RESTRUCTURING FAMILY HOLDINGS
High personal and corporate income tax rates forced my brothers and me to find sensible ways to restructure our major holdings in order to generate more income and increase their capital value. Rockefeller Center was our largest single asset, so our primary objective was to eliminate its divided ownership whereby Columbia owned the land and my brothers and I the buildings. A few months after our purchase of the common stock we asked William Zeckendorf, the principal in the Webb & Knapp real estate firm, to examine our options. Bill suggested that we create a new corporation to purchase both the land and the buildings, which would amortize the debt over a period of twenty-five years. When we approached Columbia with this proposal they turned it down cold.
Bill then suggested restructuring the Center’s finances to take advantage of the favorable tax treatment of real estate income. His point was that real estate corporations—companies that earned more than 50 percent of their income from rent and related sources—paid taxes at the 7 percent level, whereas all other corporations were subject to a 50 percent tax on their net earnings. The Center’s earnings had grown steadily since we had bought it, almost doubling to $1.9 million in 1952. Bill emphasized that we could almost match that amount with income from securities and still qualify for the lowest corporate tax rate.
But there was a major problem. The Columbia lease did much more than establish the annual ground rent; it literally governed all aspects of the Center’s financial structure and prohibited us from making logical and sensible changes in the corporation’s financial structure. For instance, we had to maintain $14 million in U.S. government bonds in an escrow account at all times to guarantee payment of the rent, and the Center’s working capital fund had to be kept at a level of $30 million, of which no more than 25 percent could be invested in stocks. This meant that more than 90 percent of the Center’s investment portfolio had to be invested in low-yield government bonds, returning less than 2 percent interest a year.
If the Center was ever to generate the higher returns it needed to finance capital improvements and pay down debt, we had to persuade Columbia to modify these anachronistic and punitive provisions in the lease.
Columbia’s lawyers and accountants saw our point—that an expanding and more profitable Rockefeller Center would be as valuable to the university as it was to our family. They agreed to remove the restrictions on both the escrow account and the working capital fund, but only in return for a substantial increase in rent. We began the new investment program in early 1953, just before a period of enormous appreciation in stock values. Our strategy and timing proved to be excellent.
Hills Realty posed an entirely different challenge. The company’s only income came from securities we had added to its portfolio to cover the cost of maintaining the Pocantico estate. We could only benefit from the 7 percent corporate tax rate if we added income-producing real estate assets. In order to achieve this result, we borrowed money through Hills to acquire an interest in the Carlyle Hotel in Manhattan, which we later swapped for a much larger stake in the Moorestown Shopping Center and an industrial park in Edison, New Jersey. Eventually we also added the ground lease for the Parke-Bernet auction gallery on the Upper East Side. The income from these properties generated significant revenue, which was offset against the returns from Hills’s stock market securities. This ingenious use of the tax code allowed us to mitigate the high levels of personal and corporate taxes we paid on other sources of income during this period.
A TRADITION OF PHILANTHROPY
The Rockefeller philanthropic tradition was simple and unadorned. It required that we be generous with our financial resources and involve ourselves actively in the affairs of our community and the nation. This was the doctrine of stewardship that Father himself had learned as a young man and had carefully taught us. We had been greatly blessed as a family, and it was our obligation to give something back to our society.
Although Father hoped each of us would become involved with one or more of the organizations with close family connections, we were also free to pursue our own interests. I was drawn to the work of educational and cultural institutions, especially the University of Chicago, the Rockefeller Institute for Medical Research, and the Museum of Modern Art. My travels during the 1930s and my experience during the war had sharpened my awareness of international affairs, which I would develop through active involvement with the Council on Foreign Relations, the Carnegie Endowment for International Peace, and International House of New York. Finally, working with Mayor La Guardia had kindled a deep interest in the complexity of urban life that would now be expressed through service on the Westchester County Planning Commission and a lead role in creating Morningside Heights, Inc., one of the first private efforts in the United States to deal with the problem of urban decline and renewal.
REINVENTING THE ROCKEFELLER UNIVERSITY
My first exposure to the management of an educational institution came on the board of the Rockefeller Institute for Medical Research. Father had been the driving force in the creation and expansion of the institute that Grandfather had created in 1901, and in the late 1940s he still served as the president of its seven-member board of trustees. Father took great pride in the pioneering work of the institute’s scientists in the fields of biology, pathology, and physiology and in the practical impact their research had on the treatment of infectious diseases such as yellow fever, syphilis, and pneumonia.
Father supported the institute’s fundamental mission, the pursuit of scientific knowledge, even more strongly. He understood that basic research in the biological sciences had to come first and that direct applications would follow inevitably. The seminal work of Peyton Rous in uncovering the viral origins of cancer; the efforts of Albert Claude, Keith Porter, and George Palade in mapping cell structure and function; and the discovery by Oswald Avery, Colin MacLeod, and Maclyn McCarty that DNA carries genetic information were the real measure of the Rockefeller Institute. These advances had transformed the nature of scientific inquiry and medical practice, and fulfilled the mission that Grandfather and Father had in mind when they established it in 1901.
Despite its rich history, the institute stood at a crossroads in the late 1940s. There were tough questions about its leadership, scientific mission, and funding. Father planned to retire in 1950, and the director, Dr. Herbert Gasser, a Nobel Prize–winning neurobiologist, would follow him a few years later. Father assumed that my brother John, who had long served as a trustee, would succeed him in the top board leadership position. But in early 1946, John decided to resign from the board to concentrate on the Williamsburg Restoration and the Rockefeller Foundation. It then became clear that I would have to carry on the tradition of family responsibility for this vital research organization.
When I succeeded Father in 1950, the first thing we needed to do was determine how and, even more basically, whether the institute should survive. There were a few on the board who actually favored closing down the institute since its original mission had been largely achieved. For me that was not an option. But we needed to determine what specific role the institute should play within the field of biomedicine.
Funding was also an important issue. Grandfather had endowed the institute, and Father had added money and land for expansion. The portfolio had been well managed and appreciated over the years to about $100 million in 1950. In order to preserve its complete independence, however, the institute had never accepted funds from government or even other private sources because Father thought this would lessen the independence of the researchers in carrying on the work they thought important. As a result, by the mid-1930s, expenses had overtaken income, forcing staff reductions and negatively affecting the scope of research. Without a policy change permitting us to seek new sources of revenue, the institute risked becoming a distinctly second-rank organization.
We needed a comprehensive evaluation of the institute, and at my instigation the trustees asked Dr. Detlev Bronk, presi
dent of Johns Hopkins University and the chairman of the National Academy of Sciences, who was also a member of the institute’s board of scientific directors, to chair a committee to provide it. Bronk, a physiologist and biophysicist with a sterling reputation, believed in the critical role of independent scientific inquiry and admired the institute’s pioneering work. But he and the other members of the committee, including me, agreed that changes were needed if the institute was to survive in a more competitive and challenging environment.
The Bronk committee spent a year reviewing the institute’s scientific work and its financial and physical resources. We consulted with scores of leading scientists and educators from around the world. Our review concluded that the time for a completely freestanding research institute had passed and that we needed to supplement our basic research with a strong educational component and increase our contacts with the outside world.
For fifty years the institute had been operated as a community of like-minded scholars. The head of each autonomous laboratory was free to pursue his scientific inquiries in his own way, subject only to the canons of his discipline and the review of his peers. That system, which the great physicist Niels Bohr referred to as the “Republic of Science,” had worked well in the past, and none of us, particularly Det Bronk, wanted to infringe upon scientific freedom. However, that freedom had to be balanced to a degree with the need for stronger centralized direction, greater collaboration, and an awareness of financial reality.
Bronk was the prime mover on the committee. As our study moved forward, there was a growing feeling that he would be the best successor to Dr. Gasser. In the end, with the board’s enthusiastic support, I persuaded Bronk to leave his post at Hopkins to become the new director of the Rockefeller Institute with a mandate to introduce the reforms that had been proposed.
Bronk’s assumption of the directorship in 1953 became, in effect, the “second founding” of the institute. His principal task was to transform a research institute into a biomedical graduate university. He started on the transition process almost immediately. In late 1953 the trustees voted to incorporate under the laws of the State of New York as a graduate university empowered to grant both Ph.D. and M.D. degrees. At the same time we merged the board of scientific advisors with the board of trustees. This group appointed Bronk president, and I became the chairman. We received our new charter in 1954 but did not formally change the name to The Rockefeller University until 1965, more out of sentimental attachment than anything else.
Bronk also moved quickly to broaden the range of disciplines represented on campus by inviting mathematicians, experimental and theoretical physicists, psychologists, and even a small number of philosophers to join the faculty. The independent laboratory system was maintained, but academic ranks were introduced and the former title “member of the institute” was exchanged, often reluctantly, for the more pedestrian “professor.”
We admitted the first group of ten graduate students in 1955. In keeping with the institute’s long tradition, they worked closely in the laboratory of a senior scientist, learning firsthand the essentials of the discipline. Throughout his tenure Bronk insisted on personally interviewing all candidates for admission and insisted on the highest standards of excellence.
All of these changes required additional funding, and Bronk proved to be quite adept at finding new sources of revenue. He had played a seminal role during both the Truman and Eisenhower administrations in creating the National Institutes of Health and the National Science Foundation. Both agencies emerged as significant funders of scientific research in the United States, and a significant portion of their annual budgets flowed into the university beginning in the late 1950s.
During this time Bronk and I worked closely to expand the university’s physical plant. We added a nine-story laboratory building, a residence hall for graduate students and postdoctoral fellows, an auditorium, and a beautiful international-style residence for the president, designed by my friend Wallace K. Harrison.
My tenure as chairman, which ended in 1975, embraced a dramatic period of scientific progress in the field of biology—the genetic revolution—unleashed by the discovery that genes were composed of DNA. This discovery, as medical historian Lewis Thomas has written, “opened the way into the biological revolution which continues to transform our view of nature.”
Today, its mission refined, its governance restructured, and its finances reinvigorated, The Rockefeller University continues to play a pivotal role in harnessing science and technology to search for answers to life’s most perplexing health-related questions. Our reinvention of the institute in the early 1950s was the essential first step in this process and one in which I am quite proud to have played a part.
ALGER HISS AND THE CARNEGIE ENDOWMENT
I was still an assistant manager in Chase’s Foreign Department when I received a visit one morning in early spring 1947 from the new president of the Carnegie Endowment for International Peace. Alger Hiss was a tall, lanky man with a handsome chiseled face. He had an agreeable manner, was gracious and charming, and I liked him immediately. After the usual pleasantries Hiss told me I had been elected to the board of the Carnegie Endowment, and he hoped I would agree to serve.
The endowment was established by Andrew Carnegie in 1910 to pursue his interest in the prevention of war and the creation of an effective system of international law. Nicholas Murray Butler, president of Columbia University and a Nobel Peace Prize laureate, had led the endowment for twenty years and made it one of America’s most respected foundations. Butler had just retired, and Hiss had been chosen as his successor.
Hiss had had an impressive career for such a young man. A graduate of Harvard Law, he had studied under Felix Frankfurter and then clerked at the Supreme Court for Oliver Wendell Holmes. During the New Deal he served in both the Department of Agriculture and the Justice Department before shifting over to the State Department. He remained at State until the end of World War II and traveled with the American delegation to the Yalta Conference—a fact that would cause considerable consternation when he was later accused of being a Soviet spy.
I was flattered to be asked to join the endowment’s prestigious board, which included such luminaries as General Dwight D. Eisenhower and Thomas J. Watson, the founder of IBM. John Foster Dulles, the eminent international lawyer, was chairman, and it was to him that I attributed my selection because I had known him and his family since my college years. Foster had a reputation for being cold, austere, and puritanical, but the man I knew had a good sense of humor and could be a wonderful companion. His daughter Lillias had been part of a small group of friends during my college days and one of Peggy’s closest friends. In fact, when I was courting Peggy in the late 1930s, she always stayed with the Dulleses at their New York town house.
When I mentioned Hiss’s offer to Nelson, he told me in confidence that a high-level FBI official had warned him there was reliable information indicating that Hiss was a Soviet agent. I reported this to Foster, who said he didn’t believe it. Given Dulles’s prestige, experience, and reputation as a strong anticommunist, I accepted his judgment and joined the endowment’s board in May 1947. A year later the spy charges against Alger Hiss would become front-page news.
At the time, the board members of the endowment were preoccupied with the mundane issues of program and physical location. In fact, the board meetings were devoted to contentious debates about moving our headquarters from New York to Washington and whether we should rent or build. We finally agreed to remain in New York—where in New York was the issue.
I turned to Bill Zeckendorf, and he offered us one of the building sites he had acquired on the west side of First Avenue, across from where the new U.N. building would be erected. Although the area was still filled with abandoned slaughterhouses and decaying commercial buildings, Bill felt the U.N. and other related projects would permanently transform the area. He recommended that we buy the parcel before land values skyrocketed and then p
ut up our own building.
Several of the more conservative board members thought the plan far too risky and criticized spending the endowment’s limited funds on a construction project in an unproven location. The endowment’s longtime treasurer opposed the project and resigned from the board, predicting it would bankrupt us. However, a strong majority of the board backed the proposal, especially after I was able to persuade Winthrop Aldrich to open a Chase branch on the ground floor. Once the building was completed, we rented much of the building to not-for-profits and easily handled the mortgage payments. As Bill Zeckendorf predicted, the area around the U.N. quickly became one of New York’s prime neighborhoods and continues to be so to this day.
AN EVENING WITH ALGER
The allegations against Hiss first surfaced publicly in August 1948. In testimony before the House Un-American Activities Committee, Whittaker Chambers, a former editor of Time magazine as well as an admitted former Communist, identified Hiss as a member of his party cell during the mid-1930s and a participant in a Soviet spy ring. When Chambers repeated these accusations outside the halls of Congress, Hiss sued him for libel and set the stage for a courtroom drama that preoccupied the country for years. A few months after Chambers’s accusations, the Carnegie board assembled for the most awkward dinner I have ever attended. When Alger arrived, the atmosphere grew tense, and when we sat down to eat, the chairs on either side of him were not filled. Embarrassed by what was happening, I sat on his right, and Harvey Bundy took the chair on his left. William Marshall Bullitt, an outspoken, choleric lawyer from Louisville, Kentucky, sat on my right. Bullitt was elderly and very deaf, and provided a running commentary during dinner in a loud voice as to why Hiss was a traitor and should immediately be fired from the endowment. I leaned forward, trying vainly to shield Alger from the verbal barrage, but Bullitt’s insistent voice penetrated every corner of the room.
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