(Redeeming $200,000,000 of 7 per cent. preferred stock would save dividend charges of $14,000,000 yearly, for which would be substituted a charge of 5 per cent. on $250,000,000 bonds, or $12,500,000. The amount required for the sinking fund would be slightly more than $1,000,000 or less than the net annual saving. And a permanent capital reduction would be effected at the end of sixty years.)
No other action of the Corporation’s management, it would be safe to say, has met with such widespread disapproval as did the bond conversion plan, much of the criticism coming from financial experts who questioned the propriety of increasing the bonded debt of the company to so great an extent with so small an actual gain in working capital or resources. It was characterized as dangerous financing and it is known that not all the Corporation’s directors were themselves in full accord with the operation. At a meeting held on May 19, 1902, the plan was submitted to a vote of the stockholders and here considerable opposition developed which led later to the bringing of four suits to prevent its consummation. One of these suits which attracted a good deal of attention was brought by J. Aspinwall Hodge, a New York lawyer. But the Court of Errors and Appeals of New Jersey eventually dismissed these suits and the offer to exchange stock for the bonds—delayed by the suits—was finally made to stockholders in the spring of 1903.
In view of the fact that its avowed object was the raising of $40,000,000 new cash capital, said to be necessary, the plan can hardly be said to have been an eminent success. Exclusive of the syndicate operations only $45,200,000 of preferred stock was exchanged by stockholders for the bonds and the cash subscriptions for the issue from the same source amounted to the insignificant sum of $12,200. The syndicate, at its dissolution, turned in a total of $150,000,000 in preferred stock and $20,000,000 in cash (this, of course, included the $45,200,000 stock and $12,200 cash of the outside stockholders), a total of $170,000,000, and instead of the desired $40,000,000, the actual cash gain to the Corporation from the transaction was $20,000,000 less a syndicate commission of $6,800,000, or $13,200,000 net.
As the Corporation has been able to meet its full preferred dividend requirements since its formation, however, it is obvious that as matters turned out it has saved $2,000,000 a year in interest charges or in eighteen years since elapsed $36,000,000, more than five times the commission paid the syndicate. The yearly saving is also approximately double the $1,010,000 which the sinking fund calls for, so that the net gain to stockholders from the reduction of the preferred capital is $990,000 a year. Looking into the distant future the saving after the bonds are paid off in forty-two years will be $10,500,000 annually.
One of the criticisms hurled at the plan was that its real object was to enable the syndicate, and especially the banking house of J. P. Morgan & Co., to make a profit at the expense of the stockholders. The facts were that the syndicate took a big risk of the bonds selling at less than par after issuance, which they did, and while it is impossible to ascertain the exact gains or losses incurred, the understanding is that Mr. Morgan and his associates in the syndicate actually suffered a loss of something like $8,000,000 from the deal.
It was perhaps natural that the management of the Steel Corporation, in its early existence, should have been more or less divided against itself. This danger was one of the factors urged by its critics against the possibility of its success. Among its directors were Phipps, Frick, and Schwab, old Carnegie partners, and firm believers in the Iron Master’s policy of getting your competitor before he got you. Gary was the prominent figure in another faction that had the foresight to perceive that a new day was dawning in industry, an era of coöperation between manufacturer and manufacturer, to realize that the very size of the Corporation rendered it subject to the enmity of smaller concerns and to legal attack and public disapproval, and that the only way of overcoming this danger was to gain the good will of all by an open and straightforward policy. As the years passed these differences were gradually smoothed out. The directors, as a whole, came to see that Gary’s policy was right, in fact the only one to pursue, and harmony was gradually brought out of the conflicting elements and opinions.
With the passing of the years Gary gained the ascendency in determining the courses of action of the Corporation. Always its chief executive officer he eventually became potential. And it is a high tribute to his judgment and foresight that all of those who disagreed with him at first have later admitted, as did Schwab, in a published speech, “He was right and I was wrong.”
Charles M. Schwab did not long remain as president of the Corporation. His health broke down shortly after its formation and, in 1903, he resigned his position and sailed for a long rest abroad, later coming back to America to purchase control of a small independent concern and to build up an organization of his own that to-day ranks next to United States Steel among the steel-making companies of the United States.
At the time of Schwab’s resignation the Executive Committee was abolished, the position of chairman of the Board created, and Gary was elected to that office. William Ellis Corey, President of the Carnegie Steel Co., was chosen President of the Corporation to succeed Schwab, on the latter’s recommendation, and continued in this capacity until the end of 1910, when he resigned to be succeeded by James A. Farrell, the man who had built up the Corporation’s export trade and who was then president of the United States Steel Products Co.
Before the new-born Corporation had passed the first anniversary of its birth Robert Bacon resigned as chairman of the Finance Committee and was succeeded by George Walbridge Perkins, another Morgan partner. Mr. Perkins continued in this office for several years, but later retired, and since then Judge Gary has filled the offices of chairman of the Finance Committee and chairman of the Board. He is by the Corporation’s by-laws named “chief executive officer in general charge of the affairs of the Corporation.”