Cyrus S. Eaton

Cyrus S. Eaton

Cyrus Stephen Eaton (December 27, 1883 – May 9, 1979) was a Canadian-born investment banker, businessman and philanthropist in the United States, with a career that spanned seventy years.

For decades one of the most powerful financiers in the American midwest, Cyrus Eaton was also a colorful and often-controversial figure. He was chiefly known for his longevity in business, for his opposition to the dominance of eastern financiers in the America of his day, for his occasionally ruthless financial manipulations, and for his outspoken criticism of America’s Cold War brinkmanship. He funded and helped organize the first Pugwash Conferences on World Peace, in 1955.

Nova Scotia Birth and Ancestry

Cyrus Eaton was born on a farm near the village of Pugwash in Cumberland County, Nova Scotia, Canada, in 1883. [1] Besides farming, his father, Joseph Howe Eaton, ran a small general store and the district post office.

Eaton's ancestors had first come to North America ca. 1620, when John Eaton, a Puritan English farmer from Warwickshire in England arrived at Massachusetts Colony. David Eaton,[3] a direct descendant, left Connecticut circa 1760 to join the so-called New England Planters, who came to Nova Scotia to occupy farmlands left vacant after the expulsion of the Acadian French. On his mother’s side, Cyrus Eaton was a descendant of McPhersons, who were United Empire Loyalists and had chosen to remain faithful to the British Crown and leave New England after the American Revolution[4] for an uncertain future in Nova Scotia.

Education and Early Career

Cyrus Eaton left Nova Scotia at age sixteen to attend Woodstock College, a Baptist-affiliated prep school in Woodstock, Ontario. He then enrolled at McMaster, a Baptist university in Toronto, Ontario, in 1901, where he studied philosophy and finance, intending to enter the Baptist ministry. He earned his Bachelor of Arts degree in 1905. i

While working a summer job in 1902 in Cleveland, Ohio, Eaton came under the influence of John D. Rockefeller, a member of his uncle's congregation at the Euclid Avenue Baptist Church. After graduation, this contact led to a job with a Rockefeller company, Eastern Ohio Gas and Electric Co., were, he gained valuable experience. Having decided against the pulpit, Eaton made a quick rise as an owner and operator in the gas and electric utility business, earning his first million by his mid-twenties. His skills in finance and negotiation also led to opportunities in banking, and in 1916 he became a partner in Otis & Co., a large, Cleveland investment banking house. Eaton married Margaret House ​of Cleveland in 1909, the daughter of a prominent Cleveland physician and banker. In 1912, the year he became an American citizen, Eaton combined forces with other owners and investors in the field, and incorporated one of the country's first utility holding companies, Continental Gas and Electric, with operations in western Canada and several mid-western American states. He purchased a mansion on Euclid Avenue in Cleveland and started a family. He also bought a 300-acre country estate and cattle operation in Northfield, Ohio, where he spent leisure time raising a herd of shorthorn cattle and riding to hounds.

Continental Shares. Ltd.

Under his leadership, Eaton's Continental Gas and Electric grew eventually to be one of the largest utility holding companies in North America. With his partnership in Otis and Co., Eaton was also well-positioned to participate in the financial boom that came to the United States after WW1. In the early 20's, he began to diversify his holdings, focusing on suppliers to the burgeoning American automobile industry. With employment high and incomes rising dramatically, there were thousands of new investors entering the market everyday, so in 1926 Eaton incorporated an investment trust, i [Quinn] a popular type of holding company combining some of the ease and security of the modern mutual fund for the small investor, calling it Continental Shares. Eaton employed the new capital attracted to rapidly increase his investments in the booming industrial economy of the 1920's. Continental Shares soon owned an impressive portfolio with controlling or competing interests in many large, auto-related companies, including Goodyear Tire and Rubber, Firestone Tire, Sherwin Williams Paint, Fisher Autobody and a conglomeration of light steel manufacturers that Eaton and assorted partners, ii [Quinn] acquired and amalgamated under the name Republic Steel. It was the third largest steel company in the United States, and the planned acquisition of another large concern, Youngstown Sheet and Tube, would have made Republic second only in the country to the mighty United States Steel. There were preliminary efforts to combine Continental's holdings in rubber into one, large rubber company, and Continental Shares also controlled United Light and Power, one of the nation's largest utility holding companies. Eaton was attempting to parlay a major holding of shares in the Chicago Insull utility empire into a full partnership with Insull. iii [Insull book], a manoeuver which if successful, would have given Eaton and his partners half-interest in the largest utility empire in the country. However, the stock market crash of 1929 destabilized all of these vast plans, and caused Eaton a major, though temporary, setback. Despite Continental's rock-solid portfolio, the limitations of the holding company structure iv and a major and protracted legal battle with Bethlehem Steel over the control of Youngstown Sheet and Tube v led to a steep decline in its share value, and a weakening in the financiers control over the holding company empire. Eventually, Eaton was forced to resign his positions as President and Chairman of the Board. vi He also faced a blizzard of lawsuits over irregularities in back room trading associated with the winding down of the company. vii Thousands of investors who had depended on him and his reputation for financial wizardry lost everything, causing a marked decline in Eaton's reputation for financial acumen.

After the Crash

After several years of relative inactivity, Eaton set himself to rebuild in the slowly improving, post-crash economy. It was difficult. It was a different world after the crash, and economic conditions during the long, slow recovery forced him to scale back his ambitions permanently. For years , American capitalists faced stagnant markets and restrictive government regulations created during the Roosevelt years to protect consumers and small investors required financiers such as Eaton to operate under much stricter oversight. In particular, laws prohibited the complex holding company structures that were used by financiers before the crash to raise and manipulate vast pools of other people's money. i Cyrus Eaton managed somehow to thrive in cooperation with the forces constraining him, and gradually found new investment to reestablish Otis & Co. In the late 30`s and early 40`s, he combined forces with other large mid-west investment bankers to lead an important fight against the dominance of Wall Street in underwriting. As a result of hearings held before the newly established regulatory body, the Securities and Exchange Commission, regulation U-50 ii was promulgated requiring competitive bids for underwriting new issues of railroad and utility securities. These undercut the monopoly long enjoyed in these areas by Wall Street financiers. Because of his cooperative initiatives with liberal American administrations that followed the Depression, Cyrus Eaton became once again a trusted adviser to Presidents such as FDR, Harry Truman and Dwight D. Eisenhower, called on to help them resolve difficulties in labour and supply encountered in the years prior to, during and after WWII.

Steep Rock Lake and WWII

In the period leading up to American involvement in WWII, one essential war material, iron ore, was in dangerously short supply. In 1940, Cyrus Eaton purchased a controlling stake in a foundering Canadian steel mine at Steep Rock Lake, in Ontario, Canada. i The under-financed company owned mineral rights including several large deposits of high grade iron ore covered by Steep Rock Lake in Ontario, Canada, within easy reach of steel making centres on the United States side of the Great Lakes. Eaton secured a long term contract to purchase all the ore the mine produced, and then used his influence in the American steel industry and in political circles on both sides of the border to secure scarce wartime approvals and financing for the further development of the mine. ii In 1944, shipments of Steep Rock ore began flowing south to steel foundries in the Cleveland area, helping secure an adequate and safe supply of steel for the United States for the rest of the war and the peacetime conversion to come.

Chairman of the Chesapeake and Ohio

There were also more tangible rewards for Eaton's liberal approach to business. Besides an increase in opportunities for Otis and Co. to underwrite issues and earn the associated fees, Eaton's initiatives on competitive bids saved the Chesapeake and Ohio Railway, of which Robert Young, the maverick financier, was Chairman of the Board, millions in underwriting fees. [Carosso, 432] Eaton was already a major shareholder in the railway, so its grateful executive offered him a position on the Board of Directors. Then, when Roberts Young achieved his lifelong ambition to become Chairman of the Board of New York Central, he was required by SEC regulations to divest himself of his holdings in competing railways. Eaton took advantage of an opportunity to buy Young's large holdings in C&O stocks and became the company's major shareholder. On the strength of this, he succeeded Young as Chairman of the Board in 1953.

The Kaiser-Fraser Debacle

Despite his stellar record of service supplying the United States navy with transport ships during WWII, when Henry Kaiser decided to compete with Ford, Chrysler and GM after the war in the manufacture of a new passenger car for American buyers, he faced difficulties in securing an adequate amounts of steel from the major suppliers. One part of the solution was to partner with Cyrus Eaton in establishing a new company, Portsmouth Steel, that would be an exclusive supplier to his auto plant. [Ruttenburg] Eaton also got the opportunity to lead underwriting financing arrangements for the new auto company. Unfortunately, neither Kaiser no Eaton had adequate understanding of the vast amount of capital such a start-up would require. Chronically under-financed, the company would also encounter problems with manufacture, labour and supply that affected its stock price. When Kaiser-Fraser went to the public with a third stock offering, promising Eaton that the company would support the market price until the Eaton led consortium of financial underwriters had disposed of their shares on the market, it was forced to buy back hundreds of thousands of its own stock at a price the market was not willing to support. Seeing the writing on the wall, and fearing the loss of millions on his own accounts, Eaton withdrew Otis and Company from its portion in the underwriting on a technicality. [Heiner, 232] Though Otis was eventually exonerated in the courts of any legal liability for the failure of the underwriting, the decision to withdraw was highly unusual, violated client trust, and was widely regarded as unethical. The aftermath virtually destroyed the company's reputation as an investment banking house. The Kaiser-Fraser auto company lingered on the scene for several more years, but despite manufacturing some very competitive autos, it never recovered from this and its other problems. Kaiser eventually moved the operation to South America, where less competitive conditions helped him carry on a more successful operation.

Partnering with Labour Leader John L. Lewis

Despite occasional setbacks, as Chairman of the Board of the C&O, Eaton occupied a position at the centre of the American railway industry. The C&O ran the most important and profitable freight hauling lines in the country, and among its most important customers were coal companies in Virginia and Kentucky that had to use its lines for moving their coal to their customers, either the large generating facilities of the Tennessee Valley Authority or overseas buyers reached via shipping facilities on the eastern seaboard. John L. Lewis, the President of the United Mine Workers , was another major player in that industry, insofar as his union represented a very large percentage of the miners at the bargaining table. Eaton already knew Lewis well, having negotiated with him on behalf of FDR to halt the disruptive coal mine strikes he led his union into during WWII. He also shared Lewis' concern that coal might be lose market share to petroleum in the fight for dominance in the energy industry. [Dubovsky, 435] After all, a struggling coal industry could mean bad times for everyone concerned: the coal companies, their employees, the United Mine Workers membership's medical and pension plans, and, of course, the C&O Railway. Out of a their desire to improve the competitiveness of the coal companies whose employees the UMW represented and thereby to guarantee coal hauling revenue for the C&O, Cyrus Eaton and John L. Lewis conspired to improve coal's market position by improving the productivity of its miners. Lewis had founded a bank with union pension funds, and built it into one of the largest in Washington, DC. He arranged financing from this bank for Cyrus Eaton to purchase a couple of major, non-union coal companies. Once in control, Eaton lived up to his part of the agreement by ordering the mines' managers to unionize their workers. He also had them spend millions on new mine equipment. The result was an increase in productivity that lowered prices, making coal a more competitive commodity. So successful was the plan that it undercut the viability of competing mines, non-union and union alike, leading to mine closures and significant lay-offs in the ranks of the very miners whom Lewis represented through his union. It was a brutal strategy, but arguably necessary to the continued competitiveness of the coal industry, and it did improve coal's competitiveness. Eventually, the conspiracy was exposed in a series of newspaper articles written by Nathan Caldwell and Gene S. Graham and published in The Nashville Tennessean in the early 60`s, and in a Pulitzer Prize Winning article by the same writers, published in Harper's Magazine in Dec., 1961. By this time, Cyrus Eaton had disposed of his interests in the mines and moved on. However, Eaton and Lewis would later face a number of lawsuits for conspiracy from laid-off union workers and disaffected mine owners. [Dubovsky, 509]

Politics, the Nuclear Threat and Cold War

As a citizen who frequently expressed his concerns and ideas about important economic and political issues, for Cyrus Eaton the major issue of the 1950's and 60's was the uncertainties caused by the invention and use of atomic weapons, particularly by their postwar proliferation in countries perceived as unfriendly by the United States. Despite dangerous differences between the United States and the Soviet Union which might otherwise have led to military conflict after WWII, the fear of mutual annihilation had resulted in a Cold War, characterized by tense international relations, by continued military build-ups that strained the budgets of both powers, and by military and diplomatic standoffs that threatened continually to turn into a hot war involving the exchange of nuclear weapons. This was particularly distressing for Cyrus Eaton, and he decided to join with others who wanted to do something about it. It led him to controversial acts of personal diplomacy aimed at keeping peace by trying to foster better relations between the United States and its enemies. He sought to do this in two major ways: 1) by financing and supporting international venues for friendly discussion about peace and nuclear disarmament, such as the Pugwash Conferences; and 2) by actively encouraging and promoting better trade relations between the United States and members of the Communist bloc. Though these efforts were in general well received by Communist leaders, Eaton's initiatives at first encountered major resistance at home. But his prestige as a businessman and his determination to influence public policy with his leadership earned him support and respect from important anti-war liberals such as Senator and House Majority Leader Mike Mansfield. At a time when the war in Vietnam was rousing such resistance in the United States as to become a major domestic problem, he was a tireless proponent of a negotiated peace, travelling frequently at his own expense between Washington, Moscow, Paris and Saigon to attend peace conferences and keep important back channels of communication open. By the time Richard Nixon became President, Cyrus Eaton and others had so influenced the political climate in the United States that not only did Nixon seek peace with North Vietnam, but laws and public policy resisting trade and cultural communications between American businessmen and Communistic countries were being changed in favour of detente, mutual cooperation on important international issues and an easing of military tensions. This was also a period when, despite rancour and setbacks, progress was being made in the objectives first established at Pugwash Conferences supported and financed by Cyrus Eaton, objectives such as mutual curtailments in nuclear weapons testing in the atmosphere and negotiations leading to the first agreements on nuclear disarmament and international teams of inspection. It was perfectly fitting that by the time Cyrus Eaton was an old man no longer able to work and travel there was real reason for him to hope that the world he had lived in for so long was returning to some semblance of peace and security. He died in 1979 at 95.

Awards

Eaton's 1950s efforts at rapprochement with the Soviet Union won him the 1960 Lenin Peace Prize. He was elected a Fellow of the American Academy of Arts and Sciences in 1958, and was the recipient of several honourary degrees. The Pugwash Conferences and their Chairman, Joseph Rotblat, were awarded the Nobel Peace Prize in 1995. [5]

Philanthropy

Besides financial support for The Pugwash Conferences, Cyrus Eaton gave a lot of money to support education in his home province, particularly to his home town and to Acadia University. He supported the establishment of a game sanctuary in Nova Scotia, and he donated 12 acres (49 hectares) of land in Northfield, Ohio, for the Lee Eaton Elementary School, which was named in memory of his daughter. He was also a financial supporter of McMaster University, the YWCA, the Cleveland Museum of Natural History and Case Western University.

Hyperlinks

1. ^ www.nseaton.org: Cyrus Stephen Eaton, 1883-1979 2. ^ www.nseaton.org: John Eaton 1590-1668 3. ^ www.nseaton.org: David Eaton 1729-1803 4. ^ www.nseaton.org: Amos Eaton 1785-1862 5. ^ "Book of Members, 1780-2010: Chapter E". American Academy of Arts and Sciences. http://www.amacad.org/publications/BookofMembers/ChapterE.pdf. Retrieved 7 April 2011

Bibliography

Borkin, Joseph, Robert R. Young, The Populist of Wall Street Harper and Row, New York, 1969; pp. 52-61; 78-99.

Caldwell, Nathaniel and Gene S. Graham, “The Strange Romance Between John L. Lewis and Cyrus Eaton” Harper's Magazine, Dec., 1961; pp. 25-32; this article arose out of a Pulitzer Prize winning exposé by the same writers published over a six-year period in The Nashville Tennessean.

Carosso, Vincent, Investment Banking in America Harvard Studies in Business, 1970; pp. 431-457.

Cashman, Tony, Edmonton: Stories from the River City University of Alberta Press, 2002; pp. 113-116.

Condon, George E., Cleveland: The Best Kept Secret Doubleday and Company, New York, 1967; pp. 294-315.

Dubovsky, Melvyn and Warren Van Tine, John L. Lewis:A Biography Quadrangle Books, New York, 1977; pp. 509-510.

Finder, Joseph, Red Carpet New Republic/Holt, Rinehart & Winston, New York, 1983; pp. 93-112; 152-171; 219-233.

Flynn, John T., Investment Trusts Gone Wrong New Republic, New York, 1930; pp. 146-157.

Galbraith, John Kenneth, The Great Crash 1929 Houghton Mifflin Company, Boston, 1988.

Gibson, M. Allen, Beautiful Upon the Mountain Lancelot Press, Windsor, Nova Scotia, 1977; a memoir and an appreciation of Cyrus Eaton.

Girdler, Tom M., Bootstraps: The Autobiography of Tom M. Girdler New York, Scribner's, 1943

Gleiser, Marcus, The World of Cyrus Eaton Kent State University Press, 2010; a biography, first published in 1966.

Heiner, Albert P., Henry J. Kaiser, The Western Colossus: An Insider's View Halo Books, San Francisco, 1991; pp. 232-239.

Kahn, E.J., “Profile of American businessman Cyrus Eaton” The New Yorker, in two parts: 10/10/77, Vol 53, Issue 34, p. 49, and 10/17/77, Vol 53, Issue 35, p. 54.

Mastain, Richard K., The Old Lady of Vine Street: The Valiant Fight for the Cincinnati Enquirer iUniverse Inc., New York, 2006; pp. 194-274.

Michelman, Irving S., Business At Bay: Critics and Heretics of American Business Augustus M. Kelley, Publisher, New York, 1969; pp. 177-230.

nseatons.org., The Nova Scotia Eatons is a genealogy focused on the Eaton family in Nova Scotia. It was begun in 1929 by Arthur Wentworth Hamilton Eaton, poet and historian, and it was updated in 1969 by Charles Eaton. It is now available online.

Phillips, Jamie Maria, Cyrus S. Eaton: Capitalist Manipulator A Masters Degree Thesis, Arizona State University, 1989; 149 pages.

Ruttenburg, Harold J., My Life in Steel: From CIO to CEO Word Association Publishers, Tarentum, Pennsylvania, 2001; pp. 98-129.

Stokes, Carl B., Promises of Power: a political autobiography Simon and Schuster, New York, 1973; pp. 9-21. This book is available in its entirety online at http://www.clevelandmemory.org/ebooks/stokes/

Taylor, Bruce W. Steep Rock: The Men and the Mines Quetico Publishing, Atikokan, 1978; pp. 31-44.

Watkins, Hays T. Jr., “Just Call Me Hays”: Recollections, reactions and reflections on 42 years of railroading REB Communications and Publishing Inc., Jacksonville, Florida, 2001; pp. 52-64; 95-106.

The articles that deal with the life, interests, activities and business career of Cyrus Eaton are too numerous to mention. The archives of The New York Times are the best source of newspaper information about his daily business career. There are also many articles of general interest in the archives of Time Magazine. A portrait of Eaton appeared on the cover of Time for Feb. 24, 1930.

External links

• Bio at the Cyrus Eaton Foundation
• Cyrus Eaton interviewed by Mike Wallace on The Mike Wallace Interview