(FORTUNE Magazine) – RIGHT OR WRONG, John K. McKinley makes the decisions at Texaco Inc. No touchy-feely management by consensus for this hardheaded chief executive, and no buck-passing either. Now 65 and scheduled for retirement in December, McKinley faces a poignant possibility: that with a single act he has destroyed the $47.5-billion-a-year international oil giant to which he has devoted the whole of his 40-year career. At issue is McKinley's by now notorious acquisition of Getty Oil Co. in 1984. Pennzoil Co. of Houston, claiming it already had a contract to buy Getty, sued in Texas and won a $10.5-billion judgment against Texaco late last year. If upheld, the decision could force Texaco into bankruptcy, an almost unthinkably humbling prospect for a company accustomed to wielding more power than the average sovereign state. McKinley says he is open to a ''reasonable economic settlement'' but refuses to define his terms publicly. He's not shy, however, about proclaiming his conviction that Texaco did nothing wrong. Some McKinley intimates believe the tall, determined Alabaman with the hooded eyes wants nothing less than final vindication in the courts. ''I don't think he'd ever settle unless somebody made him do it,'' says one. The appellate process could take years. In late February a federal court of appeals in New York upheld a lower court ruling that reduced the bond Pennzoil can require Texaco to post from over $12 billion to $1 billion. That victory makes it easier for Texaco to keep fighting in the Texas courts, through either appeal or retrial. Matters relating to the Pennzoil litigation consume three-quarters of McKinley's time, distracting him from the task of modernizing a ponderous company that was among the weakest of the Seven Sisters when he took over in 1980. McKinley was originally slated to retire last April. Yet even with an extended term of office, he will probably leave before the multibillion-dollar question of right and wrong is finally answered. The immediate pressures on McKinley are enormous. Texaco shares have been trading at $29, down 25% since McKinley got the top job. After the jury's verdict Texaco shareholders filed more than a dozen lawsuits charging McKinley and other directors with breaching their fiduciary duty. McKinley says he has endured hard times before. ''I don't know that I would characterize this as the most stressful time of my life,'' he says. His personal history, marked by family crises, suggests he may be right. But his friends worry nevertheless. ''He has never been anything but a success,'' says Jack Warner, majority owner of Gulf States Paper Co. in Tuscaloosa, Alabama, and one of McKinley's closest friends since childhood. ''I think this is damn near killing him.'' The case is unlikely to break him. Thomas A. Bartlett, chancellor of Alabama's university system, draws insight about McKinley's character from his tennis game. ''He gets better under pressure,'' says Bartlett. By all accounts McKinley is toughness incarnate: tough with opponents, subordinates, and himself. Rand V. Araskog, chief executive of ITT and no wimp himself, describes McKinley as ''a very manly guy.'' A chemical engineer by training, McKinley is a dogged rationalist who has moored his life to the unemotional analysis of hard fact. Selfassured to the point of arrogance, he is demanding while gathering data and unafraid of the conclusions to which the data lead him. His wife, Helen, says, ''John is very careful. He doesn't make many mistakes.'' McKinley grew up close by the Tuscaloosa campus of the University of Alabama, a nurturing environment for a brainy boy. ''I had the advantage of being around people with inquiring minds,'' he remembers. His father, Virgil, 46 when McKinley was born, taught the equivalent of industrial management; he also oversaw a Baptist Sunday school program and taught his son to love the outdoors. Virgil's wife, Mary Emma, known as Mama Mac, ran a private kindergarten called Kiddie Kollege. Virgil and Mary Emma produced a young man whose ambition was obvious at an early age. ''When we were kids,'' says Jack Warner, ''he always did maintain he'd be successful in a monetary way.'' McKinley raced through school, easily winning top marks and entering the University of Alabama at 17. He studied chemical engineering there while living at home. McKinley graduated in three years and stayed on for a fourth to take a master's degree in organic chemistry. By this time McKinley had chosen a career in chemical research. He eagerly accepted Texaco's embrace, starting work there right after he got his M.S. degree in 1941. His first assignment was grease research at Texaco's Port Arthur, Texas, refinery. According to one of McKinley's two sons, Mark, 29, the job's main appeal was the $2,100-a-year salary. Less than three months later the Army summoned McKinley. Having prudently enrolled in the Reserve Officers Training Corps in college, he joined the Army as a second lieutenant. In service until late 1945, McKinley landed on Omaha Beach shortly after D-day at the head of an artillery unit. Fighting in the Battle of the Bulge and other major campaigns, often as a reconnaissance officer, he earned the Bronze Star and the rank of major. ''He had a wonderful military career,'' says Augustus C. Long, 81, an Annapolis graduate who was Texaco's chief executive from 1956 to 1965 and came out of retirement for a second stint from 1970 to 1972. The Army was good preparation for employment at Texaco. McKinley returned to the grease lab, a post of no great importance in the vast, regimented hierarchy Gus Long dominated. At the heart of Texaco's corporate culture, many present and past employees agree, was fear of the authority that flashed and rumbled from Long's lofty office in the Chrysler Building in New York. Decisions got made at the top or not at all. ''You genuflected when the chairman went by,'' recalls a Texaco alumnus. This atmosphere didn't stifle young McKinley. He won 13 patents, including one for a gasoline additive that inhibits corrosion. He remained in research 15 years, rising to the modestly influential post of assistant to the vice president. McKinley says the most difficult period of his life came during his research years. He met his wife, a smart, straightforward, attractive woman, in 1945, while she was studying medicine at the University of Texas. The unmuddled McKinley proposed on their second date. After the birth of their son, John Jr., now 38, Helen contracted a life-threatening case of tuberculosis. Her illness followed other family misfortunes, including the death of McKinley's only sibling, Virgil Jr., who shot himself in 1943. Helen says the shooting was an accident; others close to the family have called it suicide. Helen quit medical school and recovered from her illness only after two years as an invalid. ''John took care of me,'' she says. Helen has since returned the favor; one gesture of support is the breakfast in bed she serves McKinley each day. In 1960 McKinley became general manager of a Texaco petrochemicals operation, reporting to Maurice F. Granville, now 70, who was to become McKinley's immediate predecessor as chief executive. The decision to trade in a lab coat for pin stripes ''didn't come easily,'' says McKinley. But once he accepted the job, McKinley quickly made his mark as what Gus Long called ''a moneymaker'' in a company that didn't have many. In those days tradition-bound Texaco was an insular, virtually self-contained enterprise that produced and refined its own oil and then retailed it in all 50 states. The company didn't worry much about cost control, since it could increase profits simply by pumping and processing more crude. But McKinley analyzed the petrochemicals business and found he could often widen its minuscule profit margins by purchasing petroleum feedstocks on the open market that were cheaper than Texaco's. Such innovations, adventurous by company standards, helped McKinley push steadily up the ranks. In 1971 Granville became chairman and McKinley was made president. Then, for nine frustrating years, McKinley waited. Like Long before him, Granville -- who declined to speak with FORTUNE -- hoarded decision-making authority. Granville didn't authorize an effective response to the revolutionary changes sweeping the oil business during the 1970s. When he retired in 1980 Texaco lagged far behind the industry. According to John S. Herold Inc., an oil industry research firm, Texaco's reserves declined by 38% during Granville's last three years, vs. an average of 5.7% for Chevron, Exxon, Mobil, and Amoco. McKinley didn't push too hard for change. ''Coming up from the bottom is a political process,'' his wife notes. Says Long, a Texaco director until 1977: ''I don't recall his making any outstanding recommendations at that time.'' But McKinley cut loose once he got the top job. He eliminated half of Texaco's U.S. gas stations, closed six of 14 U.S. refineries, and refurbished four other refineries. He presided over three big write-downs of Texaco's hitherto inflated estimates of its natural gas reserves and gambled nearly $6 billion on exploration. The exploration program has yet to produce a major discovery, so Texaco's average finding cost is $16.71 a barrel, vs. an average of $11.44 for North American oil companies, according to a survey by the Arthur Andersen accounting firm. BY ACQUIRING GETTY, McKinley managed to double Texaco's U.S. reserves. The estimated cost works out to $4 a barrel, a price some security analysts consider attractive despite the recent plunge in oil prices. McKinley's strategies may have begun to pay off. In late January Texaco reported a 15% rise in net income over the past four quarters, excluding the effect of a $765-million write-down in 1984. Says Thomas S. Murphy, chief executive of Capital Cities/ABC and a Texaco director since 1977: ''He's had a God-awful accident happen to him in court, but John's operating record is terrific.'' McKinley's attempts to reshape Texaco's authoritarian corporate culture have been less successful. The old ways are deeply embedded, and as he points out, ''It takes a long time for a big ship to change course.'' In addition to delegating more authority than his predecessors did, McKinley has energetically trained younger executives. One is Peter I. Bijur, 43, a vice president who has sold off $2.7 billion of assets, primarily Getty's nonoil operations, since 1984. McKinley has also hacked away at the bureaucracy. Despite the absorption of Getty -- which employed 19,500 people in 1983 -- the head count at Texaco is 55,000, 18% less than when he took over.

But McKinley, a product of the Texaco culture, has not fundamentally changed the company's business style. The imperial tradition lives on, an unwholesome relic of another age. A frequent visitor to Texaco's new $100-million headquarters in suburban New York was subjected to unaccustomed VIP treatment the day of his first appointment with McKinley. The security guard at the gate bestowed a crisp military salute, and the lobby receptionist dosed him with reverential eye contact. ''I don't think McKinley knows how sheltered he is,'' says one concerned employee. ''People are always trying to second-guess what he wants.'' Another Texaco veteran characterizes McKinley's immediate subordinates as ''steely-eyed yes men.'' When questioned by FORTUNE, neither of the two men regarded as most likely to succeed McKinley -- Vice Chairman James W. Kinnear, 57, and President Alfred C. De Crane Jr., 54 -- could think of a single Texaco policy with which they disagreed. Part of the problem is McKinley's personality. Strongly opinionated and quick to speak his mind, McKinley is said to humiliate executives in front of their peers. ''I may be interpreted as asking harsh questions,'' responds McKinley, ''but I don't mean it that way. If people are afraid of me it's because of fear of their own inadequacy.'' McKinley's closest associates say his demanding ways are tempered by fairness and consideration, but few Texaco workers are invited into his walnut-paneled suite to discover those leavening attributes. Too many regard McKinley and his emissaries with dread. It is hard to imagine anyone telling McKinley that he is managing the Pennzoil case wrong. Yet that is precisely what some outside observers believe: that it was Texaco's arrogant deportment in the Texas courtroom, and not any fatal flaw in its legal position, that led the jury to favor Pennzoil. ''The board and management thought they had nothing to be concerned about,'' says Thomas A. Vanderslice, chief executive of Apollo Computer Inc. and a Texaco director. McKinley was dead wrong about that. Hard-nosed as always, Texaco made no provisions for payments to Pennzoil in its fourth- quarter earnings statement, issued after the court defeat. McKinley is still going for broke. BOX: INVESTOR'S SNAPSHOT TEXACO SALES (LATEST FOUR QUARTERS) $46.6 BILLION CHANGE FROM YEAR EARLIER DOWN 2% NET PROFIT $1.2 BILLION CHANGE UP 303% RETURN ON COMMON STOCKHOLDER'S EQUITY 9% FIVE -- YEAR AVERAGE 11% RECENT SHARE PRICE $28.75 PRICE/EARNINGS MULTIPLE 6 (12 MONTHS TO 2/14) -12% PRINCIPAL MARKET NYSE Explanatory notes: page 129