Thesis Reference

Thesis

When Du Pont went global: how the Du Pont family built a multinational empire (1910-1967)

LOMBARDI GAUTHIER, Liza

Abstract

La thèse se concentre sur les mécanismes de multinationalisation de l'entreprise américaine Du Pont de Nemours, entre 1910 et 1967. Fondé en 1802 par la famille éponyme, ce producteur de poudres explosives s'est développé et a diversifié ses activités aux Etats-Unis au cours du XIXème siècle, et ce jusqu'à devenir l'un des principaux groupes chimiques américains. Durant le XXème siècle, la Du Pont s'érige comme un compétiteur international en développant ses affaires en Europe, en Asie, et rapidement d'une manière globale sur tous les continents. Partant de cette histoire, la thèse cherche à comprendre quelles ont été les motivations de la famille à agrandir de telles manières ses activités, et comment l'entreprise familiale a survécu à cette internationalisation. Ces questions sont développées au regard des relations politiques et économiques américaines, aussi bien qu'internationales, et en comparaison avec le développement multinational d'entreprises contemporaines à la Du Pont.

Reference

LOMBARDI GAUTHIER, Liza. When Du Pont went global: how the Du Pont family built a multinational empire (1910-1967). Thèse de doctorat : Univ. Genève, 2014, no. SES 843

URN : urn:nbn:ch:unige-389643 DOI : 10.13097/archive-ouverte/unige:38964

Available at: http://archive-ouverte.unige.ch/unige:38964

Disclaimer: layout of this document may differ from the published version.

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WHEN DU PONT WENT GLOBAL

How the Du Pont Family Built a Multinational Empire (1910-1967)

THÈSE présentée à la Faculté des Sciences économiques et sociales de l’Université de Genève par

Liza Lombardi

sous la direction du Prof. Youssef Cassis European University Institute

pour l’obtention du grade de Docteure ès sciences économiques et sociales mention histoire économique

Membres du jury de thèse: Prof. Juan FLORES, Université de Genève, président du jury Prof. Mary O’SULLIVAN, Université de Genève Prof. Andrea COLLI, Università Bocconi Prof. Nuria PUIG, Universidad Complutense de Madrid

Thèse no 843 Genève, le 6 juin 2014

La Faculté des sciences économiques et sociales, sur préavis du jury, a autorisé l’impression de la présente thèse, sans entendre, par là, n'émettre aucune opinion sur les propositions qui s’y trouvent énoncées et qui n’engagent que la responsabilité de leur auteur.

Genève, le 6 juin 2014

Le doyen

Bernard MORARD

Impression d'après le manuscrit de l'auteur

À Lionel et à mes fils, naturellement.

RÉSUMÉ

La thèse porte sur l’histoire de la compagnie chimique américaine Du Pont de Nemours, sous l’angle de sa gestion et de son actionnariat, en relation avec son internationalisation. La Du Pont a été maintes fois étudiée par la littérature comme un élément comparatif ou un cas d’étude isolé, comme cela est le cas dans cette thèse. En effet, le groupe américain présente un intérêt certain pour les historiens des entreprises de par sa longévité – l’entreprise a été fondée en 1802 – et ses succès quasi permanents depuis 212 ans. Du Pont de Nemours est également un cas d’étude pertinent de par son implication dans l’Histoire : l’entreprise est à l’origine de certaines des plus grandes innovations chimiques – le nylon, le Teflon – et a tenu une place considérable lors des deux conflits mondiaux du XXème siècle. Enfin, dans le monde des affaires, la Du Pont a été impliquée dans certains des plus grands procès contre la cartellisation de la production chimique américaine du XXème siècle.

L’expansion de la Du Pont en dehors des frontières américaines a commencé en 1910, et durant les années 1970 l’entreprise est représentée sur chaque continent. Ces décennies sont considérées comme la période durant laquelle l’entreprise a perdu ses caractéristiques de firme familiale. Cette thèse de doctorat entend modérer ces considérations en démontrant premièrement que l’entreprise reste sous le contrôle de la famille du Pont entre 1802 et 1980, et deuxièmement en présentant le rôle essentiel que la famille a tenu dans le processus de multinationalisation. Qui plus est, la thèse présente comment la famille a fait de son entreprise un groupe global, mondial, et a su conserver le contrôle de la Du Pont après cela. Cette thèse est donc en lien avec la littérature sur l’histoire des entreprises, plus précisément sur l’histoire des entreprises familiales, leur expansion, leur longévité, aussi bien qu’avec la littérature sur les investissements internationaux et les particularités – si ce n’est difficultés – pour les entreprises familiales de procéder à de tels investissements.

ABSTRACT

The dissertation considers the history of the American chemical enterprise Du Pont de Nemours from the angle of its management and ownership, as well as in relation to its internationalization. Du Pont de Nemours has long been studied in the literature as a comparative element, or as a single case study, as it is in this dissertation. And indeed, the American chemical group is of interest for many scholars because it has existed for 212 years and has experienced amazing longevity with a nearly constantly growing turnover. Du Pont is also a significant case study because it was involved in the most important antitrust suits of the 20th century, had bought most of the major chemical innovations of this century as well (nylon, Teflon), and had played a significant role during both World Wars.

The expansion abroad took place mostly between 1910 and 1970s while the firm was considered as losing its family characteristics. This work moderates this hypothesis by demonstrating first that the company's ownership and management remained under the du Pont family’s control between 1802 and 1980, and second that the du Pont family remained a decisive element for the international expansion of Du Pont Company, and that the role of the family had been regularly misunderstood by the literature. Furthermore, this doctoral dissertation demonstrates how a family led a company to become global and kept control of it afterwards. It is in line with business history literature about family firms – their expansion, their longevity – as well as the literature about international investments and the peculiarities, if not difficulties, for family firms to become international without consequences for their family management or ownership.

ACKNOWLEDGEMENTS

First of all, I deeply thank Prof. Youssef Cassis, my supervisor, Prof. Mary O'Sullivan, Prof. Juan Flores, president of this jury, Prof. Nuria Puig, and Prof. Andrea Colli for accepting to be members of this jury.

I am indebted to Prof. Youssef Cassis, my doctoral thesis supervisor since 2008, who has allowed me to achieve this final version of my dissertation. Prof. Cassis was also my master’s thesis supervisor between 2007 and 2008. Therefore, I thank him for believing in my abilities since that date to, first, have allowed me to work in his department while he was director of the Department of Economic History at the University of Geneva, and second, to have believed in my capabilities to compose some interesting research in the field of business history. While my work was going forward, Prof. Cassis was always available to attend my lectures at various conferences. Both his reading of my papers before the lectures and his comments after have always been rewarding contributions to my writing. When I started writing this dissertation, Prof. Cassis read an infinite number of versions of each chapter, with an equally infinite amount of patience. His strong stances concerning my questions, the literature I employed, as well as my use of the archives allowed me to produce the final document that an international jury can now discuss. I thank Prof. Cassis for all this work, as well as for his constant support and friendship throughout the years.

Prof. Mary O'Sullivan has followed my work since 2010 when she arrived at the University of Geneva. I am also very indebted to her as she has given many new impulses to my dissertation. Prof. O'Sullivan also read an indeterminate number of versions of this dissertation and always gave me an accurate and new look on every chapter. Her expertise both in business and financial history was an important contribution to the reframing and narrowing of my questions. The literature she suggested to me, as well as the archives she knew in the United

States, allowed me to progress in my writing. Her strong support concerning both this dissertation and my work at the Paul Bairoch Institute has helped me to always go ahead, without sorrow for the mistakes I had made and only with a belief that I could still do better.

I also thank Prof. Juan H. Flores for accepting the task of being the president of my jury. His careful reading of some chapters of this dissertation, the literature he helped me find – especially concerning Latin America – and his help with two papers I submitted to conferences in Geneva and Mexico have all been considerable stones to building, hopefully, a strong dissertation. I am also deeply indebted to him as a friend, for his strong support during the past six years, his constant good advice concerning both my dissertation and my private life, and his help during the "difficult days ahead." I thank him for all of this today, and I know I will also have to thank him tomorrow, and the many other days after that.

It was an obvious fact that I wanted Prof. Andrea Colli, as a master in family businesses, to be invited to this jury. His books and articles concerning family firms are one of the strongest pillars of this dissertation. My encounter with Prof. Colli at one of his lectures at the University of Geneva in 2008 was an immediate help for my dissertation. I received further help from him during a conference in Utrecht (2009), as well as at the Business History Association’s summer school that same year. Since then he has carefully followed my work, read with attention my papers and chapters, and given me strong advice concerning this dissertation, which I have followed as best as possible. I thank him for all his work and his support during these years.

I thank Prof. Nuria Puig. Her work concerning Spanish family firms was an important inspiration for this dissertation, as well as a strong source of information and knowledge on which I built my questions. Prof. Puig has followed my work since the Business History Association’s summer school in 2009 and since then we have spent many days working together at other

conferences. Her reading my papers, as well as her listening to my lectures have always been important contributions to the building of this work.

I also deeply thank my inner circle of trustful colleagues and friends, who have surrounded me during these years of thinking and writing. Thank you Christian Stohr, my officemate and friend, for always trying to help me enjoy my day with your shoemaker stories – which I still do not understand, but I am sure that is ok with you. Thank you to Jean Rochat for you indeterminate number of visits to my office and your permanent reassurance while I was getting married, giving birth to my eldest son, or enjoying a night out. These moments have added to the memories when we were both writing our dissertations; you were a real support. Thank you very much to Yann Decorzant, Matthieu Leimgruber, Sylvain Wenger, Edoardo Altamura, and all of my other colleagues at the Paul Bairoch Institute. It has been a pleasure to work, eat, and spend time with each of you.

Thank you also to my parents and friends for your non-judgmental presence throughout these years, despite finding it difficult to understand what I was doing and why I “ended” my dissertation so often. Thank you.

My deepest thanks go to my husband, Lionel Gauthier, who supported me during the toughest as well as the best moments of this dissertation, even though he was also doing his own - brilliant – PhD and raising our eldest son Luca. I love you today and tomorrow. Thank you for giving me the two best sons ever. Finally, to Luca and my “not arrived yet” second son, thank you for making me a mother. Thank you for always making me remember that the most important things in life happen at home with you. I love you, my boys, and I am already the proudest mother on Earth.

CONTENTS

When Du Pont Went Global 1

Résumé 7

Abstract 9

Acknowledgements 11

Contents 15

Tables and Figures 21

Chapter ONE: Introduction 25

1.1. Family Firms: Definitions and Discussions 29

1.1.1. Discussions about Family Firms 32

1.2. Family Firms and Multinational Companies 40

1.2.1. Definitions 41

1.2.2. Key Factors to Go Abroad 42

1.3. Discussions about Family Multinationals 44

1.4. Material 50

1.5. Plan 52

Chapter TWO: The Du Pont Company, From Foundation to the 1915 Incorporation, a Family Firm (1802-1915) 57

2.1. The Partnership and the First Incorporation: 1802-1902 60

2.1.1. The Foundation and Expansion of the Company 61

2.1.2. Cartel Activities since 1872 66

2.1.3. The End of the Partnership and the First Incorporation (1899-1902) 72

2.2. The 1903 Powder Company98

2.2.1. The Management 99

2.2.2. Pierre Took Control 108

2.3. The Family Clash (1915) 111

2.3.1. Coleman's stock 112

2.3.2. The Syndicate 115

2.3.3. The Separation 121

Conclusion to Chapter Two 126

Chapter THREE: The Modern Corporation (1915–1980) 129

3.1. The Foundation of the New Corporation and the Advent of the Modern Company 131

3.1.1. E.I. du Pont de Nemours & Company 131 16

3.1.2. The M-Form 136

3.1.3. Family Managers 143

3.2. Ownership and the Rise of Capital 149

3.2.1. Ownership 150

3.2.2. Expansion and Rise of Capital between 1915 and 1940 163

3.2.3. Expansion and Rise of Capital between 1940 and 1980 174

3.3. Interlocks and Network 186

3.3.1. The 20th Century's Hubs 186

3.3.2. Du Pont's Interlocks, Networks, and Stock Ownership in Other Companies 189

Conclusion to Chapter Three 201

Chapter FOUR: First International Investments (1903–1925) 203

4.1. Going International With Nobel (1909–1921) 208

4.1.1. The Canadian Explosives Ltd (1909–1911) 209

4.1.2 Du Pont and Nobel in Chile (1917–1921) 216

4.2. A Worldwide Network: Entering Mexico 228

4.2.1. The Mexican Investment (1901–1916) 229

4.2.2. the Mexican Bonded Debt Crisis and Du Pont's Investment 243 17

4.2.3. Negotiations with American and French Companies about Mexico 249

Conclusion to Chapter Four 258

Chapter FIVE: Diversified Investments Abroad (1929–1967) 261

5.1. The Business in Cuba (1929–1930) 266

5.1.1. The Cuba Cane Sugar Corporation 267

5.1.2. Involvement in Cuba 269

5.1.3. The Cuba Cane and the Relationships between The American and the Cuban Governments 272

5.2. Investing with Imperial Chemical Industries (1921–1937) 282

5.2.1. The First Steps in Argentina 283

5.2.2. Investments in Argentina and Brazil 287

5.3. Post-War Investments in Europe (1956–1965) 296

5.3.1. War Prospects 298

5.3.2. Incentives to Enter Europe (1955–1958) 303

5.3.3. New Conditions: DISA and other European Investments 313

Conclusion to Chapter Five 321

Conclusion 323

1. A Family Firm 324 18

2. Patterns of Investments Abroad 329

2.1. Parameters that mattered 333

2.2. Entry modes 335

Appendixes 339

Archives 371

Literature 375

TABLES AND FIGURES

Table 2.1: The shareholders of E.I. du Pont de Nemours & Company, 1802. 62

Figure 2.2: Family Tree, from founders to Alfred I., T. Coleman and Pierre S. du Pont. 65

Table 2.3: Successive Presidents of the Du Pont Company 65

Table 2.5: Shareholders of Du Pont & Company, 1902. 77

Table 2.6: How the cousins acquired control of the 1899 Du Pont & Company and of Laflin & Rand. 83

Table 2.7: Assets of Du Pont Powder in 1905. 87

Table 2.8: How the cousins acquired control of companies (1902-1905). 89

Figure 2.9: Assets and Capital Evolution; Ratio of the Total Assets and Liabilities (1903–1914). 92

Figure 2.11: Shares of common and preferred stock (1903-1914). 94

Figure 2.12: Family tree, the cousins' branch. 103

Table 2.13: Owners of Du Pont Securities stock. 117

Table 2.15: Du Pont Securities owning of Du Pont Powder (2), number of shares and percentage, in 1915. 119

Table 2.16: Du Pont Powder's ownership, 1915. 120

Table 2.17: The committees in Du Pont Powder in 1915–light grey are family members. 124

Table 3.1: Ownership of the Delaware Corporation in 1915. 133

Table 3.2: Senior Managers of the Delaware Corporation in 1915; light grey indicates family members. 135

Table 3.3: Senior Managers of the Delaware Corporation in 1921; light grey indicates family members. 139

Figure 3.4: Organization of Du Pont in September 1921. 141

Table 3.5: Family Management in the Delaware Corporation during the Presidencies at the End of Each President's Tenure. 144

Figure 3.6: Family Tree 146

Table 3.7: Senior Managers of the Delaware Corporation in 1979; light grey indicates family members. 149

Figure 3.8: Assets and capital evolution, ratio of the total assets and liabilities (1915– 1980). 151

Figure 3.9: Number of Common and Debenture/Preferred Stocks issued. 152

Figure 3.10: Number of Debenture/Preferred Stocks Issued. 152

Table 3.11: Big Owners of Du Pont’s Common Stocks. 156

Table 3.12: Pierre S. du Pont’s Total Ownership in Various Companies (1924). 157

Table 3.13: Christiana Securities Ownership. 158

Table 3.14: Presidents of Christiana Securities. 159

Table 3.15: Senior Managers of the Delaware Corporation in 1972; light grey indicating family members. 161

Figure 3.16: Assets and Capital Evolution; Ratio of the Total Assets and Liabilities (1915–1940). 164

Figure 3.17: Sales and Net Income; Ratio of Total Liabilities (1903–1935). 165

Table 3.18: Du Pont R&D Expenditure, 1922–1929 (in thousands of dollars) 167

Table 3.19: Du Pont's Sales in 1924 168

Table 3.20: Du Pont's Investments Abroad. 169

Table 3.21: Increase in Debenture/Preferred Stock (1915–1940). 171

Table 3.22: Increase in Common Stocks (1915–1940). 173

Figure 3.23: Assets and Capital Evolution; Ratio of the Total Assets and Liabilities (1940–1980). 175

Table 3.24: Du Pont's Investments Abroad (1956–1979). 183

Table 3.25: Increases in Preferred Stocks (1940––1980). 184

Table 3.26: Increases in Common Stocks (1940-1980). 185

Table 3.27: Senior Managers of General Motors in 1926. 192

Table 3.28: Du Pont's Interlocks (1911–1979). 196

Table 4.1: American and British Companies' Sales to South America in 1920 226 23

Figure 4.2: Exports of Powder to Mexico in Thousand USD 238

Table 4.3: US FDI in Mexico – selected years and sectors, million USD. 245

Table 5.1: U.S. Foreign Direct Investments in Europe (billion USD). 264

Table 5.2: American Foreign Direct Investments in manufacturing in the UK and in the Common Market (million USD). 264

Table 5.3: Sales and net income of the Cuba Cane Products Company 1930-1935, million USD 282

Table 5.4: American Foreign Direct Investments in Europe from 1966 to 1979. 297

Table 5.5: Hourly Cost of Manpower (USD). 298

Table 5.6: Parallel between Du Pont's Investments in Europe and the European Economic Integration. 310

CHAPTER ONE: INTRODUCTION

My doctoral dissertation entitled When Du Pont Went Global. How the du Pont Family Built a Multinational Empire (1910-1967) considers the history of the American chemical enterprise Du Pont de Nemours from the angle of its management and ownership, as well as in relation to its internationalization. The expansion abroad took place mostly between 1910 and 1970s. The business historian Alfred D. Chandler, Jr., believed that these were the decades during which the company is generally considered to have gradually lost its family characteristics and this loss is precisely what should have permitted the company to expand into fields of new activities.1 I intend to moderate this hypothesis by demonstrating first that the company's ownership and management remained under the du Pont family’s control between 1802 and 1980, and second that the du Pont family remained a decisive element for the international expansion of Du Pont Company, and that the role of the family had been regularly misunderstood by the literature.2 Furthermore, my doctoral dissertation demonstrates how a family led a company to become global and kept control of it afterwards. This dissertation is in line with business history literature about family firms – their expansion, their longevity – as well as the literature about international investments and the peculiarities, if not difficulties, for family firms to become international without consequences for their family management or ownership.

Du Pont de Nemours has long been studied in the literature as a comparative element, or as a single case study as I am doing in my dissertation. The

1 Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press, Ndiaye, P. (2001). Du nylon et des bombes, Du Pont de Nemours, le marché et l’Etat américain, 1900-1970. Paris, Belin. This literature is discussed later. 2 Since the 1970s, Du Pont can be considered a company that operates worldwide, with a global corporate management. That is why I stop my analysis at this point in history. 25

American chemical group is of interest for many scholars because it has existed for 212 years and has experienced amazing longevity with a nearly constantly growing turnover. Du Pont is also a significant case study because it was involved in the most important antitrust suits of the 20th century, had bought most of the major chemical innovations of this century as well (nylon, Teflon), and had played a significant role during both World Wars. All these characteristics and the history of Du Pont have made this company a thrilling case study. Moreover, the quality of the archived material gathered in the Hagley Museum allows scholars to go deep in their investigations about the company.

Until today the main contributions about the Du Pont Company are the works of Alfred Chandler – who considered its organization, structure, and management – and the studies from David Hounshell and John K. smith – who wrote about the research and development evolution within the company. In both cases, perhaps more specifically in Chandler, Du Pont is described as a family business that, from 1915, starts to lose this characteristic when the company's directors – mostly family members – modified the company's organization to make it the "modern company": multidivisional, managed by salaried businessmen, partly untied from the family control.3

The internationalization of Du Pont is considered in chapter seven of Alfred Chandler and Stephen Salsbury’s book, Pierre S. du Pont and the Making of the Modern Corporation, as well as in the work of Taylor and Sudnick from 1984. In

3 Chandler, A. D. J. (1962). Strategy and Structure. Chapters in the History of the Industrial Enterprise. Cambridge, MA, The M.I.T. Press, Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row, Chandler, A. D. J. (1972). Stratégies et structures de l’entreprise. Paris, Les Editions d’Organisation, Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press, Chandler, A. D. J. and H. Daems, Eds. (1980). Managerial Hierarchies. Comparative Perspective on the Rise of the Modern Industrial Enterprise. Cambridge, MA, Harvard University Press, Hounshell, D. A. and J. K. Smith (1988). Science and Corporate Strategy. Cambridge, Cambridge University Press. Ndiaye, P. (2001). Du nylon et des

Chandler and Salsbury’s chapter – Investment Overseas? – the authors develop the case of a failed investment with a French company (1904–1907) and the acquisition in 1910 of a nitrate field in Chile, two cases which I do not develop in this dissertation.4 Taylor and Sudnick’s work set up a chronology of investments abroad, but did not choose a particular angle to discuss the internationalization. These scholars have described with non-exhaustive archived work – considering what I have found in the Hagley Museum – some of Du Pont's businesses abroad. Furthermore, they do not study systematically the role of the du Pont family. Thus, even if the topic of my dissertation, the internationalization, is somehow told by Taylor and Sudnick, their work does not contribute to the literature about the company's governance and does not contribute to the literature about family firms and international investments.5 However, both Chandler and Salsbury's chapter, and Taylor and Sudnick's book are considerable contribution to my dissertation.

To this date Du Pont has never been studied as a major family firm, which kept this characteristic after the creation of the modern company and also after World War II. In addition, Du Pont has only been studied once as a multinational company. Therefore, I see a great interest in looking at both issues. Indeed, the literature understands that expansion abroad is the most difficult time for a company to remain a family business: how can a family keep control over a business that is all over the planet? By looking at the existing publications on this subject, my case study can be read as a contribution to it.

In addition, even though Du Pont had been deeply studied by Chandler and other authors, the analysis set up in this dissertation with a year-to-year look at

bombes, Du Pont de Nemours, le marché et l’Etat américain, 1900-1970. Paris, Belin. I will define what I consider to be a family firm in Chapter One. 4 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row.,Chapter Seven, Investment Overseas, 169-200. 5 Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 27

the increasing and decreasing liabilities, the rise of capital, and the successive managers in each organ – which mattered with regard to the decision-making power – had never been done. By so doing, I understand the du Ponts differently than Chandler does, and in a very different way to Taylor and Sudnick. The conception of the du Ponts as straightforward managers, operating according to the soundness of business, and with a certain intuition of what would work well and what would not, can be questioned when looking deeper into the details of the company and family’s history.

Therefore, to understand the main questions of my doctoral dissertation this chapter presents, in the first section, the literature concerning the definitions of family firms and discussions about the survival of family firms, and in a second section, literature about multinational companies, again about their definitions and discussions concerning the family firms that become multinationals.

1.1. FAMILY FIRMS: DEFINITIONS AND DISCUSSIONS

According to the business historians Andrea Colli, Mary Rose, and Harold James, among others, three types of family firms exist: the one when the firms are owned and managed by the family, the one when there is only family ownership, and the last being the other way round, when there is only family management.6 But, first of all, who is "family"? To Mark Casson being a family member means being a member of the classical nuclear family, or having contracted to a marriage with a member, or having been adopted by the family. This definition proposes to include people from the same blood, and also people from an inner circle to the components of a family. This inner circle can be composed of lifelong friends and they would be considered as equal to family members in their influence over the company.7

Concerning the ownership, and to Casson again, the firm deserves the title of family business when at least two family members possess an important voting power among others through their stock ownership. This means that very few people can make a family business: two influential stockholders only. In 2009 Colli and Rose widened this proposition by defining that to be called a family firm, the importance of the family owned equity has to be sufficient in order to exert control over decision making processes; it mostly differs from country to country. In Italy possessing 5% of the voting power is enough to have control

6 Chua, J. H., J. J. Chrisman, et al. (1999). "Defining the Family Business by Behaviour." Entrepreneurship Theory and Practice 23(4): 19-39, Colli, A. (2010) "Family Firms in European Economic History " http://ssrn.com/abstract=1583862. James, H. (2006). Family Capitalism. Wendels, Haniels, Falcks, and the Continental European Model. Cambridge, MA, The Belknap Press of Harvard University Press. Rose, M. (1993). Beyond Buddenbrooks: The Family Firm and the Management of Succession in Nineteenth Century Britain. Entrepreneurship, Networks, and Modern Business. J. Brown and M. Rose. Manchester, Manchester University Press. 7 Casson, M. (2000). Enterprise and Leadership, Studies on Firms, Markets and Networks. Cheltenham, Elgar. 198

over the firm, but in the United States it is not considered as sufficient.8 The ownership is of importance because in the case of American corporations, of interest in the case of Du Pont, the ownership generally means having the power to vote for the composition of the company's senior management: the election of a president and the board of directors. Afterwards, the president and the board are entitled to form the finance and executive committees. Therefore, the family can choose to be conservative in terms of management, or not. The sociologist Robert Freeland thus considers that a family who controls the voting stock controls the future of its company. To him control is even stronger when the family both owns control of the voting stock and when it is well represented on the company's finance committee: thus, the control over the company's capital is total and locked.9 The family in the finance committee is entitled to decide how to raise capital (call on the market, retained earnings, borrowings, etc.); therefore, to decide whether or not the family keeps its main ownership.

Thus, considering now the management, Mark Casson emphasizes that it is sufficient that the CEO or general manager be a family member in order to give the family firm appellation to a business: the family firm characteristic can be summed up by the authority of one family member over the decision making process, only.10 Other scholars address a list of the roles which, when taken by a family member, suffices to determine: first, and as Casson describes, the chief operating officer is a member of the founding family; second, the majority of the executive committee is from the founding family, and; three, a majority of the

8 Colli, A. and M. Rose (2009). Family Business. The Oxford Handbook of Business History. G. Jones and J. Zeitlin. Oxford, Oxford University Press. 194 Colli, A., P. Fernández Pérez, et al. (2003). "National Determinants of Family Firm Development? Family Firms in Britain, Spain, and Italy in the Nineteenth and Twentieth Centuries." Enterprise and Society 4(1): 28-64. 19. 9 Freeland, R. F. (2001). The Struggle for Control of the Modern Corporation. Organizational Change at General Motors, 1924-1970. New York, Cambridge University Press. 10 Casson, M., P. J. Buckley, et al., Eds. (2010). Entrepreneurship: Theory, Networks, History. Cheltenham, Edward Elgar. 198.

finance committee is from the founding family.11 These criteria are understood as equally strong in making a company a family firm.

In this dissertation, I chose to mostly define the family firms as companies owned by the founding family, with an owned equity sufficient to influence the composition of the senior management. To understand whether the share of the business owned by the family is enough to exert this control, I will dissect the composition of the board of directors, which should reflect the choice of the shareholders. As long as the family members are well represented in the board, I consider that the family owned equity as sufficient to control the company. The choice of the president is also relevant in this case. Finally, in addition, I choose to follow Freeland's hypothesis concerning the composition of the finance committee: in Du Pont, as long as a majority of the finance committee members are from the founding family, I consider that the du Pont exert a clear control over the company's management. Thus, the control of both the ownership and the finance committee are necessary to classify Du Pont among the family businesses.

As mentioned, Chandler considers in the Visible Hand in 1977 that during the 1970s the du Pont family controlled only part of the voting stocks, and that the family's control over the senior management was now weak, almost totally lost.12 For the historian Pap Ndiaye, the end of the family management was even earlier; it happened in 1940 when the last president issued by blood from the founding family resigned from this position.13 However, Du Pont was a big

11 Miller, D. and I. Le Breton-Miller (2006). "Family Governance and Firm Performance: Agency, Stewardship, and Capabilities." Family Business Review 19: 73-87. Bennedsen, M., F. Pérez- Gonzalez, et al. (2010). The Governance of Family Firms. Corporate Governance. A Synthesis of Theory, Research, and Practice. R. C. Anderson and K. Baker. Hoboken, John Wiley & Sons: 371- 390. 12 Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press. 13 Ndiaye, P. (2001). Du nylon et des bombes, Du Pont de Nemours, le marché et l’Etat américain, 1900-1970. Paris, Belin. 31

business – Du Pont's assets amounted to $9.56 billion in 1980, while it was ranked as the seventh company worldwide in that year in terms of revenues and profits.14 A trend in the business history literature defines family firms as rather conservative, or as companies that lose their characteristics of family businesses when they increase their activities to such a level. The next section covers the discussions on this topic.

1.1.1. DISCUSSIONS ABOUT FAMILY FIRMS

Since the 1930s many scholars have discussed the topic of family businesses and their evolution. Historically, the main stream in business history is to consider family firms during the 20th century, especially in the United States, as progressively losing their "family" characteristics as they became big businesses. From Adolf Berle and Gardiner Means to David Landes, but also from Alfred D. Chandler Jr. to William Lazonick, all realized that there are great difficulties for families to keep control of their companies when the family business increases in size or activities.15 These authors defend that family companies have to consequently modify their structure, management, and ownership. More recently the scholars Stephen Nickell, Daphne Nicolitsas, and Neil Alistair Dryden argue that the stockholders or directors of a family business have a discretionary power that goes against some changes and expansion and which mostly defends a status quo within the firm, which assures family control.16 Therefore, either the family loses control when the firm becomes a big

14 Fortune 500, 1980. 15 Berle, A. A. and G. C. Means (1932). The Modern Corporation & Private Property. New York, Macmillan. Landes, D. (1969). The Unbound Prometheus. Technological Change en Industrial Development in Western Europe from 1750 to Present. Cambridge, Cambridge University Press. Chandler, A. D. J. (1990). Scale and Scope, the Dynamics of Industrial Capitalism. Massachusetts, The Belknap Press of Harvard University Press. Lazonick, W. (1992). "Controlling the Market for Corporate Control: The Historical Significance of Managerial Capitalism." Industrial and Corporate Change 1(3): 445-487. 16 Nickell, S. J., D. Nicolitsas, et al. (1997). "What Makes Firms Perform Well?" European Economic Review 41: 783-796. 786. 32

business or it chooses to avoid expanding their activities too much, or expanding without having to call on the financial market. Chandler emphasizes the importance of managerial capitalism in the United States during the 20th century, within American companies, and its implication for family businesses. Indeed, managerial capitalism implies, according to Chandler, that a family firm has to increase their management capacities, among other resources, in order to increase its activities, and consequently the outsiders, the salaried managers, outpaced in number the family members, sometimes outpaced their control over the management. These observations have been used in the debate about the performance of states and the claimed French and British backwardness; family capitalism might have been responsible for it, whereas in the United States the managerial capitalism was responsible of the American growth. The literature understands that managerial companies forming the managerial capitalism are more competitive, grow bigger, and finally bring more important growth in the states.17 In contrast with managerial capitalism, considering Great Britain in the first half of the 20th century, Chandler talks about personal capitalism. This means that most of the British companies had not, during the inter-war period, proceeded to the three-pronged investment in manufacturing, marketing, and management, which the American companies had. This deepening in capital invested in these three sectors made of the American companies big businesses, ultra-competitive at home and abroad.18 And, as mentioned, Chandler takes Du Pont as a case study to demonstrate how the company

17 Berle, A. A. and G. C. Means (1932). The Modern Corporation & Private Property. New York, Macmillan. 219-232, Landes, D. (1969). The Unbound Prometheus. Technological Change en Industrial Development in Western Europe from 1750 to Present. Cambridge, Cambridge University Press. 192. Milward, A. S. (1992). The European Rescue of the Nation-State. Londres, Routledge. 304-312. Foreman-Peck, J. and M. R. (1994). Public and Private Ownership of British Industry, 1820-1990. Oxford, Clarendon Press., Bloom, N. and J. van Reenen (2007). "Measuring and Explaining Management Practices Across Firms and Countries." Quarterly Journal of Economics 111: 227-252. Cheffins, B. R. (2008). Corporate Ownership and Control: British Business Transformed. Oxford, Oxford University Press.26-33. 18 Chandler, A. D. J. (1990). Scale and Scope, the Dynamics of Industrial Capitalism. Massachusetts, The Belknap Press of Harvard University Press. 48-49.

proceeded to change in governance – especially with an important restructuring into a multidivisional company during 1920 and 1921 that deepened the extent of its managerial hierarchy –diversify its production and consequently increase its turnover, open subsidiaries, and expand abroad:

"The Du Pont Company, the innovator in both strategy of diversification and the multidivisional structure, offers a good example of the ways in which products were developed. […] At Du Pont the decisions concerning product development were made at two levels – the corporate office and the divisional headquarters. At the corporate level the general executives on the executive committee who determined the strategy of the enterprise as a whole relied on two corporate staff departments: the Development Department, which became a broad planning and investigatory office that guided products development; and the Chemical Department (later called the Central Research), which coordinated the company's research activities, as well as carrying out research of its own. The division managers also had their own research and development organizations with their own laboratories and auxiliary facilities."19

Thus, Chandler explains that Du Pont was highly hierarchical, that the decision- making process was parted between many departments, the executive committee, and the board of directors. He demonstrates here that the managerial capitalism had been extended to Du Pont and that it permitted this company to diversify its production, and thus expand its business and internationalize its activities. Without this hierarchy Du Pont would not have been able to do this. However, some recent business history literature considers that Chandler’s point of view here is too dualistic. Professional salaried managers

19 Ibid. 181-182. 34

who are also family members are considered as enviable, as the next subsection demonstrates.

In Contrast with Berle and Means

Maurice Lévy-Leboyer, Mary Rose, Youssef Cassis, Harold James, and Andrea Colli, among other scholars, are in opposition with some elements of the aforementioned literature.20 These scholars considered equally the survival of the family firm over decades, the "embeddedness" with the community in which the family business is set up, its reputation – considered as a family capital – and also its sustainability as a family controlled business. These analyses highlight performances of family firms, their longevity, and the fact that they are able to deal both with time and with the expansion of their activities.21 Rose, in 1993, defends that the literature had to go beyond the so-called Thomas Mann's Buddenbrook's effect, which considers that family firms could only last three family generations. On the contrary, Rose presents that family firms can expand their activities, become big businesses, and keep their family characteristics.22 Cassis, by discussing the cases of many European big businesses during the 20th century, underlines with strength that some family big businesses not only

20Lévy-Leboyer, M. (1974). "Le patronat français a-t-il été malthusien?" Le Mouvement Social 3(Jul-Sept): 3-49., Jones, G. and M. Rose, Eds. (1993). Family Capitalism. London, Frank Cass., Rose, M. (1993). Beyond Buddenbrooks: The Family Firm and the Management of Succession in Nineteenth Century Britain. Entrepreneurship, Networks, and Modern Business. J. Brown and M. Rose. Manchester, Manchester University Press. Cassis, Y. (1997). Big Business. The European Experience in the Twentieth Century. Oxford, Oxford University Press. Colli, A. (2003). The History of Family Business, 1850-2000. Cambridge, Cambridge University Press. James, H. (2006). Family Capitalism. Wendels, Haniels, Falcks, and the Continental European Model. Cambridge, MA, The Belknap Press of Harvard University Press, James, H. (2012). Krupp. A History of the Legendary German Firm. Princeton. 21 Cassis, Y. (1997). Big Business. The European Experience in the Twentieth Century. Oxford, Oxford University Press, Colli, A. (2012). "Contextualizaing Performances of Family Firms: the Perspective of Business History." Family Business Review 25(3): 243-257. 22 Rose, M. (1993). Beyond Buddenbrooks: The Family Firm and the Management of Succession in Nineteenth Century Britain. Entrepreneurship, Networks, and Modern Business. J. Brown and M. Rose. Manchester, Manchester University Press. 35

existed during the 20th century, but also continued to perform well. He takes as an example the French tire company Michelin, a family business, which kept its place in the European top ten biggest companies after the Second World War and again during the 1980s. Cassis presents similar facts for other companies such as Guiness, Krupp, Siemens, and Peugeot.23 Following Big Business, numerous works defend the performances of family firms. In 2006 James wrote a history of the de Wendels, Haniels, and Falcks, three families who had established their businesses. He describes their longevity as family businesses and explains their sustainability through each family’s capacity to adapt to their changing environments. According to James, the decision-making power of the family is more adapted to the economic variations and to the market's logics than non-family businesses.24 His point of view is followed by Fernández Pérez and Puig who present in their study of Spanish family firms better adaptability of these companies to the civil war and the Franco dictatorship, as well as to the fall of the dictatorship, than the purely managerial companies.25 The ability of the founding family to keep control of their business for such a period of time prompts Mark Casson to consider these family firms as "dynastic family firms".26 Some of the aforementioned family firms, especially the de Wendel business, certainly deserve this appellation.27

To keep strong family control over a company implies that the management and the owners of a company make important choices in the course of their activities: the most decisive issues being to remain independent or to issue

23 Cassis, Y. (1997). Big Business. The European Experience in the Twentieth Century. Oxford, Oxford University Press., 80-82. 24 James, H. (2006). Family Capitalism. Wendels, Haniels, Falcks, and the Continental European Model. Cambridge, MA, The Belknap Press of Harvard University Press. 25 Fernández Pérez, P. and N. Puig (2007). "Bonsais in a Wild Forest? A Historical Interpretation of the Longevity of Large Spanish Family Firms." Revista de Historia Economica 25(3): 459-497. 459- 497. 26 Casson, M. (1999). "The Economics of the Family Firm." Scandinavian Economic History Review 47(1): 10-23. 27 The de Wendel's first ironwork was started in 1704 already. 36

capital on the market. The autonomy-oriented companies encounter issues in expanding their capital, whereas the market-oriented companies have to deal with the entry of outside influence. However, there is no need to consider family firms with such a rigid dichotomy. Indeed, to Christina Lubinski the governance in family firms is generally observed as balancing between both autonomy and openness; family firms use pyramidal structures, dual-class stocks, or cross- holdings in order to be able to keep control, as well as to call for capital from the market. Also of importance, the family business employs professionally trained family members, far from the idea that there are family managers without managerial skills on one side and professional managers on the other side.28 Finally, the idea that family governance survives only in small and medium-sized companies has been overthrown since studies have shown that among 27 economies, 30% of the largest companies were family controlled. The study from La Porta et al. consider that the norm in the United States is that large companies have widely held ownership; however, the scholars counted that 20% of the largest U.S. companies had family ownership.29 Recently, Rosa Nelly Trevinyo-Rodríguez considered, according to The Family Business Magazine of 2004, that:

“[..] evidence reveals that these businesses [family businesses] play a significant role in the global economy. Indeed, a number of world- class firms such as Wal-Mart, Ford Motor Co., Samsung, LG, Cargill, Tata Group, Cemex, Du Pont, Ikea, Grupo Carso, Michelin, etc. are classified among the world’s 250 largest family-run companies, each with annual revenues of at least $1.2 billion. Many

28 Lubinski, C. (2011). "Path Dependecy and Governance in German Family Firms." Business History Review 85(Winter): 699-724. 699-700. 29 La Porta, R., F. Lopez-de-Silanes, et al. (1999). "Corporate Ownership around the World." The Journal of Finance 54(2): 471-517. 592.

of them dominate not only their local economies, but also the global market, reaching far beyond their national borders.”30

Therefore, following Brian Cheffins and Steve Bank, and concerning the divorce of ownership from control, it is possible to consider that Berle and Means can be considered as a myth, even for large U.S. companies.31 Leslie Hannah, in his studies of the large American companies at the turn of the 20th century, takes a strong stance toward "the erroneous belief that America led in divorcing ownership from control."32 And actually, family control of a company seems even to present advantages peculiar to family businesses, as the next section shows.

Advantages of Family Governance

Yossef Ben-Porath in his article about the "F-Factor" was in 1980 already defending that family businesses had significant characteristics in order to expand their activities:

“The family plays a major role in the allocation and distribution of resources. The way in which members of families have dealings with each other, the implicit contract by which they conduct their activities, stands in sharp contrast to the textbook market transaction. Between these two extremes are many other transaction modes and institutions involving elements of both: transactions between friends, business partners, and employers

30 Trevinyo-Rodríguez, R. N. (2009). "From a Family-Owned to a Family-Controlled Business. Applying Chandler's Insights to Explain Family Business Transitional Stages." Journal of Management History 15(3): 284-298. 286 31 Cheffins, B. R. (2008). Corporate Ownership and Control: British Business Transformed. Oxford, Oxford University Press. 32 Hannah, L. (2007). "The "Divorce" of Ownership from Control from 1900 Onwards: Re- Calibrating Imagined Global Trends." Business History 49(4): 404-438.

and employees. […] Some transactions can take place only between mutually or unilaterally identified parties.”33

In line with Ben-Porath, Habbershon and Williamson consider that family control even provides what they call the "family-ness": The fact that the family control proves to be positive for a company's expansion.34 Indeed, members of the same clan, fighting for the family business, might have more incentive to be concerned by their tasks. It was proven by various research scholars that family control implies less agency costs – the fact that information could be lost or that there could be a lack of transmission exists less inside family businesses, as the family members often meet and exchange their information.35 Furthermore, family members are more inclined "to govern" their company with a "stewardship" attitude.36 This term covers the fact that a family manager is naturally inclined to go deeper in every action he undertakes for the company. First of all, he considers that he will stay in the company for a long time – generally the family presidential term of offices are longer than in other business (15 to 25 years in family firms versus 3 to 4 years in other companies). Related to this, the "steward" would provide a more important commitment to building capability, to discretion for engaging in risky business at home, and to avoid a "quick-fix" – as Miller and Le Breton-Miller call the action chosen quickly in order to rapidly fix a problem without having regarded all the issues pertaining to such

33 Ben-Porath, Y. (1980). "The F-Connection: Families, Friends, and Firms and the Organization of Exchange." Population and Development Review 6(1): 1-30. 1. 34 Habbershon, T. G. and M. L. Williamson (1999). "A resource-based framwork for assessing the strategic advantages of family firms."." Family Business Review 12: 1-15. 35 Miller, D. and I. Le Breton-Miller (2006). "Family Governance and Firm Performance: Agency, Stewardship, and Capabilities." Ibid. 19: 73-87. Westhead, P. and C. Howorth (2006). "Ownership and Management Issues Associated With Family Firm Performance and Company Objectives." Family Business Review 19(4): 301-316. 36 Davis, J., D. Schoorman, et al. (1997). "Toward a Stewardship Theory of Management." Academy of Management Review 22: 20-47.

decisions. Consequently, the "steward" looks at farsighted investments, and intuitively commits himself deeply to the family’s affairs.37

Chapters Two and Three describe how the Du Pont Company was owned, managed, and how it expanded its activities first between 1802 and 1915, and second between 1915 and 1980. Both chapters present that the du Pont family’s control over the company was total during the 19th century and a determinant for the company's expansion during the 20th century, and even at the end of the 1970s. However, the international business and business history literatures also discuss the question of whether family firms go abroad, and if they do, how. Therefore, the next section defines what multinational companies are and confronts the literatures on the question of family multinationals.

1.2. FAMILY FIRMS AND MULTINATIONAL COMPANIES

In 1914 Du Pont de Nemours was already listed among the American multinationals because of its joint venture with Nobel in Canada and the nitrate fields it owned in Chile.38 However, the company had a rather slow development abroad, in contrast with other companies such as Ford.39 This stresses the differences that Christina Lubinski, Jeffrey Fear, and Paloma Fernandez Pérez describe among companies that are "born international," the companies that internationalize "cautiously", and those that do not internationalize at all.40 Du

37 Miller, D. and I. Le Breton-Miller (2006). "Family Governance and Firm Performance: Agency, Stewardship, and Capabilities." Family Business Review 19: 73-87. 38 Wilkins, M. (1970). The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914. London, Oxford University Press. 213-213, 216. 39 Ford had already five assembly plants and car manufacturers abroad in 1914. Wilkins, M. and F. E. Hill (1964). American Business Abroad. Ford on Six Continents. Detroit, Wayne State University Press. 434. 40 Lubinski, C., J. Fear, et al., Eds. (2013). Family Multinationals. Entrepreneurship, Governance, and Pathways to Internationalization. New York, Routledge. 1 Graves, C. and J. Thomas (2008). "Determinants of the Internationalization Pathways of Family Firmy: An Examination of Family Influence." Family Business Review 21(2): 151-167. 153.

Pont was of the second kind, those that internationalize “cautiously.” Wilkins previously considered that: "Unlike most American companies in growth industries, the three principal U.S. chemical producers (Du Pont, Union Carbide, and Allied Chemical) were far from audacious in their search for international markets."41 Du Pont started becoming international by following the Uppsala model of internationalization. First, the company used to export its production, and this already since the 19th century. Second, the company established sales offices in Europe, as well as in Latin America, already in the early 20th century. And finally, the company participated in manufacturing plants in other countries, before building its own factories.42 However, when can a company be considered as a multinational?

1.2.1. DEFINITIONS

The most straightforward definition of a multinational company (MNC) is of a business owned in a home country, which invests in host economies.43 More precisely, a MNC must have assets abroad. The nature of the assets differ according to authors: Raymond Vernon develops that the MNC must have at least a subsidiary in five or six different countries.44 Richard Caves presents that the number of subsidiaries abroad does not matter, but that the control and the management that the mother company exerts over it is determinant when considering a company as a MNC. He underlines that some mother companies prefer to have a less important role in the foreign subsidiary and then only hold a

41Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 78. 42 Johanson, J. and J.-E. Vahlne (1977). "The Internationalization Process of the Firm-A Model of Knowledge Development and Increasing Foreign Market Commitments." Journal of International Business Studies 8(1): 23-32. 43 Jones, G. (2005). Multinationals and Global Capitalism, From the Nineteenth to the Twenty- First Century. Oxford, Oxford University Press. 3. Wilkins, M. (1986). Defining a Firm: History and Theory. Multinationals: Theory and History. P. Hertner and G. Jones. Aldershot, Gower: 80-95. 81. 44 Vernon, R. (Fall, 1971). "Sovereignty at Bay: The Multinational Spread of U. S. Enterprises." The International Executive 13(4): 1-3. 41

minor fraction of it.45 Geoffrey Jones specifies that firms investing abroad through portfolio investments (involving the acquisition of foreign securities without any control over the management of the equity) are considered to be multinational companies, as well as enterprises having set up a foreign direct investment that involves management and control.46

In this dissertation I retain this quote from Mira Wilkins as defining a multinational company: “[…] as a firm that is headquartered in one country and extends itself over borders – as a firm. In some […] cases, there may be more than one headquarters.”47 And thus, I consider Du Pont as being a multinational company from 1910, as soon as it had its first investments abroad: a 45% interest in a Canadian joint venture. This was a subsidiary controlled partly by Du Pont's management, as a number of senior managers in the Canadian investment came from the mother company. Before that Du Pont had only exported its production to other countries and is, therefore, not considered at that point to be a multinational.

1.2.2. KEY FACTORS TO GO ABROAD

When Du Pont started to internationalize, the incentives to invest abroad were sometimes difficult to read or, on the contrary, sometimes very clear. The reasons why companies choose to become international is covered by a vast amount of literature. Raymond Vernon considers that the investments abroad are a function of the internal market saturation, of the progressive products

45 Caves, R. E. (1982). Multinational Enterprise and Economic Analysis. Cambridge, Cambridge University Press. 149. 46 Jones, G. (2005). Multinationals and Global Capitalism, From the Nineteenth to the Twenty- First Century. Oxford, Oxford University Press. Hertner, P. and G. Jones, Eds. (1986). Multinationals: Theory and History. Aldershot, Gower. 3. 47 Wilkins, M. (2009). The History of Multinational Enterprise. The Oxford Handbook of International Business. A. Rugman and T. L. Brewer. Oxford, Oxford University Press: 3-33.7. SeeRugman, A. and B. T. L., Eds. (2009). The Oxford Handbook of International Business. Oxford, Oxford University Press. 42

standardization, and of the threat of import-substitution policies.48 More precisely, concerning companies similar to Du Pont, Mira Wilkins considers that American companies invested abroad between 1914 and 1970 for a number of reasons: first, the market attraction; second, the importance of the investment size; third, the existence (or not) of a tariff barrier, and; fourth, the host government's demands.49 In 1994 Mira Wilkins took these determining factors and developed them as the four main parameters that attract multinational companies into host countries: "the opportunity parameter" (which is about the prospects in the host market such as raw materials), "the political parameter" (which is about the local political conditions, the political stability or instability of a country), "the familiarity parameter" (which means that a multinational finds familiar conditions that lower transaction costs in a host country, language being an important familiarity factor), and "the third country parameter" (which is about the conditions inside the host country).50 Again, John R. Dunning's OLI theory, the eclectic paradigm, considers the interests of the owner and the localization of the investment, as well as the internalization process. In line with Mira Wilkins, the scholar considers that the host economies are the determining criteria for investing: its attractiveness as a host includes its most important parameters for investors as being the country’s physical and human resources, or industrial policies.51 Finally, Mira Wilkins considers that after the Second World War, and especially since 1955 and until 1970, a growing number of American companies undertook to reduce or even eliminate the "importance of the international division and to adopt what has been variously called worldwide, global,

48 Vernon, R. (1966). "International Investment and International Trade in the Product Cycle." The Quarterly Journal of Economics 80(2): 190-207. 49 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 50 Wilkins, M. (1994). "Comparative Hosts." Business History 36(1): 18-50. 25-27. 51 Dunning, J. H. (1988). "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions." Journal of International Business Studies 19(1): 1-31, Mucchielli, J.-L. and T. Mayer (2004). Multinationals Firms’ Location and the New Economic Geography. Cheltenham, Edward Elgar.

cosmopolitan organization structure."52 Some of these factors proved to have been important for Du Pont. For example, we notice the importance of foreign governments' demands – real invitations in fact – especially concerning the investment in powder plants. Of importance as well, tariffs that benefitted Du Pont or not were always studied before the company entered a country, as well as what the cost would be to set up a manufacturing plant with regard to the cost of exporting the same product. However, the literature about foreign direct investments encompasses a rich discussion concerning the difficulty – and advantages – for family firms abroad, as the section below shows.

1.3. DISCUSSIONS ABOUT FAMILY MULTINATIONALS

The international business and business history literatures consider that family firms are rather reluctant to expand abroad. The family controlled business is considered to not be inclined toward risky ventures. To expand in host countries, family firms view the same issues as when they increase their activities at home: lacking the resources and management necessary to keep control over developments of the business. Family firms might have to hire external managers to fulfill the management tasks abroad. Therefore, family controlled businesses are risk adverse; they fear the negative impact that an international expansion may have on their family control.53 Miller and Le Breton Miller consider that when the family hires external managers that surrounds the clan in its family governance, it could have some positive input and could open the field of possibility for a company. But, according to these scholars, it means that family firms have to evolve into managerial companies in order to grow abroad.54

52 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 382. 53 Donckels, R. and E. Frohlich (1991). "Are Family Business Really Different?" Family Business Review 4(2): 149-160. 54 Chandler, A. D. J. (1990). Scale and Scope, the Dynamics of Industrial Capitalism. Massachusetts, The Belknap Press of Harvard University Press. Miller, D. and I. Le Breton-Miller

By saying this they come close to what Chandler demonstrates about managerial capitalism as opposed to personal capitalism. They also come close to the Miguel Angel Gallo and Janicke Sveen analysis of the early 1990s: "Family businesses are generally more rigid in their internationalization process than non-family businesses. A successful implementation depends on the family business' awareness of the factors that facilitate or restrain the internationalization process and on how it treats these influences."55 In a sense, if family firms decide to internationalize their activities, they generally encompass such characteristics as matching the production of goods abroad with goods at home, concentrating on one product, one sector, making use of a comparative advantage, investing in people, and above all remaining in technology or production that is well known by the company rather than investing in new and advanced technology.56 This is related to their risk aversion, as well as to the supposed characteristic that they refuse to call on financial capital and that they rely on their retained earnings to finance a foreign expansion.57 Dawn Harris, Jon Martinez, and John Ward describe that when family firms invest abroad, they tend to choose psychically close countries, whether it be the language or the culture as a whole.58 Joel Kahn and Douglas Henderson also consider that family firms generally choose to locate their operations in close proximity to the

(2006). "Family Governance and Firm Performance: Agency, Stewardship, and Capabilities." Family Business Review 19: 73-87. 55 Gallo, M. A. and J. Sveen (1991). "Internationalizing the Family Business: Facilitating and Restraining Forces." Ibid. 4: 181-190. 181. 56 Ibid. 183. 57 Ward, J. L. (1997). "Growing the Family Business: Special Challenges and Best Practices." Ibid. 10(4): 323-337. Claver, E., L. Rienda, et al. (2009). "Family Firms' International Commitment: The Influence of Family-Related Factors." Family Business Review 22(2): 125-135. 126-128. 58 Harris, D., J. I. Martinez, et al. (1994). "Is Strategy Different for the Family-Owned Business?" Ibid. 7: 159-174.

residences of the family members.59 This is mostly related to European companies, but also to small and medium sized firms.60

The cases concerning American family businesses are generally about small and medium-size family firms. For example, Shaker Zahra describes the international expansion of U.S. manufacturing family businesses after studying 409 companies, out of which 174 were family businesses. The scholar shows that family involvement in the management and ownership of these companies had positive effects on the internationalization of these companies. Zahra describes that ownership gives managers the power "to make decisions about the level and scope of their firms’ operations.” 61 Here the size still matters, as the family businesses studied by Zahra are from small and medium sized companies. In the classic Okoroafo's studies, this issue is the same. While this scholar considers that American family businesses are reluctant to internationalization, we have to notice that he describes the general trend among 187 family firms in Northwest Ohio; therefore, from small and medium

59 Kahn, J. A. and D. A. Henderson (1992). "Location Preferences of Family Firms." Ibid. 4(3): 271- 282. 60 Colli, A., P. Fernández Pérez, et al. (2003). "National Determinants of Family Firm Development? Family Firms in Britain, Spain, and Italy in the Nineteenth and Twentieth Centuries." Enterprise and Society 4(1): 28-64, Fear, J. (2005). Organizing Control: August Thyssen and the Construction of German Corporate Management. Cambridge, Harvard University Press, Fernández Pérez, P. and N. Puig (2007). "Bonsais in a Wild Forest? A Historical Interpretation of the Longevity of Large Spanish Family Firms." Revista de Historia Economica 25(3): 459-497, Claver, E., L. Rienda, et al. (2009). "Family Firms' International Commitment: The Influence of Family-Related Factors." Family Business Review 22(2): 125-135, Puig, N. and R. Castro (2009). Foreign Direct Investment and the Transformation of Spanish Business XVth WEHC Congress, FDI and European Integration, 1945-2000. Utrecht, Ginalski, S. (2010). Business Elites and Family Capitalism: The Case of the Swiss Metallurgy Industry During the 20th Century. European Business History Association Conference. Glasgow, http://www.ebha.org/ebha2010/code/media_167606_en.pdf, Lubinski, C. (2011). "Path Dependecy and Governance in German Family Firms." Business History Review 85(Winter): 699- 724, Colli, A., E. Garcia-Canal, et al. (2013). "Family Character and International Entrepreneurship: A Historical Comparison of Italian and Spanish 'new multinationals'." Business History 55(1): 119- 138, Fernández Pérez, P. and N. Puig (May 2009). "A Silent Revolution: The Internationalisation of Large Spanish Family Firms." Business History 51(3): 462-483.

sizes. Case studies of large U.S. family firms are rare.62 Mira Wilkins and Franck Ernest Hill's work on Ford in over six continents is one of the major contributions in this field, even though they do not consider the family characteristic of the firm as a factor that helped (or not) Ford to go abroad.63 Obviously, Mira Wilkins has also written extensively about American multinationals: Wilkins, in both her books The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914 and The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 has addressed a clear picture of how large American companies expanded their activities abroad during both the 19th and the 20th centuries. I will refer to these works on many occasions in my dissertation.64 However, a systematic analysis of a large American company from the angles of both its family control and its international investment would be an interesting contribution to these aforementioned literatures. This point of view is also revealed in the article by Taanja Kontinen and Arto Ojala in the first issue of the Journal of Family Business Strategy in 2010. Indeed, after a careful study of the recent literature concerning international family businesses, the authors underline that few articles discuss the international processes of family businesses.65

In the existing literature about family businesses abroad, when a family firm becomes international, the role of the network for the expansion of family firms abroad is assumed by some business history and international business literature. However, little research has been published on this issue. Naomi

61 Zahra, S. A. (2003). "International Expansion of U.S. Manufacturing Family Businesses: The Effect of Ownership and Involvment." Journal of Business Venturing 18: 495-512. 62 Okoroafo, S. C. (June 1999). "Internationalization of Family Businesses: Evidence from Northwest Ohio, U.S.A." Family Business Review 13(2): 147-158. 63 Wilkins, M. and F. E. Hill (1964). American Business Abroad. Ford on Six Continents. Detroit, Wayne State University Press. 64 Wilkins, M. (1970). The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914. London, Oxford University Press, Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston.

Lamoreaux demonstrates in Insider Lending that family firms could export their competence, products, and branches more easily in times such as the early 20th century when communication was complicated and information difficult to gather and transmit.66 Family connections, kinship, and personal relationships reduce transaction costs and in this way Lamoreaux completely joins Oliver Williamson’s argument.67 Naomi Lamoreaux, Daniel Raff, and Peter Temin illustrate as well how transaction costs can result from the company’s imperfect and asymmetric knowledge of the markets and parts with which they transact. Thus, to Lamoreaux, Raff, and Temin the relationships that exist “beyond markets and hierarchies” can reverse the equilibrium and contribute to the elimination (or the decrease) of these transaction costs. Their work about this issue put some light on the importance of the network for family controlled businesses. Lamoreaux, Raff, and Temin highlight these relationships as being a coordination mechanism superior to both markets and hierarchies.68

Casillas Bueno, Moreno Menéndez, and Acedo González also provide a study of the internationalization of six large family businesses during the 20th century. These businesses include Heineken, Samsung, SC Johnson, Cargill, Faber- Castell, and Michelin. These scholars retain three elements from their review, namely the importance of the management, the international knowledge acquired by the company, and the resources and capabilities possessed by the firm. They show that international knowledge is acquired when the senior management works toward it. They consider that the board of directors

65 Kontinen, T. and A. Ojala (2010). "The Internationalization of Family Businesses: A Review of Extant Research." Journal of Family Business Strategy 1: 97-107. 103 66 Lamoreaux, N. R. (1994). Insider Lending: Banks, Personal Connections and Economic Development in Industrial New England. Cambridge, Cambridge University Press. 23 67 Williamson, O. E. (1975). Markets and Hierarchies. Analysis and Antitrust Implications. New York, The Free Press. 68 Lamoreaux, N. R., D. M. G. Raff, et al. (2002). Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History. Cambridge MA, National Bureau of Economic Research, Lamoreaux, N. R., D. M. G. Graf, et al. (2003). "Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History." The American Historical Review 108(2): 404-433. 48

represents a network of managers working toward the same goals: “The characteristics of the managers and board understand their networks, educational background, family commitment, previous experience, etc., to exert an important effect on the international knowledge acquisition.”69 More precisely, after Cargill’s analysis of companies’ internationalizations, they understand that the internal and external network of a family managing and owning a company, gathered by the board, has an influence on the governance in that the network is an important means of accessing information and knowledge more rapidly. Based on Jan Johanson and Jan-Erik Vahlne’s analysis, Bueno, Menéndez, and González conclude that Cargill’s experience demonstrates clearly the role played by the family network in the company’s international development.70

Although Du Pont's internationalization started in 1910, it was rather shy, as mentioned, until the Second World War as evidenced by only 7% of its assets being located outside the United States until then. From 1956 Du Pont expanded its activities in Europe and since then it became, what I consider, a global company. In 1959 Du Pont set up its European headquarters in Switzerland, thereby outsourcing some of the responsibilities of its top management. In 1965 the company founded, for reasons related to the American government monetary policies as Chapter Five demonstrates, a holding company in Luxembourg that was in charge of raising capital for the European, Middle Eastern, and Asian – EMEA – expansion. Finally, in 1967 Du Pont opened a research and development center in Switzerland. With these three steps, Du Pont operated worldwide, with a considerable and increased part of its net income coming from its international subsidiaries (30% during the 1960s), and with global top management, research activities, and capital issues. These

69 Casillas Bueno, J. C., A. M. Moreno Menéndez, et al. (Dec. 2010). "Internationalization of Family Business: A Theoretical Model Base On International Entrepreneurship Perspective." Global Management Journal 3(2).

activities are developed in Chapters Four and Five. Both chapters are built mostly from unpublished archives. The next section describes where this material was found.

1.4. MATERIAL

To describe how Du Pont evolved during the 20th century I consulted the archives of the Hagley Museum and Library in Wilmington. There is much material about the senior managers’ private and business correspondences, advice of actions from the decision making committees, and contracts passed with foreign governments. These archives are available from 1802 until the 1980s. However, the volume of material is poor during both the 19th century – as the family kept more private correspondence than business ones – and after the 1960s – as the modes of communication between the managers had evolved considerably. Nevertheless, between 1903 and 1967, during the first six decades of the 20th century, every president and a considerable number of directors gave their private and business papers to the Hagley Museum and Library. Considering this, my research was naturally oriented firstly by those who chose to donate their papers, and secondly by what they gave to the Hagley. For example, Pierre du Pont's archives during his presidency (1909-1914 as acting president, 1915-1919 as president) are rather incomplete. It is easier to find material about his tenure in other directors' papers, mostly in the collection of his brother, Irénée du Pont. Lammot du Pont (president between 1926 and 1940), for his part, donated nothing to the Hagley. Hopefully, other directors have provided papers about his presidency.

To define the strategies used to invest in Europe, I had the opportunity to consult the archives of Du Pont in Geneva and Dordrecht (Netherlands). However, the

70 Johanson, J. and J.-E. Vahlne (1977). "The Internationalization Process of the Firm-A Model of Knowledge Development and Increasing Foreign Market Commitments." Journal of International 50

archives at both sites are uneven, and were not classified by a professional archivist. Furthermore, in Geneva the offices have no policy about conservation of papers; therefore, the interest of the archives are questionable with regard to speeches and pictures, but also, and of more interest, the European annual reports. The papers in Dordrecht are generally more interesting: annual reports of the subsidiary, minutes of the Netherlands' executive committee's meetings, in-house mail, and discussions with Wilmington. The information in Dordrecht is very dense, and sometimes maybe too specific to Orlon production. The most significant documented material is, with no doubt, that concerning the relationship between Dordrecht and Wilmington, which allowed me to understand what influence the mother company kept over the European subsidiary.

Du Pont had collaborated with various foreign companies in their investments abroad. Nobel was the most important partner for the company outside the American borders. Therefore, I have undertaken some research to understand what kind of material could have been collected in Nobel's archives in London and Glasgow about the joint investments operated with Du Pont. Unfortunately, I could find no interesting papers at any of these sites. This is the reason why this material does not appear in my dissertation. However, concerning their relationship – and when I have no material about it – I refer to William J. Reader's work about Imperial Chemical Industries.71 His analysis covers the history of Nobel Company in England from 1870 until 1926, and from 1926 until 1952 when it was merged into Imperial Chemical Industries. The connection between Nobel and Du Pont remained badly covered by this scholar as well; however, in the case of the Canadian investment in 1910 his story is of interest for my dissertation. I was luckier with other companies in Europe. Du Pont had

Business Studies 8(1): 23-32. 71 Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870-1926. London, Oxford University Press, Reader, W. J. (1970). Imperial Chemical Industries, a History. The First Quarter-Century 1926-1952. London, Oxford University Press. 51

collaborated with some French dynamite companies in Mexico and some significant material was kept in the Bibliothèque Nationale de France in Paris, as well as in the Archives du Monde du Travail in Roubaix. This unpublished material brought decisive information about Du Pont's investments abroad. Finally, reading in the archives about the European Union in Florence, especially of the European Bank of Investments, gave me an interesting panorama of all the investments in chemistry operated by the Common Market during the 1960s and 1970s. This information proved to be important for Du Pont's investments abroad and brings an interesting light upon the company's expansion.

Added to these archives, some gray sources were massively used to complete the information: Du Pont Annual Reports in the USA and in Europe – as already mentioned – and Mood'y reports from 1904 until today. All the information about the company's assets and liabilities, the increase of capital, and the successive investments, as well as the composition of the senior management, comes from these sources. When necessary I used the New York Times, the Times from London, and the Journal de Genève to have a contemporary look at some businesses and gather information lacking in the archives or the literature. All this material allowed me to build my dissertation. The next section deals precisely with the building of the successive chapters.

1.5. PLAN

Chapter One of my dissertation is dedicated to the Introduction. The second chapter discusses the du Pont family’s organization and expansion at home, between 1802 and 1902, and answers the questions of who ran the company, who owned it, and how. I address these questions using a qualitative analysis based mostly on the existing literature. This chapter does not rely on primary, unpublished data sources of the company. Instead, contemporary scholars have studied the company and I use most of their work. Bessie Gardner du Pont had written, in 1920, about her family coming to the United States and had copies of 52

some letters, as well as some official reports that were elemental for the construction of this chapter. John Winkler was a scholar who had written on a number of the wealthy families of the turn of the 20th century, and had also reproduced many archived materials from the 19th century in his book about the family, in 1935.72 Thus, Chapter Two gives a precise description of Du Pont as a family business, since its foundation in 1802 until 1915. I end this chapter at that point because after 1915 the company was acquired by a new corporation, the E.I. du Pont de Nemours & Company, and evolved considerably to what the literature calls "the modern company."

Chapter Three, titled "The Modern Corporation (1915-1980)," is about the evolution of Du Pont during the decades when it became a big business, as well as an international company – even though the company is considered as a multinational since 1910. This chapter relies mostly on gray sources: Annual Reports, Moody's reports, as well as some archived material. I demonstrate that Du Pont's senior management evolved considerably, with a growing number of outsiders, and that the roles of the various committees also changed – especially since 1921 when the multidivisional form of organization was adopted. Parallel to these changes in the management, the need for capital increased considerably as the company went through an important diversification process, as well as an increase of its activities both at home and abroad. Therefore, I study the different ways through which Du Pont increased its liabilities: by raising some funds on the market, as well as through bank loans and retained earnings.73 This chapter, therefore, moderates Chandler's considerations about the loss of family management, which I consider was still real in the late 1970s, even though I admit that some important changes had occurred. Nevertheless,

72 Du Pont, B. G. (1920). E.I. Du Pont de Nemours and Company, a History, 1802-1902. Boston, The Riverside Press Cambridge, Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock.

the company can still be considered as a family business both in its ownership and in its management in 1980, when I stop my analysis. Finally, both Chapter Two and Chapter Three can be considered as frame chapters that answer my basic premise: the Du Pont Company was a family business when it went global.

The second question of this dissertation is to understand in what way the Du Pont Company went international at the time when it was undeniably a family business, and in what way did the family encourage and manage these expansions abroad. This question is answered through various case studies in Chapter Four and Chapter Five.

First of all, Chapter Four considers Du Pont's first steps abroad in Canada (1910), in Chile (1921), and in Mexico (1925). These three investments have in common both the period in which they were achieved as well as the bias through which they were materialized. Following some literature on this question, the du Ponts were mostly influenced to invest abroad by their network – in this case a network of industrialists and bankers. Also of relevance to the company’s internationalization, this chapter presents the modes of entry of the company and the parameters that mattered to the family concerning these three international investments. The parameters include the product (powder) and the markets in the selected countries, the host government’s will to receive a Du Pont foreign direct investment, as well as the cost to build and operate a Du Pont subsidiary in comparison to the cost of exporting Du Pont's goods. In the three cases, some major similarities are found and are described in Chapter Four.

Finally, Chapter Five describes the investments abroad between 1929 and 1965: an American sugar manufacturer in Cuba in 1929, two subsidiaries in Argentina

73 Concerning the bank loans and the retained earnings, I mostly talk about them in Chapter Four and Chapter Five when I mention the investments concerned by these monies. In Chapter Three I mostly consider how much of the needs were covered by the calls on the financial market. 54

and Brazil, and the European ventures after the Second World War. These investments are considerably different. The first, in Cuba, was not even operated by the Du Pont Company. It was the business from Irénée du Pont, an ex- president of the company, who was still part of Du Pont’s senior management at that point. The investments in South America were operated jointly with the British Imperial Chemical Industries, whereas the investments in Europe were operated by Du Pont on its own. However, they have in common – as the chapter's title indicates – first that they were achieved in products that were different from explosives; all the previous investments were about powder, but at the end of the 1920s the company had become a diversified manufacturer and refused to enter countries through a powder factory. Second, they were mostly influenced by the U.S. government's economic and monetary policies during the Great Depression, as well as during the Golden Age.74 Finally, in Cuba and in South America the network was still present and surrounded Du Pont, or a family member, in their businesses abroad. This is the last time when the network concerning Du Pont's foreign investments mattered. After the Second World War Du Pont's investments followed the general trend of American foreign direct investments in Europe. Again, the entry modes and parameters that attracted Du Pont abroad demonstrate the company's ability – by extension the family's ability – to adapt to new environments, to new conditions.

Taken together, these chapters demonstrate how the du Pont family wanted to, and managed to, keep control over both the ownership and management of its company. They made it evolve, as much as the other large American manufacturing companies of the 20th century. Various comparisons between Du Pont and other companies such as Ford, or other chemical groups, attest these

74 This does not concern the investment in Latin America.

evolutions.75 Finally, these chapters emphasize how the network surrounding a family business is important when it comes to internationalization.

75 Wilkins, M. and F. E. Hill (1964). American Business Abroad. Ford on Six Continents. Detroit, Wayne State University Press. Brandt, E. N. (1997). Growth Company. Dow Chemical's First Century. East Lansing, Michigan state University.

CHAPTER TWO: THE DU PONT COMPANY, FROM FOUNDATION TO THE 1915 INCORPORATION, A FAMILY FIRM (1802- 1915)

The second wave of industrialization of the 19th century gave birth to capital intensive industries in the United States—as in Western Europe—especially in the chemistry, electricity, steel, and automobile related sectors. Following this time in history, the early 20th century is the moment when business history literature sees a managerial revolution happening within family businesses; some salaried managers took positions that were previously held by family members in order to increase a company's competitiveness in their respective market. To some scholars, like business historian Alfred D. Chandler Jr., this was the moment when the most successful companies turned to managerial enterprises and the family businesses that were resistant to the revolution realized a slowdown in their activities.76 However, the word revolution is somehow overworked; there was no sudden and clear rupture between family capitalism and managerial capitalism. Even Chandler considers that on the eve of the First World War most of the largest American companies remained owned and managed by the founding families who had adopted middle-management methods through hiring “close associates who had been personally selected by the family.”77 And in fact, many companies both in Europe and in the USA managed to remain owned and headed by the founding family. As business

76 Chandler, A. D. J. (1962). Strategy and Structure. Chapters in the History of the Industrial Enterprise. Cambridge, MA, The M.I.T. Press, Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press, Chandler, A. D. J. (1990). Scale and Scope, the Dynamics of Industrial Capitalism. Massachusetts, The Belknap Press of Harvard University Press. 77 Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press. 414

historian Andrea Colli says: "If there is ample evidence of the so-called 'Buddenbrooks effect', there are also numerous examples of successful fourth, fifth, and sixth generation family firms."78 In Europe, Friedrich Krupp, a German, founded his steel manufacturing company in 1811; the business was then transferred to his family. His widower Therese Krupp and his only son Alfred Krupp, followed by the founder's grandson Friedrich Alfred Krupp, transformed it, making it into a big business, which already hired more than 12,000 workers in 1874 and 20,000 in 1887. At this point in history it was the largest private company in the German Empire, and also in Europe.79

In the United States the family company also had not vanished. Various and numerous examples demonstrate this. The McCormick Harvester Machine Company, founded in 1847 in Virginia by Cyrus Hall McCormick, was consolidated in 1902 and expanded its activities under the name International Harvester. Even though the merger with Deering Harvester Company led to a decline in control by the McCormick family, Cyrus McCormick Jr. and his successor remained in senior managing positions in the company until the 1960s.80 Later, in 1903, Henry Ford founded the Ford Motors Company, which was owned and managed by his family. The automobile producer knew a dynastic succession in the ownership of the company that continued until the 1960s at least.81 These companies were family firms that, due to the adoption of modern corporate management, organization, and structure, managed to remain owned and controlled by the founding dynasty. Thomas Mann's Buddenbrooks effect is thus surely not a fatality for family businesses.

78 Colli, A. (2003). The History of Family Business, 1850-2000. Cambridge, Cambridge University Press. 73 79 James, H. (2012). Krupp. A History of the Legendary German Firm. Princeton. 39 80 See Moody's about International Harvester Company. 81 See Moody's about Ford Motors Company, Wilkins, M. and F. E. Hill (1964). American Business Abroad. Ford on Six Continents. Detroit, Wayne State University Press.

E.I. du Pont de Nemours & Company was founded in 1802. Capitalized with funds coming from friends of the du Pont de Nemours family, but managed only by the du Pont family itself, the company expanded its explosives activities during the 19th century. In 1815 the two founding brothers—Eleuthère Irénée and Victor du Pont de Nemours—had already managed to take over the shares of their company that were held by outsiders. Thereafter they ran their company as a family business throughout the 19th century; no stranger as the management, no stranger owner. In 1899 the company, initially registered as a partnership, modified its registration to become an incorporated company under the laws of Delaware. For three years the ownership and management remained intact, but in 1902 the death of the president, Eugene du Pont, catapulted the company into a complete reorganization. Since then Du Pont Company has welcomed salaried managers on its board and committees, and the capital, partially listed on the New York Stock Exchange, became available to outsiders, even though it provided the outsiders with voting power. By so doing the company was able to raise the capital necessary to expand the company's activities. With this shared management and ownership a new Du Pont Powder Company, incorporated under the laws of New Jersey in 1903, was able in 1904 already to integrate and consolidate a hundred companies—three-quarters of the USA’s explosives production—under the same roof. This organization lasted until 1915.

Even though the family welcomed outsiders in the company's ranks, between 1802 and 1915 the Du Pont Company cannot be considered anything other than a family business. Even after the "middle-management revolution" that took place in Du Pont after 1902, about 70% of Du Pont Company’s capital was still controlled by du Pont family members and the management relied mostly on a handful of family members (60% of the seats on the committees were occupied by family members) who were helped by a minority of outsiders. Still, how is it possible that the company passed from a $36,000 company in 1802 to a $12 million company in 1902 and to a $45 million company in 1904 and still be

owned and managed by the heirs of Eleuthère Irénée and Victor du Pont de Nemours?82 This chapter will first describe the evolution of the company and its expansion in the explosives business during the 19th century. In the second section I will demonstrate how the company managed to remain a family business even with a clear and complete reorganization in 1903, and an amazing increase in its assets and liabilities at the same time. Finally, this chapter ends by showing limits to a family business; a family clash at the end of 1914 would put an end to the Powder Company. These three sections will draw a clearer picture of the evolution of the Du Pont Company, from what was a pure family firm to a family business with salaried managers, but which is still controlled and owned by the du Pont family.

2.1. THE PARTNERSHIP AND THE FIRST INCORPORATION: 1802-1902

This first section will describe a century of business and expansion of one company, the E.I. du Pont de Nemours & Company. After a short subsection that considers the company’s foundation and early expansion in the United States, I will in a second subsection consider the 1870s-1890s period more deeply, as it was during this period that the du Pont family undertook to cartelize the American explosives industry. This was the period when the original company started to become a business of a wider scale that would be too important to be managed by a single director; the du Ponts were in charge by this time. In 1899 the du Ponts chose to incorporate their business, and even envisaged selling it in 1902. In a third subsection I will discuss how three du Pont cousins decided to acquire all the shares of the business in order to own and manage a new Du Pont Company, and to make it an even bigger business.

82 USD current, USD constant: 1802: $38,297, 1902: $14,285,714, 1904: $49,405,549. Based on 1913 = 100, in Mitchell, B. R. (1993). International Historical Statistics. The Americas, 1750-1988. New York, Stockton Press. 696 60

2.1.1. THE FOUNDATION AND EXPANSION OF THE COMPANY

Since 1802 E.I. Du Pont de Nemours Company operated as a chemical company, based in Wilmington, Delaware. Eleuthère Irénée du Pont (1771- 1834) and his brother Victor (1767-1827) founded this enterprise after their immigration from France during the tumultuous years of the French Revolution.83 Eleuthère Irénée was a chemist by training. He was the pupil of his father's friend Antoine Lavoisier who was in charge of the manufacture of gunpowder for the French government. Eleuthère Irénée mastered in the elaboration of black powder, an explosive commonly used in times of war and in various industrial digging processes. After he migrated to the United States he bought some shotgun powder and quickly understood that he could produce better powder at a cheaper price due to the expertise he had acquired in Lavoisier's laboratories.84 Victor, on the other hand, was trained as a businessman and had acquired expertise in the banking business, as well as in exporting activities. This expertise was developed during various visits to different companies in the United States.85

With Eleuthère Irénée's knowledge and Victor's skills the brothers made an estimation of what the cost would be to set up a powder manufacturing facility on the East Coast, and they then called for some investors to back up their project. Three friends of their father, Pierre Samuel, were interested; James Bidermann and General Duquesnoy were both bankers in Paris, and Louis Necker was the former finance minister of Louis XVI.86 Therefore, in 1802 the du Pont brothers acquired a field and mill in Wilmington, Delaware, next to the Brandywine River.

83 A family tree is available in appendix and some family trees will figure along this section. 84 du Pont, B. G. (1920). E.I. du Pont de Nemours and Company: A History 1802 to 1902. Boston, Houghton Mifflin Company.9 85 Ibid. 5 86 Ibid. 12 61

They decided to register a new company, as a partnership, under the laws of Delaware. This company was capitalized by 18 shares at a par value of $2,000. The shares were owned by the du Ponts, of course, and also by the initial investors as shown in Table 2.1.

Table 2.1: The shareholders of E.I. du Pont de Nemours & Company, 1802. Eleuthère Irénée du Pont 5,5 shares Victor du Pont 5,5 shares James Bidermann 1 share General Duquesnoy 1 share Louis Necker 1 share Peter Bauduy87 2 shares Archibald McCall88 2 shares Sources: (du Pont 1920) 175 In 1808 Peter Bauduy acquired Archibald McCall's shares and became the second most important partner after the brothers. Nevertheless, in 1815 Eleuthère Irénée and Victor acquired with their personal money all the shares of the other shareholders.89

In the company Eleuthère Irénée assumed the title of president of the company and director of manufacturing, while Victor was the managing director of the mill. Black powder was the initial explosive produced and sold by Du Pont. Eleuthère’s skills were mostly about testing the purity of the saltpeter, charcoal, and sulphur necessary for the production of black powder. Indeed, the process was rather simple and only required the mixing of 15 parts saltpeter (potassium

87 Peter Bauduy was an entrepreneur who helped Iréneé to acquire the field and the mill in 1802. 88 Archibald McCall was a merchant in Philadelphia, and a friend au Peter Bauduy. 89 Kinnane, A. (2002). Du Pont : From the Banks of the Brandywine to Miracles of Science. Wilmington, E.I. Du Pont de Nemours and Company. 6-7

nitrate), 15 parts charcoal, and 10 parts sulfur. This was the only method known in 1800 to produce explosives, and very few people had Eleuthère's abilities.90

Already in 1803 the du Ponts had been in touch with the American president, Thomas Jefferson. Eleuthère Irénée proposed to fill some government contracts for black powder. The two brothers entered easily into a contract with the president as the du Pont family and President Jefferson were already acquainted through other business ventures. In 1783 Pierre Samuel (1739- 1817), the father of Eleuthère Irénée and Victor, had taken part in writing the Treaties of Versailles that had ended the American Revolutionary War in the United States. Pierre Samuel had met Thomas Jefferson at this occasion.91 Eleuthère Irénée obtained the contract to supply black powder to the government and thus Du Pont started to supply, at least partially, the American military’s needs for explosives. In 1805 Henry Dearborn, U.S. Secretary of War between 1801 and 1809, asked the Du Pont Company to become the sole provider of gunpowder to the U.S. Army.92 The contract continued during the entire 19th century and even into the 20th century.93 In 1809 and during the subsequent 6 years of existence, the Du Pont Company sold 248,246 pounds of gunpowder for $243,554, , which corresponded to $43,631 in profit. This profit

90 Hounshell, D. A. and J. K. Smith (1988). Science and Corporate Strategy. Cambridge, Cambridge University Press., 2 Wingate, P. J. (1982). The Colorful Du Pont Company. Wilmington, Serendipity Press. 3 91Pierre Samuel du Pont de Nemours belonged to the circle of physiocrats, in France before the French Revolution. He was closely acquainted to François Quesnay and Anne Robert Jacques Turgot. He physically defended Louis XVI and Marie-Antoinette in the Palais des Tuileries and was condemned to the guillotine in 1794 but escaped his fate when Robespierre was guillotined. In 1799, after his mansion was looted, he left France with his family to go the United States where he knew they would be safe. In 1803, Jefferson had naturally asked the help of Pierre Samuel concerning the Louisiana Purchase with Napoleon. Poivre D'Arvor, O. (1992). Victor ou l'Amérique. Paris, Le Livre de Poche. 92 du Pont, B. G. (1920). E.I. du Pont de Nemours and Company: A History 1802 to 1902. Boston, Houghton Mifflin Company. 26 93 Ibid. 22 and Kinnane, A. (2002). Du Pont : From the Banks of the Brandywine to Miracles of Science. Wilmington, E.I. Du Pont de Nemours and Company. 12

was used as reinvested earnings.94 In 1809 as well, the company's assets reached $108,817.95

During the entire century descendants of Eleuthère Irénée succeeded each other for presidency of the company. Victor died in 1827 and Eleuthère Irénée passed away in 1834. In that year James Bidermann (1790-1865) became president of the company. He was no stranger to the family as he was the son of one of the original investors in Du Pont and Eleuthère Irénée’s son-in-law. He chaired Du Pont for three years. In 1838 Eleuthère Irénée's son Alfred V. (1798- 1856) was ready to take over the company's presidency. However, Alfred did not have the managerial capacity that his father had. Thus, in 1850 he left the company's presidency to his brother Henry.96 Therefore, in reading the family tree below the succession of the head of the company after Victor had died passed only to Eleuthère Irénée's branch.

94 du Pont, B. G. (1920). E.I. du Pont de Nemours and Company: A History 1802 to 1902. Boston, Houghton Mifflin Company. 31 95 Ibid. 34 USD current 96 Kinnane, A. (2002). Du Pont : From the Banks of the Brandywine to Miracles of Science. Wilmington, E.I. Du Pont de Nemours and Company. 23

Figure 2.2: Family Tree, from founders to Alfred I., T. Coleman and Pierre S. du Pont.

Eleuthere II Alfred I

Henry Algernon Henry Victor William

Gabrielle Joséphine Victorine de la Fite de Ferdinand Bauduy Pelleport Evelina du Pont Eleuthère Irénée James Bidermann

Pierre Samuel Pierre Sophie Madeleine Dalmas Alexis I. Eugene

Victor M. Charles I.

Eleuthère Irénée II

Alfred I. Alfred V. Margaretta Lammot Antoine du Pont T. Coleman Ellen Coleman Lammot I Pierre Samuel Mary Belin

Sources: Author’s analysis based on (Kinnane 2002)

Table 2.3: Successive Presidents of the Du Pont Company Eleuthère Irénée du Pont 1802-1834 James Biderman 1834-1838 Alfred V. du Pont 1838-1850 Henry du Pont 1850-1889 Eugene E. du Pont 1889-1902 T. Coleman du Pont 1902-1915 Sources: Author's analysis based on (Kinnane 2002)

In 1857 Lammot I. (1831-1884), a talented chemist trained at the MIT, was interested in some research that his grandfather Eleuthère Irénée had initiated, that being to substitute sodium nitrate for potassium nitrate in the black powder formula. This was an important change as the potassium nitrate had to be imported from Asia, whereas the sodium nitrate could be extracted in America. Through this substitution he created the blasting powder, marking the beginning of the diversification of Du Pont's explosives, the first of many to come. Indeed, as the next subsection shows, Du Pont diversified into more explosives since the 1870s. This led the company to cartelize the American market for powder.97

2.1.2. CARTEL ACTIVITIES SINCE 1872

In 1870 a new black powder manufacturer Laflin & Rand Powder Company of Eposus, New York, was consolidated.98 With its incorporation there were now three big producers of black powder in the United States: Du Pont, Hazard Powder Company, and Laflin & Rand.99 Apart from these three large companies, four smaller producers of black powder were operating—Oriental Powder, Austin Powder, American Powder, and Miami Powder—that had happened to catch some of the market shares that were abandoned by Du Pont and Hazard during the American Civil War. Producing on a smaller scale than Du Pont and Hazard, these smaller companies grabbed business in the localities where they were settled. As they had no freight costs and no allowances for depreciation or replacement in the event of explosion, they were able to diminish the price at which the bigger competitors were distributing their powder. Du Pont's historian

97 The blasting powder would be of importance, especially for the Union, during the Civil War (1861-1865). In the second half of 1861, Du Pont tripled its usual amount of powder sold to the USA's government. The governments' orders kept increasing during the conflict. Zilg, G. C. (1974). Du Pont: Behind the Nylon Curtain. Englewood Cliffs (N.J.), Prentice-Hall. 57 Hounshell, D. A. and J. K. Smith (1988). Science and Corporate Strategy. Cambridge, Cambridge University Press. 2 98 The Laflin family was producing black powder in the United States since the late 1749, The Laflin Powder Company and Smith Rand Company merged in 1870.

William S. Dutton wrote in 1949 concerning the four smaller producers: "Individually their competition was negligible, but collectively they harassed the industry."100

In April 1872 the president of Du Pont, Henry du Pont (1812-1889), and the initiator of the blasting powder, Lammot I. du Pont, invited the most significant American explosives companies of this time—Laflin & Rand, Hazard Powder Company, Oriental Powder, Austin Powder, American Powder, and Miami Powder—to a meeting in New York in order to organize the United States’ explosives production and sales among the biggest powder manufacturers. This meeting gave birth to the Gunpowder Trade Association (GTA), which was aimed at following four goals, according to the agenda of the GTA’s first meeting: "First, to regulate the powder market in order to avoid overproduction; second, to put an end to cut-throat competition and price wars; three, to establish sales quotas, and; four, to gain control over those companies that did not join the association."101

First, in order to reach these goals the country was divided into districts and the minimum powder prices were set for each of them. Second, sales quotas were allocated to the seven companies associated with the GTA and an agreement was signed by all of the powder companies stating that if any of the four smaller companies exceeded its quota, it would buy powder in excess from the Big Three. Conversely, if the Big Three sold more than their quotas, the four smaller companies could increase their own quotas.102

99 Hazard Powder Company was incorporated in 1843, and Colonel Hazard was its principal owner. The company produced solely black powder. 100 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 118 101 Archives HML: Agenda to GTA first meeting, April 1872, Acc. 0500, Series A. 102 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 120

Lammot was elected president of the Association and remained in this position for six consecutive one-year terms. The chemical firms had voting power in the GTA that was granted according to the company’s size. Du Pont, Laflin & Rand, and Hazard were the biggest and had 10 votes each among 48. Oriental had six votes while Austin, American, and Miami each had four votes. By doing so the GTA members cartelized the American powder market. This was the first of many associations to occur between Du Pont and other companies.103 The members of the GTA met quarterly; nevertheless, the council on prices met weekly in order to set the Association's policies.104 Through the GTA and because it would acquire stock from other companies, the Du Pont Company enlarged its control over the powder market.

Colonel Henry and Lammot had a clear will to acquire some explosives businesses, or share in some businesses, in order to place Du Pont at the center of the American chemical industry. During the six years following the 1873 panic, Henry doubled Du Pont's holdings in the powder business.105 In 1873 Du Pont’s president acquired under the company's name, but with his own money, one-third of Austin Powder’s stock. By doing so Henry ensured that Du Pont gained control of most of the GTA's votes. In 1876 he acquired the Hazard Powder Company in what was "the largest powder deal negotiated in America".106 The deal was easily achieved, because Hazard Powder Company’s management had been in distress since Colonel Hazard's death in 1868. Eight years after Colonel Hazard had passed away, Du Pont's president was welcomed when he decided to acquire the company.107 In that same year Henry

103 Zilg, G. C. (1974). Du Pont: Behind the Nylon Curtain. Englewood Cliffs (N.J.), Prentice-Hall. 67- 68 104 Archives HML: Agenda to GTA first meeting, April 1872, Acc. 0500, Series A. 105 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 121 106 Ibid. 121 107 It seems very hard to find evidence or information about Du Pont's acquisition of Hazard Powder Company. The existing literature only stressed that it happened in 1876 but no real information can be found in it, neither can be in contemporary newspapers. Ibid. 121 68

purchased 43.5% shares in California Powder Works and in its Cleveland subsidiary the Hercules Company108 in order to control their interests, as well as shares in Lake Superior Powder Company and the Sycamore Powder Mills. California Powder had previously invested $1 million for the development of dynamite; Du Pont's acquisition of shares in that business permitted the Du Pont Company to again diversify its activities.109 At the end of the 1870s Du Pont's assets were split among five family members: Henry, Lammot I, Eleuthère Irénée II, William, and Henry Algernon du Pont.110

By 1880 the Big Three intended to develop common interests in dynamite production. Therefore, Laflin & Rand, Hazard, and Du Pont associated their capital and founded the Repauno Chemical Company. Repauno was incorporated under the laws of Delaware. Lammot became president of the company and William du Pont became secretary and treasurer. The company's initial capital was formed by $300,000 subscribed equally by Du Pont, Hazard, and Laflin & Rand. Du Pont was thus the owner of two-thirds of the new dynamite producer.111 The new firm joined the GTA in the same year. In January 1882 Lammot resigned from the Du Pont Company in order to consecrate his career to the Repauno Chemical Company. He left the family business and took with him all the shares of Repauno. Two years later Lammot was killed in an explosion at Repauno. All his shares in the dynamite manufacturer were acquired by the Du Pont Company. Solomon Turck–Laflin & Rand's president— became president ad interim of Repauno.112 Therefore, in 1884 the Du Pont

108 Hercules was acquired by Henry du Pont for $30,000. Ibid. 135 109 Zilg, G. C. (1974). Du Pont: Behind the Nylon Curtain. Englewood Cliffs (N.J.), Prentice-Hall. 68- 71. Chandler and Salsbury describe that: "Yet these purchases severely stretched even General du Pont's (Henry) ample resources." Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 59 110 du Pont, B. G. (1920). E.I. du Pont de Nemours and Company: A History 1802 to 1902. Boston, Houghton Mifflin Company. 191 111 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 133 112 Ibid. 139 69

Company owned the Hazard Powder Company, the Sycamore Mills, two-thirds of the Oriental Powder Mills, one-third of the Austin Powder Mills, thirteen- twentieths of the California Powder Works.113

In 1889 Henry du Pont passed away and was succeeded by Eugene du Pont (1840-1902) at the head of the company. Eugene was the late president Henry's nephew. Having graduated from the University of Pennsylvania, Eugene was Lammot's assistant in the Brandywine Mills. Eugene then became head of the laboratory in 1884 and general works manager. He was 49 when he was appointed president of the company, and was rather inexperienced in the business world. Nevertheless, the company continued to increase its activities during his tenure.114

In 1895 president Eugene du Pont combined his efforts with Laflin & Rand's president Solomon Turck to form the Eastern Dynamite Company (EDC), a holding company, in order to centralize control of their interests in the dynamite industry. The capital stock of the company was composed of 20,000 shares of common stock at a par value of $100, among which $1,4 million was exchanged for the capital stock of Repauno Powder Company and Hercules, while $600,000 was exchanged for assets of the Atlantic Dynamite Company, which was the holder of Nobel's American patent for dynamite. Du Pont owned 6,895 shares of the company while Laflin & Rand owned about 5,000 shares.115 Also in 1895 J. Amory Haskell (1861-1923) was appointed president of Laflin & Rand.116 With the acquisition of other smaller competitors the EDC had control of over

113 du Pont, B. G. (1920). E.I. du Pont de Nemours and Company: A History 1802 to 1902. Boston, Houghton Mifflin Company. 130 114 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 144 115 Ibid. 148 116 This young coal-mining executive – he was 34 years old - had no college education. Nevertheless, he had been general manager of the Rochester & Pittsburgh Coal & Iron Company, and became a vice-president and a director at Repauno since 1892. Ibid. 146-147

70% of the dynamite produced in the USA east of the Rockies.117 This was very good business for the Du Pont Company. Indeed, the USA’s market for dynamite increased massively from the late 19th century until 1924, as Table 2.4 shows.

4 Table 2.4: Amount of dynamite sold yearly in the USA 1892 30 million pounds 1902 130 million pounds 1914 262 million pounds 1924 345 million pounds Sources: (Dutton 1949) 152 In 1899 the shareholders and directors of the company included Eugene du Pont—president of the company—Henry Algernon du Pont, William, the young Charles I, Alfred I, Francis, Pierre, Henry Belin, and Alexis I. These were the only stockholders and vice-presidents of the company, but the management of the company was mostly in the hands of the president. Family control of the company was, therefore, total.118 The Du Pont Company counted five black powder plants: Sycamore in Tennessee, Mooar in Iowa, Wapwallopen in Pennsylvania, Carney's Point in New Jersey, and the parent plant Brandywine in Delaware. At this point the company manufactured 36% of the black blasting powder produced in the US and supplied a major share of the smokeless powder and guncotton powder, mostly through Carney's Point. Nevertheless, these manufactures represented only 40% of the company's total assets, with the remaining 60% comprising of stock held by other companies. At this point Du

117 Kinnane, A. (2002). Du Pont : From the Banks of the Brandywine to Miracles of Science. Wilmington, E.I. Du Pont de Nemours and Company. 41 118 du Pont, B. G. (1920). E.I. du Pont de Nemours and Company: A History 1802 to 1902. Boston, Houghton Mifflin Company. 192

Pont was also supposed to be worth three times the assets of its biggest competitor, Laflin & Rand.119

2.1.3. THE END OF THE PARTNERSHIP AND THE FIRST INCORPORATION (1899-1902)

In 1899 the company's overall business was considered too big by the stockholders to fit the 1802 partnership. While in this year Du Pont's assets were estimated at $12 million in capital, control of the powder production in the United States by the GTA—which was headed by Du Pont—was estimated at approximately 92.5% of all the American explosives. The family then became convinced that it would be better to incorporate Du Pont & Company under the laws of Delaware in order to redistribute the executive responsibilities. The family understood that the executive’s responsibilities were too important for the president alone, and that the incorporation presented the advantage of diluting the decision making power to a board of directors.120 Nevertheless, the incorporation in the State of Delaware did not allow tax preferences for new corporations, as did the New Jersey Constitution. Therefore, the du Ponts wanted the State of Delaware to adopt a General Corporation Law. The process might have been an easy one as in the same year the Senate and House of Representatives of Delaware had already adopted such a law, which gave special tax favors to corporations and also facilitated the process of incorporation.121 When the 1802 partnership was dissolved, the only stockholders and directors of the incorporated company were Eugene (still

119 $12 million of capital for Du Pont compared to $4 million for Laflin & Rand. Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 176 120 Kinnane, A. (2002). Du Pont : From the Banks of the Brandywine to Miracles of Science. Wilmington, E.I. Du Pont de Nemours and Company. 50 121 Zilg, G. C. (1974). Du Pont: Behind the Nylon Curtain. Englewood Cliffs (N.J.), Prentice-Hall. 90- 91

president), Francis, Henry A., Alexis I, Charles I, and Alfred I; thus, initially the incorporation did not radically change the organization of the company.122

President Eugene du Pont passed away in 1902. During his three years at the head of the company following the incorporation there were no significant changes for Du Pont, except that the company was the main provider of canon powder for the U.S. Army and Navy during the Spanish-American war, which increased considerably its powder manufacturing capacities.123 Nevertheless, the death of Eugene was a major event that would modify Du Pont's activities much more than the conflict in Cuba. All the natural successors of Eugene du Pont—the stockholders and directors—were either involved in other activities and were thus not interested in being appointed president of the company, or they were too old, sick and dying, or, on the contrary, they were too young. Henry Algernon du Pont, Vice-President, was involved in politics and refused to take Eugene's succession. Franck du Pont, Vice-President, was ill and died two years later. Alexis Irénée du Pont, also Vice-President, was also in poor health and died within the following two years. The secretary and treasurer of the company Charles Irénée du Pont was ill as well; he died in 1902. Alfred du Pont (1864-1921), a valuable chemist formed at the MIT, was considered by his peers as too young and, above all, too inexperienced for the task. Therefore, with no direct successors the remaining family members decided to sell Du Pont to the highest bidder, probably Laflin & Rand. At this point the powder company Laflin

122 du Pont, B. G. (1920). E.I. du Pont de Nemours and Company: A History 1802 to 1902. Boston, Houghton Mifflin Company.192 123The Spanish-American war had started in April 1898. At this point, Du Pont's capacity to produce smokeless canon gunpowder had to increase from 3,000 pounds per day in 1898 to 5,000,000 pound at the end of the year. Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 160

& Rand was still chaired by J. Amory Haskell who was well known to the du Pont family.124

The deal seemed logical to most of the 1902 stockholders, but not to Alfred, who refused to see his heritage, his company by birthright, sold to another company. In 1902 he owned 10% of the company's stock and had no executive responsibility among Du Pont's management. Nonetheless, he was Eugene's natural heir and a direct descendant of the founder, Eleuthère Irénée. Above all, he was determined that Du Pont was not to become an orphan and so he called Thomas Coleman du Pont (1863-1930), a cousin with whom he went to the MIT, in order to find a solution for the family business. Despite that he was also in his thirties, Coleman du Pont was already an assured businessman and Alfred knew that he could benefit of his cousin’s managerial aptitudes. Alfred’s proposition was to purchase the Du Pont Company from their relatives and consolidate it through a new organization. Coleman agreed, but imposed his own rules; he would be president of the consolidated company and would own half the stock. Last, but not least, he imposed that Pierre Samuel du Pont (1870-1954)—the eldest son of the late Lammot du Pont—who had solid experience as a financial director and treasurer in Du Pont, as well as seven years of experience as a financial director of the Johnson Company, join them.125 Alfred agreed and called Pierre who answered to his cousin: "I'll go".126 Thus, the three cousins agreed to find a way to acquire Du Pont & Company. Pierre admitted in a letter to his brother Irénée du Pont (1876-1963) that he had really no idea what he was getting into: "We have not the slightest idea what we are buying, but we are

124 Kinnane, A. (2002). Du Pont : From the Banks of the Brandywine to Miracles of Science. Wilmington, E.I. Du Pont de Nemours and Company. 53 125 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 49 126 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 173

probably not at a disadvantage, as I think the old Company also has a very slim idea of the property they possess."127

The company's value of $12 million was a considerable sum for the three cousins, even if they agreed that it was a fair price. Pierre mentioned to Irénée in 1902 that the company was worth more than the actual sum at which the stockholders intended to sell it. Du Pont had earnings in the past few years of about 4% of this amount, plus the company had large reserves from undistributed earnings that were not included in the total price. Finally, the stockholdings of the company were worth a bigger amount than what was inventoried by the stockholders. The certified public accountant Oscar E. Morton who was hired to check the inventory of the company estimated the company at $14,167,000. Thus, Pierre, Alfred, and Coleman considered that they could make an offer corresponding to $12 million without being injured in any way.128

Pierre made a first proposal to his cousins which could allow the young businessmen to acquire the company without using much of their personal money. First, the three du Ponts might form a new corporation, the E.I. du Pont de Nemours Company. Second, this company should issue $12 million worth of 4% thirty-year bonds, which would be exchanged with the older shareholders for the stock of Du Pont & Company. Pierre proposed that the bonds issued by the new company be guaranteed by a first lien on the Du Pont & Company property. Third and finally, Du Pont & Company would also issue capital stock up to a par value of $12 million that would be divided among the three cousins. This plan gave the older shareholders a continuing income at the then present rate of return of 4% and assured the three buyers full control of Du Pont & Company.

127 Ibid. 174 128 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 49, 56.

This proposal received full approval by both the buyers and the sellers of the old company.129

Nonetheless, Coleman considered that to secure the bonds with a first lien on property might be an issue in the case of an emergency as it could eliminate any other possibility to contract a new loan secured by this collateral. Thus, he wondered whether the ex-stockholders would agree to receive 25% of the stock of the new company added to the 4% thirty-year bonds in lieu of having valuable collateral: "The notes would then be supported by the credit of the company alone, but the former shareholders would have a share in any increased profit."130

Pierre, Alfred and Coleman agreed on this plan and submitted it to the shareholders; they also agreed. On February 26, 1902, the three cousins incorporated E.I. du Pont de Nemours Company in the State of Delaware, and by March 1, 1902, the sellers signed the agreement that achieved the sale of the 1899 Du Pont & Company, its entire business, good will, property, and assets to the new company. This new company was capitalized at $24 million with $12 million worth in bonds and $12 million worth in stock (120,000 shares). The distribution of both assets went to the older shareholders of Du Pont & Company, and to the three cousins.131

129 Ibid. 52 130 Ibid. 52 131 The bonds interests were due to the Guaranty Trust Company, New York, Moody's about Du Pont.

5 Table 2.5: Shareholders of Du Pont & Company, 1902. $12 million worth in $12 million worth bonds (no voting in stock (voting power) power)132 Francis 20% 5.6% Alexis 20% 5.6% Henry 20% 5.6% Eugene's heirs 20% 5.6% Older Charles 10% 2.8% shareholders Alfred 10% 2.8%+ 18% = (ex-) 20%

and sellers Coleman - 36% Pierre - 18% Buyers133 Sources: (Chandler and Salsbury 1971) 53 Thus, the ex-shareholders finally received a total of 28% of the voting stock (33,600 shares), plus 100% of the 4% bonds. Coleman received half of the remaining voting shares (36%, 43,200 shares), and Alfred and Pierre 18% each (21,600 shares each). Thus, Coleman did not own half of the stock, as he had asked; nevertheless, he remained the highest shareholder of the holding company that owned Du Pont & Company. Together the three cousins detained 74% of the controlling assets of the company.134 On May 8, 1902, the holding company changed its name and became the E.I. du Pont de Nemours & Company, the same name as the 1899 incorporated company, and on

132The total number of stock was 120,000. Coleman received 43,200 shares, Pierre 21,600, Alfred 24,433 plus $1.2 million worth of bonds, and the older shareholders received 6,720 shares each, apart from Charles who got 3,360. Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 53 133 To notice, Alfred was both a seller and a buyer. 134 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 53 77

November 1, 1902, the ex-Du Pont & Company was dissolved.135 Pierre managed to have the whole transaction carried out by paying only the organizing costs, about $700.136 Thus, the stock issued by Du Pont & Company was only secured by the future earnings of the company that the cousins were precisely buying. At the end of the 19th century and early 20th century this was a common practice and Pierre had used it in other businesses.137

Reorganization

After March 1, 1902, the three cousins started to reorganize Du Pont & Company. The company's income at the time of the sale was sufficient to cover the interest of the thirty-year bonds (4%) and could even pay the cousins' salaries. However, production and distribution of Du Pont's explosives could be reorganized and improved in order to provide better earnings than the 4%. Thus, first of all the three cousins distributed the managing positions among themselves. Coleman became president of the company, as asked, and began supervising the overall strategy of the company. Pierre naturally became treasurer and could thus make good use of his high financial skills. As Alfred had a lot of experience in the making of explosives, he became the general manager of the company. Second, a third of the company's worth—$4.6 million—was due to the assets of the companies that Du Pont controlled, either as a whole or partly. Pierre and Coleman quickly understood that the company would benefit

135 The Du Pont & Company now refers exclusively to the 1902 company. 136 Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 160 137 Pierre had managed to unify all electric railroads in Dallas, in fact three companies, in 1901. These businesses could be acquired with $1,3 million. Pierre was interested in the earnings such a company could bring, in a growing city like Dallas. To finance the acquisition, Pierre managed to raise funds with a minimum of cash and a maximum of stock issued, secured by the stock of the old companies he was precisely acquiring. Therefore, this financial scheme included that the new company formed by Pierre needed to be efficient and to increase their earnings, in order to make the collateral valuable. Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 42

from combining these separately operated properties into a single organization.138 Thus, they produced a four steps strategy.

The first step was to direct a complete modernization of Du Pont & Company's administrative organization. Functional departments for sales, purchasing traffic and engineering, and manufacturing were created to centralize the activities of all the properties controlled by Du Pont. The second step was to merge the Hazard Powder Company's works and sales into Du Pont's activities. The third step was the absorption of Du Pont's other subsidiaries; in particular, those making dynamite. Finally, the fourth step was the expansion of the smokeless powder activities by acquiring the competitor in that field. At this point, Pierre understood that Du Pont would have to acquire the control of Laflin & Rand as it was the biggest smokeless producer in the United States. After this Du Pont & Company would be a complete chemical explosives producer, meaning that the company would be able to produce and distribute on a large scale black powder, blasting powder, dynamite, and smokeless powder, which were the four biggest chemical explosives of the early 20th century. More precisely, by combining and controlling the stock of Laflin & Rand, Du Pont would increase its controlling power over the Gunpowder Trade Association by owning then 34 votes of 48 and 11,895 shares of 20,000 of the Eastern Dynamite Company. Furthermore, Laflin & Rand owned stock in companies in which Du Pont also used to own stock; thus, gaining control over Laflin & Rand would ensure control over 17 companies and a "substantial minority" in 12; whereas without Laflin & Rand, Du Pont used to own control over only three, including Hazard.139

138 Ibid. 54-56 139 The 29 companies in which L&R held stock plus the 3 companies in which Du Pont held a majority stock were the following: Laflin & Rand, Moosic Powder Co, Eastern Dynamite Co, Oriental Powder Manufacturing Co, Equitable Powder Manufacturing, Oriental Powder Mills, Lake Superior Powder Co, Schaghticoke Powder Co, Laflin Powder Manufacturing Co, Chattanooga Powder Co, Ohio Powder Co, Mahonin Powder Co, Birmingham Powder Co, Hecla Powder Co, Anthracite Powder Co, Marcellus Powder Co, King Mercantile Co, Eastern Fibre Ware

The acquisition of Laflin & Rand became a priority for Du Pont, but it would require diplomacy and a certain amount of capital. Pierre had to set up a new financial scheme in order to operate the purchase without diluting the du Ponts’ control of their assets.

The Purchase of Laflin & Rand

First of all, Pierre needed that Laflin & Rand's directors agree to sell the company to Du Pont and to know their price. To be successful in this negotiation, Henry Belin, Pierre's uncle, was the most indicated person as he used to work as a treasurer for a Laflin subsidiary, Laflin Powder Manufacturing Company, during the 1870s.140

Thus, by the summer of 1902 Henry Belin started to negotiate with the smokeless powder manufacturer. His interlocutor and Laflin & Rand's spokesman was Schuyler Parsons, a director on the board of Laflin & Rand since 1888. Schuyler was involved with all the imports of nitrate of soda for both Laflin & Rand and Du Pont during the late 19th century. Schuyler told Henry that the trustees of Laflin & Rand agreed to sell the company at a total price of $4.55 million. This sum represented the controlling block of Laflin & Rand stock, meaning 5,400 shares on 10,000 shares at a par value of $700. But their deal included two conditions. First, Du Pont had to also purchase 1,100 shares of Moosic Powder Company, a Laflin & Rand subsidiary, at a par value of $700. Second, the Laflin & Rand directors insisted that J. Amory Haskell, president

Co, Utah Powder Co, Driggs, Seabury Gun & Am. Co, Standard Cartridge Co, Phoenix Manufacturing Co, Globe Powder Co, Indiana Powder Co, Northwestern Powder Co, Shenandoah Powder Co, Southern Indiana Powder Co, Austin Powder Co, Hazard Company, California Powder Co, and Hercules Powder Co. Ibid. 57 and Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 161 140 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 62

since 1895, and Henry M. Boies, a director and a Laflin141, continued to receive a salary for a ten-year period—$25,000 a year for Haskell and $15,000 for Boies.142 Coleman was not thrilled by these conditions and Pierre immediately considered the price to be too high, because Laflin & Rand stock was sold on the market at $350 a share, half the price asked by the directors. Nevertheless, without the acquisition of the smokeless powder company the three cousins could not succeed in their plan to be the most important producers of the four main explosives in the USA. To make the scheme worth it, Pierre had to raise funds with nearly no cash, even though the Laflin & Rand partners told him they wanted some.143

After several weeks of discussions and negotiations, Pierre came in front of Laflin & Rand's board with a final proposal. The scheme was to found two holding companies, Delaware Securities Company (DSC) and Delaware Investment Company (DIC). The first holding company would purchase and hold some Laflin & Rand stock, whereas the second would do the same with Moosic and the remaining Laflin & Rand stock. The process would be, again, rather simple. The sellers of Laflin & Rand stock would for 1 share receive $400 of DSC’s bonds and $300 of DIC's. The sellers of Moosic would receive $700 a share of DIC's bonds. Added to that, the sellers would also receive $1 million worth of stock from both holdings. Therefore, DSC and DIC would issue a total of $6.5 million worth of stock, as well as $6.5 million worth of 5% twenty-year bonds.144 The $13 million worth of DSC and DIC capital would thus be used to acquire Laflin & Rand, as well as Moosic, and the remaining stock would be held by Du Pont & Company in order to ensure that the three cousins controlled the

141 The Laflin was the founding family of the Laflin Powder Company, incorporated in 1866, and merged with the Smith & Rand Powder Company three years later. 142 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 63 143 Ibid. 64 144 DSC would issue $4 million worth of stock and $4 million of bonds, whereas DIC would issue $2,5 million of bonds and the same amount of stock. Ibid. 64 81

smokeless producers. This exchange of stock would be possible because the bonds and stock of the holding companies were guaranteed by Du Pont & Company's stock as collateral. On Monday August 26, 1902, the deal was passed. On October 8, 1902, after the two holding companies were incorporated and after Pierre had gathered sufficient of Du Pont & Company’s security as collateral, the exchange was conducted. In the end the deal was successful, without dilution of the family’s control of Du Pont & Company, and "without laying out a cent of cash and without going to the nation's money markets to borrow funds."145 J. Amory Haskell and Henry M. Boies kept a salary, but also entered Du Pont & Company's Executive Committee; nevertheless, Boies died on December 12, 1903, and therefore did not participate for long in the management of Du Pont & Company. Thus, the 1902 Du Pont Executive Committee was composed by Coleman, Pierre, Alfred, the ex-1899 company shareholder Francis du Pont, a life-long coworker of the du Ponts and a family member Arthur J. Moxham, an ex-president of the Repauno Company and also a family member Hamilton M. Barksdale, and finally J. Amory Haskell and Henry M. Boies from Laflin & Rand.146

145 Coleman provided 11,000 shares, Alfred 6,150, Pierre 5,400, other du Ponts put up unspecified amount of stock. These stock were hypothecated as collateral of both holdings companies' capital. Ibid. 65-66 and fn 626 Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 162 146 More information about the committee and its members are discussed later in this chapter.

6 Table 2.6: How the cousins acquired control of the 1899 Du Pont & Company and of Laflin & Rand.

Cousins acquired Holdings formed to Collateral to form the control of: acquire assets: holdings:

Crédit of the Du Pont & (Du Pont Company) company + Company (Inc. which became Du Pont & Company Shareholders 1899) received stock Laflin & Rand, Delaware Securities Du Pont & Moosic and Company Company's stock companies in

which Laflin Delaware Investment &Rand held stock Company

Sources: Author's analysis based on (Chandler and Salsbury 1971)

Consolidation

By March 1903 Pierre Samuel du Pont decided that all of the companies in which Du Pont & Company held stock should be consolidated into a single corporation, into a holding company; this would have the advantage of centralizing the administration of the companies. The du Ponts wanted to form what the literature will call "the Big Company".147

At this point Pierre was well trained to raise funds through holding companies. These funds were secured by assets that cost the du Ponts no money, and the companies were incorporated so that stock could be exchanged in order to get control of a block of voting shares in other companies. Therefore, in 1903 it was quite natural that the treasurer made the following proposal. Du Pont & Company should found another holding company, the E.I. du Pont de Nemours Powder Company (Du Pont Powder), to exchange shares of stocks with 27 firms in which Du Pont & Company held stock; these stocks included those of Laflin & Rand and the Eastern Dynamite Company, plus Du Pont & Company’s stock. The proposal also included that Du Pont Powder issue $27,715,367 worth of preferred shares, which corresponded to the worth of the 28 companies (Du Pont & Company included) and $22 million worth of common shares. This stock would be exchanged following the acquisition of both companies' tangible properties and their earning power. The preferred shares would be at a par value of 5% and were allowed full voting power; the common shares at a par value of 3% had full voting power as well. The worth of the acquired companies' tangible assets would constitute the amount of preferred shares; the earning power would define the amount of common shares received by the sellers. Furthermore, the tangible properties and the earning powers of the acquired companies were collateral for the issue of Du Pont Powder capital stock. Thus,

147 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 81 84

and according to Pierre’s schemes, the total capitalization of the Powder Company would equal $45,715,376.148

The proposal pleased Du Pont's Executive Committee, but there was a need to clear current liens or claims on the securities of Du Pont & Company, as it was to be merged with Du Pont Powder. Therefore, the Du Pont & Company stocks were used as collateral to secure the bonds of the Delaware Security Company and Delaware Investment Company and were substituted by Du Pont Powder's preferred stock. Furthermore, Du Pont Powder needed to acquire the purchased notes held by the seller of the 1899 company. Thus, for Pierre "the unfunded debt might be replaced with a funded one".149 In order to do that Du Pont & Company had to issue $10 million worth of 5% thirty-year sinking fund gold bonds, to be backed by $14 million worth of Du Pont Powder preferred stock. Issued at $105, these would be exchanged for purchase notes. And finally:

"To pay off this bond issue two sinking funds would be set up providing a total of $400,000, at least half of which was to come from dividends paid by the E.I. du Pont de Nemours & Company (which in turn would come from the Powder Company). Du Pont & Company, but not the Powder Company, would also guarantee not to issue any bonds having a prior lien on the new $10 million issue."150

The E.I. du Pont de Nemours Powder Company was incorporated on May 19, 1903, in the State of New Jersey, as a security holding company. At first it acquired the control of 28 companies, and then later integrated up to 100 companies through acquisition of their capital stocks and in exchange for the

148 Ibid. 86 and Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 163 149 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 88 150 Ibid. 88

preferred and common stock of this company.151 Its capitalization totaled $50 million, which was composed of $25 million worth of preferred stock and $25 million worth of common stock. E.I. du Pont de Nemours Powder Company was headed by 15 directors.152

Also in 1903 Du Pont Powder wanted to integrate International Smokeless Powder & Company as it was its major competitor in the homonymous explosives production. Nevertheless, the cousins renounced making it entering the consolidated company. There were two reasons for this refusal. First, the Marsden Company, a corn producer and one of the founding companies of International Smokeless, was weighed down by a heavy debt. To merge with International Smokeless in 1903 would mean that Du Pont Powder would have to find a settlement with Marsden. Second, the exchange of common stock and its worth to make International Smokeless enter Du Pont Powder was difficult to establish.153 Therefore, the cousins preferred to first incorporate a new holding under the laws of Delaware, Du Pont International Powder, which would acquire International Smokeless. Du Pont International was formed by Du Pont & Company holding and, thus, the three cousins were the most important stockholders of Du Pont International. By 1904 Du Pont International was integrated into Du Pont Powder.154

151 Moody's Analyses of Investments, Part II Public Utilities and Industrials, Du Pont 1914, p. 607. List of the companies in appendix. 152 A detailed description of these organs is given in the next subsection. Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 89 153 Ibid. 103 154 Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 164

7Table 2.7: Assets of Du Pont Powder in 1905.

Other Miscelaneous Companies 21% Du Pont & Company Du Pont 40% International 17%

Delaware Securities 14% Delaware Investment 8% Sources: Author's analysis based on (Chandler and Salsbury 1971) Finally, after the consolidation was effective Du Pont & Company became solely a holding company held by Du Pont Powder. Nevertheless, it represented about 57% of the total assets of the consolidated company.155 Thus, the owners of Du Pont & Company stock became the most important shareholders in Du Pont Powder. This meant that the three cousins and the ex-stockholders of the 1899 company were still holding the controlling block of stock in Du Pont Powder.156

"By the middle of 1904, when the transaction involved in the consolidation was completed, the new powder company controlled the manufacturing of just over 70% of the dynamite sold in the United States; a little over 60% of most-used black powders; 65% of all soda blasting powder 'B' sold in the United States; close to

155 Du Pont & Company added to Du Pont International shares of Du Pont Powder. 156 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 88

80% of the older saltpeter blasting powder; 75% of the black sporting powder; and 70% of the military (smokeless) powder."157

157 Ibid. 104

8Table 2.8: How the cousins acquired control of companies (1902-1905).

Collateral to form Cousins Holdings formed to acquire assets: the holdings: acquired control of: Du Pont & (Du Pont Crédit of the Company Company) which company + became Du Pont & Shareholders (Inc. 1899) Company received stock

Laflin & Rand, Du Delaware Pont & Du Pont & Company's Moosic & CompanySecurities stock Companies in Company (Inc. 1902) which Laflin Delaware &Rand held Investment

stock Company

Companies in Physical assets and which Du Pont & Du Pont Powder earning powers of the Company held Company (Inc. acquired companies stock, including 1903) the EDC

International Du Pont Du Pont & Company Smokeless International Powder Powder Company Company Sources: Author's analysis based on (Chandler and Salsbury 1971)

These methods of merging companies into a holding company were new in the powder industry. On the contrary, they were common in the steel industry, as shown by the contemporary example of the U.S. Steel Corporation which consolidated about half of the American steel production and distribution into one holding company. Furthermore, in the United States the end of the 19th and early 20th centuries were favorable times for such transactions, despite the growing antitrust lobby. In New Jersey or Delaware this merger movement was facilitated by the adoption of general corporation laws; in 1888 in New Jersey and 1899 in Delaware.158 Indeed, in the USA between 1897 and 1903 over 120 mergers and acquisitions took place and absorbed 2,800 proprietorships, partnerships, and small family firms over the country. Many of these mergers were financed by investment banking houses, secured with collateral of many kinds.159 The Du Pont Powder consolidation was among the largest of this period with the absorption of more than 70% of the powder business in one holding company. Other consolidations that are comparable to Du Pont Powder are the International Harvester in the agricultural equipment industry, Eastman Kodak in the photographic industry, and Otis Elevator.160

Capital Evolution

Between 1904 and 1911 Du Pont Powder had nearly doubled its total assets and liabilities, which passed from $55 million in 1913 to $88 million (in 1913).161 As shown in Figure 2.9, the capital stock and capital surplus were nearly always, except in 1913, the most important contribution to the company’s total liabilities,

158 Lamoreaux, N. R. (1985). The Great Merger Movement in American Business, 1895-1904. Cambridge, Cambridge University Press. 1 159 Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 28 160 Lamoreaux, N. R. (1985). The Great Merger Movement in American Business, 1895-1904. Cambridge, Cambridge University Press. 3 161 All constant price are based on 1913=100, in Mitchell, B. R. (1993). International Historical Statistics. The Americas, 1750-1988. New York, Stockton Press.

whereas the fixed assets represented the most important part of the company’s total assets. The ratios illustrated in Figure 2.9 also show that the sales and net income have a rather flat evolution during this decade. As the company consolidated most of the American explosives businesses during this decade, it is surprising that the net income did not have a greater increase. In addition, Figure 2.9 shows that the fixed assets diminished around 1909 to 1910. This was due to the closing of some powder manufacturers in which production methods were not competitive enough. Indeed, the executive committee inaugurated what the 1908 Annual Report of the company described as a “rigid system of economy,” resulting in the closure of factories that were unable to manufacture at low cost. More importantly, regarding the flatness of the company’s net income, Du Pont closed a third of its smokeless powder manufacturers, because by the end of the decade the government’s orders had become less important.162 This explains why the company’s fixed assets decreased from $55 million in 1909 to about $30 million in 1910, and also why, despite the increasing activities of the firm, the results remained rather flat. The executive committee added through the annual report: “We have not hesitated to abandon and write off such parts of our investment [that] have become antiquated or badly situated with respect to trade.”163

162 Du Pont Annual Report, 1908, 1. 163 Du Pont Annual Report, 1909, 2.

9Figure 2.9: Assets and Capital Evolution; Ratio of the Total Assets and Liabilities (1903–1914).

1903-1914

90% Kstock+K surplus/T 80% L Net 70% Income/ TL 60% Sales/TL 50%

40% Fixed Assets/T 30% A Current 20% Assets/T A 10% Bonds

0% 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914

Sources: Moody's and Du Pont's Annual Reports In 1912 the total liabilities decreased by about $13 million, as had the capital stock done a year before. This resulted from the US Government vs. Du Pont suit, initiated in 1907. In that year of 1907 the Department of Justice attacked Du Pont Powder Company for the company’s cartel activities. The U.S. government calculated that the Powder Company had swallowed and controlled large amounts, too large in fact, of the powder production in the United States (Table 2.10).

10Table 2.10: Du Pont's Control Over the USA’s Explosives Production in 1907. Black blasting powder 64% Soda blasting powder 72% Black sporting powder 74% Dynamite 72% Smokeless sporting powder 64% Smokeless military powder 100% Sources: (Dutton 1949) 194 On December 15, 1912, the final decree stipulated that Du Pont Powder’s activities might be split into three companies: Du Pont Powder and two companies, Hercules Powder Company and Atlas Powder Company, which had to be organized to receive and operate the factories and properties that were ordered to be segregated from Du Pont. Du Pont remained the biggest company and the largest powder producer; it kept 12 black powder mills, 5 dynamite plants, and 3 plants to manufacture military and sporting powder under its own patents. Hercules Powder was given 8 black powder mills, 3 dynamite plants, and the Laflin & Rand patents to manufacture smokeless sporting powder. It was incorporated under the laws of Delaware in 1912 and had an authorized capital of $6.5 million worth of common stock and the same amount of 6% income bonds, which were used to pay for the assets it acquired, and were thus offered to Du Pont's stockholders. Atlas Powder Company was given 6 black powder mills and 4 dynamite plants. It was incorporated under the laws of Delaware with an authorized capital of $5 million worth of common stock and the same amount in 6% bonds, among which $3 million common stock and $3 million bonds were used to pay Du Pont's stockholders for the assets that the new company acquired. Hercules and Atlas were then two substantial corporations. Hercules was the biggest and was headed by Russell H. Dunham, while Atlas was headed by William J. Webster. Both new presidents continued to entertain close relations with the du Ponts and continued to ally their assets with the Du Pont

Company in new businesses during the 1910s and 1920s, as the next chapters will present.164 Both companies started their activities on January 1, 1913.

Nevertheless, the general trend during Coleman’s presidency was globally positive and Du Pont Powder managed to become a big business in a very short time. The increase in activities went hand in hand with an increase of liabilities. The increase of bonds with no voting power was issued at a par value of $1,000 and listed on the New York Stock Exchange. This was an important increase in capital between 1906 and 1908 (plus $13 million, approximately) and represented half of the total increase in liabilities since 1903 until 1908. Since the total liabilities increased from $33 million at their highest point in 1911, what role did the common stock and preferred stock issued during the decade, both with a voting power, play?

11Figure 2.11: Shares of common and preferred stock (1903-1914).

Common and Preferred stock

350'000

300'000

250'000

200'000

150'000 Number of Common Stock Number of Preferred Stock 100'000

50'000

- 190319041905190619071908190919101911191219131914

Sources: Du Pont's Annual Reports

164 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 198 94

The number of common shares doubled during the decade. They were authorized up to 250,000 in number until 1907. When they were started to be listed the company was authorized to issue 100,000 more. The graph clearly presents the integration of Du Pont International between 1904 and 1905. The common stock was used to finance the increasing activities. Nevertheless, as Figure 2.11 shows the total liabilities increased from about $30 million between 1907 and 1908, whereas the common stock increased from 50,000 shares at par value $100 and the capital stock and capital surplus increased from $8 million. During this decade the number of preferred shares issued was reduced in 1907 from 83,000 shares at par value $100 and remained constant until the end of the decade. This reduction in the number of preferred shares that were issued remains unexplained by either the annual reports or the contemporary newspapers.

During the same decade the number of shareholders increased. First, as the consolidation scheme unfolded, the ex-shareholders of the swallowed company received stocks in Du Pont Powder. Second, since 1904 the executive committee introduced a pension system for the employees. There was the Class A bonus, which rewarded any employee for conspicuous service of any nature, and the Class B bonus, which rewarded a contribution in a general way to the company's success. Both systems permitted worthy employees to get preferred or common shares in the company, according to the employee’s salary and to their contribution to the company's turnover. As treasurer of the company, Pierre was the initiator of this policy. Nevertheless, the idea came directly from J. Amory Haskell who inaugurated it while he was president of the Repauno Company between 1892 and 1895. Indeed, the ex- Repauno president wanted to distribute the company's ownership "as widely as possible over the company's management to heighten the self-interest in the

enterprise".165 This policy quickly resulted in 30% of shareholders being the employees of the company. In 1907 the stockholders already totaled 809 people from whom 269 were employees of the company. In 1912 the number of stockholders reached 2,697, whereas the percentage of employees among them remained constant at about 30%. Nevertheless, the three cousins remained the most important stockholders of the company, quickly followed by the old stockholders of the 1899 Du Pont & Company. Indeed, they kept increasing the number of stocks that they owned each time the company issued any. Consequently, Coleman ended the decade owning 63,214 common stock and 13,989 preferred stocks. This equaled 21% of the common stock and 8.7% of the preferred stock, or 17% of the total voting stock.166

The bonds were listed on the New York Stock Exchange since 1906 and, as mentioned, raised an important amount of capital between 1906 and 1908. Afterwards, in 1909, the common and preferred stocks were listed as well, but Pierre had cautiously chosen how to trade Du Pont's voting stocks. Pierre and Haskell negotiated an arrangement with the New York brokerage firm Henry Brothers & Company in 1908 that resulted in Pierre listing only a small portion of the Powder Company stock. Du Pont’s 5% cumulative preferred stocks were traded on the New York Stock Exchange, whereas the common stocks were traded on the New York curb, as far as they were detained by outsiders. Furthermore, in January 1910 Pierre arranged for the three varieties of securities to be traded on the San Francisco Stock Exchange. The treasurer wanted to sell Du Pont’s securities in order to raise capital for the company's expansion, but without a loss in family ownership.167 Hannah confirms this arrangement in his "Divorce from Ownership", showing that the NYSE was used to trading only

165 Ibid. 151 166 Nevertheless, it constituted a remarkable reduction as in 1903 he owned 36% of the total voting stock. Du Pont's Annual Reports, selected years.

small portions of some companies' voting stocks. International Harvester, for example, as for Du Pont, only traded sufficient stocks that would allow the family to maintain possession of the majority of the voting stocks, a quarter of the voting stocks. The following quote from Hannah is revealing concerning this fact:

"The du Ponts, undaunted, resolve the matter by listing only their bonds and preferred stocks on the NYSE in 1909, while common stocks, with exclusive voting control, were traded on the curb and listed on the less fussy San Francisco Exchange. In fact, only a small proportion was traded, the controlling block remaining in the hands of the family and associates."168

At the end of the decade Du Pont Powder was a big business. Its assets totaled $83.4 million—of which the common and preferred stocks amounted to about $46 million—and its net income was $5.5 million; the company counted more than 1,000 stockholders and its stocks were listed in both New York and San Francisco.169 Chandler in his Visible Hand assessed that companies of this size had to completely reorganize their organization and management in order to perform better, and that family governance could not run such big businesses.

167 Dorian, M. (1961). Du Pont de Nemours, de la poudre au nylon. Paris, Librairie Plon. 169. Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 252-254, 294-295. 168 Nevertheless, Hannah seems to mix up what Dorian and Chandler had written about Du Pont's common stock and securities: only the latter were listed and traded on the San Francisco Stock Exchange. Furthermore, both the preferred stock and the common had voting power. See Moody's, 1914. and Hannah, L. (2007). "The "Divorce" of Ownership from Control from 1900 Onwards: Re-Calibrating Imagined Global Trends." Business History 49(4): 404-438. 425 169 Du Pont was ranked as the 27th US Company by 1909. The company was a big business compared to what it used to be at the end of the 20th century. Nevertheless, I have to notice that it remained a very small company compared to a giant such as US Steel with its $1 billion of capital (in 1909, Chandler and Salsbury compare this amount to $60 million of capital detained in Du Pont Powder), or such as the Standard Oil before its dismemberment in 1911, $560 million of capital. Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 324

The managerial revolution might start at this point in this company’s history.170 The forthcoming sections will describe the organization of this company by addressing two questions: How was the management organized and how did the family ensure its control over its growing business?

2.2. THE 1903 POWDER COMPANY

Historians David Hounshell and John K. Smith describe at the very beginning of their 1988 book that:

"By 1905 they [the three cousins] had succeeded in bringing three- fourths of the industry under the control of a single management, the Executive Committee of the E.I. du Pont de Nemours Powder Company. They had transformed what historians Alfred D. Chandler Jr. and Stephen Salsbury have described as a 'cartel of many family firms' into a 'modern, centrally administered corporation with its own operating, sales, and auxiliary departments', all controlled by the du Pont family."171

The three cousins managed to keep control over both the voting stock of the explosives' empire that they had acquired and built, and the management of their group. Thus, why does Hounshell and Smith consider that the cousins succeeded in keeping control through the executive committee, and why do I agree? This section will consider successively the management of the 1903 Powder Company—the constitution of the committees, information about the managers themselves—and the rise of Pierre S. du Pont's omnipotence over the company.

170 Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press. 171 Hounshell, D. A. and J. K. Smith (1988). Science and Corporate Strategy. Cambridge, Cambridge University Press. 11 98

2.2.1. THE MANAGEMENT

Since 1903 the new Du Pont & Company was managed by an executive committee that was chaired by a president with six other seats; four vice- presidents, a treasurer, and a secretary. Added to this executive body, a finance committee was comprised of three members of the executive committee and included the president. Finally, the board of directors was elected and was composed of five directors. The following subsections intend to describe the formation of these committees and their role within the management of the company.

The Constitution of the Committees and their Importance in the Decision-Making Process

In the newly incorporated Powder Company, the three cousins kept the seats they had in Du Pont & Company's Executive Committee: Coleman du Pont was president and Pierre was treasurer. Alfred got the title of secretary and accountant for the manufacture of black blasting and black sporting powder. Added to the cousins, J. Amory Haskell took charge of the sales for all the explosives produced by the company, Hamilton M. Barksdale (1862-1918) managed the manufacturing of dynamite and all high explosives, Arthur J. Moxham (1854-1931) was responsible for the Department of Development, and finally the ex-shareholder Francis I managed the smokeless powder manufacturing operations.172 Therefore, with the exception of Haskell, all the members of the executive committee were family members and former

172 Ibid. 18

coworkers.173 Since 1903 all of the decision-making power was controlled by this group and this worried Moxham since the heads of the various departments had no independence in their activities: They were not free to improve their productivity without the approval of the executive committee. In evidence of this Hounshell and Smith described the research and development at Du Pont between 1902 and 1911. In 1903 the executive committee had decided that there would be two research centers, the Experimental Station and the Eastern Laboratory. This had been the prerogative of the executive committee, despite other voices in the company saying that Du Pont would better benefit from decentralized research activities at Du Pont and for both laboratories to operate independently.174 Moreover, even if Charles L. Reese, with a PhD in chemistry, was the Eastern Laboratory Director, Hamilton M. Barksdale, a civil engineer, was leading the high explosives operations in the executive committee and, therefore, oriented the research in the Eastern Laboratory with more influence than Reese.175 Moxham had asked this body to give more flexibility to the heads of departments, but this had no effect. During the entire presidential term of office of Coleman (1903-1915), the Executive Committee would be the central decision-making body of the company.176 Already in 1949 William S. Dutton said: "Henceforth this committee was to guide every major decision of the company. Its power was to grow. It was to become the administrative agency of the Du Pont business."177 Later Chandler and Salsbury added that: "No one connected with the Powder Company ever doubted for a minute that the EC ran the show.

173 More information about the careers and personalities of these vice-presidents are given later in this chapter. In a next section as well, I will demonstrate how the three cousins chose the other members of the Committee, following their business affinities, the importance of the men in the explosives business, but also following family ties. Moxham and Barksdale were related to the family by marriage, Haskell was a close friend of the family. 174 Hounshell, D. A. and J. K. Smith (1988). Science and Corporate Strategy. Cambridge, Cambridge University Press.17 175 Ibid. 23-27 176 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 126

100

Its seven members considered themselves, and were considered by others, as the company's top management."178

Second, added to the executive committee's power, Pierre proposed in 1903 the formation of a finance committee that could provide a good balancing entity in the decision-making process. However, Pierre required that he, Coleman, and Alfred sit on this committee as they were the most important stockholders of the company. This seems to also have been a way of ensuring Alfred his influence within the company. During Coleman's presidential term of office, this finance committee remained a subcommittee of the executive committee. Finally, a board of directors was formed. Pierre and Coleman intended to bring the family members who still had no definite power in the company onto the board—Henry A., Francis and Alexis du Pont (the former partners of the 1899 company), Victor, and Alexis du Pont. When Francis and Alexis du Pont died in 1904, Henry F. du Pont (a cousin of the cousins) and Irénée (Pierre's brother) took their places.179 Other family members also entered the company at this point. Among them were Irénée and Lammot du Pont (1880-1952), Pierre's younger brothers. Irénée became the company’s manufacturing contract manager, and Lammot was assigned at Carney's Point. To Coleman: "[…] the more du Ponts […] put into the company hopper, the more likely was it to shake some du Pont of real ability to the top."180

The executive committee initially met once a month and had to handle all the matters concerning every department in a single meeting. Because these meetings started to last more than one day, which became really boring for the

177 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 190 178 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 128 179 Ibid. 127 180 Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 190

101

members, Pierre proposed to change the organization of this body. The treasurer proposed that the committee meet twice a month and that members classify business according to the importance of it. Coleman was asked to make a formal agenda and the members were urged to "purge their reports of all unnecessary detail and, while not sacrificing important matters, to avoid introduction of any business not properly belonging to the Executive Committee’s consideration".181 In order for the executive committee's meetings to become more efficient, Pierre also formed an operation committee in 1905, to meet fortnightly, which included the directors of the departments. This committee would take care of the less crucial issues. The operation committee would handle day-to-day operation matters and make studies on its own or at the request of the executive committee; this operation committee would also recommend actions to the company's top management. Pierre proposed that Irénée, his brother, become the chairman of this subcommittee. Both the executive committee and his brother agreed.182 At this point it is important to understand who the three cousins and the members of the 1903 management were.

The Three Cousins and the Family Members in the 1903 Management

The three cousins came directly from the founder's branch and were cousins at the first degree. Moreover, during the 1880s they all entered the MIT: Coleman and Alfred shared a room on the campus and both were classmates with their cousin Pierre. Nonetheless, they were really different from each other. Pierre was a zealous student who achieved his bachelor degree and a master degree in engineering. Coleman, on the other hand, was a sporty student who was more

181 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 133 182 Ibid. 133

102

used to parties and the social night life than his cousin. He never got his diploma from the MIT. Alfred was in-between. He was not a zealous student—he never graduated from the MIT—nor was he a born leader. Nevertheless, the cousins' years at the MIT initiated a relationship that would lead them to work together already before 1902.

12Figure 2.12: Family tree, the cousins' branch.

Eleuthère Irénée Alfred I. II Antoine du Pont T. Coleman Ellen Coleman

Pierre S.

Henry Belin Alfred V. Margaretta William K. Lammot Margaratta L.

Eleuthère Irénée Eleuthère R.R.M. Carpenter Lammot I Lammot Mary Belin

Irénée

Isabella Hugh R. Sharp Louisa Charles Copeland Mary A. W.W. Laird

Sources: Author's analysis based on (Dutton 1949) After their studies these cousins went three different ways. Coleman, in 1890, was sent by his father to Central City, Kentucky, to gain empirical experience of coal mining in his father’s company. Coleman became very close to the miners as he was very involved in their lives and daily events. He was appreciated by the team he supervised. He soon became superintendent of the Central Coal

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and Iron Company.183 During his years there he was shocked by the low revenue that the president of the biggest coal company around was getting— $4000 a year. Thus, Coleman decided to break into steel, the biggest industry in the country. In 1893 he contacted Arthur J. Moxham and Tom L. Johnson to ask for a job as general manager in their company, the Johnson Company.184 Moxham and Johnson were naturally inclined to help Coleman as his father, Antoine du Pont, had first hired both of them in the Louisville Rolling Mill.185 Coleman was hired as general manager and was successful at this task. One year later, in 1894, he was already elected executive officer of the Johnson Company. However, in 1899 he resigned to form his own organization for street railway manufacturing. Coleman started setting up his railways all over the country. In 1902, when Alfred contacted him, Coleman was still working in this business.186 Thus, at only 39, Coleman already had an important career behind him. Being a general manager and then CEO of a steel company and then launching his own business gave Coleman strong organizational and management skills. This was what Alfred was looking for in 1902.

Alfred, for his part, had no brilliant personal development. He was less charismatic and also less successful than Coleman in his early career. When he left the MIT in 1884, his uncle Lammot was killed in the explosion at Repauno. Alfred went back to Wilmington understanding at this point that the third generation of du Ponts had "to report for duty".187 Thus, in 1885 Alfred became the assistant to the superintendent of the Hagley and Lower Yards, a plant in Wilmington. In 1891 he took the position of superintendent. The same year,

183 Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 155 184 The Johnson Company was producing steel. It would afterwards become the Lorain Steel Company, and then it turned to be a subsidiary of the United States Steel Corporation. Ibid. 155 185 This chapter also deals with Moxham's career before to enter the 1903 Du Pont. Johnson, for his part, got the title of president of the Johnson Company, in 1893, in which Coleman applied the same year. Ibid. 155-156 186 Ibid. 187 Frazier Wall, J. (1990). Alfred I du Pont, The Man and His Family. Oxford, Oxford University Press. 124 104

when William du Pont retired, Alfred became a shareholder by receiving half of William’s stocks.188 Thus, Alfred's career seemed less impressive than Coleman's; nevertheless, by 1902 he had already worked 17 years at Du Pont & Company.

Finally, Pierre Samuel was a descendant of the founder, Eleuthère Irénée, but from the du Pont-Belin branch. His father Lammot married Mary Belin and together they had eleven children, of which three would be presidents of the company (Pierre, Irénée, and Lammot), two would be important stockholders and directors (William K. and Henry), and four would be wives of directors and vice-presidents (the future Ms. Carpenter, Ms. Copeland, Ms. Laird, and Ms. Sharp). A daughter of Irénée, Margaretta, would also marry a president of the company, Crawford Greenewalt. The Belin branch would take this importance among the senior managing positions since Pierre became president in 1915. Before that the personal development of the treasurer of the 1903 company was brilliant. Pierre was a born manager.

Indeed, Pierre Samuel graduated from the MIT in chemistry in 1890.189 He then followed Alfred and came back to Du Pont & Company in which he became responsible of the development of the shotgun powder. Pierre was thrilled; he could thus use his MIT background to accomplish his first task within the family company. Beside this specification at Du Pont, Pierre managed the Johnson Company's portfolio, in which Coleman was general manager and future CEO. In the Johnson Company, Pierre and Coleman had their first experience to work together and in 1899, when Coleman resigned from Johnson to launch his street railways business, Pierre inherited his position of Johnson's chief executive.190 In 1902 Pierre was only 32 when Coleman called him to ask him to enter the deal.

188 Ibid. 120-124 Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 139 189 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 18 190 Ibid. 29-30 105

Despite his young age, he had already been responsible for an entire department at Du Pont, for the portfolio of the Johnson Company, and had assumed the title of CEO for the same company. He was definitely prepared to acquire Du Pont and to reorganize it.

The Other Members

The fourth du Pont on the executive committee was Francis I., a former director and stockholder of Du Pont & Company. In 1904 Francis resigned from this position and Coleman hired his brother-in-law Henry F. Baldwin. This was the start of one of the three cousins' strategy: to hire their brother-in-laws in order to increase the family human resources at top positions. The du Pont's strategy was not unique; this was a rather common practice. Indeed, Youssef Cassis underlines that in the early 20th century the senior managing positions in family businesses were naturally offered to son-in-laws:

"The heir to a business dynasty could equally be a son-in-law, such as Gustav Krupp von Bohlen and Halbach (1871-1950) or the baron George Brincard (1871-1953), chairman of the Crédit Lyonnais from 1922 to 1945, who married one of the two daughters of the founder Henri Germain."191

In his earlier book City Bankers (1890-1914) Cassis had also demonstrated that Barclays Bank, resulting from the mergers of smaller banks in 1896, recruited its senior managers from the founding families’ members—the Barclays, the Birkbecks, the Gurneys, and the Buxtons—by either blood or marriage; for

191 Cassis, Y. (1997). Big Business. The European Experience in the Twentieth Century. Oxford, Oxford University Press. 125

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example, Frederick Lubock (1844-1927), "a director of several banks and insurance companies" who in 1869 married a Gurney.192

Since 1902 two in-laws were hired onto the executive committee, Arthur J. Moxham and Hamilton M. Barksdale. Arthur J. Moxham was Coleman's grand uncle and Hamilton M. Barksdale had married Ethel du Pont, the granddaughter of Victor du Pont who was the co-founder of the company in 1802.193 Furthermore, the two men's careers were intertwined with the three cousins'. In 1869 Moxham was hired by Antoine du Pont—Coleman's father—in the Louisville Rolling Mill, and since the 1880s he continued his career in the newly formed Johnson Company. When Coleman entered the company in 1890, he started to collaborate with Arthur J. Moxham on the company’s expansion.194 In 1902 Moxham was taken as one of the principal advisors and would enter, naturally, the first executive committee. The uncle and nephew were, apart from their family link, coworkers for 12 years.195 Hamilton M. Barksdale had started to work for the Repauno Chemical Company in 1890. In 1895 he had succeeded Haskell as the head of the company.196 Finally, the seventh member of the executive committee was J. Amory Haskell, whose connections with Du Pont &

192 Cassis, Y. (1994). City Bankers (1890-1914). Cambridge, Cambridge University Press. 212 193 Arthur J. Moxham arrived in the United States, from Neath, South Wales, in 1869 with his aunt, Dora Morgan. Dora Morgan would marry Thomas Coleman Sr., an Irish native. Thomas Coleman had a daughter, Ellen Coleman, who would marry Antoine Bidermann, son of Alfred Victor du Pont. Antoine and Ellen would have a son Thomas Coleman du Pont. And thus, by a kind of strange dyadic link, Moxham and the du Pont family were related. He was Coleman's grand uncle. (1931, May 17). Arthur J. Moxham, Steelmaker, Dead. New York Times. New York: 31. Barksdale had married the daughter of Victor du Pont. (1936, February 26). Barksdale Estate Totals $4,451,907: Daughter of Victor du Pont Held $1,416,840 Worth of Power. New York Times. New York: 15., Dale, E. and C. Meloy (Summer, 1962). "Hamilton MacFarland Barksdale and the DuPont Contributions to Systematice Management." The Business History Review 63(2): 127-152. 194 (1931, May 17). Arthur J. Moxham, Steelmaker, Dead. New York Times. New York: 31. 195 Ibid. 196 (1936, February 26). Barksdale Estate Totals $4,451,907: Daughter of Victor du Pont Held $1,416,840 Worth of Power. New York Times. New York: 15., Dale, E. and C. Meloy (Summer, 1962). "Hamilton MacFarland Barksdale and the DuPont Contributions to Systematice Management." The Business History Review 63(2): 127-152., Hagley Museum, Barksdale archives, Acc. 0518. 107

Company have already been mentioned; nevertheless, he had no connection with the family, neither by blood nor by marriage.197

In addition to the seven members of the executive committee, the cousins needed men to lead the various departments of the newly consolidated company. They hired some directors of the companies swallowed by Du Pont including George Patterson from Laflin & Rand, Franck L. Connable ex- president of the Chatanooga Powder Company, William G. Ramsay who headed the Repauno engineering staff, and Robert S. Waddell who was ex-founder of the Buckeye Powder Company. In 1907 when Baldwin resigned from the executive committee, Charles L. Patterson, the son of George Patterson, took a seat in the executive body. Therefore, in 1915, the seven men on the executive committee were the same members as in 1903, with the exception of Charles L. Patterson.198 Therefore, the former directors of the companies that were integrated into the Powder Company were given responsibilities in the new company.

2.2.2. PIERRE TOOK CONTROL

As Coleman was ill from 1909, a sickness related to his stomach but which would not be fatal, contrary to what he thought by this time, Pierre took the role of acting president for the company. This position allowed the businessman to welcome some of his relatives into the company's management. He gave more influence to both his brothers Irénée and Lammot, and he hired Harry Haskell (the brother of J. A. Haskell), his brother-in-law Robert Ruliph Morgan Carpenter (1877-1949), and a friend and former coworker John J. Raskob (1879-1950).

197 Laflin & Rand official website, timeline: http://www.laflinandrand.com/download.php?link=1&file_name=L-R-Smokeless.pdf 198 Du Pont's Annual Reports.

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Pierre is remembered by historians as having been a businessman who recommended hiring only worthy managers.199 So, who were these men?

Both his brothers had studied at the MIT. Irénée achieved his master degree in 1898 and in 1903 he joined his family in the reorganized Powder Company within the black powder department. From 1905 until 1913 he served successively as assistant director of the development department, assistant treasurer, assistant to the general manager, manager of the development department, and chairman of the operation committee. He became, step by step, an influential manager of the company and would become even more important after 1915.200 Lammot graduated from MIT in 1902 and immediately entered the family firm, also in the black powder department. He then worked for the manufacturing department, the dyestuff department, and finally for the pyralin, paint, and chemical department. In 1913, under Pierre's acting presidential term of office, he became general superintendent of the black powder department and then director.201 The choice of Irénée to assist Moxham as the head of the development department in 1905 was a significant move for Pierre. This department was very strategic as it would be the one in charge of all expansions at home and abroad. In 1906 Pierre hired his brother-in-law Robert R. M. Carpenter to work with Irénée and Moxham. Robert Carpenter had also graduated from the MIT in 1905 and had married a sister of Pierre, Irénée and Lammot.202 A few years later, in 1909, Pierre naturally asked the brother of Robert Carpenter, Walter Samuel Carpenter (1888-1976), to enter the company. Walter S. Carpenter was elected as a general manager of the newly incorporated Du Pont Nitrate Company in the State of Delaware in 1910. Walter

199 "In fact, Pierre's insistence that no du Pont serve in middle or top management unless he was fully qualified helped to bring on a bitter family fight." Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press. 452 200 (1963, December 20). Irénée du Pont Dies In Wilmington at 86. New York Times. New York: 1. 201 (1952, July 25). Lammot du Pont, 71, Industrialist, Dies. New York Times. New York: 15. 202 Du Pont Annual Report, 1949, 23 109

S. Carpenter, contrary to his brother, did not graduate from any university. He entered the company as the manager of the nitrate company and in 1911 became assistant director of the development department. Finally, Harry Haskell, brother of Amory, took the head of the also strategic explosives department, a key position for the close relative of the du Ponts.203

To be assisted in his task of treasurer, Pierre needed a right-hand man, someone with considerable knowledge of finance and with high managerial skills. He knew who to choose. At Johnson Company Pierre had met someone who Moxham had warmly recommended—John J. Raskob. The son of a modest cigar maker in Lockport, Raskob had entered a local business school before his father died in June 1898. The death of his father put an end to his short studies because, with four younger brothers and sisters, he had to take care of the family’s financial resources. He started to work as a stenographer for Moxham in the Dominion Iron & Steel Company in Sidney, Nova Scotia, Canada, for 45 cents a month. In 1900 Raskob was tired of Canada and it was at this time that Raskob was recommended by Moxham to Pierre. The stenographer started to work as a bookkeeper in the Johnson Company. Pierre and Raskob rapidly became friends and developed a great mutual respect. In 1902 the bookkeeper became Pierre's personal secretary in Du Pont & Company.204 By 1911 Raskob was already the assistant treasurer and in 1914 the treasurer. Both promotions occurred during Pierre’s acting presidential term of office. Raskob's skills to manage the business made him a strong pillar within the company and definitely a close friend of the family.205

Finally, between 1913 and 1914 Pierre used his position of acting president to promote Irénée to general manager. He also asked for the resignation of

203 Chandler, A. D. J. (1962). Strategy and Structure. Chapters in the History of the Industrial Enterprise. Cambridge, MA, The M.I.T. Press. 63 204 (1950, October 16). John J. Raskob Dies of a Heart Attack. New York Times. New York: 27. 205 Ibid. 110

Moxham because Moxham had more important interests in the Aetna Company. This was a turning point. At the same time, during the second part of 1914, Coleman came back from sickness. Coleman worked closely with Pierre to help William, a cousin from Pierre, Coleman and Alfred, enter the board of directors and the finance committee. But in the end both Pierre and Coleman understood that they could not continue to work together; Coleman was used to being the president and Pierre had gained more influence over the company. Pierre proposed to Coleman that they make a new try with Pierre as president of the company while Coleman remain there as a vice-president. Although they tried it, it seems that for one reason or another they could not make it work and Coleman decided to retire from the management of the company.206 Coleman also decided to sell his Du Pont & Company common stocks. What followed was understood as a coup from Pierre and would lead the family into the most important clash of its history.

2.3. THE FAMILY CLASH (1915)

In late 1914 and especially in 1915 the du Pont family went through the second crisis of its history, a control crisis. Coleman’s decision to sell his Du Pont & Company stocks represented a dilution of voting capital, of control, in fact, of the Du Pont Powder Company. How did the family control manage to survive this crisis? The next subsections will first treat the initial discussions surrounding Coleman's stock. Second, I will study the formation of an organized syndicate organized to acquire the shares of Du Pont Powder. Finally, I will discuss the separation that occurred in 1915.

206 Chandler, A. D. J. (1962). Strategy and Structure. Chapters in the History of the Industrial Enterprise. Cambridge, MA, The M.I.T. Press. 63

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2.3.1. COLEMAN'S STOCK

At the end of 1914 Coleman was still sick and wrote a letter to Pierre. He told his cousin how sick he was and that he was very worried about what would happen to his shares if he did not take care of their legation.207 Therefore, Coleman decided to retire and sell 20,700 of his common shares, a third of the total stock he owned in the company, to some senior managers. Each member of the executive committee was allowed 1,500 shares and the men whose salaries were $500 a month and over were allowed to subscribe for three times the amount of their salary. It was something usual, and, as already mentioned, this had already been offered by the executive committee.208 Coleman thought that his stocks could play this role. In December 1914 Pierre followed Coleman's desire and presented the situation to the finance committee, namely Alfred, William K., and himself. He told his cousin that Coleman intended to sell his 20,700 shares at $160 each. In 1914 these actions were worth $185 on the New York curb.209 From the beginning Coleman's decision posed some problems for Alfred who thought that the price for each stock was too high. He felt that $125 was the most honest offer that the company could provide for Coleman: "I see no objection to the Company purchasing this stock, but the question of price is one of grave importance, owing to the large investment."210

Pierre disagreed and as the three members of the finance committee could not find an agreement by December 1914, Alfred proposed to postpone the question until 1915.211 Pierre was apologetic to his cousin and said to Coleman: "I am

207 Archives HML: Coleman to Pierre, December 7, 1914, Acc. 1909, Box 14. 208 Du Pont Annual Report, 1909, 3. 209 Archives HML: Coleman to Pierre, December 7, 1914, Acc. 1909, Box 14. 210 Archives HML: Alfred to Pierre, December 14, 1914, Acc. 1909, Box 14. 211 Archives HML: Alfred to Pierre, December 14, 1914, Acc. 1909, Box 14.

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sorry and provoked that the proposition did not go through, for I feel that your offer was a generous one and should have had more considerate treatment."212

Coleman was not convinced by the stock price consideration. Having discussed it with Raskob,213 Coleman knew that the stocks would increase in value because of how the company was doing: Europe was at war and was buying significant amounts of explosives from Du Pont. Raskob predicted that the value of the stocks could increase to $300. Coleman hoped to at least get $200. As $125 was obviously not a good deal for the ex-president, he withdrew his offer.214 This discussion underlines the fact that family governance can sometimes bring difficulties into the management, because, above all, the president cannot get rid of a vice-president who is family, and who is an important stockholder.

Later in January Pierre discussed with Coleman about a fear he had concerning Coleman’s stocks. Edward Kraftmeier, affiliated with the British Nobel Company, brought a rumor to the United States: Kuhn, Loeb & Company, by this time one of the largest American bank but which was suspected to have pro-German interests, could have an opportunity to take advantage of Du Pont because of a collateral loan taken by Coleman on the company's assets. Kraftmeier feared that doing this would offer entry into Du Pont's offices and laboratories by some German interests.215 He gave this information to Pierre because Nobel Explosives was passing many orders to Du Pont during the war.216 If the

212 Archives HML: Pierre to Coleman, January 4, 1915, Acc. 1909, Box 14. 213 Raskob was treasurer in 1914. 214 Archives HML: Coleman to Pierre, January 6, 1915, Acc. 1909, Box 14. 215 The du Ponts did not know anything concerning the German interest to which it referred. 216 I will describe the war period in the chapter four. For further information: Archives HML: Pierre to Coleman, January 9, 1915, Acc. 1909, Box 14. Pont became the supplier of the Allies and J.P. Morgan & Co. their banker. Both these questions are developed later.

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company was not controlled by the family, or by American interests, what would happen to the British deal?217

Therefore, Pierre decided to make a significant move.218 He spoke about his plan to Coleman. Pierre felt that the four large du Pont shareholders should place their voting stocks together, for at least as long as the war lasted, with an agreement that the certificates would not be sold or used as collateral unless by common consent. Pierre wanted to secure enough voting stock of the company to assure the family that the du Ponts would keep control of the family business.219 Coleman should have been one of the four large stockholders, but he refused.220 Pierre had to insist:

"From the company's standpoint this would have the advantage of bringing to us a greater share of the business than might be obtained if the matter were left uncertain. If uncertain, the Allies can easily get others in this country interested in the powder business."221

Pierre wanted to secure the family control of the company, as well as protect the explosives’ supply to the Allies. The more secure the company's voting stocks, the more ensured was the business of war with the British, the French, and the Russians. What Pierre had not understood was that Coleman was really desirous to sell his stocks to the younger men of the company. Coleman no longer wanted to be involved in the company's decision-making processes. In a memo on February 17, 1915, Pierre said that when Coleman turned down his deal of regrouping the voting stocks that this was "the first intimation to me

217 Archives HML: Pierre to Coleman, January 25, 1915, Acc. 1909, Box 14. 218 Archives HML: Pierre to Coleman, January 25, 1915, Acc. 1909, Box 14. 219 Archives HML: Pierre to Coleman, January 28, 1915, Acc. 1909, Box 14. 220 Archives HML: Coleman to Pierre, January 31, 1915, Acc. 1909, Box 14. 221 Archives HML: Pierre to Coleman, February 5, 1915, Acc. 1909, Box 14.

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[Pierre] that sale of all was possible or probable".222 This would change everything in Pierre's agenda for the company. Coleman wanted to sell 63,214 common stocks and 13,989 preferred stocks.

2.3.2. THE SYNDICATE

The next day Pierre called his closest relatives and friend; his two brothers Irénée and Lammot, his brother-in-law R. R. M. Carpenter, and his friend and treasurer of the company John J. Raskob. The five men held a conference in which they discussed their intentions towards Coleman's stocks. During this conference Lewis L. Dunham, attorney for Coleman, came to tell them that Coleman was indeed willing to sell all of his stocks, but only with a suitable arrangement concerning both the price and the people to whom the stocks would be sold to.223

Following this meeting Pierre formed a syndicate with the four abovementioned relatives, in addition to A. Felix du Pont, his cousin, whom he had invited. With these men Pierre undertook to find the money necessary to acquire Coleman's stocks. Raskob went to see J. P. Morgan & Company’s partners. Since the beginning of the war the members of the executive committee of Du Pont had come closer to the bankers as the House of Morgan was the official financial agents of the Allies at war in Europe. J.P. Morgan & Company used to trade Du Pont's explosives to the Allies. Thus, Raskob went to New York to meet Henry P. Davison, Thomas Lamont, and Dwight Morrow. He asked them for a loan of $13.5 million.224 Henry P. Davison proposed to get in touch with his counterparts from other banks; William H. Porter of the Chemical National Bank, Albert H. Wiggin president of Chase National, and finally with Seward Prosser from the

222 Archives HML: Memo from Pierre, February 17, 1915, Acc. 1909, Box 14. 223 Archives HML: Memo from Pierre, February 17, 1915, Acc. 1909, Box 14. 224 Archives HML: Memo from Pierre, February 17, 1915, Acc. 1909, Box 14.

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Bankers Trust Company.225 By February 20, 1915, Davison confirmed to Raskob that the transaction had passed and the syndicate would receive a loan of $13.5 million. The collateral for this loan was a 6% note for $8.5 million secured by 54,591 common shares and 14,599 preferred shares of Du Pont Powder.226 Pierre wired Coleman:

"Have arranged a final conference with bankers Tuesday and Wednesday. Propose purchasing your 63,214 common at 200 and 13,989 preferred at 80, paying $8 million cash and $5,762 million in seven years […]. Do you accept this proposition? […] Important this be kept confidential for present."227

Coleman agreed. He told his cousin how much of a sacrifice it was for him, but that he knew he was doing it for the good of the company. He was now too sick to take care of the business, and it seemed dishonest to him to wait until he died to redistribute his stock, and consequently his decision-making power.228

Thus, Pierre's 1915 syndicate founded the Du Pont Securities Company, incorporated under the laws of Delaware on March 1, 1915, as a closed-end investment company for the purpose of purchasing the E.I. du Pont de Nemours Powder Company stock then held by Coleman. The holding company was authorized to issue $3,750,000 preferred stock at a par value of $100 and $3,750,000 common stock at a par value of $100. Pierre immediately became president of this company and Raskob the treasurer. The president held 31,625 shares among the 75,000 issued by Du Pont Securities, about 42%. He was, therefore, the most important stockholder of the holding company.

225 Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock.220-222 226 Archives HML: Memo from Pierre, February 1915, Acc. 1909, Box 14. 227 Pierre to Coleman, February 20, 1915, Acc. 1909, Box 14. 228 Coleman to Pierre, February 21, 1915, Acc. 1909, Box 14.

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13Table 2.13: Owners of Du Pont Securities stock. Shares Percentage of the total Pierre 31,625shs 42.167% Irénée 11,370 15.2% Lammot 11,370 15.2% R. R. M. Carpenter 5,045 6.72% J. J. Raskob 3,780 5.04% A. Felix du Pont 5,060 6.75% Worthy employees229 6,250 8% J. P. Laffey 500 0.6% Total held by family 67,595 90.12% Sources: Archives Hagley Museum & Library (HML): Purchase of T.C. Stock, Acc. 1909 In 1919 Du Pont Securities was renamed Christiana Securities in order to avoid any confusion of names; in 1922 already the holding company was authorized to issue $15 million worth of preferred stock at par $100 and the same amount worth of common stock at par $100.230

As soon as Du Pont Securities was set up, it purchased all of Coleman's common and preferred stocks of Du Pont Powder, plus 610 preferred shares of Du Pont Powder, and 28,277 common stock of the same company. Thus, Du Pont Securities was, since March 1915, the owner of 91,991 shares of Du Pont Powder common stock and 14,599 shares of Du Pont Powder preferred stock. Du Pont Securities thus owned 23.5% of Du Pont Powder voting stock.

229 Six member of the Executive Committee received 625 shares each: Irénée, Lammot, R.R.M. Carpenter, A. Felix, William Coyne, H. G. Haskell, H.F. Brown, John J. Raskob, William G. Ramsay, and Franck O. Tallman. 230 Du Pont Securities Annual Reports and Moody's about Christiana Securities.

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14Table 2.14: Du Pont Securities owning of Du Pont Powder (1) compared to Du Pont Powder total assets in 1915. Du Pont Securities Total Du Pont owned Powder Du Pont Powder Common 91,991shs 294,435shs Stock Du Pont Powder Preferred 14,599shs 158,864shs Stock Total Du Pont Voting Stock 106,590shs 453,299shs Sources: Du Pont Securities Annual Reports and Moody's about Christiana Securities. Therefore, as Chandler and Salsbury conclude:

"Thus, Pierre, controlling the Du Pont Securities Company […] and the Powder Company shares that he owned outright, could vote 105,000 shares out of a total of approximately 600,000 voting shares [authorized, the shares issued amounted 453,299 shares]. In short, Pierre emerged from the whole affair master of the Powder Company."231

On April 16, 1915, Pierre proposed to other family members to enter the holding Du Pont Securities. He wrote a letter to Alexis I, Eugene, Eugene E., Francis I, Ernest, E. Paul, Archibald M. L., Philip F., Henry F., Charles Copeland, William W. Laird, H. Rodney Sharp, and Hamilton M. Barksdale. All of them were family members either by blood or marriage. Pierre invited them to each transfer 223 shares of their Du Pont Powder common stock to Du Pont Securities and to receive 500 shares of Du Pont Securities.232 Alexis, Eugene, Francis, Ernest, Paul, Archibald M.L., and Philip F. refused to enter the holding company, and this would have significant repercussions on the company's future management.

231 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 335 232 Archives HML: Pierre to the aforementioned family members, April 16, 1915, Acc. 1909, Box 14. 118

Eugene E. du Pont, Henry F. du Pont, Charles Copeland, William W. Laird, H. Rodney Sharp, and Hamilton M. Barksdale agreed to invest in Du Pont Securities and took influential positions in the management of the company. Their descendants perpetuated the du Pont's representation at senior managing positions until the 1980s, at least. And anew, Pierre increased the family human resources by welcoming three new in-laws.233

15Table 2.15: Du Pont Securities owning of Du Pont Powder (2), number of shares and percentage, in 1915. Du Pont Securities owned Total Du Pont Voting Stock 106,590shs Added shs 1,338 Percentage of Du Pont Powder owned 107,928shs

23,8% Sources: Du Pont Securities Annual Reports and Moody's about Christiana Securities. After the purchase of Coleman’s stocks, Pierre proposed shares of Du Pont Powder common stocks to some bankers who helped him make the deal. John P. Morgan Jr. was offered 6,642 shares of Du Pont Powder’s common stocks, George F. Baker 3,396 shares, and James Stillman 3,396 shares as well.234 Thus, Pierre renounced a total of 3% of voting stocks in Du Pont Powder in favor of the bankers; Du Pont Securities’ remaining assets of Du Pont Powder thus amounted to 94,494 shares (20.8% of the company’s voting power).235 The purchase of Coleman's stocks demonstrates for the first time how bankers intervened to help Pierre achieve his business. In addition, it was estimated that

233 Archives HML: Letters of approval and refusal content in Acc. 1909, Box 14. To notice, Copeland, Laird and Sharp were brother-in-laws from Pierre. 234 The three of them were at J.P. Morgan & Co. at the moment of the separation. 235 Among which were 79,895 shares of common stock (27% of the total common stock), this would have an importance later in 1915 when a new Du Pont & Company would be incorporated in Delaware and would swallowed Du Pont Powder and all its assets. At this point, only the common stock would have voting power, therefore the owners of Du Pont Powder voting stock would be the big winners of the new incorporation.

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the remaining family members owned approximately similar amounts of Du Pont Powder stocks. In 1915 the principal owners of Du Pont Powder were the following:

16Table 2.16: Du Pont Powder's ownership, 1915.

Du Pont Securities 21% the Family 3% the Bankers 3% Miscelaneous 73%

Sources: Author's analysis based on (Chandler and Salsbury 1971) Nevertheless, with this takeover of power Pierre created a clash within the company. Some family members including his two brothers, of course, and his brother-in-law (Irénée, Lammot and R. R. M. Carpenter) followed him in the Du Pont Securities Company. However, other family members were opposed to him and preferred to remain outside the syndicate. This included Alfred, Eugene, Ernest, Archibald, Paul, Francis, Alexis, and Philip. The family members who did not enter the Du Pont Securities mostly chose to remain faithful to Alfred. The next section will demonstrate how the separation was operated.

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2.3.3. THE SEPARATION

Alfred remained outside the acquisition of Coleman's stocks for two reasons; firstly because he thought the price was too high to buy the stock, and secondly because Pierre had not invited him to take part in the syndicate that he had formed. When Alfred heard that a group of partners had been formed to acquire Coleman's stock, it created, with no surprise, a considerable clash between him and Pierre. Alfred had learned the news in the Wilmington Star on Sunday (February 27, 1915). On Monday 28, 1915, he called Pierre to have the confirmation that the Sunday Star's dispatch was true; he was shocked. When he understood that Pierre had proceeded with this operation, Alfred replied that it was a breach of faith, that only the company was entitled to purchase the stock and that the syndicate was not. He asked Pierre if the syndicate would redistribute the stock to the partners of the company. Pierre answered that the syndicate was not going to do this.236

This was the start of an important struggle among the cousins. The main accusation by Alfred was that Pierre had only been able to raise the money because he was Du Pont's acting president, and not because a lambda syndicate had asked for a loan.237 The executive committee met in early March and the conversation between the cousins is related in Winkler's book:

Alfred: "You propose to distribute Coleman's stock solely among yourselves?"

Pierre: "Certainly, in proportion to our various interests in the Securities Company."

236 Archives HML: Alfred to Coleman, February 19, 1915, Acc. 1909, Box 14. 237 Archives HML: Memo from Pierre, March 3 1915, Acc. 1909, Box 14.

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Later, Alfred, about the bankers' loan: "Whatever the amount, do you think Morgan would have arranged that loan for you as an individual? Oh no, my cousin, you got that credit because you are president in the Du Pont Company! That stock belongs to the company and I ask you to turn it over to the company. […] Pierre, your father and my father were brothers. Neither of these men, I am confident, would have approved what you have done. For their sake, as well as your own, put that stock in the company's treasury. Don't injure your business reputation."

Pierre: "No, the matter is closed."238

Pierre was thus accused of stealing family property from other family members, as well as exploiting his acting president's position to obtain the loan. During the meeting, Raskob took Pierre's defense and said that the acting president never took part in the loan negotiations. Added to Raskob's defense, Albert H. Wiggin, Seward Prosser, Henry P. Davison, and William H. Porter testified that no loan was attributed to the acting president of Du Pont, but only to John J. Raskob and the syndicate that had pleaded for the cause. Davison added: "We never loan $8.5 million to a stranger."239

On March 6, 1915, Coleman officially resigned from his position. The board of directors of Du Pont Powder unanimously elected Pierre as president of the company and made him chairman of the finance committee. This committee was composed of Pierre, Alfred, William du Pont—who was on Alfred's side in the cousins' war—and Irénée, the newly appointed officer of this committee. On the

238 Archives HML: Alfred and Pierre, March 3, 1915, and Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 213. 239 Ibid.222-223.

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executive committee Raskob remained as the treasurer and Alexis I. as the secretary.240

240 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 340.

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17Table 2.17: The committees in Du Pont Powder in 1915–light grey are family members. Executive Committee Finance Committee Board of Directors

Pierre du Alfred du Pont Pierre du Pont, E. G. Felix du Pont Pont, Pres. Chair Buckner H. M. Irénée du Pont Alfred du Pont Henry H. F. du Pont Barksdale Belin E. G. Buckner William du Pont Irénée du Pont H. F. Irénée du Brown Pont F. L. J. A. Haskell William du Pont R. R. M. Lammot du Connable Carpenter Pont Alexis du Charles L. F. L. Pierre S. du Pont, Sec Patterson Connable Pont J. J. Raskob, William William du Treasurer Coyne Pont Alexis du J. A. Haskell Pont Alfred du H. G. Haskell Pont Eugene E. J. P. Laffey du Pont Francis I. C. L. du Pont Patterson J. J. Raskob Sources: Du Pont's Annual Reports, 1915 The opponents to Pierre and Du Pont Securities sued him, personally, already in December 1915. They pleaded that only the Powder Company was authorized to purchase Coleman's stocks and asked that Coleman's shares of the Powder Company be transferred again to the original holding company. The suit was launched and supported only by Philip F. du Pont. It was difficult to believe that he alone was suing Pierre. This affair split the family into two sides; the pro- Pierre and the pro-Alfred. The case took years to be resolved. In April 1917 Judge J. Whitaker Thompson agreed with Alfred and considered that the ex- finance committee of the Powder Company had agreed to purchase Coleman's stock at $160 and that Pierre had overstepped his rights as acting president. Pierre and his attorney Charles Evan Hughes considered whether they could get a higher court to overturn Judge Thompson's ruling. It was Coleman who finally wrote a letter to the court in which he said that Pierre had remained within legal

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limits. At the end of October 1917 Judge Thompson decided that Pierre S. du Pont had to be cleared of all accusations.241

241 For more information, read ibid. 342-358.

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CONCLUSION TO CHAPTER TWO

This chapter was concerned with a century of evolution of Du Pont & Company between 1802 and 1915. The Du Pont Company passed from a $36,000 single- product family business, owned and managed by very few shareholders in 1802, to Du Pont Powder that was worth $83 million in 1914, only eleven years after its incorporation in New Jersey. Between 1802 and 1902 the family business was incontestable, with the increase in the company's assets being financed by the family's money. During this century Du Pont diversified its activities into the black blasting powder and dynamite. After the incorporation of the Powder Company in 1903 and consolidation of the integrated assets, Du Pont diversified into smokeless powder, as well as other ranges of chemical products including artificial leather and agricultural products.242 Since 1903, Du Pont Powder also started to open its ownership to outsiders, who were mostly the owners of the companies swallowed by the Powder Trust. The family also gave former directors of the integrated companies some responsibilities on Du Pont's committees. Nevertheless, the family managed to keep most of the seats in the committees, until the Great War, and a considerable share of Du Pont Powder, through the holding company Du Pont & Company, which owned the most important part of the Powder Company, and which was owned by the three cousins at a great majority (74% of the shares).

In the third section the relations of the du Pont family and some bankers started to appear. Pierre and his syndicate were helped by some bankers in J. P. Morgan & Company to raise money to acquire Coleman's stocks. After the incorporation of Du Pont Securities was achieved, Pierre gave considerable voting power in Du Pont Powder to J. P. Morgan Jr., Georges F. Baker, and

242 Not mentioned in this chapter, as they constituted only about 3% of Du Pont's production in 1913. The literature and the archives are not very clear about this, difficult to bring more

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James Stillman. Even with the renunciation of these shares, Pierre maintained control of the ownership of the family company. At this point the relations between the men of the House of Morgan and the du Pont family became important. The next chapter will show, even more, how much these relations grew during the next decades.

Finally, this chapter presented a first limited insight into a family business, as well as the time when some family members decided to take over the business at their advantage. This created a clash among the cousins, which spread to other family members. Pierre S. du Pont was victorious in the struggle, which he had initiated, and his family branch—the du Pont Belin—would be the winners and natural heirs of Pierre's control of the business. The next chapter will tell more about the du Pont-Belin dynasty, the organization of the company under Pierre's presidency, and the evolution of the company between 1915 and 1980.

information. Dutton, W. S. (1949). Du Pont, One Hundred and Forty Years. New York, Charles Scribner's Sons. 262.

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CHAPTER THREE: THE MODERN CORPORATION (1915–1980)

Following the acquisition of Coleman's stocks in 1915, Pierre and his syndicate—the most important stockholders of Du Pont Powder—proposed to the company's board and the other stockholders that a new company, the E.I. du Pont de Nemours & Company, should be incorporated and that this new company should acquire all the assets of Du Pont Powder. This would allow Pierre to succeed in his wish of increasing the size of the company with additional capital and diversification of activities. Pierre and Du Pont's senior management reorganized Du Pont & Company and made of it a very big business, capitalized initially in 1915 with $258 million in assets and 3,840 stockholders. At the end of the period studied in this chapter the total assets of the company amounted to $9.56 billion with 212,868 stockholders.243 According to Alfred D. Chandler Jr. and Stephen Salsbury, Pierre had by 1915 initiated the transformation of Du Pont into a modern corporation.244

In the 1977 Visible Hand Chandler defined the modern corporation:

"[The modern business has] two specific characteristics: It contains many distinct operating units and it is managed by a hierarchy of salaried executives. […] Each unit within the modern multiunit enterprise has its own administrative office. Each [unit] is administered by a full-time salaried manager—each has its own set of books and accounts which can be audited separately from those

243 Both values are current; constant value is $253.2 million assets in 1915 and $1,192 billion in 1980. Based on 1913 = 100, Mitchell, B. R. (1993). International Historical Statistics. The Americas, 1750-1988. New York, Stockton Press. 696. 244 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 20.

of large enterprise[s]. Each could theoretically operate as an independent business enterprise."245

A modern corporation is thus organized under the so-called multidivisional form (M-Form) of organization. The M-Form of organization was adopted at Du Pont in 1921, six years after the reincorporation of the company. The departments were reorganized and Pierre insisted on having a trained workforce as the top management of the company. Since that date Du Pont can be considered as a modern business, and this organization would continue to present time.

Despite the amazing growth in the company's activities, the increase in both the assets and number of stockholders, and the entry of a growing number of salaried managers, I conclude that Du Pont remained a family firm between 1915 and 1980. This chapter aims to demonstrate my reasons for this conclusion. To understand how this was possible I present in the first section the foundation of the new Du Pont & Company in 1915, and I clarify both questions of how the project was launched and how it was achieved. In the same section I also consider the evolution of the company's management between 1915 and 1980, as well as the change in the company's organization when Du Pont adopted the M-Form of organization. This point allows an understanding of how adopting this form of organization helped the family keep control of the management of the company. In the second section I describe how the company's capital was increased and how the family managed to keep control over the ownership of the new corporation. Finally, in the third section I present the various companies with which Du Pont's senior managers were interlocked; the du Ponts actually benefited from an important network in numerous industries, as well as in banking institutions, which proved to be important connections when the company wanted to expand both at home and abroad.

245 Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press. 1-3. 130

3.1. THE FOUNDATION OF THE NEW CORPORATION AND THE ADVENT OF THE MODERN COMPANY

The organization and management of the new Du Pont & Company from 1915 until 1980 will be discussed in this section. If the chronological bounds are large, changes occurring during these six decades are not so important in terms of management. Indeed, in 1915 the new company was incorporated. After the First World War the senior management adopted a new plan of organization that survived until 1980. What changed, really, was the composition of the three decision making bodies: the board of directors, the executive, and the finance committee. Therefore, this section studies the foundation of the new company in the first subsection, then the composition of the finance committee and the adoption of the M-Form in a second subsection, and, finally, evolution of the committees' composition in a third subsection. This section thus aims to show how the family’s control remained active in the management of the company through these decades.

3.1.1. E.I. DU PONT DE NEMOURS & COMPANY

Since 1911 Pierre—then treasurer of the Powder Company—cherished the unborn plan to exchange Du Pont Powder preferred stocks—with voting power—for debenture stocks with no voting power. The debenture stocks would bring the advantage of raising capital without the inconvenience of diluting the family’s capital. With the antitrust suit (1907–1912) and the beginning of World War I, his plan did not go anywhere. In 1915, and this time with the huge entry of capital due to the conflict in Europe, Pierre submitted his plan for a financial reorganization of the Powder Company. In that year he was president and John J. Raskob had been elected treasurer. These two men worked together to make a clear and important proposition to the board of directors and shareholders of the company: to incorporate a new company that would acquire the assets of Du

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Pont Powder. As the 1915 syndicate was well represented both on the board of directors and in ownership of the company, it was quite natural that their plan was approved by the board on August 19, 1915, ratified by the shareholders on September 8, 1915, and became official on October 1 of the same year. Thus, E.I. du Pont de Nemours & Company was incorporated in the State of Delaware.246

The plan was that this new corporation would hold and purchase all the assets and assume all liabilities of the 1903 Powder Company, and then it would reorganize to form a new enterprise. Therefore, the Delaware Corporation issued a capital of $240 million composed of $150 million worth of non-voting debenture stocks and $10 million worth of voting debenture stocks, both at par $100, as well as $80 million worth of common stocks with voting power, also at par $100. In October 1915 the holding only issued part of the authorized capital ($58.9 million worth of common stocks and $59.7 million worth of debenture stocks).247 With this capital the Delaware Corporation acquired all assets of Du Pont Powder for the sum of $120 million, paid to the owners in three parts248: $1.4 million in cash plus all the outstanding stocks for the new corporation.249 The owners of the preferred stocks of Du Pont Powder were satisfied as their Powder stocks were at 5% and were exchanged for the debenture stocks of the Delaware Corporation at 6%. The owners of Du Pont Powder’s common stocks were obviously the big winners of the deal as for each share of Du Pont Powder’s common stocks they received two shares from the Delaware

246 I will refer to this company equally by using "Du Pont & Company" and "the Delaware Corporation" because it differs from the 1903 Powder Company, which was incorporated in New Jersey. Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 387. 247 The collateral seems to have been, as for the previous incorporation, the assets of the companies swallowed by the Delaware Corporation. 248 Du Pont Powder total assets worth was $83.5 million in 1914, the offered price took into account 5 years of income for the company. 249 Du Pont Annual Report, 1915. Moody's 1916, E.I. du Pont de Nemours & Company, 1251- 1253. And Moody's 2010, E.I. du Pont de Nemours & Company, 910-917. 132

Corporation, plus they became the quasi-exclusive owners of voting power.250 Thus, Du Pont Securities now owned 159,790 shares of the Delaware Corporation’s common stocks, representing a total of 27.1% of the newly incorporated Du Pont & Company’s voting stocks and 14,999 shares of non- voting debenture stocks. At this time 90% of Du Pont Securities was held by members of the du Pont family, with the other being held by Du Pont's senior managers.251

18Table 3.1: Ownership of the Delaware Corporation in 1915.

Du Pont Securities 28%

Miscellaneous Family 66% 3% Bankers 3%

Sources: Author's analysis based on (Winkler 1935) By January 1916 Du Pont Powder had no assets left. Even though its official dissolution only took place on May 22, 1926, Chandler and Salsbury considered that "it had already ceased to be a factor".252

250 The debenture received the right to vote only in case the firm's earnings were less than one and one-half times the accrued interest on the debenture stock issued and outstanding or when the company failed to pay any quarterly dividend on debenture stock. Moody's, 1916, E.I. du Pont de Nemours & Company, 1251-1253. 251 See chapter two for further details about the composition of Du Pont Securities in 1915. 252 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. Footnote page 672.

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As president of the new corporation, Pierre decided to fire some family members with whom he had been in conflict with since Coleman's stock purchase.253 He dismissed Alfred, Philip, William, and Francis du Pont and replaced them with Hamilton M. Barksdale, William G. Ramsay, and Franck O. Tallman. This proved that even in family businesses, president can fire family members. Barksdale was elected for the obvious reason of his seniority in the management, Ramsay and Tallman were two new important owners of Du Pont Securities and, therefore, of the Delaware Corporation. Thus, the new corporation continued to be managed by an executive committee, a finance committee, and a board of directors, but their composition changed. Added to his role of president of the company, Pierre was chairman of both the board of directors and the finance committee. Altogether the family managed the company at a height of 39%. This was less than before the incorporation in 1915 (67%), but still a significant portion of the senior management positions. Furthermore, if we include among the family members the inner circle of life-long friends such as John J. Raskob, Charles Patterson, and J.A. Haskell, this percentage can increase up to 64% (81% in Du Pont Powder).254

253 As seen, since December 1915, Pierre was sued by another cousin, Philip du Pont, concerning the acquisition of Coleman's stock. Other family members and senior managers of the company were opposed to Pierre, Philip stood for the pro-Alfred's side; he was then the figurehead of the anti-Pierre and defended Alfred's interests, as well as those of William du Pont and Francis du Pont, two uncles of Pierre. 254 Moody's, Industrials, Du Pont, 1916, 1251-1254, and Du Pont Annual Report, 1915.

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19Table 3.2: Senior Managers of the Delaware Corporation in 1915; light grey indicates family members. Executive Committee Finance Board of Directors Committee Pierre S. du J. A. Haskell Pierre du Pont Pierre S. du Lammot du Pont (Chairman) Pont Pont (President) (Chairman) H. M. C.L. Irénée du Pont H. M. H. F. du Barksdale Patterson Barksdale Pont E. G. John J. John J. Henry Belin H. G. Buckner Raskob Raskob Haskell (Treasurer) (Treasurer) F. L. H. F. Brown J. A. Connable Haskell E. G. Buckner J. P. Laffey R. R. M. C. L. Carpenter Patterson F. L. Connable Wm. G. Ramsey William Coyne John J. Raskob Eugene E. du F. O. Pont Tallman Sources: Du Pont Annual Reports. Table 3.2 helps us understand that Pierre was not obsessed with having family members on the decision-making committees, except probably on the finance committee. This organ gathered the most important stockholders of the company, plus the treasurer; here Pierre and Irénée deserved this place through the voting shares they owned in Du Pont Securities. Through the finance committee the brothers and Raskob could decide how to raise capital to expand Du Pont's activities. Nevertheless, before 1915 this committee still had to report to the executive committee. Therefore, during the first years of the new company Pierre managed to make the finance committee stronger. The next section of this chapter will demonstrate this.

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3.1.2. THE M-FORM

Already while he was acting president in 1914, Pierre wanted to specify what responsibilities the executive and finance committees might have. Clearly Pierre increased the controlling power devoted to the finance committee. He proposed that the executive committee was to set goals that the departments were encouraged to meet and to also coordinate the departments' activities. All executives were also heads of a department, except for the president and treasurer. Concerning the finance committee, its members were still chosen from among the most important stockholders and their responsibilities were to allow capital to the executive committee's projects; furthermore, to raise this capital. More specifically, the finance committee chose where this money came from: reinvested earnings, borrowings, or stock issued on the market. We can thus understand its role as crucial when it came to avoiding dilution of family ownership. Added to this specification the finance committee proposed and authorized general financial plans. The departments could then work with the financial plan without having to refer to the finance committee about it. Nevertheless, requests over $300,000 still had to be studied by the finance committee, despite the plan. Finally, and above all, in terms of autonomy this committee no longer had to report its decisions to the executive committee.255 Thus, Pierre gave the finance committee a growing importance, a growing influence, and growing independence. Even more, he promoted it to an organ with higher decision-making power than the executive committee; it could reject some propositions made by the executive committee and definitely stop this body's projects.256

255 Chandler, A. D. J. (1962). Strategy and Structure. Chapters in the History of the Industrial Enterprise. Cambridge, MA, The M.I.T. Press. 65. 256 Ibid. 65 Nevertheless, Crawford Greenewalt, ex-president of the company between 1948 and 1962, gave an interview to historians David Hounshell and John K. Smith in 1983 in which he told the scholars that he did not remember a moment when the Finance Committee had rejected an

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During World War I Du Pont's affairs were flourishing; the business of explosives had a constant and increasing demand from the Allies in Europe. Consequently, until the end of the war there was no question of restructuring Du Pont's organization as it worked well and as the top managers were busy enough in satisfying the European demand. Nevertheless, when the war was over Du Pont's structure was challenged by some executives. By summer 1919 Frederic W. Pickard, a vice-president and head of the sales department, warned the executive committee that the Paint and Varnish Department was losing money. "The more paint and varnish we sold, the more we lost." The department's losses had passed from $108,720 on a gross sale of $1,265,328 in 1917 to $489,337 on a gross sale of $4,015,769 in 1919.257 The deep depression of 1921 obviously did not help the company recover.258 In that year, as the next section will show, the company's turnover was the slowest ever—even the Great Depression of the 1930s did not curtail Du Pont's business as much as the 1921 depression. The last time the company's net income had been as low as in 1921 was, in constant value, in 1907 after the financial panic.259 More precisely, during the first half of 1921 the company had made profits in the sales of explosives

Executive Committee's decision. Archives HML: Greenewalt Interview, January 19, 1983, Acc. 1878. 257 Ibid. 92 258 By July 1920, the US industrial production had declined from 7%, and by year's end it had declined from 25.6%, in July 1921 it was from 32,6%. Plus, Du Pont was more severely concerned as its increasing business was completely related to the war in Europe and its production of explosives could obviously not know the same success in times of peace. In parallel, wholesale prices in the USA declined from 42.9% between 1920 and July 1921, and unemployment rose from 1.4% in 1918 to 11.7% in July 1921. Vernon, J. R. (1991). "The 1920-1921 Deflation: the Role of Aggregate Supply." Economic Inquiry XXIX(July 1991): 572-580. 572-573. 259 In constant value, in 1907, the net income was of $4,180,328. In 1921, the net income was $4,032,262. In 1932, at the hardest moment of the Great Depression for the company its net income was $19,010,310. In current value: 1907 was about $3,929,508, in 1921 about $ 7,258,072, in 1932 about $26,234,228. See Du Pont Annual Reports, respective years.

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($2.5 million), whereas its losses in the sales of other products amounted to $3.8 million.260

Therefore, there was a common feeling among the executives that the company had to reorganize its structure in order to have its departments perform better. In 1921 Henry Fletcher Brown, ex-manager of the smokeless powder department between 1911 and 1919, and acting vice-president on the executive committee in the short absence of A. Felix du Pont in 1921, wrote a letter to the executive committee in which he outlined "the situation and the alternatives" from which the committee could choose.261 Thus, Henry F. Brown proposed two solutions: that the centralized structure regarding the departments be decentralized, and that the executive committee stop being composed of operating managers. In addition to these solutions the finance and executive committees could be merged into a new top committee composed of five men who would not be heads of departments.262

In 1921 Irénée du Pont was president of the company and Pierre Samuel was still chairman of the board and of the finance committee. The committees and the board were composed as shown in Table 3.3.

260 Chandler, A. D. J. (1962). Strategy and Structure. Chapters in the History of the Industrial Enterprise. Cambridge, MA, The M.I.T. Press. 104. 261 Ibid. 105 262 Ibid. 105

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20Table 3.3: Senior Managers of the Delaware Corporation in 1921; light grey indicates family members. Executive Committee Finance Board of Directors Committee Irénée du Lammot du Pierre du Pont Pierre du Pont J. B. D. Pont Pont (Chairman) (Chairman) Edge (President) H. F. Brown W. C. Irénée du Pont F. D. Brown Harry G. Spruance Haskell W. S. F. G. Lammot du H. F. Brown J. Amory Carpenter Tallman Pont Haskell Wm. Coyne W. S. R. R. M. J. P. Laffey Carpenter Carpenter H. F. du Pont F. L. C. A. Connable Meade H. G. Haskell Charles Charles A. Copeland Patterson J. J. Raskob William Coyne C. L. Patterson F. D. Brown A. Felix du F. W. Pont Pickard Eugene du H. M. Pont Pierce Eugene E. du M. R. Pont Poucher H. F. du Pont John J. Raskob Irénée du Charles L. Pont Reese Lammot du Frank O. Pont Tallman Sources: Du Pont Annual Reports. The executive committee approved H. F. Brown's stance and proposed to him that he prepare a report that would develop his ideas and which would be submitted to the vote of both the executive committee and the board of directors. Brown executed the president’s and vice-presidents' demands and by September 8, 1921, the executive committee approved part of the plan that was borne from his reflection; the idea that the vice-presidents stop to cumulate this function with department management was adopted, but the executives were opposed to the idea of merging the committees. Therefore, the finance and executive committees remained separate bodies. Two weeks after the executive

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committee had agreed on the proposed plan of restructuring, so did the board of directors.263 In full, the proposed reorganization would divide Du Pont into five industrial departments (explosives, dyestuffs, pyralin, paint and varnish, and fabrikoïd) and eight auxiliary departments (legal, purchasing, development, engineering, advertising, chemical, services, and traffic), as well as the treasurer's department. The general manager of each new department had full authority and responsibility for the operations of his industry. Plus, he would head a complete team of workers who would operate the unit as an independent company.264

The M-Form of organization was thus set up in Du Pont (Figure 3.4). This structure was supposed to "improve the managerial psychology" as the general managers became the presidents of their businesses. As the board of directors concluded: "When a man is made responsible for his result, his interest is stimulated.".265 To make it simple, the M-Form divided control of the company into three shares: the owners, the executives, and the general managers.266 Finally, except that there were increases in the number of industrial departments (twelve in total during the 1960s) and auxiliary departments (three new added in the 1960s: employee relations, public relations, foreign relations), this structure was the last to be adopted by the Du Pont Company until the 1980s.267

263 Ibid. 107 264 Ibid. 106 265 Ibid. 111 266 Freeland, R. F. (2001). The Struggle for Control of the Modern Corporation. Organizational Change at General Motors, 1924-1970. New York, Cambridge University Press. 19-20, 52. 267 Chandler, A. D. J. (1962). Strategy and Structure. Chapters in the History of the Industrial Enterprise. Cambridge, MA, The M.I.T. Press, Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press.

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21Figure 3.4: Organization of Du Pont in September 1921.

General Asst. Gen. Explosives Manager Mgr. Dyestuffs Industrial Departmen Pyralin ts Paints and Chemicals Fabrikoid Chief Legal Executive Counsel President Committee Board of Director of Purchasing Directors Treasurer's Purchasing Finance Departmen Stockholders Committee t Develop. Director Auxiliary Chief Departmen Engin. ts Engineer Chemical Director Services Director Traffic Director Advertising Director

Sources: (Chandler 1962) 108-109268 In this organization the stockholders and the board of directors headed all management of Du Pont & Company; the board’s composition and operation continued as specified in the company's by-laws. The board was, therefore,

268 To notice, the five industrial departments had the same structure as the one exposed for the explosives department: a general manager, an assistant to the general manager.

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elected by the company's shareholders and had to be composed of at least ten directors, with any increase being subject to a vote from the board. The elected directors met annually and were entitled to elect the president of the company, as well as the executive committee's vice-presidents and the officers of the finance committee. Added to this major task, the directors signed and executed all authorized bonds, contracts, and obligations, plus they signed the certificates of the shares in capital stocks of the company. Finally, the directors had the power to adopt, amend, and repeal the by-laws of the company by a vote of the majority of the whole board.269 It is clear that the board had a very strategic role to play. It is also important to note that the shareholders had a decisive role as well in electing the directors. It was thus important for the family to count among the large stockholders and to elect a board of trustful directors. In the 1921 board nearly half of the directors were family members and the remaining seats were occupied by men working with Pierre since the early days of the Powder Company.

To Robert Freeland this structure clearly facilitated the family’s control over the company. This was first because the finance committee remained a separate body and controlled the treasurer's department and consequently the capital of the company. Second, this organization had the effect of reducing the number of operating managers who reported directly to the president and executive committee. Consequently, when the industrial departments’ general managers were du Pont family members, they would report directly to the top

269 Archives HML: Du Pont's by-laws, 1915. These specifications were common to other U.S. companies' boards. The Ford Motor Company's directors were also elected by the shareholders, and were at least ten. They were then entitled to elect the president and both the executive and finance committees' officers. See Ford Motor Company's by-laws. Concerning Du Pont, it was what the general corporation law in Delaware imposed as a common rule for corporate companies. The laws of Delaware recommended that there were at least three directors on the board that are elected by the shareholders. The shareholders might meet annually to elect the board, and the board might meet annually to elect the committees. The president and the officers could also be elected by the shareholders, depending on the company's proposed by-

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management. If this top management was made of family members, the control could be total. Thus, how did the composition of the committees and board evolve through time?

3.1.3. FAMILY MANAGERS

As already mentioned in Chapter Two, while Pierre was president he insisted on hiring professional managers who were trained to university or engineering school level. He would hire family members, but only if they had proven that they were the best managers. Chandler describes it:

“[…] the only du Ponts to serve on the executive committee were experienced managers, graduates of MIT or other engineering schools, [and] they had spent years with the company. In fact, Pierre’s insistence that no du Pont serve in middle or top management unless he was fully qualified helped to bring on a bitter family fight. Even so, the seven men on the executive committee from its beginning included three or four non-family members. By the 1930s [non-family] top managers outnumbered the family on Du Pont’s Board.”270

The ratio of directors, vice-presidents, and presidents who were from the du Pont family had decreased a little since 1915, but a certain share of the top management remained under the control of the family.

laws. Delaware general corporation’s law, 1899, p.451. Thus, the shareholders really have a determinant role to play. 270 Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press. 452.

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22Table 3.5: Family Management in the Delaware Corporation during the Presidencies at the End of Each President's Tenure. Years Presidents271 On the On the On the Total Total executive finance board of family family committee committee directors and life- long friends 1915– Pierre du 43% 75% 54% 55% 55% 1919 Pont 1919– Irénée du 50% 75% 44.5% 53.5% 65% 1926 Pont 1926– Lammot du 50% 70% 42% 49% 56% 1940 Pont 1940– W. S. 33% 77% 50% 51% 61% 1948 Carpenter 1948– C. 33% 88% 50% 54.1% 54.1% 1962 Greenewalt 1962– Lammot D. P. 22% 88% 50% 52% 52% 1967 Copeland 1967– Charles B. 25% 50% 20% 33% 33% 1973 McCoy 1973– Irving Shapiro 0% 67% 30% 37.5% 37.5% 1980 Sources: Du Pont Annual Report. Table 3.5 clearly presents a decrease in family control in top managing positions in the executive committee, whereas the finance committee remained managed mostly by du Ponts, even at the end of the 1970s. On the board half of the seats were held by family members since the 1940s and until the mid-1960s. Thereafter the percentage of du Ponts sitting on the board oscillated between 20 and 30%. The last column presents the ratio of family members, by blood or by marriage, added to the life-long friends such as John J. Raskob, J. Amory Haskell, and other managers who had already entered senior managing positions in Du Pont Powder and could be considered as family members. Until 1948 some friends of the three brothers and presidents can easily be identified

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as life-long friends, but after 1948 I chose not to overvalue the relations that the directors entertained with each other as the correspondence among them became scarcer.

In some cases the sons of some of the managers and friends of the du Ponts inherited their fathers' positions in the company, or brothers succeeded each other, even if they were not family. Charles Patterson already took his father George Patterson's seat on the executive committee in 1907; J. Amory Haskell had entered the executive committee in 1902 and his brother Harry G. was hired in 1909. Amory left Du Pont in 1922, while Harry left in 1941. Harry's son, Harry C. Haskell, entered the company in 1941; the father died in 1951, the son in 1953.272

Nevertheless, most of the time the successions happened between fathers and sons of the du Pont family, or between brothers of the clan. Donaldson Brown and his brother J. Thompson Brown worked together on the board of directors and on the committee. Donaldson Brown, as mentioned, had married H. M. Barksdale's daughter and entered the board in 1918; his brother J. Thompson Brown also entered the board in 1923. J. Thompson died in 1953 and Donaldson resigned in 1966. Finally, Charles B. McCoy (1910-1995) took his father John W. McCoy's position on the board in 1961 and became Du Pont's president in 1973. His sister was married to Henry Bush, a du Pont, and his son married Margaretta and Robert Carpenter's daughter. The family tree below (Figure 3.6) exposes these family connections. What appears here is that the most important stories of succession are within the du Pont-Belin branch– Pierre's branch.

271 The only president who was not a family member was Irving Shapiro. Lammot Copeland's middle name is du Pont, and W.S. Carpenter, C. Greenewalt, and Charles B. McCoy became a du Pont by marriage. A family tree will follow. 272 Du Pont Annual Reports, selected years.

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23Figure 3.6: Family Tree

Henry Bush Alexis I. Eleuthera Joanna McCoy's sister

Ethel Greta Barksdale Victor M. Charles I. Victor Hamilton M. Barksdale Donaldson Brown

Eleuthère Irénée II Alfred I.

Antoine du Pont T. Coleman Ellen Coleman

Mary A. Belin W. W. Laird Jr. W. W. Laird

Eleuthère Irénée Eleuthère Pierre S.

Alfred V. Henry Belin Henry B. Jr. Margaretta Lammot

William K. William

Margaratta L. Carol V. W.S. Carpenter III R. R. M. Carpenter McCoy's son

Louisa Lammot du Pont Louisa D'Andelot Charles Copeland Copeland

Nathalie du Pont George Lammot I P. Edmonds Mary Belin Lammot

Pierre III Pierre IV

Constance du Pont Colgate Darden

Sophie du Pont Ernest N. May Irénée

Irénée Jr.

Margaretta I. du Pont Crawford Greenewalt

Bayard Sharp Isabella Hugh R. Sharp Hugh R. Sharp Jr. Hugh R. Sharp III

Sources: Author's analysis based on (Zilg 1974) Indeed, Pierre was succeeded at the presidency of the company by his brother Irénée in 1919, who was succeeded by his brother Lammot in 1926. From their 146

branch W. S. Carpenter headed Du Pont Nitrate Company in 1911 and became president in 1940; his brother, Robert Carpenter, was married to Pierre's sister and had already been hired in 1903. Robert Carpenter died in 1947, but Walter remained on the finance committee until 1974. William W. Laird married Pierre's sister and became an associate in Du Pont Securities; his son would enter the senior management in 1967 and leave the company in 1981. Besides the three cousins, Pierre's brother Henry Belin played an important part in the Powder Company. Henry Belin’s son, Henry B. du Pont Jr., would be part of Du Pont's top management between 1934 and 1969. Charles Copeland, married to Pierre's sister Louisa, had a son Lammot du Pont Copeland (1905-1983) who succeeded him on the board in 1944, and who became president in 1962. Lammot du Pont Copeland left the company in 1981. Lammot du Pont had a daughter, Nathalie, who married George P. Edmonds, who in turn was an important manager in Du Pont between 1965 and 1983. George P. Edmonds also sat in banking institutions. Furthermore, Lammot's son and grandson— Pierre III and Pierre IV—would be senior managers between the 1960s and the 1990s. Irénée's children also played an important role in the succession. Margaretta married Crawford Greenewalt (1902-1993). Greenewalt succeeded W. S. Carpenter as president in 1948 and remained in this position until 1962. Greenewalt resigned from the company in 1987. Irénée III was a senior manager until 1986. Sophie married Ernest N. May, a director between 1962 and 1979. Their son Harold E. May inherited his father's position on the board in 1979 and left it in 1984. Constance du Pont married Colgate Darden who had played an important part in the company's management during the 1960s and 1970s, as well as in some banking institutions. Finally, Isabella Belin du Pont, another one of Pierre's sisters, married Hugh R. Sharp who became an associate in Du Pont Securities. Their child, Hugh R. Sharp Jr., and grandchild, Hugh R. Sharp III, became senior managers from 1951 to 1981 and 1981 to 2006, respectively. The family tree above clearly presents the family affiliations of all senior managers. It clearly shows how former president Lammot I.'s branch, the Belin du Pont, was the most powerful of all. Finally, at the end of the period studied in 147

this dissertation, in 1979, Du Pont's senior management was organized as shown below in Table 3.7.

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24Table 3.7: Senior Managers of the Delaware Corporation in 1979; light grey indicates family members. Executive Committee Finance Board of Directors Committee Irving Edward R. Charles B. McCoy Irving Shapiro Richard E. Shapiro Kane (Chair.) (Chair.) Heckert (Chair.) Robert C. Richard E. Lammot dP Andrew F. Edward Forney Heckert Copeland Brimmer Jefferson Edward G. William G. Irénée du Pont Jr. Charles L. Howard Jefferson Simeral Brown Johnson George P. Lammot dP Gilbert E. Edmonds Copeland Jones Crawford Norman A. Edward R. Greenewalt Copeland Kane Howard W. Joseph A. W. W. Laird Johnson Dallas Edward R. Kane Edward B. du Charles B. Pont McCoy Irving S. Shapiro Irénée du Pont Ruth Patrick Jr. Hugh R. Sharp Jr. Georges P. Hugh R. Edmonds Sharp Jr. Robert C. William Forney Simeral Crawford Lester S. Greenewalt Sinness Caryl P. Howard W. Haskins Swank

Sources: Du Pont Annual Reports.

3.2. OWNERSHIP AND THE RISE OF CAPITAL

The sociologist Robert Freeland considers that there are two levers that are decisive in characterizing a family firm: control of the voting stocks and seats on the finance committee. This scholar states that it gives the family members full control over the company, because the family then votes for the composition of management. In addition, the family could control all decisions concerning the

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rise of capital.273 In what way is his analysis correct? This section will consider more precisely Du Pont's ownership between 1915 and 1980, as well as expansion of the company and the capital necessary for this task. After a first subsection concerning the ownership of Du Pont between 1915 and 1980, I develop two successive subsections, one about the expansion of the company and the rise of capital between 1915 and 1940, and the second about the same issues between 1940 and 1980. Thus, this section presents, hopefully, how Freeland is correct in his analysis and how it had always been decisive for the du Ponts to control both the voting stocks and the issue of capital.

3.2.1. OWNERSHIP

Between 1915 and 1980 the Delaware Corporation’s total assets increased massively from $253 million in 1915 to $1.2 billion in 1980 (constant value) (Figure 3.8). This increasing value reveals a dramatic change in Du Pont's activities; the company became a diversified producer rather than only an explosives manufacturer. In times of war or in times of peace, diversification is the key element to understand the augmentation of assets of the company. Du Pont mostly increased its business by acquiring new patents and new companies in new sectors. During the entire period the recurrent issue is that the capital stocks and capital surplus are the most important contributions to increases in the company's activities and contributed the most to the increasing

assets of the company.

273 Freeland, R. F. (2001). The Struggle for Control of the Modern Corporation. Organizational Change at General Motors, 1924-1970. New York, Cambridge University Press. 37-38.

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25Figure 3.8: Assets and capital evolution, ratio of the total assets and liabilities (1915–1980).274 160%

140%

120%

100% Kstock+Ksurplus/TL Net Income/TL 80% Sales/TL 60% Fixed Assets/TA 40% Current Assets/TA

20%

1925 1940 1915 1920 1930 1935 1945 1950 1955 1960 1965 1970 1975 1980

Sources: Moody's and Du Pont Annual Reports. With a closer look at the common and debenture stocks issued (Figure 3.9 and 3.10), it is noticeable that the capital stock's augmentation was due mostly to an increase in the number of the voting stocks issued, rather than the debenture stocks.

274Since 1966 the fixed assets became more important than the total assets and liabilities on the charts; this is because they are considered to have been here before the subtraction of the Accumulated Depreciation and Obsolescence, which also increased considerably. By so doing, we can appreciate how much the plants and properties of the company represented a growing amount of capital.

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275

26Figure 3.9: Number of Common and Debenture/Preferred Stocks issued.

160

140

120

Number of 100 Common 80 Stock

Million USD Million 60

1915 1979 1919 1923 1927 1931 1935 1939 1943 1947 1951 1955 1959 1963 1967 1971 1975

Sources: Du Pont Annual Reports.

27Figure 3.10: Number of Debenture/Preferred Stocks Issued.

3'000

2'500

2'000 Number of Debenture 1'500 stock, then exchanged

1'000 for Throusand USD Throusand Preferred 500 Stock

1919 1923 1927 1931 1935 1939 1943 1947 1951 1955 1959 1963 1967 1971 1975 1979 1915 Sources: Du Pont Annual Reports.

275 As mentioned, the common stocks had voting power and only a small part of the debenture stocks—100,000 shares on the 1,600,000 authorized, meaning 17,387 shares among the 607,740 eventually issued in 1915—had limited voting power. After 1939 only the common stocks had voting power; this year, the debenture stocks were exchanged for preferred stocks. The process 152

With such an increase in the voting stocks we can imagine that the family’s initial ownership, and thus voting power, might either having been consequently increased in order for the du Ponts to have kept control over the company's liabilities, or that their control had been diluted. We also notice that both stocks increased generally after plateaus. The three most important increases in common stocks were first in 1929 (from 2.8 million to 9.8 million shares), second in 1948 (from 11.1 million shares to 44.8 million shares), and finally in 1978 (from 48 million to 144 million shares). As far as the preferred stocks are concerned, the two most important increases were in 1939 (when the debenture stocks were exchanged for 1.125 more preferred stocks, plus an issue of 100,000 shares) and in 1946 (when the company again issued 1,000,000 new shares).276 Finally, we notice that the increases in debenture/preferred and common stocks alternated; they never occurred the same year. Therefore, who owned the voting shares? The two next subsections dissect Du Pont's ownership between 1915 and 1980.

Stockholders: Christiana Securities and the Delaware Realty and Investment Company

Between 1915 and 1980 ownership of the Delaware Corporation evolved considerably in terms of number of shareholders. Indeed, since 1922 both the debenture stocks and the common stocks were listed on the New York Stock Exchange, and their acquisition was public, contrary to other contemporary family businesses. Indeed, if we compare Du Pont to Ford after the Second

and other explanations are given in the subsection which concerns the rise of capital between 1915 and 1940. 276 Wilkins notices that between 1955 and 1970, large American companies increased in size, diversified their activities, opened new research and development centers, and also view their number of shareholders increase massively. Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 327. Therefore, respectively to the criteria mentioned here, Du Pont had no specific develop compared to other large American companies. 153

World War, we notice that Du Pont was far more open to outsiders than the automobile company. For a year chosen randomly, in 1966 the Ford Motor Company was capitalized by 63,350,953 common stocks at par value $2.50. These stocks were divided between 34,296,854 class A, non-voting stocks, all owned by the Ford Foundation, and 12,265,964 class B voting stocks that were all owned by members of the Ford family, their trusts or corporations, and the Edison Institute. Therefore, the voting stocks were under the control of a small circle of managers.277 The case of a non-family business would even tell more about the openness of Du Pont. The same year, also chosen randomly, Westinghouse Electric was capitalized by 492,677 shares of preferred stocks and by 37,463,612 shares of common stocks. Its liabilities amounted to about $2 billion (Du Pont totaled $3 billion this year), and the company counted 115,141 employees (Du Pont: 115,217 employees). Even if Westinghouse Electric had no family control ambitions, its common stocks with exclusive voting power were held only by officers and employees. This meant that, even if the stocks were publicly listed on the New York, Boston, Midwest, Pacific Coast, and Pittsburgh Stock Exchanges, access to Westinghouse’s voting power was much more complicated than access to Du Pont’s voting stocks.278 Thus, Du Pont proved to be a very open company in 1966, but also during the entire period studied here.

In addition, Du Pont’s finance committee managed to keep the voting shares at a reasonable price par value, and proceeded to split the stocks on various occasions in order to decrease the market price of the share of common stocks.

277 To note, the Ford Motor Company’s net sales were four times the amount of Du Pont's sales this year, as were the total liabilities of the company. Moody's, Industrial, June 1967, Ford Motor Company, 3001-3006. 278 Moody's, Industrial Manual, June 1967, Westinghouse Electric Corporation, 3068-3072. Mary O'Sullivan emphasizes that Westinghouse Electric was more dependent from the financial system during the early period of its development in the early 20th century. Between the aftermath of World War Two and the 1970s, she considers that even if the company occasionally raised external finance (From 1953 until the late 1960s, the company did not call on the financial system), Westinghouse Electric used its retained earnings to expand its activities. O'Sullivan, M.

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This resulted in the company counting 56,577 common stockholders in 1937. Among the stockholders 90% used to own 100 shares or less (among 11,065,762 shares of common stock) and that the average common stockholding was less than 200 shares. This meant that about 5 million shares of common stocks, a bit less than half the total shares, were owned by small independent owners. Following a 4-1 split in 1948, Du Pont’s common shares sold at par value $5. The common stockholders thus quickly reached amazing amounts; 108,000 among 125,000 total stockholders in 1950 and 185,000 among 200,000 stockholders in 1957. Nevertheless, this was an increase in small voting shareholders.279

By contrast, the remaining shares were owned by large shareholders, and these were rather stable during the entire period. Indeed, in 1915, as mentioned, Du Pont Securities was the most important individual stockholder and held 27% of the common stocks of the Delaware Corporation (Table 3.11). Renamed Christiana Securities in 1919, the holding had always been the most important shareholder of Du Pont's common stocks.

(Winter 2006). "Living with th U.S. Financial System: the Experiences of GE and Westinghouse in the Last Century." Business History Review 80(4): 621-655. 622, 636 279 Du Pont Annual Reports, respective years.

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28Table 3.11: Big Owners of Du Pont’s Common Stocks. Du Pont Delaware du Ponts Bankers Sec/ Realty and individually (scarce (scarce Christiana Investment information) information) Sec Company 1915 27% - 3% 3% 1924 32% 2.5% 3% 1937 28% 3% 1950 27% 3% 7.5% 1961 27% 3% 1972 28% 3% 1977 27% 3% Sources: Author's analysis based on Moody's, Du Pont Annual Reports, and (Chandler and Salsbury 1971). The Delaware Realty and Investment Company (DRI) was a holding company founded in 1924 by Pierre S. du Pont's brothers and sisters to divest the ex- president from some of his shares. During the war years Pierre had become an important stockholder of General Motors’ voting stocks. He resigned from his position of president of the Du Pont Company in 1919 to consecrate his career to the automobile company, in which many of his relatives and friends were important stockholders and managers as well. In 1924 Pierre's brothers-in-law William Winder Laird and Robert Carpenter advised him to form a holding company, the Delaware Realty and Investment Company, to buy his Christiana Securities and Du Pont & Company shares, and to pay him with an annuity. By May 31, 1924, the holding was incorporated in Delaware and Pierre turned in most of his shares from numerous businesses (Table 3.12).

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29Table 3.12: Pierre S. du Pont’s Total Ownership in Various Companies (1924). Hercules Powder 12,000 shs Atlas Powder 11,000 shs Christiana Securities preferred stock 44,000 shs Christiana Securities common stock 49,000 shs Delaware Corporation preferred stock 12,500 shs Delaware Corporation common stock 24,000 shs Longwood property 400 shs Sources: (Chandler and Salsbury 1971) 562-563. As shown in Table 3.12, Pierre gave everything to the DRI, except 11,000 shares of Christiana Securities preferred stock and 7,000 shares of Christiana common stock. The total stock placed in the DRI Company totaled $13.5 million par value, which would bring in an annuity of $900,000 a year to Pierre and his wife Alice until their deaths. The DRI Company was shared among Pierre’s eight brothers and sisters—Irénée, Lammot, Louisa Copeland, Mary Laird, Isabella Sharp, Henry B., Mary Carpenter, William K.—and William K. du Pont's three children.280 The DRI owned about 2.5% of Du Pont’s common stocks and this ownership would be constant, even slightly increased to 3% until 1961 when it was merged with Christiana Securities. Interestingly, DRI initially also owned 32% of Christiana's voting stocks. As Christiana comprised Du Pont's biggest shareholder during the entire period, it is important to understand whether the DRI remained the largest owner of Christiana, because whoever controlled Christiana controlled Du Pont.

In 1924 Christiana Securities was capitalized, in part, by 150,000 shares of common stock with sole voting power. At its foundation in 1915, as table 3.13 shows, Pierre and his 1915 syndicate owned 90% of Christiana Securities,

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meaning that the holding was controlled by a handful of du Pont family members. The remaining 10% was constituted by managers of the new Du Pont & Company, which were not family members by blood or marriage. Since its incorporation the DRI owned a stable 30% of Christiana's stock, whereas individually some du Ponts continued to own about 60% of Christiana’s voting stock. Of note, when DRI was merged with Christiana in 1961, the DRI counted only 220 shareholders, of which 83.985% were du Ponts. Afterwards it was estimated that 75% of Christiana's owners were du Pont family members.281

30Table 3.13: Christiana Securities Ownership. Family DRI 1915 90% 1924 60% 32% 1937 60% 32% 1950 60% 32% 1961 60% 35% 1972 75% 1977 75% Sources: (Chandler and Salsbury 1971) 564, (Lundberg 1968) 250. Added to this clear family ownership of Christiana, the holding's management was in many ways under the control of the du Pont family between 1915 and 1977. First, Christiana only had four presidents and all were Pierre's brothers (Table 3.14).

280 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 562-563. 281 Moody's about Christiana Securities and about Du Pont.

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31Table 3.14: Presidents of Christiana Securities. Pierre S. du Pont 1915–1950 Lammot du Pont 1950–1952 Henry B. du Pont 1952–1970 Irénée du Pont Jr. 1970–1977 Sources: (Chandler and Salsbury 1971) 564, (Lundberg 1968) 250. Second, the directors and officers of Christiana were, since the beginning, family members only, with the four exceptions of T. E. House (a Christiana director between 1956 and 1977), E. H. Tinney (a director between 1939 and 1965, also secretary of DRI during the same period), H. E. Humphreys (a director between 1935 and 1939), and finally Henry Fletcher Brown (a director between 1935 and 1946). Henry Fletcher Brown was on the board and committees of Du Pont since 1915 and initially received 625 shares of Christiana Securities because of his wartime work for the company. Thus, during 62 years the holding was managed by a changing team of 14 regularly renewed executives and directors, of which there were only four outsiders.282

Mergers of the DRI and Christiana, and then Christiana and Du Pont (1961–1977)

On February 24, 1961, Christiana Securities and DRI stockholders approved the merger of the Delaware Realty & Investment Company, which was capitalized by 785,000 common shares into Christiana. At the time of the merger, the DRI was the owner of 1,217,920 shares of the Delaware Corporation common stocks, still about 3% of the company's voting stock. The owners of the DRI stocks received 0.082303 shares of Christiana Securities’ common stocks in exchange for one share of DRI stocks.283 This merger took place when Du Pont had to divest from some of its activities, such as with General Motors among

282 Moody's, Bank and Finance, Christiana Securities. 283 Moody's Bank & Finance Manual, 1963, Christiana Securities Company, 568. 159

others, because the company was accused of cartelization. The DRI's management was also accused of having consolidated ownership, and that is probably the reason why the family chose to dismiss this organized control and merge it into Christiana.284

In 1972 another merger was undertaken by Charles B. McCoy, then president of the Delaware Corporation, and that would be achieved under Irving Shapiro (1916-2001) during his presidency—the merger of Christiana with Du Pont.285 Historian Adrian Kinnane notes that this merger dissolved the last trace of organized family control over Du Pont.286 McCoy launched the merger project with the help of the finance committee, which submitted it to the company's shareholders. As seen, the family was the majority holder in 1972 and management was composed as shown in Table 3.15.

284 This judgment case is developed later in this chapter. 285 Zilg, G. C. (1974). Du Pont: Behind the Nylon Curtain. Englewood Cliffs (N.J.), Prentice-Hall. 434-435 Hounshell, D. A. and J. K. Smith (1988). Science and Corporate Strategy. Cambridge, Cambridge University Press. 535. 286 Kinnane, A. (2002). Du Pont : From the Banks of the Brandywine to Miracles of Science. Wilmington, E.I. Du Pont de Nemours and Company. 199.

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32Table 3.15: Senior Managers of the Delaware Corporation in 1972; light grey indicating family members. Executive Committee Finance Board of Directors Committee I. Shapiro Norman A. I. Shapiro W. S. I. Shapiro (Chair.) Copeland Carpenter (Chair.) (Chair.) Joseph A. Irénée du Pont W. S. Carpenter Wallace E. Walter J. Dallas Jr. Gordon Beadle Edwin A. Richard E. Lammot d.P. Wm. W. Laird Caryl P. Gee. Heckert Copeland Haskins Edward G. Edward R. George P. Bernard Samuel Jefferson Kane Edmonds. Peyton Lehner Crawford Robert L. R. Russel Greenewalt Richards Pippin George E. L. S. Sinness Holbrook Howard B. Johnson Edward R. Kane Charles B. McCoy Sources: Du Pont Annual Reports.

Thus, 66% of the finance committee's seats were occupied by du Ponts. This decision was duly attacked by four Du Pont shareholders including Ernest May—a du Pont by marriage—who said that it could create depressed share prices. Nevertheless, the merger was achieved in 1977. In that year Christiana Securities’ assets consisted of Du Pont common stocks that constituted 27.1% of the outstanding common stock of Du Pont Corporation. Of the holding common stocks, 95.5% was owned by 338 people with the remaining 4.5% being held by 6,446 small common stockholders.287 Christiana's shareholders would receive Du Pont stocks in exchange for Christiana Securities’ stock. Du Pont would acquire 13,417,120 shares of its own stock from the investment

287 Commission, S. a. E. (1974). Christiana Securities Company - E.I. du Pont de Nemours and Company, Securities and Exchange Commission. Files n° 3-3928. 652. 161

company and would then issue 13,228,620 shares of Du Pont’s stock to Christiana Securities’ shareholders.288 Following an interview with Irving Shapiro in 1977, while he was at the head of the company, it seems that a threat was coming from the emerging oil power in the Middle East with an offensive take off of Christiana's stock. At this point the family-organized control of the holding became a weakness and they decided to dissolve it.289 At the same time, merging Du Pont and Christiana would avoid a double taxation on the stock income from which Christiana's shareholders suffered. 290

The merger of DRI and Christiana and the merger of Du Pont and Christiana dissolved traces of family organized ownership, but did not dissolve the family’s control. In 1977 Christiana Securities counted 6,784 common stockholders and was chaired by Irénée du Pont Jr., with 73% of the senior managing positions being occupied by du Ponts.291 The descendants of Pierre's brothers and sisters (Pierre never had children) then still owned 30% of the holding company, and thus received at this point a corresponding proportion of Du Pont common stocks. Therefore, and added to the stock the du Ponts owned individually, the family ownership did not vanish after the merger of Christiana Securities. It became solely more difficult to read. Finally, in 1997 the du Ponts were still important stockholders of the company and owned 15% of the Delaware Corporation’s common stocks.292

288 Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 204. 289 Immediately after the merger Du Pont initiated negotiations with the major U.S. oil company Conoco and in 1981 already both companies merged their assets; Du Pont intended to become oil independent. 290 Lewis, P. (April 11, 1977). Those Wealthy du Ponts: Poor in Managerial Skill? New York Times. New York: 43, 46. 291 Moody's 1977. The number of common stockholders had been considerably increased after an 80-1 split of the common stocks in 1961, at the moment of the divestiture from the assets of General Motors. Christiana Securities owned 4,825,154 shares of GM common stock in 1961. 292 Lenzner, R. and C. Shook (1997, October 13). There will always be a Du Pont. Forbes.

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Now, how did the holding manage to remain in control of the voting stocks with such an increase in common stocks in Du Pont between 1915 and 1980? The next section examines the expansion of Du Pont's activities and the rise of capital concomitant with these increases between 1915 and 1940.

3.2.2. EXPANSION AND RISE OF CAPITAL BETWEEN 1915 AND 1940

In the previous section a global picture of the increase in assets and liabilities was presented for the period between 1915 and 1980. Below, a figure focuses on the 1915–1940 period while the three brothers (Pierre, Irénée, and Lammot) headed the company. Figure 3.16 thus clearly presents how important the First World War had been in terms of sales and net income, and how much the end of the war was a dramatic loss for Du Pont. Sales by the company reached levels that would be attained again only during the Second World War. The net income followed the same trend, but its amount did not equal what it was during the First World War.293 While the company supplied the Allies between 1914 and 1918, it increased its production capacities—hence the fixed assets knew a boom in 1916—and also its workforce from 5,300 in 1914 to 85,000 in 1918. However, by 1919 the number of employees had already decreased to 40,000 and by 1921 to 20,000 (its lowest number since 1914 and for the forthcoming years until today).

293 The 1916 level would only be larger again in 1949 when it reached $89 million, constant value. As a ratio the net income would never again represent the same portion of the company’s total liabilities after 1916 (38%); its maximum ratio was attained afterwards in 1950 (21% of the company’s total liabilities). Concerning sales, the company would have to wait until 1962 to reach a ratio above 100% (105%) and, not represented in the figures of this dissertation, the level of 1916 would be attained again in 1983 after the company’s merger with the American oil company Conoco.

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33Figure 3.16: Assets and Capital Evolution; Ratio of the Total Assets and Liabilities (1915–1940). 160% Kstock+Ksurpl 140% us/TL

120% Net Income/TL 100%

80% Sales/TL

60% Fixed 40% Assets/TA

20% Current

0% Assets/TA

1927 1915 1917 1919 1921 1923 1925 1929 1931 1933 1935 1937 1939

Sources: Moody's and Du Pont Annual Reports. At the end of the war, and as mentioned in the previous section about the adoption of the M-Form, the net sales of the company represented $216 million, whereas the income amounted to $31 million (constant value). The decrease in both values was hard with the net income falling 75% until 1921 and sales dropping 85%.294 Thus, the company had to bounce back and after the war Du Pont had to relocate its workforce and factories. This led the Du Pont Company to intensively diversify its activities.

294 Moody's for selected years.

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34Figure 3.17: Sales and Net Income; Ratio of Total Liabilities (1903–1935). 160%

140%

120%

100%

80% Net Income/TL 60% Sales/TL

40%

20%

Sources: Moody's and Du Pont Annual Reports. The following subsection is divided into two parts. The first subsection considers the diversification strategy of the company and the second subsection addresses information concerning the rise of capital. This will contribute to understanding how the family kept ownership of the company during the entire period.

The Diversification

After the 1921 slowdown Du Pont's net income recovery came quickly; by 1923 the company's income had already nearly tripled its lowest income of 1921 and afterwards it kept increasing. This increase in net income resulted from the implementation of a diversification strategy that had already been promulgated during the First World War. In 1917 the development department proposed that Du Pont open plants, if necessary through acquisition or joint ventures, in five new fields: dyestuff and allied organic chemicals, the vegetable oil industry, paint and varnish, water soluble chemicals, and in industries related to cellulose and

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cotton purification.295 This proposition proved to be successful for the company. Before World War I, in 1914, only 3% of Du Pont’s sales came from products outside of explosives (mostly artificial leather and agriculture designed products). By 1924 activities in the five aforementioned sectors had already provided an income equal to the explosives sector. By 1939 the explosives sector represented only 10% of the company’s turnover, and by 1947 up to 58% of the sales were coming from sectors that were no more than 20 years old.296 Historians D. Hounshell and J.K. Smith draw an interesting table in their 1988 book about Du Pont's expenditures in the research and development of various sectors between 1922 and 1929. During the 1920s dyestuffs were the most important sector in which the company invested ($421,000 among $1,185,000). The company also invested more in paint, lacquer, and chemicals—up to $610,000 in 1926. By the end of the decade research and development in the chemical department was the unit to which the finance committee allocated the most money—$934,000. This department worked on industrial chemical research in order to manufacture chemical products on a large scale.

295 Du Pont Annual Report, 1918, 20-24. 296 Chandler, 1962 #371} 78 Chandler, A. D. J. (1990). Scale and Scope, the Dynamics of Industrial Capitalism. Massachusetts, The Belknap Press of Harvard University Press. 175-177.

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35Table 3.18: Du Pont R&D Expenditure, 1922–1929 (in thousands of dollars) 1922 1926 1929 Total 1,185 2,243 3,645 Chemical Department 265 562 934 Dyestuffs 421 443 694 Explosives 161 336 303 Plastics 104 143 152 Paint, Lacquer, and 221 610 441 Chemicals Du Pont Rayon NA NA 371 Du Pont Cellophane NA NA 77 Du Pont Ammonia NA NA 432 Other NA NA 576 Sources: Extract from table 1.5.a (Hounshell and Smith 1988) 288 Finally, in the 1924 Annual Report the senior management announced that sales by Du Pont were fully diversified, and that this would prevent the company from suffering any depression in a sector covered by Du Pont. The total sales of the Du Pont Company were thus well distributed among many industrial sectors (Table 3.19).

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36Table 3.19: Du Pont's Sales in 1924 Mining 19% Construction and 17% Maintenance Textiles 16% Automotive 14% Agriculture 7% Chemical Manufacture 4% Sporting and Military 2% Powders Export 5% Miscellaneous 16% Sources: Du Pont Annual Report, 1924, 6. This reveals a really dramatic transformation of Du Pont's activities that had implications when Du Pont went abroad. During the 1920s and 1930s, joining in foreign formations or acquiring foreign companies was achieved for two-thirds in sectors outside the explosives industry (Table 3.20).

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37Table 3.20: Du Pont's Investments Abroad. Years Places Plants 1921 Chile Compañia de Explosivos de Chile (41.5% interest) 1923 France Acquisition of the patent for cellophane 1925 Mexico Compañia Mexicana de Explosivos (50% interest) 1926 Common Nobel Chemical Finishes Ltd (49% interest, piroxiline Wealth finishes) 1926 France Société Française de Fabrikoïd297 (22.9% interest) 1927 France Société Française Duco (49% interest, piroxiline finishes) 1927 Australia Nobel Chemical Finishes (Australasia) Ltd (49% interest, Fabrikoïd and rubber-coated goods) France Acquisition of Société Rhodiaseta de France (100%) 1928 Mexico Du Pont SA Mexico (100% interest, rayon and Cellophane) 1929 Australia Leathercloth Proprietary Ltd (100% interest, piroxiline- New coated and rubber-coated fabrics) Zealand 1932 Argentina C.G. Bartlett & Cia, Ltd (60% interest, artificial textiles) 1934 Brazil Du Pont do Brasil S.A., headquarters in Rio de Janeiro (100% interest, rayon) 1935 Argentina Industrias Quimicas Argentinas “Duperial” SA Industrial y Comercial (50% interest, Rayon) 1937 Brazil Industrias Quimicas Brasileiras "Duperial" SA (50% interest, Rayon) Sources: Du Pont Annual Report, selected years. This follows directly what the scholars Raymond Vernon and Bernard Wolf put forward about international investment: companies go abroad to diversify their activities.298 This transformation of Du Pont's activities also touches on the issue of whether family firms are more conservative than managerial companies. This notion would appear incorrect in this case.299 On the contrary, the ability of Du

297 Artificial leather 298 To Bernard Wolf, some major American Companies' diversification was facilitated by internationalization. Furthermore, to Wolf: "large firm size and technical know-how stimulate the U.S. manufacturing firm to operate on a multi-national and multi-industry basis." Wolf, B. M. (1977). "Industrial Diversification and Internationalization: Some Empirical Evidence." The Journal of Industrial Economics 26(2): 177-191. 189. 299 Many scholars understood family businesses as risk adverse and looking toward conservatism rather than diversification and changes in their activities. See literature review in Chapter One, but mostly: Fama, E. F. and M. C. Jensen (1983). "Separation of Ownership and Control." Journal of Law and Economics 26: 301-325, Chandler, A. D. J. (1990). Scale and Scope, the Dynamics of 169

Pont's management to diversify was a strength. Family control was not an unforeseen difficulty in the expansion of the company's activities, as in the expansion abroad.

Rise of Capital: Focus on the 1920s

Table 3.21 describes the reasons why the debenture/preferred stocks increased between 1915 and 1940, as well as the bias through which they were issued (split, new stock on the market). It also considers whether the numbers of shareholders changed with the issue of non-voting debenture or preferred stocks. Interestingly, and according to what Pierre wished, the voting debenture did not increase through the years, whereas the number of non-voting debenture stocks changed considerably. The debenture holders also increased, but in a considerably lower amount—it remained below 20,000 at the end of the period.300

Industrial Capitalism. Massachusetts, The Belknap Press of Harvard University Press, Zahra, S. A. (2005). "Entrepreneurial Risk Taking in Family Firms." Family Business Review 18: 23-40. 300 It is impossible to understand how many voting debenture holders were among the total debenture holders.

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301

38Table 3.21: Increase in Debenture/Preferred Stock (1915–1940). Years Total Voting Deb. Reason for increase Total amount Deb/Pref stock holders Deb/Pref shares among constant price Deb/Pref (USD) shares

1915 607,740 17,387 - 59,583,032 1922 684,112 17,387 10,713 -Stock listed for the first time in 40,480,047 May -Sales of Du Pont Chemical Cy to Industrial Salvage Cy: Assets offered to shareholders through 88,567 shares of debenture stock 1926 799,268 17,387 11,545 -Plant in Birmingham, AL 44,902,743 -Joined in Nobel Chemical Finishes Ltd -Joined in Société Française de Fabrikoid

1928 928,112 17,387 11,278 -Acquired new stock in Du Pont 53,648,143 Viscoloid Cy, National Ammonia Cy, Inc., Lazote, Inc., Canadian Industries Ltd, Bayer Semesan cy, Inc., Pittsburgh safety Glass Cy. -Two rayon plants in Virginia -Acquired exclusive rights for North America for the manufacture and sale of Celta (type of Rayon)

1929 995,319 17,387 10,768 Voting debenture holders to 54,642,737 increase their shares (in non- voting shares) 1930 995,331 17,387 10,692 Non-voting debenture holders to 59,245,923 increase their shares (in non- voting shares)

1931 1,093,831 17,387 12,031 The Newport Company property 71,352,695 payment 1939 1,688,850 18,737 Outstanding preferred stock in 120,113,103 exchange for debenture stock 1940 1,688,850 18,861 118,933,099

Sources: Author's analysis based on Du Pont Annual Reports and Moody's

301 At year end.

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What we learn from Table 3.21 is that the debentures were generally issued to pay the company's expansion and aforementioned diversification activities, as well as for the building of plants or the acquisition of companies. On two occasions it was related to the shareholders themselves. The Du Pont Company owed them debenture shares after splitting from some activities, or the company offered them the opportunity to increase their assets in the Delaware Corporation. The shares were issued, but the number of shareholders could not increase. The management of the debenture stocks were thus very open.

On September 29, 1939, the debenture and common shareholders approved an amendment of the Certificate of Incorporation of the Delaware Corporation: one share of debenture stock would be exchanged for 1,125 shares of preferred stock. Added to that the company issued additional shares of preferred stocks. The Annual Report of the company stated that this exchange was achieved in order to make more capital available.302 The events in Europe and the decrease in sales and net income in 1938 can be another reason why the company needed to issue additional capital; Added to that, the voting debenture that disappeared in the transaction could be a reason for such an exchange, even if they represented a minority of the total stock. Indeed, the issues of voting shares were definitely more important by this time. Besides the debenture, the role of the voting common stock was central to the company's expansion. Therefore, why did the finance committee choose to issue more voting common stocks than non-voting debentures? The table (Table 3.22) explains when and how the total amount of voting stock was increased.

302 Du Pont Annual Report, 1939, 9.

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303

39Table 3.22: Increase in Common Stocks (1915–1940). Years Total Common Reason for new issue Total Curren Const number of stockhol amount of t ant shares of ders common market market common shares, price price stock constant price 1915 588,542 57,700,196 1920 633,783 -Capital required because 31,375,413 slowdown of business: stock offered to common stockholders instead of dividends -Acquisition of Du Pont Fabrikoid minority interest 1922 950,609 2,875 -Stock listed for the first time in 56,249,053 100 59.17 May -Dividend payable in common stock 1925 1,330,829 4,196 GM's dividend added 75,188,079 227 128.25 1926 2,661,658 5,528 Split: Old stockholders possibility 74,765,674 178.75 100.42 to increase their ownership (2 shares for 1) 1928 2,811,050 9,970 Issue of 149,392 shares to acquire 114,319,942 500 289.02 Grasselli 1929 9,838,675 25,470 split because the price is too high 119,528,809 115 66.47 3,5 for 1 1930 10,339,243 34,643 -Executive trust plan: 129,130shs 131,734,667 85 50.60 -Roessler & Hasslacher Chemical Company of NY: 241,130shrs -Common stockholders allowed to increase their amount of stock, pro rata to their holdings: 355,939shs -Acquire minority interests in Du Pont Rayon, Du Pont Cellophane, Du Pont Ammonia 1931 11,065,762 42,465 -Formation of Krebs Pigment and 143,711,195 53 34.42 Color Corp. -Du Prene plant 1932 11,065,762 50,778 160,373,362 85 61.59 1940 11,065,762 63,467 155,855,803 165 116.20 Sources: Author's analysis based on Du Pont Annual Reports, Moody's, and the New York Times. In 1925 the increase in common stocks directly followed adjustments in the value of Du Pont's 70% interest in 1,875,000 shares of General Motors Company (GM) common stock. One share of GM common passed from a par value of $42.35 to $70, making the total of GM’s assets detained by Du Pont pass from $55,589,107 to $91,875,000.304 The total capital added ($36,285,893)

303 At year end. 304 Value of the Annual report does not correspond to the deflated value of the table.

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was paid as a special dividend of 40% on the common stock of the Du Pont Company, and was paid in common stock of the company. Afterwards, new issues were achieved through splits. In 1926 a 2-1 split was operated in order to offer more common shares to common stockholders. In 1929 there was a split in order to reduce the share price in the market—$500 in 1928. The Delaware Corporation also issued new shares for other purposes such as to capitalize the acquisition of the Grasselli Company in 1928, and other companies in 1930 and 1931. Thus, the common stocks were used until the 1930s to increase the company's local—never foreign—activities, but since 1931 using common stocks as a way to finance activities suddenly stopped. At the same time the number of shareholders increased as a consequence of the splits and probably due to the deaths of stock owners, which rendered the stock available.305

3.2.3. EXPANSION AND RISE OF CAPITAL BETWEEN 1940 AND 1980

The four decades represented in Figure 3.23 were years of massive business. For the first time in Du Pont’s history the total assets and liabilities were more than $1 billion in 1947 (current price; more than $1 billion in 1962 if we consider constant prices), and the sales reached amazing levels. In 1941 the sales were already more important than the record amount of $289 million in 1916, reaching $322 million. The sales kept increasing to $1.7 billion in 1980.306 If we consider the ratio, in the early 1980s only the sales had outpaced the portion of total liabilities that they had reached during the First World War (146%); however, they remained above 100% of the total liabilities from 1962 until the end of the period represented on Figure 3.23. The net income, as well, generally increased. After having outpaced the 1916 level in 1949, the net income remained above $100 million between 1954 and 1966. Afterwards it went through ups ($130

305 See appendix 8: death of important stockholders. 306 All values in constant price. 174

million in 1973) and downs ($50 million in 1975). The ratio of total liabilities that the net income represents was rather stable during the four decades, around 7 to 11%, with important increases between 1947 and 1962 (around 13 to 21% in 1948). The major decrease in the net income was due to the general economic recession of the 1970s. Du Pont was very dependent on the oil distribution for its artificial textiles and plastics production. In 1978 Du Pont had already recovered a net income of about $130 million.

40Figure 3.23: Assets and Capital Evolution; Ratio of the Total Assets and Liabilities (1940–1980).

160%

140%

120%

100% Kstock+Ksurplus/TL Net Income/TL 80% Sales/TL 60% Fixed Assets/TA 40% Current Assets/TA 20%

1967 1940 1943 1946 1949 1952 1955 1958 1961 1964 1970 1973 1976 1979

Sources: Moody's and Du Pont Annual Reports. During these decades one of the reasons for Du Pont's increasing data remained its continued diversification strategy. More precisely, the Delaware Corporation entered more and more into the artificial textile business and in polymer activities. Nylon and Teflon were the two most important products inaugurated during this era. These activities completely outpaced the explosives business. In fact, Du Pont only kept the explosives contract it had with the

175

American government and this for a symbolic price: the atomic bomb was produced by Du Pont for a dollar. By so doing the company wanted to get rid of its reputation of merchant of death.307

These specific decades were also the end of the cartels, with Du Pont divesting from its joint activities with Imperial Chemical Industries (ICI), a giant British chemical producer, in 1953 and with General Motors in 1961. The GM-du Pont case had a tremendous impact on the company's liabilities in the early 1960s, as shown in Figure 3.23. On the contrary, the ICI case seems to have had no consequences on Du Pont during the 1950s. A detailed analysis of the cases will help us to understand how and why Du Pont's assets were altered by the lawsuits.

The Lawsuits: ICI and GM Cases

During the late 1940s and early 1950s Du Pont faced six antitrust suits: the ICI case and GM-du Pont case, which are developed in this section, as well as the lesser known paint, varnish, and enamel case in which Du Pont was sued in 1948 for "conspiracy to fix the price of paints, varnishes, and enamels", the

307 Du Pont suffered from this accusation during the Nye Committee investigation. Since May 1934 and for 18 month, the US Senate had launched the Senate Munition Committee, led by North Dakota Republican Senator Gerald P. Nye, to investigate the U.S. ammunitions producers' responsibilities regarding the American participation in World War I in Europe. Senator Nye interviewed numerous actors who played a very active role during World War I in Europe: the J.P. Morgan & Company's partners and Pierre S. du Pont among others. The investigation intended to demonstrate that "they formed a lobby, insidiously against programs for world peace and disarmament, that they were banded together in an international network of interlocking ownerships and reciprocal obligations for the exchange of information and assistance, and that the price they practiced toward governments at war were exorbitant and unfair." Du Pont Company and Munitions Special Report, 1934, 2. The Nye Committee did not give birth to any formal accusation and found no guiltiness evidence; nevertheless, the Du Pont Company decided to reinvent its reputation by this time. The Du Pont slogan "Better Things for Better Living through Chemistry" was thus inaugurated in 1935. Du Pont Annual Report, 1935. See also the Du Pont Company and Munitions Special Report of 1934, resulting directly from the Nye Committee

176

wood finishes case, with similar charges as the preceding case, the cellophane case in which the American government alleged monopoly in the manufacture and sale of cellophane, and finally the brake fluid case which was a civil suit against Du Pont and six other corporate defendants of the automotive and other braking systems industries who passed agreements on the distribution of brake fluid.308 Whereas the company was found to be not guilty in the paint and varnish case in 1951, the wood and finishes case was withdrawn in 1952, the brake and fluid case was dismissed in October 1953, and the cellophane case was dismissed both by the Federal District Court of Delaware in 1953 and by the Supreme Court in 1956.

Concerning Du Pont's activities with ICI, in 1949 the Federal District Court of New York City was in charge to judge whether both companies' agreements of many years standing for granting patent and process rights and for the joint ownership of companies in Canada (Canadian Explosives Ltd, hereafter CXL), Argentina (Duperial Argentina), and Brazil (Duperial Brazil) were a violation of the Sherman Act.309 In 1951 the Court concluded on the case and both companies were accused and recognized as guilty. Therefore, the Department of Justice proposed a decree in which Du Pont was compelled to license patents and related technical information already in existence or that was obtained during the subsequent five years at least, and to dissolve joint ownership in foreign companies.310 The judgment ordered division from the joint investments by January 1953. Du Pont and ICI would have to split their common ventures into two separate businesses in Canada, Argentina, and Brazil. Added to this decision, the Patents and Processes Agreement of 1926 was abolished. Thus, between 1952 and 1953 Du Pont ended its joint ownerships under a plan

investigation, and which proposed elements to understand Du Pont's role in World War I and the company's "interests overwhelmingly for Peace", 5. 308 Du Pont Annual Report, 1951, 17-20. 309 Du Pont Annual Report, 1951, 19. 310 Du Pont Annual Report, 1951, 18-19.

177

approved by the Federal Court of New York City. Duperial Brasil ended on September 20, 1953, and Du Pont registered in the same year, also in Brazil, Du Pont do Brasil S.A., a company owned 100% by Du Pont. ICI also acquired some of Duperial’s activities and opened a company in Brazil. In the same vein Duperial Argentina ended and Du Pont received 72.25% of the outstanding capital stocks due to the patents and processes involved in the Argentinian investment since the 1930s.311

Concerning CXL, the split was more delicate as the joint ownership concerned four previously existing Canadian companies: Hamilton Powder Company, Rodden-Johnson, Standard Explosives Company, and Western Explosives Company. Therefore, Du Pont and ICI proposed to their stockholders of CXL a plan providing a division in the business between the two companies with the exact same amount of common shares on both sides: Du Pont of Canada Securities Ltd and ICI Canada Company. Du Pont of Canada Securities would be a holding in possession of all the stocks of the newly incorporated Du Pont of Canada Company Ltd. Both Du Pont of Canada and ICI Canada owned 2,952,655 common shares of the ex-joint ownership. The Du Pont business in Canada would receive all the activities related to nylon and cellophane plus certain non-manufacturing assets, and the Delaware Corporation would own approximately 82% of Du Pont of Canada Securities Company.312 Du Pont's president, Crawford Greenewalt, and the chairman of the finance committee, Lammot du Pont Copeland, headed the Du Pont Canada Securities Company. In 1955 the holding company was capitalized by 76,500 preferred shares and 13,500,000 common shares, and owned by 4,708 shareholders. Du Pont of Canada counted 2,095 employees in that year.313 It was engaged in manufacturing films, cellophane, and nylon and converting polythene resin

311 Du Pont Annual Report, 1953, 15-16. 312 Du Pont Annual Report, 1953, 15-16. 313 Moody's Industrial, Du Pont of Canada Company Ltd. and Du Pont of Canada Securities Ltd., 1955, 1789-1790. 178

flakes into sheeting and lay-flat tubing. Du Pont of Canada kept three plants for the manufacture of films, nylon, and specialties. Moreover, the company already planned the construction of a new plant in Maitland, Ontario, in 1955 to manufacture Freon, textiles, and explosives. The company's capital stocks amounted 10 million shares; all owned by Du Pont of Canada Securities Ltd.314 Therefore, the divestment from ICI's joint interests did not end all of Du Pont's related activities, and we see that on the global assets and liabilities chart a constantly increasing trend in the assets and liabilities during the 1950s, as well as sales and net income. Thus, the split with ICI's joint activities did not impact Du Pont's turnover. On the contrary, during the 1960s General Motors’ trend had a negative effect that is visible in Figure 3.23.

During the First World War Du Pont's investments in General Motors was huge. The company owned a total of $63 million shares of GM preferred and common stocks with 10 million voting common shares, about 22.7% of the total common stock of the company with a value in 1945 of $254 million dollars and an income of $28,030,086, which represented 36% of Du Pont's total net income (current value). Du Pont's investment in GM was then massive and was the reason why, since the late 1940s, Du Pont was sued for cartel activities. Indeed, such a part of a business implied, according to the Department of Justice, an obligation for GM to buy Du Pont's automobile products such as lacquers, paints, brake fluid, etc. Furthermore, Du Pont was suspected of having formed a cartel by owning GM shares, but also by detaining an important share of United States Rubber Company and owning much of GM and U.S. Rubber Company through Christiana Securities and Delaware Realty and Investment Company.315

In 1952 the trial of the General Motors et al. case was expected to start. In this case against Du Pont the American government was charging all the defendants

314 Moody, Industrial, Du Pont of Canada Company Ltd. and Du Pont of Canada Securities Ltd., 1955, 1789-1790. 315 Du Pont Annual Report, 1945, 22, and Du Pont Annual Report 1954, 17-19. 179

with purchasing goods from each other and thereby restraining trade. The government especially wanted that justice make Du Pont pay additional taxes due to the investments in GM's common stock.316 Eventually in 1954 the Court decided to dismiss the case:

"When read as a whole, the record supports a finding and the Court so finds, that there has not been, nor is there at present, a conspiracy to restrain or to monopolize trade and no limitation or restraint upon General Motor's freedom to deal freely and fully with competitors of Du Pont and United States Rubber, no limitation or restraint upon the freedom of GM to deal with its chemical discoveries, no restraint or monopolization of the General Motors market, and no restraint or monopolization of the trade and commerce between Du Pont and United States Rubber."317

Nevertheless, the Department of Justice had 60 days since the judgment was rendered to appeal to the Supreme Court, and the government would not leave Du Pont et al. free of accusation. The appeal started in 1956 and by June 1957 the judgment of the Supreme Court was awaited. On June 3, 1957, the Court stated that regarding the government's appeal the Clayton Act was indeed violated by Du Pont and the aforementioned companies.318 There was a reasonable probability that Du Pont's investments in General Motors was likely to result in a monopoly for Du Pont in automotive fabrics and finishes to General Motors.319 At this point, Du Pont had to find a solution suitable for the Court and to present a plan of divestment. In parallel, the Federal District Court of Chicago was to determine "measures to satisfy the American Supreme Court's mandate

316 Du Pont Annual Report, 1951, 19-20. 317 Du Pont Annual Report, 1954, 17-18. 318 The Clayton Antitrust Act was voted in in 1914 to remedy the Sherman Act’s (1890) weakness and rendered illegal some anticompetitive activities like interlocking directorates (Section 8, art. 15 § 19). 319 Du Pont Annual Report, 1957, 4. 180

for equitable relief necessary and appropriate in the public’s interest".320 Indeed, one of the biggest issues was the question of taxation as the Court's decision forced any GM shares received in a distribution, as proposed by the government, to be taxable as current income at their full market value at the time of the distribution. Therefore, Du Pont might be forced to pay a tax to retain this equity in a capital asset that the company had purchased. The Federal taxes on individual Du Pont shareholders would amount to approximately $580 million and this would lead to an increase in Du Pont's share sales to escape this tax impact, and also of selling General Motors' shares to raise funds to pay the taxes. This could have depressed considerably the market value of both Du Pont and General Motors' shares.321

To avoid this undesirable effect, Du Pont submitted an alternative. First the company proposed that the voting rights of General Motors' stocks held by Du Pont be transferred to Du Pont's stockholders pro-rata. Second, Du Pont announced that there would no longer be common directors between both companies. This resulted in Alfred Sloan resigning from Du Pont's board of directors and the resignation of Donaldson Brown, W. S. Carpenter, Lammot du Pont Copeland, Emile F. du Pont, and Henry B. du Pont from GM's board.322 Finally, Du Pont's senior managers committed themselves to not acquiring GM shares anymore. Thus, Du Pont wanted to keep investments "pure and simple", as authorized by the Clayton Act, and wanted to avoid the full divestiture of stock.323

Du Pont's plan was submitted to the Federal District Court of Chicago in 1959 and two motions were added by Judge LaBuy at this point: the plan must also forbid any preferential agreement between Du Pont and GM and for three years

320 Du Pont Annual Report, 1958, 15-17. 321 Du Pont Annual Report, 1958, 15-17. 322 They were all du Pont family members, as their names indicate. Donaldson Brown married Greta du Pont Barksdale, the daughter of Hamilton M. Barksdale and Ethel du Pont. 181

there was no requirement for GM to buy any of Du Pont's products. Judge LaBuy agreed and recommended that Du Pont did not have to completely divest from its General Motors stocks and that neither Christiana Securities nor Delaware Realty and Investment Company would have to.324 Nevertheless, by May 1961 the Supreme Court finally decided that the Federal District's judgment did not reflect this organ decision. Therefore, the latter organ imposed complete divestiture, by a vote of 4 against 3, of the 63 million GM shares detained by Du Pont and that it had to be started 90 days after the judgment and completed within 10 years.325 The divestment was operated between 1961 and 1966. This is the reason why the figures presented such a decrease in capital stock, as well as assets and liabilities. Nevertheless, the sales of the company did not fall during the decade under discussion and the fixed assets continued to grow, as a sign of good performance and of growing activities as well. The reason why Du Pont continued to entertain a growing turnover was the multiplication of plants abroad, which is detailed in the subsection below.

The Rise of Capital after World War II

Between 1940 and 1980 most of the company's efforts to increase its activities were focused on Europe. During the early period of the Golden Age Du Pont entered successively into a growing number of European countries, and none of the plants opened in Europe were consecrated to the production of explosives. Du Pont always had a 100% interest in all these companies. At the end of this period the net sales in Europe represented a third of the total sales of the company, about $12 billion in 1978 (current value).326

323 Du Pont Annual Report, 1958, 17. 324 Du Pont Annual Report, 1959, 19. 325 Du Pont Annual Report, 1961, 22. 326 This made Du Pont a multinational company, but its foreign activities proved to be less important than those of other American chemical companies. Indeed, $12 million of net sales in Europe amounted to 31% of Du Pont's total net sales, whereas Dow's sales in Europe amounted 182

41Table 3.24: Du Pont's Investments Abroad (1956–1979). 1956 United Kingdom Du Pont de Nemours United Kingdom Ltd (London), a Neoprene plant and an Elastomers Research Laboratory in Hemel Hempstead, Hertfordshire, England 1958 Venezuela Du Pont (Venezuela) 1958 Belgium Du Pont de Nemours Belgium (Brussels) Lacquers, enamels, paints, varnishes plant 1959 Germany Pigment-Chemie GmbH (26% owned by Du Pont, 74% by Sachtleben AG) (Homberg) 1959 Switzerland Du Pont de Nemours International S.A., (Geneva) European headquarters 1959 Netherlands Du Pont de Nemours (Nederland) N.V. 1959 France Du Pont de Nemours France (Paris) 1961 Northern Hylene plant in Londonderry Ireland 1961 Sweden Du Pont de Nemours Nordiska A.B. (Sweden, Märsta) 1961 France Dekachimie S.A., owned 50% by Du Pont, was formed with Establishment Kuhlmann, in France 1962 Luxembourg Du Pont de Nemours Luxembourg S.A. (Contern-Hespérange) new Mylar plant 1962 Spain Desarrollo Quimico Industrial S.A. (50% owned by Du Pont, 50% by Energia e Industrias Aragonesas S.A.), Madrid (fungicides) 1964 Germany Du Pont Chemie GmbH (Düsserldorf) 1964 Italy Du Pont de Nemours Italiana S.p.A. (Milan) 1965 Luxembourg Du Pont Europa Holdings S.A. (Luxembourg City) 1965 Germany Du Pont Chemie was renamed Du Pont de Nemours (Deutschland) GmbH 1967 Switzerland Switzerland was doted from a textile fibers technical laboratory R&D (Meyrin, Geneva) 1968 Germany Dacron plant in Uentrop 1968 United Kingdom Orlon plant in Maydown 1968 Belgium Dymetrol nylon strapping plant was started by Du Pont de Nemours (Belgium), S.A. in Mechelen 1971 Luxembourg Du Pont Photolux S.A. (Contern-Hespérange) 1972 Luxembourg Du Pont Fibres S.A. (Contern-Hespérange) 1974 Iran Polyacryl Iran Corporation (40% owned by Du Pont Company, 60% by Dow Chemical) 1974 France Butachimie (50% owned by Du Pont de Nemours France S.A., 50% by Rhône-Poulenc Industries) (Paris) to build and operate a 225 million pound per year plant for adiponitrile (chemical used in the manufacture of nylon intermediates) 1975 Spain Lacas y Pinturas S.A. (Benicarló)

to 45% of its total net sales, 40% of Hercules net sales, 33% of American Cyanamid and Union Carbide. Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 194. 183

Du Pont acquires this Spanish finishes company 1975 Poland E.I. du Pont de Nemours & Co (Warsaw) 1975 Russia E.I. du Pont de Nemours & Co (Moscow) (devient Du Pont Russia, 1991)* 1975 Iran Du Pont Iran Company (Teheran) 1977 Greece Du pont de Nemours International S.A. (Athens) (became Du Pont Agro Hellas S.A.) 1977 Portugal Du Pont de Nemours International S.A. (Lisbon) 1977 Egypt Du Pont de Nemours International S.A. (Cairo) 1977 Kenya Du Pont de Nemours International S.A. (Nairobi) 1979 United Kingdom D.U.K Shipping Limited (owned 100% by Du Pont de Nemours (UK) Ltd.) (London) Sources: Author's analysis based on Du Pont Annual Reports During and after the Second World War the common stocks, now with exclusive voting power, increased massively, and both the preferred stocks and common stocks were used to capitalize the expansion of Du Pont's activities. Nevertheless, Du Pont's preferred stocks were never used to finance a foreign operation, and very few common stocks were issued in order to expand the company's foreign activities, as tables 3.25 and 3.37 show.

327

42Table 3.25: Increases in Preferred Stocks (1940––1980). Years Total shares Pref. Reason for new issue Total Market Market of pref. stkhdrs constant current constant stock price price price

1940 1,688,850 18,861 118,933,09 124 87 9 1947 2,688,850 18,271 -$10 million placed in general 85,563,380 135 68 funds of the company to be used for general corporate purposes 1954 2,368,850 21,984 -Shares previously held by the 88,077,944 95 35 1942 Pension Trust purchased by the company as treasury shares in the consolidated balance sheet 1980 2,372,594 -no particular information 29,892,713 13 1.5 concerning the addition of 3,744 shares since 1954. Sources: Author's analysis based on Du Pont Annual Reports, Moody's, and the New York Times.

327 At year end. 184

328

43Table 3.26: Increases in Common Stocks (1940-1980). Year Total shares Commo Reason for new issue Total Market Market s of common n constant current constant stock stckhlde price price price rs 1940 11,065,762 63,467 155,855,80 165 116.2 3 1941 11,122,512 67,467 -acquisition of the remaining 149,195,33 141 94.6 35% minority interests of Du 2 Pont Film Manufacturing held by Pathé Film Corp. (56,750shs) 1948 44,833,628 77,347 -split 4-1 to decrease the 91,906,268 184 75.8 stock price and increase public interest 1966 46,075,907 240,535 -shares issued since 1949 for 70,538,743 149 45.6 Class B Bonus Plan (worthy executives) 1969 46,725,905 -acquisition of net assets and business of Endo Laboratories Inc. 1972 46,871,414 -acquisition of net assets and business of Berg Electronics Inc. 1973 46,934,841 -acquisition of net assets and business of Ivan Sorvall Inc. 1977 48,362,515 206,824 -acquisition of net assets of 41,063,826 305 51.7 Christiana Securities Company (13, 325,371 shares at par $5) 1979 144,657,454 208,910 -split 3-1 to reduce the price 34,013,044 49 6.9 1980 146,553,558 212,868 -acquisition of Remington 29,956,135 23 2.9 Arms Company Sources: Author's analysis based on Du Pont Annual Reports, Moody's, and the New York Times. The additional preferred shares that were issued were then destined to the pension fund or reported to the company's consolidated balance sheet for general purpose. They played a minor role in the company's expansion. The common stocks played a bigger part in Du Pont's increasing activities; they capitalized the worthy employees class B bonus, plus they financed six acquisitions. Therefore, most of the foreign expansion was financed through other bias than the stock issued, and did not challenge the family’s control over the voting stock. In this section it was clear that part of the internationalization of the company happened with ICI, which proved to have been an important

328 At year end. 185

partner for the du Ponts and their company during much of the 20th century. Other relations, such as those Du Pont had with General Motors' management, or in banking institutions, helped the company in its expansion. Therefore, the next section studies the network of the du Pont's senior managers, and more precisely the interlocks in which they participated. This also helps us understand how wide Du Pont's influence was during the 20th century.

3.3. INTERLOCKS AND NETWORK

During both the 1915-1940 and the 1940-1980 periods the joint formations, as well as the important number of interlocks and stock ownerships to which Du Pont proceeded to increase its activities, are striking. The most important example of the du Pont's interlocks and stock ownership was the family and senior managers' involvement in General Motors since 1916, which cost Du Pont the aforementioned judgment case. Even more, Du Pont became a hub during the period studied in this chapter, and was at the core of various networks of industrialists and financiers. This section describes first how the interlocks worked during the early 20th century. Second, it considers what the most important companies and institutions were in which Du Pont's senior management was involved between 1915 and 1980 and what consequences it had on the company’s activities.

3.3.1. THE 20TH CENTURY'S HUBS

In 1904 John Moody, a journalist, considered six existing territorial clusters that were represented by the six most important communities of interest. The six families or companies were Vanderbilt, Kuhn-Loeb and Harriman, Moore, Pennsylvania Railroad, J.P. Morgan & Company, and, finally, Gould-Rockefeller. Every family or community was considered as a hub which gathered most of its

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business around its interests.329 In 1965 the historian and political economist Peter C. Dooley published an analysis about the interlocks which stipulated that since 1935, and as reported by the American National Resources Committee, a few companies or families were, anew, considered as hubs: J. P. Morgan & Company, the Rockefeller family, the Kuhn-Loeb Company, the Mellon family, and finally the du Pont family. In 30 years since the 1904 Moody's Truth about Trusts, the chemical company and especially its founding family appeared for the first time to somehow be a hub. The National Resources Committee also stated in a report of 1935 that among the 250 largest American corporations, 225 had at least one director sitting on the board of at least one other of these large corporations.330

Dooley considers four significant factors in the spreading of interlocks. First, large and successful corporations tend to have knowledgeable directors whose influence and advice are sought and preferred to less capable and less accomplished managers. It is understandable, therefore, that directors of large corporations can be invited to sit on other corporations’ boards. Second, Dooley underlines that for nonfinancial corporations one-third of all interlocks are with financial institutions. This means that financial houses help financially unstable corporations stay solvent by electing a banker on their board. The other way round, banks apparently found advantages in sitting on corporations’ boards; it may attract important deposits and new investors.331 Third, interlocks happened

329 Moody, J. (1904). The Truth about the Trusts. New York, Moody Publishing. Mintz and Schwartz define the hubs as follow: A hub is a firm which is connected to other firms. A hub gathers corporations around itself but a peak is even more central than a hub, as the corporation to which it is connected appear less central than itself. Mintz, B. and M. Schwartz (1981). "The Structure of Intercorporate Unity in American Business." Social Problems 29(2): 87-103. 330 Dooley, P. C. (1969). "The Interlocking Directorate." American Economic Review 59(3): 314- 323. 314. 331 Deposits might come from industrial activities and investors could be sat on the boards of these industrial companies. About bankers on industries' boards, see Kobrak, C. (2008). Banking on Global Markets. Deutsche Bank and the United States, 1870 to the Present. Cambridge, Cambridge University Press, Fear, J. and C. Kobrak (2010). "Banks on Board: German and American Corporate Governance, 1870-1914." Business History Review 84(Winter): 703-736. 187

between competitors, even if they were illegal according to the Clayton Act. Directors found it advantageous to sit on various boards in the same business sector. Fourth, as Moody underlined in 1904, territorial interest groups arose in the beginning of the 20th century. The communities of interlocks can thus be defined geographically.332

Du Pont's interlocks were mostly defined by the third factor: interlocks with competitors such as the British Imperial Chemical Industries, or interlocks with sector-related industries such as U.S. Rubber and General Motors. Second, contrary to Dooley's general analysis, there was never a banker who intervened in Du Pont's board, even though in 1915 some of them had important voting power in the company; they were never elected onto the board of directors or to any committee. However, Du Pont's senior managers entered the boards of numerous banking institutions, as the next subsection demonstrates. Finally, territorial grouping resembles more the network that Du Pont built in the late 19th century, with companies on the East Coast. In the 20th century this was not a rule for Du Pont, whose interlocks went beyond Delaware and New Jersey, and beyond the East Coast as well. Finally, Du Pont was acquainted with J. P. Morgan & Company since World War I. It was not unusual to be connected with J.P. Morgan & Company; the bank was at the core of many business relations. Indeed, in 1913 J. P. Morgan & Company was represented in 314 companies with an aggregated $22 billion in assets.333 The bankers played a role as board

332 Dooley, P. C. (1969). "The Interlocking Directorate." American Economic Review 59(3): 314- 323. 315-316. 333 In the financial corporations, J.P. Morgan is one of the most important peaks. Mintz, B. and M. Schwartz (1981). "Interlocking Directorates and Interest Group Formation." American Sociological Review 46(6): 851-869, Mintz, B. and M. Schwartz (1981). "The Structure of Intercorporate Unity in American Business." Social Problems 29(2): 87-103. Bradford De Long relates that the presence of J.P. Morgan & Company's partners on various boards had three benefits. First of all, the bankers on a board warranted “that the firm was managed by capable and energetic executives”. Second, the bankers were good at monitoring and supervising the firm’s performance and were a great help when the company was not performing as its best. Third, the wealth and dominant position of J.P. Morgan & Company made its reputation and firms know the bank could not bargain with it by acting unproductively. Thus, J.P. Morgan & Company's partners on a company's 188

members in large corporation, as well as intermediaries on the stock exchange, and exerted a control over some large American corporations.334 Du Pont and J. P. Morgan & Company used to share some common boards, especially the board of General Motors, but also the boards of other financial institutions such as the Bankers Trust, Chase National Bank, and J. P. Morgan & Company's board itself. But as said, there was never a J. P. Morgan & Company's man in Du Pont's senior management. The next section considers more deeply these interlocks.

3.3.2. DU PONT'S INTERLOCKS, NETWORKS, AND STOCK OWNERSHIP IN OTHER COMPANIES

The oldest interlock in which some members of the du Pont family were involved was the Wilmington Trust. Already since the first years of the powder company, Pierre and Coleman had taken part in the consolidation of the Wilmington Trust Company, incorporated on March 2, 1901, under the laws of Delaware. This company adopted its formal organization and its name on March 6, 1903. This company's principal activity was to manage trusts for branches of the du Pont family, the Bancroft family, and finally other industrialists from Wilmington.335 In 1912 Wilmington Trust increased its activities in an important manner as it acquired the First National Bank of Wilmington and the National Bank of Wilmington and the Brandywine. Since then representatives of the du Pont family used to sit on the board of the Wilmington Trust and owned voting stocks

board were viewed as an added value for the company. De Long, B. J. (1991). Did J. P. Morgan's Men Add Value?: An Economist's Perspective on Financial Capitalism. Inside the Business Enterprise: Historical Perspectives on the Use of Information. P. Temin. Chicago, University of Chicago Press 205-236. 334 Fear, J. and C. Kobrak (2010). "Banks on Board: German and American Corporate Governance, 1870-1914." Business History Review 84(Winter): 703-736. Kobrak, C. (2008). Banking on Global Markets. Deutsche Bank and the United States, 1870 to the Present. Cambridge, Cambridge University Press. 335 The Bancrofts were the owners of the Wall Street Journal and controlled, through the Journal's ownership, the Dow Jones & Company, a news corporation, since 1902. 189

in it.336 From 1911 until the 1980s the Wilmington Trust had the same basic specifications as a banking institution has: banking, savings, trust, real estate financing, and a safety deposit company. In 1911 it was capitalized with $500,000; at the end of the period studied here, in 1979, it was capitalized with $22 million.337

As mentioned, the Du Pont & Company's senior management progressively entered GM's board since 1916. Pierre S. du Pont, Lammot du Pont, J. A. Haskell, and John J. Raskob entered the automobile company's board of directors in 1916. Charles Sabin, president of the Guaranty Trust since 1915, was a good friend of John J. Raskob and had also entered the board in 1916. In 1917 Pierre was already chairman of the board. In 1918 Irénée and Henry du Pont entered the board. J. A. Haskell and John J. Raskob became vice- presidents of the company in 1919. And finally, in 1921 Pierre became president of General Motors.338 The other way round, Alfred P. Sloan, one of GM's senior managers, entered Du Pont's board of directors in 1923. He would leave this function following the court decision in 1957.339

Since 1918 most of Du Pont's executive committee—Pierre, Irénée, and Lammot du Pont, as well as John J. Raskob—invested in some of General Motors’ assets. In that same year they founded the Du Pont American Industries Company (DPAI) for the purpose of holding a portion of the GM stock. At this point the DPAI owned 37% of GM's stocks, common and preferred. In November 1920 the DPAI acquired an additional amount of GM common stocks owned by W. C. Durant, then president of GM. The negotiations with Durant, led by the DPAI, were at the origin of the organization of Du Pont Securities, incorporated

336 In fact Christiana Securities owned 23% of the voting stock of the Wilmington Trust since the 1920s. In the late 1970s, there were still some du Ponts sitting on the Wilmington Trust's boards. Moody's Banks and Finance, the Wilmington Trust. 337 Both in current value. Moody's Banks and Finance, the Wilmington Trust. 338 Moody's Industrial, General Motors Corporation Management, 1916-1921. 339 Moody's Industrial Manual, General Motors, 1957, 2797. 190

under the law of Delaware in 1920 with a capital of $7 million of preferred stocks and 100,000 common stocks.340 In 1927 DPAI was renamed General Motors Securities and merged with Du Pont's assets. In this same year Du Pont was the owner of more than 22% of General Motors' common stocks, with sole voting power, and 70% of both common and preferred stocks.341 Du Pont Securities also issued $20 million collateral bonds to bankers, and then the du Ponts elected them onto GM's board.

This gradual rise into GM's management, added to the control of more than 20% of the voting stock, ensured Du Pont's senior management significant control over the automobile group since the early 1920s. This control allowed Pierre and his coworkers to offer some senior managing positions to some bankers from J. P. Morgan & Company, the Bankers Trust Company, the New York’s First National Bank, and to some industrialists in the British Nobel Industries with whom they owned and managed the Canadian Explosives Industries.342 Already in 1926 Du Pont's senior management, with help from bankers, occupied the most strategic positions in GM's management. Only on the executive committee did the Fisher family from Fisher Body Company take the lion’s share of senior managing positions.343 In 1926 General Motors' senior management was organized as shown in Table 3.27.

340 This Du Pont Securities had no relation with the former Du Pont Securities, which had already been renamed Christiana Securities at this point. 341 First available numbers for GM Securities Company, Moody's 1928, p.446. 342 The British Nobel Industries had directors sitting on GM's Board since 1919: McLaughlin was already vice-president this year. Moody's 1919, 1609. Freeland, R. F. (2001). The Struggle for Control of the Modern Corporation. Organizational Change at General Motors, 1924-1970. New York, Cambridge University Press. 343 An American automobile coachbuilder founded by the eponymous family in 1908. W.C. Durant, President of GM, had acquired 60% of the Fisher Body Company in 1919.

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44Table 3.27: Senior Managers of General Motors in 1926. Executive Committee Finance Committee Board of Directors Alfred. P. Donaldson John J. George F. George F. Wm. Sloan Brown Raskob Baker Baker McMaster344 Pierre S. Charles T. Donaldson W.S. Arthur G. James D. du Pont Fischer Brown Carpenter Bishop Mooney Fred J. L. P. H.F. du Pont Irénée du Donaldson Junius S. Fisher Fisher Pont Brown Morgan Charles S. John L. Lammot du Pierre S. du W.S. Charles S. Mott Pratt Pont Pont Carpenter Mott John J. Fred Fisher Junius S. H.F. du DeWitt Page Raskob Morgan Pont Seward Alfred P. Irénée du John L. Pratt Prosser Sloan Pont George Lammot du Seward Whitney Pont Prosser Charles T. John J. Fisher Raskob Fred Fisher Alfred P. Sloan L. P Fisher John T. Smith William A. Alfred H. Fisher Swayne Louis G. George Kaufman Whitney C. F. Wm. H. Kettering Woodin Sir H. C.M. Wooley McGowan R. S. Owen D. McLaughlin Young Light grey: Initially from Du Pont Italics: Initially from J. P. Morgan & Company or other banking institutions Bold: Initially from British Nobel Industries Sources: General Motors Corporation, 1926. Among the two directors coming from the British Nobel Industries, Harry McGowan (1874-1961) would become a close friend of Pierre du Pont; they had met when they jointly entered into Canada in 1910 and their relation made them enter Chile, Argentina, and Brazil together. Sir McGowan was British, 35 years

344 To notice, William McMaster was president of Canadian Explosives Ltd., the joint venture owned by Du Pont (45%) and Nobel (55%) since 1910. 192

old when they met in 1909, and was a young director in the British Nobel Explosives Company in Glasgow. He had started his career in the same company in 1894 at the age of 20 with no university degree. In 1909 he was already the assistant manager under F. J. Shand of the Nobel Explosives Company. In 1918 he had merged under the same roof most of the British explosives industries and he became chairman and managing director of the Explosives Trade Ltd, which became the British Nobel Industries in 1920. In 1926 Nobel Industries merged with four other big British explosive businesses— Brunner Mond, United Alkali Company, and the British Dyestuffs Corporation— and became the Imperial Chemical Industries. McGowan was elected president of this new company in 1930 and remained in this position until 1950. He would be Pierre’s partner of choice.

Besides GM's assets, Du Pont was accused of cartelizing the automobile sector in 1957 because it also owned important shares in United States Rubber Company, a corporation registered in 1892 in New Jersey, as well as a consolidation of smaller companies manufacturing rubber and rubber related products. In 1927 some du Pont family members, with the help of Christiana Securities and the DRI, managed to acquire 17% of U.S. Rubber's voting stock and held it through an organized syndicate of eighteen people. In 1938 the organized syndicate was dissolved, but at the time of the judgment case some du Pont family members still held 18% of the company's preferred and 11% of its common stocks.345 Furthermore, as in General Motors, since 1929 Du Pont wanted to obtain a voice in the management of U.S. Rubber Company and it resulted in F. B. Davis Jr., a Du Pont senior manager, becoming president of U.S. Rubber. During the following years another Du Pont senior manager, William de Krafft, was elected as director and chairman of the U.S. Rubber Company’s finance committee. In 1940 it was the future president of Du Pont,

345 Stocking, G. W. (1958). "The Du Pont-General Motors Case and the Sherman Act." Virginia Law Revew 44(1): 1-40. 5

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Lammot du Pont Copeland, who entered the board, as well as F. B. Davis' two sons—Henry and John W. Davis. In 1945 G. P. Edmonds (the husband of President Lammot du Pont’s daughter, Nathalie du Pont) became a director of U.S. Rubber when Lammot du Pont Copeland resigned from this position. In 1947 Colgate Darden (Irénée's son-in-law, married to Constant du Pont) joined the finance committee, as did G. P. Edmonds. In 1965 G. P. Edmonds, the last du Pont to resign from U.S. Rubber following the judgment case, entered Du Pont's senior management.346 And thus, these seats in other companies probably allowed, as the judgment case decided, Du Pont to benefit from it and to expand its business in the United States and abroad.

Moreover, some du Ponts and the Du Pont senior managers entered successively the boards of some banking institutions. The relations with the banking world was never judged by any court, and the relations with the banks— which could have helped Du Pont expand its activities—were never underlined as a means of cartelization or wider expansion for the company; except during the Nye investigation in 1934 when Du Pont was accused, besides J. P. Morgan & Company, of having encouraged and enjoyed the war business. Thus, Du Pont's affiliations with some bankers were never underlined as a factor of success or longevity for the company, or for the family at the head of the company. However, relations of industrialists with banking institutions are numerous.

Indeed, the newly appointed director Alfred P. Sloan was also a director in the Chase National Bank from 1926 until 1932, and in J. P. Morgan & Company from 1945 until 1960. Du Pont's president W. S. Carpenter was a director in the Chase National Bank between 1931 and 1932. Pierre sat on the Bankers Trust's management between 1927 and 1932, as well as in the Detroit National Bank and the Philadelphia National Bank during the 1920s and 1930s. Du Pont's

346 Moody's Industrial, U.S. Rubber, selected years. 194

treasurer John J. Raskob also sat on the Bankers Trust between 1927 and 1945; he was even chairman from 1938. President Crawford Greenewalt was also on J. P. Morgan & Company's board between 1963 and 1966. Finally, Lammot du Pont was in the Chemical National Bank since 1928, as well as in the Fidelity Philadelphia Trust during the 1930s. This listing shows a permanent representation of the Du Pont's senior management in some leading banks in the United States between the 1920s and 1960s, as table 3.28 shows.347

347 Moody's, selected companies and years.

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45Table 3.28: Du Pont's Interlocks (1911–1979). 1915 -> 1925 -> 1940 -> 1958 -> 1965 -> 1979 1903 Wilmington Trust------1915 Christiana Securities------1977

1916 GM------1965 1924 DRI------1961 1929 US Rubber------1965 1926 Chase Nat. Bk -1932 1927 Bankers Trust------1945 1928 Chemical Nat. Bk 1945 J.P. Morgan------1966

Sources: Author's analysis based on Moody’s reports.

The banks with which Du Pont was interlocked played an important role in some international businesses – loan negotiations with Latin American governments, settlement of the Mexican bonded debt – and Du Pont happened to be influenced in its foreign activities by their work; Chapter four and Chapter five of this dissertation will demonstrate how.

In addition, Du Pont had been closely connected to the U.S. government already in the nineteenth century. As Chapter Two has already told, Pierre Samuel, the father of the founding brothers, was well acquainted with President Thomas Jefferson who at this point in history – 1803 – greatly benefited the two brothers by offering them their first permanent contract with the American government. These relations were perpetuated during the nineteenth and twentieth centuries as Du Pont continued to supply the government with explosives; these relations lasted until after the Second World War with the production of the atomic bomb by Du Pont’s laboratories. During the First World War, Du Pont was an important military powder provider for the U.S. government, since it entered war in 1917,

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During World War I, Du Pont also traded military powders with the Allies in Europe, since 1915. Again, J.P. Morgan & Company and Du Pont were connected in this business, as the bank was the Allies' agent for war trade, as already mentioned.348 During World War I, Du Pont also traded military powders with the Allies in Europe, since 1915. Again, J.P. Morgan & Company and Du Pont were connected in this business, as the bank was the Allies' agent for war trade, as already mentioned349 And during the Second World War, Du Pont participated to the Manhattan Project, since 1940, and contributed to the production of the nuclear bomb. However, more than contractual connections, the du Ponts had important links first with the authorities of Delaware (as Chapter Five and the Cuban case study demonstrate – the du Ponts discussed the Hawley-Smooth tariff with the Senators from Delaware) and then with the successive American secretaries of war. These connections were mostly borne from the activities of the company – selling powder – but also from the numerous relations the family had with the aforementioned industrialists and financiers. The wealthy men made the du Ponts enter selected associations and clubs as, for example, was the case in Cuba (see Chapter Five). These connections had an influence for the du Ponts in at least two foreign countries: In Chile, under President McKinley, the ex-Secretary of War Elihu Roots influenced the decision making processes of Pierre when he was first contacted by the Chilean government to enter the country with an explosives manufacturer – as Chapter Four shows. In Mexico Newton D. Baker, secretary of war under President Wilson, tried to play a stopping role when the investment was on the verge of

348 About the First World War see Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row.359-432. About World War Two see Ndiaye, P. (2001). Du nylon et des bombes, Du Pont de Nemours, le marché et l’Etat américain, 1900-1970. Paris, Belin. 211-260. However, sources about Du Pont's relation with the bank during the war are too scarce to contribute to this dissertation. 349 About the First World War see Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row.359-432. About World War Two see Ndiaye, P. (2001). Du nylon et des bombes, Du Pont de Nemours, le marché et l’Etat américain, 1900-1970. Paris, Belin. 211-260. However, sources about Du Pont's relation with the bank during the war are too scarce to contribute to this dissertation. 197

being set up, because of the threat that such an investment in the new Republic of Mexico presented (see Chapter Four).

In parallel to the relations the du Ponts entertained with Wilmington, the American Senate and Washington as a whole, the du Ponts, like many other industrialists, financially supported the candidates of the presidential campaign who favored Du Pont’s interests. This is to say that the du Ponts, who were strong opponents of the Prohibition Amendment of 1918, actively defended the “wet” candidates such as Al Smith in 1928 and attacked publicly the pro- prohibition candidates such as F.D. Roosevelt since 1932. The American president provoked an even more important “aggression” from the du Ponts since he promulgated the New Deal in 1933. The du Ponts crystallized these struggles with their involvement, since 1918, in the Association Against the Prohibition Amendment (AAPA).

This association – founded in 1919 by William H. Stayton, a former naval captain – fought against the Eighteenth Amendment that prohibited the production, distribution and consumption of alcohol in the United States. Pierre became chairman of the board of AAPA in 1918 in which his brothers Irénée and Lammot, as well as John J. Raskob, also took part. The banker Charles Sabin was also a member of this board since the beginning. The directors of AAPA agreed on the idea that to prevent drinking was “futile” and that it mostly helped taxes rise because the state and federal governments were deprived of a large source of revenue. The du Ponts and others viewed the Amendment as an impediment to the practice of big business: the large companies would then have to pay more taxes.350 Harding’s administration (1921–1923) and then Coolidge’s administration (1923–1929), which defended the prohibition, were viewed as threats to Du Pont’s interests through the removal of some international trade taxes. Therefore, the du Ponts and AAPA attacked

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governmental policies in order to weaken their influence. As the historian Thomas Ferguson defended, there were two kinds of enterprises in the United States: the ones that did not fear foreign competitors, such as General Electric or Standard Oil, and who wanted free exchange in international trade, and the others that feared competition and needed government protection. Du Pont was of the second kind by this time; the European competitors had patents and processes for mass production in the dye and explosives industries that exceeded Du Pont’s capacities. Thus, the prohibition became an alibi rather than an issue in this struggle.351

When the prohibition was absolved in 1933, AAPA evolved to become the American Liberty League (ALL). The association changed its political struggle to fight against the New Deal promulgated by the Roosevelt administration. The ALL gathered the members of AAPA, as well as new members. Indeed, the renowned banker Thomas Lamont – who played an important role in Du Pont’s investment in Mexico, as Chapter Four demonstrates – joined Charles Sabin, John J. Raskob, and the du Ponts in the struggle. They aimed at protecting the interests of big businesses. ALL thought the New Deal as being vain and, even worse, that it slowed America in catching up after the 1929 crash. They defended ideas of “natural depression and recovery cycles on which no one had influence,” as well as “the market invisible hand.”352 (Ndiaye 2001)(Ndiaye 2001)

Therefore, these connections with American government representatives were part of Du Pont’s network with other industrialists and financiers, who were then

350 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 584-585 351 Ferguson, T. (1984). "From Normalcy to New Deal: Industrial Structure, Party Competition and American Public Policy in the Great Depression." International Organization 38(Winter): 41-94. The AAPA also had connections with far-right entities like the Crusaders which du Ponts partly financed and in which an influent member was Alfred Sloan. Burk, R. F. (1955). The Corporate State and the Broker State: the Du Ponts and American National Politics, 1925-1940. 352 Ndiaye, P. (2001). Du nylon et des bombes, Du Pont de Nemours, le marché et l’Etat américain, 1900-1970. Paris, Belin. 182 199

clearly connected to Du Pont’s international expansion, as the two forthcoming chapters demonstrate. Above all, these connections with financiers, industrialists and politics speak for Du Pont's importance on the economic scene, at home and abroad. This company was represented in every sphere which mattered during the 20th century. Indeed, it was a major U.S. chemical competitor, for American companies as well as for foreign: the next chapters present how these companies had to bargain with Du Pont to expand their activities. Du Pont was also a partner for industrialists outside the chemical industry, and benefitted to at least two major U.S. companies – U.S. Rubber and GM. Du Pont also mattered on the international political scene, because of its role of military powders' provider during the two major conflicts of the century and because of the family’s numerous involvements in political actions. And finally, it had a voice in the most important American banks. In the end, Du Pont was also connected with foreign governments, and this would be exposed in Chapter four, as they sometime invited Du Pont to enter their countries: powder is a strategic production.

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CONCLUSION TO CHAPTER THREE

In 1997 Forbes Magazine related Du Pont's longevity to the family. The du Ponts were still important stockholders of the company that year (15% of its common stock). The family was also still represented by four members on the board of directors: Benjamin du Pont (son of Pierre IV, descendant of Pierre), Edward Belin du Pont (who remained on the board until 2002), Hugh R. Sharp III, and Louisa Copeland Duemling (daughter of Lammot du Pont Copeland). Pierre du Pont IV spoke about the future prospects for the company. He was presented by journalists as the "unofficial leader" or "figurehead" of the company in which he was a director until 1988. The journalists underlined how the family continued to play a "behind-the-scenes" role. Pierre IV told them that during the 1990s "the family began to wonder what was happening, because the stock was flat even though the dividend was respectable". Therefore, the family put pressure on the decision-making process of the company and decided that all the employees had to become stockholders of the company. This involvement of Du Pont’s workforce in the company’s capital boosted the firm’s productivity and made the stock bounce. In that year 100% of the employees became stockholders.353

Therefore, since 1915 the family kept more control, especially in the management of the company, than Chandler and other scholars had underlined. The du Ponts took control of the finance committee and the voting stock in 1915 and kept it until the 1980s. Through this committee they controlled the expansion of the company: the rise of capital and the allocation of money. The du Ponts also managed to increase their trained family workforce by hiring the in-laws in strategic positions and by requiring that family members be well educated business men; the family succeeded in creating a managerial dynasty. This chapter also showed that the du Ponts were very good at diversifying their activities. Contrary to the literature about very conservative family firms, the du

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Ponts were open to diversification of their production, especially from the time of World War I. This is understood as having helped the company survive until present time. This chapter also demonstrated that despite the growing business and importance of voting stocks issued on the market, the du Ponts remained the largest stockholders of the company until nowadays. Finally, the involvement of the du Ponts in other businesses—companies or banks—might have helped them considerably in developing their activities through a network of wealthy and important businessmen. The next chapter intends to demonstrate how all these ‘ingredients’ encouraged Du Pont to go international

353 Moody's Industrial, E.I. du Pont de Nemours, 2012.

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CHAPTER FOUR: FIRST INTERNATIONAL INVESTMENTS (1903–1925)

During the first decade of the 20th century Coleman du Pont’s aim was to make Du Pont an international company. In October 1904, at the World's Fair in Saint- Louis, Du Pont's president met—"hardly by chance"—Siegfried Singer, an Austrian by origin, but who was an important director in the French Société Centrale de Dynamite. This French company had just completed construction of a dynamite manufacturing facility in Mexico, which had started production in early fall of the same year. Out of this informal meeting between Du Pont’s president and Siegfried Singer came three years of discussions and negotiations that focused firstly on a common interest in Mexico; secondly, a cartel that Du Pont and the Société Centrale could form in order to strengthen both their international positions; and, thirdly, a cartel that Du Pont, the Société Centrale, and Nobel in England would form. None of these plans were achieved.354 The reasons for them remaining unborn can be read in the events of 1907. In the United States a financial panic slowed banking activities; therefore, bank loans decreased considerably and credits became scarcer in the New York market.355 Also, as mentioned in the second chapter of this dissertation, in 1907 Du Pont was sued by the U.S. Department of Justice; the company was accused of having set up a monopoly in several sectors of explosives. Therefore, all plans of expansion, mostly of cartelization, were aborted that year.

354 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 169-199. 355 Loans at trust companies decreased by 37% between August and December 1907; The American panic of 1907 was one of the biggest recessions in the United States. The commodity prices fell 21%, the industrial production about 40%, the Dow Jones Industrial Index 35%, the bankruptcies increased by 47% over the previous year and the unemployment increased from 2.8 to 8%. Cassis, Y. (2011). Crises and Opportunities. The Shaping of Modern Finance. Oxford, Oxford University Press. 16-17.

Nevertheless, a new project was achieved by Du Pont in 1910. Du Pont acquired a nitrate field in Chile. This raw material was essential for the production of blasting powder, dynamite, and smokeless powder, products that represented 97% of Du Pont's production before World War I. This investment correlated directly with the opportunity parameter listed by Mira Wilkins in her Comparative Hosts article; at this point Du Pont was only looking for raw materials in Chile.356 Also, in 1910 Du Pont facilitated the merger of four Canadian explosives companies' assets under the holding company Canadian Explosives Ltd, owned jointly with Nobel's interest. This investment, organized by Pierre (then acting president of the company) and Harry McGowan (then a young manager at Nobel, Glasgow), was the first Du Pont-Nobel joint investment. This investment was the first step in the relationship between Pierre du Pont and Harry McGowan that would last until 1954 when Pierre passed away.

The expansion of activities jointly with another company was something that Du Pont was familiar with. Indeed, in the 19th century Du Pont enjoyed cartels in dynamite production (Eastern Dynamite Company) and price agreements (in the Gunpowder Trade Association). Abroad, in the early 20th century, Du Pont chose the same pathways as entry modes. Mira Wilkins emphasizes that there was nothing uncommon in such a practice for American companies abroad. Most of the investments abroad during the 1920s were achieved with three or more countries. Wilkins calls it "the multinational relationship." It induced that an American manufacturing company invest with a foreign company–mostly with a Canadian or European company–in a third country. Joint ventures between two American companies in second country happened less often. During the 1920s Wilkins underlines that joint ventures between an American producer and a local company in the country of investment were rare. There were many reasons to invest with a foreign company. First, the American company could "move under

356 Wilkins, M. (1994). "Comparative Hosts." Business History 36(1): 18-50. 25 204

a national cloak and […] acquire national goodwill"; second, it could obtain more capital; third, it could acquire and share skills, knowhow, products, existing facilities, or aid in entering a foreign market; fourth, it could better cope with competition, and; fifth, it could develop a third country market and share the cost of it. Finally, joint ventures for American companies abroad happened mainly to share the cost of the foreign stake.357

And in fact, a company such as Ford Motor Company also entered its first foreign country with a partner: Ford entered Canada already in 1904—it was only founded in 1903—with a Greenfield investment – founded jointly by Henry Ford, a Canadian automobile manufacturer Gordon McGregor, and the Ford dealers in Detroit. The company was owned at 51% by the Ford parent company and at 49% by the Canadian shareholders.358 However, the parent company, Ford US, invested in other countries rather quickly, and by itself, with no partner, without a joint venture.359 Du Pont (until 1956) entered foreign countries mostly with joint ventures.360 When Ford started to become international, competition in the automobile industry with other American companies and with European automobile manufacturers was already significant; similarly in the chemical industry.361 Nonetheless, it did not constitute an incentive for Ford to expand with

357 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 149 358 Yacob, s. (2009). "Ford's Investment in Colonial Malaya." Business History Review 83(Winter): 789-812. 793 359 In 1911, Ford US subsidiary in England was achieved, owned and operated by the mother company, only. In 1913, the plant in Argentina was solely owned and operated by Ford US. Since 1919 and during all the 1920s, investments of this kind were the rules. Wilkins, M. and F. E. Hill (1964). American Business Abroad. Ford on Six Continents. Detroit, Wayne State University Press. 434 360 Except in the cases of the acquisition of Société Rhodiaseta (France), in 1927, the foundation of Du Pont Rayon on Mexico in 1928, the 100% interests in Leathercloth Proprietary Ltd, and the Du Pont do Brasil, a selling office opened in 1934. 361 Wilkins, M. and F. E. Hill (1964). American Business Abroad. Ford on Six Continents. Detroit, Wayne State University Press. 10. In the United States General Motors was formed in 1908 and consolidated its assets with Buick and Oldsmobile in the same year, and with Cadillac in 1909 (among other companies). In France the automobile manufacturer Renault was established in

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a counterpart, whereas it did for Du Pont. Furthermore, when Du Pont entered foreign countries, the company preferred to share the risks related to the investments made by the company, as well as the transaction costs.362 Finally, Du Pont was invited by foreign governments to enter their countries. This is an interesting aspect of Du Pont's foreign investments that was related to the specificities of Du Pont's productions—explosives mostly during the period considered here—but which made Du Pont an "empire by invitation."363 This also means that the Du Pont's investments developed in this chapter are what Wilkins calls market-oriented investments: Du Pont invested in countries "to fill the foreign demand and […] in order to sell [in this country] there".364 During the 1920s, this kind of investment was important; however more than 50% of the U.S. foreign direct investments at the end of the 1920s were in contrast supply- oriented. It means that an American company invested in a country to export its

1899 already. In England Rolls-Royce Ltd was founded in 1904. Of course the German car manufacturer Daimler Motoren Gesellschaft operated since 1886 already. A number of European car manufacturers even entered the United States, such as Rolls Royce, which opened a selling and manufacturing facility in 1919 or again Austin Car Company, who had a plant in the country since 1929. Wilkins, M. (2004). The History of Foreign Investments in the USA, 1914-1945. Massachusetts, Harvard University Press. 152, 255. However, Ford's assembly lines were much more efficient than any European's; Ford produced in 1913 in one assembly line one vehicle every 40 seconds, or 800 per day. This rate of production would be attained by European companies only 40 years later. Tolliday, S. (1994). Transferring Fordism: The First Phase of the Overseas Diffusion and Adaptation of Ford Methods, 1911-1939. Actes du Gerpisa. Paris. 11: 51- 67. 54 362 Literature about joint ventures emphasizes that the main advantage of this entry mode was to share both the risk and the costs of setting up a subsidiary abroad. More precisely, joint ventures are generally chosen when a company is market seeking, resources seeking, and above all when it wants to share information to overcome legal, cultural, political impediments, when it wants to turn its competitors into allies. This defines clearly Du Pont's behavior in the early 20th century in its international investments. See Kent, D. H. (Jul., 1991). "Joint Ventures vs. Non-Joint Ventures: An Empirical Investigation." Strategic Management Journal 12( 5): 387-393. 363 The expression is freely inspired by Lundestad, G. (1986). "Empire by Invitation? The United States and Western Europe, 1945-1952." Journal of Peace Research 23(3): 263-277. 364 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 92

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production from this country. Again, Wilkins underlines that "Such stakes have often been called "traditional".365

This chapter is built in two sections. The first section is about the aforementioned relationship with Harry McGowan and with Nobel Explosives Company (Glasgow), and the successive companies into which it would be consolidated.366 It describes how Du Pont entered Canada (1910) and Chile (1921) together with Nobel. The importance of the connection between both Pierre and Harry McGowan proved to be the key factor in internationalization. The second section of this chapter describes a completely different investment abroad: the Mexican dynamite company's acquisition in 1925. This story follows the investment that Siegfried Singer proposed to Coleman in 1904. All discussions were stopped in 1907; however, some negotiations started again after the Mexican Revolution (1910–1915) and lasted between 1915 and 1925 when Du Pont finally achieved the investment together with an American counterpart, Hercules Powder. These ten years of negotiations involved players from the American political scene, American and foreign bankers, the successive Mexican post-revolutionary governments, a French company, and Hercules. In the end the negotiations achieved the investment in Mexico, through the aforementioned joint ventures.367

365 Ibid. 92 366 Explosives Trade Ltd in 1918, Nobel Industries Ltd in 1920, Imperial Chemical Industries in 1926. Harry McGowan remained an influent character in all these companies until he resigned from the position of president of Imperial Chemical Industries in 1950. 367 I chose to develop detailed stories about Du Pont and Nobel's joint investments in Canada and in Chile, as well as Du Pont’s entry into Mexico, and thus selected only part of the international businesses of Du Pont during this period. The negotiations with Singer and the acquisition of the nitrate field in Chile are developed by Chandler and Salsbury. See Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 169-200. Indeed, they consider all the negotiations between Coleman and Siegfried Singer and show clearly why and how the negotiations failed. With no archival material about these discussions, and because it brought no information decisive for my dissertation's main argument, I preferred to skip this story. The same applies with Chile. Finally, the international activities of Du Pont during the First World War are not described in this chapter. Again, Chandler 207

These sections together demonstrate that the connections of Du Pont's senior managers were the determining criteria that allowed Du Pont to become international, and that Du Pont's network was in every sphere. Du Pont and its founding family's reputation and predominance over the chemical business became worldwide during the first few decades of the 20th century.

4.1. GOING INTERNATIONAL WITH NOBEL (1909–1921)

In 1910 when Du Pont Powder and the British Nobel Explosives Ltd merged four of the most important Canadian explosives manufacturers—Hamilton Powder Company, Rodden-Johnson, Standard Explosives Company, and Western Explosives Company—into Canadian Explosives Ltd, they laid the foundation of what the historians William J. Reader, Graham Taylor, and Patricia Sudnick call the “Du Pont-Nobel International Empire."368 More than 10 years later the two companies—which had both come through major restructuring; Du Pont Powder had been consolidated into E.I. du Pont de Nemours & Company in 1915 and the British Nobel Explosives Ltd had been consolidated into Nobel Industries Ltd in 1920—achieved a second investment in Chile. This section develops

and Salsbury develop three interesting chapters related to, first, the profits made by Du Pont during the war, which I also described in the previous chapters, and second, Du Pont's interaction with the American government when it entered the war in 1917. Chandler and Salsbury's Chapter 13 "Supplying the Allies", Chapter 14 "The American War Effort: Negotiations Begun", and Chapter 15 "The American War Effort: Negotiations Completed". Ibid. However, sources about Du Pont's international relations during the conflict are too scarce. We know that the company sold explosives to the British and French governments, and was helped in these deals by the agent for war trade for the Allies J. P. Morgan & Company. But Du Pont's archives do not present material about the discussions between Du Pont and the Bankers, or between Du Pont and the European governments. About J. P. Morgan & Company's involvement in the war, see Horn, M. (2001). Britain, France, and the Financing of the First World War. Montreal, McGill - Quenn's University Press, Horn, M. (Sping, 2000). "A Private Bank at War: J.P. Morgan & Co. and France, 1914-1918." The Business History Review 74(1): 85-112. 368 Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870-1926. London, Oxford University Press, Reader, W. J. (1970). Imperial Chemical Industries, a History. The First Quarter-Century 1926-1952. London, Oxford University Press. Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company.

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successively both investments, in two subsections, and exposes the relationship the du Ponts had with Harry McGowan.

4.1.1. THE CANADIAN EXPLOSIVES LTD (1909–1911)

In 1890 and again in 1897 Du Pont joined two international agreements with European chemical companies, which split the world market for the production and distribution of explosives. The first agreement, in 1890, was passed between Du Pont, the Société Centrale de Dynamite, the Société Continentale de Glycérine, the Nobel Explosives Company, and the German Köln-Rotweiler Pulverfabriken. They all had wanted to eventually expand their activities in Latin America, Asia, and South Africa. Therefore, these companies decided to sign production and distribution agreements: Nobel, Köln-Rotweiler Pulverfabriken, and others formed the Anglo-German group, Du Pont headed the American group that was composed of many companies of the Gunpowder Trade Association—Repauno, Hercules, Giant, California, Atlantic Dynamite, and Hecla—and the French companies regrouped their interests into the Latin group. In the same year the American group also passed an agreement with the British and German producers of gunpowder concerning the distribution of their products. It was understood that the United States, Mexico, and all the Central American countries were markets belonging exclusively to the American group. In exchange for the sacrifice conceded by the Europeans, the Americans promised not to start businesses with the Eastern hemisphere.369

In 1896, contrary to the agreements, the American Aetna Powder Company began to sell its products in South Africa. The British Nobel-Dynamite Company claimed that it was its reserved territory of selling. This incident led the British and Germans to threaten the Americans with building some factories in the

369 Wilkins, M. (1970). The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914. London, Oxford University Press. 89-91.

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United States, New Jersey, in 1897.370 Both groups had to revise their agreements. Therefore, rather quickly in 1897, they both passed a new agreement. Both parties intended to avoid doing anything that would negatively affect common interests. To this purpose the Anglo-Germans stopped constructing their plant projects and agreed not to build factories in the United States. The Americans then promised to respect the same rules regarding their building of plants in Europe. Plus, the high explosives markets in the United States, Mexico, Central America, Colombia, and Venezuela became exclusive territories of the American factories; South Africa became a common territory, as were the British Honduras and the Caribbean Islands (excluding the Spanish possessions). Importantly, the Canadian and the other Latin American markets were not regulated by such agreements.371 Ten years later, in July 1907, this agreement was due to expire and the companies involved in this agreement had to decide whether or not they would renew it.

Therefore, already in 1906, Du Pont, Nobel, and other European companies tried to reach an acceptable agreement that would benefit each other and protect both the American and European interests. The negotiations lasted more than a year, and finally in May 1907 a profit-sharing agreement was reached. The oral agreement was to last for 15 years.372 As Chandler and Salsbury underline, since the first years of the agreement both the European and American companies already benefitted from it. Indeed, Pierre was able to visit Nobel's offices and plants during a trip to Europe in February 1910, on which occasion he met Harry McGowan; a decisive encounter. Moreover, in concrete terms, in only two years Du Pont enjoyed new methods for improving detonators

370 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 171. 371 Wilkins, M. (1970). The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914. London, Oxford University Press. 90. 372 The agreement had to be oral as nothing could be recorded on paper, because Du Pont would immediately have been stopped by the U.S. Department of Justice in businesses related to this

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using a dry process, new propellants for navy shells, electric safety fuses, experiments in obtaining nitrates from the air, among other new information and patents that were exchanged or offered. For the European businesses the exchange of information concerned primarily American mechanical equipment and business methods including information concerning the determination of costs, operation of pension funds, and workmen’s compensation, or insurance and shipping arrangements.373

Borne out of this agreement the British Nobel Explosives Company also insisted that Du Pont take 10% interest in the Canadian Hamilton Powder Company, one of the largest Canadian explosives companies in 1907.374 This invitation was not surprising as Du Pont was already selling explosives to Canada; the scholar William Reader specifies that since the 1890s Canada had been developing its railway infrastructure and mining exploitations at a fast pace, and that both industries asked for blasting explosives. Furthermore, the Canadian import duty on powder was only 30 cents per pound, which was not an impassable tariff barrier for the powder company. Despite the duty and because Du Pont produced explosives on a large scale, the company could export to Canada and

agreement for antitrust reasons. Nevertheless, despite the fact that the agreement was passed verbally, after Du Pont's antitrust case was solved in 1912, the agreement was already altered. 373 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 198. 374 The Hamilton Powder Company was founded in 1862 by the Brainerd family. In 1907, the Brainerds still owned much of the company's stock. Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870-1926. London, Oxford University Press. 207. Du Pont’s Annual Report for 1906, 1907, 1908 or later never mentioned the meeting with the Anglo- German group, or the acquisition of a 10% interest in the Hamilton Powder Company. Chandler and Salsbury only quote it once, as did Taylor and Sudnick. Other academic work does not develop anything about this. Therefore, the only source remaining is W. J. Reader and his work about ICI. Even more, in all these sources it is impossible to understand how the 10% was acquired and how much it cost Du Pont. Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 198, Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 40, Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870- 1926. London, Oxford University Press. 205-211.

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keep a low cost of selling.375 On the contrary, Canadian companies could not export to the United States and, in parallel, Nobel also owned 10% in Hamilton Powder Company. Therefore, Nobel had to entertain good relations with Du Pont in Canada in order to protect its interest. By allowing Du Pont a 10% interest in a company such as Hamilton, Nobel and Du Pont would have equal interests in Canada.376

At this point in history Nobel's senior management wanted to bring both Du Pont and the British explosives company "even closer together" in Canada. Therefore, already in November 1909 Harry McGowan (then assistant to a senior manager) was sent to Canada to initiate negotiations with Dwight Brainerd (the main negotiator for Hamilton) and other smaller Canadian explosives companies, about a project to merge their interests into one holding company. From the meetings they had, McGowan was able to provide Nobel's senior management with a sketch of a merger. The companies involved with this project were favorable to it as the holding company that would be borne from the consolidation would be competitive with other big Canadian businesses in explosives; most notably with the Giant Powder Company of Canada in British Columbia—a subsidiary of the major eponymous American explosives company. To do so Nobel would acquire all the shares of four Canadian companies, merge them, and then offer to Du Pont 45% interest in the consolidation and joint management of it.377 This would give both Du Pont and Nobel a strong investment in Canada, which would respect both companies’ interests. In

375 Amount of Du Pont's export to Canada also unspecified in the literature as in the sources about Du Pont. Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870- 1926. London, Oxford University Press. 173. 376 Ibid. 201 By 1909, 50 American branch factories were located in Toronto, four motor cars plant in Windsor. By 1912, the American branch factories were about 200. Most of the big American companies were present in Canada: Westinghouse, Ford, GM, Goodyear, U.S. Rubber, and International Harvester and since 1911, Du Pont. Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 141-142 377 Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870-1926. London, Oxford University Press. 208 212

concrete terms, McGowan made the following proposition in 1909 to Nobel's management:

"[…] by an absolute fusion of the companies, or by creating a holding company, the existing companies retaining their individuality, are frequent in America and are usually termed 'Mergers'. The usual process is to have the assets of the company independently valued and to give the shareholders preferences [in] shares for that amount, basing a further valuation of goodwill on past and future earning capacity, which is then represented by common stock."378

However, Nobel's management was not enthusiastic about this project. First, the British executives disliked the idea of basing collateral on goodwill. Indeed, Nobel’s senior manager F. J. Shand, McGowan's supervisor, said he considered that such collateral was only "watered stock"—thus with an artificial value added to the stock—and had "no real tangible character." Only collateral based on existing assets were to be used in such a consolidation.379 Furthermore, it was seen as "too expensive to buy so many interests," plus it "might arouse the public’s opinion against an attempt at monopoly," and even more "the economies of scale could only be attained with years when the elements have become welded together."380

378 Ibid. 208. Mergers were also rather common in the British manufacturing industry in the late 19th or early 20th century. What was rather "American" was to consolidate companies by creating a holding, in which the companies retained their individuality. Historian Leslie Hannah underlines this in an article issued from his 1972 PhD dissertation. British manufacturing companies used to merge their assets under "limited liability joint stock companies." Hannah, L. (1974). "Managerial Innovation and the Rise of the Large-Scale Company in Interwar Britain." The Economic History Review 27(2): 252-270. 2. 379 Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870-1926. London, Oxford University Press. 209. 380 Ibid. 209

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Nevertheless, in February 1910 Pierre was in London to visit Nobel according to the profit-sharing agreement, and to discuss Canada. As previously mentioned, he met McGowan then for the first time.381 As Pierre was accustomed to procedures of consolidation in the United States, it was no surprise that he stood for the merger plan. Indeed, on the occasion of a conference in London he told Nobel's senior management that: "[he] thought there were already enough factories in Canada [and] thought that the whole Canadian position could best be served by an amalgamation of existing companies."382

To Nobel's senior management the fact that Du Pont's acting president took such a strong stance toward McGowan's project had decisive consequences. Reader underlines that the British still feared that Du Pont would decide to take more importance in Canada without consulting them or any other European company. The size of the American company, its large-scale production methods, and its geographical proximity, which limited transportation costs, could lead Du Pont to monopolize the Canadian explosives market. Therefore, Nobel's senior management started to negotiate conditions for the amalgamation; both companies would proceed to the merger of the four Canadian companies, but Du Pont did not control this consolidation. Harry McGowan on the British side led the negotiations that took place during all of 1910.383

In November 1910 the Canadian merger took shape under the name Canadian Explosives Limited (CXL). It was incorporated under Canadian laws as a holding company for the purpose of manufacturing explosives and came into operation in April 1911. CXL was formed with an initial capital of $15 million that was equally divided between preferred stock and common stock. CXL was

381 Ibid. 209 382 Ibid. 209 383 Ibid. 209

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subscribed at 45% to Du Pont and 55% to Nobel.384 To form CXL's executive committee, Du Pont appointed three directors (Lammot du Pont, William Coyne, and H. G. Haskell), Nobel-Dynamite Trust appointed two (F. J. Shand and Lord Cochrane; Cochrane was already a senior manager at Nobel in London), and Nobel Explosives Company from Glasgow appointed one (H. McGowan). Three Canadian directors, "a suitable array", were nominated on the committee: William McMaster (president), Floyd Lankford, and John Rossel.385 Du Pont's capital stock increased $2 million between 1910 and 1911. However, the total acquisition might have amounted to $6.75 million, much more than the capital stock increase. Thus, most of the capital might have come from retained earnings. The Du Pont Annual Report did not mention anything about this merger.386 On October 3, 1910, the New York Times titled "Canadian Powder Merger" considered that "this deal marks the advent of Du Pont people in Canada."387

Historians Taylor and Sudnick understand the merger as having been "an enormous success."388 The merger lasted until 1953 when the antitrust judgment case made Du Pont divest from it. It was the first marker of the business relationship and friendship that Pierre and Harry McGowan entertained together:

"[…] a major factor in [the Canadian Explosives Ltd] success was the establishment of close personal ties and an aura of mutual trust between individuals in Wilmington and London. McGowan in particular cultivated relation[ships] with Du Pont executives and would become the chief architect of the Du Pont-Nobel alliance that

384 Moody's, Industrial, Canadian Explosives Company, 1916, 980. 385 Reader, W. J. (1970). Imperial Chemical Industries, a History. The First Quarter-Century 1926- 1952. London, Oxford University Press. 210-211. 386 Du Pont Annual Report, 1910 and 1911. 387 (October 3, 1910). Canadian Powder Merger. New York Times. New York: 1. 388 Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 40.

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expanded into the chemical field during the 1920s. His confidence in Du Pont's industrial prowess and desire to establish an enduring basis for the Du Pont-Nobel relationship converged with the conviction among Du Pont's head that their interests in protecting the domestic market could be best served through collaborative efforts abroad."389

As mentioned in Chapter Three, following this investment and since 1916 both Nobel and Du Pont started acquiring shares and sitting in senior management positions of General Motors. The Canadian William McMaster also did this. Since 1917 Pierre and Harry McGowan opened new discussions about an investment in Chile. The next section considers these negotiations.

4.1.2 DU PONT AND NOBEL IN CHILE (1917–1921)

In parallel to the investment with Nobel in Canada, Du Pont had acquired a nitrate field in Chile in 1910, near Taltal, to integrate this raw material extraction into its production process. Following the acquisition, Du Pont Nitrate Company was incorporated under the laws of Delaware, with a capital of $800,000 in preferred stock and $800,000 in common stock. This company was headed by the young Walter S. Carpenter.390 To lead the negotiations in Chile, Pierre du Pont had sent Walter's uncle Edmund N. Carpenter to Valparaiso. Therefore, in 1915 when Chilean Minister Agustin Edwards made a proposal to the Du Pont Company about an investment in his country, the State's man first contacted Edmund N. Carpenter whom he knew from the first investment.391 Agustin Edwards was worried by the war in Europe and he wanted his country to benefit

389 Ibid. 40 390 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 236. 391 Archives HML: Agustin Edward to Edmund N. Carpenter, November 18, 1915, Acc. 1662, Box 18.

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from its own military powder manufacturing; indeed, he feared that Chile was too dependent on American munitions exports.

In December 1915, following Agustin Edward’s proposition, James B. D. Edge, a director in Du Pont Nitrate Company who therefore knew Chile very well, was sent in Chile to investigate about such an investment. He presented the case to Pierre: the costs of manufacturing in Chile, as compared with American costs, plus freight, would not at this time warrant any further consideration of building a plant in Chile.392 A further explanation of the lack of interest to invest in Chile can be found in a letter from James Edge to Pierre, this time in 1917. By then Edge thought that an investment would only be profitable if the Chilean government put very high duties on imports of dynamite and explosives; at least four cents per pound of dynamite. Until then, exporting to Chile was more interesting to the American company.393 Therefore, during the following years Du Pont's directors' opinions remained negative on the question of entering Latin America; the soundness of the investment was not clear. To Pierre and his colleagues from the executive committee, South America was "poverty stricken." According to Pierre the market was overestimated. Pierre considered that American investors "going to South America" were rather adventurous:

"[…] courageous enough to persevere, it should apply itself to the furnishing for the development of that continent, ships, railroads, water power and heavy machinery. […] the people of the United States were to find the fabled Eldorado for which the Spanish conquistadors sought in vain. […] Any benefit which may accrue to the American people as a result of such new trade relationships will

392 Unfortunately, Edge did not give any information about these costs. Archives HML: James B. D. Edge to Pierre. December 2, 1915. Acc. 1662, Box 18. 393 Archives HML: Edge to Pierre, June 12, 1917, Acc. 1662, Box 18.

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come only at the end of a long and tedious period of nurture, during which all the advantage will lie away from our own shores."394

Nevertheless, with the war in Europe the anxiety in Chile, as with other countries, in military production was growing. An editorial published in La Union de Valparaiso on June 6, 1917, raised the issue that Chile's military needs of war explosives need to be independent. The editorial underlined that the Battle of the Marne between France and Germany would have been fought in Belgium, and not in France, if France had had better wartime resources and planning. The article made it clear that Chile was even in a worse position than France and that the country needed a strong program to protect its borders from any foreign invasion, be it from Germany or an invasion from Japan or from the Pacific.395

This editorial provoked reactions in the United States. The first reaction came a few days later from the American explosives company W. R. Grace & Company, which approached Pierre to inquire whether Du Pont was thinking about investing in Chile to supply the Chilean needs.396 W. R. Grace's executives thought that both companies could invest there together. But, Pierre refused this offer. He relied on the same argument he had already used: Chile must put an important duty on the import of explosives to make an investment in Chile interesting. Furthermore, according to Pierre, the needs of Chile in explosives and gunpowder were so low, in times of peace but even in times of war, that Du Pont would be producing explosives at a pure loss for this country. "The answer is ‘no,’ gentlemen."397

394 Archives HML: The Executive Committee report: The South American Rainbow, May 23, 1916, Acc. 1662, Box 35. 395 Archives HML: La Union, Valparaiso, June 6, 1917, Acc. 1663, Box 18. (Translation from Spanish) 396 W.R. Grace & Company was an imports- exports company founded in 1899 in Connecticut. Archives HML: D.D. Iglehart, vice-President of W. R. Grace & Co., to Pierre, June 8, 1917, Acc. 1662. Box 18. 397 Archives HML: Pierre to D.D. Iglehart, June 12, 1917, Acc. 1662, Box 18. 218

Edge was in Valparaiso when the editorial was published and was thus invited to meet the Minister of War, Señor Urzua. Edge wrote to Pierre on June 14, 1917, that the Minister of War was really insistent. Pierre answered directly to Edwards and made his point clear, one more time:

"First, there is a definite quantity of military powder which should be at hand to supply a definite number of rounds for guns of different calibers. This quantity must be sufficient to provide powder of different sizes at the loading depot, at the storage magazines, and at the scene of action. It is a quantity that cannot be reduced without actual shortage at some point. It is important that a most careful study should be made of this point and proper provision made for the actual possession of the various powders. Second, there is a further amount of powder to be provided for active service in the event of war. This should be estimated for a definite period of warfare. It is a most difficult calculation to make accurately, yet a necessary one in solving the military problem. Having determined these quantities, the next step is to decide whether an investment in an explosives factory is better than the investment of the same amount of money in the supply of powder. Considering this part of the question it must be in mind that the explosives factory must include the required stocks of raw materials. If these materials are not obtainable in your country, the investment in the factory must include the capital necessary to provide a sufficient stock of imported materials to cover requirements. […] Therefore, we are not hopeful of the situation as far as the manufacture of explosives is concerned."398

398 Archives HML: Pierre to Edwards, August 1, 1917, Acc. 1662, Box 18.

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Pierre did everything he could to make the Chilean government understand that Du Pont did not want to invest there. But at this moment his friend Harry McGowan would come with a proposition about Chile that Pierre would not want to refuse.

First proposition to enter Chile (1917)

In September 1917 Harry McGowan proposed to Pierre to set up a new Nobel- Du Pont venture. He first reminded Pierre of the fact that, because of the war, the smaller nations had realized that they had to be self-sufficient in explosives for military purposes, especially since the submarine menace became a very real one, one which could impede Great Britain or the United States from shipping explosives to these smaller nations. Both Armstrong Whitworth & Company and Vickers Ltd—two British armaments, naval and military product engineers and manufacturers—had excellent relationships with Chile, and Harry McGowan (at this point president of Nobel Explosives of Glasgow) had discussed with them the opportunity to erect a propellant powder plant and a blasting powder plant in Chile. Armstrong, Vickers, and Nobel were aware that the Chilean government would welcome a proposal of this nature. Unfortunately, war work in Europe made these three companies too busy to tackle the matter. But McGowan still had had an interview with Chilean Minister Agustin Edwards, who held Nobel, as well as Armstrong and Vickers, in great esteem.

"It was clearly evident at this interview that the Chileans are in a receptive mood at the moment for the consideration of a proposal to erect a propellant powder plant, and even a blasting explosives factory, and, in fact, so urgent did the matter appear to him that Senor Edwards decided to cable out to Chili stating that he had

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seen Nobel's and Armstrong's representatives, and they were prepared to make this proposal."399

As Edwards was opened to the possibility of Du Pont joining the three British companies in the erection of a powder plant in Chile, in 1917 Harry McGowan offered Pierre to invest jointly with them. He added that Nobel was very eager to enter Argentina and Brazil as well, on the same principle. The offer was to make a joint action in Chile with shared ownership in the new company to be formed, taking into account that Nobel had agreed with Edwards to give the Chilworth Gunpowder Company a part of the holding in Chile, thereby securing the influence of Armstrong and Vickers.400 McGowan noted that the Chilworth Gunpowder Company was only invited to participate in the propellant powder proposal, not the blasting explosives.401 Pierre replied to Harry McGowan that from an economic perspective the investment was definitely unrealistic: "We are opposed to the proposition because it is economically unsound." But, for the first time Pierre was open to negotiation. He told his friend that "if the work is to be done, we will join you in it."402 Pierre did not want Du Pont to be left out of the deal, obviously, and the joining of forces and sharing of risk helped him consider the investment. McGowan then told Pierre: "[…] I quite agree with you that the proposition might be economically unsound; still, if those countries (Chile, Argentina, Brazil) want their own powder factories and are prepared to pay for

399 Archives HML: McGowan to Pierre, September 7, 1917, Acc. 1662, Box 35. 400 Chilworth Gunpowder Company was a company initially controlled by German interest in 1885 (Köln-Rottweiler). Soon after, Chilworth made an agreement with Sir W. G. Armstrong & Company, Armstrong Whitworth from 1897, which made Armstrong control the military powder produced by Chilworth. In 1892 Chilworth also made an agreement with Maxim-Nordenfelt, which would be taken over by Vickers in 1897. Thus, both Armstrong and Vickers had important interest (unspecified though) in Chilworth. If Chilworth was involved in Chile with Du Pont and Nobel, it would mean that both Armstrong and Vickers would have an investment in Chile. Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870-1926. London, Oxford University Press. 149-150. 401 Archives HML: McGowan to Pierre, September 7, 1917, Acc. 1662, Box 35. 402 Archives HML: Pierre to McGowan, October 15, 1917, Acc. 1662, Box 35.

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them, then you and I jointly should make the deal."403 Thus, by October 1917 Pierre had made a clear proposal to the Chilean government to build an explosives factory in Chile. The proposition included two options: to build a plant that would provide Chile with an independent production of military and naval explosives, or to add a commercial scale to the production of explosives in Chile. Only the first option was approved by Edwards. Soon thereafter Minister Edwards contacted McGowan and Pierre to tell them that the Chilean government agreed to the proposition. The deal was sealed in October 1917; the Chilean government then waited for representatives to go and sign the contract.404

The Long Road to Chile

It would be a long time before the investment was achieved. The American explosives company Atlas was causing Du Pont problems because they demanded on being associated with the investment in Chile. This considerably slowed Du Pont's business in South America. In addition, a German anti- American propaganda was making life hard for American and European companies in Chile by disseminating hate comments towards the Americans and Europeans.

First, Du Pont had to deal with Atlas who had a small dynamite investment in Chile, and wanted to protect its existing interest by being included in the new company to be formed in Chile with Nobel. In December 1917 William J. Webster, the president from Atlas, called Harry McGowan to tell him they should consider the participation of Atlas Powder. Webster considered that Nobel ought to:

403 Archives HML: McGowan to Pierre, November 20, 1917, Acc. 1662, Box 35. 404 Archives HML: Edward to McGowan, October 13, 1917, Acc. 1662, Box 18.

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"[…] take into account the fact that Atlas have now established equity in the dynamite trade on the West Coast of South America and would therefore expect Nobel to take them into account in any such arrangement, otherwise Atlas would have to find some other way to protect their interests."405

However, as Nobel and Du Pont were not prospecting to set up a dynamite interest in Chile, McGowan did not feel the need to consider Atlas' participation.406 Pierre also did not want to consider them; Du Pont's president intended having a 50% interest in the Chilean investment, as did Nobel.407 However, Atlas would continue to insist.

Second, the German propaganda in Chile really seemed to affect the project. In May 1918 Pierre sent a letter to J. P. MacGowan, vice-president of the American Smelting and Refining Company in New York City, to understand if some anti- American feeling was growing in Chile due to this propaganda.408 At this point J. P. MacGowan informed Pierre of the existence of the American Association for International Conciliation (AAIC) in New York, which was constituted by American citizens—bankers, industrials, politicians—and aimed at awaking "interest and seek[ing] cooperation in the movement to promote international goodwill."409 Informed by MacGowan of Pierre's interest, the AAIC promptly contacted Du Pont's president and invited him to a meeting with Elihu Roots, Secretary of War under President William McKinley and State Secretary under

405 Archives HML: McGowan to Pierre, December 5, 1917, Acc. 1662, Box 18. 406 Archives HML: McGowan to Pierre, December 5, 1917, Acc. 1662, Box 18. 407 Archives HML: Pierre to McGowan, December 6, 1917, Acc. 1662, Box 18. 408 Archives HML: Pierre to McGowan, May 14, 1918, Acc. 1662, Box 18. 409 The AAIC was founded in 1905 by a French diplomat Paul Henri Benjamin Balluet, Nobel Prize Winner in 1909, Baron d'Estournelles de Constant de Rebecque. In the Association many illustrious members were active: Elihu Roots, Andrew Carnegie, Cecil de Rhodes, Thomas Lamont and Charles Sabin, among others. The principle goal of the Association was the establishment of an international congress which would be called the Congress of Nations. See online: http://www.nobelprize.org/nobel_prizes/peace/laureates/1909/balluet-bio.html

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President Theodore Roosevelt, who knew perfectly Latin America's politics and economic situation. The AAIC warned Pierre that, according to a number of sources, an active propaganda operation was indeed being conducted in Chile by some German activists with the purpose of creating a negative feeling towards the United States.410 This situation worried Pierre; investing in a country where the investor is not welcomed would expose the company in Chile to many dangers.411

In late 1918 the deal came back into discussion; the war was over in Europe and normal business could start again. Pierre had a talk with Atlas’ president who had not lost his will to invest in Chile despite the 1918 troubles. Webster told Pierre that if Atlas was invited to join Nobel and Du Pont, he could easily raise the money in the United States to achieve such an investment. Furthermore, Atlas would agree to provide necessary technical information. In the end Pierre was convinced. Du Pont's president then offered to Nobel to build a factory jointly with Atlas, because there was, according to Pierre, "no use in losing money by adding the expenses of two separate efforts." By 1918 Nobel accepted and Pierre would therefore agree to have Atlas join them in their effort

410 Archives HML: AAIC letter to Pierre, May 23, 1918, Acc. 1662, Box 18. 411 The propaganda problem lasted during all of 1918. Even Silas W. Howland, an important attorney working with Elihu Roots in his New York cabinet Root, Clark & Bird- The office would, in 1925, become Root, Clark, Buckner and Howland's office-,wrote a letter regarding the "Chilean matter," as it started to be called. Howland wanted some of Du Pont's directors to take part in a committee working on the German problem in Chile. Pierre agreed to invite James Edge and he also recommended Edmund N. Carpenter for the committee. Edge agreed to join the committee. No information could be found with regards to Carpenter's decision about joining the committee, nor could any trace be found on this committee, probably borne out from the AAIC meeting in early June 1918. By late July 1918 Pierre was contacted by another attorney office, the Henry, Pepper, Bodine, and Pepper Attorney Office from Philadelphia. Bayard Henry wanted to discuss the Chilean matter with Du Pont's president. These discussions are, unfortunately, badly covered by the remaining material. Nonetheless, the Chilean question appears to have been a matter of importance, but neither Nobel nor Du Pont made any steps toward an investment in Chile during this period. Archives HML: Pierre to Howland, June 12, 1918, Acc. 1662, Box 18, Howland to Pierre, June 15, 1918, Acc. 1662, Box 18.

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to build a factory in Chile.412 However, the investment was not achieved immediately. First of all, in early 1920 McGowan and Pierre's discussions about South America were first achieved in the signing of a South American Pooling Agreement, a patent and process agreement in which all parties shared some common interest in Latin America:

"Both parties agreed to divide equally all profits from the sales of commercial explosives in South America except in Chile, and to exchange information on orders for military explosives from that region. No restriction, however, was placed on prices or volume of sales, in order to avoid the charge that this was a territorial agreement."413

And finally, in 1920 Irénée signed the advice of action necessary to launch concretely the project. In March 1920 Irénée wrote to C. W. Phellis and J. Thompson Brown, two of Du Pont’s directors from the sales department, that the executive committee had adopted a resolution which stipulated that the report on the Northern Chile high explosives plant was accepted and that Du Pont would appoint two trustees, who were the sales department's directors.414

Entering into Chile (1921)

Before starting to build the plant on November 24, 1920, Irénée asked the executive committee if it would not be wise to involve Hercules in the Chilean explosives manufacturer. C. W. Phellis and J. Thompson Brown had warned

412 Archives HML: Henry to Pierre, July 31, 1918, Acc. 1662, Box 18. 413 Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 120-121. 414 C.W. Phellis was director of the sales department in 1920 and J. Thompson Brown entered the board of directors in 1923, the executive committee in 1930, and the finance committee in 1946. Both Phellis and Thompson Brown would become directors of Du Pont in Mexico in 1925. Archives HML: Irénée to Phellis and Thompson Brown, March 29, 1920, Acc. 1662, Box 35. 225

Irénée that Hercules had planned to set up a plant in Chile. With this in mind, Irénée considered that it was interesting to give an interest in the Canadian Explosives Company to both Atlas and Hercules, and, through this holding company, set up a South American investment, namely the Chilean Explosives Manufacturer:415

On November 30, 1920, and to understand the importance of each company in Latin American, the sales department investigated on the amount of high explosives produced and sold in South America, this year, by each concerned company: Du Pont, Explosives Trade Ltd, Hercules, and Atlas.416 The results of the investigation are summed up in table 4.1.

46Table 4.1: American and British Companies' Sales to South America in 1920 Company Sales to South America Du Pont 4,500,000 lbs. Explosives Trade 5,500,000 lbs. Ltd Hercules 500,000 lbs. Atlas 1,000,000 lbs. Total 11,500,000 lbs. Sources: Archives HML: Sales Department report to Irénée, November 30, 1920, Acc. 1662, Box 35. The British Explosives Trade was the most important seller in Latin America (5.5 million pounds) and Du Pont the second largest (4.5 million).417 Following this report, by December 8, 1920, the executive committee had established that there was no objection to invest in Chile with Hercules and Atlas Powder

415 Archives HML: Irénée to the Board, November 24, 1920, Acc. 1662, Box 35. 416 On November 29, 1918, Explosives Trade Ltd was formed and resulted from the consolidation of Nobel Explosives of Glasgow, Kynoch Ltd, Eley Brothers Ltd, and other British explosives producers. Harry McGowan was appointed president of this company. In 1920, it would be renamed Nobel Industries Ltd. Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870-1926. London, Oxford University Press. 310-313. 226

Companies as partners. Nonetheless, the executive committee finally decided to not grant access of both these companies to the investment in Canada as it created a risk of being accused of cartelization by the American justice system.418 McGowan for his part reacted to the participation of Atlas and Hercules in the joint venture in Chile: their joining was possible, but McGowan required that they did not have interest in the business equal to Du Pont and Nobel's interests. McGowan told Irénée that both companies, and both men, had been negotiating for years in Chile and that they had spent many years building up their business in the country:

"I would be disposed to make some concession on our 50 per cent to get these people in, although, frankly, I do not think they should share equally with us. I quite realize that with their competition things might be difficult. On the other hand, we do not care to hand over to comparatively newcomers like these people."419

Following the discussions in 1921, Du Pont, Nobel, Chilworth Powder Company, and Atlas founded Compañia de Explosivos de Chile, with 41.5% interest for Du Pont, 41.5% interest for Nobel, and with 15% held by Atlas. The remaining 2% was, as promised, interest for the Chilworth Powder Company. This new company was incorporated for the purpose of constructing a high explosives plant in Chile near Calama, to serve that country's needs, as well as certain other trades on the West Coast of South America.420 In the end Hercules did not join the investment. In the beginning of 1921, Russell H. Dunham, Hercules

417 Archives HML: Phellis and Brown to Irénée, November 30, 1920, Acc. 1662, Box 35. 418 Archives HML: Executive Committee report, December 8, 1920, Acc. 1662, Box 35. 419 Archives HML: McGowan to Irénée, January 17, 1921, Acc. 1662, Box 35. 420 To notice, Calama was at 200km from Taltal were the nitrate extraction plant was located.

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Company's president, told Irénée that he had lost interest in the Chilean powder plant; the business there seemed not so attractive to them anymore.421

The building of the plant was started in October 1921, taking advantage of the then low exchange rate with Chile and, therefore, the cheaper building costs.422 Furthermore, McGowan obtained from the Chilean government that a tariff wall was put on imports of explosives into the country. Therefore, the plant and its production were protected from outside supply.423 In 1923 the name of the company was changed to Compañia Sud-Americana de Explosivos and the plant started the production of explosives in October of that year.424 During the 1920s the Du Pont-Nobel explosives manufacturer produced around 50% of the powder supplied to Chile.425 The formation of the Chilean company was operated with retained earnings, as no stock was issued in order to capitalize it.

During the same period Du Pont was also negotiating another investment, this time in Mexico. Discussions to enter Mexico were difficult and, as always with multinationals, related to the political and economic situation of the host country, as the next section shows.426

4.2. A WORLDWIDE NETWORK: ENTERING MEXICO

Since the first days of Du Pont Powder, Coleman du Pont was thus interested by the proposition made by the French Société Centrale de Dynamite to Du Pont's senior management to acquire their explosives' manufacturer in Mexico. The

421 Archives HML: Irénée to the Executive Committee, January 11, 1921, Acc. 1662, Box 35. 422 There is no indication about the cost of the investment. Archives HML: Irénée to Haskell, October 3, 1921, Acc. 1662, Box 35. 423 Reader, W. J. (1970). Imperial Chemical Industries, a History. The First Quarter-Century 1926- 1952. London, Oxford University Press. 220. 424 Du Pont Annual Reports, 1923. 425 Du Pont Annual Report, 1926. 426 See "the political parameter" in Wilkins, M. (1994). "Comparative Hosts." Business History 36(1): 18-50. 25. 228

French wanted to sell their plant for various reasons, but mostly because it was not working well and that, added to the long distance between the French mother company and the plant in Mexico, they produced at pure loss. As mentioned in the introduction, these first negotiations led nowhere. Nevertheless, the discussions would be re-launched in 1915 after the Mexican Revolution (1910–1915). This section thus first considers the setup of the Mexican dynamite company and its evolution since 1915, as well as renewed invitations to Du Pont. A second subsection deals with the bonded debt crisis from which Mexico suffered after the revolution and the opportunities it gave Du Pont. The third subsection shows how the investment was achieved following harsh negotiations with the French Société Centrale.427

4.2.1. THE MEXICAN INVESTMENT (1901–1916)

Since the second part of the 19th century two French companies, Société Générale pour la Fabrication de la Dynamite and Société Continentale de la Glycérine et de la Dynamite, operated in France under the holding company Société Centrale de Dynamite (Société Centrale). They had not ratified the 1897 agreement, which, as mentioned, forbid European chemical companies to invest in Mexico. Therefore, they were not concerned with the obligation of leaving the Mexican market to the American group.428

427 Some sections about the investment in Mexico were published in Lombardi, L. (2013). When Du Pont Entered Mexico (1902-1928): How the Network Played the Game. Family Multinationals. Entrepreneurship, Governance, and Pathways to Internationalization. C. Lubinski, J. Fear and P. Fernández Pérez. New York, Routledge: 225-240. 428 The Société Centrale, which headed the Latin group, was founded by Paul Barbe and Alfred Nobel and was held massively by Nobel interests. Paul Barbe was a polytechnician and military engineer. He worked with his father, Jean-Baptiste Barbe-Schmitz, and Alfred Nobel. Barbe "Junior" became Nobel’s right-hand man. He managed the production and the sales of explosives in Europe. Barbe and Nobel set up the Société Générale pour la Fabrication de la Dynamite in 1875. In 1884 this enterprise merged with its principal competitor, Société Continentale. Stephen Smith, M. (2006). The Emergence of Modern Business Enterprise in France, 1800-1930. Cambridge, Harvard University Press. 234 In 1887 the society amounted FF20 million of capital 229

Therefore, in December 1901 in the State of Durango Auguste Genin, a French financier active in Société Centrale, obtained a concession from the Mexican Secretaria de Fomento, Colonizacion e Industria to build an explosives factory. In this concession it was stated that:

“[President Porfirio Diaz] approved the contract made between the Secretary of State Leandro Fernandez, representing the executive of the Union, and Mr. Auguste Genin, representing the companies Société Française pour l’industrie au Mexique S.A. and Société Centrale de dynamite S.A., and Messrs. Saturnino A. Sauto, Luis Gurza and Lic. Tomas Reyes Retana, representing Compañia Industrial Jabonera de la Laguna S.A., which constitutes the Compañia Nacional de Dinamita y Explosivos S.A. (Compañia), being the object of said contract the building and exploiting of a factory of dynamite and industrial explosives in the territory of the Republic.”429

The Compañia was thus a Mexican subsidiary owned by Société Centrale and shared with Compañia Industrial Jabonera de la Laguna S.A., a Mexican interest. The branch had to build a factory to satisfy the Mexican demand for nitroglycerine and smokeless powder. At the same time, by July 1903, the Mexican congress authorized a decree taxing all dynamite and industrial

and was composed by 40,000 shares of 500 Francs: 5,234 shares belonged to the Société Française de Dynamite et de Produits Chimiques (Nobel’s patents and processes), 6,613 shares to the Société de Dynamite Espagnole, 22,878 shares to the Société de Dynamite Nobel, 1,280 shares to the Société Continentale de Glycérine et Dynamites, 3,718 shares to the Société Nationale Vénézuélienne de la Dynamite Nobel and 1,000 shares to the Société Nationale pour la fabrication de mèches de mineurs. Basically, more than 75% of the stocks belonged to France's Nobel interests. Sauvaitre, L. (1889). Les Sociétés Françaises de Dynamites: la nouvelle poudre sans fumée livrée à l'Allemagne et l'Italie. Paris. 429 Archives HML: Copy of the 1901 contract in a report established by Venustiano Carranza, October 16, 1916, Acc. 1662, Box 46. Venustiano Carranza was the first president of Mexico after the revolution, between 1915 and 1920, when he was assassinated 21 May 1920 by the opposition forces of General Rodolfo Herrero. 230

explosives imported and consumed in the country with 10 pesos per ton, 21 centavos per kilogram. The decree also stated that Compañia would only pay one seventh of the interior tax until 1912 and two sevenths until 1915.430 This decree was the promise that Compañia would be protected by the government as a state quasi-monopoly. The contract was to last until 1915.431

Some influential Mexicans occupied senior management positions of this company: Julio Limantour, the Mexican finance minister’s brother, and Porfirio Diaz Jr., the Mexican president’s son, as well as Enrique C. Creel, secretary of foreign affairs, and Roberto Nuñez, under-secretary of treasury, were members of Compañia's senior management on the Mexican side. However, the Mexican senior management of Compañia appeared to be all a façade. The actual decision-making power was in France, in the executive committee of Société Centrale. Therefore, from the French side the executive committee from Société Centrale managed the Mexican interest and was formed by Paul Clemenceau, among other directors. Paul Clemenceau was an important and strategic personage in the French environment. His brother was Georges Clemenceau, French président du conseil des ministres twice, between 1906 and 1909 and between 1917 and 1920. He was also ministre de l'intérieur and ministre de la guerre between 1917 and 1920. Paul Clemenceau was trained as an engineer and would be an important interlocutor in the Mexican business, but mostly after the Mexican Revolution.432

Initially the French were rather confident in the profitability of their Mexican investment: "Nous augurons très favorablement de cette nouvelle affaire; nous pensons qu'elle nous apportera, dans un avenir peu éloigné, un important

430 Archives HML: Copy of the 1901 contract in a report established by Venustiano Carranza, October 6, 1916, Acc. 1662, Box 46. 431 Archives HML: Copy of the 1901 contract in a report established by Venustiano Carranza, October 6, 1916, Acc. 1662, Box 46. 432 Erlanger, P. (1968). Clémenceau. Paris, Librairie Académique Perrin, Winock, M. (2007). Clémenceau. Paris, Perrin. 231

appoint de revenus."433 Société Centrale’s executive committee proved to be wrong. Until 1904 the explosives’ manufacturing plant was under construction, so the Mexican company naturally had no income. Also in 1904 Société Centrale understood that the initial capital of 1.4 million pesos, planned for setting up of the dynamite manufacturing, was insufficient to achieve the factory's construction. In addition, construction was slowed because of the lack of water in the State of Durango434 Therefore, Société Centrale decided to put in an additional 2.6 million pesos, to come from Société Centrale's deposit account, in order to allow the project to be achieved.435 Nonetheless, Compañia encountered more problems. Production began in fall 1904, but by April 1905 it was stopped by an explosion—of minor importance—and production of dynamite only started again in July of the same year. The existing powder inventories had been sufficient to maintain sales during the interruption of production. Unfortunately, another explosion occurred in August 1905. This time it was of major importance and prompted closure of Compañia for an undetermined period of time. With the second explosion there was again some lack in capital; this problem was underlined by Société Centrale's executive committee.436

"Cette filiale a un capital très insuffisant et devra subir, dans un avenir prochain, une réorganisation financière. En attendant, elle a

433 Archives du monde du travail, Roubaix (AMTR): 65AG P 312, Rapport du Conseil d'Administration de la Société Centrale de Dynamite, 1901. 434 AMTR: 65AG P 312, Rapport annuel du Conseil d'Administration de la Société Centrale de Dynamite, 1903. 435 AMTR: 65AG P 312, Rapport annuel du Conseil d'Administration de la Société Centrale de Dynamite, 1904. 436 AMTR: 65AG P 312, Rapport annuel du Conseil d'Administration de la Société Centrale de Dynamite, 1905.

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recours à l'aide de banquiers et nous lui rendons aussi tous les services que permet la situation de notre trésorerie."437

Thus, in only four years Société Centrale’s executive committee completely changed its stance about Compañia. The executive committee asked Société Centrale's shareholders to vote whether they wished to stop the company's involvement in Mexico by selling it to another company. The owners of the company's voting stock agreed to such a sale.438

In early 1906 Société Centrale was looking for a buyer, and the executive committee thought that Du Pont Powder would be interested in it. The French group knew how big Du Pont was (more than $55 million assets at the time compared to FF19 million assets in Société Centrale the same year). Plus, Du Pont Powder was at this point in the process of consolidating and acquiring important interests in the United States. The Société Centrale stated that Du Pont had expertise in acquiring and restructuring companies and the managers of the American company would not be scared of the unproductive Mexican business, but instead would see the opportunity to invest in Mexico439:

"Il nous était tout indiqué de nous adresser à cette puissante société des Etats-Unis, la Dupont de Nemours Co., qui est tout à côté, et avec laquelle nous avons entamé des pourparlers. Nous avons trouvé ces messieurs très bienveillants et nous poursuivons, à New York, des négociations dans le but d'arriver à donner à la Société mexicaine le développement nécessaire à sa prospérité. […] M. Dupont de Nemours, président du Conseil d'administration

437 AMTR: 65AG P 312, Rapport annuel du Conseil d'Administration de la Société Centrale de Dynamite, 1905. 438 AMTR: 65AG P 312, Rapport annuel du Conseil d'Administration de la Société Centrale de Dynamite, 1905. 439 AMTR: 65AG P 312, Rapport annuel du Conseil d'Administration de la Société Centrale de Dynamite, 1906. 233

[Pierre, in fact], est venu au mois de juillet dernier causer avec nous; nous avons échangés des idées et sommes tombés d'accord sur un certain nombre de points. […] nous entrevoyons des avantages importants pour notre Société."440

Nevertheless, in 1907 the financial panic arose as Du Pont was sued by the Department of Justice for its monopolization of the powder market in the United States. Therefore, despite a trip by Pierre and John J. Raskob to Paris in 1906 to negotiate options by which Du Pont could acquire the Mexican company, and even discussions about how the French and Du Pont could reach more global agreements about trans-Atlantic trade, the negotiations led nowhere. The Mexican Revolution began in 1910 and overthrew the Mexican dictatorship. The unstable climate, which lasted until 1915, was the final argument against Du Pont's acquisition of Société Centrale.

During the Mexican Revolution (1910–1915)

Between 1876 and 1911 the dictator Porfirio Diaz ruled Mexico. His government benefitted the large Mexican entrepreneurs—mostly from the center of the country—as Diaz's government facilitated large acquisitions of village lands and supported Mexican entrepreneurs by setting up local conditions to erect monopolies in certain sectors. Diaz’s government also benefitted large foreign investors, mostly American, as the Porfiriato offered them attractive incentives to start their business in Mexico. This resulted in peasants remaining landless, and no institutional safeguards being employed to protect the national sovereignty. In addition, there was growing discontentment originating mostly from entrepreneurs in the north of the country who did not receive as much support from Diaz as others, and who suffered from the competitions with foreign

440 AMTR: Dossier AQ65, Allocution de Border, January 17, 1906, Revue Economique et Financière

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investors for their own investments.441 During the early months of the revolution in 1911, foreign direct investments (FDI) in Mexico amounted to 3,400,388,000 pesos. The largest investors in Mexico were Americans, who owned 38% of the FDI in that country, followed by British (29%) and French investors (26%). The most important sectors of investments were first the railways (33% of total FDI), second the mines and metallurgy (24%), and finally the Mexican public debt (14.6%).442 To historian Michael J. Gonzales, the conflict found its roots in this unequal system: "The preeminence of foreign ownership over key industries became controversial, especially among provincial elites and workers. […] The loss of political autonomy outraged notables and villagers alike."443

The discontentment of the entrepreneurs, the farmers deprived of land, and the rural and urban workers found an expression in Fransisco I. Madero's movement. Coming from one of the wealthiest families in North Mexico, Madero led a rebel movement from late 1910 and succeeded in toppling Diaz’s government in May 1911. Diaz was exiled to Spain, and later died in Paris in 1915. Madero was elected to the presidency of Mexico on November 6, 1911. However, as the first president of the revolutionary Mexico, Madero was unable to achieve a consensus among the popular movement. He was overthrown on February 20, 1913, by a coup led by the military forces, the remaining Profiristas, and Catholics. Madero was murdered on his way to prison on February 22, 1913.444 Victoriano Huerta was elected president of Mexico on February 20, 1913, but quickly encountered the same problems as Madero had. The Constitucionalistas, a movement led by Venustiano Carranza, toppled him

441 Gonzales, M. J. (2002). The Mexican Revolution, 1910 - 1940. Albuquerque, University of New Mexico. 2. 442 Galindo, J. (2013). "The Economic Expansion of an Elite Business Family of French Origin in Central Mexico in the First Half of the Twentieth Century." Enterprise and Society 14(4): 794-828. 797. 443 Gonzales, M. J. (2002). The Mexican Revolution, 1910 - 1940. Albuquerque, University of New Mexico. 3. 444 Collado, M. d. C. (2012). "Entrepreneurs and Their Businesses during the Mexican Revolution." Business History Review 86(4): 719-744. 719-721. 235

in April 1915. On May 1, 1915, Carranza became the first president of the post- revolutionary Mexico.445 The rebel movement slowed down since the accession of Carranza to the head of government: the old guard had been thrown out, the state was reinvented, and some historic social and economic reform became possible. Nevertheless, the revolution was not able to eradicate poverty in Mexico, create a real tangible democracy, or secure economic independence.446 The irony was that in 1911, on the eve of the revolution, the Mexican dynamite company finally started to make some benefits. It was finally said to be in a normal position. Unfortunately, the loss of Diaz would influence the take-over of Compañia.447

In 1915 Venustiano Carranza became president of Mexico and was the first governor of the post-revolutionary Republic. The president defended Mexican nationalism and in this vein he decided to abrogate various privileges, taxes, and trade contracts established during the Porfiriato.448 Of particular relevance for the explosives industry was that Carranza decided to abrogate, in 1915, the decree of February 21, 1905. This decree previously established a consumption tax on dynamite and industrial explosives and on the imports of dynamite, powder for mining, piroxiline, and cotton powder ($0.12 per kilogram, net weight). Carranza decided to only tax the imports. In 1916 he further modified

445 Knight, A. (1987). U.S. - Mexican Relations, 1910-1940. San Diego, Center of U.S. - Mexican Studies. 133. 446 Gonzales, M. J. (2002). The Mexican Revolution, 1910 - 1940. Albuquerque, University of New Mexico. 4. 447 Nonetheless, this booming was rather shy. In 1911 Compañia could only produce a sufficient output to satisfy 60 to 80% of the Mexican army’s demand for dynamite. Haber, S. and A. Razo (1998). "Political Instability and Economic Performance: Evidence from Revolutionary Mexico." World Politics 51(1): 99-143. 113. 448 Ibid. 113.

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the taxation of dynamite, reducing the import tax to one-third of its original value ($0.04 per kilogram).449

The Mexican dynamite company was affected by these changes in tax regime; it would not survive the revolution and was closed by 1915. However, termination of the tax contract was probably not the only reason that the dynamite manufacturer had to close. Of interest, the revolution did not destroy the physical plant of Compañia. Despite the Mexican company’s growing production, it always had to import explosives from the United States. These explosives from America were not subject to the import tax, as these imports were intended to last only until Compañia was able to completely satisfy the Mexican demand.450 The Mexican market was, therefore, divided among Du Pont, Hercules, Atlas Powder, and Giant Powder Company. Since 1913 and as Figure 4.2 describes, Du Pont was the second largest provider, behind Hercules. The former sold explosives for $1,276,050 to the Mexican government, the latter $3 million. Atlas Company and Giant Powder Company together provided explosives for an amount of $200,000 that year. From 1922 a number of German producers would also supply the Mexican government. During the following years, Hercules remained the most important seller to the Mexican government, and kept increasing its sales. In contrast, Du Pont decreased the amount sold to the Mexican government. Between 1914 and 1915 the total sales decreased from $1 million and would only increase again in 1917, to reach a low $951,000.451 Figure 4.2 clearly illustrates this.

449 Archives HML: Venustiano Carranza’s Decree on Compañia, 8 May 1915 and 6 October 1916, Acc. 1662, Box 46. 450 Haber, S. H. (1989). Industry and Underdevelopment. The Industrialization of Mexico, 1890- 1940. Stanford, Stanford University Press. Marichal, C., Ed. (1995). Las inversiones extranjeras en América Latina, 1850-1930. Nuevos debates y problemas en historia econòmica comparada. Mexico El Colegio de México. 451 Archives HML: Statement about Du Pont’s sales in Mexico, 1913-1923, Acc. 1662, Box 20.

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47Figure 4.2: Exports of Powder to Mexico in Thousand USD

4500 4000 Du Pont 3500 3000 2500 Atlas & Giant 2000

Thousand USD Thousand 1500 Hercules 1000 500 0 German 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923

Sources: Archives HML: Statement about Du Pont’s sales in Mexico, 1913-1923, Acc. 1662, Box 20. Figure 4.2 shows that Compañia, even after 1911 and its first benefits, was not able to entirely supply Mexico’s demand. It also clearly presents an important decrease in Du Pont's exports between 1914 and 1916. At the same time Atlas, Giant, and Hercules continued their trade and even increased the total amount sold to the Mexican government. In 1915 Compañia was closed, but thereafter there was an obvious and important increase in the amount of explosives imported into the country. In the aftermath of the revolution, even if the newly formed government defended a nationalist orientation, the totality of explosives needed by the Mexican government came from abroad. During the 1920s Du Pont exceeded $2 million in sales to the Mexican government. In 1923, two years before the acquisition, Du Pont was the first exporter with the sale of $3,105,650 worth of merchandise to the Mexican government, and Hercules the second highest seller (with $800,000 of merchandise sold). Despite the fact that between 1913 and 1923 Hercules had lost some market shares, the company used to sell a lot more than Du Pont to the Mexican government until 1921. Therefore, it is understandable that Du Pont was already working with Mexico,

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even before, to buy back the Compañia. Du Pont also clearly had some serious competitors among its American counterparts.

After the Mexican Revolution (1915–1919)

When the Mexican Revolution ended in 1915, Pierre and Irénée du Pont, as well as John J. Raskob received numerous invitations from American entrepreneurs to invest in Mexico. In 1916 they were courted to make investments in gold mining, as well as investments in financial services in Mexico. Among other propositions, by November 1915 John J. Raskob was invited by Thomas Dunlop, an American entrepreneur, to reconsider the purchase of Compañia. Dunlop explained to Raskob that a few years earlier, when the Mexican dynamite company was in a much better position, he had discussed the purchase of the Mexican company with Auguste Genin.452 As nothing had been concretized before the revolution, Dunlop wanted to reopen the negotiations once the political troubles seemed to have come to an end. Dunlop was convinced of the prosperity of the investment.453 He reminded Raskob that:

"I really think the acquisition of such a company holding a concession such as the National holds, would be of much advantage to the Du Pont interests, inasmuch as the large developments which naturally will take place, on the resumption of the Mexican business, will call for large quantities of explosives of every kind, and the facilities here are not capable of fulfilling them. And while your own interests are considerable under present arrangements, no doubt the National people later on will ask for

452 Auguste Genin was one of the founders in 1901. 453 Archives HML: Thomas Dunlop to John J. Raskob, November 29, 1915, Acc. 1662, Box 35.

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additional rights to make up for the losses they have been sustaining through the result on the present war."454

This was the first time that someone proposed to sell the closed Compañia to Du Pont after the revolution. Dunlop presented the investment as if the revolution changed nothing about the conditions under which Compañia had been operated under the Porfiriato.

Raskob transmitted the letter directly to Pierre and it was Pierre who took care to answer Dunlop by December 1915. Pierre was categorical; he refused to enter into consideration an overture about the national dynamite company of Mexico. Pierre reminded Dunlop that Compañia had been very questionable under an economic standpoint, and that for it to work out correctly it needed support so heavy that no company could justify such a weight in an industry. Furthermore, even with this protective duty, the Compañia did not operate well; in fact, not even correctly. Pierre firmly refused Dunlop's proposition.455

Four months later Charles Sabin, by this time president of the Guaranty Trust Company of New York, wrote to Pierre about Compañia. At that point they were sat together on the board of General Motors. In Sabin's letter the issue of a possible acquisition of Compañia was revived. The banker chose to introduce Tomas MacManus, a banker and member of the Mexican Chamber of Deputy to Pierre. He presented MacManus as a "very valued friend of ours." Sabin had presented to MacManus that Pierre could be interested in the proposition that the Mexican wanted to make.456 Joined to Sabin's letter, MacManus wrote a long letter to the Du Pont president, dated March 4 of the same year. MacManus opened his letter by reminding Pierre how much he knew Charles Sabin and that Sabin recommended his idea to Pierre. MacManus then entered directly the

454 Archives HML: Thomas Dunlop to John J. Raskob, November 29, 1915, Acc. 1662, Box 35. 455 Archives HML: Pierre to Thomas Dunlop, December 6, 1915, Acc. 1662, Box 35. 456 Archives HML: Sabin to Pierre, March 3, 1916, Acc. 1662, Box 35. 240

topic of Compañia. MacManus reminded Pierre that the Mexican national dynamite and explosives company was closed, but could have a more prosperous future. The Mexican banker told Pierre that he previously had a discussion in Paris with the president of Compañia, Paul Clemenceau, who had told MacManus that some talks were started before the revolution. The French president was pretty sure that even if Pierre had refused to tackle the matter during the 1910s, that Du Pont could now be more interested with this business. The reason invoked by the French president was not the actual conditions under which the Compañia could produce and trade, but rather the extension of Du Pont in the United States and abroad. Paul Clemenceau underlined that with the “now effective” Canadian joint venture in which Du Pont took part, and the diversification with which the company had operated in the United States, the American company was now ready for a Mexican expansion. Still speaking on behalf of the French president, MacManus wrote to Pierre that Société Centrale had thought of providing a huge opportunity to Du Pont. More precisely, Clemenceau intended to sell Compañia completely to Du Pont and to thus give the American the opportunity of possessing the only existing plant that was producing explosives in the country.457

Even if the proposal seemed interesting, Pierre still answered MacManus that this proposition had already been made “several times” to the American company, but that it was not possible for Du Pont to consider entering Mexico. He invoked two main arguments for refusing the buyout of Compañia. First of all, he reminded MacManus of the answer he had given to Dunlop in 1915 about the impossibility for Du Pont to support an investment that needed, in order to operate correctly, an important duty on the imports, but also on the production of explosives. Second, Pierre told MacManus that for now the economic and political conditions in Mexico were not rosy, that the troubles still seemed important, and that while the government was not stable that Du Pont would not

457 Archives HML: MacManus to Pierre, March 4, 1916, Acc. 1662, Box. 35. 241

try to enter into any question about a Mexican investment.458 At this same time Pierre wrote a letter to his friend Charles Sabin. Pierre thanked him for having introduced MacManus as this latter was of interest to him, but Pierre also reminded Sabin that the opportunity to buy Compañia had been presented to him too many times to remember the number. Pierre always stood on the same position and refused to enter into question the purchase of Compañia. He reminded Sabin of the two reasons that he provided to MacManus for refusing the proposition.459

In opposition to Dunlop and MacManus' proposition, Pierre received a warning from the American government about Mexico. From March 1916 the American secretary of war Newton D. Baker advised Pierre to stop exporting ammunition and explosives to Mexico, because of the risk that they could be used against American people or interests.460 As mentioned, Du Pont was an important exporter of explosives to Mexico. In 1915 the total sales amounted to $431,500.461 Baker, in that year, presented to Pierre that even if President Venustiano Carranza was seen as more friendly toward the United States than the revolutionists during the preceding five years, his behavior would very soon turn again to be hostile. In this case Carranza might use the explosives sold by Du Pont toward his American Northern neighbor. The Secretary of War warned Du Pont to not make any more shipments of ammunitions and explosives to Mexico until further notice. Baker also proposed to discuss the situation with other ammunitions producers in the United States to harmonize the action taken against Carranza's government, in order to prevent any American companies taking Du Pont's market in Mexico when the American group would stop

458 Archives HML: Pierre to MacManus, March 6, 1916, Acc. 1662, Box 35. 459 Archives HML: Pierre to Sabin, March 6, 1916, Acc. 1662, Box 35. 460 Archives HML: Newton D. Baker to Pierre S., March 22, 1916, Acc. 1662, Box 35. The Secretary of War and Pierre were already in close contact through the sales of explosives from Du Pont to the Allies at war in Europe. They would again be in contact when the United States entered the war in 1917. See Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 359-433. 242

exporting explosives there.462 Nonetheless, Du Pont's sales to Mexico increased in 1917 and amounted to $951,000, twice the sales of 1916. Therefore, Pierre did not stop Du Pont's selling to Mexico, but at the same time he refused to take charge of the dynamite company.

A few years later, in June 1919, noises coming from Mexico arrived at Wilmington. Irénée du Pont and J. Amory Haskell had news from the Mexican government that the regime of that time would look favorably towards the Du Pont Company if they were to build a dynamite plant in Mexico; the government considered that the Mexican national dynamite monopoly had become obsolete.463 The news about Compañia was not surprising as the plant had been unused since 1915. The news about the regime being favorable to Du Pont buying a monopoly of explosives was not surprising, and by taking care of the macroeconomic context, the steps made by Carranza seemed clearer. The International Committee of Bankers for Mexico (ICBM) was founded in 1918 and was aimed at restoring a sound bonded debt in Mexico. At this point in history, Mexico was also in need of reindustrializing its economy. From Du Pont's side, these factors seemed to contribute to an imminent change.

4.2.2. THE MEXICAN BONDED DEBT CRISIS AND DU PONT'S INVESTMENT

In the aftermath of the revolution Mexico had to deal with a bonded debt crisis, the loss of foreign direct investments, a slowed national production directly related to the destruction of foreign properties, and the wave of nationalism induced by the political events. There was an opportunity again for American enterprises to enter Mexico, which American investors caught: in 1914 a total U.S. FDI in Mexico amounted to $587 million, $644 million in 1919, and $709

461 Archives HML: Statement about Du Pont’s sales in Mexico, 1913-1923, Acc. 1662, Box 20. 462 Archives HML: Baker to Pierre S., March 22, 1916, Acc. 1662, Box 35. 243

million in 1929. Table 4.3 shows in which sectors these investments were oriented.464

463 Archives HML: Advice to the Executive Committee, June 15, 1919, Acc.1662, Box 35. 464 Wilkins, M. (1970). The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914. London, Oxford University Press. 31, 55.

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48Table 4.3: US FDI in Mexico – selected years and sectors, million USD. Sectors 1914 1919 1929 Manufacturing 10 85 200 Selling 206 37 9 Mining and Extracting 302 222 248 Petroleum 85 200 206 Agriculture 37 48 58 Utilities 33 32 90 Railroads 110 123 82 Total 587 644 709 Sources: (Wilkins 1975) 31, 55. Four years after the revolution, in 1919, the most important sectors were the mining and extracting as well as petroleum and railroads. Ten years later, in 1929, the manufacturing had grown and was the third sector in which American companies invested in Mexico, following the mining and extracting and the petroleum activities. These entries of foreign investments and Du Pont entering the country must be understood in the financial and industrial contexts and the role of the ICBM in dealing with the Mexican bonded debt crisis. The bankers’ influence was from their work of putting in the background that was necessary for Du Pont, as well as other manufacturing companies, to invest. The primary stated objective of the ICBM was to help resolve the Mexican bonded debt crisis in default since 1913. The United States had invested more than $1 billion in the country's bonded debt since the end of the 19th century, as had French and British investors, albeit with smaller investments. Added to the bonded debt issue, as previously mentioned, was that American companies had made foreign investments in Mexico and were threatened by the wave of nationalization. The American government was especially concerned with the investments of the American oil corporations.465 The ICBM was thus formed with the support of the

465 Feis, H. (1950). The Diplomacy of the Dollar. First Era, 1919-1932. Baltimore, The John Hopkins Press.; Kane, S. (1973). "Bankers and Diplomats: The Diplomacy of Dollar in Mexico, 1921-1924."

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American State Department and the British Foreign Office to represent the holders of Mexican bonds; however, the committee had "the broad function of dealing with the Mexican finance as a whole."466 The J. P. Morgan & Company's partner Thomas Lamont was the president of the committee and Charles Sabin was one of its twenty members. There were ten American bankers, five French, and five British. In 1921 three bankers—a Belgian, a Swiss, and a Dutch—joined the committee.467 The number of representatives from the various countries was attributed according to the possession of the Mexican debt securities. Thus, these bankers were defending their national interests. Alan Knight considers that the position of Lamont in the ICBM implied that he took responsibility, in a sense, for the evolution of the relationship between Mexico and America, particularly between 1918 and the 1930s.468 Lamont and the bankers from the

The Business History Review 47(3): 335-352.; Freeman Smith, R. (1963). "The Formation and Development of the International Bankers Committee on Mexico." The Journal of Economic History 23(4): 574-586. 466 Freeman Smith, R. (1963). "The Formation and Development of the International Bankers Committee on Mexico." The Journal of Economic History 23(4): 574-586. 580 467 The list of American bankers forming the ICBM included the following: Thomas W. Lamont (J. P. Morgan & Company), J.P. Morgan Jr., John H. Mitchell (president of Illinois Trust and Savings Bank), Walter T. Rosen (Ladenburg, Thalmann & Co), Charles H. Sabin (Guaranty Trust's President), Mortimer L. Schiff (Chairman Kuhn, Loeb & Company), James A. Stillman (Chairman National City Bank of New York), James N. Wallace (president of the Central Union Trust Company), Albert H. Wiggin (chairman of the Chase National Bank), Robert Winson, (president Kidder Peabody & Company). The British were represented by Laurence Currie (president of Glyn, Mills, & Company), Sir Clarendon Hyde (of Messr S. Pearson & son), E. R. Peacock (Chairman of the Bondholders Committee of the Mexico Trainways and the Mexican Light and Power Group of Companies, London), Vivian H. Smith (of Morgan Grenfell), Vincent W. Yorke (chairman of the Mexican Railways Company). The French were represented by William d'Eichthal (of Mirabeau & Company), Georges Heine (director of the Banque de l'Union Parisienne), André Honnorat (member of the Commission for the Protection of the French Holders of Mexican Securities), Jacques Kulp (auditor of the Banque de Paris et des Pays-Bas), Joseph Simon (inspector of finance, general delegate of the Commission for the Protection of the French Holders of Mexican Securities). In 1921 the Belgian who joined the group was Auguste du Pont, the Swiss was no one else than Guillaume Pictet, and the Dutch was a representative from Hop & Company. The Belgian had no connection with du Pont de Nemours (1919, February 24). Unite to Protect Mexican Holdings. New York Times. New York: 1, (1921, September 14). Lamont to Mexico on Bond Mission. New York Times. New York: 15. 468 Knight, A. (1987). U.S. - Mexican Relations, 1910-1940. San Diego, Center of U.S. - Mexican Studies. 246

ICBM also defended the case of the American companies that had invested in the country prior to the revolution and who wanted to protect their investments, or again the case of American companies that wanted to enter Mexico now, but which needed that the American government recognize the country to be able to do it. On the other side, for the Mexican government to be recognized would mean reaching favorable economic and political conditions in Mexico. Lamont had to work with this aim in mind.469

The work of Lamont and the bankers included various issues: to negotiate about the debt issue, the need for recapitalization of the country, and the process to increase capital through foreign direct investments with the post-revolutionary Mexican successive governments: Venustiano Carranza was assassinated on May 21, 1920, by some opponents to his regime. His successor, Adolfo de la Huerta, was appointed temporarily to this function between June and November 1920. Alvaro Obregon became the head of the government on December 1, 1920, and remained in this position until November 30, 1924.470 Furthermore, the former actions of the committee were delayed until the 1920s because of the Peace Conference in 1919 and the following negotiations that captured the attention of most of the bankers in Europe: above all, ICBM’s President Thomas Lamont was invited to help the financial negotiations take place. Therefore, no action toward the Mexican bonded debt was taken before the 1920s. In October 1921 Lamont went to visit the Mexican president, Obregon. This meeting

469 Thomas Cochran, a J. P. Morgan partner stated: "The following international committee had been constituted for the purpose of protecting the holders of securities of the Mexican Republic and of the various railways systems of Mexico, and, generally, of such other enterprises as have their field of action in Mexico. The committee will be prepared to take such further steps as may seem wise in order to afford counsel and aid the investors who hold interest in Mexico." (1919, February 24). Unite to Protect Mexican Holdings. New York Times. New York: 1. 470 Adolfo de la Huerta became then Finance Minister for Mexico and continued then to be an important interlocutor for Thomas Lamont and the bankers of the ICBM. Obregon remained president until 1924. Afterwards Plutarco Elias Calles was elected president; his tenure lasted until 1928. Obregon was reelected this year, but was assassinated. Therefore, Emilio Portes Gil was appointed president ad interim by the Mexican Congress until 1930. Gonzales, M. J. (2002). The Mexican Revolution, 1910 - 1940. Albuquerque, University of New Mexico. 216. 247

between the banker and the president, as well as his secretary of finance, de la Huerta, aimed at finding an arrangement for payment of the Mexican bonds in default. Lamont said he was coming to "bear a message of goodwill and friendship from the banking and business community."471 But, the first steps in 1921 to negotiate the debt question failed. The Mexican government was asking for an American loan to permit the country to repay its debt. The American bankers would not agree with it. The actual Mexican government was not recognized in 1921 by the American government.472 Therefore, in order to proceed with the loan asked by the Mexican government to help recapitalize the country, the ICBM proposed a series of "principles," said to be "fundamental rules," that the Mexican government had to agree on. These principles, if agreed by the Mexican government, would permit the American bankers to make a step forward. The principles were that first Mexico recognized the entirety of its bonded debt, estimated at $200 million, and pay the interest, up to $40 million. But Obregon’s intention was not to repay the interests, but to use the money to buy outstanding bonds that were being sold at a fraction of par value. To succeed in so doing, Obregon and de la Huerta intended to borrow money from the ICBM.473

In 1922 de la Huerta made a new step toward an arrangement between the Mexican government and the ICBM by coming to the United States to meet Thomas Lamont and Charles Sabin. The New York Times referred to this event

471 (1921, October 6). Lamont in Mexico to Confer on Debt. New York Times. New York: 31. 472 And no loan could be given to any governments not previously recognized by the American administration. Indeed, five categories of prohibited investments were established by the American government in 1918. First, the American bankers had to refuse loans to government for balancing of budgets as a result of insufficient taxation. Second, loans for military purposes were impossible. Third, loans for monopolies that maintained prices against American consumers were refused. Four, loans were allowed only to governments recognized by the United States. Five, loans to citizens or countries who failed to maintain their obligations to the United States were forbidden. Feis, H. (1950). The Diplomacy of the Dollar. First Era, 1919-1932. Baltimore, The John Hopkins Press. 18-20. 473 (1921, October 25). Why Lamont Failed to Negotiate Debt with de la Huerta. New York Times. New York: 1. 248

as the first real step in the Mexican government’s recognition by Washington, and that it would be the key to most of the arrangement problems. During the meeting the bankers on the committee and de la Huerta negotiated the recognition of the Mexican government’s debt to the ICBM and its refunding schedule. The repayment was scheduled to begin in 1928 and continue for a period of 40 years. In the agreement Lamont obtained the promise that the government would use oil taxes to establish a fund of $30 million to cover the costs of its debt service. In this way Lamont was trying to ensure the ongoing operation of the American (or all foreign) oil corporations operating in Mexico. As was the case in 1921, the recognition of its bonded debt by the Mexican government also induced a substantial need for funds by the government. Mexico, with a relatively weak economy, had thus to appeal to foreign direct investments to be able to refund its debt, and, in return for recognizing its debt, Mexico gained recognition. In 1923 Obregon's government would be recognized after the Bucareli’s Conference. The ICBM was not part of this conference, but was indirectly involved in the preliminary talks about it.474

The work of the ICBM was thus successful, at least because it led Mexico to be recognized by the American government in 1923. This was important for American companies, because it allowed them to enter Mexico more easily, without being in contradiction with the American government.

4.2.3. NEGOTIATIONS WITH AMERICAN AND FRENCH COMPANIES ABOUT MEXICO

Already in December 1920 Du Pont's executive committee—chaired by Irénée at this point—took the decision to invest in Mexico, and to do it by acquiring the

474 Freeman Smith, R. (1963). "The Formation and Development of the International Bankers Committee on Mexico." The Journal of Economic History 23(4): 574-586.

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Mexican dynamite company in Durango.475 Even if the executive committee was now committed to think about a Mexican investment, nothing was done at this point. Du Pont would have to tackle the matter with Hercules and Atlas, as both companies were susceptible in the Latin American markets for explosives, and they could be offensive in the case of the Mexican explosives. They proved to have been major exporters of dynamite and other explosives to Mexico during the period of the revolution and until the 1920s. Atlas provided, jointly with Giant Powder Company, up to $400,000 of explosives in 1920 to the Mexican government. For its part, Hercules was still the most important exporter of explosives that year. Indeed, in 1920 the company provided $3,000,000 million of explosives to the Southern neighbor, while Du Pont provided $2,426,000. Therefore, Du Pont could not defend a monopoly position in Mexico.476 As a matter of fact, most of the negotiations concerning Compañia with Atlas and Hercules took place at the same time that Irénée and the executive committee discussed about an investment in Chile. In these negotiations, the president from Hercules, Russell H. Dunham, renounced to invest in Chile, but asked explicitly to enter Mexico. Therefore, he contacted Irénée about this matter and, in fact, Dunham "intimated" to Irénée to take him in the Mexican buyout.477 Therefore, early in January 1921 Irénée wrote a letter to his executive committee telling his men that Hercules' president was envisaging seriously entering Mexico. Furthermore, in view of its superior position as a provider of explosives to Mexico, Hercules's president considered a company that would try to buy back the Mexican dynamite company as attacking Hercules' established business in Mexico.478

475Archives HML: Irénée to the Executive Committee, December 2, 1920, Acc. 1662, Box 35. And Archives HML: Advice of Action of the Executive Committee, December 8, 1920, Acc. 1662, Box 35. 476 Archives HML: Statement about Du Pont’s sales in Mexico, 1913-1923, Acc. 1662, Box 20. 477 Archives HML: Irénée to the Executive Committee, January 11, 1921, Acc. 1662, Box 35. 478 Archives HML: Irénée to the Executive Committee, January 11, 1921, Acc. 1662, Box 35.

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By April Irénée again told his executive committee that he probably should talk to Hercules in a very frank manner: a new plant had to be built in Mexico and Hercules and Du Pont could join their forces to undertake such an action. Hercules and Du Pont could do this in an analogous way of what Atlas and Du Pont were doing in Chile.479 Since then, Du Pont's senior management was waiting for an important event before entering Mexico: the negotiations about the recognition of the new Republic of Mexico. By the end of summer 1923 discussions took place between the Mexican and American governments; recognition was expected on both sides due to the previous meetings held between the bankers and de la Huerta about the Mexican debt recognition. For both the Mexicans and Americans it would mean the opportunity to increase trade across the border. A new treaty of amity and commerce was envisaged to be ratified by both governments after the formal recognition by Washington.480 The recognition was given by the White House on August 31, 1923, after the Bucareli's Conference. Since then both governments believed there would be increased trade between both countries. Mexico was, as titled in the New York Times, very confident after the Bucareli's Treaty that manufacturing activities would be developed, that Mexico could reduce its imports from foreign countries, and that American companies would invest more in Mexico. Through the American recognition of the Mexican government in 1923, the United States had decided to open the doors to many interesting investments.481 And indeed, soon after the recognition, Irénée and his successor, Lammot, took up the negotiations again about the Mexican subsidiary with the French Société Centrale.

Thus, already in April 1924, Irénée entered into negotiations with the president of Société Centrale, Paul Clemenceau, about the buyout. They both exchanged letters during the spring and tried to reach an agreement. In the first letter

479 Archives HML: Irénée to the Executive Committee, April 11, 1921, Acc. 1662, Box 35. 480 (1923, September 1). Full Recognition Accorded Mexico. New York Times. New York: 1.

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received by Irénée, Clemenceau wrote a single proposition to Du Pont de Nemours: a deal in which Du Pont would have a 10-year lease on Compañia, a period of time during which Du Pont could reorganize completely, but at its own expense, the Mexican plant in anticipation of earning 50% of its profits. During the duration of the lease, Irénée would have the opportunity to buy the Mexican dynamite company for Du Pont's account.482 Irénée quickly cabled his brother Lammot about Clemenceau's proposition: "Can get lease for 10 years. Mexican dynamite rent asked is a proportion of the profit. Say one half. With option to purchase at fair valuation. Study. Irénée."483 Lammot answered the same day to his brother that the proposition looked favorable, but that he was wondering who would take charge of the cost to repair the plant and, furthermore, who would have to stand the loss if the operation was unsuccessful?484 A few days later Lammot continued to discuss Clemenceau's proposition with Irénée. Lammot detailed the proposition and the issues raised by it. Ordinarily, according to Lammot, in leasing a business one would expect to put up whatever additional funds might be necessary in order to put up the plant in operating conditions, and one would expect the lessee to stand an operating loss. In the case of Compañia, it represented a very important amount of money, as well as a very important amount that would have to be expended to warrant the operation. Furthermore, the Mexican political regime could still explode into and start a revolution.485 Therefore, Lammot proposed that Du Pont, if becoming the lessee of Compañia, would not take charge of the cost of the reparation and of the warranty: "[…] if Du Pont will become the operator of the plant for account of the present stockholders, then it would be expected that the present stockholders would put up the money to rehabilitate the plant and they would also stand the

481 Archives HML: Raskob to Irving Chandler, September 14, 1923, Acc. 473, Box 370. 482 Archives HML: Clemenceau to Irénée, April 26, 1924, Acc. 1662, Box 20. 483 Archives HML: Irénée to Lammot, April 29, 1924, Acc. 1662, Box 20. 484 Archives HML: Lammot to Irénée, April 29, 1924, Acc. 1662, Box 20. 485 Archives HML: Lammot to Irénée, April 29, 1924, Acc. 1662, Box 20.

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loss of the operations." 486 At the same time that Irénée answered his brother to both questions about the cost of the reparation and the loss warranty, Clemenceau decided that it would be up to Du Pont to take care of that. "Both answers Du Pont Stop."487 By June Irénée contacted Paul Clemenceau. Du Pont's president had formed a commission of men who would come to visit Mexico and the plant of the Compañia. Irénée asked Clemenceau to cable his office in Mexico to tell them to authorize Irénée's team to visit the plant, as Du Pont's senior management wanted precise information about the raw materials’ sources, and the kind of finished products that the factory could produce.488 Unfortunately for the French counterpart, Irénée's team came back to Wilmington with poor results. Irénée was disappointed by the report given by his commission, which was not as interesting as he hoped it would be. Indeed, the commission went to Durango where the plant was built. The choice of the location implied that it was not possible for Compañia to produce at low costs. Furthermore, the sales of explosives in Mexico would be very limited due to the important imports of dynamite and explosives that supplied Mexico.489

"In other words, the costs of manufacture and delivery to the Mexican border of foreign manufactured dynamite is enough below the cost of your product to enable it to absorb the present import duty and to be sold at a lower price than your dynamite in many parts of the Republic, which would result in a very small margin of profit."490

Irénée thus concluded his letter to Clemenceau with a refusal, the proposition of leasing the plant to the Du Pont Company was not feasible, from his point of

486 Archives HML: Lammot to Irénée, April 29, 1924, Acc. 1662, Box 20. 487 Archives HML: Irénée to Lammot, May 1, 1924, Acc. 1662, Box 20. 488 Archives HML: Irénée to Clemenceau, June 13, 1924, Acc. 1662, Box 20. 489 Archives HML: Irénée to Clemenceau, October 20, 1924, Acc. 1662, Box 20. 490 Archives HML: Irénée to Clemenceau, October 20, 1924, Acc. 1662, Box 20.

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view.491 Clemenceau expressed his disappointment at this decision in his reply to Irénée:

“Nous avons reçu avec grand regret votre lettre du 20 octobre, par laquelle vous nous faites connaître votre décision de ne pas donner suite au projet de prise à bail par votre Compagnie de l’usine de Dinamita, que nous avions examiné ensemble.“492

Irénée's conclusion, following his team’s report, was that the Compañia was economically unsound.

The Tax Exemption

What is interesting is that in the archives Irénée's letter to Clemenceau appears twice; there are two copies of the same letter. There is the copy that was finally sent to Clemenceau and the second copy, the draft, was kept in Wilmington. Herein lays a very interesting point, because in the draft, which Clemenceau did not read, Irénée was remaining open to the decision of buying Compañia:

"The above conclusions [i.e. that the location made of the Compañia plant where Du Pont could not produce at low cost and that the imports of dynamite in the country were too important to be challenged], together with the necessity of our spending about $40,000 in order to bring the plant to a condition of efficiency and safety approximating modern American standards, prevent us from finding the leasing proposition attractive. In the meantime we are continuing to study the matter from a viewpoint of the outright purchase of the plant, provided the purchase price should be in keeping with the actual value of the plant to us. Our studies of the

491 Archives HML: Irénée to Clemenceau, October 20, 1924, Acc. 1662, Box 20. 492 Archives HML: Clemenceau to Irénée, November 5, 1924, Acc. 1662, Box 20. 254

consumption of dynamite in Mexico have convinced us that it will be necessary to construct another dynamite plant in a more logical location in order to supply the entire Republic with dynamite manufactured within the boundaries of Mexico."493

Even if Clemenceau did not receive this letter, we understand that Irénée was not closing the matter in October 1924. The point was that Irénée and Lammot were waiting for something more, and their wishes were accomplished by the end of 1924. As we know, the Mexican subsidiary, when it was open and belonged partly to Société Centrale and partly to the Mexican dictatorship of Diaz, benefitted from a preferential tax exemption and from duty to protect its natural market. Carranza had abrogated this regime in 1915. This induced the closure of Compañia, which was then not able to be prosperous without the state’s protection. This had been one of the main arguments of Du Pont's successive presidents Pierre and Irénée, before 1925, who had continuously refused to buy back Compañia because it needed a preferential tax regime. Therefore, it is rather surprising that a report from 1930 detailed the interesting tax exemption provided by the Mexican government to Compañia since 1925, which permitted the factory to perform in such a way. Indeed, the report of 1930 stated that Du Pont obtained that Compañia, “having persuaded the [Mexican] Tariff Commission,” would benefit from a tariff reduction: the duty on glycerin would decrease from 6 cent to 3 cent, representing a saving of $75,000 per year, the tax on the nitrate of soda would diminish to one tenth of its value (an annual saving of $35,000 for Compañia), and on cartridge shell paper from 15 cent to 0.5 cent (annual savings would equal $50,000). The total yearly saving of $160,000 would be attained on materials of three explosives products.494

493 Italics were added by the author to emphasize the sequence which had been cut in the draft letter. Archives HML: Irénée to Clemenceau, October 20, 1924, Acc. 1662, Box 20. 494 Archives HML: Report to the Board: interests in Mexico, May 19, 1928, Acc. 542, Box 818.

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Therefore, in February 1925 Irénée called a meeting with Russell H. Dunham, J. Thompson Brown, and Harry Haskell about the Mexican business.495 By May 14, 1925, the executive committee emitted an advice of action stipulating that Du Pont was acquiring Compañia Mexicana de Explosivos S.A. and would share its assets jointly with Hercules. Irénée and Russell named the board of directors of Compañia: C. W. Phellis (Du Pont), J. Thompson Brown (Du Pont), R. G. Erskine (Hercules), Ralphe Ringe (Hercules), and George H. Markell (Hercules) were appointed to represent Du Pont on the board of directors of the joint venture, which kept the name Compañia Mexicana de Dinamita y Explosivos.496 Paul Clemenceau corresponded with Irénée about the conditions of the purchase: Du Pont would buy the company based on a 10-year lease which would eventually lead to full control of Compañia by the chemical group. Exactly as in the proposal made in April 1924, Du Pont was allowed to reorganize and modernize the company as much as it wanted, but now it agreed to do so at its own expense.497 More precisely, the capital needed to repair and reorganize Compañia was found in the Anglo South American Bank which, according to C. W. Phellis, "had been a splendid connection for Compañia Mexicana de Explosivos."498 Finally, in Du Pont’s Annual Report in 1925 it is mentioned that:

“For a long time it has been realized that Mexico, with its enormous mineral resources, affords an opportunity for the development of an explosives industry in the future and, for this reason, it has some time been under the observation of your company as a possible location for a new commercial explosives unit. During the course of

495 Archives HML: Convocation by Irénée of Dunham, Thompson Brown, Haskell, February 4, 1925, Acc. 1662, Box 20. 496 Archives HML: Advice of actions, May 14, 1925, Acc. 1662, Box 20. 497 Archives HML: Du Pont Annual Report 1925, 7-8. 498 Archives HML: Phellis to W.S. Carpenter, August 3, 1928, Acc. 542, Series II part 2, Box 818. In 1975, Du Pont Annual Report celebrated the Compañia's 50th anniversary and gave the information that the acquisition cost Du Pont $125,000, however, the report did not specify if this is a corrected value, at the 1975 inflation rate, or if it as the 1925 current value. Du Pont Annual Report, 1975, 9. 256

the year an opportunity arose to acquire the only plant located in Mexico and your company, in conjunction with another American explosives company, organized the Cia Mexicana de Explosivos, to acquire and operate it.”499

On August 1, 1925, Compañia Mexican de Explosivos S.A. was incorporated under the law of Mexico in order to take over Du Pont’s commercial explosives business in Mexico, and acquired 500 acres of land of the plant Compañia Mexican de Dinamita y Explosivos. The capital stock was $500,000 (Mexican currency par one pesos).500

499 Du Pont Annual Report, 1925:7-8. 500 Moody's, Industrial, E.I. du Pont de Nemours & Company, 1925, 555-557.

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CONCLUSION TO CHAPTER FOUR

In 1925 Du Pont already had three plants operating abroad, all jointly operated with American or foreign partners, and all related to the production of explosives. This was still a shy internationalization; in comparison, Ford had already expanded into 20 countries by 1925.501 Nonetheless, these three achievements demonstrate how important Du Pont's connections were with other chemical companies—American or not—and also with foreign governments.

More precisely, this chapter first emphasized that when it was about explosives, Du Pont went international with partners: Nobel, Atlas, and Hercules. Of note, Atlas and Hercules' assets used to be part of Du Pont's before the 1912 spinoff. Connections with both of these companies' senior management were thus still important. However, the relationship was better with Harry McGowan from Nobel. From the Canadian and Chilean cases it is noticeable that Pierre’s relationship with McGowan developed from a business relationship—in Canada no private correspondence between Pierre and McGowan was found—to a closer relationship as Pierre and Harry McGowan exchanged numerous letters about Chile. In these letters their good relationship was clear. We understand from this material that there was no competition between their companies; they were partners. However, the letters exchanged with Hercules and Atlas' presidents are noticeably different. In their letters these presidents threatened Pierre about foreign investments, something that never appeared in any mail between Pierre and McGowan until then. The friendship between Du Pont's

501 Ford had, as mentioned in the introduction, entered Canada in 1904, Chile in 1924, and Mexico in 1925. Added to these investments, Ford had entered countries in Central and South America (Argentina, Brazil, Cuba, Uruguay), European countries (Belgium, Denmark, England, France, Germany, Holland, Ireland, Italy, Spain, Sweden), Japan, Australia, and South Africa. In all these countries Ford entered with a Greenfield investment—either an assembly line or a complete manufacture—and the investments were always operated only by Ford. Wilkins, M. and F. E. Hill (1964). American Business Abroad. Ford on Six Continents. Detroit, Wayne State University Press. 434-435. 258

president and Nobel's senior manager would continue to have an impact for the expansion of Du Pont's activities during the rest of the 1920s, as well as the 1930s.

Second, as indicated in this chapter's introduction, Du Pont was invited—with insistence—by the Chilean government to enter the country, and was welcomed by the post-revolutionary government in Mexico. These cases demonstrate that Du Pont's reputation as an explosives producer was known worldwide. These governments perceived Du Pont's entry positively, as it would provide them a potential independence in the production of explosives and gunpowder. That was typical from Du Pont's explosives investments.

Finally, this chapter has shown in the second section that Du Pont was sometimes supported and most of the time surrounded in its investments by partners with whom Du Pont's senior managers were accustomed to work with. In the Mexican case Charles Sabin, with whom Pierre and Raskob sat on GM's board, supported Du Pont in the investment. In the same case, the ICBM was constituted, again, with Charles Sabin, but also with representatives from J. P. Morgan & Company, the bank that had loaned Pierre and Raskob the money to acquire Coleman's stocks in 1915, and the same bank with which Du Pont might have had numerous connections during the First World War. Added to this, some of J. P. Morgan & Company's partners also sat on GM's board. And finally, James Stillman was also in the ICBM, and concerning Du Pont's business Pierre had offered him some voting power in Du Pont Power in 1915 following the loan. Therefore, the work of these bankers—when Sabin introduced Pierre to a Mexican banker to understand how interesting Compañia was, and especially when the ICBM permitted Mexico to solve part of its bonded debt crisis and to be recognized by the American government—facilitated investments by Du Pont.

In the end, Du Pont's internationalization went with its network, never without. However, the investments coming afterwards were not always related to

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explosives, and this led to changes in the pattern of investment by Du Pont. Chapter Five develops the next investments in Argentina (1935) and Brazil (1937) which were, again, achieved with Harry McGowan—at this point president of Imperial Chemical Industries, into which Nobel had been merged. Nevertheless, other investments in Europe were achieved after the Second World War, and were Greenfield investments, only operated by Du Pont. At this point the network was less involved in Du Pont's international expansion, but the du Pont family was still involved.

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CHAPTER FIVE: DIVERSIFIED INVESTMENTS ABROAD (1929–1967)

Following the 1929 Wall Street crash, the world’s industrialized economies went through a major recession. Successive bank bankruptcies occurred (13,000 in the United States between 1929 and 1933502) and the gold exchange standard failed in its role of monetary regulator; the world entered into a ten-year economic depression in 1929. Between 1929 and 1932 the overall economic indicators collapsed. Worldwide the GDP fell by 36%, world trade fell by 25% in volume and 48% in value, the prices of manufactured goods fell by 26%, and the prices of raw materials fell by 56%.503 With the unemployment rate at 28.4% in the United States, the recession was harsh, and lasted. U.S. President Herbert Hoover (1929–1933) implemented unsuccessful recovery policies, with the least popular in economic circles being the Smoot-Hawley tariff (an import duty), which was enacted as law in June 1930.504 Worldwide "global political conditions reflected the universal disequilibria": Japan attacked Manchuria in 1931, numerous revolutions were born in Latin America between 1931 and 1932, and in 1931 troubles in Germany made that country think that the worst was still coming. Under these conditions, American businesses abroad could not prosper.505 Hence, Du Pont's investments slowed down. In fact, they completely stopped between 1929 and 1932. Thus, this chapter opens with an investment

502 Hautcoeur, P.-C. (2009). La Crise de 1929. Paris, La Découverte. 44. 503 Cassis, Y. (2011). Crises and Opportunities. The Shaping of Modern Finance. Oxford, Oxford University Press. 22-23. 504 The Smoot-Hawley was discussed in spring 1929 before the crash occurred and thus it was not a policy launched to solve the economic recession. However, Senate passed the bill in May 1930 when the crisis had already hit the United States hard. The Smoot-Hawley was fought by bankers, industrialists, and American economists who saw in it a key to aggravate the recession from which the United States suffered. Hoover had been asked, and this chapter develops it, to stop the bill before it was enacted as law. President Hoover shyly opposed himself to it, but finally signed it. See Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 169. 505 Ibid.170.

that actually was not achieved by the Du Pont Company. Indeed, Du Pont Securities had stakes in an American sugar manufacturer in Cuba that was mostly held by J. P. Morgan & Company's interests and managed by the most influential American bankers of that period. When Cuba and the sugar industries came to suffer from the Hoover administration between 1929 and 1930, Irénée du Pont started to fight—as other industrialists and bankers in the U.S.A. did— against the American government, and finally came to a solution for the Cuban investment.

Later in the mid-1930s Du Pont started to invest again and chose two Latin American countries for its expansion: Argentina and Brazil. Du Pont entered both countries in joint ventures with Imperial Chemical Industries. Both investments were at the same time market oriented and supply oriented, which was a novelty for Du Pont's investment in Latin America.506 Also of interest, both these investments were in products outside of explosives. Du Pont had stopped investing in sporting or military powders abroad. This could have been a result of the Nye investigation at home, which was mentioned in Chapter Three. But, it also surely resulted from Du Pont's wide diversification during the 1920s.

Finally, after the Second World War Du Pont entered Europe. This was not uncommon for an American company. Indeed, American foreign direct investments (FDI) in Europe between the 1950s and 1960s were accumulating, as Table 5.1 shows. During these decades of all the investments manufacturing was the most important, and is demonstrated in Table 5.2. Among them, the

506 As Table 3.20 in Chapter Three had shown, Du Pont joined in foreign investments with Nobel in 1926 to supply the Commonwealth in piroxiline finishes (Nobel Chemical Finishes, 49% interest). The same year Du Pont joined Société Française de Fabrikoïd to supply Morocco and Algeria in this material. This joint venture used French know-how and Du Pont was able to build a "replica of the French" plant of artificial textile fiber in the United States (Buffalo, NY), which was capitalized by an issue of common stocks. See Chapter Three and Wilkins, M. (2004). The History of Foreign Investments in the USA, 1914-1945. Massachusetts, Harvard University Press. 151.

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chemical investments occupied the second place in the rank of sectors most represented in U.S. FDI, second to the transportation equipment.507

507 Manufacturing had far outpaced mining investments since the 1920s. During the 1950s to 1960s U.S. investments abroad were performed in the following sectors, by order of importance: transportation equipment, chemical, machinery, food products, electrical machinery, primary and fabricated metals. Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 375-379.

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49Table 5.1: U.S. Foreign Direct Investments in Europe (billion USD). 1950 1.73 1960 6.694 1970 24.52 Sources:(Wilkins 1975) 330.

50Table 5.2: American Foreign Direct Investments in manufacturing in the UK and in the Common Market (million USD). United Kingdom European Economic Community508 1950 542 317 1955 946 563 1960 2,164 1,436 1965 3,306 3,725 1970 4,977 7,177 Sources : (Wilkins 1975)331. Business historian Mira Wilkins also mentions that after the Second World War, especially between 1955 and 1970, American companies continued to invest by merging their interest with other businesses.509 Regarding this, Du Pont's post- war investments largely differed from other U.S. companies. Du Pont was still suffering from the antitrust suits and the spinoff from both its activities and stockownership with Imperial Chemical Industries (1953) and General Motors and U.S. Rubber (1957). Hence, the chemical company preferred, when possible, to enter European countries on its own. Added to that, investments in Europe were completely supply related. Du Pont entered the Common Market countries in order to export its production.

Therefore, this chapter is in rupture with the previous one. Whereas during the 1920s Du Pont always invested jointly with a European company—Nobel—in explosives products only when host governments sent invitations, and in third

508 Before 1957 Mira Wilkins indicates that the countries counted in the EEC column are the Six, with the exception of Luxembourg (Germany, France, Italy, Belgium, the Netherlands). 509 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 379-382. 264

countries with market-oriented investments, since the 1930s Du Pont entered countries with diversified products, mostly supply-oriented investments, never with a government's invitation, and never again with a major European company in a third country.510 Hence, this chapter is organized into three sections following the three aforementioned cases. The first section considers Du Pont Securities' stakes in the Cuba Cane Sugar Company. The following subsections describe Irénée du Pont's involvement in this sugar company, as well as his interaction with the American government. It proves that even if Du Pont stopped its internationalization during the first years of the Great Depression, one of its most active senior managers was still entangled with the greatest American banks abroad. A second section deals with the two investments in Latin America. These were the last investments achieved jointly with Imperial Chemical Industries, and the last time we see Harry McGowan and the du Pont family interacting together. Finally, a third section presents investments in Europe after the Second World War. These investments were radically different and closely followed the evolution of both the European integration and the American government (from Dwight Eisenhower's government to Lyndon B. Johnson's government—1953 to 1969). In the end, these three cases present Du Pont's evolution on the international scene as a global company with a global corporate organizational structure.

510 There was one exception to this rule, when Du Pont entered Iran in 1974, jointly with the American chemical producer Dow Chemical: Polyacryl Iran Corporation, in which Du Pont owned a 40% interest. The plant would produce acrylic and polyester fibers in a plant that was under construction at Isfahan. The total investment was more than $250 million. See Du Pont Annual Report, 1974, 17. Apart from this joint venture when Du Pont entered a European country with a partner, it was only with a company originating from the host country: In 1959 in Germany du Pont owned 26% in Pigment-Chemie GmbH, whereas the German Sachtleben AG owned the remaining 74%. In 1961 in France Du Pont founded Dekachimie with a 50-50% interests shared with the French Établissements Kuhlmann. In 1962 in Spain Du Pont had a 50% interest in Desarrollo Quimico Industrial, owned jointly with the Spanish Energia e Industrias S.A., and finally in 1974 Du Pont formed Butchamied France, 50% interest owned by Du Pont and 50% owned by Rhône-Poulenc. Du Pont Annual Reports, selected years. 265

5.1. THE BUSINESS IN CUBA (1929–1930)

Since 1925 Du Pont had invested at least once, sometimes twice a year in foreign countries through joint ventures, acquisitions, or Greenfield investments.511 Following the acquisition of Leathercloth Proprietary Ltd in early 1929,512 Du Pont stopped investing abroad for three years. The depression was a hard time for the company, as Table 3.16 in Chapter Three indicates. The net income dropped considerably, with the worst year being 1932. After 1932 the company already started to bounce back and the literature suggests that it was mostly due to the company’s wide diversification strategy of the 1920s.513

Years before the collapse of the world economy, in the United Sates the Cuba Cane Sugar Company had been founded in 1915 by American interests, and initially produced sugar in Cuba for the export market. From the beginning, Du Pont Securities was a small voting stockholder in the company. Fourteen years later, Irénée du Pont had set up his winter house in Cuba. At this point, in 1929, the family was still a shareholder in the sugar company, and the sugar trade between the United States and Cuba became threatened by the Smoot-Hawley Tariff Act. Therefore, Irénée decided to become—with a syndicate created at this occasion—a major stockholder of the Cuba Cane Sugar Company and to reorganize it in order to have it survive the tariff. However, despite the reorganization, the tariff was still an important threat. Hence, Irénée undertook to fight this bill in the senate with the connections he had in politics. As history tells, the Smoot-Hawley tariff passed in May 1930 and was signed as a law in June 1930. Thus, this section of chapter five is about a transition case that does not consider Du Pont's investment, but rather the actions of an important Du Pont's senior manager—Irénée, who was still vice-chairman of the board and chairman

511See table 3.20 in Chapter Three. 512 An artificial leather company that supplied Australia and New Zealand.

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of the finance committee in 1929—in an American business in Cuba. A first subsection describes the incorporation of the Cuba Cane Sugar Company and how American bankers' interests in it made of the sugar company an interesting investment for Du Pont Securities. A second subsection considers the relationship between Cuban President Gerardo Machado (1925–1933) and Irénée, as well as the invitation by the Cuban government to Du Pont to erect a powder manufacturing plant in the country.514 Finally, a third subsection shows how Irénée was connected with the American political scene, and how the ex-Du Pont president managed to save the American investment. Altogether, these subsections demonstrate that the du Ponts continued to be involved in international businesses, even during the worst times of the 1930s crisis, and also how the connections among the du Ponts, the bankers, and the American political leaders were important at this point.

5.1.1. THE CUBA CANE SUGAR CORPORATION

On December 31, 1915, the Cuba Cane Sugar Corporation (CCSC) was incorporated in New Jersey. The company had an authorized capital of $50 million and was then the largest American sugar company to date. The capital was raised by the sale of 500,000 shares of 7% cumulative preferred stock ($100) and an additional 500,000 shares of common stock, no par value.515 The Cuba Cane was in the beginning controlled by some American bankers’ interest: J. P. Morgan & Company held 59,399 shares of the Cuba Cane, which made the bank the biggest shareholder of the sugar manufacturer.516 In 1916 Du Pont

513 See Chapter Three, but also Chandler, A. D. J. (1962). Strategy and Structure. Chapters in the History of the Industrial Enterprise. Cambridge, MA, The M.I.T. Press. 514 Du Pont never had any investments on the island. 515 Cuba Cane Sugar Corporation stocks, Acc. 473, Box 540. 516 American investments in sugar manufacture in Cuba were already important in 1913. This year, American interests owned 39 sugar manufacturers in Cuba, representing 37% of the Cuban sugar production. In 1924 U.S. interests owned 74 sugar manufacturers, about 60% of the 4.2 million-ton crop produced yearly in Cuba. Ayala, C. J. (1999). American Sugar Kingdom. The

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Securities had already acquired 2,000 shares of common stock and about 3,000 shares of preferred, both stock having voting power. Compared with the shares of J.P. Morgan & Company, these were not enough to assure Du Pont Securities a majority in voting power. To note, the principal underwriter for the Cuba Cane stock was the Guaranty Trust, and its president, Charles Sabin, was Du Pont's senior managers' interlocutor in the sale.517

Manuel Rionda y Polledo was the first president of the CCSC. Rionda was a Spanish-born master of two important Cuban mills and the chairman of the major American sugar brokerage firm of Czarnikow-Rionda. Considered as the greatest of the sugar barons, he led the Cuba Cane Sugar Corporation through the incorporation process. In 1914 Rionda had started the operation of purchasing Cuban sugar plantations at favorable prices with Albert Strauss, an important financier from J. & W. Seligman & Company. Strauss had then contacted Charles Sabin and together they made a significant number of existing centrals passed under the single control of the Cuba Cane Sugar Corporation. Already in 1916 the company’s turnover was estimated at $25,400,000 and the annual production was calculated at about 2.6 million bags.518

Eight members were the true decision body and formed the CCSC's executive committee: William Ellis Corey (president of U.S. Steel), Horace Havemeyer (American Sugar Refining Company and the Bankers Trust), James N. Jarvie (Arbuckle Brothers), Claus Spreckels (Federal Sugar Refining Company of Yonkers), Albert Strauss (J. & W. Seligman & Company), Alfred Jaretzki

Plantation Economy of the Spanish Caribbean. Chapel Hill, University of North Carolina. 95. About J. P. Morgan, to notice, at this point in their common history with Du Pont, three J. P. Morgan & Company's partners were stockholders in Du Pont Powder in 1916. This interest in the company had been offered by Pierre while he was president. 517 And again, at this point in history Charles Sabin and Du Pont were already interlocked in General Motors. Cuba Cane Sugar Corporation stocks, Acc. 473, Box 540.

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(Sullivan & Cromwell), Charles Sabin (Guaranty Trust president) and Manuel Rionda. Despite its importance in the ownership, J. P. Morgan & Company 519 decided not to be represented on the committee "for reasons of its own". For 14 years Du Pont's executives were only shareholders in the CCSC. In 1929 Irénée entered Cuba, but first of all as a tourist. Nevertheless, his entry in the country forcefully attracted the attention of the Cuban government, as the next section tells.

5.1.2. INVOLVEMENT IN CUBA

Cuban President Gerardo Machado was a businessman before he became a politician. He owned the Santa Clara sugar central, a construction company, some newspapers (El Pais and Excelsior), the Banco del Comercio, a shoe company, a contracting business, and a market. Plus, he held investments in several other local enterprises including a soap factory and a beer brewery.520 His political orientation was, since the beginning of his tenure, a pro-American policy in Cuba, which was in contrast with the former president, President Alfredo de Zayas y Alfonso (1921–1925).

In 1929 Irénée acquired a field near Varadero, on the north coast of Cuba, to construct a winter house there.521 The mansion was the real starting point of Irénée's involvement in Cuba. Named the Xanadu Mansion, the house attracted the attention of many people, but especially of the Cuban president. Indeed, he was interested in understanding whether Du Pont would invest in Cuba and set

518 McAvoy, M. (2003). Sugar Baron. Manuel Rionda and the Fortunes of Pre-Castro Cuba. Gainesville, University Press of Florida. 519 Ibid. 95. 520 Pérez, L. A. J. (1986). Cuba Under the Platt Amendmentm 1902-1934. Pittsburgh, University of Pittsburgh Press. 260 Benjamin, J. R. (1974). The United States and Cuba. Hegemony and Dependent Development, 1880-1934. Pittsburgh, PA, University of Pittsburgh Press. 521 Xanadu Mansion, various documents, Acc. 288, Boxes F-8, F-9, F-10, J-93, J-94.

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up explosives manufacturing in the country. G. Machado wrote directly to Irénée on February 14, 1929:

"[…] I am very interested in everything relating to the establishment of new industries in Cuba. I am studying very carefully those industries to which we should give preference and may say here that the most important of these is the manufacture of explosives for war and sporting purposes. This government would be one of the main consumers of this product and due to the geographical location of Cuba, this eventually would be an export center to the rest of the neighboring republics. I am the possessor of a great quantity of ground located half an hour ride from the capitol and this is connected by very good roads and an electric railway. At this place is located a paint factory named El Morro, and others which you know of. I assure you that you may count on my official and particular assistance for your projects and beg to remain yours very truly. G. Machado."522

However, these were never the intentions of Irénée, or of the Du Pont Company, in Cuba; explosives manufacturing was never foreseen. Nevertheless, Irénée was still interested in getting involved in other businesses in the Cuban Republic. First of all, following the construction of the Xanadu Mansion, Irénée was invited, and entered, into various social clubs: the Country Club of the Havana was the first circle to which he became a member in 1929.523 Very soon thereafter, in 1930, he integrated into the Annual Cuba Dinner, which gathered about 100 American businessmen and financiers. Irénée became a member in the Cuba Committee of One Hundred to develop tourism in Cuba. The Cuban

522 The original text was written in Spanish, but the office of Irénée had written a translation in order for Irénée to understand G. Machado. I used the translation in order to be clearer. G. Machado to Irénée, February 14, 1929, acc. 228, Box F-8. 523 Secretary of the Country Club de la Habana to Irénée, December, 19, 1929, Acc. 288, Box. F-8. 270

Chamber of Commerce in the United States, to which Irénée belonged, was organized in New York in 1930 to promote commercial relationships between the United States and Cuba. Finally, the American Chamber of Commerce of Cuba invited Irénée to become a member. This latter chamber worked in the interest of American businessmen and financiers on the Cuban tax system, political issues with the Cuban government, and legislation questions.524 Second, Irénée became more involved in intergovernmental relationships between the American and Cuban governments. This was mostly due to the attorney who Irénée had hired when he started the construction of Xanadu: Luis Machado, the president's cousin.525 Luis Machado and Irénée were in close contact during 1929 and 1930, and both benefited from the relationship they entertained. To Irénée, L. Machado was a strong support in Cuba to manage the imports of goods necessary for Xanadu. To Luis Machado and his cousin, Irénée became an interlocutor with the U.S. government; President Machado used to make some requests to Irénée through his cousin.

524 Acc. 228, Boxes F-8. 525 See the first letter of introduction of both men: L. Machado to Irénée, May 3, 1929, Acc. 228, Box F-8.

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5.1.3. THE CUBA CANE AND THE RELATIONSHIPS BETWEEN THE AMERICAN AND THE CUBAN GOVERNMENTS

In 1929 Irénée du Pont and his wife Irene were still important Cuba Cane stockholders. However, since March 1929 Irénée noticed that the company was, as he said, "headed for disaster." The sugar company was badly organized and produced sugar that was too expensive, especially with respect to the events in the United States. Since spring of 1929 Republican Senator Reed Smoot and Republican Representative Willis C. Hawley campaigned for a bill that would increase tariffs on agricultural goods and industrial products.526 Cuban sugar was then at the eve of a crisis as its main clients were in the United States.527 Irénée thought that the company could not be kept afloat with the conditions under which it had been operating until 1929, in addition to the new American tariffs on imports. Therefore, in March 1929 Irénée wrote to Eugene W. Stetson, vice-president from the Guaranty Trust, as well as of the Cuba Cane. Du Pont’s ex-president proposed to the banker that the Cuba Cane bondholders, from which he and his wife belonged, should buy back some mills, the best ones, so that they would not lose their money in hopeless efforts to save the entire company. He suggested that the bondholders should then operate these mills as they intended and save their initial investments this way.528

Concerning the necessary re-organization of the company, Eugene Stetson had envisaged the same option Irénée did. The six properties of the Cuba Cane in the eastern portion of Cuba were estimated to be worth $40 or $50 million. If a syndicate was created, it could purchase some CCSC's bonds corresponding to

526 Eichengreen, B. (1986). "The Political Economy of the Smoot-Hawley Tariff." NBER(2001). 527 It was known that the Cuba Cane Sugar Company was a supply oriented company and exported mostly to the United States. However, the amount of sugar sold to the U.S. was unspecified. 528 Irénée to Stetson, March 25, 1929, Acc. 228, Box 93. 272

these properties' values, slowly, with a definite plan in view of offering the bonds to the CCSC in exchange for its eastern properties. Thus, the mills would belong to a syndicate who would be free to reorganize the production and refining of sugar in the mills, and free to create a new company to administer all these six properties. To Stetson the return on investments for the syndicate would take as long as one or two years, maybe longer, but he believed that it would have a good return on investment.529 Irénée agreed that the sugar plantations were good and only needed to be administered well to make profits. Therefore, in March 1929 Irénée proposed that the trusted person to form the syndicate be contacted and that they slowly purchase the bonds, without creating too many signs of the takeover, until they had a majority of the stocks530 In April Stetson and Irénée already contacted Charles Hayden, banker and most important partner in Hayden & Stone & Co, in New York, and the chairman of the Cuba Cane board. The three of them would lead the coup. They started by April 1929 purchasing 7% and 8% debentures and bonds, respectively, for a total amount of $1 million. Stetson was responsible for $200,000 and Hayden for $400,000. Irénée was responsible for equal amount as Hayden.531

In July 1929 the Cuba Cane board organized a reorganization committee in order to help the company perform better. Thus, the reorganization committee was composed of Hayden and Stetson, with the other members being Earle Bailie, Robert Barr, Manuel Rionda, and John R. Simpson. The reorganization committee proposed to set up a new corporation that would be organized to acquire the assets and carry on the business of the present company. Its capitalization would come from $25 million of participating debentures and $3.5 million common stocks.532 It was proposed by the reorganization committee and,

529 Stetson to Irénée, March 26, 1929, Acc. 288, Box 93. 530 Irénée to Stetson, March 28, 1929, Acc. 228, Box 93. 531 Irénée to Charles Hayden, April 20, 1929, Acc. 228, Box 93. 532 CCSC to stockholders, July 25, 1929, Acc. 228, Box 93.

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with no surprise, approved by the board of directors.533 The actual owners of debentures would be able to exchange their bonds and receive an equivalent principal amount of participating debentures of the new company. The interest of the new debentures would be 6% per annum from January 1, 1930. Furthermore, the current owners of preferred stocks could exchange them and would receive the right to subscribe to 1.5 shares of common stock of the new company at $5 per share. They would also receive, in respect of each share of preferred stock deposited, option warrants to subscribe for two additional shares of the common stock of the new company for a period of 10 years at $20 per share. The current owners of common stocks could exchange them and would receive the right to subscribe to half a share of the common stock of the new company at $7.5 per share. Furthermore, the fixed charge of the Cuba Cane would be reduced in the new company from $2.6 million to $1.9 million. This decrease in fixed charge would be operated through a reorganization of the activities.534

Thus, second, the reorganization committee proposed that the new company was operated differently than the previous Cuba Cane. The sugar refinery needed to be able to sell at an even cheaper price to be able to catch the American market and some outside markets such as the USSR. The operating costs of the company had to be reduced in order to increase profits. Therefore, the management had to be reconsidered. By this time everything was concentrated in Havana in various departments. The reorganization committee proposed that the Cuba Cane should concentrate general administration offices

533 The board of directors of the Cuba Cane was composed in 1929 of Albert Strauss, R. I. Barr, Charles Hayden, J. N. Jarvie, G. E. Ogilvie, W. P. Philips, B. B. Rionda, Manuel Rionda, M. E. Rionda, Charles Sabin, J. R. Simpson, W.L. Cummings, E.W. Stetson, Frederick Strauss, G. M. P. Murphy, R. F. Hoyt, W.E. McCaw, J. J. Morrow. Therefore, from the six men in the re-organization committee, five came from the board. Added to that, on the board, among the 18 directors, and apart from the five members of the committee, two were from the Rionda family, and two were bankers well acquainted with Hayden and Stetson, namely Albert Strauss and Charles Sabin. Moody's, Cuba Cane Sugar Corporation, 1929, 769. 534 Minutes from the Board of the CCSC, July 1929, Acc. 228, Box 93. 274

primarily in Havana. This general administration would thus coordinate the five following activities: the general supervision of the mills, the purchasing of materials and supplies, the sales of sugar, the financing and operating, and the supervision of accounting. It might as well coordinate the activities of the different mills, dictate general policies, and aid and counsel the mill managers. Plus, this administration should be responsible for results in front of the board of directors. Finally, the agricultural policies of the CCSC had to be re-thought. The company needed to stop planning its crane for the forthcoming year only, but should do it for a longer period, and provide the necessary funds and programs for the proper preparation of land and the selection of seeds. A long-term view might be implemented by the board of directors. With such a reorganization, the Cuba Cane Sugar Corporation could produce sugar as cheap as $1.4 per 100 pounds and would make the Cuba Cane’s sugar production competitive again. This plan was submitted to Irénée, who approved it in September 1929. At this point the plan was dependent on the fact that some important stockholders, organized as a syndicate, acquire the sugar manufacture of the Cuba Cane at $20 million and reorganize it following the plan.535

By December 1929 the syndicate—formed by Charles Hayden, Eugene Stetson, and Irénée du Pont—acquired the properties of the company and the reorganization was carried out. The factories that composed the CCSC were segregated. First, the Western properties were merged into the new Cuban corporation to be incorporated in 1930. Second, the Western Company and the Moron, Stewart, Jagueyal, and Lugareño factories were grouped into the Central Company. Finally, the Eastern Cuba Sugar Company retained its organization and ownership, as well as the operation of the Violeta and Velasco factories.536 In 1930 after the syndicate had completed the transfer of stocks to form the new company, the Cuba Cane was dismissed and the reorganization committee

535 Reorganization plan, submitted to Irénée, September 12, 1929, Acc. 228, Box F-8.

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became the executive committee of the new corporation, the Cuba Cane Products Corporation, which was incorporated under the laws of Delaware on February 7, 1930. Irénée immediately became a vice-president in the executive committee.

The Smoot-Hawley Tariff

However, even with proper reorganization, the company would still suffer from the Smoot-Hawley tariff, which was passed in the House of Representatives and in the Senate between 1929 and 1930, precisely when the Cuba Cane underwent its reorganization. Without a strong campaign against the tariff, the Smoot-Hawley tariff had good chances of being accepted. Furthermore, one of President Hoover's promises during his campaign was to raise tariffs on agricultural products. After President Hoover's election, the Republicans kept a majority of seats in both the House and the Senate.537 In addition, the American administration intended to continue its supply of sugar from Porto Rico, Hawaii, and the Philippines, and therefore did not tax imports from these places, but taxed imports from other regions. Consequently, Cuba would be the first supplier to feel the burden from such a new tariff. The duty on imported sugar from Cuba already amounted to 88% of the price per pound of sugar, which would then again be increased under the new tariff. The proposed new tax would, therefore, first destroy the Cuban sugar industry and second it would impose a new burden on American consumers with no benefit to the American producers.538

President Machado was also worried. He therefore asked his cousin to discuss this issue with Irénée du Pont. Thus, in April 1929 Luis Machado wrote to Irénée

536Memorandum regarding the proposed formation of a syndicate to purchase from the receiver and operate the properties of the CCSC, December 2, 1929, Acc. 228, Box 93. 537 Eichengreen, B. (1986). "The Political Economy of the Smoot-Hawley Tariff." NBER(2001). 538 Irénée to Stetson, March 28, 1929, Acc. 228, Box 93.

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about the threat that was hovering over the Cuban sugar industry; he asked Irénée to act towards abandoning the tariff.539 Luis Machado wrote to Irénée:

"Now, this is what I would like you to do: There is a congressman from Delaware in the House, M. Robert G. Houston, who lives in Georgetown, and there are two senators from your state, Messrs. Daniel O. Hastings and John G. Townsend, to whom I would like you to have the whole sugar question explained. The Cuban cause seems to be so just, and I know that you share my views, that it should not be difficult for you to persuade these congressmen to champion the cause of Cuba in the congressional debates and to oppose any increase in the duty, if not favor a reduction thereof."540

Indeed, Irénée could warn his relations in the Senate, Delawarean Senators John G. Townsend and Daniel O. Hasting, whom Irénée knew some of them personally. Senator Hasting had been a special master, defending Pierre in his 1916 lawsuit against Philippe du Pont (in the purchase of Coleman's stocks). However, he did not know Robert Houston well. Plus, Irénée warned Luis Machado that he was known in this circle to be very protectionist toward the American industry, and that he would not be credible when fighting against an American protectionist tariff.

"The Du Pont Company has always stood for protection of American industry and to the population that means protection without regard to industry. My name and previous history are such as to identify me with the Company, so that should I recommend reducing tariffs, opponents would point out that there must be a personal advantage, for it was well known that I have appeared before Congress advocating high tariffs on several occasions.

539 L. Machado to Irénée, April 3, 1929, Acc. 228, Box F-8.

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Personally, I am convinced that sugar is an exceptional case and that the high tariff on it does not serve as protection to any industry, even including farming in the U.S., but is a great contribution to those owning plantations in the Philippines, Porto Rico, and Hawaii; in fact, an absurd contribution to them."541

Nonetheless, Irénée took his role of Ambassador of Goodwill and wrote in April 1929 to Senators Townsend and Hastings about high tariffs on sugar. Irénée underlined to Townsend the "grave harm" that the high American protective tariffs would do to Cuba. He demonstrated that the increased acreage in the Philippines, Porto Rico, and Hawaii provided an oversupply of sugar in the world, which was supplanting the Cuban sugar. This was crippling Cuba financially and the country could not import American products anymore.542 Irénée gave an even more detailed analysis to Hastings. He demonstrated that the tariff on sugar did not encourage agriculture in the United States; it did not make the beet sugar industry profitable in proportion to the tariff. He underlined again that it was due to the sugar production of the Philippines, Porto Rico, and Hawaii that products entered the United States without duty. Thus, the American sugar industry would suffer from an oversupply from these islands rather than from the sugar production of Cuba. Irénée concluded with an analysis of the contagious effect the consequences of the tariff could have on Cuba's neighbors: the prices would fall, the unemployment would increase, the imports would diminish, and finally revolutions would arise.543

In the same month Hayden, Stone & Company expressed a report on the American sugar tariff. The bankers said it was unwise and unjustified from the standpoint of sound public policy. They admitted that they had interests in Cuba

540 L. Machado to Irénée, April 3, 1929, Acc. 228, Box F-8. 541 Irénée to L. Machado, April 16, 1929, Acc. 228, Box F-8. 542 Irénée to Senator Townsend, April 10, 1929, Acc. 228, Box F-7. 543 Irénée to Senator Hasting, April 10, 1929, Acc. 228, Box F-8. 278

and they knew that expressing their opinion of the tariffs being wrong was a delicate situation, but that their opinion was not only because the bank had interests there. In fact, they wrote in the report that they also had interests in Philippine and Porto Rican sugar. The real fact to Hayden, Stone & Company was that the tariff would be a burden for American industries, because many sectors in the United States, such as the automobile industry and the electrical equipment industry, were dependent on foreign trade. In the aggregate the sectors trading abroad were selling over $5 billion worth of American products per year. Therefore, the American industry as a whole would continue to benefit from fair and considerate policies in trade. The outside relations of the United States had to remain at their best in order to protect the American exports. Also, foreign countries had to continue to export their goods in order to have the capital necessary to buy American goods:

"Wherever the livelihood of masses of people is affected by what seems arbitrary and unfair action there is bound to be vigorous protest and ill feeling. Moreover, although nations are free to regulate trade, there is a moral obligation upon every member of the world community not to violently disturb conditions upon which the prosperity of other nations is founded, without consideration for the effects."544

Both Irénée du Pont and Hayden, Stones & Company were not isolated in their fight. Throughout the United States a strong movement against the Tariff Bill grew during 1929 and 1930. On May 5, 1930, there were 1,028 American economists who signed a petition against the enactment of the bill as a law. The original signatories were Paul H. Douglas, professor of economics, University of Chicago, and Irving Fisher, professor of economics, Yale University, among

544 Hayden, Stone's reports, April 1929, Acc. 228, Box 93. This would become more and more important when the United States would enter the Great Depression a few months later.

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other renowned professors.545 In the American heavy industries, important businessmen opposed the tariff as well: Henry Ford led the movement of the automobile car manufacturers and defended their interests in the White House, directly with President Hoover.546 Also among the bankers a strong opposition movement existed; Thomas W. Lamont stood as the representative of J. P. Morgan & Company—the bank was one of the most important sponsors of foreign loans—against the tariff. The journalist and historian Ron Chernow quotes the banker: "I almost went down on my knee to beg Herbert Hoover to veto the asinine Hawley-Smoot Tariff."547 Thus, Irénée was part of an important—disorganized—group of opponents, and the fact that he stood on the American political scene, nearly as Lamont and Ford did, speaks for the preeminence of the du Pont family in the United States by this time.

Unfortunately on May 28, 1929, the Tariff passed in the House of Representatives, and in May 1930 it passed in the Senate. For the Cuba Cane this tariff implied that from June 1930 the duty on sugar imported from Cuba increased from 1.76 cents to 2.40 cents per pound. In a letter exchanged with the U.S. Department of Commerce—which wanted Irénée to help the American government obtain a reduction in yachting taxes in Cuba—Irénée said:

“It is unfortunate to find certain Western interests implying that the question is one of deciding if the beet sugar industry should be saved or if the National City Bank and other American interests in Cuba should have their ‘pockets lined’. Of course, I am a high tariff man and believe in protecting home industry, but the real facts seem to me to be a question of whether the Philippines and Porto Rico are going to be subsidized by an enormous sum for the

545 Whiston Fetter, F. (1942). "The Economists' Tariff Protest of 1930." American Economic Review 32(2): 355-369. 546 Eichengreen, B. (1986). "The Political Economy of the Smoot-Hawley Tariff." NBER(2001). 17.

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purpose of putting the Cuban sugar planter down and out. I am not taking active sides on the sugar question and am only injecting this to explain how inopportune it is to go to Cuban officials asking favors for Americans."548

However, the Cuba Cane Products Corporation suffered less than expected from the Smoot-Hawley, probably due to its reorganization, as table 5.3 shows, but also to the 1934’s new policies of the U.S. President Franklin Delano Roosevelt (1932-1945) which favored the Cuban sugar production. This year, the American government took, indeed, three measures specifically related to the Cuban sugar industry. First, the Jones-Costigan Act of May 9, 1934, aimed at increasing the American consumption of Cuban sugar; second, the government lowered the duty on sugar imports; and third, in August 1934 the Reciprocal Trade Agreement was implemented to increase to the maximum the exchange between both countries. Therefore, the new Cuba Cane Products Company increased its sales and turnover, and is very noticeable in table 5.3: the net income increased tremendously between 1930 and 1932, due to the reorganization of the company's activities.

547 Chernow, R. (1990). The House of Morgan. An American Banking Dynasty and the Rise of Modern Finance. New York, Grove Press. 323. 548 Irénée to Assistant Taylor (Department of Commerce), July 1, 1930, Acc. 228, Box F-8.

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51Table 5.3: Sales and net income of the Cuba Cane Products Company 1930- 1935, million USD549 Year Sales Net income 1930 207,7 0,2 1931 183,8 1.5 1932 136,5 11.4 1933 238,7 12,1 Sources: Moody's about Cuban Cane Products Company In 1932 the Du Pont Company already went back into international business and acquired a company in Argentina. This was the first step abroad for the company after the financial crash, when Du Pont had just started to catch up with its previous results. The investment in Argentina opened doors to a new collaboration between Du Pont and ICI, as the next section describes.

5.2. INVESTING WITH IMPERIAL CHEMICAL INDUSTRIES (1921–1937)

Du Pont's story in Argentina started in 1921 when President Irénée sent a representative from Du Pont to that country to investigate about investing there. The representative promptly received an invitation by the Argentinian government to invest in the manufacture of explosives in the country. However, Du Pont's executives were not ready to invest in Argentina at this time as they had no partner to enter the country with. Therefore, any investments would be postponed until 1932. By this time, as said, Du Pont started to recover from the recession and began renewing their investments abroad through the acquisition of a company that produced a constituent of the artificial textile rayon; the company thus entered Argentina alone and would mostly sell products that were manufactured in the United States. In 1934 when Du Pont had the opportunity to invest in Argentina through a joint Du Pont–Imperial Chemical Industries rayon

549 Information unavailable for the forthcoming years. 282

manufacture, the executives immediately jumped on it. In 1936 the same proposition arose for a joint investment in Brazil. Both these investments were achieved and operated jointly by Du Pont and ICI until 1953. These were also the last joint investments between both companies, and the last business between the du Pont family and Harry McGowan. Therefore, three subsections present these three moments of Du Pont's investments in Argentina and Brazil. The first subsection demonstrates that in 1921 Du Pont refused to enter a country by itself in the explosives production, despite the government's invitation. The second and the third subsections present how ICI's presence in an investment continued to be an important incentive for the Du Pont Company, first in Argentina, second in Brazil. Finally, these subsections consider a change in Du Pont's foreign investments, which were not about explosives.550

5.2.1. THE FIRST STEPS IN ARGENTINA

Between 1920 and 1921 Du Pont's executive committee sent A. Lissner, head of the military sales division in Du Pont's sales department, to South America.551 Lissner visited Argentina, Brazil, Peru, Uruguay, and Paraguay. His investigation was of importance to the executive committee, as he gathered information on the ground about the opportunities in these countries for Du Pont's expansion.552 During his year of travel, Lissner had been in close contact with Argentine’s President Hipólito Yrigoyen (1916–1922) and with the head of the Argentine

550 Before the 1930s, Du Pont had already invested abroad in sector other than explosives: in 1926, the joined formation with Nobel Chemical Finishes was about the manufacture and sale of piroxiline finishes in the British Commonwealth countries, in 1927, Du Pont joined in the formation of the Société Française de Fabrikoïd for the manufacture and sale of Fabrikoïd in France, and in the French colonies, the same year Nobel Chemical Finishes manufactured and sold Fabrikoïd and rubber-coated goods in Australia. However, all these investments were about some exchange of patents and processes. In Argentina and Brazil, the joint investments were of the same kind as was the Canadian Explosives Ltd investment of 1910 and was directly inspired by it. Thus, they show a complete change in production in host countries for the company, between 1910 and the 1930s. 551 The head of the military sales division's first name was not found.

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Army, Colonel Arroyo. Both Argentinian officials were really interested in having Du Pont build a factory in Argentina as the government knew that Du Pont was building a factory in Chile, jointly with Nobel and the Chilworth Gunpowder Company. Therefore, the Argentinian government was inviting Du Pont to enter their country.553

Colonel Arroyo made three proposals to Du Pont's representative. First, the Argentinian government offered that Du Pont set up a plant that would be operated by the Argentinian government. The factory would manufacture military and commercial explosives. In case Du Pont wanted to operate an investment in Argentina, Colonel Arroyo proposed another option. He suggested that Du Pont set up a plant for military and commercial explosives production and both the Argentinian government and Du Pont would operate it at 50% each. Finally, the third option proposed by Arroyo was that Du Pont set up a plant and operate it for their own account. This plant would also manufacture explosives for military and commercial needs. The government would assume the obligation to purchase their total requirement of military powders and explosives from this factory and would also permit the exportation of explosives to other countries. Arroyo added that Yrigoyen's government had agreed, under proposals 2 and 3, to protect the products of the factory by means of import duties in such a manner that the owners of the plant would practically enjoy a monopoly in the sale of their products. If Du Pont was interested in the third proposition, Colonel Arroyo even went further to propose that Du Pont could choose to not raise the necessary capital, but that Argentine's government would raise it in Argentina; an ideal solution all in all.554 The problem was that Yrigoyen's government proposed these plans, but had made no estimation of the costs of such factories

552 Lissner to Irénée, April 21, 1921, Acc. 1662, Box 35. 553 Extract of Lissner Report: a letter from Arroyo to Lissner, May 25, 1919, Acc. 1662, Box 35. 554 Extract of Lissner Report: a letter from Arroyo to Lissner, May 25, 1919, Acc. 1662, Box 35.

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in Argentina. According to Lissner—and of this he warned Colonel Arroyo—an estimated cost of such a project would take months to be done.555

During the early 1920s other chemical companies were interested in setting up a plant in Argentina. Thus, Arroyo warned Lissner about some American, French, and German propositions. The consolidated Rolling Mills and Foundry Company was proposing to erect an explosives manufacturing plant in Argentina. The French government through France Powder Mills made a similar proposition.556 The most disturbing competitor was the German government. In 1920, against the Peace Treaty's conditions, the German government had submitted to Arroyo an offer for a complete powder mill, for a cost of DM20 million, to be erected in Argentina.557 This proposition was strongly favored by Arroyo and Yrigoyen. Behind the German government's officials, the plants would be operated by Köln-Rottweiler Pulverfabriken.558 On further investigation by Lissner, we discover that in the event of successful operations, the German company proposed to bribe Arroyo with 5% of the total operation.559

Therefore, between spring and November 1920, bitter negotiations took place between Lissner and Arroyo. Du Pont's representative was trying to reach an agreement sufficiently interesting to both Du Pont and the Argentinian government. He tackled the matter of powder price and of the price of investment. Arroyo was mostly negotiating about a guarantee on the quality of powder through time. The Argentinian army wanted a guarantee that the explosives' quality would be assured for a minimum of 10 years. If in less than a decade the powder mill produced explosives of a lower quality than at the moment when the contract was signed, Du Pont would be responsible for it and

555 Extract of Lissner Report: Lissner to Arroyo, June 20, 1920, Acc. 1662, Box 35. 556 Extract of Lissner Report: Lissner to Wilmington, May 21, 1920, Ac. 1662, Box 35. 557 Extract of Lissner Report: Lissner to Wilmington, August 30, 1920, Acc. 1662, Box. 35. 558 Extract of Lissner Report: Lissner to Wilmington, September 22, 1920, Acc. 1662, Box. 35. 559 Lissner report to the Executive Committee, April 20, 1921, Acc.1662, Box 35.

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would have to reimburse Argentina's government. Du Pont’s executives were not inclined to agree with such a condition, as stated in a letter to Lissner:

"In view of the preceding statements and data we believe confidently that our pure nitrocellulose powder will keep in good condition for a service of at least 20 years. It is well understood that the duration of the smokeless powder depends upon the conditions under which it is stored, and for this reason we are not disposed to guarantee its duration for any given period of time, due to the fact that the elements which affect its stability, such as humidity and temperature, are entirely outside of our control."560

In November 1920, Colonel Arroyo prepared a skeleton contract in which he stipulated the prices and conditions and still insisted mostly on the guarantee of quality of the explosives for a period of 10 years.561 Due to this insistence, the deal was completely blocked. Lissner cabled Wilmington the next day, on November 18, 1920, to tell the executive committee that he could not fight Colonel Arroyo. The Chief of the Army wanted, whether it was through the erection of a plant or through the supply of powder to Argentina, Du Pont to guarantee a 10-year quality label to Argentina; however, Du Pont was not even sure it wanted to deal with the country in any way. Lissner warned the executive committee that the directors should sign the contract, because they might otherwise lose the business to their competitors. Lissner ended his cable: "Anxiously awaiting reply."562

With no answer from the executive committee, the deal in Argentina was stopped at that point. Arroyo had been able to integrate this condition in a contract with the German Köln-Rottweiler Pulverfabriken in 1921. The Germans

560 Extract of Lissner Report: Du Pont Executive Committee, July 7, 1920, Acc. 1662, Box 35. 561 Extract of Lissner Report: Contract proposed by Arroyo, November 17, 1920, Acc.1662, Box 35. 562 Extract of Lissner Report: Lissner cable to Wilmington, November 18, 1920, Acc. 1662, Box 35. 286

could thus supply Argentina through an explosives manufacturer.563 Five years later, in 1926, the German IG Farben opened a plant for aniline in Argentina: Anilinas Alemanas.564 Du Pont would wait for the 1930s to enter to Argentina.565

5.2.2. INVESTMENTS IN ARGENTINA AND BRAZIL

In 1929 Du Pont’s relation with the newly consolidated Imperial Chemical Company, was still one of partnership, as both companies ratified a Patents and Processes Agreement in which they stipulated that the technological information about the production of synthetic forms of rubber, plastics, and textiles had to flow between the two companies. It also stipulated that ICI had to stay out of the American chemical market. This agreement was passed after Du Pont officials had expressed their worries about ICI having important shares in the American company Allied Chemical. In reaction to these worries, in 1928 ICI sold its shares to the Belgian Solvay and Company. Thus, the patents and processes agreement was already the second step to reassure Du Pont's executives.566 Both companies benefitted from this agreement to the extent that, in 1931, Harry McGowan wrote to Walter S. Carpenter:

563 Lissner pretended to have read the contract from the Germans. Extract of Lissner Report: Lissner to Wilmington, February 1, 1921, Acc. 1662, Box 35. 564 Newton, R. C. (1992). The Nazi Menace in Argentina. Stanford, Stanford University Press. 106. 565 During the 1920s, Du Pont was not ready to enter the country through an explosives plant without a partner. The archives showed no information about a proposition from Nobel to enter jointly the country; nothing about an American partner as well. The risk of the investment, as well as its cost, was probably seen as too important. Indeed, the literature on joint ventures emphasize mostly risk and cost reduction when a company chooses this entry mode to go international. Franko, L. G. (1989). "Use of Minority and 50-50 Joint Ventures by United States Multinationals during the 1970s: The Interaction of Host Country Policies and Corporate Strategies." Journal of International Business Studies 20(1): 19-40, Binda, V. (2009). Foreign Direct Investments and National Business Systems: The Joint-Ventures’ Role in Italy and Spain during the Second Half of the Twentieth Century. XVth WEHC, FDI and European Integration, 1945-2000. Utrecht, Kent, D. H. (Jul., 1991). "Joint Ventures vs. Non-Joint Ventures: An Empirical Investigation." Strategic Management Journal 12( 5): 387-393. 566 Wilkins, M. (2004). The History of Foreign Investments in the USA, 1914-1945. Massachusetts, Harvard University Press. 245. 287

"The days for isolation are over, and the more companies like yours and ours pool our knowledge, the greater the world will be benefitted."567

This trans-Atlantic cooperation would deeply mark the 1930s. By the end of the decade numerous "miracle products" were born and cross-licensed by Du Pont and ICI. Examples of such products include plastics and synthetic resins, polyethylene and methyl methacrylate resins, nylon, and neoprene.568 At this point both Du Pont and ICI were interested in the Argentinian market. They would both invest there by themselves and afterwards they would merge their interests under a common company named Duperial.569

In 1932 an investment process was achieved in Argentina. Du Pont had bought Borzone & Marengo, which was producing carbon bisulphide used in the production of rayon. The plant was integrated to the newly incorporated E.I. du Pont de Nemours y Compañia Argentina S.A. Commercial e Industrial. This new company would act as a distributor in Argentina for certain Du Pont products manufactured in the United States. Du Pont's investment in Argentina amounted to $148,000 and was owned 100% by Du Pont, with an authorized capital of 5,000,000 pesos, of which 2,895,000 had been issued and fully paid up.570

On the British side, when the British companies merged to create ICI in 1926, the former plants of the four British companies abroad were integrated into the group as well, obviously. Thus, Brunner Mond had a plant producing alkali and

567 Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 132. 568 This Grand Alliance between Du Pont and ICI was stopped at the end of the war by the antitrust suit. The "edifice" of international agreement had to collapse according to the American law because of the lack of competition that it implied worldwide. Ibid. 133. 569 See in Part One how Nobel Explosives merged with three other British chemical companies in 1926 to become Imperial Chemical Industries, ICI. 570 Unfortunately the reports for Du Pont Argentina with ICI in the same country are not available. Crane to the executive committee, May 1, 1934, Acc. 1231 series II part 2, Box 1036. 288

chlorine products in Argentina, which entered ICI, and Nobel owned 60% of Cartucheria Orbea, a manufacturer of explosives, which entered ICI as well. Added to these plants, in 1930 ICI acquired 40% of Industrial e Commercial Rivadavia, a manufacturer of acids, sulfur, sulfur products, and fertilizers. Hence, the British ICI had investments to a total amount of $633,000.571

Two years later, in 1934, Jasper Crane, a member of the executive committee in charge of the international activities of Du Pont, led an investigation in Argentina in order to understand whether a Du Pont investment to manufacture Du Pont products could be added to the Du Pont Argentina Corporation.572 He went to Argentina, accompanied by some Du Pont’s employees—Jim Denham, B. N. May, Craig and Scott573—to investigate the economic conditions under which Du Pont would operate there. First, the representatives held discussions with American companies having a subsidiary in Argentina: General Motors, International Harvester, Armour, Standard Oil, Firestone, Goodyear, Bunge & Borne, and Alpargata. All of them had previously set up a plant in Argentina and were good advisors for the vice-president.574 Second, Crane also consulted with Leng-Roberts, Peabody & Company, National City Bank, First National Bank of Boston, and the Royal Bank of Canada about world finance. Finally, the vice-

571 Reader, W. J. (1970). Imperial Chemical Industries, a History. The First Quarter-Century 1926- 1952. London, Oxford University Press. 224. 572 Jasper E. Crane worked 14 years for the Arlington Company as a plastics expert. He was the manager of the technical department at Arlington and a director of the company when it was acquired by Du Pont in 1915. In 1917 he was elected head of the cellulose division of Du Pont. Between 1922 and 1928 he was in London as European manager in charge of purchasing, development, and financial activities. In 1926, when Du Pont organized a subsidiary, Lazote Inc. to synthesize ammonia, Crane became chairman of the board. In 1927 he was elected to Du Pont's board of directors and remained in this position until 1964. In 1929 he was also elected to the executive committee and resigned from this position in 1946. Since 1929 he was in charge of the international development of Du Pont while on the executive committee. (December 3, 1969). Jasper E. Crane, Plastics Expert. Former Director of Du Pont Research in Field Dies. New York Times. New York: 55. 573 First names of May, Craig, and Scott are not mentioned. 574 To note, obviously the du Ponts in 1934 were still deeply involved in General Motors and had certainly played a large part in the company's internationalization in Argentina.

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president also discussed the Argentine case with some American government officials: the Minister of Finance and the Minister of Agriculture and Industry. Crane gave their opinions back to Du Pont's executive committee. The conclusions reached by Du Pont's were that there was a good market opportunity in Argentina in the rayon industry.575 The vice-president thus made the proposition to the executive committee that Du Pont open a rayon manufacturing facility in Argentina. Indeed, Argentina used to import most of the manufactured goods, free of duty. However, during the 1930s, new national policies were to stimulate the home industries through protective tariffs. Denounced by the estancieros, bankers, and economist as bad economics, the tariff was, in contrast, proposed and defended by President Agustin Pedro Justo (1932-1938).576 Therefore, it was an opportune moment to set up a manufacture in the country.

Jasper Crane was interested in Du Pont investing in the manufacture of artificial textiles, and considered that Du Pont might achieve it either on its own or with ICI, as the British company already owned a number of chemical products and constituent manufacturers in Argentina. Therefore, some discussions took place among Crane, Len Yerkes (president of Du Pont Rayon Company), and H.J. Mitchell (vice-president at ICI).577 Yerkes was pleased by the idea of opening a subsidiary in Argentina. Mitchell had the same reaction and told Crane that he was very enthusiastic about a joint investment in the country.578 And thus, since 1934, Harry McGowan and Lammot du Pont entered into discussions about manufacturing. The merger company was named Duperial, and purchased Du Pont Argentina's assets on a share for share basis, at a price equal to Du Pont Argentina's present subscribed capital of 2,895,000 pesos. Inside the merged

575 Crane to the executive committee, May 1, 1934, Acc. 1231 series II part 2, Box 1036. 576 Unspecified in the archives. 577 H. J. Mitchell's first name does not appear in the archives or in the literature. Crane to Yerkes, January 11, 1934, Acc. 1231 series II part 2, Box 1036 and Crane to Mitchell, April 26, 1934, Acc. 1231 series II part 2, Box 1036.

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companies' shares, Du Pont continued to be the owner of the ex-Du Pont Argentina shares. The other way round, ICI's assets in Argentina would be equally treated.579 By December 1934 a tax exemption for the construction of a plant and a decrease from 45% on taxes on the plant's turnover was allowed to Du Pont and ICI for their new project plan—the Duperial.580 Thus, in December Duperial was founded. The procedure of making ICI and Du Pont's interests merge entailed the following: First, a committee headed by a representative of Price Waterhouse was established to agree on the valuation of assets and to establish actual earnings for an approximate three year period. Second, it was agreed that principal ICI and Du Pont products would be sold by the merger company on a consigned stock on the basis of 15% commission on gross realization, and earnings were adjusted to this basis. Third, the contribution of the two principals was evaluated on the basis of net tangible asset value plus goodwill. Fourth, an equalization payment was then made by Du Pont to ICI, which was half the difference between the merger contributions of the two companies. A merger company was then set up with a capital stock equal to the merger evaluation and issued 50% to ICI and 50% to Du Pont.581 In 1935 Duperial was renamed Industrias Quimicas Argentinas 'Duperial' Sociedad Anonima Industrial y Comercial.582 And thus, Duperial in Argentina was organized to produce mostly rayon. Also, in 1935 Du Pont entered Brazil on its own.

578 Mitchell to Du Pont's executive committee, May 1, 1934, Acc. 1231 series II part 2, Box 1036. 579 Foreign relations department to Du Pont Rayon Co, June 6, 1934, Acc. 1231 series II part 2, Box 1036. 580 Report to the executive committee, December 19, 1934, Acc. 1231 series II part 2, Box 1036. W. Swint to G. W. White (ICI manager), October 25, 1934, Acc. 1231 series II part 2, Box 1036. And foreign relations department to the executive committee, proposed consolidation of Du Pont and ICI Brazilian interests, March 23, 1936, Acc. 1231 series II part 2, Box 1036. 581 Foreign relations department to the executive committee: Report of March 23, 1936: Consolidation of Du Pont and ICI Brazilian interests, Acc. 1231, series II part 2, Box 1036. 582 Du Pont Annual Report 1934. 291

In Brazil, 1934–1937

In May 1934 S.A. Du Pont do Brasil was incorporated in Brazil for the purpose of increasing sales of Du Pont products in that country. All the capital stock was owned by the Du Pont Company. Du Pont do Brasil mostly sold dyestuffs, Clar- apel (some viscose packaging developed by Du Pont Cellophane Company), finishes, some fabrikoid, rayon, and certain Grasselli chemicals. The company only had an office in Rio de Janeiro with a total staff of eleven employees. Du Pont do Brasil was incorporated under the laws of Brazil "for the purpose of facilitating and extending the sales of your company's products in that country."583

In March 1936 the foreign relations department wrote a "proposed consolidation agenda" to the executive committee in a way to improve Brazilian interest in Du Pont. In this project the Foreign Relations Department, headed by Wendell Swint, was interested in extending the Argentinian Duperial to Brazil. Swint considered again the meeting between Harry McGowan and Lammot du Pont in 1934:

"It was agreed during the conference between Sir Harry McGowan and Mr. Lammot du Pont in London in June 1934 that steps should be initiated looking to the amalgamation of the interests of ICI and Du Pont in Brazil."584

Following that both Du Pont and ICI planned to present to each other some considerable information with respect to their Brazilian business: such as their recent balance sheet and income statements. Both companies were interested in sharing the development and growth of the Brazilian chemical industry, as

583 Du Pont Annual Report, 1934, p.18. 584 Foreign relations department to the executive committee: Report of March 23, 1936: Consolidation of Du Pont and ICI Brazilian interests, Acc. 1231, series II part 2, Box 1036. 292

they were already doing in Argentina. To share the business meant more funds, less risks, more knowledge, less responsibility, potentially more economic growth, and less issues with the competition.585

Du Pont already owned and managed Du Pont do Brazil at 100%, and ICI owned at 100% the sales subsidiary (ICI-Brazil Ltd) whose primary function was the import and resale of alkalis, among other products. The headquarters was also located in Rio de Janeiro, but they had branches in Sao Paulo and Porto Alegre. Their staff was composed of seventy-seven employees. ICI planned by 1935 to 1936 to begin selling dyestuffs and bought 95% of Azevedo Soares Company in Sao Paulo, which operated the largest of the three Brazilian leather cloth factories.586 In ICI's archives, Reader found a report by C. S. Robinson587 who investigated the Brazilian market since 1934. Robinson recommended that ICI, if it had to enter Brazil, might enter through a local factory rather than through imports.588

By May 1936 Du Pont’s executive committee expressed an agenda for the Brazilian merger. It was proposed to serve as a guide in connection with the discussions that were held between Du Pont's executives and ICI's. Both companies followed what was already done in Argentina: carrying on and developing the sales of Du Pont and ICI products, investigating and participating in local factories if such projects were economically justified. It was decided that the new company would be owned 50% by ICI and 50% by Du Pont. But at this point the similarities with the Argentinian investment came to an end as that situation differed from the one in Brazil. The two companies had no established

585 Foreign relations department to the executive committee: Report of March 23, 1936: Consolidation of Du Pont and ICI Brazilian interests, Acc. 1231, series II part 2, Box 1036. 586 Foreign relations department to the executive committee: Report of March 23, 1936: Consolidation of Du Pont and ICI Brazilian interests, Acc. 1231, series II part 2, Box 1036. 587 No information concerning his first name, or his affiliation. 588 GPCM 825, 21 Nov. 1934, in Reader, W. J. (1970). Imperial Chemical Indutries, a History. The Forerunner 1870-1926. London, Oxford University Press.

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manufacturing facilities, other than the Soares leather cloth plant and the cartridge factory, which were not planned to be included in the merger. Therefore, it seemed that both companies started on an equal basis and had to agree to erect a Greenfield factory in Brazil.589

However, friction between Du Pont’s and ICI’s executive committees promptly appeared. The issues were concerned with the sharing of control of the new Duperial. Indeed, there was a predominance of ICI's representatives in the proposed board of Duperial Brazil: the general manager and chairman of the board, as well as the secretary, treasurer, and the directors for sales were coming from the British group. Most of these men were already working for ICI Brazil. This meant that most of the strategic management relied on ICI's partners. Only the assistant general manager and vice-chairman were from Du Pont’s side. Du Pont's executives recognized that it was an added value to Duperial, because they had experience in Brazil and knew well how to run an office there, but certain reservations were made. First, Du Pont's executive committee obviously considered that a single manager in Brazil was not enough. Furthermore, Du Pont's executives feared that ICI, a bigger organization in Brazil, would discredit Du Pont's share of the business. As mentioned, ICI Brazil was a larger organization than Du Pont: "It will be far harder to accomplish this in Brazil than was the case in Argentina."590 From ICI's side, some reports apparently indicated that some of ICI's partners in Latin America felt that Duperial in Argentina had been "du Pontized" too much and that they looked with apprehension to a repetition of the same conditions in Brazil.591 Therefore, both sides had the feeling that the counterpart was better represented. Thus, the power of the brazilian board was limited to approximately the same degree as

589 Du Pont Executive Committee, Agenda for Brazilian Merger, May 12, 1936, Acc. 1231, series II part 2, Box 1036. 590 Du Pont Executive Committee, Agenda for Brazilian Merger, May 12, 1936, Acc. 1231, series II part 2, Box 1036.

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was the case in Argentina. Therefore, all the proposals beyond its power was submitted to a shareholders committee consisting of the manager of ICI's New York office and the director of the Du Pont foreign relations department.

Already in June both ICI and Du Pont made starting up of the Brazilian company coincide with the opening of the Quilmes plant, the Duperial in Argentina.592 The 1936 Annual Report stated that Du Pont and ICI had amalgamated their interests in manufacturing and selling in Brazil under the Duperial appellation.593 By October 1, 1936, ICI and Du Pont do Brazil merged their activities and founded Duperial Brazil. In 1937 it was renamed Industrias Quimicas Brasileiras 'Duperial' S.A.

Finally, besides the frictions, Du Pont and ICI were successful in their ambitious project. As in Canada, Duperial was the most important overseas expansion that both Du Pont and ICI operated commonly.

"The whole theory is that the Argentine company shall be regarded as the vehicle of industrial effort from ICI and Du Pont in Argentina. And accordingly, Duperial was to have exclusive rights, within certain territories, to patents, processes, and information belonging to ICI and Du Pont and to the sale of the major products made by the shareholders which were still imported. Duperial's exclusive territory was Argentina, Uruguay, and Paraguay. As a natural corollary to the grant of these exclusive rights it follows directly and as a matter of course that the Argentine company must stay within its own territory and not spread out into other countries… It would have no rights whatsoever to trade outside its own territory, either in

591 Du Pont Executive Committee, Agenda for Brazilian Merger, May 12, 1936, Acc. 1231, series II part 2, Box 1036. 592 Crane to MacGregor, June 26, 1936, Acc. 1231 series II part 2, Box 1036. 593 Du Pont Annual Report, 1936.

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its products or in processes, patents, or other developments it may evolve, such becoming automatically the property of ICI and Du Pont for disposal as they may jointly agree, and against such compensation (if any) as they may elect to be payable to the Argentina company."594

These investments continued until 1953, and were the last to be operated jointly by the British and Du Pont. After 1937, the international events in Europe and their spread to the United States rendered any investment abroad impossible during the Second World War. When Du Pont invested again, it was in the post- war Europe, with a new world order and new rules governing entry to the continent.

5.3. POST-WAR INVESTMENTS IN EUROPE (1956–1965)

After the Second World War, Du Pont invested heavily in Europe. These investments were generally Greenfield investments and used more local resources (human capital, European monies). Du Pont chose to export part of its top management's responsibilities and opened its headquarters in Geneva in 1959. In 1967 Du Pont opened some laboratories and even a research and development center for the first time in Geneva. These characteristics were also common to other American companies in Europe. In the chemical industry Dow Chemical entered Europe in 1952 with headquarters located in Zurich. The company borrowed some capital in Europe, mostly in Switzerland, to capitalize its investments. More generally, since the 1960s and as presented in the Introduction of this chapter, the American FDI in Europe grew constantly and was mostly directed towards the six countries of the newly formed Common Market, as well as in Great Britain.

594 "Merging of Argentine Interests", USA, DA II, p.30, in Reader, W. J. (1970). Imperial Chemical 296

52Table 5.4: American Foreign Direct Investments in Europe from 1966 to 1979.

90'000 Canada 80'000

70'000 The Six 60'000 50'000 United 40'000 Kingdom

30'000 West Million USD (1981) Million 20'000 Germany 10'000 France 0 1966 1970 1974 1979 Sources : (OCDE 1981) 106. There were various reasons for this constant increase in American FDI. First, the formation of the European Common Market and the increased tariffs around it was an important incentive. Second, the catching up by Europe and the incentives given by the European Recovery Program in 1947, as well as the Eisenhower tax policy of 1955, pushed American companies towards international investments in Europe.595 Some of these factors were directly related to Du Pont's investments, and this chapter demonstrates how. However, another key factor for the American expansion in Europe was the cheaper hourly wages of the European manpower compared to the Americans between 1965 and 1975; in contrast, this last factor was not a clear incentive for the chemical producer.

Industries, a History. The First Quarter-Century 1926-1952. London, Oxford University Press. P.225. 595 Bonin, H. and F. De Goey, Eds. (2009). American Firms in Europe, 1880-1980, Strategy, Identity, Perception and Performance. Genève, Librairie Droz. Introduction, 10

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53Table 5.5: Hourly Cost of Manpower (USD).

8 United States 7

6 Great Britain

5 West 4 Germany

USD (1982) USD 3 Netherlands 2 France 1 0 Italy 1965 1970 1975

Sources : (Mucchielli 1982) 55. The following section demonstrates how Du Pont's senior management proceeded to enter Europe. The first subsection considers the war and the early post-war prospects and conditions for American companies investing in Europe. It shows that Du Pont's management of the 1940s had already chosen to set up a new pattern to enter countries. A second subsection develops the key factors within the company and in the U.S. government's policies during the 1950s, which made Du Pont enter Europe. Finally, the third subsection considers the first steps of Du Pont in Europe between 1956 and 1965, when the company founded a holding in Luxembourg that would capitalize all of Du Pont's investments in Europe. In the end there would again be no investment in explosives, and no invitation by foreign governments to enter a country; and even more, there would be no partners from a foreign company to enter a third country. At this point, Du Pont became a global company with a global corporate structure, as mentioned in the Introduction of this chapter, and this shows what it means and how it works.

5.3.1. WAR PROSPECTS

In 1942 Lammot du Pont (chairman of the board), Walter S. Carpenter (president) and Jasper Crane (director of the foreign relations department) 298

signed a memorandum about Du Pont's behavior concerning investments abroad during and after the war. The memorandum would have to be adopted by the executive committee. It specified that Du Pont would neither have an isolationist attitude nor an internationalist one. The three men thought that Du Pont might adopt an intermediary position which would favor what was best for the American government and for their company. They extolled some "responsible investments." To Lammot du Pont:

"If the past few years have taught any lesson at all, it certainly is evident that indiscriminate foreign investments are a mere squandering of funds. […] Presumably it should fulfill functions that native capitalists are unable to care for, either because of magnitude, technical difficulties, or some other reason."596

Crane, Carpenter, and Lammot also acknowledged that future investments had to be a two sided project, according to them: more than only investing abroad, Du Pont had to adapt the investment to the local economy, to consider the host country’s will and needs. This meant that in the future Du Pont's directors intended that Du Pont’s FDI in Europe must fill a legitimate place in the national economy of the country. The three senior managers identified, above all, some non-negotiable issues for future FDI: The enterprise should identify itself with the country in which it is located, should employ local labor, and, as far as possible, local management. Plus, the enterprise should continue to give service or other advantages that an enterprise conducted along purely local lines could not; that is, Du Pont must continue to build up the national economy long after the first investment is made.597

This new approach of FDI was part of a new general pattern of investment from the United States to Europe. To the business historian Mira Wilkins, this was

596 Memo from Lammot, Crane and W.S. Carpenter, November 24, 1942, Acc. 542, Box 832.

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something common in the aftermath of the conflicts: "American corporations acknowledge social responsibility—to shareholders, employees, customers, and community. […] All these aspects of enterprise had, as will be evident, implications apropos multinational business."598 In 1945, following the Potsdam Conference, some conditions were expressed concerning American FDI in Europe.599 The American companies entering Europe and Germany would have to trade with Germany by respecting certain terms, such as the prohibition of the production of arms, ammunition, and implements of war, as well as all types of aircraft and sea-going ships. The American companies might also rigidly control and restrict the production of metal, chemical machinery, and other items that are directly necessary to a war economy.600

This was to last until an "indeterminate future." Naturally this had repercussions on Du Pont's kinds of investments abroad, as well as for the company's sales. Indeed, chemical production and distribution of explosives would be impossible in this country. Du Pont would have to focus on other productions. Thus, the Potsdam Conference implied restrictions for Du Pont in Germany. At the same time it also implied the dismemberment of IG Farben, the German Trust for chemical industries. The IG was accused and proven guilty in the Nuremberg Trials of war crimes against the Allies and of having helped the Nazi regime in the genocide against the Jewish population. IG Farben was, indeed, producing the Zyklon B used in the gas chambers.601

597 Memo from Lammot, Crane and W.S. Carpenter, November 24, 1942, Acc. 542, Box 832. 598 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 327. 599 The Potsdam Conference was the meeting between F.D. Roosevelt, Stalin and Churchill about the post-war prospects for Europe. It took place in the city of Potsdam in February 1945. It was followed in August by the Yalta Conference. Both conferences set up the conditions under which the European countries would have to rebuild Europe. 600 Executive Committee Report, August 6, 1945, Acc. 542, Box 832. 601 Memo about Potsdam advices of action, August 6, 1945, Acc. 542, Box 532. About the divestments of IG Farben's assets, see Feldenkirchen, W. (1987). "Big Business in Interwar

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Just after the war Walter S. Carpenter received proposals for post-war investments. Among these propositions, one of the most important came from the American Embassy in Buenos Aires, in 1946, concerning a donation in the name of the company to help the country fight the plague that was occurring at that time.602 In another sector of activities, the Council for American-Italian Affairs consulted W. S. Carpenter about the future of American-Italian relationships, also in 1946.603 And finally, in the same year, the American Chamber of Commerce for Trade with Italy Inc. contacted W. S. Carpenter to ask the businessman to create a joint committee with Du Pont and other American companies to investigate future prospects for American companies in Italy.604 But none of these proposals found a positive reaction from Carpenter or other directors of the company. At this point, W. S. Carpenter was mostly interested in sending expatriates to Europe to estimate the opportunities there for Du Pont. And thus, in order to understand how the European economic and political situation evolved after the war, in 1946 W. S. Carpenter sent a mission to London to analyze the opportunities the post-war Europe could offer Du Pont. In September, 32 employees from Du Pont were sent to England. These employees were members of the technical teams and represented every sector of production of the company: explosives, engineering, ammonia, plastics, and rayon, amongst others. W. S. Carpenter decided to accompany them during part of their journey. They were going to visit England for 30 days.605

W. S. Carpenter decided to join Du Pont's collaborators for their trip in Europe. Du Pont's president viewed this trip also as an opportunity to renew some old

Germany: Organizational Innovation at Vereinigte Stahlwerke, IG Farben and Siemens." The BUsniess History Review 61(3): 417-451, Hayes, P. (1987). Industry and Ideology, IG Farben in the Nazi Era. Cambridge, Cambridge university press, Massoubre, J.-P. (2008). Histoire de l’I.G. Farben (1905-1952). Paris, L’Harmattan. 602 Messersmith (Ambassador of Argentina) to W.S. Carpenter, April 22, 1946, Acc. 542, Box 832. 603 Council for American-Italian Affairs to W.S. Carpenter, May 15, 1946, Acc.542, Box 832. 604 American Chamber of Commerce for Trade with Italy, Inc. to W.S. Carpenter, July 3, 1946, Acc. 542, Box 832. 605 List of the collaborators sent to Europe, August 29, 1946, Acc. 542, Box 832. 301

acquaintances who had been unreachable during the war, such as the Gillets from Lyon, and some with whom it appeared difficult to work with because of the conflict, such as the Morgan Harjes branch in Paris.606 Carpenter precisely prepared for his trip to Europe by holding discussions with Bernard Carter, a J. P. Morgan & Company's partner in New York. The two businessmen agreed that it would be good for Carpenter to go to Europe. To help Carpenter plan his trip, Carter wrote to Dean Jay, a Morgan's partner in Paris. In the letter Carter told Jay that Carpenter wanted to come and visit him in Paris in order to take decisions for the Du Pont Company's prospects in Europe. Carter also told Jay that Carpenter wanted to meet Charles Gillet.607 A few days later Dean Jay replied to Carpenter that he was worried because he had no news from the Gillets since June 1945. However, regarding any further implications of Du Pont in Paris or in Europe, Jay assured Carter that the Morgan Harjes branch "[…] would like [of course] to be of every possible assistance to the du Ponts."608

606 Since 1840, François Gillet and his family-in-law the Pierron performed in Lyon in artificial textile and the dye industry. Thirty-one years later Edmond and Charles Gillet, sons of François, founded and owned the Comptoir des Textiles Artificiels in the same city. During the 20th century, they diversified and expanded their activities through the Gillet-Thaon society, Progil and Rhodiaseta. The Gillets also participated in the foundation of Rhone-Poulenc in which they integrated their companies. Since 1919, Irénée initiated a patent agreement with Le Comptoir des Textiles Artificiels (CTA) in artificial silk and cellophane., Following the agreements between Du Pont and the CTA, the two companies opened a cellophane plant in Buffalo, New York. The American subsidiary of artificial silk was recorded under Du Pont Fibersilk Company, shared 60-40 with the Comptoir. In 1925, the expansion of Du Pont Fibersilk in the United States was important; three new plants were erected in Buffalo, Nashville and in Richmond, Virginia. The artificial fiber was recalled "rayon" and Du Pont registered its subsidiary, the same year, under this new appellation: Du Pont Rayon Company. In 1928, Du Pont Rayon prospected important opportunities of sales throughout the country and abroad and was thinking to expand its production capacity. Angleraud, B. and C. Pellissier (2003). Les dynasties lyonnaises des Morins-Pons aux Mérieux du XIXe siècle à nos jours. Paris, Perrin. 269-273 Cerretano, V. (2012). "European Cartels, European Multinationals and Economic Deglobalization: Insights from the Rayon Industry, 1900- 1939." Business History 54(4): 594-622. 598 Wilkins, M. (2004). The History of Foreign Investments in the USA, 1914-1945. Massachusetts, Harvard University Press. 133-134. 607 B. Carter to Carpenter, August 26, 1946, Acc. 542, Box 832. 608 D. Jay to B. Carter, August 21, 1946, Acc. 542, Box 832.

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After the 1946 trip to Europe, neither the technical team nor Carpenter came back with a project plan for Europe. The continent had to rebuild its physical and social infrastructure. Therefore, no report was made to the stockholders and no decision was taken by the committees about Europe. Added to that in 1948 Carpenter resigned from his position as president and Greenewalt, newly elected to this position, had to face the antitrust trials against the company. Concomitantly with the cases, the Eisenhower administration promoted a policy that favored American business abroad. At the same time changes in Du Pont's management permitted President Crawford Greenewalt to enter Europe.

5.3.2. INCENTIVES TO ENTER EUROPE (1955–1958)

In the mid-1950s the Eisenhower administration undertook a program that supported American FDI as a solution to the slowdown of international trade due to the dollar gap, as well as a solution to the American balance-of-trade's surplus. The United States’ program for Europe was called "investments abroad."609 Thus, in a message to Congress in 1954 President Eisenhower advocated international investments to solve the issues encountered by the American government:

"[…] Our best interest dictates that the dollar gap be closed by raising the level of trade and investment. […] The United States stands ready and able to produce and sell more than the rest of the world can buy from us. The inability of many foreign countries to buy our goods in the volume we would like to sell does not arise from any lack of desire for these goods. Such is far from the case. Instead it arises out of an inability of these nations to pay—in dollars—for the volume we have to sell. […] An increased flow of

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United States’ investments abroad could contribute significantly to the needed expansion of international trade. It also could help maintain a high level of economic activity and employment in the United States. Further, such investment contributes to the development abroad of primary resources needed to meet our own ever-increasing needs even while it helps to strengthen the economies of foreign countries."610

To achieve this program the Eisenhower administration asked Congress that the taxation of business income from foreign subsidiaries or from foreign branches be taxed at a lower rate, 14% less than the regular corporate rate. This measure was adopted by Congress on May 15, 1955, and might be considered to have had an impact on Du Pont's international investments.611

Indeed, promptly after the Eisenhower administration's incentives, Du Pont invested in Northern Ireland. This investment was also a direct consequence of ICI's divestment—as Du Pont had no survival agreement that made the company sell or manufacture its products in the Commonwealth countries, and the Northern Ireland plant was supply oriented. Nearly 50% of Du Pont's exports of neoprene were previously shipped to England and the English Commonwealth countries. Thus it became important to locate a plant somewhere in the United Kingdom to supply the country and the British Commonwealth to the extent of about one half of the capacity of the plant and

609 Whereas a similar program for Latin America was called the "trade not aid" and considered that an increase in foreign direct investments could help to decrease the aid in American dollars given to South American countries. 610 Dwight D. Eisenhower: "Special Message to the Congress on Foreign Economic Policy." March 30, 1954. Online by Gerhard Peters and John T. Woolley, the American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=10195. 611 Dwight D. Eisenhower: "Special Message to the Congress on Foreign Economic Policy." March 30, 1954. Online by Gerhard Peters and John T. Woolley, the American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=10195.

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the remaining one half to countries of Europe and elsewhere.612 The Du Pont Company (United Kingdom) Ltd was organized in 1956 and purchased 381 acres of land near Londonderry (Maydown, Northern Ireland). Du Pont intended to achieve economies to widen the market for neoprene in nations of the British Commonwealth and elsewhere abroad. In 1957 Du Pont started erecting a neoprene factory at the location in Londonderry.613 The Londonderry investment cost $13 million. To finance this investment the parent company gave $5 million from its retained earnings: $3 million for the plant and $2 million for collateral expenditures—training and technical studies. Three London banks loaned $8 million: $5 million for the working capital, $3 million for the collateral needs.614

Changes in Du Pont's Management

Added to Eisenhower's incentives, there was also a need for Du Pont to make changes within its organization. In 1958 a considerable decrease in sales (about 9%) and net income (16%) alarmed President Greenewalt. At this point he decided that Du Pont had to renew itself with international investments and so he envisaged Du Pont entering Europe.

"It seemed to me quite clear that the chemical industry as a whole was approaching maturity, not necessarily there, but on its way, and that something had to be done to open up new growth possibilities. The major thing that happened to make that feasible was the common market. […] the advent of the common market enabled us to build an efficient plant in Europe. It served not only

612 W.S. Carpenter, July 11, 1960, Acc. 1553, Box 21. 613 Du Pont Annual Report, 1956, 10. 614 No information about which banks loaned this money. Finance Committee Advice of Actions, July 30, 1957, Acc. 1814 series II, Box 5.

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the country in which it was located, but the surrounding territory as well. […]."615

However, international investment projects for Du Pont encountered stiff opposition from non-family members of the executive committee, especially Angus B. Echols, during the 1950s. Angus B. Echols had been part of Du Pont's senior management since 1927 and was considered as rather conservative concerning Du Pont's expansion. Echols was formerly an automotive executive and, therefore, he was deeply involved in the Duco adventure.616 In 1927 Du Pont invested jointly with a French company in a Duco investment in France, which also had two subsidiaries in Germany and Italy. During the Second World War the French Duco went into bankruptcy, the German Duco was destroyed by the Russians, and Du Pont ceased its contracts with the Nazis. Finally, the Italian Duco was acquired by Montecatini.617 The loss of the Duco investment made Echols, and others, believe that there was no reason to enter foreign countries. As Taylor and Sudnick mentioned: "The whole Duco episode seemed to demonstrate the futility of entering foreign markets through joint ventures with partners less amenable or vigorous than ICI."618

However, in 1958 Echols resigned from his position of vice-president. Therefore, with the 1955 Eisenhower incentives to enter foreign countries, Greenewalt promptly reacted. In 1958 he set up the International Department, which began to plan Du Pont's expansion overseas. W. S. Carpenter III, the son of Robert Carpenter, took the head of this department. The new department was given status equal to the manufacturing departments, meaning that it was headed by a director and operated as a single unit. Greenewalt confessed that he considered he had also cleared out the division from "a bunch of clerks," which brought

615 Interview of Greenewalt, January 19, 1983, Acc.1878, Series II, Box 2. 616 An automobile's lacquer. 617 Precise moment unspecified in the archives. Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 188. 306

nothing interesting to Du Pont's international business, and that he saw "no real interest at all" in the Foreign Department as it used to be operated. Greenewalt considered that Walter Samuel Carpenter III was a "topflight man." After the reorganization of the International Department and Carpenter III's nomination, the unit performed very well. The reorganization resulted in dividing the department into two geographic divisions, one taking care of Latin America and the second of Europe. Two functional staff divisions occurred at Du Pont's international affairs: one looked at foreign trade, mostly with Latin America as a natural corollary to Eisenhower’s "trade not aid" policy, and one looked for new ventures abroad and also supervised the foreign patents arrangements.619

As a result of this department efficiency, in 1958 through Du Pont UK the company started constructing the Elastomer Research Laboratory near London. This was the first laboratory set up by Du Pont outside the United States and was therefore a major step. Also in 1958, Du Pont opened a subsidiary, Du Pont de Nemours (Belgium) S.A. which took care of building a factory of lacquers, enamels, paints, and varnishes in Malines (Belgium).620 Following the Belgian investment, in 1959 three other subsidiaries were set up in Europe: Du Pont de Nemours International S.A. in Geneva, Du Pont de Nemours (Nederland) N.V. in Dordrecht, as well as Du Pont de Nemours (France) S.A. in Paris.621 In 1960 Du Pont's Annual Report stated that:

“These companies serve markets outside the United States where we expect, through local manufacturers, to strengthen our participation in their growth and development. Development of the six-nation European Economic Community (Common Market) and the seven-nation European Free Trade Association gained

618 Ibid. 188. 619 The supervision was the former foreign relations department's role. Ibid. 191. 620 Du Pont Annual Report, 1958, 9-10. 621 Du Pont Annual Report, 1959, 15. 307

momentum during the year. In these areas new markets are being built by removal of restrictions on trade among member countries and by dynamic increases in European living standards. These large markets present opportunities for construction of plants comparable in size and operating efficiency to those in the United States. A major share of the company’s international activities is being directed to broadening markets for our products in Europe and establishing profitable manufacturing activities there.”622

The European Integration

As with most American companies in the late 1950s and early 1960s, Du Pont's entry into Europe followed closely the successive steps of the European integration. First of all, Du Pont entered countries that had integrated either the Common Market (CM) or the European Free Trade Association (EFTA).623 Du Pont first entered Great Britain, Belgium, the Netherlands, France, Switzerland, Sweden, Luxembourg, Germany, and Italy. Mc Graw Hill Inc., one of the most important American economic information companies, edited a special report during the 1960s that is quoted by the journalist Jean-Jacques Servan-Schreiber in his Défi Américain of 1967.624 The report even shows that, as Du Pont, most

622 Du Pont Annual Report, 1960, 16-17. 623 The Treaty of Rome was established in 1957 and initially ratified by six countries: France, Belgium, Italy, West Germany, Luxembourg and the Netherlands. The EFTA was set up in 1960 and gathered the member countries which refused to agree with the restrictive conditions imposed by the Treaty of Rome, especially about the agricultural policy. The member countries in 1960 were Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom. 624 This report gathered a considerable amount of information about the American investments in Europe during the 1960s and about the American companies' policies concerning foreign direct investments on the Continent: notably about the companies' European headquarters' locations, the mother companies' orders about the investments, etcetera. Jean-Jacques Servan Schreiber used this literature as a very subversive tool to defend the idea of American economic and industrial invasion. In 1967, when the Défi Américain was published, his career was already the one of a man of exception and his strong stances were known all over France, as well as in the United States where he had been in close contact with the late J. F. Kennedy. More precisely, Jean-Jacques Servan-Schreiber was known for his sharp opinions since he was editor at Le Monde 308

of the American companies set up European headquarters in Switzerland or Belgium: Union Carbide entered Lausanne in 1965, Corn Products Company had 10 subsidiaries in Europe and headquarters in Zurich, Celanese Corporation for America had its headquarters in Brussels.625

Second and more precisely, the European Investment Bank (EIB), a non-profit and long-term lending institution was established by the Treaty of Rome in 1957 and was set up in 1958. Its main strategy was to finance viable projects in order to promote cohesion and convergence within the member countries. Initially the bank’s main supports were for the development of enterprises and infrastructure, as well as knowledge sharing.626 Since 1958 the EIB invested funds to promote the European chemical industry. As a consequence, Du Pont's investments in Europe were achieved in parallel to the chronology of both the European integration and investments of the EIB in the chemical industry. Table 5.6 shows that when a country entered the CM or EFTA, or when the EIB was providing loans in the chemical industry, Du Pont promptly entered the concerned country.

in 1948. His stances considered mostly the decolonization issue, which he considered as inevitable already in the early 1950s and about which he wrote numerous papers during the Indochinese conflict. Founder of L'Express at 29 years old. In 1953 he continued to write some denunciatory papers about the French army's exactions in South East Asia and Algeria. The Défi Américain was a massive success, translated into 15 languages, and a provocative pamphlet toward the French and European entrepreneurs and heads of states. The information coming from Servan-Schreiber's work must thus be understood as some with strong references but also as information from a provocative author. Nevertheless, this information is really relevant when I need to compare Du Pont's setup in Europe to other companies'. Servan-Schreiber, J.-J. (1967). Le défi américain. Paris, Denoël. 625 Ibid. 19-20, Bonin, H. (2009). American Business Spreading Modernity Into France. Equipment Goods and Mass Brands. Strategies, Identity and Perception (from the 1940s to the 1980s). American Firms in Europe, 1880-1980. Strategy, Identity, Perception and Performance. H. Bonin and F. De Goey. Geneva, Droz: 503-648. 607 626 The shareholders of this bank are the Common Market member states, and at present days, the support for an environmental sustainability and a sustainable, competitive, and secure energy supply are among the main tasks of the Bank. http://www.eib.org/

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54Table 5.6: Parallel between Du Pont's Investments in Europe and the European Economic Integration. Du Pont's Investments The European Integration 1957 The Treaty of Rome was ratified (RFA, Italy, France, Netherlands, Belgium, Luxembourg) 1958 Du Pont (Belgium) 1959 DISA (Geneva) Du Pont (Nederland) Du Pont (France) 1960 Du Pont Nordsika The EFTA was created (Austria, Denmark, (Sweden) Norway, Portugal, Sweden, Switzerland, Du Pont (Luxembourg) United Kingdom) 1961 Butachimie (joint venture - The EIB loaned $2 million credit funds for with Établissements the construction of a Progil-Bayer-Ugine Kühlmann in France) factory in France and Germany - Finland became an EFTA associate partner 1962 Acquisition of Adox Fotowerke (Germany) 1963 The EIB and the BIRD loaned $379 million to the Italian chemical industry 1964 Du Pont Italiana The EIB loaned again $20 million for Italian Du Pont Chemie manufacture of chemical products. (Düsserldorf) 1972 Denmark, Ireland, United Kingdom enter the EEC 1977 Du Pont (Portugal) - Fall of tariff between EEC and EFTA Du Pont (Norway) countries Du Pont (Finland) - A financial agreement between EEC and Du Pont (Denmark) Greece for a $55.8 million credit was Du Pont (Greece) passed Du Pont (Egypt) - A protocol between Egypt, Syria, Jordan and Israel and the EIB was passed - The EIB passed an agreement with Spain about credit funds 1979 Du Pont (Jordan) 1981 Du Pont Ibérica (Spain) Sources: Du Pont Annual Report, selected years, European Bank of Investments Annual Reports, selected years.

After having invested in France, Luxembourg, and Belgium, Du Pont invested in Sweden after the EFTA foundation in 1960. The next year, the EIB accorded a $2 million credit fund for the construction of a Progil-Bayer-Ugine chemical

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factory in France and Germany. In parallel, Du Pont proceeded to a joint venture with Établissements Kuhlmann in France and to the acquisition of Adox Fotowerke in Germany in 1962. In 1963 the EIB and International Bank for Reconstruction and Development (IBRD) loaned $379 million to the Italian government for the improvement of its chemical industry. During the next year Du Pont entered Italy as well. In 1977, after the fall of the tariffs between the EFTA and the EEC, Du Pont proceeded with a massive wave of investment in Europe: the company entered Portugal, Norway, Finland, Denmark, and Greece. Furthermore, in the same year the EIB passed a financial agreement with Greece for a $55.8 million funds investment in the chemical industry. In 1977 as well the EIB considered Egypt and Jordan as associated countries. Du Pont entered both countries in 1977 and 1981. Finally, when in 1979 the EIB passed an agreement with Spain, Du Pont opened its first Du Pont subsidiary in the ex- Franco Republic.627

During this considerable expansion, in 1962 Lammot du Pont Copeland succeeded Greenewalt as president of the company. Just after his inauguration as president, in 1963 Copeland noticed that the international expansion might be Du Pont's salvation after GM's divestment. Furthermore, he understood that it was more than necessary to follow the general trend of American FDI in order to remain in the race for the best performing American company.

"[…] the course we chart on world markets will determine, in part, the profitability of our enterprise. […] If we don't participate in the

627 European Union Archives, Florence, BEI procès verbaux de 1958 à 1980: BEI 1023 to 1232, BEI rapports annuels de 1958 à 1982: BEI 1 to 25. See also Du Pont Annual Reports for the aforementioned years.

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rapidly expanding markets abroad, we will soon be victims of economic isolation."628

In the American chemical companies' race abroad in the early 1960s Du Pont, indeed, was already in a backward position. In 1963, and as noted in Chapter Three, Dow Chemical was the first American company abroad with sale volumes: of its sales, 45% were made in foreign markets. The second most important seller abroad was Hercules, with 40% of its sales produced and sold abroad. Finally, Union Carbide and American Cyanamid came just after with 35% for the former and 33% for the latter. Du Pont came after these four companies and about 31% of its total sales were made in foreign countries. Du Pont continued to sell about 30% of its total volume to foreign countries during the 1970s, and in 1978 the volume of this 30% equaled $12 billion. Therefore, Du Pont was not the biggest seller abroad; however, its sales abroad were still an important contribution to its turnover.

Two investments in Europe were of major importance. The first investment was DISA, the subsidiary in Geneva, which supervised all the European investments, as well as all the sales abroad, and achieved in making Du Pont a company with a global corporate identity. The second investment of major importance was Du Pont in the Netherlands with its Orlon plant in Dordrecht. The subsidiary in Geneva was involved in the overall business of Du Pont abroad. In the Netherlands Du Pont had a supply oriented investment that had to bounce after the announcement in 1965 by Lyndon B. Johnson of its repatriation of capital policy.

628 Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 193.

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5.3.3. NEW CONDITIONS: DISA AND OTHER EUROPEAN INVESTMENTS

In 1959 W. S. Carpenter III expressed to the 46th National Convention for the External Trade in New York Du Pont's considerations concerning future FDI: first, to look for the host country's welfare; second, to decrease as much as possible the number of American expatriates in Du Pont's subsidiaries abroad; and finally, to look for local partnerships if necessary.629

Therefore, first, the International Department really made an effort to decrease the number of Du Pont's expatriates in Europe, as well as the Latin American branches. During the 1950s already, among the 6,500 employees of Du Pont's subsidiaries in Latin America, only 60 were American expatriates.630 In Northern Ireland where the first factory in Europe was set up in 1956, out of the 1,300 employees only 19 came from Wilmington. In Du Pont de Nemours (Belgium), the subsidiary created in 1958 that took care of building a factory in Malines, only 4 technicians were American, the other 120 employees came from Belgium directly.631 In Du Pont (Nederland) in 1959, of the 24 employees only 5 were American expatriates.632 In Geneva in 1960 only 30 expatriates were counted among the 150 employees.633 Du Pont systematically tried to hire as many local employees as possible. Nonetheless, the American expatriates generally took all the senior managing positions. In Geneva, David Williamson, a Swiss, was the first non-American to be elected president of the European headquarters, but only in 1990.

629 (1959, December 2). Déclaration d'un directeur de Du Pont. Entreprises américaines à l'étranger. Journal de Genève. Geneva: 4. 630 Number of local employees for 1959. Ibid. 631 Number of local employees for Artigue, P. (May 5, 1960). Investissements américains chez les Sixibid. 632 Du Pont (Nederland) Annual Report, 1959, 5. 633 (1960, June 16). Pourquoi Du Pont de Nemours s'est installé à Genève. Journal de Genève. Geneva: 4. 313

DISA

In 1959 Du Pont International S.A. (DISA) was founded in Geneva. Three of Du Pont's managers from Wilmington were sent to Geneva to set up the Du Pont European headquarters. They formed a board of directors composed of David H. Conklin, DISA's first chairman who was already the chairman in the UK expansion of 1956, and two Swiss representatives—Jean Dutoit and Henry Paul Brechbühl.634 Thus, DISA would coordinate all of Du Pont's activities in Europe.635 First, DISA was responsible for coordinating the marketing of most of Du Pont’s product lines in Europe. Second, DISA was the administrative service center for all of Du Pont's European subsidiaries, existing or forthcoming. As a marketing organization, DISA conducted market research and surveys, marketing training programs, and developed Europe-wide marketing and advertising programs. As an administrative service center, DISA provided advice and services to the other subsidiaries concerning financing, credit policies, employee relations, purchasing, transportation of materials, corporate public relations, and legal problems. DISA was also responsible for coordinating the business activities of the various subsidiaries and for making expansion and new investment recommendations.636 This is what Mira Wilkins considers as the elimination or reduction of the importance of the international division by adopting a "worldwide", "global", "cosmopolitan" organizational structure.637 This step was considerably new for Du Pont. In DISA, a top operating manager was responsible for all the activities of the company in Europe.

634 Archives from DISA, Some information on our European organization, February 1959, Public Relations Department. The names of the two other Du Pont managers sent to Europe are unspecified. 635 Since 1979, DISA became the headquarters for the region Europe-Middle East-Africa (EMEA) 636 Archives from DISA, Some information on our European organization, February 1959, Public Relations Department. 637 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 382.

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Plus, jointly with Headquarters, Du Pont opened a laboratory in Geneva in 1959. Both the DISA and the laboratory were located in two apartments in Geneva. The office evolved and already in 1960 employed more the 200 employees. The laboratory evolved until 1967 when Du Pont set up the first research and development center of Du Pont in Europe, which gathered in Geneva all the various laboratories that had been opened between 1959 and 1967.638 Margrit Müller emphasizes that in 1976, Du Pont’s subsidiary was among the largest American companies in Switzerland, considering the number of employees working for the headquarters and the R&D center: 1,000. This number was comparable to Eastman Kodak Company (973 employees in Switzerland), twice the number of Dow Chemicals (515), despite the fact that Dow had a more significant net income from foreign operations, and also twice General Motors number of employees (522). ITT was, at this point, the largest American employer in Switzerland.639

Du Pont (Nederland) and the Foundation of the Du Pont Europa Holdings

Du Pont de Nemours (Nederland) N.V. was incorporated by April 2, 1959. The subsidiary was formed with an initial authorized capital of Dutch guilders 11,500,000 ($3.05 million) consisting of 11,500 shares with a par value of 1,000 guilders per share. The corporate headquarters were located in The Hague with the opening of an office in May 1959. The board of directors of Du Pont (Nederland) was composed of: Walter S. Carpenter III, Lammot du Pont Copeland, David H. Conklin (Du Pont UK), W.D. Eaton (Du Pont UK), J. K. Jenney (Du Pont's executive committee), Russell R. Pippin (Du Pont's executive

638 Archives from DISA, Some information on our European organization, February 1959, Public Relations Department. 639 Müller, M. (2009). The Case of US Companies in Switzerland. American Firms in Europe, 1880- 1980. Strategy, Identity, Perception and Performance. H. Bonin and F. De Goey. Geneva, Droz: 105-128.117. 315

committee), L. S. Sinness (Du Pont's executive committee), A. E. Buchanan, A. H. Geil (managing director of Du Pont Nederland). Conklin, Eaton, and Geil were the only three who were located in Europe.640

Activities in the corporate office during 1959 were primarily those of hiring personnel, establishing initial accounting records, obtaining insurance coverage required during the period of plant construction, and various special studies to set up operations in the Netherlands.641 Efforts were mainly directed towards initial development of the market for Orlon,642 and, therefore, the subsidiary setup of the Orlon factory in Dordrecht.643 The plant was a supply oriented investment which distributed Du Pont’s products all over the common market countries.644

At the end of 1959, the first contingent of the construction force moved into Dordrecht to start building the Orlon factory. In 1959, to set up the Dutch subsidiary, Du Pont UK and DISA spent more than $2 million. Added to these funds Du Pont (Nederland) borrowed $20 million from the parent company; but things would change rapidly. In 1961 Du Pont (Nederland) again borrowed $6 million from Wilmington, and in 1962 another $3.6 million, and again in 1963 another $1.4 million. Since 1965 borrowings from the mother company became impossible for Du Pont’s European subsidiaries.645 Furthermore, Du Pont (Nederland) had to give some money back to Wilmington to contribute to the

640 Du Pont (Nederland) Annual Report, 1959, 5. 641 Still in 2004, Du Pont in the Netherlands was among the fifties most important American employers in the country, with 900 employees. Du Pont was the 34th employers, the first being Deloitte (7,300 employees), and the first chemical company being Dow Benelux (8th rank), with 2,236 employees in Terneuzen. De Goey, F. and B. Wubs (2009). US Multinationals in the Netherlands in the 20th Century: "The Open Gate to Europe". American Firms in Europe, 1880- 1980. Strategy, Identity, Perception and Performance. H. Bonin and F. De Goey. Geneva, Droz: 149-184. 184. 642 Orlon was a Du Pont trademark for an acrylic fiber. 643 Du Pont (Nederland) Annual Report, 1959, 1-2. 644 Interview with Greenewalt, January 19, 1983, Acc.1878, Series II, Box 2. 645 Du Pont (Nederland) Annual Report, 1959-1965. 316

American effort to recover a healthy balance-of-payments account. The program, launched by President Lyndon Johnson in 1965, consisted of decreasing the exit of U.S. dollars from the United States. The capital invested in foreign subsidiaries had to be diminished. Johnson went completely in reverse to Eisenhower’s policy of 1955. The American multinationals had to find funds for their subsidiaries. The Euromarkets became a solution to be able to finance the international development of American companies' subsidiaries.646 By May 1965 Du Pont (Nederland)'s board of directors announced the new directive:

"As a result of President Lyndon B. Johnson's request to American business leaders to assist the United States in solving its balance- of-payment problems by improving the balance of payments of their respective companies, the parent company has indicated its desire to have Du Pont de Nemours (Nederland) N.V. repay its outstanding loans of $8.8 million to the parent company during 1965 or 1966. In order to be able to do this and still have sufficient funds to finance our normal operations’ plan and extensive construction program, it will be necessary for Du Pont (Nederland) to obtain some additional funds through outside borrowing. The first assistant treasurer of the parent company [H. W. Evans] has suggested that in order to ensure that sufficient funds will be available to meet the needs of this subsidiary, authority [has been] granted to its management to borrow up to $12 million from local sources. […] an arrangement has tentatively been made with two local banks to obtain a portion of the funds required."647

646 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 343. 647 Du Pont (Nederland) archives, Dordrecht, board of directors advice, May 14, 1965. BOD Files – 65.

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Following the above announcement, Du Pont (Nederland) and other European subsidiaries started borrowing important amounts of capital from European institutions. In 1965 the subsidiaries in Europe borrowed $33.5 million from various European institutions; in 1974 it had already risen to $569 million. After 1974 borrowings varied from year to year, but always remained above $100 million per year.648 Still, in 1965, and in order to manage these borrowings, Du Pont founded a holding subsidiary in Luxembourg: Du Pont Europa Holdings S.A.

The 1965 Annual Report of Du Pont (Wilmington) stated that the expansion program in Europe was being financed largely from cash generated by the subsidiaries involved and foreign borrowings. The financial arrangement included some bank borrowings and a $25 million bond issue denominated in Deutsche marks, by a newly founded subsidiary Du Pont Europa Holdings S.A. in Luxembourg. This subsidiary had to manage Du Pont's capital in Europe. The funds from the new holding company were not offered to American investors. The report stated that:

"Despite the lower export sales levels, the efforts cited above to reduce the outflow of capital funds from the United States coupled with other steps taken during the year resulted in the company having a favorable balance-of-payments for 1965 that was essentially the same as achieved in 1964. Over the past 10 years, the company's foreign business has produced a favorable balance- of-payments exceeding $1.5 million."649

Already in January 1966, the London Times titled "Bonds Across the Sea"650 emphasized how the phenomenon became important among the biggest

648 Du Pont Europe, Annual Reports for the concerned years. 649 Du Pont Annual Report, 1965, 22. 650 (1966, January 14). Bonds Across the Sea. The Time. New York: 2. 318

American multinationals. The big businesses were looking for capital that became difficult to raise in the United States when it was intended to be spent abroad:

"[…] Socony Mobil, U.S. Rubber, General Electric, Gulf IBM, and Du Pont have floated bond issues in Europe. Altogether they raised $297 million, or a quarter of all the world's bond money gathered outside the United States during the year; between bonds and bank borrowing, American companies accounted for the largest share of Europe's financial activity. In 1966 U.S. firms expect to spend about $1.5 billion on European expansion, and at least 30 companies intend to try the overseas-bond-financing technique."651

Thus, the American companies got the capital necessary for their expansion and, added to that, the "best part" as the Time wrote was that the bonds were tax-free if issued through specially chartered holding companies.652 Hence, Du Pont Europa Holdings was founded in 1965. In 1967 the holding already borrowed Sfr60 million from Swiss institutions with a security deposit from the mother company for the repayment of the capital and interests. These funds were allowed to Du Pont Europa for development of the Du Pont European businesses. The Swiss institutions were the most important which contributed to loan money to Du Pont Europa Holdings: the Société de Banques Suisses, the Unions de Banques Suisses, and the Crédit Suisse. The executive committee of Du Pont Europa Holdings was chaired by H. W. Evans, the first assistant treasurer in Wilmington.653 Du Pont was not the only big business to have proceeded to founding a holding company in Luxembourg. Since 1965 Mobil Oil,

651 Ibid. 652 Ibid. 653 (1967, October 23). Du Pont Europa Holdings S.A. Luxembourg. Journal de Genève. Geneva: 7- 9, (1969, August 12). Du Pont Europa Holdings S.A. Luxembourg. Journal de Genève. Geneva: 3, (1970, August 13). Du Pont Europa Holdings S.A. Luxembourg. Journal de Genève. Geneva: 6, (1971, September 2). Du Pont Europa Holdings S.A. Luxembourg. Journal de Genève. Geneva: 6-9. 319

Uniroyal, Bankers Trust, Alcoa, Honeywell, ITT, and Standard Oil had achieved the same investment in the Duché. The operation was easy and only took a few days, according to the Time, with an investment of only 1% of the initial capital.654 Therefore, as seen in introduction to this section, the increasing number of U.S. FDI in Europe proves that the European integration phenomenon was a strong incentive to invest, stronger than the barrier to investment formed by the Johnson’s policy to repatriate U.S. dollars.

654 (1967, November 17). Happy Holding in Luxembourg. The Time New York: 2.

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CONCLUSION TO CHAPTER FIVE

In 1965, with headquarters in Geneva and a European holding that managed all the European activities—soon the European, Middle East, and African activities—the Du Pont Company became global. It then had production, distribution, research, and management organization that outpaced the American borders. Since the 1930s Du Pont had already completely stopped investing in explosives manufacturing in foreign countries. This chapter has also shown how much Pierre and Harry McGowan's relationship had mattered during the first half of the 20th century; it was still important in Argentina and Brazil and it continued until 1953. In 1954 Pierre died and, in addition, the joint investments between both companies did not exist anymore. This brought major changes in Du Pont's investments in Europe. After the war Du Pont had stopped—even if slightly forced by the American Justice System—investing abroad with its main historical partner Imperial Chemical Industries. Therefore, this chapter presented the final major changes abroad for the company concerning its products, partners, and its entry modes. Du Pont was then a diversified company. It invested in diversified products and always considered the cost of investing in the host market as well as the needs of the host market. The company’s subsidiary had become supply oriented, contrary to the powder investments that implied a restricted market. Finally, Du Pont mostly chose Greenfield investments to enter new markets; first, as mentioned, it had lost its historic partner and second, probably of lesser importance, the firm still feared the consequences of a partnership in front of the American Justice System. However, I want to moderate this second possibility, as in 1981 Du Pont had already proceeded toward the largest merger to date with an American company—the Du Pont-Conoco merger.655 At the end of this chapter the modern

655 Conoco was an American oil company; both Du Pont and Conoco acquired slightly more than 30% of each company’s stocks. Du Pont divested from its shares in Conoco in 1999, because the Bronfman family – largest stockholders of the Seagram group and owners of Conoco – and the du 321

company described by Chandler in 1977 had become a global modern company, and as seen, the du Pont family was deeply involved in all the activities pertaining to the company’s FDI. The family was involved in the discussions about Du Pont entering Latin America jointly with ICI, they had the most important voice in the International Department since 1958, and they participated on the board for some of the foreign investments, like in Dordrecht. Therefore, the family is inseparable from the company’s internationalization.

Pont family were incapable of agreeing on the most important topics. Through the merger Du Pont became one of the ten largest American-based oil producers. Du Pont acquired Conoco's assets for $7.5 billion.

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CONCLUSION

In 1902, a speech from an employee of the Du Pont Company during the one hundred year anniversary of the company went as follow:

"[…] the record of one hundred years in the manufacture of gunpowder made by the Du Pont Company as a family is also shared with pride by many of the employees whose fathers and grandfathers have been identified with the history of the works. As one generation after another passes away, the record left by them has always been honesty, bravery, and kindness from the du Pont family and loyalty and love from their employees."656

After having heard this speech and because the company was on the verge of being acquired and reorganized by the three cousins, Pierre added: "Gentlemen of the old firm, who have been our leaders and friends for so many years, we are sorry that you are leaving us, for we will miss you." Then, he turned to Coleman and said, "What the new company will do of course we do not know, but let us hope that after one hundred years more, as much good can be said of them as is said today of Du Pont for the past century."657

This dissertation has in no way considered what good or not should be said about Du Pont one hundred years after this anniversary. However, this dissertation has demonstrated that during the 20th century Du Pont had equally been a growing manufacturing company, a partner of choice for the largest chemical industries, European or American, as well as the head of a number of cartels denounced by the American Justice Department on various occasions (in 1912, 1953, and 1957), and finally a merchant of death – in the words of the Nye

656 du Pont, B. G. (1920). E.I. du Pont de Nemours and Company: A History 1802 to 1902. Boston, Houghton Mifflin Company. 163. 657 Ibid. 164.

Committee in 1934. My work intended also to demonstrate – and hopefully has – that the company was a family business since its foundation until the late 1970s, and that during the entire process of internationalization that led the company to become a global corporation, it was owned and managed by the du Pont family. The family had, even more, been a major agent of this process. Therefore, the main conclusion of my dissertation is that a large American manufacturing company managed to remain owned and controlled by the founding family during the 20th century, and that this family expanded the company's activities abroad. Therefore, the following conclusion wants to stress, in two sections, how Du Pont remained a family controlled business (section 1) and how it went abroad (section 2). In both these sections this conclusion emphasizes first the misconception of the du Pont family’s way of managing the company – which was much more opportunistic than considered by the existing literature – and second, the relation between the internationalization of the company and the fact that it is family driven.

1. A FAMILY FIRM

Family control of a business is defined by two main factors: the ownership, which might be sufficient to ensure control of the votes in the company, and the positions held in the senior management. About the management, I stress in the Introduction that Freeland's interpretation of family control states that the owning of capital, added to control of the finance committee in an American corporation, locked the control of the entire company by the family.658 Concerning Du Pont, the family remained the principal owner of the company both by owning the voting stock, as individuals, and also through an intricate network of holdings.

658 Casson, M. (2000). Enterprise and Leadership, Studies on Firms, Markets and Networks. Cheltenham, Elgar, Freeland, R. F. (2001). The Struggle for Control of the Modern Corporation. Organizational Change at General Motors, 1924-1970. New York, Cambridge University Press, ibid, Colli, A. and M. Rose (2009). Family Business. The Oxford Handbook of Business History. G. Jones and J. Zeitlin. Oxford, Oxford University Press. 324

From 1802, the ownership of Du Pont evolved considerably, naturally. During the first ten years the du Ponts acquired the shares of their company that were owned by the initial investors in the Brandywine Mill. Already in 1815 both Eleuthère Irénée and Victor du Pont were the sole owners of the company. Until 1902 their shares were transmitted to their heirs, and were never offered to any outsiders of the family; in addition, the shares were not listed on any stock market. In 1903 Alfred, Coleman, and Pierre du Pont acquired all the assets of the Du Pont Company, founded Du Pont Powder, and consolidated equally the assets of the Du Pont Company, as well as the assets of most of the American chemical companies into the powder company. The stocks of the 1903 corporation were then 57% (at least) owned by the family, Coleman being the most important owner with 14.4% of the voting stock.

The ownership did not evolve much until 1915, when Coleman decided to sell his stock in the powder company. At that point Pierre made what was understood as a coup by some members of the family. With a group of relatives he founded a syndicate, which secured a loan from the major banks of the early 20th century (mostly with J. P. Morgan & Company) and acquired the stock with this money. Afterward, the same syndicate founded a holding company E.I. du Pont de Nemours & Company, and led a process of consolidation of all the assets of Du Pont Powder into it. The syndicate – organized through the holding Du Pont Securities, later renamed Christiana Securities – owned about 30% of the company. This owning remained unchanged until 1977 when the family holding Christiana Securities was merged with Du Pont. After that it is estimated that the family still owned about 15% to 20% of the voting stock.

Finally, concerning raising of the capital, it had been demonstrated that the company used its voting stock cautiously and that the call on the market was rarer than the need for capital due to the company's expansion. The voting stock mostly capitalized small investments at home, and the pension funds. Therefore,

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during the two centuries partly studied in this dissertation, there is no reason to consider that the Du Pont Company was not owned by the founding family.

Alfred D. Chandler is more rigid concerning the management of the company. He considers that in 1977 the du Ponts had left the senior management (at the moment when the Visible Hand was published). As mentioned, Pap Ndiaye finds the end of the dynasty even earlier, in 1940 when Lammot du Pont resigned from presidency.659 My dissertation is thus in contradiction with Ndiaye, and tends to moderate Chandler’s view. First of all, the CEO of the company had nearly always been a du Pont. Since 1802 until 1940, there is no question about this point. In 1940 Walter S. Carpenter became president. As he was the brother of a brother-in-law of Pierre, he was considered as family. In 1948 Crawford Greenewalt was married to Irénée's daughter. The anecdote even says that Greenewalt did not feel ready for the task; he wanted that Carpenter stay longer at the position. However, it was Irénée who asked him to present himself in front of the stockholders, to be appointed as president. The son-in-law could not refuse the ex-Du Pont president's request.660 In 1958 Greenewalt pulled his nephew Lammot du Pont Copeland "off" the finance committee and pulled him "on" the executive committee:

"Now Mots, you've got to serve on the executive committee if you're going to be a candidate for president, because that's the only way you'll become known to the organization, and that's the only way that anybody can appreciate whether you've got it or not."661

In 1962 Lammot du Pont Copeland became president. He was succeeded in 1967 by Charles B. McCoy, whose sister and son were du Ponts by marriage.

659 Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press, Ndiaye, P. (2001). Du nylon et des bombes, Du Pont de Nemours, le marché et l’Etat américain, 1900-1970. Paris, Belin. 660 Interview with Greenewalt, January 19, 1983, Acc.1878, Series II, Box 2.

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Irving Shapiro was elected president in 1973. He was the first president who was, by no means, related to the family.

Second, after 1921 the M-Form was employed by Du Pont and, therefore, the stockholders (in majority the family) nominated the board of directors and a president, which elected a finance and an executive committee. In addition, from 1921 the senior managers decided to give the preeminence of all decisions to the finance committee: the committee could thus veto the decision of the president or the executive committee. From that point, and following Freeland's thesis, the du Ponts managed to keep an important number of seats in the strategic finance committee from 1915 (75% of the seats) until the late 1970s (67%), as shown in Table 3.5. However, this decision-making power supremacy devoted to the finance committee cannot be clearly read in the day-to-day decisions taken by the various organs of the company. Nevertheless, the way the capital was issued and used, as mentioned, demonstrates a clear will to keep strong control over the company. In addition, since the 1920s the du Ponts on the finance committee decided to give a growing importance to investments for R&D, as Hounshell and Smith’s table (3.18) shows. This choice led to an increase in Du Pont’s activities into diversified fields, which was a clear advantage for the company during the depression years in the late 1920s. Finally, the finance committee also took the decision to invest in foreign activities that needed low capital investments. This decision again permitted the company to not divide the family control of the company.

Third and finally, there has been a considerable succession of du Pont fathers and sons, as well as brothers, in the top committees from 1902 until the 1990s, at least. Therefore, in considering the ownership and management of the company, the conclusion that the family controlled the business from its founding until being a big global business in 1980, at least, was helped through the

661 Interview with Greenewalt, January 19, 1983, Acc.1878, Series II, Box 2. 327

considerable number of descendants who were still on the boards and finance committee until the late 1990s.

However, in the end the question of timing is probably less important than the fact that this dissertation points out that Chandler, as also revealed by Freeland concerning GM, misunderstood Du Pont’s management. In the Visible Hand he considers that Du Pont’s management – by family members and middle- managers selected by the family already in 1917 – was efficient in the “coordination and monitoring of current production and distribution of goods and the allocation of resources for future production and distribution.”662 According to Chandler, the managers performed in the administrative coordination and were innovators in their field. Du Pont’s top managers were so efficient because they defined “more precisely the duties of the senior executives of the functional departments, those directly responsible for the performance of the middle- managers, by instituting sophisticated accounting and other control systems; […].”663 At this point in history already, where Chandler sees that “few American industrial enterprises had [since 1917] as modern a management as Du Pont,”664 I see that the family chose ways to keep control over its management and took decisions in reaction to issues that were encountered rather than being proactive to them. Actually, this dissertation moderates Chandler’s argument by demonstrating that the du Pont family management was rather opportunistic, especially in its internationalization process. Indeed, the du Ponts worked with their network of friends and counterparts; they were reactive to their propositions and strategies and took decisions that were sometimes properly unsound from an economic perspective, as seen in the Chilean adventure and again in Cuba.

662 Chandler, A. D. J. (1977). The Visible Hand: The Managerial Revolution in American Business. London, The Belknap Press of Harvard University Press. 449. 663 Ibid. 450 664 Ibid. 450

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2. PATTERNS OF INVESTMENTS ABROAD

The only work devoted to Du Pont's internationalization is Taylor and Sudnick's book of 1984, which considers that Du Pont's pattern of investment was developed by emphasizing the partnerships that the company had developed with other major chemical companies:

"When entering a new field, Du Pont would identify the leading technical innovator, and then approach that enterprise not only to acquire patent rights, but also to procure assistance in every phase of production, usually through a joint venture arrangement in which Du Pont managers were quickly integrated with the partner firm. If the venture paid off, Du Pont would buy out its partner or at least extend its position to ensure a majority share of the business."665

This quote by Taylor and Sudnick gives the erroneous impression that Du Pont was upstream to other major chemical companies from propositions of investments abroad, whereas actually the former investments of Du Pont in Canada, Chile, and Mexico proved that the first steps of becoming an international company were firstly rather shy, as Mira Wilkins underlines, and secondly that Du Pont’s senior managers were not the heads of these investments.666 Again, the literature here misunderstands how Du Pont’s managers behaved: they were reactive to their environment – they sometimes even suffered from the exogenous events (the end of the First World War, the international competition, the American chemical companies growth) – and were opportunistic. In a sense it is possible to consider that Du Pont proceeded nearly as an international business would and in a manner that the business history

665 Taylor, G. D. and P. E. Sudnik (1984). Du Pont and the International Chemical Industry. Boston, G.K. Hall & Company. 86. 666 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 78. 329

literature considers small and medium sized family firms do—with risk aversion.667 First, in a general manner Du Pont followed the Uppsala process of internationalization (exports – sales offices – manufacturing activities).668 Second, Du Pont was passive in its gestures abroad; it was Harry McGowan who convinced Pierre to join his stance on Canada and to defend it in front of the senior management of Nobel in London. It was also McGowan who convinced Pierre about Chile. In Mexico Du Pont was harassed by many investors, as well as by the company that owned the Compañia, and finally Irénée was convinced to enter the country 23 years after the first propositions were made to Du Pont's senior management.669 However, and here contrary to the existing literature when considering the unsoundness of some of these investments, Du Pont does not appear as cautious or risk-averse in the end: the managers were ready to take some risks once it was proposed by a top executive in whom they trusted, namely Harry McGowan. Therefore, I also consider Du Pont’s management otherwise than Taylor and Sudnick do.

Third, Chapters Four and Five emphasizes the relation between the family and internationalization. There were two waves of internationalization in the company, the first during the 1920s and the second during the 1960s. As far as the first wave is concerned, Du Pont went abroad mostly with the partners the manager had chosen: the relation with Nobel – and afterwards with the same managers in Imperial Chemical Industries – was obvious and it is also clear that it was borne from the relation that Pierre and Harry McGowan had initiated.

667 Ward, J. L. (1997). "Growing the Family Business: Special Challenges and Best Practices." Family Business Review 10(4): 323-337, Claver, E., L. Rienda, et al. (2009). "Family Firms' International Commitment: The Influence of Family-Related Factors." Family Business Review 22(2): 125-135. 668 Uppsala model Johanson, J. and J.-E. Vahlne (1977). "The Internationalization Process of the Firm-A Model of Knowledge Development and Increasing Foreign Market Commitments." Journal of International Business Studies 8(1): 23-32. 669 In Kontinen and Ojala’s 2010 article, family-managed businesses are generally understood as reactive than proactive in the internationalization, which fits Du Pont’s process. Kontinen, T. and

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Concerning the second wave, which occurred during the 1960s, Chapter Five clearly underlines the role played by Crawford Greenewalt. He wanted to again start a process of internationalization in order to not be outpaced by the other American chemical companies, which were more interested in the foreign markets than Du Pont was during the 1950s. Thus, after some conservative executives left the company (A. B. Echols, among others) in the late 1950s, Greenewalt launched an important campaign in favor of international investments. At this point he had to convince the executive and finance committees that the failures from the past (Duco) would not be reiterated in the future, that the future investments abroad would be smarter. To build his project he involved other family members: Walter Carpenter III and Lammot du Pont Copeland. Of note, Lammot du Pont Copeland was the president of the finance committee when Greenewalt launched the project. Therefore, the real incentive for the second wave definitely came from the family. The direct relation between the family’s control over the management and internationalization appears clearly. In the end Du Pont became a global company.

The fourth characteristic of Du Pont’s investments abroad is that the company chose to invest in limited capital resource investments.670 All its investments abroad before the Second World War were financed by retained earnings, or sometimes with banks. In the aftermath of the conflict Du Pont's foreign investments were firstly mostly financed with retained earnings – whereas few investments were capitalized by stock issued on the market (Berg Electronics acquisition, for example) – and secondly, with capital issued by a European holding company that called on European investors to raise capital necessary for the investments in the EMEA region. It can be related to family businesses’ risk aversion toward foreign direct investments, but it can also be considered that

A. Ojala (2010). "The Internationalization of Family Businesses: A Review of Extant Research." Journal of Family Business Strategy 1: 97-107. 104. 670 Ward, J. L. (1997). "Growing the Family Business: Special Challenges and Best Practices." Family Business Review 10(4): 323-337. 331

international investments were not a necessary investment for Du Pont: the company had caught up quickly during the 1920s from the economic crisis borne from the First World War, and not because of its FDI. During the 1950s the development of Teflon and nylon both assured sales that increased the net income to a level that was truly good, without obligation to internationalize. Therefore, Du Pont’s foreign investments both during the 1920s and during the 1960s were opportunistic investments, achieved in order to “occupy the market,” to keep a worldwide position of chemical leader rather than for the potential profits it brought to the company. The “not audacious” investments described by Mira Wilkins can thus be understood as investments that were not truly necessary, but which the family undertook in reaction to exogenous factors.

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2.1. PARAMETERS THAT MATTERED

Du Pont entered foreign countries from 1910. This dissertation presents most of the parameters that led the company to invest abroad, with a clear reference again to Mira Wilkins’ Comparative Hosts article.671

As for any multinational company, the market to which Du Pont would have to sell its production, the powder or other chemical products, always mattered: Du Pont always calculated the cost of the investment in comparison with the cost of exporting, in regard to the scale at which Du Pont would have to produce in the country in order to have a cheap manufactured product in the end, and whether the company would be able to actually sell the production. In Chile Du Pont refused the investment in 1917, before McGowan entered the negotiations, precisely because it could not sell its production to the small market of the country. In contrast, in the Common Market countries, Greenewalt emphasized while he was president that in Holland the Orlon manufacturer aimed to sell the production outside the country, and was thus clearly beneficial to Du Pont:

"The amount of the output of that plant that we could sell in Holland, we could put in our eye, but we could sell all over Europe because the Common Market removed the barriers. That was the first opportunity we had to make a pitch abroad."672

The second parameter of importance concerned the host government’s conditions. First, concerning explosives manufacturing, Du Pont had always been invited – at least welcomed, as in Mexico – by the host government. This was true for Chile, Cuba, and Argentina (even though Du Pont did not invest in

671 Wilkins, M. (1994). "Comparative Hosts." Business History 36(1): 18-50. Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 672 Interview with Greenewalt, January 19, 1983, Acc.1878, Series II, Box 2.

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these countries in the end with powder investments). The political, social, and economic environments were also of importance; for example, were there anti- American feelings? In what way did tariffs exist, and how did they benefit Du Pont? The other way around, Du Pont was also considerably influenced by the American government in its foreign expansion, whether or not it was for the better. In Mexico Du Pont waited for the U.S. government's recognition of Obregon's government and in Cuba Irénée fought toward the Smoot-Hawley tariff bill in order that Irénée was able to succeed in the investment. In Europe Du Pont firstly followed the American recommendation concerning explosives investments, secondly was motivated by the Eisenhower policies concerning the FDI, and finally reacted quickly after Lyndon B. Johnson asked for the repatriation of dollars invested abroad.

Even more, concerning the family’s connections with the American government, Chapter Three emphasizes the relations that the du Ponts had since the early nineteenth century with Washington – as well as with the authorities from Delaware. Indeed, the family had strong connections with politics, whether it was with the successive secretaries of war (Elihu Roots, Newton D. Baker) or when they supported some presidential campaign (Al Smith in 1928) or, again, in their open struggle since 1918 with the Prohibition Amendment (through the Association Against the Prohibition Amendment), and since 1933 against the New Deal through the American Liberty League. Through these involvements in politics the du Ponts were also connected to other industrialists and financiers who shared the same political principles: politic was another playground for the family. Again, the du Ponts’ behavior toward politics was rather opportunistic as they successively supported some Democrat candidates (Al Smith, a “wet” candidate) and afterwards some Republicans (when they were openly opposed to Franklin Delano Roosevelt). However, despite the clear connections between the family and some influential members of the American government, Du Pont’s archives and this dissertation do not provide real evidence that these

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connections favored Du Pont’s success in the United States or abroad, outside from the important sales resulting from both World Wars.

2.2. Entry modes

Concerning entry modes, Du Pont mostly used joint ventures before the Second World War and Greenfield investments in its aftermath.673 That follows what Mira Wilkins states for the pre-Second World War period, whereas it is in contradiction with the fact that she underlines that between 1955 and 1970 American companies continued to expand abroad through joint ventures.674 In Du Pont's case, the change is mostly related to the loss of its major and historical partner, Imperial Chemical Industries, following the antitrust suit of 1953.

Du Pont evolved in its entry modes, as well as in the products it exported. Mira Wilkins emphasizes that large American companies had considerably diversified their activities after the Second World War, compared to the kinds of products they manufactured before. Therefore, the international investments were also influenced by this diversification.675 This again completely fits Du Pont's FDI. Du Pont exported its explosives manufacturing facility before it exported its rayon manufacturing, then nylon, Orlon, and Teflon factories.

673 Franko, L. G. (1989). "Use of Minority and 50-50 Joint Ventures by United States Multinationals during the 1970s: The Interaction of Host Country Policies and Corporate Strategies." Journal of International Business Studies 20(1): 19-40, Binda, V. (2009). Foreign Direct Investments and National Business Systems: The Joint-Ventures’ Role in Italy and Spain during the Second Half of the Twentieth Century. XVth WEHC, FDI and European Integration, 1945-2000. Utrecht, Kent, D. H. (Jul., 1991). "Joint Ventures vs. Non-Joint Ventures: An Empirical Investigation." Strategic Management Journal 12( 5): 387-393. 674 Wilkins, M. (1975). The Maturing of Multinational Enterprise: American Business Abroad, From 1914 to 1970. Boston. 382. 675 Ibid. 383

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All these aspects - the attention brought to the market as well as to the host and home governments, the entry modes by joint ventures first and evolution of the goods produced abroad from one to a complete range of diversified goods – are probably common to most multinational companies. In this sense, the first point of this dissertation emphasizes how the behavior abroad of a large family controlled business can be common to other small and medium sized family businesses (especially concerning the limited capital and the risk aversion) and also to other large multinationals.

However, there is an aspect specific to Du Pont, which can be found in other companies, but to which the business history literature is rather taciturn—the network. Du Pont entered countries through joint ventures, as many other companies did. But, in Du Pont’s case most of the investments abroad between 1910 and 1953 were achieved and operated jointly because Pierre du Pont, or one of his brothers, had negotiated the investment with Harry McGowan from Nobel. This is something that the literature (Taylor and Sudnick) about Du Pont abroad gives a shy impression, but does not stress firmly. Besides McGowan, there is another network of industrialists and bankers, but mostly bankers, involved in General Motors' senior management and ownership, which largely surrounded Du Pont in some foreign investments, as well as expansion at home. The J. P. Morgan & Company's partners loaned money to Pierre's syndicate in 1915, but they also managed Du Pont's business of war with the Europeans. The bankers from the Guaranty Trust, who sat on General Motors’ board, helped Pierre's syndicate enter the Cuba Cane Sugar Corporation in 1916. Between 1918 and 1924 the work of the J. P. Morgan & Company, as well as Guaranty Trust's partners in the International Committee of Bankers for Mexico, permitted the country to receive recognition from the U.S. government. Some of these bankers also discussed directly with Pierre about the investment in the Compañia.

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Therefore, for all the first steps of Du Pont's senior managers outside the United States, either in vast export activities, in personal investments abroad, or in the achievement of an investment in a foreign country, a network of bankers and industrialists surrounded and helped the family "as best as they could"676. This was often mentioned in the letters to Pierre and his successors. This dissertation thus hopes to be a valuable contribution to the literature on networks and family firms in foreign countries.677

676 Archives HML: N. D. Jay to Bernard S. Carter (two J.P. Morgan & Company’s partners), August 21 1946, Acc. 542 Series II Part 2, Box 832. 677 Casillas Bueno, J. C., A. M. Moreno Menéndez, et al. (Dec. 2010). "Internationalization of Family Business: A Theoretical Model Base On International Entrepreneurship Perspective." Global Management Journal 3(2). Lamoreaux, N. R., D. M. G. Graf, et al. (2003). "Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History." The American Historical Review 108(2): 404-433.

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APPENDIXES

Appendix 1: Companies merged in Du Pont Powder in 1903 and 1904

Aetna Powder Company Forcito Powder Company of Oliver Dynamite Company NJ American Forcito Powder Forcito Powder Company of Oliver Powder Company Manufacturing Company NY American Storage and Giant Manufacturing Company Oriental Powder Company Delivery Cy American Storage and Gas Belt Torpedo Company Oriental Powder Mills Delivery Cy Anthracite Powder Company Globe Powder Company The Oliver Mills Atlantic Dynamite Company Hazard Powder Company Pennsylvania and Kansas of NJ Powder Cy Atlantic Dynamite Company Hercules Powder Cy of DE Phoenix Powder Mig. of NY Company Atlantic Manufacturing Hercules Powder Company of Pennsylvania Torpedo Company NY Company Atlantic Ridge Powder Henniess Torpedo Company Pennsylvania Powder Company Company Birmingham Powder Hecla Powder Company Repauno Chemical Company Company of DE Bradford Glycerine Company Hecla Dynamite Company Repauno Chemical Company of NJ Brooklyn Glycerin Joplin Powder Company Repauno Manufacturing Cy Manufacturing Company California Powder Works Judson Dynamite & Powder Rock Glycerine Company Cy California Investments King Mercantile Company Rockeby Realty Company Company California Vigorite Powder Arthur Kirk & Sons Company Robin Fume Company Company Chatanoonga Powder Laflin and Rand Powder Rushdale Powder Company Company Company Clinton Powder Laflin Rand Powder Company Schagticoke Powder Manufacturing Cy Company Clinton Dynamite Company Laflin Powder Company of NJ Shanandoha Powder Company Columbia Powder Company Lake Superior Powder Julius Smith Electric Cy Company Connecticut Powder Mahoning Powder Company Standard Explosives Company Company

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California Powder Company Marcellous Powder Company Sterling Dynamite Company E.I. du Pont de Nemours & Metal Cap Manufacturing St-Mary's Torpedo Company Cy Company Eastern Dynamite Company Metropolitan Powder Company A.S. Powder Manuf Cy Eastern Powder Company Mr. Wolf Dynamite Company Thompson Torpedo Company Electric Explosives Company Moonarch Powder Company United States Dynamite Cy Empire and Americas Moosic Powder Company United Powder Company Glycérine Cy Enterprises High Explosives J. Macleb & Company Utah Powder Company Cy Enterprises Pwdr Manuf. Cy National Torpedo Company H.A. Weldy Powder Company Explosives Supplies Northwestern Powder Weldy Dynamite Company Company Company Fairmont Powder Company New York Powder Company of Western Torpedo Cy NJ Fermont Powder Company New York Powder Company of York Company NY Findlay Glycérine Company Ohio Powder Company Sources: Author's analysis based on Du Pont Annual Reports

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Appendix 2: List of increases in debenture and preferred shares, as well as common shares (1915-1980)

Shares of Shares of Shares of Shares of pref. stock common debenture common stock stock stock 1915 607,740 588,542 1941 1'688'850 11'122'512 1920 608,139 633,783 1946 2'688'850 11'121'962 1922 684,112 950,609 1948 2'688'850 44'833'628 1925 684,297 1,330,829 1952 2'688'850 45'297'567 1926 799,268 2,661,658 1954 2'368'850 45'604'345 1927 803,643 2,661,658 1961 2'368'850 45'972'696 1928 928,112 2,811,050 1964 2'368'850 46'005'490 1929 995,319 9,838,675 1966 2'368'850 46'075'907 1930 995,331 10,339,243 1973 2'368'850 47'801'161 1931 1,093,831 11,065,762 1974 2'368'850 47'987'23 5 1939 1,688,850 11,065,762 1976 2'368'850 48'291'70 8 1940 1,688,850 11,065,762 1977 2'372'594 48'362'51 5 1978 2'372'594 48'042'06

4 1979 2'372'594 144'657'4

54 1980 2'372'594 146'553'5

Sources: Du Pont Annual Reports and Moody’s selected years

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Appendix 3: Most important voting stockholders in Du Pont in 1950

Most Important Owners (Family) Number of Most Important Owners (others) Number of Shares Shares Walter S. Carpenter (Chairman) 46,251 Walter Beadle (Ex.Com) 6,908 Emile F. du Pont (Board of Directors) 2,428 Donaldson Brown (Fin.Com.) 20,000 Eugene du Pont (Board of Directors) 203,202 J. Thompson Brown (Fin.Com.) 49,251 Eugene E. du Pont (Board of 164,896 Charles .A. Cary (Ex.Com.) 2,600 Directors) Henry F. du Pont (Board of Directors) 170,500 Jasper Crane (Board of Directors) 17,152 Henry F. du Pont & As. 10,844 Walter Dannenbaum (Ex.Com.) 18,668 Irénée du Pont (Board of Directors) 12,000 A.B. Echols (Ex.Com.) 9,056 Irénée du Pont & As. 144,288 James B. Eliason (Board of 28,912 Directors) Lammot du Pont & As. 57,636 William F. Harrington (Board of 64,300 Directors) Lammot du Pont (Board of Directors) 20,056 J. Warren Kinsman (Ex. Com.) 2,304 L. du Pont Copeland & As. 203,252 Claire R. Mudge (Board of Directors) 31,552 L. du Pont Copeland (Board of 138,300 Frederick W. Pickard (Board of 13,168 Directors and Fin.Com) Directors) Pierre S. du Pont (Hon. Chairman of 32,896 Edmund C. Robinson (Board of 29,880 the Board) Directors) Pierre S. du Pont III (Board of 6,540 Alfred P. Sloan (Board of Directors) 4,000 Directors) William du Pont, Jr. (Board of 98,900 Charles M.A. Stine (Board of 19,386 Directors) Directors) Crawford Greenewalt (Chairman) 4,236 William B. Ward (Board of Directors) 3,092 Harold C. Haskell (Board of Directors) 10,000 Frederic A. Wardenburg (Board of 52,668 Directors) Harry G. Haskell (Board of Directors) 200 Roger Williams (Board of Directors) 5,200 John McCoy (Board of Directors) 9,000 Leonard A. Yerkes (Board of 8,000 Directors) Christiana Securities 12,199,200 Delaware Realty Investment 1,217,920 Delaware Trust Company678 1,162,588 Total 15,882,237shs Total 386,097sh (among s 44'832'312 (among common shs 44'832'312 common shs) Sources: (1950, March 26)

678 The Delaware Trust Company was incorporated in July, 1910. In 1950 it gathered 110 employees and 262 stockholders. Since 1928, William du Pont headed the Trust and the Board of Directors included several du Ponts. Moody's Banks – Insurance Companies, Delaware Trust, 1928, 1580-1581, 1950 547-548. I consider that the Du Pont common stock owned by the Delaware Trust as part of the family assets as the Board of Directors as headed by William du Pont. 342

Appendix 4: Family tree

Henry Bush Alexis I. Eleuthera Joanna McCoy's sister

Ethel Greta Barksdale

Victor M. Charles I. Victor Hamilton M. Barksdale Donaldson Brown

Eleuthère Irénée II Alfred I.

Antoine du Pont T. Coleman du Pont Ellen Coleman

Mary A. Belin W. W. Laird Jr. W. W. Laird

Eleuthère Irénée Eleuthère Pierre S.

Alfred V. Henry Belin Henry B. Jr. Margaretta Lammot

William K. William

Margaratta L. Carol V. W.S. Carpenter III R. R. M. Carpenter McCoy's son

Louisa Lammot du Pont Louisa D'Andelot Charles Copeland Copeland

Nathalie du Pont Lammot I George P. Edmonds Mary Belin Lammot Pierre III Pierre IV

Constance du Pont Colgate Darden

Sophie du Pont Ernest N. May Irénée Irénée Jr.

Margaretta I. du Pont Crawford Greenewalt

Bayard Sharp Isabella Hugh R. Sharp Hugh R. Sharp Jr. Hugh R. Sharp III

Sources: Author's analysis based on (Zilg 1974) 343

Appendix 5: Successive directors of Du Pont.

1802 Eleuthère Irénée du Pont 1834 James Bidermann 1837 Alfred du Pont 1850 Henry du Pont 1889 Eugène du Pont 1902 T. Coleman du Pont 1915 Pierre S. du Pont 1919 Irénée du Pont 1926 Lammot du Pont 1940 Walter Samuel Carpenter 1948 Crawford Greenewalt 1962 Lammot du Pont Copeland 1967 Charles B. McCoy 1973 Irving Shapiro Sources: Du Pont Annual Reports

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Appendix 6: Biographical Glossary of Du Pont’s Presidents and Selected Top Managers

T. COLEMAN DU PONT (1863–1930)

Chairman of the group between 1902 and 1915, T. Coleman was one of the historical characters in Du Pont’s history. In 1902 and after Eugene's death, he bought back the Du Pont Company with Alfred and Pierre. Coleman studied mining engineering at MIT and was Alfred's roommate. Coleman started his career in the coal mining company Central Coal and Iron Company (Kentucky) where he remained for eight years before moving to Johnson Steel Company in Pennsylvania. At the end of the 1890s, after Eugene's death, Alfred proposed to Coleman that they buy back Du Pont. Coleman agreed. He and Alfred called Pierre to help them in the reorganization. In 1902 Coleman became the first president of the newly formed E.I. du Pont de Nemours Company. In 1915, ill, he retired from the company.679

ALFRED I. DU PONT (1864–1935)

Alfred went to MIT, but he did not graduate. He left MIT in 1890 and worked the same year as superintendent at the Hagley and the Lower Yards. In 1902 he was afforded director of the black powder department. In 1915 he resigned because of a quarrel he had with Pierre about Coleman's stocks.680

679 Winkler, J. K. (1935). The Du Pont Dynasty. New York, Reynal & Hitchcock. 680 Ibid. Marquis, J. (1941). Alfred I. Du Pont. The Family Rebel. New York, The Bobbs-Merrill Company, Frazier Wall, J. (1990). Alfred I du Pont, The Man and His Family. Oxford, Oxford University Press. 345

PIERRE S. DU PONT (1870–1954)

Chairman of the group between 1915 and 1919, Pierre graduated from MIT in 1890. That same year he entered Du Pont and was responsible for developing the shotgun powder. In 1899 he became the head of the Johnson Company. In 1902 he became treasurer at Du Pont, where between 1909 and 1914 he took the presidency ad interim during Coleman's illness. In 1915 he was elected president. In 1919, when he was succeeded at this position by his brother Irénée, he became head of the board of directors. In 1939 he resigned from the chairman position, but remained honorary chairman of the company up until 1954 when he died. In parallel to his responsibilities at Du Pont, Pierre was chairman of General Motors (GM) from 1917 and in 1921 he became president of GM.681

IRÉNÉE DU PONT (1876–1963)

Chairman of the group between 1919 and 1925, Irénée graduated from MIT in 1897, like his brother Pierre. After an apprenticeship in a mechanic shop, he worked for the Fenn's General Contracting Company. In 1904 he joined Du Pont in the black powder department. There, Irénée caused Du Pont to enter into research of a nitrocellulose-based artificial leather. He was, thus, one of the first figures who worked toward diversifying Du Pont’s activities. He succeeded Pierre in 1919 as the president and was at the head of the company during one of its major reorganizations in 1921. Irénée left the presidency in 1925, but remained active on both the finance and executive committees until 1958.682

681 Chandler, A. D. J. and S. Salsbury (1971). Pierre S. du Pont and the Making of the Modern Corporation. New York, Harper & Row. 682 (1963, December 20). Irénée du Pont Dies In Wilmington at 86. New York Times. New York: 1.

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LAMMOT DU PONT (1880–1952)

Chairman of the group between 1926 and 1939, Lammot du Pont was the youngest brother of Irénée and Pierre. Like his two elder brothers, he graduated from MIT in 1902. Following in Irénée’s steps, he joined Du Pont through the black powder department. He joined the executive committee in 1915. Lammot became chairman of Du Pont in 1926 and remained in this position until 1939. Afterwards, he remained strongly involved in the company through the finance committee until his death in 1952.683

LAMMOT DU PONT COPELAND (1905–1983)

Lammot du Pont Copeland was born in 1905, just after his uncle Pierre purchased and restructured the E.I. du Pont de Nemours Company. His mother Louisa du Pont was Pierre, Irénée, and Lammot's sister. She had married Charles Copeland, a former Du Pont director. Lammot du Pont Copeland graduated from Harvard University in 1928 with a degree in industrial chemistry. He joined the company a year after that. In 1947, after having held various positions in plant management, general sales, and market analysis – among others – he became secretary of the company. In 1954 he was elected vice- president and chairman of the finance committee. Between 1962 and 1967 Copeland was president of the Du Pont Company. Besides his family blood, Lammot was also an important stockholder, even one of the largest stockholders, due to the many inheritances he had received. He held 190,941 shares of Du Pont common stock and 338,348 of Christiana Securities in 1961,

683 (1952, July 25). Lammot du Pont, 71, Industrialist, Dies. New York Times. New York: 15.

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after the merger of DRI and Christiana. His total worth amounted to something between $200 and $400 million dollars.684

ARTHUR J. MOXHAM (1854–1931)

Moxham was related by marriage to the du Ponts as his aunt Dora Morgan was Coleman's grandmother. He started his career in 1969 as an apprentice ironmaster for the Louiseville Rolling Mill. The Rolling Mill was bought by Alfred V. du Pont, grandfather of Alfred I, Pierre, Lammot, Irénée, and Coleman. Impressed by Moxham's work, they took him to the Johnson Company, which was headed by Coleman in 1889. In 1902 when Coleman and his cousin bought back and reorganized the company, Moxham was taken as one of the principal advisors and joined, naturally, the first executive committee.685

J. AMORY HASKELL (1861–1923)

Haskell worked at the Rochester and Pittsburgh Coal and Iron Company. In 1892 he became president of the Repauno Chemical Company after William du Pont resigned. He was recommended by Laflin & Rand's President Solomon Turck. When Turck resigned from Laflin & Rand in 1895, Haskell became the company's president. As we know, from 1899 to 1902 Du Pont was threatened to be bought by Laflin & Rand. Thus, Haskell became an important partner in the discussion of allowing Du Pont to remain independent and joined the executive committee after the company's reorganization in 1902. Laflin & Rand was purchased by the reorganized Du Pont Company.686 From 1915 Haskell sat on the executive and finance committees of General Motors until his death in 1923

684 Zilg, G. C. (1974). Du Pont: Behind the Nylon Curtain. Englewood Cliffs (N.J.), Prentice-Hall. 403. McFadden, R. (July 3, 1983). Lammot Copeland Sr. Dead; Led Du Pont in Major Growth. New York Times. New York: 18. 685 (1931, May 17). Arthur J. Moxham, Steelmaker, Dead. New York Times. New York: 31. 686 Laflin & Rand Official website: 348

HAMILTON M. BARKSDALE (1862–1918)

Hamilton M. Barksdale graduated from the University of Virginia in 1882 with a degree in civil engineering. He joined the Baltimore & Ohio Railroad in 1885 and started to work for the Repauno Chemical Company in 1890. In 1895 he succeeded Haskell as the head of the company. In the same year, Repauno became part of the Du Pont Company and Barksdale took the head of Du Pont’s explosives department. Barksdale’s career in the Du Pont Company was successful: from 1902 he was on the executive committee, in 1911 he was elected general manager, and in 1912 he joined the finance committee. In addition to this, Barksdale had married a Du Pont.687

JOHN J. RASKOB (1879–1950)

Raskob worked for Du Pont since 1901. His first position was as the personal secretary of Pierre S. just before and during the buyout of the company by the cousins and during the reorganization. In 1911 he was already the assistant treasurer of the company and in 1914 the treasurer. In 1918, after having bought numerous shares of General Motors’ stocks, he entered the board under Pierre’s presidency and was by this time one of the most prominent businessman in the United States. His ability to manage the business and his skills as a treasurer and director made Raskob a strong ally for Du Pont and definitely a close friend of the family. In addition to these qualities, Raskob’s network was well established in the financial and political worlds.688

http://www.laflinandrand.com/download.php?link=1&file_name=L-R-Smokeless.pdf 687 (1936, February 26). Barksdale Estate Totals $4,451,907: Daughter of Victor du Pont Held $1,416,840 Worth of Power. New York Times. New York: 15, Dale, E. and C. Meloy (Summer, 1962). "Hamilton MacFarland Barksdale and the DuPont Contributions to Systematice Management." The Business History Review 63(2): 127-152. 688 (1950, October 16). John J. Raskob Dies of a Heart Attack. New York Times. New York: 27. 349

ROBERT RULIPH MORGAN CARPENTER (1877–1949)

R. R. M. Carpenter married Margaretta du Pont, the sister of Pierre, Irénée, and Lammot. He also graduated from MIT in 1905 and started to work in 1906 in the development department. Members of the syndicate which founded Du Pont Securities in 1915, he was also a director of the Philadelphia, Baltimore & Washington Railroad Company, the Girard Trust Company in Philadelphia, the Philadelphia National Bank and the New-Journal Company of Wilmington. Robert Carpenter was also chairman of the Delaware chapter of the American Red Cross during the second World War. He served on the board of directors until 1949 when he died.689

WALTER SAMUEL CARPENTER (1888–1976)

Chairman of the group between 1940 and 1948, “Carpenter Junior”, the brother of R. R. M Carpenter, worked for Du Pont through eight decades (1909–1974). Contrary to his brother and the other important directors until Crawford Greenewalt, W. S. Carpenter did not graduate from any university. He entered the company as the manager of the Chilean interest and, in 1911, became assistant director of the development department in charge of the expansion of the company. During World War I he was a member of the War Executive Committee and entered the board of Du Pont in 1919. In 1921 he became treasurer of the company and in 1940, after Lammot’s retirement, he took the presidency of the company and was then the second non du Pont by blood to chair the board, even if, by his brother, he was clearly related to the family.690

689 (June 12, 1949). R.R.M. Carpenter, Industrialist, Dies. New York Times. New York: 76. 690 The first President of the Company not related by blood to the family was the Swiss James Bidermann who took presidency of the company between 1834 and 1837 after the death of President E.I. du Pont. He was able to take charge of the company because he had married the daughter of Eleuthère Irénée and was the son of Jacques Bidermann who, with Louis Necker, helped their friend E.I. du Pont finance his chemical industry project. Thus, Bidermann was also

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CRAWFORD GREENEWALT (1902–1993)

Chairman of the group between 1948 and 1962, Crawford Greenewalt attended MIT where he received a Bachelor of Science degree in 1922. He married Margareta I. du Pont, Irénée's daughter, in 1926. He began his career in 1922 as a control chemist at Du Pont. Soon promoted group leader, research supervisor, and assistant director of research of the Chemical Department, Greenewalt set up the pilot plant for the creation of nylon. He participated in the Manhattan Project as chief liaison with the University of Chicago scientists. In 1948 he became president of the company up until 1962. Afterwards, he remained on the board of directors and the finance committee of the company until the 1980s.691

JASPER CRANE (1881–1969)

Jasper Crane was a plastics expert; he graduated from Princeton University and from MIT. He worked for the Arlington Company of Newark (a plastics manufacturer), which was acquired by Du Pont in 1915. Crane then became head of the cellulose division of Du Pont's Chemical Department. Between 1920 and 1926 he managed Du Pont's London office where he was in charge of the purchasing, development, and financial activities. In 1926 he came back to the United States and took the head of Lazote Inc., the future Du Pont Ammonia Corporation in 1929. In 1927, he entered Du Pont's board of directors and in 1929 the executive committee. He remained in this position until his retirement in

clearly connected to the du Ponts. Du Pont, B. G. (1920). E.I. Du Pont de Nemours and Company, a History, 1802-1902. Boston, The Riverside Press Cambridge. Concerning W. S. Carpenter see: Cheape, C. W. (1995). Strictly Business. Walter Carpenter at Du Pont and General Motors. Baltimore, The John Hopkins University Press. 691Interview with Greenewalt, January 19, 1983, Acc.1878, Series II, Box 2.

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1946. Afterwards, he continued to entertain close relationships with the presidents. He also was an active member of the Mont Pèlerin Society.692

CHARLES B. MCCOY (1910–1995)

Chairman of the group between 1967 and 1973, Charles B. McCoy earned a bachelor degree in chemistry from the University of Virginia in 1930 and a master's degree from MIT in 1932. McCoy's family was part of Du Pont's history: his father was John W. McCoy, a former director, vice-president, and member of the executive committee. Charles B. McCoy's sister was married to Henry Bush, a Du Pont coming from the Bradford branch. Plus, McCoy's son had married a du Pont Carol V. Kitchell (from the du Pont-Belin branch).693

IRVING SHAPIRO (1916–2001)

Chairman of the group between 1973 and 1980, Irving Shapiro graduated in 1941 from the University of Minnesota Law School. In 1943, after two years at the Office of Public Affairs in Washington where he co-worked with young lawyer Richard Nixon, Shapiro joined the Justice Department. Being very impressive in affairs, he was named assistant prosecutor in 1948 in one important trial: the top ten leaders of the United States Communist Party in charge of advocating the overthrow of the government. This case made Shapiro's career. The Communists were found guilty and appealed. Shapiro led the appeal and won the case against the Communists. It made his reputation of an excellent assistant prosecutor. He thus gained the post of legal counsel to Du Pont in fighting their antitrust suits in 1951. In 1965 he was appointed assistant general

692 (December 3, 1969). Jasper E. Crane, Plastics Expert. Former Director of Du Pont Research in Field Dies. New York Times. New York: 55. 693 Zilg, G. C. (1974). Du Pont: Behind the Nylon Curtain. Englewood Cliffs (N.J.), Prentice-Hall. 434-435 Hounshell, D. A. and J. K. Smith (1988). Science and Corporate Strategy. Cambridge, Cambridge University Press. 535.

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counsel, in 1970 vice-president in charge of finance, and in 1973 chairman.694 Shapiro had no relation by blood or by marriage with the family. Importantly as well, Shapiro was the first chairman who did not graduate with an engineering degree, either at MIT or from a prestigious university.

694 Zilg, G. C. (1974). Du Pont: Behind the Nylon Curtain. Englewood Cliffs (N.J.), Prentice-Hall. 372-373.

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Appendix 7: Chronology of investments between 1910 and 1981: where and what.

WHEN WHERE WHAT 1910 Chile Land purchase for nitrate activities 1911 Canada Canadian Explosives Ltd 45% interests to Du Pont 55% interests to Anglo-German group (Nobel) 1921 Chile Compañia de Explosivos de Chile Du Pont, Nobel, Atlas, Chilworth Gunpowder Company 41.5% - 41.5%, 15%, 2% Constructing high explosives plant to serve that country’s needs as well as certain other trade on the West Coast of South America 1923 Chile Compañia de Explosivos de Chile became Compañia Sud-Americana de Explosivos 1925 Mexico Compañia Mexicana de Explosivos, 50% interests to Du Pont, 50% interests to Hercules 1926 Common Joined in the formation of Nobel Chemical Finishes, Wealth Ltd, 49% interests. To manufacture and sell Du Pont's entire line of piroxiline finishes in the British Empire, exclusive of Canada and Newfoundland France Joined in the formation of Société Française de Fabrikoïd, 22.9% for the manufacture and sale of Fabrikoïd in France, Algeria, Tunisia and Morocco 1927 France Joined in the French Société Française Duco, 49% for the manufacture and sale of piroxiline finishes in France and its colonies Australia Joined in the formation of Nobel Chemical Finishes (Australasia), Ltd, 49% for the manufacture and sale of Fabrikoïd and rubber- coated goods in Australia France Acquisition of Société Rhodiaseta of France, 100% The exclusive right in North America for the manufacture and sale of rayon by their cellulose acetate process 1928 France Acquisition of Alsa Société Anonyme of France of the exclusive rights for North America for the manufacture and sale of Celta, a new type of rayon 354

Mexico Du Pont SA Mexico, 100% Imports and sales of rayon and Cellophane in Mexico 1929 Australia and Leathercloth Proprietary Ltd, New Zealand manufacturing and selling piroxiline-coated and rubber-coated fabrics in Australia and New Zealand 1932 Argentina Acquisition through The Grasselli Chemical Company of 60% interests in C.G. Bartlett & Cia, Ltda. Of Buenos Aires, Argentina 1933 Argentina Renamed in E.I. du Pont de Nemours y Compañia Argentina S.A. Comercial e Industrial and thus became wholly owned 1934 Brazil Du Pont do Brasil S.A., headquarters in Rio de Janeiro, 100% 1935 Argentina Industrias Quimicas Argentinas “Duperial” SA Industrial y Comercial organized Ducilo SA Productora de Rayon, manufacture and sale of rayon 1937 Brazil Industrias Quimicas Brasileiras "Duperial" SA 1942 Mexico Owned 100% of the Compañia Mexicana de Explosivos SA 1953 Brazil Du Pont do Brazil, 100% 1954 Canada Du Pont (Canada) Canada Du Pont (Canada) Securities Company Argentina Du Pont (Argentina) 1956 United Du Pont de Nemours United Kingdom Ltd (London), Kingdom Londonderry, Northern Ireland, a neoprene plant, Elastomers Research Laboratory in Hemel Hempstead, Hertfordshire, England to widen neoprene markets in British Commonwealth and elsewhere abroad 1958 Venezuela Du Pont (Venezuela) 1958 Belgium Du Pont de Nemours Belgium (Brussels) plant in Malines, Belgium, for the manufacture of lacquers, enamels, paints, varnishes, automotives, industrial, household and maintenance fields 1958 Cuba Neoprene plant 1959 Germany Pigment-Chemie GmbH (26% owned by Du Pont, 74% by Sachtleben AG) (Homberg) Du Pont de Nemours International S.A., (Geneva) To provide effective promotion and sales service in the European market for the products of these new plants and those of the parent company, a new trading subsidiary 355

Netherlands Du Pont de Nemours (Nederland) N.V. France Du Pont de Nemours France (Paris) 1961 Northern New plant in Hylene plant in Londonderry Ireland Sweden Du Pont de Nemours Nordiska A.B. (Sweden, Märsta) France Dekachimie S.A., owned 50% by Du Pont, was formed with Etablissements Kuhlmann, in France 1962 Luxembourg Du Pont de Nemours Luxembourg S.A. (Contern- Hespérange) new Mylar plant Spain Desarrollo Quimico Industrial S.A. (50% owned by Du Pont, 50% by Energia e Industrias Aragonesas S.A.), Madrid (fungicides) 1964 Germany Du Pont Chemie GmbH (Düsserldorf) Italy Du Pont de Nemours Italiana S.p.A. (Milan) 1965 Luxembourg Du Pont Europa Holdings S.A. (Luxembourg City) Germany Du Pont Chemie was renamed Du Pont de Nemours (Deutschland) GmbH 1967 Switzerland Switzerland was doted from a textile fibers technical laboratory R&D (Meyrin, Geneva) 1968 Deutschland Dacron plant in Uentrop United Orlon plant in Maydown Kingdom Belgium Dymetrol nylon strapping plant is started by Du Pont de Nemours (Belgium), S.A. in Mechelen 1971 Luxembourg Du Pont Photolux S.A. (Contern-Hespérange) 1972 Luxembourg Du Pont Fibres S.A. (Contern-Hespérange) 1974 Iran Polyacryl Iran Corporation (40% interests to Du Pont Company, 60% interests to Dow Chemical) France Butachimie (50% interests to Du Pont de Nemours France S.A., 50% interests to Rhône-Poulenc Industries) (Paris) to build and operate a 225 million pound per year plant for adiponitrile (chemical used in the manufacture of nylon intermediates) 1975 Spain Lacas y Pinturas S.A. (Benicarló) Du Pont acquires a Spanish finishes company, Lacas y Pinturas, S.A. Poland E.I. du Pont de Nemours & Co (Warsaw) Russia E.I. du Pont de Nemours & Co (Moscow) (devient Du Pont Russia, 1991)* Iran Du Pont Iran Company (Teheran) 1977 Greece Du pont de Nemours International S.A. (Athens)

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(became Du Pont Agro Hellas S.A.) Portugal Du Pont de Nemours International S.A. (Lisbon) Egypt Du Pont de Nemours International S.A. (Cairo) Kenya Du Pont de Nemours International S.A. (Nairobi) 1979 United D.U.K Shipping Limited (owned 100% by Du Pont de Kingdom Nemours (UK) Ltd.) (London) 1980 Netherland PD Magnetics B.V. (Joint venture with N.V. Philips’ Gloeilampenfabrieken (50%)) 1981 Denmark Du Pont de Nemours, Denmark Finland Du Pont de Nemours, Finland Jordan Du Pont de Nemours, Jordan Norway Du Pont de Nemours, Norway Roumania u Pont de Nemours, Roumania South Africa Du Pont de Nemours, South Africa Spain Du Pont Ibérica S.A., Spain Sudan Du Pont de Nemours, Sudan Turkey Du Pont de Nemours, Turkey Austria New England Nuclear GmbH, Austria (100% owned), FRG (100%) France NEN France S.à.r.l (100%) Sources: Author's analysis based on Du Pont Annual Reports

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Appendix 8: Death of important stockholders

Stockholders Total Number of Number of Common Common Shares Stockholders 1920 E.G. Buckner 706,290 1921 Alexis du Pont 712,432 Alfred du Pont 1922 Charles A. Patterson 2,875 950'609 1923 J. Amaury Haskell 3,121 950'609 1924 3,183 950'609 1925 4,196 1'330'829 1926 Henry A. du Pont 5,528 2'661'658 1927 William Winder Laird 7,243 2'661'658 1928 9,970 2'811'050 1929 25,470 9'838'675 1930 Charles L. Patterson 34,643 10'565'143 Coleman du Pont 1931 Edmond Gillet 42,465 11'065'762 1932 50,778 11'065'762 1933 William Coyne 51,047 11'065'762 1934 51,863 11'065'762 1935 Alfred I. du Pont 52,831 11'065'762 William C. Spruance 1936 53,829 11'065'762 1937 John P. Laffey 56,577 11'065'762 1938 Franck G. Tallman 59,750 11'065'762 1939 James B. D. Edge 60,609 11'065'762 1940 Charles Lee Reese 63,467 11'065'762 1941 William P. Allen 67,467 11'122'512 1942 Thomas S. Grasselli 70,159 11'122'512 1943 Harry M. Pierce 71,265 11'110'682 1944 Henry Fletcher Brown 72,637 11'109'645 Fin Sparre Charles Copeland 1945 73,596 11'121'962 358

1946 73,523 11'121'962 1947 73,963 11'122'512 1948 A. Felix du Pont 77,347 44'833'628 Elwyin Evans Eugene B. Yancey 1949 Robert R. M. Carpenter 92,753 1950 John J. Raskob 108,774 Harry Haskell 1951 121,689 1952 F.W. Pickard 126,565 45'297'567 Lammot du Pont J. Thompson Brown 1953 Harry Haskell Jr. 129,994 1954 Pierre du Pont 133,997 45'604'345 Eugene du Pont Jr. Charles Stine 1955 143,941 1956 153,832 45'604'345 1957 185,744 45'604'345 1958 194,343 1959 202,069 1960 210,840 1961 210,885 45'972'696 1962 214,654 1963 Irénée du Pont 218,280 1964 230,394 46'005'490 1965 William du Pont Jr. 237,740 1966 240,535 46'075'907 1967 240,311 1968 Hugh R. Sharp 235,118 1969 Henry F. du Pont 235,625 Jasper Crane 1970 238,125 1971 228,931 1972 221,817 1973 216,485 47'801'161 1974 213,379 47'987'235

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1975 206,316 1976 Walter S. Carpenter 204,665 48'291'708 1977 206,824 48'362'515 1978 202,573 48'042'064 1979 208,910 144'657'454 1980 212,868 146'553'558 Sources: Author's analysis based on Du Pont Annual Reports

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Appendix 9: Extract of Du Pont Bylaws

These Guidelines serve as an important framework for the Board’s corporate governance practices and to assist the Board in carrying out its responsibilities effectively. The Board reviews these Guidelines periodically and may modify them as appropriate to reflect the evolution of its governance practices.

The Board

Responsibility

The Board has an active responsibility for broad corporate policy and overall performance of the Company through oversight of management and stewardship of the Company to enhance the long-term value of the Company for its stockholders and the vitality of the Company for its other stakeholders.

Role

In carrying out its responsibility, the Board has specific functions, in addition to the general oversight of management and the Company’s business performance, including providing input and perspective in evaluating alternative strategic initiatives; reviewing and, where appropriate, approving fundamental financial and business strategies and major corporate actions; ensuring processes are in place to maintain the integrity of the Company; evaluating and compensating the CEO; and planning for CEO succession and monitoring succession planning for other key positions.

Duties

Directors are expected to expend sufficient time, energy and attention to assure diligent performance of their responsibility. Directors are expected to attend

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meetings of the Board, its Committees on which they serve, and the Annual Meeting of Stockholders; review materials distributed in advance of the meetings; and make themselves available for periodic updates and briefings with management via telephone or one-on-one meetings.

Leadership

The positions of Chair of the Board and CEO are held by the same person, except in specific circumstances.

Independence

A substantial majority of the Board are independent directors in accordance with the standards of independence of the New York Stock Exchange and as described in the Guidelines. See pages 5-6. The Corporate Governance Committee as well as the Board annually reviews relationships that directors may have with the Company to make a determination of whether there are any material relationships that would preclude a director being independent. 2

Qualifications

Directors are selected for their integrity and character; sound, independent judgment; breadth of experience, insight and knowledge; and business acumen. Leadership skills, scientific or technology expertise, familiarity with issues affecting global businesses in diverse industries, prior government service, and diversity are among the relevant criteria, which will vary over time depending on the needs of the Board. The Corporate Governance Committee considers candidates for potential nomination to recommend for approval by the full Board.

The Board does not limit the number of other public company boards that a director may serve on. However, the Corporate Governance Committee considers the number of boards a director sits on. Directors are encouraged to

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limit the number of other public company boards to take into account their time and effectiveness and are expected to advise the Chair in advance of serving on another board.

When a director’s principal responsibilities or business association changes significantly, the director will tender his or her resignation to the Chair for consideration by the Corporate Governance Committee of the continued appropriateness for Board service.

No director may stand for reelection to the Board after reaching age 72. An employee director retires from the Board when retiring from employment with the Company, with the exception of the former CEO. The Board may in unusual circumstances and for a limited period ask a director to stand for reelection after the prescribed retirement date.

Election

In accordance with the Company’s Bylaws, if none of our stockholders provides the Company with notice of an intention to nominate one or more candidates to compete with the Board’s nominees in an election of directors, a nominee must receive more votes cast for than against his or her election or re-election in order to be elected or re-elected to the Board. The Board expects a director to tender his or her resignation if he or she fails to receive the required number of votes for re-election. The Board shall nominate for election or re-election as director only candidates who agree to tender, promptly following the annual meeting at which they are elected or re-elected as a director, irrevocable resignations that will be effective upon (i) the failure to receive the required vote at the next annual meeting at which they face re-election and (ii) Board acceptance of such resignation in accordance with the procedures specified in these Guidelines. In addition, the Board shall fill director vacancies and newly created directorships only with candidates who agree to tender, promptly following their appointment

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to the Board, the same resignation tendered by other directors in accordance with these Guidelines.

In the event an incumbent director fails to receive the required vote for re- election, the Corporate Governance Committee (or other committee designated by the Board) (“Committee”) shall make a recommendation to the Board as to whether to accept or reject the resignation of the incumbent director. The Board shall act on the resignation, taking into account the recommendation of the Committee, and publicly disclose its decision within ninety (90) days following certification of the election results. The Committee in making its recommendation and the Board in making its decision may consider all facts and circumstances they consider relevant or appropriate in reaching their determinations. The Board expects any director whose resignation is under consideration pursuant to these Guidelines to abstain from participating in the Committee recommendation or the action of the Board regarding whether to accept the resignation.

Orientation and Continuing Education

New directors participate in an orientation process to become familiar with the Company and its strategic plans and businesses, significant financial matters, core values including ethics, compliance programs, corporate governance practices and other key policies and practices through a review of background materials, meetings with senior executives and visits to Company facilities. The Corporate Governance Committee is responsible for providing guidance on directors’ continuing education.

Compensation

The Board believes that compensation for outside directors should be competitive. DuPont Common Stock is a key component with payment of a portion of director compensation as DuPont stock, options or similar form of 364

equity-based compensation, which are subject to stock ownership guidelines. The Compensation Committee reviews periodically the level and form of director compensation and, if appropriate, proposes changes for consideration by the full Board.

Annual Self-Evaluation

The Board and each Committee make an annual self-evaluation of its performance with a particular focus on overall effectiveness. The Corporate Governance Committee is responsible for overseeing the self-evaluation process.

Access to Management and Advisors

Directors have access to the Company’s management and, in addition, are encouraged to visit the Company’s facilities. As necessary and appropriate, the Board and its Committees may retain outside legal, financial or other advisors.

Board Meetings

Selection of Agenda Items

The Chair establishes the agenda for Board meetings, in conjunction with Chairs of the Committees. Directors are encouraged to suggest items for inclusion on the agenda and may raise subjects not specifically on the agenda. 4

Attendance of Senior Executives

The Board welcomes regular attendance of senior executives to be available to participate in discussions. Presentation of matters to be considered by the Board are generally made by the responsible executive.

Executive Sessions 365

Regularly scheduled Board meetings include a session of all directors and the CEO. In addition, the Board meets in regularly scheduled executive sessions without the participation of the CEO or other senior executives. The Presiding Director is the Chair of the Corporate Governance Committee.

Leadership Assessment

Succession Planning

The Board plans for succession to the position of CEO. The Compensation Committee oversees the succession planning process. To assist the Board, the CEO periodically provides the Board with an assessment of senior executives and their potential to succeed to the position of CEO, as well as perspective on potential candidates from outside the Company. The Board has available on a continuing basis the CEO’s recommendation should he/she be unexpectedly unable to serve. The CEO also provides the Board with an assessment of potential successors to key positions.

CEO Evaluation and Compensation

Through an annual process overseen and coordinated by the Compensation Committee, independent directors evaluate the CEO’s performance and set the CEO’s compensation. 5

Guidelines for Determining the Independence of DuPont Directors

It is the expectation and practice of the Board that, in their roles as members of the Board, all members will exercise their independent judgment diligently and in good faith, and in the best interests of the Company and its stockholders as a whole, notwithstanding any member’s other activities or affiliations.

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However, in addition, the Board has determined that a substantial majority of its members should be “independent” in that they are free of any material relationship with the Company or Company management, whether directly or as a partner, shareholder or officer of an organization that has a material relationship with the Company. In furtherance of this objective, the Board has adopted the following Guidelines for determining whether a member is considered “independent.”

The Board will re-examine the independence of each of its members once per year and again if a member’s outside affiliations change substantially during the year.

For purposes of these Guidelines, “members of his/her immediate family” and similar phrases will mean a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in law, brothers- and sisters-in-law, and anyone (other than an employee) who shares the person’s home. “The Company” means the Company and all of its consolidated subsidiaries.

1. Regardless of other circumstances, a Board member will not be deemed independent if s/he does not meet the independence standards adopted by the New York Stock Exchange (see below), or any applicable legal requirement.

2. Except in special circumstances, as determined by a majority of the independent members of the Board, the following relationships will be considered not to be material relationships that would affect a Board member’s independence: a. If the Board member is an executive officer or employee, or any member of his/her immediate family is an executive officer, of a bank to which the Company is indebted, and the total amount of the indebtedness does not exceed one percent of the total assets of the bank for any of the past three (3) years. 367

b. If the Board member or any member of his/her immediate family serves as an officer, director or trustee of a charitable or educational organization, and contributions by the Company do not exceed the greater of $1,000,000 or two percent of such organization’s annual consolidated gross revenues, including annual charitable contributions, for any of the past three years.

3. If a Board member has a relationship that exceeds the thresholds described in Section 2 above, or another significant relationship with the Company or its management that is not described in Section 2 above, then the Board will determine by a majority of the independent members whether that member’s relationship would affect the Board member’s independence.

4. The Board will consider all relevant facts and circumstances in determining independence.

5. Any determinations of independence made pursuant to Section 3 above will be disclosed in the Company’s annual meeting proxy statement.

Current New York Stock Exchange standards state that a director will not be independent:

(a) If the Board member is, or has been within the last three years, an employee or any member of his/her immediate family is, or has been within the last three years, an executive officer of the Company;

(b) If the Board member (i) is a current partner or employee of a firm that is the company's internal or external auditor; (ii) has an immediate family member who is a current partner of such a firm; (iii) has an immediate family member who is a current employee of such a firm and personally works on the listed company's audit; or (iv) was, or has an immediate family member who was, within the last three years, a partner or employee of such a firm and personally worked on the listed company's audit within that time.

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(c) If the Board member or any member of his/her immediate family is, or in the last three years has been, employed as an executive officer of another company where the Company’s present executive officers at the same time serve/served on that company’s compensation committee;

(d) If the Board member is a current employee, or if any member of his/her family is a current executive officer, of another company that makes payments to, or receives payments from, the Company for property or services which exceed the greater of $1,000,000 or two percent of the other company’s annual consolidated gross revenues for any of the last three years; or

(e) If the Board member, or a member of his/her immediate family, has received more than one hundred and twenty thousand dollars (US $120,000) in direct compensation from the Company (other than director and committee fees and pension or other forms of deferred compensation for prior service which are not contingent in any way on continued service) during any twelve-month period within the last three (3) years.

Sources: Du Pont Bylaws

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