The Chairman

by Kai Bird

  During the summer of 1954, McCloy and C. D. Jackson had several long talks in New York over what they agreed was a chaotic state of affairs. Jackson had promised to assist Ike for only one year in the White House, and by April 1954 he was back in New York. Almost immediately, Eisenhower became “acutely conscious of the gap” left by Jackson’s departure.98 Given Eisenhower’s hands-off managing style, he had depended on Jackson to stimulate debate, churn ideas around, and “bat things up to him. . . .”99

  White House morale was low, and Jackson’s was not the only departure that year. Before the end of the summer, the president’s special assistant for national security affairs, Robert Cutler, would also submit his resignation, citing, among other factors, “the conduct of certain Republican Senators.. . . ‘A Tarty’ which relies upon these untrustworthy men makes me sick at heart.”100 Though the senator from Wisconsin no longer seemed invincible, McCarthyism had taken its toll. Even Foster Dulles, who usually exuded an air of unquestioning devotion to Eisenhower, now agreed with Jackson that Ike’s “exaggerated desire to have everybody happy, everybody like him, prevents him from making clean cut decisions and forces him to play ball with the last person he has listened to.” Jackson concluded in his diary that Ike might be a “wonderful man, every right instinct, the man to fulfill Arthur Vandenberg’s ‘bipartisan leadership America-out-of-crisis’ dream. [But] May well go down to ignominy and defeat.”101 Jackson was always sounding the alarm bell, but in the summer of 1954 there could be no mistaking the mood in the White House. The presidency was adrift.

  In this context, McCloy was asked by Ike’s chief of staff, Sherman Adams, to find a replacement for Jackson. But by early August, after going through a “well-thumbed list,” he was unenthusiastic about any of the possible candidates. And the more he talked to Jackson, the more convinced he was that Jackson should return to Washington. The sticking point was that Henry Luce was unwilling to relinquish his right-hand man. Then, over the last weekend in July, McCloy huddled with Sherman Adams and the president in Washington and came up with the idea that Jackson should return to Washington as a two-day-a-week special adviser. He conveyed this idea to Luce, who then discussed it with Jackson. The Time-Life executive noted in his diary that day, “Luce advised that despite his best efforts, Washington was closing in on me again through McCloy. . . .”102

  By this point, Jackson felt that, if he was going to have his arm twisted to go back to Washington, he would take the opportunity to lay out his complaints about Eisenhower’s passive leadership style. He called up McCloy and shocked him with the vehemence of his criticisms. He told McCloy that Eisenhower had repeatedly accepted “bad political advice” and naively thought he could run U.S. foreign policy by occasionally giving a speech. Jackson thought the whole White House operation looked “like a bunch of frightened amateurs, adhoc-ing themselves out of business.”103

  McCloy agreed with Jackson that the White House should be taking more initiatives in foreign affairs and that the Cold War should be fought vigorously with every nonmilitary weapon at hand. Specifically, he and Jackson wanted to see the administration implement more of the covertaction programs recommended by Task Force C of Project Solarium. This meant more money had to be spent on national security. As Jackson defined it in 1951, the “three big ingredients of psychological warfare are 1) money, 2) no holds barred and 3) no questions asked.”104 McCloy was himself a foreign-policy activist and saw nothing wrong with encouraging Jackson to pressure the president into taking a higher profile.

  On August 11,1954, Jackson went to the White House for a meeting with the president and Sherman Adams. Buttressed by his talks with Luce and McCloy, he was determined to tell Ike some “unpleasant truths.” To make sure he didn’t get flustered, Jackson brought notes. When Ike walked in from a press conference for the meeting, Jackson slapped his notes on the table, took a deep breath, and said, “I have had several talks with Jack McCloy about the idea of coming down here. I have also talked with the Governor [Adams], the Dulles brothers . . . Bobby Cutler, Beedle [Bedell Smith], [Ambassador] Clare Luce when she got back from Italy, on various aspects of the general situation—and the word for it is ‘crisis.’ ” Jackson listed the president’s inadequacies: “. . . foreign policy by Presidential speech, with no follow-through afterwards”; a belief that “it is possible to separate foreign policy climate and impact from domestic political actions”; and a perception “that you, Mr. President, don’t like your job.” At this, Jackson noticed “a little red rising on Prexy’s neck, but he didn’t blow.” When Jackson was finished, Eisenhower gently defended his leadership, saying that “we ought first of all be content with little steps. . . . Many people have the vision to see what should be done; the difficulty is what is possible at home. . . .”105 Money was limited, Eisenhower insisted, and one therefore couldn’t conduct an activist foreign policy on all fronts simultaneously. Nevertheless, the president indicated he’d like to have Jackson back on board, if only for a couple of days a week.

  Jackson agreed to the arrangement worked out by McCloy, and for almost another year worked part-time out of the White House. But neither he nor McCloy ever succeeded in persuading Eisenhower to become more of an activist president. It just wasn’t Ike’s style. Eisenhower was content with his “little steps,” one of which had just occurred in Guatemala, where the CIA had orchestrated a covert operation—consisting largely of sheer military bluff—to topple a left-of-center elected government. Jackson applauded the Guatemalan operation; he just wished the administration would commit greater resources to similar ventures in places more important to U.S. interests than Central America. McCloy could hardly disagree; the Guatemalan intervention was an operation one of his own study groups at the Council on Foreign Relations had recommended in 1953.106

  McCloy’s role as a private adviser to the president on national-security and intelligence issues was not widely known in the mid-1950s. A few columnists—James Reston, Arthur Krock, and Drew Pearson—occasionally referred to his influence on the White House. And as Joseph McCarthy’s power receded in late 1954 and 1955, conservative columnists like George Sokolosky sometimes made a point of identifying McCloy as a behind-thescenes power-broker for the liberal wing of the Republican Party. But to the public at large, McCloy was seen only as the former high commissioner and current chairman of Chase National Bank. His public profile as one of the country’s most powerful bankers rose dramatically when, in early 1955, he succeeded in pushing through the merger of Chase with the Bank of Manhattan. Thereafter, if his name appeared in the newspapers at all it was invariably in connection with his actions as chairman of the second-largest bank in the country.

  Business for the newly merged Chase Manhattan Bank was booming. In the three years 1954–57 the bank’s loans to commercial and industrial ventures nearly quadrupled from $1.0 billion to $3.9 billion.107 By the spring of 1955, the stock market was experiencing a tremendous rise in prices. Some economists expressed worries that the frenzy of speculation on the market was reminiscent of the autumn of 1929. That spring, John Kenneth Galbraith gave such pessimistic testimony before a congressional committee that his comments precipitated a temporary break in the market. As it happened, McCloy followed Galbraith’s testimony a few days later and jokingly told the committee that there was some conjecture on Wall Street as to whether “there was a new economic policy from Harvard. . . .”108

  Though he shared some of the same concerns as Galbraith—for instance, that there were dangers of a “certain hysteria” on the market—McCloy said he believed the economy was fundamentally sound. He pointed out that since 1929 Congress had passed a number of laws protecting investors from such panics. At this point, Senator William Fulbright (Democrat from Arkansas) interrupted to ask, “Are you endorsing that New Deal legislation?” McCloy laughingly answered that he “wouldn’t go as far as that,” but he could praise the creation of the Securities and Exchange Commission. “Isn’t that enough for a staunch Republican?” Sen
ator Paul Douglas (Democrat from Illinois) agreed, and suggested that for such remarks McCloy might “lose his union card in the Republican Party.”109

  As the stock market spiraled upward throughout 1955, McCloy happened to be working on what would become the largest stock offering ever to hit Wall Street. In May 1955, the president of the Ford Foundation, Rowan Gaither, announced that the trustees were considering a sale of Ford Motor Company stock controlled by the Foundation. McCloy, a new trustee, thought this move long overdue. The Foundation had 3,089,908 shares of Class A nonvoting stock in the Ford Motor Company, worth at least $1 billion, and represented 88 percent of all outstanding shares in the automobile company. Of the remaining 12 percent controlled by the Ford family, 5 percent was Class B voting stock. This arrangement had been devised in 1936 by Henry Ford’s lawyers as a means of avoiding the New Deal’s 70-percent inheritance tax on any estates worth more than $50 million. As a result, when Henry Ford, Sr., and his son Edsel Bryant Ford died, respectively, in 1947 and 1943, the family saved itself $321 million in taxes and retained its control over both the Ford Motor Company and the Foundation. Unlike John D. Rockefeller, Jr., Henry Ford, Sr., possessed no grand philanthropic philosophy. He viewed the massively endowed Foundation merely as a vehicle to preserve the Ford fortune. Shortly before he died, a reporter asked if the Ford Motor Company would ever have a public stock offering. Rising from his sickbed, the old man swore, “I’ll take my factory down brick by brick before I’ll let any of those Jew speculators get stock in the company.”110

  His grandson, however, had different ideas. Henry Ford II realized that, to compete with General Motors, his company could not remain a privately held corporation. The huge sums necessary to modernize assembly lines could only be raised by launching a public offering of Ford stock. For the young Ford, it was only a question of how to go public without losing control of the company. Ford was chairman of the board of trustees of the Foundation, and although he had taken little interest in the Foundation’s activities, he had attended enough trustee meetings in 1955 to know that sentiment was rising among his fellow trustees to sell at least a portion of the Foundation’s portfolio.

  In McCloy’s view, the Ford Foundation could not be run on a professional basis without control over its investment portfolio. With virtually all of its assets in one stock, the Foundation was extremely vulnerable; should the Ford family decide one year to defer all stock dividends, the Foundation’s entire annual budget would disappear. In addition, the trustees might be held accountable in some legal sense for allowing their entire portfolio of stocks to rest on the fortunes of one automobile company. For McCloy, the arrangement symbolized what he perceived as an atmosphere of immaturity within the Foundation, particularly when compared with the “well established” Rockefeller Foundation. The people at the Ford Foundation, he thought, were more “loquacious” and naïve. “I didn’t think the Ford Foundation had the seasoning, knowledge, and judgment of the people at the Rockefeller Foundation. . . . [By contrast] Every time John D. Rockefeller, Jr. addressed the philosophy of philanthropy, I thought he made good sense.”111

  By the spring of 1955, the Ford Foundation trustees had precipitated the issue by deciding that at least a portion of the Foundation’s Ford stock should be sold. McCloy was elected to a special four-member finance committee charged with developing a plan for the sale of the stock. Throughout that summer and autumn, he and fellow trustees Charles E. Wilson (a former chairman of General Electric), James F. Brownlee, and H. Rowan Gaither conducted lengthy negotiations with Henry Ford II and his lawyers. As legal counsel for the Foundation, McCloy hired his former HICOG colleague, Eli Whitney Debevoise.112

  With stock-market prices rising across the board, this was obviously an opportune moment to offer the public a large block of Ford shares. The problem was how to sell the Foundation’s Class A stock without the Ford family’s losing control over the company. If the remaining shares controlled by the Foundation were sold as voting shares—as they would have to be on the New York Stock Exchange—Henry Ford was not satisfied that the family’s 12 percent would be enough to retain control. The family hired Wall Street lawyer Sidney J. Weinberg to negotiate with the Foundation trustees. Initially, Weinberg proposed and the Fords accepted a deal whereby their 12 percent of stock received 25 percent of all voting rights. Henry Ford thought this sufficient. But after the trustees had agreed to this formula, Henry’s brother Bill Ford came to him and said, “I don’t think 25 percent will keep us in the position of calling the shots.” Henry Ford told his brother, “Look, I’ve already told Sidney what the percentages are. If you want to change, you take him on.” Weinberg was skeptical and told Bill Ford that if he insisted on a higher ratio “the thing will never fly.”113

  But Bill Ford refused to relent, and so Weinberg finally went back to the Foundation trustees with the following offer: the Foundation’s Class A shares would be sold to the public as voting stock, representing 60 percent of the company’s value; simultaneously, the Ford family would be allowed to convert their 12-percent holdings into shares representing 40 percent of all outstanding voting shares. This way, in the unlikely event of a hostile takeover attempt, the Fords would only have to buy another 11 percent to assure absolute control. The whole idea rested on the quite arbitrary decision that stock owned by members of the Ford family was worth more than three times the value of stock held by the Foundation. Logically, this plan subverted the original intent of the 1936 arrangement, whereby 88 percent of Henry Ford’s wealth had been deeded to the Ford Foundation in order to keep it out of the hands of the Internal Revenue Service. Now the Ford family would suddenly be given back a large chunk of their tax-exempt inheritance. Though tax lawyers might have debated the legality of the scheme, Wall Street was not about to pass up the largest single stock offering in the history of the exchange.114

  The New York Stock Exchange quickly approved the plan, and on November 11, 1955, The Wall Street Journal reported in a front-page story, “The Ford Foundation yesterday lifted the lid on one of business’ most tantalizing secrets—how big, privately-owned Ford Motor Co. will become a publicly-owned corporation.” In somewhat of an understatement, the newspaper suggested that preparations for the public offering of Ford stock was “probably one of the most complicated financial undertakings in many a year.”115 McCloy and other Foundation trustees, of course, wished to receive as much as they could for the sale of the Ford stock. To dump too much of the stock on the market all at once might have depressed the price, so McCloy decided to sell only 15 percent of the Foundation’s holdings in the first offering. In addition, to assure the Ford family control, he arranged for an extraordinarily large number (722) of underwriters across the country to broker the stock sale. This ensured that Ford stock would be widely distributed among many thousands of investors, making it difficult for any one bloc of stockholders to challenge Henry Ford II’s management of the company.116

  In large measure, the success or failure of the stock offering depended on public relations. In the eighty days between the announcement and the actual distribution of the stock, a whirl of publicity swept the country. Newspapers and stockbrokers reported an unusual interest in the stock from first-time small investors who were simply attracted by the mystique of the Ford name. Only a handful of critics voiced any objections to the fact that the Ford family’s 12 percent of equity was nevertheless going to give it 40 percent of all voting shares in the company. Senator Joseph C. O’Mahoney of Wyoming suggested that all financial instruments like nonvoting stock be made illegal. But in the rush to get in on a good deal, such old-line populist sentiments seemed anachronistic to most Americans. Here was a private company with assets of more than $2.4 billion; its current annual sales of $4.042 billion made it the fourth-largest corporation in the country, after General Motors, Standard Oil, and AT&T. “I have news for Sen. O’Mahoney,” wrote the columnist Max Lerner. “Most Americans don’t worry about the giant corporations. What they want is to be
cut in—on even a small slice of them.”117

  By the start of the new year, the price of Ford stock had risen, thousands of investors had been lined up, and publicity couldn’t have been better. Everything seemed set for a most successful launching of the stock when suddenly, just three weeks before the event, Henry Ford II threatened to cancel the entire deal. Despite everything that had been done to advance his interests, the auto manufacturer now wanted a pledge of full indemnification for any misstatements or omissions contained in the official registration statement filed by Ford Motor Company with the SEC. Such a registration statement was legally required before the sale of stock on the open market could proceed. But in the opinion of McCloy’s lawyer, Eli Debevoise, the Foundation should not be held liable for actions performed by officers of the Ford Motor Company. It was, after all, the responsibility of Henry Ford to file a correct registration statement. With McCloy’s concurrence, Debevoise had rejected Ford’s request in August. Now his lawyers were raising the matter once again.

  McCloy and Debevoise brought the dispute to the full board of trustees on January 4, 1956. Judge Charles E. Wyzanski, an old friend of McCloy’s who had married Eric Warburg’s sister, took the lead in arguing against any concession to Ford. In an emotional appeal to the board, Wyzanski argued that the “most conspicuous charity” in the country should not be held hostage to the private interests of one family. If Henry Ford or his brother Benson ran the risk of a stockholders’ suit, “either one of them can afford to bear it. . . especially because the reorganization gives them . . . a considerable sum of money.”118