by John Brooks
IN presenting the indictments in Philadelphia, Bicks stated that, considered collectively, they revealed “a pattern of violations which can fairly be said to range among the most serious, the most flagrant, the most pervasive that have ever marked any basic American industry.” Just before imposing the sentences, Judge J. Cullen Ganey went even further; in his view, the violations constituted “a shocking indictment of a vast section of our economy, for what is really at stake here is the survival of … the free-enterprise system.” The prison sentences showed that he meant it; although there had been many successful prosecutions for violation of the Sherman Act during the seven decades since its passage, it was rare indeed for executives to be jailed. Not surprisingly, therefore, the case kicked up quite a ruckus in the press. The New Republic, to be sure, complained that the newspapers and magazines were intentionally playing down “the biggest business scandal in decades,” but the charge did not seem to have much foundation. Considering such things as the public’s apathy toward switchgear, the woeful bloodlessness of criminal cases involving antitrust laws, and the relatively few details of the conspiracies that had emerged, the press in general gave the story a good deal of space, and even the Wall Street Journal and Fortune ran uncompromising and highly informative accounts of the debacle; here and there, in fact, one could detect signs of a revival of the spirit of old-time antibusiness journalism as it existed back in the thirties. After all, what could be more exhilarating than to see several dignified, impeccably tailored, and highly paid executives of a few of the nation’s most respected corporations being trooped off to jail like common pickpockets? It was certainly the biggest moment for business-baiters since 1938, when Richard Whitney, the former president of the New York Stock Exchange, was put behind bars for speculating with his customers’ money. Some called it the biggest since Teapot Dome.
To top it all off, there was a prevalent suspicion of hypocrisy in the very highest places. Neither the chairman of the board nor the president of General Electric, the largest of the corporate defendants, had been caught in the government’s dragnet, and the same was true of Westinghouse Electric, the second-largest; these four ultimate bosses let it be known that they had been entirely ignorant of what had been going on within their commands right up to the time the first testimony on the subject was given to the Justice Department. Many people, however, were not satisfied by these disclaimers, and, instead, took the position that the defendant executives were men in the middle, who had broken the law only in response either to actual orders or to a corporate climate favoring price-fixing, and who were now being allowed to suffer for the sins of their superiors. Among the unsatisfied was Judge Ganey himself, who said at the time of the sentencing, “One would be most naïve indeed to believe that these violations of the law, so long persisted in, affecting so large a segment of the industry, and, finally, involving so many millions upon millions of dollars, were facts unknown to those responsible for the conduct of the corporation.… I am convinced that in the great number of these defendants’ cases, they were torn between conscience and approved corporate policy, with the rewarding objectives of promotion, comfortable security, and large salaries.”
The public naturally wanted a ringleader, an archconspirator, and it appeared to find what it wanted in General Electric, which—to the acute consternation of the men endeavoring to guide its destinies from company headquarters, at 570 Lexington Avenue, New York City—got the lion’s share of attention both in the press and in the Subcommittee hearings. With some 300,000 employees, and sales averaging some four billion dollars a year over the past ten years, it was not only far and away the biggest of the twenty-nine accused companies but, judged on the basis of sales in 1959, the fifth-biggest company in the country. It also drew a higher total of fines ($437,500) than any other company, and saw more of its executives sent to jail (three, with eight others receiving suspended sentences). Furthermore, as if to intensify in this hour of crisis the horror and shock of true believers—and the glee of scoffers—its highest-ranking executives had for years tried to represent it to the public as a paragon of successful virtue by issuing encomiums to the free competitive system, the very system that the price-fixing meetings were set up to mock. In 1959, shortly after the government’s investigation of the violations had been brought to the attention of G.E.’s policymakers, the company demoted and cut the pay of those of its executives who admitted that they had been involved; one vice-president, for example, was informed that instead of the $127,000 a year he had been getting he would now get $40,000. (He had scarcely adjusted himself to that blow when Judge Ganey fined him four thousand dollars and sent him to prison for thirty days, and shortly after he regained his freedom, General Electric eased him out entirely.) The G.E. policy of imposing penalties of its own on these employees, regardless of what punishment the court might prescribe, was not adopted by Westinghouse, which waited until the judge had disposed of the case and then decided that the fines and prison sentences he had handed out to its stable of offenders were chastisement enough, and did not itself penalize them at all. Some people saw this attitude as evidence that Westinghouse was condoning the conspiracies, but others regarded it as a commendable, if tacit, admission that management at the highest level in the conniving companies was responsible—morally, at least—for the whole mess and was therefore in no position to discipline its erring employees. In the view of these people, G.E.’s haste to penalize the acknowledged culprits on its payroll strongly suggested that the firm was trying to save its own skin by throwing a few luckless employees to the wolves, or—as Senator Philip A. Hart, of Michigan, put it, more pungently, during the hearings—“to do a Pontius Pilate operation.”
EMBATTLED days at 570 Lexington Avenue! After years of cloaking the company in the mantle of a wise and benevolent corporate institution, the public-relations people at G.E. headquarters were faced with the ugly choice of representing its role in the price-fixing affair as that of either a fool or a knave. They tended strongly toward “fool.” Judge Ganey, by his statement that he assumed the conspiracies to have been not only condoned but approved by the top brass and the company as a whole, clearly chose “knave.” But his analysis may or may not have been the right one, and after reading the Kefauver Subcommittee testimony I have come to the melancholy conclusion that the truth will very likely never be known. For, as the testimony shows, the clear waters of moral responsibility at G.E. became hopelessly muddied by a struggle to communicate—a struggle so confused that in some cases, it would appear, if one of the big bosses at G.E. had ordered a subordinate to break the law, the message would somehow have been garbled in its reception, and if the subordinate had informed the boss that he was holding conspiratorial meetings with competitors, the boss might well have been under the impression that the subordinate was gossiping idly about lawn parties or pinochle sessions. Specifically, it would appear that a subordinate who received a direct oral order from his boss had to figure out whether it meant what it seemed to or the exact opposite, while the boss, in conversing with a subordinate, had to figure out whether he should take what the man told him at face value or should attempt to translate it out of a secret code to which he was by no means sure he had the key. That was the problem in a nutshell, and I state it here thus baldly as a suggestion for any potential beneficiary of a foundation who may be casting about for a suitable project on which to draw up a prospectus.
For the past eight years or so, G.E. had had a company rule called Directive Policy 20.5, which read, in part, “No employee shall enter into any understanding, agreement, plan or scheme, expressed or implied, formal or informal, with any competitor, in regard to prices, terms or conditions of sale, production, distribution, territories, or customers; nor exchange or discuss with a competitor prices, terms or conditions of sale, or any other competitive information.” In effect, this rule was simply an injunction to G.E.’s personnel to obey the federal antitrust laws, except that it was somewhat more concrete and compre
hensive in the matter of price than they are. It was almost impossible for executives with jurisdiction over pricing policies at G.E. to be unaware of 20.5, or even hazy about it, because to make sure that new executives were acquainted with it and to refresh the memories of old ones, the company formally reissued and distributed it at intervals, and all such executives were asked to sign their names to it as an earnest that they were currently complying with it and intended to keep on doing so. The trouble—at least during the period covered by the court action, and apparently for a long time before that as well—was that some people at G.E., including some of those who regularly signed 20.5, simply did not believe that it was to be taken seriously. They assumed that 20.5 was mere window dressing: that it was on the books solely to provide legal protection for the company and for the higher-ups; that meeting illegally with competitors was recognized and accepted as standard practice within the company; and that often when a ranking executive ordered a subordinate executive to comply with 20.5, he was actually ordering him to violate it. Illogical as it might seem, this last assumption becomes comprehensible in the light of the fact that, for a time, when some executives orally conveyed, or reconveyed, the order, they were apparently in the habit of accompanying it with an unmistakable wink. In May of 1948, for example, there was a meeting of G.E. sales managers during which the custom of winking was openly discussed. Robert Paxton, an upper-level G.E. executive who later became the company’s president, addressed the meeting and delivered the usual admonition about antitrust violations, whereupon William S. Ginn, then a sales executive in the transformer division, under Paxton’s authority, startled him by saying, “I didn’t see you wink.” Paxton replied firmly, “There was no wink. We mean it, and these are the orders.” Asked by Senator Kefauver how long he had been aware that orders issued at G.E. were sometimes accompanied by winks, Paxton replied that he had first observed the practice way back in 1935, when his boss had given him an instruction along with a wink or its equivalent, and that when, some time later, the significance of the gesture dawned on him, he had become so incensed that he had with difficulty restrained himself from jeopardizing his career by punching the boss in the nose. Paxton went on to say that his objections to the practice of winking had been so strong as to earn him a reputation in the company for being an antiwink man, and that he, for his part, had never winked.
Although Paxton would seem to have left little doubt as to how he intended his winkless order of 1948 to be interpreted, its meaning failed to get through to Ginn, for not long after it was issued, he went out and fixed prices to a fare-thee-well. (Obviously, it takes more than one company to make a price-fixing agreement, but all the testimony tends to indicate that it was G.E. that generally set the pattern for the rest of the industry in such matters.) Thirteen years later, Ginn—fresh from a few weeks in jail, and fresh out of a $135,000-a-year job—appeared before the Subcommittee to account for, among other things, his strange response to the winkless order. He had disregarded it, he said, because he had received a contrary order from two of his other superiors in the G.E. chain of command, Henry V. B. Erben and Francis Fairman, and in explaining why he had heeded their order rather than Paxton’s he introduced the fascinating concept of degrees of communication—another theme for a foundation grantee to get his teeth into. Erben and Fairman, Ginn said, had been more articulate, persuasive, and forceful in issuing their order than Paxton had been in issuing his; Fairman, especially, Ginn stressed, had proved to be “a great communicator, a great philosopher, and, frankly, a great believer in stability of prices.” Both Erben and Fairman had dismissed Paxton as naïve, Ginn testified, and, in further summary of how he had been led astray, he said that “the people who were advocating the Devil were able to sell me better than the philosophers that were selling the Lord.”
It would be helpful to have at hand a report from Erben and Fairman themselves on the communication technique that enabled them to prevail over Paxton, but unfortunately neither of these philosophers could testify before the Subcommittee, because by the time of the hearings both of them were dead. Paxton, who was available, was described in Ginn’s testimony as having been at all times one of the philosopher-salesmen on the side of the Lord. “I can clarify Mr. Paxton by saying Mr. Paxton came closer to being an Adam Smith advocate than any businessman I have met in America,” Ginn declared. Still, in 1950, when Ginn admitted to Paxton in casual conversation that he had “compromised himself” in respect to antitrust matters, Paxton merely told him that he was a damned fool, and did not report the confession to anyone else in the company. Testifying as to why he did not, Paxton said that when the conversation occurred he was no longer Ginn’s boss, and that, in the light of his personal ethics, repeating such an admission by a man not under his authority would be “gossip” and “talebearing.”
Meanwhile, Ginn, no longer answerable to Paxton, was meeting with competitors at frequent intervals and moving steadily up the corporate ladder. In November, 1954, he was made general manager of the transformer division, whose headquarters were in Pittsfield, Massachusetts—a job that put him in line for a vice-presidency. At the time of Ginn’s shift, Ralph J. Cordiner, who has been chairman of the board of General Electric since 1949, called him down to New York for the express purpose of enjoining him to comply strictly and undeviatingly with Directive Policy 20.5. Cordiner communicated this idea so successfully that it was clear enough to Ginn at the moment, but it remained so only as long as it took him, after leaving the chairman, to walk to Erben’s office. There his comprehension of what he had just heard became clouded. Erben, who was head of G.E.’s distribution group, ranked directly below Cordiner and directly above Ginn, and, according to Ginn’s testimony, no sooner were they alone in his office than he countermanded Cordiner’s injunction, saying, “Now, keep on doing the way that you have been doing, but just be sensible about it and use your head on the subject.” Erben’s extraordinary communicative prowess again carried the day, and Ginn continued to meet with competitors. “I knew Mr. Cordiner could fire me,” he told Senator Kefauver, “but also I knew I was working for Mr. Erben.”
At the end of 1954, Paxton took over Erben’s job and thereby became Ginn’s boss again. Ginn went right on meeting with competitors, but, since he was aware that Paxton disapproved of the practice, didn’t tell him about it. Moreover, he testified, within a month or two he had become convinced that he could not afford to discontinue attending the meetings under any circumstances, for in January, 1955, the entire electrical-equipment industry became embroiled in a drastic price war—known as the “white sale,” because of its timing and the bargains it afforded to buyers—in which the erstwhile amiable competitors began fiercely undercutting one another. Such a manifestation of free enterprise was, of course, exactly what the intercompany conspiracies were intended to prevent, but just at that time the supply of electrical apparatus so greatly exceeded the demand that first a few of the conspirators and then more and more began breaking the agreements they themselves had made. In dealing with the situation as best he could, Ginn said, he “used the philosophies that had been taught me previously”—by which he meant that he continued to conduct price-fixing meetings, in the hope that at least some of the agreements made at them would be honored. As for Paxton, in Ginn’s opinion that philosopher was not only ignorant of the meetings but so constant in his devotion to the concept of free and aggressive competition that he actually enjoyed the price war, disastrous though it was to everybody’s profits. (In his own testimony, Paxton vigorously denied that he had enjoyed it.)
Within a year or so, the electrical-equipment industry took an upturn, and in January, 1957, Ginn, having ridden out the storm relatively well, got his vice-presidency. At the same time, he was transferred to Schenectady, to become general manager of G.E.’s turbine-generator division, and Cordiner again called him into headquarters and gave him a lecture on 20.5. Such lectures were getting to be a routine with Cordiner; every time a new employee was assigne
d to a strategic managerial post, or an old employee was promoted to such a post, the lucky fellow could be reasonably certain that he would be summoned to the chairman’s office to hear a rendition of the austere creed. In his book The Heart of Japan, Alexander Campbell reports that a large Japanese electrical concern has drawn up a list of seven company commandments (for example, “Be courteous and sincere!”), and that each morning, in each of its thirty factories, the workers are required to stand at attention and recite these in unison, and then to sing the company song (“For ever-increasing production/Love your work, give your all!”). Cordiner did not require his subordinates to recite or sing 20.5—as far as is known, he never even had it set to music—but from the number of times men like Ginn had it read to them or otherwise recalled to their attention, they must have come to know it well enough to chant it, improvising a tune as they went along.
This time, Cordiner’s message not only made an impression on Ginn’s mind but stuck there in unadulterated form. Ginn, according to his testimony, became a reformed executive and dropped his price-fixing habits overnight. However, it appears that his sudden conversion cannot be attributed wholly to Cordiner’s powers of communication, or even to the drip-drip-drip effect of repetition, for it was to a considerable extent pragmatic in character, like the conversion of Henry VIII to Protestantism. He reformed, Ginn explained to the Subcommittee, because his “air cover was gone.”