by Vanda Krefft
When it came time to add up the figures for all of 1930, Clarke took further liberties with Fox Film’s books. Focusing now on after-tax profits, he reported $10.25 million for 1930, compared to $9.47 million for 1929. Fox was certain that Clarke had shifted income forward from 1929 and suspected—because his own regime had contributed $4.7 million in profits during 1930’s first quarter—that Clarke had made very little money, if any at all, during the other nine months. Federal income tax figures supported this fear. For 1930, Fox Film allocated only $248,254 for federal taxes, while in 1929, on supposedly lower income, the company had paid $1.266 million. (Clarke’s explanation, unconvincing to Fox, was that the company had been able to deduct large legal and financing expenses.)
Further undermining its credibility, the 1930 annual report contained sloppy errors and inconsistencies. A historical chart of the studio’s costs and income began with 1914, even though Fox Film wasn’t formed until February 1, 1915. Clarke boasted that a new budgetary system had been put in place, “with the hearty cooperation and support” of all concerned, to save more than $3 million a year, yet operating expenses increased by 27.7 percent during 1930. Clarke hemmed that the savings were too recent to show yet, but he didn’t explain why costs had gone up rather than just stayed the same.
At Fox Theatres, Clarke took even bolder action, crossing out the Fox regime’s stated profit of $2.66 million for 1929 and rewriting the figure in red ink as a loss of $3.25 million. Then, for 1930, he reported a loss for Fox Theatres of $2.48 million, a result that would have appeared highly alarming in comparison with the original 1929 figure but that now seemed like progress.
Clarke also failed to account for $10 million of a $12 million decline in Fox Theatres’ net worth. In October 1929, auditors certified that Fox Theatres had a net worth of $63.65 million. By October 1930, according to Clarke, that figure had declined to $51.378 million. However, Clarke admitted to an operating deficit during the year of only $2 million. Where did the other $10 million go? After careful study, Fox commented, “It perhaps can be located with a magnifying glass, but not with the naked eye.”
As later events would confirm, the Fox companies were sinking fast under Clarke’s leadership. Overall, the motion picture industry suffered no such catastrophe. During 1930, box-office receipts declined by only 15.4 percent, falling to $1.1 billion from 1929’s all-time high of $1.3 billion.
Publicly, the Chase Bank continued to support Clarke. Privately, bank officials canceled most of his power. By February 1931, Fox Film and Fox Theatres were being actively managed by Chase Securities vice president Murray W. Dodge in consultation with Chase Bank president Winthrop W. Aldrich and several other Chase executives. They didn’t know anything about the motion picture industry, and they knew they didn’t know, but no one could see a better alternative. Certainly Harry Stuart’s idea that John Otterson should become president of the Fox companies was unacceptable. Dodge trusted neither one of them and saw in their continuing alliance a familiar mutinous pattern. In a “Strictly Confidential” memo of February 7, 1931, to Chase chairman Albert Wiggin, Dodge wrote that Stuart was “evidently bent on getting control of the management of the company through John Otterson, and will use the same methods that the two of them used against Fox to obtain their ends.”
Little had changed. Just as the high-finance cronies had been willing to tear Fox apart for their own ends, so they were now willing to tear one another apart.
By the summer of 1931, Fox Film was in calamitous condition, and Clarke no longer had any means of disguising the facts. During the first six months of the year, Fox Film earned net profits of only $120,152, compared to nearly $6.8 million alleged for the same period in 1930.
Still, the Chase Bank did not officially remove Clarke as president of the Fox companies. He was the devil they knew, and so, rather than capitulate to Harry Stuart’s ultimatum demanding the installation of John Otterson, they showed Halsey, Stuart the door when the $55 million in Fox Film notes came due on April 15, 1931. Through a patchwork quilt of financing stratagems, Chase Securities raised all the money to pay off the note obligations. Now solely responsible for the Fox companies’ finances, Chase officials forced Clarke to enter a voting trust agreement with Chase chairman Wiggin and Frank O. Watts, the chairman of the board of the First National Bank of St. Louis.
The top priority was to save GTE because of Chase’s heavy investment in its stocks and bonds. In June 1931, Clarke announced that Fox Film would pay a second-quarter dividend of 62.5 cents rather than the $1 quarterly dividend the company had always paid before. Rightly, given its blighted finances, Fox Film had no business paying any dividend at all. It was highly irregular for a corporation to pay dividends when it had such negligible earnings and massive current debt. Yet, as Fox Film’s largest shareholder, GTE desperately needed money. It had survived the first half of 1931 only by receiving nearly $2.2 million in Fox Film dividends. Otherwise, after paying its bills, GTE would have lost more than $1.3 million. More bills were coming due in the second half of the year.
Meanwhile, aboard the sinking ship of Fox Theatres, the rats were running away with everything they could pry loose. Despite the company’s admitted $2.48 million loss in 1930 and the unexplained disappearance of $10 million in asset value, spending continued at a breakneck pace. Executive vice president Oldknow told theater managers, “Penny wise and pound foolish methods of economizing are apt to turn a theater into a funeral parlor.” Among the ranks, no one was fooled. Discontent reached such a high pitch that in May 1931, The Last Word, Fox Theatres’ publication for theater managers, carried an article demanding, “No More Politics!” and instructing every employee “right down to the porters!” to stop plotting and spreading “malicious” rumors about top management. The article warned, “Let’s hope that action isn’t necessary. There are enough unfortunates selling apples. Their ranks don’t need to be increased.” According to Oldknow, it was the ticket takers’ and ushers’ and janitors’ responsibility to drum up business. He therefore implemented a “personal contact” program at the West Coast Circuit whereby every theater employee was assigned to recruit twenty people in the local area as regular customers.
Observing such lunacy, and convinced that the current management consisted only of “wholly inexperienced, incompetent people in charge of performing duties that they never understood and never could understand,” Fox gave up on Clarke. “I decided to go beyond him. Who are the people who are supplying the money to Harley Clarke? Who are the people whose money is being lost daily by ignorant, idiotic management? I will advise them. They ought to know it.” He wrote to both Chase Bank chairman Wiggin and Chase Bank president Winthrop Aldrich and attached copies of all his letters to Clarke. “Of no avail. Wholly disregarded.”
At the Fox Film annual stockholders meeting on June 10, 1931, the Chase Bank, through its control of Fox Film stock, fired Fox from the board of directors.
A short time later, Fox was fired from the advisory board, too. He found out only when payments stopped on his $500,000 annual salary. The official reason was that he wasn’t doing any work and wasn’t fulfilling his role as advisory board chairman.
Right away the “William Fox Presents” credit that previously had opened every Fox Film movie shrank to a “whisper-like” type size that, according to Motion Picture Daily, “only a very good optic could decipher.” On July 8, 1931, the studio announced that it was dropping the line of text entirely. Advertising and publicity director Glendon Allvine was ordered to eliminate Fox’s name from all copy.
Harley Clarke didn’t last much longer. In August 1931, Chase Bank president Winthrop Aldrich decided that GTE was a lost cause and would have to enter receivership. It was no longer possible to believe in Clarke’s continuing promises about an impending miraculous recovery for Fox Film. The studio was exhausted, directionless, and nearly broke. Aldrich knew there wasn’t going to be any money to pay a third-quarter dividend, and indeed, for the first time in Fox F
ilm’s history, there wasn’t. The absence of that income from its 1.2 million Fox Film shares meant that GTE could not meet its interest obligations on its $30 million in bonds, most of which had ended up at the Chase Bank because the public didn’t want them.
On November 17, 1931, after only nineteen months of his tenure, the Chase Bank fired Harley Clarke as president of Fox Film and Fox Theatres and kicked him upstairs to become chairman of the board of directors.
Fox commented, “I left them the goose that laid the golden eggs. It couldn’t lay eggs fast enough for Harley Clarke. No goose could. Poor goose.”
Clarke’s replacement was another motion picture industry know-nothing, fifty-three-year-old Edward R. Tinker, the president of the Interstate Equities, an investment trust that had participated in the Fox companies’ refinancing. A career banker who served on the boards of about thirty-five corporations, Tinker hadn’t wanted the job. He’d been pushed into it as a compromise candidate, the only one acceptable to all parties with a voice in the matter.
At first Fox was hopeful. Tinker had a reputation for precision and, during two long conferences with Fox, he seemed “very friendly.” Fox offered to come back, not as a company officer or director—those days were gone—but as an outside consultant. If he succeeded in saving Fox Film and Fox Theatres, and thereby the Chase Bank’s $103 million, he wanted $25 million. “And if I didn’t, I wanted nothing.” It wasn’t too late, Fox urged. “I frankly told Tinker I knew I was the only doctor in America that could cure the ills of those companies.”
Fox made the proposal over his wife’s impassioned objections. Eva had seen the anguish he had endured over the past two years, had seen his physical, emotional, and psychological deterioration. The Fox stockholders were no longer the widows and shopgirls and file clerks and bricklayers of years past, she told him. Those people had all been wiped out. The stockholders were now the bankers who had taken—stolen—his companies and driven them into the ground. He ought not to lift a finger to help the Chase Bank and its “gang of raiders.”
Maybe so, but Fox could not desert his companies. He told Tinker, “I would like to do this job, complete it successfully, and then write the closing chapter of my story.”
Tinker turned Fox down and soon plunged Fox Film into even greater disaster. It seemed to Tinker a perfectly sensible idea to apply to the film business the same principles that governed industries such as railroads and banks. Accordingly, one of his first actions was to send a hatchet man to Los Angeles to review all employee contracts and cut overhead. As the studio’s new business manager, Donald E. McIntyre—again someone with no experience in motion pictures; he was a former Insull engineer—targeted seven high-level employment contracts that had never been approved by Fox Film’s finance committee. Chief among them were the contracts of Winnie Sheehan and Sol Wurtzel. Sheehan was especially vulnerable. Although he had taken a 25 percent pay cut in mid-1931 that reportedly brought him down to $4,500 a week, he was still Fox Film’s highest-paid executive. Rumors swirled that he would be replaced as head of production by Richard A. Rowland, a recently hired Fox Film vice president whose salary was less than half of Sheehan’s.
These developments so rattled Sheehan that he either had a nervous breakdown or convincingly simulated one. In December 1931, around the time McIntyre arrived in Los Angeles, Sheehan left his Beverly Hills mansion and went first to “rest” somewhere in the Pasadena area and then to a hotel in San Francisco. Previously no one had noticed any illness in him, except for a bad cold from which he appeared to have recovered. Although he was supposed to return to work in early January 1932, he instead took three months’ leave at half pay. According to one reporter, “Sheehan sits punchdrunk in a San Francisco hotel suite, with a Catholic priest as his counselor and companion.”
Sol Wurtzel remained at his desk, but by late December 1931 he had been stripped of almost all his production responsibilities. In early 1932, Tinker summoned Wurtzel to New York and, according to Fox, bought out the remainder of his contract for $175,000. To replace Sheehan and Wurtzel, Tinker appointed Al Rockett, a former Universal and First National producer who had been working at Fox Film as an associate producer. Toward further corporate efficiency, Tinker decreed that henceforth the studio was going to make movies by committee. Three interlocking groups, comprised of heads of various studio departments, would meet weekly to discuss stories, actors, and ideas. Then a “management board” would rule on their recommendations.
Of course, the plan failed. As Sam Goldwyn observed, “A board of directors cannot make motion pictures because a board of directors is like any other board—long, thick, and wooden.”
On February 29, 1932, General Theatres Equipment Inc., which owned the controlling shares of Fox Film and Fox Theatres, went into receivership. With $22.3 million in notes coming due on March 15 and facing an April 1 interest payment on its $30 million debenture issue, GTE couldn’t pay. It had only $2,574 in cash.
When Fox Film’s 1931 annual report appeared in March 1932, the numbers were heart-stopping. The year hadn’t been good for anyone, with U.S. box-office receipts dropping to about $900 million from $1.1 billion in 1930, but the whole industry was stupefied by Fox Film’s bloodbath of red ink. The studio had lost $4.3 million, compared to the alleged $10.25 million earned in 1930. (The 1931 balance sheet would later be revised to show a $5.56 million loss.) Film rental fees from exhibitors had fallen by $3.8 million, despite Clarke’s repeated assurances that the studio had record-high bookings. The company’s surplus account declined from $9.61 million at the beginning of the year to only $1.95 million. The studio was nearly ruined. Fox Theatres was, effectively, already ruined. The annual report showed that Fox Film had written its investment in Fox Theatres down to $1, indicating that the Chase Bank was about to let Fox Theatres go into receivership.
Fox was dumbfounded. “It gives you the chills, doesn’t it? I shudder when I read these figures. What have these men done with these enterprises?”
Unbelievably, the situation got worse. For the thirteen weeks ending March 26, 1932, Fox Film showed a net loss of $1.9 million. During the same period of the previous year, the company earned a profit of $975,000.
Altogether, in less than two years, the $103 million that the bankers had thrown into the Fox companies was gone, with nothing to show for it. This had been Wall Street’s idea of a good investment, preferable to providing $60–$70 million worth of financing for Fox himself.
“I don’t understand it. I don’t understand what these people have done,” Fox said. “If the Chase Bank had gone to a wrecking company and said, ‘How much will you charge and how long do you think it will take to wreck and ruin these institutions?’ their price would have been by far more moderate . . . but the time would have taken much longer. No wrecking company would have deliberately wrecked these companies in the period of time that these bankers wrecked these companies.”
CHAPTER 48
Upton Sinclair Presents William Fox
All is lost save memory . . . I can only cry out that I have lost my splendid mirage. Come back, come back, O glittering and white!
—F. SCOTT FITZGERALD, “MY LOST CITY,” 1932
With empty hours on his hands, Fox worked on his investments, played golf, and spent time with his family. It was an awkward adjustment. Fortune magazine commented, “When you see him playing golf, about his only social habit, you get an impression that he is very lonely and sad. And then you feel rather sorry for him.”
He tried to stay useful through charitable activity. One Sunday afternoon in late January 1931, walking along Central Avenue near Fox Hall in Woodmere, Long Island, Fox happened in on a storefront meeting of about one hundred people. When Rev. Allen Evans, rector of the Trinity Church in nearby Hewlett, told the group that his soup kitchen was about to close for want of money, Fox was the first to speak up—promising to send a check the next morning for $25,000, twice as much as Evans had hoped to raise from the whole gathering and enough t
o feed six hundred people for the next ten weeks. Fox then pledged another $3,000 to cover administrative expenses of the Community Chest fund-raising drive the following March. Evans was stunned. He called Fox’s gift “one of the most storming events of my life and everyone present was deeply affected by his great generosity.” During the campaign, Fox sent another large sum. He and Eva also gave a large custom-made organ to Temple Israel in the town of Lawrence, and in June 1931 he volunteered as an honorary local chairman of a Boy Scouts fund-raising campaign.
It wasn’t enough to distract him from haunting questions. “I have had two years to try to analyze this thing and if I was wrong, I want to recognize it,” he said in mid-1932. “[W]hat is the thing that made Fox incompetent, why was this great, gorgeous tree chopped down just when it was blooming its most beautiful flowers, where did it come from?”
To ease his mind, Eva suggested he write a book about the experience, with Upton Sinclair. The idea wasn’t so far-fetched. The staunchly left-wing, puritanical teetotaler Sinclair was nevertheless “a very likeable man” with a good sense of humor, according to screenwriter Salka Viertel. Sinclair was also a longtime close friend of Fox’s firebrand lawyer Samuel Untermyer, and his 1908 novel The Moneychangers had dealt with Fox’s current obsessive theme, Wall Street corruption. For his part, Fox had never completely left behind his teenage enthusiasm for socialism. He had, he believed, tried to be a compassionate capitalist and to improve others’ lives through his leadership.
Contacted first by one of Eva’s brothers and then by Fox’s secretary, Sinclair was doubtful. Nonetheless, in March 1932 he invited Fox to his modest house at 1513 Sunset Avenue in Pasadena to discuss the idea. Fox was then in Santa Barbara with his family for an extended stay at Cottage Hospital’s Sansum Clinic, which, in addition to doing business as a celebrity fat farm for clients such as Mae West, specialized in treating diabetes, a condition that had troubled Fox in recent years. Santa Barbara was a manageable distance from Pasadena. One morning, a chauffeur-driven limousine delivered Fox and his family lawyer, Benjamin Reass, to Sinclair’s doorstep.