therefore his taxes—for as long as fifteen years, but that would almost certainly make his compensation ineligible for the 50 percent maximum tax rate applied to earned income. Indeed, there is some disagreement among tax experts as to what, if *any*, phantom-stock income can be considered earned income. The Treasury Department has not yet ruled on the matter.

FORTUNE July 1970 101

from $31,800, under the old law, to a flat 60 percent, or $30,000, during 1971, for a saving of $1,800. In 1972, when the 50 percent maximum rate is supposed to take effect, the top $98,000 of the executive's income, previously taxed at more than 50 percent, would be subject to reduced rates; the levy on the top $98,000 would decline from $58,920 to $49,000. This would bring the executive's total tax bill down to $67,060, or $9,920 less than he paid under the old law.

## Tax-preference items

The tax-preference provision of the new act, which imposes a 10 percent penalty tax on certain favored forms of income, should bother only the most highly compensated executives. Congress set up a double exclusion, to spare both those taxpayers who have only modest amounts of tax-preference income, and those who pay substantial taxes despite their tax-preference income. In determining how much of his tax-preference income is subject to the penalty tax, an individual is entitled to exclude the sum of $30,000 plus the amount that his income tax would be if there were no tax-preference items.

Most tax-preference items, such as the use of accelerated depreciation in real-estate ventures, are of scant concern to corporate executives. But there are two that have a bearing on qualified stock options. The difference between the exercise price and the market value of qualified stock at the time it is purchased is considered a tax-preference item, and so is one-half of any net long-term capital gains. Suppose the executive discussed above decides, during 1972, to exercise an option to buy 13,000 shares of his company's stock at a price of $15 per share, at a time when the stock is selling in the market at $25 a share. The $130,000 difference between the total purchase price and the market value would be considered tax-preference income. After allowing for the $30,000 exclusion, plus an exclusion equal to his $67,060 in regular taxes, he still would have to pay a penalty tax on $32,940 of tax-preference income; at the 10 percent rate, the penalty would come to $3,294. The outcome would be similar if, instead of exercising stock options that year, he were to sell previously acquired stock at a fat capital gain.

Our executive would have an even more bitter pill to swallow, since tax-preference income can offset the amount of earned income subject to the new maximum rate. The taxpayer is allowed an exclusion here too, but it is limited to a flat $30,000. Even after this exclusion, the executive still would be required to reduce by $100,000 the amount of his earned income qualifying for the 50 percent maximum. But as we have seen, only $98,000 of his earned income was subject to tax rates exceeding 50 percent under the old law. The $100,000 in tax-preference income remaining after exclusions would be more than enough to offset the $98,000; thus, the tax-preference income would push the executive's tax back up from $67,060 to $76,980—precisely where it stood under the old law. By merely exercising his stock option, he would have incurred $13,214 in additional taxes (including the penalty tax). And of course there is no guarantee that the investment will grow, as anyone who has suffered through the latest bear market can attest.

## Capital gains

The new act makes capital-gains income less attractive for the highly paid executive in other ways as well. Under the old law, only half of net long-term capital gains was

taxable, and the maximum levy on this portion was 50 percent; or, to put it another way, the total net gain was subject to a maximum rate of 25 percent. Now only the first $50,000 of net long-term capital gains qualifies for the 25 percent maximum. Anything beyond that will be taxed at up to 29½ percent this year, up to 32½ percent next year, and up to 35 percent starting in 1972. With straight salary scheduled to be taxed at a maximum of 50 percent beginning in 1972, and with capital gains being taxed at rates of 35 percent, plus the penalty tax, many executives in the upper brackets may find the advantages of capital gains too small to make the extra risks worth while. Under a qualified stock-option plan, for example, the stock must be held at least three years after exercise to qualify for capital-gains treatment; in the meantime, of course, the stock could plunge.

Returning to our executive with $150,000 of taxable earned income, let us suppose that his only other income consists of $300,000 in net long-term capital gains. Before the new law was passed, his tax on the earned income would have amounted to $76,980, while his tax on the capital gains would have been at the old maximum rate of 25 percent, or $75,000; his total tax bill would have come to $151,980.

Under the new law, the computation is much more complicated, and the tax rises sharply. As we have seen, if there were no capital-gains income, the top $98,000 of the executive's earned income would come under the 50 percent maximum starting in 1972, causing his tax on earned income to decline to $67,060. However, since there is capital-gains income, one-half of it, or $150,000, is treated as a tax-preference item. Even after allowing for the $30,000 exclusion, this would be more than enough to wipe out any benefit the executive might have received from the earned-income maximum. His tax on the earned income thus would come to $76,980, which is where it would have stood under the old law. In addition, after allowing for an exclusion of $97,060 (i.e., $30,000 plus the $67,060 tax that would have been paid if there were no tax-preference income), there remains $52,940 subject to the 10 percent penalty tax; the penalty tax thus adds $5,294 to the tax bill.

Finally, the executive has to determine the tax remaining on his capital gains. The first $50,000 of capital gains would be taxed at the old maximum rate of 25 percent, so the payment on this portion would be $12,500. The $250,000 balance would be taxed at rates up to 35 percent, and the total levy on this portion would come to $87,200.

The executive's tax bill, consisting of the payment on earned income, the penalty tax, and the capital-gains tax, would amount to $181,974, which is $29,994 more than it would have been under the old law.

## Restricted stock

Restricted stock awards—both grants and options—came into wide use following an August, 1967, Internal Revenue Service ruling that accorded them highly favorable tax treatment. Restricted stock grants, under which the company awards the stock to the executive outright, have been much more popular than options, which require the executive to invest some of his own capital. In a typical restricted grant, a quantity of the company's stock is transferred to an executive, subject to forfeiture if certain conditions are not met; for example, the company may decide it will take back the stock unless the executive remains with the company for at least five years after

continued page 111

102 FORTUNE July 1970

RICHARD NIXON'S VERY PERSONAL
WHITE HOUSE *continued from page 59*

of the Central Intelligence Agency, as well as with members of their staffs. The National Security Council met during this period and its crisis team, the five-member Washington Special Actions Group, was in nearly continuous session. In addition, the President, Haldeman, and Kissinger, Nixon's assistant for national security affairs, talked with other advisers in Washington and elsewhere. They were also in constant communication with his military and civilian team for South Vietnam: Admiral John McCain, General Creighton W. Abrams, Ambassador Ellsworth Bunker.

During those eight days, the White House log shows, the President probed obliquely for the views of Senators John S. Cooper, Hugh Scott, Barry Goldwater, and Representative Mendel Rivers at a White House dinner. He conferred with John McCormack, Speaker of the House, at the White House and made a nighttime call to Senator William Fulbright. He sounded out college, business, and veterans' groups.

The President made his two key decisions on Cambodia after a weekend spent with Kissinger at Camp David, reviewing the broad range of options open to him. Only on Monday, April 27, did he decide to support a South Vietnamese strike into the Parrot's Beak. The next day came the decision to authorize an attack by U.S. forces into the Fishhook and other sanctuaries of Cambodia. The Vice President was told of the decision the same day. Congress and the public learned of it two days later from the President's televised speech. (Earlier, on April 23, Secretary Rogers had informed a House Appropriations subcommittee, meeting in executive session, that a decision on the sanctuaries was pending. A partial transcript of his testimony was leaked, giving the erroneous impression that Rogers had ruled out the possibility that the President would decide to go into Cambodia.)

In the ten days that led to announcement of the Cambodian invasion, two-thirds of Nixon's time had been spent in agitating over the decision, and the White House insists that the political consequences of the President's action were fully anticipated. What was not foreseen, of course, was the trouble that resulted from the National Guard's fatal shooting of four students at Kent State University in Ohio, a tragedy that led to an emotional explosion throughout the country in the following days and weeks. However wise or unwise the President's decision may have been, the staff is convinced it did its job: the necessary facts were in hand; the net long-and short-term consequences were carefully weighed before the President reached his decision.

## Embarrassing appointments

From the outside, unfortunately, the Haldeman staff operation does not always seem to track as smoothly as the paper work within the Executive Office. The main failing of Nixon, Inc., as his staff operation has been dubbed, may be simply that too many of its key members are still green in the ways of government. Nixon's men, many of them young executives drawn from the business and professional rather than political world, do not yet appear to have grasped the nuances and subtleties of many issues, or of Washington politics. Their previous experience in partisan political campaigns did not prepare them to cope satisfactorily either with the powerful entrenched federal bureaucracy—much of which has strong liberal tendencies—or with that other major power center, Congress. Moreover, in their public posture, at least, they seem to regard the anxieties and discontent of large segments

of the nation in a cavalier fashion. After the Kent State shooting, Press Secretary Ronald Ziegler, speaking for the President, unfeelingly declared: "When dissent turns to violence, it invites tragedy."

Furthermore, as a top aide of Johnson points out, "Some of the staff work has been horrible." Some of the most glaring staff failures occurred on nominations. The staff failed to uncover gun-trade activities and dubious handling of Army malfeasance on the part of former Army Provost Marshal Carl Turner before his appointment as Chief Federal Marshal; Turner had to resign. Previously unknown facts about Judge Clement Haynsworth's financial affairs were brought out after his nomination, which embarrassed the President.

In dealings with departments, some of his assistants appear to have forgotten that that aide best serves the President whose tact keeps the Administration's official family happy. Peter Flanigan, for one, who maintains liaison with the Treasury, the Council of Economic Advisers, and the Budget Bureau, is considered by many in these agencies high-handed in his dealings with them. Sometimes two or three weeks pass before correspondence considered urgent by Capitol Hill figures is answered; previous Administrations had a much better batting average. The staff has frequently failed to give key congressmen advance notice of forthcoming appointments and legislative proposals that they are expected to sponsor. Senate Minority Leader Hugh Scott says that he received only a few hours' notice of the controversial—and ultimately unsuccessful—nomination of Judge G. Harrold Carswell to the Supreme Court.

## Visitors who steal away

The White House staff's method of setting appointments and handling visitors is intended to discourage "idle requests," as one Nixon aide says, for the President's time. But efficiency has its price. A Cabinet official who manages to swim through the tight net around the President to plead for a project may find himself ushered into the Oval Office by Ehrlichman or Haldeman. The aides will open the interview by explaining to the President that the official's problem has many sides to it, which are in the process of being staffed out, and the matter is not yet ready for a decision. Intimidated by the staff's interceding, the official will often "fold his tent and steal away" without taking any more of the President's time, says one Nixon aide. A Congressman returning from the well-worn path to South Vietnam may gain an audience with Mr. Nixon. But, to save the President's time, Kissinger may quickly summarize his report, and leave the legislator time to relate only one key finding of his trip. This procedure leaves many of the President's visitors resentful—not of him, but of his staff. (His aides know that when Nixon grows overly polite and moves restlessly in his chair, it is time to ease a visitor out.)

Until recently, at least, criticism of the White House staff has been shrugged off by Nixon's aides as part of the price of serving the President. A feeling of déjà vu exists among those Nixon hands who took part in the crises of the Eisenhower, Kennedy, and Johnson Administrations. John Connor, Johnson's Secretary of Commerce, it is recalled, quit because he was not sufficiently consulted. J. Edward Day, Postmaster General, and Abraham Ribicoff, Secretary of H.E.W., in their time complained about lack of access to the Kennedy White House. While the federal budget, the size of the government, and the problems confronting the President grow and become more complex, Nixon's men explain, the President's time remains fixed. So great is the growth of the bureaucracy that no President could hope to see everyone, even

104 FORTUNE July 1970

in his official family, who might have reason to call on him.

Criticism of Presidents does follow a familiar pattern. In the first months of an Administration, the public—with a strong assist from news media—tends to have an overblown picture of what a President can do. When it becomes apparent that expectations are running far ahead of a President's ability to deliver, attention turns to the frailties and failures of the man in the White House and his staff. The fact is that the President's powers to govern are far more limited than is generally believed. Despite campaign promises, a President can do little about crime in the street. In the economic area, his powers are more limited than those of any head of any other industrialized nation. He lacks the money and machinery with which to manage; Congress has spun a web of restrictions over his control of federal personnel.

So, with a suspicious Congress and bureaucracy looking on, he reaches out for the personal staff to fill his needs. In a message last March asking for power to reorganize the Executive Office, Nixon explained the need for large White House staffs: "Over three decades, the executive office of the President has mushroomed but not by conscious design. In many areas it does not provide the kind of staff assistance and support the President needs in order to deal with the problems of government in the 1970's . . . One result, over the years, has been a tendency to enlarge the immediate White House staff—that is, the President's personal staff, as distinct from the institutional structure—to assist with management functions for which the President is responsible."

To avoid criticism, former Presidents have carefully disguised the size of their actual staffs through a variety of stratagems. They have had 200 to 300 of their men carried on the budgets of other agencies—"detailed," as it is known—or paid through a blind fund, known as the White House "special projects" fund. Nixon, "in the interest of candor and accuracy," last January disclosed the size of his personal staff for the first time. While the figure of 548 seemed startlingly large, comparatively it may not be if the number of detailed personnel is added to the officially disclosed staffs of former Presidents. Excluding the several hundred persons detailed from other agencies, the Eisenhower staff totaled 355; Kennedy's, 342; Johnson's, 246; and Nixon's 342 in fiscal 1970.

The long-term trend is to bigger staffs, and more and grander titles. An aide with the title of special assistant was top-ranked in Kennedy's time. No longer. Today it signifies third rank, or lower, within a White House that abounds with counselors, assistants, special assistants, special counsels, deputy special assistants, and special consultants. Nixon aides have spilled out of the White House proper into over seventy-five offices in the Executive Office Building, across an alley from the West Wing, and into Federal Office Building No. 7 a block away. Their jobs range from maintaining liaison with former Presidents Truman and Johnson, to keeping track of what college students are thinking.

## Titles with flowers

In 1937, Louis Brownlow finished a study of the White House for President Roosevelt and concluded that the ideal presidential aide should be possessed of "high competence, great physical vigor, and a passion for anonymity." The last of these qualities has not been a hallmark of recent presidential aides. Nixon's top aides are as well known as most Cabinet officers, and carry considerably more clout in Washington. The President dispatched Henry Kissinger, not his Secretary of the Treasury, to Wall Street to calm the nervous stockbrokers and bankers last spring, just as Lyndon Johnson sent McGeorge Bundy as his personal envoy to such trou-

ble spots as the Dominican Republic and South Vietnam. A top White House job is considered big enough so that Robert Finch can move, without too much loss of face, from Secretary of Health, Education, and Welfare to the West Wing, and join there the three other Nixon aides with Cabinet rank.

The top sixteen Nixon aides received $42,500 a year, or as much as a Congressman (for lesser members of the President's professional staff, salaries start at about $10,000). And top aides enjoy a number of perquisites—the use of White House cars, chauffeured by Army sergeants; haircuts in the White House barbershop; red-coated waiters to serve them at tables graced with fresh flowers in the White House Mess (where a martini or a chilled bottle of wine is available, along with well-prepared food). The athletically inclined are free to use the White House tennis court and bowling alley. Nixon recently had Eisenhower's famous putting green removed, however, and the swimming pool, so important to John Kennedy, has been converted to a press room.

The need for an increasingly large presidential staff reflects the fact that the world of Richard Nixon is quite different from that of Franklin Roosevelt or Dwight Eisenhower. The New Deal, World War II, the cold war, and the array of new domestic programs since 1946 have added tremendously to the President's work load. When Eisenhower left office there were forty domestic programs; when Lyndon Johnson returned to Texas, there were more than 400 on the books. In the past ten years alone, two new Cabinet departments and some twenty-five federal agencies, offices, and commissions have been created.

The President's aides help him decide whether to veto or sign legislation. They must formulate new federal programs and write messages to justify them; they must help forestall scandals; they adjust the overlapping work and interests of the government departments and agencies. The mass of intelligence, foreign and domestic, must be appraised, evaluated, and sifted for the President's eye and ear. The 204 presidential commissions, task forces, and committees, a major source of presidential patronage and advice today, must be staffed and directed. In addition there are the routine chores. The daily volume of 6,000 pieces of mail requires, after it's been x-rayed, a staff of 121 people to open and sort it; the telephone traffic requires a staff of twenty-one operators to keep the switchboard running round the clock.

## Unscheduled on two afternoons

The President's staff gears its operation to his carefully structured day, which reflects his penchant for order. At a quarter to eight every morning, before he leaves the Residence, Nixon receives a blue-covered notebook embossed in gold with the title, "The President's Daily News Briefing." The President seldom watches television newscasts, but does read three newspapers.* The news-briefing notebook summarizes, in up to thirty single-spaced pages, news items and editorials from fifty-two newspapers, along with a digest of the previous evening's network news programs. At nine o'clock the President buzzes for Haldeman, who has already met with his staff, to bring in folders containing the material that the President must sign, take action on, or read that day. A half-hour later, Henry Kissinger, carrying a thick briefing book, arrives in the Oval Office to give the President a report on the Vietnam war and other foreign developments. This schedule is punctually followed on working days.

The President's "public" day begins at ten o'clock and continues to five-thirty in the afternoon, with a two-hour break

continued page 106

*Washington Post, Washington Evening Star, and the New York Times.

FORTUNE July 1970

105

RICHARD NIXON'S VERY PERSONAL
WHITE HOUSE *continued*

for dictation and luncheon—usually alone—in the anteroom off the Oval Office. The public schedule includes Cabinet meetings, appointments with Congressmen, citizens, and diplomats. Wednesday and Saturday afternoons, however, are left unscheduled. At those times, Nixon often moves over to a suite of offices in the Executive Office Building. Here he works in an informally furnished study surrounded by such trophies as the football presented to him by the Texas University national champion football team and a collection of elephant statuettes and gifts received in his travels.

The Germans at work

Haldeman, Kissinger, and Ehrlichman are with the President most frequently—and Haldeman more than the other two. This fact and his role as keeper of the gate make Haldeman *primus inter pares*. Says Haldeman with his customary terseness: “I arrange my day to be always at the disposal of the President.” He has placed his protégés and former advertising agency associates in key staff positions throughout the West Wing.

For all his primacy, Haldeman has less power than did Sherman Adams, Eisenhower's chief of staff. He leaves policy matters largely to Kissinger, who handles every piece of paper from the State and Defense departments and the C.I.A., and to Ehrlichman, who takes care of everything concerning other federal departments and agencies. Kissinger is a brusque but witty foreign-affairs scholar with government experience under both Kennedy and Johnson, while Ehrlichman, formerly a Seattle lawyer, is new to government. Each has a staff of about seventy-five reporting to him.

Kissinger sends a dozen or so "action" items to the President's office each day—memos on the SALT talks, for example, or Secretary of the Interior Walter Hickel's-proposed

trip to the Soviet Union (turned down twice). Nixon will discuss perhaps one in ten of these action items with him over the telephone, perhaps one in twenty in person. With each action item, Kissinger supplies a list of options; the President places his initials beside the one he prefers. In addition, Kissinger leaves space on the covering memo for the President's comments or instructions.

First set up last November and given added responsibility for domestic policy only last month, the Ehrlichman operation is modeled on Kissinger's. Before major domestic legislation goes to Congress, Ehrlichman provides the President with a thick packet of material—sixty pages of it in the case of the President's message on the environment last winter. He attaches a covering memo that briefly summarizes each option: its cost, who is for or against it, and where the substantiating material can be found. A major policy proposal usually goes to the President on a Wednesday afternoon. Sometime the following week, Nixon meets with the members of Ehrlichman's staff who worked on the project, perpping them with questions. When these are answered to his satisfaction, he retires to make up his mind in privacy. "Usually he will play it off on friends, Congressmen, or academic people before he gives us his decisions," says Ehrlichman. "He very seldom makes a decision in front of any group."

Conflict and pressure

The White House operation, Nixon's like those before it, creates great pressure on the staff. The President's aides are by nature heliotropic, but their sun—Nixon—is not often seen by many of them. Their limited access to Nixon leaves many of them feeling a lack of rapport. The long work hours and conflicts within and without the staff create tensions. Although Nixon's is the youngest White House staff ever, one of his aides says after eighteen months: "I had read about the pressures, about the nervous breakdowns in these jobs. Now I can understand it."

Conflict is ever present in the lives of presidential aides. Haldeman has built a greater diversity of views into the staff than is generally thought; there is a constant tug-of-war between "conservatives" and "liberals" over policy. There is conflict with the Cabinet and the press—John Osborne of the *New Republic* and Nick Thimmesch of *Newsday* are among the few White House favorites in the Washington press corps.

The Nixon staff sees its job as being to seek out flaws in proposals advanced by the Cabinet officers on behalf of their departments, and to solicit opposing views in order to be sure that the President's best interests are served. From the White House, departmental staff work often looks weak and unimaginative. The civil servants who do the work regardless of who is in the White House are not quick to see fresh approaches to old problems. And the material that Cabinet officers send to the White House is often contentious; they have a strong tendency simply to argue for what their own narrow constituencies—farmers, for example, or conservationists—happen to favor. But Nixon, his aides say, does not like to take time on problems until all the background work has been done, and conflicting facts and opinions ironed out.

"Pushing on a marshmallow"

Bob Haldeman was eclectic about the source of his ideas when he began putting together the kind of White House staff that Nixon wanted. He studied the books by Arthur Schlesinger Jr. on the Roosevelt years, Sherman Adams on the Eisenhower Administration, and Schlesinger, Theodore Sorensen, and Evelyn Lincoln on Kennedy. A Harvard study group directed by Franklin Lindsay, president of Itek,

Key man in the recent reorganization, George Shultz left the Cabinet to direct the Office of Management and Budget.

*continued page 108*

106 FORTUNE July 1970

provided a helpful list of do's and don'ts for the President. The Johnson Administration staff, particularly Joseph Califano, who first initiated what has become Ehrlichman's domestic-affairs staff, contributed suggestions.

The original idea, Haldeman recalls, was to have a small staff to work with the Budget Bureau and Cabinet departments. "We started with the Kennedy concept of having everyone be a generalist," the President's assistant recalls. "But we have moved toward the idea of assigning specific responsibilities." He broke major line functions of the staff into domestic affairs, foreign affairs, economics, and administration, which includes public relations and personnel. Outside of these are non-line advisory functions—counselors like Moynihan and Finch—and a political odd-jobs function handled by a group of special counsels.

To make sure that presidential orders are carried out —whether for a speech draft or for demolition of the Navy buildings on Constitution Avenue—Haldeman set up a goading system, run by young assistants, called the Beaver Patrol by detractors. "We ride herd hard to make sure things are done when the President wants them," remarks one member of the Beaver Patrol. "But making the government do something is like pushing on a marshmallow." Haldeman recalls that Kennedy was surprised during the Cuban missile crisis when the Russians demanded that the U.S. remove its Jupiter missiles from Turkey. Kennedy had ordered them removed a few months earlier, but nothing had happened.

New power for a White House man

Nixon, like his predecessors, quickly became uneasy about the functioning of the executive branch. In April, 1969, he created an Advisory Council on Executive Organization under the chairmanship of Roy Ash, president of Litton Industries, to examine how it might be improved. Members of the Ash committee included George Baker, former dean of the Harvard Business School; John Connally, former governor of Texas and Kennedy's Secretary of Navy; Frederick Kappel, then chairman of the executive committee of American Telephone & Telegraph Co.; Richard Paget, president of Cresap, McCormick & Paget; and Walter Thayer, president of Whitney Communications Corp. They quickly reached the conclusion that the reorganization should start with the White House itself, on the theory that the arms of government will work only as well as its head.

The Ash group found the President overwhelmed by facts, but without an information system worthy of the name. He lacked a system for evaluating how well things were going, or even spotting federal programs that had outlived their usefulness and should be scrubbed. The Bureau of the Budget, despite some outstanding men, was not fulfilling the job of following up on policy and coordinating administration.

The Ash committee's first major effect on the Nixon staff came last November, when Bryce Harlow and Pat Moynihan gave up their operating roles in congressional liaison and urban affairs to become counselors. At the same time, Ehrlichman became assistant to the President for domestic affairs and took over much of the policy-making power in domestic matters that formerly had lodged in the Bureau of the Budget. This grant of power to a presidential assistant was a major move. It was undertaken because career civil servants in the Budget Bureau had proved less responsive to the President's policy wishes than had his own assistants. Further-

more, the bureau did not perform with the crisp efficiency that Nixon demands.

This month the second, formal staff reorganization of Nixon's White House, also proposed by the Ash group, will take place. The change establishes a Domestic Council and drastically reorganizes the Budget Bureau. The Domestic Council will be composed of eleven Cabinet officers and the Vice President, with the President sitting in as chairman. The aim is to have the Cabinet officers work in small ad hoc groups, aided by Ehrlichman's staff, on specific problems, legislative proposals, and budget priorities. In this way, Cabinet officers will be brought in early enough to help develop new proposals, instead of merely reacting to what the White House staff has already fashioned.

Dangerous illusion

The Ash committee reasoned that the Domestic Council staff, by becoming institutionalized like the N.S.C. staff, could help keep the President's personal staff to a manageable size. If it works as the Ash group hopes, the Domestic Council could do much to reduce tension between the Nixon Cabinet and his staff. But if, as seems likely, Ehrlichman and his staff assume the role in domestic affairs that Kissinger and the N.S.C. staff have in foreign affairs, the real power will lie with Ehrlichman, and not the Domestic Council. That would leave the Cabinet about where it is now—on the outside of the inner circle.

The head of the reorganized Office of Management and Budget will be George Shultz, forty-nine. A former professor of industrial relations at the University of Chicago, Shultz won the President's admiration for his performance as Secretary of Labor and brings great personal prestige to his new job. But the new office nevertheless occupies a more ambiguous position than did the old Budget Bureau. Its mission, the White House explains, is to concentrate its energies on carrying out policy—on seeing that the government works well. Responsibility for policy—for determining what is to be done—goes to the Domestic Council. To a large extent, the Budget Bureau has lost its role as the President's "no" man on policy and money, and the change dismayed some bureau veterans. Says one: "The reorganization turns us into plumbers and carpenters, instead of architects." The future of the new office will depend on the ability of its director, Shultz, to exercise power from an institutional position outside of the President's immediate staff.

All White House staffs are in a state of flux: faces, roles, and power are continually changing. Nevertheless, Harold Seidman, a veteran Budget Bureau official, has noted in a penetrating new study (*Politics, Position and Power*, Oxford University Press) that there has been "no more striking or significant development" in the past twenty-five years than the growth in size and power of the President's personal staff. The development has been much criticized for its profound effect on the functioning of the executive branch. Seidman notes that there is danger in the tendency of a President's staff to mirror his personality too closely, accentuating rather than compensating for his weaknesses and isolation: "Most important, a large, ambitious and able staff can create for the President an illusion of self-sufficiency, where none exists." The barrage of criticism that President Nixon and his staff received last spring on this score is instructive. The White House staff tended to look on the wave of criticism as part of the agonies of the spring, which would disappear by the autumn. This philosophical attitude may misjudge the depth of the discontent within and without the government over the deficiencies of the White House operation.
END

108 FORTUNE July 1970