Albert physically needed the sequestered proxy in hand so he could dis play it at the board meeting. August 29, late in the day, Lier cabled NY: “Albert stating third party holding IBM proxy for him. Desirable proxy handed to him…. Albert states imperative he obtain proxy in order [to] protect IBM interests. Suggests you cable third party hand him proxy. Also suggests we cable Dehomag Albert our attorney who should be invited all meetings and participate all Dehomag affairs. Albert urging speedy decision. Please advise.”44
It was morning in New York when Chauncey received Lier’s emergency dispatch from Geneva. He responded before the end of the day, Friday, August 29, instructing his secret source in Berlin. The source did not receive the cable until the next Wednesday, September 3.45
SEPTEMBER 3, 1941
Harrison Chauncey
International Business Machines Corporation
590 Madison Ave.
New York
Dear Chauncey:
Your cable of August 29 requesting me to turn over the power of attorney to Dr. Albert has been received and your instructions were carried out this morning when I personally handed him the document in question and gave him your message. He assured me that your instructions would be carried out to the letter. If developments do not move smoothly, there is a possibility that I shall call you on the telephone or write you in detail as Dr. Albert advises. Briefly he stated that Mr. Heidinger was attempting to take advantage of the dividend limitation decree, which was issued since you left Germany, to force the issuance of new stock.
When you left here I thought we would see each other in New York before this time, but as events are moving so slowly I have settled down for the winter. Paul Pearson, whom you will remember, is scheduled for home leave and may be passing through New York next month. There is a possibility that he will bring you a message if developments between now and then justify such action. Please remember me to Mr. Watson and Mr. Nichol, and with all good wishes to you.
Although five Germans now sat on the Dehomag board, few of them could appear in Berlin for the rush meeting Heidinger planned for September 19—not even Heidinger himself. Heidinger lived in Munich. So did Schulte-Strathaus. Dr. Vogt, Heidinger’s brother-in-law, lived in Berlin but was in poor health, and not available on such short notice. Arrangements were made for all three unavailable directors to sign proxies. Each signed on September 16 proxy forms prepared by Hans Mahr, a Dehomag attorney. These proxies empowered either Kiep or Ziegler to vote per specified instructions—to generate a stock split. Kiep was loyal to Watson, but the former German consul in New York was still an official of the German Foreign Ministry. The pressure on him was immense. He would have no choice but to vote as instructed on the proxy by Heidinger and his clique. There was no chance Kiep could cast his personal vote against reinvestment in Germany, so he would have to join with the majority.47
Albert was holding IBM’s proxy, conveyed by Woods, but no instructions from Watson. The new German law did not require profit taking; it only offered corporations a window to double their dividends on the condition that more money was reinvested in the Reich. But IBM would have to vote for the stock split for a host of reasons—that seemed clear. Albert needed a decision—fast. If IBM was isolated by its own board, and voted against German economic support, it would only seal the view that IBM was an enemy of the Hitler regime.
Yet, at a time when America was closer than ever to entering the war, Watson was profoundly uncertain how doubling the investment would be perceived. If it could appear that the investment was somehow compulsory, then IBM could simply explain it was required to comply with the law.
Woods could not provide such a statement, since the law was clearly optional. But he was willing to read such a statement from Albert to IBM NY, allowing IBM to transcribe the conversation and in so doing create a record of what appeared to be government coercion. A phone call was arranged.
SEPTEMBER 17, 1941, 10 A.M. NEW YORK TIME
WATSON: Hello, Mr. Woods.
WOODS: Hello, Mr. Watson. I am going to read a message to you from your attorney. This is the message:
“As you know, a special law, enacted June 12, 1941, provides that the dividends of any and all companies organized under German law are from now on restricted to six percent…. they can, according to certain detailed descriptions, increase their share capital out of their surplus. This is to be done by the board of directors, not by general [shareholder] meeting. Dehomag intends to increase their share capital out of surplus by 100 percent—RM 15,400,000—and will then be entitled to declare six percent dividends on the 15,400,000 Marks, which is equivalent to 12 percent on the original 7,700,000. The obvious advantages of this are… transfer of sur plus… without shareholders paying well-known high taxes…. This law can practically be considered compulsory. (In other words, it is compulsory that this be done)…. I strongly recommend you send a cable of approval.”
The message was transcribed as coming from Woods and therefore was envel oped in the authority of the commercial attache.48
Joining Watson in the conference call were Nichol and Chauncey. Woods was actually excited to speak to Watson himself. Indeed, Woods immediately had Albert’s message typed into a letter to IBM NY, adding, “It was good to hear your voices and I am looking forward eagerly to seeing you when I pass through New York the next time I am at home.”49
In the conversation with Woods, Watson told the attache he agreed in principle to the stock split, provided the Germans restricted their new stock as well. But IBM could not yet formally authorize it. Why? General Ruling 11 made it against the law.50 Complying with General Ruling 11 would take time. Time was something Watson did not have.
As America advanced toward the moment it would enter the war, the Roosevelt Administration had recently espoused General Ruling 11, an emergency regulation forbidding any financial transactions with Nazi Germany without a special Treasury Department license involving written justifications. Even certain corporate instructions of a financial nature were subject to the rule. This was something completely new to contend with in IBM’s Nazi alliance. IBM would now be required to seek a complicated, bureaucratic approval for each financial instruction it ordered for its overseas subsidiaries under Nazi control. General Ruling 11 would not affect subsidiaries in neutral countries, such as Sweden or Switzerland. Even still, it would severely hamper all communications with Dehomag itself, and open a government window into many of IBM’s complex transactions.51
How much time did IBM have?
The board meeting was scheduled in Berlin for late the next day.
New York immediately cabled Woods that it approved Albert’s recommendation to double the investment to RM 15.4 million—an increased reinvestment of about $2 million extra. But there was a condition. The new stock issued to the three Germans must be restricted under the existing captive share agreements. That was imperative.52
Quickly, IBM people had to complete the two-page sworn affidavit application to authorize the doubling of stock. It needed to be signed by the corporation’s secretary-treasurer, John G. Phillips. But he was not available. No time to waste. Someone signed Phillips’ name to both lines where it was required, and then dutifully placed their cursive lowercase initials—aer—under the signature to show it was affixed by a person designated to sign.53