9780141991221

‘General Electric was once the most important, powerful and influential company on earth – and this is the definitive story of what happened next. A rollicking and fascinating tale of corporate brilliance, bitter infighting, business daring and monied folly that illuminates not just General Electric, but the world’

P EN GUIN P RES S P OWER FAIL URE

charles duhigg

‘Monumental … Read Power Failure, and it is instantly clear how important brilliant people are to business success – and how their brilliance can become a dangerous vulnerability’ economist

‘At its heart is a tale of human genius, ambition, conflict and hubris involving a cast of big personalities … the book also provides a vivid panorama of economic change … Cohan is unsurpassed in bringing business alive on the page’ m a r t i n va n d e r w e y e r , l i t e r a ry r e v i e w

‘A heavyweight cautionary tale about how the reputation of one-time corporate titans such as Jack Welch can be floored by over-reach and ambition’

WILLIAM D. COHAN POWER FAILURE

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Author photograph © Jonno Rattman

Date: 19/08/2023 – 06/02/2023 Designer: Jim/Æ Prod. Controller: Pub. Date: ISBN: 9780141991221

POWER FAILURE

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POWE R FAILU R E ‘Cohan’s gripping chronicle of GE is told with thoroughness and flair . . . Cohan captures that drama exceptionally well . . . backed by impressive research and remarkable access to the key actors’ John Plender, Financial Times ‘The rise and fall of GE is explained as the product of individual men and their mercurial decisions, yet its fate has a wider significance. It ought to be a warning: cost-cutting, outsourcing and financial speculation produce a warped model of value that is liable to collapse’ Hettie O’Brien, Guardian ‘With the sweep and authority of an accomplished historian, the digging of a fearsome investigative reporter, and the storytelling skills of a novelist, Bill Cohan takes us from the 19th Century birth of GE, to its rise as America’s most valued company in the 20th, and to its near death in the 21st.

With incredible access to Jack Welch and the major actors in this drama, he paints a panoramic view of America and of capitalism, how it has changed and still must’ Ken Auletta ‘Through the story of GE, Cohan gives a gripping account of what has changed about the United States and its people’ Will Dunn, New Statesman ‘Cohan rides this wild tale like a racehorse to the bitter end.

It’s all here: the birth of this most American of inventive American companies and the triumphs, flaws and missteps to come. If at 130 years old, GE has indeed fallen, this masterful work remains’ Mark Seal ‘For most of our lives GE was one of the familiar, trusted U.S. companies, and in the early 2000s still the biggest company on earth. In one generation this icon of the American corporate imperium has turned into an icon of American corporate failure. We’re fortunate that the great business chronicler William Cohan has now applied his extraordinary reporting skills and lucid, knowing prose to tell this story in breathtaking detail from beginning to bitter end. Power Failure is fascinating and definitive’ Kurt Anderson

‘This epic tale of arguably the most dominant corporation in American history has it all: money, power, sex and larger-than-life characters, from Thomas Edison to “Teflon Jack” Welch and beyond. Cohan’s fine pacing and narrative flair make for a page-turner that becomes a compelling story of American capitalism itself’ Jonathan Alter ‘Power Failure by William Cohan is a tour de force of reporting, a deeply researched chronicle of the flawed personalities and dysfunctional company politics that led General Electric, once hailed as the great American corporate success, to self-destruct. The story reads like a tragedy’ Liaquat Ahamed

a bo u t the au tho r William D. Cohan is the New York Times bestselling author of The Price of Silence, Money and Power, House of Cards, and The Last Tycoons, which won the 2007 FT/Goldman Sachs Business Book of the Year Award. He is a special correspondent at Vanity Fair and writes a biweekly opinion column in The New York Times. He has also written for the Financial Times, Bloomberg BusinessWeek, ­Fortune, The Atlantic, The Nation, and The Washington Post, among other publications. Cohan is a graduate of Duke University, Columbia ­University School of Journalism, and the Columbia University Graduate School of Business.

POWER POWER FAILURE FAILURE The The Rise Rise and and Fall Fall of of an an American American Icon Icon General Electric

W IL W IL LI LI A MA M D. D. COH COH A NA N

P O R TP FOORLTIFOO L I OP E N GP U E INNG U I N

P EN GU I N B O O K S

PENGUIN BOOKS UK | USA | Canada | Ireland | Australia India | New Zealand | South Africa Penguin Books is part of the Penguin Random House group of companies whose addresses can be found at global.penguinrandomhouse.com.

First published in the United States of America by Portfolio, an imprint of Penguin Random House LLC 2022 First published in Great Britain by Allen Lane 2022 Published in Penguin Books 2023 001 Copyright © William D. Cohan, 2022 The moral right of the author has been asserted Printed and bound in Great Britain by Clays Ltd, Elcograf S.p.A. A CIP catalogue record for this book is available from the British Library The authorized representative in the EEA is Penguin Random House Ireland, Morrison Chambers, 32 Nassau Street, Dublin D02 YH68 978-0-141-99122-1

www.greenpenguin.co.uk Penguin Random House is committed to a sustainable future for our business, our readers and our planet. This book is made from Forest Stewardship Council® certified paper.

To Deb, Teddy, and Quentin

Contents Contents

Prologue Prologue

SI A SI SCONSET A SCONSET

1

1

11

11

26

26

38

38

54

54

77

77

Chapter Chapter One One

A CH A ICH L DIOF L D TOF WO T WO FATFAT H ERHSER S Chapter Chapter Two Two

T WO T WO CR ISE CR ISE S S Chapter Chapter Three Three

T H ET H BAT E BAT T L ETOF L E TOF H ET H A IERWAV A I RWAV ES ES Chapter Chapter FourFour

T H ET H I NCR E I NCR EDIEDI BL EBL ELEECT EL ECT R ICA R ICA L CONSPI L CONSPI R ACRYAC Y Chapter Chapter Five Five

JACK JACK F ROM F ROM PL APL STAIC STS IC S Chapter Chapter Six Six

T H ET H BEN E BEN IGNIGN C YCL C YCL E OFE POW OF POW ER ER

101 101

Chapter Chapter Seven Seven

R EGR A EG N DA N JACK D JACK

111 111

Chapter Chapter EightEight

T H ET H BRE ABR S SARSISNG R I NG

146 146

Chapter Chapter NineNine

GROW GROW I NGI NG PA I PA NSI NS

157 157

Chapter Chapter Ten Ten

T H ET H NEW N EJACK W JACK PACK PACK

169 169

Chapter Chapter Eleven Eleven

A TAALTA E OF L E TOF WO T WO ACQU ACQU ISITISIT IONS IONS

190 190

Chapter Chapter Twelve Twelve

T H ET H BAENBA KN OF K GEN OF GEN ER AER L EL A LECT EL ECT R ICR IC

210 210

Chapter Chapter Thirteen Thirteen

TOPTOP OF TOF H ET H ROCK E ROCK

228 228

Chapter Chapter Fourteen Fourteen

W HW EEL H EEL I N ’ IANN’ DA N DE D ADE L IANL’ I N ’

244 244

Chapter Chapter Fifteen Fifteen

E A RENAIRNGS N I NGS M A NAGEM M A NAGEM EN TEN T

268 268

Chapter Chapter Sixteen Sixteen

T H ET H BAEKBA E-KOF E-FOF F

286 286

Chapter Chapter Seventeen Seventeen

H A BEM H A BEM US PA USPA PAMPA M

339 339

Chapter Chapter Eighteen Eighteen

ON EON G OOD E G OOD DAYDAY

373 373

Chapter Chapter Nineteen Nineteen

DI LU DITLU I NG T I NG T H ET H BLEOB BL OB

419 419

Chapter Chapter Twenty Twenty

I M AGI I M AGI NATNAT IONION AT WOR AT WOR K K

457 457

Chapter Chapter TwentyTwentyOne One

T H ET H BLEI BL N DI N SPOT D SPOT

465 465

Chapter Chapter TwentyTwentyTwo Two

BU RBU N IRNG N I NG F U RFNUIT R NUIT R EU R E

523 523

Chapter Chapter TwentyTwentyThree Three

POW POW ER M ERA N MAN

549 549

Chapter Chapter TwentyTwentyFourFour

I F YOU I F YOU ST RST I KREI AT K E TAT H ET H K IENG K I NG

598 598

Chapter Chapter TwentyTwentyFive Five

A FOX A FOX GUAGUA R DIRNG DI NG T H ET H E ENHHOUSE EN HOUSE

612 612

Chapter Chapter TwentyTwentySix Six

EISEN EISEN HOW HOW ER ER

655 655

Chapter Chapter TwentyTwentySeven Seven

T H ET H L AEST L AEM ST PEROR EM PEROR

703 703

Chapter Chapter TwentyTwentyEightEight

W HO W HO L OST L OST GE?GE?

718 718

Epilogue Epilogue

ST. ST. PATPAT R ICK R ICK ’S CAT ’S CAT H EDR H EDR AL AL

734 734

Author’s Author’s NoteNote

739 739

Acknowledgments Acknowledgments

749 749

A Note A Note on Sources on Sources

753 753

Notes Notes

759 759

IndexIndex

781 781

TheThe Blind Blind MenMen and and the Elephant the Elephant It was It was six men six men of Indostan, of Indostan, To learning To learning much much inclined, inclined, WhoWho wentwent to see to the see Elephant the Elephant (Though (Though all ofallthem of them werewere blind), blind), ThatThat eacheach by observation by observation Might Might satisfy satisfy his mind. his mind.

The The FirstFirst approached approached the Elephant, the Elephant, AndAnd happening happening to fall to fall Against Against his broad his broad and and sturdy sturdy side,side, At once At once began began to bawl: to bawl: “God“God blessbless me!— me!— but the but Elephant the Elephant Is very Is very like like a wall!” a wall!”

The The Second, Second, feeling feeling of the of tusk, the tusk, Cried, Cried, “Ho!— “Ho!— whatwhat havehave we here we here So very So very round round and and smooth smooth and and sharp? sharp?

To me To ’tme is ’t mighty is mighty clear, clear, ThisThis wonder wonder of anofElephant an Elephant Is very Is very like like a spear!” a spear!”

The The Third Third approached approached the animal, the animal, AndAnd happening happening to take to take The The squirming squirming trunk trunk within within his hands, his hands, ThusThus boldly boldly up and up and spake: spake: “I see,” “I see,” quoth quoth he, “the he, “the Elephant Elephant Is very Is very like like a snake!” a snake!”

The The Fourth Fourth reached reached out an outeager an eager hand, hand, AndAnd felt about felt about the knee: the knee: “What “What mostmost this this wondrous wondrous beast beast is like is like Is mighty Is mighty plain,” plain,” quoth quoth he; he; “ ’T is “ ’T clear is clear enough enough the Elephant the Elephant Is very Is very like like a tree!” a tree!”

The The Fifth, Fifth, whowho chanced chanced to touch to touch the ear, the ear, Said:Said: “E’en “E’en the blindest the blindest manman Can Can tell what tell what this this resembles resembles most; most; DenyDeny the fact the fact whowho can,can, ThisThis marvel marvel of anofElephant an Elephant Is very Is very like like a fan!” a fan!”

The The SixthSixth no sooner no sooner had had begun begun About About the beast the beast to grope, to grope, Than, Than, seizing seizing on the on swinging the swinging tail tail ThatThat fell within fell within his scope, his scope, “I see,” “I see,” quoth quoth he, “the he, “the Elephant Elephant Is very Is very like like a rope!” a rope!”

AndAnd so these so these menmen of Indostan of Indostan Disputed Disputed loudloud and and long,long, EachEach in his in own his own opinion opinion Exceeding Exceeding stiff stiff and and strong, strong, Though Though eacheach was was partly partly in the in right, the right, AndAnd all were all were in the in wrong! the wrong!

— JOH —N JOH G ODFR N G ODFR E Y SA EY X ESA(1872) X E (1872)

ThisThis was was American American capitalism. capitalism.

GE was GE was America.

America.

— U. S—. U. T RSE. A TR SU E RY A SUSECR RY SECR ETA RY ETA RY H ENH RY ENM. RYPAU M. LPAU SONL SON JR. JR.

POW POW ERER FAFA ILUR ILUR EE

Prologue

SIASCONSET

T

he Nantucket Golf Club is so exclusive that there is no sign for it off Milestone Road, the six-mile artery that connects the quaint

and historic town of Nantucket, where the ferries pull in after the thirty-mile trip from the mainland of Massachusetts, to Siasconset (often shortened to “Sconset”), the old fishing and artists’ village on the far eastern edge of the island. If you make the mistake of turning onto the club’s long driveway without a member, or an appointment to visit with one, you’ll be stopped by security at the gatehouse a couple of hundred yards up the road and told to turn around.

The membership fee at the Nantucket Golf Club these days is $475,000 per person, more than double the $200,000 that investment banker Edmund Hajim corralled from about fifty initial members when he first conceived of the club in 1995 as an alternative to the nearby and infinitely snootier Sankaty Head Golf Club. At Sankaty Head, founded in 1923, the waiting list for membership is said to be decades, at best, although it’s never been clear whether that’s simply a ruse to keep out the unwanted, or whether the demand to get in justifies the waiting list. Sankaty Head secretes old-money charm and

2 – 2P O – WPEORWFA E RI LFA UR I LEU R E

shabby shabby gentility. gentility.

Membership Membership duesdues are much are much cheaper cheaper at Sankaty at Sankaty Head, Head, assuming assuming you you can can get in, getand in, and so itso also it also includes includes among among its ranks its ranks a disa disproportionate proportionate number number of the of the yearyearround round residents residents whowho would would be unbe unlikely likely to afford to afford the the pricier pricier confines confines of the of the Nantucket Nantucket GolfGolf Club.

Club.

AndAnd afterafter Columbus Columbus DayDay weekend, weekend, the official the official end end of the of “season” the “season” on Nanon Nantucket, tucket, anyone anyone can can playplay a round a round of golf of golf at Sankaty at Sankaty for about for about $25.$25.

But But that’s that’s not even not even remotely remotely the same the same as being as being a member. a member.

Some Some say Sankaty say Sankaty Head Head is changing; is changing; in recent in recent years, years, a few a few JewsJews havehave beenbeen added added as memas membersbers and and the cheap the cheap afterafterseason season access access to the to golf the golf course course seems seems to have to have disappeared. disappeared.

Hajim, Hajim, nownow eightyeightysix years six years old, old, got tired got tired of waiting of waiting for Sankaty for Sankaty to let tohim let him in, despite in, despite his qualifications. his qualifications.

A fine A fine golfer, golfer, his Horatio his Horatio Alger Alger story story reads reads like like thatthat of, well, of, well, Horatio Horatio Alger Alger himself. himself.

After After he was he was bornborn in Los in Los Angeles Angeles intointo a failing, a failing, dysfunctional dysfunctional family, family, his his parents parents di- divorced vorced when when he was he was three three and and thenthen his father his father kidnapped kidnapped himhim and and toldtold himhim his mother his mother had had dieddied in childbirth, in childbirth, eveneven though though she was she was veryvery much much alive. alive.

His His father father lost lost all his all money his money in the in Depression. the Depression.

He overcame He overcame these these setbacks. setbacks.

He received He received a scholarship a scholarship to the to Unithe University versity of Rochester of Rochester and and thenthen wentwent to Harvard to Harvard Business Business School.

School.

Armed Armed withwith his MBA, his MBA, Hajim, Hajim, of Syrian of Syrian Jewish Jewish descent, descent, headed headed to Wall to Wall Street, Street, where where he made he made a fortune a fortune big enough big enough to give to give the University the University of Rochesof Rochester $30 ter $30 million million in 2008, in 2008, its largest its largest single single gift.gift.

AndAnd he has he has given given full full scholarships scholarships to more to more thanthan two two hundred hundred students students at a at variety a variety of colleges of colleges and and universities universities across across the the country. country.

He was He was chairman chairman of the of the board board of of the Brunswick the Brunswick School, School, the tony the tony private private school school in Greenwich, in Greenwich, ConnectConnecticut,icut, among among the places the places he lives he lives when when not not on Nantucket. on Nantucket.

Sankaty Sankaty Head Head rejected rejected Hajim’s Hajim’s bid bid to become to become a member, a member, which which was was a shame a shame as he ashad he had just just builtbuilt a nearly a nearly sevenseventhousandthousandsquaresquarefootfoot house house overlooking overlooking the Nantucket the Nantucket harbor. harbor.

Since Since it seemed it seemed he wasn’t he wasn’t go- going to ingbetoable be able to play to play golf golf on Nantucket, on Nantucket, he briefly he briefly thought thought about about leav-leaving ing the the island. island.

But But necessity necessity being being the the mother mother of invention of invention and and all, all, rather rather thanthan slinkslink away, away, Hajim Hajim decided decided to get to even get even and,and, along along withwith golf-golf-

S I A SSC IA OSNCSO EN TS– E T3 – 3

course course genius genius FredFred Green, Green, began began the the nearly nearly impossible impossible tasktask of buildof building, ing, fromfrom scratch, scratch, a new a new golf golf clubclub on Nantucket, on Nantucket, just just as they as they had had in Vail in Vail and and would would laterlater do atdoQueenwood at Queenwood GolfGolf Club, Club, in the in London the London suburb suburb of of Surrey.

Surrey.

He and He and Green Green negotiated negotiated to buy to buy the three the three hundred hundred or sooracres so acres of land of land theythey needed needed for $8 formillion $8 million fromfrom a branch a branch of the of Tristram the Tristram Cof-Coffin family, fin family, among among the the original original white white settlers settlers of Nantucket of Nantucket in and in and around around 1660.

1660.

For For the the $20 $20 million million he needed he needed to build to build the the eighteeneighteenholehole linkslinks course, course, the the clubhouse, clubhouse, and and various various other other buildings, buildings, Hajim Hajim enlisted enlisted a a group group of other of other wealthy wealthy “new“new money” money” types— types— including including Robert Robert GreenGreenhill,hill, a former a former Morgan Morgan Stanley Stanley bigwig bigwig and and the founder the founder of his of own his own investinvestment ment banking banking boutique, boutique, and and Walter Walter Forbes, Forbes, the the soonsoonto-beto-convicted be-convicted CEOCEO of Cendant of Cendant Corporation.

Corporation.

Nantucket’s Nantucket’s decision decision to extend to extend the runthe runwayway at itsatsmall its small airport airport in the in 1960s the 1960s had had brought brought a wave a wave of billionaires of billionaires to the to island, the island, literally literally in their in their private private jets.jets.

TheThe newnew golf golf club,club, adjacent adjacent to Sankaty to Sankaty Head, Head, opened opened officially officially in April in April 1998.

1998.

LikeLike so many so many things things on Nantucket, on Nantucket, the club the club looks looks like like it has it has beenbeen there there forever. forever.

TheThe clubhouse, clubhouse, a sprawling a sprawling symphony symphony of gray of gray shingleshinglestylestyle architecture, architecture, sits sits atopatop a grassy a grassy knoll, knoll, giving giving it sweeping it sweeping views views of of the otherwise the otherwise flat but flat but luscious luscious terrain terrain as itasdescends it descends intointo the vast the vast At- Atlantic lantic Ocean.

Ocean.

It could It could almost almost be mistaken be mistaken for the for Serengeti. the Serengeti.

TheThe sun-sunsetssets fromfrom the outside the outside terrace terrace are breathtaking. are breathtaking.

It was It was here here in August in August 20182018 that that JackJack Welch, Welch, thethe octogenarian octogenarian titantitan of American of American capitalism, capitalism, invited invited me to melunch. to lunch.

We sat We overlooking sat overlooking the the ninth ninth hole.hole.

Welch Welch was was the the same same age age as Hajim as Hajim but but had had not not agedaged nearly nearly as gracefully. as gracefully.

At that At that time, time, he got he around got around tentatively, tentatively, withwith the the helphelp of either of either a cane a cane or, as or,he ascalled he called it, his it, “wagon,” his “wagon,” a threea threewheeled, wheeled, triangular triangular walker. walker.

He’dHe’d had had health health problems problems for years, for years, starting starting when when he had he had a heart a heart attack attack and and quintuple quintuple bypass bypass surgery surgery in 1995. in 1995.

In 2009, In 2009, he spent he spent ninetyninetytwo two daysdays in a in New a New YorkYork hospital hospital battling battling a staph a staph infecinfec-

4 – 4P O – WPEORWFA E RI LFA UR I LEU R E

tion;tion; he almost he almost died.died.

Never Never a physically a physically imposing imposing man, man, he now he now seemed seemed eveneven more more gnomegnomelike,like, a biga head big head atopatop a shrinking a shrinking body. body.

But But his mind his mind remained remained razor razor sharp. sharp.

AndAnd his personality his personality remained remained a mix a mix of infinite of infinite charm charm and and biting biting candor. candor.

During During his nearly his nearly twenty twenty years years at the at helm the helm of the of General the General Electric Electric Company, Company, nownow known known simply simply as GE, as GE, Welch Welch became became a legend. a legend.

Welch Welch made made GE the GE most the most valuable valuable company company in the in world, the world, in the in same the same rarefied rarefied league league nownow inhabited— inhabited— depending depending on the on day the day of the of week— the week— by the by likes the likes of Apple, of Apple, Amazon, Amazon, Google, Google, and and Microsoft, Microsoft, or aor combination a combination of them of them all. He all. also He also made made GE perennially GE perennially the the world’s world’s mostmost admired admired company company and and himself himself the world’s the world’s mostmost admired admired CEO, CEO, although although there there werewere a few a few years, years, earlyearly in his in tenure, his tenure, when when he was he was deemed deemed the most the most feared feared CEO, CEO, a label a label he doesn’t he doesn’t quite quite understand, understand, despite despite his willingness his willingness to betoselfbe selfcritical. critical.

At different At different moments moments in his in career, his career, he was he was referred referred to astoTefas Teflon Jack lon Jack for his for ability his ability to sidestep to sidestep blame blame for disasters for disasters on his on watch. his watch.

He He was was alsoalso referred referred to astoNeutron as Neutron JackJack for afor few a few years, years, afterafter he gained he gained a a reputation reputation for ruthless for ruthless costcost cutting, cutting, eliminating eliminating lots lots of people of people and and ex- expenses penses while while leaving leaving buildings buildings standing. standing.

He hated He hated thatthat name, name, too.too.

By the By time the time Welch Welch retired retired fromfrom GE, GE, on September on September 7, 2001, 7, 2001, he was he was hailed hailed as the as CEO the CEO of the of century. the century.

Welch Welch had had a chance a chance to betoone be one of the of the founders founders of Nantucket of Nantucket GolfGolf ClubClub but but he demurred. he demurred.

Instead, Instead, he joined he joined later, later, paying paying around around $250,000 $250,000 for the for privilege. the privilege.

In his In day, his day, Welch Welch was was nearly nearly a scratch a scratch golfer, golfer, and and he’dhe’d wonwon several several golf golf tournaments tournaments at the at Nantucket the Nantucket GolfGolf Club, Club, although although not its notclub its club chamchampionship. pionship.

He had He had wonwon the the clubclub championship championship twice twice at Sankaty at Sankaty Head, Head, where where of course of course he was he was alsoalso a member, a member, and and had had beenbeen nearly nearly forever. forever.

(No (No waiting waiting timetime for Welch). for Welch).

For For years, years, he had he had beenbeen a caddy a caddy growing growing up in up in Salem, Salem, Massachusetts, Massachusetts, although although he was he was a long a long wayway fromfrom thatthat now.now.

Jack’s Jack’s house house on Nantucket on Nantucket was was around around the the corner corner fromfrom Sankaty Sankaty Head, Head, off of offHoicks of Hoicks Hollow Hollow Road.

Road.

At the At end the end of Hoicks of Hoicks Hollow Hollow are both are both the Sankaty the Sankaty Head Head Beach Beach ClubClub (members (members only) only) and and the Atlantic the Atlantic Ocean, Ocean, withwith access access to atopublic a public beach. beach.

LikeLike the the members members at Nantucket at Nantucket GolfGolf

S I A SSC IA OSNCSO EN TS– E T5 – 5

Club, Club, the the residents residents of Hoicks of Hoicks Hollow Hollow Road Road like like theirtheir privacy. privacy.

BobBob Greenhill Greenhill liveslives off Hoicks off Hoicks Hollow.

Hollow.

BobBob Wright, Wright, the former the former CEOCEO of NBC of NBC and and thenthen of NBCUniversal of NBCUniversal when when GE owned GE owned them them and and then, then, eventually, eventually, alsoalso a GEa viceGE vicechairman, chairman, livedlived on Hoicks on Hoicks Hollow, Hollow, too. too.

It’s aIt’s funny a funny road.road.

OverOver the the years, years, the the signsign for the for the street street comes comes and and goes;goes; sometimes sometimes it’s it’s there, there, sometimes sometimes it’s not. it’s not.

There There is also is also a small a small cement cement marker marker withwith the the name name of the of the street street stenciled stenciled on it. onBut it. But it’s often it’s often covered covered up with up with blueblue masking masking tape.tape.

If you If you know, know, you you know. know.

During During the the glorious glorious summer summer months months on the on the island, island, JackJack could could be be seenseen driving driving his boxy his boxy Mercedes Mercedes convertible convertible somewhat somewhat erratically erratically be- between tween his sprawling his sprawling house house and and his two his two golf golf clubs. clubs.

You You could could always always tell tell it was it was Jack, Jack, eveneven though though there there werewere plenty plenty of other of other Mercedes Mercedes convertconvertiblesibles on Nantucket. on Nantucket.

TheThe top top was was down down and and savesave for the for appearance the appearance of of a white a white baseball baseball cap,cap, it seemed it seemed like like the car the was car was driving driving itself. itself.

JackJack was was already already sitting sitting at the at the tabletable at the at the Nantucket Nantucket GolfGolf ClubClub when when I arrived.

I arrived.

TheThe staffstaff was was expecting expecting me and me and I was I was ushered ushered immeimmediately diately to his to table. his table.

He ordered He ordered the same the same lunch lunch he always he always does, does, apparapparently: ently: a small a small bowlbowl of tomato of tomato soup, soup, withwith a side a side of oyster of oyster crackers, crackers, and and two two chicken chicken hot dogs. hot dogs.

When When he was he was GE’sGE’s CEO, CEO, his lunch his lunch was was always always a a turkey turkey sandwich sandwich withwith lettuce, lettuce, tomato, tomato, and and mustard mustard on whole on whole wheat. wheat.

He drank He drank a diet a diet Slice.

Slice.

He used He used to work to work while while he ate. he ate.

“And“And he’s he’s a fast a fast eater,” eater,” saidsaid Rosanne Rosanne Badowski, Badowski, his longtime his longtime assistant. assistant.

GolfGolf was was one one of of the few the few constants constants in Jack’s in Jack’s life.life.

OneOne wayway or another, or another, there there was was always always golf.golf.

You You could could learn learn a lotaabout lot about someone someone playing playing golf,golf, he liked he liked to say. to say.

MattMatt Lauer, Lauer, the now-disgraced the now-disgraced former former hosthost of the of Today the Today show, show, recalled recalled years years ago the ago many the many times times he played he played golf golf withwith JackJack and and howhow he had he had whatwhat Lauer Lauer described described as “the as “the mental mental wedge” wedge” when when it came it came to the to game. the game.

“He“He had had a wicked a wicked sense sense of humor, of humor, razor razor sharp,” sharp,” he told he told the the nownowdefunct defunct TalkTalk magazine. magazine.

“He “He lovesloves to get toin getyour in your head.” head.”

He remembered He remembered one one timetime when when JackJack was was on the on opposing the opposing team team in the in foursome, the foursome, JackJack walked walked up up to him to him as he aswas he was getting getting ready ready to tee to off. tee It off.was It was an important an important moment moment in the in match. the match.

“You“You know,” know,” JackJack saidsaid to him, to him, “you’re “you’re really really losing losing youryour

6 – 6P O – WPEORWFA E RI LFA UR I LEU R E

hair.hair.

You You better better make make the most the most of your of your career career ’cause ’cause it’s going.” it’s going.”

Lauer Lauer thought thought to himself, to himself, “You“You son son of a of bitch.” a bitch.”

OurOur lunch lunch waswas thethe dayday before before thethe start start of the of the DellDell TechnoloTechnologiesgies Championship, Championship, the the annual annual PGAPGA event event in Norton, in Norton, Massachusetts.

Massachusetts.

The The famous famous golfer golfer PhilPhil Mickelson Mickelson was was at the at Nantucket the Nantucket GolfGolf ClubClub for afor a practice practice round round withwith some some WallWall Street Street bigwigs. bigwigs.

At the At the nextnext tabletable overover fromfrom us, Mickelson us, Mickelson was was having having lunch lunch withwith BobBob Diamond, Diamond, the the former former CEOCEO of Barclays of Barclays (the(the big British big British bank), bank), whowho grewgrew up on upNantucket, on Nantucket, and and withwith PaulPaul Salem, Salem, one one of the of the founding founding partners partners of Providence of Providence Equity Equity Partners, Partners, a hugely a hugely successful successful privateprivateequity equity firm.firm.

OneOne afterafter another, another, the three the three menmen came came overover to pay to pay homage homage to Jack. to Jack.

But But JackJack had had more more thanthan golf golf chitchat chitchat on his on agenda his agenda for our for our lunch. lunch.

I was I was there there to talk to talk about about whatwhat he had he had donedone to make to make GE the GE most the most valuable valuable and and mostmost admired admired company company in the in the world. world.

But But he had he had a few a few things things he he wanted wanted to get to off get his off chest his chest first.first.

What What he really he really wanted wanted to talk to talk about about was was Jeff Jeff Immelt, Immelt, his successor his successor at GE. at GE. He seemed He seemed desperate desperate to unburden to unburden himself himself about about the guy the guy and and was was already already talking talking about about himhim eveneven before before I I could could sit down. sit down.

“I fucked “I fucked up,”up,” he kept he kept telling telling me, me, his squeaky his squeaky MassaMassachusetts chusetts patois patois getting getting crankier crankier and and crankier. crankier.

“And“And I don’t I don’t know know why.” why.”

JackJack had had had had no doubts no doubts about about his decision his decision to pick to pick Immelt Immelt backback in in the the day.day.

But But eighteen eighteen years years later, later, Welch’s Welch’s perspective perspective on Immelt on Immelt had had changed changed dramatically. dramatically.

He had He had utterly utterly soured soured on him on him and and the job the he jobdid he did as GE’s as GE’s CEO. CEO. He repeatedly He repeatedly told told me that me that Immelt Immelt was was nothing nothing moremore thanthan a “marketer” a “marketer” whowho had had effectively effectively sucked sucked up to uphim to him and and the GE the board GE board to to win win theirtheir collective collective approval approval in the in competitive, the competitive, worldworldfamous famous successuccessionsion race.race.

“He’s “He’s full full of shit,” of shit,” JackJack said.said.

“He’s “He’s a bullshitter.” a bullshitter.”

“But“But Jack,” Jack,” I asked, I asked, “didn’t “didn’t you you choose choose Jeff?”

Jeff?”

Yes,Yes, he conceded he conceded he had. he had.

“That’s “That’s my my burden burden thatthat I have I have to live to live with,” with,” he continued. he continued.

“But“But people people havehave beenbeen hurt. hurt.

Employees.

Employees.

People’s People’s pensions. pensions.

Shareholders.

Shareholders.

It’s bad.”

It’s bad.”

There There werewere tearstears in his ineyes. his eyes.

“I fucked “I fucked

S I A SSC IA OSNCSO EN TS– E T7 – 7

up,”up,” he said he said again. again.

“I fucked “I fucked up.”up.”

I knew I knew JackJack had had beenbeen disappointed disappointed by by Jeff’s Jeff’s reign reign atopatop GE, GE, but but I had I had no idea no idea of the of the depth depth of his of disdain his disdain for for his successor. his successor.

JackJack actually actually seemed seemed not not to like to like Jeff Jeff one one bit. bit.

Hated Hated him,him, in fact, in fact, and and had had decided decided he was he was not not a nice a nice guy guy and and kindkind of a of prick. a prick.

He wanted He wanted me to meknow. to know.

“Reminiscing “Reminiscing about about thisthis pisses pisses me off me every off every time,” time,” JackJack toldtold me. me.

He then, He then, and and not not for the for the last last time, time, engaged engaged in ain bita of bitspin of spin control: control: he told he told me how me how I should I should think think about about the story the story of the of rise the rise and and fall fall of GE, of GE, onceonce the the world’s world’s mostmost respected respected company— company— and and admired admired conglomerate— conglomerate— nownow in the in process the process of being of being dismantled. dismantled.

“I think “I think com-comparing paring me me to Jeff to Jeff is not is not the the winning winning angle,” angle,” he said. he said.

“The“The winning winning angle angle is: How is: How did Jeff did Jeff do with do with whatwhat he got? he got?

HowHow did Idid doIwith do with whatwhat I I got?got?

Jeff Jeff had had eighteight years years of free of free run run withwith my foundation”— my foundation”— meaning meaning the the version version of GE of that GE that JackJack had had left him left him on Jeff’s on Jeff’s firstfirst day day as CEO, as CEO, SeptemSeptember ber 7, 2001— 7, 2001— “until “until he started he started fucking fucking around. around.

We We werewere going going beautibeautifully. fully.

He was He was CEOCEO of the of year the year withwith those those assets assets thatthat I gave I gave him.him.

Or my Or my team team gavegave him.him.

He was He was CEOCEO of the of year.” the year.”

JackJack wasn’t wasn’t finished, finished, not by notaby long a long shot.shot.

“He“He got agot tona of tonmoney of money and and he got he good got good businesses,” businesses,” he continued. he continued.

“And“And he played he played withwith them. them.

That’s That’s the story.” the story.”

Needless Needless to say, to say, Jeff Jeff Immelt Immelt has has a very a very different different viewview of Jack of Jack and and the the company company thatthat JackJack left left himhim to manage. to manage.

Jeff Jeff saw saw problems problems everyeverywhere where thatthat JackJack had had either either ignored ignored or obfuscated, or obfuscated, through through a combia combination nation of his of his incomparable incomparable bluster bluster and and effusive effusive charm charm thatthat wowed wowed investors investors and and WallWall Street Street for nearly for nearly twenty twenty years. years.

Jeff Jeff saw saw himself himself on on a mission a mission to fix to Jack’s fix Jack’s mistakes mistakes and and prepare prepare GE for GE the for the twentytwentyfirstfirst century, century, the the digital digital century. century.

“Following “Following Welch Welch was was certainly certainly no easy no easy task,” task,” Jeff Jeff toldtold me with me with considerable considerable understatement understatement in our in our firstfirst interinterview, view, in Cambridge, in Cambridge, Massachusetts.

Massachusetts.

He would He would havehave much much more more to say. to say.

After After lunch, lunch, JackJack offered offered to drive to drive me me in his in his JeepJeep Cherokee Cherokee the the three three miles miles or so orback so back to my to Sconset my Sconset house. house.

TheThe supremely supremely efficient efficient and and solicitous solicitous valetvalet parking parking crewcrew at the at the golf golf clubclub had had by then by then fetched fetched

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Jack’s Jack’s car, car, facing facing it out it with out with the engine the engine running running and and the doors the doors openopen on on bothboth sides. sides.

I was I was a little a little disappointed disappointed we weren’t we weren’t in his in Mercedes his Mercedes con-convertible. vertible.

I gotI in gotthe in Jeep the Jeep and and put put on my on seat my seat belt.belt.

JackJack sat on sathis on seat his seat belt.belt.

Since Since he wasn’t he wasn’t wearing wearing it, the it, warning the warning bell bell keptkept going going off. Ioff. urged I urged himhim to put to put his seat his seat belt belt on, on, if for if no for other no other reason reason thanthan to make to make the the noise noise stop.stop.

But But JackJack didn’t didn’t carecare about about the the ringing. ringing.

Nor Nor did did he care he care about about his own his own safety, safety, it seemed. it seemed.

“I hate “I hate those those things,” things,” he told he told me. me.

Off he Off drove. he drove.

When When he got he to gotthe to the left left turnturn out out of the of the Nantucket Nantucket GolfGolf Club, Club, ontoonto Milestone Milestone Road, Road, he did he something did something odd.odd.

Instead Instead of keepof keeping to ingthe to right the right sideside of Milestone of Milestone Road, Road, as other as other American American drivers drivers do, do, he decided he decided to drive to drive in the in middle the middle of the of road, the road, withwith the Cherokee the Cherokee stradstraddling dling the yellow the yellow line.line.

Needless Needless to say, to say, the drivers the drivers coming coming toward toward us on us on Milestone Milestone werewere freaking freaking out.out.

OneOne afterafter another, another, theythey all pulled all pulled off to off to the right the right ontoonto the grassy the grassy edgeedge of the of street, the street, giving giving JackJack full full clearance clearance to continue to continue driving driving down down the the middle middle of the of the road. road.

He didn’t He didn’t seem seem to to notice. notice.

Amid Amid thoughts thoughts of what of what it might it might be like be like to perish to perish in a in vehicle a vehicle driven driven by the by greatest the greatest CEOCEO of the of American the American century, century, it struck it struck me that me that Jack’s Jack’s vehemence vehemence at lunch at lunch in pinning in pinning the the failure failure of GE of GE on his on his successor successor wasn’t wasn’t just just a display a display of ego of ego or oforhis of bitter his bitter disappointment disappointment in watching in watching his legacy his legacy evaporate evaporate in real in real time. time.

It was It was a reminder a reminder of what of what GE once GE once was was and and whywhy it matters. it matters.

GE was GE was never never just just another another company. company.

At differAt different times ent times during during its 130its 130yearyear run,run, it had it had beenbeen a leader a leader in technological in technological innovation innovation and and entrepreneurial entrepreneurial drive. drive.

It had It had beenbeen a leader a leader in helping in helping people people buy buy GE GE products, products, and and a variety a variety of other of other things, things, using using GE’sGE’s money. money.

TheThe generation generation and and distribution distribution of electricity? of electricity?

GE. GE. TheThe lightlightbulb? bulb?

GE. GE. TheThe jet engine? jet engine?

GE. GE. TheThe X-ray X-ray machine? machine?

GE. GE. TheThe world’s world’s firstfirst radio radio broadcast? broadcast?

GE. GE. TheThe firstfirst home home television television sets?sets?

GE. GE. TheThe firstfirst electric electric cars? cars?

GE. GE. Beneath Beneath the the hood, hood, GE had GE had alsoalso beenbeen a crucible a crucible of of corporate corporate leadership, leadership, producing producing one one leading leading executive executive afterafter another another whowho was was capable capable of managing of managing massive, massive, far-flung far-flung global global businesses businesses across across a variety a variety of disciplines— of disciplines— including, including, among among many many others, others, Boeing, Boeing,

S I A SSC IA OSNCSO EN TS– E T9 – 9

Honeywell, Honeywell, AlliedAlliedSignal, Signal, and and Warner Warner Bros.

Bros.

Discovery— Discovery— and and could could do do so while so while making making a tidy a tidy profit. profit.

Although Although many many people people forget, forget, if they if they everever knew, knew, GE was GE was alsoalso a financial a financial powerhouse, powerhouse, larger larger and and more more profitable profitable thanthan many many commercial commercial banks, banks, investment investment banks, banks, privateprivateequity equity firms, firms, or hedge or hedge funds. funds.

GE embodied GE embodied bothboth the muscle the muscle of American of American business— business— entrepreneurial entrepreneurial drive, drive, inventiveness, inventiveness, financial financial legerdemain— legerdemain— and and its its weaknesses— weaknesses— unchecked unchecked egos,egos, grandiosity, grandiosity, hubris, hubris, and and corruption. corruption.

TheThe story story of GE’s of GE’s glorious glorious rise rise and and distressing distressing fall is fallnot is not just just the story the story of a of a power power company company or a or jetaengine jet engine company company or a or TVa network TV network or a or finance a finance behemoth. behemoth.

It’s aIt’s cautionary a cautionary tale tale about about hype, hype, hubris, hubris, blind blind ambition, ambition, and and the limits the limits of believing— of believing— and and trying trying to live to live up continuously up continuously to—ato— flawed a flawed corporate corporate mythology. mythology.

Chapter Chapter OneOne

AA CHILD CHILD OFOF TWO TWO FATHERS FATHERS

AA

sk most sk most people people about about the origin the origin of the of General the General Electric Electric Company Company in and in and around around 1892, 1892, and and you’ll you’ll hearhear all about all about Thomas Thomas AlvaAlva Edi-Edi-

son son and and his inventions— his inventions— the the carbon carbon filament filament incandescent incandescent lamp, lamp, the the dynamo, dynamo, the phonograph, the phonograph, and and the motion the motion picture picture camera. camera.

But But GE, GE, and and its extraordinary its extraordinary success success afterafter some some initial initial financial financial hiccups, hiccups, was was ac- actually tually more more the doing the doing of another of another restless restless entrepreneur, entrepreneur, Charles Charles Albert Albert Coffin, Coffin, whose whose visionary visionary thinking thinking and and aggressive aggressive acquisitions acquisitions drove drove the the company company forward forward in its in early its early years. years.

Coffin Coffin doesn’t doesn’t get nearly get nearly the the ac- accolades, colades, or ink, or ink, of Edison, of Edison, but but it turned it turned out out thatthat Coffin Coffin was was by far by the far the superior superior businessman, businessman, a gene a gene Edison Edison lacked. lacked.

In any In any event, event, Coffin Coffin and and Edison Edison started started out as outcompetitors as competitors in the in race the race to electrify to electrify America, America, but but theythey soonsoon joined joined forces forces and and bothboth of their of their powerful powerful DNAs DNAs would would be- become come entwined entwined in GE. in GE. BornBorn in December in December 1844, 1844, Charles Charles Coffin Coffin grewgrew up in up Fairfield, in Fairfield, Maine, Maine, north north of Augusta, of Augusta, afterafter his grandfather, his grandfather, a farmer, a farmer, settled settled there there at a at time a time when when the federal the federal government government was was offering offering freefree landland to peoto people who ple who would would move move to uninhabited to uninhabited wilds. wilds.

Charles’s Charles’s grandfather grandfather was was a a minister minister of the of the Society Society of Friends, of Friends, alsoalso known known as the as the Quakers.

Quakers.

After After

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graduating graduating fromfrom Bloomfield Bloomfield Academy Academy in 1862, in 1862, Charles Charles moved moved to Lynn, to Lynn, Massachusetts, Massachusetts, to live to live withwith an uncle an uncle so that so that he could he could attend attend a “coma “commercial” mercial” school school in Boston. in Boston.

ThatThat uncle uncle was was a partner a partner in a in shoe a shoe manumanufacturing facturing company, company, Micajah Micajah C. Pratt C. Pratt and and Company.

Company.

When When Pratt Pratt dieddied in 1862, in 1862, Coffin’s Coffin’s uncle uncle inherited inherited the the business business and and his nephew his nephew joined joined himhim there. there.

At that At that time, time, Lynn Lynn was was the center the center of the of nation’s the nation’s burgeonburgeoning ing shoeshoe industry, industry, and and Pratt’s Pratt’s business business was was an important an important partpart of it.of it.

TheThe industry industry was was automating automating rapidly, rapidly, withwith sophisticated sophisticated machines machines re- replacing placing the the artisans artisans and and craftsmen craftsmen of an of earlier an earlier era. era.

Coffin Coffin quickly quickly proved proved himself himself adept adept at shoe at shoe design. design.

He then He then moved moved intointo salessales and and proved proved skilled skilled at that at that tasktask as well. as well.

He started He started making making regular regular callscalls in in the the western western United United States.

States.

It turned It turned out out Coffin Coffin was was a talented a talented busi-businessman. nessman.

He “must He “must havehave borne borne the the hallmark hallmark of genius of genius fromfrom the the out-outset,”set,” JohnJohn Broderick, Broderick, a former a former colleague, colleague, wrote wrote about about Coffin.

Coffin.

In 1873, In 1873, Pratt’s Pratt’s shoeshoe company company was was renamed renamed Charles Charles A. Coffin A. Coffin and and Company Company for its forleading its leading executive. executive.

Coffin Coffin builtbuilt a new a new plant plant by the by railthe railroadroad station station in Lynn in Lynn in order in order to snag to snag customers customers as they as they werewere coming coming off the off train, the train, before before theythey could could venture venture farther farther intointo town town to one to one of his of his competitors. competitors.

TheThe company company thrived thrived under under Coffin Coffin and and he soon he soon began began to to consider consider other other business business opportunities. opportunities.

By the By the 1880s, 1880s, newnew inventions inventions like like the the telephone telephone (1876) (1876) and and the the incandescent incandescent lightbulb lightbulb (1880) (1880) werewere poised poised to create to create entirely entirely newnew industries. industries.

There There werewere fortunes fortunes to be to be made made in high in high tech,tech, and and one one suchsuch invention invention was was sitting sitting in Coffin’s in Coffin’s backbackyard. yard.

TheThe Lynn Lynn Grand Grand Army Army Post,Post, an armory an armory in Coffin’s in Coffin’s hometown, hometown, was was considering considering lighting lighting its new its new building building withwith one one of the of the newfangled newfangled dy- dynamo namo systems, systems, a forerunner a forerunner of the of electrical the electrical generator. generator.

Dynamos Dynamos werewere among among the the firstfirst commercially commercially viable viable waysways to generate to generate the the electricity electricity usedused in manufacturing in manufacturing and,and, eventually, eventually, to light to light people’s people’s homes. homes.

SilasSilas Barton, Barton, a local a local newspaper newspaper owner, owner, and and Henry Henry Pevear, Pevear, a local a local leather leather manmanufacturer, ufacturer, whowho werewere tasked tasked withwith the project, the project, noticed noticed thatthat the building the building had had a rudimentary a rudimentary yet outyet outof-date of-date six-light six-light dynamo dynamo sitting sitting in its inbaseits base-

A CH AIC LH D IO L FD TOW F OT W FAOT FA H ETRHS E –R S13– 13

ment. ment.

TheThe name name on the on the dynamo dynamo readread “American “American Electric Electric Co.,Co., NewNew Britain, Britain, Connecticut.”

Connecticut.”

Barton Barton and and Pevear Pevear set off set for off New for New Britain, Britain, where where theythey hoped hoped to to meetmeet withwith Elihu Elihu Thomson, Thomson, a former a former Philadelphia Philadelphia highhigh school school teacher– teacher– turned– turned– inventor, inventor, whowho had had moved moved to Connecticut to Connecticut and and founded founded AmeriAmerican can Electric.

Electric.

Thomson Thomson had had partnered partnered withwith Edwin Edwin Houston, Houston, his former his former physics physics teacher teacher fromfrom Philadelphia’s Philadelphia’s Central Central HighHigh School.

School.

Thomson Thomson and and Houston Houston together together had had builtbuilt a number a number of electrical of electrical contraptions, contraptions, including including induction induction coils, coils, an arc anlamp, arc lamp, and and a dynamo. a dynamo.

Thomson Thomson showed showed the the dynamo dynamo to atofriend, a friend, whowho thenthen invited invited a curious a curious cousin cousin to see to see a a demonstration demonstration of how of how it worked. it worked.

Thomson, Thomson, thenthen twentytwentysix, six, toldtold the the cousin cousin he could he could build build a better a better dynamo, dynamo, “one“one thatthat will will run run any any number number of lights of lights you you want.” want.”

TheThe cousin cousin responded responded wellwell to Thomson’s to Thomson’s idea:idea: “Let’s “Let’s build build a foura fourlighter. lighter.

I’ll stand I’ll stand the the expense.” expense.”

Thomson Thomson installed installed his first his first soupedsoupedup dynamo up dynamo in an inallan night all-night bakery. bakery.

TheThe nextnext one one was was in a in brewery. a brewery.

When When the brewery the brewery laterlater caught caught fire,fire, one one of the of firefighters the firefighters sentsent to douse to douse the flames the flames couldn’t couldn’t get over get over Thomson’s Thomson’s dynamo. dynamo.

“What “What the dickens the dickens kindkind of a of light a light is that?” is that?” he said. he said.

“You“You pourpour water water on her on and her and she she won’t won’t go out.” go out.”

But But as isasthe is the casecase withwith startstartups ups (then (then and and now), now), Thomson Thomson and and Houston Houston werewere in need in need of capital; of capital; theirtheir initial initial venture venture together together was was in in the process the process of fizzling of fizzling out.out.

When When theythey came came to Lynn to Lynn to install to install the arthe armory’s mory’s newnew generator, generator, the the newspaperman newspaperman and and the the leather leather manufacmanufacturer turer put them put them together together withwith Coffin Coffin to discuss to discuss the possibility the possibility of Coffin of Coffin injecting injecting fresh fresh capital capital intointo American American Electric Electric Co. Co. and and moving moving it from it from Connecticut Connecticut to Massachusetts. to Massachusetts.

On February On February 12, 1883, 12, 1883, the the newly newly re- recapitalized capitalized American American Electric Electric Co. Co. opened opened for business for business in Lynn, in Lynn, MasMassachusetts, sachusetts, under under a new a new name, name, the Thomsonthe ThomsonHouston Houston Electric Electric Company.

Company.

Coffin Coffin had had bought bought out the out inventors’ the inventors’ old investors old investors and and was was nownow in the in the process process of recapitalizing of recapitalizing and and retooling retooling theirtheir power power and and lighting lighting com-companypany for the for future, the future, under under his control. his control.

There There was was one one small small hitch. hitch.

Unlike Unlike withwith the the shoeshoe business, business, Coffin Coffin

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nownow found found himself himself leading leading a business a business without without a market. a market.

Broadly Broadly speakspeaking, ing, there there werewere few few customers customers for an forelectrical an electrical power power company company in 1883. in 1883.

It’s hard It’s hard to imagine to imagine today, today, but there but there werewere no grids no grids to deliver to deliver electricity electricity to homes to homes and and businesses; businesses; there there werewere few,few, if any, if any, electric electric appliances appliances and and it was it was a serious a serious challenge challenge to convince to convince consumers consumers thatthat electric electric lightlight was was preferable preferable to whale to whale oil or oilcandles. or candles.

What What if the if the whole whole contraption contraption ex- exploded? ploded?

Or went Or went up in upflames? in flames?

Out Out of necessity, of necessity, the Thomsonthe ThomsonHouston Houston salessales forceforce became became proselytizers, proselytizers, fanning fanning out out across across the the country country to to share share the the powerful powerful message message of arc of lamps arc lamps and and electric electric light. light.

TheThe com-companypany had had to teach to teach its engineers its engineers howhow to install to install and and to operate to operate the equipthe equipment. ment.

At times, At times, it was it was a hard a hard sell,sell, in the in same the same wayway thatthat getting getting people people to use to use the internet the internet was was not not so easy so easy at first. at first.

ThisThis thirst thirst for customers for customers led to ledthe to the creation creation of local of local power power and and lightlight companies, companies, backed backed by wealthy by wealthy investors investors and and supported supported by local by local governments governments eager eager to provide to provide the the newnew technology technology to their to their citizens. citizens.

“Mr.“Mr. Coffin Coffin and and his associates his associates set out set to outsell to sell electricity,” electricity,” The The NewNew YorkYork Times Times reported. reported.

“Their “Their main main objective objective was was to get to electricity get electricity to the to peothe people. ple.

TheyThey began began establishing establishing power power plants plants in every in every placeplace possible, possible, where where people people could could make make use use of itof simply it simply by connecting by connecting up.”up.”

TheThe company company eventually eventually moved moved intointo a new a new threethreestory story building building on on Western Western Avenue Avenue in Lynn. in Lynn.

TheThe newnew building building had had so much so much space space at first at first thatthat Pevear, Pevear, the leather the leather manufacturer, manufacturer, wanted wanted to use to use some some of itof toitdry to dry his animal his animal skins. skins.

But But the the newnew electricity electricity business business was was a biga success, big success, nearly nearly immediately. immediately.

Growth Growth was was swift. swift.

In 1884, In 1884, the the newnew venture venture was was supplying supplying electricity electricity to five to five central central stations stations withwith 365 365 arc lamps. arc lamps.

A year A year later, later, there there werewere thirtythirtyone one stations stations supplying supplying 2,400 2,400 arc lamps. arc lamps.

BusiBusinessness was was booming booming in part in part because because of aof decision a decision to use to use electricity electricity to to power power streetcars. streetcars.

TheThe horsehorsedriven driven commuter commuter systems systems had had to go, to and go, and the the electric electric streetcar streetcar system system thatthat the the company company builtbuilt connecting connecting Bos-Boston ton to Lynn, to Lynn, some some ten miles ten miles away, away, helped helped put put it onitthe on map the map by 1888. by 1888.

Coffin Coffin had had an interesting an interesting approach approach to raising to raising the capital the capital he needed. he needed.

Rather Rather thanthan approach approach friends friends and and family, family, as was as was more more typical, typical, he prehe pre-

A CH AIC LH D IO L FD TOW F OT W FAOT FA H ETRHS E –R S15– 15

ferred ferred to put to put together together a constellation a constellation of what of what he dubbed he dubbed “men “men of large of large means.” means.”

Some Some of his of earliest his earliest investors investors readread like like a who’s a who’s whowho of Boston of Boston Brahmins: Brahmins: Henry Henry L. Higginson, L. Higginson, an investment an investment banker banker and and the founder the founder of the of the Boston Boston Symphony Symphony Orchestra; Orchestra; S. Endicott S. Endicott Peabody, Peabody, a merchant a merchant and and father father of the of founder the founder of Groton of Groton School School (his(his greatgreatgrandfather, grandfather, Jo- Joseph, seph, one one of the of wealthiest the wealthiest menmen in America, in America, made made his fortune his fortune importimporting pepper ing pepper fromfrom Sumatra); Sumatra); T. Jefferson T. Jefferson Coolidge, Coolidge, a greata greatgrandson grandson of of Thomas Thomas Jefferson; Jefferson; and and George George F. Gardner, F. Gardner, another another prominent prominent Boston Boston financier. financier.

SoonSoon enough, enough, Coffin Coffin had had soldsold off his off family’s his family’s shoeshoe business business to ato a company company in Boston in Boston for $300,000 for $300,000 to focus to focus his full his full energy energy on the on the highhighrisk risk but but potentially potentially lucrative lucrative electrical electrical power power business. business.

He employed He employed two two tactics tactics to fuel to fuel ThomsonThomsonHouston’s Houston’s growth, growth, bothboth of which of which would would be be familiar familiar today— today— vendor vendor financing financing and and acquisitions. acquisitions.

ThomsonThomsonHouston Houston did not did sell not its sellequipment its equipment to the to public the public but instead but instead soldsold to small, to small, poorly poorly capitalized capitalized locallocal electric electric lighting lighting companies. companies.

While While adding adding an element an element of risk of risk to Coffin’s to Coffin’s business business model— model— could could customers customers afford afford to pay?— to pay?— the the strategy strategy alsoalso allowed allowed Coffin Coffin to achieve to achieve greater greater scalescale by being by being a wholea wholesalersaler of electrical of electrical equipment equipment rather rather thanthan a retailer. a retailer.

But But often often Coffin’s Coffin’s customers customers struggled struggled financially. financially.

That’s That’s when when Coffin Coffin decided decided thatthat Thomson-Houston Thomson-Houston would would provide provide whatwhat is now is now known known as “vendor as “vendor fi- financing” nancing” to itstocustomers, its customers, essentially essentially allowing allowing them them to pay to pay for the for purthe purchased chased equipment equipment withwith a combination a combination of some of some cashcash up front up front plusplus theirtheir debtdebt or equity or equity securities. securities.

He also He also pursued pursued an aggressive an aggressive acquisition acquisition strategy, strategy, sensing sensing thatthat there there would would soonsoon be abe handful a handful of power of power companies companies thatthat dominated dominated the the industry, industry, and and thatthat scalescale would would be key be key to his to company’s his company’s success. success.

Buying Buying up rivals up rivals solved solved another another burgeoning burgeoning problem problem for Coffin: for Coffin: patent patent in- infringements. fringements.

He had He had an ongoing an ongoing feudfeud of sorts of sorts withwith Charles Charles Brush, Brush, the the inventor inventor of the of the newnew typetype of lightbulb of lightbulb known known as aas double a double carbon carbon arc arc whowho had had served served a patent a patent infringement infringement notice notice on Coffin. on Coffin.

To solve To solve the the litigation, litigation, Coffin Coffin bought bought Brush’s Brush’s company company for more for more thanthan $3 million. $3 million.

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When When he wanted he wanted to enter to enter the the streetcar streetcar business, business, Coffin Coffin bought bought the the failed failed VanVan Depoele Depoele Electric Electric Manufacturing Manufacturing to get toits getpatents, its patents, and and then, then, for afor stream a stream of royalty of royalty payments, payments, the Belgianthe Belgianbornborn electrical electrical engineer engineer and and prolific prolific inventor inventor Charles Charles VanVan Depoele Depoele himself. himself.

AndAnd in 1888, in 1888, Coffin Coffin bought bought the majority the majority of Fort of Fort Wayne Wayne Electric Electric Light Light Company, Company, which which had had beenbeen selling selling dynamos dynamos in the in Midwest the Midwest and and South.

South.

As often As often happens happens during during fecund fecund periods periods of innovation, of innovation, two two or or three three players players battle battle it out it out for supremacy. for supremacy.

AndAnd as Thomsonas ThomsonHouston Houston grewgrew and and became became more more profitable, profitable, it increasingly it increasingly found found itself itself bumpbumping up ingagainst up against the two the two industry industry titans: titans: George George Westinghouse, Westinghouse, whowho had had received received his first his first patent patent at the at the age age of nineteen of nineteen and and had had the the inventor inventor Nikola Nikola Tesla Tesla on the on the payroll; payroll; and and Thomas Thomas Edison, Edison, whowho in his in lifetime his lifetime would would amass amass 1,093 1,093 U.S.U.S. patents. patents.

Coffin, Coffin, whowho was was onceonce described described as “aas “a manman bornborn to command, to command, yet who yet who never never issued issued orders,” orders,” would would soonsoon findfind himself himself in a in battle a battle for market for market supremacy supremacy withwith Edison, Edison, while while WestingWestinghouse house would would remain remain a thorn a thorn in his in side. his side.

While While ThomsonThomsonHouston Houston had had its genteel its genteel Boston Boston backers, backers, Edison Edison had had in his in corner his corner nonenone other other thanthan J. P.J.Morgan, P. Morgan, the titan the titan of American of American finance finance and and the the senior senior partner partner of Drexel, of Drexel, Morgan Morgan & Co., & Co., and and Henry Henry Villard, Villard, the journalist– the journalist– turned– turned– railroad railroad magnate. magnate.

A lawyer A lawyer whowho had had beenbeen representing representing Edison Edison on patent on patent disputes disputes related related to the to telegraph the telegraph introintroduced duced Edison Edison to J.toP.J.Morgan P. Morgan to see to if see heifmight he might be interested be interested in backin backing Edison’s ing Edison’s efforts efforts to commercialize to commercialize the incandescent the incandescent lamp. lamp.

He was.

He was.

In 1878, In 1878, withwith an investment an investment of $300,000— of $300,000— mostmost of which of which wentwent to pay to pay for equipment— for equipment— Morgan, Morgan, Edison, Edison, and and small small group group of other of other financiers financiers cre-createdated the Edison the Edison Electric Electric Light Light Company.

Company.

Edison’s Edison’s immediate immediate challenge challenge was was to create to create a filament a filament for the for electric the electric lamplamp thatthat would would not not burnburn up. up.

By October

By October 1879, 1879, Edison Edison had had the the problem problem solved. solved.

In his In lab his in labMenlo in Menlo Park, Park, NewNew Jersey, Jersey, a carbonized a carbonized cotton cotton filament filament burned burned for forty for forty con-consecutive secutive hours. hours.

But But of course of course it wasn’t it wasn’t sufficient sufficient to create to create merely merely an electric an electric light; light; Edison Edison alsoalso needed needed to convince to convince people people of its of efficacy its efficacy and and to create to create a a

A CH AIC LH D IO L FD TOW F OT W FAOT FA H ETRHS E –R S17– 17

mechanism mechanism by which by which electric electric current current could could be transmitted be transmitted to their to their homes homes and and businesses, businesses, so that so that the electric the electric lightlight could could be used. be used.

Edison Edison needed needed more more space space for this for this project. project.

In 1880, In 1880, he created he created the Edison the Edison Ma-Machine chine Works Works in New in New YorkYork City,City, to manufacture to manufacture generators, generators, and and the the Edison Edison Lamp Lamp Works Works in nearby in nearby Newark, Newark, NewNew Jersey, Jersey, to manufacture to manufacture lamps. lamps.

Edison’s Edison’s lamplamp was was littlelittle more more thanthan a glass a glass bulbbulb withwith mostmost of the of the air taken air taken out out of it— ofnearly it—nearly a vacuum— a vacuum— and and endowed endowed withwith a filament a filament of of carbon carbon “for“for the the reception reception of electric of electric energy energy in the in the airless airless space,” space,” ac- according cording to one to one description. description.

Edison’s Edison’s NewNew YorkYork CityCity office office was was at 65atFifth 65 Fifth Avenue.

Avenue.

As his As perhis personal sonal assistant assistant in New in New York, York, Edison Edison hired hired Samuel Samuel Insull, Insull, a young a young En- Englishman glishman whowho had had worked worked the the previous previous two two years years as the as the secretary secretary to to his London his London agent. agent.

Edison Edison and and Insull, Insull, whowho would would laterlater become become the conthe controversial troversial founder founder of the of largest the largest electric electric utility utility in Chicago, in Chicago, metmet for the for the firstfirst timetime in the in back the back room room of 65ofFifth 65 Fifth Avenue Avenue on March on March 1, 1881, 1, 1881, two two weeks weeks afterafter Insull Insull sailed sailed on the on SS theCity SS City of Chester of Chester fromfrom Liverpool.

Liverpool.

Ed- Edison’s ison’s office office was was spare, spare, outfitted outfitted withwith onlyonly a few a few walnut walnut rolltop rolltop desks. desks.

“Edison “Edison received received me with me with great great cordiality,” cordiality,” Insull Insull laterlater remembered. remembered.

“I think “I think possibly possibly he was he was a little a little disappointed disappointed at my at being my being so young so young a a man. man.

I had I had onlyonly just just turned turned 21 and 21 and had had a very a very boyish boyish appearance.” appearance.”

Insull Insull recalled recalled in some in some detail detail whatwhat Edison Edison was was wearing wearing at their at their firstfirst meeting— meeting— a “rather a “rather seedy” seedy” black black diagonal diagonal Prince Prince Albert Albert coat,coat, a white a white shirtshirt “somewhat “somewhat worse worse for the for the wear”— wear”— as well as well as his as somewhat his somewhat portly portly shape shape (“although (“although by no by means no means as stout as stout as he as has he has grown grown in recent in recent years”). years”).

“What “What struck struck me above me above everything everything else else was was the wonderful the wonderful in- intelligence telligence and and magnetism magnetism of his of expression his expression and and the the extreme extreme brightbrightnessness of his of eyes,” his eyes,” Insull Insull said.said.

TheyThey immediately immediately got down got down to business, to business, including including discussions discussions of of howhow much much money money Edison Edison had had in his in bank his bank accounts accounts and and whatwhat securisecurities ties of European of European telecom telecom companies companies werewere the most the most salable. salable.

LikeLike Coffin, Coffin, Edison Edison had had taken taken payments payments fromfrom customers customers in the in the formform of their of their debtdebt or equity or equity securities. securities.

Edison Edison wanted wanted to make to make suresure his his incandescent incandescent

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lamplamp factory factory had had enough enough money money to operate. to operate.

“He“He spoke spoke withwith veryvery great great enthusiasm enthusiasm of the of work the work he had he had before before himhim [regarding] [regarding] the development the development of his of his electric electric lighting lighting system,” system,” Insull Insull continued, continued, “and“and his his one one ideaidea seemed seemed to betotoberaise to raise all the all money the money he possibly he possibly could, could, withwith the object the object of pouring of pouring it into it into the manufacturing the manufacturing sideside of the of electric the electric lighting lighting busi-business,ness, and and I remember I remember howhow wonderfully wonderfully impressed impressed I was I was withwith himhim on on thisthis account, account, as I as had I had just just come come fromfrom a circle a circle of people of people in London in London whowho not not onlyonly questioned questioned the the possibility possibility of the of the success success of Edison’s of Edison’s inveninvention,tion, but often but often expressed expressed doubt doubt as toaswhether to whether the work the work he did he could did could be be called called an invention an invention at all.” at all.”

TheyThey continued continued theirtheir conversations conversations untiluntil around around five five in the in the morning. morning.

Instead Instead of feeling of feeling exhausted exhausted

by Edison,

by Edison, Insull Insull seemed seemed exhilarated, exhilarated, “feeling “feeling thoroughly thoroughly imbued imbued withwith the the ideaidea thatthat I had I had metmet one one of the of great the great master master minds minds of the of world.” the world.”

He allowed He allowed thatthat he “fell he “fell a victim” a victim” to Edison’s to Edison’s “spell” “spell” during during thatthat firstfirst meeting. meeting.

TheThe nextnext day,day, Insull Insull was was off with off with Edison Edison to Menlo to Menlo Park, Park, where where for for the first the first timetime he saw he saw Edison’s Edison’s labslabs and and the network the network of electric of electric lighting lighting he had he had created created in the in buildings the buildings thatthat comprised comprised his operation. his operation.

He wrote He wrote of the of visit the visit thatthat it was it was “unforgettable” “unforgettable” and and at ten at o’clock ten o’clock at night at night he was he was so moved so moved he returned he returned to the to Menlo the Menlo ParkPark railroad railroad station station and and had had the the telegraph telegraph operator operator there there sendsend messages messages to his to friends his friends in London in London about about the the miracle miracle of electric of electric lightlight he had he had just just witnessed. witnessed.

“Menlo “Menlo ParkPark was was naturally naturally the Mecca the Mecca of those of those whowho looked looked uponupon Edison Edison as the as great the great in- inventive ventive herohero of the of the time,” time,” Insull Insull recalled recalled years years later. later.

“It must “It must always always be looked be looked at asatthe as birthplace the birthplace of the of electric the electric lightlight and and power power industry.” industry.”

TheThe prize prize thatthat Edison Edison had had his eyes his eyes on atonthe at moment the moment was was lighting lighting Lower Lower Manhattan, Manhattan, or more or more explicitly explicitly the geographic the geographic areaarea bounded bounded by by WallWall Street Street on the on the south, south, Fulton Fulton Street Street on the on the north, north, and and Pearl Pearl and and Nassau Nassau Streets Streets on the on east the east and and west, west, respectively. respectively.

“We“We will will make make elec-electricity tricity so cheap so cheap thatthat onlyonly the rich the rich will will burnburn candles,” candles,” Edison Edison toldtold The The NewNew YorkYork Herald Herald in 1879. in 1879.

TheThe “most “most serious” serious” tasktask at the at time the time was,was, ac- according cording to Insull, to Insull, the the manufacture manufacture and and installation installation of “underground of “underground conductors” conductors” in the in area the area of Lower of Lower Manhattan Manhattan where where Edison Edison wanted wanted to to

A CH AIC LH D IO L FD TOW F OT W FAOT FA H ETRHS E –R S19– 19

build build his electrical his electrical grid.grid.

Edison Edison manufactured manufactured the the conductors conductors at the at the Electric Electric Tube Tube Factory, Factory, at 65atWashington 65 Washington Street, Street, nearnear the Hudson the Hudson River.

River.

In 1882, In 1882, Edison Edison introduced introduced the the firstfirst electrical electrical gridgrid connected connected to his to his Pearl Pearl Street Street station station in Lower in Lower Manhattan.

Manhattan.

TheThe breakthrough breakthrough made made gas gas lighting lighting nearly nearly obsolete. obsolete.

On September On September 4, 1882, 4, 1882, NewNew York’s York’s highhigh soci-society turned ety turned out out in droves in droves to witness to witness the first the first illumination illumination of buildings of buildings in Lower in Lower Manhattan, Manhattan, thanks thanks to Edison. to Edison.

Ironically, Ironically, given given whatwhat was was to to come come in later in later decades, decades, Edison Edison backed backed off his off further his further development development of of the the phonograph phonograph to gotoall goin allon inelectricity. on electricity.

“Well, “Well, Sammy,” Sammy,” he told he told his his assistant, assistant, “they “they never never will will try to trysteal to steal the phonograph; the phonograph; it is itnot is not of any of any commercial commercial value value and and therefore therefore no one no one will will everever havehave any any incentive incentive to to try to tryget to it getaway it away fromfrom me.”me.”

He doubled He doubled down down on the on the lightbulb, lightbulb, ran-ransacking sacking the vegetable the vegetable kingdom kingdom to find to find a substance a substance thatthat could could create create a a long-longlasting lasting filament. filament.

In 1887, In 1887, Edison Edison moved moved his operations his operations to Schenectady, to Schenectady, NewNew York, York, nearnear Albany.

Albany.

He simply He simply had had outgrown outgrown his operations his operations in Manhattan in Manhattan and and Brooklyn.

Brooklyn.

Enticed Enticed by the by combination the combination of cheap of cheap labor labor and and room room to to grow, grow, Edison Edison triedtried to buy to buy an unused an unused factory factory on ten on ten acres acres of land of land out-outsideside Schenectady Schenectady nearnear the Erie the Erie Canal Canal fromfrom the family the family thatthat owned owned the the Schenectady Schenectady Locomotive Locomotive Works.

Works.

But But his offer his offer was was rejected. rejected.

To make To make the deal the deal happen, happen, Edison Edison enlisted enlisted the help the help of the of local the local citizens citizens in Schein Schenectady, nectady, whowho agreed agreed to subscribe to subscribe to a to fund a fund thatthat bridged bridged the the financial financial gap gap between between buyer buyer and and seller. seller.

At Edison’s At Edison’s request, request, Insull Insull moved moved to to Schenectady, Schenectady, along along withwith about about 250 250 other other employees, employees, and and he became he became the the general general manager manager of the of the operations. operations.

“Do“Do it big, it big, Sammy,” Sammy,” Edison Edison urged urged him.him.

“Make “Make it go.” it go.”

In five In five years, years, there there would would be more be more thanthan six thousand six thousand menmen employed employed there. there.

Before Before making making the the move move to Schenectady, to Schenectady, Edison Edison needed needed to get to get control control of his of disparate his disparate operations operations and and clean clean up his up keiretsu his keiretsu of busiof businesses. nesses.

Different Different companies companies had had sprung sprung up over up over the years the years on the on backs the backs of different of different inventions, inventions, some some profitable, profitable, many many not (including not (including the Electhe Electric tric Tube Tube Company, Company, a forerunner a forerunner of the of modernthe modernday day subway subway thatthat never never

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got out got out of the of the station). station).

Finally, Finally, in 1889, in 1889, withwith the the helphelp of Henry of Henry Vil- Villard,lard, J. P.J.Morgan, P. Morgan, Deutsche Deutsche Bank, Bank, and and whatwhat is now is now Siemens, Siemens, the the big big German German conglomerate, conglomerate, Edison Edison agreed agreed to merge to merge Edison Edison Machine Machine Works— Works— comprising comprising Edison Edison Lamp Lamp Company, Company, Electric Electric Tube Tube Company, Company, and and BergBergmann mann & Company— & Company— withwith Edison Edison Electric Electric Light Light Company Company to form to form the the Edison Edison General General Electric Electric Company.

Company.

Villard Villard was was elected elected the the merged merged company’s company’s president. president.

At the At first the first annual annual meeting meeting of the of company, the company, heldheld at 44 at Wall 44 Wall Street, Street, Villard, Villard, Insull, Insull, and and Edison, Edison, among among others, others, werewere elected elected to the to board the board of directors. of directors.

TheThe business business was was capital capital intensive, intensive, and and often often capital capital was was difficult difficult to find. to find.

“The“The general general business business of the of Edison the Edison General General Electric Electric Company Company is growing is growing at a at rate a rate thatthat is equally is equally surprising surprising and and gratifying,” gratifying,” Villard Villard wrote wrote to the to the bankers bankers at Drexel, at Drexel, Morgan Morgan in March in March 1890.

1890.

“Instead “Instead of of one one million, million, several several millions millions are imperatively are imperatively wanted wanted to meet to meet the curthe currentrent demands demands of the of several the several manufacturing manufacturing departments.” departments.”

Villard Villard and and Morgan Morgan began began to look to look for aformerger a merger partner partner for Edison. for Edison.

Tension Tension be- between tween Edison Edison and and Villard Villard began began almost almost immediately immediately and and onlyonly intensiintensified fied when when the the railroad railroad manman broached broached the the subject subject of Edison of Edison General General Electric Electric Company Company merging merging withwith Coffin’s Coffin’s ThomsonThomsonHouston.

Houston.

By 1891, By 1891, bothboth Edison Edison General General Electric Electric and and ThomsonThomsonHouston Houston werewere relatively relatively formidable formidable enterprises. enterprises.

Edison’s Edison’s company company had had six thousix thousandsand employees, employees, $15 $15 million million in capital, in capital, and and annual annual revenue revenue of nearly of nearly $11 $11 million million and and profit profit of $2 ofmillion. $2 million.

It had It had nearly nearly fourfour thousand thousand cus-customers tomers and and equipped equipped 375 375 central central stations, stations, 180 180 street street railways, railways, and and more more thanthan 2,200 2,200 street street railway railway cars.cars.

ThomsonThomsonHouston Houston had had fourfour thouthousandsand employees, employees, one one third third fewer fewer thanthan Edison, Edison, but but its revenue its revenue of $10.3 of $10.3 million million was was nearly nearly the same. the same.

ThomsonThomsonHouston Houston equipped equipped 870 870 central central stations, stations, 204 204 street street railways, railways, and and 2,760 2,760 street street railway railway cars.cars.

It was It was alsoalso far more far more profitable profitable thanthan Edison, Edison, $2.7$2.7 million million as opposed as opposed to $2tomillion, $2 million, and and needed needed much much less less capital— capital— $10.3 $10.3 million— million— to achieve to achieve the the superior superior results. results.

TheThe combination combination of the of two the two companies companies would would create create a powera powerhouse house in New in New England England and and NewNew York.

York.

But But Edison Edison insisted insisted thatthat his his

A CH AIC LH D IO L FD TOW F OT W FAOT FA H ETRHS E –R S21– 21

company company should should staystay independent. independent.

“The“The newnew company company mustmust stand stand alone,” alone,” the the inventor inventor wrote wrote to J.toP.J.Morgan, P. Morgan, and and thenthen warned warned him,him, if if “you“you make make the coalition, the coalition, my usefulness my usefulness as an asinventor an inventor is gone.” is gone.”

As usual, As usual, thethe moneymen moneymen wonwon out.out.

In January In January 18921892 , Villard , Villard andand Coffin Coffin revived revived the merger the merger negotiations negotiations thatthat Edison Edison had had effectively effectively killed killed some some two two years years earlier. earlier.

In early In early February, February, the news the news about about the pending the pending merger merger leaked leaked to shareholders to shareholders of the of two the two companies, companies, as well as well as toasThe to The NewNew YorkYork Times.

Times.

Villard Villard confirmed confirmed the rumor the rumor and and conceded conceded the negothe negotiations tiations werewere “progressing “progressing rapidly” rapidly” and and a “conclusion a “conclusion satisfactory” satisfactory” to to all parties all parties would would be “speedily be “speedily reached.” reached.”

Villard Villard admitted admitted to the to the pa- paper that per that he’dhe’d beenbeen working working on the on deal the deal for two for two years years and and thatthat it looked it looked like like it would it would be abe merger a merger of equals, of equals, more more or less. or less.

“Ever “Ever since since I orgaI organized nized the Edison the Edison General General Electric Electric Company, Company, I have I have had had the conviction the conviction thatthat veryvery great great advantages advantages to the to the stockholders” stockholders” of both of both Edison Edison and and ThomsonThomsonHouston Houston and and to the to the public public “could “could be secured” be secured” by aby merger, a merger, “through “through greater greater economy economy of the of management the management and and the combination the combination of of the technical the technical skillskill and and experience experience which which theythey comprise.” comprise.”

He said He said a deal a deal was was almost almost reached reached the first the first timetime around around “but“but failed failed for reasons for reasons which which do not do now not now any any longer longer exist,” exist,” an opaque an opaque reference, reference, no doubt, no doubt, to the to fact the fact thatthat Edison Edison had had repeatedly repeatedly nixed nixed it and it and thatthat two two years years later, later, he had he had less less wherewithal wherewithal to block. to block.

There There did seem did seem to be toatbeleast at least one one major major casualty casualty of the of the proposed proposed merger: merger: Villard.

Villard.

TheThe Times Times reported reported thatthat the the wordword was was he would he would be be leaving leaving Edison Edison General— General— he would he would “cease “cease to betoactive be active in the in electrical the electrical field,” field,” is how is how the Times the Times put put it—and it—and thatthat the new the new president president of the of comthe combined bined company company would would be Charles be Charles A. Coffin.

A. Coffin.

Edison Edison was was not not happy happy to to hearhear thatthat the merger the merger was was back, back, two two years years afterafter his successful his successful effort effort to to kill kill it. “Iit.have “I have always always regretted regretted the abruptness the abruptness withwith which which I broke I broke the the news news to Edison”— to Edison”— about about the the merger— merger— “but“but I amI not am not suresure thatthat a milder a milder manner manner and and less less precipitate precipitate delivery delivery would would havehave cushioned cushioned the shock,” the shock,”

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Alfred Alfred Tate,Tate, his new his new personal personal secretary, secretary, observed observed years years later. later.

“I never “I never before before had had seenseen himhim change change color. color.

His His complexion complexion naturally naturally was was pale,pale, a clear a clear healthy healthy paleness, paleness, but but following following my announcement my announcement it turned it turned as as white white as his as collar.” his collar.”

“Send “Send for Insull,” for Insull,” Edison Edison toldtold Tate.Tate.

But But it was it was true:true: the moneymen the moneymen had had cut acut deal a deal around around Edison, Edison, whowho in the in end the end had had lost lost bothboth financial financial and and managerial managerial control control of the of comthe companypany he had he had founded. founded.

Of course, Of course, it wasn’t it wasn’t the first the first timetime or the or last the last timetime thatthat a founder a founder had had lost lost control control of his of company. his company.

But But given given the the nearly nearly insatiable insatiable capital capital needs needs of the of the industry, industry, and and in an in era an before era before anyone anyone had had thought thought of dualof dualclassclass stock stock and and other other protections protections for founders, for founders, it it was was probably probably inevitable inevitable thatthat Edison Edison would would loselose control. control.

AndAnd despite despite the brave the brave frontfront he put he put up, it up, was it was alsoalso clearclear thatthat Edison Edison had had moved moved on. on.

TheThe moneymen moneymen wanted wanted more. more.

WhyWhy not not just just create create one one big dominant big dominant company? company?

TheThe printed printed filings filings about about the the impending impending merger merger between between Edison Edison and and ThomsonThomsonHouston Houston circulated circulated to shareholders— to shareholders— there there was,was, of course, of course, no Securities no Securities and and Exchange Exchange Commission Commission at the at time— the time— made made clearclear thatthat the shareholders the shareholders of Thomsonof ThomsonHouston, Houston, and and its management, its management, would would be the be dominant the dominant forces forces in the in merged the merged company company and and on its onboard its board of directors. of directors.

Every Every three three shares shares of Thomsonof ThomsonHouston Houston would would be conbe converted verted intointo five five shares shares of the of the newnew General General Electric, Electric, while while every every one one share share of Edison of Edison General General would would be converted be converted intointo one one share share of the of new the new General General Electric.

Electric.

It could It could havehave beenbeen worse worse for Edison for Edison General General stockholders, stockholders, based based on the on relative the relative performance performance of the of two the two companies— companies— ThomsonThomsonHouston Houston was was much much moremore profitable. profitable.

ThatThat led to ledspeculation to speculation in the in press the press thatthat Edi-Edison son was was more more thanthan just just a little a little irritated irritated by the by proposed the proposed deal.deal.

TheThe NewNew YorkYork Tribune Tribune reported reported thatthat in addition in addition to feuding to feuding between between Villard Villard and and Morgan, Morgan, Edison Edison alsoalso blamed blamed Insull, Insull, his former his former private private secretary, secretary, not not onlyonly for letting for letting the company’s the company’s performance performance suffer suffer but but alsoalso for leaving for leaving “the“the Wizard,” Wizard,” as Edison as Edison was was known, known, “in a“in hopeless a hopeless minority— minority— as far asas far as control control was was concerned.” concerned.”

When When the dust the dust had had settled settled on the on creation the creation of of

A CH AIC LH D IO L FD TOW F OT W FAOT FA H ETRHS E –R S23– 23

Edison Edison General, General, under under Insull’s Insull’s watch, watch, Edison Edison himself himself had had ended ended up with up with an ownership an ownership stake stake of less of less thanthan 10 percent.

10 percent.

Edison, Edison, apparently, apparently, could could not understand not understand howhow thatthat had had happened. happened.

According According to the to paper, the paper, Edison Edison alsoalso blamed blamed Villard Villard for “working for “working con-contrarytrary to his to interests” his interests” in concocting in concocting the merger the merger withwith ThomsonThomsonHouston, Houston, at which at which point point Villard Villard fingered fingered Insull.

Insull.

“Were “Were it not it not for your for your mismanmismanagement,” agement,” Villard Villard saidsaid about about him,him, “no “no consolidation consolidation would would havehave beenbeen necessary.” necessary.”

Insull Insull apparently apparently did not did not reply, reply, and and the the Tribune Tribune reported reported that,that, in any in any event, event, Insull Insull would would be leaving be leaving the the merged merged company. company.

The The NewNew YorkYork Times Times alsoalso reported reported the controversy. the controversy.

“There “There is a is sada sad lacklack of of harmony harmony among among some some of the of the principal principal menmen in the in the Edison Edison Company,” Company,” the the Times Times reported reported on February on February 20. Edison 20. Edison and and Insull Insull lined lined up toup together gether against against Villard.

Villard.

“President “President Villard Villard is said is said to have to have replied replied withwith a a goodgood dealdeal of heat of heat thatthat the way the way things things had had beenbeen going going made made a consolia consolidation dation necessary,” necessary,” the Times the Times continued. continued.

Given Given thatthat Coffin Coffin was was going going to to leadlead the the merged merged company, company, the the speculation speculation was was thatthat bothboth Villard Villard and and Insull Insull would would leaveleave and and thatthat Edison Edison would would no longer no longer serve serve on its onboard its board of directors. of directors.

TheThe Times Times wrote wrote thatthat the proposed the proposed merger merger was was “not“not at allat all to [Edison’s] to [Edison’s] liking” liking” and and withwith control control of the of the newnew company company “in other “in other hands,” hands,” the “gossip” the “gossip” on Wall on Wall Street Street was was thatthat Edison’s Edison’s “interest” “interest” in the in the company company had had beenbeen “greatly “greatly reduced.” reduced.”

Not Not so, Edison so, Edison responded responded in an in interview an interview withwith the the Times Times a day a day later, later, in an inearly an early example example of corporate of corporate spin.spin.

He said He said thatthat not not onlyonly had had he been he been the one the one to initiate to initiate the merger— the merger— although although there there seems seems littlelittle evi- evidence dence of that— of that— but but alsoalso thatthat he would he would greatly greatly benefit benefit fromfrom it. “Iit.ex“I expectpect the consolidation the consolidation will will result result financially financially to my to advantage,” my advantage,” he said. he said.

He was He was full full of news. of news.

He said He said thatthat bothboth J. P.J.Morgan, P. Morgan, the the man, man, and and Hamilton Hamilton McKown McKown Twombly, Twombly, a wealthy a wealthy Morgan Morgan banker banker fromfrom Boston Boston whowho had had builtbuilt a grand a grand estate estate in New in New Jersey Jersey and and married married intointo the the Vanderbilt Vanderbilt family, family, werewere conducting conducting the negotiations the negotiations “on “on a friendly a friendly and and satisfactory satisfactory basis” basis” to get to the get merger the merger done. done.

He said He said the proposed the proposed name name of the of combined the combined company company was was likely likely to betothe be General the General Electric Electric Company, Company,

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removing removing references references to any to any of the of the three three founders— founders— Edison, Edison, Thomson, Thomson, and and Houston— Houston— although although thatthat had had not not yet been yet been agreed. agreed.

He also He also announced announced thatthat Villard Villard was was out out and and made made clearclear thatthat his his relationship relationship withwith Villard Villard was was strained, strained, as was as was Villard’s Villard’s withwith Morgan.

Morgan.

“He“He made made the the negotiations negotiations when when the the Edison Edison General General Electric Electric ComCompanypany was was formed,” formed,” Edison Edison saidsaid of Villard, of Villard, “and“and I suppose I suppose he made he made some some money money fromfrom the the transaction.” transaction.”

He also He also saidsaid he expected he expected SamSam Insull Insull to to joinjoin himhim onceonce again again on his on new his new ventures ventures and and thatthat there there waswas nothing nothing to the to the rumors rumors thatthat theirtheir relationship relationship was was somehow somehow soured soured by recent by recent events. events.

“We“We are on arethe on best the best of terms of terms now,” now,” Edison Edison said.said.

“He“He is a is valua valuableable man.” man.”

(In the (In the end,end, General General Electric Electric offered offered Insull Insull a joba as jobaas vice a vice president, president, but but he declined he declined it and it and moved moved to Chicago. to Chicago.

He later He later came came to to some some disgrace disgrace during during the Great the Great Depression.)

Depression.)

But But in the in end, the end, Edison Edison made made it clear it clear he was he was leaving leaving electricity electricity and and electrical electrical machines machines behind. behind.

“I cannot “I cannot waste waste my time,” my time,” he said, he said, “over “over electricelectriclighting lighting matters, matters, for they for they are are old.”old.”

In 1893, In 1893, Edison Edison soldsold his his stake stake in GE in for GEafor reported a reported $1.5$1.5 million million (around (around $430$430 million million in today’s in today’s dollars). dollars).

He was He was overover the the whole whole electricity electricity thing. thing.

“I have “I have a lota more lot more newnew material material on which on which to work,” to work,” he continued. he continued.

He said He said all he all cared he cared about about General General Electric Electric was was to get to “as get large “as large dividends dividends as possible as possible fromfrom suchsuch stock stock as I as hold.

I hold.

I amI not am not businessman businessman enough enough to spend to spend my time my time at that at that end end of the of concern.” the concern.”

Squabbling Squabbling and and disagreements disagreements aside, aside, on April on April 15, 1892, 15, 1892, the the Gen-Generaleral Electric Electric Company Company was was incorporated incorporated in New in New YorkYork CityCity as a as holding a holding company company of sorts of sorts for the for the two two companies, companies, one one operating operating in Schenecin Schenectady,tady, NewNew York, York, the the other other operating operating in Lynn, in Lynn, Massachusetts Massachusetts (both (both of of which which factories factories remain remain open), open), withwith Schenectady Schenectady being being the the corporate corporate headquarters headquarters at that at that time. time.

General General Electric Electric alsoalso acquired acquired the internathe international tional operations operations of Thomsonof ThomsonHouston.

Houston.

“It may “It may be likened be likened to ato huge a huge tree,” tree,” JohnJohn Broderick Broderick wrote wrote of the of newly the newly created created company, company, “the“the growth growth of which of which is traceable, is traceable, not not onlyonly to its toown its own roots, roots, but but to a to great a great variety variety of scions of scions thatthat fromfrom timetime to time to time havehave beenbeen grafted grafted uponupon it.” it.”

A CH AIC LH D IO L FD TOW F OT W FAOT FA H ETRHS E –R S25– 25

TheThe company company began began its operational its operational business business life life on June on June 1. The 1. The market market capitalization capitalization of the of the newnew company company was was around around $35 $35 million, million, withwith ThomsonThomsonHouston’s Houston’s shareholders shareholders controlling controlling a little a little more more thanthan 50 percent 50 percent of the of General the General Electric Electric stock stock and and its most its most important important manmanagement agement positions. positions.

TheThe theory theory behind behind the merger the merger made made sense sense (as theo(as theories ries behind behind mergers mergers often often do). do).

The The creation creation of General of General Electric Electric stemmed stemmed fromfrom three three imperatives: imperatives: a desire a desire to eliminate to eliminate competition; competition; a desire a desire to to havehave firstfirst dibsdibs on the on capital the capital needed needed to sustain to sustain a capitala capitalintensive intensive busi-business;ness; and and a desire a desire by both by both management management and and investors investors to run to run a more a more effective effective organization. organization.

All three All three factors factors led to ledthe to inevitable the inevitable combinacombinationtion of Thomsonof ThomsonHouston Houston and and Edison Edison General.

General.

There There was was littlelittle doubt doubt about about whowho would would be calling be calling the shots the shots at Genat Generaleral Electric.

Electric.

Edison Edison had had a spot a spot on the on company’s the company’s newnew elevenelevenmember member board board of directors, of directors, along along withwith J. P.J.Morgan P. Morgan and and his partner, his partner, Hamilton Hamilton McKown McKown Twombly, Twombly, and and thenthen a group a group of Coffin’s of Coffin’s financial financial backers backers fromfrom Boston, Boston, including including Henry Henry Higginson Higginson and and Thomas Thomas Jefferson Jefferson Coolidge.

Coolidge.

But But fromfrom the the outset, outset, it was it was definitely definitely Coffin’s Coffin’s show. show.

Villard Villard was was gone. gone.

Insull, Insull, Edison’s Edison’s rightrighthand hand man, man, waswas gone. gone.

AndAnd soonsoon Edison Edison would would be, too. be, too.

Chapter Chapter Two Two

TWO TWO CRISES CRISES

II

n General n General Electric’s Electric’s firstfirst annual annual report, report, issued issued in April in April 1893, 1893, Coffin Coffin acknowledged acknowledged the the strain strain of trying of trying to merge to merge some some parts parts of the of the two two

operating operating companies. companies.

“The“The difficulties difficulties inherent inherent in such in such a reorganizaa reorganizationtion werewere many many and and serious,” serious,” he wrote. he wrote.

But But thatthat was was Coffin’s Coffin’s onlyonly ac- acknowledgment knowledgment thatthat General General Electric Electric had had had had a rough a rough start. start.

TheThe restrest of the of the sevensevenpagepage report report made made things things sound sound pretty pretty rosy.rosy.

In its Infirst its first eighteight months, months, GE generated GE generated revenue revenue of nearly of nearly $12 $12 million million and and profit profit of of nearly nearly $3 million, $3 million, an enviable an enviable 25 percent 25 percent margin. margin.

TheThe company company paidpaid out out nearly nearly two two thirds thirds of its ofprofit its profit to its to3,272 its 3,272 stockholders. stockholders.

TheThe busi-businessness was was predominantly predominantly comprised comprised of six of thousand six thousand customers customers providproviding local ing local electric electric lighting lighting and and operating operating electric electric streetcars. streetcars.

Some Some 1,277 1,277 “central “central station” station” electric electric companies companies werewere using using General General Electric Electric equipequipment, ment, supplying supplying 2.5 million 2.5 million incandescent incandescent lights lights and and about about 110,000 110,000 arc arc lamps. lamps.

“The“The growth growth of these of these companies companies has has beenbeen phenomenal,” phenomenal,” Coffin Coffin wrote. wrote.

He also He also noted noted the improvements the improvements in the in size the size of the of machines the machines thatthat General General Electric Electric was was being being hired hired to manufacture, to manufacture, vastly vastly increasing increasing the the electricity electricity theythey could could generate. generate.

Its railway Its railway car business car business was was alsoalso growing growing fast,fast, withwith 4,927 4,927 miles miles of road of road in operation in operation as ofasFebruary of February 1893, 1893, more more

T W OT W CR OI S CERSI S –E S27– 27

thanthan double double the amount the amount of the of year the year before. before.

TheThe number number of railway of railway carscars in operation in operation more more thanthan tripled, tripled, and and the company the company was was alsoalso making making elec-electric tric locomotives locomotives for use for use in the in mining the mining industry, industry, withwith two two locomotives locomotives of 1,600 of 1,600 horsepower horsepower eacheach thenthen under under construction. construction.

In the In Schenectady the Schenectady factory, factory, GE made GE made the equipment the equipment for the for sixthe mile six-mile electric electric elevated elevated rail-railwayway usedused at the at 1893 the 1893 World’s World’s FairFair in Chicago. in Chicago.

Coffin Coffin had had a “holy a “holy faith” faith” in electricity, in electricity, he once he once said,said, and and if heifhadn’t, he hadn’t, “we “we never never should should havehave dared dared the things the things we did.” we did.”

But But Coffin’s Coffin’s earlyearly optimism optimism about about the the company company would would dissipate dissipate quickly. quickly.

At the At very the very moment moment thatthat he published he published General General Electric’s Electric’s firstfirst annual annual report, report, the the worst worst financial financial crisis crisis in the in the republic’s republic’s history— history— known known as the as Panic the Panic of 1893— of 1893— had had begun. begun.

“I saw “I saw beggars beggars and and bums bums ev- everywhere erywhere on the on street,” the street,” the journalist the journalist Upton Upton Sinclair, Sinclair, whowho covered covered the the panic, panic, saidsaid years years later. later.

“I saw “I saw women women and and children children weeping, weeping, sitting sitting on furniture, on furniture, which which havehave beenbeen dumped dumped on the on pavement.” the pavement.”

Speculation Speculation in railroads in railroads was was at the at heart the heart of the of panic. the panic.

“Railroads “Railroads werewere overoverbuilt, built, and and many many companies companies continued continued growth growth by taking by taking overover competitors, competitors, en- endangering dangering theirtheir ownown stability,” stability,” according according to one to one contemporaneous contemporaneous ac- account. count.

But But there there werewere other other causes, causes, too.too.

Silver Silver fromfrom mines mines began began to to floodflood the market. the market.

Farmers, Farmers, particularly particularly in the in Midwest, the Midwest, suffered suffered a se-a series ries of droughts of droughts thatthat left left them them short short of cash of cash to pay to pay theirtheir debts, debts, driving driving down down the the value value of their of their land.land.

In February In February 1893, 1893, the the Philadelphia Philadelphia and and Reading Reading Railroad Railroad failed, failed, raising raising concern concern about about the health the health of other of other largelarge railroads railroads and and leading leading to ato crash a crash in the in the stock stock market market on May on May 5, fol5, following lowing the collapse the collapse of the of National the National Cordage Cordage Company, Company, one one of the of most the most widely widely traded traded stocks stocks on the on exchange. the exchange.

In aIn matter a matter of weeks, of weeks, Cordage’s Cordage’s stock stock had had declined declined precipitously precipitously by 75 by percent 75 percent fromfrom $75 $75 a share a share to to $18.75 $18.75 a share, a share, before before the company the company eventually eventually filedfiled for bankruptcy. for bankruptcy.

Interest Interest ratesrates spiked spiked on shorton shorttermterm loans, loans, as fear as fear seeped seeped intointo the the market. market.

On July On July 25, the 25, Erie the Erie Railroad Railroad failed. failed.

Banks Banks around around the counthe country, try, especially especially those those in New in New York, York, suspended suspended depositors’ depositors’ access access to their to their ownown money. money.

TheThe Treasury Treasury waswas running running out out of the of the goldgold needed needed to to

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exchange exchange for paper for paper money money on demand, on demand, so silver so silver was was substituted. substituted.

Fur-Furtherther panic panic ensued ensued while while more more thanthan fifteen fifteen thousand thousand companies companies and and five five hundred hundred banks banks failed. failed.

Unemployment Unemployment hit nearly hit nearly 20 percent.

20 percent.

LifeLife sav-savingsings disappeared. disappeared.

Many Many Americans Americans lost lost theirtheir homes homes when when theythey could could no longer no longer afford afford to pay to pay theirtheir mortgages. mortgages.

General General Electric Electric nearly nearly wentwent down down the the tubes, tubes, too,too, barely barely a year a year intointo its existence. its existence.

NewNew business business fell fell precipitously precipitously in May in May and and June, June, and and GE had GE had to borrow to borrow to meet to meet its payroll, its payroll, at exorbitant at exorbitant interest interest rates. rates.

Orders Orders for its for products its products declined declined 75 percent.

75 percent.

TwoTwo thirds thirds of its of eightits eightthousandthousandperson person workforce workforce was was dismissed dismissed and and there there was was hardly hardly enough enough workwork to do tofor do those for those whowho remained. remained.

As of AsJuly, of July, the company the company had had $1.3$1.3 million million in cash in cash and and $10 $10 million million of longof longtermterm debt,debt, an obligation an obligation com-compounded pounded by the by the fact fact thatthat it had it had provided provided vendor vendor financing financing to many to many of of its customers its customers whowho werewere struggling struggling to pay to pay theirtheir bills.bills.

WallWall Street Street lost lost faithfaith in General in General Electric Electric and and thought thought it was it was headed headed for bankruptcy. for bankruptcy.

“During “During the summer the summer of 1893, of 1893, eveneven old and old and strong strong cus-customers tomers werewere obliged obliged to ask to ask for leniency for leniency in paying in paying theirtheir accounts accounts and and notes,” notes,” Coffin Coffin wrote wrote in the in 1894 the 1894 annual annual report. report.

“Under “Under these these circumcircumstances stances youryour [c]ompany [c]ompany found found itselfitself withwith its own its own obligations obligations to meet, to meet, but unable but unable at that at that timetime to collect to collect the money the money withwith which which to meet to meet them.” them.”

Bankruptcy Bankruptcy loomed. loomed.

TheThe company’s company’s bankers, bankers, many many of whom of whom werewere alsoalso on its onboard its board of directors, of directors, keptkept Coffin Coffin on aon very a very short short leash. leash.

An execuAn executive tive committee committee of the of board the board was was set up setby upthe by directors the directors to override to override his his decisions, decisions, if that if that became became necessary. necessary.

“There “There werewere months months thatthat seemed seemed like like scalding scalding centuries,” centuries,” Coffin Coffin saidsaid years years later. later.

As he Ashad he had donedone before before when when ThomsonThomsonHouston Houston was was facing facing finanfinancial cial difficulties, difficulties, Coffin Coffin came came up with up with a seemingly a seemingly clever clever planplan to raise to raise cashcash and and to avoid to avoid financial financial catastrophe. catastrophe.

He decided He decided GE would GE would sell,sell, at a at a substantial substantial loss,loss, the the stocks stocks and and bonds bonds thatthat it owned it owned in various in various locallocal companies. companies.

These These securities securities had had a face a face value value of $16.2 of $16.2 million million at the at the time, time, and and GE marked GE marked them them at $9.2 at $9.2 million million on its onbalance its balance sheet, sheet, or 57 or 57 cents cents on the on the dollar. dollar.

Coffin Coffin figured figured in the in the midst midst of the of the panic, panic, these these se- se-

T W OT W CR OI S CERSI S –E S29– 29

curities curities would would go for, go at for,best, at best, 25 cents 25 cents on the on dollar. the dollar.

He proposed He proposed valu-valuing $12 ing $12 million million of the of best the best of them of them at a at price a price of 33ofcents 33 cents on the on dollar the dollar and and offering offering them them for sale for sale to the to the company’s company’s shareholders; shareholders; theythey could could buy buy them them at that at that priceprice onceonce the panic the panic had had abated. abated.

In the In meantime, the meantime, a a trustee trustee would would manage manage the the securities securities and and WallWall Street Street bankers bankers would would underwrite underwrite theirtheir salesale while while alsoalso immediately immediately advancing advancing GE aGE mucha muchneeded needed $4 million. $4 million.

Coffin’s Coffin’s Boston Boston bankers, bankers, Lee,Lee, Higginson Higginson & Com& Company, pany, signed signed on to onhis to plan his plan immediately. immediately.

But But the the deciding deciding votevote on the on the GE board GE board belonged belonged to J.toP.J.Morgan P. Morgan himself. himself.

During During the the summer summer of 1893, of 1893, he was he was in Maine, in Maine, virtually virtually un- unreachable. reachable.

Coffin Coffin decided decided to take to take a train a train up north up north to gotosee go the see banker the banker and and findfind out what out what his vote his vote would would be. As be.he Aswas he was entering entering the door the door to see to see him,him, Morgan’s Morgan’s messenger messenger was was going going out out of itofwith it with the news the news thatthat Mor-Morgan gan had had accepted accepted Coffin’s Coffin’s planplan “without “without reservation.” reservation.”

TheThe cashcash infu-infusionsion fromfrom the the fire fire salesale of the of the securities securities was was critical critical and and helped helped GE GE restore restore confidence confidence withwith investors. investors.

Coffin Coffin was was a changed a changed manman afterafter helping helping GE to GEsurvive to survive the Panic the Panic of of 1893.

1893.

Keeping Keeping GE far GE from far from financial financial danger danger thereafter thereafter became became an oban obsession session withwith him.him.

“We“We had had a close a close shave,” shave,” he said he said when when it was it was over.over.

“We“We werewere headed headed for the for the poorhouse, poorhouse, and and the the prospect prospect was was anything anything but but pleasant. pleasant.

Hereafter Hereafter we shall we shall cherish cherish no illusions. no illusions.

OurOur aim,aim, as we as we strive strive for expansion, for expansion, shallshall be tobebuild to build up plenty up plenty of reserve of reserve strength strength and and to maintain to maintain it.” According it.” According to John to John Broderick, Broderick, whowho worked worked for Coffin for Coffin at at GE, GE, Coffin’s Coffin’s “sensations” “sensations” afterafter the Panic the Panic of 1893 of 1893 “were “were like like those those of a of a commander commander whose whose shipship has has reached reached portport afterafter having having encountered encountered a a terrific terrific storm storm and and beenbeen dangerously dangerously closeclose to the to rocks. the rocks.

His His experience experience had had beenbeen a nervea nerveracking racking one one and and he never he never forgot forgot it. Its it.effect Its effect uponupon his his judgment judgment was was permanent.” permanent.”

He observed He observed thatthat when when it came it came to the to General the General Electric Electric Company, Company, “financial “financial writers” writers” havehave a “custom” a “custom” of describing of describing howhow conservatively conservatively the executives the executives valued valued the company’s the company’s assets. assets.

“That “That conservatism conservatism was was a a consequence consequence of the of panic the panic of 1893,” of 1893,” he continued, he continued, “during “during which which a spade a spade

30 –30P O – WPEORWFA E RI LFA UR I LEU R E

was was called called a spade, a spade, and and littlelittle or no orrecognition no recognition was was given given to contingent to contingent or potential or potential values values of any of any kind. kind.

Having Having keptkept the the enterprise enterprise of which of which he was he was the the chiefchief steward steward fromfrom being being totally totally wrecked, wrecked, Coffin Coffin resolved resolved to make to make it invulnerable, it invulnerable, so far so as farthis as this was was humanly humanly possible.” possible.”

(Some(Somewhatwhat famously, famously, Coffin Coffin alsoalso coined coined the phrase the phrase when when valuing valuing assets assets on aon a company’s company’s balance balance sheet, sheet, “Use“Use costcost or market or market value, value, whichever whichever is the is the lower,” lower,” an accounting an accounting aphorism aphorism thatthat has has stood stood the test the test of time.) of time.)

At the At end the end of January of January 1894, 1894, GE had GE had debtdebt of $6.75 of $6.75 million million and and cashcash in the in the bankbank of around of around halfhalf a million a million dollars. dollars.

GE GE vastly vastly curtailed curtailed its its practice practice of extending of extending credit credit to its tocustomers its customers and and of taking of taking backback equity equity in them in them in exchange in exchange for access for access to GE’s to GE’s products. products.

If you If you wanted wanted a gena generator, erator, it had it had to betopaid be paid for in foreither in either cashcash or “short or “short credit credit to desirable to desirable customers,” customers,” according according to the to the GE annual GE annual report. report.

GE decided GE decided it would it would taketake less less profit profit for the for time the time being, being, and and its “surplus” its “surplus” wentwent fromfrom a posia positive tive $1 million $1 million to a to negative a negative $12 $12 million. million.

TheThe negative negative surplus surplus contincontinued ued for some for some fifteen fifteen years. years.

By the By middle the middle of the of following the following year,year, business business improved. improved.

Factories Factories werewere onceonce again again humming humming six days six days a week. a week.

Coffin Coffin noted noted in the in January the January 18941894 annual annual report report thatthat the the last last two two months months had had seenseen “a gradual “a gradual im- improvement.” provement.”

TheThe streetcar streetcar business business struggled, struggled, as did as did the the arc lighting arc lighting business. business.

TheThe bestbest performer performer during during thisthis difficult difficult period period was was the the in- incandescent candescent lighting lighting business, business, which which did did relatively relatively well,well, in large in large partpart because because its customers its customers werewere more more conservatively conservatively run run and and werewere ableable to to pay pay for the for GE the products.

GE products.

A year A year later, later, the company the company had had made made material material strides strides in reducing in reducing its debt its debt loadload by paying by paying off its offfloatingits floatingraterate debt,debt, by by funding funding its working its working capital capital needs needs out of outcash of cash flow,flow, and and by buying by buying backback $1.25 $1.25 million million of itsoflongits longtermterm debtdebt at around at around 89 cents 89 cents on the on dollar. the dollar.

Notwithstanding Notwithstanding the fact the fact thatthat GE had GE had managed managed to stave to stave off bankoff bankruptcy, ruptcy, the the Panic Panic of 1893 of 1893 touched touched off aoff serious a serious economic economic catastrophe catastrophe across across the the country, country, which which would would remain remain in a in depression a depression for the for the nextnext five five years. years.

AndAnd it would it would taketake GE just GE just as long as long to pull to pull out of outitsofmalaise. its malaise.

Sales Sales remained remained stagnant stagnant at $12 at $12 million million annually. annually.

In the In meantime, the meantime, as as

T W OT W CR OI S CERSI S –E S31– 31

he had he had often often done, done, Coffin Coffin was was willing willing to take to take chances chances on new on new technoltechnology.ogy.

He brought He brought Charles Charles G. Curtis, G. Curtis, a New a New YorkYork CityCity engineer, engineer, to Scheto Schenectady nectady to try to his try hand his hand at what at what eventually eventually became became the the precursor precursor to to today’s today’s steam steam turbine— turbine— a business a business thatthat GE would GE would dominate dominate for decades. for decades.

In exchange In exchange for the for the right right to purchase to purchase patent patent rights, rights, Coffin Coffin allowed allowed Curtis Curtis to use to use the GE the facilities GE facilities while while he tried, he tried, and and often often failed, failed, to perto perfect fect his invention. his invention.

It was It was a tough a tough slog,slog, but but withwith the the helphelp of William of William LeRoy LeRoy Emmet, Emmet, an engineer an engineer in the in the lighting lighting department, department, and and another another thirtythirtysix experienced six experienced mechanics, mechanics, theythey succeeded succeeded in designing in designing a fivea fivethousandthousandkilowatt kilowatt turbine. turbine.

Coffin Coffin offered offered the new the new machine, machine, which which was was one one tenth tenth the the size size of what of what it replaced it replaced and and could could generate generate far more far more power, power, to Samuel to Samuel Insull, Insull, Edison’s Edison’s former former rightrighthandhand man, man, whowho was was thenthen president president of Chicago’s of Chicago’s Commonwealth Commonwealth Edison Edison Company Company and and whowho was was staking staking his reputation his reputation on GE’s on GE’s newnew steam steam turbine. turbine.

Coffin Coffin decreed decreed thatthat the new the new turbine turbine needed needed to betoworking be working

by March

by March 7, 1900, 7, 1900, in order in order to be to shipped be shipped to Insull. to Insull.

TheThe team team finished finished three three daysdays early. early.

But But the the machine machine stillstill had had to be toinstalled. be installed.

A wave A wave of GE of construction GE construction workers workers moved moved to Chicago to Chicago for the for complex the complex assembly assembly at the at new the new generating generating sta- stationtion thatthat Insull Insull had had ordered ordered builtbuilt on Fisk on Fisk Street.

Street.

For For months months things things wentwent wrong. wrong.

Whenever Whenever thisthis newnew turbine turbine generator generator ran ran well,well, GE’sGE’s stock stock increased increased in value, in value, and and when when the turbine the turbine failed, failed, GE’sGE’s stock stock fell. fell.

Three Three months months later, later, though, though, the the newnew steam steam turbine turbine was was installed installed and and was was running running flawlessly. flawlessly.

Orders Orders for the for new the new machines machines streamed streamed intointo GE. GE. By 1898, By 1898, GE’sGE’s revenues revenues had had finally finally begun begun to grow to grow again, again, reaching reaching $22 $22 million million for the for the previous previous year.year.

NewNew business business opportunities opportunities werewere everywhere, everywhere, including including providing providing electricity electricity to the to Manhattan the Manhattan subway subway system system and and to the to ones the ones serving serving the outer the outer boroughs. boroughs.

There There was was the conthe contracttract to electrify to electrify Grand Grand Central Central and and one one to do tothe do the same same for the for the ManManhattan hattan Elevated Elevated Railway, Railway, for more for more thanthan $1 million. $1 million.

That’s That’s a deal a deal thatthat Coffin Coffin sealed sealed himself himself by going by going to the to the railway’s railway’s offices offices and and personally personally making making the pitch the pitch for the for business. the business.

He also He also had had made made a concerted a concerted effort effort to clean to clean up the up the risk risk on GE’s on GE’s

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balance balance sheet, sheet, clearing clearing the the wayway for the for the company company to pay to pay stock stock divi-dividends. dends.

Under Under Coffin’s Coffin’s leadership, leadership, GE GE had had paidpaid off its off longits longtermterm debtdebt and and was was no longer no longer factoring— factoring— selling selling off at offa at discount— a discount— its receivables. its receivables.

It had It had alsoalso not not borrowed borrowed any any money. money.

Customers Customers paidpaid cashcash for everyfor everything, thing, or else or else weren’t weren’t ableable to buy to buy fromfrom GE. GE. AndAnd the securities the securities of itsofcusits customers tomers thatthat GE was GE was selling selling werewere nownow achieving achieving prices prices above above par par afterafter years years of GE’s of GE’s having having beenbeen forced forced to sell to sell them them at a at discount. a discount.

By April

By April 1900, 1900, the Times the Times reported reported thatthat GE seemed GE seemed intent intent on world on world domination domination afterafter it agreed it agreed to buy to buy the U.S. the U.S. business business of the of big the German big German electrical electrical manufacturer manufacturer SiemensSiemensHalske Halske Company, Company, withwith which which it had it had beenbeen associated associated fromfrom the outset the outset of itsofcorporate its corporate life.life.

Upon Upon completion completion of the of acquisition, the acquisition, the Times the Times reported, reported, GE “will GE “will in all inprobability all probability con-control trol all of allthe of the leading leading electrical electrical vehicle vehicle companies companies in America.” in America.”

TheThe funny funny thing thing was was thatthat LevyLevy Mayer, Mayer, GE’sGE’s general general counsel, counsel, impolitically impolitically agreed agreed withwith the the paper’s paper’s assertion. assertion.

“It is “Ittoisbe tounderstood be understood distinctly,” distinctly,” Mayer Mayer said,said, “that “that the the purpose purpose of the of the General General Electric Electric company company is tois to absorb absorb as many as many companies companies as possible as possible under under the law.” the law.”

AndAnd Coffin Coffin made made suresure to welcome to welcome the new the new entrants entrants to the to GE the family.

GE family.

“We“We maymay be enterbe entertaining taining an angel an angel unawares,” unawares,” he liked he liked to say. to say.

In 1905, In 1905, GE bought GE bought AllisAllisChalmers, Chalmers, a major a major competitor competitor in the in electrical the electrical and and power power equipment equipment businesses. businesses.

AndAnd the the company company was was busybusy working working on the on the “machinery” “machinery” thatthat would would allow allow an electric an electric traintrain to travel to travel at speeds at speeds of 125 of 125 miles miles per per hourhour “and“and revolutionize revolutionize the the railway railway transportation transportation of the of the world” world” and and that,that, “if successful,” “if successful,” would would mean mean the trip the trip fromfrom Boston Boston to New to New YorkYork by by highhighspeed speed traintrain could could be done be done in two in two hours hours (an accomplishment (an accomplishment thatthat stillstill seems seems fanciful fanciful today). today).

But But before before world world domination, domination, GE first GE first had had to survive to survive another another fi- financial nancial crisis— crisis— the Panic the Panic of 1907. of 1907.

JustJust as the as company the company was was finally finally hit- hittingting its stride its stride following following the the previous previous financial financial crisis, crisis, and and the the markets markets werewere booming, booming, the seeds the seeds of a of new a new financial financial crisis crisis had had beenbeen sown. sown.

There There was was an enormous an enormous demand demand for capital, for capital, but but since since the money the money supply supply was was pegged pegged to gold, to gold, and and goldgold mining mining production production had had not kept not kept pacepace withwith the the

T W OT W CR OI S CERSI S –E S33– 33

demand demand for money, for money, there there was was growing growing concern concern thatthat financial financial trouble trouble was was lurking lurking around around the corner. the corner.

The The supplysupplyand-anddemand demand equations equations werewere out of outwhack. of whack.

SuchSuch was was the concern the concern in early in early 19061906 thatthat Jacob Jacob Schiff, Schiff, the the senior senior partner partner at Kuhn, at Kuhn, LoebLoeb & Co.— & Co.— a rival a rival of J.ofP.J.Morgan P. Morgan & Co.— & Co.— warned warned his Wall his Wall Street Street brethren, brethren, “If the “If the currency currency conditions conditions of this of this country country are are not not changed changed materially materially . . . you . . . you will will havehave suchsuch a panic a panic ... ... as will as will make make all previous all previous panics panics looklook like like child’s child’s play.” play.”

He would He would be right, be right, and and the the ensuing ensuing crisis crisis would would again again showcase showcase J. P.J.Morgan’s P. Morgan’s skills skills as a as savior a savior of the of nation’s the nation’s financial financial system— system— it was it was perhaps perhaps his finest his finest moment— moment— while while alsoalso highlighting highlighting the general the general danger danger posed posed by having by having no prudential no prudential regulatory regulatory authority authority to step to step in when in when panic panic ensued. ensued.

Recall Recall thatthat thisthis was was an era an without era without financial financial regulations. regulations.

There There was was no Federal no Federal Reserve Reserve Board Board or system or system of Federal of Federal Reserve Reserve banks. banks.

There There was was no Securities no Securities and and Exchange Exchange Commission.

Commission.

There There werewere veryvery few few lawslaws indeed indeed governing governing financial financial transactions transactions and and disclosures. disclosures.

There There literally literally was was a Wild a Wild WestWest feel feel to Wall to Wall Street, Street, eveneven though though it was it was stillstill mostly mostly located located in Lower in Lower Manhattan.

Manhattan.

Unlike Unlike so many so many others, others, though, though, GE had GE had builtbuilt a bitaof bita of fortress a fortress bal-balanceance sheet sheet in the in the years years leading leading up to upthe to the Panic Panic of 1907, of 1907, and and it weathit weatheredered the crisis the crisis withwith relative relative ease.ease.

Earlier Earlier in the in year, the year, before before the panic the panic had had set in, set Coffin in, Coffin decided decided to use to use the the company’s company’s goodgood fortune fortune to sell to sell $13 $13 million million of longof longtermterm bonds, bonds, at 5 at percent 5 percent interest, interest, in case in case the marthe marketskets should should turn, turn, which which of course of course occurred occurred in the in second the second halfhalf of 1907. of 1907.

Orders Orders in the in the second second halfhalf of the of the yearyear fell fell 23 percent.

23 percent.

If they If they could could get access get access to the to capital the capital markets, markets, businesses businesses werewere borrowing borrowing money money at at ratesrates of between of between 10 percent 10 percent and and 12 percent, 12 percent, far higher far higher thanthan whatwhat GE GE had had just just accomplished. accomplished.

“But“But although although GE GE factories factories slowed slowed up, up, there there was was no financial no financial trouble,” trouble,” Charles Charles Wilson, Wilson, whowho was was one one of Coffin’s of Coffin’s suc-successors, cessors, explained, explained, “and“and Coffin Coffin eveneven helped helped out some out some of his of utility his utility cus-customers tomers withwith loans loans fromfrom the bond the bond issue, issue, resulting resulting in more in more goodgood will will and and more more orders orders in the in years the years thatthat followed.” followed.”

An important An important but underappreciated but underappreciated partpart of how of how Coffin Coffin was was ableable to to

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rescue rescue GE in GE1893 in 1893 and and to keep to keep it above it above the fray the fray in 1907 in 1907 had had to dotowith do with his willingness his willingness to engage to engage in what in what we would we would today today call call “financial “financial engi-engineering.” neering.”

He was He was ableable to recognize to recognize whatwhat assets assets GE had GE had on its onbalance its balance sheet sheet thatthat could could be quickly be quickly turned turned intointo cash, cash, eveneven at a at severe a severe discount, discount, in order in order to raise to raise the the money money needed needed to pay to pay down down some some debtdebt while while re- restoring storing confidence confidence among among equity equity investors investors thatthat the company the company was was tak-taking necessary ing necessary steps steps to keep to keep itselfitself out of outbankruptcy. of bankruptcy.

Pretty Pretty clever. clever.

Coffin Coffin firstfirst concocted concocted the the ideaidea when when he was he was running running ThomsonThomsonHouston.

Houston.

In 1890— In 1890— two two years years before before the Edison the Edison merger— merger— he organized he organized the United the United Electric Electric Securities Securities Company Company to raise to raise capital capital for Thomsonfor ThomsonHouston Houston in the in the faceface of a of growing a growing reluctance reluctance by banks by banks to provide to provide the the money money Coffin Coffin needed. needed.

He contributed He contributed to United to United Electric Electric the securities the securities ThomsonThomsonHouston Houston had had beenbeen receiving receiving fromfrom its utility its utility customers customers in in exchange exchange for the for the products products Coffin Coffin was was selling selling them. them.

Capitalized Capitalized withwith these these securities— securities— some some of which of which werewere obviously obviously worth worth more more thanthan others, others, depending depending on the on the customers’ customers’ ability ability to pay to pay them them off—off— United United Electric Electric was was ableable to raise to raise debtdebt using using the the securities securities as collateral. as collateral.

TheThe proceeds proceeds of United of United Electric’s Electric’s debtdebt issuance issuance werewere thenthen transferred transferred to to ThomsonThomsonHouston, Houston, which which owned owned 100 100 percent percent of the of the stock stock of United of United Electric.

Electric.

Based Based in Boston, in Boston, United United Electric Electric survived survived the creation the creation of Genof Generaleral Electric Electric and and continued continued to serve to serve the the purpose purpose thatthat Coffin Coffin had had in- intended: tended: to occasionally to occasionally sell sell to the to the public public the the securities securities GE often GE often tooktook fromfrom its customers. its customers.

In 1904, In 1904, Coffin Coffin created created another another wholly wholly owned owned sub-subsidiary, sidiary, the the Electrical Electrical Securities Securities Corporation, Corporation, to do toin doNew in New YorkYork CityCity whatwhat United United Electric Electric was was doing doing in Boston. in Boston.

But But Coffin Coffin was was stillstill not not done. done.

In 1905, In 1905, he created he created the the Electric Electric Bond Bond and and Share Share Company Company as as another another GE subsidiary.

GE subsidiary.

Coffin’s Coffin’s ideaidea thisthis timetime was was to create to create a way a way to to helphelp GE’sGE’s customers— customers— among among them them the the smaller, smaller, regional regional utilities utilities thatthat werewere buying buying GE’sGE’s power power equipment— equipment— to get to the get the capital capital theythey needed needed at at more more favorable favorable rates. rates.

In effect, In effect, Coffin Coffin had had devised devised a plan a plan to finance to finance GE’sGE’s customers customers using using GE’sGE’s bigger bigger balance balance sheet. sheet.

TheThe Electric Electric Bond Bond and and Share Share Company Company helped helped GE’sGE’s customers customers get access get access to equityto equitylike like capital capital

T W OT W CR OI S CERSI S –E S35– 35

and and to get tobetter get better pricing pricing on their on their more more senior senior debt;debt; in many in many waysways it was it was a precursor a precursor to junk to junk bonds. bonds.

(Eventually, (Eventually, GE spun GE spun off EBASCO, off EBASCO, as itas was it was laterlater known, known, to its toshareholders. its shareholders.

But But it was it was eventually eventually liquidated liquidated afterafter the federal the federal government government wonwon a lawsuit a lawsuit against against it.) Although it.) Although Coffin’s Coffin’s pre-precise cise creativity creativity in GE’s in GE’s earlyearly years— years— collecting collecting the financial the financial stakes stakes in itsin its customers customers intointo a separate a separate entity entity and and selling selling them them at a at considerable a considerable dis- discount count to GE’s to GE’s shareholders shareholders in return in return for muchfor muchneeded needed cash— cash— would would fall fall by the by wayside, the wayside, the intellectual the intellectual inspiration inspiration behind behind his steps— his steps— saving saving the the company company at all atcosts— all costs— would would become become a leitmotif a leitmotif of GE’s of GE’s nextnext hundred hundred years. years.

In 1913, In 1913, having having steered steered GE successfully GE successfully through through two two major major finanfinancial cial crises crises while while alsoalso making making the the company company a powerful a powerful forceforce in indusin industrialtrial America, America, Coffin Coffin relinquished relinquished his title his title as GE’s as GE’s president. president.

Coffin Coffin remained remained chairman chairman of the of the GE board GE board for another for another ninenine years, years, retiring retiring fullyfully fromfrom the the company company in May in May 1922.

1922.

He then He then established established a private a private office office for himself for himself at 120 at 120 Broadway, Broadway, around around the corner the corner fromfrom WallWall Street.

Street.

He remained He remained a director a director of GE of until GE until his death, his death, afterafter a week’s a week’s illness, illness, in in JulyJuly 1926.

1926.

At his At death, his death, he was he was one one of America’s of America’s richest richest men.men.

A month A month afterafter he retired he retired as the as chairman the chairman of the of GE the board, GE board, Coffin Coffin gavegave a rare a rare interview interview to ato reporter a reporter fromfrom the the NewNew YorkYork World.

World.

It was It was a masterful a masterful combination combination of a of practical a practical assessment assessment of what of what electricity electricity had had donedone for America for America since since its inception its inception fortyforty years years earlier earlier and and pre-prescience science about about where where more more abundant abundant and and cheaper cheaper electricity electricity would would taketake the the country. country.

“Take “Take electricity electricity out out of New of New York,” York,” he mused, he mused, “and“and one one of the of the items items thatthat comes comes out out withwith it isitabout is about nineninetenths tenths of her of her population.” population.”

NewNew Yorkers Yorkers loved loved the the telephone telephone and and the the electric electric light. light.

“The“The skyscraper skyscraper would would be impossible be impossible without without electricity,” electricity,” he continhe continued.ued.

“Not“Not onlyonly is it isdependent it dependent uponupon the the electric electric lightlight and and the the electric electric elevator elevator but the but very the very processes processes of steel of steel manufacture, manufacture, which which made made modmodern ern construction construction possible, possible, depend depend at many at many different different stages stages uponupon elec-electrical trical machinery. machinery.

TheThe modern modern apartment apartment house house is unthinkable is unthinkable without without electricity.” electricity.”

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He predicted— He predicted— correctly— correctly— thatthat electricity’s electricity’s nextnext frontier frontier was was the the American American countryside. countryside.

(He (He anticipated anticipated the passage the passage of the of Rural the Rural ElecElectrification trification Act Act by eleven by eleven years.) years.)

Bringing Bringing electricity electricity to rural to rural America America would would transform transform it byitbringing by bringing meaningful meaningful work, work, in the in form the form of factoof factories ries thatthat werewere closer closer to raw to raw materials. materials.

Instead Instead of shipping of shipping those those goods goods to the to the cities, cities, where where theythey could could be turned be turned intointo finished finished products, products, elec-electricity tricity would would allow allow manufacturing manufacturing plants plants to betobuilt be built in rural in rural areas, areas, too. too.

“Electricity “Electricity made made the the big city,” big city,” he said, he said, “now “now it may it may be expected be expected to to unmake unmake it.” All it.”the All advantages the advantages of the of city the city “will“will soonsoon be possible be possible for the for the farm,” farm,” he continued, he continued, “without “without having having to put to put up with up with the unendurable the unendurable indignities indignities of city of city life.life. . . . Electricity . . . Electricity is not is not onlyonly the cleanest the cleanest and and mostmost efficient efficient servant servant thatthat mankind mankind everever had had but but it is italso is also the the cheapest. cheapest.

It It works works for less for less thanthan a coolie’s a coolie’s wage, wage, and and its wages its wages are going are going down down every every day day while while its efficiency its efficiency is being is being constantly constantly increased. increased.

In addition In addition to to thisthis it does it does its own its own traveling, traveling, at the at rate the rate of 186,000 of 186,000 miles miles a second, a second, and and doesn’t doesn’t havehave to betotransported.” be transported.”

He also He also anticipated anticipated the perquisites the perquisites of the of farmthe farmto-table to-table and and other other environmentally environmentally friendly friendly movements. movements.

“In the “In country, the country, where where our our foodfood grows, grows, is the is best the best of allofplaces all places to eat to it,” eat he it,”said. he said.

“Sending “Sending it toitthe to city the city costs costs much much more more thanthan getting getting it out it of outthe of ground, the ground, and and it has it has lost lost a lota lot of flavor of flavor by the by the timetime it has it has reached reached the the ultimate ultimate consumer.” consumer.”

He beHe believed lieved thatthat the “next the “next big step big step in industry” in industry” would would be the be development the development of of the “small, the “small, electrically electrically driven driven factory” factory” nearnear to where to where the raw the raw materials materials are found. are found.

He predicted He predicted thatthat industry industry would would move move out of outthe of Northeast the Northeast in order in order to be to closer be closer to raw to raw material. material.

“Cloth “Cloth will will more more and and more more be be manufactured manufactured where where the the cotton cotton is grown,” is grown,” he said. he said.

“The“The flourflour millsmills will will leaveleave the cities the cities and and go back go back to the to farm.” the farm.”

A new A new wavewave of population of population migration migration out out of the of the cities cities would would follow, follow, he predicted. he predicted. “[T]he “[T]he country country life of lifethe of future the future will will not not be the be dull, the dull, forbidding, forbidding, solitary solitary thing thing which which the concentration the concentration of industry of industry has has made made now.” now.”

Finally, Finally, in his inway, his way, Coffin Coffin alsoalso anticipated anticipated the internet. the internet.

“There “There will will be ample be ample communication communication withwith the the outside outside world,” world,” he predicted. he predicted.

“The“The

T W OT W CR OI S CERSI S –E S37– 37

radio radio has has just just burst burst uponupon us; there us; there is noistelling no telling where where its influence its influence will will reach. reach.

Moving Moving pictures pictures maymay be broadcast. be broadcast.

It may It may not not be necessary be necessary to to come come to New to New YorkYork to see to and see and hearhear the the newest newest Broadway Broadway drama, drama, pos-possiblysibly all that all that will will be necessary be necessary will will be tobeadjust to adjust the switchboard the switchboard in your in your ownown home home in Maine in Maine or Washington or Washington or New or New Mexico, Mexico, and and taketake in a in firsta firstnight night performance performance as full as full as ifas you if you had had an orchestra an orchestra seat.” seat.”

He knew He knew he he was was on aon bitaof bitanofideological an ideological ledge. ledge.

“This “This is dreaming is dreaming of course, of course, for no for no one one can can prophesy prophesy withwith any any accuracy accuracy concerning concerning suchsuch matters,” matters,” he conhe concluded. cluded.

“Of “Of one one thing thing only,only, I amI certain. am certain.

ThatThat is that is that we are we just are just in the in the beginning beginning of anofelectric an electric age.”age.”

Coffin Coffin died,died, in Locust in Locust Valley, Valley, NewNew York, York, afterafter a short a short illness. illness.

He He made made a point a point of reviewing of reviewing GE’sGE’s financial financial statements statements untiluntil his dying his dying day.day.

Titans Titans of industry of industry attended attended his funeral. his funeral.

Charles Charles Dawes, Dawes, Calvin Calvin Coolidge’s Coolidge’s vicevice president, president, saidsaid Coffin’s Coffin’s death death was was “a loss “a loss to the to the entire entire country” country” and and added added thatthat “his“his undaunted undaunted courage courage in the in early the early developdevelopment ment of the of the electric electric power power business business of the of the nation, nation, his vision, his vision, and and the the confidence confidence and and kindliness kindliness withwith which which he assisted he assisted its pioneers, its pioneers, made made himhim a unique a unique figure figure in American in American industry.” industry.”

He left He left an estate an estate worth worth $6 $6 million, million, and and he also he also left left behind behind a legacy a legacy of moral of moral fortitude. fortitude.

TheThe executives executives whom whom he chose he chose for key for key leadership leadership positions positions afterafter his departure his departure included included Edwin Edwin Rice,Rice, his longtime his longtime colleague colleague and and ThomThomson’sson’s former former highhigh school school student. student.

RiceRice was was an executive an executive whowho wanted wanted to hear to hear the bad the bad news. news.

“Let’s “Let’s know know whatwhat the worst the worst is,” he is,”said, he said, “then “then we we can can seekseek for the for the best.” best.”

Coffin Coffin alsoalso found found Gerard Gerard Swope, Swope, a graduate a graduate of of the the Massachusetts Massachusetts Institute Institute of Technology of Technology and and the the son son of German of German Jewish Jewish immigrants immigrants fromfrom Saint Saint Louis, Louis, and and named named himhim the the firstfirst presipresidentdent of GE’s of GE’s international international business, business, the International the International General General Electric Electric Company.

Company.

In 1922, In 1922, Swope Swope succeeded succeeded RiceRice as the as company’s the company’s president, president, and and a young a young lawyer lawyer fromfrom Boston, Boston, Owen Owen Young, Young, became became the chairman the chairman of GE’s of GE’s board. board.

SoonSoon enough, enough, GE’sGE’s revenue revenue increased increased to $337 to $337 million, million, withwith some some eighty eighty thousand thousand employees employees and and factories factories across across the United the United States.

States.

Chapter Chapter Three Three

THE THE BATTLE BATTLE OFOF THE THE A IRWAV A IRWAV ESES

TT

he outbreak he outbreak of World of World WarWar I opened I opened up entirely up entirely newnew business business lineslines for GE— for GE— including including radio radio broadcasting. broadcasting.

GE’sGE’s executives executives played played an an

important important rolerole in the in war the war effort, effort, and and its inventors its inventors werewere at the at service the service of the of the military. military.

W. R. W.Whitney, R. Whitney, the the headhead of GE’s of GE’s research research lab, lab, served served on the on the Naval Naval Consulting Consulting Board.

Board.

When When the the army army wanted wanted a lighter a lighter searchlight searchlight to help to help spotspot bombing bombing airplanes, airplanes, GE created GE created it. When it. When the the navynavy asked asked for afor submarine a submarine detector, detector, GE built GE built one one in ten in ten weeks weeks and and was was soonsoon churning churning them them out.out.

In December In December 1917,1917, three three GE engineers GE engineers joined joined a group a group of American of American naval naval menmen on aon British a British trawler, trawler, located located a German a German submarine submarine using using the the newnew GE GE technology, technology, and and destroyed destroyed the the vessel. vessel.

TheThe list list of GE’s of GE’s contributions contributions to the to the warwar effort effort waswas longlong and and varied: varied: special special submarine submarine motors; motors; compasses compasses for airplanes; for airplanes; winch winch drives drives for balloons; for balloons; enough enough telephone telephone switchboards switchboards to fill to afill sidewalk a sidewalk a hundred a hundred miles miles long;long; and and bombbombrelease release mechanisms. mechanisms.

GE’sGE’s executives executives werewere not not mere mere businessmen businessmen any any longer. longer.

TheyThey werewere beginning beginning to take to take rolesroles in the in government the government and and laying laying the groundwork the groundwork for what for what President President Dwight Dwight D. Eisenhower D. Eisenhower would would call call the militarythe militaryindustrial industrial complex. complex.

TheThe innovations innovations fromfrom the war the war years years might might havehave beenbeen initially initially pursued pursued for for

T H ET B HAET BTAL T ETOLFE TOH F ET A HIER WAV A I R WAV E S –E S39– 39

the military, the military, but often but often the technology the technology would would havehave civilian civilian applications, applications, applications applications thatthat could could potentially potentially spawn spawn entirely entirely newnew sources sources of revof revenueenue for GE. for GE. To navigate To navigate GE GE through through the the war war years, years, the the company company turned turned to to Owen Owen D. Young, D. Young, whowho led GE led with GE with great great success. success.

BornBorn October October 27, 1874, 27, 1874, in Van in Van Hornesville, Hornesville, in the in Mohawk the Mohawk Valley Valley of upstate of upstate NewNew York, York, Young Young was was the first the first person person in five in five generations generations of his of family his family to venture to venture beyond beyond the the locallocal school; school; the the Youngs Youngs werewere farmers farmers and and theirtheir mission mission was was to to preserve preserve and and protect protect the farm. the farm.

When When he was he was twelve, twelve, Owen Owen was was sentsent to to EastEast Springfield Springfield Academy, Academy, seven seven miles miles awayaway fromfrom VanVan Hornesville.

Hornesville.

His His father father would would taketake himhim there there on Monday on Monday morning morning and and retrieve retrieve himhim on on Friday Friday night. night.

TwoTwo years years later, later, age fourteen, age fourteen, Owen Owen Young Young graduated graduated top top in his in class. his class.

He wanted He wanted to betoabe lawyer, a lawyer, a thought a thought cemented cemented in him in him dur-during the ing spring the spring of 1887 of 1887 when when he spent he spent some some timetime backback at the at homestead the homestead working working on the on farm the farm on aon break a break fromfrom the academy. the academy.

It was It was veryvery hot and hot and dusty. dusty.

Planting Planting the the corncorn was was thenthen “back “back breaking” breaking” work, work, he observed he observed in ainlater a later speech. speech.

Meanwhile, Meanwhile, an uncle an uncle was was involved involved in ainlawsuit a lawsuit in in Cooperstown, Cooperstown, sixteen sixteen miles miles south. south.

TheThe uncle uncle wanted wanted young young Owen Owen to to testify testify in court in court on his on behalf. his behalf.

“Well, “Well, I would I would testify testify to anything to anything to get to get a day a day off,”off,” he said. he said.

TheThe courthouse courthouse was was crowded crowded but but coolcool and and shady, shady, and and he couldn’t he couldn’t quite quite believe believe people people made made a living a living thatthat way.way. “[T]his “[T]his is is the the life life for me,” for me,” he continued. he continued.

“From “From thatthat timetime on Ion never I never swerved swerved fromfrom my desire my desire to study to study law.”law.”

His His planplan was was to study to study for the for the Regents Regents Exam Exam and and go togoCornell. to Cornell.

But But he was he was onlyonly fifteen fifteen years years old; old; one one had had to to be seventeen be seventeen to take to take the exam. the exam.

Young Young ended ended up at upSt. atLawrence St. Lawrence University, University, eighty eighty miles miles north north in in Canton, Canton, NewNew York.

York.

St. Lawrence St. Lawrence was was looking looking to expand to expand its student its student body, body, thenthen about about a hundred a hundred students. students.

Word Word of Young of Young had had reached reached the the campus campus afterafter one one of itsoftheological its theological students students had had seenseen Young Young conduct conduct a a SundaySundayschool school classclass at the at the locallocal VanVan Hornesville Hornesville Universalist Universalist Church Church and and recommended recommended himhim as aas candidate a candidate for enrollment for enrollment to the to the universiuniversity’s ty’s president. president.

TheThe Youngs Youngs didn’t didn’t havehave the the money money for the for the full full tuition, tuition,

40 –40P O – WPEORWFA E RI LFA UR I LEU R E

but the but university the university president president himself himself agreed agreed to lend to lend the family the family the balthe balance. ance.

ThatThat sealed sealed the deal. the deal.

Young Young was was off to offSt. toLawrence St. Lawrence (and(and laterlater be- became came one one of the of school’s the school’s biggest biggest benefactors). benefactors).

From From upstate upstate NewNew York, York, Young Young set his setsights his sights on Boston. on Boston.

He wanted He wanted to gototogoHarvard to Harvard LawLaw School, School, and and had had the qualifications, the qualifications, savesave one.one.

He He could could barely barely pay pay the tuition the tuition and and made made clearclear on his on application his application thatthat he he would would alsoalso needneed to take to take a job— a job— he hoped he hoped to betoabe tutor— a tutor— to get to the get extra the extra money money he needed he needed to pay to pay the the tuition tuition bills.bills.

But But Harvard Harvard saidsaid no. “The no. “The course course was was so heavy so heavy thatthat theythey felt felt thatthat a man a man should should givegive it allit his all his time,” time,” wrote wrote his biographer his biographer Ida Ida Tarbell, Tarbell, the the famed famed muckraking muckraking jour-journalist. nalist.

TheThe snub, snub, and and its absurdity, its absurdity, was was one one Young Young would would not not forget, forget, eveneven when when thirty thirty years years laterlater Harvard Harvard gavegave himhim an honorary an honorary degree. degree.

Instead Instead of Harvard, of Harvard, in September in September 1894, 1894, Young Young enrolled enrolled at the at law the law school school at Boston at Boston University.

University.

It was It was gladglad to have to have him.him.

TheThe law law school school deandean arranged arranged for Young for Young to tutor to tutor a wealthy a wealthy manman living living thirty thirty miles miles awayaway in Haverhill, in Haverhill, Massachusetts, Massachusetts, and and promised promised thatthat Young Young could could graduate graduate in two in two years years instead instead of three, of three, saving saving himhim a year’s a year’s tuition. tuition.

He graduated He graduated cumcum laude laude in June in June 18961896 and and was was selected selected by his by peers his peers to be to abeclass a class speaker. speaker.

He took, He took, and and passed, passed, the the Massachusetts Massachusetts bar bar exam exam overover the the sumsummermer and and began began in the in the fall fall a $10a $10a-week a-week job as jobaas clerk a clerk in the in the law law office office of Charles of Charles Tyler, Tyler, an older an older BU law BU law school school graduate graduate whowho had had a thriving a thriving practice practice in real in real estate estate and and corporate corporate law.law.

(A job (A he jobhad he had beenbeen offered offered working working for afor Boston a Boston judge judge dissolved dissolved afterafter the the judge’s judge’s sudden sudden death.) death.)

He also He also secured secured a second a second job as joba as lecturer a lecturer at the at law the law school. school.

He found He found himself, himself, in the in fall the of fall1896, of 1896, working working on any on any number number of corporate of corporate reor-reorganizations ganizations and and refinancings refinancings necessitated necessitated by the

by Panic the Panic of 1893 of 1893 and and its its aftermath. aftermath.

He was He was alsoalso engaged engaged in helping in helping small small public public utilities utilities across across the the country country figure figure out out a way a way to get to back get back on their on their feet.feet.

AndAnd it was it was in in the course the course of that of that workwork thatthat he started he started to intersect to intersect withwith General General ElecElectric,tric, not only not only one one of the of largest the largest suppliers suppliers of electrical of electrical equipment equipment in the in the

T H ET B HAET BTAL T ETOLFE TOH F ET A HIER WAV A I R WAV E S –E S41– 41

country country but also but also a creditor a creditor of many of many of the of small the small utility utility companies companies thatthat Young Young was was advising. advising.

Tyler, Tyler, Young’s Young’s boss,boss, made made clearclear to Young to Young earlyearly on that on that he had he had no no intention intention of having of having any any partners. partners.

But But suchsuch werewere Young’s Young’s legallegal skills, skills, as as wellwell as the as high the high regard regard in which in which his clients— his clients— and and in particular in particular Stone Stone & & Webster, Webster, the Bostonthe Bostonbased based engineering engineering firm— firm— heldheld himhim thatthat against against his his wishes wishes Tyler Tyler had had littlelittle choice. choice.

Stone Stone & Webster & Webster sealed sealed the deal the deal by tellby telling Tyler ing Tyler thatthat it would it would taketake its considerable its considerable business business fromfrom Tyler’s Tyler’s firmfirm if heifdid he not did not make make Young Young a partner. a partner.

In January In January 1907, 1907, the “card the “card of the of the newnew firm,firm, Tyler Tyler & Young & Young was was sentsent out,”out,” Tarbell Tarbell wrote. wrote.

WithWith the the realreal money money he started he started making making for the for the firstfirst timetime in his in life, his life, Young Young bought bought his parents his parents the biggest the biggest home home in Van in Van Hornesville.

Hornesville.

He kept He kept the family’s the family’s dairy dairy farmfarm outside outside of town of town and and started started building building up its upherd. its herd.

He bought He bought a thirteena thirteenroom room house house highhigh on aon hill a hill overlooking overlooking Lexington, Lexington, MassaMassachusetts. chusetts.

While While working working on the on corporate the corporate reorganization reorganization of the of Dallas the Dallas SouthSouthern ern Traction Traction Company, Company, on behalf on behalf of Stone of Stone & Webster, & Webster, Young Young came came to to the attention the attention of the of GE the brass, GE brass, and and thenthen of Charles of Charles Coffin, Coffin, its CEO. its CEO. Dal-Dallas Southern las Southern was was considering considering whether whether to branch to branch out out intointo FortFort Worth, Worth, thenthen a small a small city,city, onlyonly to discover to discover thatthat the the GE GE subsidiary subsidiary Bond Bond and and Share Share was was thinking thinking of doing of doing the same the same thing. thing.

“It was “It was not long not long before before the the two two interests interests werewere locked locked in a in bitter a bitter struggle struggle and and werewere carrying carrying theirtheir troubles troubles to court,” to court,” Tarbell Tarbell wrote. wrote.

That’s That’s when when Young’s Young’s legallegal skills skills made made an impression an impression on the on GE the attorneys, GE attorneys, whowho at first at first did not did rank not rank himhim “as a“as a formidable formidable opponent” opponent” and and “scrutinized “scrutinized curiously curiously his lank, his lank, leanlean figure figure as he assat he slouched sat slouched down down in his in chair” his chair” in the in the courtroom. courtroom.

But But through through the course the course of the of trial, the trial, the GE the team GE team began began to change to change its view its view of Young, of Young, chiefly chiefly because because of his of “penetrating his “penetrating discernment discernment and and his clearhis clearcut cut ef- effective fective arguments.” arguments.”

Then Then fate fate intervened. intervened.

In April In April 1912, 1912, Hinsdale Hinsdale Parsons, Parsons, GE’sGE’s gen-generaleral counsel, counsel, dieddied instantly instantly in aincar a car accident accident nearnear Albany.

Albany.

He was He was

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fortyfortyfive five years years old and old and had had beenbeen at the at the company company for eighteen for eighteen years. years.

GE GE needed needed a new a new general general counsel. counsel.

Alerted Alerted to Young’s to Young’s talent, talent, Coffin Coffin consulted consulted his board his board members members fromfrom Boston Boston and and confirmed confirmed for himself for himself thatthat Young Young had had an excellent an excellent reputation. reputation.

Hearing Hearing thatthat Young Young and and his his wifewife werewere visiting visiting NewNew YorkYork City,City, Coffin Coffin invited invited the lawyer the lawyer to GE’s to GE’s of- office fice at 120 at 120 Broadway Broadway and and offered offered himhim Parsons’s Parsons’s job as jobhead as head of the of comthe company’s pany’s legallegal department. department.

He accepted He accepted the job the on jobthe on spot, the spot, eveneven though though Coffin Coffin offered offered himhim less less money money thanthan he had he had beenbeen making making as aas partner a partner in his in own his own law law firm.firm.

Going Going to GE to was GE was Young’s Young’s chance chance to abandon to abandon the the drudgery drudgery of his of firm’s his firm’s realreal estate estate practice. practice.

“It was “It was an escape an escape fromfrom the the medieval,” medieval,” he said, he said, “a chance “a chance to operate to operate in what in what was was stillstill the no theman’s no man’s landland of law.” of law.”

What What he did, he did, fromfrom the outset, the outset, was was to professionalize to professionalize the the general general counsel’s counsel’s office— office— by organizing by organizing the the lawsuits, lawsuits, by studying by studying the the existing existing contracts, contracts, by working by working to settle to settle disputes disputes rather rather thanthan just just liti- litigating gating them, them, and and by taking by taking a facta factbased based approach approach to the to the law.law.

He also He also led the led the wayway in trying in trying to be toless be less confrontational confrontational withwith GE’sGE’s unionized unionized workforce workforce and and in creating in creating whatwhat we think we think of now of now as a as “human a “human resources” resources” department. department.

Young Young alsoalso presided presided overover GE’sGE’s entry entry intointo the the modern modern radio radio busi-business.ness.

In 1901, In 1901, the ability the ability to communicate to communicate across across the ocean, the ocean, fromfrom shipship to shore, to shore, had had beenbeen introduced. introduced.

OneOne of the of leading the leading corporate corporate practitionpractitioners of ersthe of the newnew communications communications technology technology was was the the British British Marconi Marconi Company Company and and its publicly its publicly traded traded U.S.U.S. counterpart, counterpart, American American Marconi.

Marconi.

Messages Messages could could be sent be sent across across the the Atlantic Atlantic but but werewere often often garbled. garbled.

“What “What was was needed, needed, saidsaid those those whowho knew knew the the science, science, was was something something which which would would givegive a high a high frequency frequency current current capable capable of steady of steady reportreporting,”ing,” Tarbell Tarbell observed. observed.

In 1915, In 1915, a GEa scientist, GE scientist, Dr. Ernst Dr. Ernst AlexanderAlexanderson,son, armed armed withwith a higha highfrequency frequency alternator alternator thatthat he had he had developed developed in in Schenectady, Schenectady, asked asked American American Marconi Marconi to give to give his discovery his discovery a practical a practical test test at itsatfactory its factory in New in New Brunswick, Brunswick, NewNew Jersey.

Jersey.

Alexanderson’s Alexanderson’s alteralternator nator was was suchsuch a success a success thatthat Guglielmo Guglielmo Marconi Marconi himself himself asked asked Young Young to meet to meet himhim at Holland at Holland House, House, a hotel a hotel at Thirtieth at Thirtieth Street Street and and Fifth Fifth

T H ET B HAET BTAL T ETOLFE TOH F ET A HIER WAV A I R WAV E S –E S43– 43

Avenue, Avenue, to share to share withwith himhim the the news news thatthat the the British British Marconi Marconi ComCompany, pany, in England, in England, wanted wanted to buy to buy the exclusive the exclusive rights rights to Alexanderson’s to Alexanderson’s alternator. alternator.

At the At the timetime of that of that meeting meeting withwith Marconi, Marconi, Young Young knew knew littlelittle about about radio radio and and less— less— nothing, nothing, in fact— in fact— about about whatwhat Alexanderson Alexanderson had had created created in GE’s in GE’s research research center. center.

What What Young Young did realize, did realize, though, though, was was thatthat a deal a deal withwith Marconi Marconi for the for the alternator alternator would would mean mean millions millions of dollars of dollars of new of new revenue revenue for GE. for GE. He wanted He wanted to make to make the deal. the deal.

But But the war, the war, and and national national security security concerns concerns related related to it,tomade it, made the the dealdeal utterly utterly untenable. untenable.

TheThe U.S.U.S. Navy Navy understandably understandably wanted wanted control control of the of nation’s the nation’s radioradiorelated related assets, assets, including including locallocal radio radio stations, stations, which which had had started started to appear to appear across across the the landscape, landscape, and and of Alexanderson’s of Alexanderson’s al- alternator. ternator.

The The navynavy blocked blocked GE’sGE’s negotiations negotiations withwith British British Marconi.

Marconi.

In- Instead, stead, Alexanderson Alexanderson designed designed and and builtbuilt a powerful a powerful radio radio transmitting transmitting system— system— two two hundred hundred kilowatts— kilowatts— thatthat he installed he installed in New in New Brunswick Brunswick for the for federal the federal government’s government’s exclusive exclusive use use during during the war. the war.

After After the the war,war, British British Marconi Marconi triedtried again again to get to Alexanderson’s get Alexanderson’s alternator. alternator.

In March In March 1919, 1919, just just as Young as Young was was considering considering whether whether to to lay off layGE off employees GE employees engaged engaged in the in manufacture the manufacture of the of alternator the alternator be- because cause the war the war was was over,over, Sidney Sidney Steadman, Steadman, the general the general counsel counsel of British of British Marconi, Marconi, and and Edward Edward Nally, Nally, the general the general manager manager of American of American Marconi, Marconi, arrived arrived at Young’s at Young’s NewNew YorkYork office. office.

British British Marconi Marconi had had prospered prospered dur-during the ing war the war and and “was“was nownow embarked embarked uponupon the ambitious the ambitious project project of atof attempting tempting to dominate to dominate wireless wireless communication communication throughout throughout the world,” the world,” Gleason Gleason Archer Archer wrote wrote in his in History his History of Radio of Radio to 1926. to 1926.

“The“The company company needed needed the Alexanderson the Alexanderson Alternator Alternator and and needed needed it very it very much.” much.”

SteadSteadmanman came came calling calling withwith a biga order big order for GE: for GE: twentytwentyfourfour alternators alternators at a at a priceprice of $127,000 of $127,000 per per alternator, alternator, a $3a million $3 million deal.deal.

Young Young countered countered withwith a royalty a royalty deal.deal.

Marconi Marconi countered countered thatthat it would it would buy buy the machines the machines outright, outright, plusplus another another $1 million $1 million in lieu in lieu of Young’s of Young’s proposed proposed royalty royalty deal.deal.

But But GE was GE was stillstill hoping hoping to get to aget royalty a royalty payment payment fromfrom Marconi Marconi based based on each on each wordword broadcast broadcast using using the alternator. the alternator.

As the As negotiations the negotiations between between GE and GE and Marconi Marconi werewere heading heading toward toward

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a successful a successful conclusion, conclusion, the the navynavy sentsent GE aGE letter a letter asking asking for Alexanfor Alexanderson derson to make to make a report a report about about an alternator an alternator thatthat the the navynavy was was using using on Long on Long Island.

Island.

In response, In response, on March on March 29, 1919, 29, 1919, Young Young wrote wrote to Frankto Franklin Roosevelt, lin Roosevelt, thenthen the the acting acting secretary secretary of the of the navynavy while while Josephus Josephus Daniels Daniels tended tended to peace to peace talkstalks to resolve to resolve the the war,war, thatthat GE was GE was more more thanthan willing willing to help to help the navy the navy again, again, as itas had it had in the in past, the past, but that but that it also it also had had to consider to consider its own its own commercial commercial needs. needs.

In fact, In fact, Young Young wrote wrote to to Roosevelt, Roosevelt, GE was GE was about about to conclude to conclude a deal a deal to sell to the sell valuable the valuable alternaalternators,tors, along along withwith other other radio radio equipment, equipment, to both to both the American the American and and Brit-British Marconi ish Marconi companies. companies.

“This “This letter letter produced produced immediate immediate reactions reactions in Washington,” in Washington,” Archer Archer wrote. wrote.

Roosevelt Roosevelt turned turned the the matter matter overover to a to a deputy, deputy, Stanford Stanford Hooper— Hooper— known known as the as the “father “father of naval of naval radio”— radio”— whowho quickly quickly deemed deemed the the proposed proposed salesale of Alexanderson’s of Alexanderson’s alternator alternator to the to the British British an existential an existential threat. threat.

“When “When I heard I heard about about thisthis impending impending deal,” deal,” Hooper Hooper wrote wrote in Radio in Radio Broadcast Broadcast magazine magazine in June in June 1922, 1922, “I be“I became came convinced convinced thatthat the the whole whole future future of American of American radio radio communicommunications cations waswas involved” involved” and and thatthat the the government’s government’s “established “established radio radio policy” policy” would would “fail“fail utterly” utterly” if British if British Marconi Marconi got its gotmitts its mitts on the on the al- alternator. ternator.

Wasting Wasting no time no time afterafter receiving receiving Young’s Young’s letter, letter, Hooper Hooper mobilized mobilized the government’s the government’s power power to block to block the sale the sale of Alexanderson’s of Alexanderson’s alternator alternator to the to British the British and and launched launched a rather a rather remarkable remarkable and and audacious audacious planplan to to keepkeep the the valuable valuable technology technology in American in American control. control.

Hooper Hooper and and his his team team demanded, demanded, via “long via “long distance distance phone,” phone,” according according to Hooper, to Hooper, to to havehave a conference a conference withwith Young Young and and the the GE GE board board of directors of directors where where “the“the entire entire matter” matter” could could be “laid be “laid before before them them fromfrom the the Navy’s Navy’s point point of view.” of view.”

On April On April 4, the 4, the day day afterafter the the call,call, Roosevelt Roosevelt wrote wrote to Young to Young inviting inviting himhim and and the GE the board GE board to Washington to Washington “due“due to the to various the various ram-ramifications ifications of this of this subject.” subject.”

But But Admiral Admiral William William H. G. H.Bullard, G. Bullard, the new the new director director of naval of naval communications, communications, decided decided the matter the matter could could not wait not wait a a week. week.

He and He and Hooper Hooper headed headed to New to New YorkYork CityCity the the nextnext day,day, April April 5, 5, to see to see Young.

Young.

“The“The date,” date,” Tarbell Tarbell wrote, wrote, “in the “in the history history of the of the radio radio

T H ET B HAET BTAL T ETOLFE TOH F ET A HIER WAV A I R WAV E S –E S45– 45

which which takes takes about about the same the same place place as the as Fourth the Fourth of July of July in the in history the history of the of country.” the country.”

TheThe menmen carried carried withwith them them a message a message fromfrom President President Wilson, Wilson, thenthen alsoalso in Paris in Paris for the for peace the peace talks, talks, that,that, according according to Admito Admiral Bullard, ral Bullard, the the president president was was “deeply “deeply concerned concerned overover the the matter matter of of checkmating checkmating British British domination domination of wireless” of wireless” and and had had given given Bullard Bullard “special “special instructions” instructions” withwith regard regard to America to America “keeping “keeping control” control” of the of the Alexanderson Alexanderson alternator, alternator, according according to Hooper’s to Hooper’s 19221922 account account in Radio in Radio Broadcast.

Broadcast.

According According to an tointerview an interview Young Young gavegave to Gleason to Gleason Archer Archer in 1937, in 1937, Bullard Bullard toldtold Young Young thatthat Wilson Wilson was was “deeply “deeply impressed” impressed” by the by fact the fact thatthat Europeans Europeans had had beenbeen ableable to listen to listen to his to his “Fourteen “Fourteen Points” Points” speech speech when when it was it was broadcast, broadcast, using using the the Alexanderson Alexanderson alternator alternator fromfrom NewNew Brunswick, Brunswick, in January in January 1918.

1918.

Admiral Admiral Bullard Bullard toldtold Young Young he had he had beenbeen in the in the Balkans Balkans and and “found “found school school children children learning learning the the Fourteen Fourteen Points Points as they as they would would learn learn theirtheir catechism.” catechism.”

Bullard Bullard saidsaid thatthat Wilson Wilson had had asked asked himhim to undertake to undertake the job the of job“mobilizing of “mobilizing the resources the resources of the of the nation nation in radio” in radio” to prevent to prevent “our“our international international neighbors” neighbors” fromfrom getting getting control control of it.of“The it. “The whole whole picture picture puzzle puzzle had had to be to put be put together together as aas a whole whole in order in order to get to an geteffective an effective national national instrument,” instrument,” he told he told Young.

Young.

Young Young laterlater testified, testified, “On“On thatthat day,day, for the for the firstfirst time, time, radio radio made made an an indelible indelible impression impression on my on mind. my mind.

HereHere was was something something so important so important thatthat the President the President of the of United the United States, States, in the in midst the midst of the of peace the peace negonegotiations tiations had had sentsent one one of his of admirals his admirals fromfrom Paris Paris to New to New YorkYork to talk to talk about about it.” it.”

On April On April 8, Bullard 8, Bullard and and Hooper Hooper came came to New to New YorkYork CityCity and and metmet withwith a group a group of GE of executives GE executives and and board board members. members.

TheThe two two navynavy menmen asked asked Young Young not not to sell to sell the the alternator alternator to either to either British British or American or American Marconi Marconi because because it would it would “fix “fix in British in British hands hands a substantial a substantial monopoly monopoly of world of world communication,” communication,” given given thatthat the the British British alsoalso controlled controlled cable cable communications. communications.

Their Their request request was was not not particularly particularly welcome welcome news news around around the GE the executive GE executive suite. suite.

“There “There werewere no other no other prospective prospective cus-customers tomers for that for that kindkind of apparatus,” of apparatus,” Young Young toldtold Archer.

Archer.

GE had GE had made made a a

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major major investment investment of labor of labor and and of capital of capital in developing in developing the the alternator, alternator, and and without without customers, customers, the production the production of the of alternator the alternator would would be closed be closed down, down, at a at great a great costcost to the to company the company and and its shareholders. its shareholders.

TheThe GE exGE executives ecutives argued argued there there werewere basically basically no other no other customers customers for the for alterthe alternator nator and and thatthat eveneven if GEif refused GE refused to sell to it sell toitthe to British, the British, theythey could could get get theirtheir hands hands on the on the Poulsen Poulsen arc transmitter, arc transmitter, a competitive a competitive device device thatthat could could alsoalso likely likely get the get the job done job done for Marconi. for Marconi.

But But Admiral Admiral Bullard’s Bullard’s lengthy lengthy appeal appeal to their to their sense sense of patriotism of patriotism wonwon the day. the day.

GE agreed GE agreed not to notsell to sell to Marconi, to Marconi, and and to make to make up for upthe for lost the lost sales, sales, Bullard Bullard and and Hooper, Hooper, the the navynavy men,men, had had a solution a solution for GE: for GE: it should it should formform a new a new American American company, company, under under the the auspices auspices of GE, of GE, to control to control the the various various radio radio assets assets and and patents patents thatthat had had beenbeen developed developed during during the past the past decade decade or soorand so and to serve to serve as a as bulwark a bulwark against against the British. the British.

At At first,first, Young’s Young’s response response was was to deflect: to deflect: Didn’t Didn’t theythey realize realize thatthat GE was GE was an electrical an electrical device device manufacturing manufacturing company, company, not anot wireless a wireless communicommunications cations company, company, and and thatthat it had it had no interest no interest in becoming in becoming one?one?

Bullard Bullard responded responded thatthat Young Young was was being being shortsighted, shortsighted, thatthat a huge a huge opportunity opportunity was was staring staring himhim in the in face. the face.

GE could GE could not not onlyonly manufacture manufacture the comthe communications munications equipment equipment but could but could alsoalso sell it sell toita to readya readymade made customer customer thatthat it controlled. it controlled.

It was It was a gift, a gift, Admiral Admiral Bullard Bullard insisted. insisted.

“The“The arguargument ment could could not not fail fail to capture to capture the the imagination imagination of such of such a fara seeing far-seeing manman as Owen as Owen Young,” Young,” Archer Archer noted. noted.

GE succumbed GE succumbed to the to navy’s the navy’s arm-armtwisting. twisting.

But But there there werewere a ridiculous a ridiculous number number of obstacles of obstacles to be toovercome. be overcome.

American American Marconi Marconi was was the dominant the dominant communications communications company company at the at the time. time.

For For GE to GEstart to start a competitor a competitor fromfrom scratch scratch would would be foolish be foolish at at best.best.

American American Marconi Marconi had had to betobrought be brought under under GE’sGE’s tenttent for Wilson’s for Wilson’s planplan to work. to work.

American American Marconi Marconi had had to be tomade be made an offer an offer it couldn’t it couldn’t refuse. refuse.

TheThe postwar postwar power power of the of the U.S.U.S. government government was was brought brought to to bear.bear.

It played It played hardball. hardball.

Since Since federal federal officials officials had had decided decided thatthat it was it was in the in the national national interest interest to make to make suresure thatthat no foreign no foreign companies companies werewere allowed allowed to dominate to dominate the the country’s country’s burgeoning burgeoning wireless wireless communicacommunica-

T H ET B HAET BTAL T ETOLFE TOH F ET A HIER WAV A I R WAV E S –E S47– 47

tionstions network, network, American American Marconi Marconi would would havehave to accede to accede to the to wishes the wishes of the of federal the federal government government or try orto tryfigure to figure out aout way a way to survive to survive in Amerin America without ica without access access to either to either the Alexanderson the Alexanderson alternator alternator or the or Poulsen the Poulsen arc, arc, bothboth of which of which werewere made made in America. in America.

“Without “Without one one or the or the other other of these of these great great machines,” machines,” Archer Archer wrote, wrote, “the“the Marconi Marconi stations stations would would be atbea at great a great disadvantage.” disadvantage.”

There There was was alsoalso the the problem problem of who of who con-controlled trolled the patents the patents on the on various the various pieces pieces of equipment of equipment needed needed to make to make a radio a radio transmitter. transmitter.

During During the the war,war, for national for national security security purposes, purposes, the U.S. the U.S. government government tooktook control control of the of various the various patents, patents, which which before before thenthen had had beenbeen owned owned by different by different companies— companies— GE, GE, AT&AT& T, and T, and WestWestinghouse, inghouse, among among others— others— thatthat made made the component the component parts. parts.

“The“The WestWestinghouse inghouse Company, Company, the the American American Tel. Tel. & Tel. & Tel. Company, Company, the the United United Fruit Fruit Company, Company, and and the General the General Electric Electric Company Company all had all had patents patents but but nobody nobody had had patents patents enough enough to make to make a system,” a system,” Young Young saidsaid years years laterlater when when remembering remembering the the postwar postwar landscape. landscape.

“And“And so there so there was was a coma completeplete stalemate. stalemate.

Radio Radio could could not not go ahead go ahead at all, at and all, and the patent the patent mobimobilization lization was was not not for the for the purpose purpose of creating of creating a monopoly, a monopoly, but but it was it was to to relieve relieve the restraints the restraints uponupon the art, the art, so that so that somebody somebody could could create create and and develop develop radio.” radio.”

Out Out of the of the stalemate stalemate was was born, born, inside inside GE, GE, the the legendary legendary Radio Radio Corporation Corporation of America, of America, which which would would unleash unleash years years of American of American techtechnological nological ingenuity ingenuity and and the creation the creation of what of what we now we now know know to betoradio be radio and and television television broadcasting. broadcasting.

“It was “It was an amazing an amazing thing, thing, which which we had we had not not contemplated contemplated at all,” at all,” Young Young remembered. remembered.

After After his initial his initial hesi-hesitation, tation, Young Young soonsoon saw saw the the opportunity opportunity clearly clearly for GE. for GE. After After workworking the ing politicians the politicians in Washington— in Washington— in particular in particular Senator Senator Henry Henry Cabot Cabot Lodge, Lodge, the the powerful powerful chairman chairman of the of the Senate Senate Foreign Foreign Relations Relations ComCommittee, mittee, whowho waswas a fierce a fierce opponent opponent of government of government ownership ownership of corof corporate porate assets— assets— Young Young approached approached Edward Edward Nally, Nally, his his counterpart counterpart at at American American Marconi, Marconi, to see to see if a if deal a deal could could be made be made for GE for to GEbuy to buy the the assets assets of the of the company. company.

In approaching In approaching Nally, Nally, Young Young had had a few a few weapweapons:ons: he knew he knew thatthat the the U.S.U.S. government government wasn’t wasn’t going going to let to American let American

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Marconi Marconi buy buy the the equipment equipment it needed it needed and and thatthat the the government government had had castcast a wary a wary eye across eye across the Atlantic the Atlantic at British at British Marconi, Marconi, which which still still owned owned about about 25 percent 25 percent of American of American Marconi.

Marconi.

Young Young toldtold Nally Nally if American if American Marconi Marconi was was soldsold to GE, to GE, American American Marconi’s Marconi’s executives executives would would be the be ones the ones running running the new the new subsidiary— subsidiary— Radio Radio Corporation Corporation of America— of America— because because GE GE had had no expertise no expertise in the in the radio radio business, business, onlyonly in the in the manufacture manufacture of aofcomponent a component partpart of the of the business. business.

GE wanted GE wanted onlyonly to betoable be able to keep to keep selling selling the parts the parts to itstonew its new subsidiary. subsidiary.

“It was “It was not only not only goodgood diplomacy diplomacy but sound but sound business business as well as well to offer to offer to the to responsible the responsible officials officials of the of American the American Marconi Marconi Company Company employment employment of the of the same same nature nature withwith the the newnew corporation corporation should should the the consolidation consolidation be effective,” be effective,” Archer Archer observed. observed.

Nally, Nally, at American at American MarMarconi,coni, saw saw the the wisdom wisdom in Young’s in Young’s proposal proposal and and saidsaid he would he would go along go along withwith it, asit,long as long as British as British Marconi Marconi agreed agreed to sell to sell its roughly its roughly 25 per25 percentcent stake stake in American in American Marconi.

Marconi.

Nally Nally realized realized American American Marconi Marconi was was “doomed” “doomed” if it iftried it tried to go toitgoalone it alone afterafter the the war war and and thatthat GE “offered GE “offered the only the only means means of salvation.” of salvation.”

In June In June 1919, 1919, Young’s Young’s representative representative and and Nally Nally set sail set sail for London for London to try to to trypersuade to persuade the executives the executives at British at British Marconi Marconi to sell to sell theirtheir stake stake in American in American Marconi Marconi to GE. to GE. It was It was an arduous an arduous negotiation. negotiation.

AndAnd was was all about all about whowho would would begin begin to control to control the post– the post– World World WarWar I world: I world: the the British British or the or Americans. the Americans.

TheThe spoils spoils werewere nothing nothing less less thanthan the ability the ability to communicate to communicate instantly instantly across across borders. borders.

Up until Up until the Americans the Americans en- entered tered World World WarWar I, the I, the British British controlled controlled international international communicacommunicationstions through through the the Marconi Marconi companies companies and and theythey controlled controlled the the cables cables running running between between the the two two companies. companies.

Engineers Engineers at GE at GE had had changed changed thatthat calculus. calculus.

TheThe fightfight was was about about power power and and whowho would would ownown the the vitalvital and and stillstill emerging emerging radio radio technology. technology.

Since Since Alexanderson Alexanderson had had created created the the cru-crucial cial component component at GE, at GE, it made it made sense sense for GE for to GEbecome to become the the dominant dominant force force in creating in creating and and running running RCA. RCA. But But thatthat didn’t didn’t make make the the negonegotiations tiations withwith the the British British any any easier. easier.

TheThe Americans Americans werewere challenging challenging

T H ET B HAET BTAL T ETOLFE TOH F ET A HIER WAV A I R WAV E S –E S49– 49

Britain’s Britain’s longlong domination domination of global of global communications communications in ain particularly a particularly aggressive aggressive fashion. fashion.

“All “All thisthis would would require require timetime for reflection for reflection and and de- debate,” bate,” Archer Archer wrote. wrote.

“Weeks “Weeks passed passed in weary in weary negotiations.” negotiations.”

GE eased GE eased the the painpain for British for British Marconi Marconi by giving by giving it the it the rightright to use to use the the AlexanAlexanderson derson alternator alternator for twentyfor twentyfive five years, years, plusplus any any other other relevant relevant newnew inventions, inventions, and and vicevice versa. versa.

ThatThat was was salvesalve thatthat helped helped healheal Britain’s Britain’s wounded wounded pride. pride.

On September On September 4, 1919, 4, 1919, The The NewNew YorkYork Times Times broke broke the the news news thatthat GE was GE was negotiating negotiating to buy to buy American American Marconi, Marconi, and and in parin particular ticular the the 25 percent 25 percent or so orstake so stake in the in the company company owned owned

by British

by British Marconi.

Marconi.

Details Details werewere sketchy sketchy but but the the paper paper made made clearclear thatthat the the newnew company company would would be backed be backed

by American

by American capital capital “so “so thatthat control control will will restrest absolutely absolutely in this in this country.” country.”

TheThe nextnext day,day, British British Marconi Marconi agreed agreed to sell to sell its 364,826 its 364,826 shares shares in American in American Marconi Marconi to GE, to GE, a purchase a purchase of of more more thanthan $2 million. $2 million.

On On October October 17, 1919, 17, 1919, RCARCA was was incorporated incorporated in Delaware in Delaware as aas a wholly wholly owned owned subsidiary subsidiary of GE. of GE. A month A month later, later, on November on November 20, RCA 20, RCA merged merged withwith American American Marconi Marconi in a in deal a deal valued valued at $9.5 at $9.5 million. million.

“The“The wayway was was nownow paved paved for the for carrying the carrying intointo effect effect of the of ambitious the ambitious plans plans on which on which Owen Owen D. Young D. Young had had beenbeen working working for months for months past,past, by which by which he sought he sought to consolidate to consolidate the the wireless wireless facilities facilities of the of the nation— nation— to put to put together together the ‘jigsaw the ‘jigsaw puzzle’ puzzle’ of conflicting of conflicting interests interests in this in this great great field,” field,” Archer Archer wrote. wrote.

Nally Nally became became the first the first president president of RCA; of RCA; Young Young became became chairman chairman of its ofeightits eightmember member board board of directors, of directors, fourfour of whom of whom werewere GE executives GE executives and and fourfour of whom of whom had had beenbeen on the on the board board of the of the now-nowdefunct defunct American American Marconi.

Marconi.

In January In January 1920, 1920, Nally Nally invited invited Wilson Wilson to to appoint appoint a navy a navy officer officer to the to RCA the RCA board board of directors. of directors.

At Nally’s At Nally’s urging, urging, Wilson, Wilson, whowho had had recently recently suffered suffered an incapacitating an incapacitating cerebral cerebral hemorhemorrhage, rhage, chose chose Admiral Admiral Bullard, Bullard, whowho served served on the on the board board for the for the nextnext eleven eleven years. years.

Nally Nally wrote wrote to Wilson to Wilson thatthat Bullard Bullard would would havehave the “right the “right of discussion of discussion and and presentation presentation of the of Government’s the Government’s views views and and interest interest concerning concerning matters matters coming coming before before the directors the directors and and stockholders.” stockholders.”

A month A month later, later, the the federal federal government government returned returned radio radio stations stations to to

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theirtheir owners. owners.

On March On March 1, 1920, 1, 1920, RCARCA transmitted transmitted its first its first commercommercial cial messages messages between between NewNew Brunswick, Brunswick, NewNew Jersey, Jersey, and and England, England, at a at a fixedfixed costcost of 17ofcents 17 cents per per word, word, undercutting undercutting by 32 bypercent 32 percent the the cable cable raterate of 25 of cents 25 cents per per word. word.

In 1922, In 1922, GE went GE went on the on the air with air with its first its first radio radio station, station, in Schenectady, in Schenectady, and and the the words words “This “This is station is station WGY”— WGY”— the the call call letters letters standing standing for wireless, for wireless, General General Electric Electric and and SchenecSchenectady.tady.

At its Atstart, its start, RCARCA was was the largest the largest radio radio communications communications company company in America. in America.

It not It not onlyonly manufactured manufactured radio radio equipment equipment but but alsoalso con-controlled trolled the the nation’s nation’s firstfirst network network of radio of radio broadcasters, broadcasters, known known as the as the National National Broadcasting Broadcasting Corporation, Corporation, or NBC. or NBC. At the At the timetime of the of the creation creation of RCA, of RCA, David David Sarnoff Sarnoff was was American American Marconi’s Marconi’s “commercial “commercial manager.” manager.”

He would He would come come to have to have the the same same job at jobRCA at RCA and and playplay a pivotal a pivotal role role in its infuture, its future, eventually eventually rising rising to beto become come the president the president of RCA. of RCA. He was He was alsoalso the founder the founder of NBC. of NBC. Sarnoff, Sarnoff, the Jewish the Jewish Orthodox Orthodox son son of Russian of Russian immigrants, immigrants, had had joined joined American American Marconi Marconi on William on William Street, Street, in Lower in Lower Manhattan, Manhattan, as a as messenger a messenger and and office office boy boy in 1906. in 1906.

He was He was fifteen fifteen years years old and old and had had previously previously beenbeen a a messenger messenger at The at The NewNew YorkYork Herald, Herald, making making $5 a$5 week a week plusplus whatwhat he he made made delivering delivering newspapers. newspapers.

He eventually He eventually saved saved up enough up enough money money to buy to buy a telegraph a telegraph machine, machine, learned learned Morse Morse code, code, and and exchanged exchanged mes-messages sages withwith a colleague a colleague at the at the newspaper. newspaper.

When When Sarnoff Sarnoff confided confided he he might might like like to betoinbethe in radio the radio business, business, the man the man suggested suggested he try he to tryget to get a joba at jobAmerican at American Marconi.

Marconi.

“The“The ideaidea of flinging of flinging messages messages in ain code a code through through space space appealed appealed to Sarnoff,” to Sarnoff,” the Times the Times laterlater reported, reported, “and“and he he applied applied for afor joba as joban as operator.” an operator.”

Instead, Instead, he was he was offered offered a joba as joban as an office office boy boy for $5.50 for $5.50 per week. per week.

In Siasconset, In Siasconset, Massachusetts— Massachusetts— the same the same village village on the on eastern the eastern edgeedge of Nantucket of Nantucket nearnear where where JackJack Welch Welch would would laterlater ownown a house— a house— there there was was one one “lonely” “lonely” Marconi Marconi station, station, the Times the Times reported, reported, and and at age at seventeen, age seventeen, Sarnoff Sarnoff moved moved there there in 1908 in 1908 as an asopan operator erator for $60 for $60 per per month. month.

TheThe station station opened opened in 1901, in 1901, the the firstfirst of its of its kindkind in the in the United United States States to transmit to transmit and and to receive to receive messages messages to and to and fromfrom marine marine vessels; vessels; it was it was alsoalso usedused to broadcast to broadcast the the results results of New of New

T H ET B HAET BTAL T ETOLFE TOH F ET A HIER WAV A I R WAV E S –E S51– 51

YorkYork baseball baseball games games to the to island’s the island’s summer summer residents, residents, many many of whom, of whom, like like Sarnoff, Sarnoff, hailed hailed fromfrom NewNew YorkYork City.City.

At the At the station, station, there there was was a a library library stocked stocked withwith technical technical books books about about radio. radio.

“There “There was was littlelittle to to do outside do outside working working hours hours but but readread the the books,” books,” the the Times Times reported. reported.

“But“But thatthat was was not not sufficient sufficient inducement inducement to make to make it easy it easy to keep to keep menmen contented contented there.” there.”

Sarnoff Sarnoff readread the books, the books, became became a fulla fullfledged fledged operaoperator, tor, and and got agot raise a raise of $10 of $10 a month. a month.

But,But, sufficiently sufficiently bored, bored, he took he took a a pay pay cut, cut, backback again again to $60 to $60 per month, per month, to move to move backback to New to New YorkYork City.City.

At RCA, At RCA, Sarnoff’s Sarnoff’s career career grewgrew in tandem in tandem withwith radio’s radio’s utility. utility.

OverOver the the nextnext decade decade it would it would evolve evolve fromfrom a way a way of communicating of communicating wirewirelessly lessly withwith ships ships off the off coast the coast to communicating to communicating across across oceans oceans to findto finding its ingway its way intointo American American homes, homes, movie movie studios, studios, movie movie theaters, theaters, and and the phonograph the phonograph industry. industry.

None None of this of this would would havehave beenbeen possible, possible, Sar-Sarnoffnoff believed, believed, without without Owen Owen Young Young liberating liberating the the nascent nascent technology technology fromfrom patent patent restraints restraints and and organizing organizing it into it into a business. a business.

As itAs did it with did with electricity, electricity, GE would GE would needneed to create to create a new a new industry, industry, a business a business for the for the newnew technology technology of radio, of radio, creating creating programming programming and and building building radios radios for home for home use.use.

ThisThis was was no easy no easy feat.feat.

“The“The development development of the of the radio radio tube, tube, for example, for example, the very the very heart heart of the of modern the modern radio radio set required set required overover thirty thirty separate separate and and distinct distinct patents,” patents,” Sarnoff Sarnoff explained explained in testimony in testimony before before the the U.S.U.S. Senate.

Senate.

By the By the end end of 1920, of 1920, he continued, he continued, RCARCA had had “demonstrated “demonstrated thatthat a program a program of entertainment, of entertainment, education education and and inforinformation mation could could be regularly be regularly broadcast broadcast to the to the home home by radio.” by radio.”

He said He said RCA, RCA, under under GE’sGE’s ownership, ownership, helped helped to develop to develop newnew industries industries in radio in radio broadcasting broadcasting and and television television broadcasting— broadcasting— NBCNBC was was started started

by RCA,

by RCA, and and at the at time the time of itsoflaunch, its launch, RCARCA owned owned 50 percent 50 percent of NBC, of NBC, GE owned GE owned 30 percent 30 percent of NBC, of NBC, and and Westinghouse Westinghouse owned owned the remaining the remaining 20 percent— 20 percent— but but no company no company could could havehave accomplished accomplished thisthis alone, alone, not not eveneven RCARCA or or GE. GE. In 1921, In 1921, the the retail retail value value of radios of radios soldsold in the in the United United States States was was $5 million; $5 million; seven seven years years laterlater it was it was $650$650 million. million.

In 1921, In 1921, the the radio radio audience audience in the in U.S. the U.S. was was 75,000 75,000 people; people; at the at beginning the beginning of 1929, of 1929, it was it was 40 million.

40 million.

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Three Three years years later, later, in 1932, in 1932, the RCA the RCA bonanza bonanza was was over,over, at least at least for for GE. GE. TheThe troubles troubles started started in May in May 1930.

1930.

B. J.B.Grigsby, J. Grigsby, the the chairman chairman of of the Grigsbythe GrigsbyGrunow Grunow Company, Company, a Chicago a Chicago manufacturer manufacturer of radio of radio tubes tubes and and radio radio sets,sets, had had since since 19281928 believed believed thatthat GE’sGE’s control control of RCA of RCA had had put his put company his company at a at competitive a competitive disadvantage disadvantage because because it could it could not get not get access, access, at any at any price, price, to RCA’s to RCA’s patents. patents.

He brought He brought his concerns his concerns to Conto Congress, gress, which which in turn in turn encouraged encouraged the the Justice Justice Department Department to bring to bring an an antitrust antitrust suit suit against against GE, GE, and and others, others, in order in order to dissolve to dissolve the the ownerownershipship structure structure of RCA. of RCA. By then, By then, RCARCA had had a 20apercent 20 percent market market share share in in radio radio receiving receiving setssets and and a 40apercent 40 percent market market share share in radio in radio tubes. tubes.

For For his part, his part, Young Young had had always always supported supported some some formform of regulation of regulation for the for radio the radio industry. industry.

“I have “I have no doubt no doubt thatthat effective effective regulation regulation can can be be established,” established,” he testified he testified before before the U.S. the U.S. Senate Senate in 1932, in 1932, “fair“fair alikealike to to the people the people rendering rendering the services the services and and to the to people the people served.” served.”

In the In end, the end, Young Young chose chose compromise compromise rather rather thanthan continued continued litigation. litigation.

He agreed He agreed to ato consent a consent decree decree thatthat required required GE (and GE (and Westinghouse) Westinghouse) to spin to spin off off halfhalf of its of ownership its ownership stake stake in RCA in RCA to its to shareholders its shareholders within within three three months months (with (with the balance the balance being being spunspun off within off within three three years), years), to make to make management management changes changes atopatop the company, the company, and and to “alter” to “alter” its relationship its relationship to the to the fourfour thousand thousand or soorpatents so patents thatthat RCARCA controlled. controlled.

Young Young could could remain remain RCA’s RCA’s board board chairman chairman for another for another five five months. months.

David David Sarnoff, Sarnoff, by then by then RCA’s RCA’s president, president, informed informed RCA’s RCA’s stockholders stockholders thatthat RCARCA could— could— and and would— would— operate operate as an asindependent an independent company. company.

To pay To pay off the off balance the balance of the of $18 the $18 million million of debt of debt thatthat RCARCA owed owed bothboth GE and GE and Westinghouse, Westinghouse, RCARCA agreed agreed to transfer to transfer to GE to the GE the RCARCA building, building, a stunning a stunning art deco art deco spirespire at Fiftyat FiftyFirstFirst Street Street and and Lexington Lexington Avenue Avenue in Manhattan, in Manhattan, and and to to issueissue newnew debtdebt in the in the amount amount of $4.25 of $4.25 million million to GE to GE and and WestingWestinghouse. house.

TheThe balance balance of $8 of million $8 million or so orinsodebt in debt would would be canceled be canceled as as partpart of the of the settlement settlement agreement. agreement.

AlsoAlso as part as part of the of the settlement, settlement, GE GE and and Westinghouse Westinghouse agreed agreed not not to manufacture to manufacture “radio “radio devices” devices” for the for the nextnext thirty thirty months, months, the the timetime RCARCA needed needed to get to geared get geared up to upbe to an be an independent independent company. company.

T H ET B HAET BTAL T ETOLFE TOH F ET A HIER WAV A I R WAV E S –E S53– 53

In his In congressional his congressional testimony testimony about about the end the end of GE’s of GE’s ownership ownership of of RCA, RCA, Owen Owen Young Young was was particularly particularly unsentimental. unsentimental.

“In 1919,” “In 1919,” he said, he said, “after “after the close the close of the of great the great war,war, the General the General Electric Electric Company, Company, at the at the suggestion suggestion of the of the President President of the of the United United States, States, undertook undertook to secure to secure the cooperation the cooperation of allofAmerican all American concerns concerns interested interested in wireless in wireless in the in the creation creation of a of unified a unified organization organization to develop to develop and and protect protect the the commucommunication nication interest interest of the of the United United States States throughout throughout the the world.” world.”

He then He then explained explained thatthat fourteen fourteen years years later, later, per the per consent the consent decree, decree, GE’sGE’s ownownership ership stake stake in RCA, in RCA, 5.2 million 5.2 million shares, shares, was was spunspun off to offGE’s to GE’s shareshareholders holders in the in the formform of a of stock a stock dividend dividend withwith a value a value of $26.5 of $26.5 million. million.

He was He was unemotional unemotional about about the outcome. the outcome.

He told He told the senators the senators about about whatwhat had had made made GE successful GE successful during during its its firstfirst fortyfortyseven seven years. years.

TheThe key,key, he noted, he noted, was was the particularly the particularly AmeriAmerican can idealideal of the of the power power and and importance importance of “individual of “individual leadership” leadership” in in developing developing newnew industries industries and and newnew companies companies within within the the newnew indusindustries.tries.

Although Although the reference the reference was was likely likely lost lost on the on senators, the senators, Young Young thenthen invoked, invoked, withwith some some hyperbole, hyperbole, Ralph Ralph Waldo Waldo Emerson Emerson in Selfin SelfReliance.

Reliance.

“Truly “Truly it may it may be said be said thatthat the the General General Electric Electric Company Company was was and and is is onlyonly the lengthened the lengthened shadow shadow of Edison of Edison and and Thomson Thomson in the in field the field of sciof scienceence and and of Charles of Charles A. Coffin A. Coffin in the in field the field of business,” of business,” he said. he said.

“It was “It was theirtheir energy energy and and capacity, capacity, functioning functioning largely largely without without governmental governmental restraint, restraint, thatthat enabled enabled them them to build to build in half in half a century a century one one of the of most the most spectacular spectacular industries industries in the in world.” the world.”

Chapter Chapter Four Four

THE THE INCR INCR EDIBLE EDIBLE ELECTRICA ELECTRICA LL CONSPIR CONSPIR ACY ACY

TT

he respect he respect for GE’s for GE’s technology technology and and management management prowess prowess was was suchsuch that,that, in September in September 1942, 1942, President President Roosevelt Roosevelt seconded seconded GE’sGE’s prespres-

ident, ident, Charles Charles Edward Edward Wilson— Wilson— known known as “Electric” as “Electric” Charlie Charlie Wilson Wilson so so as not as to notbetoconfused be confused withwith Charles Charles Erwin Erwin Wilson, Wilson, the CEO the CEO of General of General Motors, Motors, whowho was was known known as “Engine” as “Engine” Charlie Charlie Wilson— Wilson— to Washington to Washington

to serve to serve as the as executive the executive vice-vicechairman chairman of the of War the War Production Production Board, Board, which which commandeered commandeered the nation’s the nation’s manufacturing manufacturing resources resources in the in war the war effort. effort.

TheThe Allied Allied victory victory in World in World WarWar II redounded II redounded to GE’s to GE’s benefit. benefit.

At its Atpeak, its peak, in fact, in fact, GE not GE not onlyonly was was considered considered a leader a leader in scientific in scientific and and financial financial innovation innovation but also but also was was revered revered as a as crucible a crucible of corporate of corporate leadership. leadership.

In the In the 1950s, 1950s, as management as management became became an academic an academic discidisciplinepline taught taught at business at business schools, schools, Ralph Ralph Jarron Jarron Cordiner Cordiner found found himself himself GE’sGE’s newly newly minted minted CEOCEO and and a leader a leader whowho was was keenkeen to test to test out theories out theories about about howhow to turn to turn managers managers intointo entrepreneurs— entrepreneurs— especially especially in a in coma companypany thatthat was was growing growing intointo a fara flung far-flung conglomerate. conglomerate.

By the By the timetime Cordiner Cordiner was was closing closing in on in the on the president’s president’s job, job, suc-succeeding ceeding Wilson, Wilson, GE had GE had become become one one of the of largest the largest and and mostmost respected respected corporations corporations in the in the country. country.

It manufactured It manufactured roughly roughly 200,000 200,000 differdiffer-

T H ET IHNEC IRNECDRI B EL DE I BELLEEE CLTERCI C TA RL I CCAOLNCSO PN I RS A PC I RYA C – Y55– 55

ent products ent products in more in more thanthan 170 170 plants plants in thirtyin thirtyone one states states and and alsoalso in in several several foreign foreign countries. countries.

It had It had laboratories laboratories where where more more thanthan twenty twenty thousand thousand scientists scientists and and engineers engineers worked worked on cuttingon cuttingedgeedge technolotechnologies.gies.

It employed It employed some some 250,000 250,000 people, people, more more thanthan the population the population of allof all but but fortyforty cities cities in the in the United United States, States, and,and, according according to Fortune, to Fortune, was was “often “often the the social social center” center” of dozens of dozens of “company of “company towns” towns” where where “the“the G.E.” G.E.” is “more is “more important important thanthan city city hall”hall” and and where where company company schools schools had had more more students students enrolled— enrolled— 32,000— 32,000— thanthan mostmost U.S.U.S. universities. universities.

It It had had net net income income of more of more thanthan $150$150 million million on revenue on revenue of more of more thanthan $3 billion. $3 billion.

EverEver since since he had he had joined joined GE in GE1928, in 1928, Cordiner Cordiner had had bristled bristled at its at its bureaucracy bureaucracy and and vowed vowed thatthat if heifever he ever got agot chance a chance to run to run it, he it,would he would create create a system a system thatthat rewarded rewarded ambitious ambitious menmen like like himhim and and remove remove the the layers layers of fat of in fatthe in the company company thatthat he found he found sclerotic. sclerotic.

BornBorn in 1900— in 1900— eighteight years years afterafter Charles Charles Coffin Coffin created created General General Electric— Electric— on his on parhis parents’ents’ 1,2801,280acreacre wheat wheat farmfarm nearnear Walla Walla Walla, Walla, Washington, Washington, Cordiner Cordiner worked worked his way his way through through Whitman Whitman College, College, a small a small liberal liberal artsarts school school in his in his hometown, hometown, by doing by doing odd odd jobsjobs and and by selling by selling woodenwoodenpaddle paddle washing washing machines machines on behalf on behalf of the of the Pacific Pacific Power Power & Light & Light Company.

Company.

When When he graduated he graduated fromfrom Whitman, Whitman, he went he went to work to work for Pacific for Pacific Power.

Power.

He was He was a star a star salesman salesman and,and, as a as result, a result, came came to the to attention the attention of a of GEa GE subsidiary, subsidiary, the the Edison Edison General General Electric Electric Appliance Appliance Company, Company, which which lured lured himhim away. away.

He was He was a man a man in ainhurry. a hurry.

At twentyAt twentyeight, eight, he was he was named named headhead of the of northeast the northeast office office of the of GE the subsidiary GE subsidiary and and then, then, two two years years later, later, vaulted vaulted overover sixteen sixteen others others to become to become headhead of the of the Pacific Pacific Coast Coast office. office.

Then Then he moved he moved backback to GE’s to GE’s newnew merchandising merchandising departdepartment ment in Bridgeport, in Bridgeport, Connecticut, Connecticut, to “get to “get closer closer to the to the hub hub of the of the cor-corporate porate wheel.” wheel.”

By the By the timetime he was he was thirtythirtyeight, eight, he was he was running running GE’sGE’s Bridgeport Bridgeport office. office.

On his On watch, his watch, salessales in the in electric the electric heating heating division division of of GE increased GE increased 60 percent.

60 percent.

His His bossboss during during those those years years was was Wilson, Wilson, whowho had had left school left school at age at twelve age twelve to work to work as a as stock a stock boy boy at the at Sprague the Sprague ElecElectrical trical Works, Works, which which GE had GE had acquired. acquired.

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While While Wilson Wilson was was serving serving his country, his country, Cordiner Cordiner left GE left to GEbecome to become the president the president of Schick, of Schick, Inc.,Inc., a struggling a struggling manufacturer manufacturer of razors of razors and and blades blades thatthat he helped he helped resuscitate. resuscitate.

GE’sGE’s bureaucracy bureaucracy frustrated frustrated him.him.

“He“He was was outspokenly outspokenly soursour on G.E.,” on G.E.,” T. K. T. Quinn, K. Quinn, a former a former GE GE vicevice president president and and the the author author of I of Quit I Quit Monster Monster Business, Business, saidsaid about about Cor-Cordiner. diner.

“He“He referred referred to the to layers the layers of fat ofin fatthe in company the company thatthat smothered smothered talent talent like like his. his.

TheThe fat was fat was anybody anybody above above him.” him.”

In 1943, In 1943, Cordiner Cordiner re- returned turned to GE to as GEthe as personal the personal assistant assistant to Gerard to Gerard Swope, Swope, whowho had had come come out out of retirement of retirement to lead to lead GE GE in Wilson’s in Wilson’s absence. absence.

When When Wilson Wilson re- returned turned to GE to after GE after the war the war and and resumed resumed his position his position at the at top the top of the of the company, company, he enlisted he enlisted Cordiner Cordiner in what in what turned turned out to outbetoabe fivea fiveyearyear pro-project ject to reimagine to reimagine GE for GE what for what would would surely surely be abe postwar a postwar era of eranearly of nearly unfettered unfettered growth. growth.

In December In December 1950, 1950, Wilson Wilson returned returned to Washingto Washington ton to help to help Harry Harry Truman Truman manage manage the Korean the Korean War,War, just just as he ashelped he helped Roosevelt, Roosevelt, his predecessor, his predecessor, manage manage World World WarWar II. II. Wilson Wilson presented presented onlyonly one one candidate candidate to the to the GE board GE board to succeed to succeed him:him: Cordiner.

Cordiner.

“In this “In this big company, big company, don’tdon’t we have we have another another man?” man?” asked asked GE director GE director Sidney Sidney Weinberg, Weinberg, the the senior senior partner partner at Goldman at Goldman Sachs, Sachs, whowho had had worked worked withwith Wilson Wilson at the at War the War Production Production Board.

Board.

“Why “Why do you do you needneed more more thanthan one?” one?”

Wilson Wilson replied. replied.

Cordiner Cordiner wasted wasted littlelittle timetime in laying in laying out out his plan his plan for massive for massive de- decentralization centralization as a as way a way to empower to empower a greater a greater number number of GE of executives GE executives to run to run theirtheir ownown businesses. businesses.

He split He split the the behemoth behemoth thatthat GE had GE had be- become come intointo twentytwentyseven seven independent independent divisions divisions comprising comprising 110 110 small small companies, companies, eacheach the perfect the perfect size size “for“for one one manman to get to his get arms his arms around.” around.”

EachEach leader leader would would run run his own his own show, show, would would make make day-dayto-day to-day deci-decisions, sions, would would propose propose his (rarely his (rarely her)her) ownown budget budget and and marketing marketing stratstrategies, egies, would would be able be able to approve to approve capital capital expenditures expenditures up to up$200,000, to $200,000, and and would would basically basically be “freed be “freed up,”up,” as Cordiner as Cordiner likedliked to say, to say, to make to make long-longtermterm strategic strategic decisions decisions about about the the direction direction of the of the business. business.

But But withwith authority authority and and autonomy, autonomy, Cordiner Cordiner believed, believed, came came accountability accountability and and responsibility responsibility for higher for higher performance. performance.

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Cordiner Cordiner didn’t didn’t mince mince words words in explaining in explaining to Time to Time magazine magazine whywhy he restructured he restructured GE: GE: “When “When I took I took overover in 1951, in 1951, I told I told lots lots of people of people immediately immediately thatthat thisthis company company was was not not going going to betoabe sinecure a sinecure for mefor mediocrity. diocrity.

TheThe old G.E. old G.E. had had a reputation a reputation as a as good a good and and complacent complacent place place to work to work if you if you keptkept youryour nosenose clean. clean.

I wanted I wanted to get to rid getof ridthat of that ideaidea and and create create more more risk risk and and opportunity.” opportunity.”

It was It was one one of largest of largest and and mostmost comprehensive comprehensive reorganizations reorganizations in corin corporate porate history. history.

“American “American business business spends spends too much too much timetime on thinking on thinking about about this this month, month, this this year,” year,” he continued. he continued.

“It ought “It ought to spend to spend more more timetime preparing preparing for 15 forto 1520 toyears 20 years fromfrom now— now— the next the next business business generation.” generation.”

Gone Gone werewere “assistants, “assistants, coordinators coordinators and and committees,” committees,” TimeTime reported. reported.

AndAnd the reason? the reason?

“G.E. “G.E. has has no place no place for committees for committees as decisionas decisionmaking making bodies,” bodies,” Cordiner Cordiner said.said.

“A committee “A committee moves moves at the at the speed speed of its of least its least informed informed member member and and too too often often is used is used as aas way a way of sharing of sharing irresponirresponsibility.” sibility.”

SoonSoon afterafter taking taking over,over, Cordiner Cordiner implemented implemented his plan. his plan.

He called He called together together the top the fifty top fifty GE executives GE executives and and laid laid down down the law. the law.

He had He had longlong made made clearclear thatthat he did he not did not intend intend to run to run GE the GE way the way his predecessors his predecessors had had run run it, init,a in centralized, a centralized, autocratic autocratic fashion. fashion.

(Swope (Swope usedused to give to give peo-people four ple four minutes minutes to make to make theirtheir case.) case.)

“So “So shocked shocked werewere G.E.’s G.E.’s execuexecutivestives by the by the swiftness swiftness of his of move,” his move,” TimeTime reported, reported, “that “that G.E.G.E. Board Board Chairman Chairman Philip Philip A. Reed A. Reed got to gothis to feet his feet to relieve to relieve the tension. the tension.

He told He told the story the story appropriate appropriate to the to moment, the moment, of the of little the little girl girl whowho began began makmaking aing picture a picture of God. of God. SaidSaid her her mother: mother: ‘Honey, ‘Honey, GodGod is a is spirit a spirit and and no no one one knows knows whatwhat he looks he looks like.’like.’

Replied Replied the the littlelittle girl:girl: ‘They ‘They will will when when I finish.’

I finish.’ ” Cordiner ” Cordiner could could be brutal be brutal withwith those those executives executives whowho misbemisbehaved. haved.

“If you “If you did something did something wrong,” wrong,” Sidney Sidney Weinberg Weinberg said,said, “Cordiner “Cordiner would would sendsend for you for you and and tell tell you,you, you you werewere through. through.

That’s That’s all there all there would would be tobeit.” to it.”

In December In December 1955, 1955, Fortune Fortune magazine magazine triedtried to assess to assess howhow CordiCordiner’sner’s “overhaul” “overhaul” of GE of GE was was going. going.

TheThe article article focused focused on Cordiner’s on Cordiner’s struggles struggles getting getting the the GE rank GE rank and and file to fileturn to turn around around the the battleship battleship

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and and to accept to accept his new his new strategic strategic plan,plan, while while alsoalso promoting promoting his lofty his lofty goals goals for the for the future future of the of the company. company.

“Six“Six billion billion dollars dollars by 1963” by 1963” was was Cordiner’s Cordiner’s mantra, mantra, and and one one thatthat he did he not did achieve. not achieve.

In 1955, In 1955, GE’sGE’s rev-revenueenue was was barely barely halfhalf that.that.

Cordiner’s Cordiner’s planplan was was so radical— so radical— and and so upsetting so upsetting to the to the GE rank GE rank and and file—file— thatthat it was it was nearly nearly stillborn. stillborn.

Until Until then, then, GE GE had had beenbeen manmanaged, aged, according according to Fortune, to Fortune, by “abycentral “a central cluster cluster of autocrats, of autocrats, withwith one one superb superb autocrat autocrat placed placed grandly grandly at the at top.” the top.”

It was It was Gerard Gerard Swope, Swope, whowho ran ran GE after GE after Owen Owen D. Young D. Young and and before before Charles Charles Wilson, Wilson, whowho firstfirst real-realizedized something something had had to change. to change.

Swope Swope had had regretfully regretfully observed observed thatthat many many of his of“big his “big and and fundamentally fundamentally sound sound ideas ideas often often failed failed to pan to pan out out in practice.” in practice.”

For For instance, instance, GE’sGE’s appliance appliance division— division— the the makers makers of reof refrigerators frigerators and and ranges, ranges, among among other other things— things— couldn’t couldn’t seem seem to become to become a market a market leader leader or toorbe toparticularly be particularly profitable. profitable.

TheThe problem, problem, or sooritso it seemed seemed at the at time, the time, was was thatthat engineers engineers werewere designing designing these these products, products, not marketers not marketers or style or style leaders. leaders.

TheThe people people making making the appliances the appliances werewere too too far removed far removed fromfrom the the people people selling selling the the appliances, appliances, let alone let alone the the onesones buying buying the appliances. the appliances.

Something Something had had to change. to change.

ThatThat change change be- began gan to happen to happen when when Cordiner Cordiner returned returned to GE to from GE from Schick Schick as Swope’s as Swope’s assistant assistant while while Swope Swope was was filling filling in for in Wilson. for Wilson.

“Wilson “Wilson and and Swope,” Swope,” Cordiner Cordiner explained, explained, “freed “freed me up meto upthink to think about about the future.” the future.”

He landed He landed on the on the planplan of pushing of pushing as much as much authority authority as possible as possible down down to the to operating the operating levels, levels, empowering empowering division division chiefs chiefs and and the genthe generaleral managers managers of business of business units units to make to make the important the important decisions, decisions, withwith directional directional oversight oversight fromfrom the the corporate corporate headquarters headquarters on Lexington on Lexington Avenue.

Avenue.

Cordiner Cordiner fieldfieldtested tested his ideas his ideas in the in the late late 1940s 1940s at several at several of of GE’sGE’s affiliated affiliated companies— companies— at Hotpoint at Hotpoint (an appliance (an appliance manufacturer), manufacturer), at at Telechron Telechron (a clock (a clock manufacturer), manufacturer), and and at Trumbull at Trumbull (a manufacturer (a manufacturer of of electric electric parts)— parts)— withwith the intention the intention of rolling of rolling them them out company-wide out company-wide in in 19511951 before before Wilson’s Wilson’s scheduled scheduled retirement. retirement.

Wilson, Wilson, the avuncular the avuncular and and familiar familiar old hand, old hand, could could introduce introduce the changes the changes more more easily easily thanthan could could a new a new leader. leader.

But But fate fate intervened intervened in December in December 19501950 when when President President

T H ET IHNEC IRNECDRI B EL DE I BELLEEE CLTERCI C TA RL I CCAOLNCSO PN I RS A PC I RYA C – Y59– 59

Truman Truman again again summoned summoned Wilson Wilson to Washington to Washington to lead to lead the the effort effort to to produce produce goods goods for the for Korean the Korean War.War. As GE’s As GE’s newnew leader, leader, Cordiner Cordiner faced faced an immediate an immediate dilemma: dilemma: whether whether or not or not to roll to roll out out his his decentralization decentralization plan, plan, and and when. when.

He knew He knew it it would would be controversial be controversial and and unpleasant unpleasant and and disruptive. disruptive.

But But he decided he decided not to notwait. to wait.

He got He the got board’s the board’s approval approval during during his first his first board board meeting meeting as CEO as CEO in January in January 1951.

1951.

TheThe nextnext day,day, he met he met withwith twentytwentytwo two direct direct reports reports at the at Waldorf the Waldorf Astoria Astoria and and thenthen tooktook to the to road the road to announce to announce the the “momentous “momentous news” news” to six to thousand six thousand GE executives GE executives at six at regional six regional meetings. meetings.

It’s not It’s hard not hard to see to why see why the company the company nearly nearly rejected rejected Cordiner Cordiner and and his disruptive his disruptive plan.plan.

For For the first the first timetime in GE’s in GE’s history, history, individual individual busi-businessness managers managers werewere given given the the responsibility responsibility to make to make theirtheir ownown deci-decisions, sions, empowering empowering and and frightening frightening them them at the at same the same time. time.

There There was was pushback. pushback.

Cordiner Cordiner created created twenty twenty decentralized decentralized divisions divisions and and shifted shifted around around some some two two thousand thousand menmen intointo newnew management management assignments assignments around around the country, the country, causing causing many many of them of them to have to have to uproot to uproot theirtheir fam-familiesilies and and liveslives for some for some newnew management management theory. theory.

People People werewere moved moved fromfrom Bridgeport Bridgeport to Louisville to Louisville or from or from Schenectady Schenectady to New to New YorkYork CityCity or from or from Pittsfield, Pittsfield, Massachusetts, Massachusetts, to Rome, to Rome, Georgia.

Georgia.

“Many “Many people people not not transferred transferred thought thought theythey maymay be at beany at any minute,” minute,” Fortune Fortune reported. reported.

MenMen in engineering, in engineering, manufacturing, manufacturing, or purchasing or purchasing whowho werewere usedused to to giving giving orders orders to operating to operating executives executives werewere toldtold to stop. to stop.

No one No one could could tell the tell operating the operating executives executives whatwhat to dotoor dohow or how to dotoitdo anymore. it anymore.

TheyThey could could consult consult but but not not make make finalfinal decisions. decisions.

“Many “Many of these of these menmen felt,felt, understandably, understandably, thatthat theirtheir personal personal careers careers in General in General Electric Electric had had beenbeen swept swept away,” away,” Fortune Fortune reporter reporter William William B. Harris B. Harris observed. observed.

Large Large staffs staffs and and assistants assistants werewere eliminated. eliminated.

“An “An assistant,” assistant,” Cordiner Cordiner said,said, “is “is really really a prop a prop for afor manager a manager whowho can’tcan’t get his get own his own workwork done. done.

A coorA coordinator dinator is anis official an official withwith a vested a vested interest interest in keeping in keeping two two or more or more people people apart.” apart.”

In the In new the new world world of GE, of GE, there there werewere nownow one one hundred hundred independent independent

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operating operating units, units, combined combined intointo twentytwentytwo two divisions divisions thatthat werewere further further consolidated consolidated intointo fourfour operating operating groups groups and and one one distribution distribution group. group.

TheThe fourfour operating operating groups groups werewere comprised comprised of large of large electrical electrical compocomponents, nents, industrial industrial products products and and lamps, lamps, appliances appliances and and electronics, electronics, and and atomic atomic energy energy and and defense defense products. products.

TheThe latter latter group, group, which which comprised comprised about about 15 percent 15 percent of GE of revenues, GE revenues, included included Hanford, Hanford, the the largelarge Atomic Atomic Energy Energy Commission Commission project project in Washington in Washington State State thatthat employed employed ninenine thousand thousand people people (and(and would would soonsoon enough enough cause cause GE another GE another round round of of headaches headaches and and scandal). scandal).

There There was was alsoalso a so-acalled so-called Atomic Atomic Power Power EquipEquipment ment Department, Department, a manufacturer a manufacturer of nuclear of nuclear power power plants plants thatthat had had al- already ready soldsold one,one, for $45 for $45 million, million, to Commonwealth to Commonwealth Edison Edison in Chicago. in Chicago.

“A “A share share in General in General Electric Electric might might be called be called a share a share in anininvestment an investment trusttrust engaged engaged in manufacturing,” in manufacturing,” Fortune Fortune wrote. wrote.

To oversee To oversee the sprawling the sprawling operation, operation, Cordiner Cordiner created created the Office the Office of of the President, the President, a fancy a fancy name name for afor group a group of top of GE top executives GE executives whowho con-continued tinued to pull to pull the strings the strings fromfrom highhigh above above Lexington Lexington Avenue.

Avenue.

He also He also created created whatwhat he called he called the Services the Services Division— Division— researchers, researchers, accountants, accountants, controllers, controllers, treasurers, treasurers, community community relations, relations, PR—PR— thatthat served served the the op- operating erating divisions. divisions.

TheThe members members of the of Office the Office of the of President the President had had onlyonly secretaries— secretaries— no staff— no staff— and and spent spent much much of their of their timetime on the on road, the road, thinkthinking about ing about whatwhat the the future future General General Electric Electric would would looklook like,like, much much as as Wilson Wilson and and Swope Swope had had allowed allowed Cordiner Cordiner to do toado decade a decade earlier. earlier.

OneOne practical practical example example of how of how the the Office Office of the of the President President worked worked was was whatwhat became became known known as Appliance as Appliance Park, Park, in Louisville. in Louisville.

It was It was the the largest largest majormajorappliance appliance plant plant in the in the world world when when it opened it opened in 1952, in 1952, at at a cost a cost of about of about $200$200 million. million.

Cordiner Cordiner and and his lieutenants his lieutenants decided decided in in the early the early 1950s 1950s thatthat GE either GE either had had to get to out get of outthe of business the business of manuof manufacturing facturing major major appliances appliances or get or serious get serious about about doing doing it better. it better.

GE got GE got serious serious and and consolidated consolidated seven seven manufacturing manufacturing facilities, facilities, spread spread out out across across the country, the country, intointo the one the one massive massive Louisville Louisville facility. facility.

Cordiner’s Cordiner’s critics critics soonsoon dubbed dubbed Appliance Appliance ParkPark “Cordiner’s “Cordiner’s Folly” Folly” because because theythey figured figured it would it would sit half sit half empty empty for years. for years.

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Instead, Instead, it filled it filled rightright up, up, driven driven by demand by demand for for GE’sGE’s betterbetterdesigned designed and and betterbetterfunctioning functioning appliances. appliances.

GE’sGE’s refrigerators refrigerators had had top top market market share share or were or were second second to GM’s to GM’s Frigidaire Frigidaire division. division.

GE was GE was numnumber ber one one in ranges. in ranges.

GE’sGE’s washing washing machines machines werewere second second onlyonly to those to those made made

by Sears.

by Sears.

GE dishwashers GE dishwashers and and clothes clothes dryers dryers werewere alsoalso top top in- industry dustry performers. performers.

By the By the end end of 1956, of 1956, GE’sGE’s appliance appliance division division waswas for the for the firstfirst timetime generating generating respectable respectable profits. profits.

A similar A similar success success oc- occurred curred in GE’s in GE’s Weathertron Weathertron division, division, which which made made heatheat pumps, pumps, de- described scribed as a as breakthrough a breakthrough “gadget” “gadget” designed designed to help to help keepkeep homes homes at set at set temperatures temperatures despite despite the the outside outside weather. weather.

Other Other innovations innovations werewere in in the works, the works, too,too, including including an “electric an “electric oven,” oven,” an early an early precursor precursor to the to the microwave, microwave, and and manmade manmade “synthetic “synthetic diamonds” diamonds” thatthat could could cut cut ex- extremely tremely hardhard metals metals withwith the precision the precision and and easeease of real of real diamonds diamonds but but at a at fraction a fraction of the of cost. the cost.

GE was GE was alsoalso working working hardhard to develop to develop better better relations relations withwith its labor its labor force, force, and and in particular in particular its unions, its unions, and and was was busybusy studying studying whatwhat charcharacteristics acteristics made made for afor successful a successful and and admirable admirable manager. manager.

“He“He mustmust be be a teacher a teacher of men,” of men,” Cordiner Cordiner explained. explained.

“If he “Ifcan he can teach, teach, he can he can leadlead and and select select men.men.

A manager A manager mustmust alsoalso be abe crisp a crisp boss,boss, willing willing to tell to his tell his menmen the the bad bad as well as well as the as the good, good, yet still yet still be so becompatible so compatible menmen will will wantwant to work to work withwith his team.” his team.”

It was It was during during Cordiner’s Cordiner’s reign reign thatthat GE GE created created its worldits worldfamous famous research research and and training training facility facility north north of New of New YorkYork City,City, along along the the Hudson Hudson River River in Crotonville, in Crotonville, NewNew York.

York.

“Just “Just think,” think,” Cordiner Cordiner saidsaid of Crotonville, of Crotonville, “how “how wonderfully wonderfully mobile mobile our our management management will will be when be when thisthis thing thing works works out.”out.”

All of Allthese of these wonderwonderful innovations ful innovations and and strategies strategies added added up toupa to vision a vision thatthat Cordiner Cordiner hoped hoped would would leadlead to $6 tobillion $6 billion in revenue in revenue by 1963. by 1963.

It allItmight all might havehave worked worked out that out that wayway for Cordiner for Cordiner and and for GE, for GE, but but for the for pressure the pressure thatthat his new his new organization organization placed placed on executives on executives to hit to hit quarterly quarterly and and annual annual numbers numbers and and the illegal the illegal steps steps thatthat some some of them of them tooktook to try to to tryimpress to impress the the boss.boss.

What What Cordiner Cordiner had had failed failed to account to account for in forhis in management his management theories theories designed designed to unleash to unleash an entrepreneurial an entrepreneurial

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spirit spirit across across GE was GE was the the temptation temptation thatthat some some of his of key his key executives executives might might feel feel to collude to collude withwith theirtheir counterparts counterparts at other at other power power compacompanies,nies, and and break break the law the law in the in process. the process.

Aware Aware of the of clubby the clubby and and collecollegial gial nature nature of the of power the power business business in the in 1950s, the 1950s, Cordiner Cordiner would would reaffirm reaffirm a central a central tenet tenet of Wilson’s of Wilson’s leadership leadership as he asmade he made the the rounds rounds selling selling his vision his vision for afor decentralized a decentralized GE. GE. He told He told any any executives executives whowho would would listen— listen— frankly frankly it’s remarkable it’s remarkable thatthat he even he even felt the felt need the need to do toit— dothat it—that GE employees GE employees should should not not collude collude withwith businessmen businessmen fromfrom other other com-companies panies to set to prices set prices on similar on similar products. products.

Cordiner Cordiner signed signed on to ona to Wila Wilson son manifesto, manifesto, known known as “instruction as “instruction 2.35,” 2.35,” on compliance on compliance

by GE

by GE employees employees withwith antitrust antitrust laws,laws, firstfirst issued issued

by Wilson

by Wilson in 1946 in 1946 and and thenthen again again in 1948 in 1948 and and 1950: 1950: “It has “It has beenbeen and and is the is policy the policy of this of this company company to conform to conform strictly strictly to the to the antitrust antitrust laws.laws. . . . .Special . . Special carecare should should be be taken taken thatthat any any proposed proposed action action is inisconformity in conformity withwith the law the law as presas presentlyently interpreted.” interpreted.”

Complying Complying withwith thisthis simple simple directive directive had,had, apparapparently, ently, beenbeen a problem a problem in the in the previous previous decade decade around around GE, GE, withwith some some thirteen thirteen antitrust antitrust lawsuits lawsuits filedfiled against against the company, the company, including including for price for price fixing fixing and and “patent “patent pooling,” pooling,” when when two two or more or more parties parties get together get together and and decide decide whowho can can license license a patent. a patent.

GE, GE, being being one one of the of the nation’s nation’s mostmost successful successful corporations, corporations, had had alsoalso become become a bita of bita of battleground a battleground for two for two divergent divergent and and competing competing strains strains of economic of economic thought. thought.

One,One, endorsed endorsed

by Cordiner,

by Cordiner, was was more more of of the Adam the Adam Smith Smith variety: variety: WhyWhy descend descend to collusion to collusion when when GE had GE had supesuperior rior people people and and superior superior technology? technology?

WhyWhy not not go for go the for the competitive competitive jugular jugular and and pushpush for every for every advantage? advantage?

That’s That’s whywhy Cordiner Cordiner had had firedfired three three GE employees, GE employees, in 1949, in 1949, for engaging for engaging in price in price fixing— fixing— pourpour enourager enourager les autres, les autres, as Voltaire as Voltaire wrote wrote in his in famous his famous novel, novel, Candide.

Candide.

“Every “Every com-companypany and and every every industry— industry— yes, yes, and and every every country— country— thatthat is operated is operated on on the the basisbasis of cartel of cartel systems systems is liquidating is liquidating its present its present strength strength and and fu- futureture opportunities,” opportunities,” Cordiner Cordiner said.said.

TheThe opposing opposing argument argument swirling swirling around around GE in GEthose in those daysdays was was thatthat surely surely upstanding upstanding gentlemen gentlemen could could figure figure out out a way a way to agree to agree on prices on prices thatthat wouldn’t wouldn’t hurthurt customers customers too too

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much much and and would would make make life much life much easier easier for the for manufacturers the manufacturers of comof complexplex products. products.

Obviously, Obviously, these these kinds kinds of agreements of agreements violated violated antitrust antitrust laws.laws.

“Sure, “Sure, collusion collusion was was illegal,” illegal,” one one GE veteran GE veteran toldtold Fortune, Fortune, “but“but it it wasn’t wasn’t unethical.” unethical.”

Clarence Clarence Burke Burke joined joined GE’sGE’s heavyheavyequipment equipment business business in 1926, in 1926, fromfrom the the Georgia Georgia Institute Institute of Technology. of Technology.

Burke’s Burke’s group group contributed contributed about about 25 percent 25 percent of GE’s of GE’s revenue revenue by then by then and and was was considered considered the backthe backbonebone of the of the company. company.

It was It was alsoalso a hotbed a hotbed of GE of executives GE executives whowho be- believed lieved in collusion, in collusion, despite despite the the repeated repeated admonitions admonitions against against suchsuch behavior behavior fromfrom Lexington Lexington Avenue.

Avenue.

In June In June 1945, 1945, Burke Burke had had moved moved to Pittsfield, to Pittsfield, Massachusetts, Massachusetts, as aas a salessales manager manager for distributional for distributional transformers, transformers, a component a component usedused by by electrical electrical utilities. utilities.

Within Within a month, a month, H. L.H.“Buster” L. “Buster” Brown, Brown, the division the division head, head, toldtold Burke Burke he needed he needed to attend to attend a convention a convention of the of the National National Electrical Electrical Manufacturers Manufacturers Association, Association, or NEMA, or NEMA, in Pittsburgh. in Pittsburgh.

There There werewere about about fortyforty menmen fromfrom the the industry industry there, there, as well as well as representaas representativestives of NEMA of NEMA and and the Office the Office of Price of Price Administration, Administration, a federal a federal pricepricecontrol control agency agency established established afterafter the the U.S.U.S. entered entered World World WarWar II. Once II. Once the OPA the OPA and and NEMA NEMA representatives representatives left left the conference, the conference, the businessthe businessmenmen got down got down to the to real the real business, business, thatthat of colluding. of colluding.

Burke Burke became became a a regular regular at these at these monthly monthly meetings. meetings.

SoonSoon enough, enough, instead instead of discussing of discussing howhow bestbest to lobby to lobby the government the government about about OPA,OPA, the men the men started started discussdiscussing setting ing setting prices prices among among themselves. themselves.

TheyThey agreed agreed uponupon prices prices “to the “to the penny,” penny,” Burke Burke laterlater revealed. revealed.

Brown, Brown, Burke’s Burke’s boss,boss, assured assured himhim thatthat these these agreements agreements did not did not violate violate GE’sGE’s antitrust antitrust directive. directive.

In 1946, In 1946, the the Justice Justice Department Department started started an investigation an investigation intointo priceprice fixing— fixing— resulting resulting at GE at GE in three in three firings firings

by Cordiner,

by Cordiner, thenthen GE’sGE’s president, president, in 1949— in 1949— and and the the wordword wentwent out out to the to the GE GE rankrank and and file, file, fromfrom the the GE lawyers, GE lawyers, to cool to cool the the priceprice talk.talk.

Sales Sales managers, managers, suchsuch as as Burke Burke and and Brown, Brown, werewere barred barred fromfrom attending attending NEMA NEMA conferences, conferences, and and theythey werewere replaced replaced

by GE by engineers GE engineers at these at these events. events.

TheThe GE salesGE salesmenmen referred referred to this to this development development as being as being placed placed “behind “behind the the ironiron

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curtain.” curtain.”

TheThe newnew policy policy lasted lasted ninenine months. months.

During During thatthat time, time, Wilson Wilson issued issued one one of his of periodic his periodic antitrust antitrust directives. directives.

AndAnd then, then, suddenly, suddenly, the the ironiron curtain curtain was was lifted. lifted.

“Word “Word came came down down to start to start contacting contacting com-competitors petitors again,” again,” Burke Burke recalled. recalled.

He remembered He remembered thatthat it officially it officially came came fromfrom Brown, Brown, but he butsuspected he suspected Brown Brown was was being being ordered ordered around around by his by his bosses. bosses.

“I think “I think the competitive the competitive situation situation was was forcing forcing them them to dotosomedo something,” thing,” he continued, he continued, “and“and there there werewere a lotaof lotoldof timers old-timers whowho thought thought collusion collusion was was the the bestbest wayway to solve to solve the the problems.” problems.”

TheThe menmen started started meeting meeting together together in hotel in hotel rooms rooms and and werewere careful careful not to notreveal to reveal in their in their expense expense reports reports whatwhat theythey werewere doing. doing.

Instead Instead of showing of showing on their on their ex- expense pense reports reports where where theythey actually actually wentwent to these to these meetings, meetings, theythey would would write write the the names names of other of other cities cities equidistant equidistant fromfrom Pittsfield.

Pittsfield.

TheThe con-conspiracy spiracy continued continued in this in this fashion fashion for the for next the next few few years, years, Burke Burke rememremembered. bered.

What What about about the antitrust the antitrust directive directive theythey had had initialed, initialed, indicating indicating theythey understood understood not to notcollude? to collude?

“When “When anybody anybody raised raised a question a question about about that,” that,” he said, he said, “they “they would would be told be told it doesn’t it doesn’t apply apply now.” now.”

In September In September 1951, 1951, Clarence Clarence Burke Burke got agot new a new job at jobGE, at GE, selling selling industrial industrial circuit circuit breakers. breakers.

TheThe job was job was openopen for Burke for Burke to fill tobecause fill because the the previous previous executive executive had had resigned resigned fromfrom GE on GEprinciple, on principle, given given thatthat he had he had signed signed Wilson’s Wilson’s antitrust antitrust directive directive and and felt guilty felt guilty about about violatviolating it. ingBurke it. Burke got the got new the new job in jobPhiladelphia in Philadelphia because because he was he was considered considered an important an important partpart of the of the “conspirational “conspirational wheel.” wheel.”

“They “They knew knew I was I was adept adept at this at this sortsort of thing,” of thing,” he said. he said.

“I was “I was gladglad to get to the get promotion. the promotion.

I I had had no objections.” no objections.”

His His bossboss in circuit in circuit breakers breakers was was Henry Henry Erben, Erben, a a veryvery senior senior GE executive GE executive who,who, Burke Burke recalled, recalled, made made it known it known he had he had cleared cleared withwith Cordiner Cordiner the conversations the conversations withwith competitors. competitors.

Burke’s Burke’s firstfirst assignment assignment was was to get to to getknow to know executives executives at Westingat Westinghouse, house, AllisAllisChalmers Chalmers (again (again backback as an asindependent an independent company, company, followfollowing GE’s ing GE’s ownership ownership of it), of and it), and Federal Federal Pacific Pacific and and to introduce to introduce them them to his to team his team at GE. at GE. PartPart of his of assignment his assignment was was perpetuating perpetuating the the con-conspiracy, spiracy, all with all with Erben’s Erben’s approval. approval.

“Erben’s “Erben’s theory theory had had beenbeen live live and and let live,” let live,” Burke Burke said.said.

“Contact “Contact the competitors.” the competitors.”

ThatThat “theory” “theory” trickled trickled