Titan
Page 34
Here, for the first time, I met John D. Rockefeller, a very pleasant, gentlemanly, unassuming man, but slow in his deliberations and particular as possible at every point of negotiation. Being a little vexed one day at my objection to some clause he desired in the contract which was being drawn, he said in a sarcastic tone: “Mr. Dodd, do you often act for both sides in a case?” I said, “Not often, Mr. Rockefeller, but I am always ready to do so when both sides want an honest lawyer.” This seemed to amuse him and we soon brought the matter to a settlement.25
When Rockefeller hired him in 1879, Dodd held out, not for more money or titles but for assurances of his integrity. Taking a relatively small salary (it would never exceed $25,000 a year), he resisted Rockefeller’s plea that he take Standard Oil stock, arguing that this might compromise his legal judgment, and he never became a Standard director for that reason. He also emphasized that he would never alter his settled views on the injustice of railroad rebates. To all these conditions, Rockefeller assented breezily—perhaps too breezily. As will be seen, he spent years fooling Dodd about Standard Oil’s relations with the railroads, to the point that one must conclude that Dodd fairly asked to be duped and suspended all skepticism. After being hired by Rockefeller, Dodd was ostracized by many former clients along Oil Creek. To these critics, he shrugged and said, “Well, as the ministers say when they get a call to a higher salary, it seems to be the Lord’s will.” 26 Rockefeller bestowed this encomium on Dodd: “A more just man never lived. . . . He was a lovable, loyal man.”27 In many antitrust hearings, Rockefeller looked to the redoubtable Dodd and awaited his nod of approval before answering questions.
Dodd was a wizard at contriving forms that obeyed the letter but circumvented the spirit of the law. As the Keith-Chester-Vilas travesty became known, Dodd studied new organizational structures that might allow Standard to expand business while maintaining centralized control. That the major directors lived in separate cities—mostly Cleveland, New York, Pittsburgh, Philadelphia, and Baltimore—was impeding finely meshed coordination. Dodd came up with a sudden brainstorm as to how to meld intrastate firms into an interstate giant. The first step was to set up a separate Standard Oil company in each state in which it had major interests. As a result, Standard Oil of New York was formed on August 1, 1882, with William Rockefeller as president; four days later, John became president of the new Standard Oil of New Jersey. This stratagem was designed to prevent each state from taxing Standard Oil property located outside the state. Dodd realized that separate companies required separate boards of directors and considered how to prevent a fragmentation of power. The answer, he explained, was that “you could have a common name, a common office, and a common management by means of a common executive committee. The stock could in effect be made common by placing the corporate stock in the hands of Trustees who shall issue certificates of interest in the Trust estate, which certificates will be entitled to their due proportions of the various stock dividends.”28 As Dodd noted, this elaborate stock swap would create a union not of corporations but of stockholders, ensuring that the companies could behave in concert without running afoul of the law.
Dodd and Flagler drafted the new Standard Oil trust agreement, which was dated January 2, 1882. The public knew nothing of this contrivance that spawned a $70 million enterprise and controlled 90 percent of American refineries and pipelines until it emerged, accidentally, in antitrust hearings six years later. The agreement created a board of nine New York–based trustees— the group that assembled daily for lunch at 26 Broadway. Today, we would term it a holding company, but at the time it seemed an imaginary entity, lacking any real legal existence. It couldn’t make deals, sign contracts, or keep books, though it wielded infinite power. It received the stock of Standard of Ohio and forty other companies—twenty-six of them partially, fourteen fully owned—with the power to name their officers and directors. Among the shareholders, the distribution of power and wealth remained lopsided, with Rockefeller holding more than one-third of the trust certificates, a block worth $19 million. The five members of the Cleveland wing—John and William Rockefeller, Flagler, Payne, and Harkness—retained a commanding majority of shares and formed a pool within the top echelon to buy and sell jointly interests in other companies.
For the first time, the trust’s formation created negotiable securities, and this profoundly affected the Standard Oil culture. Not only did Rockefeller urge underlings to take stock but made money abundantly available to do so. As such shareholding became widespread, it welded the organization more tightly together, creating an esprit de corps that helped in steamrolling over competitors and government investigators alike. With employees receiving huge capital gains and dividends, they converted Standard Oil into a holy crusade. Rockefeller hoped the trust would serve as a model for a new populist capitalism, marked by employee share ownership. “I would have every man a capitalist, every man, woman and child,” he said. “I would have everyone save his earnings, not squander it; own the industries, own the railroads, own the telegraph lines.”29
In many ways, Standard Oil’s metamorphosis previewed the trajectory of other major American business organizations in the late nineteenth century as they moved from freewheeling competition to loosely knit cartels to airtight trusts. The 1882 agreement introduced the concept of the trust as something synonymous with industrial monopoly. During the 1880s, industrywide pools sprouted in many industries in America, England, and Germany, but their leaders found it difficult to prevent cheating and secret price-cutting among members. Now, Standard Oil came up with a way to introduce centralized control, backed by enforcement powers and managerial direction. So many companies duplicated the pattern over the years that one can say, with pardonable exaggeration, that the 1882 trust agreement executed by Standard Oil led straight to the Sherman Antitrust Act eight years later.
Rockefeller was a unique hybrid in American business: both the instinctive, first-generation entrepreneur who founds a company and the analytic second-generation manager who extends and develops it. He wasn’t the sort of rugged, self-made mogul who quickly becomes irrelevant to his own organization. For that reason, his career anticipates the managerial capitalism of the twentieth century.
Since he never owned more than a third of his company, he needed the cooperation of other people. Having created an empire of unfathomable complexity, he was smart enough to see that he had to submerge his identity in the organization. Many people noted that Rockefeller seldom said “I,” except when telling a joke, preferring the first-person plural when discussing Standard Oil. “Don’t say that I ought to do this or that,” he preached to colleagues. “We ought to do it. Never forget that we are partners; whatever is done is for the general good of us all.” 30 He preferred outspoken colleagues to weak-kneed sycophants and welcomed differences of opinion so long as they weren’t personalized. In their private deliberations, the Standard executives, for all their swashbuckling reputation, tended to be cordial and formal. As Cleveland Amory said of them, “No group of American tycoons were ever more forbidding or high and mighty publicly or more gentle and shy and retiring privately.”31
By creating new industrial forms, Rockefeller left his stamp on an age that lauded inventors, not administrators. That he created one of the first multinational corporations, selling kerosene around the world and setting a business pattern for the next century, was arguably his greatest feat. As he said, “Our nation was in a state of transition from agriculture to wholesale manufacture and commerce, and we had to invent methods and machinery as we went along.”32 Whatever the debates about his ethics, economists and historians have unanimously extolled his role as a pioneer of the modern corporation. Despite the legal impediments, he was able to fuse together dozens of disparate firms into a seamless whole. What might have been a cumbersome apparatus developed into an efficient instrument in Rockefeller’s hands. Standard Oil led the way in industrial planning and large-volume production, exploiting economies of scale that m
ight otherwise have been hard to achieve at this stage in a purely competitive state. Under Rockefeller’s tutelage, the trust made notable strides in improving kerosene, developing by-products, and reducing the cost of packaging, transporting, and distributing petroleum products worldwide. As one biographer has remarked, “Rockefeller must be accepted as the greatest business administrator America has produced.” 33 An oil historian echoes this verdict: “Rockefeller was the single most important figure in shaping the oil industry. The same might arguably be said for his place in the history of America’s industrial development and the rise of the modern corporation. ”34
The secret to unifying the dozens of affiliated concerns proved to be the committee system patented by Standard Oil. The inner sanctum was the executive committee. Though they recommended actions to field supervisors, they held considerable power in reserve, for they had to approve all expenditures above $5,000 and salary increases above $50 a month, enabling them to retard the growth of any unit. Below the executive committee came a battery of specialized committees dedicated to transportation, pipelines, domestic trade, export trade, manufacturing, purchasing, and so on. These committees standardized the quality of subsidiaries engaged in similar work, enabling managers to swap insights and align their operations. As Rockefeller said of this innovation: “A company of men, for example, were specialists in manufacture. These were chosen experts, who had daily sessions and study of the problems, new as well as old, constantly arising. The benefit of their research, their study, was available for each of the different concerns whose shares were held by these trustees.” 35 Under the committee system, Standard Oil created a self-sufficient universe, overseeing plants that made acid, chemicals, staves, barrels, wicks, pumps, and even tank cars. It shut down more than thirty obsolete refineries, concentrating more than a quarter of world kerosene production in three monster plants in Cleveland, Bayonne, and Philadelphia.
The committee system was an ingenious adaptation, integrating the policy of constituent companies without stripping them of all autonomy. We must recall that Standard Oil remained a confederation and most of its subsidiaries were only partially owned. A top-down hierarchical structure might have hampered local owners whom Rockefeller had promised a measure of autonomy in running their plants. The committee system galvanized their energies while providing them with general guidance. The committees encouraged rivalry among local units by circulating performance figures and encouraging them to compete for records and prizes. The point is vitally important, for monopolies, spared the rod of competition, can easily lapse into sluggish giants. At Standard Oil, in contrast, as Rockefeller stated, “the stimulus to make the best showing, each concern for itself, led to active and aggressive work in competition.”36
For many years, Rockefeller had tried to free himself from details and applauded the committee system as relegating him to a fifth wheel. He never attended individual committee meetings but sometimes, in his odd way, dropped by when committee heads conferred. As one member said:
I have seen Mr. Rockefeller often at a meeting of the heads of the different departments of the Company, listening carefully to each one and not saying a word. Perhaps he would stretch out on a lounge and say: “I am a little tired, but go right on gentlemen, for I know you want to reach a decision.” He might close his eyes now and then; but he never missed a point. He would go away without saying a word but good-bye. But next day when he came down he had digested the whole proposition and worked out the answer—and he always worked out the right answer.37
Although Standard Oil encouraged cooperation and allowed strong executives to flourish, Rockefeller retained unrivaled influence. While colleagues embarked on shopping binges to buy palatial homes and European art, Rockefeller husbanded his money. He believed in Standard Oil and gladly purchased all available stock from other directors. “Oh, I was the dumping ground for them all in those days,” he once laughed, and his unequaled shareholding gave his opinions extra weight.38
Beyond the size of his stake, Rockefeller also possessed an unlikely charisma. He never backslapped, roughhoused, or skylarked with his colleagues, and his statesmanlike calm evoked feelings of awe. As one reporter said in 1905, “No man, however unimpressionable he may be, can stand in the presence of Mr. Rockefeller without feeling the repressed power of the man.” 39 He seemed to possess oracular powers. As Archbold conceded, “Rockefeller always sees a little further than the rest of us—and then he sees around the corner.”40 Another Standard executive, Edward T. Bedford, paid him this high tribute: “Mr. Rockefeller was really a superman. He not only envisaged a new system of business upon a grand scale but he also had the patience, the courage and the audacity to put it into effect in the face of almost insuperable difficulties, sticking to his purpose with a tenacity and confidence [that were] simply amazing.”41
He also had a tactful, easy manner with less exalted employees and never reacted angrily when presented with grievances. Once a year, each employee had the right to appear before the executive committee and argue for a higher salary, and Rockefeller always reacted pleasantly. As one employee recalled, “When H. H. Rogers would say gruffly that he had had enough and we had no right to ask for an increase of salary, Mr. Rockefeller would say, ‘Oh, give him a chance.’ ”42 But the mildness was deceiving, for while Rockefeller might sometimes be prepared to pay wages 10 or even 20 percent above the prevailing levels, he would never countenance unions or organized employee protest.
In the last analysis, Rockefeller prevailed at Standard Oil because he had mastered a method for solving problems that carried him far beyond his native endowment. He believed there was a time to think and then a time to act. He brooded over problems and quietly matured plans over extended periods. Once he had made up his mind, however, he was no longer troubled by doubts and pursued his vision with undeviating faith. Unfortunately, once in that state of mind, he was all but deaf to criticism. He was like a projectile that, once launched, could never be stopped, never recalled, never diverted.
Amid the murky temptations of Manhattan, the Rockefeller home was a tranquil island of missionary work, temperance meetings, and prayer vigils. Beset by fears of big-city vice and determined to avoid exposure to liquor, cards, tobacco, and dancing, the Rockefellers still socialized only with kindred spirits. The greater the controversy surrounding Standard Oil, the more decorous their home life.
The family belied John Wesley’s dictum that “wherever riches have increased, the essence of religion has decreased in the same proportion.” 43 The Rockefellers had also figured out how to solve the riddle that John Adams posed to Thomas Jefferson in 1819: “Will you tell me how to prevent riches from producing luxury? Will you tell me how to prevent luxury from producing effeminacy, intoxication, extravagance, Vice and folly?” 44 The fear that wealth would adulerate their values only pushed John and Cettie deeper into church activism and the temperance movement. In 1883, John sat on an advisory committee of the Women’s Christian Temperance Union, which was campaigning for an amendment to the Ohio constitution to outlaw the manufacture and sale of liquor. Though the initiative petered out, he later became a major benefactor of the Ohio Anti-Saloon League and grew steadily more militant in the cause. “I fear unless a great temperance reform sweeps over our whole land, the Republic itself may be imperilled,” he thundered.45 Among other pet causes of this period, he gave substantial sums to the revivalist Dwight L. Moody and urged Henry Flagler to follow suit.
Right before the Rockefellers left Cleveland, some friends asked Cettie why her children hadn’t been baptized, and she was haunted by the question. She began intensive prayer meetings with her children, which led three of the four—Alta (twelve), Edith (eleven), and John (nine)—to be baptized jointly on October 28, 1883, the last Sunday before their move to New York. Afterward, Cettie recorded her impressions: “It was a beautiful and impressive sight, after the morning service—there were plants and flowers around the baptistry, and a dove suspended over it.” 46 Sin
ce the Rockefellers returned to Cleveland each summer, John and Cettie retained their positions at the Euclid Avenue Baptist Church. Upon arriving in Manhattan, they joined the Fifth Avenue Baptist Church and imported the Reverend William H. P. Faunce from Springfield, Massachusetts, to head it. It never occurred to the Rockefellers to trade up to a more socially prestigious denomination. “Most Americans when they accumulate money climb the golden spires of the nearest Episcopal Church,” H. L. Mencken later observed. “But the Rockefellers cling to the primeval rain-god of the American hinterland and show no signs of being ashamed of him.” 47 They would not have felt comfortable with the splendor and formality of a high-church denomination.
After having been taught at home for many years, the Rockefeller children began to venture forth tentatively from their often-stifling family cocoon. Rockefeller said he educated his children at home because he had divided his time between Cleveland and New York for several years, but he also might have wanted to sequester them from forbidden contacts. Bessie, Alta, and Edith now attended the Rye Female Seminary in Westchester County, directed by a Mrs. Life, the former Susan La Monte, who had tutored Rockefeller in his early adolescence in Owego. Though the progeny of one of America’s richest men, the three young heiresses seemed to drift about in a state of perpetual longing. As one intimate companion recollected,
The allowances given to the children were small. Edith confided to me one day while we were shopping that it was the dearest wish of her heart to have some silk underwear, but that “Mother wouldn’t hear of it.” Alta yearned for a high hat to wear with her riding costume, and when after months of cajoling she finally got it, she had [a] picture taken. . . . Then the dream of her life became riding boots.48