DuPont Dynasty
Behind the Nylon Curtain
Gerard Colby
Eighteen
A DYNASTY IN WAITING
1.
AN ARISTOCRAT MEETS THE BANKERS
Wilmington, despite its smallness and relaxed atmosphere, is not a town where pinstripe
suits are noticed. There are too many business visitors to DuPont’s headquarters for
that to happen. But if there was ever a time when it would have behooved Delawareans
to know of the arrival of a certain group of men, it was on June 11, 1980. On that day,
Irving Shapiro hosted some powerful visitors. They were all bankers from New York,
from one bank, in fact—Chase Manhattan. They had travelled without notice or fanfare
to the small city beside the Delaware to hold an extraordinary conference that would
affect the lives of millions of Americans, and perhaps the future of the nation.
Irving Shapiro, now grayed by his 65 years and about to retire as chairman of DuPont, had convened this meeting. He was a director of Citicorp, a bank with Rockefeller
oil origins similar to Chase’s, and a board member of the Bank of Delaware, a local
bank with sizeable DuPont Company deposits.
But he was not the man of the hour. That man, rather, was walking into the room with an entourage of his own lieutenants. His name was Pierre S. DuPont IV.
Pete DuPont was then in the middle of his campaign for re-election as the governor of Delaware. He was not worried about his chances. He had easily met his campaign budget of $232,000, almost $140,000 having been raised the previous year at a single event, a $500-a-head cocktail party and dinner featuring the deceased Nelson Rockefeller’s ex-aide and former Secretary of State, Henry Kissinger. Pete’s opponent was no serious match. Bill Gordy was a fourth-generation dirt farmer who had risen in Delaware politics through the creaking patronage system of downstate Democrats. He did not expect to raise more than $75,000 for his campaign, and could not even afford a poll to gauge voter concerns.
DuPont, of course, had already hired professional pollsters and would conduct several more polls. He had learned to expect some criticism, for example, on his delay in erecting new prisons. He had opposed a policy of warehousing people rather than striking at the economic roots of crime when he first ran in 1976. But since winning the governor’s mansion by the largest margin in Delaware’s gubernatorial history, he had reversed his position as his fiscal austerity was accompanied by a rising crime rate. Only his delay in constructing new prisons had inspired jibes, especially when overcrowding caused such abysmal conditions that inmates risked their lives to engage in protests. But no one, it seems, questioned the wisdom of his reversal when it did come, or why so many Blacks were held in pretrial without being able to meet bail, or how much the construction of new jails would really cost. Nor did many challenge the contradiction between his concern about warehousing and his bringing back the gallows soon after taking office. “There is an appropriate place for the death penalty in Delaware’s criminal justice system,” 1 he had said, listing 19 circumstances that could end in hanging.
There were the usual misgivings of liberals to endure, well-meaning folk who nagged with studies proving that capital punishment failed to deter murder or crimes. Most killings were acts of passion, done in the heat of the moment without premeditation. Those that were premeditated were seldom done by people who were discouraged by the existence of capital punishment. Repression also did not remove the economic and social origins of crime. If anything, the death penalty aggravated an atmosphere of violence and disrespect for human life, and made law breakers even more desperate if someone had been hurt or taken hostage. It burdened judges and strained the whole judicial system with appeals. The ethic was likewise self-contradictory. “Is it not absurd to be killing people who kill people in order to teach people that killing is wrong?” 2 said Henry Schwarzschild of the American Civil Liberties Union. That logic and judicial studies convinced the English population and Parliament to reject any following of America’s lead in restoring the death penalty.
And there was another more serious social matter. Of the over 700 people on death row in American prisons by 1981, 46 percent were from minority groups, mostly Blacks. Only nine were women. In cases where the victim was white, Blacks stood ten times the chance of being sent to death as convicted whites facing the same penalty. Schwarzschild dared to say what many white Americans did not want to hear: “We very arbitrarily and discriminatorily pick out some individual people, not even those who commit the most heinous crimes. But we virtually never execute white middle class people, especially women.”
Schwarzschild was a Nazi refugee who had seen personally how discriminatory executions, if allowed, began to steadily spread from minorities, to communists, to socialists, to labor leaders, to liberals, then to anyone who opposed the status quo and its ruling group. “It comes very directly,” he warned. “In Berlin we were ‘Jewishly’ and politically conscious and active … we escaped in just barely enough time.” In Germany, one of Europe’s most civilized countries, with a democracy also under economic and political stress, it was said it could never happen there, too. But it had. It had been allowed, and the promoters were often the most respected members of society, businessmen and professionals, all men who thought themselves honorable and civilized pillars of law and order. It was precisely because of the broad political implications of the death penalty falling most on impoverished minorities that the Supreme Court was so often moved to stay executions during the 1970’s, holding that the Constitutions 8th Amendment with its ban on cruel and unusual punishment had been violated by discretionary sentencing based on race and socio-economic class.
Pete DuPont was not moved, as New York’s Governor Hugh Carey had been in refusing to sign similar bills passed by the Albany legislature. But the governor was forced to deal with one aspect of discrimination as a legacy of Delaware’s earlier days of segregation. In November, 1978, after years of delay by white school officials, a federal court suit begun in 1971 by Black students reached the Supreme Court, which affirmed that a desegregation plan was needed for Wilmington area schools and asked Delaware’s Federal Judge Murray Schwartz for details. Pete attempted to keep control of the process, but his efforts to have the legislators in Dover draw up a plan was so bogged down that Schwartz ordered the busing of Wilmington students to the betterequipped schools in the suburbs for nine years; he also ordered suburban students to be bused to Wilmington schools for three years to force an upgrading of Wilmington facilities by the white-controlled state and local governments and to foster more racial mixing and hopefully, in time, tolerance.
Pete remained ambiguous about busing as a final resort to end de facto segregation, a position that, considering the anger by which busing was greeted in the white community, would lose him few votes. By 1980, meanwhile, as the governor lauded his administrations educational “achievements” during his re-election campaign, public state colleges and universities would still be unconstitutionally segregated, inspiring another Federal Court order the following January. By then, however, Ronald Reagan was expected to change the criteria for the acceptable level of desegregation, delaying matters still more in the courts.
DuPont, it was clear to the Chase bankers, had Delaware well under control and was a “safe environment” for their activities. They therefore proposed to the governor on that mild day in June that he consider “liberalizing” the state’s banking laws. New York’s legislature, they explained, was unwilling to remove ceilings on the amount of interest banks could charge for loans and pay for deposits and time accounts. They also needed a revised banking code “flexible” enough to allow them to export these interest charges to depositors or charge account customers in other states. If the governor could enact such legislation, Chase and other banks would set up offices in Delaware and move credit operations and sizeable chunks of capital into the state.
Pete had been fully aware of what they wanted. Since imposing his austerity measures and budget cuts, he had been able to keep up the state’s debt payments to New York banks and had won back enough of Wall Street’s confidence that they forgave his alarmist speech about “bankruptcy” and restored the state’s credit rating that they had lowered after that blooper. Since then, Pete’s financial team, led by cousin Nathan Hayward III, had paid friendly visits to the Big Apple and had heard Wall Street’s impatience with Albany legislators in September, 1979. “We found it interesting,” said Hayward, Pete’s former director of Delaware’s Office of Management, Budget and Planning, “and we tucked it away.” 3
But not too deeply. The DuPonts had always been eager for a large bank to give them the financial flexibility they needed for investment diversification. That was especially true now that “the tin box,” Christiana Securities, had been opened, freeing the family fortune of its traditional chain to the chemical company founded by their family. Wilmington Trust had proven inadequate. Despite their huge deposits in the trust department, the bank was a newcomer in the world of high finance. Its relative underdevelopment of business connections and the Delaware area’s limited commercial market had left Wilmington Trust far behind in the running as big banking’s business exploded in the 1970’s. In 1972, Wilmington Trust ranked 20th of the 32 largest institutional investors in the nation with assets under management of $5 billion and over; 4 by 1975, it had slipped to 25th, and in 1976 to 26th. 5
The other major DuPont family bank, Delaware Trust, fared no better, slipping from 229th place in 1975 to 295th in 1976. And it had only $597 million under management. 6 Bank of Delaware also fell from 218th in 1974 to 293rd in 1976, with $544 million. 7
Wilmington Trust was the nation’s 12th largest equity holder in 1977, controlling portfolios worth $4.9 billion. (Delaware Trust and Bank of Delaware were not even among the top 100.) Yet it was easily dwarfed by Chase’s $6 billion, Manufacturer Hanover’s $7 billion, U.S. Trust’s $7.6 billion, Citibank’s $13.6 billion, Bankers Trust’s $14 billion, and Morgan Guaranty’s $19 billion. There was no doubt that in the world of high finance, Wilmington was a pygmy next to the New York giant. If Wilmington was ever to grow and join the big time, new capital was needed in the state. What the Chase bankers were proposing was just that, and to Shapiro and the Du Ponts it was seen as a godsend. DuPont Company’s traditional alliances with J. P. Morgan would help. DuPont Company already had interlocking directorships with Morgan and its commercial bank, Morgan Guaranty. With other interlocking directorships with Chemical Bank and Citibank, representing DuPont’s large deposit accounts in those banks, the basis for developing reciprocal relations existed. That would give the DuPonts access to huge amounts of capital for leverage in moving into other corporations and financial institutions. Wilmington as a result could become a financial center in the Eastern United States.
Pete’s approach was to the point. “We basically said, ‘What would it take for you to make an investment in Delaware?’” Hayward recalled. 8 A lifting of the ceiling on interest rates? Granted. Reciprocal hikes in interest for credit cards? Granted. Variable interest rates? Granted. Unlimited fees for credit card usage? No problem. Legal rights to foreclose on homes to collect card debts? Delighted. Lower tax rates? Of course.
Pete appointed a secret task force headed by his trusted lieutenant, Glenn Kenton. O. Francis Biondi, a prominent Democratic lawyer, set to work reviewing the statutes of South Dakota, which had passed similar legislation, and began writing drafts. It was unclear if Biondi was working for the state or the banks until, very late in September, according to Bank of Delaware lawyer Richard Eckman, another member of the task force, it was revealed that Biondi had become Chase’s lawyer in Delaware.
Shapiro joined the lawyers from Chase and J.P. Morgan in drafting the legislation. There were no written analyses by any Delaware officials. Kenton later claimed giving only “oral evaluations.” 9
It was all kept “very quiet,” said Eckman. “Nobody was talking. It wasn’t in the papers.” 10 Delaware’s division of consumer affairs, which receives complaints and statistics on credit collection abuses and practices, would have had something to say if it was contacted by the governor. It was not. It was never shown the drafts. Consistent with recommendations of the American Bankers Association for revising state laws, the public was kept in the dark.
Did Pete DuPont violate the public trust of his office? The Delaware criminal code stipulates that it is a misdemeanor for a public office holder to deliberately fail to perform a delegated responsibility. But Glenn Kenton didn’t see it that way. He freely admitted that he and the governor had a “bias” that “banks should charge what they want in fees” and “I didn’t see any sense in running that fundamental principle by anybody who doesn’t agree with it.” 11
A participant in the drafting was more candid. Secrecy was necessary because “it was before the election.” 12
Pete, Shapiro, and Biondi worked quietly on key legislators and in September assured Chase of passage. The bill was by then drafted, still with no public knowledge. Shapiro later offered a Catch-22 in defense. “The people who had an interest in the bill were involved.” 13 If the public did not know about it, however, how could they ever develop an interest in the bill? Shapiro, as usual, was speaking for other people’s interests; he would define what those interests were and who should therefore be involved in decision-making. Otherwise, someone might be given a chance to voice an objection. “You couldn’t afford to scare the banks away,” 14 he acknowledged.
On October 30, Pete ran into his first public confrontation over his possible violation of conflict-of-interest laws—but the issue was not the secret banking bill; it was his oil stock holdings. The scene was the gubernatorial debate. Delaware’s State News reporter Jack Croft noted that the Governor had taken expense-paid trips via a Getty jet, opposed a barrel tax on incoming crude, pushed through the amendment to the Coastal Zone Act that allowed pipelines and oil rig supply stations to come ashore into the zone. Considering Pete’s substantial oil stock holdings, Croft wondered if that did not constitute a conflict of interest.
Pete’s reply was simple.
“I don’t think so, Jack,” he said.
End of issue.
Croft asked if Getty was paying its fair share of taxes, an interesting question in light of Getty’s refusal to pay the fixtures tax required by the state constitution. Pete’s response was again matter-of-fact. “I hope they are,” he said.
An answer like that might have cost any politician votes in any other state. But not Pete DuPont and not in Delaware. Pete was re-elected in November, the first time in over 20 years that an incumbent governor had been returned to office in Delaware.
After the results were in and champagne again popped at “Patterns,” Croft drafted a column in the State News asking about Getty and its due taxes. “It’s a simple question of fairness,” he wrote. “Of justice.” 15
But justice in Delaware, as in many states, was not a simple question.
On January 14, 1981, Pete invited key legislators to breakfast, but it was Irving Shapiro who presided. After Pete disclosed the proposed banking bill, the DuPont Chairman addressed the legislators on its importance to Delaware’s economy. The emphasis, wisely, was put on the benefits to the state, not the Wilmington area, which would be the real beneficiary. It was titled the Financial Center Development Act. It would, according to Shapiro, make Delaware “the first state in finance.”
The Democrats looked at the complex 61-page bill and did not even read it before agreeing to sponsor it. “I confess I have no expertise in the banking area,” Senate Majority Whip Harris McDowell III later explained. “I am mystified by the bill; in fact, I’m sure it is designed to do that.” 16
The next day the press was called by the governor to a special press conference, held not in his office, as usual, but in the large conference room of the capital’s Townsend Building. There, reporters found Governor DuPont flanked by New Castle County’s new Executive, Richard T. Collins, and the Democratic mayor of Wilmington, William McLaughlin. “Delaware has a unique opportunity to modernize its banking laws to better reflect the changing patterns of the banking industry and to help make our state one of the financial centers of the nation,” DuPont told the press. “Enactment of this legislation would enhance our state’s reputation for financial stability and for a conducive business climate and it will reaffirm our desire to expand job opportunities for our citizens.” 17
Whereupon, officials from Chase Manhattan and Morgan Guaranty pledged they would open banks in Delaware. Hearings were held a week later—for three hours. Since the Senate was in session, no Democratic senators attended; probably none had enough legal training to question the bill anyway, since none were lawyers. Shapiro and Biondi were both scheduled as witnesses, however. At 7 P.M., consumer attorney Douglas Shachtman was allowed to testify. He had only been given a few hours to read the bill, but could understand enough to speak eloquently against it. It didn’t matter. Most of the legislators had gone by then; the “rules,” he said, “were stacked against me.” 18
The Consumers Federation of America also objected. Jim Boyle, its director of governmental relations, asked the legislators to “consider some of the things this bill would do. It would allow foreclosure on a homestead when it is used as collateral in a credit card transaction. It would allow a bank to retroactively increase the interest rate on a credit card holder’s outstanding balance.” The legislation was “anti-free enterprise.” 19
“My impression is that the State of Delaware is forward looking,” 20 said J.P. Morgan vice-chairman James Botsi. Such forward-looking behavior by the Delaware State Chamber of Commerce included blocking bills that would have given unemployment benefits to workers locked-out or on strike, requiring industries to give the public a year’s notice before moving out of state or closing, and introducing deposits on bottled beverages to encourage returns rather than waste.
“Is that blackmail?” one influential businessman was quoted by the State News. “God damn right, it is. It’s about time. Eighty-two percent of the jobs are generated by business.” 21
“Delaware is a conservative, pro-business state,” said State Chamber of Commerce president William Wyer. “It always had been. We’re trying to renew that tradition. We’re just starting back.” 22
“In the good old days,” Shapiro said of business-government cooperation, “it was just a natural relationship. Delaware’s a small state and people knew each other on a first-name basis. Everybody was together. That tended to fall apart in the Peterson administration and with his successor.” 23 Now things were back together again. Republican House Speaker Charles Hebner was exuberant. “There’s a growing realization that business is not a group of robber barons under the J.P. Morgan era.” 24
Two days later, on February 3, the state senate, without a hearing, debated and passed the Financial Center Development Act. “One day we will regret firing this little cannon,” warned State Senator Harris McDowell. Eighteen amendments were attempted. They all failed.
“That bill got as good a hearing as I’ve heard in four years,” 25 said Governor DuPont, and on February 18 he signed it into law.
Irving Shapiro, said Bank of Delaware’s Eckman, was the first to anticipate the national and historical implications of the act before it was even finally drafted. He compared it to Delaware’s 1899 corporation law, which the DuPonts drafted to enable them to centralize their vast gunpowder holdings into a single corporation. That law changed the structure of American law and American history. Delaware succeeded in pressuring many other states to follow suit and, more important, effectively established a nationwide corporation law by allowing out-of-state corporations to incorporate in Delaware and be protected by its lenient statutes for businesses. Now, again thanks to the DuPonts, Delaware was doing the same with the nation’s banking laws.
Banks immediately began threatening the legislatures of New York, New Jersey, Pennsylvania and Maryland with desertions to Delaware unless similar legislation was enacted. Maryland hedged, raising its usury ceiling to 24 percent from its previous rate of 12 to 21 percent for various loans. That didn’t satisfy four banks, which promptly committed themselves to Delaware. Pennsylvania got the message and in 1982 passed legislation granting banks expansion privileges within the state. In New York, legislators and Governor Carey hurriedly tacked amendments onto bills that temporarily lifted interest ceilings to hold off Manufacturers Hanover and Marine Midland’s threats to leave. Meanwhile, credit card holders in other states were beginning to feel the impact of what had gone unnoticed in little Delaware. The Provident National Bank of Philadelphia, one of ten banks that began moving credit operations into Delaware, notified some 100,000 customers that their Master Cards would now cost them $20 per year and a higher rate of interest. Other banks did likewise to millions of credit card holders. Accordingly, New York bankers urged Governor du Pont to travel the country to encourage banks to come to Delaware to increase their profits. Pete did so, addressing bankers in Chicago and California, pledging his state’s “political stability and predictability” and “hospitable climate.” 26 Pete was not just interested in helping the banks scare changes in state laws. He wanted bank capital in Delaware. He even sent Lt. Governor Michael Castle as far as London, Frankfurt and Stockholm to present the glories of his statutes.
The influx of capital into Wilmington was astounding. Morgan Bank of Delaware, setting up shop in the Delaware Trust Building, alone brought in $1.65 billion. Citibank brought in $50 million, with more promised. This bank’s great significance was its interest-free checking deposits, one of its greatest profit-making operations, averaging $5.1 billion a day during the financial week of July 29, 1981. Deposits would be used to finance loans, which, at 22 percent interest, would bring in before-tax profits of about $1 billion a year. Maryland National Bank capitalized Delaware at $194 million; First (Maryland Bank corporation’s) Omni Bank, $107 million; Provident National, $125 million; Philadelphia National, $150 million; Chemical New York Corporation, $618 million; Equitable Bank corporation of Maryland and Suburban Bank (of Bethesda, Maryland), $10 million each. Manufacturers Hanover would eventually capitalize in Delaware at $100 million and Girard Bank of Philadelphia in 1981, backed by Pete du Pont, Shapiro and J.H.T. McConnell of Delaware Trust, simply bought the venerable Farmers Bank from the State of Delaware; the skyline of Wilmington lost a landmark as the giant letters spelling the bank’s name were taken down from atop its 19-story downtown building. Later, it too would be devoured by Pittsburgh’s Mellon National Bank. Mellon had launched an interstate network of “Cash Stream” automatic tellers in over two hundred 7-Eleven stores, including 41 stores in Delaware.
All this undermined the legal safeguards against bank over-centralization that had been passed during the New Deal in the wake of nation-wide bank failures that swept the nation. Now, in the interest of deregulation, the banking industry seemed to be recreating the very dangers that the New Deal had sought to avoid. Ominously, many of the banks that had moved to Delaware were seriously overextended in loans to Third World nations that now threatened to default. In May, 1982, the following New York banks, all of which have subsidiaries now in Delaware, were listed among the 23 weakest banks in the United States: Chemical, Manufacturers Hanover, Chase, Citibank, Morgan Guaranty, and Bank of New York. 27
The DuPonts, however, were giddy with their success. 28 Nathan Hayward was “thrilled.” Pete said it meant more jobs. Citibank Delaware president Earl Glazier agreed. “We’re not going to replace Wilmington Trust. No way. But we may provide some career opportunity for some people that might not have happened.” 29
The DuPonts also agreed, and not just about jobs. To make sure no bank replaced Wilmington Trust or their control of it, they amended the bank’s charter to stagger the terms of directors to delay any outsiders’ ability to elect a majority by at least a year. One million preferred shares were authorized to block the chances of a hostile offer to buy the bank. And to seal it all up, any future bylaw amendment or sale of assets worth $1 million or more required not just a majority vote by shareholders, but a two-thirds vote, including management; unless the board agreed. The board owned 13.4 percent of the common stock.
The DuPonts knew that the bank’s stock was attractive, priced at 41 percent below book value and only four times earnings. So they made clear in the proxy statement their willingness to merge into “a regional organization of sufficient size.” But it would be on their terms, for a price that would “reflect the bank’s true potential.”
Under the 1981 law, special tax breaks were established for financial institutions and organizations when profits exceeded $20 million. This benefited such financial services corporations as the Beneficial Corporation, which expanded into a multi-billion-dollar operation under a board of directors that now included DuPont family lawyer E. Norman Veasey and former governor Elbert Carvel. DuPont family banks also benefited.
DuPont family real-estate interests in Wilmington focused on the promise of vacant downtown lots that were christened the “Christina Gateway.” As GWDC began laying off employees, Irénée DuPont, Jr., promoted the Gateway’s potentials for the new financial immigrants, although the planned Citicorp building remained stalled. Nevertheless, both Wilmington Trust, with Edward du Pont now a senior vice-president, and DuPont Company celebrated the bounties of Wilmington, DuPont by producing a special slick brochure, and the bank by beginning construction on a new headquarters for some 1100 personnel. Called the Wilmington Trust Center, the tower was constructed literally on top of the city’s old Romanesque post office; and on its top floor, plans were underway for a new exclusive social club for the corporate elite.
Eleuthère Irénée DuPont expanded his mutual funds operations also. As the money markets began to heat up with inflation, Eleuthère survived the loss of Theodore Ashford and his $125 million investment portfolio by securing a contract for his Delfi Management with the $222 million state pension fund. In October, 1979, he launched his Sigma Tax Free Bond Fund with a modest capitalization of $1.1 million. The following year, in 1980, he launched three more operations, Sigma Government Securities Fund, Sigma Money Market, and Sigma Special Fund, the last two with $10 and $9.2 million capitalization. In 1981, he set up his Sigma Tax Free Fund, which had 4.6 percent of its holdings in Pete’s Delaware state bonds, “selling a high level of current interest income.” Only Massachusetts, Florida, New York and Washington outranked Delaware as selected states.
That year its stock yielded 9.9% earnings, and Eleuthère’s ten funds had portfolios worth well over $130 million. Yet William E. Donoghue’s Money Fund Report, surveying investment results for the 12 months ending in October, 1982, found that Sigma Government Securities had one of the lowest rate of returns among funds investing in seven-day and 30-day U.S. Treasury notes; Sigma Money Market ranked second lowest of 54 funds in the domestic prime market in yields from seven-day notes, third lowest in yields of 30-day notes, and ranked 42nd of 44 of 12-month notes reported as of August, 1982. 30 While such yields vary from market to market over time, these were figures that could not be discounted when evaluating the performance of Eleuthère’s management of two of his new Sigma funds.
Eleuthère’s other major concern, Continental American Life Insurance, fared better. Backed by DuPont family directors George P. Edmonds, Rodney Layton, and Eleuthère, as well as by Irving Shapiro and former DuPont P.R. executive Harold Brayman, Continental American was steered by chairman W.G. Copeland into an eventful merger in January, 1980, with Crown Central Petroleum, a middle-Atlantic and Southeastern states oil refiner and retailer with about 4100 wells in Texas, Louisiana, California and the Rocky Mountain and mid-continent areas. For the merger, CALICO received 774,152 shares of convertible preferred shares in Crown and a seat on its board. Crown was significant not only for its domestic infrastructure of terminals, and a pipeline connected to the Houston-to-New York Colonial Pipeline System, but for its continued drilling in Texas and Oklahoma and working wells in Nigeria. The investment signalled a shift of DuPont family investment into mostly domestic oil, a harbinger of what was to come the following year: the largest corporate merger of all time, again into domestic oil, supplemented by recent strikes in the North Sea.
But they were signs, not reasons.
The reasons were more subtle and historical. They involved U.S. foreign relations and oil holdings abroad; they involved the DuPont family’s own motives, now beyond concerns merely for the chemical firm; they involved the move of the DuPont fortune into the lucrative energy field, particularly oil and nuclear power; and they involved the family’s new use of the chemical firm as leverage to achieve their financial goals.
It is difficult to assess how many of DuPont’s top management understood this. Life at DuPont is also life in DuPont, with the Wilmington suburbs being an extension of that subculture. If there is questioning, it is either absorbed into the matrix of the organization, defined within its needs, or it is necessarily expelled. The pressure to conform is enormous, especially when it appears benevolent. “It is easy to fight obvious tyranny,” wrote sociologist William Whyte in his 1956 classic, The Organization Man, “it is not easy to fight benevolence, and few things are more calculated to rob the individual of his defenses than the idea that his interests and those of society can be wholly compatible.… Like the good society, the good organization encourages individual expression.… But there always remains some conflict between the individual and The Organization. Is The Organization to be the arbiter? The Organization will look to its own interests, but it will look to the individual’s only as The Organization interprets them.” 31
As Shapiro exemplified so often over the previous decade, DuPont has had a penchant for interpreting the interests of the individual, of all American individuals, for a very long time, probably from its birth as a company. It has long been given a name: paternalism, practiced in the name of progress, of efficiency, of community. “De Tocqueville made a prophecy,” recalled Whyte. “If America ever destroyed its genius it would be by intensifying the social virtues at the expense of others, by making the individual come to regard himself as a hostage to prevailing opinion, by creating, in sum, a tyranny of the majority. And this is what the organization man is doing. He is doing it for what he feels are good reasons, but this only makes the tyranny more powerful, not less. At the very time when the pressures of our highly organized society make so stringent a demand on the individual, he is himself compounding the impact.” 32
Ironically, it was the quintessential organization man, Irving Shapiro, who intensified this process in a company where it had already gone to extremes. He did so by further centralizing authority in DuPont’s corporate structure, undermining the careful balance between individual initiative and organizational needs that Pierre S. DuPont had taken such pains to attempt in his committee structure.
What was left was the company mold, and a hierarchy more steeply structured than what had been easily felt and seen among top management in the past as a sense of importance, of even belonging to an elite within DuPont, and therefore within Wilmington, Delaware, what Shapiro admitted as “a feeling that we were just a bit better,” a narrow egoism that made true cooperation and its key component of individual independence lacking when, in 1981, it was most needed.
For central to DuPont’s corporate image, emblazoned even on the cover of its 1975 Annual Report in the image of Thomas Jefferson’s letter to E.I. DuPont, was the family. And if the rest of management took Shapiro at his word about the importance of being a professional manager, of being a team player and Organization Man, it also saw his deference in practice to the needs of the family, even, in the case of Christiana Securities, their self-interested desires.
The problem, perhaps, flowed from the pragmatic approach of American business, too often seen and denounced as merely amoral. “Aside from the fact that the managerial group is open to all comers, there is another fact which disqualifies its members as a ruling class,” wrote Whyte. ‘They have no collective sense of direction. They have none because their organizations have none. Owing to its essential differences in functions and goals, and not unimportantly, the American inability to put things together into a doctrine until after it’s all over, our many different hierarchies are not so comparable as might appear. Like the union man who becomes an industrial-relations executive, the ex-government lawyer turned a corporation counsel, the erstwhile blue blood who becomes a sales trainee, many organization men have a conflict in loyalties they must resolve.” 33 If there was anything obvious to Shapiro, it was that he was not a member of a true ruling class. It showed in his stockholdings even more than his deference to the family’s needs. He was, clearly, not a DuPont. He was and remained always an outsider. Thus his alliance was “more to The Organization itself than to any particular one, for it is in the development of their professional techniques, not in ideology, that they find continuity—and this, perhaps, is one more reason why managerial people have not coalesced into a ruling class. ‘They have not taken over the governing functions,’ Max Lerner has pointed out, ‘nor is there any sign that they want to or can.’” 34 Shapiro often pointed this out himself. He was probably the first Organization Man at the helm of a company that had been ruled for so long by a family self-conscious of its role in business and in history, possessed of an ideology. And it was precisely this that made him seem unique for DuPont.
But is was also his greatest weakness. Such men “concentrated on the fact of their skills rather than on the uses to which their skills are put. The question of the cui bono the technician regards as beyond his technical competence.” 35 Ultimately, they retreat to the bosom of the Organization, allowing it to interpret in the name of the common good.
Whyte said this was “premature” behavior. “To preach technique before content, the skills of getting along”—Shapiro’s “communication is good management”—“from why and to what end the getting along is for, does not produce maturity. It produces a sort of permanent prematurity, and this is true not only of the child being taught life adjustment but of the Organization Man being taught well-roundedness.” 36
The reaction of the call for buying Conoco was not mature; it was acquiescence to a more confident and permanent human force confronting the managers—the DuPont family. It was this that explained why they made the momentous decision that was immediately questioned by analysts—and now, in whispers along the corridors of the Headquarters, among themselves.
It was a testament to the fact of their cohesion as functional, rather than one based on basic kinship ties, that there was no unity of opposition, indeed, perhaps any opposition, to the Conoco purchase. Shapiro may have served as retired elder statesman, but it was only as consigliere, awarded prestige with no rights by birth and always revocable.
So it came about that executives who had become used to seeing their chairman leverage their company, unlike family members who had a kinship stake in not mortgaging their heirs’ future, were encouraged in the summer of 1981 by the ultimate Organization Man, the individual who probably most personifies the bloodless abstraction of capital, the banker. A property, with familiar and friendly management, was up for sale, and J.P. Morgan had selected DuPont from a list of companies it thought could help the targeted management keep their jobs secure from hostile bidders.
The property contained, of course, what DuPont could use: oil, lots of it, over 1.5 billion barrels, much of it in the western United States and the North Sea, readily available and safe from foreign repossession, with extensive distribution in Europe where Middle East oil is expensive. And coal, 44.9 million tons of it, one of the largest reserves in America. And natural gas, 2.6 trillion cubic feet, and 38 processing plants recovering gas liquids including ethane, an important chemical feedstock. And, finally, uranium, 61 million recoverable pounds in the United States and 32 million pounds in Niger, Africa.
The Morgan bankers, who were in agreement with Concoco Chairman Bailey’s offer to sell out to DuPont, thought it was a good buy.
There were many reasons why it was not, at least for DuPont Company. First, there were formidable competing bidders: Mobil Oil and Seagram, both billion dollar operations with cash on hand, were already driving up the price of Conoco’s stock, and DuPont’s entry would drive it up further. The winning bidder would surely have to pay a premium on the stock’s value. Most take-over bidders paid that kind of money in order to get rid of management, not to save it. Why should DuPont want to help Conoco’s managers? Were Conoco’s assets really worth it? DuPont would not even be able to use all the oil and gas that Conoco had. Why should Du Pont, already in debt to banks, pay for what it could not use?
The solution to the riddle was, as usual in most human dilemmas, found in history, in this case the history behind the competition for Conoco’s stock. The battle over Conoco actually had its origins in Canada in mid-1980. Prime Minister Pierre Trudeau wanted to regain for Canadian financial interests the 70 percent of Canada’s oil and gas reserves that were owned primarily by American corporations. He established tax levies on foreign firms and investment tax credits for Canadians with the stipulation that their companies engage in oil exploration. Canadian banks feverishly agreed to back the companies with loans. Toronto’s new energy policy, therefore, made oil exploration in Canada more lucrative if ownership of the exploring companies was in Canadian names. American firms accordingly began selling some of their reserves to Canadian concerns.
Conoco was one of those firms. It had a controlling 53 percent interest in Hudson’s Bay Oil and Gas Company, owner of 265 million barrels of Canadian oil and 3.4 trillion cubic feet of natural gas. Morgan Stanley, Conoco’s broker, valued the Conoco stockholding at about $1.7 billion. Conoco’s directors wanted more, $900 million more, in fact.
One of the possible Canadian buyers Morgan had listed was Dome Petroleum. Dome contacted Ralph Bailey, the bulky, sandy-haired engineer who had risen to Conoco’s chair, and offered to make a $1.7 billion bid through a tender offer for 20 percent of Conoco stock that would then be swapped for Conoco’s share in Hudson Bay. This arrangement, Dome explained, would allow it to avoid paying capital gains taxes.
Bailey was cryptic, but did not refuse. Dome’s executives believed Bailey was only trying to avoid any personal direct negotiations with them before beginning their bid so the IRS would not question the swap on possible charges of collusion.
When Dome’s tender offer was announced on May 5, Conoco and Morgan Stanley acted shocked. They claimed Bailey had been worried about the legal implications of the tender offer and made no deal. If Bailey had, it was a terrible mistake. Dome’s offer of $65 for each Conoco share was well above the $50 it fetched on the New York Stock Exchange, and Dome’s offer drew a favorable response from Conoco’s institutional investors. The reason was not just the price. Conoco had a reputation as a company with solid roots in the old Standard Oil Trust and as a firm with promise, but it always seemed just that, promise. Although it was a large company, it never seemed able to make it to the top ten where the chips were decidedly bluer. It had never exploited its huge domestic oil or gas reserves on the scale many thought it could; instead, its exploration and development program appeared sluggish, its directors, including the representatives of Rockefeller Brothers, Inc., acting more like keepers of a holding bank or some national security energy reserve in the American homeland, than the voracious profit-seekers many investors would have preferred. Its management, accordingly, suffered a reputation as not being very aggressive, even though Consolidated Coal, its subsidiary, had a tough reputation among miners dying of lung diseases. Moreover, Conoco now had problems abroad. Its holdings in Libya were jeopardized by the nationalism of its leader, Col. Qaddafi, and the new Reagan Administration’s open hostility to Qaddafi for his support for Arab nationalists in northern Africa and the Middle East did not make Conoco’s position any less worrisome.
The response by investors to Dome’s offer was overwhelming: 52 percent of Conoco’s shares came in, instead of just the 20 percent it had asked for.
It was the first tip-off that Conoco’s directors lacked the confidence of shareholders and that Conoco was susceptible to a take-over.
That caught the sharp eye of Edgar Bronfman, the handsome, polished 52-year old playboy chairman of Seagram, the world’s largest liquor distiller and a Canadian firm, although its headquarters were on 5th Avenue in Manhattan. Seagram had $2.3 billion in cash on hand from its sale the previous year of oil and gas properties to SUNOCO, the oil firm controlled by the Pew family of Philadelphia. Only in April, Bronfman had been foiled in attempting a hostile take-over of St. Joe Minerals. Now the dapper Canadian saw another opportunity. He knew Dome was too small to arrange credit to buy the 52 percent offered to it. Assuming it bought the 20 percent it wanted, that left 32 percent available to the highest bidder.
Bronfman quickly put in a call to Conoco management and said he wanted to talk. Conoco’s Bailey conditioned it on Bronfman’s pledge that his bid was a friendly one, and not hostile to management. “Of course,” said Bronfman, who then arrived at Conoco’s Stamford, Connecticut, headquarters with a negotiating team. There they worked out what Bronfman thought was a deal with Bailey to buy 35 percent for cash and a standstill agreement—which bars voting stock against management—for a certain number of years yet to be negotiated. In the middle of the negotiation, however, Bailey cut off the talks, agreeing to meet the next day. Unknown to Bronfman, Bailey had a private jet waiting to fly him to Oklahoma to conclude merger talks with Cities Service, then also fighting a Canadian raider, Nu-West.
Was this a sign of bad faith? Bronfman later said it was, and his charge was somewhat supported by what happened the next day. Bronfman arrived with his brother, Charles, and this team was shown into Bailey’s office. While there, the limousine of Dome’s president, William Richards, pulled up the Conoco driveway. Bailey then began his shuttle negotiations, keeping the Bronfmans upstairs while the Dome people were put in a small conference room downstairs, their isolation ensured by security guards. Bailey later said he was worried that if Richards and Bronfman crossed paths, Dome might just as soon sell its Conoco shares to Bronfman as trade them in to Bailey for Hudson’s Bay. That was unlikely. Dome wanted Hudson’s Bay badly, and would end up proving it by buying up complete control.
After Bailey, assisted by the legendary merger lawyer Joe Flom of Skadden, Arps, Slate, Meager & Flom, worked out his deal with Richards, Richards was then brought before the waiting directors of Conoco, who approved the exchange of Hudson’s Bay for Dome’s 20 percent of Conoco plus $245 million. Only then was Bronfman brought in to make his offer.
Bronfman explained he was interested in an investment for his grandchildren, not control. He would like to buy 35 percent for cash and a standstill agreement. But the Conoco directors wanted him to sign the agreement for beyond the 15-year period he had agreed to. By now, Bronfman was wary. Flom had been getting tenacious with the Bronfmans that afternoon while, they later claimed, misleading them about how well the Dome negotiations were going. As late as 3:30 P.M. Flom had allegedly told Charles that “nothing is going to happen with Dome.” 37
“Ralph,” Charles Bronfman later testified saying to Bailey just before going into the Conoco boardroom, “I am convinced Joe Flom is trying to sabotage this deal.” 38 When they learned that the Dome exchange had just been approved, the Bronfmans felt burned. The situation had changed. The Conoco directors had gotten back the stock Dome had bought and felt more confident than Bronfman had anticipated. His $73 per share might attract institutional shareholders, but it did not impress the Conoco directors. The $8 more per share he was offering only reflected the increase in Conoco’s price since Dome made its offer; it didn’t even match that: Conoco was now selling at $60, $10 above its May 5th listing.
They rejected Bronfman’s offer and proceeded to prepare to announce their merger with Cities Service, while putting out calls to see what large company could be lined up as a White Knight if a raider showed up.
That was on June 17.
The next two days the Bronfmans bought 143,000 shares of Conoco on the open market, and the Exchange suspended trading and told Bailey to put out some statement to explain the unusual activity. Bailey’s statement did not mention Seagram by name, referring only to a foreign company; and it reported an offer to purchase 25 percent, not the true 35 percent. Canada, meanwhile, worried about its own sinking dollar on the world money markets, tried to halt its bankers from backing up any more oil purchases from Americans. But by now it was too late. Bronfman was not to be stopped. On June 22nd he filed a pre-merger notice with the Justice Department. On June 25th, he overrode the Conoco board’s rejection and made a public unfriendly bid for Conoco shares.
Undoubtedly, some of the blame for the merger mania must be laid at the White House. Since President Reagan had appointed William Baxter as head of the anti-trust division of the Justice Department, it had been evident that in the name of efficient economics of scale the Administration would not block most large corporate mergers even though the FTC study in 1979 had held that there were “on average no economic benefits from large mergers.” In fact, it was questionable whether large mergers were not antithetical to efficiency.
Northwestern University’s Frederich Scherer conducted interviews with executives, of acquired companies and found that in automobiles, for example, a clubbish attitude had blinded executives to trends toward smaller, more fuel-efficient cars. Inflation also made companies’ assets spiral in value. That attracted mergers, but did not reflect any real growth in earnings because the sales market, especially during a recession, was usually slow in absorbing the inflated value of the assets with an increase in sales revenue. The gap between a company’s revenue from sales, on one hand, and the value of its assets on the other, would show up as a decline in earnings that could affect the attractiveness (and therefore price) of a stock, and the company’s ability to raise capital to finance debt payments to banks or even operations.
“I think it is ironic that the Reagan Administration is worried about bureaucracy in the government,” commented Dennis Mueller, an economist who studied mergers in Europe and the U.S., “but encouraging it in business.” 39 A Carter hold-over in Baxter’s anti-trust division was equally alarmed. “The views of the agency’s head seem to be antithetical to the agency’s purpose and it makes a lot of people around here nervous,” 40 he said.
When Bronfman made his unfriendly bid, Bailey knew that Conoco’s days as an independent firm were limited. He had been caught with his hand in the stocks jar. While claiming to have balked at Dome’s offer because of possible legal problems, Bailey had actually been negotiating with another oil company, Cities Service, for a merger. He later argued that this merger would have given Conoco a higher percentage of U.S.-based income, ostensibly to ease worries about its troublesome Libyan holdings. Cities Service had a strong exploration program in the U.S.
But that didn’t answer why Bailey had not simply strengthened the domestic programs of Conoco itself, which had huge U.S. reserves. It also didn’t explain why Bailey’s directors were going along with a merger with a company which not only had its own problems but was actually smaller. That would only dilute the value of their Conoco stocks, the very factor they gave on June 27 in excusing their refusal of Seagram’s June 25 offering. They were also aware that under SEC rules, Bronfman would have to prorate his purchases. That meant that even if he attracted 100 percent of the shares (which was unlikely), he could purchase only 35 shares of every 100 that came in, turning back 59 shares. Those 59, the directors claimed, might fall as low as $40 a share on the market, dragging down the value of the other 4l shares. When the $73 shares and the $40 shares were prorated, that meant Bronfman’s $73 price would really be worth about $53 a share to Conoco’s shareholders, too low, they insisted, to be in the company’s interest.
The usual answer has been to criticize Bailey for lack of boldness in not buying Conoco’s outstanding stock. More likely, however, Bailey was attempting to exchange shares in Conocos treasury for an interest in another company. Bailey, like the DuPonts, was probably trying to diversify.
Morgan realized it was a marriage made in a broker’s heaven, if not for the independent-minded Conoco executives or for the Du Pont executives devoted to chemicals, then certainly for the major interested parties, Bailey’s directors and the DuPont family.
It may have seemed surprising, in this context, that Bailey’s directors failed to purchase more of their own stock even though they knew a raid was coming that would drive up prices. But there were two probable reasons they did not. One was that Conoco’s stock had not yet shown clear evidence of rising. When Dome’s exchange took 22 million shares off the market, for example, Conoco’s stock still did not rise very far, to $56 at most. Laying out cash to buy shares to discourage a raid might raise the price, but Conoco would be financing its own rise in shares. The increased price might accomplish just what it would be designed to do—discourage other bidders—and prevent a further gain in the value of the stockholdings of the controlling investors they represented.
These investors were not necessarily loyal to management. Eleven of the 14 were “outsiders,” representing large investors. While most of them were professional corporate managers themselves, their fundamental loyalty was not to other executives but to the interest of a Conoco they saw through the eyes of the corporate investors they represented. Particular interests become defined as the common interest. It was stunning evidence that the “outside directors” model championed by reformers for corporate boards was too vague; if the outsiders are profit-seekers first and citizens second, then their motives may be no more conducive to industrial democracy than that of management insiders.
Joe Flom’s failure to lock down in writing Bronfman’s promise to keep his bid friendly and not pursue the bidding unilaterally leaves a big gap in comprehension. It has been excused on the grounds that for men in high places their word is their bond. If so, there would be little need in the world for lawyers. No one knew this better than Joe Flom, a veteran of many nasty take-overs.
It is very possible, then, that Bronfman inadvertently had taken the bait. While his bid killed the Cities Service merger, destroying any real chance Bailey’s team had to remain independent, it also meant Morgan and Flom would have to bring in someone new, someone with enough financial clout to play White Knight. That someone might even have close ties to both Morgan and Flom.
The Conoco directors, meanwhile, saw the value of their holdings double in two weeks of heated bids. Mobil jumped in, and Bailey threw fuel on the fire by agreeing to talk with Texaco about a merger. He claimed to be favoring one oil giant over another because of “very serious anti-trust and public policy issues.” 41
Meanwhile, some unknown investors on the Philadelphia Stock Exchange had been wise enough on the week of June 19th to June 25th to speculate in call options to buy 100 Conoco stocks at a “striking price” of $70 per share by July 17. At the beginning of the year, Conoco’s call options had languished near 0. On June 19, they were selling for ⅙ or a “steenth,” as low as an option can get. Over the next few days, 5 options were quietly traded. It is possible, someone might have been fishing for a long-shot gain, or closing out a profitable short position in the call, which had been as high as 10½ in the final quarter of 1980; or had purchased the call as insurance to minimize a loss if Conoco stock that he had sold late the previous year now rose. 42 Or, just as possible, someone had a tip about what was going on inside Conoco’s headquarters. It is interesting that someone knew enough to suggest that a reporter make a phone call to DuPont Company on June 22 and inquire if Wilmington was engaged in talks with Conoco. DuPont Headquarters denied being in touch with Conoco, and the disclaimer was printed in the back pages of the New York Times on June 23. Two days later, Bronfman made his offer to purchase 35 million shares at $73 per share. Over the next ten days, the Conoco call rose 124 times in value. A Manhattan broker called it “unreal.” 43 But for some investor, the profits were very real indeed. The purchase of one Conoco call on June 19, when some of Conoco common was selling for $56.25, would have cost the buyer $6.25; by July 6, when 2159 contracts turned over, the call, minus brokerage commission, was worth $775.
That day DuPont Company made a cash bid of $87.50 per share for 40 percent of Conoco’s common stock, and offered 1.6 DuPont shares for each remaining Conoco share.
Securities analysts were stunned. It was a huge premium to pay over Conoco’s market price which even two days later, when Conoco was the most active issue on the New York Stock Exchange, was much lower, at 763/8. Conoco’s big shareholders represented on its board may have been happy; Conoco common, the competitive bidding Bailey was promoting, had appreciated over 35 percent in value since June 19. But, usually a bidder is only willing to pay a premium over market price if he believes he can do a better job of managing the targeted company’s assets, which he must assume have been undervalued by the stock market. DuPont obviously believed Conoco’s huge gas and oil reserves had been undervalued and was banking on their worth rising in an energy-scarce future. But it did not plan to replace the Conoco executives. So why was it willing to play White Knight for them against Seagram’s Villain?
Morgan Stanley, Conoco’s broker, apparently agreed. Morgan was the perfect matchmaker. It had command of the lines of credit needed to both finance DuPont’s purchase and protect Conoco’s managers from hostile bids. Bailey, with Morgan’s assent, picked up the phone and called Wilmington. Exactly when the first contact was made is unclear, but Edward Jefferson, chairman for only two months, admitted calling Bailey on June 24, two days after Bronfman filed hs pre-merger notice with the Justice Department, and about the time Conoco and its New York hirelings were making calls to line up a White Knight. Jefferson acknowledges only to getting assurances from Bailey that no other chemical company like Dow had been approached. That would have been highly irregular. Dow was heavily leveraged. It was not even on Morgan’s list of prospects. Lee Smith pointed out, “By making the call, Jefferson encouraged hopes that DuPont might be a White Knight.” 44
Jefferson could not recall what prompted him to contact Baily other than rumors about Dow being approached or what he may have read while vacationing in Colorado in the middle of June.
While he was in the wilds, however, Irving Shapiro was in Wilmington. He was now chairman of DuPont’s finance committee and, since the April stockholders’ meeting, had been spending more time at his new law office a block away. Behind his desk hung a reproduction of the new impressionist painting of Pierre, Lammot and Irénée du Pont that still adorned the DuPont chairman’s lair. Shapiro was still representing DuPont as a member of the law firm of Skadden, Arps, Slate, Meagher and Flom … Joe Flom, the lawyer for Conoco that Charles Bronfman had warned Bailey about; the same Joe Flom who at the time also headed the law firm Shapiro now worked for. In fact, Shapiro’s son, Stu, was a partner in the firm. As Shapiro put it, “We would be careful not to let any personal activity affect the proper choice of law firm.” 45 Or the proper destiny for Conoco.
Shapiro led the DuPont finance committee in approving a merger with Conoco, as well as the terms that were then endorsed by the entire DuPont board which already had a direct interlock with Conoco through Gilbert E. Jones, a director of both companies. Jones also sat on the board of IBM with Shapiro, and with another Conoco director, C.W. Buek, on the board of U.S. Trust Company. DuPont director and Trilateralist Andrew Brimmer, likewise, sat on the board of United Air Lines with Conoco director Lauris Norstad.
Morgan-related First Boston Corp. was picked as DuPont’s broker for the tender offer, reflecting the company’s long ties to Morgan interests. DuPont director Howard Johnson was on the Morgan board. DuPont then owed about $22.1 million to J.P. Morgan’s commercial bank, Morgan Guaranty Trust Company. 46
Morgan in June had arranged a $1 billion credit line for Conoco to ward off any hostile offers. It now arranged a $4 billion loan for the DuPonts.
The total price tag when DuPont made its July 6 bid was $7.3 billion.
That was a lot of money that now would not go into DuPont’s promising new array of specialty products, and analysts had to wonder. This was another reason not to make the deal, and Shapiro knew it. He had been the one who steered DuPont through the fibres rapids to the smoother waters of value-added specialties downstream. True, the DuPonts had allowed the restructuring of the company to begin years before, when Lammot du Pont Copeland, the last direct DuPont heir to occupy the captain’s chair, stepped down from the helm and McCoy, a relative, but not an heir, took over. Shapiro had only continued this process, but at a break-neck pace, spurred on by the rise in oil prices. By 1979, he had directed 35 percent of DuPont business into high technology products. The Photo Products Department was expanding into electronic sound and video recording tapes, penetrating the printing industry with printing plates, and made 25 percent of the world’s X-ray products and most of Polaroid’s film. Its electronics connectors, growing with the exploding market in telecommunications and data processing, expected a 20 percent annual growth. The Biochemicals Departments agricultural chemicals generated 10 percent of DuPont’s earnings making pesticides, fungicides, and herbicides. An expansion into the brave new world of genetic engineering also looked promising, with wide application in everything from pollution control to pharmaceuticals. Electronic machines capable of analyzing blood 35 different ways automatically were also a rising business.
Much of this was questioned by environmentalists and health experts for its impact on the declining quality of food through spraying of carcinogenic chemicals or the rising costs of medical care or the ethics and morals relating to human evolution and the lack of government protection from potential abuses in gene-splicing. But for DuPont these ventures represented a money-saving move away from the older lines of synthetic fibres that were heavily dependent on petroleum. It also was an escape from the stagnant paint market, which had not responded well to poor ratings. And it would not get better. By 1982, Consumer Reports labelled DuPont’s “Easy Care” Latex Flat and “Lucite” wall paints as the worst of 32 paints tested, charging they “lacked the qualities you should expect in expensive paint.” 47
The automobile industry was still a billion dollar market for DuPont, consuming plastics, artificial fibres, paints and lacquers, and electronic connectors, but the federal safety and environmental laws that encouraged plastic sales to make cars lighter had also required more concentrated, less volatile auto paints which increased costs. The new “value-added” products, on the other hand, required less capital investment to set up shop and, as new industries, were poorly unionized, allowing DuPont Headquarters to pay cheaper wages and run shops without interference from organized labor representatives.
So now, analysts asked, why the move back into oil? Would not the Conoco purchase retard development of these promising new lines of products? Would it not delay Du Pont’s search for a $400 million pharmaceutical company? Why did the finance committee recommend the purchase? What really was going on?
Edgar Bronfman decided not to wait for the answer. On July 12, he bid $85 a share for 51 percent of Conoco. Three days later, Du Pont responded with a $95 a share offer, and raised its stock offer for 1.6 shares per Conoco share, to 1.7 shares.
It was a terrible mistake. Shapiro and Jefferson, by not closing the deal with a solid cash offer, allowed Bronfman to keep on bidding—and buying—while the Justice Department reviewed Du Pont’s stock for its antitrust merits, as required by law.
Mobil came in with a $90 offer in cash for just over 50 percent on July 17 and pledged securities worth an equal amount to Conoco’s remaining stock. Mobil was obviously eyeing the same thing as DuPont: Conoco’s vast oil reserves could be bought for less than $12 a barrel. John S. Herald, Inc., the reputable oil analysts, valued Conoco’s assets at about $160 a share, much higher than anyone was bidding.
Bronfman shot back with $92 a share in cash for 51 percent on July 23. Three days later Mobil countered with a $105 per share offer for 51 percent, but lowered the value of the securities it was offering for the rest of Conoco to the equivalent of $85 a share.
In Wilmington, the DuPonts realized the mistake they had made. They tried to rectify it by increasing their cash purchase of Conoco from 40 percent of its shares to 45 percent. Mobil responded by raising its cash offer to $115 a share on August 3.
Edgar Bronfman responded another way on that day; he began buying the 15.5 million shares his strictly-cash offer had attracted. Wilmington groaned, quietly.
The Reagan Administration offered them some relief. On that same day, Assistant Attorney General Baxter weighed in with his approval of the DuPont-Conoco merger. It had been expected, and was probably the reason Bronfman began buying that day. He knew his head start would not last long. Mobil had not been denied Baxter’s approval. It was still pending, despite the fact that under the Reagan Administration oil companies had been given license to purchase each other following the general line of Reagan’s SEC Chairman John Shad who blessed mergers as “facilitating capital formation”—as well as fees for such merger and acquisitions specialists as E.F. Hutton and Company of which Shad was vice-chairman. But Mobil was not favored by Baxter, and his delay gave DuPont the decided edge. Questions were raised about the merger’s profitability for Mobil shareholders, since the purchase would probably have pulled down its 14 percent yield to 11 percent. The Reagan Justice Department, however, had not ruled Mobil out, signalling a willingness that other corporate giants quickly picked up.
Thirteen huge corporations, mostly oil companies, lined up $46 billion in credit that month. Mobil raised $6 billion, as did Gulf Oil. Texaco raised $5.5 billion. Marathon $5 billion. Cities Service took on $1 billion to ward off raiders, then $3 billion more. Pennzoil set up a $2.5 billion credit line; Allied Corporation, $2 billion; Phillips Petroleum, $1 billion. North West Industries and U.S. Steel loaned $4 billion more for working capital needs, but they were the exception. Most of the other credit lines were set up for acquisitions, exactly what President Carter had feared the oil companies would do rather than invest in research on non-fossil fuel sources of energy.
Shapiro had made headlines defending such oil company mergers when he testified against Senator Edward Kennedy’s bill to restrict them; the testimony ended up in a personal confrontation between the DuPont Chairman and the Massachusetts Senator. Now, at Skadden, Arps, Shapiro was joined by four Carter officials: Carter’s Deputy Secretary of Energy, Lyn Coleman; his Assistant Secretary of Energy for International Affairs, Leslie Goldman; the Special Assistant to the Secretary of Energy, Douglas Robinson; and Carter’s Associate General Counsel for the Environmental Protection Agency, James Rogers. “They practice the type of law that I tried to practice as a lawyer,” Shapiro said of Skadden, Arps. “I wanted to be associated with a man like Joe Flom.” 48 Flom, the merger king. Now Flom was advising Conoco, which borrowed $3 billion; his friend and ally, Shapiro, was having DuPont borrow $4 billion. And their rival for Conoco, Edgar Bronfman, had borrowed $3.9 billion. All to buy Conoco’s shares.
The huge borrowing that month may have helped the giants, but it didn’t make life easier for the average American. Small businesses and housing were “near collapse” because of the severe shortage of capital, charged Rhode Island Congressman Ferdinand St. German, chairman of the House Banking Committee. The big borrowers were causing tight money in the credit lines, “a shortage clearly not shared by the huge oil companies who desire funds for an international game of monopoly.” 49
This, in its essence as a movement of capital, was nothing new in the history of American business. Such “games” of monopoly were always played during times of international economic contraction when overproduction exhausted markets and triggered recessions, even depressions. In those bleak times, horizons looked darker for smaller companies whose capital reserves or markets were too limited to offer a view beyond the crisis of the next fiscal period. Smaller firms have not the capacities of giant corporations to absorb the punch of a deep recession, and this vulnerability often translates into bankruptcy or selling out. That is why recessions are often also periods of mergers that result in greater combinations of industrial and retail capital, larger corporations extending their control over industrial and retail markets. Large banks, too, unhappily foreclose on customers or demand more say over a company which must reschedule its debt payments; this applies to companies which are dangerously highwiring their profit-margins as well as to those giants which must borrow from banks to consume what others’ ruin has offered. More bank representatives thus are seen on industrial boards, or even in troubled governments such as New York, furthering the process of what has become known as the growth of finance capital. Even small banks, hit by defaults on loans, become prey.
The problem, however, is that it further stretches the liquidity of banks, small and large alike, which have already overextended themselves during the earlier days of heady expansion. The crisis of payments rendered the banks by customers no longer able to meet their interest, much less their principal, on loans reduces the number of areas where high finance can respond with flexibility. So any one area of crisis threatens all, and the true domino theory emerges from nightmare into reality. When that point has been reached, there is no turning back. There is only hope in going forward, trying to contain the crisis by extending it with more loans, more mergers, larger combinations of capital, now dubbed corporate “conglomerates.”
This explains more rationally than simplistic charges of greed why super-banks like Chase Manhattan were willing to make so many loans in the. first half of 1981. Chase made 70 such loans totalling $15.1 billion during those six months; Citibank 68 totalling $13.3 billion; Manufacturers Hanover 56 totalling $11.1 billion; Bank of America 52 loans amounting to $10.8 billion; J.P. Morgan & Co. 39 loans totalling $10.7 billion. 50 Nor are Americans alone. All large bankers seem to act alike. In the same period, for example, Barclays of London made 37 loans totalling $11.2 billion; Banque Nationale de Paris 30 loans worth $11.1 billion; Bank of Tokyo 50 worth $10.8 billion; Arab Banking Corporation (London) 34 worth $9.5 billion; Bank of Montreal 27 loans worth $8.3 billion. All seem to agree on the strategy of more loans, more rescheduled debt payments, more mergers. It underscores the interdependency of Western banking, especially of American banking, which is required to seek foreign partners for big loans because U.S. law prohibits a bank from lending over 10 percent of its capital and surplus. Foreign banks, to non-bankers’ dismay, are not so restricted. Thus, in any great financial crisis for a single large bank, there is no place in the Western world to hide. There are no safe refuges.
This also accounts for the decline in American banks’ earnings even as the assets of the giants grow, and why bigness is not necessarily a sign of good health. Since 1950, American banks’ equity as a percentage of their total assets slipped from 9 percent to 6 percent in 1968, 4.1 percent in 1973, 3.7 percent in 1978, down to 3.6 percent in 1980. 51 Some of this is also the result of a loss of loan business to the commercial paper market and the new money market funds that have sought to exploit the declining value of money and volatile interest rates by offering higher yields for “deposits,” or money put in their hands. To compete, the banks have had to raise their own interest rates, narrowing the previously lucrative gap between rates paid to depositors and rates received from borrowers. That meant a growing squeeze on bank profits and bankers’ agitating for a removal of New Deal laws that prevented them from interstate banking, interstate mergers, and charging outlandish interest rates for loans or credit lines.
It also explains why the financial community worries when articles appear about their liquidity crisis, citing its own statistics. Working from material submitted by banks to the Federal Reserve, J.T. Holt & Co. of Westport, Connecticut, analyzed the banks’ equity-to-asset ratio, loan loss reserves ($298 million), percentage of the total loan portfolio that was accounted for by real estate construction and development loans (especially vulnerable during a recession), percentage of loans accounted for by borrowings from less-developed countries ($96 billion to non-OPEC countries); percentage of loans accounted for by commercial and industrial loans (some were as high as 80 percent, 30 percentage points above the 50 percent considered normal); purchased liability ratio (inter-bank short-term borrowing, usually overnight). Morgan Bank of Delaware ranked as the strongest bank in the U.S. but its parent, Morgan Guaranty, ranked as one of the 25 weakest, as did Manufacturers Hanover, Bank of America, Chemical Bank, Bank of New York, and Citibank, 52 all with or planning to have Delaware subsidiaries under Pete DuPont’s new bank law. DuPont Company had interlocking directorships and/or deposits with five of these banks.
This desperate inter-dependency between big banks and conglomerates also clarifies why the financial community was so hard put to admit the role its lending and the conglomerates’ borrowing played in increasing interest rates. It was far more convenient to claim that in a money market where $1 trillion exchanges hands every day, 13 corporations borrowing $46 billion in the single orgiastic month of July, 1981, had little affect on the nation’s financial resources or on interest rates, and was actually not a withdrawal of money from circulation but a recirculation of money back into the economy. A neat formula if one could believe that the multiplier effect of money in circulation was actually an expansion of real value simply because the same money exchanges hands many times. But the reaction in the moneymarkets and the Federal Reserve Board betrayed the truth. Yes, said the Fed, there was a $51 billion rise in the money supply, some of which was the result of bank loans extended to the conglomerates. But simply because some of the loan proceeds were put into bank deposits and counted in the money supply did not mean a real expansion of goods and services in the economy. Too much money chasing too few goods is a classic monetary symptom (not cause) of inflation from international productivity differentials and a depressed dollar value. To try to keep that symptom of inflation under control, the Fed contracts the money supply made available to the central banks. And, sure enough, when the week of August 5, 1981, ended with a huge $3.7 billion increase in business loans over just the previous week and it was announced that there had been a large $5.1 billion gain in what the Fed calls the M-1B money supply (covering currency, interest and non-interest-bearing checking and other checkable deposits in banks and savings institutions), to a total $433.7 billion, most interest rates edged higher in anticipation that the Fed would make bank reserves scarcer to reduce excessive growth in the money supply. No wonder there were few bankers indeed with the courage of Fiduciary Trust Bank of Philadelphia’s Lacy Hunt to admit that the conglomerates’ huge loans “are an adverse development for the money and bond markets.” With such interlocking interests and the debt crisis so sharp, who wanted to concede that such loans crowded out other borrowers and raised interest rates in the short- and long-term markets?
This growth in the money supply perplexes monetarists, who myopically hold that money supply is the source of inflation, rather than productivity lag and resulting trade and payments deficits. Yet it is clear that the growth of money market funds such as Eleuthère I. du Pont’s were part of a “revolution” in cash management that resulted from inflation and high interest rates. These funds surged ahead by $74.6 billion in August, 1981, alone to a total $142.7 billion, spurring the growth of the second important money measure, M-2 (which includes M-1B as well as savings deposits, money market funds and certain short-term bank borrowings in domestic and “offshore” [meaning Bahamas and other tax-havens] money markets). Monetary economists base their theory on the premise that there is some “connection” between changes in the money supply, inflation and economic activity. Before the mid-1970’s they were quite satisfied that M-1B was an accurate measure of the amount of money available for spending in the economy. But M-2 in some cases just diverted money from government securities (mainly tax-exempt Treasury bills, large negotiable certificates of deposit and other financial instruments). That meant M-1B might actually underestimate the money supply, playing havoc with their forecasts.
If what existed in the economy could not be understood by the monetarists, at least it could be reacted to. So the Securities Industries Association letter to the White House endorsing the Reagan program was inevitable. Controlled money-supply growth, reduced taxes, deregulation of business, reduced federal spending all “enjoy overwhelming support in the stock brokerage and investment banking community.”
So, therefore, did the Reagan Administration’s approval of Metro-Goldwyn-Mayer’s purchase of United Artists, and Caterpillar Tractor’s purchase of International Harvester’s solar turbine division. Chemical Bank’s interest in taking over the deceased Ed Ball’s favorite bank, Florida National Banks of Florida, Inc., was not discouraged. At about the same time, the Administration dropped the Federal Trade Commission’s 1973 anti-trust suit against Exxon, Texaco, Gulf, Standard Oil of California, Standard Oil of Indiana, Shell, Atlantic Richfield and Mobil as being “not in the public interest.”
It is no accident, therefore, that Du Pont’s expenditure of $7 billion to take over Conoco coincided with President Reagan’s signing of a bill giving $60 billion in tax cuts to American industrial corporations for “stimulating new investment in plant and equipment and creating jobs.” Du Pont’s acquisition of Conoco, however, “created no new productive capacity or directly productive (as compared with managerial) employment, whatever DuPont chooses to do with its new property later on.” 53 DuPont’s burgeoning Headquarters in this regard reflected only what had been happening in American business as a whole for the last thirty years. The ratio of overhead personnel to all employees in American manufacturing rose from 18 to over 30 percent between 1950 and 1980, a huge increase which contributed significantly to the productivity decline of the 1970’s. According to economist David Gordon, bureaucratic control accounted for over 85 percent of the measured retardation in labor productivity between 1954 and 1973, and 1974 and 1978.” 54
Such mergers, therefore, contributed to deindustrialization, rather than ameliorated it. This was especially true in the area of finance, where from 1975 to 1980, over $100 billion in cash reserves were diverted toward supporting tender offers alone. 55 Yet Wall Street could self-righteously criticize Mobil’s seizure of U.S. Steel as a case of diversifying rather than modernizing. Mobil, incidentally, had been prevented by Asst. Attorney General Baxter from competing with U.S. Steel for control over Marathon Oil; whereupon Mobil simply took over U.S. Steel. The cover of different industries now in place, the administration felt free to render its blessings.
DuPont also had worried about Mobil’s intentions during the Conoco bidding. Wilmington questioned whether Mobil’s willingness to pay $8.8 billion for Conoco was not simply the first in a series of steps that would make DuPont also a target for takeover. Did Conoco, in other words, offer such a reasonable rate of return to warrant that kind of money? As Robert Metz of the New York Times speculated in his “Market Place” column, DuPont may have been the actual target, but Mobil had been prevented from buying Conoco shares by the Reagan Administration. Mobil’s mistake was in waiting until July 17, eleven days after DuPont filed its first bid. The time factor in getting clearance from Asst. Attorney General Baxter put Mobil at a distinct disadvantage with Conoco’s shareholders. “No one thought that Mobil would get anti-trust clearance,” said Joseph Perella of First Boston Corporation, which DuPont chose as dealer manager for the tender offer. 56
Mobil was probably not alone with such designs, and the Bronfmans had not made Mobil’s mistakes. On August 4, Mobil raised its bid again to $120 per share, but it tied Conoco shareholders to its securing of 51 percent and their accepting securities Mobil was offering. The lack of confidence Conoco investors showed was soon evident; Mobil attracted only 735,000 shares; eventually Mobil would have to get rid of these on the open market. The Bronfmans, on the other hand, had attracted 15.5 million shares; after returning 2.2 million tenders to their owners, they had at least 18 percent of Conoco. Then they even extended the deadline for their $92 a share offer, knowing they would collect more from shareholders who did not want to see their stock decline on the market after the bidding was over and turn-backs settled down the market for Conoco stock.
At DuPont Headquarters, the approval of the Justice Department on August 4 put the gears in full throttle. Tenders were recorded and tallied and soon the figure was apparent: 37.9 million shares had been bought for $18 each; 9.4 million shares for 1.7 DuPont shares each. After midnight, Jefferson threw a party downstairs at Hotel DuPont’s Du Barry Room, an ornate banquet room with a high carved white ceiling overwhelmed by a huge crystal chandelier. A trio of musicians played soft music as DuPont executives were served hors d’oeuvres on fine china and offered tinkling glasses filled with Dom Perignon 1970. Five cases of champagne were consumed as the 50 to 70 members of Jefferson’s team talked about their roles, exuding confidence. “Everyone just kind of accepted that if we got all these things done, we would do it,” said spokesperson Faith Wohl. Jefferson gave a brief speech of praise and headed for home. The affair, after only an hour, duly broke up. Upstairs, at 3:45 A.M., the formal buying began
Beneath the confidence, however, concern was growing. How would DuPont explain it? “DuPont’s strength,” as Thomas Peters and Robert Waterman correctly noted the following year in their In Search of Excellence, “had been in downstream innovation and value-added to products in specialized market niches those innovations had created.” 57 Now, suddenly, $7.3 billion for an oil company?
But there had been worries about the specialized markets. In the new field of life sciences, for example, DuPont did not enjoy an exclusive role as the innovator, as it once had in fibers and plastics. Competition, particularly from Dow and Revlon, was tough. Shapiro and Jefferson anticipated the really big returns only in the distant future, when DuPont’s enormous research resources and marketing capital could produce the difference, in a new product that would create new industries and do for DuPont in biochemistry what Carothers’ nylon did for fibers. They had entered the field because, as Jefferson put it, “The business is moving and if you want a ticket you’d better get with it now.” By 1990, they hoped to increase revenues from 1980’s $1.4 billion to $5 billion, and Jefferson’s academic and practical training as a researcher would help. Specialty fibers and plastics were targeted to grow from a $4.6 billion business to a $9.5 billion one, and electronics from $450 million to $2 billion. This would increase the downstream share of DuPont’s business to 55 percent.
But all this rested on being able to phase out DuPont’s huge dependence on bulk fibers and chemicals, which represented 55 percent of DuPont’s business. This was certainly a marked improvement over the previous decade, but it would have to be lowered by another 10 percent if revenues were to increase from 1980’s $14 billion to 1990’s projected $30 billion.
Cutbacks in primary research could also hurt DuPont in genetics, a new field less amenable to Shapiro’s preference for applied research. DuPont’s desire to repeat the big find nylon once represented also led it to continue its penchant for secrecy and going alone, rather than involving itself in joint ventures or purchases of other firms, as Monsanto did by buying into Genetech.
The DNA research efforts were late in start-up, its director, Dr. Ralph Hardy, only having been recruited in 1979. Two P-3 containment labs were constructed between 1978 and 1980, with special security precautions to prevent the escape of deadly bacteria. If DuPont’s record in other areas of toxic chemical contamination of workers is any guide, these labs bear watching. As its workplace and environmental policies have demonstrated, DuPont has not been known to be above the temptation to “play God,” as religious leaders have warned about companies that might use the Supreme Court’s June 1980 approval of patents for new forms of life for private profit. “Who is going to control these things, who will benefit, who will bear any adverse consequences,” President Carter was asked in July, 1980, by 350 scientists and clergymen convened by Bishop Thomas Kelly of the U.S. Catholic Conference, Rev. Clare Randell, Executive Secretary of the National Council of Churches, and Rabbi Bernard Mandelbaum of Synagogue Council of America.
Du Pont has given a $100,000 grant to California Institute of Technology, which has probably the nation’s most sensitive equipment for analyzing samples of pure interferon, the living substance which is the basis of the genetics industry. Du Pont has probably already synthesized interferon; it was the first to purify one of the known human interferons, fiberblast interferon. It is zeroing in on the drug and medical areas, where Wilmington already has production and marketing capacities of its pharmaceutical subsidiary, Endo Laboratories, and where it expects the first commercial application will make big money. But that will require a capital investment in Endo to handle the business, and research, meanwhile, is dependent on profits from Endo’s relatively small market for funding. The problem there is that, with pharmaceuticals as a whole, DuPont was a late-comer. Endo Laboratories, purchased only in 1969, commanded a sales market of just $100 million, tiny compared to giants such as Merck or Eli Lilly or Johnson & Johnson. And plans called for the purchase of only a medium-sized $400- million firm, a weak candidate to sponsor in a field of heavy competition. It is small wonder that Hardy confirmed that his team was “focusing on a fewer number of things.” 58 In agricultural chemicals the prospects for quicker returns looked better. DuPont applied its genetics research as both a defensive and offensive strategy against displacement of herbicides by environmental laws. In this field, its $42 million research in nitrogen fixation had only one real competitor, Allied Chemical with a $30-million research budget, although Dow has also put $5 million into Collaborative Genetics of Waltham, Massachusetts.
Specialty fibers also had limitations, as innovators. This was fully recognized by Jefferson. Explaining DuPonts genetics research, he said, “In 20 years these specialties will not be advanced products. You’ve got to have your year 2000 vision.” 59
The same vision, Jefferson claimed, guided DuPont to Conoco. “If you can’t see where we’re going,” the 60-year-old chairman said, “it’s because you don’t know where we’ve been. DuPont has changed all through its history. It started out as an explosives business, it matured into a chemical business which got into plastics, paints and fibers. If you look back a little more than a decade, it set its sights on diversification, into electronics and pharmaceuticals. Now we are adding energy. What we can do is to bring some of the talents of our engineering department and our research labs to the problems and opportunities that exist in the energy field. The current management have got to run what they’ve got well, and they’ve got to do something for the future management. This is our tradition. I suspect that my successors in the 1990s will be very glad we acquired Conoco.” 60
Perhaps, but the analogies to DuPont’s earlier transitions were lacking. The DuPonts never leveraged their company the way Shapiro and Jefferson had. Nor could DuPont’s engineering really better Conoco’s when it came to experience in drilling, laying pipelines, or recovering residue oil by pumping chemicals or high-pressure gases underground. In fact, DuPont had to call on Exxon for advice on integrating and digesting the Conoco organization.
And as for DuPont management having a “tradition” of doing something for future management, the entire 180-year history of the DuPont family, who were the top management, suggests otherwise. The tradition, rather, was rivalry and feuds and lack of preparation for future managers to such a degree that the company was almost lost once (in 1904) and, despite Pierre’s introduction of professional managerial techniques, ultimately left with a floundering company in the early 1970’s and no family top managers by 1978. If anything held the DuPonts to the company, it was not a tradition for preparing for the future but the traditions of the past; not preparing for management, but preserving for the family the source of its wealth. The family’s enrichment, not the company’s management, was the traditional goal, and it was these kinship ties, more than merit, which for so long led to top management and bound the company to the family’s destiny and vice versa. The elders understood this, even if family youth believed a meritorious career was as important as family tradition and wealth. Jefferson, it seems, was projecting the goals of the Organization Man that he held onto the history of the DuPont family and their company.
But even if the family’s history were unknown, the evidence of the Conoco purchase itself was at hand to belie Jefferson’s claims. Conoco was bought at a premium, deeply indebting the company, at a time when the price of oil was steady, and, because of a world glut, not expected to rise, at least for a while. DuPont itself had acknowledged this only two days before Jefferson made his fateful phone call to Conoco’s Ralph Bailey: “The biggest effect of the oil surplus on us so far is that we’re guessing this element of costs will go up at a lower rate than we were previously forecasting.” 61
Equally telling was DuPont’s announced plan at that time to continue its program to use more coal as a plant power source. This plan did not change after the merger. Harry Flavin of Merrill Lynch confirmed that DuPont was still scheduled to move its 17 percent dependence on coal to 70 percent in 1990. 62 Yet DuPont, after purchasing Conoco, began plans to sell much of Conoco’s coal reserves.
But by August 10, Bailey was forced to change his line. He admitted that DuPont would sell some of Conoco’s coal reserves, especially those which had a high asset value but low earnings potential. 65
The description was apropos. High asset value. By December 8, Jefferson was acknowledging to 200 securities analysts and portfolio managers that “a sizeable piece” of Conoco’s $2 billion natural resources would be sold the following year. 66 The executives of Consolidated Coal, the Conoco subsidiary, were not happy. “Do you want me to answer in oil-field language which you won’t be able to print?” one executive vice-president told a reporter who asked for his reaction. “You don’t work with a company for 32 years and have it branded on your back and walk away feeling good from something like this.” 67 Other oil executives crowded around the table during lunch at the DuPont Headquarters agreed with him.
Accepting the transition from being an executive of one of the largest oil companies in the United States to being an employee of a wholly owned subsidiary must have been hard to take. So also must have Jefferson’s acknowledgement that DuPont management would now be stretched (to cover Conoco). Jefferson, however, pointed out that DuPont made some of its greatest innovations when it held a major stake in General Motors. The comparison was again a poor one. General Motors seldom actively drew DuPont’s management staff into its day-to-day operations, but instead was guided by the organizational experience of DuPont’s directors, led by Pierre DuPont, John J. Raskob, and Donaldson Brown. There was reorganizing of GM along DuPont’s committee lines and introductions of charts, yes, but seldom of DuPont executives on an operating level. That was left, wisely, to GM’s Alfred Sloan. 68
This leads to the question of Ralph Bailey’s role in the whole affair. Unlike many of his executives, Bailey was quite content with his new home in Wilmington, to where the Conoco staff moved from Connecticut. His public statements echoed Jefferson’s. “DuPont is a company that has grown through the products of the lab,” he said, “and Conoco has been successful through discovery. I look upon the combined company as one that is being built for the next century. It is the kind of company that will have its growth almost assured because of the very natural fit.” 69
Jefferson also talked of Conoco’s oil as if he intended to use it for DuPont. “If you don’t get a very high percentage of oil out of the ground with the pressure methods of recovery, then there are opportunities for new approaches, particularly at today’s prices of hydrocarbons.” He spoke of such use as if it were a mark of patriotism in the struggle against OPEC. “The thing that is going to happen in the next decade, and already is happening, is that more and more chemicals and plastics will be made by the resource producing countries. You’ll find polyethylene, for example, is already made by Middle Eastern oil producers. Conoco gives us a position to compete against the producing countries."
The argument was flawed on several accounts. First, Third World countries were still in a primary stage of developing their chemical industries; world-wide recession tends to arrest further development by drying up demand (more correctly defined as markets capable of paying) and thereby lines of credit. Second, DuPont could hardly expect to compete in developing countries that have petrochemical industries owned by the state; few of such governments would allow it. Coups are by no means impossible feats, as the CIA’s overthrow of Iran and its nationalized oil demonstrated in 1953; but a long series of such coups is unlikely in today’s world, where the U.S. does not enjoy the hegemony it had in the Fabulous Fifties. There could be isolated cases, of course, but a multi-continental roll-back of Third World nationalism and state ownership of industries, while undoubtedly sought by the Reagan Administration and AID’s new Bureau of Private Enterprise (headed by Elise du Pont, the governor’s wife) is highly improbable. Third, most developing countries’ petrochemical industries are incapable of winning markets from DuPont outside their borders; they simply lack DuPont’s powerful marketing capacities, including its huge business contacts network, command of capital and advertising, and transportation apparatus. Fourth, DuPont’s real competition is from European and Japanese firms, not developing nations, and those firms rely much more on oil than Du Pont. Fifth, Du Pont uses natural gas, not oil, for 70 percent of its feedstock. Furthermore, as stated earlier, Du Pont planned to further its move away from oil by expanding its reliance on coal. The prospect, therefore, of DuPont spending $7 billion for an oil company in order to “compete” with the Third World was ludicrous.
What then could be DuPont’s use for Conoco’s oil, especially if other chemical companies followed DuPont’s lead to greater reliance on coal? That would lower demand for domestic oil, and its price. And also the value of Conoco’s oil assets.
There, of course, was the solution to the riddle: assets.
But for what purpose?
Dome Petroleum, ironically enough, provided an example. Dome had bid for the rest of Hudson Bay’s shares held by the Thomson family. That revealed that Dome wanted not just Hudson Bay’s valuable properties in Canada and abroad, but the cash flow from Hudson Bay’s subsidiaries. Without complete control, Dome was entitled only to dividends from Hudson Bay. With complete control it could use the subsidiaries’ revenue to service the $2.2 billion debt, 35.3 percent of its equity, that it had taken on the previous December. Hudson Bay’s subsidiaries, in other words, were targeted for milking. If enough capital were not put back into the subsidiaries, the milk would turn to blood.
DuPont, of course, had a huge debt. Longer term borrowings arranged through Morgan Stanley amounted to over $1 billion in the beginning of 1979, up from $241 million in 1972 when the company was still chaired by C.B. McCoy. By 1974, under Shapiro, it had been raised three-fold, to $793 million. That year Shapiro consolidated all majority-owned subsidiaries into DuPont’s accounts. Thereafter, Remington Arms and DuPont of Canada’s financial conditions were subsumed within DuPont’s accounting, and their past financial statements were no longer restated. These changes had no effect on DuPont’s net income, but increased DuPont’s reported sales revenue as a base for credit. In 1975, DuPont’s long-term debt was up again to $888 million, and in 1976, to $1.2 billion. 70
Through this entire period, the DuPonts, who were no outsiders with little experience in managing DuPont and therefore quite wise to Shapiro’s every step, authorized an increase in special compensation awards to his executives from $786,344 in 1973 to $1.4 million in 1974, $1.1 million in 1975, $1.1 million in 1976, $1.1 million in 1977, and $1.3 million in 1978. 71 It is odd for management to be so rewarded when a company’s performance is so poor (net earnings from 1974 to 1977 were below that of 1973).
It is intriguing that such amounts would be paid when the $1 billion debt incurred is equivalent to the $1 billion management alleged was absorbed as shipment losses because of OPEC price increases, especially intriguing when it is remembered that the Shapiro management claimed that it did not pass on these OPEC increases for fear of alienating or losing customers, a decision Shapiro himself acknowledged as “a management failure.” 72
The mystery gets even deeper (but less puzzling?) when one considers the findings of the Secretariat of the United Nations Conference on Trade and Development that out of the 1973 and 1979 increases in prices triggered by OPEC, “the subsequent spiraling of the prices was magnified by the pricing strategies of the chemicals majors through their extensive control of all phases of processing, marketing and distribution.” 73
The interrelationships between oil companies producing oil and gas and the chemical companies in Western Europe and North America had allowed the chemicals majors to penetrate many traditional markets of natural commodities, including natural rubber, cotton, metals and wool, systematically eliminating or eroding demand for competing primary commodities, irrespective of prices, which were sometimes three times higher than the natural commodities, as in cotton in the 1960’s.
This penetration, then, went “beyond the neo-classical economic notion of ‘interfiber competition’ and theory preaching the primacy of price in supply and demand.” 74 Research and development allowed creation and control of knowledge that was a vital pre-condition for aggressive marketing, introducing new products and reducing manufacturing costs. Shapiro, in fact, used some of his loaned funds to allow Edward Kane to introduce new manufacturing processes that increased productivity from 69 pounds per employee in 1974 to 104 pounds in 1979. 75 He then, like the other majors, applied the techniques in the blending of fibers and “components of various properties corresponding to more complex and demanding cloth formation and diversified fiber end-uses” 76 for texture, color, dyeability, durability, and tensile strength.
Marketing techniques psychologically conditioned brand recognition in the apparel-consuming public, with DuPont concentrating on “market guidance” for the textile industry based on its technical and marketing know-how and the stagnation of natural fibers, with emphasis “that individual corporate growth was now only possible through the use of synthetic fibers.” 77 DuPont’s Textile Marketing Division promoted Dacron, mobilizing 300 sales outlets in retail promotions by the end of 1977, and 60 television commercials during peak viewing times. 78
All this was designed to protect Du Pont from too many losses in its vulnerable synthetic fibers market, offsetting the decline in demand by an offensive marketing and production strategy. This was one of the reasons the Common Market filed complaints of “dumping,” when actually Shapiro was quite correct in arguing that he got a higher price in Europe for his synthetics than in America. But the aggressive marketing in Europe was nevertheless there. “Our immediate need,” Shapiro conceded, “was to stop the bleeding before we could think about the future.” 79
So he bled others, first his own pure research program, then his European workforce (4000 fired). While earnings continued to drop, he kept up dividend payments to shareholders to generate cash on the stock market, and through more loans advanced new product divisions, such as biochemicals and photo products. Still it was not enough.
The UN found that the chemicals majors also indulged in other practices to survive the 1970’s, including transfer pricing—that is, arbitrarily assigning prices to the transfers of goods and services, technology or loans between their related enterprises in various countries. 80 That included shipment losses.
One-third of all world trade is conducted between affiliates of transnational corporations, and Du Pont did over 30 percent of its business abroad, particularly in Europe.
The UN report cites overpricing through the manipulation of intra corporate transactions to lower taxation rates. Du Pont was found guilty of just such a practice by the Internal Revenue Service in the past. The IRS asserted that Du Pont sold products to its wholly owned Swiss subsidiary at unrealistically low prices as a means of cheating on U.S. taxes by diverting to the Swiss subsidiary income that ordinarily would have been taxable in the United States. The IRS reallocated the incomes, taxing most of the Swiss subsidiary’s income as if earned by DuPont in the U.S. DuPont paid under protest and then did only what the rich can do: it sued for a refund in the Federal Court of Claims. The Court upheld the IRS. In 1980, so did the Supreme Court.
The chemicals majors inflated prices and eroded competing natural fibers that might have more effectively competed in the marketplace and forced a sharper lowering of prices for synthetics than occured. But for Shapiro, prices were low enough. What is more important was the interdependency of the chemical companies with the oil majors for oil and gas feedstocks and the expansion and protection of the synthetic fibers market. Du Pont’s chemical companies’ alliances with ARCO, Conoco, and Shell were replicated by other chemical companies. “It is the interactions of these oil and chemical oligopolies,” found the UN report, “and not the unfettered operation of the laws of supply and demand which largely determine the fiber mix that is used in the textile market.” 81
This conquest by synthetic fibers was pioneered by the DuPont family, not Shapiro, and the huge revenues it brought the company put the DuPonts on the boards of major banks with intimate relations with the oil majors. These banks included Citibank (C.B. McCoy was a director), Chemical Bank (Lammot du Pont Copeland, Sr., was a director), Morgan Guaranty (Crawford Greenwalt was a director). “On the surface,” the UN report stated, “it appears industrial companies use banks for their own ends—true, but the real qualitative change in the power structures of capital is that banks raise the industrialists to the level of financiers.” 82 By the time the family had decided to move their investments beyond DuPont and dissolve Christiana, many DuPonts were thinking of themselves as being on that level.
Wilmington Trust is not known to be a bank with oil ties. Yet it was a sign of the Du Pont family’s move away from its previous concentration in chemicals and aviation and into energy that by 1976 Wilmington Trust held 1.1 percent of Kerr-McGee, 2.2 percent of Gulf Oil, and 1.3 percent of Diamond Shamrock. 83 Bank of Delaware also held 1.4 percent of Amerada Hess. 84
In 1977, DuPont Company purchased the assets of the Du Pont family’s Christiana Securities, making a book profit of $55 million. In 1978, profits were up 29 percent in the first half of the fiscal year, plants were running high and there was an upswing in prices and earnings for Du Pont. “When I look at our recent earnings,” said Shapiro, “I’m confident we’re on the right track.” 85 So the directors felt confident enough to return $200 million in long-term obligations. That still left a huge $1 billion debt. That year, DuPont stock sold for ten times its earnings and well below the price it had commanded as recently as 1976. With the market prospects looking brighter, there was reason to believe there would be an appreciation in value. In 1979, as profits continued to improve with earnings, the Du Pont board decided in May to authorize the splitting of each common share three for one, increasing the total number of common shares from 65 million to 195 million and reducing the par value from $5 a share to $1.66. The hope appeared to be that sustained growth would draw in more capital through stock sales that would in turn raise the stock’s price and appreciate the value of shares held in the company’s treasury for future loans if needed. It seemed reasonable, and significant in that the Du Pont family members were showing their willingness to dilute their controlling share of the company in exchange for an appreciation in value and some expected profit-taking. At the same time, however, there was growing alarm about oil giants moving into chemicals majors’ traditional markets. Exxon Chemicals already had sales of $4 billion, and Shell was competing in the ethylene market. There was also the pestering fear that consumer spending might drop sharply with the recession.
It did. DuPont’s plastics in 1980 saw a slash in profits from 1979’s $435 million to $272 million; fibers, from $509 million to $324 million. Overall operating profits in the U.S. plunged almost $400 million and in Europe was halved to $124 million. Earnings dropped badly. Interest payments to mostly banks, meanwhile, remained a huge $17 million. 86 The crunch was on.
The first move was in February, 1980, as things began to slip. Remington Arms, of which DuPont owned 69.5 percent, was merged into DuPont; the minority shareholders, mostly associated with William Rockefeller family interests, were bought out. This meant that Remington’s cash flow, and not merely its dividends, was available for tapping if need be. Another $192 million in long-term borrowing was taken on, up from $52 million in 1979, $13 million in 1978; DuPont also increased short-term borrowing by $163 million. 87 Some of this was used to retire other debts and pay interest. Total long-term debt held steady at $1,068,000,000.
Enter Conoco. Conoco earned $716 million on $13.6 billion in revenues; DuPont earned $1.02 billion on $18.7 billion. But Conoco’s assets included tangible properties that would appreciate over time, not depreciate. They could be used by DuPont to remove some of the volatility in DuPont’s earnings. And they could be sold.
“Chemical companies in recent years have been increasingly worried about oil companies using their oil reserves to develop into the petrochemical business,” commented Kidder, Peabody’s Paul Christopherson. “DuPont will be the one chemical company in the whole world that has put all those concerns behind it.”
Ralph Bailey also put it all behind him, settling comfortably into his new office in Wilmington. Questions were raised about an inside deal. Why, if he had been serious about the Texaco merger, hadn’t he stalled DuPont while testing the Reagan Administration on its anti-trust position? Because, some conjectured, DuPont had assured Conoco’s top management they could keep their jobs. Ralph Bailey seemed able to shrug off the anguish of Conoco’s second level managerial team. He denied he had made any deal in order to save his job or income, which in 1980 was $637,710. He also owned 29,699 shares of Conoco common with an option to buy 79,000 more at an average price of $39.70. 88 DuPont, of course, was paying $98. Bailey ended up owning 50,671 shares of DuPont common, with the right to acquire another 144,098 shares. He was also made a director of Morgan Guaranty, J.P. Morgan, Du Pont, and became vice-chairman of Du Pont’s board. He now owned more DuPont common stock than Shapiro (16,891) and Jefferson (12,038) combined. 89
The Conoco directors were also pleased. They represented the largest shareholders —financiers, not oilmen. And they made a killing. In 1976, Conoco’s admitted major stockholders held 16 percent of its outstanding shares and were represented by six Street names, Cede, Cudd, Lerche, Pace, Pitt and Salkeld. Behind three of these were Chase Manhattan (Cudd), Bank of New York (Lerche), and Bankers Trust (Pitt). Conoco’s largest debt holder was Chase, followed by Citibank, Morgan Guaranty, Mellon and the pension funds of New York State Employees and California State Teachers. 90 Conoco had strong ties to the Rockefeller family interests, represented by Nancy Hanks. Chase Manhattan also had three secondary director interlocks with the Conoco board through C.W. Buek (Equitable Life Assurance), Archie McCardell (American Express, General Foods) and Gilbert Jones (IBM). 91 It was not surprising that Conoco gave Chase the bulk of its loan business, much to Morgan’s displeasure. But it was a sign of growing ties between Du Pont and the Rockefellers, as well as of Du Pont’s legal discretion about having a Morgan banker on its board, that Chase was also given the business of arranging Du Pont’s $4 billion line of cash credit. Thirty-seven banks participated, including three which had Du Pont board members as executives, Chemical (which lent $27.2 million), Citibank ($39.3 million) and Morgan Guaranty ($50 million). Chemical, in fact, was chosen as the forwarding agent. 92
The big winner, however, turned out to be Edgar Bronfman. Edgar kept buying and buying. When his deadline expired, he had extended it and went back to buying more.Seagram ended up with 28 million Conoco shares, or 32.6 percent. Turning it in to DuPont, he collected 47.6 million DuPont shares, or 20.2 percent of 236 million shares outstanding.
It came as quite a shock in Wilmington. “I almost stopped drinking V.O. for a couple of weeks,” 93 Governor DuPont later said with a smile. The family had owned 46.8 million shares, 30 percent of the old company. But in the new DuPont, 236 million new shares had been issued. That reduced the family’s holding to 19.8 percent, with the Wilmington Trust group owning about 11 percent. Except for the latter group, the DuPonts would find it difficult to vote as a bloc quickly—unless the Wilmington Trust group organized them.
That was exactly what Bronfman was wary of, especially when he heard rumors of rebellion along the Brandywine.
At DuPont Headquarters, the worry was of another caliber. “Are they going to buy another 20 percent and kick us all out?” 94 Jefferson and other executives wondered. It was the typical concern of management: their own jobs come first.
Jefferson was alleged to also have the DuPonts to worry about. “It doesn’t take much imagination,” said one close source, “to see some of the DuPont family members on the board going to Jefferson and saying: ‘You’ve taken on $4 billion of debt to buy Conoco, depressed the stock price, and now we have to contend with the Bronfmans. What are you going to do for us next?’” 95
Someone must have said something or planned something because Jefferson was soon on the phone to the Seagram Building, inviting Edgar and Charles down to Wilmington.
The Bronfmans arrived with an air of confidence, but not so much to be unimpressed by all the signs of DuPont wealth around them. After all, there are not many families in America that control an entire state and have not just a building but streets, highways, parks, schools, hotels, even governors named after them. Jefferson wined the Bronfmans with plenty of Seagram’s best and implored them not to buy any more stock. Edgar and Charles listened, smiled, and ate an elegant lunch at DuPont Hotel. Then they left. “You know,” said Edgar, “they are very classy people.” 96
Class means something to a Jewish family anxious to move beyond what they consider the borderline respectability of liquor. And the DuPonts are the very model of WASP elite in America. No one understood this better than Irving Shapiro. Shapiro did it the right way. He went to them. He took Jefferson up to the Seagram Building in Manhattan and there he did what he does best—compromised. Shapiro and Bronfman knew each other well. In 1977, as leader of the Business Roundtable, Shapiro had struck another deal with Bronfman, who was then representing the World Jewish Congress in trying to get Washington’s opposition to the Arab boycott against companies doing business with Israel. Bronfman wanted no boycott, and Shapiro wanted no fight. A struggle on the floor of Congress could bust the reputation of DuPont and other corporations which did business with both Israeli and Arab.
Now Shapiro proposed another deal. A limit of a 25 percent holding and a standstill agreement for 15 years, exactly the terms Bronfman had been willing to accept from Conoco. If Seagram wants to cut the term to ten years, fine, only it must let DuPont know within the first six years. Meanwhile, the Bronfman brothers can sit on DuPont’s board and Jefferson and Shapiro will sit on Seagram’s; that way both sides can keep an eye on each other.
Bronfman agreed, on one condition. If any other group, such as the DuPonts, moved to grab 20 percent or more of DuPont stock, he wanted the freedom to act. “Frankly,” said Jefferson, “the DuPonts are more likely to sell stock than buy more.” 97 It had been said. Precisely what Shapiro had assured the SEC would not happen when the commissioners expressed concern that the family would unload their holdings and devalue the stock.
Edgar misunderstood, or at least shared Jefferson’s misunderstanding. He thought of the idle rich who sell their stock for spending money. “I have relatives like that too,” 98 he said, then treated them all to a lunch of oysters on the half shell with a 1968 Chablis, saddle of venison with a 1959 Mission-Haut-Brion, and apricot souflée with “a great Sauterne,” Chateau d’Yquem.
Edgar Bronfman did not have relatives like the DuPonts. Whatever thoughts he had along those lines were straightened out when he walked into his first directors meeting at the DuPont boardroom. There, surrounded by portraits of eleven grim generations of DuPonts, Edgar and Charles gazed across the giant polished mahogany table into the faces of DuPont elders staring back, all managing, at one moment or another, to smile.
The smiles were probably genuine, not merely cordial. For although the Bronfmans now held at least 21.3 percent, the DuPonts still dominated the board. They also had gotten what they wanted. They had used the chemical firm’s leverage to branch out into oil, coal and uranium. And now, with management and the Bronfmans obliged by their standstill agreement to follow that management, Conoco, too, could be auctioned off piece by piece to settle DuPont’s debt, or used as leverage for a still larger acquisition, perhaps even a bank.
For that, they would not have to rely on the good graces of an outsider. One of their own was in place. His name was Pete. And he had even bigger ambitions.
He had never left Delaware. After spending six months at Allenwood Federal Penitentiary, he returned to look for work as a social worker. There was no question about his credentials. He still held his masters degree in social work from Rutgers and no one could take twenty years of experience from him. But no one would hire him; social agency executives have it difficult enough in a conservative state like Delaware; they did not need the possible bad publicity. His family still had his tavern near the town of Bear, “Mel’s Place” it had been called, and he kept up the business as best he could. He applied for social work across the river in New Jersey, and finally located work at an anti-poverty agency in Bridgeton, New Jersey.
A month or so after Pete DuPont’s re-election in Delaware, the Bridgeton agency had visitors. Representatives of the Community Action of Greater Wilmington (CAGW), one of the city’s largest anti-poverty agencies, were scouting for a new director to help them survive the budget cuts promised by President-elect Ronald Reagan. The head of the Bridgeton agency, William Hallman, had been recommended by state Representative Herman Holloway, a member of the CAGW board. They met Hallman, liked him and asked him to join. When he came, he brought Mel Slawik as his deputy director.
“He has the capabilities I need at this junction,” Hallman told an incredulous News-Journal, “and he has the background, no doubt about it.” The CAGW had been criticized for a lack of competent staff. “Having people like Mel around will at least compensate for that lack.”
Mel Slawik was good copy, and the reporters seemed to know what they were expected to write. They ran a story on “The Surprising Return of Slawik,” picturing the former county executive standing behind his desk, looking earnest and hopeful. “Slawik was forced to leave the county executive post in 1976 after being convicted for lying to a federal grand jury investigating corruption in county government,” wrote reporter Charles Farrell. “His jury conviction was eventually overturned, but he spent more than six months in jail for obstruction of justice.” Hallman was immediately put on the defensive. “We couldn’t very well deny Mel Slawik a position because of a previous conviction. That’s in the regulations. And he was never convicted of malfeasance. You shouldn’t beat a dead horse. He should have the opportunity for employment like everybody else.” Slawik, too, was apologetic, and made the mistake of saying that the way he returned to public service in Delaware was “sort of like coming in the back door.” He admitted he had some general detractors, but said that, in general, “the reception has been good. Most people are happy to have me back.”
Not most people along the Brandywine. They may well have shuddered at his pledge to “develop a better community relationship with a political base. This has to become a viable community agency—supported by the community or it’s going to go out of existence.” “For this,” the reporter wrote, “he said he will be earning around $19,000 a year. CAGW’s greatest priority, according to Slawik, is to ‘affirm its role in the whole greater Wilmington area. It’s thought of as just for Wilmington and there are areas in the suburbs that could use some advocacy.’”
Suburbs? New Castle County? This sounded too much like the old Mel Slawik, and he spoke openly of politics. “I know a lot of politicians,” he said, “and have good relations with some, and some not so good relations. But I’m going to have to show the political structure, both Republican and Democrat, that this agency is not partisan. We have to work with everybody.” The News-Journal then reported that “Slawik recalled that while he was county executive, he obtained some revenue sharing money that ‘kept CAGW alive.’ Asked if he missed politics, Slawik said he maintains ties with those in office. ‘You’re never really out of politics.’” The paper printed his disclaimer of any intention of running for elected office and the U.S. Attorney’s assurance he could not because of his felony conviction.99
Eleven months passed, during which Slawik worked hard by all accounts, helping Hallman meet the 50 percent slash in federal aid that President Reagan’s budget cuts were imposing on poverty agencies across the nation. He secured a new headquarters for CAGW at 2nd and Market Streets, property sure to appreciate in value as part of the area adjoining the Christina Gateway, the focus of GWDC plans for downtown real estate development, including a projected new building for the new Delaware branch of Citibank. And he avoided getting involved in the renewed controversy over County Executive Richard Collins’s refusal to tax industrial and commercial fixtures.
The issue had resurfaced due to the efforts of the Citizens Coalition for Tax Reform led by Ted Keller and Mark Haskell of the University of Delaware’s College of Urban Affairs. It was a replay of the Slawik days, with the same battle lines drawn between the same contenders, with one notable absentee—Mel Slawik. Pressured by the State Chamber of Commerce, Collins confirmed that his “administration is not considering and has not ever considered imposing a fixtures tax in New Castle County.” 100 Councilman James Farley introduced a protective resolution that became the subject of objections by the Citizens Coalition, but the News-Journal failed even to report it, although a reporter was present. Meanwhile, a $2 million contract for property value reassessments was about to go to a familiar name, Cole-Layer-Trumble, since 1975 under new ownership, Day and Zimmerman, Inc., a Philadelphia engineering firm. “This isn’t the old CLT,” said vice-president Joseph La Sala. The new CLT, however, had shown a novel way of winning friends: When Ted Keller, testifying for the County Council, associated the new CLT with the old CLT’s reputation of “deception, incompetence, and favoritism to the affluent and large industrial property owners,” 101 102 it threatened to sue him and the Coalition. 103 Keller was obliged to make a retraction,but a storm of protest by property owners and real estate agents sent the CLT contract down to defeat in November, 1981, by a Council facing reelection.
Through it all, Slawik had been concentrating instead on plans for CAGW to buy a grocery store to provide food at low prices, an apartment building for low-income housing, and a policeman’s lodge for conversion into a halfway house for released prisoners. Many of the participants in these programs would be Hispanics or Blacks; the latter alone made up 50 percent of Wilmington’s population and endured a high rate of unemployment. Slawik, as an associate of one of the state’s principal Black leaders, Rep. Herman Holloway, would be organizing programs that could give CAGW his proposed “political base” among a community living in an area slated for real estate development. The contradiction with Irénée DuPont’s plans for the Christina Gateway or lawyer Irving Shapiro’s call for a “financial center” or even Governor DuPont’s program to make Delaware “the Luxembourg of the United States for banking and finance” need not be emphasized. Suffice it to say it was not the kind of activity in downtown Wilmington that fit a conservative white-collar image.
The attack, nevertheless, came from an unexpected place: the office of the CAGW. But its deliverer was familiar enough: the News-Journal.
A little more than a month after CLT’s bid for property reassessments was rejected, a story appeared in the paper about Community Action of Greater Wilmington, the antipoverty agency responsible for administering federal money for residential weatherproofing that winter, and Head Start pre-kindergarten and community nutrition programs. It cited financial records that allegedly showed the agency had only $5600 left of a $118,000 federal Community Service Administration grant to run programs through December. The records were “released after a six-hour meeting of the executive board and read publicly by treasurer Elmer Fitchett.” “How could this happen?” one of CAGW’s board members was quoted saying.
The situation was reported as scandalous: over $145,000 in debts, including $45,000 due since November; misappropriated funds; overspending. Identifying his source as “a member of the committee at the meeting,” reporter Michael Jackson, a recent young arrival from Philadelphia, wrote that a request had been made that Hallman resign, but the motion had been defeated. He also reported that as soon as the report was read, “the board went into executive session that may have been in violation of the state Freedom of Information Act.” 104 Meanwhile, Jackson kept his own source secret.
Later it was revealed to be CAGW’s comptroller, Richard Thompson, a man who as a vice-president of Delaware Trust had pleaded guilty in 1970 to embezzlement and was given psychiatric care in lieu of jail. Slawik had collided with Thompson over the latter’s absenteeism and wanted him to resign or dock his pay. Thompson thought that unfair, especially since Hallman, the director, was often absent from the office for days of the week, keeping in touch by phone and making decisions. Slawik had not been happy with Hallman, either, and proposed he take a leave of absence. Hallman refused, insisting on making key decisions that undoubtedly led to mismanagement. Thompson, however, had no sympathies for Slawik, and began feeding reporter Jackson stories about huge financial deficits and wild spending. In fact, there were no huge deficits.
The next article, on December 18, was more focused. Headlined SLAWIK HAD ANTIPOVERTY AGENCY PLACE STORM WINDOWS ON HIS HOME, the article began by reporting that Slawik “ordered” employees of CAGW to install storm windows on his home “in apparent violation of federal regulations that required documentation that the home was eligible for the program.” The article was completely misleading. Slawik had asked Robert Hall, director of planning, to inquire if it would be proper for him to give several employees work by hiring them out of his own pocket for the job; he ordered no one. Later Hall affirmed it was all right. The federal regulation, of course, applied only to homes which were weatherized with federal funds. Jackson did not point that out; nor did his editors; but the article did point out Slawik’s removal from office in 1976 “after his conviction on federal perjury charges.” It also failed to mention the reversal by the appeals court, but did not fail to mention his serving time in prison, and repeated the charges of wild spending. Unidentified “sources” were alleged to have said both Hallman and Slawik had lost their hiring and firing powers because of “the financial woes.” 105
Slawik by now had grimly realized that not only was Jackson’s reportage inaccurate, but the News-Journal editors were apparently allowing it to happen. He also suspected that he was being made the goat for the destruction of not only his programs, but the CAGW itself.
A week later, the News-Journal unleashed another salvo, picturing CAGW’s Richard Thompson rubbing his eyes as Slawik addressed a meeting. Hallman and Slawik were reported allowed to “cling” to their posts by a tie vote during a meeting “called because immense financial problems at the agency have led to a deficit of more than $100,000.” 106
Slawik’s corrections on Jackson’s stories, submitted later in a formal complaint to the National News Council in New York, were by now as voluminous as the articles, and others in the Wilmington community shared his concern, contacting the paper. On December 27, Public Editor Harry Themal, holding a post that is supposed to represent the public, not management, responded that “those friends must be hard-pressed to defend Slawik and his associates when the anti-poverty agency where he is second in command has overspent its available funds by more than $100,000.” After repeating the false charge, Themal then recounted Slawik jailing “after pleading guilty to obstruction of justice in a federal probe of county government corruption. Some people in the community,” Themal conceded, “and Slawik himself, felt the newspapers had hounded the government into pursuing him. That contention was and is ridiculous because prosecutors and judges are influenced by evidence, not newspaper stories.” 107 Which, of course, was why the prosecutor and the judge and an inflamed jury in Slawik’s only trial were ultimately reversed.
What happened next was predictable. Five days after Christmas, County Executive Richard Collins halted all payments of federal aid to CAGW. The money suspended included not only a $60,000 grant for weatherproofing poor people’s homes in the community that winter, but also $30,000 to train unemployed residents in the weatherproofing skills. The staff, including Slawik, was laid off.
Governor DuPont’s Administration also stepped in to halt any payments of a $260,000 federal grant scheduled to be funneled through the state Office of Economic Opportunity. Wilmington Mayor William McLaughlin also froze funds.
Governor DuPont established a task force of the three levels of government, headed by cousin Nathan Hayward, to investigate. The News-Journal, encouraged, froze minds with a chilling editorial charging that “squanderers” had “spent thousands of unbudgeted dollars on fancy meals, travel, personal phone calls and the hiring of good buddies.” A “comfortable surplus of $150,000” had “in just a few months” become a $100,000 deficit. “The director and his assistants abused the public trust,” and the editorial questioned “how they were able to get away with this abuse month after month.” Praising the funding freeze, the News-Journal insisted that authorities “place the agency in federal receivership. Do that at once.” 108
MORE HEADS ROLL AT CAGW 109 ran the headline the next day, although no one had already been fired to account for the “more.” That, however, did not stop Jackson from mistakenly reporting the establishment of a committee to oversee operations that had already existed, or the News-Journal from printing a photo of Slawik and Thompson, their hands to their faces, with a caption alleging they were in a “huddle at back of meeting room.” The insinuation was obvious. Slawik was somehow in cahoots with Thompson, who had just been fired along with Hallman. In reality, Slawik was not fired, nor were he and Thompson talking to each other at the time. The photograph actually shows Slawik standing in front of Thompson, his back to him, his hand on his chin, while Thompson is adjusting his glasses. Neither is acknowledging the other. But Mel Slawik’s reputation and career had once again been ruined.
On January 11, the News-Journal cartoonist imaginatively drew a carton of eggs labeled “Community Action of Greater Wilmington” and the caption, “You start with a couple of bad ones, then you have to throw them all out.” By February, CAGW’s new headquarters on Market Street was under attack; the paper charged it had apparently been bought illegally. But comments by lawyers quoted in the article, CAGW board member Gary Hindes wrote News-Journal Executive Editor Sydney Hurlbert, indicated that was a groundless charge. Hindes asserted that the News-Journal’s “Jackson and (Hugh) Cutler are continuing to malign CAGW.” 110 Yes, Hugh Cutler had never left after the Thursday Night Massacre of 1975. He had indeed found his niche.
“This is a story of how a newspaper destroyed an agency,” wrote the President of the New Castle County Council on March 7, 1982. An audit of CAGW showed a surplus of $49,000. “Unfortunately, the damage has already been done: CAGW has lost all credibility in the community; staff people have been fired; reputations have been ruined; and vital services to the poor and needy have gotten lost in the shuffle.”
“Freedom of the press is a right we hold sacred; but with this right is the obligation to print the truth.” 111
It was the first time that the News-Journal had done so—as a letter to the editor. Mel Slawik had less luck with his June, 1982, letter of complaint to the National News Council. Associate Director of the Council Richard Cunningham wrote back suggesting Slawik avail himself of the good services of Public Editor Harry Themal. Cunningham had called the News-Journal for background and concluded Themal’s columns, acknowledging unfairness, had given “you your day in court.” 112 Slawik pressed his complaint, asking the newspaper to acknowledge it was wrong and apologize, asking Themal for the memo of concern he told Cunningham he had sent to the paper’s editors (Themal refused on the grounds of confidentiality) and asking three more times for help from the News Council.
But Mel Slawik had indeed had his day in court, the National News Council repeated.
Only then did Slawik notice the name of the Council’s Chairman and now “Senior Advisor”: Norman Isaacs, the former president of the News-Journal. On December 16, 1982, the Governors Task Force filed its report on CAGW. It expressed its concern about the CAGW staff’s “lateness of the (CAGW) board notification of the proposed acquisition and impending purchase” of the Market Street property, and admonished the CAGW for poor management and “the substantial investment of time and money it has taken to help identify and alleviate the problem which this agency has encountered. …” 113
The Market Street property charge bothered CAGW board member June Eisley the most. “I can’t help but wonder what kind of job the Task Force did if it could make a statement like that,” she wrote its chairman, Nathan Hayward III. “On what information was this statement made? I know it wasn’t true when I read it so I went back through all my old minutes and am enclosing parts of the minutes from February, March, May and June of 1981, which document that the Board had been in on the entire transaction starting at that time.” She took offense at the report’s admonition about money and time spent by its members. “If anyone had listened to those of us who knew what had happened and tried to explain it at the very beginning, no one would have had to spend money or your time on a task force.… Gary Hindes said, basically, last January what it took a whole year of audits and investigations to prove. The problem was, in my opinion, that too many people in authority wanted to believe the allegations; and many, in fact, wanted the agency to die.” 114
Eisley represented the President of the New Castle County Council on the CAGW board, which barely survived the ordeal without funding. She was furious over what had been done to the agency and, after waiting two months to hear from Hayward, let the governor know it, sending him a copy of her correspondence to his representative on the Task Force, asking him to read it. “I always had the feeling that politics was involved in the Task Force,” Eisley wrote DuPont, “and its final report, along with the aggravation that CAGW encountered because of the needless, held-up funding by the State for months upon months, reinforced my suspicions. It was very discouraging for me to see political game-playing when the survival of New Castle County’s official anti-poverty agency, whose business is helping poor people, was involved.” 115
But the governor had other people on his mind that month. Earlier, in his January “state of the state” address he had already made his gesture to the poor. He spoke with compassion before the legislature when he announced increased state aid to families with dependent children would begin in January, 1984. Real compassion, some argued, would not allow those needy to starve another year before granting them relief. And his solemn tone contrasted with an administration that had, in fact, done little for the plight of the needy in six long years. Social Services still suffered from his budget cuts, while he continued to press for tax breaks for upper incomes and corporations. Since the year of his reelection, 1980, the percentage of the state’s general fund contributed by corporate income taxes also declined by 20 percent, from 1979’s $50.2 million to 1982’s $40.4 million. 116
Pete’s ally—or rather, mentor—in this effort was Irving Shapiro. Since chairing his last DuPont annual meeting in April, 1981, Shapiro had been turning his attention to Delaware. This was no conflict with his role as chairman of DuPont’s finance committee. After helping Jefferson with the Conoco merger and settling the Bronfman affair, he found the DuPonts shared his interest in other mergers and fields of investment beyond the chemical company, and their views on Delaware’s future had long coincided.
“I want to make Delaware a financial services center,” he said, and saw his captaining of DuPont’s finances, including the huge capital represented by DuPont and Conoco’s combined assets, as, in league with the DuPonts, a powerful tool to shape Delaware to their latest perspective. He found his allies among the family not to have changed: Irénée DuPont, Jr., still represented the family’s major voice in the affairs of the company as well as Delaware’s business community through the State Chamber of Commerce. Eleuthère DuPont remained the guardian of the family’s thrust into the money markets and its fledgling interest in Crown Central Petroleum; Irving retaining his seat on Continental American Life Insurance’s board; Edward DuPont maintained his role as quiet keeper of the keys to the family treasure, the trust department of Wilmington Trust; and Pete DuPont continued expanding his reach over the family’s political networks, succeeding to the power of his uncle, Reynolds DuPont, in state affairs and now easily reaching beyond.
At Du Pont, Conoco’s fiercely independent oilmen proved more troublesome to absorb than the more powerful Bronfmans. The latter quietly took their seats at Du Pont’s board and watched, were pleasant; and at the finance committee, Edgar or Charles would listen carefully, ask questions, and learn—always learn. With the oil men, however, it was rough at first; resentments had to be soothed, self interests appealed to, curiosity stoked. The Steelworkers aroused everyone’s interest, although their organizing efforts seemed a faint rumor, a whisper in the night. The ram horns of an earlier age of labor were simply not heard within Jericho. Occasionally a small legion would be assembled at Employees Relations and dispatched to do battle with video displays, lectures, a leaflet of facts, a dark word of advice, but the local garrisons were doing well in the provinces. All seemed secure, especially if the windows were kept shut, the cries not heard, the fear not felt. Just DUPONT … Better things … DuPont … There’s a whole world … DuPont. The organization predominant.
“We have no arbitration. That’s what kills us,” said Glen Ferguson. He was the grievance chairman of his union at DuPont’s Newport pigments plant. He filed 147 grievances in 1981 and was surprised now, in June of 1982, that management refused to come to an agreement on safety. He already had won his test case. A supervisor could not order a woman to perform a job she believed unsafe. Yet the “symbol put on automatic shutoff equipment had come down, replaced by restraints, then locked barriers ordered by upper management,” he said. Recently, he had been barred from bringing his union files into the lunch room as usual; to do his grievance filing, he now had to miss lunch. “I’m not allowed to go on the plant to solicit or investigate grievances,” he charged, “but when I’m at work, I’m not allowed out of my area without permission. That stops the union cold.” 117
Plant manager Frank Bredemus could not understand. “We attempt to deal fairly and responsibly with the union. If we are not responsive, then we’re not doing our job.” Ferguson, he insisted, was allowed three hours per week for grievance work. “Perhaps Glen is not typical of how the employees view the system.” 118
Carl De Martino, Jefferson’s vice-president for employee relations, assured that the system of 3300 national union members out of 25,000 workers meant DuPont and the worker were spared the “open charade” of national unions. “DuPont doesn’t bargain like the national unions. Our method is that we talk and take all the inputs … and we make an offer, but our offer is a reasonable one.” “We just have to like what is given,” affirmed Ferguson.
“It isn’t that we don’t want unions,” explained De Martino. “We don’t want anybody in the middle of that [employee-supervisor] relationship. Our goal is to start them nonunion and maintain them non-union.” 119
Two years before Edward Escue took issue with De Martino on the need for unions. “As a DuPont employee of 16 years and arbitrator for the local independent union at the Old Hickory, Tennessee, plant, I have been involved in four discharge cases within the last two years. An impartial arbitrator ruled those employees were discharged unjustly. Two of these people had over 13 years with the company. Had there not been a union to protest and arbitrate, these DuPonters would no longer be with the company. How would they get their share of this ‘fair and equitable treatment?’” 120
It had been the rallying cry, but not in harmony; pro-union highs at plants lowered; others which had been low, rose. There was unity of purpose, but not of motion or pace; no orchestra, just a small band of organizers racing to play in tune against the cacophony around them, missing a beat here, a note there, and almost always met with a deafening silence in the South, where high local wages lulled one to sleep, numb to conditions and strange things called unions. When there seemed to be an awakening, bolts of fear sufficed for reason, raising spectres of long lines of grim payless strikers, enslaved by “labor bosses.” And there was always the (DuPont) family company or the company (DuPonter) family, or flattery to youth too schooled to accept, at least for now, the leaders of “big labor,” rejecting organizers for being too political or not political enough.
But always the result was the same, and when the vote was finally called, the defeat was worse than expected: Chattanooga, 1146 against, 961 for; Kingston, North Carolina, 1183 against, 681 for; and on it went, 14 plants in all, most of them in the South, with a Carl De Martino who could say, “I don’t think geography makes any difference.”
It was a decisive moment in the history of American labor and an encouragement to an anti-union White House. For as long as the South remained the bastion of cheap labor, all job security would be threatened, all labor cheapened. The DuPont defeat broke the stride of recent union gains in the South, and broke the back of labor’s most significant organizing drive in a generation. “We granted the DuPont workers,” said the National organizer John Oshinski, “the opportunity to throw off DuPont’s total control of their working lives. The majority chose to turn down the opportunity. This hard- fought campaign has now been concluded.” 121 It was all he had to offer the vanquished; for the victor, this, too, was a feast.
Later, there would be calls for continuing, and Oshinski would waver before dropping away, leaving the DuPont workers to their fate.
It was swift in coming.
“We’re working under worse conditions now than we have in years,” said Fred Durham, vice-president of the Newport local, as he and other off-duty workers picketed in front of DuPont Headquarters. “We decided our only action is to go public.” 122 Funeral leave had been reduced to a day. Union activities were being considered in work evaluations, they charged, in violation of federal labor law. Asbestos in the plant’s insulation was causing sickness, cancers. Workers handing out handbills about labor rights were filmed and surveilled by DuPont, also in violation of federal labor protection laws.
“When you think about it, if you don’t believe the individual counts,” Jefferson told a Delaware Today writer, six months before the Steelworkers’ vote, “then things get very defeatist. There’s no reason for even trying.” 123
“They’ve done everyone in,” Fred Durham reported just two weeks later of an exposure of 30 employees at the Newport plant to deadly high-level polychlorinated biphenyls (PCBs). The production of PCBs had been banned by federal laws several years ago. But on December 1, 1982, six weeks after one of seven trial runs to produce a yellow pigment that looked like dry pancake matter, “one of our chemists, in looking at the process that we were running, got the idea that we could be making PCB.” 124 The dust from the batter had been inhaled by the workers in concentrations of just over 50 parts per million, the EPA limit, to almost 700 parts. Even 50 parts were dangerous, according to Philip Bierbaum of the National Institute for Occupational Safety and Health in Cincinatti. “We believe that the PCB’s based on animal studies are very toxic,” 125 causing cancer, liver damage, reproduction problems and skin diseases. Nevertheless, DuPont manager David Willete insisted that calculations indicated the workers had not been exposed to any health hazards. None of the men were wearing respirators.
There were also reports of direct contact with the material in liquid form during clean-ups. Willete denied any attempt was made to dry out the PCB from its original liquid form or to shovel it out. But Ara Histed, who attended the grievance meeting, said workers involved in the contamination cleanup described attempts to dry out the remaining four batches of liquid matter. “After it plugged the machine, they tried to liquify it again and that’s when it spilled out.… So they had to shovel it.… It spilled on the men’s shoes.… They still wear the same shoes.” The PCBs sloshed out of 55-gallon drums and spilled onto about 30 workers. Supervisors told them it was PCB, “but they did not explain to them what it was.” A laundry worker at the plant stated that “as far as I’m concerned anybody that washed their clothes in the plant laundry has been exposed to the stuff.” The worker asked that his name not be used because he feared losing his job. 126
“The Occupational Safety and Health Administration has been a disaster,” asserted Irving Shapiro. “You don’t create a safe environment for workers by having inspectors going around and fining factories. By the time he left the office, I had the Secretary of Labor [under Carter] pretty well convinced that he was on the wrong track. I wouldn’t quarrel with a suitable program that focused on education, not penalties.” 127
Shapiro was working hard to remove such penalties, and he was getting paid very well for doing so. At DuPont, for example, his legal counsel on regulations, finance and other matters grossed an income between May, 1981, and December, 1981, of $70,000. 128 Each day he stopped off at DuPont Headquarters and then walked the block and a half to his new office at Skadden, Arps’s Wilmington offices. Skadden had a team of 14 lawyers there, but Shapiro was the star. He liked and admired merger-master Joe Flom. Skadden, with an army of 300 lawyers, was in the vanguard of law firms adopting business practices and Shapiro had already gotten the firm to set up a corporate-style chief executive to administer the firm rather than practice law, examining data on office expansion, long-term planning for areas of practice, day-to-day operations, and hiring needs. In the last category, Shapiro was opposed to wasting talent and time invested by laying off failed prospects for partnership after seven years, which is traditional in law. Both Flom and Shapiro declined the executive position, there being more interest and money in practicing law. And Shapiro practices it well, representing such clients as Occidental Petroleum and Mead Corporation.
Shapiro was now trying to jettison English common law, the backbone of American law. For Mead, for example, Shapiro lobbied senators with Griffin Bell to push through a bill freeing corporate clients from the threat of huge fines levied for fixing prices. The law currently stipulates triple damages on total damages by all conspirators, a time honored common-law doctrine of the “joint and several liability” of co-conspirators. 129 The bill, sponsored by arch-conservative Senator Strom Thurmond (whose seniority has secured for him the chair of the powerful Senate Judiciary Committee), would permit a “right of combination” whereby a company can sue for damages another conspirator who has not settled a claim, or damages only in proportion to their share of the sales at issue, effectively eliminating triple-damage. Even a 100 percent damage, then, would be limited by the share of the market affected.
Shapiro, said Joe Flom, “is especially good at figuring out what kind of government reaction we might get to a particular business action, whether it is in energy, anti-trust or securities. I think it’s been an easy transition for him.” 130
In energy, Shapiro was DuPont’s architect, steering the company into a series of alliances with energy companies. He had no use for Carter’s energy policies, although he liked the step toward a concerted national energy program. “On the energy issue,” he once remarked sharply, “I must say that if we ran this business the way the President and Congress have tried to deal with this problem, we’d be tossed out pretty quickly.” 131 Whether he meant that literally for Carter, despite his public support for his re-election, is unknown. But more than one political analyst noted the presence of Shapiro’s heir apparent, Edward Jefferson, on candidate Reagan’s energy advisory team during his race against Carter.
The snaring of Conoco for the DuPonts was not Shapiro’s only great achievement in energy, although it is probably the crowning one. He also is a legal adviser to Bechtel Corporation, a leading constructor of nuclear power plants. In May, 1982, at the Annual Meeting, Shapiro faced one of his only public moral dramas as chairman when he was confronted by ten church groups calling for an end to DuPont’s running of the government’s Savannah River Plant, the country’s only producer of plutonium for atomic weapons.
The origins of the SRP go back to the Manhattan Project, the secret program to make the first atomic bomb, which involved DuPont Company and particularly family in-law Crawford Greenewalt. DuPont’s performance during the war involved, incidentally, the Chambers Works in Deepwater, New Jersey, where radioactive residue is still embedded in buildings, raising some serious legal damages questions about the health of workers exposed there to long-term radioactivity. DuPont had not informed post-war workers of the potential dangers of working at certain sites in Chambers. But it is probably indemnified from damages of lawsuits by the contract it signed with the U.S. Government during World War II, which specifically stipulates that the DuPont Company will be free of all obligations and that everything will fall on the shoulders of Washington. President Roosevelt, in fact, signed a special executive order to this effect under the First War Powers Act protecting DuPont from the laws of the United States.
It was President Harry Truman’s reluctance to do likewise, documents show, that delayed DuPont’s participation in the Savannah River Plant.
Contrary to the publicity that DuPont’s public relations office has put out for over thirty years, DuPont did not patriotically jump to the president’s call to help set up the SRP. In fact, there was quite a delay, from July 2, 1950, when President Truman first wrote DuPont, to October 17, 1950, when Greenewalt deigned to respond after DuPont had gotten out of the president what it wanted. This delay came despite the inflated sense of urgency about developing the hydrogen bomb during those days of the Korean War and the first Soviet atomic explosion.
The search for a site for the new atomic plant was still going on by the Atomic Energy Commission when its chairman, Gordon Dean, wrote President Truman on September 27, 1950, and informed him that DuPont Company insisted on having the president’s personal approval. This was not merely for corporate propaganda purposes, but for protection of DuPont from any suits by individuals or corporations.
“In view of the hazards and uncertainties in the work and the fact that the Company will perform the work for a fee of one dollar, the Company feels that it must have any additional protection which might be afforded by specific action of the President pursuant to section 12(b) quoted above.” 132
The section referred to the Atomic Energy Act which had an exemption, Dean noted, “similar in many respects to the exemption provided in the First War Powers Act.” 133 The statute exempts, by presidential order, “any specific action of the Commission in a particular matter from the provisions of law relating to contracts whenever he determines such action is essential in the interest of the common defense and security.” DuPont’s cooperation was considered essential for the nation’s defense and security. If the only way the government could get it was to sign a special presidential exemption of provisions of contract law for the AEC’s contract with DuPont, the president had no choice. He had to sign. The DuPonts knew this when they insisted he do so.
The key provision, as Dean wrote White House Counsel Frank Murphy, had to do with such matters as storage and spills or other accidental releases of radioactive materials, including even a nuclear accident. During the Manhattan Project, “The contract contained an indemnity clause holding the Company harmless against any losses, expenses, or liabilities of any kind except caused directly by bad faith or willful misconduct on the part of some corporate officer or officers of the company.”
“… The Company feels that it can be assured of substantially this kind of protection only by action of the President …” 134
The AEC attempted to convince the DuPonts that the AEC had full powers to enter the cost reimbursement contract and that no other company on the project had insisted on the extraordinary presidential exemptions. 135
Furthermore, DuPont’s real concern was money.… “It is clear,” wrote Dean to White House Counsel Frank Murphy, “that the principal legal problem raised by the DuPont Company is the problem of the legality of a commitment contingent in nature but necessarily unlimited as to amount which may involve future appropriations.” 136 The question was the extent of the government’s obligation if any legal action should ensue from DuPont’s work. DuPont wanted to be absolutely sure that it had no obligations; everything would be borne by the taxpayer.
DuPont selected the Savannah River site. From the beginning it was expected that “the new AEC plant, while having a primarily military purpose at this time, will add to the nation’s capacity for producing fuels which someday will be needed to utilize atomic energy for useful power. If the new facilities are not needed for defense, they can produce fuel for industry.” 137 Two hundred sixty million dollars was initially appropriated. Families living there were moved out.
Workers who were moved in were not adequately protected. DuPont, according to Dr. William Norwood, a former Chambers Works employee, was the only one of five major nuclear production facilities that would not cooperate with the National Transuranium Registry in Hanford, Washington, a clearinghouse and research center for the health of nuclear workers. DuPont was not informing its workers that the Registry wanted to perform autopsies on their bodies when they died, and was refusing to give adequate information to Norwood so the Registry could identify people poisoned by plutonium. DuPont’s plant manager admitted to Allendale (S.C.) County Citizen reporter Patrick Tyler that DuPont was not informing workers of all the dangers of plutonium. DuPont, the manager conceded, “Should not have been as positive” in telling workers their health was not threatened by minute quantities of plutonium, as long-term effects are unknown. About 350 DuPont workers had traces of plutonium in their urine, the “great majority” with traces less than five percent of the permissible federal level. 138
DuPont’s amoral position on plutonium production contrasts strangely with its confidence in SRP’s waste disposal system. By 1988, a new plant is scheduled to be in operation to solidify high-level waste; it will be subsequently shipped to a federal mined geologic repository. Hydraulic mining of wastes from existing tanks will also be provided by the new plant. The seepage basins were originally constructed assuming only shallow migration of radioactive wastes. Since then it is shown that seepage continues downward into aquifers and does not “seep out” into shallow groundwater only. How much contamination has already occurred is unknown, but the Tuscaloosa aquifer’s contamination has already been confirmed by the SRP. 139 The SRP reactors do not have containment covers to prevent massive amounts of contamination from entering the air. The Three-Mile Island release would have been much more serious if civilian reactors had not been required to have domes. Already releases of krypton 85, a fission product, from SRP have contributed to changes in the electrical properties of the atmosphere that affect weather. 140 Furthermore, the arms race and increase in military spending for nuclear weapons has increased plutonium production and radioactive waste at SRP. 141 Millions of gallons of this waste are stored at the facility, awaiting a federal decision on how and where to store them permanently. 142 The Reagan Administration has authorized the rehaul of an old L-reactor which was scheduled to pump radioactive wastes into the Savannah River until environmentalists won a temporary restraining order. 143 Senator Strom Thurmond, an advocate of increased defense spending, is a frequent visitor to DuPont’s SRP. The SRP is the sole producer of all weapons-grade plutonium made in the western hemisphere.
Jefferson leaped to the SRP’s defense in September, 1982, to attack a News-Journal report by Joe Trento on a blood disease, polycythemia vera, that has struck the town of Ellenton, S.C., at 500 times the national rate. The town’s disease, Jefferson pointed out, has never been known to be triggered by radiation. But Trento’s article revealed a dislike of DuPont’s power by area residents almost as potent as the disease, as well as a statement by Dr. Carl J. Johnson, a Denver expert on nuclear illnesses, who said he was privy to a secret report on radiation emissions at Savannah River and claimed, “they have been much greater than reported to the public.…” 144
DuPont’s involvement in the secrets of atomic warfare probably had much to do with its advanced security consciousness and played a role not only in Greenawalt’s rise in the company but in his contacts within the intelligence community through Radio Free Europe’s board of corporate sponsors, the Free Europe Committee, of which he was chairman in the early 1960’s. 145 One unfortunate sidelight to the work of this committee of respected businessmen was its use of Boy Scouts to distribute the “Truth Broadcasting” pamphlets of the CIA-controlled Radio Free Europe in home towns across the nation. Out of the Manhattan Project also came James Moore, assistant professor of chemistry at the University of Delaware. Moore was involved in the CIA’s mind-control drug research, known as Project MK-ULTRA. Moore was a key contact for the CIA with a prominent chemical company president who supplied the CIA with drugs. 146
In 1967, Greenewalt joined in ceremonies in Chicago marking the 25th anniversary of the first self-sustained nuclear chain reaction, which he had witnessed when Enrico Fermi pulled the rods that changed human destiny. By 1979, Du Pont was the second largest AEC contractor, with $124.9 million in contracts. 147
The SRP, according to its external affairs officer, James Gaver, has sold heavy water (D20) for the past 25 years to a number of foreign countries, including Argentina, Brazil, Taiwan, India, Pakistan, Spain, West Germany, Israel, and the kingdom of apartheid, South Africa. 148 Other SRP products, including radioisotopes, americium (for oil exploration and home smoke detectors), plutonium-238 (used in the space program and cardiac pacemakers), Californium-252 (cancer therapy, natural resource exploration), uranium-233, cobalt-244 and cobalt 60, 149 end up being used by private companies. DuPont used to disclaim having any significant commercial relations to SRP products, but in light of the increased use of radioactive materials in so many of its specialty lines, and now by New England Nuclear and Conoco, an update in its brochures is obviously needed. The relations, if not primary, are surely secondary. When Conoco’s large uranium reserves are plugged in, the cycle from ore to product is complete. Conoco has one of the largest uranium holdings in the United States, with sizeable holdings in Niger,Africa, as well, Does Conoco sell uranium to the SRP. The SRP denies it. But it does admit that New England Nuclear sells products to the SRP. SRP thereby becomes a market for DuPont.
The DuPont family owns holdings in companies like Long Island Lighting Company (a favorite of Eleuthère I. DuPont’s Sigma Trust Shares for years) and Delmarva Power and Light (which had large stocks in the Peachbottom and Salem nuclear plants of the Delaware-Southeastern Pennsylvania-Southern New Jersey areas and more scheduled at Summit) made nuclear power an irradiated apple in the family’s eye. Irving Shapiro, furthermore, had joined in Pete DuPont’s promotion of nuclear plants in the area, titling one major speech before he retired, “We Need More Nuclear Power,” while quietly, in August, 1983, taking an advisory post for Bechtel, one of the nation’s largest builders of nuclear power plants, including Salem.
Everyone at the 1982 Annual Meeting, then, showed courtesy to the speaker and a somberness at his words when a DuPont chemist backed the proposal of the ten clergy groups and deplored “a policy of actually laying plans which could incinerate several hundred million people.” It was a sobering moment. So was the next when over 15,000 shares for the resolution were squashed by 180,000,000 shares cast by the family and guests. Jefferson had by then passed the ultimate test as chairman of a DuPont annual meeting. Evelyn Davis, perennial gadfly, suggested the Bronfmans “throw out the whole top management of DuPont. It couldn’t be any worse.”
“Thank you, Mrs. Davis,” Jefferson replied in his English baritone, and cut the time to three minutes on each matter to a sustained and appreciated applause. Before it was over, W.W. Laird and Rodney Sharp, Jr., had announced their retirement from the board, and more than one stockholder commented that now there were just two DuPonts to every Bronfman.
Edgar and Charles Bronfman had definitely emerged out of the wars as the charmed princes. There had to be admiration for any brothers family who managed in just two years to double the assets of their business, especially when the figures were from $2.8 billion to $6 billion. Seagram’s net income had swollen from $145 million to $1.6 billion, all because Seagram had shed its Texas Pacific Oil Company, booked at $500 million, for $2.3 billion in cash and Sunoco notes, then borrowed $2.6 billion against the notes to acquire 32 percent of Conoco and then traded that in for 20 percent of DuPont. That 20 percent tucks away some of DuPont’s earnings into Seagram’s books and allows the Bronfmans to enjoy a steady $120 million diet. And the Bronfmans were not put off from taking their 25 percent by DuPont’s drop to $35 from the $54 a share they had paid. Such tendered tithes, they believed, are seldom wrought from heaven.
The DuPonts knew what that meant. Edgar could borrow against ten years of cash flow and confront them at the end of his standstill with another $1 billion. If so, the DuPonts might not resist; such Cheshires are hard to bag. For with each acquisition the DuPonts made for stock, Edgar’s share would fall. And if it fell enough, below 20 percent, he would have to come hat in hand to the Brandywine merely to hold on to the equity accounting of his holding. So they will digest and divest, but not as much as they had planned, for the ace is DuPont, and they have a winning hand—if only they hold on to it. Meanwhile, they will continue to diversify, but use the company to do it. Par the debt and secure the pension until a prospect comes by. And always, always, watch for the bank which can be lured into the lair.
For that task, they had Irving and Pierre. Irving might end playing Kissinger to Pete’s Rockefeller. But it would have to be an austere Rockefeller, smiling and compassionate, but cheap. For the longest postwar period of expansion was over with Carter and Iran, and now the deficits must be met.
Pete’s speeches were appropriate for such times, never too far ahead to scare, or too far behind to bore. Twenty-two million dollar deficits persuade one to lay off, to make cuts to match the recession’s decline in revenues. As interest rates decline, borrow to keep afloat, and even a bonded raft takes off like a speedboat when an economy surges.
The key was productivity, and Pete knew it. He wrote a speech on it, “Retooling the Workforce,” delivered before curious members of the National Press Club. He satiated their curiosity with points so accurate you would think they were written by an Irving Shapiro. Even the monetarist’s cautions were there, warning against “Congress’s attempts to throw money” at the problems “with extended unemployment benefits that cushion the blow rather than offering a hope for a better job.” Jobs were the central theme, based on retraining and retooling. But remembering his wife at AID’s* new Bureau of Private Enterprise, he wisely avoided mention of reconquering markets.
Elise, too, had a role to play, and her Wawa chain store fortune and her raised children assured it would no longer be confined to the home. She had dabbled in real estate, then was accepted into the University of Pennsylvania, and ignored the crude comments that she could only have gotten in through her husband’s family. True, DuPonts had bequeathed endowments and sat as trustees of the University. And true, she was only one of 25 admitted under a new policy that looked upon intellectual ability as based on “achievements” and “potential” rather than test scores. Yes, she had mediocre grades at Bryn Mawr and poor scores in her law school entrance exam. But it had been 20 years since she had done undergraduate work and left her home in Wawa, Pennsylvania, for Delaware. Dean Louis Pollak understood. So did Assistant Dean Arnold Miller. And that was that.
A year or so in a Wilmington law firm likewise shows experience and potential, enough to be appointed as head of a new federal agency designed to reflect the Reagan commitment “to increased opportunities for the private sector in AID programs,” said AID’s M. Peter McPherson, the author of “Altruism Pays Dividends.” If Elise was confused about her role or lack of experience in development matters, the name could always help: “Bureau for Private Enterprise.” “Before I resigned,” said Dr. Eugene Babb, AID’s former top agricultural development official, “I had a number of meetings with Elise. She was very noncommittal. She had no clear idea of what she wanted to do or what the Administration wanted to do.” 150 Babb had resigned along with Dr. Stephen Joseph, AID’s top health official, and many others who refused to go along with Ronald Reagan’s decision to go ahead and give away baby formula that causes death when mixed with the water of many developing countries. The Reagan Administration had been the only government to vote against the World Health Organization’s proposed code for marketing baby formula. The code had been opposed by the Grocery Manufacturers of America and the baby-food corporations. Moved by the fact that millions of infants could die, McPherson tried to get the State Department and the Department of Health and Human Services to abstain, “but the White House demanded a no vote,” 151 Dr. Babb said. He and Dr. Joseph then did the only thing they felt in human decency they could do. They officially exposed the facts and were forced to resign. Many joined them in protest. Elise DuPont, like McPherson, decided to stay on. To Elise, more was at stake than the lives of children.
What exactly that was was hard for many to fathom. The stakes must have been very high, or perhaps many wanted to think so. In August, 1983, however, there was a glimpse into the future. Elise was being asked to run for Congress. Against an incumbent Democrat. In Delaware.
The incumbent’s name is Thomas Carper, and in 1982 he did what many considered impossible. He rode the wave of popular dissatisfaction with Reaganomics right over the wall of $13,500 in DuPont family donations that Representative Tom Evans had built. The wall was half as high as usual, no doubt dismantled by Evans’s own indiscretions with an ex-Playboy bunny moonlighting as a rather successful lobbyist for agricultural interests. Now, perhaps, a DuPont in the flesh, or at least in name, could win back Delaware’s lone seat in Congress for the Republicans. 152
“She is an exceptionally qualified person,” said Republican state chairman Jerome Herliky. “I like the idea of her very much.” 153
“A lot of people have been calling Elise,” agreed GOP national Committeewoman Priscilla Rakestraw, “sending notes, and calling us about Elise DuPont.” 154
The name has magic in Delaware, like a drug dose for an addict. And Delawareans have been mainlining DuPont Company, DuPont wealth, DuPont family for years.
Could Tom Carper break the spell?
If not, the name of DuPont will be given national limelight, attracting perhaps even those feminists who believe feminism is voting for a woman, any woman, over a man. It would not be the first time a politician exploited a special interest. And it would help a brand name with instant national recognition in the headlines, while her husband, no longer governor, quietly worked the circuit of contacts he had developed through his chairmanship of GOPAC, established for Republican legislative candidates—and future convention delegates.
An unknown governor from Georgia had done the same, choosing to step down from state office in order to serve the Democratic National Committee, dispensing funds and contacts and endorsements—and winning friends.
To do it right, the candidate must be able to say he has accomplished most of his goals as governor. He must be able to stand on his record, and in American pragmatism, or opportunism, in normal times that means victories more than principles. Pete DuPont never claimed he wanted to be another Lincoln. He just wants to be president.
The speech before the National Press Club on “Retooling the Workplace” was designed to show off presidential qualities. So were Pete’s speeches before oil men in Oklahoma, Louisiana and Texas. So were his trips to Chicago, Cleveland, San Francisco and New York to make speeches to bankers. As many Delawareans noticed and commented about in the local press, it seemed whenever the governor was going somewhere on a business trip, he was also making political speeches.
His family, as campaign contributions attest, support him. Most are proud of him. And they like what he has done for—and to—Delaware, and the nation.
Probably the most important accomplishment of Pete DuPont’s Administration was what was openly described as the slow gutting of the Glass-Steagall Act. That is the law passed during the New Deal to stop banks from consuming each other in mergers and market raiding across state lines or outside their particular form of banking; it drew a line between commercial banks which take in the public’s deposits and give out commercial loans, and investment banks which borrow and lend on credit, underwrite offerings and buy and sell insurance.
Beneath the move for change was the growing liquidity crisis among large banks which had overextended their foreign lending, and were constantly threatened with defaults from the developing countries of the Third World.
In the second quarter of 1981, the top ten banks took an 8.1 percent loss on earnings. Mergers by industrial conglomerates also tightened money.
Commercial banks wanted broad powers to become financial conglomerates like American Express and Prudential Insurance and General Electric’s multi-billion-dollar finance business. The United States, meaning the American consumer, “is (commercially) overbanked,” 155 claimed Bankers Trust President John Hannon, Jr. Small businesses were succumbing. The American wanted more investment banking, commercial bank giants argued, including fee banking, developing loans to be sold to outside investors, and loans for corporations who were desperate to change federal New Deal laws that prohibited commercial banks from underwriting public securities or corporate securities. By March of 1983 bank lobbyists had handed out $3,425,000 to campaigning congressmen over the previous two years. Four hundred eighty-two senators and representatives received an average $7107 each. 156 Large banks were beginning to more openly skim their customer’s accounts. Citibank in May, 1979, for example, offered only 4½ percent annual interest on passbook savings accounts. Inflation was eating dollars nearly twice as fast as regular savings interest. The banks were shortchanging the interest their customers were entitled to by law. The New York State Banking Board’s new regulation, based on implementing a 1978 state law, still allowed banks not to tell their depositors of maximum available interest rates. 157
Likewise, offshore banks “shielded” assets from creditors or competitors and the Internal Revenue Service. “Brass-plate” banks were sold to persons who foolishly bought them in the Bahamas or the Verdes for “status” or “prestige.” Jerome Schneider, President of the WFI Corporation of Los Angeles, sold 157 such “banks,” 120 for $35,000 each. “Many of the owners alleged that WFI Corporation, reported Associated Press, had misrepresented the potential uses of brass-plate banks. They were unable to make use of these banks because they had neither the extensive bank experience required nor the tremendous financial resources necessary to enter into the sophisticated and complex world of off-shore banking. “We have determined that illegal uses abound and legitimate uses are extremely limited.” 158
Even large “legitimate” banks were suspect. One such case was Citicorp. “In 1982, the SEC’s Enforcement Division recommended a civil suit against Citicorp, the bank of which Irving Shapiro is a director, for failing to disclose to shareholders that $46 million, or 2 percent of pretax earnings between 1974 and 1978, came from questionable foreign exchange practices.” (Emphasis added.) 159
One of these questionable practices is called “parking.” It involves transferring foreign exchange positions to shift profits to tax havens such as the Bahamas. Citicorp was involved in this, according to Citicorp executive David Edwards, through its Paris branch, ordering sham transactions of buying, for example, $40 million in French francs, then selling the francs back to Paris at 2 percent higher rate, netting the Bahamas branch a $200,000 profit. Coded messages and postdated trading tickets with artificial exchange rates were just some of the cover-ups used. A Citibank manual warned bankers to be careful about it: “The parking of foreign exchange positions should be kept as inconspicuous as possible.” 160
This way banks, using “offshore” subsidiaries, can cheat the American taxpayer and the IRS. “The IRS allows American corporations like DuPont to deduct foreign taxes from their U.S. tax liability. But since taxes in Europe were often higher than in the U.S., Citicorp could end up paying more overseas than it could deduct in the U.S. Parking enabled it to manipulate the origin of its profits so that the excess would be shifted to Nassau and taxed at the lower tax rate.” 161
A confidential Management Information System, computerized, measured Citicorps’ branches’ real performances. Straight out of a Chicago gangland scenario, a second set of books was set up called the Management Profit Report which barred its foreign bank examiners.
Irving Shapiro, it will be recalled, put Governor Pete DuPont and New York bankers together in 1980 during DuPont’s re-election campaign to draft the Delaware Financial Center Development Act. By 1983, a host of out-of-state banks and credit card operations had set up in Delaware (mostly in the Wilmington area) to the delight of the governor and his aides, Glenn Kenton and cousin Nathan Hayward III. Among them were E.F. Hutton and Citibank of Delaware. Irving Shapiro ended up representing both.
In July, 1982, E.F. Hutton was running into friction with Delaware bankers who objected to its coming into the state. Although the Financial Center Development Act required out-of-staters to set up small offices with no displays and encouraged them to conduct their financial interstate transactions quietly and not take business away from Delaware banks, many Delawarean bankers feared there would be banking through the back door.
E.F. Hutton called on Shapiro, who warned Hutton not to try to ram its way into Delaware with anything so foolish as a lawsuit. He suggested what he usually suggests: a deal. Through his high political contacts in the state, Shapiro had a bill passed, allowing “limited-purpose trust companies” into Delaware if the pay-off in Delaware is cheap—namely, jobs. One hundred employees would have to be taken on within three years. There was, however, no requirement that they had to have been Delaware residents. Hutton and others who wanted to bring their IRAs, Keoghs and employee benefit plans for small businesses into the state could also bring in their own employees. To placate the local ward heelers, however, this was not advised. Discretion was expected and assumed.
Taxes, of course, made it all click. New York State and City had combined taxes on basic net income of 24.2 percent in 1983. They refused to play Russian Roulette with Delaware. The “First State,” meanwhile, was saddled with Pete DuPont’s sliding scale —downwards—of 8.7 percent to 2.7 percent of income, about as regressive as possible. The fact that more banks didn’t move down from New York as expected underscored that there were other factors than taxes that encourage a bank to choose a cultural and commercial capital like New York over the Wilmington of the DuPonts. But that was hard for many DuPonts, just emerging from their isolation in chateau country, to understand. They believed they had everything they needed. Banks, however, need customers. Delaware was simply too small a market.
The strategy, therefore, was for Wilmington Trust and GWDC to foster a gradual growth, focused on the Greater Wilmington Airport area for the county and Christina Gateway for the city. Young Irénée DuPont May, Jr., joined County Executive Collins in the county end of the endeavor.
In February, 1982, Governor du Pont hosted a “Defense Task Force” where 25 federal agencies joined major armaments producers at the Radisson Hotel Ballroom in Wilmington. “This conference will give you the tools and the background to become aggressive,” DuPont declared, “to go out there and get the contracts and do the job.” 162
Represented were 150 companies, including Boeing (which had Shapiro as a director), Edward DuPont’s Atlantic Aviation, Richard C. DuPont’s All American Industries and DuPont Company. “I personally am not happy with growth in the defense sector,” said a University of Delaware political scientist, “but it is an obligation to make information available to people.” 163 As the arms spending grew along with deficits, Pete DuPont endorsed President Reagan’s call for not just cutbacks but givebacks. To Pete, New Federalism was “a return of the decision-making process to the people,” and represented “‘the will of the majority’ to see budgets balanced and taxes held down.” 164 In the true tradition of Jeremy Bentham, who in the 19th century in Britain first argued for large-scale contracting of government services to private companies, Medicare was contracted out to private doctors, doubling costs; and the National Alliance for Businessmen’s job training program was not very successful. Now, under Reagan, more such ventures were underway, while the disappearing tax base due to unemployment undermined government services, which also began to be contracted out at higher cost to the consumer. But then Bentham’s own Scotland had endorsed his contracting out of road building, only to discover scandals and road collapses which led to the movement for civil service reform.
Turning Delaware into a corporate tax haven had to have its impact somewhere. Reporting an expected $4.5 million deficit, New Castle County was preparing to raise property taxes on homes and small businesses, while artfully dodging the constitutionally mandated fixtures tax that with Getty alone would have raised $10 million and wiped out the deficit. The tax haven was felt in education also. Governor DuPont was asking state-subsidized schools to return money. Finally, because Governor DuPont refused to decouple from the Reaganomics of the Accelerated Cost Recovery System that accompanied the 1981 Reagan tax cut, Delaware lost an estimated $8 million in 1982, $9.4 million in 1983. “The estimated loss,” said the Citizens Coalition for Tax Reform, “grows to total an estimated $84.2 million for years 1983 through 1987.
“Late last Spring the Governor told us there was no possibility of a tax cut, yet he is protecting a large state tax cut for big business, and a few individuals … on top of the big federal tax cut they’ve already received.” 165
Other, poorer Delawareans had it even rougher than the working middle class. These were the unemployed, with the “last hired-first fired” employment practice for Blacks still rampant in Delaware. Blacks suffered a 50 percent unemployment rate in Delaware. As the cutbacks worked their way into the white sector, crime rose across the staté. Pete was surprised, but he encouraged swift “justice” and courts “untethered” by the language of the Constitution.
“We put people in jail faster in this state than in any other jurisdiction in the country in similar circumstances,” 166 said Corrections Commissioner John L. Sullivan in 1983. One hundred fifty out of every 100,000 people in Delaware were in jail. The new 336 bed Gander Hill prison, opened in Wilmington the previous year to alleviate overcrowding, was itself overflowing by June 1983. By December, 1984, Gander Hill was expected to pack in some 700 prisoners, putting two or three prisoners in every cell designed for one person. When DuPont came into office, there were about 1000 prisoners, now there were an expected 2500 by January, 1985. In August, 1983, inmates struck for better conditions, including being served hot instead of cold food. The strike was settled temporarily. DuPont’s bafflement finally found an answer. The construction of two new prisons was made the state’s top priority.
Then Irving Shapiro again appeared with three new bills he wanted to see passed in Dover. It had been five years since he made his major address to Dover legislators, in June, 1978, telling them how to boost economic development by lowering corporate and high-income taxes. Since then, Shapiro had developed a good, if not close, working relationship with Governor DuPont. The governor had listened to Shapiro call for lower taxes on higher incomes and moved increasingly in that direction as the 1980 elections approached. He had always held to fiscal conservative views, but in 1980 he revealed just how patrician they were when he joined Shapiro in the Financial Center Development Act. DuPont needed to create more jobs in order to be re-elected and he seemed fascinated by the world of mergers and high finance, and saw each such development in his state as a sign of growing economic power, almost of modernity itself Du Pont-Conoco was the zenith of signs. “This is the first time I remember something as complex and distant as a corporate merger—which is not your man-in-thestreet kind of issue—being the topic of conversation everywhere in the city,” Pete said. “The community feeling was, we’re really going someplace. People here have so much confidence in the DuPont management, that if this is what it desires to do, then it must be right.”
Pete also understood Shapiro’s role, even with the Bronfmans. “It does of course reduce the proportion of the company shares held by the family. But I think the family crossed that bridge a long time ago. It really ceased to be a family company fifteen or twenty years ago. This is all just part of the trend of the company becoming a large corporation, with professional managers and a whole range of investors.” 167
It was within that context—as a professional manager and consigliere to him as he had been to other DuPonts—that Pete regarded Shapiro. Irving was a man who was useful in politics as in business because of his capacity to command facts when needed and, more important, his marvelous ability to get people to make a deal. Shapiro was, if anything, overconfident in his negotiating skills. “He thinks he can negotiate anything,” remarked Champion International Chairman Andres Sigler, “and he probably can, but there are times when you really need to go to the wall, and Irv is not likely to do it.”
Nor was Pete DuPont. But with a new package of bills, they both showed an unusual tenacity. It marked a new strength of character, or a new ambition, and as the values held were consistent with the social myopia displayed in the past, no doubt the latter was the case.
The International Banking Development Act would allow offshore banking in Delaware. It would effectively turn the state of Delaware into an offshore bank by bringing into Delaware high-volume bank transactions floated through such tax havens as Cayman Islands and the Bahamas. There are 262 banks in the Bahamas, one for every 1,000 inhabitants. 168 Fourteen states had already passed similar legislation, but Delaware would allow money flowing through the state to remain untaxed. In the Bahamas, tight bank secrecy laws protected bankers from leaks to the IRS. There might be some Eurobond investments by a major corporation that would make interest payments into a private offshore bank—such as the DuPont family or company might use. This bill, then, was admittedly “not going to be a big employer” or attract much business. So why pass it? So those already in the state can use it, including its drafters. Yet the potential for scandal from “parking” or other activities Citicorp made infamous was enormous. Irving Shapiro, at any rate, was Citicorp’s lawyer in Delaware.
The second bill, the Consumers Credit Act, allowed smaller banks to form subsidiaries as part of a “qualifying association” already located in the state. There were also exemptions from a $25 million capitalization and from having to employ 100 people within a year of setting up shop. Most important, it allowed the issuing of credit cards with no ceiling on the cards’ interest rates. This law, Hayward offered, encouraged “non-bank banks” to move into Delaware as small associations.
The association would be required to hire 250 employees, not just 100, within a year. It allowed banks to issue consumer loans and credit cards in states with ceilings on rates or fees. “The purpose basically is to broaden the market through services nationally.” Both laws put prohibitions or restrictions on doing consumer business in Delaware. And one provided jobs. No one seemed to object that the jobs would be poorly paid, unlike industries where “real” money can be made by an unskilled worker.
Both bills were easily steered through the legislature. Within 24 hours of the Senate’s passage of the Consumer Credit Act, the Computer Corporation of America, operating the credit card business of 90 banks in the Midwest, voted to move to Wilmington. The last bill drafted by Shapiro was called the Financial Services Development Act. It allowed a bank to sell insurance in violation of the Glass-Steagall Act. Because Wilmington Trust and the Bank of Delaware were already given insurance powers in their state charters, the Delaware Bankers Association stayed on the sidelines and did not help Shapiro. Nor did the State Chamber of Commerce. Pete did, however, repeating the litany about “jobs” and enhancing Delaware’s reputation as a financial center. But 100 jobs could not compare to a family’s need to keep an insurance shop going. Insurance is one of the few small businesses with a low overhead. For that reason there are a lot of licensed brokers who see their business as their first step toward the status of being self-employed, or the last step down if their small business couldn’t compete with a bank.
The governor proceeded without the support of Irénée, Edward, and Eleuthère (Eleuthère, after all, was on the board of the largest insurance company in the state, Continental American Life Insurance). Perhaps CALICO was too big to be affected, perhaps not, but Eleuthère abstained. So did J. Tyler McConnell of Delaware Trust.
Had Shapiro done his political homework? Most likely, unless he had that arrogance referred to earlier—his certainty that he could negotiate anything.
He couldn’t.
Pete was out on a limb, all alone.
It was Pete’s first true crusade. Some people crusade for people, others for ideas. Pete crusaded for victory. He was in too deep now to withdraw.
For the first time since the 1977 budget fight and the Financial Center Development Act, Pete took the lead in lobbying for a piece of legislation. But what he found dismayed him. Insurers said they were fighting for their lives.
“There’s a real fear down there (in Wilmington) that things are out of control,” 169 said one. Others called it a slap on the face of small business. There were fears of other states retaliating against Delaware for stealing banks. Perhaps they would pass similar legislation, too. Did not William H. Kennedy, Jr., President of the American Bankers Association, not audaciously state that “With the payment of interest on checking accounts and such, banks are in a position now where they’re going to have to figure out new ways of making money. And if they can’t do it on a national basis—and that’ll be decided in a year or so—then it’s fair game to go at it from state to state.” 170
That was exactly what the Federal Reserve Board did not want. Already about a dozen states had followed Delaware and South Dakota’s lead and, urged by the White House’s new federalism, deregulated banks in the last few months. But the variety of laws was disturbing as the break with precedent. (Congress in the 1950’s had lifted Glass-Steagall’s outright prohibition and allowed states to decide for themselves. All had opted for stability. Now it was coming apart, and in different directions.) South Dakota allowed banks to own insurance companies; Washington allowed banks to own anything of a financial nature; California allowed sponsorship of mutual funds investment companies; Arkansas said banks could give the same services as Savings & Loan Associations, credit unions, investment companies, farm credit companies or other financial service suppliers; New York and Connecticut eased the setting up of state chartered institutions out of federally chartered banks and savings associations.
What had Pete started? That’s what Senate Majority Leader Thomas Sharp was hinting. “We really don’t know what the end result is going to be.” 171 [I think 2008 might be a hint, or the dot.com bubble DC]
Investment bankers and brokers charged that the commercial banking giants were singling out vulnerable states like Delaware. Commercial bankers retorted that brokers were moving into banking, too, with money market schemes.
This was not just hypocrisy on all sides, but part of a general financial consolidation from the centrifugal force of a market spinning in disarray and convulsing with mergers and reorganizations that made fortunes for sharp lawyers like Shapiro and Flom. It was a sign of the general merging of capital, making the corporate groups that fused in the center and held together an unprecedented conglomeration of power. Others may first be thrown out from this center by desperate counterbalancing alliances, but they can never be as strong and must, like a pulsar, be attracted again to the central group simply by the density of its interrelated capital.
It was left to the Federal Reserve, the only agency with a clearly mandated network of majors barred from selling, distributing or underwriting securities, to step in and discipline its own house. It also slapped Pete on the wrist.
The slap came on April 13, when Pete’s Insurance Commissioner David Elliott received a letter from Paul Volcker, chairman of the Federal Reserve Board. Elliott had earlier sent Shapiro’s drafted bill to Volcker for review. The Fed chairman’s response was strong, saying he was “seriously concerned about the possibility of widely divergent and inconsistent laws governing both bank and thrift powers, with deposit taking organizations shopping for the most permissive rules, and states competing to pass such laws in order to enhance local employment. The Secretary of the Treasury has stated that ‘this kind of deregulation—haphazard and without consistency or an underlying concept of what is appropriate for an insured institution—is obviously unsatisfactory,’ and I agree with him fully … the implication has not been that a single state, or group of states, should set the nationwide pattern.” 172
That should have been enough.
Not for Pete. It was as if he were more afraid of losing this battle than wreaking havoc on the nation’s financial structure.
“As Yogi Berra said, it ain’t over until it’s over,” 173 Pete said. But it was. Pete just refused to believe it. Until, perhaps, he got a warning from another, overconfident loser. Ex-Representative Tom Evans, of Playboy bunny and crop bill fame, phoned Pete to let him know how grim it all looked. Even the brokers, he said, do not like your bill.
Pete decided to begin “putting on the full-court press.” 174 Not since 1977 had the governor gone formally before all four party caucuses to lobby for a bill. “It’s clearly perceived as an administration bill, what the administration wants,” said Pete’s press secretary. “And that’s what it is.” 175
Governor DuPont lobbied meetings, receptions, caucuses of the 132nd General Assembly, carried a slick booklet put out by Shapiro and his Citibank crew, and called the bill “the most important legislation of my administration.” 176
Everyone wondered why. Was he so impressed by the Christmas card he had gotten from Morgan Delaware showing 100 signatures to prove the bank had met its employment requirements? Did Shapiro convince him it was that important to his career? But for Pete, the state-paid trips around the country to see unnamed bankers and oilmen had earned a rebellion among lawmakers and a whimsical name; the “Magical Mystery Tour,” as one legislator dubbed it, was over.
On June 8, Governor DuPont announced he was withdrawing the bill. It was his first, and probably, as Governor, his last, major defeat.
Irving Shapiro compounded his loss of face later that month when he was embroiled in charges of duplicity—and violations of federal laws forbidding compliance with the Arab boycott of Israel. Ironically, it had been he who put together another of his classic compromises with Edgar Bronfman to avoid a clash in Washington between the American Jewish Congress, of which Bronfman was a director, and DuPont and other large corporate sellers in the Middle East. The first sign of future shame came just a few months later, at the April, 1977, annual meeting, when William Marlow, general counsel to the American Jewish Congress, submitted a resolution calling on DuPont to cease complying with the Arab boycott and accused DuPont of betraying the very principles Shapiro had urged Congress enact as chairman of the Business Roundtable. Speaking of “negative blacklisting and similar exclusionary certificates,” Marlow charged, “these very prohibitions which the chairman of DuPont urged President Carter to be enacted into law are ignored by DuPont in its business practices and rejected by DuPont’s management in opposing our resolution.” 177
“The Israeli government itself required many of the same negative certificates,” Shapiro had replied as chairman of the meeting. “There is no problem at DuPont. This is a political issue, really. 178
But Federal Judge James Latchum, again ironically the man who had tried and sentenced Mel Slawik, only to see his court reversed, now felt there was indeed a problem at DuPont, a serious legal problem, and he demanded DuPont turn over the documents that it had so far refused to surrender.
The trading incidents which the Commerce Department suspected were in violation of law took place between 1979 and 1980, when Mr. Shapiro was chairman, and involved DuPont’s European subsidiaries. Shapiro at first told reporters on June 21, 1983, that he knew nothing about the violations or the Commerce Department investigation. But former Commerce Secretary Phillip Klutznick then revealed the next day that Shapiro, “an old friend,” had discussed it with him when he was a member of Carter’s cabinet. “I remember Irv talking to me about it and I asked my people to look into it,” Klutznick said. “He came to me because of some controversy. But I disqualified myself for obvious reasons. I am a former president of major Jewish organizations.… It was handled at a lower level.” He said Shapiro approached him with an “open hand,” asking what DuPont had to do to get the controversy settled. 179
The next day Shapiro’s memory had returned. “I mentioned the dispute,” he admitted. “It seemed like they were harassing us over the matter. Someone later called for the secretary and said he had talked to his people and thought there was a legitimate basis for their action.” 180 Commerce wanted the documents to decide if the company, and possibly Shapiro, should be prosecuted for more than 400 “apparent violations.” As chairman of the Business Roundtable, Shapiro had argued unsuccessfully for an exemption of foreign subsidiaries of American companies. Commerce’s request centered on records of DuPont’s subsidiaries in Switzerland, West Germany, Belgium and the United Kingdom, and some sales by Conoco.
“My view of it,” offered Shapiro, “was that they [the Commerce Department] were going after DuPont because it was newsworthy because I was instrumental in formulating the [antiboycott] law.” 181
A little over a week later, one of Shapiro’s closest predecessors at the Du Pont helm died. Lammot du Pont Copeland, Sr., had been the last direct heir of the founder of Du Pont, serving as its 11th president and chairman during its great expansion abroad, from 1967 to 1971, when his son’s bankruptcy drove him into retirement. In many ways he had symbolized the pre-Shapiro era, when he was a director of General Motors as well, and with his father, Charles Copeland, and his uncles, Pierre and Irénée, had reigned at a younger E.I. du Pont de Nemours where one could never forget that it was your great great-grandfather who had founded the firm on the banks of the Brandywine.
Lammot DuPont Copeland, a direct but shy man, was 78 years old when he died of a heart attack at his Mount Cuba estate in the hills north of Wilmington. He was survived by his sons, Lammot Jr., who had settled his debts, Garrett, and his daughter Louisa, a new member of the Du Pont board and the wife of Robert Duemling, ambassador to Suriname for Ronald Reagan, to whose party the deceased and his immediate family in 1979-80 gave $45,500. 182
That the weight of such heavy private donations on the body politic would have been balanced somewhat by public financing of campaigns was precisely the threat of the bill put before the governor just three weeks later. Du Pont had let the bill sit on his desk for two weeks. Now, with a carefully prepared statement, he vetoed it. His reason for killing the bill was simple: now was not the time to be giving taxpayers’ money away. Then he prepared for what was to him a more momentous decision. That night, in a small private gathering of friends, he announced his retirement from elected office in Delaware. The constitution forbade his holding the governorship for a third term. Nor would he run, as President Reagan had asked, against the popular young Democratic Senator, Joseph Biden. He was breaking tradition. Republican governors are expected to run for the Senate, usually a shoo-in. But Biden was a tough contender, who enjoyed wide support and an unbroken lead over DuPont in the polls. “Obviously, his not running for the Senate against me is welcome news,” said the senator. “I’m not kidding anyone. If he had run, I believe it would have been a toss-up.” 183
Glenn Kenton would not concede even that. “Biden’s support is a mile wide and an inch deep … he is eminently beatable, in our judgment, by a good candidate.” 184 DuPont agreed. “We basically start even,” 185 he insisted, dismissing suspicions that he was afraid to lose. “I’d have enjoyed the campaign. It would have been a challenge, it would have been fun, and it would have been winnable.” 186 Pierre S. DuPont IV was just not tied down to tradition. “You should never get to the point in life that you run for office because it’s there, or because it’s the traditional thing to do.” 187 Besides, if he wanted to be senator, he would have challenged Biden in 1978.
That would have been quite irregular. Governors usually do not resign after only two years in office to run against a popular senator. Pete was unfazed by the obvious. When he did not run against Biden in 1978 people should have known that once he selected the executive side of government, he would not run against Biden. “Being a United States Senator is a high honor and an important responsibility,” he explained, “but … my interests and my talents lie much more in the executive branch of government where I have enjoyed eight years of service as governor for more than the time which I served in the legislative branch of government.” 188
Biden saw the water boiling, and assumed a fire was burning in DuPont. “If I were Pete DuPont,” he offered, “and I wanted to be a candidate for the presidency, the last thing I’d want is to be a defeated candidate for the Senate or a winning freshman senator. You have no forum as a freshman senator. You have to wait in line to go to the bathroom there.” 189
Kenton had the same opinion. Pete would have been Senator du Pont, he insisted, but that might not have been wise for his ambitions. “The governors [elected to the Senate] who have gone down there by and large have disappeared. You just get consumed. You lose control of your own destiny. If you really want to help set the agenda and control your own destiny, the last place you want to go is the United States Senate.”
Kenton pointed out that the last three elected presidents—Reagan, Carter and Nixon —were not holding other offices when they ran and won. “The next generation of leaders is not coming from the United States Senate. 190 It’s coming from the governorships, in spite of the fact that Carter nearly poisoned the well.” 191
The obvious was emerging. Pete had big plans for himself.
The goal and the strategy were clear. Like Carter, Pete DuPont would continue to work his national party network as funder and endorser, only now he would do it full time. Through his Jobs for American Graduates, a national extension of his private job counselling program in Delaware funded by federal grants and criticized for its claim to success by getting “jobs” at McDonald’s and in the U.S. Armed Services, Pete has placed a cadre of supporters in at least eight key states around the country working with state and local education departments and spreading the good name of DuPont. Then, in 1988, when the Republican party was ready for a return to the “moderate” center, Pete du Pont would be waiting—and cashing in his IOU’s.
“I want GOPAC to continue,” he confirmed, “perhaps even expand the role in supporting local candidates and Republican organizations.
“Beginning in 1985, I will have the opportunity, the interest, and the time to consider and prepare for America’s agenda for 1988 and beyond. It will take a full-time commitment unconstrained by the current agenda of the U.S. Senate, because working on the next agenda is a full-time challenge.” 192
DuPont said he could take a cabinet post or a position on the Republican National Committee or work independently on issues such as education and job training, two achievements he claims for his governorship in Delaware. Recently, Pete had been named chairman of the Education Commission of the States.
“What title you have after your name isn’t important. What is important is that everything is going to change.” 193 In 1983, the issues were arms control, the economy, budget deficits, social security reform, the Middle East peoples, Central American problems. “By 1984, however, the issues will be much different than they are today, and I believe the leaders will be different, too.
“If the Republican Party is to once again capture, and dominate, the national agenda in 1988 and beyond as it did in the 1980’s, it will need to identify those issues early and come forward with sound practical solutions to address them. And it will need new leaders with the time and energy to devote to appraising America’s future needs rather than today’s problems.” 194
It was a line consistent with how he had run Delaware, focusing not on today’s problems, but on what he—and other DuPonts and people who shared their views— believed America should be.[So I have been considering for a bit now,any Trump/Dupont connection,did a quick search, there is some, it's a place to start,and I will be able to backtrack Dupont to the time this book finishes with, interesting DC]
Some of 1988’s issues, to Pete, “seem clear: Retooling and retraining the American workforce to meet international competition, and educational reform—improving the quality, quantity and focus of the training of the next generation of Americans. Dealing with a vastly different, younger, post-Stalin Soviet leadership will be a challenge. So, too, will a strong, affordable national defense during times of technological explosion and the demand for more sophisticated and costly weapons.” 195
To Senator Biden, Pete DuPont sounded like he was announcing for the presidency five years before the election. Pete’s capacity to fund such a long campaign was not to be underestimated. Biden knew DuPont could command vast resources and attract others he could not command. That was why Biden had already raised over $555,000 to defend his Senate seat from a Du Pont family onslaught. When told of Pete’s decision, he confirmed that “the main place it takes the pressure off is dollars.” 196 While he warned his staff not to take his re-election for granted and “remember a guy named Biden in 1972 who won”—Biden, at 29, had defeated former Republican Governor Caleb Boggs in a startling upset—he did concede that whoever the Republicans ran against him, “I don’t think he will have as much money as the governor would have had.” 197
He may have been wrong. One of the names most mentioned in Republican circles was Governor DuPont’s personal lawyer, Edmund Carpenter, the DuPont in-law whose maid was said to have burned Congressman DuPont’s campaign finance records.
Democratic Congressman Thomas Carper was also advised not to believe his seat in Washington was safe. Just two weeks after Pete’s announcement, word came that another DuPont was seriously considering taking him on: Elise DuPont, wife of the governor. Elise had already met with top Republicans, including Francis Di Mondi, and “I think she’s giving it full, serious consideration,” 198 said national committeewoman Priscilla Rakestraw. “I think the biggest thing is, how would she be perceived by the press,” said former state Rep. John Burris, “how much fun would they have with it if she were a candidate?” But after two months of campaigning, she would be seen as independent, assertive, and deeply knowledgeable about federal government, he predicted, certainly not a wild assumption for the News-Journal. “Then all of a sudden it’s Elise DuPont,” he said, “not Mrs. Pete DuPont.” 199
And as Elise DuPont, she would attract the attention of many women across the country to the family name. When 1988 came around, Elise might well have done for Pete in the national media what he could not do in public but would quietly be doing among key members of the Republican national organization: convincing them that the time had come for a DuPont in the White House.
If so, America may truly have reached the point described by Pete as “a revolutionary moment in its political governance.” Speaking to Delaware lawyers on the “Kafkaesque nightmare” of liberal federal judges who have committed “heresy” and “strayed from the original federalist blueprint for a constitutional democracy …” and are “infusing their own political vision into the Constitution,” DuPont arrayed himself against those who take moral principles into the courts for “the transmutation of transcendental principles into constitutional rights.” As examples of judges becoming “increasingly involved in areas of decision-making traditionally regarded as the province of other branches of government,” he gave “reorganized school systems, reapportioned legislatures, restructured public and private employment practices, fixed minimum standards for prisons and mental health facilities, and established guidelines for everything from public housing projects to the system of political patronage.” In other words, the New Deal. He endorsed the attack on environmentalists and other legal reformers as “a small group of fortunately situated people in a roving commission …” made by Nixon’s most conservative appointee to the Supreme Court, William Rehnquist, opponent of desegregation and alleged sympathizer of the notoriously reactionary John Birch Society. DuPont took some hope in “recent decisions of the Supreme Court suggesting that it may be heeding the changing political sentiments … even discover encouraging signs of a proper respect—however grudging—for the legitimate role of state governments in the federal system.” But he insisted, “It’s time we try to save the courts from themselves” and “emphasize the tradition of restraint in articles and books, in legal brief and oral arguments. Time is running short.” Otherwise, he warned, “Draconian proposals” will be enacted, including legislative curtailments of judicial power, restrictions on their jurisdiction, or constitutional amendments reversing particular decisions or altering vestiges of judicial office such as life tenure or methods of selection or removal. 200
It was certainly debatable whether judges have written laws or in most cases simply responded to citizens’ petitions and attempted to enforce federal laws in states where local powers have refused to abide by them. And the du Pont Administration, at least in the area of desegregation of the University, has not had a record above reproach. But the general tone and direction of du Pont’s remarks, including his warning of “Draconian proposals” if the courts do not come around to his way of thinking and “restrain” themselves, offered broader implications and left little doubt as to what would be the intentions of a President du Pont. “I submit,” he said, referring to the American Revolution, the Civil War, and the New Deal, “that the republic has arrived—as it has every so often in its history—at a revolutionary moment in its political governance.” 201 There was no question as to what end of the political spectrum a President DuPont would ally himself with; there was little doubt in what direction his revolution would lead: it would be a revolution to the Right.
In some ways it has already begun. Perched high above Wilmington, on the 12th floor of the new Wilmington Trust Center, there is a bronze plaque, first displayed in June, 1983, with the names of the club’s new board of governors. They include much of Delaware’s business establishment, financiers, lawyers, politicians, all dedicated to making Delaware, as Shapiro and the governor had put it, “the nation’s first state in financial services.” And all dedicated, admittedly, to making themselves richer than they already were. Irving Shapiro was listed. So was John Tyler McConnell, Edmund Carpenter, and Jane Roth, wife of Senator William Roth who had been reelected the previous year with $25,250 202 in Du Pont family donations. So was Mary Jornlin Thiesen, who succeeded Mel Slawik as County Executive and has now gone on to her rewards as a director of Wilmington Trust. Edward du Pont’s name was there too.
But not Pete DuPont’s. That may change soon, but in June, 1983, he was still governor of all the people, and didn’t need to be included. His efforts to put Delaware at the vanguard of the revolution of New Federalism had already won him a place in spirit, if not in name. It had been Pete DuPont and the DuPont family with their small group of allies at the Rodney Club who had led the way in changing America’s law. The terror of unemployment had been invoked in a state where they controlled private employment, and the laws they had pushed through a willing legislature would, through their impact on the quest for corporate profits, encourage other states to invoke states rights to pass similar laws. In the end, states would rush to Congress to push the deregulation promoted by the Reagan program if for no other reason than to have at least some national standard by which to live and profit in a corporate marketplace called America. Guided by a strategy resting on states rights, the Republic of the New Deal would be systematically dismantled. And, as exemplified by the sky patrol of helicopters requested by Wilmington bankers, there would be more police, more prisons. There would be no chaos. There would be order, a new law and a new order.
To those who saw nothing wrong with this, opposition would be resented as both unfair and privileged. But to the wisest opponents, in Delaware and without, the DuPonts and their state would remain the barometer of the corporate class. To some, such a perspective would seem a prism offering only distorted visions. But to others, it would explain why the same state, the same family, that had already changed American corporate law once in the 1890’s and led the opposition to the New Deal some 40 years later, would come forth again to change American law in the 1980’s. To some it would always seem an accident. To others, a powerful family whose members had once called themselves “the Armorers of the Republic” and the “Guardians of the Republic,” now re-emerging on the national stage, so soon after Vietnam and Watergate had caused America to re-examine itself and its leaders as never before, is no accident, but a sociological and anthropological phenomenon rooted in the family’s past as part of its living history. Its institutional means may change in form, from industry to finance, just as may the commodity whose use the DuPonts sell, from gunpowder to paper money. But the family remains, its fundamental loyalties, campaign donations reveal, undisturbed by changing surnames.
Their methods of rule also remain: control over information, political organization, law, means to a livelihood, police and, as Wilmington affirmed in 1968, an army. Perhaps soon America will be ready to break from its passive reliance on the market and its fatalistic views about money, human nature and the Right, and choose once again to take up the fight for a prosperity based on equality, justice and democracy, the real American dream. But if it should, America will have to pass by Pete DuPont, who will be waiting, in the “moderate” political center. “Candidate Reagan correctly perceived that the majority of Americans felt the pendulum had swung too far in one direction,” the governor concluded in his statement on his future. “It was time that it swung back toward the center.” 203
It left one wondering what Pete DuPont would consider the Right. But if Theodore Barrington, senior editor of Tulsa’s Oil and Gas Journal is correct, America may soon find out. “By the time I shook his hand after the speech,” wrote Barrington, “I had a strange feeling—one I’ve never had before—that I had just heard a future President of the United States.” 204 [ That was quite the saga and by the end of it, this family is still powerful, and that might be downplaying 'power'. Personally I like their standard for what America should be. Worth looking at some more, hope you enjoyed this one, time to open up the next one:)]
Image Gallery p860
Appendix p 910
Footnotes p914,968 for this part
Source https://fightingmonarch.files.wordpress.com/2018/12/behind-the-nylon-curtain.pdf
But he was not the man of the hour. That man, rather, was walking into the room with an entourage of his own lieutenants. His name was Pierre S. DuPont IV.
Pete DuPont was then in the middle of his campaign for re-election as the governor of Delaware. He was not worried about his chances. He had easily met his campaign budget of $232,000, almost $140,000 having been raised the previous year at a single event, a $500-a-head cocktail party and dinner featuring the deceased Nelson Rockefeller’s ex-aide and former Secretary of State, Henry Kissinger. Pete’s opponent was no serious match. Bill Gordy was a fourth-generation dirt farmer who had risen in Delaware politics through the creaking patronage system of downstate Democrats. He did not expect to raise more than $75,000 for his campaign, and could not even afford a poll to gauge voter concerns.
DuPont, of course, had already hired professional pollsters and would conduct several more polls. He had learned to expect some criticism, for example, on his delay in erecting new prisons. He had opposed a policy of warehousing people rather than striking at the economic roots of crime when he first ran in 1976. But since winning the governor’s mansion by the largest margin in Delaware’s gubernatorial history, he had reversed his position as his fiscal austerity was accompanied by a rising crime rate. Only his delay in constructing new prisons had inspired jibes, especially when overcrowding caused such abysmal conditions that inmates risked their lives to engage in protests. But no one, it seems, questioned the wisdom of his reversal when it did come, or why so many Blacks were held in pretrial without being able to meet bail, or how much the construction of new jails would really cost. Nor did many challenge the contradiction between his concern about warehousing and his bringing back the gallows soon after taking office. “There is an appropriate place for the death penalty in Delaware’s criminal justice system,” 1 he had said, listing 19 circumstances that could end in hanging.
There were the usual misgivings of liberals to endure, well-meaning folk who nagged with studies proving that capital punishment failed to deter murder or crimes. Most killings were acts of passion, done in the heat of the moment without premeditation. Those that were premeditated were seldom done by people who were discouraged by the existence of capital punishment. Repression also did not remove the economic and social origins of crime. If anything, the death penalty aggravated an atmosphere of violence and disrespect for human life, and made law breakers even more desperate if someone had been hurt or taken hostage. It burdened judges and strained the whole judicial system with appeals. The ethic was likewise self-contradictory. “Is it not absurd to be killing people who kill people in order to teach people that killing is wrong?” 2 said Henry Schwarzschild of the American Civil Liberties Union. That logic and judicial studies convinced the English population and Parliament to reject any following of America’s lead in restoring the death penalty.
And there was another more serious social matter. Of the over 700 people on death row in American prisons by 1981, 46 percent were from minority groups, mostly Blacks. Only nine were women. In cases where the victim was white, Blacks stood ten times the chance of being sent to death as convicted whites facing the same penalty. Schwarzschild dared to say what many white Americans did not want to hear: “We very arbitrarily and discriminatorily pick out some individual people, not even those who commit the most heinous crimes. But we virtually never execute white middle class people, especially women.”
Schwarzschild was a Nazi refugee who had seen personally how discriminatory executions, if allowed, began to steadily spread from minorities, to communists, to socialists, to labor leaders, to liberals, then to anyone who opposed the status quo and its ruling group. “It comes very directly,” he warned. “In Berlin we were ‘Jewishly’ and politically conscious and active … we escaped in just barely enough time.” In Germany, one of Europe’s most civilized countries, with a democracy also under economic and political stress, it was said it could never happen there, too. But it had. It had been allowed, and the promoters were often the most respected members of society, businessmen and professionals, all men who thought themselves honorable and civilized pillars of law and order. It was precisely because of the broad political implications of the death penalty falling most on impoverished minorities that the Supreme Court was so often moved to stay executions during the 1970’s, holding that the Constitutions 8th Amendment with its ban on cruel and unusual punishment had been violated by discretionary sentencing based on race and socio-economic class.
Pete DuPont was not moved, as New York’s Governor Hugh Carey had been in refusing to sign similar bills passed by the Albany legislature. But the governor was forced to deal with one aspect of discrimination as a legacy of Delaware’s earlier days of segregation. In November, 1978, after years of delay by white school officials, a federal court suit begun in 1971 by Black students reached the Supreme Court, which affirmed that a desegregation plan was needed for Wilmington area schools and asked Delaware’s Federal Judge Murray Schwartz for details. Pete attempted to keep control of the process, but his efforts to have the legislators in Dover draw up a plan was so bogged down that Schwartz ordered the busing of Wilmington students to the betterequipped schools in the suburbs for nine years; he also ordered suburban students to be bused to Wilmington schools for three years to force an upgrading of Wilmington facilities by the white-controlled state and local governments and to foster more racial mixing and hopefully, in time, tolerance.
Pete remained ambiguous about busing as a final resort to end de facto segregation, a position that, considering the anger by which busing was greeted in the white community, would lose him few votes. By 1980, meanwhile, as the governor lauded his administrations educational “achievements” during his re-election campaign, public state colleges and universities would still be unconstitutionally segregated, inspiring another Federal Court order the following January. By then, however, Ronald Reagan was expected to change the criteria for the acceptable level of desegregation, delaying matters still more in the courts.
DuPont, it was clear to the Chase bankers, had Delaware well under control and was a “safe environment” for their activities. They therefore proposed to the governor on that mild day in June that he consider “liberalizing” the state’s banking laws. New York’s legislature, they explained, was unwilling to remove ceilings on the amount of interest banks could charge for loans and pay for deposits and time accounts. They also needed a revised banking code “flexible” enough to allow them to export these interest charges to depositors or charge account customers in other states. If the governor could enact such legislation, Chase and other banks would set up offices in Delaware and move credit operations and sizeable chunks of capital into the state.
Pete had been fully aware of what they wanted. Since imposing his austerity measures and budget cuts, he had been able to keep up the state’s debt payments to New York banks and had won back enough of Wall Street’s confidence that they forgave his alarmist speech about “bankruptcy” and restored the state’s credit rating that they had lowered after that blooper. Since then, Pete’s financial team, led by cousin Nathan Hayward III, had paid friendly visits to the Big Apple and had heard Wall Street’s impatience with Albany legislators in September, 1979. “We found it interesting,” said Hayward, Pete’s former director of Delaware’s Office of Management, Budget and Planning, “and we tucked it away.” 3
But not too deeply. The DuPonts had always been eager for a large bank to give them the financial flexibility they needed for investment diversification. That was especially true now that “the tin box,” Christiana Securities, had been opened, freeing the family fortune of its traditional chain to the chemical company founded by their family. Wilmington Trust had proven inadequate. Despite their huge deposits in the trust department, the bank was a newcomer in the world of high finance. Its relative underdevelopment of business connections and the Delaware area’s limited commercial market had left Wilmington Trust far behind in the running as big banking’s business exploded in the 1970’s. In 1972, Wilmington Trust ranked 20th of the 32 largest institutional investors in the nation with assets under management of $5 billion and over; 4 by 1975, it had slipped to 25th, and in 1976 to 26th. 5
The other major DuPont family bank, Delaware Trust, fared no better, slipping from 229th place in 1975 to 295th in 1976. And it had only $597 million under management. 6 Bank of Delaware also fell from 218th in 1974 to 293rd in 1976, with $544 million. 7
Wilmington Trust was the nation’s 12th largest equity holder in 1977, controlling portfolios worth $4.9 billion. (Delaware Trust and Bank of Delaware were not even among the top 100.) Yet it was easily dwarfed by Chase’s $6 billion, Manufacturer Hanover’s $7 billion, U.S. Trust’s $7.6 billion, Citibank’s $13.6 billion, Bankers Trust’s $14 billion, and Morgan Guaranty’s $19 billion. There was no doubt that in the world of high finance, Wilmington was a pygmy next to the New York giant. If Wilmington was ever to grow and join the big time, new capital was needed in the state. What the Chase bankers were proposing was just that, and to Shapiro and the Du Ponts it was seen as a godsend. DuPont Company’s traditional alliances with J. P. Morgan would help. DuPont Company already had interlocking directorships with Morgan and its commercial bank, Morgan Guaranty. With other interlocking directorships with Chemical Bank and Citibank, representing DuPont’s large deposit accounts in those banks, the basis for developing reciprocal relations existed. That would give the DuPonts access to huge amounts of capital for leverage in moving into other corporations and financial institutions. Wilmington as a result could become a financial center in the Eastern United States.
Pete’s approach was to the point. “We basically said, ‘What would it take for you to make an investment in Delaware?’” Hayward recalled. 8 A lifting of the ceiling on interest rates? Granted. Reciprocal hikes in interest for credit cards? Granted. Variable interest rates? Granted. Unlimited fees for credit card usage? No problem. Legal rights to foreclose on homes to collect card debts? Delighted. Lower tax rates? Of course.
Pete appointed a secret task force headed by his trusted lieutenant, Glenn Kenton. O. Francis Biondi, a prominent Democratic lawyer, set to work reviewing the statutes of South Dakota, which had passed similar legislation, and began writing drafts. It was unclear if Biondi was working for the state or the banks until, very late in September, according to Bank of Delaware lawyer Richard Eckman, another member of the task force, it was revealed that Biondi had become Chase’s lawyer in Delaware.
Shapiro joined the lawyers from Chase and J.P. Morgan in drafting the legislation. There were no written analyses by any Delaware officials. Kenton later claimed giving only “oral evaluations.” 9
It was all kept “very quiet,” said Eckman. “Nobody was talking. It wasn’t in the papers.” 10 Delaware’s division of consumer affairs, which receives complaints and statistics on credit collection abuses and practices, would have had something to say if it was contacted by the governor. It was not. It was never shown the drafts. Consistent with recommendations of the American Bankers Association for revising state laws, the public was kept in the dark.
Did Pete DuPont violate the public trust of his office? The Delaware criminal code stipulates that it is a misdemeanor for a public office holder to deliberately fail to perform a delegated responsibility. But Glenn Kenton didn’t see it that way. He freely admitted that he and the governor had a “bias” that “banks should charge what they want in fees” and “I didn’t see any sense in running that fundamental principle by anybody who doesn’t agree with it.” 11
A participant in the drafting was more candid. Secrecy was necessary because “it was before the election.” 12
Pete, Shapiro, and Biondi worked quietly on key legislators and in September assured Chase of passage. The bill was by then drafted, still with no public knowledge. Shapiro later offered a Catch-22 in defense. “The people who had an interest in the bill were involved.” 13 If the public did not know about it, however, how could they ever develop an interest in the bill? Shapiro, as usual, was speaking for other people’s interests; he would define what those interests were and who should therefore be involved in decision-making. Otherwise, someone might be given a chance to voice an objection. “You couldn’t afford to scare the banks away,” 14 he acknowledged.
On October 30, Pete ran into his first public confrontation over his possible violation of conflict-of-interest laws—but the issue was not the secret banking bill; it was his oil stock holdings. The scene was the gubernatorial debate. Delaware’s State News reporter Jack Croft noted that the Governor had taken expense-paid trips via a Getty jet, opposed a barrel tax on incoming crude, pushed through the amendment to the Coastal Zone Act that allowed pipelines and oil rig supply stations to come ashore into the zone. Considering Pete’s substantial oil stock holdings, Croft wondered if that did not constitute a conflict of interest.
Pete’s reply was simple.
“I don’t think so, Jack,” he said.
End of issue.
Croft asked if Getty was paying its fair share of taxes, an interesting question in light of Getty’s refusal to pay the fixtures tax required by the state constitution. Pete’s response was again matter-of-fact. “I hope they are,” he said.
An answer like that might have cost any politician votes in any other state. But not Pete DuPont and not in Delaware. Pete was re-elected in November, the first time in over 20 years that an incumbent governor had been returned to office in Delaware.
After the results were in and champagne again popped at “Patterns,” Croft drafted a column in the State News asking about Getty and its due taxes. “It’s a simple question of fairness,” he wrote. “Of justice.” 15
But justice in Delaware, as in many states, was not a simple question.
On January 14, 1981, Pete invited key legislators to breakfast, but it was Irving Shapiro who presided. After Pete disclosed the proposed banking bill, the DuPont Chairman addressed the legislators on its importance to Delaware’s economy. The emphasis, wisely, was put on the benefits to the state, not the Wilmington area, which would be the real beneficiary. It was titled the Financial Center Development Act. It would, according to Shapiro, make Delaware “the first state in finance.”
The Democrats looked at the complex 61-page bill and did not even read it before agreeing to sponsor it. “I confess I have no expertise in the banking area,” Senate Majority Whip Harris McDowell III later explained. “I am mystified by the bill; in fact, I’m sure it is designed to do that.” 16
The next day the press was called by the governor to a special press conference, held not in his office, as usual, but in the large conference room of the capital’s Townsend Building. There, reporters found Governor DuPont flanked by New Castle County’s new Executive, Richard T. Collins, and the Democratic mayor of Wilmington, William McLaughlin. “Delaware has a unique opportunity to modernize its banking laws to better reflect the changing patterns of the banking industry and to help make our state one of the financial centers of the nation,” DuPont told the press. “Enactment of this legislation would enhance our state’s reputation for financial stability and for a conducive business climate and it will reaffirm our desire to expand job opportunities for our citizens.” 17
Whereupon, officials from Chase Manhattan and Morgan Guaranty pledged they would open banks in Delaware. Hearings were held a week later—for three hours. Since the Senate was in session, no Democratic senators attended; probably none had enough legal training to question the bill anyway, since none were lawyers. Shapiro and Biondi were both scheduled as witnesses, however. At 7 P.M., consumer attorney Douglas Shachtman was allowed to testify. He had only been given a few hours to read the bill, but could understand enough to speak eloquently against it. It didn’t matter. Most of the legislators had gone by then; the “rules,” he said, “were stacked against me.” 18
The Consumers Federation of America also objected. Jim Boyle, its director of governmental relations, asked the legislators to “consider some of the things this bill would do. It would allow foreclosure on a homestead when it is used as collateral in a credit card transaction. It would allow a bank to retroactively increase the interest rate on a credit card holder’s outstanding balance.” The legislation was “anti-free enterprise.” 19
“My impression is that the State of Delaware is forward looking,” 20 said J.P. Morgan vice-chairman James Botsi. Such forward-looking behavior by the Delaware State Chamber of Commerce included blocking bills that would have given unemployment benefits to workers locked-out or on strike, requiring industries to give the public a year’s notice before moving out of state or closing, and introducing deposits on bottled beverages to encourage returns rather than waste.
“Is that blackmail?” one influential businessman was quoted by the State News. “God damn right, it is. It’s about time. Eighty-two percent of the jobs are generated by business.” 21
“Delaware is a conservative, pro-business state,” said State Chamber of Commerce president William Wyer. “It always had been. We’re trying to renew that tradition. We’re just starting back.” 22
“In the good old days,” Shapiro said of business-government cooperation, “it was just a natural relationship. Delaware’s a small state and people knew each other on a first-name basis. Everybody was together. That tended to fall apart in the Peterson administration and with his successor.” 23 Now things were back together again. Republican House Speaker Charles Hebner was exuberant. “There’s a growing realization that business is not a group of robber barons under the J.P. Morgan era.” 24
Two days later, on February 3, the state senate, without a hearing, debated and passed the Financial Center Development Act. “One day we will regret firing this little cannon,” warned State Senator Harris McDowell. Eighteen amendments were attempted. They all failed.
“That bill got as good a hearing as I’ve heard in four years,” 25 said Governor DuPont, and on February 18 he signed it into law.
Irving Shapiro, said Bank of Delaware’s Eckman, was the first to anticipate the national and historical implications of the act before it was even finally drafted. He compared it to Delaware’s 1899 corporation law, which the DuPonts drafted to enable them to centralize their vast gunpowder holdings into a single corporation. That law changed the structure of American law and American history. Delaware succeeded in pressuring many other states to follow suit and, more important, effectively established a nationwide corporation law by allowing out-of-state corporations to incorporate in Delaware and be protected by its lenient statutes for businesses. Now, again thanks to the DuPonts, Delaware was doing the same with the nation’s banking laws.
Banks immediately began threatening the legislatures of New York, New Jersey, Pennsylvania and Maryland with desertions to Delaware unless similar legislation was enacted. Maryland hedged, raising its usury ceiling to 24 percent from its previous rate of 12 to 21 percent for various loans. That didn’t satisfy four banks, which promptly committed themselves to Delaware. Pennsylvania got the message and in 1982 passed legislation granting banks expansion privileges within the state. In New York, legislators and Governor Carey hurriedly tacked amendments onto bills that temporarily lifted interest ceilings to hold off Manufacturers Hanover and Marine Midland’s threats to leave. Meanwhile, credit card holders in other states were beginning to feel the impact of what had gone unnoticed in little Delaware. The Provident National Bank of Philadelphia, one of ten banks that began moving credit operations into Delaware, notified some 100,000 customers that their Master Cards would now cost them $20 per year and a higher rate of interest. Other banks did likewise to millions of credit card holders. Accordingly, New York bankers urged Governor du Pont to travel the country to encourage banks to come to Delaware to increase their profits. Pete did so, addressing bankers in Chicago and California, pledging his state’s “political stability and predictability” and “hospitable climate.” 26 Pete was not just interested in helping the banks scare changes in state laws. He wanted bank capital in Delaware. He even sent Lt. Governor Michael Castle as far as London, Frankfurt and Stockholm to present the glories of his statutes.
The influx of capital into Wilmington was astounding. Morgan Bank of Delaware, setting up shop in the Delaware Trust Building, alone brought in $1.65 billion. Citibank brought in $50 million, with more promised. This bank’s great significance was its interest-free checking deposits, one of its greatest profit-making operations, averaging $5.1 billion a day during the financial week of July 29, 1981. Deposits would be used to finance loans, which, at 22 percent interest, would bring in before-tax profits of about $1 billion a year. Maryland National Bank capitalized Delaware at $194 million; First (Maryland Bank corporation’s) Omni Bank, $107 million; Provident National, $125 million; Philadelphia National, $150 million; Chemical New York Corporation, $618 million; Equitable Bank corporation of Maryland and Suburban Bank (of Bethesda, Maryland), $10 million each. Manufacturers Hanover would eventually capitalize in Delaware at $100 million and Girard Bank of Philadelphia in 1981, backed by Pete du Pont, Shapiro and J.H.T. McConnell of Delaware Trust, simply bought the venerable Farmers Bank from the State of Delaware; the skyline of Wilmington lost a landmark as the giant letters spelling the bank’s name were taken down from atop its 19-story downtown building. Later, it too would be devoured by Pittsburgh’s Mellon National Bank. Mellon had launched an interstate network of “Cash Stream” automatic tellers in over two hundred 7-Eleven stores, including 41 stores in Delaware.
All this undermined the legal safeguards against bank over-centralization that had been passed during the New Deal in the wake of nation-wide bank failures that swept the nation. Now, in the interest of deregulation, the banking industry seemed to be recreating the very dangers that the New Deal had sought to avoid. Ominously, many of the banks that had moved to Delaware were seriously overextended in loans to Third World nations that now threatened to default. In May, 1982, the following New York banks, all of which have subsidiaries now in Delaware, were listed among the 23 weakest banks in the United States: Chemical, Manufacturers Hanover, Chase, Citibank, Morgan Guaranty, and Bank of New York. 27
The DuPonts, however, were giddy with their success. 28 Nathan Hayward was “thrilled.” Pete said it meant more jobs. Citibank Delaware president Earl Glazier agreed. “We’re not going to replace Wilmington Trust. No way. But we may provide some career opportunity for some people that might not have happened.” 29
The DuPonts also agreed, and not just about jobs. To make sure no bank replaced Wilmington Trust or their control of it, they amended the bank’s charter to stagger the terms of directors to delay any outsiders’ ability to elect a majority by at least a year. One million preferred shares were authorized to block the chances of a hostile offer to buy the bank. And to seal it all up, any future bylaw amendment or sale of assets worth $1 million or more required not just a majority vote by shareholders, but a two-thirds vote, including management; unless the board agreed. The board owned 13.4 percent of the common stock.
The DuPonts knew that the bank’s stock was attractive, priced at 41 percent below book value and only four times earnings. So they made clear in the proxy statement their willingness to merge into “a regional organization of sufficient size.” But it would be on their terms, for a price that would “reflect the bank’s true potential.”
Under the 1981 law, special tax breaks were established for financial institutions and organizations when profits exceeded $20 million. This benefited such financial services corporations as the Beneficial Corporation, which expanded into a multi-billion-dollar operation under a board of directors that now included DuPont family lawyer E. Norman Veasey and former governor Elbert Carvel. DuPont family banks also benefited.
DuPont family real-estate interests in Wilmington focused on the promise of vacant downtown lots that were christened the “Christina Gateway.” As GWDC began laying off employees, Irénée DuPont, Jr., promoted the Gateway’s potentials for the new financial immigrants, although the planned Citicorp building remained stalled. Nevertheless, both Wilmington Trust, with Edward du Pont now a senior vice-president, and DuPont Company celebrated the bounties of Wilmington, DuPont by producing a special slick brochure, and the bank by beginning construction on a new headquarters for some 1100 personnel. Called the Wilmington Trust Center, the tower was constructed literally on top of the city’s old Romanesque post office; and on its top floor, plans were underway for a new exclusive social club for the corporate elite.
Eleuthère Irénée DuPont expanded his mutual funds operations also. As the money markets began to heat up with inflation, Eleuthère survived the loss of Theodore Ashford and his $125 million investment portfolio by securing a contract for his Delfi Management with the $222 million state pension fund. In October, 1979, he launched his Sigma Tax Free Bond Fund with a modest capitalization of $1.1 million. The following year, in 1980, he launched three more operations, Sigma Government Securities Fund, Sigma Money Market, and Sigma Special Fund, the last two with $10 and $9.2 million capitalization. In 1981, he set up his Sigma Tax Free Fund, which had 4.6 percent of its holdings in Pete’s Delaware state bonds, “selling a high level of current interest income.” Only Massachusetts, Florida, New York and Washington outranked Delaware as selected states.
That year its stock yielded 9.9% earnings, and Eleuthère’s ten funds had portfolios worth well over $130 million. Yet William E. Donoghue’s Money Fund Report, surveying investment results for the 12 months ending in October, 1982, found that Sigma Government Securities had one of the lowest rate of returns among funds investing in seven-day and 30-day U.S. Treasury notes; Sigma Money Market ranked second lowest of 54 funds in the domestic prime market in yields from seven-day notes, third lowest in yields of 30-day notes, and ranked 42nd of 44 of 12-month notes reported as of August, 1982. 30 While such yields vary from market to market over time, these were figures that could not be discounted when evaluating the performance of Eleuthère’s management of two of his new Sigma funds.
Eleuthère’s other major concern, Continental American Life Insurance, fared better. Backed by DuPont family directors George P. Edmonds, Rodney Layton, and Eleuthère, as well as by Irving Shapiro and former DuPont P.R. executive Harold Brayman, Continental American was steered by chairman W.G. Copeland into an eventful merger in January, 1980, with Crown Central Petroleum, a middle-Atlantic and Southeastern states oil refiner and retailer with about 4100 wells in Texas, Louisiana, California and the Rocky Mountain and mid-continent areas. For the merger, CALICO received 774,152 shares of convertible preferred shares in Crown and a seat on its board. Crown was significant not only for its domestic infrastructure of terminals, and a pipeline connected to the Houston-to-New York Colonial Pipeline System, but for its continued drilling in Texas and Oklahoma and working wells in Nigeria. The investment signalled a shift of DuPont family investment into mostly domestic oil, a harbinger of what was to come the following year: the largest corporate merger of all time, again into domestic oil, supplemented by recent strikes in the North Sea.
2.
THE LORD OF DELAWARE MARRIES
There were signs of it coming: in the 1975 deal with National Distillers and Chemicals
to jointly produce synthesis gas and carbon monoxide as feedstocks for methanol
production; in the ARCO deal to refine oil for petroleum feedstock; in the 1978 deal
with CONOCO (Continental Oil Company, hereinafter called Conoco) to jointly explore
for oil and natural gas in Texas; in the 1979 deal with Shell Chemicals to obtain one third of DuPont’s ethylene, propylene and butadiene. But they were signs, not reasons.
The reasons were more subtle and historical. They involved U.S. foreign relations and oil holdings abroad; they involved the DuPont family’s own motives, now beyond concerns merely for the chemical firm; they involved the move of the DuPont fortune into the lucrative energy field, particularly oil and nuclear power; and they involved the family’s new use of the chemical firm as leverage to achieve their financial goals.
It is difficult to assess how many of DuPont’s top management understood this. Life at DuPont is also life in DuPont, with the Wilmington suburbs being an extension of that subculture. If there is questioning, it is either absorbed into the matrix of the organization, defined within its needs, or it is necessarily expelled. The pressure to conform is enormous, especially when it appears benevolent. “It is easy to fight obvious tyranny,” wrote sociologist William Whyte in his 1956 classic, The Organization Man, “it is not easy to fight benevolence, and few things are more calculated to rob the individual of his defenses than the idea that his interests and those of society can be wholly compatible.… Like the good society, the good organization encourages individual expression.… But there always remains some conflict between the individual and The Organization. Is The Organization to be the arbiter? The Organization will look to its own interests, but it will look to the individual’s only as The Organization interprets them.” 31
As Shapiro exemplified so often over the previous decade, DuPont has had a penchant for interpreting the interests of the individual, of all American individuals, for a very long time, probably from its birth as a company. It has long been given a name: paternalism, practiced in the name of progress, of efficiency, of community. “De Tocqueville made a prophecy,” recalled Whyte. “If America ever destroyed its genius it would be by intensifying the social virtues at the expense of others, by making the individual come to regard himself as a hostage to prevailing opinion, by creating, in sum, a tyranny of the majority. And this is what the organization man is doing. He is doing it for what he feels are good reasons, but this only makes the tyranny more powerful, not less. At the very time when the pressures of our highly organized society make so stringent a demand on the individual, he is himself compounding the impact.” 32
Ironically, it was the quintessential organization man, Irving Shapiro, who intensified this process in a company where it had already gone to extremes. He did so by further centralizing authority in DuPont’s corporate structure, undermining the careful balance between individual initiative and organizational needs that Pierre S. DuPont had taken such pains to attempt in his committee structure.
What was left was the company mold, and a hierarchy more steeply structured than what had been easily felt and seen among top management in the past as a sense of importance, of even belonging to an elite within DuPont, and therefore within Wilmington, Delaware, what Shapiro admitted as “a feeling that we were just a bit better,” a narrow egoism that made true cooperation and its key component of individual independence lacking when, in 1981, it was most needed.
For central to DuPont’s corporate image, emblazoned even on the cover of its 1975 Annual Report in the image of Thomas Jefferson’s letter to E.I. DuPont, was the family. And if the rest of management took Shapiro at his word about the importance of being a professional manager, of being a team player and Organization Man, it also saw his deference in practice to the needs of the family, even, in the case of Christiana Securities, their self-interested desires.
The problem, perhaps, flowed from the pragmatic approach of American business, too often seen and denounced as merely amoral. “Aside from the fact that the managerial group is open to all comers, there is another fact which disqualifies its members as a ruling class,” wrote Whyte. ‘They have no collective sense of direction. They have none because their organizations have none. Owing to its essential differences in functions and goals, and not unimportantly, the American inability to put things together into a doctrine until after it’s all over, our many different hierarchies are not so comparable as might appear. Like the union man who becomes an industrial-relations executive, the ex-government lawyer turned a corporation counsel, the erstwhile blue blood who becomes a sales trainee, many organization men have a conflict in loyalties they must resolve.” 33 If there was anything obvious to Shapiro, it was that he was not a member of a true ruling class. It showed in his stockholdings even more than his deference to the family’s needs. He was, clearly, not a DuPont. He was and remained always an outsider. Thus his alliance was “more to The Organization itself than to any particular one, for it is in the development of their professional techniques, not in ideology, that they find continuity—and this, perhaps, is one more reason why managerial people have not coalesced into a ruling class. ‘They have not taken over the governing functions,’ Max Lerner has pointed out, ‘nor is there any sign that they want to or can.’” 34 Shapiro often pointed this out himself. He was probably the first Organization Man at the helm of a company that had been ruled for so long by a family self-conscious of its role in business and in history, possessed of an ideology. And it was precisely this that made him seem unique for DuPont.
But is was also his greatest weakness. Such men “concentrated on the fact of their skills rather than on the uses to which their skills are put. The question of the cui bono the technician regards as beyond his technical competence.” 35 Ultimately, they retreat to the bosom of the Organization, allowing it to interpret in the name of the common good.
Whyte said this was “premature” behavior. “To preach technique before content, the skills of getting along”—Shapiro’s “communication is good management”—“from why and to what end the getting along is for, does not produce maturity. It produces a sort of permanent prematurity, and this is true not only of the child being taught life adjustment but of the Organization Man being taught well-roundedness.” 36
The reaction of the call for buying Conoco was not mature; it was acquiescence to a more confident and permanent human force confronting the managers—the DuPont family. It was this that explained why they made the momentous decision that was immediately questioned by analysts—and now, in whispers along the corridors of the Headquarters, among themselves.
It was a testament to the fact of their cohesion as functional, rather than one based on basic kinship ties, that there was no unity of opposition, indeed, perhaps any opposition, to the Conoco purchase. Shapiro may have served as retired elder statesman, but it was only as consigliere, awarded prestige with no rights by birth and always revocable.
So it came about that executives who had become used to seeing their chairman leverage their company, unlike family members who had a kinship stake in not mortgaging their heirs’ future, were encouraged in the summer of 1981 by the ultimate Organization Man, the individual who probably most personifies the bloodless abstraction of capital, the banker. A property, with familiar and friendly management, was up for sale, and J.P. Morgan had selected DuPont from a list of companies it thought could help the targeted management keep their jobs secure from hostile bidders.
The property contained, of course, what DuPont could use: oil, lots of it, over 1.5 billion barrels, much of it in the western United States and the North Sea, readily available and safe from foreign repossession, with extensive distribution in Europe where Middle East oil is expensive. And coal, 44.9 million tons of it, one of the largest reserves in America. And natural gas, 2.6 trillion cubic feet, and 38 processing plants recovering gas liquids including ethane, an important chemical feedstock. And, finally, uranium, 61 million recoverable pounds in the United States and 32 million pounds in Niger, Africa.
The Morgan bankers, who were in agreement with Concoco Chairman Bailey’s offer to sell out to DuPont, thought it was a good buy.
There were many reasons why it was not, at least for DuPont Company. First, there were formidable competing bidders: Mobil Oil and Seagram, both billion dollar operations with cash on hand, were already driving up the price of Conoco’s stock, and DuPont’s entry would drive it up further. The winning bidder would surely have to pay a premium on the stock’s value. Most take-over bidders paid that kind of money in order to get rid of management, not to save it. Why should DuPont want to help Conoco’s managers? Were Conoco’s assets really worth it? DuPont would not even be able to use all the oil and gas that Conoco had. Why should Du Pont, already in debt to banks, pay for what it could not use?
The solution to the riddle was, as usual in most human dilemmas, found in history, in this case the history behind the competition for Conoco’s stock. The battle over Conoco actually had its origins in Canada in mid-1980. Prime Minister Pierre Trudeau wanted to regain for Canadian financial interests the 70 percent of Canada’s oil and gas reserves that were owned primarily by American corporations. He established tax levies on foreign firms and investment tax credits for Canadians with the stipulation that their companies engage in oil exploration. Canadian banks feverishly agreed to back the companies with loans. Toronto’s new energy policy, therefore, made oil exploration in Canada more lucrative if ownership of the exploring companies was in Canadian names. American firms accordingly began selling some of their reserves to Canadian concerns.
Conoco was one of those firms. It had a controlling 53 percent interest in Hudson’s Bay Oil and Gas Company, owner of 265 million barrels of Canadian oil and 3.4 trillion cubic feet of natural gas. Morgan Stanley, Conoco’s broker, valued the Conoco stockholding at about $1.7 billion. Conoco’s directors wanted more, $900 million more, in fact.
One of the possible Canadian buyers Morgan had listed was Dome Petroleum. Dome contacted Ralph Bailey, the bulky, sandy-haired engineer who had risen to Conoco’s chair, and offered to make a $1.7 billion bid through a tender offer for 20 percent of Conoco stock that would then be swapped for Conoco’s share in Hudson Bay. This arrangement, Dome explained, would allow it to avoid paying capital gains taxes.
Bailey was cryptic, but did not refuse. Dome’s executives believed Bailey was only trying to avoid any personal direct negotiations with them before beginning their bid so the IRS would not question the swap on possible charges of collusion.
When Dome’s tender offer was announced on May 5, Conoco and Morgan Stanley acted shocked. They claimed Bailey had been worried about the legal implications of the tender offer and made no deal. If Bailey had, it was a terrible mistake. Dome’s offer of $65 for each Conoco share was well above the $50 it fetched on the New York Stock Exchange, and Dome’s offer drew a favorable response from Conoco’s institutional investors. The reason was not just the price. Conoco had a reputation as a company with solid roots in the old Standard Oil Trust and as a firm with promise, but it always seemed just that, promise. Although it was a large company, it never seemed able to make it to the top ten where the chips were decidedly bluer. It had never exploited its huge domestic oil or gas reserves on the scale many thought it could; instead, its exploration and development program appeared sluggish, its directors, including the representatives of Rockefeller Brothers, Inc., acting more like keepers of a holding bank or some national security energy reserve in the American homeland, than the voracious profit-seekers many investors would have preferred. Its management, accordingly, suffered a reputation as not being very aggressive, even though Consolidated Coal, its subsidiary, had a tough reputation among miners dying of lung diseases. Moreover, Conoco now had problems abroad. Its holdings in Libya were jeopardized by the nationalism of its leader, Col. Qaddafi, and the new Reagan Administration’s open hostility to Qaddafi for his support for Arab nationalists in northern Africa and the Middle East did not make Conoco’s position any less worrisome.
The response by investors to Dome’s offer was overwhelming: 52 percent of Conoco’s shares came in, instead of just the 20 percent it had asked for.
It was the first tip-off that Conoco’s directors lacked the confidence of shareholders and that Conoco was susceptible to a take-over.
That caught the sharp eye of Edgar Bronfman, the handsome, polished 52-year old playboy chairman of Seagram, the world’s largest liquor distiller and a Canadian firm, although its headquarters were on 5th Avenue in Manhattan. Seagram had $2.3 billion in cash on hand from its sale the previous year of oil and gas properties to SUNOCO, the oil firm controlled by the Pew family of Philadelphia. Only in April, Bronfman had been foiled in attempting a hostile take-over of St. Joe Minerals. Now the dapper Canadian saw another opportunity. He knew Dome was too small to arrange credit to buy the 52 percent offered to it. Assuming it bought the 20 percent it wanted, that left 32 percent available to the highest bidder.
Bronfman quickly put in a call to Conoco management and said he wanted to talk. Conoco’s Bailey conditioned it on Bronfman’s pledge that his bid was a friendly one, and not hostile to management. “Of course,” said Bronfman, who then arrived at Conoco’s Stamford, Connecticut, headquarters with a negotiating team. There they worked out what Bronfman thought was a deal with Bailey to buy 35 percent for cash and a standstill agreement—which bars voting stock against management—for a certain number of years yet to be negotiated. In the middle of the negotiation, however, Bailey cut off the talks, agreeing to meet the next day. Unknown to Bronfman, Bailey had a private jet waiting to fly him to Oklahoma to conclude merger talks with Cities Service, then also fighting a Canadian raider, Nu-West.
Was this a sign of bad faith? Bronfman later said it was, and his charge was somewhat supported by what happened the next day. Bronfman arrived with his brother, Charles, and this team was shown into Bailey’s office. While there, the limousine of Dome’s president, William Richards, pulled up the Conoco driveway. Bailey then began his shuttle negotiations, keeping the Bronfmans upstairs while the Dome people were put in a small conference room downstairs, their isolation ensured by security guards. Bailey later said he was worried that if Richards and Bronfman crossed paths, Dome might just as soon sell its Conoco shares to Bronfman as trade them in to Bailey for Hudson’s Bay. That was unlikely. Dome wanted Hudson’s Bay badly, and would end up proving it by buying up complete control.
After Bailey, assisted by the legendary merger lawyer Joe Flom of Skadden, Arps, Slate, Meager & Flom, worked out his deal with Richards, Richards was then brought before the waiting directors of Conoco, who approved the exchange of Hudson’s Bay for Dome’s 20 percent of Conoco plus $245 million. Only then was Bronfman brought in to make his offer.
Bronfman explained he was interested in an investment for his grandchildren, not control. He would like to buy 35 percent for cash and a standstill agreement. But the Conoco directors wanted him to sign the agreement for beyond the 15-year period he had agreed to. By now, Bronfman was wary. Flom had been getting tenacious with the Bronfmans that afternoon while, they later claimed, misleading them about how well the Dome negotiations were going. As late as 3:30 P.M. Flom had allegedly told Charles that “nothing is going to happen with Dome.” 37
“Ralph,” Charles Bronfman later testified saying to Bailey just before going into the Conoco boardroom, “I am convinced Joe Flom is trying to sabotage this deal.” 38 When they learned that the Dome exchange had just been approved, the Bronfmans felt burned. The situation had changed. The Conoco directors had gotten back the stock Dome had bought and felt more confident than Bronfman had anticipated. His $73 per share might attract institutional shareholders, but it did not impress the Conoco directors. The $8 more per share he was offering only reflected the increase in Conoco’s price since Dome made its offer; it didn’t even match that: Conoco was now selling at $60, $10 above its May 5th listing.
They rejected Bronfman’s offer and proceeded to prepare to announce their merger with Cities Service, while putting out calls to see what large company could be lined up as a White Knight if a raider showed up.
That was on June 17.
The next two days the Bronfmans bought 143,000 shares of Conoco on the open market, and the Exchange suspended trading and told Bailey to put out some statement to explain the unusual activity. Bailey’s statement did not mention Seagram by name, referring only to a foreign company; and it reported an offer to purchase 25 percent, not the true 35 percent. Canada, meanwhile, worried about its own sinking dollar on the world money markets, tried to halt its bankers from backing up any more oil purchases from Americans. But by now it was too late. Bronfman was not to be stopped. On June 22nd he filed a pre-merger notice with the Justice Department. On June 25th, he overrode the Conoco board’s rejection and made a public unfriendly bid for Conoco shares.
Undoubtedly, some of the blame for the merger mania must be laid at the White House. Since President Reagan had appointed William Baxter as head of the anti-trust division of the Justice Department, it had been evident that in the name of efficient economics of scale the Administration would not block most large corporate mergers even though the FTC study in 1979 had held that there were “on average no economic benefits from large mergers.” In fact, it was questionable whether large mergers were not antithetical to efficiency.
Northwestern University’s Frederich Scherer conducted interviews with executives, of acquired companies and found that in automobiles, for example, a clubbish attitude had blinded executives to trends toward smaller, more fuel-efficient cars. Inflation also made companies’ assets spiral in value. That attracted mergers, but did not reflect any real growth in earnings because the sales market, especially during a recession, was usually slow in absorbing the inflated value of the assets with an increase in sales revenue. The gap between a company’s revenue from sales, on one hand, and the value of its assets on the other, would show up as a decline in earnings that could affect the attractiveness (and therefore price) of a stock, and the company’s ability to raise capital to finance debt payments to banks or even operations.
“I think it is ironic that the Reagan Administration is worried about bureaucracy in the government,” commented Dennis Mueller, an economist who studied mergers in Europe and the U.S., “but encouraging it in business.” 39 A Carter hold-over in Baxter’s anti-trust division was equally alarmed. “The views of the agency’s head seem to be antithetical to the agency’s purpose and it makes a lot of people around here nervous,” 40 he said.
When Bronfman made his unfriendly bid, Bailey knew that Conoco’s days as an independent firm were limited. He had been caught with his hand in the stocks jar. While claiming to have balked at Dome’s offer because of possible legal problems, Bailey had actually been negotiating with another oil company, Cities Service, for a merger. He later argued that this merger would have given Conoco a higher percentage of U.S.-based income, ostensibly to ease worries about its troublesome Libyan holdings. Cities Service had a strong exploration program in the U.S.
But that didn’t answer why Bailey had not simply strengthened the domestic programs of Conoco itself, which had huge U.S. reserves. It also didn’t explain why Bailey’s directors were going along with a merger with a company which not only had its own problems but was actually smaller. That would only dilute the value of their Conoco stocks, the very factor they gave on June 27 in excusing their refusal of Seagram’s June 25 offering. They were also aware that under SEC rules, Bronfman would have to prorate his purchases. That meant that even if he attracted 100 percent of the shares (which was unlikely), he could purchase only 35 shares of every 100 that came in, turning back 59 shares. Those 59, the directors claimed, might fall as low as $40 a share on the market, dragging down the value of the other 4l shares. When the $73 shares and the $40 shares were prorated, that meant Bronfman’s $73 price would really be worth about $53 a share to Conoco’s shareholders, too low, they insisted, to be in the company’s interest.
The usual answer has been to criticize Bailey for lack of boldness in not buying Conoco’s outstanding stock. More likely, however, Bailey was attempting to exchange shares in Conocos treasury for an interest in another company. Bailey, like the DuPonts, was probably trying to diversify.
Morgan realized it was a marriage made in a broker’s heaven, if not for the independent-minded Conoco executives or for the Du Pont executives devoted to chemicals, then certainly for the major interested parties, Bailey’s directors and the DuPont family.
It may have seemed surprising, in this context, that Bailey’s directors failed to purchase more of their own stock even though they knew a raid was coming that would drive up prices. But there were two probable reasons they did not. One was that Conoco’s stock had not yet shown clear evidence of rising. When Dome’s exchange took 22 million shares off the market, for example, Conoco’s stock still did not rise very far, to $56 at most. Laying out cash to buy shares to discourage a raid might raise the price, but Conoco would be financing its own rise in shares. The increased price might accomplish just what it would be designed to do—discourage other bidders—and prevent a further gain in the value of the stockholdings of the controlling investors they represented.
These investors were not necessarily loyal to management. Eleven of the 14 were “outsiders,” representing large investors. While most of them were professional corporate managers themselves, their fundamental loyalty was not to other executives but to the interest of a Conoco they saw through the eyes of the corporate investors they represented. Particular interests become defined as the common interest. It was stunning evidence that the “outside directors” model championed by reformers for corporate boards was too vague; if the outsiders are profit-seekers first and citizens second, then their motives may be no more conducive to industrial democracy than that of management insiders.
Joe Flom’s failure to lock down in writing Bronfman’s promise to keep his bid friendly and not pursue the bidding unilaterally leaves a big gap in comprehension. It has been excused on the grounds that for men in high places their word is their bond. If so, there would be little need in the world for lawyers. No one knew this better than Joe Flom, a veteran of many nasty take-overs.
It is very possible, then, that Bronfman inadvertently had taken the bait. While his bid killed the Cities Service merger, destroying any real chance Bailey’s team had to remain independent, it also meant Morgan and Flom would have to bring in someone new, someone with enough financial clout to play White Knight. That someone might even have close ties to both Morgan and Flom.
The Conoco directors, meanwhile, saw the value of their holdings double in two weeks of heated bids. Mobil jumped in, and Bailey threw fuel on the fire by agreeing to talk with Texaco about a merger. He claimed to be favoring one oil giant over another because of “very serious anti-trust and public policy issues.” 41
Meanwhile, some unknown investors on the Philadelphia Stock Exchange had been wise enough on the week of June 19th to June 25th to speculate in call options to buy 100 Conoco stocks at a “striking price” of $70 per share by July 17. At the beginning of the year, Conoco’s call options had languished near 0. On June 19, they were selling for ⅙ or a “steenth,” as low as an option can get. Over the next few days, 5 options were quietly traded. It is possible, someone might have been fishing for a long-shot gain, or closing out a profitable short position in the call, which had been as high as 10½ in the final quarter of 1980; or had purchased the call as insurance to minimize a loss if Conoco stock that he had sold late the previous year now rose. 42 Or, just as possible, someone had a tip about what was going on inside Conoco’s headquarters. It is interesting that someone knew enough to suggest that a reporter make a phone call to DuPont Company on June 22 and inquire if Wilmington was engaged in talks with Conoco. DuPont Headquarters denied being in touch with Conoco, and the disclaimer was printed in the back pages of the New York Times on June 23. Two days later, Bronfman made his offer to purchase 35 million shares at $73 per share. Over the next ten days, the Conoco call rose 124 times in value. A Manhattan broker called it “unreal.” 43 But for some investor, the profits were very real indeed. The purchase of one Conoco call on June 19, when some of Conoco common was selling for $56.25, would have cost the buyer $6.25; by July 6, when 2159 contracts turned over, the call, minus brokerage commission, was worth $775.
That day DuPont Company made a cash bid of $87.50 per share for 40 percent of Conoco’s common stock, and offered 1.6 DuPont shares for each remaining Conoco share.
Securities analysts were stunned. It was a huge premium to pay over Conoco’s market price which even two days later, when Conoco was the most active issue on the New York Stock Exchange, was much lower, at 763/8. Conoco’s big shareholders represented on its board may have been happy; Conoco common, the competitive bidding Bailey was promoting, had appreciated over 35 percent in value since June 19. But, usually a bidder is only willing to pay a premium over market price if he believes he can do a better job of managing the targeted company’s assets, which he must assume have been undervalued by the stock market. DuPont obviously believed Conoco’s huge gas and oil reserves had been undervalued and was banking on their worth rising in an energy-scarce future. But it did not plan to replace the Conoco executives. So why was it willing to play White Knight for them against Seagram’s Villain?
3.
BEHIND THE MATCHMAKERS
The answer was in how DuPont got involved in the first place. The chemical
company’s executives had come to know Conoco’s executives through their joint oil and
gas exploration venture in Texas. Bailey’s maneuvering for a merger was driving up
Conoco stock, but it was a dangerous game. The Conoco top brass were confronted by
take-over threats from all sides in late June and early July; the Bronfmans were known
to like to control what they owned and could now be expected to have little regard for
Bailey; and Mobil had oil executives who were every bit as experienced and competent
as Conoco’s. DuPont’s chemical engineers, on the other hand, had shown they knew
little about the oil business. Conoco’s top management would be safe.Morgan Stanley, Conoco’s broker, apparently agreed. Morgan was the perfect matchmaker. It had command of the lines of credit needed to both finance DuPont’s purchase and protect Conoco’s managers from hostile bids. Bailey, with Morgan’s assent, picked up the phone and called Wilmington. Exactly when the first contact was made is unclear, but Edward Jefferson, chairman for only two months, admitted calling Bailey on June 24, two days after Bronfman filed hs pre-merger notice with the Justice Department, and about the time Conoco and its New York hirelings were making calls to line up a White Knight. Jefferson acknowledges only to getting assurances from Bailey that no other chemical company like Dow had been approached. That would have been highly irregular. Dow was heavily leveraged. It was not even on Morgan’s list of prospects. Lee Smith pointed out, “By making the call, Jefferson encouraged hopes that DuPont might be a White Knight.” 44
Jefferson could not recall what prompted him to contact Baily other than rumors about Dow being approached or what he may have read while vacationing in Colorado in the middle of June.
While he was in the wilds, however, Irving Shapiro was in Wilmington. He was now chairman of DuPont’s finance committee and, since the April stockholders’ meeting, had been spending more time at his new law office a block away. Behind his desk hung a reproduction of the new impressionist painting of Pierre, Lammot and Irénée du Pont that still adorned the DuPont chairman’s lair. Shapiro was still representing DuPont as a member of the law firm of Skadden, Arps, Slate, Meagher and Flom … Joe Flom, the lawyer for Conoco that Charles Bronfman had warned Bailey about; the same Joe Flom who at the time also headed the law firm Shapiro now worked for. In fact, Shapiro’s son, Stu, was a partner in the firm. As Shapiro put it, “We would be careful not to let any personal activity affect the proper choice of law firm.” 45 Or the proper destiny for Conoco.
Shapiro led the DuPont finance committee in approving a merger with Conoco, as well as the terms that were then endorsed by the entire DuPont board which already had a direct interlock with Conoco through Gilbert E. Jones, a director of both companies. Jones also sat on the board of IBM with Shapiro, and with another Conoco director, C.W. Buek, on the board of U.S. Trust Company. DuPont director and Trilateralist Andrew Brimmer, likewise, sat on the board of United Air Lines with Conoco director Lauris Norstad.
Morgan-related First Boston Corp. was picked as DuPont’s broker for the tender offer, reflecting the company’s long ties to Morgan interests. DuPont director Howard Johnson was on the Morgan board. DuPont then owed about $22.1 million to J.P. Morgan’s commercial bank, Morgan Guaranty Trust Company. 46
Morgan in June had arranged a $1 billion credit line for Conoco to ward off any hostile offers. It now arranged a $4 billion loan for the DuPonts.
The total price tag when DuPont made its July 6 bid was $7.3 billion.
That was a lot of money that now would not go into DuPont’s promising new array of specialty products, and analysts had to wonder. This was another reason not to make the deal, and Shapiro knew it. He had been the one who steered DuPont through the fibres rapids to the smoother waters of value-added specialties downstream. True, the DuPonts had allowed the restructuring of the company to begin years before, when Lammot du Pont Copeland, the last direct DuPont heir to occupy the captain’s chair, stepped down from the helm and McCoy, a relative, but not an heir, took over. Shapiro had only continued this process, but at a break-neck pace, spurred on by the rise in oil prices. By 1979, he had directed 35 percent of DuPont business into high technology products. The Photo Products Department was expanding into electronic sound and video recording tapes, penetrating the printing industry with printing plates, and made 25 percent of the world’s X-ray products and most of Polaroid’s film. Its electronics connectors, growing with the exploding market in telecommunications and data processing, expected a 20 percent annual growth. The Biochemicals Departments agricultural chemicals generated 10 percent of DuPont’s earnings making pesticides, fungicides, and herbicides. An expansion into the brave new world of genetic engineering also looked promising, with wide application in everything from pollution control to pharmaceuticals. Electronic machines capable of analyzing blood 35 different ways automatically were also a rising business.
Much of this was questioned by environmentalists and health experts for its impact on the declining quality of food through spraying of carcinogenic chemicals or the rising costs of medical care or the ethics and morals relating to human evolution and the lack of government protection from potential abuses in gene-splicing. But for DuPont these ventures represented a money-saving move away from the older lines of synthetic fibres that were heavily dependent on petroleum. It also was an escape from the stagnant paint market, which had not responded well to poor ratings. And it would not get better. By 1982, Consumer Reports labelled DuPont’s “Easy Care” Latex Flat and “Lucite” wall paints as the worst of 32 paints tested, charging they “lacked the qualities you should expect in expensive paint.” 47
The automobile industry was still a billion dollar market for DuPont, consuming plastics, artificial fibres, paints and lacquers, and electronic connectors, but the federal safety and environmental laws that encouraged plastic sales to make cars lighter had also required more concentrated, less volatile auto paints which increased costs. The new “value-added” products, on the other hand, required less capital investment to set up shop and, as new industries, were poorly unionized, allowing DuPont Headquarters to pay cheaper wages and run shops without interference from organized labor representatives.
So now, analysts asked, why the move back into oil? Would not the Conoco purchase retard development of these promising new lines of products? Would it not delay Du Pont’s search for a $400 million pharmaceutical company? Why did the finance committee recommend the purchase? What really was going on?
Edgar Bronfman decided not to wait for the answer. On July 12, he bid $85 a share for 51 percent of Conoco. Three days later, Du Pont responded with a $95 a share offer, and raised its stock offer for 1.6 shares per Conoco share, to 1.7 shares.
It was a terrible mistake. Shapiro and Jefferson, by not closing the deal with a solid cash offer, allowed Bronfman to keep on bidding—and buying—while the Justice Department reviewed Du Pont’s stock for its antitrust merits, as required by law.
Mobil came in with a $90 offer in cash for just over 50 percent on July 17 and pledged securities worth an equal amount to Conoco’s remaining stock. Mobil was obviously eyeing the same thing as DuPont: Conoco’s vast oil reserves could be bought for less than $12 a barrel. John S. Herald, Inc., the reputable oil analysts, valued Conoco’s assets at about $160 a share, much higher than anyone was bidding.
Bronfman shot back with $92 a share in cash for 51 percent on July 23. Three days later Mobil countered with a $105 per share offer for 51 percent, but lowered the value of the securities it was offering for the rest of Conoco to the equivalent of $85 a share.
In Wilmington, the DuPonts realized the mistake they had made. They tried to rectify it by increasing their cash purchase of Conoco from 40 percent of its shares to 45 percent. Mobil responded by raising its cash offer to $115 a share on August 3.
Edgar Bronfman responded another way on that day; he began buying the 15.5 million shares his strictly-cash offer had attracted. Wilmington groaned, quietly.
The Reagan Administration offered them some relief. On that same day, Assistant Attorney General Baxter weighed in with his approval of the DuPont-Conoco merger. It had been expected, and was probably the reason Bronfman began buying that day. He knew his head start would not last long. Mobil had not been denied Baxter’s approval. It was still pending, despite the fact that under the Reagan Administration oil companies had been given license to purchase each other following the general line of Reagan’s SEC Chairman John Shad who blessed mergers as “facilitating capital formation”—as well as fees for such merger and acquisitions specialists as E.F. Hutton and Company of which Shad was vice-chairman. But Mobil was not favored by Baxter, and his delay gave DuPont the decided edge. Questions were raised about the merger’s profitability for Mobil shareholders, since the purchase would probably have pulled down its 14 percent yield to 11 percent. The Reagan Justice Department, however, had not ruled Mobil out, signalling a willingness that other corporate giants quickly picked up.
Thirteen huge corporations, mostly oil companies, lined up $46 billion in credit that month. Mobil raised $6 billion, as did Gulf Oil. Texaco raised $5.5 billion. Marathon $5 billion. Cities Service took on $1 billion to ward off raiders, then $3 billion more. Pennzoil set up a $2.5 billion credit line; Allied Corporation, $2 billion; Phillips Petroleum, $1 billion. North West Industries and U.S. Steel loaned $4 billion more for working capital needs, but they were the exception. Most of the other credit lines were set up for acquisitions, exactly what President Carter had feared the oil companies would do rather than invest in research on non-fossil fuel sources of energy.
Shapiro had made headlines defending such oil company mergers when he testified against Senator Edward Kennedy’s bill to restrict them; the testimony ended up in a personal confrontation between the DuPont Chairman and the Massachusetts Senator. Now, at Skadden, Arps, Shapiro was joined by four Carter officials: Carter’s Deputy Secretary of Energy, Lyn Coleman; his Assistant Secretary of Energy for International Affairs, Leslie Goldman; the Special Assistant to the Secretary of Energy, Douglas Robinson; and Carter’s Associate General Counsel for the Environmental Protection Agency, James Rogers. “They practice the type of law that I tried to practice as a lawyer,” Shapiro said of Skadden, Arps. “I wanted to be associated with a man like Joe Flom.” 48 Flom, the merger king. Now Flom was advising Conoco, which borrowed $3 billion; his friend and ally, Shapiro, was having DuPont borrow $4 billion. And their rival for Conoco, Edgar Bronfman, had borrowed $3.9 billion. All to buy Conoco’s shares.
The huge borrowing that month may have helped the giants, but it didn’t make life easier for the average American. Small businesses and housing were “near collapse” because of the severe shortage of capital, charged Rhode Island Congressman Ferdinand St. German, chairman of the House Banking Committee. The big borrowers were causing tight money in the credit lines, “a shortage clearly not shared by the huge oil companies who desire funds for an international game of monopoly.” 49
This, in its essence as a movement of capital, was nothing new in the history of American business. Such “games” of monopoly were always played during times of international economic contraction when overproduction exhausted markets and triggered recessions, even depressions. In those bleak times, horizons looked darker for smaller companies whose capital reserves or markets were too limited to offer a view beyond the crisis of the next fiscal period. Smaller firms have not the capacities of giant corporations to absorb the punch of a deep recession, and this vulnerability often translates into bankruptcy or selling out. That is why recessions are often also periods of mergers that result in greater combinations of industrial and retail capital, larger corporations extending their control over industrial and retail markets. Large banks, too, unhappily foreclose on customers or demand more say over a company which must reschedule its debt payments; this applies to companies which are dangerously highwiring their profit-margins as well as to those giants which must borrow from banks to consume what others’ ruin has offered. More bank representatives thus are seen on industrial boards, or even in troubled governments such as New York, furthering the process of what has become known as the growth of finance capital. Even small banks, hit by defaults on loans, become prey.
The problem, however, is that it further stretches the liquidity of banks, small and large alike, which have already overextended themselves during the earlier days of heady expansion. The crisis of payments rendered the banks by customers no longer able to meet their interest, much less their principal, on loans reduces the number of areas where high finance can respond with flexibility. So any one area of crisis threatens all, and the true domino theory emerges from nightmare into reality. When that point has been reached, there is no turning back. There is only hope in going forward, trying to contain the crisis by extending it with more loans, more mergers, larger combinations of capital, now dubbed corporate “conglomerates.”
This explains more rationally than simplistic charges of greed why super-banks like Chase Manhattan were willing to make so many loans in the. first half of 1981. Chase made 70 such loans totalling $15.1 billion during those six months; Citibank 68 totalling $13.3 billion; Manufacturers Hanover 56 totalling $11.1 billion; Bank of America 52 loans amounting to $10.8 billion; J.P. Morgan & Co. 39 loans totalling $10.7 billion. 50 Nor are Americans alone. All large bankers seem to act alike. In the same period, for example, Barclays of London made 37 loans totalling $11.2 billion; Banque Nationale de Paris 30 loans worth $11.1 billion; Bank of Tokyo 50 worth $10.8 billion; Arab Banking Corporation (London) 34 worth $9.5 billion; Bank of Montreal 27 loans worth $8.3 billion. All seem to agree on the strategy of more loans, more rescheduled debt payments, more mergers. It underscores the interdependency of Western banking, especially of American banking, which is required to seek foreign partners for big loans because U.S. law prohibits a bank from lending over 10 percent of its capital and surplus. Foreign banks, to non-bankers’ dismay, are not so restricted. Thus, in any great financial crisis for a single large bank, there is no place in the Western world to hide. There are no safe refuges.
This also accounts for the decline in American banks’ earnings even as the assets of the giants grow, and why bigness is not necessarily a sign of good health. Since 1950, American banks’ equity as a percentage of their total assets slipped from 9 percent to 6 percent in 1968, 4.1 percent in 1973, 3.7 percent in 1978, down to 3.6 percent in 1980. 51 Some of this is also the result of a loss of loan business to the commercial paper market and the new money market funds that have sought to exploit the declining value of money and volatile interest rates by offering higher yields for “deposits,” or money put in their hands. To compete, the banks have had to raise their own interest rates, narrowing the previously lucrative gap between rates paid to depositors and rates received from borrowers. That meant a growing squeeze on bank profits and bankers’ agitating for a removal of New Deal laws that prevented them from interstate banking, interstate mergers, and charging outlandish interest rates for loans or credit lines.
It also explains why the financial community worries when articles appear about their liquidity crisis, citing its own statistics. Working from material submitted by banks to the Federal Reserve, J.T. Holt & Co. of Westport, Connecticut, analyzed the banks’ equity-to-asset ratio, loan loss reserves ($298 million), percentage of the total loan portfolio that was accounted for by real estate construction and development loans (especially vulnerable during a recession), percentage of loans accounted for by borrowings from less-developed countries ($96 billion to non-OPEC countries); percentage of loans accounted for by commercial and industrial loans (some were as high as 80 percent, 30 percentage points above the 50 percent considered normal); purchased liability ratio (inter-bank short-term borrowing, usually overnight). Morgan Bank of Delaware ranked as the strongest bank in the U.S. but its parent, Morgan Guaranty, ranked as one of the 25 weakest, as did Manufacturers Hanover, Bank of America, Chemical Bank, Bank of New York, and Citibank, 52 all with or planning to have Delaware subsidiaries under Pete DuPont’s new bank law. DuPont Company had interlocking directorships and/or deposits with five of these banks.
This desperate inter-dependency between big banks and conglomerates also clarifies why the financial community was so hard put to admit the role its lending and the conglomerates’ borrowing played in increasing interest rates. It was far more convenient to claim that in a money market where $1 trillion exchanges hands every day, 13 corporations borrowing $46 billion in the single orgiastic month of July, 1981, had little affect on the nation’s financial resources or on interest rates, and was actually not a withdrawal of money from circulation but a recirculation of money back into the economy. A neat formula if one could believe that the multiplier effect of money in circulation was actually an expansion of real value simply because the same money exchanges hands many times. But the reaction in the moneymarkets and the Federal Reserve Board betrayed the truth. Yes, said the Fed, there was a $51 billion rise in the money supply, some of which was the result of bank loans extended to the conglomerates. But simply because some of the loan proceeds were put into bank deposits and counted in the money supply did not mean a real expansion of goods and services in the economy. Too much money chasing too few goods is a classic monetary symptom (not cause) of inflation from international productivity differentials and a depressed dollar value. To try to keep that symptom of inflation under control, the Fed contracts the money supply made available to the central banks. And, sure enough, when the week of August 5, 1981, ended with a huge $3.7 billion increase in business loans over just the previous week and it was announced that there had been a large $5.1 billion gain in what the Fed calls the M-1B money supply (covering currency, interest and non-interest-bearing checking and other checkable deposits in banks and savings institutions), to a total $433.7 billion, most interest rates edged higher in anticipation that the Fed would make bank reserves scarcer to reduce excessive growth in the money supply. No wonder there were few bankers indeed with the courage of Fiduciary Trust Bank of Philadelphia’s Lacy Hunt to admit that the conglomerates’ huge loans “are an adverse development for the money and bond markets.” With such interlocking interests and the debt crisis so sharp, who wanted to concede that such loans crowded out other borrowers and raised interest rates in the short- and long-term markets?
This growth in the money supply perplexes monetarists, who myopically hold that money supply is the source of inflation, rather than productivity lag and resulting trade and payments deficits. Yet it is clear that the growth of money market funds such as Eleuthère I. du Pont’s were part of a “revolution” in cash management that resulted from inflation and high interest rates. These funds surged ahead by $74.6 billion in August, 1981, alone to a total $142.7 billion, spurring the growth of the second important money measure, M-2 (which includes M-1B as well as savings deposits, money market funds and certain short-term bank borrowings in domestic and “offshore” [meaning Bahamas and other tax-havens] money markets). Monetary economists base their theory on the premise that there is some “connection” between changes in the money supply, inflation and economic activity. Before the mid-1970’s they were quite satisfied that M-1B was an accurate measure of the amount of money available for spending in the economy. But M-2 in some cases just diverted money from government securities (mainly tax-exempt Treasury bills, large negotiable certificates of deposit and other financial instruments). That meant M-1B might actually underestimate the money supply, playing havoc with their forecasts.
If what existed in the economy could not be understood by the monetarists, at least it could be reacted to. So the Securities Industries Association letter to the White House endorsing the Reagan program was inevitable. Controlled money-supply growth, reduced taxes, deregulation of business, reduced federal spending all “enjoy overwhelming support in the stock brokerage and investment banking community.”
So, therefore, did the Reagan Administration’s approval of Metro-Goldwyn-Mayer’s purchase of United Artists, and Caterpillar Tractor’s purchase of International Harvester’s solar turbine division. Chemical Bank’s interest in taking over the deceased Ed Ball’s favorite bank, Florida National Banks of Florida, Inc., was not discouraged. At about the same time, the Administration dropped the Federal Trade Commission’s 1973 anti-trust suit against Exxon, Texaco, Gulf, Standard Oil of California, Standard Oil of Indiana, Shell, Atlantic Richfield and Mobil as being “not in the public interest.”
It is no accident, therefore, that Du Pont’s expenditure of $7 billion to take over Conoco coincided with President Reagan’s signing of a bill giving $60 billion in tax cuts to American industrial corporations for “stimulating new investment in plant and equipment and creating jobs.” Du Pont’s acquisition of Conoco, however, “created no new productive capacity or directly productive (as compared with managerial) employment, whatever DuPont chooses to do with its new property later on.” 53 DuPont’s burgeoning Headquarters in this regard reflected only what had been happening in American business as a whole for the last thirty years. The ratio of overhead personnel to all employees in American manufacturing rose from 18 to over 30 percent between 1950 and 1980, a huge increase which contributed significantly to the productivity decline of the 1970’s. According to economist David Gordon, bureaucratic control accounted for over 85 percent of the measured retardation in labor productivity between 1954 and 1973, and 1974 and 1978.” 54
Such mergers, therefore, contributed to deindustrialization, rather than ameliorated it. This was especially true in the area of finance, where from 1975 to 1980, over $100 billion in cash reserves were diverted toward supporting tender offers alone. 55 Yet Wall Street could self-righteously criticize Mobil’s seizure of U.S. Steel as a case of diversifying rather than modernizing. Mobil, incidentally, had been prevented by Asst. Attorney General Baxter from competing with U.S. Steel for control over Marathon Oil; whereupon Mobil simply took over U.S. Steel. The cover of different industries now in place, the administration felt free to render its blessings.
DuPont also had worried about Mobil’s intentions during the Conoco bidding. Wilmington questioned whether Mobil’s willingness to pay $8.8 billion for Conoco was not simply the first in a series of steps that would make DuPont also a target for takeover. Did Conoco, in other words, offer such a reasonable rate of return to warrant that kind of money? As Robert Metz of the New York Times speculated in his “Market Place” column, DuPont may have been the actual target, but Mobil had been prevented from buying Conoco shares by the Reagan Administration. Mobil’s mistake was in waiting until July 17, eleven days after DuPont filed its first bid. The time factor in getting clearance from Asst. Attorney General Baxter put Mobil at a distinct disadvantage with Conoco’s shareholders. “No one thought that Mobil would get anti-trust clearance,” said Joseph Perella of First Boston Corporation, which DuPont chose as dealer manager for the tender offer. 56
Mobil was probably not alone with such designs, and the Bronfmans had not made Mobil’s mistakes. On August 4, Mobil raised its bid again to $120 per share, but it tied Conoco shareholders to its securing of 51 percent and their accepting securities Mobil was offering. The lack of confidence Conoco investors showed was soon evident; Mobil attracted only 735,000 shares; eventually Mobil would have to get rid of these on the open market. The Bronfmans, on the other hand, had attracted 15.5 million shares; after returning 2.2 million tenders to their owners, they had at least 18 percent of Conoco. Then they even extended the deadline for their $92 a share offer, knowing they would collect more from shareholders who did not want to see their stock decline on the market after the bidding was over and turn-backs settled down the market for Conoco stock.
At DuPont Headquarters, the approval of the Justice Department on August 4 put the gears in full throttle. Tenders were recorded and tallied and soon the figure was apparent: 37.9 million shares had been bought for $18 each; 9.4 million shares for 1.7 DuPont shares each. After midnight, Jefferson threw a party downstairs at Hotel DuPont’s Du Barry Room, an ornate banquet room with a high carved white ceiling overwhelmed by a huge crystal chandelier. A trio of musicians played soft music as DuPont executives were served hors d’oeuvres on fine china and offered tinkling glasses filled with Dom Perignon 1970. Five cases of champagne were consumed as the 50 to 70 members of Jefferson’s team talked about their roles, exuding confidence. “Everyone just kind of accepted that if we got all these things done, we would do it,” said spokesperson Faith Wohl. Jefferson gave a brief speech of praise and headed for home. The affair, after only an hour, duly broke up. Upstairs, at 3:45 A.M., the formal buying began
Beneath the confidence, however, concern was growing. How would DuPont explain it? “DuPont’s strength,” as Thomas Peters and Robert Waterman correctly noted the following year in their In Search of Excellence, “had been in downstream innovation and value-added to products in specialized market niches those innovations had created.” 57 Now, suddenly, $7.3 billion for an oil company?
But there had been worries about the specialized markets. In the new field of life sciences, for example, DuPont did not enjoy an exclusive role as the innovator, as it once had in fibers and plastics. Competition, particularly from Dow and Revlon, was tough. Shapiro and Jefferson anticipated the really big returns only in the distant future, when DuPont’s enormous research resources and marketing capital could produce the difference, in a new product that would create new industries and do for DuPont in biochemistry what Carothers’ nylon did for fibers. They had entered the field because, as Jefferson put it, “The business is moving and if you want a ticket you’d better get with it now.” By 1990, they hoped to increase revenues from 1980’s $1.4 billion to $5 billion, and Jefferson’s academic and practical training as a researcher would help. Specialty fibers and plastics were targeted to grow from a $4.6 billion business to a $9.5 billion one, and electronics from $450 million to $2 billion. This would increase the downstream share of DuPont’s business to 55 percent.
But all this rested on being able to phase out DuPont’s huge dependence on bulk fibers and chemicals, which represented 55 percent of DuPont’s business. This was certainly a marked improvement over the previous decade, but it would have to be lowered by another 10 percent if revenues were to increase from 1980’s $14 billion to 1990’s projected $30 billion.
Cutbacks in primary research could also hurt DuPont in genetics, a new field less amenable to Shapiro’s preference for applied research. DuPont’s desire to repeat the big find nylon once represented also led it to continue its penchant for secrecy and going alone, rather than involving itself in joint ventures or purchases of other firms, as Monsanto did by buying into Genetech.
The DNA research efforts were late in start-up, its director, Dr. Ralph Hardy, only having been recruited in 1979. Two P-3 containment labs were constructed between 1978 and 1980, with special security precautions to prevent the escape of deadly bacteria. If DuPont’s record in other areas of toxic chemical contamination of workers is any guide, these labs bear watching. As its workplace and environmental policies have demonstrated, DuPont has not been known to be above the temptation to “play God,” as religious leaders have warned about companies that might use the Supreme Court’s June 1980 approval of patents for new forms of life for private profit. “Who is going to control these things, who will benefit, who will bear any adverse consequences,” President Carter was asked in July, 1980, by 350 scientists and clergymen convened by Bishop Thomas Kelly of the U.S. Catholic Conference, Rev. Clare Randell, Executive Secretary of the National Council of Churches, and Rabbi Bernard Mandelbaum of Synagogue Council of America.
Du Pont has given a $100,000 grant to California Institute of Technology, which has probably the nation’s most sensitive equipment for analyzing samples of pure interferon, the living substance which is the basis of the genetics industry. Du Pont has probably already synthesized interferon; it was the first to purify one of the known human interferons, fiberblast interferon. It is zeroing in on the drug and medical areas, where Wilmington already has production and marketing capacities of its pharmaceutical subsidiary, Endo Laboratories, and where it expects the first commercial application will make big money. But that will require a capital investment in Endo to handle the business, and research, meanwhile, is dependent on profits from Endo’s relatively small market for funding. The problem there is that, with pharmaceuticals as a whole, DuPont was a late-comer. Endo Laboratories, purchased only in 1969, commanded a sales market of just $100 million, tiny compared to giants such as Merck or Eli Lilly or Johnson & Johnson. And plans called for the purchase of only a medium-sized $400- million firm, a weak candidate to sponsor in a field of heavy competition. It is small wonder that Hardy confirmed that his team was “focusing on a fewer number of things.” 58 In agricultural chemicals the prospects for quicker returns looked better. DuPont applied its genetics research as both a defensive and offensive strategy against displacement of herbicides by environmental laws. In this field, its $42 million research in nitrogen fixation had only one real competitor, Allied Chemical with a $30-million research budget, although Dow has also put $5 million into Collaborative Genetics of Waltham, Massachusetts.
Specialty fibers also had limitations, as innovators. This was fully recognized by Jefferson. Explaining DuPonts genetics research, he said, “In 20 years these specialties will not be advanced products. You’ve got to have your year 2000 vision.” 59
The same vision, Jefferson claimed, guided DuPont to Conoco. “If you can’t see where we’re going,” the 60-year-old chairman said, “it’s because you don’t know where we’ve been. DuPont has changed all through its history. It started out as an explosives business, it matured into a chemical business which got into plastics, paints and fibers. If you look back a little more than a decade, it set its sights on diversification, into electronics and pharmaceuticals. Now we are adding energy. What we can do is to bring some of the talents of our engineering department and our research labs to the problems and opportunities that exist in the energy field. The current management have got to run what they’ve got well, and they’ve got to do something for the future management. This is our tradition. I suspect that my successors in the 1990s will be very glad we acquired Conoco.” 60
Perhaps, but the analogies to DuPont’s earlier transitions were lacking. The DuPonts never leveraged their company the way Shapiro and Jefferson had. Nor could DuPont’s engineering really better Conoco’s when it came to experience in drilling, laying pipelines, or recovering residue oil by pumping chemicals or high-pressure gases underground. In fact, DuPont had to call on Exxon for advice on integrating and digesting the Conoco organization.
And as for DuPont management having a “tradition” of doing something for future management, the entire 180-year history of the DuPont family, who were the top management, suggests otherwise. The tradition, rather, was rivalry and feuds and lack of preparation for future managers to such a degree that the company was almost lost once (in 1904) and, despite Pierre’s introduction of professional managerial techniques, ultimately left with a floundering company in the early 1970’s and no family top managers by 1978. If anything held the DuPonts to the company, it was not a tradition for preparing for the future but the traditions of the past; not preparing for management, but preserving for the family the source of its wealth. The family’s enrichment, not the company’s management, was the traditional goal, and it was these kinship ties, more than merit, which for so long led to top management and bound the company to the family’s destiny and vice versa. The elders understood this, even if family youth believed a meritorious career was as important as family tradition and wealth. Jefferson, it seems, was projecting the goals of the Organization Man that he held onto the history of the DuPont family and their company.
But even if the family’s history were unknown, the evidence of the Conoco purchase itself was at hand to belie Jefferson’s claims. Conoco was bought at a premium, deeply indebting the company, at a time when the price of oil was steady, and, because of a world glut, not expected to rise, at least for a while. DuPont itself had acknowledged this only two days before Jefferson made his fateful phone call to Conoco’s Ralph Bailey: “The biggest effect of the oil surplus on us so far is that we’re guessing this element of costs will go up at a lower rate than we were previously forecasting.” 61
Equally telling was DuPont’s announced plan at that time to continue its program to use more coal as a plant power source. This plan did not change after the merger. Harry Flavin of Merrill Lynch confirmed that DuPont was still scheduled to move its 17 percent dependence on coal to 70 percent in 1990. 62 Yet DuPont, after purchasing Conoco, began plans to sell much of Conoco’s coal reserves.
4.
THE HIDDEN DOWRY
Jefferson at first denied it. “We have no plans to sell the coal,” he said on August 9,
right after the tender offer succeeded. “You know, back in the time when nylon was
being presented to the world, it was described as coming from coal, air, and water. It
wasn’t until the mid-1950’s that cheaper petroleum appeared to replace coal. There is a
great deal of coal-based chemistry, and its time will come again. We have a competence
to reign in that field.”
63 Bailey said pretty much the same on August 2. Speculation that
DuPont would sell off Conoco’s coal subsidiary was “utter nonsense.… The coal
company is a very important part of the new DuPont, and it will not be sold.”
64 But by August 10, Bailey was forced to change his line. He admitted that DuPont would sell some of Conoco’s coal reserves, especially those which had a high asset value but low earnings potential. 65
The description was apropos. High asset value. By December 8, Jefferson was acknowledging to 200 securities analysts and portfolio managers that “a sizeable piece” of Conoco’s $2 billion natural resources would be sold the following year. 66 The executives of Consolidated Coal, the Conoco subsidiary, were not happy. “Do you want me to answer in oil-field language which you won’t be able to print?” one executive vice-president told a reporter who asked for his reaction. “You don’t work with a company for 32 years and have it branded on your back and walk away feeling good from something like this.” 67 Other oil executives crowded around the table during lunch at the DuPont Headquarters agreed with him.
Accepting the transition from being an executive of one of the largest oil companies in the United States to being an employee of a wholly owned subsidiary must have been hard to take. So also must have Jefferson’s acknowledgement that DuPont management would now be stretched (to cover Conoco). Jefferson, however, pointed out that DuPont made some of its greatest innovations when it held a major stake in General Motors. The comparison was again a poor one. General Motors seldom actively drew DuPont’s management staff into its day-to-day operations, but instead was guided by the organizational experience of DuPont’s directors, led by Pierre DuPont, John J. Raskob, and Donaldson Brown. There was reorganizing of GM along DuPont’s committee lines and introductions of charts, yes, but seldom of DuPont executives on an operating level. That was left, wisely, to GM’s Alfred Sloan. 68
This leads to the question of Ralph Bailey’s role in the whole affair. Unlike many of his executives, Bailey was quite content with his new home in Wilmington, to where the Conoco staff moved from Connecticut. His public statements echoed Jefferson’s. “DuPont is a company that has grown through the products of the lab,” he said, “and Conoco has been successful through discovery. I look upon the combined company as one that is being built for the next century. It is the kind of company that will have its growth almost assured because of the very natural fit.” 69
Jefferson also talked of Conoco’s oil as if he intended to use it for DuPont. “If you don’t get a very high percentage of oil out of the ground with the pressure methods of recovery, then there are opportunities for new approaches, particularly at today’s prices of hydrocarbons.” He spoke of such use as if it were a mark of patriotism in the struggle against OPEC. “The thing that is going to happen in the next decade, and already is happening, is that more and more chemicals and plastics will be made by the resource producing countries. You’ll find polyethylene, for example, is already made by Middle Eastern oil producers. Conoco gives us a position to compete against the producing countries."
The argument was flawed on several accounts. First, Third World countries were still in a primary stage of developing their chemical industries; world-wide recession tends to arrest further development by drying up demand (more correctly defined as markets capable of paying) and thereby lines of credit. Second, DuPont could hardly expect to compete in developing countries that have petrochemical industries owned by the state; few of such governments would allow it. Coups are by no means impossible feats, as the CIA’s overthrow of Iran and its nationalized oil demonstrated in 1953; but a long series of such coups is unlikely in today’s world, where the U.S. does not enjoy the hegemony it had in the Fabulous Fifties. There could be isolated cases, of course, but a multi-continental roll-back of Third World nationalism and state ownership of industries, while undoubtedly sought by the Reagan Administration and AID’s new Bureau of Private Enterprise (headed by Elise du Pont, the governor’s wife) is highly improbable. Third, most developing countries’ petrochemical industries are incapable of winning markets from DuPont outside their borders; they simply lack DuPont’s powerful marketing capacities, including its huge business contacts network, command of capital and advertising, and transportation apparatus. Fourth, DuPont’s real competition is from European and Japanese firms, not developing nations, and those firms rely much more on oil than Du Pont. Fifth, Du Pont uses natural gas, not oil, for 70 percent of its feedstock. Furthermore, as stated earlier, Du Pont planned to further its move away from oil by expanding its reliance on coal. The prospect, therefore, of DuPont spending $7 billion for an oil company in order to “compete” with the Third World was ludicrous.
What then could be DuPont’s use for Conoco’s oil, especially if other chemical companies followed DuPont’s lead to greater reliance on coal? That would lower demand for domestic oil, and its price. And also the value of Conoco’s oil assets.
There, of course, was the solution to the riddle: assets.
But for what purpose?
Dome Petroleum, ironically enough, provided an example. Dome had bid for the rest of Hudson Bay’s shares held by the Thomson family. That revealed that Dome wanted not just Hudson Bay’s valuable properties in Canada and abroad, but the cash flow from Hudson Bay’s subsidiaries. Without complete control, Dome was entitled only to dividends from Hudson Bay. With complete control it could use the subsidiaries’ revenue to service the $2.2 billion debt, 35.3 percent of its equity, that it had taken on the previous December. Hudson Bay’s subsidiaries, in other words, were targeted for milking. If enough capital were not put back into the subsidiaries, the milk would turn to blood.
DuPont, of course, had a huge debt. Longer term borrowings arranged through Morgan Stanley amounted to over $1 billion in the beginning of 1979, up from $241 million in 1972 when the company was still chaired by C.B. McCoy. By 1974, under Shapiro, it had been raised three-fold, to $793 million. That year Shapiro consolidated all majority-owned subsidiaries into DuPont’s accounts. Thereafter, Remington Arms and DuPont of Canada’s financial conditions were subsumed within DuPont’s accounting, and their past financial statements were no longer restated. These changes had no effect on DuPont’s net income, but increased DuPont’s reported sales revenue as a base for credit. In 1975, DuPont’s long-term debt was up again to $888 million, and in 1976, to $1.2 billion. 70
Through this entire period, the DuPonts, who were no outsiders with little experience in managing DuPont and therefore quite wise to Shapiro’s every step, authorized an increase in special compensation awards to his executives from $786,344 in 1973 to $1.4 million in 1974, $1.1 million in 1975, $1.1 million in 1976, $1.1 million in 1977, and $1.3 million in 1978. 71 It is odd for management to be so rewarded when a company’s performance is so poor (net earnings from 1974 to 1977 were below that of 1973).
It is intriguing that such amounts would be paid when the $1 billion debt incurred is equivalent to the $1 billion management alleged was absorbed as shipment losses because of OPEC price increases, especially intriguing when it is remembered that the Shapiro management claimed that it did not pass on these OPEC increases for fear of alienating or losing customers, a decision Shapiro himself acknowledged as “a management failure.” 72
The mystery gets even deeper (but less puzzling?) when one considers the findings of the Secretariat of the United Nations Conference on Trade and Development that out of the 1973 and 1979 increases in prices triggered by OPEC, “the subsequent spiraling of the prices was magnified by the pricing strategies of the chemicals majors through their extensive control of all phases of processing, marketing and distribution.” 73
The interrelationships between oil companies producing oil and gas and the chemical companies in Western Europe and North America had allowed the chemicals majors to penetrate many traditional markets of natural commodities, including natural rubber, cotton, metals and wool, systematically eliminating or eroding demand for competing primary commodities, irrespective of prices, which were sometimes three times higher than the natural commodities, as in cotton in the 1960’s.
This penetration, then, went “beyond the neo-classical economic notion of ‘interfiber competition’ and theory preaching the primacy of price in supply and demand.” 74 Research and development allowed creation and control of knowledge that was a vital pre-condition for aggressive marketing, introducing new products and reducing manufacturing costs. Shapiro, in fact, used some of his loaned funds to allow Edward Kane to introduce new manufacturing processes that increased productivity from 69 pounds per employee in 1974 to 104 pounds in 1979. 75 He then, like the other majors, applied the techniques in the blending of fibers and “components of various properties corresponding to more complex and demanding cloth formation and diversified fiber end-uses” 76 for texture, color, dyeability, durability, and tensile strength.
Marketing techniques psychologically conditioned brand recognition in the apparel-consuming public, with DuPont concentrating on “market guidance” for the textile industry based on its technical and marketing know-how and the stagnation of natural fibers, with emphasis “that individual corporate growth was now only possible through the use of synthetic fibers.” 77 DuPont’s Textile Marketing Division promoted Dacron, mobilizing 300 sales outlets in retail promotions by the end of 1977, and 60 television commercials during peak viewing times. 78
All this was designed to protect Du Pont from too many losses in its vulnerable synthetic fibers market, offsetting the decline in demand by an offensive marketing and production strategy. This was one of the reasons the Common Market filed complaints of “dumping,” when actually Shapiro was quite correct in arguing that he got a higher price in Europe for his synthetics than in America. But the aggressive marketing in Europe was nevertheless there. “Our immediate need,” Shapiro conceded, “was to stop the bleeding before we could think about the future.” 79
So he bled others, first his own pure research program, then his European workforce (4000 fired). While earnings continued to drop, he kept up dividend payments to shareholders to generate cash on the stock market, and through more loans advanced new product divisions, such as biochemicals and photo products. Still it was not enough.
The UN found that the chemicals majors also indulged in other practices to survive the 1970’s, including transfer pricing—that is, arbitrarily assigning prices to the transfers of goods and services, technology or loans between their related enterprises in various countries. 80 That included shipment losses.
One-third of all world trade is conducted between affiliates of transnational corporations, and Du Pont did over 30 percent of its business abroad, particularly in Europe.
The UN report cites overpricing through the manipulation of intra corporate transactions to lower taxation rates. Du Pont was found guilty of just such a practice by the Internal Revenue Service in the past. The IRS asserted that Du Pont sold products to its wholly owned Swiss subsidiary at unrealistically low prices as a means of cheating on U.S. taxes by diverting to the Swiss subsidiary income that ordinarily would have been taxable in the United States. The IRS reallocated the incomes, taxing most of the Swiss subsidiary’s income as if earned by DuPont in the U.S. DuPont paid under protest and then did only what the rich can do: it sued for a refund in the Federal Court of Claims. The Court upheld the IRS. In 1980, so did the Supreme Court.
The chemicals majors inflated prices and eroded competing natural fibers that might have more effectively competed in the marketplace and forced a sharper lowering of prices for synthetics than occured. But for Shapiro, prices were low enough. What is more important was the interdependency of the chemical companies with the oil majors for oil and gas feedstocks and the expansion and protection of the synthetic fibers market. Du Pont’s chemical companies’ alliances with ARCO, Conoco, and Shell were replicated by other chemical companies. “It is the interactions of these oil and chemical oligopolies,” found the UN report, “and not the unfettered operation of the laws of supply and demand which largely determine the fiber mix that is used in the textile market.” 81
This conquest by synthetic fibers was pioneered by the DuPont family, not Shapiro, and the huge revenues it brought the company put the DuPonts on the boards of major banks with intimate relations with the oil majors. These banks included Citibank (C.B. McCoy was a director), Chemical Bank (Lammot du Pont Copeland, Sr., was a director), Morgan Guaranty (Crawford Greenwalt was a director). “On the surface,” the UN report stated, “it appears industrial companies use banks for their own ends—true, but the real qualitative change in the power structures of capital is that banks raise the industrialists to the level of financiers.” 82 By the time the family had decided to move their investments beyond DuPont and dissolve Christiana, many DuPonts were thinking of themselves as being on that level.
Wilmington Trust is not known to be a bank with oil ties. Yet it was a sign of the Du Pont family’s move away from its previous concentration in chemicals and aviation and into energy that by 1976 Wilmington Trust held 1.1 percent of Kerr-McGee, 2.2 percent of Gulf Oil, and 1.3 percent of Diamond Shamrock. 83 Bank of Delaware also held 1.4 percent of Amerada Hess. 84
In 1977, DuPont Company purchased the assets of the Du Pont family’s Christiana Securities, making a book profit of $55 million. In 1978, profits were up 29 percent in the first half of the fiscal year, plants were running high and there was an upswing in prices and earnings for Du Pont. “When I look at our recent earnings,” said Shapiro, “I’m confident we’re on the right track.” 85 So the directors felt confident enough to return $200 million in long-term obligations. That still left a huge $1 billion debt. That year, DuPont stock sold for ten times its earnings and well below the price it had commanded as recently as 1976. With the market prospects looking brighter, there was reason to believe there would be an appreciation in value. In 1979, as profits continued to improve with earnings, the Du Pont board decided in May to authorize the splitting of each common share three for one, increasing the total number of common shares from 65 million to 195 million and reducing the par value from $5 a share to $1.66. The hope appeared to be that sustained growth would draw in more capital through stock sales that would in turn raise the stock’s price and appreciate the value of shares held in the company’s treasury for future loans if needed. It seemed reasonable, and significant in that the Du Pont family members were showing their willingness to dilute their controlling share of the company in exchange for an appreciation in value and some expected profit-taking. At the same time, however, there was growing alarm about oil giants moving into chemicals majors’ traditional markets. Exxon Chemicals already had sales of $4 billion, and Shell was competing in the ethylene market. There was also the pestering fear that consumer spending might drop sharply with the recession.
It did. DuPont’s plastics in 1980 saw a slash in profits from 1979’s $435 million to $272 million; fibers, from $509 million to $324 million. Overall operating profits in the U.S. plunged almost $400 million and in Europe was halved to $124 million. Earnings dropped badly. Interest payments to mostly banks, meanwhile, remained a huge $17 million. 86 The crunch was on.
The first move was in February, 1980, as things began to slip. Remington Arms, of which DuPont owned 69.5 percent, was merged into DuPont; the minority shareholders, mostly associated with William Rockefeller family interests, were bought out. This meant that Remington’s cash flow, and not merely its dividends, was available for tapping if need be. Another $192 million in long-term borrowing was taken on, up from $52 million in 1979, $13 million in 1978; DuPont also increased short-term borrowing by $163 million. 87 Some of this was used to retire other debts and pay interest. Total long-term debt held steady at $1,068,000,000.
Enter Conoco. Conoco earned $716 million on $13.6 billion in revenues; DuPont earned $1.02 billion on $18.7 billion. But Conoco’s assets included tangible properties that would appreciate over time, not depreciate. They could be used by DuPont to remove some of the volatility in DuPont’s earnings. And they could be sold.
“Chemical companies in recent years have been increasingly worried about oil companies using their oil reserves to develop into the petrochemical business,” commented Kidder, Peabody’s Paul Christopherson. “DuPont will be the one chemical company in the whole world that has put all those concerns behind it.”
Ralph Bailey also put it all behind him, settling comfortably into his new office in Wilmington. Questions were raised about an inside deal. Why, if he had been serious about the Texaco merger, hadn’t he stalled DuPont while testing the Reagan Administration on its anti-trust position? Because, some conjectured, DuPont had assured Conoco’s top management they could keep their jobs. Ralph Bailey seemed able to shrug off the anguish of Conoco’s second level managerial team. He denied he had made any deal in order to save his job or income, which in 1980 was $637,710. He also owned 29,699 shares of Conoco common with an option to buy 79,000 more at an average price of $39.70. 88 DuPont, of course, was paying $98. Bailey ended up owning 50,671 shares of DuPont common, with the right to acquire another 144,098 shares. He was also made a director of Morgan Guaranty, J.P. Morgan, Du Pont, and became vice-chairman of Du Pont’s board. He now owned more DuPont common stock than Shapiro (16,891) and Jefferson (12,038) combined. 89
The Conoco directors were also pleased. They represented the largest shareholders —financiers, not oilmen. And they made a killing. In 1976, Conoco’s admitted major stockholders held 16 percent of its outstanding shares and were represented by six Street names, Cede, Cudd, Lerche, Pace, Pitt and Salkeld. Behind three of these were Chase Manhattan (Cudd), Bank of New York (Lerche), and Bankers Trust (Pitt). Conoco’s largest debt holder was Chase, followed by Citibank, Morgan Guaranty, Mellon and the pension funds of New York State Employees and California State Teachers. 90 Conoco had strong ties to the Rockefeller family interests, represented by Nancy Hanks. Chase Manhattan also had three secondary director interlocks with the Conoco board through C.W. Buek (Equitable Life Assurance), Archie McCardell (American Express, General Foods) and Gilbert Jones (IBM). 91 It was not surprising that Conoco gave Chase the bulk of its loan business, much to Morgan’s displeasure. But it was a sign of growing ties between Du Pont and the Rockefellers, as well as of Du Pont’s legal discretion about having a Morgan banker on its board, that Chase was also given the business of arranging Du Pont’s $4 billion line of cash credit. Thirty-seven banks participated, including three which had Du Pont board members as executives, Chemical (which lent $27.2 million), Citibank ($39.3 million) and Morgan Guaranty ($50 million). Chemical, in fact, was chosen as the forwarding agent. 92
The big winner, however, turned out to be Edgar Bronfman. Edgar kept buying and buying. When his deadline expired, he had extended it and went back to buying more.Seagram ended up with 28 million Conoco shares, or 32.6 percent. Turning it in to DuPont, he collected 47.6 million DuPont shares, or 20.2 percent of 236 million shares outstanding.
It came as quite a shock in Wilmington. “I almost stopped drinking V.O. for a couple of weeks,” 93 Governor DuPont later said with a smile. The family had owned 46.8 million shares, 30 percent of the old company. But in the new DuPont, 236 million new shares had been issued. That reduced the family’s holding to 19.8 percent, with the Wilmington Trust group owning about 11 percent. Except for the latter group, the DuPonts would find it difficult to vote as a bloc quickly—unless the Wilmington Trust group organized them.
That was exactly what Bronfman was wary of, especially when he heard rumors of rebellion along the Brandywine.
At DuPont Headquarters, the worry was of another caliber. “Are they going to buy another 20 percent and kick us all out?” 94 Jefferson and other executives wondered. It was the typical concern of management: their own jobs come first.
Jefferson was alleged to also have the DuPonts to worry about. “It doesn’t take much imagination,” said one close source, “to see some of the DuPont family members on the board going to Jefferson and saying: ‘You’ve taken on $4 billion of debt to buy Conoco, depressed the stock price, and now we have to contend with the Bronfmans. What are you going to do for us next?’” 95
Someone must have said something or planned something because Jefferson was soon on the phone to the Seagram Building, inviting Edgar and Charles down to Wilmington.
The Bronfmans arrived with an air of confidence, but not so much to be unimpressed by all the signs of DuPont wealth around them. After all, there are not many families in America that control an entire state and have not just a building but streets, highways, parks, schools, hotels, even governors named after them. Jefferson wined the Bronfmans with plenty of Seagram’s best and implored them not to buy any more stock. Edgar and Charles listened, smiled, and ate an elegant lunch at DuPont Hotel. Then they left. “You know,” said Edgar, “they are very classy people.” 96
Class means something to a Jewish family anxious to move beyond what they consider the borderline respectability of liquor. And the DuPonts are the very model of WASP elite in America. No one understood this better than Irving Shapiro. Shapiro did it the right way. He went to them. He took Jefferson up to the Seagram Building in Manhattan and there he did what he does best—compromised. Shapiro and Bronfman knew each other well. In 1977, as leader of the Business Roundtable, Shapiro had struck another deal with Bronfman, who was then representing the World Jewish Congress in trying to get Washington’s opposition to the Arab boycott against companies doing business with Israel. Bronfman wanted no boycott, and Shapiro wanted no fight. A struggle on the floor of Congress could bust the reputation of DuPont and other corporations which did business with both Israeli and Arab.
Now Shapiro proposed another deal. A limit of a 25 percent holding and a standstill agreement for 15 years, exactly the terms Bronfman had been willing to accept from Conoco. If Seagram wants to cut the term to ten years, fine, only it must let DuPont know within the first six years. Meanwhile, the Bronfman brothers can sit on DuPont’s board and Jefferson and Shapiro will sit on Seagram’s; that way both sides can keep an eye on each other.
Bronfman agreed, on one condition. If any other group, such as the DuPonts, moved to grab 20 percent or more of DuPont stock, he wanted the freedom to act. “Frankly,” said Jefferson, “the DuPonts are more likely to sell stock than buy more.” 97 It had been said. Precisely what Shapiro had assured the SEC would not happen when the commissioners expressed concern that the family would unload their holdings and devalue the stock.
Edgar misunderstood, or at least shared Jefferson’s misunderstanding. He thought of the idle rich who sell their stock for spending money. “I have relatives like that too,” 98 he said, then treated them all to a lunch of oysters on the half shell with a 1968 Chablis, saddle of venison with a 1959 Mission-Haut-Brion, and apricot souflée with “a great Sauterne,” Chateau d’Yquem.
Edgar Bronfman did not have relatives like the DuPonts. Whatever thoughts he had along those lines were straightened out when he walked into his first directors meeting at the DuPont boardroom. There, surrounded by portraits of eleven grim generations of DuPonts, Edgar and Charles gazed across the giant polished mahogany table into the faces of DuPont elders staring back, all managing, at one moment or another, to smile.
The smiles were probably genuine, not merely cordial. For although the Bronfmans now held at least 21.3 percent, the DuPonts still dominated the board. They also had gotten what they wanted. They had used the chemical firm’s leverage to branch out into oil, coal and uranium. And now, with management and the Bronfmans obliged by their standstill agreement to follow that management, Conoco, too, could be auctioned off piece by piece to settle DuPont’s debt, or used as leverage for a still larger acquisition, perhaps even a bank.
For that, they would not have to rely on the good graces of an outsider. One of their own was in place. His name was Pete. And he had even bigger ambitions.
5.
THE PRINCE AND THE PAUPER
He arrived unnoticed, looking older, more worn, and walked the streets of
Wilmington like a rejected lover. It had been five years since he held a job here, five
years in which he had seen friends turn their backs, employers refuse to see him, in prison.
But Mel Slawik was back. He had never left Delaware. After spending six months at Allenwood Federal Penitentiary, he returned to look for work as a social worker. There was no question about his credentials. He still held his masters degree in social work from Rutgers and no one could take twenty years of experience from him. But no one would hire him; social agency executives have it difficult enough in a conservative state like Delaware; they did not need the possible bad publicity. His family still had his tavern near the town of Bear, “Mel’s Place” it had been called, and he kept up the business as best he could. He applied for social work across the river in New Jersey, and finally located work at an anti-poverty agency in Bridgeton, New Jersey.
A month or so after Pete DuPont’s re-election in Delaware, the Bridgeton agency had visitors. Representatives of the Community Action of Greater Wilmington (CAGW), one of the city’s largest anti-poverty agencies, were scouting for a new director to help them survive the budget cuts promised by President-elect Ronald Reagan. The head of the Bridgeton agency, William Hallman, had been recommended by state Representative Herman Holloway, a member of the CAGW board. They met Hallman, liked him and asked him to join. When he came, he brought Mel Slawik as his deputy director.
“He has the capabilities I need at this junction,” Hallman told an incredulous News-Journal, “and he has the background, no doubt about it.” The CAGW had been criticized for a lack of competent staff. “Having people like Mel around will at least compensate for that lack.”
Mel Slawik was good copy, and the reporters seemed to know what they were expected to write. They ran a story on “The Surprising Return of Slawik,” picturing the former county executive standing behind his desk, looking earnest and hopeful. “Slawik was forced to leave the county executive post in 1976 after being convicted for lying to a federal grand jury investigating corruption in county government,” wrote reporter Charles Farrell. “His jury conviction was eventually overturned, but he spent more than six months in jail for obstruction of justice.” Hallman was immediately put on the defensive. “We couldn’t very well deny Mel Slawik a position because of a previous conviction. That’s in the regulations. And he was never convicted of malfeasance. You shouldn’t beat a dead horse. He should have the opportunity for employment like everybody else.” Slawik, too, was apologetic, and made the mistake of saying that the way he returned to public service in Delaware was “sort of like coming in the back door.” He admitted he had some general detractors, but said that, in general, “the reception has been good. Most people are happy to have me back.”
Not most people along the Brandywine. They may well have shuddered at his pledge to “develop a better community relationship with a political base. This has to become a viable community agency—supported by the community or it’s going to go out of existence.” “For this,” the reporter wrote, “he said he will be earning around $19,000 a year. CAGW’s greatest priority, according to Slawik, is to ‘affirm its role in the whole greater Wilmington area. It’s thought of as just for Wilmington and there are areas in the suburbs that could use some advocacy.’”
Suburbs? New Castle County? This sounded too much like the old Mel Slawik, and he spoke openly of politics. “I know a lot of politicians,” he said, “and have good relations with some, and some not so good relations. But I’m going to have to show the political structure, both Republican and Democrat, that this agency is not partisan. We have to work with everybody.” The News-Journal then reported that “Slawik recalled that while he was county executive, he obtained some revenue sharing money that ‘kept CAGW alive.’ Asked if he missed politics, Slawik said he maintains ties with those in office. ‘You’re never really out of politics.’” The paper printed his disclaimer of any intention of running for elected office and the U.S. Attorney’s assurance he could not because of his felony conviction.99
Eleven months passed, during which Slawik worked hard by all accounts, helping Hallman meet the 50 percent slash in federal aid that President Reagan’s budget cuts were imposing on poverty agencies across the nation. He secured a new headquarters for CAGW at 2nd and Market Streets, property sure to appreciate in value as part of the area adjoining the Christina Gateway, the focus of GWDC plans for downtown real estate development, including a projected new building for the new Delaware branch of Citibank. And he avoided getting involved in the renewed controversy over County Executive Richard Collins’s refusal to tax industrial and commercial fixtures.
The issue had resurfaced due to the efforts of the Citizens Coalition for Tax Reform led by Ted Keller and Mark Haskell of the University of Delaware’s College of Urban Affairs. It was a replay of the Slawik days, with the same battle lines drawn between the same contenders, with one notable absentee—Mel Slawik. Pressured by the State Chamber of Commerce, Collins confirmed that his “administration is not considering and has not ever considered imposing a fixtures tax in New Castle County.” 100 Councilman James Farley introduced a protective resolution that became the subject of objections by the Citizens Coalition, but the News-Journal failed even to report it, although a reporter was present. Meanwhile, a $2 million contract for property value reassessments was about to go to a familiar name, Cole-Layer-Trumble, since 1975 under new ownership, Day and Zimmerman, Inc., a Philadelphia engineering firm. “This isn’t the old CLT,” said vice-president Joseph La Sala. The new CLT, however, had shown a novel way of winning friends: When Ted Keller, testifying for the County Council, associated the new CLT with the old CLT’s reputation of “deception, incompetence, and favoritism to the affluent and large industrial property owners,” 101 102 it threatened to sue him and the Coalition. 103 Keller was obliged to make a retraction,but a storm of protest by property owners and real estate agents sent the CLT contract down to defeat in November, 1981, by a Council facing reelection.
Through it all, Slawik had been concentrating instead on plans for CAGW to buy a grocery store to provide food at low prices, an apartment building for low-income housing, and a policeman’s lodge for conversion into a halfway house for released prisoners. Many of the participants in these programs would be Hispanics or Blacks; the latter alone made up 50 percent of Wilmington’s population and endured a high rate of unemployment. Slawik, as an associate of one of the state’s principal Black leaders, Rep. Herman Holloway, would be organizing programs that could give CAGW his proposed “political base” among a community living in an area slated for real estate development. The contradiction with Irénée DuPont’s plans for the Christina Gateway or lawyer Irving Shapiro’s call for a “financial center” or even Governor DuPont’s program to make Delaware “the Luxembourg of the United States for banking and finance” need not be emphasized. Suffice it to say it was not the kind of activity in downtown Wilmington that fit a conservative white-collar image.
The attack, nevertheless, came from an unexpected place: the office of the CAGW. But its deliverer was familiar enough: the News-Journal.
A little more than a month after CLT’s bid for property reassessments was rejected, a story appeared in the paper about Community Action of Greater Wilmington, the antipoverty agency responsible for administering federal money for residential weatherproofing that winter, and Head Start pre-kindergarten and community nutrition programs. It cited financial records that allegedly showed the agency had only $5600 left of a $118,000 federal Community Service Administration grant to run programs through December. The records were “released after a six-hour meeting of the executive board and read publicly by treasurer Elmer Fitchett.” “How could this happen?” one of CAGW’s board members was quoted saying.
The situation was reported as scandalous: over $145,000 in debts, including $45,000 due since November; misappropriated funds; overspending. Identifying his source as “a member of the committee at the meeting,” reporter Michael Jackson, a recent young arrival from Philadelphia, wrote that a request had been made that Hallman resign, but the motion had been defeated. He also reported that as soon as the report was read, “the board went into executive session that may have been in violation of the state Freedom of Information Act.” 104 Meanwhile, Jackson kept his own source secret.
Later it was revealed to be CAGW’s comptroller, Richard Thompson, a man who as a vice-president of Delaware Trust had pleaded guilty in 1970 to embezzlement and was given psychiatric care in lieu of jail. Slawik had collided with Thompson over the latter’s absenteeism and wanted him to resign or dock his pay. Thompson thought that unfair, especially since Hallman, the director, was often absent from the office for days of the week, keeping in touch by phone and making decisions. Slawik had not been happy with Hallman, either, and proposed he take a leave of absence. Hallman refused, insisting on making key decisions that undoubtedly led to mismanagement. Thompson, however, had no sympathies for Slawik, and began feeding reporter Jackson stories about huge financial deficits and wild spending. In fact, there were no huge deficits.
The next article, on December 18, was more focused. Headlined SLAWIK HAD ANTIPOVERTY AGENCY PLACE STORM WINDOWS ON HIS HOME, the article began by reporting that Slawik “ordered” employees of CAGW to install storm windows on his home “in apparent violation of federal regulations that required documentation that the home was eligible for the program.” The article was completely misleading. Slawik had asked Robert Hall, director of planning, to inquire if it would be proper for him to give several employees work by hiring them out of his own pocket for the job; he ordered no one. Later Hall affirmed it was all right. The federal regulation, of course, applied only to homes which were weatherized with federal funds. Jackson did not point that out; nor did his editors; but the article did point out Slawik’s removal from office in 1976 “after his conviction on federal perjury charges.” It also failed to mention the reversal by the appeals court, but did not fail to mention his serving time in prison, and repeated the charges of wild spending. Unidentified “sources” were alleged to have said both Hallman and Slawik had lost their hiring and firing powers because of “the financial woes.” 105
Slawik by now had grimly realized that not only was Jackson’s reportage inaccurate, but the News-Journal editors were apparently allowing it to happen. He also suspected that he was being made the goat for the destruction of not only his programs, but the CAGW itself.
A week later, the News-Journal unleashed another salvo, picturing CAGW’s Richard Thompson rubbing his eyes as Slawik addressed a meeting. Hallman and Slawik were reported allowed to “cling” to their posts by a tie vote during a meeting “called because immense financial problems at the agency have led to a deficit of more than $100,000.” 106
Slawik’s corrections on Jackson’s stories, submitted later in a formal complaint to the National News Council in New York, were by now as voluminous as the articles, and others in the Wilmington community shared his concern, contacting the paper. On December 27, Public Editor Harry Themal, holding a post that is supposed to represent the public, not management, responded that “those friends must be hard-pressed to defend Slawik and his associates when the anti-poverty agency where he is second in command has overspent its available funds by more than $100,000.” After repeating the false charge, Themal then recounted Slawik jailing “after pleading guilty to obstruction of justice in a federal probe of county government corruption. Some people in the community,” Themal conceded, “and Slawik himself, felt the newspapers had hounded the government into pursuing him. That contention was and is ridiculous because prosecutors and judges are influenced by evidence, not newspaper stories.” 107 Which, of course, was why the prosecutor and the judge and an inflamed jury in Slawik’s only trial were ultimately reversed.
What happened next was predictable. Five days after Christmas, County Executive Richard Collins halted all payments of federal aid to CAGW. The money suspended included not only a $60,000 grant for weatherproofing poor people’s homes in the community that winter, but also $30,000 to train unemployed residents in the weatherproofing skills. The staff, including Slawik, was laid off.
Governor DuPont’s Administration also stepped in to halt any payments of a $260,000 federal grant scheduled to be funneled through the state Office of Economic Opportunity. Wilmington Mayor William McLaughlin also froze funds.
Governor DuPont established a task force of the three levels of government, headed by cousin Nathan Hayward, to investigate. The News-Journal, encouraged, froze minds with a chilling editorial charging that “squanderers” had “spent thousands of unbudgeted dollars on fancy meals, travel, personal phone calls and the hiring of good buddies.” A “comfortable surplus of $150,000” had “in just a few months” become a $100,000 deficit. “The director and his assistants abused the public trust,” and the editorial questioned “how they were able to get away with this abuse month after month.” Praising the funding freeze, the News-Journal insisted that authorities “place the agency in federal receivership. Do that at once.” 108
MORE HEADS ROLL AT CAGW 109 ran the headline the next day, although no one had already been fired to account for the “more.” That, however, did not stop Jackson from mistakenly reporting the establishment of a committee to oversee operations that had already existed, or the News-Journal from printing a photo of Slawik and Thompson, their hands to their faces, with a caption alleging they were in a “huddle at back of meeting room.” The insinuation was obvious. Slawik was somehow in cahoots with Thompson, who had just been fired along with Hallman. In reality, Slawik was not fired, nor were he and Thompson talking to each other at the time. The photograph actually shows Slawik standing in front of Thompson, his back to him, his hand on his chin, while Thompson is adjusting his glasses. Neither is acknowledging the other. But Mel Slawik’s reputation and career had once again been ruined.
On January 11, the News-Journal cartoonist imaginatively drew a carton of eggs labeled “Community Action of Greater Wilmington” and the caption, “You start with a couple of bad ones, then you have to throw them all out.” By February, CAGW’s new headquarters on Market Street was under attack; the paper charged it had apparently been bought illegally. But comments by lawyers quoted in the article, CAGW board member Gary Hindes wrote News-Journal Executive Editor Sydney Hurlbert, indicated that was a groundless charge. Hindes asserted that the News-Journal’s “Jackson and (Hugh) Cutler are continuing to malign CAGW.” 110 Yes, Hugh Cutler had never left after the Thursday Night Massacre of 1975. He had indeed found his niche.
“This is a story of how a newspaper destroyed an agency,” wrote the President of the New Castle County Council on March 7, 1982. An audit of CAGW showed a surplus of $49,000. “Unfortunately, the damage has already been done: CAGW has lost all credibility in the community; staff people have been fired; reputations have been ruined; and vital services to the poor and needy have gotten lost in the shuffle.”
“Freedom of the press is a right we hold sacred; but with this right is the obligation to print the truth.” 111
It was the first time that the News-Journal had done so—as a letter to the editor. Mel Slawik had less luck with his June, 1982, letter of complaint to the National News Council. Associate Director of the Council Richard Cunningham wrote back suggesting Slawik avail himself of the good services of Public Editor Harry Themal. Cunningham had called the News-Journal for background and concluded Themal’s columns, acknowledging unfairness, had given “you your day in court.” 112 Slawik pressed his complaint, asking the newspaper to acknowledge it was wrong and apologize, asking Themal for the memo of concern he told Cunningham he had sent to the paper’s editors (Themal refused on the grounds of confidentiality) and asking three more times for help from the News Council.
But Mel Slawik had indeed had his day in court, the National News Council repeated.
Only then did Slawik notice the name of the Council’s Chairman and now “Senior Advisor”: Norman Isaacs, the former president of the News-Journal. On December 16, 1982, the Governors Task Force filed its report on CAGW. It expressed its concern about the CAGW staff’s “lateness of the (CAGW) board notification of the proposed acquisition and impending purchase” of the Market Street property, and admonished the CAGW for poor management and “the substantial investment of time and money it has taken to help identify and alleviate the problem which this agency has encountered. …” 113
The Market Street property charge bothered CAGW board member June Eisley the most. “I can’t help but wonder what kind of job the Task Force did if it could make a statement like that,” she wrote its chairman, Nathan Hayward III. “On what information was this statement made? I know it wasn’t true when I read it so I went back through all my old minutes and am enclosing parts of the minutes from February, March, May and June of 1981, which document that the Board had been in on the entire transaction starting at that time.” She took offense at the report’s admonition about money and time spent by its members. “If anyone had listened to those of us who knew what had happened and tried to explain it at the very beginning, no one would have had to spend money or your time on a task force.… Gary Hindes said, basically, last January what it took a whole year of audits and investigations to prove. The problem was, in my opinion, that too many people in authority wanted to believe the allegations; and many, in fact, wanted the agency to die.” 114
Eisley represented the President of the New Castle County Council on the CAGW board, which barely survived the ordeal without funding. She was furious over what had been done to the agency and, after waiting two months to hear from Hayward, let the governor know it, sending him a copy of her correspondence to his representative on the Task Force, asking him to read it. “I always had the feeling that politics was involved in the Task Force,” Eisley wrote DuPont, “and its final report, along with the aggravation that CAGW encountered because of the needless, held-up funding by the State for months upon months, reinforced my suspicions. It was very discouraging for me to see political game-playing when the survival of New Castle County’s official anti-poverty agency, whose business is helping poor people, was involved.” 115
But the governor had other people on his mind that month. Earlier, in his January “state of the state” address he had already made his gesture to the poor. He spoke with compassion before the legislature when he announced increased state aid to families with dependent children would begin in January, 1984. Real compassion, some argued, would not allow those needy to starve another year before granting them relief. And his solemn tone contrasted with an administration that had, in fact, done little for the plight of the needy in six long years. Social Services still suffered from his budget cuts, while he continued to press for tax breaks for upper incomes and corporations. Since the year of his reelection, 1980, the percentage of the state’s general fund contributed by corporate income taxes also declined by 20 percent, from 1979’s $50.2 million to 1982’s $40.4 million. 116
Pete’s ally—or rather, mentor—in this effort was Irving Shapiro. Since chairing his last DuPont annual meeting in April, 1981, Shapiro had been turning his attention to Delaware. This was no conflict with his role as chairman of DuPont’s finance committee. After helping Jefferson with the Conoco merger and settling the Bronfman affair, he found the DuPonts shared his interest in other mergers and fields of investment beyond the chemical company, and their views on Delaware’s future had long coincided.
“I want to make Delaware a financial services center,” he said, and saw his captaining of DuPont’s finances, including the huge capital represented by DuPont and Conoco’s combined assets, as, in league with the DuPonts, a powerful tool to shape Delaware to their latest perspective. He found his allies among the family not to have changed: Irénée DuPont, Jr., still represented the family’s major voice in the affairs of the company as well as Delaware’s business community through the State Chamber of Commerce. Eleuthère DuPont remained the guardian of the family’s thrust into the money markets and its fledgling interest in Crown Central Petroleum; Irving retaining his seat on Continental American Life Insurance’s board; Edward DuPont maintained his role as quiet keeper of the keys to the family treasure, the trust department of Wilmington Trust; and Pete DuPont continued expanding his reach over the family’s political networks, succeeding to the power of his uncle, Reynolds DuPont, in state affairs and now easily reaching beyond.
At Du Pont, Conoco’s fiercely independent oilmen proved more troublesome to absorb than the more powerful Bronfmans. The latter quietly took their seats at Du Pont’s board and watched, were pleasant; and at the finance committee, Edgar or Charles would listen carefully, ask questions, and learn—always learn. With the oil men, however, it was rough at first; resentments had to be soothed, self interests appealed to, curiosity stoked. The Steelworkers aroused everyone’s interest, although their organizing efforts seemed a faint rumor, a whisper in the night. The ram horns of an earlier age of labor were simply not heard within Jericho. Occasionally a small legion would be assembled at Employees Relations and dispatched to do battle with video displays, lectures, a leaflet of facts, a dark word of advice, but the local garrisons were doing well in the provinces. All seemed secure, especially if the windows were kept shut, the cries not heard, the fear not felt. Just DUPONT … Better things … DuPont … There’s a whole world … DuPont. The organization predominant.
“We have no arbitration. That’s what kills us,” said Glen Ferguson. He was the grievance chairman of his union at DuPont’s Newport pigments plant. He filed 147 grievances in 1981 and was surprised now, in June of 1982, that management refused to come to an agreement on safety. He already had won his test case. A supervisor could not order a woman to perform a job she believed unsafe. Yet the “symbol put on automatic shutoff equipment had come down, replaced by restraints, then locked barriers ordered by upper management,” he said. Recently, he had been barred from bringing his union files into the lunch room as usual; to do his grievance filing, he now had to miss lunch. “I’m not allowed to go on the plant to solicit or investigate grievances,” he charged, “but when I’m at work, I’m not allowed out of my area without permission. That stops the union cold.” 117
Plant manager Frank Bredemus could not understand. “We attempt to deal fairly and responsibly with the union. If we are not responsive, then we’re not doing our job.” Ferguson, he insisted, was allowed three hours per week for grievance work. “Perhaps Glen is not typical of how the employees view the system.” 118
Carl De Martino, Jefferson’s vice-president for employee relations, assured that the system of 3300 national union members out of 25,000 workers meant DuPont and the worker were spared the “open charade” of national unions. “DuPont doesn’t bargain like the national unions. Our method is that we talk and take all the inputs … and we make an offer, but our offer is a reasonable one.” “We just have to like what is given,” affirmed Ferguson.
“It isn’t that we don’t want unions,” explained De Martino. “We don’t want anybody in the middle of that [employee-supervisor] relationship. Our goal is to start them nonunion and maintain them non-union.” 119
Two years before Edward Escue took issue with De Martino on the need for unions. “As a DuPont employee of 16 years and arbitrator for the local independent union at the Old Hickory, Tennessee, plant, I have been involved in four discharge cases within the last two years. An impartial arbitrator ruled those employees were discharged unjustly. Two of these people had over 13 years with the company. Had there not been a union to protest and arbitrate, these DuPonters would no longer be with the company. How would they get their share of this ‘fair and equitable treatment?’” 120
It had been the rallying cry, but not in harmony; pro-union highs at plants lowered; others which had been low, rose. There was unity of purpose, but not of motion or pace; no orchestra, just a small band of organizers racing to play in tune against the cacophony around them, missing a beat here, a note there, and almost always met with a deafening silence in the South, where high local wages lulled one to sleep, numb to conditions and strange things called unions. When there seemed to be an awakening, bolts of fear sufficed for reason, raising spectres of long lines of grim payless strikers, enslaved by “labor bosses.” And there was always the (DuPont) family company or the company (DuPonter) family, or flattery to youth too schooled to accept, at least for now, the leaders of “big labor,” rejecting organizers for being too political or not political enough.
But always the result was the same, and when the vote was finally called, the defeat was worse than expected: Chattanooga, 1146 against, 961 for; Kingston, North Carolina, 1183 against, 681 for; and on it went, 14 plants in all, most of them in the South, with a Carl De Martino who could say, “I don’t think geography makes any difference.”
It was a decisive moment in the history of American labor and an encouragement to an anti-union White House. For as long as the South remained the bastion of cheap labor, all job security would be threatened, all labor cheapened. The DuPont defeat broke the stride of recent union gains in the South, and broke the back of labor’s most significant organizing drive in a generation. “We granted the DuPont workers,” said the National organizer John Oshinski, “the opportunity to throw off DuPont’s total control of their working lives. The majority chose to turn down the opportunity. This hard- fought campaign has now been concluded.” 121 It was all he had to offer the vanquished; for the victor, this, too, was a feast.
Later, there would be calls for continuing, and Oshinski would waver before dropping away, leaving the DuPont workers to their fate.
It was swift in coming.
“We’re working under worse conditions now than we have in years,” said Fred Durham, vice-president of the Newport local, as he and other off-duty workers picketed in front of DuPont Headquarters. “We decided our only action is to go public.” 122 Funeral leave had been reduced to a day. Union activities were being considered in work evaluations, they charged, in violation of federal labor law. Asbestos in the plant’s insulation was causing sickness, cancers. Workers handing out handbills about labor rights were filmed and surveilled by DuPont, also in violation of federal labor protection laws.
“When you think about it, if you don’t believe the individual counts,” Jefferson told a Delaware Today writer, six months before the Steelworkers’ vote, “then things get very defeatist. There’s no reason for even trying.” 123
“They’ve done everyone in,” Fred Durham reported just two weeks later of an exposure of 30 employees at the Newport plant to deadly high-level polychlorinated biphenyls (PCBs). The production of PCBs had been banned by federal laws several years ago. But on December 1, 1982, six weeks after one of seven trial runs to produce a yellow pigment that looked like dry pancake matter, “one of our chemists, in looking at the process that we were running, got the idea that we could be making PCB.” 124 The dust from the batter had been inhaled by the workers in concentrations of just over 50 parts per million, the EPA limit, to almost 700 parts. Even 50 parts were dangerous, according to Philip Bierbaum of the National Institute for Occupational Safety and Health in Cincinatti. “We believe that the PCB’s based on animal studies are very toxic,” 125 causing cancer, liver damage, reproduction problems and skin diseases. Nevertheless, DuPont manager David Willete insisted that calculations indicated the workers had not been exposed to any health hazards. None of the men were wearing respirators.
There were also reports of direct contact with the material in liquid form during clean-ups. Willete denied any attempt was made to dry out the PCB from its original liquid form or to shovel it out. But Ara Histed, who attended the grievance meeting, said workers involved in the contamination cleanup described attempts to dry out the remaining four batches of liquid matter. “After it plugged the machine, they tried to liquify it again and that’s when it spilled out.… So they had to shovel it.… It spilled on the men’s shoes.… They still wear the same shoes.” The PCBs sloshed out of 55-gallon drums and spilled onto about 30 workers. Supervisors told them it was PCB, “but they did not explain to them what it was.” A laundry worker at the plant stated that “as far as I’m concerned anybody that washed their clothes in the plant laundry has been exposed to the stuff.” The worker asked that his name not be used because he feared losing his job. 126
“The Occupational Safety and Health Administration has been a disaster,” asserted Irving Shapiro. “You don’t create a safe environment for workers by having inspectors going around and fining factories. By the time he left the office, I had the Secretary of Labor [under Carter] pretty well convinced that he was on the wrong track. I wouldn’t quarrel with a suitable program that focused on education, not penalties.” 127
Shapiro was working hard to remove such penalties, and he was getting paid very well for doing so. At DuPont, for example, his legal counsel on regulations, finance and other matters grossed an income between May, 1981, and December, 1981, of $70,000. 128 Each day he stopped off at DuPont Headquarters and then walked the block and a half to his new office at Skadden, Arps’s Wilmington offices. Skadden had a team of 14 lawyers there, but Shapiro was the star. He liked and admired merger-master Joe Flom. Skadden, with an army of 300 lawyers, was in the vanguard of law firms adopting business practices and Shapiro had already gotten the firm to set up a corporate-style chief executive to administer the firm rather than practice law, examining data on office expansion, long-term planning for areas of practice, day-to-day operations, and hiring needs. In the last category, Shapiro was opposed to wasting talent and time invested by laying off failed prospects for partnership after seven years, which is traditional in law. Both Flom and Shapiro declined the executive position, there being more interest and money in practicing law. And Shapiro practices it well, representing such clients as Occidental Petroleum and Mead Corporation.
Shapiro was now trying to jettison English common law, the backbone of American law. For Mead, for example, Shapiro lobbied senators with Griffin Bell to push through a bill freeing corporate clients from the threat of huge fines levied for fixing prices. The law currently stipulates triple damages on total damages by all conspirators, a time honored common-law doctrine of the “joint and several liability” of co-conspirators. 129 The bill, sponsored by arch-conservative Senator Strom Thurmond (whose seniority has secured for him the chair of the powerful Senate Judiciary Committee), would permit a “right of combination” whereby a company can sue for damages another conspirator who has not settled a claim, or damages only in proportion to their share of the sales at issue, effectively eliminating triple-damage. Even a 100 percent damage, then, would be limited by the share of the market affected.
Shapiro, said Joe Flom, “is especially good at figuring out what kind of government reaction we might get to a particular business action, whether it is in energy, anti-trust or securities. I think it’s been an easy transition for him.” 130
In energy, Shapiro was DuPont’s architect, steering the company into a series of alliances with energy companies. He had no use for Carter’s energy policies, although he liked the step toward a concerted national energy program. “On the energy issue,” he once remarked sharply, “I must say that if we ran this business the way the President and Congress have tried to deal with this problem, we’d be tossed out pretty quickly.” 131 Whether he meant that literally for Carter, despite his public support for his re-election, is unknown. But more than one political analyst noted the presence of Shapiro’s heir apparent, Edward Jefferson, on candidate Reagan’s energy advisory team during his race against Carter.
The snaring of Conoco for the DuPonts was not Shapiro’s only great achievement in energy, although it is probably the crowning one. He also is a legal adviser to Bechtel Corporation, a leading constructor of nuclear power plants. In May, 1982, at the Annual Meeting, Shapiro faced one of his only public moral dramas as chairman when he was confronted by ten church groups calling for an end to DuPont’s running of the government’s Savannah River Plant, the country’s only producer of plutonium for atomic weapons.
The origins of the SRP go back to the Manhattan Project, the secret program to make the first atomic bomb, which involved DuPont Company and particularly family in-law Crawford Greenewalt. DuPont’s performance during the war involved, incidentally, the Chambers Works in Deepwater, New Jersey, where radioactive residue is still embedded in buildings, raising some serious legal damages questions about the health of workers exposed there to long-term radioactivity. DuPont had not informed post-war workers of the potential dangers of working at certain sites in Chambers. But it is probably indemnified from damages of lawsuits by the contract it signed with the U.S. Government during World War II, which specifically stipulates that the DuPont Company will be free of all obligations and that everything will fall on the shoulders of Washington. President Roosevelt, in fact, signed a special executive order to this effect under the First War Powers Act protecting DuPont from the laws of the United States.
It was President Harry Truman’s reluctance to do likewise, documents show, that delayed DuPont’s participation in the Savannah River Plant.
Contrary to the publicity that DuPont’s public relations office has put out for over thirty years, DuPont did not patriotically jump to the president’s call to help set up the SRP. In fact, there was quite a delay, from July 2, 1950, when President Truman first wrote DuPont, to October 17, 1950, when Greenewalt deigned to respond after DuPont had gotten out of the president what it wanted. This delay came despite the inflated sense of urgency about developing the hydrogen bomb during those days of the Korean War and the first Soviet atomic explosion.
The search for a site for the new atomic plant was still going on by the Atomic Energy Commission when its chairman, Gordon Dean, wrote President Truman on September 27, 1950, and informed him that DuPont Company insisted on having the president’s personal approval. This was not merely for corporate propaganda purposes, but for protection of DuPont from any suits by individuals or corporations.
“In view of the hazards and uncertainties in the work and the fact that the Company will perform the work for a fee of one dollar, the Company feels that it must have any additional protection which might be afforded by specific action of the President pursuant to section 12(b) quoted above.” 132
The section referred to the Atomic Energy Act which had an exemption, Dean noted, “similar in many respects to the exemption provided in the First War Powers Act.” 133 The statute exempts, by presidential order, “any specific action of the Commission in a particular matter from the provisions of law relating to contracts whenever he determines such action is essential in the interest of the common defense and security.” DuPont’s cooperation was considered essential for the nation’s defense and security. If the only way the government could get it was to sign a special presidential exemption of provisions of contract law for the AEC’s contract with DuPont, the president had no choice. He had to sign. The DuPonts knew this when they insisted he do so.
The key provision, as Dean wrote White House Counsel Frank Murphy, had to do with such matters as storage and spills or other accidental releases of radioactive materials, including even a nuclear accident. During the Manhattan Project, “The contract contained an indemnity clause holding the Company harmless against any losses, expenses, or liabilities of any kind except caused directly by bad faith or willful misconduct on the part of some corporate officer or officers of the company.”
“… The Company feels that it can be assured of substantially this kind of protection only by action of the President …” 134
The AEC attempted to convince the DuPonts that the AEC had full powers to enter the cost reimbursement contract and that no other company on the project had insisted on the extraordinary presidential exemptions. 135
Furthermore, DuPont’s real concern was money.… “It is clear,” wrote Dean to White House Counsel Frank Murphy, “that the principal legal problem raised by the DuPont Company is the problem of the legality of a commitment contingent in nature but necessarily unlimited as to amount which may involve future appropriations.” 136 The question was the extent of the government’s obligation if any legal action should ensue from DuPont’s work. DuPont wanted to be absolutely sure that it had no obligations; everything would be borne by the taxpayer.
DuPont selected the Savannah River site. From the beginning it was expected that “the new AEC plant, while having a primarily military purpose at this time, will add to the nation’s capacity for producing fuels which someday will be needed to utilize atomic energy for useful power. If the new facilities are not needed for defense, they can produce fuel for industry.” 137 Two hundred sixty million dollars was initially appropriated. Families living there were moved out.
Workers who were moved in were not adequately protected. DuPont, according to Dr. William Norwood, a former Chambers Works employee, was the only one of five major nuclear production facilities that would not cooperate with the National Transuranium Registry in Hanford, Washington, a clearinghouse and research center for the health of nuclear workers. DuPont was not informing its workers that the Registry wanted to perform autopsies on their bodies when they died, and was refusing to give adequate information to Norwood so the Registry could identify people poisoned by plutonium. DuPont’s plant manager admitted to Allendale (S.C.) County Citizen reporter Patrick Tyler that DuPont was not informing workers of all the dangers of plutonium. DuPont, the manager conceded, “Should not have been as positive” in telling workers their health was not threatened by minute quantities of plutonium, as long-term effects are unknown. About 350 DuPont workers had traces of plutonium in their urine, the “great majority” with traces less than five percent of the permissible federal level. 138
DuPont’s amoral position on plutonium production contrasts strangely with its confidence in SRP’s waste disposal system. By 1988, a new plant is scheduled to be in operation to solidify high-level waste; it will be subsequently shipped to a federal mined geologic repository. Hydraulic mining of wastes from existing tanks will also be provided by the new plant. The seepage basins were originally constructed assuming only shallow migration of radioactive wastes. Since then it is shown that seepage continues downward into aquifers and does not “seep out” into shallow groundwater only. How much contamination has already occurred is unknown, but the Tuscaloosa aquifer’s contamination has already been confirmed by the SRP. 139 The SRP reactors do not have containment covers to prevent massive amounts of contamination from entering the air. The Three-Mile Island release would have been much more serious if civilian reactors had not been required to have domes. Already releases of krypton 85, a fission product, from SRP have contributed to changes in the electrical properties of the atmosphere that affect weather. 140 Furthermore, the arms race and increase in military spending for nuclear weapons has increased plutonium production and radioactive waste at SRP. 141 Millions of gallons of this waste are stored at the facility, awaiting a federal decision on how and where to store them permanently. 142 The Reagan Administration has authorized the rehaul of an old L-reactor which was scheduled to pump radioactive wastes into the Savannah River until environmentalists won a temporary restraining order. 143 Senator Strom Thurmond, an advocate of increased defense spending, is a frequent visitor to DuPont’s SRP. The SRP is the sole producer of all weapons-grade plutonium made in the western hemisphere.
Jefferson leaped to the SRP’s defense in September, 1982, to attack a News-Journal report by Joe Trento on a blood disease, polycythemia vera, that has struck the town of Ellenton, S.C., at 500 times the national rate. The town’s disease, Jefferson pointed out, has never been known to be triggered by radiation. But Trento’s article revealed a dislike of DuPont’s power by area residents almost as potent as the disease, as well as a statement by Dr. Carl J. Johnson, a Denver expert on nuclear illnesses, who said he was privy to a secret report on radiation emissions at Savannah River and claimed, “they have been much greater than reported to the public.…” 144
DuPont’s involvement in the secrets of atomic warfare probably had much to do with its advanced security consciousness and played a role not only in Greenawalt’s rise in the company but in his contacts within the intelligence community through Radio Free Europe’s board of corporate sponsors, the Free Europe Committee, of which he was chairman in the early 1960’s. 145 One unfortunate sidelight to the work of this committee of respected businessmen was its use of Boy Scouts to distribute the “Truth Broadcasting” pamphlets of the CIA-controlled Radio Free Europe in home towns across the nation. Out of the Manhattan Project also came James Moore, assistant professor of chemistry at the University of Delaware. Moore was involved in the CIA’s mind-control drug research, known as Project MK-ULTRA. Moore was a key contact for the CIA with a prominent chemical company president who supplied the CIA with drugs. 146
In 1967, Greenewalt joined in ceremonies in Chicago marking the 25th anniversary of the first self-sustained nuclear chain reaction, which he had witnessed when Enrico Fermi pulled the rods that changed human destiny. By 1979, Du Pont was the second largest AEC contractor, with $124.9 million in contracts. 147
The SRP, according to its external affairs officer, James Gaver, has sold heavy water (D20) for the past 25 years to a number of foreign countries, including Argentina, Brazil, Taiwan, India, Pakistan, Spain, West Germany, Israel, and the kingdom of apartheid, South Africa. 148 Other SRP products, including radioisotopes, americium (for oil exploration and home smoke detectors), plutonium-238 (used in the space program and cardiac pacemakers), Californium-252 (cancer therapy, natural resource exploration), uranium-233, cobalt-244 and cobalt 60, 149 end up being used by private companies. DuPont used to disclaim having any significant commercial relations to SRP products, but in light of the increased use of radioactive materials in so many of its specialty lines, and now by New England Nuclear and Conoco, an update in its brochures is obviously needed. The relations, if not primary, are surely secondary. When Conoco’s large uranium reserves are plugged in, the cycle from ore to product is complete. Conoco has one of the largest uranium holdings in the United States, with sizeable holdings in Niger,Africa, as well, Does Conoco sell uranium to the SRP. The SRP denies it. But it does admit that New England Nuclear sells products to the SRP. SRP thereby becomes a market for DuPont.
The DuPont family owns holdings in companies like Long Island Lighting Company (a favorite of Eleuthère I. DuPont’s Sigma Trust Shares for years) and Delmarva Power and Light (which had large stocks in the Peachbottom and Salem nuclear plants of the Delaware-Southeastern Pennsylvania-Southern New Jersey areas and more scheduled at Summit) made nuclear power an irradiated apple in the family’s eye. Irving Shapiro, furthermore, had joined in Pete DuPont’s promotion of nuclear plants in the area, titling one major speech before he retired, “We Need More Nuclear Power,” while quietly, in August, 1983, taking an advisory post for Bechtel, one of the nation’s largest builders of nuclear power plants, including Salem.
Everyone at the 1982 Annual Meeting, then, showed courtesy to the speaker and a somberness at his words when a DuPont chemist backed the proposal of the ten clergy groups and deplored “a policy of actually laying plans which could incinerate several hundred million people.” It was a sobering moment. So was the next when over 15,000 shares for the resolution were squashed by 180,000,000 shares cast by the family and guests. Jefferson had by then passed the ultimate test as chairman of a DuPont annual meeting. Evelyn Davis, perennial gadfly, suggested the Bronfmans “throw out the whole top management of DuPont. It couldn’t be any worse.”
“Thank you, Mrs. Davis,” Jefferson replied in his English baritone, and cut the time to three minutes on each matter to a sustained and appreciated applause. Before it was over, W.W. Laird and Rodney Sharp, Jr., had announced their retirement from the board, and more than one stockholder commented that now there were just two DuPonts to every Bronfman.
Edgar and Charles Bronfman had definitely emerged out of the wars as the charmed princes. There had to be admiration for any brothers family who managed in just two years to double the assets of their business, especially when the figures were from $2.8 billion to $6 billion. Seagram’s net income had swollen from $145 million to $1.6 billion, all because Seagram had shed its Texas Pacific Oil Company, booked at $500 million, for $2.3 billion in cash and Sunoco notes, then borrowed $2.6 billion against the notes to acquire 32 percent of Conoco and then traded that in for 20 percent of DuPont. That 20 percent tucks away some of DuPont’s earnings into Seagram’s books and allows the Bronfmans to enjoy a steady $120 million diet. And the Bronfmans were not put off from taking their 25 percent by DuPont’s drop to $35 from the $54 a share they had paid. Such tendered tithes, they believed, are seldom wrought from heaven.
The DuPonts knew what that meant. Edgar could borrow against ten years of cash flow and confront them at the end of his standstill with another $1 billion. If so, the DuPonts might not resist; such Cheshires are hard to bag. For with each acquisition the DuPonts made for stock, Edgar’s share would fall. And if it fell enough, below 20 percent, he would have to come hat in hand to the Brandywine merely to hold on to the equity accounting of his holding. So they will digest and divest, but not as much as they had planned, for the ace is DuPont, and they have a winning hand—if only they hold on to it. Meanwhile, they will continue to diversify, but use the company to do it. Par the debt and secure the pension until a prospect comes by. And always, always, watch for the bank which can be lured into the lair.
For that task, they had Irving and Pierre. Irving might end playing Kissinger to Pete’s Rockefeller. But it would have to be an austere Rockefeller, smiling and compassionate, but cheap. For the longest postwar period of expansion was over with Carter and Iran, and now the deficits must be met.
Pete’s speeches were appropriate for such times, never too far ahead to scare, or too far behind to bore. Twenty-two million dollar deficits persuade one to lay off, to make cuts to match the recession’s decline in revenues. As interest rates decline, borrow to keep afloat, and even a bonded raft takes off like a speedboat when an economy surges.
The key was productivity, and Pete knew it. He wrote a speech on it, “Retooling the Workforce,” delivered before curious members of the National Press Club. He satiated their curiosity with points so accurate you would think they were written by an Irving Shapiro. Even the monetarist’s cautions were there, warning against “Congress’s attempts to throw money” at the problems “with extended unemployment benefits that cushion the blow rather than offering a hope for a better job.” Jobs were the central theme, based on retraining and retooling. But remembering his wife at AID’s* new Bureau of Private Enterprise, he wisely avoided mention of reconquering markets.
Elise, too, had a role to play, and her Wawa chain store fortune and her raised children assured it would no longer be confined to the home. She had dabbled in real estate, then was accepted into the University of Pennsylvania, and ignored the crude comments that she could only have gotten in through her husband’s family. True, DuPonts had bequeathed endowments and sat as trustees of the University. And true, she was only one of 25 admitted under a new policy that looked upon intellectual ability as based on “achievements” and “potential” rather than test scores. Yes, she had mediocre grades at Bryn Mawr and poor scores in her law school entrance exam. But it had been 20 years since she had done undergraduate work and left her home in Wawa, Pennsylvania, for Delaware. Dean Louis Pollak understood. So did Assistant Dean Arnold Miller. And that was that.
A year or so in a Wilmington law firm likewise shows experience and potential, enough to be appointed as head of a new federal agency designed to reflect the Reagan commitment “to increased opportunities for the private sector in AID programs,” said AID’s M. Peter McPherson, the author of “Altruism Pays Dividends.” If Elise was confused about her role or lack of experience in development matters, the name could always help: “Bureau for Private Enterprise.” “Before I resigned,” said Dr. Eugene Babb, AID’s former top agricultural development official, “I had a number of meetings with Elise. She was very noncommittal. She had no clear idea of what she wanted to do or what the Administration wanted to do.” 150 Babb had resigned along with Dr. Stephen Joseph, AID’s top health official, and many others who refused to go along with Ronald Reagan’s decision to go ahead and give away baby formula that causes death when mixed with the water of many developing countries. The Reagan Administration had been the only government to vote against the World Health Organization’s proposed code for marketing baby formula. The code had been opposed by the Grocery Manufacturers of America and the baby-food corporations. Moved by the fact that millions of infants could die, McPherson tried to get the State Department and the Department of Health and Human Services to abstain, “but the White House demanded a no vote,” 151 Dr. Babb said. He and Dr. Joseph then did the only thing they felt in human decency they could do. They officially exposed the facts and were forced to resign. Many joined them in protest. Elise DuPont, like McPherson, decided to stay on. To Elise, more was at stake than the lives of children.
What exactly that was was hard for many to fathom. The stakes must have been very high, or perhaps many wanted to think so. In August, 1983, however, there was a glimpse into the future. Elise was being asked to run for Congress. Against an incumbent Democrat. In Delaware.
The incumbent’s name is Thomas Carper, and in 1982 he did what many considered impossible. He rode the wave of popular dissatisfaction with Reaganomics right over the wall of $13,500 in DuPont family donations that Representative Tom Evans had built. The wall was half as high as usual, no doubt dismantled by Evans’s own indiscretions with an ex-Playboy bunny moonlighting as a rather successful lobbyist for agricultural interests. Now, perhaps, a DuPont in the flesh, or at least in name, could win back Delaware’s lone seat in Congress for the Republicans. 152
“She is an exceptionally qualified person,” said Republican state chairman Jerome Herliky. “I like the idea of her very much.” 153
“A lot of people have been calling Elise,” agreed GOP national Committeewoman Priscilla Rakestraw, “sending notes, and calling us about Elise DuPont.” 154
The name has magic in Delaware, like a drug dose for an addict. And Delawareans have been mainlining DuPont Company, DuPont wealth, DuPont family for years.
Could Tom Carper break the spell?
If not, the name of DuPont will be given national limelight, attracting perhaps even those feminists who believe feminism is voting for a woman, any woman, over a man. It would not be the first time a politician exploited a special interest. And it would help a brand name with instant national recognition in the headlines, while her husband, no longer governor, quietly worked the circuit of contacts he had developed through his chairmanship of GOPAC, established for Republican legislative candidates—and future convention delegates.
An unknown governor from Georgia had done the same, choosing to step down from state office in order to serve the Democratic National Committee, dispensing funds and contacts and endorsements—and winning friends.
To do it right, the candidate must be able to say he has accomplished most of his goals as governor. He must be able to stand on his record, and in American pragmatism, or opportunism, in normal times that means victories more than principles. Pete DuPont never claimed he wanted to be another Lincoln. He just wants to be president.
The speech before the National Press Club on “Retooling the Workplace” was designed to show off presidential qualities. So were Pete’s speeches before oil men in Oklahoma, Louisiana and Texas. So were his trips to Chicago, Cleveland, San Francisco and New York to make speeches to bankers. As many Delawareans noticed and commented about in the local press, it seemed whenever the governor was going somewhere on a business trip, he was also making political speeches.
His family, as campaign contributions attest, support him. Most are proud of him. And they like what he has done for—and to—Delaware, and the nation.
Probably the most important accomplishment of Pete DuPont’s Administration was what was openly described as the slow gutting of the Glass-Steagall Act. That is the law passed during the New Deal to stop banks from consuming each other in mergers and market raiding across state lines or outside their particular form of banking; it drew a line between commercial banks which take in the public’s deposits and give out commercial loans, and investment banks which borrow and lend on credit, underwrite offerings and buy and sell insurance.
Beneath the move for change was the growing liquidity crisis among large banks which had overextended their foreign lending, and were constantly threatened with defaults from the developing countries of the Third World.
In the second quarter of 1981, the top ten banks took an 8.1 percent loss on earnings. Mergers by industrial conglomerates also tightened money.
Commercial banks wanted broad powers to become financial conglomerates like American Express and Prudential Insurance and General Electric’s multi-billion-dollar finance business. The United States, meaning the American consumer, “is (commercially) overbanked,” 155 claimed Bankers Trust President John Hannon, Jr. Small businesses were succumbing. The American wanted more investment banking, commercial bank giants argued, including fee banking, developing loans to be sold to outside investors, and loans for corporations who were desperate to change federal New Deal laws that prohibited commercial banks from underwriting public securities or corporate securities. By March of 1983 bank lobbyists had handed out $3,425,000 to campaigning congressmen over the previous two years. Four hundred eighty-two senators and representatives received an average $7107 each. 156 Large banks were beginning to more openly skim their customer’s accounts. Citibank in May, 1979, for example, offered only 4½ percent annual interest on passbook savings accounts. Inflation was eating dollars nearly twice as fast as regular savings interest. The banks were shortchanging the interest their customers were entitled to by law. The New York State Banking Board’s new regulation, based on implementing a 1978 state law, still allowed banks not to tell their depositors of maximum available interest rates. 157
Likewise, offshore banks “shielded” assets from creditors or competitors and the Internal Revenue Service. “Brass-plate” banks were sold to persons who foolishly bought them in the Bahamas or the Verdes for “status” or “prestige.” Jerome Schneider, President of the WFI Corporation of Los Angeles, sold 157 such “banks,” 120 for $35,000 each. “Many of the owners alleged that WFI Corporation, reported Associated Press, had misrepresented the potential uses of brass-plate banks. They were unable to make use of these banks because they had neither the extensive bank experience required nor the tremendous financial resources necessary to enter into the sophisticated and complex world of off-shore banking. “We have determined that illegal uses abound and legitimate uses are extremely limited.” 158
Even large “legitimate” banks were suspect. One such case was Citicorp. “In 1982, the SEC’s Enforcement Division recommended a civil suit against Citicorp, the bank of which Irving Shapiro is a director, for failing to disclose to shareholders that $46 million, or 2 percent of pretax earnings between 1974 and 1978, came from questionable foreign exchange practices.” (Emphasis added.) 159
One of these questionable practices is called “parking.” It involves transferring foreign exchange positions to shift profits to tax havens such as the Bahamas. Citicorp was involved in this, according to Citicorp executive David Edwards, through its Paris branch, ordering sham transactions of buying, for example, $40 million in French francs, then selling the francs back to Paris at 2 percent higher rate, netting the Bahamas branch a $200,000 profit. Coded messages and postdated trading tickets with artificial exchange rates were just some of the cover-ups used. A Citibank manual warned bankers to be careful about it: “The parking of foreign exchange positions should be kept as inconspicuous as possible.” 160
This way banks, using “offshore” subsidiaries, can cheat the American taxpayer and the IRS. “The IRS allows American corporations like DuPont to deduct foreign taxes from their U.S. tax liability. But since taxes in Europe were often higher than in the U.S., Citicorp could end up paying more overseas than it could deduct in the U.S. Parking enabled it to manipulate the origin of its profits so that the excess would be shifted to Nassau and taxed at the lower tax rate.” 161
A confidential Management Information System, computerized, measured Citicorps’ branches’ real performances. Straight out of a Chicago gangland scenario, a second set of books was set up called the Management Profit Report which barred its foreign bank examiners.
Irving Shapiro, it will be recalled, put Governor Pete DuPont and New York bankers together in 1980 during DuPont’s re-election campaign to draft the Delaware Financial Center Development Act. By 1983, a host of out-of-state banks and credit card operations had set up in Delaware (mostly in the Wilmington area) to the delight of the governor and his aides, Glenn Kenton and cousin Nathan Hayward III. Among them were E.F. Hutton and Citibank of Delaware. Irving Shapiro ended up representing both.
In July, 1982, E.F. Hutton was running into friction with Delaware bankers who objected to its coming into the state. Although the Financial Center Development Act required out-of-staters to set up small offices with no displays and encouraged them to conduct their financial interstate transactions quietly and not take business away from Delaware banks, many Delawarean bankers feared there would be banking through the back door.
E.F. Hutton called on Shapiro, who warned Hutton not to try to ram its way into Delaware with anything so foolish as a lawsuit. He suggested what he usually suggests: a deal. Through his high political contacts in the state, Shapiro had a bill passed, allowing “limited-purpose trust companies” into Delaware if the pay-off in Delaware is cheap—namely, jobs. One hundred employees would have to be taken on within three years. There was, however, no requirement that they had to have been Delaware residents. Hutton and others who wanted to bring their IRAs, Keoghs and employee benefit plans for small businesses into the state could also bring in their own employees. To placate the local ward heelers, however, this was not advised. Discretion was expected and assumed.
Taxes, of course, made it all click. New York State and City had combined taxes on basic net income of 24.2 percent in 1983. They refused to play Russian Roulette with Delaware. The “First State,” meanwhile, was saddled with Pete DuPont’s sliding scale —downwards—of 8.7 percent to 2.7 percent of income, about as regressive as possible. The fact that more banks didn’t move down from New York as expected underscored that there were other factors than taxes that encourage a bank to choose a cultural and commercial capital like New York over the Wilmington of the DuPonts. But that was hard for many DuPonts, just emerging from their isolation in chateau country, to understand. They believed they had everything they needed. Banks, however, need customers. Delaware was simply too small a market.
The strategy, therefore, was for Wilmington Trust and GWDC to foster a gradual growth, focused on the Greater Wilmington Airport area for the county and Christina Gateway for the city. Young Irénée DuPont May, Jr., joined County Executive Collins in the county end of the endeavor.
In February, 1982, Governor du Pont hosted a “Defense Task Force” where 25 federal agencies joined major armaments producers at the Radisson Hotel Ballroom in Wilmington. “This conference will give you the tools and the background to become aggressive,” DuPont declared, “to go out there and get the contracts and do the job.” 162
Represented were 150 companies, including Boeing (which had Shapiro as a director), Edward DuPont’s Atlantic Aviation, Richard C. DuPont’s All American Industries and DuPont Company. “I personally am not happy with growth in the defense sector,” said a University of Delaware political scientist, “but it is an obligation to make information available to people.” 163 As the arms spending grew along with deficits, Pete DuPont endorsed President Reagan’s call for not just cutbacks but givebacks. To Pete, New Federalism was “a return of the decision-making process to the people,” and represented “‘the will of the majority’ to see budgets balanced and taxes held down.” 164 In the true tradition of Jeremy Bentham, who in the 19th century in Britain first argued for large-scale contracting of government services to private companies, Medicare was contracted out to private doctors, doubling costs; and the National Alliance for Businessmen’s job training program was not very successful. Now, under Reagan, more such ventures were underway, while the disappearing tax base due to unemployment undermined government services, which also began to be contracted out at higher cost to the consumer. But then Bentham’s own Scotland had endorsed his contracting out of road building, only to discover scandals and road collapses which led to the movement for civil service reform.
Turning Delaware into a corporate tax haven had to have its impact somewhere. Reporting an expected $4.5 million deficit, New Castle County was preparing to raise property taxes on homes and small businesses, while artfully dodging the constitutionally mandated fixtures tax that with Getty alone would have raised $10 million and wiped out the deficit. The tax haven was felt in education also. Governor DuPont was asking state-subsidized schools to return money. Finally, because Governor DuPont refused to decouple from the Reaganomics of the Accelerated Cost Recovery System that accompanied the 1981 Reagan tax cut, Delaware lost an estimated $8 million in 1982, $9.4 million in 1983. “The estimated loss,” said the Citizens Coalition for Tax Reform, “grows to total an estimated $84.2 million for years 1983 through 1987.
“Late last Spring the Governor told us there was no possibility of a tax cut, yet he is protecting a large state tax cut for big business, and a few individuals … on top of the big federal tax cut they’ve already received.” 165
Other, poorer Delawareans had it even rougher than the working middle class. These were the unemployed, with the “last hired-first fired” employment practice for Blacks still rampant in Delaware. Blacks suffered a 50 percent unemployment rate in Delaware. As the cutbacks worked their way into the white sector, crime rose across the staté. Pete was surprised, but he encouraged swift “justice” and courts “untethered” by the language of the Constitution.
“We put people in jail faster in this state than in any other jurisdiction in the country in similar circumstances,” 166 said Corrections Commissioner John L. Sullivan in 1983. One hundred fifty out of every 100,000 people in Delaware were in jail. The new 336 bed Gander Hill prison, opened in Wilmington the previous year to alleviate overcrowding, was itself overflowing by June 1983. By December, 1984, Gander Hill was expected to pack in some 700 prisoners, putting two or three prisoners in every cell designed for one person. When DuPont came into office, there were about 1000 prisoners, now there were an expected 2500 by January, 1985. In August, 1983, inmates struck for better conditions, including being served hot instead of cold food. The strike was settled temporarily. DuPont’s bafflement finally found an answer. The construction of two new prisons was made the state’s top priority.
Then Irving Shapiro again appeared with three new bills he wanted to see passed in Dover. It had been five years since he made his major address to Dover legislators, in June, 1978, telling them how to boost economic development by lowering corporate and high-income taxes. Since then, Shapiro had developed a good, if not close, working relationship with Governor DuPont. The governor had listened to Shapiro call for lower taxes on higher incomes and moved increasingly in that direction as the 1980 elections approached. He had always held to fiscal conservative views, but in 1980 he revealed just how patrician they were when he joined Shapiro in the Financial Center Development Act. DuPont needed to create more jobs in order to be re-elected and he seemed fascinated by the world of mergers and high finance, and saw each such development in his state as a sign of growing economic power, almost of modernity itself Du Pont-Conoco was the zenith of signs. “This is the first time I remember something as complex and distant as a corporate merger—which is not your man-in-thestreet kind of issue—being the topic of conversation everywhere in the city,” Pete said. “The community feeling was, we’re really going someplace. People here have so much confidence in the DuPont management, that if this is what it desires to do, then it must be right.”
Pete also understood Shapiro’s role, even with the Bronfmans. “It does of course reduce the proportion of the company shares held by the family. But I think the family crossed that bridge a long time ago. It really ceased to be a family company fifteen or twenty years ago. This is all just part of the trend of the company becoming a large corporation, with professional managers and a whole range of investors.” 167
It was within that context—as a professional manager and consigliere to him as he had been to other DuPonts—that Pete regarded Shapiro. Irving was a man who was useful in politics as in business because of his capacity to command facts when needed and, more important, his marvelous ability to get people to make a deal. Shapiro was, if anything, overconfident in his negotiating skills. “He thinks he can negotiate anything,” remarked Champion International Chairman Andres Sigler, “and he probably can, but there are times when you really need to go to the wall, and Irv is not likely to do it.”
Nor was Pete DuPont. But with a new package of bills, they both showed an unusual tenacity. It marked a new strength of character, or a new ambition, and as the values held were consistent with the social myopia displayed in the past, no doubt the latter was the case.
The International Banking Development Act would allow offshore banking in Delaware. It would effectively turn the state of Delaware into an offshore bank by bringing into Delaware high-volume bank transactions floated through such tax havens as Cayman Islands and the Bahamas. There are 262 banks in the Bahamas, one for every 1,000 inhabitants. 168 Fourteen states had already passed similar legislation, but Delaware would allow money flowing through the state to remain untaxed. In the Bahamas, tight bank secrecy laws protected bankers from leaks to the IRS. There might be some Eurobond investments by a major corporation that would make interest payments into a private offshore bank—such as the DuPont family or company might use. This bill, then, was admittedly “not going to be a big employer” or attract much business. So why pass it? So those already in the state can use it, including its drafters. Yet the potential for scandal from “parking” or other activities Citicorp made infamous was enormous. Irving Shapiro, at any rate, was Citicorp’s lawyer in Delaware.
The second bill, the Consumers Credit Act, allowed smaller banks to form subsidiaries as part of a “qualifying association” already located in the state. There were also exemptions from a $25 million capitalization and from having to employ 100 people within a year of setting up shop. Most important, it allowed the issuing of credit cards with no ceiling on the cards’ interest rates. This law, Hayward offered, encouraged “non-bank banks” to move into Delaware as small associations.
The association would be required to hire 250 employees, not just 100, within a year. It allowed banks to issue consumer loans and credit cards in states with ceilings on rates or fees. “The purpose basically is to broaden the market through services nationally.” Both laws put prohibitions or restrictions on doing consumer business in Delaware. And one provided jobs. No one seemed to object that the jobs would be poorly paid, unlike industries where “real” money can be made by an unskilled worker.
Both bills were easily steered through the legislature. Within 24 hours of the Senate’s passage of the Consumer Credit Act, the Computer Corporation of America, operating the credit card business of 90 banks in the Midwest, voted to move to Wilmington. The last bill drafted by Shapiro was called the Financial Services Development Act. It allowed a bank to sell insurance in violation of the Glass-Steagall Act. Because Wilmington Trust and the Bank of Delaware were already given insurance powers in their state charters, the Delaware Bankers Association stayed on the sidelines and did not help Shapiro. Nor did the State Chamber of Commerce. Pete did, however, repeating the litany about “jobs” and enhancing Delaware’s reputation as a financial center. But 100 jobs could not compare to a family’s need to keep an insurance shop going. Insurance is one of the few small businesses with a low overhead. For that reason there are a lot of licensed brokers who see their business as their first step toward the status of being self-employed, or the last step down if their small business couldn’t compete with a bank.
The governor proceeded without the support of Irénée, Edward, and Eleuthère (Eleuthère, after all, was on the board of the largest insurance company in the state, Continental American Life Insurance). Perhaps CALICO was too big to be affected, perhaps not, but Eleuthère abstained. So did J. Tyler McConnell of Delaware Trust.
Had Shapiro done his political homework? Most likely, unless he had that arrogance referred to earlier—his certainty that he could negotiate anything.
He couldn’t.
Pete was out on a limb, all alone.
It was Pete’s first true crusade. Some people crusade for people, others for ideas. Pete crusaded for victory. He was in too deep now to withdraw.
For the first time since the 1977 budget fight and the Financial Center Development Act, Pete took the lead in lobbying for a piece of legislation. But what he found dismayed him. Insurers said they were fighting for their lives.
“There’s a real fear down there (in Wilmington) that things are out of control,” 169 said one. Others called it a slap on the face of small business. There were fears of other states retaliating against Delaware for stealing banks. Perhaps they would pass similar legislation, too. Did not William H. Kennedy, Jr., President of the American Bankers Association, not audaciously state that “With the payment of interest on checking accounts and such, banks are in a position now where they’re going to have to figure out new ways of making money. And if they can’t do it on a national basis—and that’ll be decided in a year or so—then it’s fair game to go at it from state to state.” 170
That was exactly what the Federal Reserve Board did not want. Already about a dozen states had followed Delaware and South Dakota’s lead and, urged by the White House’s new federalism, deregulated banks in the last few months. But the variety of laws was disturbing as the break with precedent. (Congress in the 1950’s had lifted Glass-Steagall’s outright prohibition and allowed states to decide for themselves. All had opted for stability. Now it was coming apart, and in different directions.) South Dakota allowed banks to own insurance companies; Washington allowed banks to own anything of a financial nature; California allowed sponsorship of mutual funds investment companies; Arkansas said banks could give the same services as Savings & Loan Associations, credit unions, investment companies, farm credit companies or other financial service suppliers; New York and Connecticut eased the setting up of state chartered institutions out of federally chartered banks and savings associations.
What had Pete started? That’s what Senate Majority Leader Thomas Sharp was hinting. “We really don’t know what the end result is going to be.” 171 [I think 2008 might be a hint, or the dot.com bubble DC]
Investment bankers and brokers charged that the commercial banking giants were singling out vulnerable states like Delaware. Commercial bankers retorted that brokers were moving into banking, too, with money market schemes.
This was not just hypocrisy on all sides, but part of a general financial consolidation from the centrifugal force of a market spinning in disarray and convulsing with mergers and reorganizations that made fortunes for sharp lawyers like Shapiro and Flom. It was a sign of the general merging of capital, making the corporate groups that fused in the center and held together an unprecedented conglomeration of power. Others may first be thrown out from this center by desperate counterbalancing alliances, but they can never be as strong and must, like a pulsar, be attracted again to the central group simply by the density of its interrelated capital.
It was left to the Federal Reserve, the only agency with a clearly mandated network of majors barred from selling, distributing or underwriting securities, to step in and discipline its own house. It also slapped Pete on the wrist.
The slap came on April 13, when Pete’s Insurance Commissioner David Elliott received a letter from Paul Volcker, chairman of the Federal Reserve Board. Elliott had earlier sent Shapiro’s drafted bill to Volcker for review. The Fed chairman’s response was strong, saying he was “seriously concerned about the possibility of widely divergent and inconsistent laws governing both bank and thrift powers, with deposit taking organizations shopping for the most permissive rules, and states competing to pass such laws in order to enhance local employment. The Secretary of the Treasury has stated that ‘this kind of deregulation—haphazard and without consistency or an underlying concept of what is appropriate for an insured institution—is obviously unsatisfactory,’ and I agree with him fully … the implication has not been that a single state, or group of states, should set the nationwide pattern.” 172
That should have been enough.
Not for Pete. It was as if he were more afraid of losing this battle than wreaking havoc on the nation’s financial structure.
“As Yogi Berra said, it ain’t over until it’s over,” 173 Pete said. But it was. Pete just refused to believe it. Until, perhaps, he got a warning from another, overconfident loser. Ex-Representative Tom Evans, of Playboy bunny and crop bill fame, phoned Pete to let him know how grim it all looked. Even the brokers, he said, do not like your bill.
Pete decided to begin “putting on the full-court press.” 174 Not since 1977 had the governor gone formally before all four party caucuses to lobby for a bill. “It’s clearly perceived as an administration bill, what the administration wants,” said Pete’s press secretary. “And that’s what it is.” 175
Governor DuPont lobbied meetings, receptions, caucuses of the 132nd General Assembly, carried a slick booklet put out by Shapiro and his Citibank crew, and called the bill “the most important legislation of my administration.” 176
Everyone wondered why. Was he so impressed by the Christmas card he had gotten from Morgan Delaware showing 100 signatures to prove the bank had met its employment requirements? Did Shapiro convince him it was that important to his career? But for Pete, the state-paid trips around the country to see unnamed bankers and oilmen had earned a rebellion among lawmakers and a whimsical name; the “Magical Mystery Tour,” as one legislator dubbed it, was over.
On June 8, Governor DuPont announced he was withdrawing the bill. It was his first, and probably, as Governor, his last, major defeat.
Irving Shapiro compounded his loss of face later that month when he was embroiled in charges of duplicity—and violations of federal laws forbidding compliance with the Arab boycott of Israel. Ironically, it had been he who put together another of his classic compromises with Edgar Bronfman to avoid a clash in Washington between the American Jewish Congress, of which Bronfman was a director, and DuPont and other large corporate sellers in the Middle East. The first sign of future shame came just a few months later, at the April, 1977, annual meeting, when William Marlow, general counsel to the American Jewish Congress, submitted a resolution calling on DuPont to cease complying with the Arab boycott and accused DuPont of betraying the very principles Shapiro had urged Congress enact as chairman of the Business Roundtable. Speaking of “negative blacklisting and similar exclusionary certificates,” Marlow charged, “these very prohibitions which the chairman of DuPont urged President Carter to be enacted into law are ignored by DuPont in its business practices and rejected by DuPont’s management in opposing our resolution.” 177
“The Israeli government itself required many of the same negative certificates,” Shapiro had replied as chairman of the meeting. “There is no problem at DuPont. This is a political issue, really. 178
But Federal Judge James Latchum, again ironically the man who had tried and sentenced Mel Slawik, only to see his court reversed, now felt there was indeed a problem at DuPont, a serious legal problem, and he demanded DuPont turn over the documents that it had so far refused to surrender.
The trading incidents which the Commerce Department suspected were in violation of law took place between 1979 and 1980, when Mr. Shapiro was chairman, and involved DuPont’s European subsidiaries. Shapiro at first told reporters on June 21, 1983, that he knew nothing about the violations or the Commerce Department investigation. But former Commerce Secretary Phillip Klutznick then revealed the next day that Shapiro, “an old friend,” had discussed it with him when he was a member of Carter’s cabinet. “I remember Irv talking to me about it and I asked my people to look into it,” Klutznick said. “He came to me because of some controversy. But I disqualified myself for obvious reasons. I am a former president of major Jewish organizations.… It was handled at a lower level.” He said Shapiro approached him with an “open hand,” asking what DuPont had to do to get the controversy settled. 179
The next day Shapiro’s memory had returned. “I mentioned the dispute,” he admitted. “It seemed like they were harassing us over the matter. Someone later called for the secretary and said he had talked to his people and thought there was a legitimate basis for their action.” 180 Commerce wanted the documents to decide if the company, and possibly Shapiro, should be prosecuted for more than 400 “apparent violations.” As chairman of the Business Roundtable, Shapiro had argued unsuccessfully for an exemption of foreign subsidiaries of American companies. Commerce’s request centered on records of DuPont’s subsidiaries in Switzerland, West Germany, Belgium and the United Kingdom, and some sales by Conoco.
“My view of it,” offered Shapiro, “was that they [the Commerce Department] were going after DuPont because it was newsworthy because I was instrumental in formulating the [antiboycott] law.” 181
A little over a week later, one of Shapiro’s closest predecessors at the Du Pont helm died. Lammot du Pont Copeland, Sr., had been the last direct heir of the founder of Du Pont, serving as its 11th president and chairman during its great expansion abroad, from 1967 to 1971, when his son’s bankruptcy drove him into retirement. In many ways he had symbolized the pre-Shapiro era, when he was a director of General Motors as well, and with his father, Charles Copeland, and his uncles, Pierre and Irénée, had reigned at a younger E.I. du Pont de Nemours where one could never forget that it was your great great-grandfather who had founded the firm on the banks of the Brandywine.
Lammot DuPont Copeland, a direct but shy man, was 78 years old when he died of a heart attack at his Mount Cuba estate in the hills north of Wilmington. He was survived by his sons, Lammot Jr., who had settled his debts, Garrett, and his daughter Louisa, a new member of the Du Pont board and the wife of Robert Duemling, ambassador to Suriname for Ronald Reagan, to whose party the deceased and his immediate family in 1979-80 gave $45,500. 182
That the weight of such heavy private donations on the body politic would have been balanced somewhat by public financing of campaigns was precisely the threat of the bill put before the governor just three weeks later. Du Pont had let the bill sit on his desk for two weeks. Now, with a carefully prepared statement, he vetoed it. His reason for killing the bill was simple: now was not the time to be giving taxpayers’ money away. Then he prepared for what was to him a more momentous decision. That night, in a small private gathering of friends, he announced his retirement from elected office in Delaware. The constitution forbade his holding the governorship for a third term. Nor would he run, as President Reagan had asked, against the popular young Democratic Senator, Joseph Biden. He was breaking tradition. Republican governors are expected to run for the Senate, usually a shoo-in. But Biden was a tough contender, who enjoyed wide support and an unbroken lead over DuPont in the polls. “Obviously, his not running for the Senate against me is welcome news,” said the senator. “I’m not kidding anyone. If he had run, I believe it would have been a toss-up.” 183
Glenn Kenton would not concede even that. “Biden’s support is a mile wide and an inch deep … he is eminently beatable, in our judgment, by a good candidate.” 184 DuPont agreed. “We basically start even,” 185 he insisted, dismissing suspicions that he was afraid to lose. “I’d have enjoyed the campaign. It would have been a challenge, it would have been fun, and it would have been winnable.” 186 Pierre S. DuPont IV was just not tied down to tradition. “You should never get to the point in life that you run for office because it’s there, or because it’s the traditional thing to do.” 187 Besides, if he wanted to be senator, he would have challenged Biden in 1978.
That would have been quite irregular. Governors usually do not resign after only two years in office to run against a popular senator. Pete was unfazed by the obvious. When he did not run against Biden in 1978 people should have known that once he selected the executive side of government, he would not run against Biden. “Being a United States Senator is a high honor and an important responsibility,” he explained, “but … my interests and my talents lie much more in the executive branch of government where I have enjoyed eight years of service as governor for more than the time which I served in the legislative branch of government.” 188
Biden saw the water boiling, and assumed a fire was burning in DuPont. “If I were Pete DuPont,” he offered, “and I wanted to be a candidate for the presidency, the last thing I’d want is to be a defeated candidate for the Senate or a winning freshman senator. You have no forum as a freshman senator. You have to wait in line to go to the bathroom there.” 189
Kenton had the same opinion. Pete would have been Senator du Pont, he insisted, but that might not have been wise for his ambitions. “The governors [elected to the Senate] who have gone down there by and large have disappeared. You just get consumed. You lose control of your own destiny. If you really want to help set the agenda and control your own destiny, the last place you want to go is the United States Senate.”
Kenton pointed out that the last three elected presidents—Reagan, Carter and Nixon —were not holding other offices when they ran and won. “The next generation of leaders is not coming from the United States Senate. 190 It’s coming from the governorships, in spite of the fact that Carter nearly poisoned the well.” 191
The obvious was emerging. Pete had big plans for himself.
The goal and the strategy were clear. Like Carter, Pete DuPont would continue to work his national party network as funder and endorser, only now he would do it full time. Through his Jobs for American Graduates, a national extension of his private job counselling program in Delaware funded by federal grants and criticized for its claim to success by getting “jobs” at McDonald’s and in the U.S. Armed Services, Pete has placed a cadre of supporters in at least eight key states around the country working with state and local education departments and spreading the good name of DuPont. Then, in 1988, when the Republican party was ready for a return to the “moderate” center, Pete du Pont would be waiting—and cashing in his IOU’s.
“I want GOPAC to continue,” he confirmed, “perhaps even expand the role in supporting local candidates and Republican organizations.
“Beginning in 1985, I will have the opportunity, the interest, and the time to consider and prepare for America’s agenda for 1988 and beyond. It will take a full-time commitment unconstrained by the current agenda of the U.S. Senate, because working on the next agenda is a full-time challenge.” 192
DuPont said he could take a cabinet post or a position on the Republican National Committee or work independently on issues such as education and job training, two achievements he claims for his governorship in Delaware. Recently, Pete had been named chairman of the Education Commission of the States.
“What title you have after your name isn’t important. What is important is that everything is going to change.” 193 In 1983, the issues were arms control, the economy, budget deficits, social security reform, the Middle East peoples, Central American problems. “By 1984, however, the issues will be much different than they are today, and I believe the leaders will be different, too.
“If the Republican Party is to once again capture, and dominate, the national agenda in 1988 and beyond as it did in the 1980’s, it will need to identify those issues early and come forward with sound practical solutions to address them. And it will need new leaders with the time and energy to devote to appraising America’s future needs rather than today’s problems.” 194
It was a line consistent with how he had run Delaware, focusing not on today’s problems, but on what he—and other DuPonts and people who shared their views— believed America should be.[So I have been considering for a bit now,any Trump/Dupont connection,did a quick search, there is some, it's a place to start,and I will be able to backtrack Dupont to the time this book finishes with, interesting DC]
Some of 1988’s issues, to Pete, “seem clear: Retooling and retraining the American workforce to meet international competition, and educational reform—improving the quality, quantity and focus of the training of the next generation of Americans. Dealing with a vastly different, younger, post-Stalin Soviet leadership will be a challenge. So, too, will a strong, affordable national defense during times of technological explosion and the demand for more sophisticated and costly weapons.” 195
To Senator Biden, Pete DuPont sounded like he was announcing for the presidency five years before the election. Pete’s capacity to fund such a long campaign was not to be underestimated. Biden knew DuPont could command vast resources and attract others he could not command. That was why Biden had already raised over $555,000 to defend his Senate seat from a Du Pont family onslaught. When told of Pete’s decision, he confirmed that “the main place it takes the pressure off is dollars.” 196 While he warned his staff not to take his re-election for granted and “remember a guy named Biden in 1972 who won”—Biden, at 29, had defeated former Republican Governor Caleb Boggs in a startling upset—he did concede that whoever the Republicans ran against him, “I don’t think he will have as much money as the governor would have had.” 197
He may have been wrong. One of the names most mentioned in Republican circles was Governor DuPont’s personal lawyer, Edmund Carpenter, the DuPont in-law whose maid was said to have burned Congressman DuPont’s campaign finance records.
Democratic Congressman Thomas Carper was also advised not to believe his seat in Washington was safe. Just two weeks after Pete’s announcement, word came that another DuPont was seriously considering taking him on: Elise DuPont, wife of the governor. Elise had already met with top Republicans, including Francis Di Mondi, and “I think she’s giving it full, serious consideration,” 198 said national committeewoman Priscilla Rakestraw. “I think the biggest thing is, how would she be perceived by the press,” said former state Rep. John Burris, “how much fun would they have with it if she were a candidate?” But after two months of campaigning, she would be seen as independent, assertive, and deeply knowledgeable about federal government, he predicted, certainly not a wild assumption for the News-Journal. “Then all of a sudden it’s Elise DuPont,” he said, “not Mrs. Pete DuPont.” 199
And as Elise DuPont, she would attract the attention of many women across the country to the family name. When 1988 came around, Elise might well have done for Pete in the national media what he could not do in public but would quietly be doing among key members of the Republican national organization: convincing them that the time had come for a DuPont in the White House.
If so, America may truly have reached the point described by Pete as “a revolutionary moment in its political governance.” Speaking to Delaware lawyers on the “Kafkaesque nightmare” of liberal federal judges who have committed “heresy” and “strayed from the original federalist blueprint for a constitutional democracy …” and are “infusing their own political vision into the Constitution,” DuPont arrayed himself against those who take moral principles into the courts for “the transmutation of transcendental principles into constitutional rights.” As examples of judges becoming “increasingly involved in areas of decision-making traditionally regarded as the province of other branches of government,” he gave “reorganized school systems, reapportioned legislatures, restructured public and private employment practices, fixed minimum standards for prisons and mental health facilities, and established guidelines for everything from public housing projects to the system of political patronage.” In other words, the New Deal. He endorsed the attack on environmentalists and other legal reformers as “a small group of fortunately situated people in a roving commission …” made by Nixon’s most conservative appointee to the Supreme Court, William Rehnquist, opponent of desegregation and alleged sympathizer of the notoriously reactionary John Birch Society. DuPont took some hope in “recent decisions of the Supreme Court suggesting that it may be heeding the changing political sentiments … even discover encouraging signs of a proper respect—however grudging—for the legitimate role of state governments in the federal system.” But he insisted, “It’s time we try to save the courts from themselves” and “emphasize the tradition of restraint in articles and books, in legal brief and oral arguments. Time is running short.” Otherwise, he warned, “Draconian proposals” will be enacted, including legislative curtailments of judicial power, restrictions on their jurisdiction, or constitutional amendments reversing particular decisions or altering vestiges of judicial office such as life tenure or methods of selection or removal. 200
It was certainly debatable whether judges have written laws or in most cases simply responded to citizens’ petitions and attempted to enforce federal laws in states where local powers have refused to abide by them. And the du Pont Administration, at least in the area of desegregation of the University, has not had a record above reproach. But the general tone and direction of du Pont’s remarks, including his warning of “Draconian proposals” if the courts do not come around to his way of thinking and “restrain” themselves, offered broader implications and left little doubt as to what would be the intentions of a President du Pont. “I submit,” he said, referring to the American Revolution, the Civil War, and the New Deal, “that the republic has arrived—as it has every so often in its history—at a revolutionary moment in its political governance.” 201 There was no question as to what end of the political spectrum a President DuPont would ally himself with; there was little doubt in what direction his revolution would lead: it would be a revolution to the Right.
In some ways it has already begun. Perched high above Wilmington, on the 12th floor of the new Wilmington Trust Center, there is a bronze plaque, first displayed in June, 1983, with the names of the club’s new board of governors. They include much of Delaware’s business establishment, financiers, lawyers, politicians, all dedicated to making Delaware, as Shapiro and the governor had put it, “the nation’s first state in financial services.” And all dedicated, admittedly, to making themselves richer than they already were. Irving Shapiro was listed. So was John Tyler McConnell, Edmund Carpenter, and Jane Roth, wife of Senator William Roth who had been reelected the previous year with $25,250 202 in Du Pont family donations. So was Mary Jornlin Thiesen, who succeeded Mel Slawik as County Executive and has now gone on to her rewards as a director of Wilmington Trust. Edward du Pont’s name was there too.
But not Pete DuPont’s. That may change soon, but in June, 1983, he was still governor of all the people, and didn’t need to be included. His efforts to put Delaware at the vanguard of the revolution of New Federalism had already won him a place in spirit, if not in name. It had been Pete DuPont and the DuPont family with their small group of allies at the Rodney Club who had led the way in changing America’s law. The terror of unemployment had been invoked in a state where they controlled private employment, and the laws they had pushed through a willing legislature would, through their impact on the quest for corporate profits, encourage other states to invoke states rights to pass similar laws. In the end, states would rush to Congress to push the deregulation promoted by the Reagan program if for no other reason than to have at least some national standard by which to live and profit in a corporate marketplace called America. Guided by a strategy resting on states rights, the Republic of the New Deal would be systematically dismantled. And, as exemplified by the sky patrol of helicopters requested by Wilmington bankers, there would be more police, more prisons. There would be no chaos. There would be order, a new law and a new order.
To those who saw nothing wrong with this, opposition would be resented as both unfair and privileged. But to the wisest opponents, in Delaware and without, the DuPonts and their state would remain the barometer of the corporate class. To some, such a perspective would seem a prism offering only distorted visions. But to others, it would explain why the same state, the same family, that had already changed American corporate law once in the 1890’s and led the opposition to the New Deal some 40 years later, would come forth again to change American law in the 1980’s. To some it would always seem an accident. To others, a powerful family whose members had once called themselves “the Armorers of the Republic” and the “Guardians of the Republic,” now re-emerging on the national stage, so soon after Vietnam and Watergate had caused America to re-examine itself and its leaders as never before, is no accident, but a sociological and anthropological phenomenon rooted in the family’s past as part of its living history. Its institutional means may change in form, from industry to finance, just as may the commodity whose use the DuPonts sell, from gunpowder to paper money. But the family remains, its fundamental loyalties, campaign donations reveal, undisturbed by changing surnames.
Their methods of rule also remain: control over information, political organization, law, means to a livelihood, police and, as Wilmington affirmed in 1968, an army. Perhaps soon America will be ready to break from its passive reliance on the market and its fatalistic views about money, human nature and the Right, and choose once again to take up the fight for a prosperity based on equality, justice and democracy, the real American dream. But if it should, America will have to pass by Pete DuPont, who will be waiting, in the “moderate” political center. “Candidate Reagan correctly perceived that the majority of Americans felt the pendulum had swung too far in one direction,” the governor concluded in his statement on his future. “It was time that it swung back toward the center.” 203
It left one wondering what Pete DuPont would consider the Right. But if Theodore Barrington, senior editor of Tulsa’s Oil and Gas Journal is correct, America may soon find out. “By the time I shook his hand after the speech,” wrote Barrington, “I had a strange feeling—one I’ve never had before—that I had just heard a future President of the United States.” 204 [ That was quite the saga and by the end of it, this family is still powerful, and that might be downplaying 'power'. Personally I like their standard for what America should be. Worth looking at some more, hope you enjoyed this one, time to open up the next one:)]
Image Gallery p860
Appendix p 910
Footnotes p914,968 for this part
Source https://fightingmonarch.files.wordpress.com/2018/12/behind-the-nylon-curtain.pdf
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