David Teece: Big Building Backer, Academic Guru, Political Power Player and a Corporate Tycoon By RICHARD BRENNEMAN
The New Zealand government calls him an “economics rock star” and Accenture, the global management consulting and outsourcing giant, named him one of the world’s top 50 business intellectuals.
To businesses across the globe, David J. Teece is a powerful advocate for hire, heading the Law and Economic Consulting Group, LECG, a prestigious consulting firm based in Emeryville with powerful connections and top-notch talent.
In his native New Zealand, he’s the man behind a $400 million venture capital firm partly funded by Bahraini petrodollars from an Islamic bank and the head of a sports clothing manufacturer.
In academic circles, he’s best known as a leading light of UC Berkeley’s Haas School of Business, where he holds the Mitsubishi Bank Chair in International Business and Finance and serves as director of the Institute of Management, Innovation and Organization.
In Russia, he’s been honored for his central role in founding that nation’s first major league academic business school at the University of St. Petersburg.
And in Great Britain, according to a December, 1999, New Yorker article, Teece is credited as a key figure behind Prime Minister Tony Blair’s economic policies.
But for those who live and work in Berkeley, one of Teece’s least-known roles literally overshadows all the rest, transforming the face of a city.
The Kennedy Connection
Before today, anyone who entered “Patrick Kennedy” “Teece” and “Berkeley” into Google would discover that, after searching its 4,285,199,774 cyber pages, the Internet search engine responded: “Your search did not match any documents.”
But consider the case of the Fine Arts Building, the nearly completed pale pastel green pseudo-Moderne structure at the corner of Haste Street and Shattuck Avenue.
Though signs on the property refer to Panoramic Interests, Kennedy’s development company, the property is owned by 2471 Shattuck LLC—the initials meaning “limited liability corporation,” a partnership arrangement in which the partners have the legal protections of corporate investors who can’t lose more than the amount of their investments.
The California secretary of state’s office is the official repository for corporate and partnership filings. An online check with their database reveals that 2471 Shattuck LLC is headquartered at 1910 Oxford St. No. 505 in Berkeley, and that the corporate legal agent is Patrick Kennedy.
Only in the corporate statement of information, a document not available online, does the Teece name appear.
A Matter of (a) Trust
2471 Shattuck LLC, the document reveals, is managed by Kennedy, and the sole listed member is Teece Irrevocable Trust No. 3—irrevocable trusts being legal instruments which allow the wealthy to avoid inheritance taxes on their estates.
Trustee for the trust is Norman Laboe, a San Francisco attorney with offices at 1 Post St. His firm, MacKenzie & Albritton, represents major corporate clients, including telecoms—frequent seekers of Teece’s sympathetic advice (Teece has been an outspoken proponent of deregulation).
David J. Teece and his trust have provided the connections, cash and insight that led to the erection of Fine Arts Building and other controversial structures—two of them, the Gaia Building and the Berkeleyan, just a walk across Oxford Street from the UC campus.
But the Kennedy/Teece connection, rumored to be strained in recent months, has lapsed, according to City Councilmember Dona Spring and other sources, and save for his already existing involvements in Kennedy projects, Teece has reportedly switched allegiances.
Teece’s new partners, they say, are Chris Hudson and Evan McDonald—former Kennedy staffers who launched their own firm last October. What the loss of his principal backer means to the controversial Kennedy remains to be seen.
From Kiwi to Bear
Teece grew up in Nelson, New Zealand, and attended Waimea College before starting his economics studies at Canterbury University in 1967, earning both a bachelor’s degree and a master’s in communication.
He moved to the United States to earn his doctorate at the Wharton School of the University of Pennsylvania.
After teaching at Stanford from 1975 to 1982, he became, at 34, a full professor at UC Berkeley in 1982.
According to his resume as posted on UC Berkeley’s Haas School of Business web site, Teece serves on the board of The Atlas Funds and has also served on the boards of Giltronix Inc. (1985-90) and Innovative Concepts Inc. (1989-92).
Teece remains closely involved with his native land. In 2001, he and two fellow New Zealanders funded and founded the Kiwi Expat Association for business and professional experts, and he is active in the New Zealand Trade & Enterprise Silicon Valley Beachhead Advisory Board.
According to the New Zealand Herald, Teece also holds a majority interest in Canterbury International, a manufacturer of Rugby jerseys.
But his most substantial ties come through I-CAP, New Zealand’s largest venture capital firm, which Teece and two partners founded in 1999.
Short for International Capital Partners Ltd., the Auckland-based I-CAP currently manages some $400 million in funds from office in New Zealand, Emeryville, Great Britain and Bahrain, according to the firm’s website (www.i-cappartners.com).
I-CAP boasts an exceptionally well-connected advisory board. Consider Mike Moore, who has served as both New Zealand Prime Minister and as director-general of the World Trade Organization—which he headed at the time of the Seattle riots four years ago. Ruth Richardson is a former Minister of Finance and Graham Scott once served as treasury secretary. The board’s lone American is Teece’s UCB colleague Professor Laura Tyson, former national economic advisor to the Clinton Administration.
I-CAP manages five funds, including one based in Ireland—i-cap private equity fund plc.
The Kuwait Finance House-Bahrain, founded in 2002, is a wholly owned subsidiary of the Kuwait Finance House, a $3 billion bank founded on the principles of Shari’ah (Islamic law). The Bahraini bank put up $100 million for I-CAP ’s New Zealand Australia Private Equity Fund, which finances growth and expansion for companies whose endeavors are compliant with Islamic law.
Emeryville Cash Cow
But it’s the Emeryville consulting firm that’s been Teece’s biggest cash cow. As of Dec. 31, 2003, according the firm’s annual report filing with the Securities and Exchange Commission, Teece owned outright 1,288,125 shares of stock worth $38,641,181 at the New Year’s Eve closing price of $22.89 per share.
He also held exercisable stock options worth $8,228,750 and held options on another 515,625 shares which he could exercise within 60 days of Feb. 27, 2004.
In addition to stock—listed on NASDAQ as XPRT—Teece collected a handsome paycheck for his LECG chairmanship in 2003 totaling $2,405,255 in salary, bonuses and other compensation. He collected another $669,109 five months ago.
By the end of March, LECG boasted 752 employees and independent contractors with exclusive relations to the firm, and had opened new offices in London, Brussels and Madrid.
One of his best known consultants is I-CAP board member Laura Tyson, and last month the firm announced the addition of a bevy of new experts, including Dr. Richard Schlamensee, dean of the Sloane School of Management at the Massachusetts Institute of Technology and a member of the President’s Council of Economic Advisers under the first George Bush, as well as other experts with high level federal and private experience.
According to a July 29 web report posted by the American Prospect magazine, Tyson is one of Democratic presidential candidate John Kerry’s three key economic advisors.
A one-time skeptic of the free trade agenda, she has become a born again free trader and a critic of infusing environmental concerns into the agenda of the World Trade Organization, reports Matthew Yglesias.
His report quotes Tyson as telling members of the National Democratic Institute that “a Kerry-Edwards Administration will continue the great American tradition of leading the way on global economic integration.”
Though the current share value hovers around $16, in part because of a series of recent acquisitions, Teece remains one of the wealthiest of Berkeley residents.
Until the second quarter of 2003, LECG was a limited liability corporation, which meant that the company paid no corporate income taxes.
Another corporate affiliate is LECG Funding Corporation.
Both the consulting and funding firms are Delaware corporations, with Teece as legal agent with an address of 2000 Powell St., Suite 600, in Emeryville.
According to LECG’s 2003 annual report, Teece also owns a 40 percent share of Enterprise Research Inc. A search of the Internet turned up no information on the business, and a check of the California secretary of state’s corporation registry listed the business as an active corporation with a mailing address that turns out to be Teece’s home above the Claremont Hotel in the Berkeley Hills.
Financial transactions on Teece’s Berkeley Hills properties have involved:
• The Teece Irrevocable Trust No. 3 (administered by San Francisco attorney Laboe);
• The Defined Benefit Pension Plan of Enterprise Research;
• The Money Purchase Pension Plan of Enterprise Research; and
• Teece Investment (managed by CFO Misaka from a fifth floor office in the Emeryville building which also houses LECG).
As of 2003, Misaka also holds the professor’s power of attorney in financial affairs and litigation.
The County Assessor’s office values Teece’s Tunnel Road property at $1,676,181, with structures alone valued at $918,792. An adjacent lot is valued at $593,406.
There’s also a Teece Family Foundation incorporated in December 1998, also headquartered in the Emeryville building next door to Teece Financial.
According to published accounts, Teece was one of five present and former Haas professors who gave the school a combined $1 million in 200O to use in attracting top students.
Political Power Player
Teece and his spouse, Leigh, are deep-pocket political contributors. From 1999 to 2003, they gave $27,756 to the congressional campaigns of Republican Tom Campbell (now Dean of UCB’s Haas School of Business), $5,000 to the unsuccessful 2000 bid by Republican Claude Hutchinson to unseat Walnut Creek Congressional Rep. Ellen Tauscher, $2,500 to the Republican National Committee and $750 to George W. Bush’s 2000 presidential campaign.
Recent state level contributions included $2,500 for the Don Perata Committee, $100 for the 2000 school voucher referendum, $770 for the Republican Lincoln Club of Northern California and $1,000 for the Phillips for Assembly committee.
Interestingly, he listed his occupation as a self-employed developer for his Perata donation, as a consultant for Enterprise Research for the school voucher campaign and as a UC professor for his Lincoln Club largesse.
The Teeces also gave the maximum allowable $1,000 to Berkeley City Councilman Gordon Wozniak for his campaigns in the 2002 election and run-off.
But their most memorable contribution was an event the Teece’s threw at the Tunnel Road estate for Shirley Dean in October, 2002. Guest of honor for the political soiree was Oscar/Tony/Emmy-winning actress Rita Moreno, who received the Presidential Medal of Freedom from George Bush on June 23 of this year.
Teece is one of a number of local individuals and organizations—including Panoramic Interests—who hold a combined $240,000 note on Berkeley’s Eco House. Teece and Panoramic each lent $10,000, and Zoning Adjustments Board member and realtor Laurie Capitelli and his spouse Marilyn lent $15,000.
In making his donations, Teece variously describes himself as a UC professor, a self-employed Berkeley developer and as a consultant for Enterprise Research.
Expert Witness, Corporate Advocate
Like many academics, Teece also generates income from offering his expertise to lawyers. He played leading roles in two major cases involving corporate giants.
The recording industry giants sought him four years ago when they launched their war on Napster, the free music-sharing program that 17 corporations from A&M Records to Warner Bros. Records feared would fatally impact CD sales.
U.S. District Court Judge Marilyn Hall Patel cited Teece’s testimony repeatedly in ruling for the recording giants.
Teece also provided critical testimony earlier this month in a federal anti-trust case federal case challenging Oracle software’s fight to devour PeopleSoft.
Justice Department lawyers argued that the merger would reduce the number of companies providing high-end software for running major corporate and institutional financial and human resources divisions from three to two.
While the feds argued that a costly takeover would lead to higher prices, Teece disagreed, telling the court such a move would be “so fundamentally contrary to the economics of this industry” that a price hike “would be shooting themselves in the foot.”
Tobacco peddlers R.J. Reynolds and Philip Morris retained Teece to defend their business practices when they were sued in late 1999 by 40-year-old terminally ill lung cancer victim Lesley Whiteley. In March 2000, jurors awarded her $1.72 million in compensation and $20 million to punish Big Tobacco.
The companies appealed, and in April of this year, the state Court of Appeal sent the case back for retrial in San Francisco Superior Court.
Teece and his colleagues at his UC Institute of Management, Innovation and Organization issued a series of manifestos in the wake of the 2000 state electric crisis calling for downsizing and streamlining regulations and regulators and a return to market pricing.
Teece’s expertise also won him a seat on the board of directors of Atlas Assets, Inc., the investment arm of Oakland-based Golden West Financial Corp., parent of World Savings & Loan.
His involvement led to troubles for the firm after the Securities and Exchange Commission passed a requirement in 2002 mandating that the majority of directors in a fund consist of individuals without a financial involvement.
Because one of Teece’s family trusts held a quarter-million dollars worth of shares, the feds determined a year later that Atlas was in breech of regulations.
According to SEC filings, Teece sold his shares on July 29, 2003, but nine months’ worth of investor dividends were embargoed in an escrow account until the legal snafu was resolved.?