Forever Barbie_ The Unauthorized Biography of a Real Doll - Lord [42]
Despite all this, 1970 was as bad a year for Mattel as it was for Ruth. Its Talking Barbies were silenced when its plant in Mexicali, Mexico, where they were made, burned. And when its Sizzler toy line—a subsidiary of Hot Wheels—failed to generate as much revenue as Mattel had predicted, the company simply overstated its sales, net income, and accounts receivable, and instigated a "bill and hold" accounting practice—invoicing clients for orders that, because the clients had the right to cancel and often did, were not shipped. The inclusion of these "bill and hold" sales increased reported pretax earnings by about $7.8 million. Had Mattel made a miraculous recovery—which, given the unpredictability of the industry, was not impossible—its borrowing against future sales might have gone unnoticed. But as the company weathered bad quarter after bad quarter, the gap between the business it reported and the business it did widened.
By 1972, it could no longer disguise its losses. It reported a $29.9 million loss on sales of $272.4 million; and Wall Street, which had embraced Mattel as a glamour stock, began to suspect that something was rotten in Hawthorne. In August, Seymour Rosenberg, executive vice president, left; his acquisitions had been losers and his accounting practices were getting Ruth into hot water. Meanwhile, Mattel's bankers, worried about their short-term financing, had been having independent discussions with operations manager Arthur Spear. In December, they refused to deal with Ruth any longer; she was permitted to retain the title of president, but forced to relinquish control of the company to Spear.
In February 1973, Mattel's internal drama became public farce. The company issued contradictory press releases within three weeks. The first predicted a strong recovery; the second said: Forget the first; we just happened to have overlooked a $32.4 million loss. When, as a consequence of the announcement, Mattel stock plummeted, its shareholders filed five class-action lawsuits against the company, various current and former officers, and Arthur Andersen & Co., its independent accounting agency. The Securities and Exchange Commission also began an investigation.
Ruth, forced to resign as president (but allowed to continue with Elliot as cochairman of the board), was publicly repudiated, stripped of her power. Shaken, she lost faith even in Barbie.
"There's a group of people in this company that says Barbie is dead," former Mattel executive Tom Kalinske recalls Ruth telling him in 1973. "Last year we had our first decline ever since the introduction of Barbie. People are saying that Barbie's over, finished, and that we ought to get on to other categories of toys." Shocked, Kalinske responded, "That's the most ridiculous thing I've heard. Barbie's going to be here long after you and I are gone." Moved by his enthusiasm, Ruth made him marketing director on the line.
"Ruth was an incredible woman . . . a great marketing person and a great finance person," Kalinske told me at Toy Fair in 1993. "But she had these years of success where everything went correctly for her. Every quarter, earnings would be up, sales would be up—and it just kept going that way for years and years. Then she had a quarter where that didn't occur. So she ended up relying on some inside financial and sales people who basically advised her, 'Don't worry about this. . . . This is a momentary problem, a calendarization problem.' Well, needless to say, after three quarters of it not getting any better, she had committed fraud—or the company had, and as the leader of the company she had. So there were extenuating circumstances, but nevertheless she was responsible for having reported sales and earnings that didn't exist."
Ken Handler sees it differently. "[My mother] was hated because she was a strong, powerful woman," he told me. "Men that work in these kinds of organizations . . . bring a tremendous amount of unresolved