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.”40
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.42
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.”43
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.”45
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].”47
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.48
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.
At about 11 P.M. on September 30, 1940, Taylor in Geneva telephoned IBM’s New York headquarters with continuing reports about pressure against IBM subsidiaries in the wake of Watson returning his medal. Should America enter the war, Taylor asserted, one of the first subsidiaries to be placed under a German trustee would be Watson Norsk, the IBM operation in occupied Norway. Earlier, Taylor’s office had sent several letters explaining how the seizure would work under just-espoused German military law. To allow the subsidiary to continue even after America might declare war, Taylor now suggested creating the appearance that Watson Norsk had been sold to Norwegians even though IBM NY would still own and control all aspects of the firm. “We should consider whether now is not the time,” Taylor said, “to take the necessary action to make the company free from American interests. We have come to the conclusion to suggest that the royalty set-up should be considered, that the shareholders would be changed to avoid American holders.” As it stood, IBM’s name was not now listed as controlling the Norwegian firm. Norwegian records reflected four individuals as owners: IBM managers Holt and Milner, as well as two token Norwegians. But the two Americans were clearly IBM Geneva employees known to Dehomag. So Taylor offered a new list of reliable Norwegians to use as additional front men. He emphasized, “The shares of these [new] people should be in their name actually, and cash consideration given. Understood,” he added, “they would be held for the IBM—but no rights.” The stock transfers could be just a pen stroke away, he pointed out, because “the shares are in New York now.”49