Financial Wizard Roy Ash Starred At Litton Industries

When Litton Industries President Roy Ash took his family on a long European vacation in the 1960s, he came up with a novel itinerary.

The father of five told each child to pick a country of interest, learn all about it, study the language, make all the hotel and travel arrangements, and share its history and lore with the rest of the family.

It was an inventive approach, but to Ash, inventiveness was second nature.

In 1953 he and his friend Charles “Tex” Thornton borrowed $1.5 million to buy a firm they named Litton Industries after its founder, engineer Charles Litton.

In the next 15 years, they pioneered the concept of the modern conglomerate, building the tiny electronics firm into a highly diversified and glamorous multinational company with $2.5 billion in sales.

As the Beverly Hills-based company’s financial and technical wizard, Ash (1918-2011) guided Litton into products ranging from frozen foods to ships, microwave ovens to aircraft guidance systems, typewriters to medical equipment.

“It was revolutionary,” Bob Flaherty, who covered the heyday of conglomerates for Forbes magazine, told IBD. “The idea of unrelated diversification was considered something that didn’t make sense. The thinking was that no one could run something that diversified. But these guys did. They made it boom.”

Ash’s meteoric business management career impressed President-elect Richard Nixon, who asked him to address the business of managing big government in 1968.

The Ash Council’s proposals led to the creation of some of Washington’s most prominent agencies, including the Office of Management and Budget and the Environmental Protection Agency. In 1972, Ash resigned as president of Litton to become director of an agency that he helped create — the OMB.

‘Surrogate President’

A down-to-earth man who drove a station wagon to his White House job, Ash filled a power vacuum during Nixon’s Watergate crisis. “(Ash became) a surrogate president, administering the Nixon White House policies,” The New York Times wrote in 1974.

Ash had come a long way from his modest roots. The son of a hay and grain dealer, he was born in Los Angeles and grew up during the Great Depression. An early flair for numbers helped him graduate from high school, where he was the youngest and shortest member of his class, at age 16.

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“Partly because my youth and height made me acutely shy, partly because my parents didn’t insist on college, I passed up further studies and began looking for work,” he recalled in a 1977 Los Angeles Times interview.

After working briefly for his father, Ash took a clerical job for Bank of America (BAC). The entry-level position paid $65 a month.

Then the Japanese attacked Pearl Harbor in December 1941, and Ash joined the Army.

In a break that shaped his life, Ash was assigned to the Army Air Forces’ statistical control service, a Harvard-based group that included Thornton and future Defense Secretary Robert McNamara.

By applying numbers-oriented management theory to warfare, the group made sure that there were enough planes where needed, with enough pilots and enough working parts to keep them airborne.

“They were really smart people who had to make important decisions very quickly,” Flaherty said. “People were getting killed.”

In 1946, a year after World War II ended, McNamara, Thornton and eight other Army Air Forces statisticians offered their services as a group to Ford Motor (F).

The firm said yes, and the team became known as the Whiz Kids.

Ash didn’t join them. He was busy at Harvard’s graduate business school, which had invited him to take its two-year course.

His answer to the university had been: “I can’t. I don’t have an undergraduate degree.'”

Harvard: “You let us worry about that.”

So starting in 1946, Ash completed the two-year course in a year and a half. He graduated first in his class in 1947 and rejoined Bank of America for two years.

Two years later, Ash joined Hughes Aircraft, where Thornton had become operating chief.

“Thornton took all the bright guys in the Air Force to Ford, and when he went to Hughes, scraped around the bottom of the barrel and found me,” Ash recalled years later with self-deprecatory humor.

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As chief financial officer, Ash helped to reorganize the company and bring its sales from $1.5 million to $200 million in five years.

Ash and Thornton quit in 1953 to buy Litton, leaping into the hottest activity in business: building conglomerates.

Cracking The Code

In the era of the conglomerate, Wall Street was enchanted by the Ash-Thornton idea of applying modern technology and management to form a multi-industry company that would be recession-proof. When one segment of the economy misfired, other Litton enterprises picked up the slack.

With a booming stock market, the company could buy up other corporations without having readily available cash, using instead their high-flying stocks.

“They were way ahead of the curve,” Flaherty said. “They set the patent. They had the business background. And they had the military background, where they had proven performance in huge, huge operations. That’s a tremendously valuable thing, whether you’re going into Ford or starting a new company. After the war, there was a tremendous spurt of growth, and you had a shortage of people who could do things. That was great for young (business leaders).”

In its first decade, Litton’s sales increased 18,750% to $750 million a year, and earnings soared 10,175%, reported Time magazine in 1963.

Litton never had a quarter in the red. In one of the greatest acquisition sprees up to that time, Litton swallowed up 40 other corporations and established 71 plants in America and other countries.

During that decade, 22 Litton executives became millionaires.

In 1959, the firm reached $120 million in sales. By 1961, Litton was the fastest-growing company on the New York Stock Exchange, according to the Harvard Business School.

“An entrepreneur tends to bite off a little more than he can chew, hoping he’ll quickly learn how to chew it,” Ash once quipped.

In 1961, Ash moved from executive vice president to president, replacing Thornton, who remained CEO and chairman, as well as the star of the red-hot conglomerate.

$1 Billion And Counting

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Under Ash’s leadership, Litton continued its high rate of growth, even after it passed the $1 billion mark in sales. The company had become one of the nation’s largest defense contractors by 1968, the year Ash became an adviser to Nixon on ways to improve efficiency in the federal government.

The Ash Council’s 427-page report proposed what Nixon called the most extensive reorganization of the executive branch since 1789.

It called for creating new agencies, plus merging several domestic departments into four super-Cabinet spots: Natural Resources, Economic Affairs, Human Resources and Community Development.

Congress rejected the super-Cabinet proposal, but Ash’s suggestion for new agencies survived.

“(We) contributed two or three innovations. If they have a lasting effect, I’ll consider myself enormously successful,” he said in the late 1970s. “One was to create the Office of Management and Budget out of an agency that had been traditionally the Bureau of the Budget. The object was not to build an empire. I’m one who believes the least government is the best government. My goal was to impose managerial responsibility on the spending of more than $300 billion a year.”

Ash continued as OMB director under President Gerald Ford for seven months, leaving in 1975.

A year later, Ash was named chairman and CEO of AM International, a Cleveland-based manufacturer of duplicating machines.

After he resigned from that company in 1981, he and Lila, who would stay married to him for 68 years, divided their time between Los Angeles and Virginia, where they bought three farms.

Litton Industries, meanwhile, saw its winning streak come to an end in 1969, when its earnings and stock plummeted.

By the 1980s, the company was riding high again as a high-tech power. Northrop Grumman (NOC) bought Litton for $5.1 billion in 2001, nearly a half-century after Ash, Thornton, McNamara and other Whiz Kids ushered in a new era in American business.

“They were great leaders,” said Flaherty. “They were company builders.”

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