Carnegie

by Peter Krass

  It was now January 29, just two days before the company would seize Frick’s share. Frick, willing to submit to the decision of three disinterested businessmen, requested arbitration to determine the fair value of his interest.38 Carnegie, in spite of being a proponent of arbitration, rejected it this time and instructed Schwab to transfer Frick’s interests to the company’s treasury. As Frick had said, an Allegheny court would decide the matter.

  The first lawyer Frick hired was D. T. Watson, the man who had drawn up the original 1887 Iron Clad agreement: who better to penetrate the Iron Clad’s weaknesses? Between them, the two titans had some of the best lawyers in the country in their respective stables, and each man was convinced he could win. Both were willing to fight to death ’til they parted. The impending case hinged on two simple questions: Was the Iron Clad legal and binding? And what was the real value of Carnegie Steel? The answers were not obvious. Both men and their legal teams spent the first two weeks of February formulating their battle plans.

  The publicity that would be generated was the one underrated factor in the case. The first hint of trouble in the Carnegie realm reached the newspapers on February 2, when rumors circulated that Schwab was about to resign. Reporters flocked to 5 West Fifty-first Street and tried to confirm the story, but Carnegie wouldn’t talk. In Pittsburgh, Schwab denied the report but refused to make any further comments. Seven days later, Frick’s intention to file suit against Carnegie and Carnegie Steel made the front pages. The revelation of the impending lawsuit caused an immediate sensation, rippling through the press, as well as Carnegie’s friends and business associates.

  Soon afterward, Carnegie heard that Caroline Wilson, widow of Carnegie’s boyhood Original Six pal James R. Wilson, was worrying about the Frick suit. Although her husband had died years ago, she still owned his shares in the Frick Coke Company and relied on the dividends. Not wanting her to worry needlessly, Carnegie took the time to reassure her:

  Do not believe that Mr. Frick did not look after the interests of the Coke Co. He always did . . . My Dear Friend your interests will be as zealously guarded as my own in the Company. I, with sister Lucy own more than half of the Co. and faithfully as I guard hers and mine I shall yours.

  Callie Carpenter the girl of my boyhood & the wife of one of mine dearest friends is & always will be my charge through life when she needs my services.39

  Thirty-five years removed from Slabtown had not diminished Carnegie’s loyalty to his boyhood friends—again, one of the more poignant pieces of evidence for judging Carnegie’s character.

  The country’s other capitalists were more worried than Carnegie about a dirty court case that might expose the inner workings of industrial America. When a Philadelphia businessman and friend, A. B. Farquhar, read the news, he wrote Carnegie that he hoped the case would be settled out of court and warned, “A lawsuit is war, and war is always bad.”40 George Westinghouse also expressed concern: “I have just seen in tonight’s Chronicle that a suit is to be filed by Mr. Frick against you or the Carnegie Company to determine the value of his interest. I believe such a step will be almost a calamity by reason of the fact that the private affairs of your company will undoubtedly be made public. . . . Will you allow me to say, at the risk of being considered officious, that this matter is looked upon by mutual friends as not only very harmful to your own interests but to Pittsburgh generally. Your invariable friendliness toward me must be my excuse for troubling you about your own matters.”41 Before writing, Westinghouse was so anxious he had tried telephoning, only to discover Carnegie had left for Lucy Carnegie’s Dungeness estate to escape the media circus.

  On February 14, he and a group went to the island’s north end to play golf and stay at a rustic lodge, while newspaper reporters gathered at the estate’s main gate, clamoring for an interview. Frick had finally filed his suit in the Allegheny courthouse the day before. The island’s manager issued a statement from Carnegie that simply said, “I am playing golf and that I broke my record yesterday.”42 Golf had become an obsession which he now jokingly called the only “serious business of life.”

  There was no mincing of words in Frick’s suit, which decreed the transfer of his interest null and void and requested an injunction restraining any interference with his interest, claiming the Iron Clad had been abandoned and was no longer binding. Frick also demanded a market value be set for the company, along the lines of the $250 million Moore had been willing to pay, not the paltry $25 million currently on the books. The suit included an attack on Carnegie’s character, too. Frick charged that Carnegie’s animosity toward him had grown since he failed to sell the company the prior year, that Carnegie came to his office and “endeavored to frighten me into selling my interests in the Steel Company at much below their value,” and that Carnegie had domineered, dictated policy, and coerced the junior partners to help him force Frick from the company by threatening to take their jobs and interests.

  Meanwhile, on behalf of the minority shareholders in the Frick Coke Company, Lynch and Walker filed a separate suit against Carnegie to annul the alleged coke contract; but Carnegie, who returned from Florida energized and confident, dismissed its importance and focused on Frick.

  Carnegie’s response to the suit, filed on March 12, promised a good ol’ fashioned, bare-knuckle scrap. He asserted the Iron Clad was legal, and he countercharged that Frick was “of imperious temper, impatient of opposition and disposed to make a personal matter of any difference of opinion, even on questions of mere business policy. At times, moreover, he gives way to violent outbursts of passion, which he is either unable or unwilling to control. He demands absolute power and without it is not satisfied. . . . His time has been largely employed in various speculative schemes for placing the property of the Association in the hands of promoters to be floated in marketable securities on the public.”43 Certainly some of the charges concerning Frick’s temper were true, but he hardly spent his entire 1899 in Wall Street backrooms colluding with gamblers. The final battle in a twenty-year war had begun.

  Carnegie’s assertion that the Iron Clad was legal and binding appeared airtight strictly based on the evidence of its use; it had been invoked to purchase the shares of some fifteen partners over thirteen years. More recently, at the May 18, 1897, board meeting, Frick had invoked the Iron Clad Agreement to purchase the 2 percent interest of H. W. Borntraeger, who had recently died, at book value. Just one year before, the Iron Clad was used to purchase John Pontefract’s 0.5 percent interest when ill health forced an early retirement.44 “The Contract does not mean one thing for the Company and another for the partner,” company lawyer Gibson D. Packer now explained to Carnegie, “and when the officials of the Company have by acting under it, and in various other ways, given it one construction as against outgoing members, they cannot face about, and say it means an altogether different thing as to them individually.”45 And when Phipps had suddenly reversed his position in 1897 and refused to sign a revised agreement, Frick said to the board, “The old agreement we believe to be legally operative until this revision has been signed, as the only changes made, other than the extension of the stipulated times of payment, are for the better understanding and carrying out of the details.”46 As old hand William Singer put it to Carnegie, Frick has “convicted himself.”47

  But perhaps Carnegie didn’t recall a letter from Frick over a year ago, when he wrote, “The fact is that the present Iron Clad Agreement (which I believe is signed now by all juniors, excepting those lately admitted) is not binding on any one of them, nor on anybody, and never has been, Mr. Van-devort never having signed it, and while we have acted under it up to date, purchasing interests of deceased partners under it, if there had been any objection raised on part of their estates, it could not have been enforced.”48 Frick drew this conclusion after consulting with one of the company’s attorneys, who also said that a revised version would be binding if signed by everyone in the firm, which never happened. Also, Phipps had discovered a pattern
in the use of the Iron Clad, a pattern that could neutralize every shred of Carnegie’s evidence. For junior partners who were in debt to the company at the time of their departure, forced or otherwise, they were paid book value for their share and took to the bank whatever they didn’t owe the company. For partners fully vested, as William Shinn and William Abbott were at the time of their exits, they were paid a healthy sum over the book value. Based on this pattern, Frick had to be paid a fair premium.49

  The court filings were an ugly display that for the first time truly opened the company up to public scrutiny, and the public drooled at the thought of seeing how the Santa Claus Carnegie really managed his business and how much he was actually worth. “The suit is regarded as the most important ever filed in connection with the steel business,” the Tribune declared, “and it is said more money is at stake than in any legal proceedings ever brought in this country to which all the parties were simply citizens.”50 The Review of Reviews observed, “Whatever the final outcome of the Frick-Carnegie litigation, certainly the industrial world has not, since steel became an armament of warfare, witnessed a dispute so notable as this between the multi-millionaires who built up an industry international in its operations. . . . Already enough has been told to whet curiosity. Should a compromise be effected, it will undoubtedly be because of what is still to be told.” In mulling over the Iron Clad Agreement, the Review’s reporter noted, “Since Mr. Carnegie, during the Homestead Strike, disavowed any direct connection with the workings of the concern, it seems rather curious that now should be revealed the fact that all times he held the controlling lever in his hands.”51 The New York World’s coverage was laced with sarcasm, especially concerning the company’s profits and the need for a protective tariff: “Surely there is something wrong when capital must go dragging for a pitiful return of less than 200 percent. Plainly, Mr. Frick has revealed deserving industry’s great need for protection.”52

  Within a few days of Carnegie filing his answer to the suit, both sides realized they were not necessarily guaranteed victory, but it was definitely Carnegie who had more to lose as his company’s skeletons tumbled from the closet. At the time, the company was involved in legally dubious pools for angles, beams, channels for steel and for iron, and tees, respectively. The company also belonged to billet and pig iron associations to support prices artificially, and there was a similar arrangement with plate makers.53 And then there was the extremely profitable armor making, which was open to accusations that Carnegie Steel was taking advantage of the government. Did Carnegie want all of these facts splashed across the front pages? No.

  The words “out of court settlement” had been on everyone’s lips from the moment Carnegie Steel seized Frick’s interest; it was just a matter of letting the egos run their course. With public scrutiny intensifying, Carnegie finally started working through Schwab—and Frick through Phipps—to initiate negotiations. “It is useless now to talk about anybody buying or selling,” Frick wrote Phipps. “The fair thing to do is to make the consolidation of the two companies upon the terms agreed to by everybody a year ago before the Moore offer was received. That will solve the whole problem justly and honorably. I am willing.”54 As he had before, Frick suggested merging the two companies, and said he was willing to accept a value of $250 million for Carnegie Steel and $70 million for the Frick Coke Company. At the appropriate time, he would then sell his interest in the new company.

  Over several meetings held at Carnegie’s New York home and at Atlantic City, Frick’s proposal was agreed to; on April Fool’s Day, the consolidation was official, christened the Carnegie Company.55 Capital of $320 million, half in stock and half in bonds, made it the largest capitalized company in the country—three times larger than Standard Oil. “Settlement made,” Frick crowed to a friend. “I get what is due me. All well. I, of course, have not met this man Carnegie and never expect nor want to. It is not my intention to be officially connected with the reorganized concern.”56 Frick’s interest in the new $320 million consolidation was $31,284,000, to Carnegie’s $174.5 million. The settlement covered the coke dispute, too, with both parties accepting blame and Carnegie Steel’s outstanding bill cut in half.

  As the fallout from the Frick suit subsided, both men received letters of congratulations and support. “As you know I can not be accused of flattery,” steel magnate James Laughlin wrote Carnegie in a letter not meant for posterity’s sake or publication, “I am pleased to say that I have long felt, and so expressed myself to your credit, that the iron interests of our country and the consumers of the world, cannot appreciate how much is due you personally for the advance that has been made in manufacturing during the past twenty years, for with no ‘can’t’ in your vocabulary, and carrying out the fact that, like causes produce like effects; and that what has been done once can be done again, the present attainment in output and cost of production has been reached; and Pittsburgh stands as the wonder of the world.”57 Carnegie’s soother of conscience, John Morley, blessed him: “I cannot tell you how much I rejoice at the end of your break with Frick. I know your horror of the waste of life in lawsuits and the like, and felt sure that somehow your active mind would find a way out.”58

  Businessmen also gathered behind Frick. F. W. Haskell, a comrade from the old coke days now living in Buffalo, wrote Frick that he still received Pittsburgh papers and was reading the articles “containing various allusions to the relations between yourself and the great Egotist.”59

  As for Frick and Carnegie’s relationship, they would have only sporadic contact over the next couple of years and then were completely estranged, even though they moved in the same circles and lived within walking distance of each other on Fifth Avenue. Toward the end of his life, Carnegie sought to reconcile their old grievances and via an intermediary requested a meeting. Frick’s response was blunt: “Tell Mr. Carnegie I’ll see him in hell, where we both are going.”60

  Once again intent on external competition, Carnegie laid plans to sell a large portion of his company’s newly issued bonds in Europe to raise money for unheralded expansion. Rumor had it the company would build new mills and start making all the products produced by the Moore and Morgan steel companies. An aggravated Morgan immediately beckoned Schwab to New York for a meeting. Considering the sensitive nature of the events surrounding the last few months and the fact that Morgan’s Federal Steel presented serious competition, Schwab should have declined. He did not and booked passage on an overnight train. Before leaving Pittsburgh he informed Carnegie, who, jealous and apprehensive, insisted Schwab visit him, too:

  I was pained to get your wire that you were going to travel all night and perhaps tomorrow night also, & for what?

  Mr. Morgan has no business with you to call you to do this, these days when you know how much depends upon your having rest. . . .

  You say you are to come up in the afternoon. Please let me know about when—of course if you are going home Saturday night I am anxious to see you—come soon as you can—61

  Carnegie had good reason to be apprehensive. He would not be notified of the next meeting between Schwab and Morgan.

  Notes

  1. Board Meeting Minutes, September 11, 1899, quoted in Warren, p. 243.

  2. AC letter read to Board Meeting, October 16, 1899, ACLOC, vol. 69.

  3. O’Toole, p. 389.

  4. Miller, p. 335.

  5. New York Daily Tribune, February 3, 1900.

  6. Board Meeting Minutes, November 20, 1899, ACLOC, vol. 70.

  7. AC to Henry C. Frick, November 21, 1899, quoted in Warren, p. 249.

  8. AC to George Lauder Jr., November 23, 1899, ACLOC, vol. 70.

  9. George Lauder Jr. to AC, November 24, 1899, ACLOC, vol. 70.

  10. AC to George Lauder Jr., November 25, 1899, ACLOC, vol. 70.

  11. Burton J. Hendrick interview with John Walker, February 1928, ACLOC, vol. 239.

  12. AC to Henry Phipps, n.d. (November 1899), ACLOC, vol. 70.

  13. AC to
Charles Schwab, November 26, 1899, Whipple, p. 60.

  14. AC to Board of Managers, November 26, 1899, Whipple, pp. 60–62.

  15. Charles Schwab to AC, November 27, 1899, ACLOC, vol. 70.

  16. Charles Schwab to Henry C. Frick, September 26, 1899, ACLOC, quoted in Warren, pp. 244–245.

  17. Herbert Spencer to AC, October 28, 1899, ACLOC, vol. 70.

  18. Herbert Spencer to AC, January 29, 1900, ACLOC, vol. 72.

  19. AC to Whitelaw Reid, December 1, 1899, ACLOC, vol. 70.

  20. AC to John Hay, February 26, 1900, ACLOC, vol. 73.

  21. New York Daily Tribune, June 1, 1899.

  22. A. M. F. Campbell and J. C. Campbell, Anti-Carnegie Scraps and Comments (Pittsburgh: Privately printed, 1899), pp. 5–6.

  23. AC to George Lauder Jr., n.d., ACLOC, vol. 70.

  24. AC to Henry C. Frick, n.d., quoted in Harvey, p. 225.

  25. AC to Henry C. Frick, n.d. (December 1899), quoted in Warren, p. 255.

  26. AC to Henry C. Frick, December 19, 1899, ACLOC, vol. 70.

  27. AC to Lauder, n.d., ACLOC, vol. 70.

  28. Henry C. Frick to Thomas Lynch, December 26, 1899, quoted in Warren, p. 256.

  29. Charles Schwab to AC, December 27, 1899, ACLOC, vol. 71.

  30. AC to George Lauder Jr., December 27, 1899, ACLOC, vol. 71.

  31. New York Daily Tribune, December 23, 1899.