Arthur B. Laffer admits he's had qualms in the past about United States Filter Corp.'s meteoric growth rate.
Laffer, former President Reagan's economic adviser and namesake of the famous "Laffer curve" theory - which holds that at a certain point, raising taxes actually shrinks tax revenue - joined the company's board of directors seven years ago following a hostile takeover.
Since then, he has watched the Palm Desert water services provider (NYSE: USF) complete more than 100 acquisitions.
Many times, Laffer has found himself the board's voice of caution.
"We went ahead and did them. But I was the one they worked on to convince," he said in a recent interview.
Today, however, Laffer's a believer. Although still probably the most cautious board member, Laffer says he now has a lot more faith in Chairman and Chief Executive Officer Richard Heckmann's strategy to grow by acquisition.
"I was the most anti-growth director on the board. I once said, 'How can we buy another company? We haven't digested the one we've got!' Later, (after the purchase), I saw the numbers and changed my mind," he said.
Some observers have expressed reservations about Heckmann's strategy, which has built the company's revenues from $17 million to more than $3.2 billion in eight years.
But the strategy isn't "voodoo finance," Laffer maintained -humorously playing on the onetime description of Laffer's own supply-side economic theory as "voodoo economics" by then-Vice President George Bush.
"These companies are more profitable now than when we acquired them."
When it comes to describing Heckmann, Laffer is frank but flattering.
He described the U.S. Filter chairman as a patient listener who's willing to hear out dissenters in the board room.
"Heckmann has always listened to my concerns," Laffer said.
Still, he grants that Heckmann has a well-deserved reputation for being gruff with outside critics.
"That's the way he is. He puffs and (gets angry), and probably in that way he even invites some shots," Laffer said.
"But while he talks big, he delivers big, too."
Heckmann is principled, too, according to Laffer. While other companies which Laffer has seen - but won't name - have bent the rules to make a penny, Heckmann doesn't let U.S. Filter do so, Laffer said.
"He plays by the rules. And by playing by the rules, he's achieved more (than others who don't)," Laffer said.
U.S. Filter has seen its share of blurry ethical lines, the director said. Though he wouldn't go into specifics, he did describe a common scenario:
Domestic companies are prohibited from trading with some hostile countries. However, U.S. Filter owns overseas companies that aren't bound by those restrictions.
When opportunities in those hostile countries arise, the temptation is there to let a U.S. Filter-owned overseas entity do the deal, Laffer said.
"Let's say it's legal for a German company (we own) to trade with Libya. Should we?" he asked rhetorically.
Heckmann has never crossed that ethical line, Laffer said.
Laffer joined the board at the behest of Heckmann, whom the economist has known since the chairman supported his unsuccessful senatorial bid. But it's U.S. Filter's ethics and a humanitarian company mission that have kept him there, Laffer said.
He calls it the thrill of "doing well by doing good." U.S. Filter cleans water around the world, giving polluted, poor areas a chance at rebirth, he said.
Laffer recently visited a U.S. Filter project in a suburb of Mexico City, where the company has been working to turn a cesspool of a river into a water source clean enough for plant and animal life to resurge.
"The city's disease level has dropped and the river is coming back to life," he said.
Laffer figures he can take a lot more pride in his U.S. Filter directorship than someone on the board of, say, a tobacco company:
"Can you imagine being on the R.J. Reynolds (Tobacco Co.) board?"
Originally published in The Business Press 07/27/98