The Chairman

by Kai Bird

  Debevoise at this point was willing to concede to Ford’s demands. But, given Wyzanski’s eloquent appeal, Gaither called Ford that evening and tried to explain the trustees’ reluctance. The auto executive emphatically rejected Gaither’s explanation and threatened over the phone to call the whole deal off. Upon hearing this the next morning, a shocked group of trustees quickly agreed to surrender. Even Judge Wyzanski backed down: “I assumed if we maintained a firm position there would be a cave-in on the other side. . . . I was mistaken. . . . Frankly, I think there might be a national disaster, nothing less, if this negotiation now got hung up, taking into account the magnitude of the stock issue, the delicacy of the financial markets, and the consequences not merely national but international.” McCloy himself weighed in with similar sentiments, citing the “potential consequences to the Foundation and indeed to the financial markets of the country. . . .” He now felt it was their duty to vote Ford his personal indemnification; in quick order, the trustees so voted.119 Private interests had once again prevailed.

  On the afternoon of January 17, 1956, trading opened for the first time on the New York Stock Exchange for shares of Ford Motor Company. The stock offering was greatly oversubscribed, and very soon afterward a smiling McCloy posed for cameramen as the underwriters handed him a check for the astonishing figure of $640,725,445. This represented the sale of only 22 percent of the motor company’s total stock; under McCloy’s direction, the Foundation retained some 67 percent of the company’s equity and only gradually sold off this stock, milking it for all it was worth. The last piece of Ford stock wasn’t disposed of until 1974.120 The successful stock flotation of 1956, however, secured for the Ford Foundation a financial legacy unmatched by any other philanthropic institution in the world. It had become, in the words of Dwight Macdonald, writing in The New Yorker, a whale among a school of tuna fish. Among his colleagues on the board, McCloy received considerable credit for the success of the venture. In terms of crude financial criteria, shepherding this unprecedented stock offering to its successful conclusion was a remarkable feat for any lawyer or banker. McCloy was both. Through a combination of his patience, his legal abilities, and his intimate knowledge of Wall Street, he could claim credit for helping to create a major American institution of the postwar years. That he did so while simultaneously preserving the private power and wealth of the Ford dynasty is not incidental.

  * * *

  I. W. Alton “Pete” Jones was president of Cities Services Co., a Texas oil company; William Robinson was an advertising-and-sales executive of the New York Herald Tribune; Robert Tyre Jones was president of the Joroberts Corporation, which marketed Coca-Cola abroad; Bob Woodruff was another Coca-Cola executive; Sid Richardson was an independent and wealthy Texas oil man; and Dillon Anderson was a Houston lawyer.

  CHAPTER 22

  Ike’s Wise Man

  “Don’t ever underestimate John McCloy’s power.”

  SAMUEL KOPPER, 1956

  Soon after the January 1956 flotation of Ford stock, McCloy found himself flying across the Atlantic, bound for an extensive tour of the Middle East. He had been planning such a trip for many months. Deposits in Chase accounts by oil-producing countries in the Middle East were a small but growing part of the bank’s business. Since the successful merger of Chase National and the Bank of Manhattan, resistance within the bank to expansion abroad had weakened. Late in 1955, McCloy hosted a large dinner meeting attended by Baker, Ebbott, Champion, and other Chase officials. In the words of one Chase officer, “. . . the decision was taken and orders given: we were going to expand abroad.”1

  There were other good reasons for making the trip in early 1956. McCloy’s predecessor, Winthrop Aldrich, had toured the Middle East in 1950; though this led to the opening of a Chase branch in Beirut in 1952, Aldrich had failed in his attempts to persuade the Saudi royal family to allow Chase to open a branch in Jedda. Chase did, however, become the personal banker for King Abdul-Aziz Ibn Saud, and the kingdom’s central bank began using Chase as a foreign depository. Oil royalties from ARAMCO were rising, but at the same time expenditures by the royal family and the government increased at such a rate in the early 1950s that the kingdom was frequently forced to apply to ARAMCO for advances on future royalty payments. (ARAMCO actually regarded these sums as foreign taxes which could then be deducted from its U.S. tax bill, a ploy known in the business as the “Golden Gimmick.”) The situation became even worse when King Abdul Aziz died in 1953 and was succeeded by his eldest son, Saud, who by 1956 was engaged in a major spending spree. ARAMCO officials in Dhahran initially agreed to pay early royalties to King Saud only on the condition that the funds be deposited with Chase Manhattan. When, sometime in late 1955 or early 1956, ARAMCO officials heard that Saud intended to transfer one such large Chase account to a Swiss bank, they quickly went to McCloy with the news. In the interest of preserving the oil consortium’s amiable relations with the King, ARAMCO’s officers asked McCloy to intercede. Would he, they asked, consent to be the bearer of bad tidings and as diplomatically as possible inform the king that (a) if he withdrew funds from the Chase account for deposit in Switzerland, ARAMCO would no longer be willing to pay royalties in advance, and (b) he would have to restrict the kingdom’s expenditures?2

  McCloy agreed, and on February 7, 1956, he and his party arrived in Beirut. Accompanying him was his good friend and fellow banker Henry C. Brunie, president of the Empire Trust Co. Also along for part of the trip were two Chase officials, Vice-President Kenneth Hill and oil consultant Joseph Pogue. Chase’s representative in Beirut, Frank Howard, checked everyone into the Saint George, an elegant hotel perched on a corner of the city’s beautiful corniche. The Saint George’s seaside bar was then the watering hole for local journalists, diplomats, and spies—of which there were plenty in Lebanon in those years.3 McCloy quickly discovered that a fellow Council on Foreign Relations member, Samuel K. C. Kopper, was in town and had also taken a suite at the Saint George. Trained as a lawyer, Kopper had worked on Palestinian affairs as deputy director of the State Department’s Bureau of Near Eastern Affairs from 1947 to 1949. He had resigned in disgust over Truman’s Middle East policies, which he perceived as too pro-Israeli. During the 1952 campaign, he served as a foreign-policy adviser to Adlai Stevenson, and later was hired by ARAMCO as a political adviser and troubleshooter. Kopper was a man who knew his way around the Middle East.4

  One day that week, while McCloy and Kopper were sitting on the terrace of the Saint George, sipping their drinks and gazing over the blue-green waters of the Mediterranean, a young acquaintance of Kopper’s appeared on the terrace. Kopper introduced him to McCloy as Colonel Wilbur Crane Eveland. Ostensibly attached to the U.S. Embassy as a military attaché, Eveland had actually been personally hired by Allen Dulles as a free-lance, roving agent, authorized to report directly to Dulles back in Washington. An Arabic linguist, Eveland could tell stories about rendezvous with various Arab leaders, including Egypt’s Gamal Abdel Nasser and Lebanon’s Camille Chamoun. He was a classic CIA “bagman” who on at least one occasion during his intelligence career drove to Damascus with a suitcase filled with cash in order to finance a coup d’état. He also happened to have worked with McCloy’s favored old aide from the War Department, Colonel Al Gerhardt, so the two men quickly felt at ease with each other. Years later, Eveland remembered McCloy as the “bustling, bald guy” whom he had heard so much about from Gerhardt.5

  Like McCloy, Eveland was scheduled to be in Damascus in a couple of days, so, when McCloy offered him a seat on the DC-3 plane he had chartered, Eveland accepted. During the short flight across the Lebanese mountains, McCloy openly discussed his mission. The conversation drifted into a discussion of the Saudis, their border dispute with the British over the Buraimi oasis, and King Saud’s willingness to fund the destabilization of the Hashemite monarchies in Jordan and Iraq. He told Dulles’s agent that Chase was receiving “constant” requests for loans against future oil royalties and that the king�
�s interference against the Hashemites was undermining long-term U.S. interests.

  In Damascus they parted company, and Eveland immediately cabled Allen Dulles an account of his conversation with McCloy. When he later told this to Kopper, the ARAMCO official laughed and said, “Colonel, you’ve still got so much to learn. . . . Don’t ever underestimate John McCloy’s power.” He then explained to the young agent that McCloy had no doubt talked to Dulles before leaving New York and would be speaking to King Saud and other heads of state with the full knowledge of Washington.6

  After briefly seeing the U.S. ambassador in Damascus, McCloy flew on to Saudi Arabia, where he first met with ARAMCO officials in Dhahran. U.S. Ambassador James J. Wadsworth joined them from Jedda for these discussions. On the agenda were a number of complicated political and economic problems. There was the delicate matter of the rumored Saudi intention to transfer one of their large Chase accounts to Switzerland. Then there was the problem of the king’s erratic foreign policies: motivated by a combination of both fear and admiration for Colonel Nasser’s brand of Arab nationalism, King Saud was at the moment trying to place himself in the good graces of the charismatic Egyptian leader. Intelligence reports suggested that Saudi money was behind some of Nasser’s latest arms purchases and various covert operations in Jordan and Iraq aimed at destabilizing these Hashemite monarchies, traditionally the tribal rivals of the House of Saud. It was clear that such displays of Saudi meddling abroad could prove to be troublesome. The Saudi claim to the Buraimi oasis on their border with the British-controlled Trucial States had recently resulted in armed clashes with British-led troops. McCloy had been briefed on all of these issues back in Washington. One recent intelligence report had concluded that the House of Saud was “a tribal dynasty trying to play the role of a twentieth century nation-state.” The results, said the report, “are contradictory policies and growing instability.”7

  One could, of course, attempt to rein in King Saud by restricting the flow of oil money. Strong-arm tactics like that were actually contemplated by such influential opinion-makers as Henry Luce. About the same time McCloy was visiting Saudi Arabia, Luce wrote a private memo in which he observed, “If the fact is that Saudi Arabia is acting as an enemy of the United States and her allies, the U.S. is entitled to take steps to put an end to such hostile action. If that means turning off the ARAMCO taps then we turn them off.”8

  McCloy was not inclined to such rash threats. For one thing, it made no economic sense. Forecasts of rising world oil consumption over the next ten years suggested that Saudi oil production must double from its current level of one million barrels per day. Though at the moment there might be some temporary budgetary shortfalls because of King Saud’s excessive spending, in the years ahead the king could count on large oil revenues. Clearly, the long-term solution was to find some way to commit the Saudis to an ambitious economic-development scheme in order to keep their revenues at home—and out of mischief.9 With this goal in mind, McCloy flew on to Riyadh for meetings with the king, Crown Prince Faisal, and the Saudi finance minister. The capital of Saudi Arabia in those years was nothing but a mud-brick village, which was being torn apart by construction crews. They were demolishing Saud’s old palace—built at a cost of 4 million English pounds—and had built a self-contained royal township, complete with traffic lights, a hospital, several mosques, gardens, and a palace modeled after the Beverly Hills Hotel. The entire complex was surrounded by a seven-mile pink-washed wall standing fifteen feet high. McCloy’s entourage was driven to this desert Disney World and entered the complex through a huge triumphal archway. Inside, they were taken to the king’s conference room, where the negotiations commenced. As gently as possible, McCloy delivered his message: a budget would have to be followed; credits on advance ARAMCO “taxes” could not be extended unless these monies were kept in Chase accounts, where they could be monitored; and Saud was urged to join the World Bank, which could then help him mount an ambitious development program for his people. McCloy emphasized throughout his presentation that, though present finances might be short, the kingdom could expect to see its oil revenues rise dramatically in the near future. All that was required was patience and cooperation with their American friends in ARAMCO. This was a message the Saudis could digest.

  McCloy was put up in the king’s Nasariyah Palace long enough to learn a few details of Saud’s legendary sexual appetite and his ability to imbibe vast quantities of alcohol. Henry Luce described what McCloy must have seen, in a memo he wrote from the king’s Jedda palace two months later: “The preoccupation of the palace is copulation and since the life of the nation is centered on the King, it is the King’s Kinsey report that is at the center of Saudi life. You will be pleased to hear that the number of pregnancies in the harem at the moment is exactly 22. . . . By the way, girls are also supplied to the harem from the U.S.”10

  From Riyadh, McCloy flew to Baghdad on February 19, 1956. Over the next three days, he saw the king, the crown prince, the ministers of economics, finance, and development, and the real power in the country at the time, Prime Minister Nuri Said. The prime minister himself had requested the meeting with McCloy, and in advance of the meeting had told a U.S. diplomat that he specifically wished to discuss the credits extended by Chase to the Saudis. Forewarned, McCloy entered the meeting and immediately volunteered to explain Chase’s position in Saudi Arabia. Nuri Said obviously wanted to know why Chase was giving the Saudis the money they needed to fund antigovernment activities in Iraq. McCloy first tried to explain that Chase’s credits to the Saudis were not really loans, but merely advance payments on taxes owed by ARAMCO. But then, according to the State Department’s report on the meeting, McCloy “freely admitted that the huge royalties Saudi Arabia was deriving from oil, unless channeled in productive enterprises, posed a serious problem for Saudi Arabia and the area.” He assured Said that he had told King Saud as much earlier in the week.11

  Such high-level conversations with foreign leaders constituted a special form of private diplomacy. King Saud, Prince Faisal, and Prime Minister Nuri Said were all quick to appreciate McCloy’s power—the power of money. This was not merely another representative of the U.S. government, or even a private envoy of the U.S. president. This was a man who on the basis of his own authority and contacts could provide material aid to a country desperate for Western investments. The Iraqi prime minister had other expectations of McCloy. After making his pitch to see that Chase would do what it could to restrict Saudi intelligence operations in his country, Nuri Said pressed McCloy to use his influence to see that Iraq’s most recent request to the World Bank for development loans would be approved.12

  Upon returning to the United States in late February, McCloy quickly scheduled a meeting with the president. Over lunch on March 20, he regaled Ike for more than an hour with exotic stories about his trip.13 In the meantime, he had already arranged for Eugene Black, president of the World Bank, to visit Saudi Arabia and arrange for Saudi membership in the Bank. Black happened to be in the Middle East already, negotiating with Nasser over possible World Bank funding for the Aswan High Dam. Extending his trip to Iran, Black suddenly received an invitation from King Saud to visit Riyadh. One of the royal family’s own planes flew to Teheran and ferried him back to Arabia for an audience with the king. Saud’s eagerness to join the Bank rather puzzled Black until he returned to Washington and learned of McCloy’s intervention. The kingdom formally signed the World Bank protocols in August 1957.14

  This was only the first of many trips McCloy made out to the Middle East. A success in terms of protecting Chase’s ARAMCO interests in Saudi Arabia, the trip had also exposed him to the rising tide of Arab nationalism in the region. For some time, he had felt that Foster Dulles’s efforts to enlist various Arab and Asian countries to join military pacts against the Soviet Union were apt to backfire. In the wake of his trip to the Middle East, he was now convinced that such military pacts would bring U.S. policy into conflict with the basic forc
es of nationalism sweeping these countries. That spring, he expressed these criticisms of Dulles’s policies in a book generated by the Council on Foreign Relations’ Study Group on U.S.-Soviet Relations. McCloy had been meeting with this group for more than two years at the CFR. Edited by Henry L. Roberts, director of the Russian Institute at Columbia University, the book was scheduled for publication in May 1956 by Harper & Brothers. As chairman of the Council, and a major participant in the study group’s deliberations, McCloy wrote the foreword.

  McCloy’s foreword drew far more attention and newspaper headlines, particularly in Europe, than the book itself. Among other things, he argued that the United States should accept the “neutrality” of many Asian and African countries, shift away from the current emphasis on military alliances, and move in the direction of offering these countries “constructive political and economic solutions” to their problems. In the Middle East, he said, a new effort should be made to resolve the Israeli-Arab conflict over Palestine. In a not very veiled criticism of Foster Dulles’s demand that countries pass an ideological litmus test before becoming eligible for U.S. economic assistance, McCloy again suggested, as he had in earlier speeches critical of Joe McCarthy, that there should be more to U.S. foreign policy than a crusade against communism. “The American public has good reason to guard against subversion,” he wrote, “but we must not shrink from our own faith that free exchanges of ideas are our strength and that ultimately they will prevail.”