IBM was already in Czechoslovakia. Shortly after Hitler came to power, IBM NY had established a service bureau in Prague. The first school for Czech salesmen was opened in 1935 about the time the Nuremberg Laws were passed. In November 1936, Watson approved a card printing plant in a small town near Prague, where sixteen printers and two cutting machines were installed. Some months later, as IBM ramped up operations, the company protested when Czech Customs changed the company’s tariff classification from simplistic mechanical punches to statistical machines.93
In 1937, Georg Schneider was hired as an additional salesman for Prague. Within about a year, Schneider was transferred to Dehomag in Berlin “as a salesman and studying the German organization.” He met Watson in Berlin, as well as the company’s leading Swiss-based supervisors. By that time, Czechoslovakian State Railways was utilizing 52.2 million punch cards per year. In 1939, IBM Geneva and Dehomag agreed that Schneider should return to Prague, where about sixty employees worked, as the new co-manager working with Director Emil Kuzcek. At about that time, the Reich opened the Statistical Office for the Protectorate of Bohemia and Moravia, located in Prague. IBM did not list itself in Czech commercial registries as owning its own subsidiary. Instead, the subsidiary’s 200,000 Korunas value was held 102,000 by IBM’s attorney in Prague, Stefan Schmid, and 98,000 by IBM’s European General Manager John Holt, both men acting as nominees for IBM NY.94
For IBM, the question was not how deeply Dehomag would control all Hollerith activity in Czechoslovakia, but once again, who would share in the profit. In the first days of 1939, after Germany’s takeover of the Sudetenland, and at the height of the Reich’s threats to take over the rest of Czechoslovakia, IBM worried about the bonus question with Heidinger, Rottke, and Hummel.
On January 11, 1939, Watson’s personal emissary, Harrison Chauncey, drafted a letter for European Manager Holt in Geneva, reviewing how the oral arrangement with Dehomag for “new territories” might work once Czechoslovakia was included. So there was no mistake, Chauncey recited the language from the oral arrangement. “‘In case the IBM should voluntarily transfer the working of territories outside of Germany to the Dehomag,’” Chauncey quoted, “‘we also agree that, upon the request of the IBM, we can be totally or partly excluded from the results of the business transactions… as they have been agreed upon in the form of a bonus in the loan agreements.’”95
Then Chauncey posited the question: “In the case of Austria and Czechoslovakia, should determination be made whether or not at this time as to whether Rottke and Hummel should receive the benefits from any business within these two countries.”96
In an effort to create deniability about the decision, Chauncey added, “under present circumstances it might be unwise for the IBM to make the determination.” Written by hand, the sentence appended, “but Dehomag should when time is proper.” Thus, IBM NY could claim that Czech activity was undertaken at Dehomag’s sole decision—even though no such activity could take place without Watson’s permission.97
Addressing the time constraints, Chauncey wrote, “You might consider whether Dehomag should have an understanding immediately, because, of course, there will also be involved a transfer of the assets in Austria and Czechoslovakia.”98 Chauncey’s letter did not refer to “the Sudetenland,” which had already been swept into the Reich, but “Czechoslovakia “; although Czechoslovakia was being daily threatened with forcible annexation, Germany was still weeks away from its invasion.
A senior IBM executive, John G. Phillips, scribbled on the draft, “have Chauncey see me.” On January 17, 1939, the heavily edited letter to Holt was formally typed on letterhead and again submitted to senior executives for review. Still maintaining deniability, the revised version suggested, “Under present circumstances, we wonder whether it would be unwise for IBM to make the determination relating to territory and products. We might consider whether it would be more proper to have Rottke and Hummel write Dehomag setting forth substantially the same thing as in the letter to Mr. Gubelman…. You might consider whether Dehomag should have an understanding immediately, because, of course, there will also be involved a transfer of the assets in Austria and Czechoslovakia.”99
But Chauncey’s letter still seemed too sensitive for senior IBM executives. Newspaper headlines and newsreels were blasting Germany daily for the Czech situation. After ten days, the letter was still not approved, and finally on January 27, Chauncey was instructed by Phillips, “suggest we hold on this for the present.”100
Dehomag lost no time in proceeding in Czechoslovakia—with or without settling the question of bonuses for Czech activity. But even if Rottke and Hummel were willing to wait for a decision on bonuses, Heidinger was not. As Germany prepared to launch an invasion against Czechoslovakia, Heidinger unleashed his own battle plan to secure a share in the profit the IBM organization expected in newly conquered territories.
GERMANY WAS facing economic collapse and began clamping down on taxpayers and profiteers. Watson had refused to declare a profit since 1934, despite record multi-million mark earnings. Tax authorities reviewed RM 180,000 in IBM advances and loans to Heidinger in lieu of actual profit dividends. Heidinger’s money was declared a bonus no matter how it was disguised—and he was ordered to pay RM 90,000 in taxes. On January 20, 1938, Heidinger wrote to IBM’s Holt in Geneva complaining that no matter what IBM called it, “The German government considers it as a dividend and I have to pay the [income] taxes.” The levy was in addition to his normal income taxes. “That is impossible for me,” he conceded. “I would have to burden my properties with a mortgage or to change my standard of life.”101
Heidinger offered IBM an ultimatum: either declare a bona fide profit and pay a dividend for prior years that would net him RM 250,000—or he would exercise an option requiring IBM to buy back his shares in the company. For now, he was offering just one of his ten shares. He would still retain 9 percent. “Find out which… Mr. Watson would prefer,” Heidinger asked.102
Alarms went off in Geneva, Paris, and New York. IBM had no objection to a stock buy-back. But everyone understood that if Heidinger reduced his holdings below 10 percent that might cause Nazi authorities to re-examine the Aryan nature of Dehomag. The company could lose the ability to use “Deutsche” in its name, and might even be taken over by kommissars.103 Moreover, in Germany’s current state of war preparedness, punch card technology overseers in the Ministry of War could even decree a takeover.
Letters flew across the Atlantic as IBM tried to plan its next move. IBM’s Geneva Controller J. C. Milner coolly informed Rottke that the company had no difficulty declaring a dividend, but German law limited such distributions to 6 or 8 percent—and that amount would not be much more than monies already advanced. As for Heidinger selling back his stock, Milner curtly wrote, “we can take no decision on this.” Rottke wrote back, encouraging New York to pay Heidinger. Stalling for time, Milner replied, “it will not be possible to come to a final decision… until such time as I receive a reply from Head Office.”104
Rottke’s reply was explicit: “I would gather… the IBM does not wish to purchase this interest [Heidinger’s stock]… inasmuch as a change of German interests into foreign hands would be a disadvantage at the present time. However, something will have to be done, because Heidinger needs money and can or will obtain it by other means; nobody will be able to legally prevent him from selling.”105