IBM and the Holocaust

by Edwin Black

  The special relationship started in earnest in late 1936. Just after Watson was elected president of the International Chamber of Commerce, he managed to gain unprecedented levels of official recognition for the body and his assumption of its helm. Ambassadors, consuls general, and attaches were invited to attend, and IBM made special arrangements for their passage and hotels. Diplomats and other State Department bureaucrats were always welcome at the company’s door or its lavish events. Watson traded on the perception throughout the Department that he was a personal and influential friend of Hull, and a major donor to Roosevelt. Designating who would represent the Department at a Watson event was frequently a process handled with great deliberation. A dozen or so memos might circulate back and forth to numerous offices and bureaus as the collective decision was carefully rendered.65

  At first, rank and file State Department officers offered simple cooperation. For example, in fall 1936, the third secretary of the U.S. Embassy in Moscow conferred regularly with IBM’s office there about Soviet government attempts to break IBM’s monopoly. Cooperation was a two-way street. Watson would continuously check his busy travel and social schedule with State officials. In spring 1937, various letters were exchanged between the White House, the State Department, and Watson over whether he should extend official felicitations to the French government at a commemoration event.66

  After Watson had received the medal from Hitler at the 1937 ICC Berlin Congress, junior officials at the State Department had begun advocating for IBM’s unique business advantage. In particular, helping IBM avoid or reduce foreign taxes and tariffs was a continuing effort. For example, in August 1937, the U.S. Embassy in Paris helped IBM’s French subsidiary gain a better tariff rate. Just days after the Paris Embassy helped with French customs, IBM sought similar assistance in Czechoslovakia. Tax authorities in Prague were raising IBM’s tariffs. IBM’s Foreign Division wrote to the Trade Agreement division in Washington, D.C., asking for help “to induce the [Czech] government to revert to the former classification.”67

  In some cases, the lower echelons of America’s Foreign Service were eager to curry favor when they succeeded for IBM. In Bucharest, on September 28, 1938, Legation Secretary Frederick Hibbard sent report 543 entitled “Assistance Given International Business Machines Corporation,” bragging, “Mr. Schotte of the Geneva office thanked a member of my staff for assistance given the company about a year ago. He stated that following the advice of the Legation, he [Schotte] had been able to prevent a tax suit against the Romanian subsidiary calling for the payment of 60 million lei in back taxes and fines…. This item should be added to the list of accomplishments of the Legation.”68

  Lavish letters of praise for individual ambassadors or their attaches were often sent by senior IBM executives to Hull to show gratitude and reward their effort.69

  Watson’s almost regal movements in Europe were regularly followed and reported with the utmost detail by American diplomats who were always on hand. Watson’s visit to Oslo was typical. The U.S. Embassy there quickly reported “in quintuplicate” that “his train was met by a delegation representing the local membership of the International Chamber and by the Secretary of the Legation. Shortly after reaching the Legation, Mr. Watson received the press, responding to questions in a manner which evoked considerable favorable publicity in the newspapers.”70

  There seemed to be no limit to the service lower-echelon State Department staffers were willing to extend. Indeed, while World War II was raging, one Department administrator found time to write a letter to Frances Munos, an IBM employee in New York, passing along a message from a family member in Santiago, Chile, “stating that she desires to have you purchase shoes for her use.”71

  With as much service as State Department lower-echelon officers were enthusiastically providing, it is no wonder that Watson turned to America’s commercial attache in Berlin, Sam Woods, to use the weight of the United States government to help IBM confront Heidinger. Woods was enamored with Watson and only too glad to act as IBM’s post-man, openly passing messages across the Atlantic through diplomatic pouch and coded cable, and providing clerical facilities within the embassy. More than that, Woods openly draped IBM’s negotiation in the mantle of American officialdom that Watson hoped would make the difference.

  On October 2, 1940, Watson sent a five-page letter to Heidinger’s home passed through diplomatic pouch. Not only did Watson use the convenience of the diplomatic pouch, he took the unusual step of ostentatiously typing at the top: “Letter to be transmitted through the courtesy of the State Department to Mr. Willy Heidinger, Pocking 56, am Starnberger See, Bavaria, Germany.”72

  Watson began with a cooperative tone. He confirmed, “On August 19 last, we telephoned our Geneva office to inform you that we would be glad to comply with your request for the election of Messrs. Schulte-Strathaus, Ziegler and Kiep as directors of Dehomag. We were later informed that they were duly elected… on August 31, 1940.” He went on, “It has always been our desire to work in harmony with you for we realize how valuable your association with us has been… we maintain the highest respect for your judgment.” He added, “We thought you were entirely right in the suggestions you made about enlarging the Board of Directors and placing thereon [three] men of affairs.”73

  At the same time, Watson stressed, questions of Dehomag being threatened unless IBM relinquished its majority was “a matter of such importance” that it needed to “be presented to our full Board of Directors [in New York] with all the facts obtainable for its careful consideration.” He added, “You must realize that the economic conditions in the world, upset as they are, make it extremely difficult for us to decide promptly important matters such as you have suggested with respect to our interests in Germany without… all available facts and data.”74

  Specifically, IBM NY wanted to know whether there was genuinely an attempt to undermine Dehomag—privately or officially—in favor of a new company, unless it reduced its ownership and also repurchased Heidinger’s shares. Ironically, as a savvy businessman, Watson understood the deeper fiscal meaning of Heidinger’s actions against the subsidiary. Days earlier, IBM had confronted Heidinger with a completely unexpected scenario. If Dehomag was actually endangered because of Heidinger’s disloyal actions, then the division’s future was in fact worth far less. As such, Heidinger’s shares were dramatically reduced in value as well. In other words, whatever Heidinger did to undermine Dehomag would impact the very Dehomag share value he was hoping to parlay. Heidinger angrily rejected this notion. But in his October 2 letter, Watson held fast: “We do not acquiesce in the statement that affairs of Dehomag following September 30th have no bearing on share purchases.”75

  Continuing with a hard line, Watson shocked Heidinger with another technicality. During the last round of corporate fisticuffs over bonuses, an automatic and generous buy-back was agreed upon. As was so often the case, when the negotiations were all written up, IBM preferred at the last minute that the final agreement should not be signed, but rather oral. At the time, Dehomag was reporting a continuous multimillion-mark income stream. Now Heidinger thought that when his shares would be repurchased, the per share price was a windfall guaranteed by the 1939 oral agreement. Watson’s auditors had calculated these shares to be in excess of RM 2.7 million and Heidinger asserted they were valued at RM 3.8 million. If compelled to pay in dollars at an adverse exchange rate, as Heidinger expected, it would cost IBM millions.76

  Not so, declared Watson in his letter. “You [Heidinger] say, ‘Regarding the price basis, there is already an agreement between me and the IBM…. Your reference to an agreement… evidently refers to the then proposed agreement with Dehomag for the purchase of your shares, which we, as stockholders, were willing at that time to vote for…. You did not accept or execute these contracts, and, in view of the fact that the proposed contracts were not executed by you, of course none of their proposed provisions now apply.”77 In other words, a year after the contentious settleme
nt was reached, IBM was now saying that without a signature, it would not honor the agreement.

  “The only binding contract that exists between us,” concluded Watson, “is one executed in New York City on the 8th day of May, 1936… [and] executed in Berlin on the 10th day of June, 1936.”78

  Therefore, assured Watson, negotiation would be needed, maybe even a protracted arbitration process. “Our representative will meet you just as soon as he can secure the necessary documents to travel,” he wrote.79

  Mindful that his letter was being presented under the color of the State Department, Watson emphasized to Heidinger and to any colleagues in the Nazi Party he might share it with: “Our respective countries are at peace with each other, and we feel confident that there is no more desire on the part of the German authorities to interfere with United States business interests than there is a desire on the part of officials in the United States to interfere with business interests of Germany located in this country…. We believe that our two countries will continue to deal with each other fairly in all business matters.”80

  Watson’s gambit worked. Heidinger became convinced he had to negotiate. At stake was the viability of the German automation program. Heidinger could not make the decisions alone. He had been in touch with a secret source in the Nazi Party who was familiar with Dehomag and its important uses for the Reich, and was willing to meet with Watson’s negotiator in Berlin.81

  On October 26, 1940, several cars motored to La Guardia Field. A delegation of senior IBM executives, led by Watson himself, accompanied the one man upon whom rested the future of Dehomag and, in fact, IBM’s entire European business. The vehicles pulled up to the Pan Am terminal. There a decorous IBM attorney named Harrison K. Chauncey alighted, ready to board Pan Am’s Dixie Clipper to Portugal. A company notice for what was expected to be protracted travel appeared in the employee newsletter. The item was headlined: “Mr. Chauncey Leaves by Clipper on Trip to Europe for IBM.” Nothing in the item mentioned visiting Germany. The subhead explained only, “Member of Legal Staff to Visit Switzerland, Portugal While Abroad.”82

  In truth, from neutral Lisbon, Chauncey would make his way to war time Berlin for face-to-face negotiations with the still enraged Nazis. The newspapers that month were filled with terrifying reports that would have intimidated anyone traveling to the Third Reich. American corporate employees thought to be Jewish were tortured in Romania under Gestapo instruction. British bombs hailed onto Berlin. Jews were entering the first phases of persecution in Nazi-dominated Vichy France and being tragically ghettoized and enslaved elsewhere. Moreover, if Roosevelt declared war, no one could even imagine the fate of Americans trapped in Nazi-controlled land.83

  Although a loyal employee for thirteen years, beginning in the company controller’s office, Chauncey understood little about the innermost affairs of Dehomag and its spreading influence with other IBM subsidiaries. He couldn’t even spell newly elected board member Otto Kiep’s name correctly. But Watson was counting on him. So Chauncey said goodbye to his wife and accepted Watson’s assignment. Studious and reasoned in his approach, Chauncey’s briefcase contained his own private plan of action, labeled “Program.” The ten-page “Program” bookishly outlined his challenge in perfect classroom-style Roman numeral and A-B-C format, step-by-step: the questions he would ask in Berlin, the tactics he would employ with Heidinger along with their various financial implications, and how the U.S. Embassy would assist him. In the event IBM was forced to arbitrate Heidinger’s demands, for instance, he planned to claim the business was over-valued because “the amount of business which may be attributable to the war [also means] the present profit rate is not a normal permanent profit rate.”84

  To some, Chauncey might have looked like a schoolboy in a dark suit and tie. He offered a polished, clean-shaven face with wide eyes, and ears that stuck out from behind nipped sideburns beneath a closely cropped hair-cut. But he was a sharp, fiercely tenacious attorney who would pursue his adversaries. He set aside qualms about flying into a dangerous Nazi setting and was completely focused on his historic corporate mission: save IBM Europe. For his efforts, Watson called him “the bravest man in IBM.”85

  * * *

  CHAUNCEY’S PHYSICALLY tiring trip to Germany via Bermuda, Lisbon, and Geneva did not dampen his enthusiasm. His first stop was Munich where he spent several days in discussions with Heidinger. At first, Chauncey tried to reason with his sometimes emotional adversary. He told the embittered Dehomag founder that Watson wanted him to stay on, not force the repurchase of his shares. Mostly, he hoped Heidinger would help Watson comprehend the competitive forces that might be arraying against IBM. But Heidinger was not interested in compromise. Chauncey purchased a small vase for the Heidingers as a personal gift from Watson. Heidinger refused it. Most striking to Chauncey was Heidinger’s contradictory arguments, and his elaborate, and occasionally bizarre, air of secrecy.86

  The main Nazi objection, however, was made clear: IBM NY, now proven disloyal, would discover the secret planned uses of the Hollerith machines. Chauncey and his fellow Berlin-based attorneys did everything they could to constantly repeat the assurance that they would not ask questions or learn details. He told Heidinger he was willing “to go to any officials to show that IBM had not obtained any information of the confidential matters being done by Dehomag.”87 Again, IBM NY made a fine distinction between what its headquarters in New York would discover and the day-to-day knowledge its managers, engineers, and servicemen on site would be required to know to do their job.

  A confusion of unwarranted alarms, false starts, and sudden rumors surrounded Chauncey as he tried, in his proper legalistic way, to make sense of it all. But after a few days of treadmill progress in Munich, Rottke telephoned from Berlin with something that appeared concrete. Rottke, too, was mysterious, but insisted it was imperative that Chauncey come to Berlin at once.88

  When Chauncey arrived in Berlin, the sudden urgency of Rottke’s telephone call dissipated as quickly as it appeared. As was so often the case in wartime Berlin, whispers and hazy conjecture ruled the day. Chauncey had hoped for a meeting with an influential Nazi. But as yet, that was not happening. So Chauncey immediately sought out board director Otto Kiep and attorney Albert in Berlin, each of whom offered a different suggestion for IBM’s next move. Chauncey penciled voluminous notes and outlined various stratagems assessing the ifs and what-ifs of the predicament.89

  As Chauncey waited to meet with the mysterious Nazi source, he lost no time scheduling a conference with Manager Karl Hummel. Hummel was generally perceived as more helpful in his views toward IBM because of his warm, personal relationship with Watson. This would be Chauncey’s opportunity to learn firsthand the structure of Dehomag’s business in war-ravaged Europe.

  The conversation with Hummel was frank. Acting more like an attorney conducting a deposition, Chauncey first tried in his stiff way to understand the emotional Nazi mindset, why the medal’s return was so threatening, and whether Dehomag could weather the rage.

  CHAUNCEY: When did you first observe difficulties… and what form did it take?

  HUMMEL: Sales resistance—before [the] war—because of [the] American ownership. Prior to that some government departments would not do 244 business with us even if they needed the machines, because they claimed [the] confidential nature of [the] department’s activities prevented doing business with… [an] American-owned concern. War caused tremendous increase in those departments and they finally decided that they had to have the machines—but treated us very badly because of American ownership. About 35 percent of [our] business… is with government departments. [In the future,] even if [a] machine made in Germany is not as good at first as ours, the government will take the German machines and once that is done the private industries will follow. All of those industries are now under the government anyway, and only a suggestion is needed for them to change over.

  CHAUNCEY: So… the form of any animosity was merely growling about having
to do business with an… American-owned concern? Did any concerns actually refuse to do business with you because of American interest in Dehomag?

  HUMMEL: There were no German machines…. The point… [will be] quite different when prospects have a choice between German machines and American machines… prospects kept saying that they would prefer to wait for the German machine.

  CHAUNCEY: After the war commenced, did the difficulties increase?

  HUMMEL: Sure!… [But] in my mind, [a] high percentage of difficulties were taken away because our people kept [the] friendship of the people! [A]number of companies took the machines but did not like it! “We don’t want American machines,” they said, but [the] Government ordered them.

  CHAUNCEY: Notwithstanding that the animosity existed against Dehomag?

  HUMMEL: In view of labor conditions, they could not do otherwise. This is when the Government realized the necessity of relying upon an American concern.

  CHAUNCEY: What if anything did you report to IBM when this difficulty first arose and increased after the commencement of the war?

  HUMMEL: When Schotte was here the difficulties had not increased so much and we did not think… it was so very much worse than it had always been… we always had been accustomed to the sales resistance because we were American owned!90

  Chauncey turned to the issue of Hitler’s medal. Hummel tried to be delicate but reflected the ire of many Germans. The photos of Hitler and Watson, and IBM’s rejected letter offering a German Red Cross donation, were lying nearby.

  CHAUNCEY: When did… the difficulty reach such a point that you thought… something [had] to be done?