Business Adventures

by John Brooks

  At this point in Lilienthal’s narrative, the doorbell rang. Mrs. Lilienthal went to answer it, and I could hear her talking to someone—a gardener, evidently—about the pruning of some roses. After listening restlessly for a minute or two, Lilienthal called to his wife, “Helen, please tell Domenic to prune those roses farther back than he did last year!” Mrs. Lilienthal went outside with Domenic, and Lilienthal remarked, “Domenic always prunes too gently, to my way of thinking. It’s a case of our backgrounds—Italy versus the Middle West.” Then, resuming where he had left off, he said that his association with Lazard Frères, and more particularly with Meyer, had led him into an association, first as a consultant and later as an executive, with a small company called the Minerals Separation North American Corporation, in which Lazard Frères had a large interest. It was in this undertaking that, unexpectedly, he made his fortune. The company was in trouble, and Meyer’s notion was that Lilienthal might be the man to do something about it. Subsequently, in the course of a series of mergers, acquisitions, and other maneuvers, the company’s name was changed to, successively, the Attapulgus Minerals & Chemicals Corporation, the Minerals & Chemicals Corporation of America, and, in 1960, the Minerals & Chemicals Philipp Corporation; meanwhile, its annual receipts rose from about seven hundred and fifty thousand dollars, for 1952, to something over two hundred and seventy-four million, for 1960. For Lilienthal, the acceptance of Meyer’s commission to look into the company’s affairs was the beginning of a four-year immersion in the day-to-day problems of managing a business; the experience, he said decisively, turned out to be one of his life’s richest, and by no means only in the literal sense of that word.

  I HAVE reconstructed the corporate facts behind Lilienthal’s experience partly from what he told me in Princeton, partly from a subsequent study of some of the company’s published documents, and partly from talks with other persons interested in the firm. Minerals Separation North American, which was founded in 1916 as an offshoot of a British firm, was a patent company, deriving its chief income from royalties on patents for processes used in refining copper ore and the ores of other nonferrous minerals. Its activities were twofold—attempting to develop new patents in its research laboratory, and offering technical services to the mining and manufacturing companies that leased its old ones. By 1950, although it was still netting a nice annual profit, it was in a bad way. Under the direction of its long-time president, Dr. Seth Gregory—who was then over ninety but still ruled the company with an iron hand, commuting daily between his midtown apartment hotel and his office, at 11 Broadway, in a regally purple Rolls-Royce—it had cut down its research activities to almost nothing and was living on half a dozen old patents, all of which were scheduled to go into the public domain in from five to eight years. In effect, it was a still healthy company living under a death sentence. Lazard Frères, as a large stockholder, was understandably concerned. Dr. Gregory was persuaded to retire on a handsome pension, and in February, 1952, after working with Minerals Separation for some time as a consultant, Lilienthal was installed as the company’s president and a member of its board of directors. His first task was to find a new source of income to replace the fast-expiring patents, and he and the other directors agreed that the way to accomplish this was through a merger; it fell to Lilienthal to participate in arranging one between Minerals Separation and another company in which Lazard Frères—along with the Wall Street firm of F. Eberstadt & Co.—had large holdings: the Attapulgus Clay Company, of Attapulgus, Georgia, which produced a very rare kind of clay that is useful in purifying petroleum products, and which manufactured various household products, among them a floor cleaner called Speedi-Dri.

  As a marriage broker between Minerals Separation and Attapulgus, Lilienthal had the touchy job of persuading the executives of the Southern company that they were not being used as pawns by a bunch of rapacious Wall Street bankers. Being an agent of the bankers was an unaccustomed role for Lilienthal, but he evidently carried it off with aplomb, despite the fact that his presence complicated the emotional problems still further by introducing into the situation a whiff of galloping Socialism. “Dave was very effective in building up the Attapulgus people’s morale and confidence,” another Wall Streeter has told me. “He reconciled them to the merger, and showed them its advantages for them.” Lilienthal himself told me, “I felt at home in the administrative and technical parts of the job, but the financial part had to be done by the people from Lazard and Eberstadt. Every time they began talking about spinoffs and exchanges of shares, I was lost. I didn’t even know what a spinoff was.” (As Lilienthal knows now, it is, not to get too technical about it, a division of a company into two or more companies—the opposite of a merger.) The merger took place in December, 1952, and neither the Attapulgus people nor the Minerals Separation people had any reason to regret it, because both the profits and the stock price of the newly formed company—the Attapulgus Minerals & Chemicals Corporation—soon began to rise. At the time of the merger, Lilienthal was made chairman of the board of directors, at an annual salary of eighteen thousand dollars. Over the next three years, while serving first in this position and later as chairman of the executive committee, he had a large part not only in the conduct of the company’s routine affairs but also in its further growth through a series of new mergers—one in 1954, with Edgar Brothers, a leading producer of kaolin for paper coating, and two in 1955, with a pair of limestone concerns in Ohio and Virginia. The mergers and the increased efficiency that went with them were not long in paying off; between 1952 and 1955 the company’s net profit per share more than quintupled.

  The mechanics of Lilienthal’s own rise from the comparative rags of a public servant to the riches of a successful entrepreneur are baldly outlined in the company’s proxy statements for its annual and special stockholders’ meetings. (There are few public documents more indiscreet than proxy statements, in which the precise private stockholdings of directors must be listed.) In November, 1952, Minerals Separation North American granted Lilienthal, as a supplement to his annual salary, a stock option.* His option entitled him to buy as many as fifty thousand shares of the firm’s stock from its treasury at $4.87½ per share, then the going rate, any time before the end of 1955, and in exchange he signed a contract agreeing to serve the company as an active executive throughout 1953, 1954, and 1955. The potential financial advantage to him, of course, as to all other recipients of stock options, lay in the fact that if the price of the stock rose substantially, he could buy shares at the option price and thus have a holding that would immediately be worth much more than he paid for it. Furthermore, and more important, if he should later decide to sell his shares, the proceeds would be a capital gain, taxable at a maximum rate of 25%. Of course, if the stock failed to go up, the option would be worthless. But, like so many stocks of the mid-fifties, Lilienthal’s did go up, fantastically. By the end of 1954, according to the proxy statements, Lilienthal had exercised his option to the extent of buying twelve thousand seven hundred and fifty shares, which were then worth not $4.87½ each but about $20. In February, 1955, he sold off four thousand shares at $22.75 each, bringing in ninety-one thousand dollars. This sum, less capital-gains tax, was then applied against further purchases under the option, and in August, 1955, the proxy statements show, Lilienthal raised his holdings to almost forty thousand shares, or close to the number he held at the time of my visit to him. By that time, the stock, which had at first been sold over the counter, not only had achieved a listing on the New York Stock Exchange but had become one of the Exchange’s highflying speculative favorites; its price had skyrocketed to about forty dollars a share, and Lilienthal, obviously, was solidly in the millionaire class. Moreover, the company was now on a sound long-term basis, paying an annual cash dividend of fifty cents a share, and the Lilienthal family’s financial worries were permanently over.

  Fiscally speaking, Lilienthal told me, his symbolic moment of triumph was the day, in June of 1955, when the share
s of Minerals & Chemicals graduated to a listing on the New York Stock Exchange. In accordance with custom, Lilienthal, as a top officer, was invited onto the floor to shake hands with the president of the Exchange and be shown around generally. “I went through it in a daze,” Lilienthal told me. “Until then, I’d never been inside any stock exchange in my life. It was all mysterious and fascinating. No zoo could have seemed more strange to me.” How the Stock Exchange felt at this stage about having the former wearer of horns on its floor is not recorded.

  IN telling me about his experience with the company, Lilienthal had spoken with zest and had made the whole thing sound mysterious and fascinating. I asked him what, apart from the obvious financial inducement, had led him to devote himself to the affairs of a small firm, and how it had felt for the former boss of T.V.A. and A.E.C. to be, in effect, peddling Attapulgite, kaolin, limestone, and Speedi-Dri. Lilienthal leaned back in his chair and stared at the ceiling. “I wanted an entrepreneurial experience,” he said. “I found a great appeal in the idea of taking a small and quite crippled company and trying to make something of it. Building. That kind of building, I thought, is the central thing in American free enterprise, and something I’d missed in all my government work. I wanted to try my hand at it. Now, about how it felt. Well, it felt plenty exciting. It was full of intellectual stimulation, and a lot of my old ideas changed. I conceived a great new respect for financiers—men like André Meyer. There’s a correctness about them, a certain high sense of honor, that I’d never had any conception of. I found that business life is full of creative, original minds—along with the usual number of second-guessers, of course. Furthermore, I found it seductive. In fact, I was in danger of becoming a slave. Business has its man-eating side, and part of the man-eating side is that it’s so absorbing. I found that the things you read—for instance, that acquiring money for its own sake can become an addiction if you’re not careful—are literally true. Certain good friends helped keep me on the track—men like Ferdinand Eberstadt, who became my fellow-director after the Attapulgus merger, and Nathan Greene, special counsel to Lazard Frères, who was on the board for a while. Greene was a kind of business father confessor to me. I remember his saying, ‘You think you’ll make your pile and then be independent. My friend, in Wall Street you don’t just win your independence at one stroke. To paraphrase Thomas Jefferson, you have to win your independence over again every day.’ I found that he was right about that. Oh, I had my problems. I questioned myself at every step. It was exhausting. You see, for so long I’d been associated with two pretty far-reaching things—institutions. I had a feeling of identity with them; in that kind of work you are able to lose your sense of self. Now, with myself to worry about—my personal standards as well as my financial future—I found myself wondering all the time whether I was making the right move. But that part’s all in my journal, and you can read it there, if you like.” *

  I said I certainly would like to read it, and Lilienthal led me to his study, in the basement. It proved to be a good-sized room whose windows opened on window wells into which strands of ivy were trailing; light came in from outside, and even a little slanting sunshine, but the tops of the window wells were too high to permit a view of the garden or the neighborhood. Lilienthal remarked, “My neighbor Robert Oppenheimer complained about the enclosed feeling when he first saw this room. I told him that was just the feeling I wanted!” Then he showed me a filing cabinet, standing in a corner; it contained the journal, in rows and rows of loose-leaf notebooks, the earliest of them dating back to its author’s high-school days. Having invited me to make myself at home, Lilienthal left me alone in his study and went back upstairs.

  Taking him at his word, I went for a turn or two around the room, looking at the pictures on the walls and finding about what might have been expected: inscribed photographs from Franklin D. Roosevelt, Harry S. Truman, Senator George Norris, Louis Brandeis; pictures of Lilienthal with Roosevelt, with Willkie, with Fiorello LaGuardia, with Nelson Rockefeller, with Nehru in India; a night view of the Fontana Dam, in the Tennessee Valley, being built under a blaze of electricity supplied by T.V.A. power plants. A man’s study reflects himself as he wishes to be seen publicly, but his journal, if he is honest, reflects something else. I had not browsed long in Lilienthal’s journal before I realized that it was an extraordinary document—not merely a historical source of unusual interest but a searching record of a public man’s thoughts and emotions. I leafed through the years of his association with Minerals & Chemicals, and, scattered amid much about family, Democratic politics, friends, trips abroad, reflections on national policies, and hopes and fears for the republic, I came upon the following entries having to do with business and life in New York:

  May 24, 1951: Looks as if I am in the minerals business. In a small way, that could become a big way. [He goes on to explain that he has just had his first interview with Dr. Gregory, and is apparently acceptable to the old man as the new president of the company.]

  May 31, 1951: [Starting in business] is like learning to walk after a long illness.… At first you have to think: move the right foot, move the left foot, etc. Then you are walking without thinking, and then walking is something one does with unconsciousness and utter confidence. This latter state, as to business, has yet to come, but I had the first touch of it today.

  July 22, 1951: I recall Wendell Willkie saying to me years ago, “Living in New York is a great experience. I wouldn’t live anywhere else. It is the most exciting, stimulating, satisfying spot in the world,” etc. I think this was apropos of some remark I had made on a business visit to New York—that I was certainly glad I didn’t have to live in that madhouse of noise and dirt. [Last] Thursday was a day in which I shared some of Willkie’s feeling.… There was a grandeur about the place, and adventure, a sense of being in the center of a great achievement, New York City in the fifties.

  October 28, 1951: What I am reaching for, perhaps, is to have my cake and eat it, too, but in a way this is not wholly senseless nor futile. That is, I can have enough actual contact with the affairs of business to keep a sense of reality, or develop one. How otherwise can I explain the pleasure I get in visiting a copper mine or talking to operators of an electric furnace, or a coal-research project, or watching how André Meyer works.… But along with that I want to be free enough to think about what these things mean, free enough to read outside the immediate field of interest. This requires keeping out of status (the absence of which I know makes me vaguely unhappy).

  December 8, 1952: What is it that investment bankers do for their money? Well, I have certainly had my eyes opened, as to the amount of toil, sweat, frustrations, problems—yes, and tears—that has to be gone through.… If everyone who has something to sell in the market had to be as meticulous and detailed in his statements about what he is selling as those who offer stock in the market are now, under the Truth in Securities law, darn little would be sold, in time to be useful, at least.

  December 20, 1952: My purpose in this Attapulgus venture is to make a good deal of money in a short time, in a way (i.e., old man capital gains) that enables me to keep three-fourths of it, instead of paying 80% or more in income taxes.… But there is another purpose: to have had the experience of business.… The real reason, or the chief reason, is a feeling that my life wouldn’t be complete, living in a business period—that is, a time dominated by the business of business—unless I had been active in that area. What I wanted was to be an observer of this fascinating activity that so colors and affects the world’s life, not … an observer from without (as a writer, teacher) but from the arena itself. I still have this feeling, and when I get low and glad to chuck the whole thing (as I have from time to time), the sustaining part is that even the bumps and sore spots are experiences, actual experiences within the business world.…

  Then, too, [I wanted to be able to make] a comparison of the managers of business, the spirit, the tensions, the motivations, etc., with those of government (so
mething I keep doing anyway)—and that needs doing to understand either government or business. This requires actual valid experience in the business world somewhat comparable to my long hiring out in government matters.

  I don’t kid myself that I will ever be accepted as a businessman, not after those long years when I wore horns, for all of them outside the Tennessee Valley at least. And I feel less defensive—usually shown by a belligerence—on this score than I did when I rarely saw a tycoon or a Wall Streeter, whereas now I live with them.…

  January 18, 1953: I am now definitely committed [to Minerals & Chemicals] for not less than three more years … and morally committed to see the thing through. While I can’t conceive that this business will ever seem enough, an end of itself, to make up a satisfactory life, yet the busy-ness, the activity, the crises, the gambles, the management problems I must face, the judgment about people, all combine to make something far from dull. Add to this the good chance of making a good deal of money.… My decision to try business—that seemed to so many people a bit of romantic moonshine—makes more sense today than it did a year ago.