People of conscience throughout the world were outraged at the Hitler regime. Yet Germany was on the verge of expanding its use of Hollerith systems to an unprecedented level. Watson needed to cover himself in the Reich and at home. He would now pursue a strange public posture, essentially speaking from both sides of the punch card. Deftly, he would mix his messages of subtle advocacy for Reich territorial and economic hegemony with patriotic assertions supporting American defense measures, and almost pollyannaish aphorisms offered to Germany about its brutal anti-Semitism. Watson would always be able to point to out-of-context portions of his remarks to satisfy any audience—be it those listening in the Nazi Reich or the United States. At the same time, all mention of Germany as the linchpin of IBM’s overseas operation was conspicuously dropped from IBM press statements.
For example, just after Kristallnacht, when Watson returned from Europe, his usual dockside remarks to the media listed the many countries he had visited, including Greece, Italy, Romania, Portugal, Turkey, and France. But Germany was not mentioned—the first time since the rise of Hitler that Watson had omitted the country name from his proudly detailed itineraries. A newspaper article about IBM’s foreign employees studying at the company sales school in Endicott spoke of students from twenty-four countries. Yet Germany’s name was the only one not listed—again, the first time the Reich’s place in IBM’s international commerce was omitted, even though, as usual, representatives from Germany were there.42
Platitudes were dispensed in abundance. “World Peace through World Trade” became Watson’s official jingo to explain away IBM trading with Nazi Germany. Beckoning Hitler to please “observe the Golden Rule” paled as a schoolboy-like admonishment in the face of the ruthless torture and dispossession gripping German Jewry. But Watson was an expert at calculated public pronouncements on troublesome topics. When he first assumed the helm of the IBM organization—back in the CTR days—he scheduled a company assembly to demonstratively and publicly lecture his sales force, “You must not do anything that’s in restraint of trade… or that could be construed by anybody as unfair competition.” Ironically, these stern moralistic directives were conspicuously broadcast just at the height of the Justice Department’s decision-making process on re-prosecuting Watson for his role in one of America’s most aggravated cases of anti-competitive tactics.43
So, at the same time the IBM Leader was advocating “the Golden Rule,” he wrote a letter to the world’s governments urging them to “collaborate regardless of divergent ideals and opinions” to avoid war. In international economic forums, he asserted “the divine right of every people to choose its own government” and demanded “adjustments that would give all countries an opportunity to share in the resources of the world.”44 Watson’s choice of words bore the unmistakable ring of Germany’s party line, which likewise demanded that it be allowed to share in all of Europe’s natural resources for the greater glory of the Reich.
None of Watson’s public posturing stopped him from accelerating Dehomag’s ability to do Hitler’s bidding throughout Europe—so long as IBM could keep its distance and Watson could remain removed from the process. In late May 1938, shortly after Germany annexed Austria, Watson visited Berlin on Dehomag business. Watson requested Dehomag’s management to prepare to extend its operations into Austria, thus replacing the existing subsidiary controlled by IBM NY. Dehomag was going to develop some unique tabulating equipment, based on its powerful new D-11, engineered for special applications that could generate significant revenues. However, these new efforts would have an impact on complicated issues of profit sharing, tax, bonus, and general compensation—all of which Watson wanted carefully negotiated.45
More and more, Watson tried to work through intermediaries. The negotiation itself was delayed until shortly after Watson left Germany. Then, on the morning of June 24, 1938, Dehomag convened a shareholder meeting attended by two Geneva-based IBM executives representing the New York office. Although Watson was not there, he controlled the decisions from afar through his 85 percent vote, cast through his European General Manager John E. Holt who held a power-of-attorney. Point six of the minutes called for negotiations “as soon as possible.”46
It was left to a member of the IBM NY’s board of directors, Oscar L. Gubelman, to work out the details of Dehomag’s expansion into Austria, along with certain loan provisions and stock options as inducements for Dehomag Directors Rottke and Hummel. Gubelman agreed that the directors’ loan provisions and stock options could be incorporated into a formal supplemental employment contract, but the Austrian expansion itself was to be kept as an oral arrangement recorded only by memo. On July 6, 1938, Rottke and Hummel jointly confirmed the oral arrangement in a letter to Gubelman, who was staying at Berlin’s Hotel Adlon. Their letter listed three main points: “a) New Products, b) New Territories, c) reduction of [stock] repurchase price in case of premature leaving the Dehomag due to notice of resignation.”47
The joint Dehomag letter acknowledged New York’s primacy in no uncertain terms. “IBM,” the letter emphasized, retains “unlimited power to dispose of such new products, and in view of its [IBM’s] position within Dehomag, is absolutely in a position, even without our express declaration of assent, on its part to formulate the conditions for the inclusion of Dehomag in such new business.”48
Only IBM NY could authorize Dehomag to develop new products or expand into Austria, but if it did so, the business would be maintained separately from the regular books and would appear instead as loan or bonus transactions. Dehomag’s confirmation letter expressed the understanding in cautious, stilted language. For New Products: “It has been orally agreed,” the letter recited, “and is confirmed herewith by us in writing, in case IBM entrusts Dehomag with the sale and/or manufacture of new products which lie outside the present scope of business of the Dehomag and also do not come under the license agreement between the Dehomag and the IBM, we agree that upon the request of the IBM, we can be totally or partly excluded from the results of the business transactions in these new products, as they have been agreed upon in the form of a bonus in the loan agreements and supplementary agreements concluded between the Dehomag and us.”49
For New Territories: “In case the IBM should voluntarily transfer the working of territories outside of Germany to the Dehomag, we also agree that, upon the request of the IBM, we can be totally or partly excluded from the results of the business transactions in these new territories as they have been agreed upon in the form of a bonus in the loan agreements and supplementary agreements concluded between the Dehomag and us.”50
The letter added, “After careful deliberation, you have considered it proper to let the points a) [New Products] and b) [New Territories] be dealt with merely in this letter in the sense of our discussion, while point c) will be included in the supplementary agreement.” Rottke and Hummel’s letter concluded with their gratitude for helping the Reich: “We confidently hope that the contents of this letter will convince Mr. Watson… that we see our life’s task in our present work and sincerely wish to contribute to the development of the Dehomag for many years to come. We thank you very much for the great assistance you have given in this matter.”51