Carnegie swallowed his pride and agreed, with one stipulation. Neither he nor any of his loyal partners would attend the signing of the agreement in Atlantic City if Henry Clay Frick were allowed to be present. Frick did not attend, in fact. His interests were represented by Francis Lovejoy and Henry Phipps, who quickly dealt with the terms creating the new Carnegie Company.
As a result of the agreement, signed on March 19, 1900, Henry Clay Frick would remove himself from any role in the management of the new company. In return, he would receive about $15.5 million in stock and nearly $16 million in 5-percent first-mortgage bonds. It was a tidy sum compared to the $1.5 million pittance he would have received under the Iron Clad Agreement, and also a sight better than if the Moore deal had gone through. Incidentally, Frick also received some relief in the dispute over coke prices: the two would split the difference, with Carnegie paying HCF Coke half of its outstanding bill.
Perhaps it had cost him a job and the friendship of Andrew Carnegie. Then again, he had $31 million with which to console himself.
27
MONEY, HAPPINESS
IF THE SETTLEMENT OF 1900 MARKED the last time that the affairs of Henry Clay Frick and Andrew Carnegie would directly intersect, it was hardly the end of things between them. Though each had declared “divorce” from the other—forevermore—and though each would throw himself into the pursuit of interests that apparently diverged from the other’s, it is clear now that much of what these two men undertook over the last nineteen years of their lives was profoundly influenced by the immensity of all that had passed between them since 1892.
In the aftermath of the settlement, Frick wrote to A. R. Whitney, one of the partners who stood by him, “I get what is due me. All well. I, of course, have not met this man Carnegie and never expect or want to.”
Carnegie, who had received nearly $175 million as his share of the reorganized company, seemed pleased as well. He wrote Andrew Mellon that company profits for the month of March 1900 alone were more than $5 million. If the ratio of profits against capitalization were not what they were when the company was valued at $25 million, the prospect of a net of $40 million or more for the coming year was hardly “hay.”
When a sniping cable arrived at Skibo that summer, saying, “You are being outgeneraled all along the line, and your management of the Company has already become the subject of jest,” Carnegie dismissed it out of hand. After all, it had been signed by a disgruntled former employee, some forgotten fellow named Frick. As Carnegie blithely pointed out in a letter written to his cousin Dod, “Isn’t it wonderful we are to have such a good year.”
In truth, Carnegie was facing a serious challenge. Those combines created by the Moores and others that he had once sneered at—along with J. P. Morgan’s Federal Steel, which he had lampooned as “the greatest concern the world ever saw for manufacturing stock certificates”—had introduced a new wrinkle into the competitive mix. Instead of being content to purchase from Carnegie the raw steel from which they made such finished products as wire and nails and tubes and tin plate, they had begun to produce steel billets themselves, pioneering the concept of vertical integration.
Carnegie had not been blind to such possibilities himself, and had authorized the purchase of those disputed lands along the Monongehela from Frick to build a tubing plant. But he faced opposition concerning these and other undertakings from partners who balked at the cost of retooling for the manufacture of additional finished products. Many of the senior partners were getting on; they wanted to increase dividends and enjoy the fruits of their investments, not tie up capital in projects that might not come to fruition until well after they were in the grave.
The emergence of these new vertical entities caused Carnegie and Schwab to reevaluate the situation. When American Steel and Wire, American Hoop, and National Tube threatened to cancel orders from Carnegie unless their terms were met, Schwab estimated that it would cost them about 40,000 tons of production. He suggested to Carnegie that they immediately invest $1.4 million to build plants that would produce their own steel rods, nails, and wire. Carnegie agreed. “Only one policy open,” he wrote from Scotland, “start at once hoop, rod, wire, nail mills, no half way about . . . have no fear as to result, victory certain. Spend freely for finishing mills, railroads, boat lines. Continue to advise.”
He was nearing the age of sixty-five, but Carnegie’s competitive instincts were as keen as ever. When Schwab reported that his careful analysis convinced him that they could build a new steel tube-making plant on property the company owned at Conneaut, Ohio, on Lake Erie, and beat the price of J. P. Morgan’s National Tube by ten dollars a ton, Carnegie didn’t hesitate. Carnegie Steel would never kowtow to such craven manipulators as the Moore brothers and “Bet A Million” Gates. Instead they would compete head-to-head.
“Go ahead and build the plant,” he told Schwab.
Another advantage to the plan was the fact that Carnegie Steel could use its own rail line to carry coke from Pittsburgh to Conneaut to fuel the furnaces, then use the same cars to return to Pittsburgh with Minnesota iron ore offloaded at the Conneaut docks. Thus they could transport the raw materials for virtually nothing.
The news was disheartening to the likes of J. P. Morgan, to say the least. Morgan understood the folly of a long-term battle with the Carnegie Company, a firm that controlled its own sources of raw materials, transport, and manufacture, and that was far more deeply capitalized than his or any other of the upstarts. They might stay in the game for a while, and they might put a dent in Carnegie’s armor, but in the end, Carnegie would run them into the ground, every one.
In Morgan’s mind there was only one course of action, and he did not hesitate. Key to his plan was Carnegie’s alter ego, Charles Schwab.
On the night of December 12, 1900, Schwab attended a testimonial dinner in his honor, given by a group of bankers at New York’s University Club. When it came time for Schwab to speak, he rose to deliver an oration that described an industrial future for steelmaking and fabrication the likes of which no one had ever heard. Listening raptly to this picture of the perfectly organized vertical institution, which would banish forever the need for wasteful competition and ensure monumental profits produced at prices that would bankrupt any foolhardy interlopers, was none other than J. P. Morgan, who had been seated at Schwab’s right hand.
Following the address, Morgan leaned over to Schwab and suggested that the two of them had much to discuss. A delighted Schwab agreed. A few weeks later he returned to New York for a meeting with Morgan, Gates, and Morgan’s partner, Robert Bacon.
It took the whole of the night, but in the end this group gave to Schwab’s utopian concepts a habitation and a name. The United States Steel Corporation would be the embodiment of all that Schwab had envisioned. Only one question remained:
How much would it take to get Andrew Carnegie to sell?
WITHIN A WEEK SCHWAB HAD RETURNED to New York, though his first visit was not to Carnegie, but to Carnegie’s wife, Louise. He confirmed to her the rumors that had been swirling around the city since that clandestine meeting of steel’s new supermen, and then sought Louise’s advice about how best to approach her husband on the matter.
Louise Carnegie, who at the time was immersed in plans for building their grand new home at 91st Street and Fifth Avenue, expressed pleasure at the prospect of a sale and of her husband finally severing his ties with the all-consuming world of business. She suggested that Schwab arrange a golf date with Carnegie for the following day. Carnegie, who had taken up the game at the age of sixty-three, had become obsessed with it. He told Louise that virtually nothing else had such a therapeutic effect on his spirits.
Schwab arranged the game—at Westchester County’s St. Andrew’s Club—and amazingly enough, Carnegie found himself the winner. Over lunch, Schwab may not have admitted throwing the golf match, but he made a clean breast of his intentions. He was sitting across from Carnegie with what was essentially a blank chec
k. What figure did Carnegie want him to insert?
Carnegie was hardly surprised by Schwab’s recital, but he was thoughtful just the same. He would sleep on it, he said, and they would meet the following morning.
We cannot know what went through Carnegie’s mind during those twenty-four hours, but it is easy enough to speculate. He was sixty-five, and yet a new father and husband to a young and vital wife. There were good years to be lived and a chance to step away from the strife that had consumed him—even at a distance—for a dozen years or more. Best of all was the prospect of stepping away on his own terms:
“Name your price, Andy. Just name your price.” Schwab’s words echoed in his mind.
And that was exactly what he did. When Schwab returned the next morning, Carnegie ushered him into his study, where they sat on either side of a handsome, burled desk. Carnegie produced a sheet of paper and moistened the tip of a pencil with his tongue.
Schwab watched, intrigued, as Carnegie quickly scrawled his notes. When he was finished, Carnegie handed the sheet over and waited as Schwab read what was written:
Capitalization of Carnegie Company: $160,000,000 bonds to be exchanged at par for bonds in new company $160,000,000
$160,000,000 stock to be exchanged at rate of $1,000 share of stock in Carnegie Company exchanged for $1,500 share of stock in new company $240,000,000
Profit of past year and estimated profit for coming year $80,000,000
Total price for Carnegie Company and all its holdings $480,000,000
There was but one further stipulation: his own shares as well as those of his cousin George Lauder and his brother Tom’s widow would have to be paid in the form of 5-percent bonds. Carnegie wanted no part of being a shareholder in the new company.
Schwab glanced at the document only briefly. Carnegie had named his price. The next step was to go to Morgan.
When Morgan examined this penciled document, he glanced casually up at Schwab and said, simply, “I accept this price.” With that, one of the most storied deals in the history of American business had been done.
A few days later Morgan phoned Carnegie and invited him down to his Wall Street offices to shake hands on the agreement. Carnegie said he reckoned it no farther from Morgan’s office to his home on West 51st Street than the other way around.
Morgan was not about to stand on ceremony. In short order he arrived at Carnegie’s home, where the two met briefly to confirm the terms of the agreement. As he was leaving, Morgan took Carnegie’s hand and said, “Mr. Carnegie, I want to congratulate you on being the richest man in the world.”
Whether that was an overstatement is difficult to say. But Carnegie’s share—about $225 million—did represent the largest liquid fortune in the world at the time. His bonds, along with Dod’s and those of brother Tom’s widow, Lucy, totaling nearly $300 million, were deposited directly into a specially built vault at the Hudson Trust Company of Hoboken.
To Dod he wrote, “All seems right about Steel matter—no hitch—so be it.” A rather terse summary for the end of the most successful business career in history.
28
IN THE WINGS
CARNEGIE, COUSIN GEORGE LAUDER, and his sister-in-law were not the only ones to become rich from that momentous transaction. Henry Phipps saw his share in the new company suddenly transformed into $50 million. Told of the news on his sickbed during a bout of bronchitis, Phipps managed to respond, “Ain’t Andy wonderful.”
And another beneficiary was one Henry Clay Frick. His interest in the newly formed United States Steel Corporation was $61.4 million, a sizable stake even in a firm capitalized at $1.1 billion (the first ever to break the billion-dollar barrier).
If Carnegie relished the prospect of retirement, Frick evidently did not. While it would be taxing for a man of fifty-one to be the chief executive officer of a concern as vast as the new United States Steel, he made it known he would be willing to consider the possibility. Carnegie lobbied hard against that possibility, however, and it is likely that others among the old guard also let their feelings be known. In the end, Charles Schwab was elected president of the new company, though Frick was voted onto the board of directors.
The arrangement did not last long. Less than two years into his tenure, often at odds with the “outsiders” who had purchased the Carnegie Company, and piqued by Frick’s continuing influence on the board, Schwab resigned, to be replaced by Elbert H. Gary, one of the firm’s original architects. Gary remained at the helm of U.S. Steel for more than twenty-six years, until his death in 1927. And for more than fifteen of those years, he counted on the advice of his partner and senior board member, Henry Clay Frick.
Although Frick would remain active in the affairs of U.S. Steel until nearly his dying day, his attitudes and assumptions began to change, if for no other reason than a need to accommodate himself to an entirely new group of associates who owed him little. Interviewed by a reporter for the New York World in 1905, Frick made what for him was a momentous concession. No longer could any company find its way by running roughshod over its competition, Frick said. “Gradually the whole fabric of American industry, commerce, and finance has grown into intersupporting relationships, the result of a sensible understanding of the present and the future.”
It is debatable whether the man who had once thrown a striking miner into a creek had altogether lost the desire to grind the competition into dust. But he had at least learned to pay lip service to the concept of mutual dependency.
THERE IS LITTLE TO INDICATE whether Frick’s softened stance on competition extended to labor relations, for his days in active management were well behind him. In addition to his membership on the board of U.S. Steel, Frick ventured into banking, helping to found the Union Trust Company along with his old friend, Andrew Mellon, and joining the board of the Mellon National Bank when it was incorporated in 1902. In subsequent years he would become a board member of several other banking and insurance companies and serve as the secretary-treasurer of the Diamond Light and Power Company.
His longtime interest in rail led him to sizable investment in and board membership on the Reading Railroad, the Chicago and Northwestern, the Union Pacific, the Atchison, Topeka and Santa Fe, the Baltimore & Ohio, and the Norfolk & Western. With the acquisition of 168,000 shares of Pennsylvania Railroad stock, he ascended in 1906 to the directorate of Carnegie’s old employer and his former freight-rate nemesis. By that time Frick had become the largest individual owner of railway stock in the United States, a distinction that helped lead to the passage of the Clayton Act of 1914, which put an end to interlocked railroad boards and the rate- and price-fixing activities that such corporate incest encouraged.
Frick also became more active in politics, and backed former Carnegie Steel legal adviser Philander C. Knox as attorney general during William McKinley’s second term. In 1904 Knox attempted to return the favor by offering to have Frick appointed as Pennsylvania senator to replace Matthew Quay. But Frick declined that post and others, among them offers to become secretary of the treasury under both McKinley and Theodore Roosevelt.
Roosevelt also attempted to entice Frick to chair the committee on the feasibility of the Panama Canal, but once again Frick declined. He was by no means averse to wielding political influence or seeking its favors, but devoting his own time to the duties of a bureaucrat seemed out of the question.
One of Frick’s principal occupations during the years following the sale of the Carnegie Company to Morgan was the acquisition of real estate in and around Pittsburgh, which he continued assiduously until 1904, by which time he had become the largest single owner of property in the city. Real-estate speculation, he knew, was a profitable undertaking, but one of his acquisitions suggests that there were other motivations as well.
In 1900, despite the laments of citizens and editorial writers, the attractive St. Peter’s Episcopal Church at the corner of Grant and Diamond Streets in downtown Pittsburgh had been sold to developers. When Frick learned th
at the property was available, he bought it for $180,000 and commissioned the noted Chicago architect Daniel Burnham, who had led the architectural design of the Chicago World’s Fair and designed Washington, D.C.’s Union Station, to draw up plans for the Frick Building. Burnham, a Beaux Arts devotee, created a twenty-story office tower of white granite-encased steel, in the classical Greek style, with a soaring lobby and stained-glass windows by La Farge.
The building, named a national historic landmark in 1978, might have been an unalloyed source of pride for the city were it not for a curious coincidence: it was built immediately east of the fifteen-story (and far more modest) Carnegie Building. As one newsman aptly (if somewhat inaccurately) editorialized, “To build a 14 storey [sic] building and then to have your former chum build a 22 storey building to shut out its light is not much different from the temper displayed when one boy, building a sand mound, finds that his former chum is undermining it to build another beside it.”
Frick would have probably denied the charge, but E. R. Graham, a partner in the firm of Burnham and Company who knew both Carnegie and Frick well, told Wall Street Journal editor Clarence Barron that, in his opinion, Frick had “poisoned himself with hatred for Carnegie.” And indeed, in the aftermath of Carnegie’s testimony before the 1912 Stanley commission, which sought to dissolve U.S. Steel, Frick wrote his former partner a letter suggesting that little had changed since the day he had gone after Carnegie with fists flying.
“The result [of the aborted Moore brothers sale and matters before the committee] is that there is now in the public archives a permanent record of charges against Messrs. Frick and Phipps of untruthfulness, chicanery, dishonesty, infidelity to associates, avarice and double-dealing; and these perjured records are backed by the name of a man whose public gifts may hereafter erroneously be supposed to represent his private virtues.” Twelve years after the incidents, Frick was still thundering his outrage. “This is an intolerable condition and must be relieved,” he concluded.
Meet You in Hell Page 27