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Forest Deal Is Cutting Into
Pacific Lumber's Business
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By Mitchel Benson
SCOTIA -- Russ Monroe is baffled by all the fuss his bosses at Pacific
Lumber Co. are making these days over "such an itty-bitty white flower" like
the maple-leaved checkerbloom.
"It's just the ugliest thing you've ever seen," says Mr. Monroe, a longtime
logger, as he eyes a cluster of the checkerblooms a short walk from where his
crew is harvesting trees. "It looks like the bugs have already picked it."
Perhaps. But where Mr. Monroe sees an unsightly weed, the scientists and
corporate officers here at Pacific Lumber's headquarters see a
state-designated rare and sensitive plant, which can't be disturbed by any
harvesting. In the past, Pacific Lumber could argue to the state that it wasn't
hurting the plant by harvesting nearby trees, but now Mr. Monroe's crew has
no choice but to keep its distance.
Chalk it up to the Headwaters Agreement -- a deal that is proving to be
costlier than Pacific Lumber thought.
Under the agreement, signed in March 1999, Pacific Lumber agreed to sell
the state and federal government about 10,000 acres of giant Humboldt
County redwoods for $480 million. But it's a less-publicized aspect of
Headwaters that is causing the company headaches.
The agreement sets new, comprehensive rules for protecting the fisheries,
wildlife habitat and water quality on Pacific Lumber's 211,000 acres adjacent
to the preserve. Under the "habitat conservation plan," or HCP, the company
must observe more stringent environmental restrictions than other loggers --
restrictions the company and regulators agree are unprecedented in their
scope and toughness. Pacific Lumber, a unit of Houston-based Maxxam Inc.,
figured the rules would bring the company long-term economic stability,
marked by fewer obstacles thrown in its logging path by environmentalists,
lawyers and regulators.
But company officials are discovering that the rules are cutting even deeper
than anticipated. Much less timber is available to harvest, and the company
often can't get its hands on available trees for months because of
governmental red tape and legal challenges.
What's more, Pacific Lumber is in the unenviable position of having to win
back the hearts and minds of many of its own 1,300 employees, whose
morale has been pummeled by the years of controversy leading up to the deal.
In their eyes, there is only one test of whether Headwaters was a smart move:
Will Pacific Lumber be able to harvest enough logs in the months and years
ahead to provide its employees with a stable, long-term livelihood?
So far, the signals haven't been encouraging. Through the first six months of
this year, Pacific Lumber's operating income was only $21.6 million, or nearly
12% less than the $24.5 million the company had forecast. That's because
through the first seven months of this year, the company has harvested only
83,818 million board feet of timber, or 18% less than the 102,248 million
board feet for which it had planned. In fact, Pacific Lumber last year began
purchasing logs from Washington state.
Even with the imports, there are fewer logs for the company's sawmills to cut.
Last month, in fact, Pacific Lumber shut down one of its mills for two weeks
-- something unheard of during the busy summer season. It plans to shut
down yet another of its mills for two weeks later this month.
While Pacific Lumber hasn't laid off any employees -- and says it has no plans
to do so -- the company this summer has laid off 60 contract workers, or
about a quarter of the contract work force.
Overall, Pacific Lumber's summer has been "disappointing," says John
Campbell, the company's president and chief executive. "The HCP, since its
inception, has been more difficult to implement than we ever expected."
Pacific Lumber officials, who estimate that implementing the conservation plan
will mean more than $1 billion in costs and lost sales over the next 50 years,
realized they were taking an expensive gamble when they agreed to the tough
new logging restrictions. But even with all the fits and starts, they believe their
gamble is a wise one. "We made a bet that society, or at least society in
California, is going to demand that timber companies do more and more to
protect the environment," says Jeff Barrett, the company's director of fish and
wildlife programs.
The company, he says, wants to "stay in front of the wave of demands" for
more environmental protection. And by getting out front, Pacific Lumber will
have more control over its lands and timber harvesting, and it will enjoy "more
flexibility in the long term" and be less susceptible to "one-size-fits-all
strategies from politicians and regulators."
Where will the flexibility come from? New rules. The company agreed to
abide by the current tough restrictions until it completes comprehensive
environmental analyses of its timberland, which the company has divided into
10 regions or watersheds. (A watershed is the land that surrounds and drains
into a river or a stream.) The company will then propose logging guidelines for
each watershed. The end result, the company hopes: rules that are less strict
than the interim regulations, but are tougher than those that other logging
companies follow -- and thus less vulnerable to lawsuits and other attacks.
Until Pacific Lumber completes its studies, though, it's stuck with the interim
rules. And they're posing a formidable challenge for the company. The rules,
for example, block Pacific Lumber from toppling a single tree on 37,000
acres -- or nearly 18% -- of the entire 211,000 acres covered because those
acres are the most prone to landslides. Moreover, in these post-Headwaters
days, a half-dozen state and federal agencies now must review each of Pacific
Lumber's applications to harvest timber, while usually only one did so before.
Those applications also are more lengthy and complicated. The result?
Regulators spend an average of 125 days to review a Pacific Lumber harvest
proposal, compared with only 45 days before Headwaters.
There clearly are implementation challenges," says deputy U.S. Interior
Secretary David Hayes, lead federal negotiator on the Headwaters deal. But
today, he says, "We're willing to work with them. Before this deal, they were
the pariah of the timber industry."
On top of all that, the watershed studies -- which examine everything from
fisheries, wildlife habitat and vegetation to geology, climate and hydrology --
have proved to be even more time-consuming and laborious than anyone had
expected.
Only this month, Mr. Barrett and his team of experts expect to complete the
first watershed analysis they began in the spring of 1999. Even then, the
analyses face months of public and regulatory review. The company originally
intended to do one analysis at a time. But with only four years left to complete
all 10 studies, Pacific Lumber began two more studies this summer.
It also seems that Headwaters hasn't earned the company immunity from
criticism. Many environmental groups object to the agreement, arguing that
Pacific Lumber's approach provides less protection to endangered species
than a strict enforcement of existing law. That's because the plans permit
landowners to preserve some habitat "in exchange for permission to destroy
the rest," argues Kevin Bundy of the Environmental Protection Information
Center in Garberville.
Mr. Barrett, who holds a doctorate in ecology, responds that "environmental
groups only dreamed of the environmental protections like we agreed to.
Now we're doing it, and instead of applauding it and turning their attention to
other companies, they're still attacking us."
Still, Pacific Lumber officials say their biggest concerns aren't environmental
groups but the regulators who must approve the company's plans and,
frankly, the company's own institutional inertia and employee anxiety. Never
before, say Messrs. Barrett and Campbell, have scientists, and not foresters,
had such a strong influence on the future direction of a timber company -- let
alone one 131 years old.
Today, the company's science group has grown to 44, including Mr. Barrett,
and an annual budget of $3 million. Only eight years ago, Pacific Lumber had
one scientist on its payroll -- a wildlife biologist.
"It's a new world," says Mr. Campbell, who directed that new classes be
scheduled for heavy-equipment operators and nearly all other employees "to,
if you will, raise everyone's sensibilities."
Mr. Monroe, the 22-year veteran logger, says adapting to the new approach
is "like going back to school. It's just a whole bunch of different rules."
But he and other employees say it isn't so much the science that's got them
perplexed. It's the fact that the Headwaters deal has yet to bring the promised
stability to the company's logging operations. Employees believed the deal
would sustain the company's forests and provide freedom from regulatory
intrusion.
At employee meetings last month at the historic Winema Theater in the Scotia
town center, Pacific Lumber's rank and file weren't shy about expressing
those concerns. "Why isn't it working?" they asked Mr. Campbell. "Where's
the certainty we were promised?"
The CEO urged his troops to show "continued patience and perseverance."
Using a football analogy, he says the company is "behind in the third quarter.
But we can win this if we keep playing well."
Company officials were so positive about the potential benefits of the
conservation plan that they agreed with parent Maxxam to highlight the plan in
a "six-figure" public-relations campaign. Last summer, they teamed up with a
respected independent polling firm (Fairbank, Maslin, Maullin & Associates
of Santa Monica) and a high-powered public-relations and advertising agency
(Goddard Claussen Porter Novelli of Sacramento).
According to Joshua Reiss, a Maxxam spokesman and a key architect of the
campaign, after a series of focus groups with employees and its first
public-opinion survey last September, officials realized Pacific Lumber's "core
constituency" -- its employees and neighbors -- "had really suffered" in their
support for the company.
Last November, Pacific Lumber launched its campaign around the slogan,
"We let science be our guide." Largely through newspaper and television
advertising in Humboldt County, the campaign focused on the company's
commitment to its new environmental program and to sustain its harvesting for
years to come.
Pacific Lumber and Maxxam officials hoped the campaign would help soften
the public's negative opinion about Pacific Lumber and also help rebuild
employee morale, rocked by nearly 15 years of lawsuits, environmental
attacks and bad publicity dating to the emotionally charged 1986 acquisition
of Pacific Lumber by Maxxam and its controversial chairman, Charles
Hurwitz. But a follow-up survey conducted last April, after the first round of
ads, showed mixed results. While more people reported a favorable view of
the company, those who feel the company is "honest" dropped to 44% from
47%, and the overall credibility of the company, on a scale of 1-10, dropped
to 4.7 from 5.4.
Pollster Richard Maullin says that "statistically speaking," the shifting from
September to April "could be attributable to chance as much as real change."
Even so, he says that considering Pacific Lumber's reputation, "I think the
tendency toward negative opinion has definitely stopped. The bleeding has
stopped."
To longtime critics like Eureka attorney William Bertain, Pacific Lumber's past
troubles with regulatory authorities -- the state revoked the company's license
in 1997 and again in 1998 -- can't be erased by a slick ad campaign. "The
truth is not the friend of Maxxam," says Mr. Bertain. "Nobody believes them."
Mr. Campbell dismisses such naysayers, saying they will forever vilify his
company. Even so, he acknowledges, "We're going to have to earn our way
out of this. It'll definitely take time and performance. I didn't expect it to work
like a light switch." |
