The Enlightened Capitalists

Business mavericks Iverson, Townsend, Kelleher, and Gore unsettled the stodgy corporate world by developing liberating practices that were effective, efficient, and ethical. Indeed, during the 1990s such influential management thinkers as Tom Peters and Warren Bennis were inclined to believe that the best—perhaps only—path to creating organizations that didn’t “stifle people and strangle profits” was to follow the mavericks’ lead and introduce one form or another of free-flowing “unmanagement.” Because I felt that way myself at the time, I failed to take sufficient notice of the fact that not every enlightened leader during the golden era of business social responsibility was a maverick intent on thumbing a nose at Wall Street, or taking an ax to the venerable commandments of corporate management. There were also a few prominent virtuous businesspeople who were accepted by the financial and corporate establishment and, to some extent, actually led it. Among those patrician leaders were the oilman, industrialist, scientist, financier, and physician profiled in this chapter.

Thornton Bradshaw, Oilman

It is strange how the most virtuous corporate leaders often suffer the greatest criticism; among those executives, Thornton F. Bradshaw was perhaps the most maligned in modern business history. Bradshaw served as president of the Atlantic Richfield Corporation (Arco) from 1964 through 1981, when it was one of America’s most successful energy companies. During his Arco tenure, Bradshaw was widely recognized as a brilliant manager (he was a pioneer in the application of quantitative forecasting techniques), while at the same time earning a reputation as a corporate statesman. Time magazine wrote in 1976 that Bradshaw would “make as able a candidate for [US] President as the politicians who have declared themselves in the running.”¹ Yet three years later he would find himself reviled by his peers in the oil industry, and subject to harsh criticism by executives in other businesses as well.

Bradshaw was known for being unfailingly mild-mannered and gentlemanly, with just a hint of a patrician air about him. Educated at Phillips Exeter Academy, and holder of two Harvard degrees, he could easily have passed as scion of an old-wealth New England family. In fact, he came from a modest background and attended those prestigious institutions on scholarships. After earning his MBA, he taught corporate planning at Harvard Business School, then worked briefly as a management consultant before joining the Atlantic Refining Co. in 1956. There he began a long association with the company’s chairman, CEO, and largest shareholder, Robert O. Anderson. They seemed to have had little in common, other than both being intellectually inclined. Anderson’s family was wealthy, and he had been classically educated at the University of Chicago, yet he affected Western clothing (boots and Stetson to business meetings) and the casual manner of a cowboy. In fact, with a cattle ranch in New Mexico bigger than several states, for a time Anderson was said to be the largest private landowner in America. He was an entrepreneur by temperament and showed little interest in mastering the intricacies of corporate leadership. Unlike the polished, careful, and analytical Bradshaw, Anderson did business by bluster, daring, and intuition. As head of the Philadelphia-based Atlantic refinery, he had acquired several small petroleum companies and then forged a mega-merger with Los Angeles–headquartered Richfield Oil, creating Arco. As CEO of Arco, Anderson made some spectacular—and risky—bets with the company’s capital, including leasing and purchasing untested oil fields (most successfully, in 1967, those at Prudhoe Bay, Alaska).

But Anderson was not always lucky. After he acquired the Anaconda copper mines on a whim in 1977, it became clear that he had paid too much for them, and they would subsequently require investment of hundreds of millions of Arco capital in an ultimately unsuccessful attempt to make them profitable. Characteristically, only after having completed the Anaconda purchase did Anderson direct Arco’s staff to undertake an analysis of the financial implications of the deal. The staff joked that Anderson specialized in “post-planning.” While Anderson was engaged in making bold strategic moves, Bradshaw worked to humanize the image of the company externally while internally creating a robust corporate culture, which he described in this way: “It must all be of a single fabric. From the company’s social posture, through the way it treats its employees, to the care it takes in the artistic décor of its buildings, everything must manifest a commitment to quality, to excellence, to service, and to meeting the needs and aspirations of our owners, workers, consumers and the broader society.”²

Bradshaw did just that, continually taking into account the claims of Arco’s sundry stakeholders:

Every decision made at my desk is influenced by some, and at times many, of the following: the possible impact on public opinion; the reaction of environmental groups; the possible impact on other action groups—consumers, tax reform, antinuclear, pro-desert, pro-recreational vehicles, etc.; the constraints of government—DOE, EPA, OSHA, FTC, etc.—and the states and the municipalities; the effect on inflation and labor union attitudes; the OPEC cartel. Oh yes, I almost forgot the anticipated economic profit, the degree of risk, the problem of obtaining funds in a competitive market, the capability of our organization, and—when there is time—the competition.³

Under Bradshaw’s leadership, Arco became the only American oil company to earn broad-based public respect. In the 1970s and ’80s, it was the first in its industry to introduce state-of-the-art environmental practices in its drilling, refining, transportation, and other operations. Bradshaw and his colleagues worked closely with the likes of the Sierra Club and Jacques Cousteau to ensure that Arco’s environmental practices and standards were among the highest in the world. In the early 1980s it became the first oil company to invest in solar technology—although that investment proved as unsuccessful as its Anaconda venture. Arco’s company foundation became known for its creative philanthropy, hiring professional administrators to manage its charitable efforts instead of letting its executives support their favorite charities (then, as now, the corporate norm). Bradshaw explained the decision to entrust professionals with what theretofore had been an executive task: “Corporate officers are not chosen for their skills in judging [public]-sector needs or in giving money away—quite the contrary.”⁴

Beginning in the early 1970s, Arco moved positively on many social fronts: building a new headquarters in rapidly decaying downtown Los Angeles when other major businesses were fleeing to the suburbs; initiating a carpooling program used by 60 percent of its employees; becoming the first major corporation to offer health and other benefits to same-sex partners of employees; donating $1 million to the Nature Conservancy to enable the purchase of Santa Cruz Island off the coast of California to create a nature preserve; removing its advertising from a thousand billboards to help end visual pollution; and sponsoring Town Hall Los Angeles, a forum for serious, nonpartisan discussion of the city’s many urban problems. Bradshaw also worked to make Arco a model of good corporate governance, appointing a board composed of all but two outside members, and pioneering in the inclusion of women and minority directors.

When the company’s reputation for social responsibility was at its peak, Bradshaw launched several initiatives to keep its managers from succumbing to smugness and complacency. The most unusual of those efforts was the commissioning of an annual “audit” of the company’s social performance: in Bradshaw’s words, “a balance sheet of the year’s activities (both debits and credits).” Arco hired noted ethicist Kirk Hanson, then on the faculty of the Stanford Graduate School of Business, to undertake the audit and write an independent report. As Bradshaw insisted, “The arrangement precludes editing by the corporation and guarantees publication.”⁵ Hanson’s charge from Arco was simply to tell the truth and not pull punches, and the audits he produced were far from straight-A report cards. Indeed, Arco was not a perfect corporate citizen. The company had few women managers; it demolished the old Art Deco Richfield building in downtown Los Angeles, one of the city’s most architecturally significant edifices; it was widely criticized for the way it handled the closing of the Anaconda facilities in Wyoming; and the management of its Alaskan pipeline was constantly questioned by environmentalists. Bradshaw insisted that the company closely and objectively examine those and all other aspects of its social performance, facilitating the process by establishing a seminar for its senior managers at which university-based scholars were invited to offer critiques of Arco’s record and engage in a free-flowing discussion with company participants. (Disclosure: On several occasions I served in the capacity of outside critic at those Arco seminars, alternating with Stanford’s Hanson and the University of California’s David Vogel. The only complaints we profs received from Bradshaw about our efforts were his concerns that we were “going too soft” on the company.)

Under Bradshaw, Arco listened to its critics. When it was criticized for having few minority employees, the company “made a management commitment to a new hiring rule”; as Bradshaw explained, “if two people applied for a job, both equal in capability, but one black and the other white, the black was to be hired.”⁶ At the Arco seminars, Bradshaw continually reinforced a basic ethical message: the need for openness and candor both internally and externally. When lower-level managers confronted him with the charge that the company’s practices were inconsistent with its stated values, Bradshaw’s reaction was not to punish the messengers but to improve the practical application of the company’s principles and philosophy. Candor was also the rule with external stakeholders, and even the press. Bradshaw told his managers that if a journalist called about a potential issue with the company’s social performance, they should never stonewall. Instead, he insisted that they had authority to tell whatever they knew, and if they didn’t know, they should refer the reporter to someone who did.

Thanks to Bradshaw’s leadership, the company took courageous public stands—courageous for an oil company, at least. Arco played a leading role in the advocacy of public transportation and energy conservation, for example, advocating the diversion of highway (gasoline) taxes to mass transit. Bradshaw spoke in favor of increasing the tax on gasoline to encourage conservation and fund clean-energy research, repealing the oil depletion tax allowance, and, most controversially for an oil executive, introducing national energy planning. On the latter, he wrote that “the free market mechanism has never worked for oil,” particularly since OPEC “controls the price.” Needless to say, Bradshaw’s name became anathema in the petroleum industry, prompting petro-heir Charles Koch to pen a lengthy letter to Fortune in which he claimed that “most of Thornton Bradshaw’s major contentions are wrong-headed and blatantly self-serving.”⁷

It is unclear if Bradshaw’s position proved right in the long term, but it is a fact that he advanced such arguments from a realism born of necessity. He advocated limited national energy planning from the viewpoint of an enlightened capitalist who recognized that it was in the self-interest of business to work with government to do things corporations acting alone could not do, and that it was better to work with government to make sensible rules than work against it and end up being overregulated. He never varied from his position that every action Arco undertook was in its own long-term interest. For example, when he proposed ending the windfall profits tax on petroleum companies, he also called for a quid pro quo removal of federal oil price controls. Koch and his fellow critics (who all but accused Bradshaw of socialism) failed to acknowledge the capitalist core of Bradshaw’s philosophy: “First and foremost, the corporation must be an effective economic institution or it can be nothing at all. Wherever else the future may take it, the corporation must continue to respond to the marketplace, producing quality goods at the lowest possible cost, allocating resources efficiently, distributing its products, and earning an acceptable profit for its shareholders.”⁸ Libertarian Koch also failed to note that Arco’s general counsel at the time—and one of its chief public spokesmen—had been nominated twice by the Libertarian Party as their candidate for president of the United States, once with David Koch, Charles’s brother, as his vice presidential running mate. Some socialists!

In addition to profitability, Bradshaw continually stressed another basic business role: innovation. Under his leadership, Arco was among the most innovative companies in its industry, introducing such products as cleaner-burning gasoline and mini-marts at its service stations (later, it was the first to take the “service” out of the stations when it introduced self-service gas pumps). The company was also the first American corporation to embrace two-way teleconferencing as a way to reduce its carbon footprint.

Bradshaw and Arco took public stands that alienated them from the broader California business community, most notably when they opposed Proposition 13, a cap on state property taxes. When the company announced that it would cease paying its executives’ dues at private Los Angeles clubs with discriminatory racial practices, the local business community was aghast. In 1979 Bradshaw’s actions came back to haunt him when he was a finalist for the presidency of the University of Southern California. Although he was the front-runner for the position, influential members of the university’s board of trustees—some of whom were oil heirs, and others members of clubs Arco had singled out as discriminatory—made it clear that they would blackball his candidacy. He politely withdrew his name from consideration.

In the early 1980s Arco weathered the increasing criticism directed toward it, but the rogue behavior of CEO Anderson set the stage for the company’s eventual undoing. When it became known that Anderson had donated several million dollars of Arco company funds to the Los Angeles County Museum of Art to erect a building named in his honor, and for many years had underwritten the sizable debts of the Aspen Institute using company money, Arco’s board fired him on the grounds that he had spent shareholders’ money for personal reasons. If nothing else, Anderson’s actions were a violation of Arco’s stated principle of leaving decisions about corporate charitable contributions in the hands of its professional philanthropic staff.

About that time Bradshaw, then contemplating retirement, was unexpectedly named CEO of the financially struggling RCA Corporation. In 1981 he moved to New York, where over the next four years he deftly restored the prestige of the company’s NBC division and brought RCA back to financial health. He then presided over the company’s sale to General Electric in a move that was a financial boon to RCA shareholders, while securing the operating independence of NBC, a matter of great importance to its lauded news operation. Bradshaw then retired and, in apparent good health, died suddenly at age seventy-one in the office of a Manhattan dentist. On his death, GE chairman Jack Welch said, “America has lost a great business leader.” The head of NBC, Grant Tinker, recalled, “If there was a fairer, nicer, total gentleman than Brad, I’ve yet to meet him. He left an exemplary legacy.” CEO of CBS Laurence Tisch added that Bradshaw “was a gentleman and a giant in our industry. He was a creative force in television, in finance and in the cultural world. His influence was widespread. His impact will be lasting.”⁹ Sadly, that was not to be. Bradshaw’s career is all but unrecorded in the annals of American business. There are no Harvard Business case studies about him, or about Arco under his leadership; no biography of him has yet been written; and in what today passes for the ultimate definition of obscurity, he lacks a Wikipedia entry.

Meanwhile, out in Los Angeles, Arco was imploding in the late 1980s. The culture Bradshaw created survived briefly under the leadership of Lodwrick Cook, the CEO who succeeded Anderson, but the company reeled under subsequent management (and mismanagement). Insiders started calling Arco the Great Shrinking Oil Company as it laid off employees and sold off assets. Gradually it retreated from most, if not all, the virtuous practices initiated by Bradshaw, in the end becoming all but indistinguishable in its social policies from other American oil companies. Arco was acquired by British Petroleum in 1999, which, given its sterling environmental record under Bradshaw, provides an ironic ending to the Arco story in light of BP’s disastrous later handling of the 2010 Gulf of Mexico oil spill.

In 1999, when Arco announced that it was closing its Los Angeles headquarters and ceasing to operate as an independent company, UCLA political scientist Xandra Kayden penned an op-ed piece in the Los Angeles Times outlining what the loss of the company meant for the Southern California community: “Arco was more than a leading oil company on the West Coast: It was a leading citizen. It consciously defined ‘corporate citizenship’ for many U.S. companies, and many U.S. communities as well. The local economy probably doesn’t need a lot of corporate headquarters to survive, but the question of leadership for the city remains: Having the resources to invest is one thing, but understanding how to help and encouraging others to follow suit is quite another. That is where Arco excelled.”¹⁰ Fund-raising at many nonprofit organizations in Southern California suffered when the area’s most generous corporate foundation closed its doors. (A similar problem occurred about that time in San Francisco when locally based Bank of America, the area’s largest supporter of nonprofits, closed its California headquarters after being acquired by a North Carolina bank.) The phenomenon of nonprofit overdependence on business donations highlights one of the shortcomings of corporate philanthropy: the boom-and-bust nature of business organizations, and the prevalence of mergers and acquisitions, put NGO financing at considerable risk. That is one reason why some enlightened corporate leaders in the past—and more today—have concluded that the most important social role a company can play is through engaging in virtuous business actions, leaving philanthropic decisions to their individual managers and employees (perhaps matching those with corporate contributions). Indeed, as Xandra Kayden noted, Arco’s behavior under Bradshaw was laudable not primarily as a result of its generosity but for the leadership examples it set. Bradshaw showed that it was possible for a company in any industry—even one as widely reviled as the oil business—to act, in his words, as “good neighbors.”¹¹

J. Irwin Miller, Industrialist

The headline on the cover of the October 1967 issue of Esquire read, “This man ought to be the next President of the United States,” above a photo of one J. Irwin Miller. I recall asking myself a question the majority of the magazine’s readers doubtlessly were also pondering: Who is this guy? Reading the article, I not only discovered who he was but began to suspect that Esquire’s editors might be right: J. Irwin Miller probably would be a great president. Alas, he wasn’t interested in the job. As chairman of the Cummins Engine Corporation, first lay president of the National Council of Churches (which he had helped to establish), trustee of Yale University, the Museum of Modern Art, and the Ford Foundation, and mastermind behind the effort to turn Columbus, Indiana, into a showcase for the world’s finest modern architects, his plate was sufficiently full as it stood. Instead of running for president, Miller persuaded Nelson Rockefeller to run, then served as his campaign chairman.

Joseph Irwin Miller was the son of Nettie Irwin Sweeney and Hugh Thomas Miller, the latter a professor and sometime politician. J. Irwin was raised in the mansion of his great-uncle, Will G. Irwin, the family patriarch and prominent Indiana businessman. In 1919 Uncle Will had invested in his chauffeur Clessie Cummins’s start-up diesel engine business. Unfortunately, Clessie proved more adept at technological development than business management. After running up fifteen straight years of red ink, Uncle Will finally decided that the time had come to recruit someone capable of turning the business around. Will had just the man in mind for the job: his twenty-five-year-old grandnephew J. Irwin Miller (who, conveniently, was also heir to the Irwin family fortune). In addition to possessing the right pedigree, the young man had the requisite smarts: degrees in classical philosophy from Yale and PPE (philosophy, politics, and economics) from Oxford, along with deep knowledge of the fields of theology, architecture, and music (he played a Stradivarius fiddle in his spare time). He also had a bit of business experience, having worked for a spell in the family’s grocery store chain.

Miller joined Cummins Engine as its vice president and general manager in 1934, and two years later the company posted its first profits. He developed a corporate strategy for Cummins focused on improving diesel technology, increasing product quality, and prudent cost cutting, insisting that the company’s managers constantly “obsolete our own products before our customers do it.”¹² Cummins Engine grew steadily until World War II, when demand for diesel engines increased exponentially (diesels provided the high horsepower needed to drive heavy-duty military vehicles). After the war, diesel technology proved perfectly fitted to the needs of the large trucks, tractors, and construction equipment fast replacing less powerful vehicles propelled by conventional engines. In a thrice, chauffeur Clessie’s little company had become a big business.

In 1947 J. Irwin Miller assumed the presidency of Cummins, shortly thereafter expanding its operations overseas by opening efficient modern plants in Europe, Asia, and South America to supplement its growing number of manufacturing facilities in America. By the end of the 1950s, Cummins was America’s premier manufacturer of high-quality diesel engines. But it wasn’t simply the company’s technology that made it stand out from its competitors; what caught the particular attention of the greater public was its ethics-focused organizational culture—especially its relationship to Columbus, Indiana, the small prairie town where it was headquartered. In 1957 Miller promised Columbus’s civic leaders that the Cummins Engine Foundation would pay the commissions needed to attract top architects to design new public buildings for the town. Over the next decade Richard Meier, Eero Saarinen, I. M. Pei, and dozens of other noted architects created fifty modernistic churches, schools, and government buildings—even a knock-your-socks-off new jail—far surpassing William Lever and Milton Hershey’s earlier accomplishments. And, unlike them, Miller was careful to avoid any hint of paternalism: all decisions with regard to the town were left to its denizens.

A generous philanthropist, Miller gave away so much of his personal wealth that little of it was left at the end of his life. But his greatest accomplishments were achieved at the company he led for the better part of five decades. Under Miller’s leadership, Cummins Engine became known for treating its customers, dealers, and suppliers fairly and honestly, heavily reinvesting its profits for the long term, making heroic efforts to minimize the environmentally damaging impact of its products, and being a great place to work. It also made a lot of money for its investors: during Miller’s tenure, Cummins was profitable for forty-one years in a row, annually increasing the value of shareholder equity by 12 percent year after year.¹³

J. Irwin Miller’s first priority was to run an ethical business. A deeply religious man and an astute student of Aristotle’s virtue-based ethics, he believed that “business ethics are really an effort to do good long-term planning. In that sense, I’d say the fundamental reason for business ethics is to say, ‘What will I wish I had done if I could be around fifty years from now?’”¹⁴ In the 1970s, Cummins appointed an ethics officer long before ethics and compliance officers became de rigueur in American corporations. At Cummins, ethical practices began with the way the company treated its employees. To create a sense of community among its workers, no Cummins facility had more than five thousand employees (a large number, but small for diesel factories). In 1936, when CIO union organizers attempted to enlist the workers in Columbus’s largest companies, Miller rejected his fellow industrialists’ concerted efforts to prevent unionization; he even refused to join the Indiana Chamber of Commerce because it backed so-called right-to-work legislation. His reason: “We don’t feel right fighting our own people.”¹⁵ Years later, after Cummins workers had rejected the CIO bid and formed their own Diesel Workers Union, Miller remarked, “I wouldn’t know how to run a big business without a strong union. The unions are management’s mirror. They tell you things your own people won’t admit.”¹⁶

Miller, like William Norris and Walter Haas, was a business pioneer in the 1960s struggle for civil rights. An early supporter of Martin Luther King Jr. (Miller helped King to organize the famous 1963 March on Washington), Cummins became the first company in its region to recruit, hire, and train African American employees for nonjanitorial jobs, ultimately promoting many into supervisory, managerial, and executive positions, which necessitated a battle with Columbus city officials to end housing segregation. When Reverend King called Miller “the most progressive businessman in America,” the honor earned him a spot on Richard Nixon’s “Enemies List.”¹⁷

Charles Powers, the executive most responsible for formalizing ethics training at Cummins, proudly explained, “We were always prepared to be pariahs on matters of real principle.”¹⁸ That was the case, most controversially, with regard to the company’s environmental policies. When most industrialists were fighting environmentalists’ calls for legislation to curb air pollution, Cummins worked with them and members of Congress to devise reasonable emission standards. (In sharp contrast, the Diesel Engine Manufacturers Association refused to provide information to the government.) Miller felt a moral obligation to part company with his peers on that issue: “We supported the Clean Air Act because the problem of smog in the major urban areas is obviously going to be very dangerous in the future.”¹⁹ In fact, Cummins helped draft a section of the Clean Air Act that caused the company to reduce emissions from its own diesel products. Years later, Miller showed no regrets at having had a hand in greatly increasing its own regulatory burden: “It ended up great for the industry because it converted us from a relatively low-technology industry to an extremely high-tech industry. We learned more about engines than we ever would have, had we not been under this pressure. We actually improved fuel consumption as well as reduced emissions, something we couldn’t do to start with.”²⁰

Miller was intent on creating a company—and an ethical culture—that would last beyond his lifetime. When investors attempted a hostile takeover of Cummins in 1989, Miller and his sister, Clementine, spent $72 million of their own money to buy the raiders’ shares, paying a $5 million premium over the going stock price. In addition, Cummins invested more than $1 billion in new plants and equipment during the 1980s when foreign competitors were making significant inroads into the American market.²¹

A leader in much the same mold as Max De Pree, Miller advocated “servant leadership,” stressing the centrality of employee involvement and development at Cummins. “A leadership that is concentrated on the ideas of one person is very limited,” he explained. “Genuine leadership involves getting all the wisdom that is available in a group, and helping that group come to a better decision than any one of its members would have been able to achieve himself. The servant-leader is the person who gets the unsuspected best out of his group of people.”²²

Miller sought to create a cadre of servant-leaders, recruiting well-educated graduates of liberal arts colleges and Ivy League universities to fill the managerial ranks of Cummins. Miller mentored one such recruit, Henry Schacht (degrees from Yale and Harvard), who in 1973 became the company’s CEO when Miller assumed the role of chairman. Unlike Max De Pree, Miller got the process of succession right: for the next twenty years, Schacht faithfully adhered to Miller’s values and commitment to servant leadership, doubling down on both by becoming one of the nation’s leading advocates of corporate social activism. But Cummins did not achieve the same level of financial success under Schacht that it had enjoyed under Miller. In the 1980s it faced significant competitive challenges from Japanese imports and such domestic manufacturers as Caterpillar and Detroit Diesel. In weakened financial condition, Cummins was confronted with the threat of a second hostile takeover in 1990, and was saved thanks to a $250 million investment by three of its largest customers. During the turmoil of the early 1990s, Schacht made numerous changes in the composition of the top management team at Cummins and then, in 1994, surprised the business world when, at age sixty-four, he announced his retirement from the company. (He later served as the first chief executive of Lucent Technologies when the company was spun off from AT&T in 1995.)

Cummins was also plagued by an increasing number of environmental challenges during Schacht’s tenure, challenges that continued to bedevil both the company and its competitors throughout the 1990s. After years of negotiation, in 1998, Cummins and other American manufacturers of heavy-duty diesel engines signed a consent decree with the EPA that required them to greatly reduce emissions of oxides of nitrogen (NOx). During the fifteen-month period that companies were granted to implement the tough new standard, customers and competitors pressured Cummins to pay a nonconformance penalty rather than complying. There were several compelling reasons not to comply: Cummins would save the considerable expense of developing a new, cleaner, more expensive engine that in all probability would lose out to the cheaper, more polluting products of its competitors; it had turned a profit in only two years during the 1990s, while accumulating over a billion dollars in debt; its market share had fallen from 60 to 30 percent, and its stock price had dropped to its 1972 level. In all, Cummins was poorly positioned to assume the risk of developing a new, untested diesel engine. On the other hand, Cummins had a tradition of living up to its commitments, of working cooperatively with government, and of endeavoring to reduce its products’ negative environmental effects . And there was no doubt that NOx emissions had an adverse impact on ground-level ozone, acid rain, global warming, and water quality, and contributed to health problems affecting children and people with asthma. The decision was thus an extremely difficult one, requiring careful balancing of the interests of the company’s various stakeholders. After much deliberation, Cummins complied with the consent decree.

A decade later, after Cummins had been hit hard during the 2007–9 recession, it faced yet another decision that tested its commitment to then recently deceased J. Irwin Miller’s principles and values. In 2010, the company needed a massive facility where it could efficiently manufacture a new line of high-horsepower engines. The choice of sites came down to two contenders: Pune, India, and Seymour, Indiana, a small town twenty miles south of Columbus. In making the choice, there were many logistic, financial, and social factors to consider. The advantages of Pune were largely financial (inexpensive labor and construction costs), while the arguments in favor of Seymour were primarily social (Miller’s commitment to providing good jobs to the people of his home state). In the end, financial considerations prevailed, and the factory was built in Pune (Seymour got a much smaller facility). In 2016 Cummins’s CEO surprised the business community when he announced that the company was abandoning its historical commitment to free trade, and supporting the effort to introduce protectionist measures designed to shield American manufacturers from competition with goods imported from low-wage nations. Those two not terribly dramatic decisions illustrate and encapsulate the life cycle of enlightened business practices at most companies: they don’t end suddenly; instead, as Max De Pree noted, they gradually erode away.

Edwin Land, Scientist

As millions of the people who owned a Polaroid Land Camera once knew, instant photography was invented by Edwin H. Land. Fewer people are aware that Land was “the man who inspired Steve Jobs”—which is as ironic as it is an interesting tidbit of techno-trivia.²³ For it was Apple’s Jobs who perfected and successfully marketed the digital photographic technology that Land stubbornly resisted to the point of losing control of the company he’d founded.

Land was a nonobservant Jew born into a Connecticut family just wealthy enough to send him to a semiprivate prep school, and then to Harvard. That background, plus a distinguished New England accent and Cary Grant good looks, misled many to believe that he was a patrician WASP. He studied chemistry at Harvard just long enough to become so bored that he dropped out and headed for New York City. There he taught himself optical physics and chemistry in the reading room of the New York Public Library during the day, while conducting research in the Columbia University labs he sneaked into at night, after students and faculty had gone home. Somehow he also found time to get married. His early experiments in optical physics were so successful that by age nineteen he had invented a filter capable of polarizing light, the immediate value of which was to reduce glare. A brilliant and prolific inventor, he would go on to hold 535 US patents.²⁴

Land moved back to Cambridge, Massachusetts, where, in partnership with his former Harvard chemistry professor, he established a company to commercialize his polarization breakthroughs by making filters for sunglasses and camera lenses. Renamed the Polaroid Corporation in 1937—with Land now sole owner—the company would turn out one after another application of sheet polarizers, including 3-D glasses for color movies. Thanks to Land’s work in Polaroid’s research labs, the company made significant contributions to the US military effort during World War II, inventing a stereo-optic photo system used to spot camouflaged enemy fortifications from the air.

But it was the Polaroid camera that made Land famous. In 1943 his three-year-old daughter had asked him why she had to wait days to see the pictures he took of her. (Note to readers under thirty: at the time, exposed color film had to be sent to a lab to be developed and then printed, a process that could take a week or more.) As the story goes, Land then and there conceived of the instant camera. Three years later he demonstrated the first working model, and the next year he began marketing Polaroid Land Cameras in Boston’s Jordan Marsh department store. The first day it was on sale, customers gobbled up the company’s entire inventory of fifty-six cameras, along with its only demonstration model. In the 1960s and ’70s, the camera became nearly as ubiquitous as the iPhone today: a Polaroid camera could be found in half the households of America. Fame ensued for Land in the form of simultaneous Time and Life magazine cover stories, an honorary doctorate from Harvard (where he never had completed his undergraduate education), a street named after him in Cambridge near MIT, and the Presidential Medal of Freedom. Like the largely self-educated “Dr.” Samuel Johnson during the eighteenth century, autodidact Edwin Land would come to be known by all as “Dr.” Land, America’s most recognized and respected scientist-inventor. He was said to have performed an experiment every day, and until near the end of his life, he remained dedicated to scientific research. Indeed, he viewed profits from Polaroid products as the means to support the real purpose of his company: research and invention.

There was more to Land than science: he was also a humanist of the first order. He built one enormous instant camera the size of a phone booth, capable of making a life-size print of a standing human, and about a dozen hand-built cameras that produced twenty-by-twenty-four-inch prints. Because it was unnecessary to enlarge those prints, they had none of the distortions that result from enlarging a photo captured by regular film, and the colors produced were richer, deeper, and truer than Kodak and Fuji films were capable of capturing. Land made those giant cameras available, gratis, to such esteemed photographers and artists as Ansel Adams, Chuck Close, William Wegman, and Andy Warhol, and many of the photos they took with the large-format cameras made their ways into permanent collections of such top museums as the Museum of Modern Art in New York.

When I visited the company in the early 1980s, it was widely seen as a model of enlightened business management. For example, Land made it a practice to hire and train women for managerial and professional research positions, and the company’s history is replete with names of women who had graduated from liberal arts colleges, given crash science courses, and then gone on to make significant technical contributions as members of Polaroid research teams. One such hire with a degree in art history, Meroë Morse, became one of Polaroid’s top-level research managers, leading teams that created some of its first instant photo products. At Polaroid women were regularly promoted into managerial and technical posts, and there was a liberal maternal leave policy long before those were common in industry. As a result, the company became known as the best large company in America for female employees.²⁵

Much like William Norris, Walter Haas Jr., and J. Irwin Miller, Land was profoundly moved by the 1968 assassination of Martin Luther King Jr. Beginning that year, he started to train inner-city Boston youth for technical jobs in manufacturing, creating a Polaroid subsidiary, Inner City Inc., where for the next two decades the company prepared 250 unemployed or underemployed minority men and women each year for jobs at seventy Boston-area firms. They were paid while they learned and worked in a plant that manufactured Polaroid components. Significantly, Inner City Inc. was never intended to be a charitable operation: it started to break even five years after its founding, and during subsequent years, beginning in 1973, it turned a modest profit. Because of the program’s emphasis on job placement for its graduates, nearly all who apprenticed at Inner City found employment, and their first-year retention rates were on the order of 80 to 90 percent. Some 65 percent of the class of 1968 was still working at Polaroid thirteen years later, several in managerial positions.²⁶

Polaroid was recognized as a great place to work because Land encouraged his management team to attempt to enrich jobs so they would become learning experiences instead of drudgery. Viewing the company as a scientific think tank, Land would hire talented people and give them labs and staff to work on projects that interested them, thus anticipating the practice later introduced at Gore facilities. Land urged his fellow industrialists to join Polaroid in devoting 5 percent of their budgets to R&D. That would not only ensure the continuation of American technological leadership, he argued, but also create good jobs for millions: “Our national scene would change in the way, I think, all Americans dream of. Each individual will be a member of a group small enough so that he feels a full participant in the purpose and activity of the group. His voice will be heard and his individuality recognized.”²⁷

Like Milton Hershey, Land worked alongside his employees in the lab, often putting grueling hours into attempting to perfect a product or conduct an experiment. Unlike Hershey, Land let his workers go home when they were exhausted, bringing in a fresh shift to labor on with him throughout the night. At a time when Max De Pree’s humanistic practices were viewed as impractical in most of American industry, he was welcomed as a speaker at Polaroid, where his philosophy found a receptive audience. Indeed, there were many similarities between Herman Miller and Polaroid: the former hired great designers like Charles Eames as consultants and contractors; the latter hired such great photographers as Ansel Adams to test and critique its products. (Eames and his wife, Ray, even made a documentary film about Polaroid’s technology.)

Following the introduction of the SX-70 color-print camera in 1972, everyone from John Lennon to Woody Allen “had to have” a Polaroid camera. (Allen’s use of the camera to take nude photos of his stepdaughter precipitated the end of his marriage to Mia Farrow.) Although the company’s sales, profits, and stock price soared, Land had his critics on Wall Street who claimed that the company had invested too much in developing the SX-70—estimates ranged as high as three quarters of a billion dollars—and that it spent too much on research that didn’t lead to marketable products.²⁸ The company also was faulted for paying too little attention to business details, which had led to expensive product recalls and shortages of film. In the words of Land’s biographer Christopher Bonanos, Land “was a perfectionist-aesthete, exhaustively obsessive about product design. The amount spent on research and development, on buffing out flaws, sometimes left Wall Street analysts discouraging the purchase of Polaroid stock, because they thought the company wasn’t paying enough attention to the bottom line. (When a shareholder once buttonholed Land about that, he responded, ‘The bottom line is in heaven.’)”²⁹

Looking to create the next great technological advance, in 1977 Land introduced Polavision, the instant moving picture system he had been dreaming about for years. The system was technically brilliant, but badly flawed from the consumer’s perspective: only one person at a time could view a three-minute soundless video. Believing that the system would sell in the millions, Land invested some $500 million in its development. As it turned out, only sixty thousand or so units were sold, and the company was forced to take a $68 million write-down.³⁰ About then, friends and critics began to urge Land to appoint a chief operating officer to handle day-to-day company operations. When it became clear that he would not give up total control—as its chairman, chief executive officer, and head of research and development—several promising top executives chose to leave the firm. One of those whom many had viewed as Land’s likely successor, Tom Wyman, left to become CEO of Green Giant, where he earned a reputation as an enlightened executive and a leader of Minneapolis’s progressive business community. From that point on, Polaroid’s fortunes began to wane, and it never fully regained its magic touch.³¹

At the core of Polaroid’s difficulties in the late 1970s were Land’s deep commitment to chemical technology, and his fixation on the value of hard-copy photographic prints. During previous decades, those commitments had been appropriate, given the state of technology and what consumers then wanted from a camera. But in the words of Sony founder Akio Morita, Polavision was “too late” by the time Land marketed it.³² Indeed, the hour would prove too late even for Sony’s Betamax videotape system and, subsequently, the VHS system that supplanted it. By then, it was clear that the future belonged to digital technologies. Out in the San Francisco Bay Area, young techies like Steve Wozniak, Steve Jobs, and countless students at Stanford and the University of California, Berkeley, were hard at work creating the technological revolution that eventually put the power of instant photography in the pockets of people around the world.

Nonetheless, as late as 1982, Land was still assuring Polaroid’s shareholders that his chemical-based technology produced higher-quality images than digital systems. In a way, he was right: the quality of resolution and the purity of the colors in photos taken on the large-format Polaroid cameras used by professional photographers remains, to this day, superior to anything yet to emerge from Silicon Valley. But his claim was also irrelevant from a business perspective: there was no money to be made in large-format professional cameras, while a fortune was waiting for those who could put instant, no-fuss photography in the hands of the masses. Three years later Land was gently ousted (controlling only about 8 percent of the stock, there was little he could do about it) from leadership of the company he had founded. He tried hanging on in a research capacity but soon realized that he had lost all influence with the company’s board and top management. At age seventy he retired to work in a private, nonprofit lab he funded. He promptly sold off his Polaroid stock, and five years later declined an invitation to attend the fiftieth-anniversary celebration of the founding of the company. Shortly after his death in 1991, at age eighty-one, Land’s private papers were destroyed as he had wished.

Polaroid briefly caught a second wind with new, low-priced cameras in the 1980s, but the poor quality of the prints they produced earned the company a bad reputation among consumers. The company then lost focus, trying to enter new lines of business, eventually finding itself in dire financial straits. In 1990 Polaroid was bailed out when it won a nearly billion-dollar award in a highly publicized patent-infringement lawsuit against Kodak (later reduced to $36 million). But the die had long since been cast. In 1978, Polaroid had over twenty thousand employees; the year after the company won the judgment against Kodak, it was down to a five-thousand-member workforce. By then the company was on life support, and over the next decade it gradually disintegrated. In 1988 Shamrock Holdings (a private equity company owned by the Disney family) made an offer to purchase the company, which Polaroid’s then-CEO Mac Booth fought off by establishing a large employee stock-ownership plan. The ploy, designed to make it nearly impossible for Shamrock to obtain a controlling interest in the firm, worked, and the takeover was averted. Booth may have won that battle, but he then lost the war. He had ignored the real purpose of employee stock plans: namely, to give workers a sense of ownership and motivation to make a company in which they own stock succeed. But employee effort alone cannot save a company, like Polaroid, that is struggling as the result of mismanagement. Moreover, it is unconscionably risky to compensate workers with stock in such an enterprise. In the end, Polaroid’s now-embittered workers received a measly nine cents per share of stock once traded as high as $47 a share.³³

Between 2001 and 2009, Polaroid twice declared bankruptcy, and it was resold on three separate occasions. One of those buyers was arrested for fraud (in a case unrelated to the company) while at the helm of Polaroid and sentenced to a federal prison. Having purchased Polaroid for $426 million, he auctioned it off for a paltry $86 million before serving his fifty-year jail term. The new buyers then sold 1,200 of the company’s most valuable large-format photo prints, many of which had been donated by such photographers as Chuck Close with the understanding they would be part of a permanent public collection, to Sotheby’s. When the company stopped making film for its cameras in 2008, it was all but defunct.

KODAK, TOO

The lessons to be taken from the decline and fall of Polaroid are muddied by the fact that conventionally managed Kodak underwent a similarly spectacular decline at roughly the same time, and for roughly some of the same reasons. In the late 1980s, Kodak had dominated the photographic film industry, with some 145,000 employees; by 2012, the year it filed for bankruptcy, its workforce had shrunk to 20,000. (For the record, in 2018 a resuscitated remnant of Kodak was back in business, bizarrely selling a photo-based cryptocurrency.) For too long, both Polaroid’s and Kodak’s leaders had convinced themselves that digital technology would never overtake chemical-based processes, and when they finally faced reality, it was too late to catch up with high-tech competitors. It is accurate to say that Polaroid—like countless conventionally managed companies before and since—was the victim of technological change that had been resisted, ignored, or came as a surprise. The lesson is that enlightened companies often fail for the same reasons that conventionally managed companies fail. But that isn’t the whole story. It is important to note that, despite Land’s similarities to Control Data’s William Norris, Polaroid didn’t fail as the result of taking enlightened managerial practices to extremes. Doubtless, Land was every bit as stubborn as Norris with regard to technology, but he never went overboard with his commitment to social causes. Polaroid failed neither because of its social commitments nor as the result of spending too much on R&D. It failed largely because of Land’s technological myopia. Perhaps the worst societal consequence of Polaroid’s demise was that it was a major setback for those who advocated the spread of enlightened business practices and had pointed to Land as a model for emulation.

Curiously, fifty years earlier Kodak had similarly been cited as a model employer and generous benefactor to the community of Rochester, New York, where the company was headquartered. And, like Polaroid, its labs had made numerous significant photochemical breakthroughs. Yet in later decades it was not known for the enlightened practices its founder, George Eastman, had pioneered in the early part of the century. In that regard, Polaroid was different from Kodak. While Land was running the company, it continued to lead its industry in scientific research and never lost its commitment to its employees, the arts, and the broader society. Up to the day Land was forced out, Polaroid remained one of America’s most respected companies. It is thus tempting to speculate what might have happened if Land had been a bit more flexible and turned day-to-day operations over to a manager like Tom Wyman with greater interest in making the company profitable, and then personally concentrated on leading the company’s scientific and social efforts. Polaroid might well have succeeded and continued to serve as a model for other companies—but that was not how the story ended. Sadly, Land lost sight of the fact that Polaroid could not fulfill its humanistic, artistic, and scientific missions without the financial wherewithal to pay for them.

Ironically, Land’s legacy is today found in Silicon Valley, where skilled technicians work on teams in relatively unstructured organizations with cultures that encourage innovation. As Land’s biographer Bonanos notes, Steve Jobs drew inspiration from Land. Moreover, both men were visionary, obsessive, committed to making the “next great thing,” intent on creating a work environment that fostered creativity and innovation, and devoted to great product design. Nonetheless, the differences between the two were as important as their similarities. Unlike the colossally egocentric Jobs, Land was a humanist who was never interested in getting rich, an employer who treated his colleagues and employees with respect, a man of great ethical integrity, and one dedicated to the greater social good. Yet it is Jobs who is remembered as a great leader.

John Whitehead, Financier

Like his contemporaries Bradshaw and Land, John Whitehead was raised in a middle-class family and yet, thanks to acquired Ivy League credentials and the ability to blend in easily with those of inherited wealth, was widely assumed to have been born into the patrician class. Indeed, newspaper columnist Liz Smith once described Whitehead as “chairman of the establishment.”³⁴ Unlike the other businesspeople profiled in these pages, Whitehead’s entire thirty-seven-year business career was spent on Wall Street in the field of finance. He thus came from an industry in which—at least for the last forty years—few leaders have earned the mantle of “enlightened.” Yet, on his death, the New York Times saluted him in a glowing editorial, saying “he represented the best of Wall Street.”³⁵

How the WASP son of a midlevel phone company manager became cochairman of Goldman Sachs is as improbable a story as it is exemplary. Whitehead grew up in Montclair, New Jersey, where he attended public schools, raised racing pigeons, and learned to play the violin. His father’s life savings were wiped out in the Depression; worse, he lost his job at AT&T, eventually finding work selling furniture. Whitehead thus grew up in less-than-patrician financial circumstances, although he remembered that his loving mother provided wonderful meals of macaroni and cheese. He was raised as a not terribly devout Episcopalian, and had a record for mischievous behavior in school where he showed few signs of leadership potential, although he did become an Eagle Scout. Fortunately, his poor grades in deportment were offset by just enough top marks in academics to allow him to matriculate at Haverford College. There he came into his own as a student, earning a bachelor’s degree in economics. Equally important, he was influenced for the rest of his life by that Quaker school’s emphasis on ethics.

After graduation, Whitehead enlisted in the US Navy only days after the Japanese attack on Pearl Harbor and was assigned to a troop carrier as a junior officer. Appalled by the second-class treatment of the large number of African American sailors on board the ship, and “possibly inspired by my nascent Quaker ideals,” Whitehead used the little power a junior officer has to improve the living conditions of his black shipmates.³⁶ It was his first recorded act of leadership. The second was when, as skipper of a landing craft during the D-Day Allied invasion of Normandy, he delivered two boatloads of soldiers to Omaha Beach while under heavy fire from the entrenched German army. He would go on to similar heroics during the allied invasion of southern France and, later, during the storming of Iwo Jima in the South Pacific.

Near the end of the war, Whitehead was sent to Harvard Business School to teach basic administration to navy supply officers. After he was demobilized, he was accepted in the HBS’s MBA program, where he concentrated on accounting and finance. On graduation in 1947, he was hired by a “small, little-known and rather genteel” investment banking firm.³⁷ He was Goldman Sachs’s only hire that year, with the handsome starting salary of $3,600 per annum. One of the few gentiles in the firm, Whitehead seems to have been fully accepted by the company’s Jewish leaders.

Goldman Sachs was in many ways still the family firm it had been under founder Marcus Goldman (his daughter had married Sam Sachs, a lad who so impressed his father-in-law that he was made name partner in the firm). The small Goldman Sachs investment bank became successful serving as middlemen between buyers and sellers of stocks, bonds, and commercial paper—mostly for companies headed by such Jews as Sears Roebuck CEO Julius Rosenwald. When Whitehead joined the company, it was headed by the legendary Sidney Weinberg. The diminutive and self-educated Weinberg—who would have a sixty-two-year career with the firm—had been there long enough to have worked with Sam Sachs. Weinberg was as skilled as the founders in building personal relationships that led to profitable business deals; nonetheless, the firm was much smaller than competitors Morgan Stanley, Lehman Brothers, Kuhn Loeb, and Dillon Read. In 1947, Goldman had only five partners; when Whitehead retired thirty-seven years later, it had over two hundred and fifty, and was one of the largest investment banks in the world, if not the largest.³⁸

Much of the growth was attributable to the efforts of John Whitehead. Soon after joining the firm, he had caught the eye of Weinberg, who was impressed by Whitehead’s Harvard MBA and, more particularly, his ability to quickly make accurate calculations on a slide rule in the midst of fast-paced negotiations. Whitehead recalled that Weinberg never quite mastered the knack of using a slide rule: “‘C’mere,’ he’d say, ‘show me how to use this damn thing.’”³⁹ In no time, Whitehead was personal assistant to the head of the firm, and at age thirty-four he was trusted to handle Ford Motor Company’s initial public offering, then the largest ever. After nine years he was made partner, with a salary of $25,000 and a quarter of 1 percent of Goldman profits.

Worried that the firm in which he was a partner was overly dependent on its septuagenarian rainmaker Weinberg, Whitehead reorganized it. His creation of a new-business department, with managers assigned to regional areas, allowed the firm to expand nationally and beyond the contacts in Weinberg’s impressive but East Coast–limited Rolodex. He launched other departments—investment banking services, equity sales—and entered several new lines of business, in essence creating a formal organization at Goldman, which to that point had been managed informally as a small partnership with little specialization among its staff. By the end of the 1960s Goldman was a national firm, one of the “big five” investment banks. In 1976 Whitehead was named cochairman, along with Sidney Weinberg’s son John. Then Whitehead led the successful effort to transform Goldman, as he put it, into “the first truly international banking firm.”⁴⁰

Although Whitehead, more than any other person, was responsible for making Goldman Sachs Wall Street’s preeminent firm, he is better remembered as the finance industry’s last impeccably ethical leader. As Goldman started to grow, Whitehead feared the eventual loss of its reputation for integrity earned over several decades of “gentlemanly” financial dealings based on personal trust. He thus enunciated a set of twelve J. C. Penney–like “Business Principles” which he felt should inform the firm as it grew. Some of them were:

Our client’s interests always come first.
Our assets are our people, capital, and reputation.
We take great pride in the professional quality of our work.
To breach a confidence and use confidential information improperly or carelessly would be unthinkable.
Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do.⁴¹

Whitehead fleshed out each of these points so all Goldman Sachs professionals would understand clearly what was required of them, and established formal training sessions at which the principles were presented to new hires. Additionally, he introduced recruiting procedures in which the character of new hires was weighted as heavily as the GPAs on their résumés. Most important, he led by example, practicing what he called “quiet leadership.” He was known as a courteous, patient, and thoughtful listener, solicitous of the opinions and ideas of everyone in the firm—behavior manifesting his conviction that his self-interest, as he put it, included the interests of his colleagues.⁴² Although he had zero tolerance for employee dishonesty, his brand of leadership was respectful rather than commanding, persuasive rather than belligerent, encompassing rather than divisive, and idealistic rather than ideological. And by the example of his own numerous civic activities, he encouraged Goldman colleagues to have a sense of responsibility to their communities, quietly asserting, “I am convinced that a social conscience is sound business practice.”⁴³

In all, Whitehead devoted nearly forty years of his life to making Goldman Sachs a great company he was proud to be a part of. Yet it was not always easy sledding. He worked long days and missed out on most weekends and vacations, suffering two failed marriages as the result of his day-and-night dedication to the firm. In the early 1980s, while attending a many-hours-long budget review session, he found himself thinking, “My God, I don’t think I can do this one more time.” He retired in 1984 at age sixty-two—only to then begin two decades of distinguished public service. In his first such post, as deputy secretary of state under George Shultz, he worked with East European Communist nations to develop their economies in exchange for improving their human rights records. As number two in the State Department, he earned a reputation for speaking truth to power. Nonetheless, he recognized that, as a progressive Rockefeller Republican, he was a fish out of water in the conservative Reagan administration, and successfully found a graceful way to make an early exit from Washington.

Whitehead then presided over such prestigious nonprofit institutions as the Andrew Mellon Foundation, the United Nations Association, the Brookings Institution, and the National Gallery of Art (my wife recalls him as a “highly respected and beloved” member of the board of the Getty Museum, where she was general counsel). He also served as unpaid chairman of the Federal Reserve Board of New York and, toward the end of his life, with great distinction as chairman of the Lower Manhattan Development Corporation, working to rebuild downtown New York after the 9/11 terrorist attacks.

In his 2005 autobiography, Whitehead wrote that when shares of his old firm went on public sale for the first time in 1999,

I worried that, with the transformation to a publicly owned company, some of the intangible things about Goldman Sachs that I had treasured and tried to follow might be lost: the emphasis on always acting in the client’s interest, the importance of teams, on holding high ethical standards. As I see what happened, I think I was wrong to worry. . . . As to the intangible values that were and are so important, I believe the firm has maintained them pretty well; better than my fears had led me to imagine and, on the whole, better than the others.⁴⁴

He doubtless would not have drawn that conclusion a few years later when, in the aftermath of the 2007–8 recession, it was revealed that Goldman partners had systematically betrayed nearly all the ethical principles he had stood for, most brazenly by unloading toxic derivatives the firm owned on its unwitting clients. In the decade since, the name Goldman Sachs has, in the public eye, come to stand for all that is venal on Wall Street. That assessment may not be totally fair, but it is undeniably true that the firm’s reputation for integrity, which Whitehead called one of its greatest assets, has been seriously eroded. There appear to be many reasons why the culture of Goldman Sachs changed so dramatically in the years after Whitehead’s retirement: going public destroyed the bonds of partnership that had served as ethical rudders; the firm grew so large that it became impossible for all in it to share the same values; its leaders failed to emphasize the centrality of integrity; and, probably most important, there was just so much money sloshing around in the firm that greed became its dominant value.

In his autobiography Whitehead noted that after he had retired from Goldman Sachs, “I started a book tentatively called The Social Responsibilities of Business, intended to present case studies of companies doing good works while they made money for their stockholders.”⁴⁵ After finishing one chapter and getting an advance from a publisher, he was called to service in Washington and never finished the book. I like to think, just perhaps, that this might be the book Whitehead had wanted to write.

Roy Vagelos, Physician

Merck & Co. was founded as a pharmacy in the seventeenth century in Darmstadt, Germany, by Friedrich Jacob Merck. In the 1890s his descendant Georg Merck immigrated to the United States, where he started an American subsidiary of the family’s pharmaceutical business. During World War I, the US government nationalized the company to sever its ties with Germany, and then reestablished it as a publicly traded American corporation headed by George W. Merck, Georg’s son. George led the company until 1946, leaving behind a legacy of ethical business behavior. In George’s words, “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been.”⁴⁶

In the early 1970s Merck was known for its advanced research capabilities, which led to the development of numerous lifesaving and life-enhancing drugs: the first vaccines for mumps and rubella, the first statins, and the first diuretics that alleviated hypertension. It was the kind of company that attracted talented young medical researchers, such as physician Roy Vagelos. Pindaros Roy Vagelos grew up in a Greek-speaking household in small-town New Jersey, where his immigrant parents ran the Rahway Lunchette. As soon as he was old enough, Roy (as he preferred to be called) went to work as a soda jerk there. After much later graduating from Columbia University Medical School, in 1951 he returned to Rahway, where he briefly interned at the Merck Sharp and Dohme research labs. From there he worked as a researcher and practicing physician on the staffs of several major hospitals and at the National Institutes of Health before returning to Merck in 1975 as director of research.

Almost as soon as he had assumed his position at Merck, Vagelos faced an extremely difficult business decision, one with significant ethical implications. In a memo to Vagelos, a senior researcher who was working on a drug to treat parasites in animals hypothesized that, if reformulated, that drug could be used to kill human parasites—specifically, the worm Onchocerca volvulus, which caused the dreaded disease river blindness. In some thirty-five developing-world countries, millions of people living near rivers were at risk of contracting the disease when bitten by blackflies carrying the parasitic worm. When the worm grew inside a human, it gave birth to millions of microscopic offspring that quickly spread throughout the host’s body, leading to itching so severe that it often drove people to suicide. In time the tiny worms spread to people’s eyes, eventually leading to blindness. In 1978 some eighteen million people were infected with the parasite, over three hundred thousand of them blinded by it.

Vagelos was intrigued by the prospect of finding a cure for river blindness, but he was well aware of the enormous amounts of time and money involved in developing drugs for human use. He reckoned it would take a dozen years, and cost over $200 million, to bring this drug, Ivermectin, to market. Then there was the considerable risk involved in testing a veterinary drug on human subjects. Moreover, there was no market for Ivermectin; those who suffered from river blindness were too poor to pay for it. Despite all that, Vagelos—recalling George Merck’s conviction that “Medicine is for the people”—felt a moral obligation to proceed with the project, at least to the next step.

Vagelos directed his research team to develop a pill safe for humans while strong enough to kill the dreaded parasite. That accomplished, in 1980 he convinced the World Health Organization to conduct human trials of the drug (in 1985, while the trials were being undertaken, Vagelos was named Merck’s chief executive officer). In 1987 the drug, renamed Mectizan, was finally approved for human use. Now the problem was how to pay for—and distribute—it. Vagelos assumed he could find funding from private donors and international health organizations, but after months of knocking on doors, he found no person or group willing to commit to a program that could, he reckoned, cost up to $20 million a year for many years to come. However, he did get close with the US government, thanks to an intervention by John Whitehead, then serving as deputy secretary of state in the Reagan administration. Whitehead was so enthusiastic about the project that he took Vagelos to meet the director of the USAID program, telling the agency head, “We have to do this program.” The director was sympathetic, but explained to Whitehead, “Mr. Secretary, we don’t have any money.”⁴⁷

After nearly a decade, Vagelos—who had spent hundreds of hours personally trying to get Mectizan to those who needed it—finally accepted the fact that no institution was willing and able to take on the responsibility for distributing it. He understood why: the task was daunting, considering that millions of those suffering from river blindness lived in remote villages, far from hospitals, pharmacies, and health professionals who could administer the drug. Mectizan was in fact a miracle drug: it was safe and efficient, and a single tablet taken once a year killed the parasite. Nonetheless, it was necessary to explain the medication to people who almost invariably were illiterate, and responsible medical practice dictated that records must be kept, and follow-up testing conducted. Mectizan could not simply be handed out to people who might inadvertently overdose, or not follow up with annual doses. If no organization could be found to do all that, Vagelos concluded that Merck would not only be giving the drug away but assuming the expensive responsibility of ensuring its effective distribution.

Vagelos faced opposition to giving Mectizan away from managers both inside Merck and at competing pharmaceutical companies who believed the donations were “setting a bad precedent.” If Merck could afford to give this drug away, they feared, it would establish an expectation that other drugs used in the developing world could similarly be provided for free. Such opposition was in part legitimate; free distribution would remove the economic incentive to develop drugs to treat diseases prevalent in impoverished nations. The financial community also was not pleased with a decision that in the long run would amount to over $200 million that could have gone to Merck’s bottom line (and to shareholders).

In 1987 Merck announced its intention to supply Mectizan, gratis, to all who needed it for as long as people suffered from river blindness. Such open-ended generosity was unprecedented in business history: What company had ever given away its products? But because the related animal drug, Ivermectin, was earning something like $300 million per year, Vagelos reasoned, Merck could afford to provide Mectizan to people free. Still, the problem of distribution remained. To ensure that distribution was accomplished in a professional manner, Merck funded the independent Mectizan Expert Committee, charged with establishing rules and procedures for getting the drug promptly to those who needed it in a process free of commercial, bureaucratic, or political influence or interference. In the end, the program was a success: by 1996, over fifty-five million people had been treated, and the disease was no longer a major threat in areas where it had been prevalent.

When Vagelos was asked in the early 1990s why Merck continued to spend millions to make the drug available, he answered, “When I first went to Japan fifteen years ago, I was told . . . that it was Merck that brought streptomycin to Japan after World War II, to eliminate tuberculosis which was eating up their society. We did that. We didn’t make any money. But it is no accident that Merck is the largest American pharmaceutical company in Japan today.”⁴⁸ Echoing George Merck, Vagelos added that doing the right thing “somehow . . . always pays off.” That same philosophy informed his 1986 decision to sell Merck’s patented technology for making hepatitis B vaccine to China at a time when liver cancer resulting from hepatitis was a major cause of death among young Chinese men. Merck sold the technology at a fraction of its cost because, Vagelos explained, he believed China would one day become an active player in the world economy, and then “the Chinese will remember that it was the Merck vaccine that saved all those kids.”

Diseased, poor people of the world were not the only beneficiaries of the company’s enlightened practices. Despite the costs involved in helping others, Merck’s shareholders also did well. During Vagelos’s tenure the company was one of the most profitable in the pharmaceutical industry, and a leader in developing new drugs. Moreover, Merck’s tens of thousands of employees around the world took great pride in being a part of such an organization, and the river-blindness program reinforced the company’s values and George Merck’s belief in its higher purpose. Merck became known as a company in which employees demonstrated high levels of loyalty and commitment.

In 1994 Vagelos was forced to retire from Merck at the mandatory age of sixty-five. After that, the company gradually regressed to the norm in its industry with respect to addressing pressing public health issues. To its credit, Merck did not abandon the Mectizan program, although after 1996 the program required a much smaller financial contribution on the part of the company, thanks to a commitment by the World Health Organization and the World Bank to use their resources to eliminate river blindness in Africa. Unfortunately, Merck’s new CEO, Ray Gilmartin—a Harvard Business School graduate with little background in health care—was not interested in going beyond the river-blindness program to preserve the company’s legacy of corporate beneficence. (Personal observation: When I met Gilmartin, he impressed me as an insecure manager overwhelmed by the daunting task of living up to his predecessor’s platinum reputation. In trying to get out from behind Vagelos’s shadow, Gilmartin seemed to reflexively choose to do the opposite of whatever Vagelos might have done if faced with a similar situation.)

Speculation about motives aside, there is no doubt that the company’s formerly unblemished ethical record was badly besmirched during Gilmartin’s tenure. In 2004 Merck was forced to withdraw Vioxx, a treatment for arthritis, when it was discovered that the drug increased the risk of heart attack and stroke. Some fifty thousand individuals would subsequently sue Merck on grounds that they, or family members, had had heart attacks or strokes while on Vioxx. Such suits are, of course, risks all pharmaceutical companies face—but Merck turned an unfortunate situation into a legal and ethical morass by continuing to sell the drug for several years after they knew of its dangers, and by funding bogus studies to “prove” its effectiveness. In 2009 a lawsuit was brought in Australia concerning a sham medical journal that Merck funded that had reported favorably about Vioxx. During the hearing it was revealed that the company had compiled a “hit list” of physicians who had been critical of Vioxx, along with an internal Merck email that read: “We may need to seek them out and destroy them where they live.”⁴⁹ Gilmartin retired shortly after Vioxx was withdrawn from the market. He then joined the faculty of Harvard Business School as an adjunct professor, teaching “management practice” (alas, fact is often more bizarre than fiction). In 2008 Merck agreed to pay $4.85 billion to settle the civil suits; three years later it pleaded guilty to criminal charges related to the marketing and sales of Vioxx, paying $950 million in fines and penalties.⁵⁰ That same year, the company paid $650 million to settle a claim with regard to Medicaid overbilling, and in 2013 it settled a $27 million class action suit with 1,200 plaintiffs who alleged that its drug Fosamax caused a rare, dangerous condition of the jawbone.

Given Merck’s constant legal difficulties under Gilmartin, the company’s board seems to have concluded that the most appropriate qualification for its next CEO was a law degree. In 2011 the board named Harvard-educated attorney Kenneth C. Frazier as Merck’s chief executive. That appointment speaks volumes about the devolution of the pharmaceutical industry: Merck had been led by a physician focused on bringing lifesaving drugs to the world, then led by an MBA whose prime interest was serving investors, and was now led by a lawyer charged with keeping it out of the courts. There is a silver lining: under Frazier, the company continues to be profitable and to develop promising new drugs, and it has recommitted to spending on long-term R&D.⁵¹ And, possibly with a nod toward the legacy of Vagelos, Frazier has been actively involved in international organizations concerned with environmental and health issues. In 2017 he also emerged as an outspoken champion of corporate responsibility with regard to racial justice.⁵²

Perhaps Vagelos’s most lasting legacy is found in the behavior of other major pharmaceutical companies: the publicity surrounding Merck’s Mectizan program encouraged, or perhaps shamed, others in its industry to make drugs affordable—and sometimes free—for people in the developing world. Beginning in 2008, the Dutch Access to Medicine Foundation (funded largely by the Bill and Melinda Gates Foundation) has published a biannual ranking of the twenty largest pharma firms, ranked by the degree to which they make drugs accessible in the world’s 107 poorest countries. For the record, Merck ranked fifth in 2016, up from seventh place two years earlier.

When Vagelos reluctantly retired from Merck, he was still vigorous and interested in developing useful drugs. Fearing he would become bored, he agreed to become chairman of the board of start-up Regeneron Pharmaceuticals and to buy six hundred thousand shares of its stock. Over the next two decades, he helped the company develop numerous drugs while delivering a 16,000-percent return to its shareholders, personally earning over $1 billion in compensation for his efforts. Still active at age eighty-eight, he has become known for his generous philanthropic support of numerous educational and medical institutions. Author of over a hundred scientific papers, Vagelos was elected to the American Academy of Arts and Sciences, the National Academy of Sciences, and the American Philosophical Society. As he put it, “my fears about retirement were unwarranted.”⁵³

In hindsight, Roy Vagelos was to the pharmaceutical industry what John Whitehead was to Wall Street: its last great statesman. Today financial and pharmaceutical firms account for the lion’s share of articles in the business press about ethical misbehavior and violations of legal compliance, and neither industry has produced another generation of leaders as enlightened as those two eminently practical patricians.

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The Patricians