IBM and the Holocaust

by Edwin Black

  The FBI soon took an intense interest in German-born Ruthe for the many reports of his rabidly pro-Hitler statements while in IBM offices and even at customer sites. One widely distributed FBI file memo related the comments of an auditor at Blatz Brewery in Milwaukee, one of the IBM customers Ruthe had visited. A Blatz auditor passed on Ruthe’s remarks reportedly expressing “strong sympathies for Germany and [the] thought that Hitler was justified in everything he did, inasmuch as Germany was given a very unfair deal in the last World War.”68

  Another FBI report quoted IBM’s Milwaukee manager reporting that Ruthe “was quite boastful and would predict the outcome of the battles that are taking place in Europe, and that he kept the office force in a general turmoil with his constant talk about Hitler and what he [Hitler] was going to do to the European nations.” Ruthe was also rumored in FBI files to be a member of the Bund, an association of German-American Nazis.69

  Few could understand Ruthe’s continuing position in the company since he was hired in 1936. He did not fit the IBM mold. Reported in FBI files as a “drunk” and “a poor salesman,” Ruthe was said to have seriously under-performed at the Endicott sales training school. Indeed, when Ruthe was transferred from the New York office to IBM Milwaukee, his superiors were asked to keep tabs on him.70

  Although Watson and Nichol forgot to mention Ruthe during their June 6 discussion, they did remember several days later, when Nichol sent a letter to Welles marked “Strictly Confidential.” Nichol wrote, “In the discussion which Mr. Watson and I had with you on Thursday June 6, we overlooked mentioning the name of Mr. Karl Georg Ruthe. The facts concerning him are as follows.” Nichol then listed in a column Ruthe’s date and place of birth in Germany, graduating school in Germany, the four languages he spoke, home address, and citizen status—which was “American Citizen.”71

  Nichol added some other background: “Mr. Ruthe was first employed by us on December 1, 1936, in New York in a sales capacity. He spent three months at our school at Endicott, N.Y., from July to October 1937, when he was assigned to Milwaukee, still in a sales capacity. Prior to working for us, Mr. Ruthe was a tutor of modern languages in New York City; had his own school in Schenectady (the Schenectady School of Languages) and was an instructor of German at Union College in Schenectady. We understand him to be an American citizen, and believe that his parents reside in Germany. It so happens that we saw fit to ask for this man’s resignation last week, based solely, however, on his inability to produce a record as a salesman in this business.” Nichol included nothing more on Ruthe.72

  Ironically, when the FBI inquired as to how a person such as Ruthe could remain at IBM so long, they discovered that Watson had omitted some pertinent details. The FBI file cited observations received from IBM Sales Manager Fred Farwell: “Subject’s work was so poor,” an FBI report recorded, “that he would have never been allowed to finish the IBM School and go out into the Field as a salesman had it not been for his close relationship to Mr. Watson, President of IBM; that as a matter of fact, Subject had been a constant source of trouble to all men in administrative positions who came in contact with Subject. And that Subject was only kept as an employee for the length of time, in view of his relationship to the President of the Company.” Farwell added that Ruthe had married Watson’s niece.73

  The first week of June was a tense one for Watson. On June 3, 200 German planes dropped 1,060 explosive bombs and 61 incendiaries on Paris itself. More than 97 buildings were struck, including two hospitals and ten schools, killing 45. Ten children died at one demolished school alone. U.S. Ambassador to France William Bullitt himself narrowly missed death. While he was lunching with the French Air Minister, a bomb crashed through the roof and into the dining room, showering everyone with glass shards, but the device failed to explode.74

  The public mood was reflected in a page one story in the New York Times, June 4, reporting a mere off-hand comment to an elevator boy by a German diplomat arriving in Buenos Aires, Argentina. The diplomat asked if the young man could speak German. When the youth replied that he could not, the diplomat shot back, “Well, you’d better learn it, you are going to need it.”75

  On June 6, newspapers across the country, including the New York Times, reliably reported that the Gestapo was scouring Amsterdam armed with special lists of the “enemies of Germany.” Those rounded up were “liquidated…. Nearly all have faced firing squads,” the syndicated articles reported. Rumors that the names and addresses of all Jews living in Holland had already been turned over to Nazi agents were also circulating in both German and American papers. That same day, some 2,000 German tanks began rolling toward Paris for what was being called the “Battle of France.” Reich bombers hit the British coastline. All this was happening on the very day Watson was in Washington, D.C., assuring Undersecretary of State Welles that IBM would rid itself of Nazi sympathizers.76

  The long delayed moment had come. That day, June 6, Watson wrote a reluctant letter to Adolf Hitler. This one would not be misaddressed or undelivered. This one would be sent by registered mail and released to the newspapers. Watson returned the medal Hitler had personally granted—and he chose to return it publicly via the media. The letter declared: “the present policies of your government are contrary to the causes for which I have been working and for which I received the decoration.”77

  In Germany, Watson’s action would be considered the highest form of insult to der Fuhrer at a moment of German glory. The public manner of Watson’s rejection only heightened the affront. This would change everything.

  In Berlin, at Dehomag, all hell broke loose.

  IX. THE DEHOMAG REVOLT

  JUNE 10, 1940

  Memo to Willy Heidinger

  Re: Mr. Watson

  I am setting up a confidential file in this matter… [and] sending you a copy of yesterday’s edition of the Volkischer Beobachter. It states that Mr. Watson has returned the medal, which the Fuhrer had bestowed upon him…. This stupid step of Mr. Watson’s opens up a number of possibilities. At the moment, we have decided not to start anything ourselves but will wait to see who might approach us, if anybody. It is not improbable that such a step may harm the company, and all of us, very seriously—sooner or later—since it must be considered as an insult to the Fuhrer and therefore the German people.

  Mr. Hummel has been deliberating whether we can even continue in the management of the Dehomag in light of this deliberate insult…. I have assumed the position that our first duty and obligation is to place all our strength at the disposal of this enterprise which is so important for the conduct of the war. It is imperative that this company meet all the tasks that the German economy has imposed on it, particularly in time of war. Moreover, there is no reason to cause the Dehomag and its employees any harm merely because of the personal hatefulness and stupidity of one American.

  It appears that Mr. Watson is surrounding himself with a group of Jews who fled from Europe…. It appears that the influence of these Jews, in addition to the anti-German Jewish and other lies in newspapers, are beginning to affect his mind and to impede his judgment. Even if he [Watson] should have pretended friendship for Germany and if his true opinion did not become apparent until now, it is evident that this act is terribly inane, looking at it from a purely commercial point of view. It seems Mr. Watson, with great vanity, wants to insult the Fuhrer of the German people, but he does not realize that there can only be one result of this act, if there is any at all, namely, that Mr. Watson’s personal economic interests can be affected.

  Nevertheless this step is indicative of the great excitement in America; therefore the danger that America may enter the war is somewhat closer. If this should happen we would have to examine the possibility of separating ourselves from [IBM] America in view of the new conditions. Naturally the Economics Ministry will examine carefully whether Germany receives more royalties from America or vice versa…. we would welcome it if the royalty agreement between Dehomag and IBM could be dissolved entire
ly. One could assume the position that the mutual contributions should stop with an exchange of patents…. Therefore, if we renounce any further contributions [from IBM NY], no royalties should have to be paid in the future. The IBM interest in the Dehomag would then have to be transferred into German hands in some form or other…. Savings of royalties could be paid into a war fund and at a future time the rentals could be lowered to correspond to the present royalty.

  In any case I have the feeling that Mr. Watson is sawing the branch on which he and his IBM are sitting.

  From Hermann Rottke1

  The war was on.

  Nazism’s favorite capitalist had fallen from the Reich’s imagined cloud line. By returning the medal, Watson had turned on der Fuhrer, insulted the German people, and proved that IBM was no longer a reliable ally of the Third Reich. Everywhere among the insider echelons of Nazidom and German media, Watson’s name was reviled. Hitler’s personal paper, Volkischer Beobachter, declared that the “vultures of profit smell the fry,” adding with regret, “it might have been expected that… Thomas Watson would have a broader outlook than the hate-blinded Jewish editors and journalists.”2

  Nazi castigation was not limited to the Greater Reich, but was broadcast by German radio and newspapers in the invaded countries as well. Quickly, IBM managers in occupied Czechoslovakia, Poland, Norway, and other Nazi-dominated lands learned of Watson’s affront. They felt the impact immediately as their German customers, corporate and government, expressed displeasure. Fascists in other Axis countries were equally offended. Mussolini’s people in Rome were furious with Watson Italiana, summoning the subsidiary’s director to a formal reproach.3

  All the suppressed but long festering resentment at Dehomag now coalesced into a unified list of grievances. Dehomag was a German company that Watson stole. IBM NY represented foreign domination and therefore the very antithesis of National Socialist doctrine. The American parent company was charging exorbitant royalties and reaping huge profits, thereby exploiting the German nation. Most of all, Heidinger hated Watson. It all became a single impetus for open corporate rebellion.

  The backlash was immediate. In Dehomag’s Lichterfelde office, Watson’s picture was removed from the wall. Stuttgart employees did the same. In the Hamburg, Frankfurt, and Vienna branches—and ultimately in every one of the German subsidiary’s offices—the pictures of Watson were quickly taken down.4 That was only the beginning.

  Spurred by equal parts personal greed and Nazi fervor, Heidinger and Rottke began scheming to completely eliminate IBM NY’s influence from Dehomag’s realm. Step-by-step, they would now pressure IBM either to sell the subsidiary to German nationals, or at least reduce the foreign ownership from a majority to a minority. Ousting his personal representatives from the Berlin subsidiary’s board of directors would also end Watson’s micro-management of Dehomag operations. Plain and simple: Heidinger, Rottke, and Hummel now saw Thomas J. Watson and IBM NY as little more than a foreign nemesis—a nemesis they were determined to cast off.

  To begin his putsch, Heidinger retreated into a precise reading of German corporate law. On July 1, 1940, he sent a registered letter to IBM Geneva convening a special board meeting to discuss the crisis caused by Watson’s insult to Hitler and to expel IBM NY’s representative, Geneva-based John Holt, from the three-seat board.5

  Using charged language, the meeting agenda declared that Holt would be “eliminated” by a vote of the local board because he was an absentee director and thereby “prevented from fulfilling his obligations.” IBM responded to the challenge with coolness. Geneva cabled a power of attorney to IBM’s local representative, Albert Zimmermann, authorizing him to discuss the issue, of course, but then to vote IBM NY’s majority against replacing Holt.6

  Insufficient, declared Heidinger. Under a strict reading of German corporate law, a power of attorney required a certain sworn written form, and an authorizing cable alone was legally unacceptable. On July 15, Heidinger convened a brief sixty-minute board meeting, disallowing Zimmermann’s dissenting proxy. Then the two resident board members, Heidinger and his brother-in-law, Dr. Gustav Vogt, voted Holt out. “All persons present agree that it is advisable to straighten matters,” the rebellious German board resolved by “the elimination from the board of directors of Mr. Holt…. Considering the present situation… all persons present propose a personality [as a replacement] who is also esteemed by the German [authorities].” Technically, however, with Zimmermann’s proxy disqualified, a voting quorum was not present. Therefore, while Holt could be voted out by the board alone, his replacement could not be properly voted in under German law except by the stockholders themselves. IBM was the largest, holding percent.7

  Knowing Watson’s proclivity for hiring lawyers to defend hairsplitting legal positions, Dehomag adhered to the explicit letter of the law. Heidinger scheduled another immediate meeting, just two weeks later, on July 29, to elect the “replacement of the eliminated member, Mr. Holt,” as the board minutes phrased it. Under German corporate law, the minutes noted, if IBM declined to provide a proper written proxy for the second meeting, then the token minority 15 percent ownership—that is, Heidinger, Rottke, and Hummel—could vote in whomever they wished to replace Holt.8 Doing so would neutralize Watson.

  Just after the July 15 meeting adjourned, a brusque Dehomag letter was dispatched to IBM Geneva. Citing German law and company statute down to the sub-paragraph, Dehomag’s notice advised Geneva that its previous cabled proxy to Zimmermann was unacceptable in its form. With or without the approval of IBM NY, the letter bluntly warned, the re-scheduled July 29 meeting would address the Watson medal crisis “and its eventual consequences for our company,” as well as the “replacement of the eliminated member, Mr. Holt.”9

  For years, cabled instructions from Geneva and New York projecting Watson’s micro-management had been routine facts of corporate life for Dehomag. But all that was before Watson returned the decoration. Now Heidinger had the momentum to work his own will. He would force his issues with a combination of strict legal interpretation and rapid-fire corporate maneuvers.

  Heidinger’s July 15 correspondence to IBM Geneva warned the parent company that should it fail to provide the proper proxy form for the July 29 meeting, or fail to ratify Berlin’s choice for a new board member, a stalemate would prove just as destructive. Then, “no decisions binding the company can be taken,” Heidinger warned, adding, “To enlighten matters, we wish to state that according to… [German corporate] law, the board of directors has to be composed of three persons at least.”10 Holt’s ouster left only two sitting board members: Heidinger and his brother-in-law Vogt. Without three on Dehomag’s board, the firm would be illegitimate and incapable of functioning as a corporate entity.

  To ensure that Watson could not litigate the board putsch as setting “unreasonable” deadlines in view of difficult wartime circumstances, Heidinger scheduled the July 29 meeting not in Dehomag’s Berlin headquarters, but in the subsidiary’s Munich branch. Munich was much closer to IBM’s Geneva office, “thus diminishing your traveling time,” Heidinger carefully wrote to IBM Geneva.11

  This time, IBM rushed to comply. Watson’s Geneva representatives did not feel comfortable entering Germany with officials agitated. But they did present their resident German agent, Zimmermann, with a proper power of attorney. The July 29 board meeting in Munich convened at 10 A.M. with a reading of the rules and relevant statutes. Quickly, they did away with the traditional balance sheets showing losses resulting in zero bonuses. Heidinger forced adoption of the true profits totals: nearly RM 2.4 million for 1938 and almost RM 4 million for 1939. Management bonuses of nearly RM 400,000 were approved for Rottke and Hummel. Heidinger reserved his own bonus for later.12

  The medal crisis was then vigorously debated “in view of the great urgency of this question.” Heidinger demanded that Holt’s seat on the board be filled not by one German director, but two. He nominated Emil Ziegler on the suggestion of the Berlin Chamber of Co
mmerce. The second nomination was a leading Nazi official, Ernst Schulte-Strathaus, a key advisor in Deputy Fuhrer Rudolf Hess’ office.13

  Dehomag was to become completely Nazified. The hierarchy had plans for Hollerith machines that stretched to virtually all the Reich’s most urgent needs, from the conflict in Europe to Hitler’s war against European Jewry. Some of the plans were so sensitive they could not be discussed with outsiders. It was absolutely essential that Dehomag be controlled by the highest Nazi party and government circles. Heidinger had connections at those levels, which had benefited Dehomag through the Hitler years.

  Heidinger had been a friend of Hess’ since their soldiering days in World War I. The Schulte-Strathaus family had, in 1910, helped Heidinger launch the original Hollerith Company in Germany. Bonds remained tight during the post-War years. Ernst Schulte-Strathaus had emerged as one of the bizarre and mysterious personalities at the top of the Nazi leadership. A doctrinaire astrologer, Schulte-Strathaus read the stars for Hess.14

  In the July 29 board meeting, Heidinger demanded that Schulte-Strathaus be ratified. In fact, Heidinger had already invited him to join the board and Schulte-Strathaus had already accepted.15 So he expected a unanimous yes.

  But Watson was not ready to allow Heidinger to dictate who could sit on the board—even if the proposed man was a personal advisor to Deputy Fuhrer Hess. Zimmermann declared that he was instructed to vote against Schulte-Strathaus. Wielding IBM’s majority, the measure was defeated. Watson preferred either Rottke or Hummel, both of whom owned token stock options, or Zimmermann himself. Heidinger staunchly refused to even allow Watson’s suggestions to be voted, asserting that German corporate law made employees ineligible for seats on a board of directors. Heidinger insisted on Schulte-Strathaus as a representative of Hess.16