by Edwin Black
January 14, 1941, New York Times, “Netherland Jews Must Register.” All Jews must register within six weeks, under a decree issued today by the German Commissioner for the Netherlands.6
January 25, 1941, New York Times, “300 Jews Reported Slain.” Some of the more extreme elements of the insurgent Iron Guard in Bucharest implemented the threat to oust the Jews… by killing an estimated 300 Jews [that] they had herded into cellars and then turned machine guns on.7
January 26, 1941, New York Times, “Misery and Death in French Camps.” In some of the camps,… an “unbreathable atmosphere of human hopelessness” was reported, with “an intense desire to die” attributed to most of the older refugees…. [A Gurs camp source reported] “They will not fight any more; apathetic, they lie on their straw mattresses, often refusing food and waiting for the end.”8
Despite all the atrocity stories being broadcast, Watson was waging his own struggle. His was an undying determination to retain IBM’s favored dominance in the Third Reich’s commercial-industrial complex. The struggle was not going well.
In the first week of January 1941, German Finance Ministry officials ruled that IBM’s settlement with Heidinger, worth almost $900,000, could not be transacted using the company’s blocked Reichsmarks. In frustration, Chauncey sent word to New York that he would “have to begin all over again.” One of the main government objections was the continuing existence of IBM’s so-called royalty program, which was considered a sham to extract profits from Germany in the form of fake expenses. Why else, critics complained, did IBM’s own subsidiary pay the parent company royalties?9
At the same time, Party circles continued to demand IBM shed its majority ownership. IBM executives began to wonder if they might sell some shares to the Hitler government itself, going into a direct partnership with the Reich, “provided, simultaneously, official formal recognition by the government… [of] the validity and binding nature of the royalty agreement.” On January 24, 1941, a Nazi official at the Deutsche Bank met with Chauncey and repeated the assertion that if IBM ceded the majority, “we will take care of any new competition.” New York did not mind making a token transfer to some German nationals, but Watson still hoped he would not be forced to reduce IBM’s ownership to a minority.10
By the very end of January, a tired Chauncey was hoping to return to Manhattan to make his confidential report in the security of IBM headquarters. Once he obtained the board’s decision, he would fly back to Berlin and again confer with Veesenmayer as promised. By now, Chauncey had learned when speaking over the phone to refer to Veesenmayer obliquely as “that official” or “an official.” Chauncey went to Geneva and phoned New York for his next instructions. The conversation, as usual, was conducted in code and studded with cryptic allusions.11
JANUARY 31, 1941, 4:45 P.M.
Chauncey at IBM Geneva
John G. Phillips and Charles R. Ogsbury at IBM NY
PHILLIPS: Hello, Harry, this is Phillips….
CHAUNCEY: Yes. There are two courses open to me at the moment. I shall send you a report of the big question [retaining the majority], which I cannot even here send to you completely in all respects, over the telephone or written…. Or I could come back to the United States and give you a written report…. [But] then I [must] return to Germany at the request of “an official.”
PHILLIPS: You cannot define that any more?
CHAUNCEY: No, but you can understand. Because of the time that may be involved, I promised “that official” that I would go back to America with some degree of haste and return as soon as possible.
PHILLIPS: Does it need you, Harry, to complete it?
CHAUNCEY: He asked me to do that, notwithstanding the fact that I had left with our lawyer a power [of attorney] to complete whatever we may decide to do, because that man—our man [attorney Albert]—will have to go into discussions…. I am [now] going to read to you from a part of a letter from “our best friend,” which has been mailed to Mr. Watson. Quote: “The introduction of influential industrial interests as new shareholders would inure to the benefit of both IBM and Dehomag. Dissatisfaction has evidently found expression in criticism of the price, and other policies—and in the demands for the creation of competition, if necessary, by Governmental initiative or at least with official support.” End quote.12
Turning to the threat of a Reich cartel effort that might merge French Bull and Dehomag, Chauncey suggested he try to stem the plan at once.
CHAUNCEY: The transfer of the interest recently acquired in the French German Company [the planned German cartel] was offered for the majority holding in Dehomag… which, of course, would not be to our advantage. You see that? I am going to attempt to get in touch with our French people.
PHILLIPS: I have a question here on that. You are going to attempt to get in touch with our French People. Now Mr. Ogsbury has made some notes here with Mr. Schotte as to [three] things you might want to think about: The Bull suit. The general Bull situation. And any conversations between [IBM French subsidiary director Roger] Virgile and Germany in connection with a merger and buying.
OGSBURY: Harry, what will you do? Will you try to see Virgile in Paris or have him go over there?CHAUNCEY: I know he will have to come into unoccupied parts [Vichy France]. They [Nazi authorities] would not let us go to Paris.
OGSBURY: There has apparently been some negotiations between Virgile and Dehomag with respect to the manufacture of parts and certain machines. I think you will find all that correspondence with Taylor. I think you ought to get acquainted with it and see who is sponsoring that. It looks as though the French Company [IBM’s subsidiary in Paris] is sponsoring it, and it certainly is being done without the consent over here. See what I mean? That ought to be looked into…. None of these things do we concur in…. How long will you be there?
CHAUNCEY: I am perfectly willing to stay here. While I want to be in New York, I am perfectly willing to stay here. The thing is that you cannot understand what it is [like] here [in Europe].
OGSBURY: The thing is that if you should return [to New York], these other matters can all wait. You see what I mean? These things that I am talking to you about are only in the event that they are the practical thing for you to do, in view of how long you have to remain there.
CHAUNCEY: I will have to be here [in Geneva] two or three weeks before I can get through to Lisbon and get visas, etc…. I am going to write you a report as soon as I can…. I have sent word to Virgile. It may be necessary for us to go to Italy. I think I should make that connection down there. I think I better find out what it is all about.
OGSBURY: That will be all right, if it isn’t going to interfere with the other things you ought to do.
PHILLIPS: Harry, the thing that worries me this afternoon is this. Both Mr.Watson and Mr. Nichol are home with colds…. One or the other or both will probably be back on Monday, and we cannot do anything over the weekend anyway. And we will cable you and talk with you again on Monday. How is that?…
CHAUNCEY: I am going over with Taylor everything that is open.
PHILLIPS: Harry, can you answer this question? Do you consider that you should return and then go back?CHAUNCEY: I have given my promise that I shall return to “this official.”13
* * *
DURING IBM’S day-to-day struggle to stay in the Axis during wartime, the firm relied on the cooperation of the State Department to act as postman. Every message relayed through an American Embassy or Legation was not just blindly passed on. Multiple copies were made for senior staff in Washington. Periodically, Watson sent letters of gratitude for the on-going help. For example, on January 8, 1941, Watson mailed Paul T. Culbertson, European Affairs division assistant chief: “I wish to thank you for the courtesy you extended our company in connection with the transfer of a letter to me from Mr. Harrison K. Chauncey, representative of our company, who is temporarily in Berlin. The promptness in which this matter was handled has been a real help to us and all of the officers of our company join
me in expressing our appreciation to you.”14
The Department’s desire to secretly advance the commercial causes of IBM persevered in spite of the nation’s officially stated opposition to the Hitler menace. For this reason, it was vital to Watson that nothing be done to embarrass or even annoy the Department publicly. This caution was only heightened by an on-going FBI investigation into IBM’s operation as a potential hotbed of Nazi sympathizers. Avoiding embarrassing moments was difficult given the far-flung global empire of IBMers so deeply involved with Fascist and Axis countries, and accustomed to speaking supportively of their clients’ military endeavors.
Walter G. Ross, affectionately known as “Capt. Ross,” was one of IBM’s most adventurous and freewheeling European agents stationed on the Continent, triumphantly concluding important deals for the company. He was once described by IBM as “one of the colorful ones,” whose “zeal and dedication… [and] exploits” would be recounted for decades. Capt. Ross was primarily assigned to Fascist Spain, where he concentrated on the Spanish Railways. In 1940, the popular Ross was ready to retire. He would leave behind a newly organized IBM subsidiary in Spain and would continue on as a special advisor. When he came back to the United States in August 1940, the flamboyant salesman made some comments to a local newspaper, the Brooklyn Eagle.15 Those comments caused a furor.
In his candid remarks, Ross predicted that England would be forced into an armistice within two weeks, thereby abandoning Europe. Moreover, he openly revealed his approval of and cooperation with the Hitler regime. “He [Ross]… has first-hand knowledge, having lived in the same building as the German Minister… On reaching these shores, the Captain was ‘simply terrified and appalled’ by the ultra-frank outbursts of American officials against Hitler and Mussolini, which, he opines, were in the manner of ‘spindly boys tweaking the neighborhood bullies’ noses.’… ‘I am an American,’ he sums up, ‘but I say that before you start calling names be sure you’re prepared: This country thinks it’s going to spend a lot of money and make soldiers overnight. You can’t do it. Germany worked at it for five years’… The Germans, he contends, had better trained soldiers, superior equipment and streamlined generals.” Ross also declared he had conceived a plan in which Watson could use his channels to funnel money to destitute civilians in Europe.16
The seemingly inconsequential article did not escape the attention of those in Washington on the lookout for Nazi sympathizers. Assistant Secretary of State Adolf Berle sent a clipping to J. Edgar Hoover at the FBI declaring, “the remarks… follow the same pattern used in all German propaganda.” Copies of the article made the rounds at the State Department and IBM. Quickly, Watson learned of the embarrassment. In an example of how Watson, if so moved, could act with swift corporate wrath to protect the company’s interest, Watson immediately turned on Ross. In an instant, Ross’ decades of colorful accomplishments for IBM were forgotten. He was summarily cut off.17
On September 6, 1940, Watson wrote Ross a humiliating termination letter. “I have before me a clipping from the Brooklyn Eagle of August 28, 1940, in which you pretend to speak as a representative of our Company,” Watson began. “You were our agent working on a commission basis in Spain for several years, until we arranged with you in Paris, in August 1939, for your retirement….
“You used my name in connection with a plan which you state you have of sending monetary aid to refugees and destitute civilians in France, in which you say I am willing to cooperate. I have never discussed any such matter with you, and I am not interested in any plan you have in mind. I am already extending my cooperation through other channels approved by our Government.
“You have no right to involve our Company, my name, or any of the Company representatives in any statements. Furthermore, you made statements in regard to the countries at war, and criticized our country’s policies, for which you must accept sole responsibilities as an individual. I demand that you inform the Brooklyn Eagle that the statement attributed to you was an expression of your own opinion and not made as a representative of International Business Machines Corporation, any of its officers or members of the organization; and that your statement was made without the knowledge or consent of anyone connected with our Company….
“This matter is so serious from the standpoint of our Company that it is necessary to advise you that effective immediately we must sever all relations between us. We had discussed the possibility of making use of you in some other capacity in our business, but the statement you made in the article referred to makes it impossible for us to do so. I am attaching to this letter the regular cancellation notice of your contract.”18
On September 6, 1940, Ross indeed wrote the editor of the Brooklyn Eagle a stultifying retraction that sounded as though it had been typed in Watson’s office. The typewriter seemed to be the same as the one used for Watson’s letter, and the typist’s identifying initials, “LH,” were at the bottom of both letters. Moreover, Ross’ retraction used the nearly identical first sentence as Watson’s letter of the same day. “I have before me a clipping from the Brooklyn Daily Eagle of August 28, 1940,” Ross’ retraction stated, “which purports to be an interview with one of your reporters at your office. I wish to correct an erroneous impression which this article has given to the public. In the first place, I am not a representative of the International Business Machines Corporation… and was only acting in an advisory capacity in Spain. For this reason, the name of the International Business Machines Corporation, and that of Mr. Watson, should not have appeared in your article. What I said to your reporter was my own personal opinion, and I did not speak on behalf of the International Business Machines Corporation, or any of its officers. I wish you would do me the favor of publishing this letter in your paper at your earliest convenience.”19
That same September 6, Watson personally dispatched copies of Ross’ termination and his retraction to a number of senior State Department officials, including Secretary of State Cordell Hull.20 When the dust had settled on the brief but turbulent Ross episode, Watson had proved once again that when he wanted to control the people in his organization, he could be mercilessly blunt and ruthless.
In other instances, some IBMers pushed the State Department’s diplomatic pouch to the limits of propriety. It was one thing to help an American company protect its investment in Germany, but using diplomatic channels to deepen IBM’s Nazi relationships in occupied countries sometimes made the Department recoil. On October 2, 1940, IBM’s man in occupied Denmark, Max Bodenhoff, sent Watson a letter through the American Legation suggesting the company hire a personal friend of German Foreign Minister von Ribbentrop as a special business agent to further the subsidiary’s work with the Nazis there. America’s interim charge in Copenhagen, Mahlon F. Perkins, was dubious about transmitting such a letter through official channels.21
“Max Bodenhoff… represents Mr. Watson’s organization in Copenhagen,” wrote the rankled charge in a complaint sent in triplicate to Washington. “This letter is not transmitted in the manner prescribed by Diplomatic Serials 3267 and 3268 of August 9, 1940, since it is considered that the Department should decide upon the propriety of transmitting it. It will be noted that Mr. Bodenhoff suggests to Mr. Watson the employment of Dr. Orla Arntzen, who is a close friend of the German Foreign Minister, to act as a special representative of the International Business Machines Corporation. This procedure would appear to involve questions of policy and ethics which the Department may desire to consider.”22
Perkins’ objection was reviewed by no fewer than eight officials. All concurred that his judgment should be vindicated by sending Bodenhoff’s letter back to Copenhagen with the declaration: “The Department does not believe it would be advisable to transmit the letter mentioned and it is accordingly returned to the Legation.”23
At one point, a State Department officer notified IBM NY: “The Department understands that commercial telegraphic facilities are available between the United States and Germany. Should you
experience difficulty in communicating… the Department will be pleased to consider the transmission… through official channels at your expense provided you supply the full names of the persons or firms abroad whose interests are affected thereby, and inform the Department as to the nature of those interests, and whether such persons or firms have American nationality. I believe you will readily appreciate that the Department, especially in these extraordinary times, must reserve its facilities for the service of legitimate American interests.”24
Despite the occasional realization that the State Department was becoming an all too indispensable player in the proliferation and protection of IBM’s lucrative relations with the Nazis in Europe, its role would soon exceed the realm of postman. Soon, diplomats in Berlin would become IBM’s special operatives in saving the company’s niche in the Nazi Axis.
* * *
CHAUNCEY RETURNED to Berlin to renew his excruciating negotiations with Heidinger. Ironically, as the United States edged closer to entering the war, Heidinger believed his options were becoming more limited. In the strange praxis of German law, once Dehomag became enemy property, the subsidiary would be seized by a receiver and all ownership frozen. In such a case, Heidinger’s hope to cash out would also be frozen. If competition supplanted IBM, his stock holdings could soon become worthless.
By early March 1941, Heidinger agreed to a new settlement—RM 2.2 mil lion in exchange for giving up his preferential stockholder status. He would still own his shares, and those shares could still be sold only to IBM upon his departure from the company—but the price would be the book value.25
Reich economic bureaucrats approved because the transaction wasn’t as much a sale as a reduction in status—and Heidinger was handsomely compensated for his various overdue bonuses.26
But Veesenmayer was still insistent that IBM relinquish its majority or face a newly created cartel. And now the cartel had a name: Wanderer-Werke. The old-line German motorcycle and toolmaker, Wanderer-Werke, was being primed by the Reich to host a merger of French Bull and Powers interests, allowing a new punch card enterprise to be forged. The Powers companies were now controlled by Hermann Goering Works under an overlapping board of directors. By now, Germany had realized that neither of the marginal firms, Bull or Powers, possessed the necessary production capacity. A completely new German-owned factory would be needed. Bull schematics and blueprints had already been brought to Berlin to launch a new machine series in case IBM would not yield. Germany could not afford an immediate separation from the IBM empire. But if Watson would not comply voluntarily, a steady combination of tactics from preferential business contracts for Wanderer-Werke to mandatory price reductions at Dehomag would compel an eventual sell-out. This approach is what Veesenmayer considered “no pressure.”27