Memoirs

by David Rockefeller

  After George retired in 1969, I decided to remedy the situation. I discussed the issue with the chairman of Britain’s National Westminster Bank, which owned a much smaller but still significant percentage of Standard’s shares. We agreed that each of us would seek to increase his bank’s holdings to 20 percent, which would give us effective control of Standard’s operations. Hawker and his board (including George Champion even after his retirement from Chase) adamantly opposed our move, as did the Bank of England, which intervened, probably at Hawker’s request, to prevent us from acquiring shares on the open market.

  With our strategy revealed, Hawker retaliated quickly. Without consulting either National Westminster or Chase, Hawker carried out a preemptive merger of Standard with the other British colonial giant, the Chartered Bank. Hawker’s action diluted Chase’s interest in the merged bank to less than 10 percent.

  The merger also created an insurmountable obstacle to our continued ownership of Standard-Chartered stock because included in the Chartered Bank’s vast worldwide holdings was a small two-branch bank in San Francisco. Even though Chase had only a minuscule indirect interest in the California bank, the Federal Reserve ruled that Chase was in violation of the regulation prohibiting U.S. banks from branching across state lines. We asked Standard-Chartered to sell the California subsidiary, but they refused. As a result, in 1975, after numerous appeals to the Federal Reserve, we had to sell our interest in Standard-Chartered.

  Although we realized a $42 million profit on our investment in Standard, the termination of the relationship marked a substantial setback for Chase. Our presence in most African nations was obliterated overnight, and we had to begin anew the task of creating a regional network.

  FAILURE WITH GLOBAL INVESTMENT BANKING

  While the development of a global branch network was critical to Chase’s emergence as a multinational bank, so, too, was our ability to expand into other international financial areas, particularly investment banking. Lacking the needed expertise ourselves, we decided to form a consortium with some of our oldest European and British banking friends to provide international bond underwriting and loan syndication.

  We approached three banks in the Rothschild group. Since both Evelyn de Rothschild, chairman of L. M. Rothschild, and Leon Lambert, chairman of Banque Lambert (a Rothschild through his mother), were personal friends, I had positive initial conversations with them.

  At the same time we met with Hermann Abs, chairman of the Deutsche Bank in West Germany; Alfred Schaefer, chairman of the Union Bank of Switzerland; and Marcus Wallenberg of Sweden, whose family controlled the Stockholm Enskilda Bank. Of these three, only Wallenberg expressed interest and agreed to proceed. Abs and Schaefer, the two most powerful and influential European bankers of their day, were decidedly negative to the proposal. Despite that, we thought the combination of Chase, the Rothschild-related merchant banks, and the prestigious Enskilda Bank gave us substantial strength and was worth doing. After extensive negotiations with the leaders of the other institutions, I thought we had hammered out a firm deal. A press release was ready for distribution following a luncheon at Chase in the fall of 1966 at which the new bank was to be launched.

  Late in the morning of the appointed day, only hours before the announcement, Marcus Wallenberg, Jr., came to see me at my office at Chase Plaza. He was obviously distraught. As he stammered out his story, I learned why. Earlier that morning Marcus had paid a courtesy call on J. P. Morgan and Company, Enskilda’s principal U.S. correspondent bank. Senior Morgan executives told him the proposed consortium bank was unacceptable to them and implied they would retaliate if Enskilda proceeded with the venture. Marcus had then called his father in Stockholm and received instructions to withdraw from the consortium. Despite my efforts to change his mind, young Marcus said he was sorry but his father’s decision was final.*

  When young Wallenberg announced Enskilda’s withdrawal at the lugubrious luncheon, the aristocratic Evelyn de Rothschild responded by saying that without the Swedish bank, L. M. Rothschild was not prepared to sign the final papers, either. Although I suggested we delay a decision to see if we could find another European commercial banking partner, it was painfully clear that our plan for a Chase-led consortium had fallen apart. I heard later that both Abs and Schaefer had put pressure on Wallenberg and the Rothschild group to withdraw from the venture. The Europeans were simply not going to allow a large and aggressive U.S. commercial bank into their territory without a fight. My desire to create an investment banking vehicle for Chase would have to wait.

  ENHANCING GLOBAL ACCESS AND INFLUENCE

  I had far greater success in strengthening Chase’s access to the most important and powerful industrial leaders of the world. To enhance our global visibility worldwide, we decided in the late 1960s to create an International Advisory Committee (IAC). It was to be composed of prominent and respected businessmen, many of whom were my personal friends, in the countries we considered most essential for our operational success. We were not the first to attempt this concept. Other New York banks had already formed similar committees, and I thought the idea had real merit for us also—particularly if we could attract the caliber of person I sought.

  John Loudon, the distinguished chairman of Royal Dutch Petroleum, agreed to take on the critical job of IAC chairman. John’s executive capabilities and diplomatic and managerial skills had brought him recognition as perhaps the world’s most prominent and respected businessman. I had met him at Bilderberg and other international gatherings over the years and had come to like and admire him greatly. As we had hoped, John helped recruit a stellar group of chief executives of nonfinancial firms—ten Americans and eleven foreigners. Among them were the following:

  Giovanni Agnelli was chairman of the Fiat Group, Italy’s largest and most profitable corporation. One of our first choices, Gianni had a strong interest in domestic Italian politics and was committed to the process of European integration. I thought he would bring exactly the right combination of personal, political, and business skills to the IAC’s deliberations. He has now been a member of the committee for over thirty years.

  Wilfred Baumgartner, the president of Rhône-Poulenc, served as the IAC’s French representative. Wilfred was an inspecteur des finances in the Ministry of Finance, a position held only by a few select individuals. He later became governor of the Bank of France and then minister of finance. He spoke French with an elegance matched only by Charles de Gaulle.

  Taizo Ishizaka was an octogenarian whose selection enhanced our plans to expand in Japan. His position as honorary chairman of the Keidanren and chairman of two hundred corporations afforded him immense prestige and access to the upper echelons of Japanese business and government.

  J.R.D. Tata was the chairman of his family’s enormous steel and industrial empire. Far and away India’s most prominent and successful businessman and also one of her most public-spirited citizens, he was a man of great modesty, simplicity, and wisdom who contributed greatly to the standing of Chase in South Asia.

  Sir Y.K. Pao was one of the world’s leading shipping magnates. Another colorful and influential member of the committee, Y.K. had been a banker in Shanghai before World War II. After Mao’s revolution he moved to Hong Kong and built a shipping fleet that surpassed the Soviet Union’s merchant marine in size. Y.K. had heard about the formation of the IAC and requested a private meeting in my Rockefeller Center offices to tell me of his interest in being included in the group. We were more than happy to comply with his request.

  We balanced our distinguished foreign membership with an equally impressive list of American chief executives, including William Blackie of Caterpillar, Carl Gerstacker of Dow Chemical, William Hewitt of John Deere, and David Packard of Hewlett-Packard. Over the years Chase maintained the IAC’s reputation by recruiting such prominent individuals as C. Douglas Dillon, Rawleigh Warner, Henry Ford II, Cyrus Vance, Lord Carrington, and Henry Kissinger. At the working sessions senior bank officers review aspe
cts of the bank’s operations, prominent individuals frequently address the group on specific economic issues, and individual members comment on economic and political developments in their countries.

  Periodically, the IAC convenes in a foreign country where the head of state or government usually receives the group with other prominent government and business leaders. Visits to historic sites and cultural institutions form an integral part of our program as well. And the press often covers the visit. On our first visit to France, for example, we organized a dinner with French leaders and their wives in the Salon de Battailles of the Palace of Versailles. We then moved to the theater of Louis XV and listened to a Mozart program played by the Paris Opera chamber music ensemble.

  I became the chairman of the IAC upon my retirement from Chase in 1981. During recent years, as Chase merged first with Chemical Bank and then with J. P. Morgan, the advisory committees of the three banks have also merged. Nonetheless, the IAC remains a valuable vehicle for today’s Chase, just as it was when we began it more than three decades ago.

  A DECADE OF GROWTH

  Despite divided leadership and costly delays, the 1960s was a period of real progress toward Chase Manhattan’s becoming a truly international bank. We began the decade with branches in only eleven foreign areas and ended it with direct operations in seventy-three. We had spread our network to six continents: North and South America, Europe, Asia, Africa, and Australia. By 1969 deposits in our overseas branches formed almost one-third of all Chase deposits, and foreign loans constituted one-fourth of our total portfolio. Earnings from the international side were expanding and would soon surpass domestic income.

  With George Champion’s retirement, my challenge as sole chief executive officer was to ensure that the bank continued to strengthen its leadership role in the United States, even as it expanded its presence and position as a world financial power.

  *The vacillating behavior of the Wallenbergs ended on a tragic note. The elder Wallenberg, one of the world’s most prominent and successful businessmen, had given his son increasingly heavy responsibilities, leaving him little time for his wife and young children. That, coupled with the pressure he was under, was apparently too much for young Marcus to handle, and five years later he committed suicide.

  CHAPTER 16

  TAKING THE HELM

  When I took over as CEO on the morning of March 3, 1969, I had been with the bank for almost twenty-three years. In contrast to Winthrop Aldrich and Jack McCloy at the time they assumed command, I knew the bank intimately from the inside and had been exposed to most aspects of its varied business. But unlike George Champion, I was not an experienced lending officer. I sensed that my lack of credit training and lending experience made some directors and senior officers skeptical about my ability to run the bank effectively and profitably. Leading these men (and all the directors and senior officers of the bank were men) would not be easy, but I was convinced that my vision for the bank was the correct one and that I was uniquely qualified to lead the Chase at a time of great change.

  I was proud of Chase’s reputation among U.S. banks for integrity, quality, and excellence. The leading corporations of our nation were our clients, and no other bank was more respected for the creativity and professionalism of its lending officers. Furthermore, Chase was an institution that acknowledged its responsibilities as a constructive player in the effort to build a more equitable society. All of that I was determined to preserve.

  My principal challenge, then, was not to dismantle the bank but to build on its strengths by expanding our global capacity and by introducing the techniques of modern management that would make Chase a leading global financial institution.*

  SIX KEY CORPORATE CONCERNS

  As CEO I considered at least half a dozen areas critical if Chase was to continue to compete effectively in the world of global banking.

  International Expansion. Even though we now operated in East Asia, Latin America, Europe, and Africa, there were still great gaps in our foreign coverage both in terms of our direct presence in many countries and the diversity of the services we offered. By the late 1960s, U.S. businesses—many of them Chase customers—had become increasingly involved in foreign trade and had located their manufacturing and production facilities abroad. Thus, there was no longer any doubt, at least in my mind, that Chase had to become more of an international bank at the same time that we continued our domestic expansion.

  My first priority, then, was to develop a coherent global strategy, a comprehensive program and a specific timetable for expansion and diversification on every continent. For instance, having failed in our earlier effort with the Rothschilds and Wallenbergs, I was determined to set up an international merchant banking consortium to provide Eurocurrency term loans to multinational corporations and governments, and to engage in underwriting and bond placements worldwide. The possibility of direct branching into a number of areas, particularly the oil-rich Middle East, seemed especially promising, and I wanted to explore dawning opportunities in the Soviet bloc countries and China. The key to this process would be finding, training, and deploying personnel capable of managing this ambitious program of expansion. That would require, in turn, a very different attitude toward the recruitment and training of our staff.

  Human Resources. Chase desperately needed a more professional approach to human resources. Although we had an excellent credit training program, we had no organized plan for identifying talented employees and developing a career path for them. There was no system of performance evaluation and no incentive compensation program. Some progress had been made in hiring and promoting women and minority employees, but we lacked a policy affirming that all employees would have an equal opportunity for advancement based solely on the quality of their individual performance. I extended this policy to include foreign employees who had correctly perceived that there were limited opportunities for them to move up in the bank.

  Organization Planning. Chase’s gradual transformation from a largely domestic wholesale bank into a full-service international bank required fundamental structural changes, which had been delayed, avoided, or only partially implemented during the years of conflict between George and me in the 1960s.

  Our differing positions on reorganizing as a one-bank holding company, a key issue during the last year of our joint tenure, exemplified the situation. The other major New York City banks had adopted this form of organization, but George opposed it, fearing that the bank would lose its identity by becoming a mere subsidiary of the larger corporation. I favored it because the holding company would enable us to enter a number of new and potentially profitable domestic fields such as insurance, mortgage banking, management consulting, and computer-based services—all of them prohibited to commercial banks by Federal Reserve regulations.

  I wanted to create a holding company as soon as I became chairman as the preliminary step to other structural changes I hoped to introduce. I also wanted to upgrade our internal planning process, which was far below the standards of topflight industrial corporations such as General Electric, IBM, and Standard Oil of New Jersey.

  Marketing. While marketing was in urgent need of improvement, Chase had real strengths in this area that we could capitalize on. Credit officers who traveled the U.S. districts had developed strong ties with their corporate customers and often with their families as well. International officers had begun to establish the same relationships with our overseas clients. The loyalty of our customers was legendary in the banking world and a strong foundation on which we could build. However, we needed a more systematic approach to marketing and a more formal overall strategy for developing, pricing, promoting, and selling the bank’s services that would generate an image of Chase as a professional, aggressive, and modern bank.

  Technology. At the core of any bank’s ability to operate effectively and profitably is its back office—the people and technology executing hundreds of thousands of daily customer transactions accurately, expeditiously
, and at a reasonable cost. The application of advanced technology to the banking business had intrigued me almost from the beginning of my career with Chase. In 1954 I had persuaded Jack McCloy to commission the Laboratory for Electronics (LFE), a company I had helped start, to study the bank’s operations and custom-design a computer to control our operations. The timing was premature and the effort failed, but the LFE’s work gave us the courage to pursue a more comprehensive approach to modernizing our operational procedures and staff. In fact, by the early 1960s virtually all of our operations were computerized.

  Unfortunately, at the time I became chairman, we had twenty-seven different computer systems in operation! We first had to rationalize these incompatible systems and then make sure there was better interaction and linkage among our technical operations people, the line officers responsible for account relationships, and the top management of the bank, who were blissfully ignorant of both the potential and the problems of the imminent electronics revolution. I knew this was an area I would have to get involved with personally, but I didn’t realize that the back office would become a major problem area for the bank before we finally brought it under control.

  Social Responsibility. Finally, there was the bank’s public role and responsibilities. The consensus that had unified the country in the postwar period had ended abruptly in the mid-1960s. Strong popular opposition to the Vietnam War and rising unrest in our cities were accompanied by a growing antipathy toward business in general and big banks in particular. While I considered the more extreme of these criticisms irresponsible and ideologically inspired, I believed Chase did have a responsibility to help redress the legitimate social and economic problems that confronted the country.