Graustein Out

Eleven years ago the directors of International Paper Co. plucked Archibald Robertson Graustein from a big Boston law firm, made him head of the world's biggest paper company at 39. Five years later President Graustein found love in the person of one Claire Patton, who was earning a modest living as a hostess in Manhattan's democratic Roseland Dance Hall. He whisked her off to Texas, married her. By this time Mr. Graustein's company was called International Paper & Power, and it was more a power company than paper company. Last week, having sloughed off most of its power business by a legal stratagem, International was once more a paper company. And Mr. Graustein, now 50, handed in his resignation. It was accepted.

That was not precisely the climax to a spectacular career that Mr. Graustein anticipated. When he took command of International in 1924, he found that the company had chopped down most of the forests near its U. S. newsprint mills, that its machinery was largely obsolete. He proceeded to build and buy enormous new plants in Canada and Newfoundland, where the pulpwood supply was handy and adequate. And since papermaking requires more power per worker than any other industry, except possibly electro-chemicals, he built hydroelectric plants to turn his paper mills. While he was about it, he installed enough generating capacity to serve a sizable section of Ontario and Quebec.

Meantime the price of newsprint tobogganed from a 1920 high of more than $100 per ton to about $55 per ton in 1929, then on down to a Depression low of $40. Even on its great modern paper machines at Gatineau and Three Rivers, Que.; Dalhousie, New Brunswick; and Corner Brook on the west coast of Newfoundland, International could not make enough money. But President Graustein discovered other profit sources. One was kraft paper, the common coarse bag and wrapping paper manufactured in the South. In the process of acquiring kraft companies, Mr. Graustein picked up a crack operating man named Richard J. Cullen, who headed the big International subsidiary, Southern Kraft Corp.

President Graustein's other profitable discovery was the U. S. public utility business. Many of the mills he abandoned when he transferred the newsprint division to Canada were located on water power sites. And while some plants were converted to higher priced types of paper which could be made at a distance from the forests, Mr. Graustein found it advantageous to market surplus power in the U. S. as well as Canada. His determination to plunge into power was not fully appreciated until 1929 when he announced that he held 82% of the stock in New England Power Association, which served 250 communities with a population of 2,500,000.

On International's balance sheet this expansion had some notable effects. At one time the company and its subsidiaries had outstanding no less than 35 different bond issues and 25 stock issues, the parent itself boasting two preferreds and three commons designated A, B and C. All the power properties were grouped in a sub-holding company called International Hydro-Electric. On a consolidated basis they represented two-thirds of International's total gross assets of $800,000,000.

More serious was the effect on International's financial position. At the end of 1931, bank loans amounted to $36,000,000 and Chase National Bank began to have a louder voice in the management. But the conspicuous fact about International is that it did not go into receivership or a 77-6 reorganization during a period when nearly every other big newsprint company in North America did. By the end of 1934, President Graustein had cut bank loans to $15,000,000, though utility profits continued to drop and newsprint was, and still is, selling near its Depression low.

In 1934 International wrote off virtually its entire investment in utilities and dropped the International Hydro-Electric system from its consolidated balance sheet. Just before the Public Utility Act took effect last December, President Graustein legally washed his hands of New England Power Association, delivering voting control to three trustees. International retained its property rights in the trusteed New England shares and holds title to its Canadian power system. Having taken its losses on these investments, it still has the undiminished possibilities of making money on them eventually.

Mr. Graustein is not a paper man but a lawyer, a utilitarian and a financier. Voluble, aggressive, brilliant, he finds it difficult to think in any except expansive terms. Son of a German-born Boston milk dealer, he romped through Harvard in two years, graduating magna cum laude. After Harvard Law School, he entered the Boston firm of Ropes, Gray, Boyden & Perkins, learned about paper while reorganizing a paper company, was pushed into International by the Phipps interests. President Graustein's prime paper policy was volume at almost any cost. International now dominates the kraft industry, which mushroomed in the last 15 years, and accounts for nearly one-half of North American newsprint.

Lately International's directors have been tightening up on budgets, paring personnel. An executive shake-up occurred last spring when E. A. Charlton resigned, to be succeeded as active boss of the paper mills by Kraftman Cullen. At a board meeting last month it was decided that Mr. Graustein should resign as president of International Paper Co., remain as head of International Paper & Power, the top holding company. Presumably Mr. Cullen was to have a free hand in paper, Mr. Graustein in power.

However, Mr. Graustein had his own idea about this arrangement. He interpreted the board action as a vote of no confidence, sat down forthwith and wrote a three-page resignation. Having by repute no love at all for Chase National Bank, Mr. Graustein is supposed to have spied that institution's long hand behind the directors' attitude. Elected to succeed him was Kraftman Cullen. Even Mr. Graustein does not know where Mr. Cullen was born.

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