Double the Profits, Double the Pride

(See Cover)

Bulging with five-year plans, confidential memos and balance statements, the dozen-odd attache cases are seldom out of their owner's sight. At work in New York, he lovingly lines them up on window ledges in his twelfth-floor office overlooking Park Avenue; at night, he takes a couple of them back to his East Side apartment for bedtime reading. For his frequent trips to Europe, he picks up four or five and carries them along on the plane. And on weekends, he lugs several to his weathered, two-bedroom cottage in New England, where he pores over their dog-eared contents hour after hour.

Only when Harold Sydney Geneen, 57, goes fishing off Cape Cod aboard his $100,000 yacht, Genie IV, does he temporarily travel without his attache cases. "Otherwise, my office is where I am," explains Geneen. Inasmuch as he is board chairman and president of the globe-girdling International Telephone & Telegraph Corp., that could be almost anywhere. A man who walks fast, talks fast and thinks fast, the sturdy (5 ft. 10 in., 180 lbs.) Geneen churns with the ambition of a man half his age. In the space of eight years, he has rejuggled ITT from top to bottom, transforming it from a stodgy, disjointed telecommunications invalid into one of the most successful of the highly diversified new-breed corporations known as "conglomerates."

Geneen himself shuns the conglomerate tag, prefers to call ITT "a unified-management, multiproduct company"--a term that, for some reason, he considers far tidier. Whatever the label, Geneen's ITT has become a hearty concoction. A huge amalgam of some 150 affiliated companies in 57 countries, it hums with new purpose in its traditional field: the manufacture of communications equipment around the world. At the same time, ITT's 204,000 employees are pushing into fresh territory. Backed by an annual research-and-development budget of $220 million, ITT scientists are at work on such sophisticated projects as automatic landing systems for aircraft and the use of laser beams for spacecraft docking.

Under Geneen, the company developed the Strategic Air Command's control switching network, maintains Washington's "hot line" to MOSCOW, operates the Air Force's Distant Early Warning (DEW) system. It even drew on its overall management know-how to pick up the thankless task of running the federal Job Corps project at Camp Kilmer, which was bound to be controversial if only because residents of surrounding New Jersey communities did not want a conclave of so-called juvenile delinquents in their midst. After a noisy start, the camp has gone out of the headlines, and even its early critics now concede that it is well run.

"Carry the Ball." Because of the variety of ITT's main-line operations, Hal Geneen rejects anything remotely smacking of a "one-industry mentality."

He has built a like-minded organization of which he proudly says: "There may be as many as 200 problems a month, but we hit 'em all in two days." To keep on hitting them, he has gone so far as to distribute footballs to his top executives with badges inscribed "Carry the ball." Geneen makes no apology for what he considers to be the be-all and the end-all of corporate existence: profits. In fact, his avowed ambition when he took over ITT was to double profits every five years; he was on schedule at the end of his first five-year plan, and he seems certain to make it again at the end of the second. Says General Electric Vice President Louis Rader, an ex-ITT man: "Geneen is like a man in a field with a lot of rocks in it. And he thinks there's a pot of gold under one of those rocks, so he's got to turn over as many as he can."

During Geneen's reign, ITT has increased sales from $766 million in 1959 to $2.1 billion last year, earnings from $29 million to $90 million; in the first six months of 1967, sales have gone up another 5%. The company has set new sales and earnings records for a phenomenal 32 consecutive quarters. Its assets over that span have almost tripled, to over $2.3 billion. ITT's directors last month rewarded Geneen with a contract extending his term as president to the mandatory retirement-age of 65--still eight years off.

Much of ITT's growth has come from Geneen's success in playing the merger game. In all, the skipper of the Genie IV has reeled in 44 companies, ranging across fields as diverse as auto rentals, mutual-fund management and airport parking. The biggest catch of all--ITT's proposed merger with American Broadcasting Cos.--has so far eluded him.

Even without ABC, Geneen has established himself as one of the most acquisitive empire builders at a time when merger mania is altering the landscape of U.S. business.

What Is a Conglomerate? So far this year, major U.S. business mergers have been moving at a record clip of 150 a month. But what sets the present wave of mergers apart is not so much its volume as its nature. Over 70% of the mergers have been of the conglomerate variety. The reason for this is that antitrust rulings have virtually outlawed "horizontal" mergers (between competitors) and, to a lesser extent, "vertical" ones (with suppliers or customers). As a result, today's merger-minded companies are looking for partners in industries far afield from their own, as in American Tobacco's current negotiations to acquire apparel-making Kayser-Roth Corp.

For conglomerate companies like Gulf & Western Industries, such mergers have had spectacular results. Under Chairman Charles Bluhdorn, Gulf & Western, which a decade ago was an ailing Houston auto-parts company, has gobbled up one company after another (among them: Paramount Pictures, New Jersey Zinc) to balloon into a $1 bil-lion-a-year operation. A pioneer in the conglomerate-building field, Los Angeles' Litton Industries, which was started almost from scratch by Chairman Charles B. ("Tex") Thornton (TIME cover, Oct. 4, 1963) and President Roy Ash in 1953, is still building. Last week, Litton (1966 sales: $1.2 billion) arranged to pick up yet another property, Pennsylvania-based Landis Tool Co.

In a sense, virtually all large U.S. companies are conglomerates; U.S. Steel, for example, not only turns out metals but also builds bridges and sells cement. However, in Wall Street parlance, conglomerates are generally those companies that have adopted a diversification-by-merger philosophy as a way of corporate life--and most of them share Harold Geneen's distaste for the term. After all, says Ralph Ablon, who has built his Ogden Corp. into a far-reaching (shipbuilding, metals, processed foods) conglomerate, the word connotes a company with "no unity, no purpose and no design."* To most image-conscious companies, the real conglomerates are thus the operations of men like Victor Muscat, a Manhattan-based entrepreneur whose corporate acquisitions generally follow no visible pattern, come after bitter takeover fights, and result in little in the way of new management initiatives.

Visible & Viable. The amount of control conglomerates wield over their crazy-quilt acquisitions varies widely. Many of the leading ones keep their headquarters remarkably lean. Litton is proud of the fact that it runs its far-flung empire with a central staff--secretaries and all--of fewer than 250 people. Chairman Rupert C. Thompson Jr. of Textron Inc., a $1.1 billion-a-year complex that makes everything from Sheaffer fountain pens to Bell helicopters, houses his entire headquarters in 1 1/2 floors of a small office building in downtown Providence. So decentralized is Dallas' fast-growing Ling-Temco-Vought that it sets up its subsidiaries in seven publicly owned (but L-T-V-controlled) companies. In that way, explains L-T-V President James J. Ling, each company is "visible to the public and must be viable and capable of standing on its own."

Critics say that the conglomerates are little more than glorified holding companies. But companies like Litton Industries take the position that they are helping their holdings to grow syn-ergistically--by monitoring them for signs of trouble, providing them with computer and research services and risking money on projects they might not undertake on their own. Diversification has obvious benefits for the conglomerates, buffering them against bad weather within a single industry. To Andrew Carnegie's dictum to "put all your eggs in one basket and watch them," Gulf & Western's Bluhdorn replies: "If you have all your eggs in one basket, then you're stuck with those eggs."

For all the stir the Bluhdorns and Thorntons have caused in financial circles, the public at large, says Yale Historian John Morton Blum, is "conscious of a soup company, but not of a conglomerate." To remedy that, Textron, once a confederation of textile companies, is running ads making the point that the company now makes almost everything but textiles. "Think you've got Textron down pat?" the ads read. "What about electronic systems, golf carts, helicopters, chain saws?" Another company troubled by anonymity is Harold Geneen's ITT. "You can stop 15 people in the street and not one will know what ITT is," Geneen has lamented. "That bothers me."

Basic Economics. Hal Geneen's drive for recognition has a personal as well as corporate side. Born in England (his very British mother was improbably named Aida DeCruciani), he was less than a year old when his father, a manager of concert performers, moved the family to New York. By Hal's fifth birthday, his parents were separated. Mother, who remains a major influence in his life (Geneen's father is now dead), sent him to a succession of boarding schools and summer camps. At Suffield (Conn.) School, the older boys got Springfield rifles for military drill while the younger ones got only wooden ones. "So there I was," he recalls, "the smallest kid in the school, carrying my little wooden rifle with one hand, and trying to keep my puttees up with the other."

Hal persevered, graduated from Suffield, afterward got a job as a page on Wall Street, where he developed an enthusiasm for finance. At night he studied accounting. At Manhattan's Lybrand Ross Bros. & Montgomery, where he was an accountant for eight years, Geneen became known as a hard-driving young man whose grasp of business, recalls Lybrand Partner Philip Bardes, "went far beyond the balance statement." Geneen next moved through corporate-finance jobs at American Can Co., Bell & Howell and Jones & Laughlin Steel, combing their ledgers, as a colleague of those years later put it, like "a bloodhound on the trail of a wasted dollar." But Geneen, who says he has never been one to "gamble on what other people did," grew anxious to start taking risks on his own.

His chance came at Boston's troubled Raytheon Co., where he hired on in 1956 as executive vice president with orders from the electronics company's president, Charles Francis Adams, to "make some money." Geneen tightened up Raytheon's cost controls, arranged fresh credit from the banks, squeezed out new working capital. He saw to it that Raytheon paid its bills on time, to take advantage of the standard prompt-payment discount; at the same time he insisted that Raytheon's debtors pay up pronto. Anxious to infect the entire company with his own profit consciousness, Geneen on one occasion rented a local high school auditorium, used it to deliver a lecture on basic economics ("Sales are the volume of business done expressed in dollars") to over 1,000 Raytheon engineers.

Adams' mandate was carried out--Raytheon's earnings increased fourfold during Geneen's three-year stay--but Geneen was by now casting about for a larger policymaking role. At the same time, several corporations were anxious for a man who would make policy, and Geneen was sought out by an executive recruiting service for the top job at ITT. In May 1959 he walked into Adams' office, abruptly announced: "I'm resigning." The day the news came out, Raytheon was the most actively traded stock on the New York Stock Exchange, dropping 6 1/2 points. ITT rose only half a point, but it was the third most active stock. Set in motion by Geneen, Raytheon today flourishes without him. As for ITT, Wall Street figured that the company was in for some changes under Geneen, and it was right.

Dropping the Ampersand. International Telephone & Telegraph came into being in 1920 when Sosthenes Behn, a young entrepreneur born in the Virgin Islands of Danish-French ancestry (though "Sosthenes" is Greek for "of sound strength"), founded it as a New York-based holding company for several Caribbean telephone companies he had recently acquired. Behn's choice of a corporate name was an unabashed effort to trade on the reputation of the giant American Telephone & Telegraph Co. Behn was successful in creating this confusion; even today, many people think of ITT as the international division of A.T. & T. Behn received a more tangible assist from A.T. & T. in 1925 when that company sold him its foreign manufacturing subsidiary, International Western Electric, which produced telephone equipment in eleven countries.

ITT flourished over the next few years, its worldwide assets mushrooming from Behn's original investment of $3,400,000 to $588 million by 1930. Over the years, the company provided South America with an early radio telephone link with Europe and North America, brought nationwide telephone dialing systems to Belgium and Switzerland, built Europe's longest coaxial-cable network. The company's foreign-based operations, however, have always left it vulnerable to worldwide upheavals. During World War II, for example, Behn succeeded in saving his corporation from disaster only by hurriedly negotiating the sale of several overseas holdings. Trying to strengthen the company at home after the war, Behn rushed headlong into the domestic-appliance field, buying up Capehart-Farnsworth Corp. (record players, TV sets, radios) and Coolerator Corp. (refrigerators, air conditioners). Both lost money, were finally abandoned.

Under Behn, the communications company's own internal communications were woefully inadequate, with the result that ITT's various European units often competed with one another.

Behn himself became an anachronism, a courtly man who still relished leisurely, ten-course lunches at a time when the rest of the business world was moving at a breakneck clip. In 1956, a year before he died at 75, Behn finally relinquished his tight grip on the company. About the only achievement of his immediate successors (and Geneen's immediate predecessors) was to drop the ampersand--making it ITT instead of I.T. & T.

"Our Winning Horse." Determined to bring ITT's far-flung subsidiaries and divisions under New York's control, Geneen set up centralized regional marketing and planning staffs, insisted on detailed monthly business reports from the field, eliminated overlap throughout the company. Ten worldwide ITT plants producing semiconductors, for example, were coordinated under New York's aegis for the first time. Because the company's European manufacturing complex was "our winning horse"--ITT was doing poorly in its U.S.-based manufacturing operations--Geneen decided to ride it especially hard, fused it under a single headquarters located in Brussels. To house the newly created ITT-Europe, a handsome building went up on Brussels' Boulevard de l'Empereur--smack in between the Belgian Socialist Party headquarters and the national unemployment office.

ITT's entrenched, long autonomous European chieftains took some winning over when Geneen went to Brussels to meet them. "I talked to them for hours," recalls Geneen, "but none of them said anything. So I asked why. The answer was that years ago somebody talked and got fired." At dinner with one European executive, Jean Bourgeois, Geneen made it clear that he expected his people to start talking. Says Bourgeois: "I was drawing diagrams all over the tablecloth for an hour. He just kept on asking questions."

For all his zeal, Geneen recognizes that prudence dictates a relatively low-keyed overseas operation. Because of foreign sensitivity to American business domination, for example, the company has kept its U.S. connections almost invisible; in Europe, only 61 of the company's 125,000 employees are American. To lubricate its contacts with foreign governments, ITT has lured onto its staff such prominent native sons as former U.N. Secretary-General Trygve

Lie, now a director of ITT's Norwegian affiliate, and onetime Belgian Premier Paul-Henri Spaak, whose position as director of the company's Belgian subsidiary has inspired one Brussels paper to refer to him as "Paul HenriTT."

In South America, where ITT has had numerous political squabbles over its utilities operations, the company is selling off a few of its telephone companies; fortnight ago, Geneen's men reached agreement with the Peruvian government, which will buy the local ITT-run phone system in 1971. To further minimize reliance on government-related business, ITT has been diversifying abroad, acquiring computer-programming services, a lamp manufacturer and TV plants in Germany and France. Last week, in one of many "substantial acquisitions" foreseen by ITT-Europe Executive Vice President James V. Lester, the company added to the fold West Germany's Teves, a major producer of automobile disk and drum brakes.

Beneficial Environments. Much of ITT's rapid overseas growth is coming from its traditional communications operations, a trend that should continue on the strength of the unmet foreign demand for telephone lines; even in industrialized Europe, there are only ten telephones for every 100 people v. 48 per 100 in the U.S. ITT recently installed a 5,000-line telephone exchange in Madras, India, won a contract to supply the Hong Kong Hilton with a 1,000-ex-tension automatic phone system. Another rich market opening up is in worldwide satellite communications; ITT (after A.T. & T. the largest stockholder in the Communications Satellite Corp.) recently won the contract to build Indonesia's first satellite ground station.

In the U.S., ITT's prospects for increasing its communications-equipment business are not so bright, and the main reason is Western Electric's tight grip on sales to A.T. & T.'s operating companies. So at home, as abroad, ITT has aimed at diversity--and Harold Geneen has not spared the company checkbook in the effort. In 1961 Geneen paid $14 million in ITT stock for 43% of American Cable & Radio (ITT already owned the other 57%), followed up with stock-swap acquisitions of Gilfillan Corp., a radar technology company ($16 million), General Controls, a heating-controls manufacturer ($17 million), and Bell & Gosset ($48 million), the biggest of several pump manufacturers that ITT has picked up.

The company has also reached into the fast-growing service industries, picking up St. Louis-based Aetna Finance Co., entering into a joint venture to form the Great International Life Insurance Co., buying up Howard W. Sams & Co., which operates technical schools and holds a majority interest in Bobbs-Merrill publishing house. As the acquisitions get bigger, so does the cost. The price for Avis, the hard-trying auto-rental firm that ITT acquired in early 1965, was $51 million. In recent weeks, Geneen has gone beyond that by reaching agreement to buy out William J. Levitt's construction firm, the world's largest house builder, for $92 million in stock, and Rayonier Inc., a New York-based pulp-products manufacturer, for another $290 million.

How has this breathless expansion affected ITT on the Big Board? The stock has performed well--a $1,000 investment when Geneen took over would be worth about $2,500 today--but not as well as that of a number of other growth companies. One reason is that investors are afraid that the stock paid out for acquisitions--especially the convertible variety--may dilute per-share earnings. Wall Street has accordingly priced ITT ($103 7/8 at last week's close) at some 23 times earnings, considerably under the price-earnings ratios of such growth stocks as IBM and Xerox. But Geneen says that the dilution danger is minimal, insists that "the only blueprint for acquisitions is to find environments beneficial to stockholders."

Words in Torrents. No company as vast as ITT could possibly be a one-man show, and Geneen has fleshed out his global supporting cast from 500 to 1,500 executives whose common mission is to keep their boss informed on every major situation. In order to wade through the resulting flood of paper work (what he cannot get to right away he consigns to his omnipresent attache cases), Geneen usually eats lunch in an ITT conference room, often stays on the job until midnight. Still, he is forever pleading with his men to "put your problems out for me." Says Geneen by way of explaining his work load: "I delegate, but I don't abdicate."

Geneen draws together his top executives once a month in both New York and Brussels for marathon meetings that can last for four days--and nights. Presiding over an agenda filled with such items as the need to supply ITT's telephone company in Chile with equipment to handle an anticipated spurt in tourist calls, Geneen will listen attentively, then announce briskly: "All right, let's move on to the next problem." When he himself speaks, the words come out in torrents, with results that are often scrambled; he says "verse visa" instead of "vice versa," calls for "spontanuity" rather than "spontaneity," constantly refers to ITT Business Planning Director Hanford Willard as "Willard Hanford." Sometimes the metaphors are marvelously mixed. "I believe," Geneen said recently, "in pushing and pulling and kneading and whittling until you finally get those two purple drops."

At times Geneen will pepper aides with questions for hours, at other times announce: "I'm not asking questions. I'm waiting for answers." Exploding at a meeting once, he demanded to know why none of those present seemed to be cooperating, received a bold reply from a top lieutenant: "It's because you scare them." Not surprisingly, many ITT executives have dropped off the team, including some of the bright young men Geneen brought with him from Raytheon. But most of his colleagues--past or present--have an affection for him, some of which found its way into a recently published in-side-the-company publication spoofing the boss. "If you're an eager, ambitious guy," says one ex-ITT official, "you'll find Geneen highly exciting."

What respite Geneen gets from his job comes at his weekend home at Centerville, Mass. There he works in the darkroom attached to the garage or hams around on any number of musical instruments (piano, accordion, banjo) in what his mother, who makes the cottage her summer home, calls "Harold's sulking house"--a cozy, one-room building he put up in the yard. Aside from the luxury of Genie IV, Geneen and his second wife, the former June Elizabeth Hjelm (an earlier marriage ended in divorce in 1946, and Geneen is childless), lead a life belying his wealth: a $243,000 salary, a bonus last year of $225,000 plus ITT common stock worth $5,500,000.

Scanty at Best. Geneen's biggest setback at ITT has been the breakdown in his plans to merge with ABC into a $2.6 billion colossus. The merger is bogged down in an intragovernmental squabble between the Federal Communications Commission, which has twice approved it, and the Justice Department, which last July went to court to block it. Much of the blame for the clash falls on Justice's ploddingly cautious antitrust division, which took no firm stand during the FCC's protracted deliberations, raised its objections to the merger only after the commission gave its first go-ahead.

In the process, ITT's lobbyists and public relations men have been charged with an excess of zeal. Several reporters accused the company of trying to manipulate the news--and this was especially damaging since a main Justice Department complaint is that ITT's worldwide business interests might encourage the company to influence ABC's public-affairs programming. Justice's other key objections are that the merger would result in a cash drain away from already-strapped ABC (both companies insist that, on the contrary, ITT would be supplying the network with fresh capital) and that it would restrain competition.

The precedents on the latter question are scanty at best. In more than two years as Assistant Attorney General in charge of antitrust, Donald F.

Turner has challenged few previous conglomerate-type mergers, and the courts have issued nothing in the way of clear-cut guidelines even in those cases. Turner, who once took a go-soft line on conglomerate get-togethers, now seems to be stiffening up. Said he last March:

"In those instances where larger size will indeed carry with it greater efficiency, such efficiency will sooner or later be achieved by internal growth."

"Not for Long." Harold Geneen is keeping his fingers crossed on the ABC deal (first hearings are scheduled in Washington's U.S. Court of Appeals in October), since a network tie-in would go a long way toward making his company as well known as he feels it deserves to be. Whatever the outcome, he promises to continue going "where the opportunities are," and in the case of a conglomerate--or a "unified-manage-ment, multiproduct company"--that could be just about anywhere. What drives the man so relentlessly? Keeping those profits doubling, for one thing.

But that, of course, mainly benefits the company and the stockholders. As for himself, Geneen confided last week:

"You work for money to begin with--but not for long. After that you work for pride."

* The word is derived from the Latin con-glomerare, meaning "to roll together." In geology, a conglomerate is a number of stone fragments heaped together in a mass.

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