THE WRECK OF MORRISON KNUDSEN

IN ITS GLORY DAYS, THE MORRISON Knudsen company helped create the very fabric of America by building such megastructures as the Hoover Dam, the San Francisco-Oakland Bay Bridge and the Trans-Alaska pipeline. By last week, however, the 83-year-old construction firm, based in Boise, Idaho, was struggling to survive a devastating corporate crackup. Just six weeks after directors ousted the charismatic William Agee as chairman and chief executive officer, the company was frantically seeking $125 million in new bank loans needed by the end of this week to avert a bankruptcy filing. And with losses mounting, shareholders suing and directors resigning, the stock of Morrison Knudsen, which traded for about $30-a-share a year ago, closed at $5.75 on Friday.

The most daunting news was that the company would report a loss of $310 million for 1994, stemming in large part from its troubled railcar business. That was nearly twice the deficit that Morrison Knudsen acknowledged as recently as February. To make matters worse, the firm remained in technical default on $225 million in loans from Bank of America, J.P. Morgan and other lenders. "We are beginning to seriously doubt the company's viability," says analyst Tobias Levkovich, who follows the firm for Smith Barney.

The turmoil grew worse when former California Supreme Court Judge William Clark, the leader of the boardroom putsch that removed Agee six weeks ago, resigned last week as acting chairman to return to his consulting business and his horse ranch in California. Clark, who once served as Ronald Reagan's National Security Adviser, said he had achieved his goals of exposing the company's financial woes and putting in place a new management team. Also departing was Zbigniew Brzezinski, Jimmy Carter's National Security Adviser, who, like Clark, became a director just last year. Remaining members of the company's beleaguered board were left with acting chief operating officer Robert Tintsman as president and CEO while they continued to search for a new chairman.

The bleak financial results only sharpened the bitter charges and countercharges over who was responsible for the collapse of the $2.7 billion firm, which earned $35.7 million in 1993 and had seemed primed for increased profits in 1994. Disaffected directors blamed Agee for withholding from them the true state of the company. Partisans of the deposed chairman blamed Clark and a coterie of anonymous Agee detractors for precipitating a panic among lenders and stockholders, who, along with present and former MK employees, have brought 19 suits against Agee and the board.

There is plenty of blame to go around. Agee and his wife Mary Cunningham are widely resented in Boise, not only for the 600-some layoffs Agee ordered following his arrival in 1988 but also for moving his family to Pebble Beach, California, where he ran the company by remote control from a linkside villa. Agee has his defenders, although few of them are willing to speak on the record. Far from hiding problems from the board, his supporters say, the deposed chairman reported them as quickly as they came to light. Many of the woes involved Morrison Knudsen's transit division, which Agee had been trying to build up since 1990. The strategy seemed sound at the time: Agee believed that the Buy America movement, coupled with Morrison Knudsen's position as the only U.S.-owned manufacturer of railcars, would make the business highly profitable. "He did have a coherent plan," says someone close to the board. "It's just a very difficult business." Moreover, this source adds, MK directors were "hardly wilting-violet people . They repeatedly asked tough questions."

Yet that scarcely explains how the company declined so swiftly under the gaze of a board that boasted such luminaries as famed stockpicker Peter Lynch and former baseball commissioner Peter Ueberroth. The first sign of trouble came last summer when Agee told directors that the company expected to report a loss for the second quarter. "I raised questions about why we hadn't received a preview," Brzezinski recalled last week. His uneasiness grew several months later when "we started getting indications of a fourth-quarter loss that would be larger than anticipated--though nothing like what it finally turned out to be."

"It's just a terrible thing that the directors and the outside auditors could have let a thing like this happen," says Velma Morrison, 74, the widow of company founder Harry Morrison and a director herself until 1990. "You wonder where they were, what they were doing that they didn't know what the hell was going on."

Agee partisans suggest that Velma Morrison, angered by Agee's curtailment of her perquisites after her departure from the board, launched a vendetta against him by rallying disaffected members of the corporate community and turning Clark and other directors against the chairman. Clark began heeding the advice of the self-styled "Committee for Excellence," which sent directors an anonymous letter in November complaining about Agee's opulent life-style and accusing him of selling off company assets to inflate corporate profits. Agee would later complain to friends, "Bill Clark made Velma a hero; he provided a forum for my detractors."

Weary of the sniping that his friends say began as long as five years ago, Agee told the board last October that he planned to step down as CEO by the end of 1995. That timetable was too slow for Ueberroth, who had been named to lead the hunt for a new chairman and wanted Agee out immediately. "I was unanimously elected by the directors, including Bill [Agee], to head the search committee for a new ceo," said the former baseball commissioner. "That same day Bill and I got into arguments on the phone over how fast that process should take place. It was a Friday, and our discussions continued. By Monday I had resigned from the board."

Clark, baited by the legions of Agee detractors and alarmed by the worsening financial condition of the company, then took control of the succession effort. By the time the board met in San Francisco on Feb. 9, MK's lenders had joined the chorus calling for Agee's ouster. Only one director, Chicago fund manager John Rogers, voted in Agee's favor.

Though Clark declared that his job was done, he mainly cleared the decks for a possible turnaround. Sources close to the company said last week that the judge submitted a bill for more than $200,000 for his service on the board, shortly after he had, as interim chairman, deferred all fees for other directors. Meanwhile, the board met by phone on Friday and is likely to continue to meet as long and as often as it takes to find a new chairman and to stave off the financial collapse of the company.

As clueless as the MK board members might appear, experts in corporate governance say there is often little that outside directors can do to straighten out a com-pany before things go very wrong. "They often hear from management, 'Don't worry. It's just a temporary trend,' " says Jay Lorsch, a professor at the Harvard Business School. "It is very hard, even for a very smart group of directors, to understand these things."

Morrison Knudsen directors scoffed last week at a New York Times report that their ties to a charity run by Mary Cunningham may have caused them to cast a blind eye on problems at the company. One director and the wives of three others sit on the board of the charity, called the Nurturing Network, which helps pregnant young women find alternatives to abortion. "There is absolutely no conflict of interest there," declares Gerard Roche, chairman of the executive-search firm Heidrick & Struggles, who serves on both the corporate and charity boards. "We never pulled our punches. We never had any inhibitions about reviewing Bill Agee's performance."

Ultimately, it is Agee who must answer for both the financial and the personal disasters he leaves in his wake. Though secluded in Pebble Beach, he is not unscathed. "Nobody has lost more money on Morrison Knudsen than I have," he recently told a friend. While his complete severance package is still being negotiated, Agee remains the largest single holder of Morrison Knudsen stock. Unless the company's remaining overseers can find a way back to solvency, Agee's shares may soon be as devalued as his reputation for business acumen.