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Chapter 7 The Impacted Philosophers
AMONG THE GREATEST problems facing American industry today,one may learn by talking with any of a large number ofindustrialists who are not known to be especially given topontificating, is “the problem of communication.” Thispreoccupation with the difficulty of getting a thought out of onehead and into another is something the industrialists share witha substantial number of intellectuals and creative writers, moreand more of whom seem inclined to regard communication, orthe lack of it, as one of the greatest problems not just ofindustry but of humanity. (A group of avant-garde writers andartists have given the importance of communication abackhanded boost by flatly and unequivocally proclaimingthemselves to be against it.) As far as the industrialists areconcerned, I admit that in the course of hearing them invokethe word “communication”—often in an almost mysticalway—over a period of years I have had a lot of troublefiguring out exactly what they meant. The general thesis is clearenough; namely, that everything would be all right, first, if theycould get through to each other within their own organizations,and, second, if they, or their organizations, could get through toeverybody else. What has puzzled me is how and why, in thisday when the foundations sponsor one study of communicationafter another, individuals and organizations fail so consistently toexpress themselves understandably, or how and why theirlisteners fail to grasp what they hear.
A few years ago, I acquired a two-volume publication of theUnited States Government Printing Office entitled HearingsBefore the Subcommittee on Antitrust and Monopoly of theCommittee on the Judiciary, United States Senate,Eighty-seventh Congress, First Session, Pursuant to S. Res.
52, and after a fairly diligent perusal of its 1,459 pages Ithought I could begin to see what the industrialists are talkingabout. The hearings, conducted in April, May, and June, 1961,under the chairmanship of Senator Estes Kefauver, ofTennessee, had to do with the now famous price-fixing andbid-rigging conspiracies in the electrical-manufacturing industry,which had already resulted, the previous February, in theimposition by a federal judge in Philadelphia of fines totaling$1,924,500 on twenty-nine firms and forty-five of theiremployees, and also of thirty-day prison sentences on seven ofthe employees. Since there had been no public presentation ofevidence, all the defendants having pleaded either guilty or nodefense, and since the records of the grand juries that indictedthem were secret, the public had had little opportunity to hearabout the details of the violations, and Senator Kefauver feltthat the whole matter needed a good airing. The transcriptshows that it got one, and what the airing revealed—at leastwithin the biggest company involved—was a breakdown inintramural communication so drastic as to make the building ofthe Tower of Babel seem a triumph of organizational rapport.
In a series of indictments brought by the government in theUnited States District Court in Philadelphia between Februaryand October, 1960, the twenty-nine companies and theirexecutives were charged with having repeatedly violated Section1 of the Sherman Act of 1890, which declares illegal “everycontract, combination in the form of trust or otherwise, orconspiracy, in restraint of trade or commerce among theseveral States, or with foreign nations.” (The Sherman Act wasthe instrument used in the celebrated trust-busting activities ofTheodore Roosevelt, and along with the Clayton Act of 1914 ithas served as the government’s weapon against cartels andmonopolies ever since.) The violations, the government alleged,were committed in connection with the sale of large andexpensive pieces of apparatus of a variety that is requiredchiefly by public and private electric-utility companies (powertransformers, switchgear assemblies, and turbine-generator units,among many others), and were the outcome of a series ofmeetings attended by executives of the supposedly competingcompanies—beginning at least as early as 1956 and continuinginto 1959—at which noncompetitive price levels were agreedupon, nominally sealed bids on individual contracts were riggedin advance, and each company was allocated a certainpercentage of the available business. The government furtheralleged that, in an effort to preserve the secrecy of thesemeetings, the executives had resorted to such devices asreferring to their companies by code numbers in theircorrespondence, making telephone calls from public booths orfrom their homes rather than from their offices, and doctoringthe expense accounts covering their get-togethers to conceal thefact that they had all been in a certain city on a certain day.
But their stratagems did not prevail. The federals, forcefully ledby Robert A. Bicks, then head of the Antitrust Division of theDepartment of Justice, succeeded in exposing them, withconsiderable help from some of the conspirators themselves,who, after an employee of a small conspirator company saw fitto spill the story in the early fall of 1959, flocked to turn state’sevidence.
The economic and social significance of the whole affair maybe demonstrated clearly enough by citing just a few figures. Inan average year at the time of the conspiracies, a total of morethan one and three-quarters billion dollars was spent topurchase machines of the sort in question, nearly a fourth of itby federal, state, and local governments (which, of course,means the taxpayers), and most of the rest by private utilitycompanies (which are inclined to pass along any rise in thecost of their equipment to the public in the form of rateincreases). To take a specific example of the kind of moneyinvolved in an individual transaction, the list price of a500,000-kilowatt turbine-generator—a monstrous device forproducing electric power from steam power—was oftensomething like sixteen million dollars. Actually, manufacturerssometimes cut their prices by as much as 25 percent in orderto make a sale, and therefore, if everything was above board, itmight have been possible to buy the machine at a saving offour million dollars; if representatives of the companies makingsuch generators held a single meeting and agreed to fix prices,they could, in effect, increase the cost to the customer by thefour million. And in the end, the customer was almost sure tobe the public.
IN presenting the indictments in Philadelphia, Bicks stated that,considered collectively, they revealed “a pattern of violationswhich can fairly be said to range among the most serious, themost flagrant, the most pervasive that have ever marked anybasic American industry.” Just before imposing the sentences,Judge J. Cullen Ganey went even further; in his view, theviolations constituted “a shocking indictment of a vast section ofour economy, for what is really at stake here is the survival of… the free-enterprise system.” The prison sentences showedthat he meant it; although there had been many successfulprosecutions for violation of the Sherman Act during the sevendecades since its passage, it was rare indeed for executives tobe jailed. Not surprisingly, therefore, the case kicked up quite aruckus in the press. The New Republic, to be sure,complained that the newspapers and magazines wereintentionally playing down “the biggest business scandal indecades,” but the charge did not seem to have muchfoundation. Considering such things as the public’s apathytoward switchgear, the woeful bloodlessness of criminal casesinvolving antitrust laws, and the relatively few details of theconspiracies that had emerged, the press in general gave thestory a good deal of space, and even the Wall Street Journaland Fortune ran uncompromising and highly informativeaccounts of the debacle; here and there, in fact, one coulddetect signs of a revival of the spirit of old-time antibusinessjournalism as it existed back in the thirties. After all, what couldbe more exhilarating than to see several dignified, impeccablytailored, and highly paid executives of a few of the nation’smost respected corporations being trooped off to jail likecommon pickpockets? It was certainly the biggest moment forbusiness-baiters since 1938, when Richard Whitney, the formerpresident of the New York Stock Exchange, was put behindbars for speculating with his customers’ money. Some called itthe biggest since Teapot Dome.
To top it all off, there was a prevalent suspicion of hypocrisyin the very highest places. Neither the chairman of the boardnor the president of General Electric, the largest of thecorporate defendants, had been caught in the government’sdragnet, and the same was true of Westinghouse Electric, thesecond-largest; these four ultimate bosses let it be known thatthey had been entirely ignorant of what had been going onwithin their commands right up to the time the first testimonyon the subject was given to the Justice Department. Manypeople, however, were not satisfied by these disclaimers, and,instead, took the position that the defendant executives weremen in the middle, who had broken the law only in responseeither to actual orders or to a corporate climate favoringprice-fixing, and who were now being allowed to suffer for thesins of their superiors. Among the unsatisfied was Judge Ganeyhimself, who said at the time of the sentencing, “One would bemost na?ve indeed to believe that these violations of the law, solong persisted in, affecting so large a segment of the industry,and, finally, involving so many millions upon millions of dollars,were facts unknown to those responsible for the conduct of thecorporation.… I am convinced that in the great number ofthese defendants’ cases, they were torn between conscience andapproved corporate policy, with the rewarding objectives ofpromotion, comfortable security, and large salaries.”
The public naturally wanted a ringleader, an archconspirator,and it appeared to find what it wanted in General Electric,which—to the acute consternation of the men endeavoring toguide its destinies from company headquarters, at 570Lexington Avenue, New York City—got the lion’s share ofattention both in the press and in the Subcommittee hearings.
With some 300,000 employees, and sales averaging some fourbillion dollars a year over the past ten years, it was not onlyfar and away the biggest of the twenty-nine accused companiesbut, judged on the basis of sales in 1959, the fifth-biggestcompany in the country. It also drew a higher total of fines($437,500) than any other company, and saw more of itsexecutives sent to jail (three, with eight others receivingsuspended sentences). Furthermore, as if to intensify in thishour of crisis the horror and shock of true believers—and theglee of scoffers—its highest-ranking executives had for yearstried to represent it to the public as a paragon of successfulvirtue by issuing encomiums to the free competitive system, thevery system that the price-fixing meetings were set up to mock.
In 1959, shortly after the government’s investigation of theviolations had been brought to the attention of G.E.’spolicymakers, the company demoted and cut the pay of thoseof its executives who admitted that they had been involved; onevice-president, for example, was informed that instead of the$127,000 a year he had been getting he would now get$40,000. (He had scarcely adjusted himself to that blow whenJudge Ganey fined him four thousand dollars and sent him toprison for thirty days, and shortly after he regained hisfreedom, General Electric eased him out entirely.) The G.E.
policy of imposing penalties of its own on these employees,regardless of what punishment the court might prescribe, wasnot adopted by Westinghouse, which waited until the judge haddisposed of the case and then decided that the fines andprison sentences he had handed out to its stable of offenderswere chastisement enough, and did not itself penalize them atall. Some people saw this attitude as evidence thatWestinghouse was condoning the conspiracies, but othersregarded it as a commendable, if tacit, admission thatmanagement at the highest level in the conniving companieswas responsible—morally, at least—for the whole mess and wastherefore in no position to discipline its erring employees. In theview of these people, G.E.’s haste to penalize the acknowledgedculprits on its payroll strongly suggested that the firm wastrying to save its own skin by throwing a few lucklessemployees to the wolves, or—as Senator Philip A. Hart, ofMichigan, put it, more pungently, during the hearings—“to do aPontius Pilate operation.”
EMBATTLED days at 570 Lexington Avenue! After years ofcloaking the company in the mantle of a wise and benevolentcorporate institution, the public-relations people at G.E.
headquarters were faced with the ugly choice of representing itsrole in the price-fixing affair as that of either a fool or a knave.
They tended strongly toward “fool.” Judge Ganey, by hisstatement that he assumed the conspiracies to have been notonly condoned but approved by the top brass and thecompany as a whole, clearly chose “knave.” But his analysismay or may not have been the right one, and after readingthe Kefauver Subcommittee testimony I have come to themelancholy conclusion that the truth will very likely never beknown. For, as the testimony shows, the clear waters of moralresponsibility at G.E. became hopelessly muddied by a struggleto communicate—a struggle so confused that in some cases, itwould appear, if one of the big bosses at G.E. had ordered asubordinate to break the law, the message would somehowhave been garbled in its reception, and if the subordinate hadinformed the boss that he was holding conspiratorial meetingswith competitors, the boss might well have been under theimpression that the subordinate was gossiping idly about lawnparties or pinochle sessions. Specifically, it would appear that asubordinate who received a direct oral order from his boss hadto figure out whether it meant what it seemed to or the exactopposite, while the boss, in conversing with a subordinate, hadto figure out whether he should take what the man told himat face value or should attempt to translate it out of a secretcode to which he was by no means sure he had the key.
That was the problem in a nutshell, and I state it here thusbaldly as a suggestion for any potential beneficiary of afoundation who may be casting about for a suitable project onwhich to draw up a prospectus.
For the past eight years or so, G.E. had had a company rulecalled Directive Policy 20.5, which read, in part, “No employeeshall enter into any understanding, agreement, plan or scheme,expressed or implied, formal or informal, with any competitor,in regard to prices, terms or conditions of sale, production,distribution, territories, or customers; nor exchange or discusswith a competitor prices, terms or conditions of sale, or anyother competitive information.” In effect, this rule was simply aninjunction to G.E.’s personnel to obey the federal antitrust laws,except that it was somewhat more concrete and comprehensivein the matter of price than they are. It was almost impossiblefor executives with jurisdiction over pricing policies at G.E. to beunaware of 20.5, or even hazy about it, because to make surethat new executives were acquainted with it and to refresh thememories of old ones, the company formally reissued anddistributed it at intervals, and all such executives were asked tosign their names to it as an earnest that they were currentlycomplying with it and intended to keep on doing so. Thetrouble—at least during the period covered by the court action,and apparently for a long time before that as well—was thatsome people at G.E., including some of those who regularlysigned 20.5, simply did not believe that it was to be takenseriously. They assumed that 20.5 was mere window dressing:
that it was on the books solely to provide legal protection forthe company and for the higher-ups; that meeting illegally withcompetitors was recognized and accepted as standard practicewithin the company; and that often when a ranking executiveordered a subordinate executive to comply with 20.5, he wasactually ordering him to violate it. Illogical as it might seem, thislast assumption becomes comprehensible in the light of the factthat, for a time, when some executives orally conveyed, orreconveyed, the order, they were apparently in the habit ofaccompanying it with an unmistakable wink. In May of 1948,for example, there was a meeting of G.E. sales managersduring which the custom of winking was openly discussed.
Robert Paxton, an upper-level G.E. executive who later becamethe company’s president, addressed the meeting and deliveredthe usual admonition about antitrust violations, whereuponWilliam S. Ginn, then a sales executive in the transformerdivision, under Paxton’s authority, startled him by saying, “Ididn’t see you wink.” Paxton replied firmly, “There was nowink. We mean it, and these are the orders.” Asked bySenator Kefauver how long he had been aware that ordersissued at G.E. were sometimes accompanied by winks, Paxtonreplied that he had first observed the practice way back in1935, when his boss had given him an instruction along with awink or its equivalent, and that when, some time later, thesignificance of the gesture dawned on him, he had become soincensed that he had with difficulty restrained himself fromjeopardizing his career by punching the boss in the nose.
Paxton went on to say that his objections to the practice ofwinking had been so strong as to earn him a reputation in thecompany for being an antiwink man, and that he, for his part,had never winked.
Although Paxton would seem to have left little doubt as tohow he intended his winkless order of 1948 to be interpreted,its meaning failed to get through to Ginn, for not long after itwas issued, he went out and fixed prices to a fare-thee-well.
(Obviously, it takes more than one company to make aprice-fixing agreement, but all the testimony tends to indicatethat it was G.E. that generally set the pattern for the rest ofthe industry in such matters.) Thirteen years later, Ginn—freshfrom a few weeks in jail, and fresh out of a $135,000-a-yearjob—appeared before the Subcommittee to account for, amongother things, his strange response to the winkless order. Hehad disregarded it, he said, because he had received a contraryorder from two of his other superiors in the G.E. chain ofcommand, Henry V. B. Erben and Francis Fairman, and inexplaining why he had heeded their order rather than Paxton’she introduced the fascinating concept of degrees ofcommunication—another theme for a foundation grantee to gethis teeth into. Erben and Fairman, Ginn said, had been morearticulate, persuasive, and forceful in issuing their order thanPaxton had been in issuing his; Fairman, especially, Ginnstressed, had proved to be “a great communicator, a greatphilosopher, and, frankly, a great believer in stability of prices.”
Both Erben and Fairman had dismissed Paxton as na?ve, Ginntestified, and, in further summary of how he had been ledastray, he said that “the people who were advocating the Devilwere able to sell me better than the philosophers that wereselling the Lord.”
It would be helpful to have at hand a report from Erben andFairman themselves on the communication technique thatenabled them to prevail over Paxton, but unfortunately neitherof these philosophers could testify before the Subcommittee,because by the time of the hearings both of them were dead.
Paxton, who was available, was described in Ginn’s testimony ashaving been at all times one of the philosopher-salesmen onthe side of the Lord. “I can clarify Mr. Paxton by saying Mr.
Paxton came closer to being an Adam Smith advocate thanany businessman I have met in America,” Ginn declared. Still,in 1950, when Ginn admitted to Paxton in casual conversationthat he had “compromised himself” in respect to antitrustmatters, Paxton merely told him that he was a damned fool,and did not report the confession to anyone else in thecompany. Testifying as to why he did not, Paxton said thatwhen the conversation occurred he was no longer Ginn’s boss,and that, in the light of his personal ethics, repeating such anadmission by a man not under his authority would be “gossip”
and “talebearing.”
Meanwhile, Ginn, no longer answerable to Paxton, was meetingwith competitors at frequent intervals and moving steadily upthe corporate ladder. In November, 1954, he was made generalmanager of the transformer division, whose headquarters werein Pittsfield, Massachusetts—a job that put him in line for avice-presidency. At the time of Ginn’s shift, Ralph J. Cordiner,who has been chairman of the board of General Electric since1949, called him down to New York for the express purpose ofenjoining him to comply strictly and undeviatingly with DirectivePolicy 20.5. Cordiner communicated this idea so successfullythat it was clear enough to Ginn at the moment, but itremained so only as long as it took him, after leaving thechairman, to walk to Erben’s office. There his comprehension ofwhat he had just heard became clouded. Erben, who was headof G.E.’s distribution group, ranked directly below Cordiner anddirectly above Ginn, and, according to Ginn’s testimony, nosooner were they alone in his office than he countermandedCordiner’s injunction, saying, “Now, keep on doing the way thatyou have been doing, but just be sensible about it and useyour head on the subject.” Erben’s extraordinary communicativeprowess again carried the day, and Ginn continued to meetwith competitors. “I knew Mr. Cordiner could fire me,” he toldSenator Kefauver, “but also I knew I was working for Mr.
Erben.”
At the end of 1954, Paxton took over Erben’s job andthereby became Ginn’s boss again. Ginn went right on meetingwith competitors, but, since he was aware that Paxtondisapproved of the practice, didn’t tell him about it. Moreover,he testified, within a month or two he had become convincedthat he could not afford to discontinue attending the meetingsunder any circumstances, for in January, 1955, the entireelectrical-equipment industry became embroiled in a drastic pricewar—known as the “white sale,” because of its timing and thebargains it afforded to buyers—in which the erstwhile amiablecompetitors began fiercely undercutting one another. Such amanifestation of free enterprise was, of course, exactly what theintercompany conspiracies were intended to prevent, but just atthat time the supply of electrical apparatus so greatly exceededthe demand that first a few of the conspirators and then moreand more began breaking the agreements they themselves hadmade. In dealing with the situation as best he could, Ginn said,he “used the philosophies that had been taught mepreviously”—by which he meant that he continued to conductprice-fixing meetings, in the hope that at least some of theagreements made at them would be honored. As for Paxton, inGinn’s opinion that philosopher was not only ignorant of themeetings but so constant in his devotion to the concept of freeand aggressive competition that he actually enjoyed the pricewar, disastrous though it was to everybody’s profits. (In hisown testimony, Paxton vigorously denied that he had enjoyedit.)Within a year or so, the electrical-equipment industry took anupturn, and in January, 1957, Ginn, having ridden out thestorm relatively well, got his vice-presidency. At the same time,he was transferred to Schenectady, to become general managerof G.E.’s turbine-generator division, and Cordiner again calledhim into headquarters and gave him a lecture on 20.5. Suchlectures were getting to be a routine with Cordiner; every timea new employee was assigned to a strategic managerial post, oran old employee was promoted to such a post, the lucky fellowcould be reasonably certain that he would be summoned to thechairman’s office to hear a rendition of the austere creed. Inhis book The Heart of Japan, Alexander Campbell reportsthat a large Japanese electrical concern has drawn up a list ofseven company commandments (for example, “Be courteousand sincere!”), and that each morning, in each of its thirtyfactories, the workers are required to stand at attention andrecite these in unison, and then to sing the company song(“For ever-increasing production/Love your work, give yourall!”). Cordiner did not require his subordinates to recite or sing20.5—as far as is known, he never even had it set tomusic—but from the number of times men like Ginn had itread to them or otherwise recalled to their attention, they musthave come to know it well enough to chant it, improvising atune as they went along.
This time, Cordiner’s message not only made an impressionon Ginn’s mind but stuck there in unadulterated form. Ginn,according to his testimony, became a reformed executive anddropped his price-fixing habits overnight. However, it appearsthat his sudden conversion cannot be attributed wholly toCordiner’s powers of communication, or even to thedrip-drip-drip effect of repetition, for it was to a considerableextent pragmatic in character, like the conversion of Henry VIIIto Protestantism. He reformed, Ginn explained to theSubcommittee, because his “air cover was gone.”
“Your what was gone?” Senator Kefauver asked.
“My air cover was gone,” replied Ginn. “I mean I had lostmy air cover. Mr. Erben wasn’t around any more, and all ofmy colleagues had gone, and I was now working directly forMr. Paxton, knowing his feelings on the matter.… Anyphilosophy that I had grown up with before in the past wasnow out the window.”
If Erben, who had not been Ginn’s boss since late in 1954,had been the source of his air cover, Ginn must have beenwithout its protection for over two years, but, presumably, inthe excitement of the price war he had failed to notice itsabsence. However that may have been, here he now was, aman suddenly shorn not only of his air cover but of hisphilosophy. Swiftly filling the latter void with a whole new set ofprinciples, he circulated copies of 20.5 among his departmentmanagers in the turbine-generator division and topped this offby energetically adopting what he called a “leprosy policy”; thatis, he advised his subordinates to avoid even casual socialcontacts with their counterparts in competing companies,because “once the relationships are established, I have come tothe conclusion after many years of hard experience that therelationships tend to spread and the hanky-panky begins to getgoing.” But now fate played a cruel trick on Ginn, and, allunknowing, he landed in the very position that Paxton andCordiner had been in for years—that of a philosopher vainlyendeavoring to sell the Lord to a flock that declined to buy hismessage and was, in fact, systematically engaging in thehanky-panky its leader had warned it against. Specifically,during the whole of 1957 and 1958 and the first part of 1959two of Ginn’s subordinates were piously signing 20.5 with onehand and, with the other, briskly drawing up price-fixingagreements at a whole series of meetings—in New York;Philadelphia; Chicago; Hot Springs, Virginia; and Skytop,Pennsylvania, to name a few of their gathering places.
It appears that Ginn had not been able to impart much ofhis shining new philosophy to others, and that at the root ofhis difficulty lay that old jinx, the problem of communicating.
Asked at the hearings how his subordinates could possibly havegone so far astray, he replied, “I have got to admit that Imade a communication error. I didn’t sell this thing to the boyswell enough.… The price is so important in the completerunning of a business that, philosophically, we have got to sellpeople not only just the fact that it is against the law, but …that it shouldn’t be done for many, many reasons. But it hasgot to be a philosophical approach and a communicationapproach.… Even though … I had told my associates not to dothis, some of the boys did get off the reservation.… I have toadmit to myself here an area of a failure in communications …which I am perfectly willing to accept my part of theresponsibility for.”
In earnestly striving to analyze the cause of the failure, Ginnsaid, he had reached the conclusion that merely issuingdirectives, no matter how frequently, was not enough; whatwas needed was “a complete philosophy, a completeunderstanding, a complete breakdown of barriers betweenpeople, if we are going to get some understanding and reallylive and manage these companies within the philosophies thatthey should be managed in.”
Senator Hart permitted himself to comment, “You cancommunicate until you are dead and gone, but if the point youare communicating about, even though it be a law of the land,strikes your audience as something that is just a folklore …you will never sell the package.”
Ginn ruefully conceded that that was true.
THE concept of degrees of communication was furtherdeveloped, by implication, in the testimony of another defendant,Frank E. Stehlik, who had been general manager of the G.E.
low-voltage-switchgear department from May, 1956, to February,1960. (As all but a tiny minority of the users of electricity arecontentedly unaware, switchgear serves to control and protectapparatus used in the generation, conversion, transmission, anddistribution of electrical energy, and more than $100 millionworth of it is sold annually in the United States.) Stehlikreceived some of his business guidance in the conventionalform of orders, oral and written, and some—perhaps just asmuch, to judge by his testimony—through a less intellectual,more visceral medium of communication that he called“impacts.” Apparently, when something happened within thecompany that made an impression on him, he would consult asort of internal metaphysical voltmeter to ascertain the force ofthe jolt that he had received, and, from the reading he got,would attempt to gauge the true drift of company policy. Forexample, he testified that during 1956, 1957, and most of 1958he believed that G.E. was frankly and fully in favor ofcomplying with 20.5. But then, in the autumn of 1958, GeorgeE. Burens, Stehlik’s immediate superior, told him that he,Burens, had been directed by Paxton, who by then waspresident of G.E., to have lunch with Max Scott, president ofthe I-T-E Circuit Breaker Company, an important competitor inthe switchgear market. Paxton said in his own testimony thatwhile he had indeed asked Burens to have lunch with Scott, hehad instructed him categorically not to talk about prices, butapparently Burens did not mention this caveat to Stehlik; inany event, the disclosure that the high command had toldBurens to lunch with an archrival, Stehlik testified, “had aheavy impact on me.” Asked to amplify this, he said, “Thereare a great many impacts that influence me in my thinking asto the true attitude of the company, and that was one ofthem.” As the impacts, great and small, piled up, theircumulative effect finally communicated to Stehlik that he hadbeen wrong in supposing the company had any real respectfor 20.5. Accordingly, when, late in 1958, Stehlik was orderedby Burens to begin holding price meetings with the competitors,he was not in the least surprised.
Stehlik’s compliance with Burens’ order ultimately brought ona whole new series of impacts, of a much more crudelycommunicative sort. In February, 1960, General Electric cut hisannual pay from $70,000 to $26,000 for violating 20.5; a yearlater Judge Ganey gave him a three-thousand-dollar fine and asuspended thirty-day jail sentence for violating the ShermanAct; and about a month after that G.E. asked for, and got, hisresignation. Indeed, during his last years with the firm Stehlikseems to have received almost as many lacerating impacts as aRaymond Chandler hero. But testimony given at the hearingsby L. B. Gezon, manager of the marketing section of thelow-voltage-switchgear department, indicated that Stehlik, againlike a Chandler hero, was capable of dishing out blunt impactsas well as taking them. Gezon, who was directly under Stehlikin the line of command, told the Subcommittee that althoughhe had taken part in price-fixing meetings prior to April, 1956,when Stehlik became his boss, he did not subsequently engagein any antitrust violations until late 1958, and that he did sothen only as the result of an impact that bore none of thesubtlety noted by Stehlik in his early experience with thisphenomenon. The impact came directly from Stehlik, who, itseems, left nothing to chance in communicating with hissubordinates. In Gezon’s words, Stehlik told him “to resume themeetings; that the company policy was unchanged; the risk wasjust as great as it ever had been; and that if our activitieswere discovered, I personally would be dismissed or disciplined[by the company], as well as punished by the government.” SoGezon was left with three choices: to quit, to disobey the directorder of his superior (in which case, he thought, “they mighthave found somebody else to do my job”), or to obey theorder, and thereby violate the antitrust laws, with no immunityagainst the possible consequences. In short, his alternatives werecomparable to those faced by an international spy.
Although Gezon did resume the meetings, he was not indicted,possibly because he had been a relatively minor price-fixer.
General Electric, for its part, demoted him but did not requirehim to resign. Yet it would be a mistake to assume that Gezonwas relatively untouched by his experience. Asked by SenatorKefauver if he did not think that Stehlik’s order had placedhim in an intolerable position, he replied that it had not struckhim that way at the time. Asked whether he thought it unjustthat he had suffered demotion for carrying out the order of asuperior, he replied, “I personally don’t consider it so.” Tojudge by his answers, the impact on Gezon’s heart and mindwould seem to have been heavy indeed.
THE other side of the communication problem—the difficulty thata superior is likely to encounter in understanding what asubordinate tells him—is graphically illustrated by the testimonyof Raymond W. Smith, who was general manager of G.E.’stransformer division from the beginning of 1957 until late in1959, and of Arthur F. Vinson, who in October, 1957, wasappointed vice-president in charge of G.E.’s apparatus group,and also a member of the company’s executive committee.
Smith’s job was the one Ginn had held for the previous twoyears, and when Vinson got his job, he became Smith’simmediate boss. Smith’s highest pay during the period inquestion was roughly $100,000 a year, while Vinson reached abasic salary of $110,000 and also got a variable bonus, rangingfrom $45,000 to $100,000. Smith testified that on January 1,1957, the very day he took charge of the transformerdivision—and a holiday, at that—he met with Chairman Cordinerand Executive Vice-President Paxton, and Cordiner gave himthe familiar admonition about living up to 20.5. However, laterthat year, the competitive going got so rough that transformerswere selling at discounts of as much as 35 percent, and Smithdecided on his own hook that the time had come to beginnegotiating with rival firms in the hope of stabilizing the market.
He felt that he was justified in doing this, he said, because hewas convinced that both in company circles and in the wholeindustry negotiations of this kind were “the order of the day.”
By the time Vinson became his superior, in October, Smithwas regularly attending price-fixing meetings, and he felt that heought to let his new boss know what he was doing.
Accordingly, he told the Subcommittee, on two or threeoccasions when the two men found themselves alone togetherin the normal course of business, he said to Vinson, “I had ameeting with the clan this morning.” Counsel for theSubcommittee asked Smith whether he had ever put the mattermore bluntly—whether, for example, he had ever said anythinglike “We’re meeting with competitors to fix prices. We’re goingto have a little conspiracy here and I don’t want it to get out.”
Smith replied that he had never said anything remotely likethat—had done nothing more than make remarks on the orderof “I had a meeting with the clan this morning.” He did notelaborate on why he did not speak with greater directness, buttwo logical possibilities present themselves. Perhaps he hopedthat he could keep Vinson informed about the situation and atthe same time protect him from the risk of becoming anaccomplice. Or perhaps he had no such intention, and wassimply expressing himself in the oblique, colloquial way thatcharacterized much of his speaking. (Paxton, a close friend ofSmith’s, had once complained to Smith that he was “given tobeing somewhat cryptic” in his remarks.) Anyhow, Vinson,according to his own testimony, had flatly misunderstood whatSmith meant; indeed, he could not recall ever hearing Smithuse the expression “meeting of the clan,” although he did recallhis saying things like “Well, I am going to take this new planon transformers and show it to the boys.” Vinson testified thathe had thought the “boys” meant the G.E. district sales peopleand the company’s customers, and that the “new plan” was anew marketing plan; he said that it had come as a rude shockto him to learn—a couple of years later, after the case hadbroken—that in speaking of the “boys” and the “new plan,”
Smith had been referring to competitors and a price-fixingscheme. “I think Mr. Smith is a sincere man,” Vinson testified.
“I am sure Mr. Smith … thought he was telling me that hewas going to one of these meetings. This meant nothing tome.”
Smith, on the other hand, was confident that his meaning hadgot through to Vinson. “I never got the impression that hemisunderstood me,” he insisted to the Subcommittee.
Questioning Vinson later, Kefauver asked whether an executivein his position, with thirty-odd years’ experience in the electricalindustry, could possibly be so naive as to misunderstand asubordinate on such a substantive matter as grasping who the“boys” were. “I don’t think it is too naive,” replied Vinson. “Wehave a lot of boys.… I may be na?ve, but I am certainly tellingthe truth, and in this kind of thing I am sure I am na?ve.”
SENATOR KEFAUVER: Mr. Vinson, you wouldn’t be a vice-president at$200,000 a year if you were na?ve.
MR. VINSON: I think I could well get there by being na?ve in this area.
It might help.
Here, in a different field altogether, the communicationproblem again comes to the fore. Was Vinson really saying toKefauver what he seemed to be saying—that na?veté aboutantitrust violations might be a help to a man in getting andholding a $200,000-a-year job at General Electric? It seemsunlikely. And yet what else could he have meant? Whatever theanswer, neither the federal antitrust men nor the Senateinvestigators were able to prove that Smith succeeded in hisattempts to communicate to Vinson the fact that he wasengaging in price-fixing. And, lacking such proof, they wereunable to establish what they gave every appearance of goingall out to establish if they could: namely, that at least some oneman at the pinnacle of G.E.’s management—some member ofthe sacred executive committee itself—was implicated. Actually,when the story of the conspiracies first became known, Vinsonnot only concurred in a company decision to punish Smith bydrastically demoting him but personally informed him of thedecision—two acts that, if he had grasped Smith’s meaning backin 1957, would have denoted a remarkable degree of cynicismand hypocrisy. (Smith, by the way, rather than accept thedemotion, quit General Electric and, after being fined threethousand dollars and given a suspended thirty-day prisonsentence by Judge Ganey, found a job elsewhere, at tenthousand dollars a year.)This was not Vinson’s only brush with the case. He was alsoamong those named in one of the grand jury indictments thatprecipitated the court action, this time in connection not withhis comprehension of Smith’s jargon but with the conspiracy inthe switchgear department. On this aspect of the case, fourswitchgear executives—Burens, Stehlik, Clarence E. Burke, andH. Frank Hentschel—testified before the grand jury (and laterbefore the Subcommittee) that at some time in July, August, orSeptember of 1958 (none of them could establish the precisedate) Vinson had had lunch with them in Dining Room B ofG.E.’s switchgear works in Philadelphia, and that during themeal he had instructed them to hold price meetings withcompetitors. As a result of this order, they said, a meetingattended by representatives of G.E., Westinghouse, theAllis-Chalmers Manufacturing Company, the Federal PacificElectric Company, and the I-T-E Circuit Breaker Company washeld at the Hotel Traymore in Atlantic City on November 9,1958, at which sales of switchgear to federal, state, andmunicipal agencies were divvied up, with General Electric to get39 percent of the business, Westinghouse 35 percent, I-T-E 11percent, Allis-Chalmers 8 percent, and Federal Pacific Electric 7percent. At subsequent meetings, agreement was reached onallocating sales of switchgear to private buyers as well, and anelaborate formula was worked out whereby the privilege ofsubmitting the lowest bid to prospective customers was rotatedamong the conspiring companies at two-week intervals. Becauseof its periodic nature, this was called the phase-of-the-moonformula—a designation that in due time led to the followinglyrical exchange between the Subcommittee and L. W. Long, anexecutive of Allis-Chalmers:
SENATOR KEFAUVER: Who were thephasers-of-the-mooners—phase-of-the-mooners?
MR. LONG: AS it developed, this so-called phase-of-the-moon operationwas carried out at a level below me, I think referred to as a workinggroup.…MR. FERRALL [counsel for the Subcommittee]: Did they ever report toyou about it?
MR. LONG: Phase of the moon? No.
Vinson told the Justice Department prosecutors, and repeatedto the Subcommittee, that he had not known about theTraymore meeting, the phase-of-the-mooners, or the existenceof the conspiracy itself until the case broke; as for the lunch inDining Room B, he insisted that it had never taken place. Onthis point, Burens, Stehlik, Burke, and Hentschel submitted tolie-detector tests, administered by the F.B.I., and passed them.
Vinson refused to take a lie-detector test, at first explaining thathe was acting on advice of counsel and against his personalinclination, and later, after hearing how the four other men hadfared, arguing that if the machine had not pronounced themliars, it couldn’t be any good. It was established that on onlyeight business days during July, August, and September hadBurens, Burke, Stehlik, and Hentschel all been together in thePhiladelphia plant at the lunch hour, and Vinson producedsome of his expense accounts, which, he pointed out to theJustice Department, showed that he had been elsewhere oneach of those days. Confronted with this evidence, the JusticeDepartment dropped its case against Vinson, and he stayed onas a vice-president of General Electric. Nothing that theSubcommittee elicited from him cast any substantive doubt onthe defense that had impressed the government prosecutors.
Thus, the uppermost echelon at G.E. came through unscathed;the record showed that participation in the conspiracy wentfairly far down in the organization but not all the way to thetop. Gezon, everybody agreed, had followed orders from Stehlik,and Stehlik had followed orders from Burens, but that was theend of the trail, because although Burens said he had followedorders from Vinson, Vinson denied it and made the denialstick. The government, at the end of its investigation, stated incourt that it could not prove, and did not claim, that eitherChairman Cordiner or President Paxton had authorized, or evenknown about, the conspiracies, and thereby officially ruled outthe possibility that they had resorted to at least a figurativewink. Later, Paxton and Cordiner showed up in Washington totestify before the Subcommittee, and its interrogators weresimilarly unable to establish that they had ever indulged in anyvariety of winking.
AFTER being described by Ginn as General Electric’s stubbornestand most dedicated advocate of free competition, Paxtonexplained to the Subcommittee that his thinking on the subjecthad been influenced not directly by Adam Smith but, rather, byway of a former G.E. boss he had worked under—the lateGerard Swope. Swope, Paxton testified, had always believedfirmly that the ultimate goal of business was to produce moregoods for more people at lower cost. “I bought that then, Ibuy it now,” said Paxton. “I think it is the most marvelousstatement of economic philosophy that any industrialist has everexpressed.” In the course of his testimony, Paxton had anexplanation, philosophical or otherwise, of each of the severalsituations related to price-fixing in which his name had earlierbeen mentioned. For instance, it had been brought out that in1956 or 1957 a young man named Jerry Page, a minoremployee in G.E.’s switchgear division, had written directly toCordiner alleging that the switchgear divisions of G.E. and ofseveral competitor companies were involved in a conspiracy inwhich information about prices was exchanged by means of asecret code based on different colors of letter paper. Cordinerhad turned the matter over to Paxton with orders that he getto the bottom of it, and Paxton had thereupon conducted aninvestigation that led him to conclude that the color-codeconspiracy was “wholly a hallucination on the part of this boy.”
In arriving at that conclusion, Paxton had apparently been right,although it later came out that there had been a conspiracy inthe switchgear division during 1956 and 1957; this, however,was a rather conventional one, based simply on price-fixingmeetings, rather than on anything so gaudy as a color code.
Page could not be called to testify because of ill health.
Paxton conceded that there had been some occasions whenhe “must have been pretty damn dumb.” (Dumb or not, forhis services as the company’s president he was, of course,remunerated on a considerably grander scale thanVinson—receiving a basic annual salary of $125,000, plus annualincentive compensation of about $175,000, plus stock optionsdesigned to enable him to collect much more at low tax rates.)As for Paxton’s attitude toward company communications, heemerges as a pessimist on this score. Upon being asked at thehearings to comment on the Smith-Vinson conversations of1957, he said that, knowing Smith, he just could not “cast theman in the role of a liar,” and went on:
When I was younger, I used to play a good deal of bridge. We playedabout fifty rubbers of bridge, four of us, every winter, and I think weprobably played some rather good bridge. If you gentlemen are bridgeplayers, you know that there is a code of signals that is exchangedbetween partners as the game progresses. It is a stylized form of playing.…Now, as I think about this—and I was particularly impressed when I readSmith’s testimony when he talked about a “meeting of the clan” or“meeting of the boys”—I begin to think that there must have been astylized method of communication between these people who were dealingwith competition. Now, Smith could say, “I told Vinson what I was doing,”
and Vinson wouldn’t have the foggiest idea what was being told to him,and both men could testify under oath, one saying yes and the other mansaying no, and both be telling the truth.… [They] wouldn’t be on the samewavelength. [They] wouldn’t have the same meanings. I think, I believenow that these men did think that they were telling the truth, but theyweren’t communicating between each other with understanding.
Here, certainly, is the gloomiest possible analysis of thecommunications problem.
CHAIRMAN Cordiner’s status, it appears from his testimony, wasapproximately that of the Boston Cabots in the celebrated jingle.
His services to the company, for which he was recompensed intruly handsome style (with, for 1960, a salary of just over$280,000, plus contingent deferred income of about $120,000,plus stock options potentially worth hundreds of thousandsmore), were indubitably many and valuable, but they wereperformed on such an exalted level that, at least in antitrustmatters, he does not seem to have been able to have anyearthly communication at all. When he emphatically told theSubcommittee that at no time had he had so much as aninkling of the network of conspiracies, it could be deduced thathis was a case not of faulty communication but of nocommunication. He did not speak to the Subcommittee ofphilosophy or philosophers, as Ginn and Paxton had done, butfrom his past record of ordering reissues of 20.5 and ofpeppering his speeches and public statements with praise offree enterprise, it seems clear that he was un philosophe sansle savoir—and one on the side of selling the Lord, since noevidence was adduced to suggest that he was given to winkingin any form. Kefauver ran through a long list of antitrustviolations of which General Electric had been accused over thepast half-century, asking Cordiner, who joined the company in1922, how much he knew about each of them; usually, hereplied that he had known about them only after the fact. Incommenting on Ginn’s testimony that Erben hadcountermanded Cordiner’s direct order in 1954, Cordiner saidthat he had read it with “great alarm” and “greatwonderment,” since Erben had always indicated to him “anintense competitive spirit,” rather than any disposition to befriendly with rival companies.
Throughout his testimony, Cordiner used the curiousexpression “be responsive to.” If, for instance, Kefauverinadvertently asked the same question twice, Cordiner wouldsay, “I was responsive to that a moment ago,” or if Kefauverinterrupted him, as he often did, Cordiner would ask politely,“May I be responsive?” This, too, offers a small lead for afoundation grantee, who might want to look into the distinctionbetween being responsive (a passive state) and answering (anact), and their relative effectiveness in the process ofcommunication.
Summing up his position on the case as a whole, in reply toa question of Kefauver’s about whether he thought that G.E.
had incurred “corporate disgrace,” Cordiner said, “No, I am notgoing to be responsive and say that General Electric hadcorporate disgrace. I am going to say that we are deeplygrieved and concerned.… I am not proud of it.”
CHAIRMAN Cordiner, then, had been able to fairly deafen hissubordinate officers with lectures on compliance with the rulesof the company and the laws of the country, but he had notbeen able to get all those officers to comply with either, andPresident Paxton could muse thoughtfully on how it was thattwo of his subordinates who had given radically differentaccounts of a conversation between them could be not liars butmerely poor communicators. Philosophy seems to have reacheda high point at G.E., and communication a low one. Ifexecutives could just learn to understand one another, most ofthe witnesses said or implied, the problem of antitrust violationswould be solved. But perhaps the problem is cultural as well astechnical, and has something to do with a loss of personalidentity that comes from working in a huge organization. Thecartoonist Jules Feiffer, contemplating the communicationproblem in a nonindustrial context, has said, “Actually, thebreakdown is between the person and himself. If you’re notable to communicate successfully between yourself and yourself,how are you supposed to make it with the strangers outside?”
Suppose, purely as a hypothesis, that the owner of a companywho orders his subordinates to obey the antitrust laws hassuch poor communication with himself that he does not reallyknow whether he wants the order to be complied with or not.
If his order is disobeyed, the resulting price-fixing may benefithis company’s coffers; if it is obeyed, then he has done theright thing. In the first instance, he is not personally implicatedin any wrongdoing, while in the second he is positively involvedin right doing. What, after all, can he lose? It is perhapsreasonable to suppose that such an executive mightcommunicate his uncertainty more forcefully than his order.
Possibly yet another foundation grantee should have a look atthe reverse of communication failure, where he might discoverthat messages the sender does not even realize he is sendingsometimes turn out to have got across only too effectively.
Meanwhile, in the first years after the Subcommittee concludedits investigation, the defendant companies were by no meansallowed to forget their transgressions. The law permitscustomers who can prove that they have paid artificially highprices as a result of antitrust violations to sue for damages—inmost cases, triple damages—and suits running into manymillions of dollars piled up so high that Chief Justice Warrenhad to set up a special panel of federal judges to plan howthey should all be handled. Needless to say, Cordiner was notallowed to forget about the matter, either; indeed, it would besurprising if he was allowed a chance to think about muchelse, for, in addition to the suits, he had to contend with activeefforts—unsuccessful, as it turned out—by a minority group ofstockholders to unseat him. Paxton retired as president in April,1961, because of ill health dating back at least to the previousJanuary, when he underwent a major operation. As for theexecutives who pleaded guilty and were fined or imprisoned,most of those who had been employed by companies otherthan G.E. remained with them, either in their old jobs or insimilar ones. Of those who had been employed by G.E., noneremained there. Some retired permanently from business, otherssettled for comparatively small jobs, and a few landed bigones—most spectacularly Ginn, who in June, 1961, becamepresident of Baldwin-Lima-Hamilton, manufacturers of heavymachinery. And as for the future of price-fixing in the electricalindustry, it seems safe to say that what with the JusticeDepartment, Judge Ganey, Senator Kefauver, and thetriple-damage suits, the impact on the philosophers who guidecorporate policy was such that they, and even theirsubordinates, were likely to try to hew scrupulously to the linefor quite some time. Quite a different question, however, iswhether they had made any headway in their ability tocommunicate.
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