by John Brooks
“Your what was gone?” Senator Kefauver asked.
“My air cover was gone,” replied Ginn. “I mean I had lost my air cover. Mr. Erben wasn’t around any more, and all of my colleagues had gone, and I was now working directly for Mr. Paxton, knowing his feelings on the matter.… Any philosophy that I had grown up with before in the past was now out the window.”
If Erben, who had not been Ginn’s boss since late in 1954, had been the source of his air cover, Ginn must have been without its protection for over two years, but, presumably, in the excitement of the price war he had failed to notice its absence. However that may have been, here he now was, a man suddenly shorn not only of his air cover but of his philosophy. Swiftly filling the latter void with a whole new set of principles, he circulated copies of 20.5 among his department managers in the turbine-generator division and topped this off by energetically adopting what he called a “leprosy policy”; that is, he advised his subordinates to avoid even casual social contacts with their counterparts in competing companies, because “once the relationships are established, I have come to the conclusion after many years of hard experience that the relationships tend to spread and the hanky-panky begins to get going.” But now fate played a cruel trick on Ginn, and, all unknowing, he landed in the very position that Paxton and Cordiner had been in for years—that of a philosopher vainly endeavoring to sell the Lord to a flock that declined to buy his message and was, in fact, systematically engaging in the hanky-panky its leader had warned it against. Specifically, during the whole of 1957 and 1958 and the first part of 1959 two of Ginn’s subordinates were piously signing 20.5 with one hand and, with the other, briskly drawing up price-fixing agreements at a whole series of meetings—in New York; Philadelphia; Chicago; Hot Springs, Virginia; and Skytop, Pennsylvania, to name a few of their gathering places.
It appears that Ginn had not been able to impart much of his shining new philosophy to others, and that at the root of his difficulty lay that old jinx, the problem of communicating. Asked at the hearings how his subordinates could possibly have gone so far astray, he replied, “I have got to admit that I made a communication error. I didn’t sell this thing to the boys well enough.… The price is so important in the complete running of a business that, philosophically, we have got to sell people not only just the fact that it is against the law, but … that it shouldn’t be done for many, many reasons. But it has got to be a philosophical approach and a communication approach.… Even though … I had told my associates not to do this, some of the boys did get off the reservation.… I have to admit to myself here an area of a failure in communications … which I am perfectly willing to accept my part of the responsibility for.”
In earnestly striving to analyze the cause of the failure, Ginn said, he had reached the conclusion that merely issuing directives, no matter how frequently, was not enough; what was needed was “a complete philosophy, a complete understanding, a complete breakdown of barriers between people, if we are going to get some understanding and really live and manage these companies within the philosophies that they should be managed in.”
Senator Hart permitted himself to comment, “You can communicate until you are dead and gone, but if the point you are communicating about, even though it be a law of the land, strikes your audience as something that is just a folklore … you will never sell the package.”
Ginn ruefully conceded that that was true.
THE concept of degrees of communication was further developed, by implication, in the testimony of another defendant, Frank E. Stehlik, who had been general manager of the G.E. low-voltage-switchgear department from May, 1956, to February, 1960. (As all but a tiny minority of the users of electricity are contentedly unaware, switchgear serves to control and protect apparatus used in the generation, conversion, transmission, and distribution of electrical energy, and more than $100 million worth of it is sold annually in the United States.) Stehlik received some of his business guidance in the conventional form of orders, oral and written, and some—perhaps just as much, to judge by his testimony—through a less intellectual, more visceral medium of communication that he called “impacts.” Apparently, when something happened within the company that made an impression on him, he would consult a sort of internal metaphysical voltmeter to ascertain the force of the jolt that he had received, and, from the reading he got, would attempt to gauge the true drift of company policy. For example, he testified that during 1956, 1957, and most of 1958 he believed that G.E. was frankly and fully in favor of complying with 20.5. But then, in the autumn of 1958, George E. Burens, Stehlik’s immediate superior, told him that he, Burens, had been directed by Paxton, who by then was president of G.E., to have lunch with Max Scott, president of the I-T-E Circuit Breaker Company, an important competitor in the switchgear market. Paxton said in his own testimony that while he had indeed asked Burens to have lunch with Scott, he had instructed him categorically not to talk about prices, but apparently Burens did not mention this caveat to Stehlik; in any event, the disclosure that the high command had told Burens to lunch with an archrival, Stehlik testified, “had a heavy impact on me.” Asked to amplify this, he said, “There are a great many impacts that influence me in my thinking as to the true attitude of the company, and that was one of them.” As the impacts, great and small, piled up, their cumulative effect finally communicated to Stehlik that he had been wrong in supposing the company had any real respect for 20.5. Accordingly, when, late in 1958, Stehlik was ordered by Burens to begin holding price meetings with the competitors, he was not in the least surprised.
Stehlik’s compliance with Burens’ order ultimately brought on a whole new series of impacts, of a much more crudely communicative sort. In February, 1960, General Electric cut his annual pay from $70,000 to $26,000 for violating 20.5; a year later Judge Ganey gave him a three-thousand-dollar fine and a suspended thirty-day jail sentence for violating the Sherman Act; and about a month after that G.E. asked for, and got, his resignation. Indeed, during his last years with the firm Stehlik seems to have received almost as many lacerating impacts as a Raymond Chandler hero. But testimony given at the hearings by L. B. Gezon, manager of the marketing section of the low-voltage-switchgear department, indicated that Stehlik, again like a Chandler hero, was capable of dishing out blunt impacts as well as taking them. Gezon, who was directly under Stehlik in the line of command, told the Subcommittee that although he had taken part in price-fixing meetings prior to April, 1956, when Stehlik became his boss, he did not subsequently engage in any antitrust violations until late 1958, and that he did so then only as the result of an impact that bore none of the subtlety noted by Stehlik in his early experience with this phenomenon. The impact came directly from Stehlik, who, it seems, left nothing to chance in communicating with his subordinates. In Gezon’s words, Stehlik told him “to resume the meetings; that the company policy was unchanged; the risk was just as great as it ever had been; and that if our activities were discovered, I personally would be dismissed or disciplined [by the company], as well as punished by the government.” So Gezon was left with three choices: to quit, to disobey the direct order of his superior (in which case, he thought, “they might have found somebody else to do my job”), or to obey the order, and thereby violate the antitrust laws, with no immunity against the possible consequences. In short, his alternatives were comparable to those faced by an international spy.
Although Gezon did resume the meetings, he was not indicted, possibly because he had been a relatively minor price-fixer. General Electric, for its part, demoted him but did not require him to resign. Yet it would be a mistake to assume that Gezon was relatively untouched by his experience. Asked by Senator Kefauver if he did not think that Stehlik’s order had placed him in an intolerable position, he replied that it had not struck him that way at the time. Asked whether he thought it unjust that he had suffered demotion for carrying out the order of a superior, he replied, “I personally don’t consider it so.” To judge by his answ
ers, the impact on Gezon’s heart and mind would seem to have been heavy indeed.
THE other side of the communication problem—the difficulty that a superior is likely to encounter in understanding what a subordinate tells him—is graphically illustrated by the testimony of Raymond W. Smith, who was general manager of G.E.’s transformer division from the beginning of 1957 until late in 1959, and of Arthur F. Vinson, who in October, 1957, was appointed vice-president in charge of G.E.’s apparatus group, and also a member of the company’s executive committee. Smith’s job was the one Ginn had held for the previous two years, and when Vinson got his job, he became Smith’s immediate boss. Smith’s highest pay during the period in question was roughly $100,000 a year, while Vinson reached a basic salary of $110,000 and also got a variable bonus, ranging from $45,000 to $100,000. Smith testified that on January 1, 1957, the very day he took charge of the transformer division—and a holiday, at that—he met with Chairman Cordiner and Executive Vice-President Paxton, and Cordiner gave him the familiar admonition about living up to 20.5. However, later that year, the competitive going got so rough that transformers were selling at discounts of as much as 35 percent, and Smith decided on his own hook that the time had come to begin negotiating with rival firms in the hope of stabilizing the market. He felt that he was justified in doing this, he said, because he was convinced that both in company circles and in the whole industry negotiations of this kind were “the order of the day.”
By the time Vinson became his superior, in October, Smith was regularly attending price-fixing meetings, and he felt that he ought to let his new boss know what he was doing. Accordingly, he told the Subcommittee, on two or three occasions when the two men found themselves alone together in the normal course of business, he said to Vinson, “I had a meeting with the clan this morning.” Counsel for the Subcommittee asked Smith whether he had ever put the matter more bluntly—whether, for example, he had ever said anything like “We’re meeting with competitors to fix prices. We’re going to have a little conspiracy here and I don’t want it to get out.” Smith replied that he had never said anything remotely like that—had done nothing more than make remarks on the order of “I had a meeting with the clan this morning.” He did not elaborate on why he did not speak with greater directness, but two logical possibilities present themselves. Perhaps he hoped that he could keep Vinson informed about the situation and at the same time protect him from the risk of becoming an accomplice. Or perhaps he had no such intention, and was simply expressing himself in the oblique, colloquial way that characterized much of his speaking. (Paxton, a close friend of Smith’s, had once complained to Smith that he was “given to being somewhat cryptic” in his remarks.) Anyhow, Vinson, according to his own testimony, had flatly misunderstood what Smith meant; indeed, he could not recall ever hearing Smith use the expression “meeting of the clan,” although he did recall his saying things like “Well, I am going to take this new plan on transformers and show it to the boys.” Vinson testified that he had thought the “boys” meant the G.E. district sales people and the company’s customers, and that the “new plan” was a new marketing plan; he said that it had come as a rude shock to him to learn—a couple of years later, after the case had broken—that in speaking of the “boys” and the “new plan,” Smith had been referring to competitors and a price-fixing scheme. “I think Mr. Smith is a sincere man,” Vinson testified. “I am sure Mr. Smith … thought he was telling me that he was going to one of these meetings. This meant nothing to me.”
Smith, on the other hand, was confident that his meaning had got through to Vinson. “I never got the impression that he misunderstood me,” he insisted to the Subcommittee. Questioning Vinson later, Kefauver asked whether an executive in his position, with thirty-odd years’ experience in the electrical industry, could possibly be so naive as to misunderstand a subordinate on such a substantive matter as grasping who the “boys” were. “I don’t think it is too naive,” replied Vinson. “We have a lot of boys.… I may be naïve, but I am certainly telling the truth, and in this kind of thing I am sure I am naïve.”
SENATOR KEFAUVER: Mr. Vinson, you wouldn’t be a vice-president at $200,000 a year if you were naïve.
MR. VINSON: I think I could well get there by being naïve in this area. It might help.
Here, in a different field altogether, the communication problem again comes to the fore. Was Vinson really saying to Kefauver what he seemed to be saying—that naïveté about antitrust violations might be a help to a man in getting and holding a $200,000-a-year job at General Electric? It seems unlikely. And yet what else could he have meant? Whatever the answer, neither the federal antitrust men nor the Senate investigators were able to prove that Smith succeeded in his attempts to communicate to Vinson the fact that he was engaging in price-fixing. And, lacking such proof, they were unable to establish what they gave every appearance of going all out to establish if they could: namely, that at least some one man at the pinnacle of G.E.’s management—some member of the sacred executive committee itself—was implicated. Actually, when the story of the conspiracies first became known, Vinson not only concurred in a company decision to punish Smith by drastically demoting him but personally informed him of the decision—two acts that, if he had grasped Smith’s meaning back in 1957, would have denoted a remarkable degree of cynicism and hypocrisy. (Smith, by the way, rather than accept the demotion, quit General Electric and, after being fined three thousand dollars and given a suspended thirty-day prison sentence by Judge Ganey, found a job elsewhere, at ten thousand dollars a year.)
This was not Vinson’s only brush with the case. He was also among those named in one of the grand jury indictments that precipitated the court action, this time in connection not with his comprehension of Smith’s jargon but with the conspiracy in the switchgear department. On this aspect of the case, four switchgear executives—Burens, Stehlik, Clarence E. Burke, and H. Frank Hentschel—testified before the grand jury (and later before the Subcommittee) that at some time in July, August, or September of 1958 (none of them could establish the precise date) Vinson had had lunch with them in Dining Room B of G.E.’s switchgear works in Philadelphia, and that during the meal he had instructed them to hold price meetings with competitors. As a result of this order, they said, a meeting attended by representatives of G.E., Westinghouse, the Allis-Chalmers Manufacturing Company, the Federal Pacific Electric Company, and the I-T-E Circuit Breaker Company was held at the Hotel Traymore in Atlantic City on November 9, 1958, at which sales of switchgear to federal, state, and municipal agencies were divvied up, with General Electric to get 39 percent of the business, Westinghouse 35 percent, I-T-E 11 percent, Allis-Chalmers 8 percent, and Federal Pacific Electric 7 percent. At subsequent meetings, agreement was reached on allocating sales of switchgear to private buyers as well, and an elaborate formula was worked out whereby the privilege of submitting the lowest bid to prospective customers was rotated among the conspiring companies at two-week intervals. Because of its periodic nature, this was called the phase-of-the-moon formula—a designation that in due time led to the following lyrical exchange between the Subcommittee and L. W. Long, an executive of Allis-Chalmers:
SENATOR KEFAUVER: Who were the phasers-of-the-mooners—phase-of-the-mooners?
MR. LONG: AS it developed, this so-called phase-of-the-moon operation was carried out at a level below me, I think referred to as a working group.…
MR. FERRALL [counsel for the Subcommittee]: Did they ever report to you about it?
MR. LONG: Phase of the moon? No.
Vinson told the Justice Department prosecutors, and repeated to the Subcommittee, that he had not known about the Traymore meeting, the phase-of-the-mooners, or the existence of the conspiracy itself until the case broke; as for the lunch in Dining Room B, he insisted that it had never taken place. On this point, Burens, Stehlik, Burke, and Hentschel submitted to lie-detector tests, administered by the F.B.I., and passed them. Vinson refused to take a lie-det
ector test, at first explaining that he was acting on advice of counsel and against his personal inclination, and later, after hearing how the four other men had fared, arguing that if the machine had not pronounced them liars, it couldn’t be any good. It was established that on only eight business days during July, August, and September had Burens, Burke, Stehlik, and Hentschel all been together in the Philadelphia plant at the lunch hour, and Vinson produced some of his expense accounts, which, he pointed out to the Justice Department, showed that he had been elsewhere on each of those days. Confronted with this evidence, the Justice Department dropped its case against Vinson, and he stayed on as a vice-president of General Electric. Nothing that the Subcommittee elicited from him cast any substantive doubt on the defense that had impressed the government prosecutors.
Thus, the uppermost echelon at G.E. came through unscathed; the record showed that participation in the conspiracy went fairly far down in the organization but not all the way to the top. Gezon, everybody agreed, had followed orders from Stehlik, and Stehlik had followed orders from Burens, but that was the end of the trail, because although Burens said he had followed orders from Vinson, Vinson denied it and made the denial stick. The government, at the end of its investigation, stated in court that it could not prove, and did not claim, that either Chairman Cordiner or President Paxton had authorized, or even known about, the conspiracies, and thereby officially ruled out the possibility that they had resorted to at least a figurative wink. Later, Paxton and Cordiner showed up in Washington to testify before the Subcommittee, and its interrogators were similarly unable to establish that they had ever indulged in any variety of winking.