Albert added that IBM’s counterarguments and rationales were simply not credible to the authorities. “It is no use to argue that this fear is absolutely theoretical and has no foundation [in fact] whatever in practice, as not only no American citizen is employed in this part of the business… [or that] these studies are kept most confidential and secret according to the strictest general rules and regulations. There the objection and the handicap is and must be taken into consideration.”28
From IBM’s point of view, the struggle to create an alliance with Nazi Germany had been too great and the potential for continuing profits too rewarding to simply walk away. Nor would Watson tolerate competitors—existing or newly created—invading IBM’s hard won territory. Since the dusty horse-and-buggy days of National Cash Register, Watson had learned not to compete, but to eliminate all competition—no matter how marginal—by any pernicious tactics necessary.
IBM Geneva troubleshooter, P. Taylor, in an August 1940 letter to the New York headquarters, worried openly about the threat should the Third Reich develop Bull machines or an ersatz hybrid—even though it would take years to switch. “The danger of this is, of course, that the Bull machines do exactly the same as Dehomag’s,” wrote Taylor, “whilst also having alphabetic and printing units, and [if obtained] they can easily be exchanged to replace Dehomag machines.”29
Heidinger had obtained a one-week travel permit and on August 15, 1940, he visited Taylor in IBM’s Geneva office to lodge his threats and demands. He was not subtle.30 “Foreign partnerships in German companies are not very much liked,” Heidinger told Taylor, “particularly where the foreign interest is a majority. The IBM majority in the Dehomag was not very helpful, but did not cause too much harm—up to now. The situation is entirely changed by the step of Mr. Watson giving back his German decoration and writing a letter to the Fuhrer published in the American press. That step is considered as an insult of the highest degree not only to Hitler, but to each individual German. What could be the consequences? Each customer or prospect will try to avoid getting punched card machines from a company which proved or at least appears to be hostile to Germany. Therefore an already existing or a new-formed German company taking up the manufacture and sale of such machines will have excellent chances. Dehomag’s business would no longer exist.”31
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.”38 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.