“Splendid,” Carnegie wrote back to his rapidly rising star in Homestead. “No strikes in future. There would not have been any had you been in charge.”
It was doubtless not a message intended to be shared with Frick.
23
GREAT DIVIDE
WHILE FRICK’S CHOICE OF SCHWAB proved to be inspired, and the fortunes of Carnegie Steel soared during the remaining years of the 1890s, Frick’s own position within the company was not a happy one. One of the first difficulties in the aftermath of Homestead involved the new armor-plating mill that Carnegie had agreed to install at the behest of President Benjamin Harrison.
Carnegie had never been particularly enthusiastic about producing anything under the hectoring terms of a government contract. Successful bidding and compliance, then as now, involved endless paperwork, and the actual production and delivery of armored plating that would meet government standards was a maddening process. When the U.S. Navy refused to bend on certain specifications for a plating contract in the late 1880s, Carnegie simply withdrew his bid and let the contract go to his competitor, Bethlehem Steel. If Bethlehem could find a way to make money doing business the way the government demanded, then more power to them.
But when Bethlehem found that it could not comply, either, President Harrison appealed directly to Carnegie, who gave in and agreed to complete the plate mill. The installation was completed at Homestead, just months before the strike, under the direction of a longtime Carnegie manager named William Corey. With the experienced Corey and a bevy of government inspectors overseeing the smooth operation of the highly specialized unit, new plant superintendent Schwab was happy to leave well enough alone.
All that changed when, in September 1893, a Pittsburgh attorney contacted Secretary of the Navy Hilary Herbert, representing four unnamed employees who wished to sell information concerning acts of fraud at the Homestead armor installation. Plating that did not conform to contract standards was being manufactured, they claimed. And test results were being cooked to cover the matter up.
As it turned out, the group had also approached Frick with the same offer, but the chairman, believing the matter to be yet another bogus plot by disgruntled ex-workers, had run the attorney out of his office. Nonetheless, Frick had warned Schwab to be on the lookout for funny business at the plating mill and to make certain that production was being carried out with strict adherence to government specifications. Frick also directed the navy’s own inspectors to inform him of the slightest suspected impropriety.
Frick’s precautions seemed for naught, however, as Secretary Herbert offered the informants 25 percent of any penalties assessed against Carnegie Steel, then convened a secret navy panel to investigate the claimants’ charges. Without ever contacting the company, the panel declared the charges accurate. Herbert summoned Frick to Washington, where he announced his summary judgment: a fine of 15 percent of the value of the armor delivered by the company to date.
Frick and Carnegie were furious, of course, certain that they were suffering a backlash at the hands of disgruntled employees and inexperienced bureaucrats eager to retaliate for the loss of the election of 1892. Carnegie wrote to President Cleveland to express his outrage and ask for a new panel, but Cleveland only offered to reduce the penalty to 10 percent.
The offer was an insult to the aggrieved Carnegie, who was aghast that anyone would question his patriotism. It was unthinkable to him that he or his company would defraud the government by producing shoddy armor plating, Carnegie declared. In an angry note to Frick, Carnegie blamed the events of 1892.
“The ghost of Homestead is not yet laid,” Carnegie said. “If statement ever necessary, I think you should state that you had to employ best men you could find [in the aftermath of the strike], among them some miserable wretches of course—these spies. They could not and did not do the work to our standard and shirked some parts as was discovered.”
A statement would indeed be required. A House Committee on Naval Affairs conducted an investigation, churning out a final report of more than one thousand pages in which the judgment was mixed. While it was difficult to ascertain an intention to defraud, it seemed irrefutable that certain tests of the plating had been “helped along.” In the end, the House committee ruled that the navy had been correct in levying a fine upon Carnegie Steel, although the amount was reduced to 10 percent, as the president had proposed.
The resulting scandal, gleefully reported by the newspapers that had vilified the company during the strike, depressed Carnegie, infuriated Frick, and led Schwab to offer his resignation—though all would eventually recover. The fine was paid as part of a five-year renewal of the navy contract, several key plating mill employees were dismissed, and Carnegie Steel went back to making enormous profits. However, the once-rosy relationship between Frick and Schwab had been irreparably damaged.
Frick blamed Schwab’s carelessness for the situation, and was further outraged when an emboldened Schwab refused his order to dismiss summarily a number of plating mill subordinates. “This armor mess handicaps us in many ways,” Frick wrote to Carnegie, “as the Navy Department are anything but friendly to Schwab and have no confidence in him.”
Despite that and other mildly derogatory reports on Schwab that Frick sent Carnegie’s way, Schwab’s position within the company was assured. In Schwab, Carnegie had found a manager who was as able and detail-oriented as Frick, and who had the added advantage of being unfailingly congenial. What likely annoyed Frick most was the realization that his former protégé was gaining influence within the company nearly equal to his own.
ABOUT A YEAR LATER CAME THE INCIDENT that would alter Frick’s relationship with Carnegie as profoundly as had been his relationship with Schwab. For some time, Carnegie had been interested in acquiring the coke holdings of W. J. Rainey, a former competitor of Frick’s, for much the same reason he had coveted Frick’s ovens years before. Frick, however, considered Rainey “a thief” and saw the acquisition as a threat to his own role as the company’s primary supplier of coke.
When he learned that Carnegie had actually met with Rainey without informing him, Frick tendered his resignation from the chairmanship. Company affairs were in “splendid shape,” Frick wrote on December 18, 1894, so this action should have no adverse effect on operations. He advised Carnegie to purchase his shares in the company and begin an immediate search for his successor.
Frick closed by invoking reasons for his decision that, coming from a noted workaholic, were surprising. The past six years, he told Carnegie, had been extremely taxing, “and my mind from necessity has been so absorbed in looking after the interests of this great concern I have not had time for anything else and feel now that I need such a rest as is only obtained by almost complete freedom from business affairs.”
Perhaps Carnegie saw in this last a chance to salvage the situation. He had already written Henry Phipps, “Frick is not well,” underlining that first sentence. “He is breaking down and is not of his former power, believe me, to us at present,” concluding that Frick might profit from some time away. “What rest will do we know not, but I hope he will return to us again.”
Carnegie wrote back to Frick, dismissing his chairman’s abrupt threat of resignation as unrealistic, given his responsibility to their great enterprise, and suggested that Frick take an extended vacation, preferably to Egypt. “You will soon return and smile at matters which now in your tired state seem gigantic and amazing,” Carnegie wrote, “and your partners will be unable to contain their joy.”
But Frick would have none of it. In the little time that passed between his letter of resignation and Carnegie’s reply, Frick had learned that a broker was attempting to sell a block of 32,000 Frick Coke Company bonds—bonds that Carnegie had received as part of their original partnership agreement.
To Frick it was treachery beyond bounds, selling H. C. Frick Coke and marrying a thief from the same industry! Despite Carnegie’s insistence that he knew nothing of such a
divestiture, Frick was beside himself. Worse yet, Phipps had passed along the memo in which Carnegie had shared his concerns about their chairman’s mental state.
On December 30, Frick penned a five-page memorandum that can only be described as a jaw-dropper: “Mr. Carnegie, it is high time you should stop this nonsensical talk about me being unwell, overstrained, etc., and treat this matter between us in a rational business-like way. . . . Why do you write such stuff? . . . I warn you to carry this no farther with me but come forward like a man and purchase my interest, and let us part before it becomes impossible to continue to be friends. . . . I desire to quietly withdraw, doing as little harm as possible to the interests of others, because I have become tired of your business methods, your absurd newspaper interviews and personal remarks and unwarranted interference in matters you know nothing about.”
If his intent was to get Carnegie’s attention, Frick succeeded. Shortly after New Year’s Day, Carnegie wrote back that it was “not the first time you have resigned,” and that, furthermore, there seemed little point in continuing to correspond about the matter. Though Carnegie cautioned Frick that this time it would not be as easy to reinstate him should he change his mind, he seemed philosophical: “All right. I am forced to agree that the work of the Carnegie Steel Company and the Frick Coke Company is too much for any man.”
A meeting of the board was convened on January 11, 1895, at which John Leishman, a former steel broker and a Carnegie partner since 1886, was named to the newly created post of president. While Frick would remain as chairman, his participation in the day-to-day management of company affairs would be significantly lessened and his 11-percent ownership in Carnegie Steel reduced to 6 percent, with the balance transferred to Leishman.
Historians differ on the meaning of this reorganization. Some argue that Carnegie strove to emasculate Frick, and point to a memorandum he wrote to board secretary Francis Lovejoy. As the company now had a president, Carnegie asserted, they could not have a chairman as well. In essence, then, Frick was merely the chairman of the board of directors.
Carnegie biographer Burton J. Hendrick quotes from a Carnegie memo that suggests he had tossed the sop of the “Chairmanship” to a contrite and haggard Frick, who had arrived, Carnegie said, in his chambers begging for reinstatement and desperate to retain some measure of influence in the company’s affairs. Still others have said that Frick was sanguine about these developments, especially the ability to convert that 5 percent of Carnegie Steel assets into cash, a move that would significantly reduce his personal debts and allow him to enjoy the “freedom” he alluded to in his letter to Carnegie.
In the end, this restructuring seemed to make everyone happy. Frick retained his influence and yet was no longer consumed by the minutiae that for years had occupied his every waking moment. He began to travel, as Carnegie had long counseled, and renewed his interest in acquiring fine art—an avocation that would provide benefits beyond measure to future generations.
And despite Carnegie’s skewed recollections, he too seemed relieved that a way had been found to keep Frick’s expertise. The two were even able to meet shortly after the reorganization to discuss the previously taboo topic of the Rainey coke holdings.
By early 1896, Frick was able to write to Carnegie, in the midst of difficult negotiations for favorable freight rates from the Pennsylvania RR, “[I] may view the whole question differently from you, but that is no reason why we should quarrel about it. What we are both after is the ultimate best interest of the Companies.”
Perhaps “rest” had done well for Frick, then. He closed by adding what Carnegie must have viewed as an understatement: “In all my dealings want of frankness with you on all subjects has not been a failing. [Though] it might from some points of view be considered a fault.”
Meanwhile, business remained steadily on the rise for Carnegie Steel. In 1896 the company produced more than one-quarter of all the steel manufactured in the United States. Profits rose from $5 million in 1895 to $6 million in 1896, then to $7 million in 1897.
Yet, despite such staggering success, there were signs that Carnegie missed his former “management genius” at the helm. From the very beginning he wrote scolding notes to Leishman, urging the new chairman to keep a closer eye on costs, warning, “If you do not look out, you will bring even our firm into serious trouble.”
During his annual retreat to Scotland, Carnegie wrote again to Leishman, complaining that “Mr. Frick used to send me monthly costs and also monthly reports of Blast Furnace products and these were very interesting. . . . Please remember how much you can oblige us by keeping us in touch with important events.”
Accordingly, Leishman had the necessary figures compiled and the report sent off to Cluny Castle, but it is doubtful that the reply he got from Carnegie filled him with confidence. Though Carnegie thanked Leishman for his trouble, he concluded, “You can scarcely realize how anxious in these times your absent partners necessarily are, and how much they have missed Mr. Frick’s admirable correspondence and statements.”
Leishman, who had begun as a salesman within the Carnegie ranks, no doubt aspired to reach the same unassailable position enjoyed by many of the long-term partners. If he had, for all intents, taken Henry Frick’s place, then why shouldn’t he accrue an equal measure of wealth and respect, and a similar place at the roundtable of the titans?
Leishman’s motives might have been understandable or even laudable by Carnegie’s own standards, but his methods were anything but. When word reached Carnegie that Leishman had run up considerable debt speculating in the stock market and in dubious ventures in iron ore, the game was up.
“We all appreciate your ability in some directions,” Carnegie wrote Leishman, “but you have much to do before you regain the confidence of your partners as a safe man to be the Executive head.”
In December 1896, following the company’s acquisition of two failed coke furnaces, Carnegie wrote again to Leishman, complaining that he could not stand by and see their great concern reduced to the level of “speculators and Jim Cracks, men who pass as manufacturers, but who look to the market and not to manufacturing, and who buy up bankrupt concerns only to show their incapacity.”
It all took its toll upon Leishman, who sought out none other than Henry Clay Frick for advice. At this meeting Frick suggested a way out that Leishman found palatable.
Less than two weeks later Carnegie wrote the press release for a Frick-engineered scenario. The very able Mr. Leishman, it was tactfully explained, had resigned the presidency of Carnegie Steel and was about to embark on a cruise to Europe, where, following a suitable period of rest and recuperation, he would undertake to represent the company in its expanded and important operations on the Continent.
In other words, Leishman had been “sent abroad,” a favorite euphemism among Carnegie insiders. Out was a man of questionable pedigree, in was a mover and shaker, and Frick remained the man to be entrusted with such maneuvers. As Carnegie would write shortly after, while the board was pondering the acquisition of a floundering competitor, “I am sure the Bessemer which is now waddling can easily be made to fly. Her case is respectfully submitted to the attention of Dr. Henry Clay Frick, Surgeon and Physician—amputations may be necessary.”
24
GATHERING STORM
A GLANCE AT THE BALANCE SHEETS issued during the tenure of Charles Schwab as president of Carnegie Steel shows that his accomplishments were remarkable indeed. Net profits rose from $7 million in 1897 to an astounding $11.5 million in 1898. In 1899 the figure was $21 million. By 1900, Carnegie Steel would produce nearly 30 percent of the nation’s steel and show net earnings of $40 million.
Another statistic is nearly as telling. In 1892 the company’s profit of about $4 million represented a bit over 50 percent of the total cost of wages, which ran about $7.3 million. By 1899, however, net profits were just about double the $10.9 million paid in wages. If, as Carnegie was fond of saying, there was truly a partnership be
tween capital and labor, the latter group needed to call in its accountants.
Clearly, Schwab had heeded Frick and Carnegie’s lessons when it came to managing labor costs. And any misgivings that Carnegie had harbored about Schwab and his role in the armor-plating crisis seemed to have vanished. In early 1898, after Schwab had paid him a call in France, Carnegie wrote Frick, “Schwab’s visit has made a great impression upon me, and you are no doubt feeling as I do that a great load is off our shoulders. We have got the man, and having him, there is no reason why we should hesitate about going forward and keeping the lead.”
Though Carnegie had recently expressed some second thoughts to Frick about the practice of establishing partnerships for talented young managers (“We should now go very slow about increasing interests; they grow of themselves about ten per cent every year. . . . Just look over the amounts now held by the various young partners, and see how rapidly their interests increase”), he did not doubt their investment in Schwab. A few weeks after his first communiqué on Schwab, Carnegie wrote Frick again, “I hope you feel as I do that we have got the right man in the right place, also that he relieves you from much anxiety, as he certainly does me. I never felt so happy and contented in regard to our business as at the present time.” In fact, with Schwab at the helm, Carnegie felt comfortable enough to absent himself in Europe for the entire summer, until October 1898.
In addition, he had never felt closer to Frick. In March 1897, Carnegie, then sixty-one, became a father for the first time. The birth of his daughter, Margaret, became a conduit through which he and Frick—whose surviving daughter, Helen, was eight—could communicate. Here was a human dimension that had been lacking when Frick was in charge of the company.
Meet You in Hell Page 24