IBM and the Holocaust

by Edwin Black

He instructed IBM General Manager F. W. Nichol to telephone Geneva manager P. Taylor on August 19 and enthusiastically approve the ratification of Hess’ staff advisor Schulte-Strathaus and German businessman Emil Ziegler as new board members. Watson also agreed to offer former German counsel in New York, Otto Kiep, as a third addition. Watson had known and trusted Kiep as a family friend for years; Watson’s daughter even served as godmother to Kiep’s child. Kiep could at least try to mitigate further Dehomag efforts to exclude IBM NY from the business proceeds and help shore up ties to the government. At the August 31 Dehomag board meeting in Berlin, under direct instruction from the New York office, IBM’s representative voted with Heidinger. The details were recorded in the minutes. “Mr. Holt is barred by unanimous vote. Messers. Kiep, Schulte-Strathaus and Ziegler are elected unanimously.”40

  But Watson would not detach Dehomag from the global IBM empire. He would not allow Bull and Powers or any other competitor to intrude upon his domain. IBM would not back down from what it considered its rightful commercial place in Nazi Germany’s New World Order.

  Over the coming months, Watson would fight hour to hour, deploying lawyers, special emissaries, and government intermediaries to protect his privileged and profitable position in Hitler’s enterprise. Watson would not allow IBM to be replaced. As a result, millions of cards, millions of lives, and millions of dollars would now intersect at the whirring stations of Hitler’s Holleriths.

  * * *

  EVEN THOUGH Watson had agreed to director’s seats for three influential Nazis—Schulte-Strathaus, Ziegler, and Kiep—it just wasn’t enough. The pressure on IBM’s empire would not subside. On August 20, a special committee of some undetermined Nazi authority launched an investigation of Dehomag and its practices. There was no let-up on Heidinger’s insistence that IBM relinquish control of Dehomag either by becoming a minority owner or selling outright. If that was not possible, he wanted his now valuable shares purchased by IBM for dollars.41

  At first, the fact that Heidinger was insisting on both a buy-back of his shares and transfer of the subsidiary ownership appeared to be a contradiction. If Heidinger wanted as much of the stock as possible in German hands, why insist on IBM repurchasing his shares, which would return ownership to New York? But Watson soon understood: Heidinger was trying to cash out his position in dollars even while he helped German circles dismantle Dehomag or weave the firm’s resources into a purely German cartel. This was becoming all too apparent to Watson’s negotiators as they explored any avenue to quietly separate from Heidinger.42

  In late August 1940, Taylor in Geneva suggested New York might want to simply pay off Heidinger with an enticing financial arrangement by either increasing his percentage of the company or undertaking a one-time buy-out of some or all of his shares on the condition that he cancel his special contract altogether. Knowing Watson’s aversion to paying actual dollars, Taylor suggested IBM trade “one of our buildings in Berlin,” and add in more accounting maneuvers. “If we have to pay in Reichsmarks,” wrote Taylor, “get Mr. Heidinger to take the first building at our purchase price of 2,178,000 marks, plus the difference in a cash payment, such cash to be obtained from Dehomag as a payment on account of their indebtedness to us for royalties.” To keep Heidinger out of any competitive company, Taylor suggested IBM “would continue to pay 40,000 marks a year to Heidinger for his advisory services, and in the event of his death, pay it to his widow as long as she lives.”43

  Pages and pages of financial and political analyses shot back and forth between IBM offices in Berlin, Geneva, and New York. It was a constant state of corporate crisis as the vicissitudes of one option after another were floated and sunk, revived, and then shunted.44 Through it all, Heidinger remained adamant.

  IBM’s Berlin attorney, Heinrich Albert, was one of Germany’s leading experts on foreign corporations operating in the Third Reich. Of course, IBM was not alone in its lucrative dealings with the Third Reich. Many American companies in the armament, financial, and service arena refused to walk away from the extraordinary profits obtainable from trading with a pariah state such as Nazi Germany. Indeed, Watson led them in his capacity as chairman of the American section of the International Chamber of Commerce. Albert counseled many of these American companies about protecting their subsidiaries. Based on his experience, Albert sent Watson dozens of pages of dense legal opinions, settlement theories, and cautiously parsed recommendations. But much of it built on one of his earliest observations: “It cannot be denied that the situation is serious,” wrote Albert. “What it practically amounts to is the question whether the IBM prefers to hold a secure and safe minority interest in a sound and safe company, [or] … the holding of a controlling, but endangered majority in an endangered company.”45

  The prevailing view among many was that Nazi aggression in Europe was unstoppable and the economy that would soon be imposed over an entire subjugated Continent would flow only to those companies Berlin favored. Owning even a minority of that new dominant Dehomag could be vastly more valuable than the Dehomag IBM owned today. Albert emphasized that in the very near future, “a minority of shares might be even materially of higher value than the present majority.” He added that the notion of stockholder “control” was actually becoming a passe notion in Germany since the Reich now directly or indirectly controlled virtually all business. “A majority of shares,” he wrote Watson, “does not mean as much as it used to… [since] a corporation, company, enterprise or plant manufacturing in Germany is so firmly, thoroughly and definitely subjected to the governmental rules and regulations.”46 Clearly, it was not possible to continue doing business as a German company without becoming a virtual extension of the Reich war economy. That had been the reality for years.

  Whether IBM reduced its control to a minority or retained its majority, or appointed any number of influential Nazis to its board or management staff, was immaterial to Germany’s perception of IBM’s subsidiary. The truth was now known. Dehomag could no longer continue under its former Aryan guise. “Neither public opinion nor the authorities,” assured Albert, “would recognize the German character of the company [any longer].”47

  Watson tried a number of compromises to redeem himself in German eyes. None of them worked. He offered a sizable donation to the German Red Cross. Rottke immediately wrote a letter to Geneva stating that the gift would never be accepted. Watson’s hope that the furor would die down was unrealistic. Although the decoration was returned on June 6, Nazis were still roiling months later. German radio in neutral Sweden in mid-September declared Watson persona non grata, assuring he would never again be permitted to set foot in any territory controlled by Germany.48

  Watson understood that unless he came to an accommodation with Germany, Dehomag was only the beginning. IBM operated profitable Dehomag-dominated subsidiaries in Italy, Poland, Czechoslovakia, Holland, Belgium, Romania, France, Sweden, and indeed almost everywhere in Europe. All of them could be targeted.

  At about 11 P.M. on September 30, 1940, Taylor in Geneva telephoned IBM’s New York headquarters with continuing reports about pressure against IBM subsidiaries in the wake of Watson returning his medal. Should America enter the war, Taylor asserted, one of the first subsidiaries to be placed under a German trustee would be Watson Norsk, the IBM operation in occupied Norway. Earlier, Taylor’s office had sent several letters explaining how the seizure would work under just-espoused German military law. To allow the subsidiary to continue even after America might declare war, Taylor now suggested creating the appearance that Watson Norsk had been sold to Norwegians even though IBM NY would still own and control all aspects of the firm. “We should consider whether now is not the time,” Taylor said, “to take the necessary action to make the company free from American interests. We have come to the conclusion to suggest that the royalty set-up should be considered, that the shareholders would be changed to avoid American holders.” As it stood, IBM’s name was not now listed as controlling the Norwegian firm. Norwegia
n records reflected four individuals as owners: IBM managers Holt and Milner, as well as two token Norwegians. But the two Americans were clearly IBM Geneva employees known to Dehomag. So Taylor offered a new list of reliable Norwegians to use as additional front men. He emphasized, “The shares of these [new] people should be in their name actually, and cash consideration given. Understood,” he added, “they would be held for the IBM—but no rights.” The stock transfers could be just a pen stroke away, he pointed out, because “the shares are in New York now.”49

  What’s more, Taylor recommended, Watson Norsk’s 400,000 Krone debt to IBM NY should be reduced on paper to further distance the subsidiary from American control. If a series of paper transactions involving 250,000 Krone were arranged as Taylor outlined, then the “estimated loss for 1940 is 75,000 Krone, plus a cash remittance in New York of 100,000 Krone. After deducting all those from the IBM account, [it] leaves a balance of approximately 100,000 Krone, which we think would be in order.”50

  IBM’s European empire, primarily vested in Dehomag, appeared to IBM managers to be careening toward demise. If the company did survive its challenges, German custodians would confiscate it as enemy property as soon as America joined the war. Unlike his managers, however, Watson did not fear seizure by a German-appointed trustee. He actually preferred it.

  A peculiarity of German law demarcated a strong distinction between the assets of racial inferiors such as Jews, Poles, Czechs, and other vanquished groups, and the property of what in the bizarre Nazi mindset constituted a genuine war adversary, such as Britain and the United States. If the U.S. entered the war, Germany did not believe it would occupy American territory, only defeat the country. During any war, Germany expected its commercial enterprises in America to be safeguarded, managed properly by a trustee, and then returned intact when the conflict ended. In that same spirit, the Third Reich would in turn safeguard, manage diligently, and return American enterprises. Germany’s well-developed alien custody laws were still in effect.51 So while Nazi Germany was voraciously plundering and pillaging the width and breadth of Europe, a profoundly different set of rules would apply to IBM and other “enemy property” seized in any of those occupied countries.

  Watson understood the ironic benefits of German enemy trusteeship. Just a few years earlier, he fondly remembered his own experiences in a letter to Hjalmar Schacht, president of the Reichsbank. “From the day I returned to Germany after the [first world] war” wrote Watson, “to find my company’s affairs in the best safekeeping by your Alien Property Custodian, well administered and conscientiously managed… I have felt a deep personal concern over Germany’s fate and a growing attachment to the many Germans with whom I gained contact at home and abroad.”52

  Taylor’s memos, citing military decrees regarding the potential for seizure, explained that during the years any alien corporation was under Nazi receivership, all the profits would be safely blocked in an account. “We presume,” wrote Taylor in a mid-September 1940 letter, “any resulting income is for the benefit of the owner in enemy territory and may be paid over at the end of the hostilities in accordance with the payment of enemy debts in general.” Taylor sent exact translations of the law to New York for Watson’s study.53

  Watson queried attorney Albert. Albert confirmed that the rules of receivership had not changed. In a detailed memo, Albert unambiguously reported back: “A custodianship of the Alien Property Custodian would by itself mean no special danger, as the law concerning the administration of enemy property, and the practice based on this law, are very conservative, protect the property and keep it alive and in order.”54

  Because the potential for seizure as enemy property was so encouraging, Albert could not help but comment that Watson’s decision on caving in to Heidinger’s demands was actually “all, a matter of [Watson’s] temperament, of taste, of general business policy, of the outlook into the future and so on.” Watson could rely on Albert’s assessments. Albert himself had functioned as a key custodian of enemy property during World War I. He had distinguished himself as a keen businessman and now represented those same companies as clients. Enemy receivers in Germany and other Axis countries understood the potential for a rewarding business relationship when hostilities ended. Ultimately, the Italian enemy property custodian, Giovanni Fagioli, actually sent personal written word to Watson that he was prepared to operate the Rome subsidiary profitably. Fagioli only hoped he could “cooperate with the owners after the war.”55

  For IBM, war would ironically be more advantageous than existing peace.

  Under the current state of affairs, IBM’s assets were blocked in Germany until the conflict was over. Under an enemy custodian, those same marks would still be blocked—again until any war was over. As it stood, Heidinger was threatening daily to destroy Dehomag unless IBM sold or reduced its ownership; and he was demanding to cash out his stock. But if war with the U.S. broke out, Heidinger and the other managers would be summarily relieved of their management authority since technically they represented IBM NY. A government custodian chosen on the basis of keen business skills—and Albert might have the connections to select a reliable one—would be appointed to replace Heidinger and manage Dehomag. In fact, the Nazi receiver would diligently manage all of IBM’s European subsidiaries. The money would be waiting when the war was over.56

  While the custodian would do all in his power to run the company profitably, he would also serve the interests of the Reich.57 The custodian would make the hard decisions, probably in tandem with IBM Geneva because there were nexus subsidiaries in Sweden, Switzerland, and other real or nominal neutrals that were indispensable to Dehomag’s supply lines. Other IBM subsidiaries in Latin America, Africa, and in the colonial lands of conquered European nations would also cooperate with Dehomag, but only through the most indirect and purely legal routes. Plausible deniability would be real. Questions—would not be asked by IBM NY. Answers—would not be given by IBMers in Europe or Reich officials.58

  The revealing records would not be kept in New York but in Europe where they could never be uncovered and examined. They would be kept abroad in filing cabinets in subsidiary offices. Many of New York’s records from the pre-war years would simply be destroyed. No one would ever be able to identify exactly what IBM NY did and did not know about the use of the Hitler Holleriths, or how many IBMers in Europe circuitously shared their information with New York. Indeed, a war-time Justice Department investigator examining IBM’s collusion with Nazi Germany wrote: “IBM is in a class with the Nazis.” But the investigator was forced to conclude: “This is a story told in circumstantial evidence.”59

  Watson would be satisfied with not knowing the specifics held by his European subsidiaries and managers—so long as those subsidiaries tenaciously pressed the Nazi regimes for proper rent payments on each and every machine, on every last one of billions of punch cards, on every spare cog and plate, and on all maintenance calls, all according to carefully worded contracts. Those demands for payment would start with the machines just removed from Paris by Reich officers in August 1940.60

  Watson’s micro-management of the most infinitesimal details would now end. That power would be delegated to trusted senior managers, managers who would be rewarded for their most loyal and most difficult service with generous salaries, and then anointed with great promotions in the powerful foreign divisions of the global IBM that they themselves built. Corporate security for these men would be seemingly endless. Even their children would find lucrative association with International Business Machines. In the company’s literature, they would be remembered as “heroes.”61

  The corporate haze would last for decades. With all the European intermediaries, ownership nominees, corporate intrigues, belligerent German managers, and Nazi custodians, it would be impossible to reliably point a finger at the New York office. Hollerith machines could be placed in museums in exhibits tying their use to the most heinous aspects of the Third Reich, but the deniability would be unshakabl
e. For, in truth, from 1933 until the summer of 1940, Watson personally micro-managed virtually every Dehomag decision. From August 1940, IBM NY made sure it did not know most of the gruesome details of Hollerith use. It was better not to know.

  The company that lionized the word THINK now thought better of its guiding mandate. Incriminating dealings with Nazis did surface from time to time as frustrated war-besieged subsidiary managers would invariably become too specific in the cables to New York. These communications were discarded, however, and if necessary disowned by IBM NY.62 By placing itself in the dark, IBM could forever truthfully declare it made millions during the war without knowing the specifics.

  An emboldened Watson now decided more than ever to fight back. Immediately after Taylor’s September 30 telephone call warning of German receivership, Watson elected to confront Heidinger head on. To do so, he would need the strongest ally. He knew who to call.

  Watson contacted the U.S. State Department.

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  IBM HAD BEEN cultivating contacts at the State Department for years, starting at the top with Secretary of State Cordell Hull, and, of course, President Franklin D. Roosevelt. But entrenched influence was sought at all levels down to the lowliest clerks and bureaucrats in the Department’s technical offices and overseas installations. Indeed, it was these people who rendered the most service.63

  Commercial attaches and officers in the Foreign Service were supposed to assist U.S. business abroad. That has always been their charge. But with Watson’s widely published letters of greetings, endorsements, and congratulations from Hull, the rank and file of the Foreign Service soon learned that Thomas J. Watson was more than just another citizen, and International Business Machines more than just another American company. Increasingly, diplomats and Foreign Service staffers became only too eager to please the firm and its stellar leader. Eventually, Watson assumed the status of unofficial ambassador-at-large, or perhaps something even larger. What was good for IBM became good for the United States. The protection and success of IBM was elevated to a defined “national interest.” As such, IBM subsidiaries around the world learned to use American embassies and consulates as strategic partners in their routine business activities.64