But Phillips’ signature had to be executed and certified in the presence of a notary. No problem. Someone found a notary in Queens. He verified the signatures as genuine, stamped his name and commission number just beneath the Phillips signature, and then pressed his embossing seal onto the application. A short transcript of Woods’ telephone conversation with Watson was attached to prove the urgency of the transaction. The carefully quoted dialogue fragment included Albert’s well-structured explanation that what was really an optional profit-taking regulation “can practically be considered compulsory.”54
The application clearly stated that it could only be presented at the Federal Reserve Bank in Manhattan. But by the time the application was signed and sealed, it was just too late. The Federal Reserve was closed. Dealing with the phlegmatic Fed would be too slow anyway. Chauncey headed to Washington D.C. He would go over the head of the Fed, right to Treasury itself.55
The next morning, September 19, Chauncey appeared at the Treasury Department. The Dehomag board meeting would soon get under way—and IBM would not be there to vote for reinvestment unless the license was issued at once. Clearly agitated and pressured, Chauncey demanded the review officer issue the license to authorize the stock split.56 When? Right now.
But Mr. Rueffer, the review officer at Treasury, was in no real hurry. He bureaucratically informed Chauncey that such an application would take some time and must first be submitted through proper channels—namely the Federal Reserve Bank in New York. An impatient Chauncey now became riled. This application was too important, it could not wait. He insisted that if the Treasury license was not rendered at once, IBM’s German affiliate would take its own action in what was “probably a matter of compulsion.”57
Rueffer was not fazed.58 The matter just could not be done quickly. Take it to New York.
Meanwhile, in Berlin, a Dehomag attorney, Hans Mahr, had been called to certify the proper form of the board meeting. The session would be held not at Dehomag’s headquarters, where a last-minute cable from New York could be received, but at the Hotel Adlon—Watson’s favorite. Kiep and Ziegler would be there to vote their proxies as instructed by Heidinger. The meeting would convene soon—at 5 p.m.59
Back in Washington, Chauncey could not wait. He demanded to see Assistant Secretary J. W. Pehle for faster action. That was not possible.60
Then could he meet with a senior member of the staff ?61
One of Mr. Rueffer’s supervisors agreed to meet Chauncey. But the reality that the application would have to creep through the slow channels of the Federal Reserve Bank was sinking in. In frustration and futility, Chauncey laid out the financial transaction to the supervisor. Surplus money blocked in Germany, RM 7.7 million, would be reinvested in the company, doubling the capital of Dehomag. He stressed that even though IBM NY would be required to approve the recapitalization, no funds would be transferred from the U.S. In fact, the transaction would still leave an additional surplus of RM 10 million.62
Chauncey added that he had just been to Germany, and then his story began to wend into all sorts of permutations. The Treasury supervisor recalled that Chauncey “claims that unless the proposed change is made, the German authorities will make the change themselves… German interests will acquire control of the company.”63
In truth, when the stock split was ratified, the proportion of ownership would remain identical. The three Germans would still own the same 15 percent. The government would not effectuate the split; that was strictly a business decision for Dehomag’s board. The Treasury supervisor remained unconvinced. He noted, “His [Chauncey’s] explanation of this was somewhat vague and had to do with present German laws about which he was very uncertain.”64
Chauncey was again told by the supervisor that Rueffer was correct. Under the law, IBM needed to provide a proper detailed explanation of the stock split and file that with the license application at the Federal Reserve Bank. Knowing that time was running out for some sort of instruction to Berlin, Chauncey pressed the supervisor for at least an opinion. Might such a transaction be approved? It was all speculation. The supervisor just could not predict.65
But it was “extremely urgent,” insisted Chauncey. It didn’t matter. Nothing he said that day could make the license happen.66
Time was running out. The vote was about to proceed, and Albert needed to authorize the vote. But Watson could not authorize it. Chauncey could not authorize it. No one at IBM NY would authorize it without a Treasury license.
So Sam Woods authorized it. He called Albert and told him to proceed.67
Albert informed Dehomag officials that IBM NY was authorizing the stock split and would not challenge the reinvestment. In a brief corporate event, Kiep and Ziegler assembled at Berlin’s Hotel Adlon at 5 P.M. Kiep officially opened the meeting and stated the sole agenda item. He and Ziegler verbally agreed in the presence of attorney Mahr, who certified every procedural step of the two men. The stock was split.68
Watson must have been furious. For decades, IBM had tiptoed through the serpentine regulations of seventy countries—whether at war, in peace, or anything in between. From Fascist states to revolutionary regimes, the company had always managed to avoid legal infractions of any kind. Now it appeared that General Ruling 11 had been violated. General Ruling 11 was essentially a precursor to Trading with the Enemy regulations. It was more than important. Moreover, Chauncey’s name was on the proxy that effected the transaction. Everyone began explaining themselves in carefully worded memos and letters.
Albert wrote to Chauncey on October 9, “It is true that Mr. Watson stated he would send me a cable immediately authorizing such procedure and that I have not received such a cable; on the contrary, I have been informed that this cable… could not be sent due to the fact that IBM have not yet received license from Treasury Department…. I have not waited… but had informed the Dehomag… that they were authorized to go ahead.” In so doing, Albert added, he was able to show IBM’s willingness to cooperate in the German economy. In consequence, “everything had been amicably settled,” he continued, which allowed more objectionable decisions by the board to be avoided. “I took the responsibility of approval upon myself.”69
Understanding that Chauncey might have to answer to the Treasury Department, Albert’s apologia went on, “I hope you do not get into difficulties with your [Treasury] Department. They will certainly understand…. For obvious reasons, I am not sending any more particulars than are already in IBM’s hands.”70
That same day, October 9, IBM’s Werner Lier wrote a formal four-page letter to Watson explaining events. He had gone over the complete file in Albert’s office. “I noted therefrom the decision taken by Dr. Albert, upon advice of Mr. Woods, to increase the capital by 100 percent…. [But] we wish to remind you in this connection of Mr. Woods’ telephone call… and from which he deducted [ sic] your agreement.” Lier declared the urgent move was required “to avoid a precedent of Dehomag overstepping the prerogatives of the IBM.”71
IBM couldn’t be sure what to do. Its license application was slowly percolating through the Federal Reserve Bank and the Treasury Department. A series of formal letters and cables began papering the files reflecting official IBM non-authorization. On September 26, a week after the stock was split, IBM cabled Woods at the Embassy: “Regret we have not been able [to] cable you in response your telephone message due to [the] fact that we have not yet received license from Treasury.”72