#284 Andrew Carnegie and Henry Clay Frick

In the late 19th century, industrialists Andrew Carnegie and Henry Clay Frick forged a partnership that would dramatically shape America's steel industry. Despite their collaboration in creating a business empire, their relationship disintegrated into a bitter feud following the Homestead Strike, a violent labor dispute. Carnegie's attempts to oust Frick from their companies and buy his shares at a fraction of their worth led to a high-stakes legal battle. Ultimately, Frick's savvy maneuvers forced Carnegie to pay $31 million for his stake, reflecting the true value of their holdings. This saga culminated in the creation of U.S. Steel, the world's first billion-dollar corporation, with Frick playing a critical advisory role for over 15 years. Their story, emblematic of the era's ruthless business tactics and labor struggles, is vividly captured in Les Standiford's "Meet You in Hell."

• Andrew Carnegie, at 83 and suffering from influenza, writes a letter to his former business partner Henry Clay Frick.
• The letter is a call for reconciliation between the two, who had been estranged for nearly 20 years.
• Carnegie and Frick were once partners in Carnegie Steel, but their relationship soured, leading to legal battles and personal vendettas.
• The letter is delivered by Carnegie's personal secretary, James Bridge.

"Take this to Frick, Carnegie said as he handed the letter to his old confidant."

This quote highlights Carnegie's intent to reach out to Frick despite their tumultuous past, demonstrating a desire to mend fences in the twilight of his life.

• Frick, upon receiving the letter, is uninterested in reconciliation.
• Despite Carnegie's plea for a meeting to resolve past grievances, Frick remains cold and dismissive.
• Frick's history of holding grudges and his aggressive business tactics are noted as part of his character.

"Yes, you can tell Carnegie I'll meet him, Frick said, finally, wading the letter and tossing it back at bridge. Tell him I'll see him in hell, where we're both going."

This quote illustrates Frick's bitter feelings towards Carnegie, refusing the offer of reconciliation with a harsh retort, indicating that some rifts are too deep to heal.

• Steel was a leading technology in the expansion of America's railroad system.
• The growth of the railroad network required standardization and mass production of steel.
• Technological advancements in steel production were crucial to the country's infrastructure development.
• The United States transformed from an agrarian society to an industrial powerhouse.
• Entrepreneurs like Carnegie leveraged technological trends to build massive fortunes.

"So this is why steel was so important. It was a leading technology of the day."

This quote emphasizes the critical role of steel in the industrialization of America and how it served as a foundation for the nation's economic growth.

• Carnegie believed in focusing on core industries and leveraging opportunities for wealth accumulation.
• He invested in various sectors including oil, iron, and ultimately steel.
• Carnegie's practical business education came from his association with influential figures like Thomas Scott.
• His decision to concentrate on steel production was influenced by the Bessemer process, which significantly reduced the time needed to produce steel.

"Perhaps it made more sense to end the scattershot approach to accumulating wealth and put all good eggs in one basket and then watch that basket."

This quote captures Carnegie's strategic shift to concentrate his efforts on the steel industry, which he recognized as having the greatest potential for wealth creation.

• Carnegie's trip to England was pivotal, where he met Henry Bessemer and learned about the Bessemer process for steel production.
• The trip also led to his acquaintance with Junius Morgan, father of J.P. Morgan, who would later buy Carnegie's steel company.
• The Bessemer process was a technological breakthrough that allowed rapid and cost-effective steel production.

"One of the people he met when he went to England was the inventor Henry Bessemer."

This quote signifies the importance of Carnegie's meeting with Bessemer, which catalyzed his decision to enter the steel industry, setting the stage for his future success.

• The financial panic of 1873 presented a challenging environment for business ventures.
• Carnegie, however, saw the panic as an opportunity to expand his business when others were hesitant.
• His decision to start his steel mill during the panic proved to be advantageous as it allowed him to grow without competition.

"Turned out the best time to expand is when no one else is actually willing to take the risk."

This quote reflects Carnegie's counterintuitive strategy to invest and expand during economic downturns, which ultimately paid off in the long term.

• The New York Stock Exchange closed for the first time in history for ten days due to a severe economic downturn.
• One quarter of U.S. railroad companies declared bankruptcy, 20,000 businesses failed, and one-sixth of the workforce was unemployed.
• Andrew Carnegie began his business in these conditions, which would become one of the most valuable ever created.
• The depression reduced demand for materials and labor, saving Carnegie nearly 25% on costs.
• Carnegie took advantage of the economic downturn to expand when others were hesitant to take risks.
• He built his first steel mill for 25% cheaper than anticipated and secured cheaper labor.
• Carnegie paid top dollar for the best people, valuing the quality of labor in key positions.

Those are the economic conditions that Andrew Carnegie is going to start his business. This business becomes one of the most valuable businesses that has ever been created.

This quote highlights the extreme economic conditions under which Carnegie started his business, which despite the odds, became incredibly successful. It emphasizes the significance of starting a business during a downturn and the potential for success.

• Carnegie's success was partly due to meticulous cost accounting, a practice he applied from his experience in freight hauling to the steel industry.
• He ensured accurate bids on projects, eliminating guesswork and undercutting rivals with confidence.
• Carnegie recognized the value of hiring the best employees for key positions and paying them well.
• His cost accounting methods were mirrored by Henry Clay Frick in the coke industry, which impressed Carnegie.

Carnegie's success can be attributed to another lesson he had learned on the way up. The value of meticulous cost accounting.

The quote explains that one of Carnegie's key lessons on his path to success was the value of meticulous cost accounting, which he applied across his businesses to ensure profitability and competitiveness.

• Carnegie was the principal salesman for his iron and steel companies, similar to Bill Gates's role in the early days of Microsoft.
• His focus on sales and lowering costs helped him outcompete rivals and establish dominance in the market.
• Carnegie's management style involved pushing for continuous improvement, even when his company was already the best.
• He encouraged his employees to do better, contributing to a virtuous cycle of lowering costs, reducing prices, and gaining more customers.

Carnegie never wanted to know the profits. He always wanted to know the cost.

This quote captures Carnegie's business philosophy, which prioritized understanding and minimizing costs over simply knowing profits, a strategy that helped him maintain a competitive edge.

• Carnegie and Frick's partnership began with Frick becoming the exclusive supplier of coke for Carnegie's enterprises.
• Frick's ability to produce high-quality coke at low costs and his management skills led Carnegie to see him as a valuable partner.
• Frick used his coke business as leverage to gain entry into the steel industry, which was his ultimate goal.
• The partnership evolved with Carnegie owning a significant portion of Frick's company, which at one point was more profitable than Carnegie's steel company itself.

What Henry Clay Frick longed for was an entry into steel.

The quote reveals Frick's ambition to enter the steel industry, which was the driving force behind his willingness to partner with Carnegie and eventually divest from his coke holdings.

• The ironclad agreement was created to prevent the need for immediate liquidation if a partner, particularly Andrew Carnegie, died.
• It allowed the company to buy a deceased partner's shares at book value and enabled the ousting of a partner with a three-quarters vote.
• Frick signed the agreement without objection, but it later became a point of contention between him and Carnegie.
• The agreement's terms would eventually lead to a bitter conflict between Carnegie and Frick, lasting until their deaths.

The ironclad agreement functioned as a safety net, ensuring that the company had ample time to arrange for the purchase of a deceased partner's shares at book value.

This quote describes the purpose of the ironclad agreement, which was to provide stability and continuity for the company in the event of a partner's death, but it also set the stage for future conflicts.

• The book discusses the commonality of conflict between ownership and labor in business history during the 1800s and early 1900s.
• The homestead strike, referred to as the homestead massacre, was a violent labor dispute that highlighted the tensions between Carnegie and Frick.
• Frick's assertive personality often led to threats of resignation when his decisions were second-guessed by Carnegie, who did not want to manage the company himself.

A main theme of the book is this constant conflict between ownership and labor.

The quote points to the recurring theme of conflict between business owners and their workforce, which is a significant aspect of the historical context in which Carnegie and Frick operated.

• Andrew Carnegie expected obedience from his subordinates, but Henry Clay Frick was not one to comply unquestioningly.
• Frick had a history of being a hardliner on labor issues and resisted the influence of unions in company decisions.
• Frick's aggressive stance against labor is exemplified by his physical altercation with a striker during a coal and coke shipment disruption in 1877.
• Frick's resignation came as a result of Carnegie's insistence that he settle with strikers, an idea Frick opposed.
• Despite the resignation, the disagreement led to a closer partnership between Carnegie and Frick, recognizing each other's strengths.
• Carnegie eventually increased Frick's share in the company and named him chairman of Carnegie Brothers and Company.

"Carnegie was accustomed to obedience from his subordinates. But if he expected unquestioned subservience from Henry Clay Frick, he had gravely miscalculated."

This quote highlights the tension between Carnegie's expectations and Frick's independent nature, setting the stage for Frick's initial resignation.

"I therefore enclose my resignation."

Frick's resignation letter to Carnegie and the partners demonstrates his unwillingness to yield to Carnegie's demand to settle with the strikers.

"Carnegie determined to put Frick's managerial talents directly to work within the steel company."

Carnegie's recognition of Frick's managerial skills and his decision to increase Frick's share in the company to ensure his continued involvement.

• Both Frick and Carnegie shared a focus on cost control over profits or revenues.
• They believed that cost savings were permanent and within their control, unlike the cyclical nature of profits and prices.
• Their business strategies included constant investment in new technologies to improve efficiency and reduce costs.
• The adoption of basic hearth furnaces over Bessemer converters, despite the cost, exemplified their commitment to technological advancement for cost reduction.
• The partnership's philosophy differed from their contemporaries who prioritized net profits and dividends.

"Carnegie would repeat the mantra time and time again. Profits and prices are cyclical, subject to any number of transient forces of the marketplace. Cost, however, could be strictly controlled."

This quote encapsulates the core business philosophy of Carnegie and Frick, emphasizing cost control as a key to lasting success.

"Even if we save half a dollar per ton by the changes, it would justify a large additional expenditure."

Carnegie's willingness to invest heavily in new technology for even marginal cost savings demonstrates the depth of their cost-saving commitment.

• The Homestead Strike was a major labor dispute that escalated to violence, leading to loss of life and property.
• Frick and Carnegie's refusal to meet union demands resulted in the closure of the plant and the hiring of the Pinkerton detectives to confront the strikers.
• A violent confrontation ensued between the Pinkerton detectives and the workers, leading to casualties on both sides.
• The aftermath of the Homestead Strike hardened Frick's stance against the union, with a declaration that no participant in the violence would be rehired.
• The public relations fallout from the Homestead Strike was significant and marked the beginning of the end for the Frick-Carnegie partnership.

"In the name of God and humanity, do not attempt to land, do not attempt to enter these works by force."

Union leader O'Donnell's plea to the Pinkerton detectives highlights the tension and the desire to avoid violence before the Homestead Strike escalated.

"This incident will not change the attitude of the Carnegie Steel company towards the union."

Frick's statement post-assassination attempt reflects his unwavering stance against the union and his determination to prevail despite personal harm.

• Alexander Berkman attempted to assassinate Frick, motivated by the latter's actions during the Homestead Strike.
• Frick survived the assassination attempt, refusing anesthesia during bullet removal and insisting on finishing his work before seeking medical attention.
• Frick's personal life was marked by tragedy, with the loss of two children, which he endured while continuing to work.
• The assassination attempt did not alter Frick's or the company's policies toward unions.

"I do not think I shall die, but whether I do or not, the company will pursue the same policy and it will win."

Frick's statement after the assassination attempt conveys his resilience and determination to maintain the company's position against unionization.

• Frick's final resignation from the day-to-day operations of the company was due to a series of disagreements with Carnegie, including one over the purchase of a competitor's company.
• The partnership between Frick and Carnegie ultimately deteriorated, leading to a final confrontation and Frick's departure from the company.
• Frick's advice to his protégé Charles Schwab about perseverance and integrity reflects his own business philosophy.

"You must not allow anything to discourage you in the least."

Frick's advice to Charles Schwab emphasizes the importance of resilience and integrity in the face of adversity, mirroring his own approach to business and life.

"It can only be described as a jaw dropper."

The author's reaction to Frick's resignation letter underscores the dramatic and unexpected nature of Frick's final break with Carnegie.

• Andrew Carnegie and Henry Clay Frick had significant disagreements leading to a strained relationship.
• Frick desired to leave the partnership quietly due to his dissatisfaction with Carnegie's business methods.
• Despite their wealth and intelligence, both Carnegie and Frick were prone to petty and ego-driven behavior.

"Mr. Carnegie, is high time you should stop this nonsensical talk about me being unwell, overstrained, and treat this matter between us in a rational, business like way." "And so what's crazy is he resigns. This is happening in 1894."

The quote illustrates Frick's frustration with Carnegie's behavior and his desire to handle their business dealings more professionally. Frick's resignation in 1894 marked a significant point in their partnership.

• Frick and his partner Phipps were interested in liquidating their share in the company, knowing its value was far greater than the book value.
• The ironclad agreement of 1887 created a major obstacle, as it required shares to be redeemed at book value, greatly undervaluing the company.
• Carnegie Steel's book value was $50 million, while conservative estimates placed its true valuation between $200 and 250 million.

"Frick and Phips might have sold their holdings even earlier, but the existence of one major stumbling block was the ironclad agreement of 1887, which they had all signed according to the provisions which were meant to protect the partners in the event of Carnegie's death."

This quote highlights the limitations imposed by the ironclad agreement, which prevented Frick and Phips from selling their shares at a fair market value.

• Frick and Phips attempted to sell the company without disclosing the identity of the prospective buyer to Carnegie.
• Carnegie suspected Rockefeller or J. P. Morgan as potential buyers.
• The secretive nature of the sale and the involvement of speculators like Gates and the Moore brothers were distasteful to Carnegie.

"Carnegie asked Frick and Phips who their prospective buyers were. In Carnegie's mind, Rockefeller was one suspect and another was J. P. Morgan."

This quote reveals Carnegie's suspicion about the identity of the prospective buyers and his discomfort with the secrecy surrounding the deal.

• Frick wanted a fair valuation for his shares, but Carnegie refused to reevaluate the company.
• Carnegie's actions were driven by ego, leading him to try and force Frick out at a low valuation.
• Frick filed a lawsuit, and the public airing of the company's profits and valuation became a significant issue for Carnegie.

"What Frick wants is the company's valuation to increase, to reflect the drastic increase in profits, right? So then he can then sell his earnings."

The quote explains Frick's motivation to have the company properly valued to ensure he received fair compensation for his shares.

• A compromise was reached, valuing Carnegie Steel at $250 million and Henry Clay Frick Co. Company at $70 million.
• Frick was removed from management but received $31 million for his shares.
• J. P. Morgan's acquisition of Carnegie Steel led to the creation of the world's first billion-dollar corporation, U.S. Steel.

"A compromise was laid out. Carnegie Steel was to be valued at 250,000,000, Henry Frick Co. Company to be valued at 70 million."

This quote describes the settlement agreement that led to the valuation of the companies and the eventual formation of U.S. Steel.

• Carnegie retired after selling his company, while Frick remained involved in the new U.S. Steel Corporation.
• Frick was willing to consider the CEO position but was eventually voted onto the board of directors.
• The relationship between Carnegie and Frick never recovered, and they did not meet again after their legal disputes.

"If Carnegie relished the prospect of retirement, Frick evidently did not. He made it known that he would be willing to consider the possibility of being the chief executive officer of the new company."

This quote contrasts Carnegie's and Frick's post-sale intentions, with Carnegie retiring and Frick remaining active in the business.