The Loews Corporation is a conglomerate holding company with several lines of business including property and casualty insurance, oil and gas drilling, natural gas pipeline transmission, and hotels and hospitality. Loews CEO James Tisch recently sat for an interview with The American Editor in Chief Nick Schulz at the Loews headquarters in Manhattan.

What do you think of the prospects for using natural gas as a transportation fuel for passenger cars?

It sounds good when you say it fast. But there’s a big capital investment that has to take place, in terms of getting the gas into the car either at home or at a filling station, and also a big capital investment for the car itself because Detroit still isn’t producing cars with natural gas tanks. So I don’t know if it’s going to happen or not. I’m not relying on it.

You believe the electric car is coming to market soon. Some skeptics might say, “People have been talking about electric cars coming to market for years and it has never really materialized.” What’s different now that’s going to make electric cars commercially viable?

All a windfall profits tax will do is cause us to rely more on OPEC and foreign energy producers.

Number one, the technology has advanced dramatically. Number two, back then, there were only plug-in electrics. Now there are plug-in hybrids where you can go the first 40 miles on the battery and thereafter you can use an engine. So it’s just that the technology has evolved and, over the next ten or 20 years, is going to evolve much more.

The batteries are going to get better, not worse. I think battery-operated cars, at some point in time, will be marketed not just because they save the environment but because they’re much cheaper to operate. That’s the reason that they’re going to be so prevalent, over the next one to two decades.

Do you think Washington should regulate greenhouse gas emissions in the form of a tax on carbon emissions or through a cap-and-trade system?

Not yet. I know that the case for global warming being associated with greenhouse gases is based upon what are described as very big, very complicated models of weather, the atmosphere, and the environment. And I don’t know anything about those models. I do, however, know about the big complicated models that deal with the economy and the stock market. And my guess is that the weather models working out 10, 20, 30, and 40 years are about as accurate as the models on the stock market and the economy looking out a few years, which means to say I don’t think they’re very accurate at all. So my sense is more work needs to be done. I’d like to see a panel of experts on both sides take a few hours and debate the issue so that all citizens could evaluate for and against.

The thing that I suspect is happening that is worrisome is that CO2 in the oceans is increasing, and that is a real problem. CO2 in the oceans makes ocean water more acidic and causes certain aquatic life to die off. So that’s something that we should be concerned about.

So why not a tax or a cap-and-trade program then?

Those are all phenomenally expensive and disruptive means to resolve the problem. And I’d like to make sure that we understand the problem before we prescribe such a draconian solution.

No matter what, any cap-and-trade program needs to be done on a full international basis and not just for the United States. Because if we do it for the United States or if we just do it for the industrialized world, all we would be doing is shipping our manufacturing and our high CO2-producing endeavors overseas to other countries that do not have similar rules and taxes. So it’s got to be done with a Kyoto-style treaty in which all countries, including less developed countries and newly emerging economies, participate.

What do you make of calls for a windfall profits tax on large American oil companies?

It’s really a dumb idea. I mean, I can’t be diplomatic about it. All a windfall profits tax will do is cause us to rely more on OPEC and foreign energy producers.

I don’t even think it would make a lot of money, because my understanding is ExxonMobil and ChevronTexaco won’t pay their windfall profits tax on their production from overseas. They’ll only pay the tax on their production in the United States, which is not a big percentage of their production.

It is safer for the environment to produce the oil and gas offshore and move it in by pipe than it is to import oil and gas from overseas and bring it in by ship.

I’ve seen the way oil companies operate—they look to see how much cash flow they’re going to earn in a year and from that they determine how much they’re going to invest in exploration and production. So if the amount of their earnings is going down because there’s a windfall profits tax, then that means necessarily that the amount of exploration and production that they do is going to go down. If exploration and production expenditures go down, then you can be pretty sure that the amount of oil and natural gas resources that they find are also going to go down.

How about domestic drilling in places like the Outer Continental Shelf. Is it a good idea?

If this was the 1960s, chances are it would be justifiable to have a ban on offshore drilling in the Outer Continental Shelf. Because in the 1960s, the technology was not particularly good. And those of us that were around remember the spills that took place in Santa Barbara Channel. But 40 years have passed since then and the technology has changed dramatically. And what the data show is that it is safer for the environment to produce the oil and gas offshore and move it in by pipe than it is to import oil and gas from overseas and bring it in by ship.

So to me, it’s crazy not to be drilling offshore. We’re not talking about drilling within a mile or two offshore. We’re talking about drilling anywhere between ten miles offshore and 100 to 200 miles offshore. People sitting around the shore won’t even be able to see the rigs.

If we don’t drill offshore here, it encourages offshore drilling in other countries. So are we just protecting our own environment or the Earth’s environment? My guess is that we are one of the safest places to drill offshore because we’ll have some of the tightest regulations, as opposed to certain other countries.

Your firm recently elected to get out of the tobacco business. Was politics a factor in that decision?

No. The decision was good for Loews, good for Lorillard, our tobacco subsidiary. It was good for Lorillard because under Loews management, we were just going to operate the business and pay out the earnings as dividends through our tracking stock. Lorillard can now have a mix of dividends and share repurchases if they want, and they do. They can lever up the company a bit, something we were unwilling to do. If they want, they can expand in the business either by buying other businesses or using their shares to make acquisitions. Those are things that we were unwilling to do. So it gives the management of Lorillard dramatically more options and opportunities as a stand-alone business rather than as a subsidiary of Loews Corporation.

For Loews, it makes sense because it simplifies our capital structure. When we had Lorillard, we also had something called tracking stock, which had been sold to the public, which represented the interest in the economic returns of Lorillard. So by spinning this off, it dramatically simplifies the Loews balance sheet and it allows holders of our tracking stock to have a direct interest in Lorillard, because for each share of the tracking stock they owned, they received a share of Lorillard.

You mentioned being leveraged. You’re known, as a company, for not taking on a lot of debt. Can you discuss your philosophy on that?

I like to sleep at night. That’s why we manage the business very conservatively. As a holding company, we have an excess of $4 billion in cash and we have just under $875 million in debt. And we like to buy strong, solid, traditional businesses that are not, in any way, a fashion business. When I say fashion business, I’m not just talking about clothing. I’m talking about high-tech businesses, businesses where you have to recreate yourself every few years or you need to develop new products. We like businesses that we know are going to be around for the next two, three, four, five decades and businesses that have a real need and niche within our economy.

We also like to buy businesses that are in cyclical industries. And we have come to believe in the cyclicality of businesses, industries, and the economy, so we like to buy businesses when things are bad, when the economy is down, or when the cycle for a particular industry is down. In order to do that, typically, you need cash on your balance sheet because at the time that you want to buy, generally, financial institutions are not going to be willing to lend, and that’s, in part, what makes the price so attractive.

You are in many different sectors. How do you find your opportunities and make decisions about what businesses to get into?

We pay attention. We read the newspapers. We do lots of research. We like to keep an open mind and look at as many things as we can. And by doing that and comparing one to the other, we’re able to really distill down the options and select the ones to take advantage of.

There’s one other thing that we do. I have an old saying, which goes, “If there’s nothing to do, do nothing.” So we, as management, feel very comfortable if we’re not doing something. There are many managements that just don’t know how to sit on their hands and do nothing. So they have to do something even though the time might not be right to do that. And so that’s one of the things that we always try to practice here in terms of a search for other businesses.

Of course, the managements of the businesses that we own are intensively managing their businesses. So when I say, “If there’s nothing to do, do nothing,” that relates to the search for new businesses, not the management of existing ones.

How has Sarbanes-Oxley affected your business?

It’s probably doubled our accounting fees. And I would say that about eight and a half percent of that reflects value to the company. So there was some value from Sarbanes-Oxley, but we are paying an enormous price for that value. And a lot of it is make-work. A lot of it is just checking that you’ve done something, that you had written the right procedures. It’s mindboggling how much work it is and how expensive it is.

Sarbanes-Oxley Section 404… is exactly two paragraphs long. And from that spawned this enormous industry of scrutiny and oversight of financial statements.

Along with Sarbanes-Oxley came what’s called the Public Company Accounting Oversight Board (PCAOB). And the PCAOB is there to grade the accountants. So the accountants, because of the PCAOB, are unwilling to work with the managements of companies because they know that they’re going to be scrutinized by the PCAOB. So there’s much less of a collegial atmosphere between the company and its auditors and it’s become somewhat more antagonistic. I don’t believe that’s in anybody’s best interest at all.

Sarbanes-Oxley Section 404, which created a lot of these problems for corporations, is exactly two paragraphs long. And from that spawned this enormous industry of scrutiny and oversight of financial statements. So it just shows you just how powerful Congress can be. And the sad thing is there was a problem. There were some companies that were doing bad things. Auditors missed certain things. But I would submit to you that it was just a small number of companies. Very small, I mean, a handful. And as a result of their actions, every listed company now has to comply with these rules.

What other public policy issues are of concern to you?

I do a lot of work involving taxes, specifically corporate long-term capital gains taxes, which are 35 percent and much too high. As a result of 35 percent corporate long-term capital gains taxes, there are literally trillions of dollars of assets that are locked into corporate balance sheets that can’t be sold. Because even though the transaction may make sense on a pre-tax basis, on an after-tax basis, with the government possibly taking 35 percent of proceeds, the transaction just doesn’t make any sense at all.

So we have been championing a proposal that’s been introduced into the Senate to reduce the corporate long-term capital gains tax rate from its current 35 percent rate, which has been out for multiple decades, down to whatever the individual long-term capital gains tax rate is, on the theory that what’s good for the goose is good for the gander. And we believe—and we have data to support our contention—that by so reducing the corporate tax rate to the same level as the individual tax rate, that even though this will be a tax rate cut, the Treasury will get more money from the corporate long-term capital gains tax.

Photograph by James Leynse.