The Chairman

by Kai Bird

  In a far more public fashion, McCloy performed similar services in 1975–76 for Gulf Oil Corporation when the firm was implicated in a foreign bribery scandal. In order to avert a court battle, Gulf’s executives signed a consent decree which acknowledged that the company had paid more than $10 million in illegal political campaign contributions and bribes in the United States and abroad since 1959. As part of the settlement, Gulf agreed to appoint McCloy and two nonmanaging directors of Gulf to a special review committee to investigate what had happened to this money and which of its officers had known of the political slush fund. McCloy told reporters that Gulf needed an “independent figure,” and “I guess I was the only person they could find in a short time they could all agree on.”80

  Ten months later, he and his two colleagues submitted a 298-page report with six appendixes to the SEC. By law, the report was a public document, and though such reports are not usually popular fare, an enterprising publisher quickly recognized its commercial value as a remarkably readable exposé of the scandal. In the atmosphere of the mid-1970s, the American public was more than receptive to an accounting of corporate misdeeds. Issued in paperback, The Great Oil Spill: The Inside Report—Gulf Oil’s Bribery and Political Chicanery became a national best-seller. It described Gulf’s contributions to dozens of politicians in the United States, South Korea, and Italy as “shot through with illegality.” Altogether, some $12.3 million had been laundered through a Bahamian dummy corporation.81

  Fifteen days after the report’s release, the president of Gulf Oil, Robert R. Dorsey, and two other executives were fired. Once this was done, McCloy began giving interviews to reporters in which he attempted to limit the damage. The report included tantalizing allusions to the fact that Gulf’s practices were not unique. Other oil companies, including Shell and Exxon, were apparently involved in similar operations in Italy. But when Congress began making noises about enacting tough new reporting requirements on corporate payments of foreign commissions, McCloy testified that such laws would go too far. “Gratuities” given to low-level foreign officials, he said, shouldn’t be compared to secret slush funds. American corporations had already reformed their practices overseas: “The barn door is now well fastened,” he said.82

  In the end, Gulf was fined a mere $5,000, a minuscule amount for a corporation that ranked seventh in the nation, with annual sales of over $16 billion. By following McCloy’s counsel, and disciplining itself, the company probably averted legal and regulatory consequences far more serious than the dismissal of its chief executive officer. Gulf weathered the scandal precisely because it had in McCloy a man whose reputation as a guarantor of the public trust allowed him to wear two hats simultaneously, as public prosecutor and as corporate defender.

  By the spring of 1973, as the Watergate cover-up began to unravel, Richard Nixon became obsessed with saving his presidency. In an effort to restore a measure of his credibility, he swallowed some of his pride and reached out to the Establishment network he had always distrusted. That April, he assured Elliot Richardson—a Boston Brahmin lawyer who had served him as undersecretary of state, secretary of health, education, and welfare, and secretary of defense—that if he took the job of attorney general he would be empowered to “get to the bottom” of the Watergate case. Nixon affirmed his innocence and suggested that Richardson might approach a man like John J. McCloy for the job of special prosecutor. Such an appointment, he indicated, would demonstrate that he was willing to see justice done.83 When Richardson did select a special prosecutor, he turned to his Harvard law professor Archibald Cox, a Democrat.

  As Cox’s investigations subsequently linked the scandal closer to the White House, McCloy and other Establishment figures agonized over what was becoming a constitutional crisis. On May 17,1973—the day the Senate’s Watergate hearings opened on nationwide television—Averell Harriman called McCloy from Washington to say he thought “the New York Republican establishment should review the seriousness of the White House situation and take some action.” It had a responsibility “to get the President to clean up and put in some honorable people” to restore the White House’s credibility. “A General [Alexander Haig] and John Connolly is not doing it.” Someone like Barry Goldwater, he said, should talk to the president.

  McCloy said he would think about it, and called back four days later to say that he agreed something “ought to be done.” For one thing, the scandal was worrying international bankers: the dollar, he said, “couldn’t stand another devaluation without serious consequences.” He had tried to phone Herbert Brownell and David Rockefeller, but both men were out of town. He said he would talk to Nelson Rockefeller, and he agreed that someone should contact Goldwater. The Arizona senator wasn’t McCloy’s favorite politician, but he and Lew Douglas thought Goldwater might now be in a position to influence Nixon.84

  Later that summer, Goldwater went to see Nixon and, like Richardson, he came away convinced by the president’s assurances that he had not been involved in either the break-in or the cover-up. Though the Senate hearings continued to reveal an appalling story of deceit, pettiness, and vindictiveness, Nixon would manage to hold on to power for more than another year.85

  McCloy felt ambivalent about the scandal. He rather agreed with an editorial in the London Times that attacked the American media in general, the Washington Post in particular, and the Senate Democrats for blowing Watergate out of proportion.86 But after he watched some of the televised hearings early that summer, he wrote Lew Douglas, “The Watergate business is horribly depressing. The hearings go on with a succession of young men testifying to a mishmash of chicanery, intrigue and dissembling which casts a deep reflection on the leadership in the White House. Perhaps much of it is the usual pattern of politics in these days of ‘sophisticated’ techniques but it is very discouraging, disillusioning and really damaging, domestically and internationally.”87

  Douglas’s assessment was, as usual, more emotional. He saw the roots of the whole affair in the gradual accumulation of power in the White House, begun, he said, by Franklin Roosevelt, and now taken to an extreme by Nixon. But he could not have imagined “such a perfectly outrageously stupid and incalculably great act of deception and dishonesty as the Watergate affair.” He decided Nixon had to go, either by resignation or, if necessary, by impeachment.88

  McCloy, ever more cautious, wrote Douglas, “Impeachment would be a very damaging episode and how one would govern during the impeachment which could last from six to eight months I don’t know. I think no one contemplates this seriously. Resignation is another alternative which would also be damaging but perhaps less so than impeachment. The third alternative would be a reorganization of the Government either in coalition form or at least by gathering together in Washington a number of people in whose integrity the country would have full confidence and who would present such a real contrast to the group of young, irresponsible and power-minded kids that Nixon seems thus far to have gravitated toward.”

  McCloy seemed to be thinking that, if only one could surround the president with a few good “Stimsonians,” and thereby reassure the country that the Establishment, not Richard Nixon, was at the helm, then perhaps this distasteful Watergate business would go away. There were many problems with such an approach, not the least of which was that Nixon himself would have none of it. But, more to the point, the president faced serious legal charges which were not going to fade away, even if the entire roster of the Establishment moved into the White House as a caretaker government. “At some point,” McCloy admitted, “he [Nixon] has to make his defense, but just in what form, I really don’t know. If I were counsel to the President, I would not know what advice to give at this point. I do think it would be inappropriate and probably unwise for him to attempt to answer the charges before the full case is really in. . . .”

  To some extent, McCloy treated the affair as a public-relations problem, and he was tempted to rationalize what the Nixon White House had done as no worse than the politica
l skulduggery of previous administrations. When John Dean testified that Nixon had ordered the Internal Revenue Service to audit the tax returns of his “political enemies,” McCloy wrote Douglas, “I seem to remember that there was some White House stimulation for similar audits in the Roosevelt Administration. . . .” But he had to admit that, “whatever Administration undertook it, it was a poisonous instinct.”89

  For McCloy, Watergate was a matter of gross incompetence and simple buffoonery. This may explain why men like McCloy, Harriman, and other elder statesmen of the Establishment could do nothing to cut short the nightmare called Watergate. They had no standing with this peculiar president, a man who envied and hated what they represented.90

  “Mr. President,” Elliot Richardson had told Nixon when he accepted the job of attorney general, “I believe your real problem is that you have somehow been unable to realize that you have won—not only won, but been reelected by a tremendous margin. You are the President of all the people of the United States. There is no ‘they’ out there—nobody trying to destroy you. Even the people who didn’t vote for you want you to succeed.”91 Richard Nixon sat expressionless, and said nothing. He thought he knew otherwise.

  Six months later, Richardson resigned in the “Saturday Night Massacre” rather than fire Special Prosecutor Archibald Cox. Eventually, he became one of McCloy’s law partners at Milbank, Tweed and opened the law firm’s Washington office.

  Throughout the remainder of the 1970s, McCloy continued to represent some of Milbank, Tweed’s most lucrative corporate clients. He defended his oil-company clients before Senator Frank Church’s (Democrat from Idaho) Senate Subcommittee on Multinational Corporations, which spent months investigating the Seven Sisters. As a consequence, his monthly retainer from each of the five major American oil companies increased from $1,500 to $2,250 per month. In addition to the oil companies, he worked with AT&T, Westinghouse, and Olin Mathieson Chemical Corporation. Often such clients needed McCloy’s assistance in fending off antitrust threats from the Justice Department. But in the case of Westinghouse, McCloy was hired to do what he had done for Gulf Oil, conduct an in-house investigation of allegations that the company had paid large bribes, in this case to one of Philippine President Ferdinand Marcos’s cronies. As in the Gulf case, the SEC allowed Westinghouse to investigate itself, and McCloy was selected to do the job. He wrote a report that has never been released, and the SEC decided, after several years, not to prosecute the case.92

  In addition to this legal work, McCloy continued to serve on the boards of Dreyfus Corporation, the Mercedes Benz Corporation of North America, Olinkraft Inc., and the Squibb Corporation. These activities kept him busy and pretty much out of the limelight. After the publicity associated with the Gulf Oil scandal, he seemed to recede into the corporate woodwork of Wall Street. And when Jimmy Carter brought the Democrats back into control of the White House in 1976, McCloy had even less cause to be seen in the public eye. Carter and his people did not make any attempt to bring him within their inner circle. He was occasionally invited down to the White House, but as McCloy would learn, these invitations were more window-dressing than anything else. And as the Carter presidency began to flounder, McCloy found himself annoyed and angered by what he considered its incompetence.

  * * *

  I. The Pentagon Papers originated as a result of Robert McNamara’s request for a team of analysts to review how the United States had become involved in Vietnam. The resulting multivolume report contained thousands of pages of top-secret documents.

  II. Acheson had titled his 1969 memoir Present at the Creation.

  CHAPTER 28

  McCloy and the Iran-Hostage Crisis

  “To hell with Henry Kissinger. I am the President of this country.”

  JIMMY CARTER, 1979

  “National honor is more important than American lives.”

  JOHN J. MCCLOY, 1980

  Nothing so alarmed McCloy about the Carter administration as its handling of the Iran crisis in the autumn of 1978. McCloy regarded the Pahlevi regime as a loyal ally of more than three decades. It seemed to him that Carter’s people, with their emphasis on human rights and liberalization, had sapped the shah’s will to rule. McCloy regarded the shah as a U.S. strategic asset, a force for gradual modernization and stability in a region of the world notorious for instability. He saw great value in the Iranian military buildup of the 1970s, since it was rapidly turning the country into a strong regional power, capable of defending U.S. interests in the Persian Gulf.

  He also had long-standing private interests with the Pahlevi regime. Milbank, Tweed provided legal counsel not only to Chase Bank, but also to the shah himself.1 The Chase International Investment Corporation, which McCloy had established back in the 1950s, had several joint ventures in Iran. The shah maintained a personal account with Chase, and so too did his private family trust, the Pahlevi Foundation. Each year, the bank handled some $2 billion in Iranian Eurodollar transactions, and throughout the 1970s Iran had at least $6 billion on deposit at various Chase branches around the world. As one financial analyst put it, “Iran became the crown jewel of Chase’s international banking portfolio.”2 Chase also had on its books several outstanding loans to the regime, amounting to over $500 million. On a personal level, over the course of two decades McCloy had gotten to know the shah “very well.” He had attended his extravagant self-coronation at Persepolis in 1967, and he genuinely liked the monarch: “I always found him to be a statesmanlike fellow. . . . He wasn’t as anti-Jewish as the Arabs.”3 As a token of their friendship, each Christmas the shah sent the McCloys five pounds of fine Beluga caviar.4

  So, when mass demonstrations erupted in January 1978 and continued with such growing violence that it seemed the regime might collapse, McCloy thought Washington should be doing something to help the shah keep his throne. He was sure the only alternative to the shah was a communist regime. This was a country, after all, that bordered the Soviet Union. Fundamentalist Muslim clerics might at present be leading the demonstrations, but everything McCloy heard from the CIA and his own contacts in Iran suggested that the mullahs could not govern. That autumn, after a bloody massacre of civilian demonstrators by the shah’s troops, David Rockefeller told a private meeting of Chase Manhattan Bank employees that communists were directing the revolution.5 Rockefeller was not McCloy’s only source for this assessment of what was happening. In November, his old friend Robert Bowie—who was now serving as deputy director of the CIA—returned from Iran convinced that such left-wing forces as the Fedayeen and Mujahadeen guerrilla organizations and the communist Tudeh Party were managing the demonstrations from behind the scenes.6 Rockefeller and Bowie strongly reinforced McCloy’s presumption that the Carter administration should do something to stiffen the shah’s spine.

  McCloy, Kissinger, and both David and Nelson Rockefeller made their unhappiness known to the administration. Operating through the Council on Foreign Relations and their own network of contacts within the government, this private foreign-policy establishment began buttonholing administration officials and providing background briefings for the press. The Pahlevi regime, they argued, was still an “oasis” of stability and rationality. The shah’s opponents were extremists who could be handled with strong police action. And if the shah was displaying any lack of will, it was probably because he was receiving mixed signals from our embassy in Teheran.7 An Iran without the shah was unthinkable, and any analysis that failed to conform to this “shared view” was unsound.8

  This “group-think” became a critical factor in the bureaucratic tussle inside the Carter administration over Iran policy. Carter’s NSC adviser, Zbigniew Brzezinski, unreservedly endorsed the Establishment’s view of what should be done. Brzezinski aggressively used the crisis to strengthen his grip over the administration’s foreign policy, cutting out Secretary of State Cyrus Vance, another Establishment figure, who nevertheless disagreed with those who insisted there was no alternative to the shah.

 
By the end of October 1978, Iranian troops had killed some ten thousand demonstrators, and even the shah considered further repression fruitless. Back in Washington, however, few officials were ready to comprehend how far the situation had deteriorated.

  On November 2,1978, Brzezinski reported in a meeting at the White House situation room that he had received a phone call from Nelson Rockefeller. The former vice-president was worried and urged a “clear-cut U.S. stand in support of the Shah.”9 In response, Brzezinski proposed that a message be sent to Ambassador Sullivan instructing him to tell the shah that President Carter supported him “without reservation in the present crisis.” Brzezinski even managed to block suggestions from the State Department that the message should make some reference to elections or a coalition government. The shah, Brzezinski argued, should be free to take whatever action he thought necessary to stabilize the situation. Brzezinski won this argument and persuaded the president to link his prestige unequivocally to the shah’s survival.

  As late as May 1978, Carter’s ambassador in Teheran had reported that the regime was firmly in place, but by the autumn William Sullivan had changed his mind. On November 9, 1978, he wrote a cable entitled “Thinking the Unthinkable,” and recommended that private talks be opened with the Ayatollah Khomeini’s entourage in an attempt to broker a peaceful transition to a new coalition government composed of moderate elements in the opposition.10 Sullivan was not alone in this view. Henry Precht, one of the Foreign Service’s most knowledgeable Iran experts, believed the shah was completely isolated. But these views were not the administration’s.