Detroit’s Benevolent Dictator

Dec 05, 0001

The man leading Detroit’s bankruptcy thinks it will be the fresh break the city needs. It will also add to his already sweeping power over city finances and government. If Detroit owes you money, watch out.

By Anne VanderMey

FORTUNE—Last week Detroit became the largest American city ever to file for bankruptcy. The decision came after four months of crisis leadership by Kevyn Orr. Now, all eyes are on the 54-year-old bankruptcy lawyer as he prepares to lead Detroit’s bankruptcy proceedings.

The Chapter 9 filing was greeted as a final, humiliating blow for the long-suffering city. But Orr doesn’t see it that way. The day before his filing became public, he led a closed-door meeting where he was fiercely optimistic about the city’s future, according to several attendees. And he slammed creditors attempting to extract payments from the bankrupt city.

“Phase one is to deal with these Huns on Wall Street,” participants at the meeting said Orr told them.

He also blasted the city’s history of political corruption. “I’m done with this old guard,” he reportedly said, referring to the years of scandal and backroom deals that has plagued city government and made it a laughing stock with a seemingly never-ending stream of sex scandals and bribery cases. “They can get the hell out.” He said he was planning on asking the governor for stronger breach of public trust laws: “I’ll take your house. I’ll take your kids’ college fund,” he said of corrupt officials. “I’m done with this shit.”

For Orr, a Detroit bankruptcy is not the personal defeat it may look like. The city entering Chapter 9 will likely give him significantly greater leverage—and that’s on top of his already sweeping powers. As emergency manager, Orr has final say over all city government decisions, and can fire the mayor and city council. “I have a very powerful statute, but I have an even more powerful Chapter 9,” Orr said in a recent public meeting.

 Orr has been professionally successful (his partnership at Jones Day makes him one of the top 100 restructuring lawyers in the country), but until now he has mostly stayed out of the spotlight. In interviews with former colleagues a portrait emerges: He’s a good listener. He’s empathetic. He’s ambitious. And he’s a very good lawyer. But what really made him stand out from the crowd? Well, nothing in particular, they said.

 “We’re bankruptcy lawyers, we’re not a particularly interesting bunch,” says John Pottow, a professor at the University of Michigan Law School.

 Orr’s appointment was intensely controversial. Residents were livid that the governor would suspend the democratic process and impose a de-facto dictator on the city. For many, it was especially infuriating because Michigan Governor Rick Snyder is a Republican, and Detroit voted about 98% for President Barack Obama in the last election.

But so far, instead of being a stooge for Detroit’s creditors, Orr has seemed intent on plowing funds back into the city. He has proposed a $1.25 billion investment in the city over the next decade, despite Detroit’s crippling debt. His zeal for investment and his communications savvy has made him a formidable advocate—or opponent, depending on whether Detroit owes you money or not. Retiree representatives and some analysts have accused him of overestimating Detroit’s pension costs in an effort to wring out greater concessions from retirees.

In many cases, Orr has taken a hard-line approach to negotiation. Dan McNamara, president of Detroit Fire Fighters Association, met him for the first time shortly after he took office. McNamara wanted to know who was really calling the shots. “I said, ‘Let’s talk about why I should bargain with you,’” McNamara says of his first meeting with Orr. “He made it very clear.” McNamara recalls, “He said, ‘I’m in charge.’”

Orr has not been shy about wielding the power afforded him by the Emergency Manager position. He filed a corruption probe into the city’s pension funds. He is pursuing the privatization of many city services, including streetlights and trash collection. He initially extended an olive branch to City Council members by allowing them to keep their jobs and paychecks, but he fired the Council president (the famously shirtless Charles Pugh) when he failed to show up for work for weeks at a time, and he opted not to replace another two council members who left soon after.

Not having to run for reelection has allowed Orr to be bolder than the typical city leader. “He’s not a politician, he doesn’t need to make friends,” says Sandy Baruah, president and CEO of the Detroit Regional Chamber of Commerce. In a meeting with creditors where everyone was required to leave their cell phones at the door, Orr’s reportedly rang and interrupted proceedings. His joking response was telling. “The rules don’t apply to me,” he quipped.

 In the run-up to bankruptcy, Orr made a low-ball offer to creditors, suggesting that many take a small fraction of the money owed to them. The move rattled the bond market, which traditionally views muni bonds as very safe. He also has drawn ire for his proposals to  trim pensions.

Demands like those could have spelled a public relations debacle, but Orr has been savvy about his image. One of his first hires was a spokesman. He also happens to be very, very good on camera.  In tense meetings, he maintains an unflappable cool. In a closed session with creditors, even though he painted the city’s finances in stark terms and asked for big concessions, there were reports of applause in the audience.

 “Early on, the governor said, ‘I really want someone who’s got incredible people skills,’” says Baruah. “He obviously found someone with real people skills.” Baruah also says his charm extends to smaller meetings. “When I first met him, I said to my wife, ‘He’s as good in person as he is on TV!’”

 Beyond his communications smarts, Orr’s background has leant him some credibility in the hardscrabble city. He has Michigan roots, with both a law degree and a bachelor's from the University of Michigan. He worked on the Chrysler bankruptcy. He calls Michigan his “adopted state,” but he grew up in the South. In a public hearing he recounted running barefoot through clay streets XXXXX WHERE? XXXXX and joked about how he remembers sugar sandwiches were “good eatin’.” When his mother went to the hospital to give birth to him, “they called her a Negress—told her to go across the tracks,” said Orr, who is African American. He was born in a segregated clinic.

 “No one can tell me about issues concerning discrimination and hard living and how you come up,” he said. “I don’t want anyone to think I don’t understand on a very real basis what I may be asking from people.”

 What he’s asking is a lot, particularly for retirees on fixed incomes who rely on their pensions. But it’s also clear that Detroit doesn’t have much left to give. The city’s population has fallen from 1.8 million in 1950 to 700,000. It leads the nation in violent crime. It takes an average 58 minutes for police to respond to high-priority crimes. Some 60,000 parcels of land sit vacant, and 40% of the streetlights don’t work. There are flickers of hope, like trendy watch stores in Midtown, but they do little to obscure the wrenching reality of human suffering that has underscored the city’s decades-long decline. Detroit has been bankrupt for a long time. Its heaping debt, which the governor estimates at more than $18 billion, is nothing new. What matters now is whether Orr—and everyone else still left—can dig it out from underneath.

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