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 / Winter 2007 / Issue 49(originally published by Booz & Company)


Best Business Books: Biography

Like Edison, Carnegie was often estranged from the truth. Although not an inveterate liar, he often bluffed, obfuscated, and exaggerated when the facts were inconvenient and, especially, when they were inconsistent with the public image of virtue and rectitude that he wished to burnish. His business dealings were frequently shady, or unethical, by our standards, although not necessarily illegal at the time. He capitalized — perhaps profiteered — from the Civil War and, as a result, was worth more than $5 million (in current dollars) before he was 30.

Three years later, that figure was close to $75 million, and at that point he “sat down with a stub-nosed pencil and a scrap of paper to take stock of his life — and finances.” He resolved to “beyond this [amount] never earn — make no effort to increase fortune, but spend the surplus each year for benevolent purposes.” According to Nasaw, 30 years passed before Carnegie finally started to make good on that promise to himself. In the interim, he would accumulate what probably was, at the time, the largest fortune ever held by one person. Through a combination of foresight, calculated risk, skill, luck, and a large dose of P.T. Barnum–like bunkum and bravado, he found himself at an early age owning the controlling interest of what would become U.S. Steel when he sold the company to J.P. Morgan in 1901. It is important to understand that Carnegie didn’t sell his shares of the company, because he considered playing the stock market “gambling” (he proclaimed proudly that he never invested in publicly traded equities). He owned outright more than 60 percent of the privately held partnership and personally pocketed some $226 million in gold bonds at the time of the sale, a staggering amount worth at least 20 times that today. We are talking double-digit billions here, as in the Forbes “rich list” crowd.

Early in his career, Carnegie admirably recognized that the source of his vast wealth was found not in his “labour, nor skill. No, nor superior ability, sagacity, nor enterprise, nor greater public service.” Instead, he saw that he was simply the right man at the right place and time to capitalize on the nation’s growing demand for steel — first for its railroads, and then for its giant urban buildings. Because Carnegie Steel could meet that demand, he calculated that he was earning, roughly, a 40 percent annual return on his investment. Pittsburgh in the late 19th century was the realization of Alexander Hamilton’s 1790s dream of a corporatist utopia: a fast-growing population, a supportive government in cahoots with business, and access to nearly unlimited capital and natural resources that allowed manufacturers to achieve previously unattainable economies of scale. Carnegie understood, better than his competitors, that in the efficiency game bigger was not just better; it was the winner. Carnegie Steel grew by leaps and bounds as it gobbled up market share, gobbled up competitors, and drove into bankruptcy those it didn’t digest.

His giant plants operated 24/7, but Carnegie rarely bothered to visit them. He didn’t go to the office, either. He seldom put in more than four hours a day at his desk, wherever it happened to be located. Living comfortably in New York during the social season, and for up to six months in Scotland when the weather was conducive, he saw no reason to waste his time in grimy, sooty Pittsburgh, or to bother with day-to-day business when he could hire professional managers to mind the factories. Business readers will find particular value in Nasaw’s meticulously detailed accounts of the daily internal management of Carnegie Steel, and may be surprised to find that Carnegie was neither its manager nor its leader. The absentee Scottish laird was the quintessential nonexecutive owner. He would disappear from the business scene for months — only to reappear suddenly to second-guess informed decisions made by his duly empowered lieutenants; having thus meddled, and successfully undercut their authority, he would slip away again.

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