The Go-Go Years (25 page)

An era of showoffs and shenanigans, then, of American enterprise parodying itself on a grand scale. But the conglomerate movement also had serious and dangerous consequences within the world of corporations. With Litton openly aiming at acquiring fifty companies a year and with dozens of lesser conglomerates eager for entry into the great world of conglomerate colossi, hardly any company anywhere in the country that had its stock on the market could feel safe from a takeover attempt at any time. As a result, executives who should have been devoting themselves to running their businesses found it prudent and often necessary to neglect such duties and spend much thought and energy on the financial maneuvers and the information-gathering necessary to anticipate or repel raids by voracious conglomerates. Some companies became battle-scarred veterans of the conglomerate wars. Allis-Chalmers weathered serious takeover attempts by Ling-Temco-Vought, Gulf and Western, and White Consolidated, one right after the other. After such an experience, how, one may wonder, could a senior Allis-Chalmers seneschal carry out his farm-machinery duties when at any moment some new raider might be secretly buying stock and readying the kind of tender offer that the other equity-holders would find it hard to refuse?

What with the arithmetic of stock multiples making it possible on occasion for smaller companies to take over much larger ones, size alone offered no protection. Every now and again, in the conglomerate era, a company minnow would successfully ingest a corporate whale, and the other monsters would tremble. Not until virtually the whole business community had been aroused in 1969 by the attempts of raffish Resorts International (formerly Mary Carter Paints) to take over Olympian Pan American World Airways, and of brash Leasco Data Processing to forceably marry matronly Chemical Bank, would the temporarily chastened conglomerates lose some of their appetite for prey bigger and more prestigious than themselves.

The defender against a hostile takeover was not without resources, however. On the contrary, a whole array of chesslike countermoves was available to him, and whole subdivisions of
law and public relations sprang up overnight to devote themselves entirely to planning and executing such strategy. The defender might, for example, adapt to his own purpose a conglomerate gambit and change his own accounting practices, thereby bringing about an instant and essentially spurious increase in his own reported earnings. Along the same lines, he might make his company harder to swallow by quickly doing a bit of swallowing himself—by taking over some other company. A shrewd variation of this move was to buy up a company that sold products in direct competition with some of those made by the aggressor conglomerate, in hopes of creating an antitrust obstacle to the takeover. Or he might use persuasion, issuing barrages of mailings and newspaper advertisements urging his stockholders not to traduce him by accepting the tender offer. If he had good government connections, he could go straight to Washington and get a legislator or two to introduce a bill specifically designed to forfend his engorgement (as Pan American did when it was purposefully eyed by Resorts International). Of course, his best defense of all was to persuade investors to bid up the price of his stock, thus achieving the same sort of defensive effect that a blowfish achieves in the presence of a hungry striped bass.

What came to be regarded as the classic defense was mounted in 1969 by B. F. Goodrich, the celebrated old-line rubber company, to foil a takeover attempt by Northwest Industries (clothing, pesticides, steel, and for a time the nation's only profitable commuter railroad, the Chicago and North Western). Goodrich used all of the methods just mentioned and some others besides. It changed its accounting methods so that its 1968 earnings appeared to have increased by $1.28 over 1967's, whereas under the old methods the increase would have been only forty-three cents. It achieved not one quickly planned merger of its own, but two. It bought newspaper ads to revile Northwest and its tactics. It changed its charter to provide for staggering the terms of its directors, so that regardless of who might own the stock, no aggressor could control the board for several years. Goodrich vigorously—or, in another view, ruthlessly—used its influence to get government intervention in
both its home state, Ohio, and in Washington, and it did this so successfully that the Ohio attorney general issued an injunction against the merger, while the Department of Justice brought an antitrust suit to block it. The defense won; B.F. Goodrich, an unexpectedly formidable old monster when aroused, survived unconsumed.

And all the while individual people, as well as corporations, were being profoundly affected. The executives, particularly the top executives, of the captured companies were subjected at worst to summary dismissal and at best to reshuffling and serious loss of morale. Occasionally a takeover was followed swiftly and grimly by mass firings among the victim's management, but even when, as more often happened, the victim was left to operate as a more or less autonomous division of the merged company with generally the same personnel, the executives were likely to be overtaken by apprehension and anomie. Each man's place in the company hierarchy, perhaps painfully won over many years, became meaningless if his new super boss, the conglomerator, didn't see things his way. Robert Metz told in
The New York Times
about an executive of an acquired company who observed that he and his colleagues had been given what he called the “mushroom treatment”: “Right after the acquisition, we were kept in the dark. Then they covered us with manure. Later they cultivated us. After that, they let us stew for a while. And, finally, they canned us.”

The economy and amour propre of whole communities became disrupted. Conglomerates' headquarters were mostly on the two coasts, and often enough their corporate victims resided in the cities in between. The result was the repeated reduction of mid-American cities' oldest established industries from independent ventures to subsidiaries of conglomerate spiderwebs based in New York or Los Angeles. Pittsburgh, for one, lost about a dozen important corporations through conglomerate mergers. To Andrew Carnegie's city, cradle of the steel industry, the conglomerate phenomenon was like a tornado that left it battered and shaken; it is unlikely to think of itself in quite the old way ever again.

Finally, there is the profound question of the vast social and
political power that conglomerates might derive, if they so wished, from their huge concentrations of wealth—and of how they might choose to exercise such power. For the most part, to all appearances, they chose not to try to exercise it at all. Preoccupied with further growth, internal organization, and raising profits, they stuck strictly to business and seldom sought to alter the social order or to usurp the functions of government. The looseness of their structures, just possibly the liberalism of their bosses, certainly their sheer busyness, all seemed to militate against such activity. Or so it appeared until the largest of them all, International Telephone and Telegraph, began to emerge as a monstrous exception.

Founded in 1920 as a communications service company operating outside the United States, I.T.T. in 1960 was still essentially that, its business overwhelmingly overseas, its assets just under the $1-billion mark and its net annual income around $30 million. That year its new president—Harold S. Geneen, flinty, British-born but naturalized an American in childhood, then just fifty and already spoken of as one of the most brilliant executives in the nation—began remolding it into a conglomerate giant. Nine years and more than one hundred mergers later, I.T.T. had amassed assets of $4 billion; its net income, running at an annual rate of $180 million, had gone up for forty-one consecutive quarters; and it had become the eleventh largest American corporation. Because of the breadth and importance of its acquisitions, its hand seemed to be everywhere in the American marketplace. As
Time
pointed out in 1972, a consumer who became annoyed with I.T.T. would have a hard time boycotting it: “He could not rent an Avis car, buy a Levitt house, sleep in a Sheraton hotel, park in an APCOA garage, use Scott's fertilizer or seed, eat Wonder Bread or Morton's frozen foods.… He could not have watched any televised reports of President Nixon's visit to China. … [He] would have had to refuse listing in
Who's Who:
I.T.T. owns that, too.”

Through the years of its growth under Geneen, I.T.T. had been generally thought of in the conservative business community as an atypical “good” conglomerate, its emphasis on real
growth, its takeovers nonhostile, its resorts to accounting tricks few. Even its stock-market performance was moderate by conglomerate standards; between the 1962 low and the 1968 high, its price hardly more than tripled. Even the style of its managers appealed to business conservatives. Taking their cue from the hard-driving and colorless Geneen, they refrained from building mansions or amassing art collections and devoted themselves with fierce dedication to unmitigated work. I.T.T. embodied the old Protestant ethic clad in new conglomerate clothes. It was the Establishment's conglomerate.

Not surprisingly, in view of these attitudes, I.T.T. was also the most Republican-oriented of conglomerates. And when, in 1969, after years of coexisting with Democratic regimes, it found itself with friends in power in Washington, I.T.T.—like so many earlier business enterprises that had found themselves in similar circumstances—seems to have lost its head and its Protestant ethic. Whether or not in 1971 it offered a contribution to the Republicans in exchange for a favorable settlement of a government antitrust suit remains in dispute (although the company's use of its now-famous paper shredder to destroy documents scarcely suggests a clear conscience). Most persuasive, however, is the clear evidence that in 1970 the company maneuvered—and offered to contribute $1 million—to block the election as president of Chile, where I.T.T. controlled the Chilean Telephone Company, of the Socialist Salvador Allende; or the evidence that, having failed to prevent Allende's election, I.T.T.'s self-designated proconsuls negotiated with the United States government at the White House level with a detailed plan, involving economic sabotage and the use of the Central Intelligence Agency, to bring about the overthrow of the Allende government.

The plan was turned down, but the damage was done. Here were shades of Manifest Destiny and gunboat diplomacy; here, naked and unashamed, was immense power without a sense of place, proportion, or responsibility, a planned attempt to enlist public officials to tamper with another nation's affairs in the cause of private profit. With the revelations, made in 1972 and
1973, I.T.T. came, with one stroke, to win the gold from General Motors as the ordinary man's prize symbol of consummate corporate arrogance and insensitivity. The sinister possibilities of conglomerates, including the multinational ones, for the first time exposed themselves to the public in a manner to cause not-soon-to-be-forgotten comment and concern.

8

Revitalizers of the moribund and modernizers of the obsolescent, or wreckers of lives, plunderers of cities, and meddlers in the affairs of nations, the conglomerates for a time made American boardrooms and executive suites into a takeover jungle where there were only the hunter and the hunted, and where fear and aggression dominated the world's greatest marketplace. But only for a time. It could not last, because—perhaps happily—the aggressors, sleek beasts of prey during the years of plenty, would in due course be revealed for the most part as stuffed and toothless tigers.

The start of the decline of conglomerates can be dated. By 1967 Litton Industries had become a gray eminence among conglomerates, its reputation impeccable, its stock soaring, its earnings rising steadily as they had been doing for a decade, its self-image so assured that it could decorate its annual report for that year with pictures of medieval stained glass “so that we may signify our respect and responsibility toward the achievements of the past.” No market expert on Litton, whether in Wall Street or in the company itself, seems to have dared dream that profits might not continue to rise in 1968. But that January, when Litton's top officers met at the company's Beverly Hills headquarters, a totally unanticipated state of affairs was revealed. Several of the divisions were discovered, apparently for the first time, to be in serious trouble; as a result, profits for the quarter ending January 31 would, it now became clear, fail to rise at all,
and in fact were headed substantially down. In simple words, business was decidedly off, and top management—so vast and various was the empire—hadn't seen it coming. Management control had been lost.

When the public earnings announcement was made—21 cents profit a share against 63 cents for the same quarter the previous year—in the stock market it was, as a Wall Street pundit put it, the day the cake of Ivory soap sank. Litton stock dropped 18 points in a week, and within a month or so it had lost almost half of its peak 1967 value. Gulf and Western and Ling-Temco-Vought slumped in apparent sympathy, and the first tremors of panic shook the whole conglomerate world.

It wasn't all over by any means; there would be some wild conglomerate maneuvers and some soaring conglomerate shares in the two years ahead. But the era was on its way to its end when, in January of 1968, it was shown for the first time that conglomerate management—even the best of it—could lose track entirely of the progress or regress of the far-flung enterprises it ostensibly controlled and thus fail utterly of its function. In short, the root theory of conglomeration might simply be wrong, its temporary success founded chiefly on the gullibility of the stock-buying public and its professional advisers.

CHAPTER VIII

The Enormous Back Room

1

It has become a commonplace for social commentators to say that 1968 was the year when the fabric of American life unravelled—when the moral ground shifted and quaked under American feet; when the political far left turned violent and took on ominous fieldmarks of the far right; when the democratic idealism and optimism of the mass of Americans seemed to become a delusion. In January, the U.S.S.
Pueblo,
on a mission of espionage, was seized in the Sea of Japan with its eighty-three-man crew by North Koreans, and so the mightiest nation in the world was humiliated both morally and physically by one of the smallest and weakest. In February, the Kerner commission on civil disorders, a formally constituted government body, affirmed what many Americans had uneasily come to suspect—that the black violence and riots of the previous year had been caused chiefly by a profound racism on the part of the white majority. In March—although it was not known until much later—American soldiers murdered hundreds of unarmed women and children at My Lai. At the end of that month, the
then President made a personal confession of failure by withdrawing from candidacy for re-election. In April, Martin Luther King, Jr., was murdered; in June, Senator Robert Kennedy. In May at Columbia University, students made a public mockery of parental and educational authority while parents and teachers stood by and let them. In August, there was disheartening police violence attending the national convention of the Democratic Party in Chicago. In December, when the United States astronauts Borman, Loveli, and Anders became the first men to see the far side of the moon, there were many of their countrymen too stunned by the year's events to feel properly proud.