IBM and the Holocaust (45 page)

Exaggerating how easy it would be for any new competitor to emerge, Heidinger asserted, "Patent difficulties do not exist [and] if necessary it would be easy to get a compulsory license for a modest royalty of say five percent instead of twenty five percent which [now] Dehomag pays [to IBM NY]. No difficulties would exist to get experts for such a system: workmen, engineers, salesmen, managers."
³²

Heidinger threatened to call for a vote of employees as loyal Germans, whether they would continue working with an IBM subsidiary or a newly formed German one. "The IBM should consider what result a vote within Dehomag would have," said Heidinger menacingly. "Who of the Dehomag people is willing to continue working for the Dehomag of which a majority is owned by a hostile IBM or who is willing to work for a new German company?"
³³

There were more complications. All the open undercurrents against Dehomag as an American business with German management were now confirmed. IBM's subsidiary had been unmasked as a non-Aryan business—something many always knew but begrudgingly overlooked. Now many in Berlin were preparing for the day when the U.S. would join England against the Third Reich. In such a case, explained Heidinger, Dehomag would be considered enemy property, a custodian would be appointed to run the business and make all decisions. "Such [a] trustee would be the only manager," continued Heidinger, "while the rights of the old managers and the board are suspended. The consequences would be disastrous. One of the several possibilities is . . . [that] the trustee would discover that our profit and therefore the prices are too high. He certainly could and probably would reduce at once the prices. There would practically be no possibility to raise the prices again in normal times. Supposing the Dehomag pulled through this crisis—the return to shareholders could then only be very modest.
³⁴

"With or without the entry of the U.S.A. into the war," stressed Heidinger, "the danger of the total ruin of the Dehomag is immediately present. No member of the board of directors or management could assume the responsibility of passively awaiting events."
³⁵

Heidinger offered IBM several ultimata. One: sell the entire subsidiary to the Germans at a negotiated price. Two: use the millions of surplus profits in Dehomag's blocked accounts to double investment in the subsidiary. Issue new shares, but all the new voting rights would be held by Germans, either Dehomag managers or an Aryan committee. IBM would still retain its majority ownership, but lose its control. Three: In a complicated scheme, IBM NY buys out some of the captive stock held by Heidinger, Rottke, and Hummel and transfers that stock to employees.
³⁶

Whatever Watson decided, insisted Heidinger, Dehomag must now be allowed to exercise further control. "The advice I give you now is of more value than any advice given in the past," Heidinger told Taylor. But he would not wait for the protracted decision-making process Watson was known for. He demanded that Taylor cable the threats and options to Watson. Heidinger would wait in Geneva for an immediate response.
³⁷

Taylor cabled Heidinger's remarks to New York with his observation that "a plan exists already for the formation of a new [rival] German company."
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Whatever Watson did now to enrich its local managers or relinquish control, eventually IBM would be dethroned. At the same time, IBM people understood it was far easier to talk about replacing IBM than to actually do so. Harrison K. Chauncey, Watson's top emissary in Berlin, reported after one key meeting with a ranking Nazi official, "We are threatened with possible elimination of Dehomag through competition which may be sponsored by the authorities." But he followed by countering, "The government at the present time needs our machines. The army is using them evidently for every conceivable purpose." He added, "During the war it would be very difficult for competition to get started, unless they used the French Bull manufacturing plant." W. C. Lier, another senior IBM auditor negotiating in Berlin, commented on the prospect of Germany not allocating raw materials for machines manufactured by IBM's subsidiary in occupied France. Lier wrote to Chauncey, "the whole point is—who will manufacture since the Dehomag is not in a position to deliver most of the units before one or even two years?" Lier underlined his rhetorical question, adding, "[who] will produce the machines which are indispensable to the German war economy?"
³⁹

Since 1933, Watson had refused all opportunities to restrain or disassociate from Dehomag, or even reduce IBM's breakneck expansion program for the Third Reich. Yet now, in August 1940, as never before, Watson was confronted with one genuine last chance—perhaps the most decisive chance—to walk away.

If Watson allowed the Reich—in a fit of rage over the return of the medal—to oust IBM technologic supremacy in Nazi Germany, and if he allowed Berlin to embark upon its own
ersatz
punch card industry, Hitler's data automation program might speed toward self-destruction. No one could predict how drastically every Reich undertaking would be affected. But clearly, the
blitz
IBM attached to the German
krieg
would eventually be subtracted if not severely lessened. All Watson had to do was give up Dehomag as the Nazis demanded. If IBM did not have a technologic stranglehold over Germany, the Nazis would not be negotiating, they would simply seize whatever they wanted. For Watson, it was a choice.

He instructed IBM General Manager F. W. Nichol to telephone Geneva manager P. Taylor on August 19 and enthusiastically approve the ratification of Hess' staff advisor Schulte-Strathaus and German businessman Emil Ziegler as new board members. Watson also agreed to offer former German counsel in New York, Otto Kiep, as a third addition. Watson had known and trusted Kiep as a family friend for years; Watson's daughter even served as godmother to Kiep's child. Kiep could at least try to mitigate further Dehomag efforts to exclude IBM NY from the business proceeds and help shore up ties to the government. At the August 31 Dehomag board meeting in Berlin, under direct instruction from the New York office, IBM's representative voted with Heidinger. The details were recorded in the minutes. "Mr. Holt is barred by unanimous vote. Messers. Kiep, Schulte-Strathaus and Ziegler are elected unanimously."
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But Watson would not detach Dehomag from the global IBM empire. He would not allow Bull and Powers or any other competitor to intrude upon his domain. IBM would not back down from what it considered its rightful commercial place in Nazi Germany's New World Order.

Over the coming months, Watson would fight hour to hour, deploying lawyers, special emissaries, and government intermediaries to protect his privileged and profitable position in Hitler's enterprise. Watson would not allow IBM to be replaced. As a result, millions of cards, millions of lives, and millions of dollars would now intersect at the whirring stations of Hitler's Holleriths.

EVEN THOUGH
Watson had agreed to director's seats for three influential Nazis—Schulte-Strathaus, Ziegler, and Kiep—it just wasn't enough. The pressure on IBM's empire would not subside. On August 20, a special committee of some undetermined Nazi authority launched an investigation of Dehomag and its practices. There was no let-up on Heidinger's insistence that IBM relinquish control of Dehomag either by becoming a minority owner or selling outright. If that was not possible, he wanted his now valuable shares purchased by IBM for dollars.
⁴¹

At first, the fact that Heidinger was insisting on both a buy-back of his shares and transfer of the subsidiary ownership appeared to be a contradiction. If Heidinger wanted as much of the stock as possible in German hands, why insist on IBM repurchasing his shares, which would return ownership to New York? But Watson soon understood: Heidinger was trying to cash out his position in dollars even while he helped German circles dismantle Dehomag or weave the firm's resources into a purely German cartel. This was becoming all too apparent to Watson's negotiators as they explored any avenue to quietly separate from Heidinger.
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In late August 1940, Taylor in Geneva suggested New York might want to simply pay off Heidinger with an enticing financial arrangement by either increasing his percentage of the company or undertaking a one-time buy-out of some or all of his shares on the condition that he cancel his special contract altogether. Knowing Watson's aversion to paying actual dollars, Taylor suggested IBM trade "one of our buildings in Berlin," and add in more accounting maneuvers. "If we have to pay in Reichsmarks," wrote Taylor, "get Mr. Heidinger to take the first building at our purchase price of 2,178,000 marks, plus the difference in a cash payment, such cash to be obtained from Dehomag as a payment on account of their indebtedness to us for royalties." To keep Heidinger out of any competitive company, Taylor suggested IBM "would continue to pay 40,000 marks a year to Heidinger for his advisory services, and in the event of his death, pay it to his widow as long as she lives."
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Pages and pages of financial and political analyses shot back and forth between IBM offices in Berlin, Geneva, and New York. It was a constant state of corporate crisis as the vicissitudes of one option after another were floated and sunk, revived, and then shunted.
⁴⁴
Through it all, Heidinger remained adamant.

IBM's Berlin attorney, Heinrich Albert, was one of Germany's leading experts on foreign corporations operating in the Third Reich. Of course, IBM was not alone in its lucrative dealings with the Third Reich. Many American companies in the armament, financial, and service arena refused to walk away from the extraordinary profits obtainable from trading with a pariah state such as Nazi Germany. Indeed, Watson led them in his capacity as chairman of the American section of the International Chamber of Commerce. Albert counseled many of these American companies about protecting their subsidiaries. Based on his experience, Albert sent Watson dozens of pages of dense legal opinions, settlement theories, and cautiously parsed recommendations. But much of it built on one of his earliest observations: "It cannot be denied that the situation is serious," wrote Albert. "What it practically amounts to is the question whether the IBM prefers to hold a secure and safe minority interest in a sound and safe company, [or] . . . the holding of a controlling, but endangered majority in an endangered company."
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The prevailing view among many was that Nazi aggression in Europe was unstoppable and the economy that would soon be imposed over an entire subjugated Continent would flow only to those companies Berlin favored. Owning even a minority of that new dominant Dehomag could be vastly more valuable than the Dehomag IBM owned today. Albert emphasized that in the very near future, "a minority of shares might be even materially of higher value than the present majority." He added that the notion of stockholder "control" was actually becoming a passe notion in Germany since the Reich now directly or indirectly controlled virtually all business. "A majority of shares," he wrote Watson, "does not mean as much as it used to . . . [since] a corporation, company, enterprise or plant manufacturing in Germany is so firmly, thoroughly and definitely subjected to the governmental rules and regulations."
⁴⁶
Clearly, it was not possible to continue doing business as a German company without becoming a virtual extension of the Reich war economy. That had been the reality for years.

Whether IBM reduced its control to a minority or retained its majority, or appointed any number of influential Nazis to its board or management staff, was immaterial to Germany's perception of IBM's subsidiary. The truth was now known. Dehomag could no longer continue under its former Aryan guise. "Neither public opinion nor the authorities," assured Albert, "would recognize the German character of the company [any longer]."
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Watson tried a number of compromises to redeem himself in German eyes. None of them worked. He offered a sizable donation to the German Red Cross. Rottke immediately wrote a letter to Geneva stating that the gift would never be accepted. Watson's hope that the furor would die down was unrealistic. Although the decoration was returned on June 6, Nazis were still roiling months later. German radio in neutral Sweden in mid-September declared Watson persona non grata, assuring he would never again be permitted to set foot in any territory controlled by Germany.
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Watson understood that unless he came to an accommodation with Germany, Dehomag was only the beginning. IBM operated profitable Dehomag-dominated subsidiaries in Italy, Poland, Czechoslovakia, Holland, Belgium, Romania, France, Sweden, and indeed almost everywhere in Europe. All of them could be targeted.