Titan: The Life of John D. Rockefeller

Titan: The Life of John D. Rockefeller

Author
Rob Chernow. About: John D Rockefeller
Year
1998
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Review

What is it about? Was it worth reading?

Read my summary - don’t read the book. This was an amazing journey into a different time and I loved learning about Rockefeller.

Rockefeller was a fascinating character, he became the world's richest man using ruthless business tactics - only to become one of the most generous philanthropists in history.

Competition law now prohibits many of the tactics he used, but there's still plenty we can learn from Rockefeller that’s still applicable today.

I can’t recommend it though. It’s torturously long, and although there’s some great anecdotes and insight in the book - they don’t come fast enough to make it worth your time. I’ve just fallen into a similar trap reading ‘Team of Rivals’ a book about Abraham Lincoln. These men deserve some of your attention - but it takes days to get through these books - and you’ll likely find more gold if you pan elsewhere.

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Key Takeaways

The 20% that gave me 80% of the value.

  • Rockefeller might have been born at the right time, and in the right place to take over the world’s oil supply → but he wasn’t born into the right family, he built his empire from a standing start
  • The Pennsylvanian oil rush (for Kerosene) occurred a decade after the Californian Gold Rush → the rivers would soon become so polluted they were flammable.
  • Oil prices were incredibly volatile and Rockefeller profited by trading oil. He split from his business partners and began to focus on the oil refinery business. Initially he needed funding from banks to grow his business - but he made them think he didn’t need their money.
  • Rockefeller was a master strategist. He noticed if oil transporters had a monopoly they would raise prices and take all the profit of the supply chain. He located refineries so they could be served by rail and sea. He quickly entered into alliances with the railways - in exchange for exclusive discounts. He used his influence over the railways to squeeze competitors.
  • He also moved innovated and moved away from the barrel as a transport unit, building custom rail carts and loading infrastructure → this gave him control over who shipped oil where. So much so that in 10 days he was able to acquire 22/26 competitor refineries in Cleveland, for 25 cents on the dollar. He would leave acquired companies trading under their own names - so it looked like there was more competition than there was
  • Rockefeller would deliberately and aggressively target competitors - either by lowering local prices to a point they couldn’t compete - or acquiring pipelines or railways they needed for transport.
  • As pipelines grew in popularity and power Rockefeller invested in them too - controlling 40% of the pipeline network and making deals elsewhere. He would refuse to extend them to competitors.
  • Rockefeller was continuously innovating, despite his monopoly position. He drastically lowered the cost of oil overtime, he saw cooperation and economies of scale as the industries saviour and a better model than competition
  • Rockefeller’s net worth peaked at about 3% of US GDP, it was more than Federal spending that year.
  • Standard Oil would eventually be the catalyst for the creation of competition law. Rockefeller would later be found in breach of the very laws designed to reduce his power and influence and was given the largest fine in corporate us history (30% of market cap). Some say he even underpaid that - as he always kept a conservative book value.
  • Rockefeller was an interesting character. He focused on making the most of his time and had an obsession with money from an early age. He was privately lavish but publicly restrained (his estate had 130 staff - his private golf corse was swept of snow so he could play through the winter).
  • He gave generously to charity - even before he made his fortune. 80% of the $530m he gave away before his death went on healthcare. The Rockefeller foundation is still going strong today - Rockefeller must go down as one of the greatest philanthropists in US history.
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Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

Timeline: Placing Rockefeller into US History

1839

  • Rockefeller was born just 50 years after the US constitution was ratified
  • His family settled in Cleveland, close to the future oil fields of Pennsylvania
  • There was just enough regulation to allow business to thrive (property ownership etc)

1859

  • An oil rush began in North West Pennsylvania (a decade after the gold rush). Production would rise from 2k barrels per annum to 4m per annum over the next decade
  • NW Pennsylvania was the only place in the world producing oil at scale at this time
  • The primary product was Kerosene. Gasoline was a waste product, they let it run into rivers. The rivers and land became flammable, fires were common, smoke on the horizon sent oil prices higher (as people assumed that a refinery was a blaze)

1861-1865

  • Rockefeller avoided conscription during US Civil War, he was able to profit as a merchant by trading supplies

1870

  • Rockefeller formed Standard Oil, he would retain about 30% ownership

1887 & 1890

  • The Interstate Commerce Act and the Sherman Antitrust Act were brought into law, inspired by the monopolistic practices of Standard Oil

1907

  • During the panic of 1907 Wall Street came close to collapse, Rockefeller stepped in to provide liquidity. Depositing $10m into a key bank and promising to pledge 50% of his net worth if needed to maintain US credit

1908

  • Ford started production of the Model T and would make 15m over the next 20 years, the market for petrol would become bigger than kerosene

1911

  • The US government ruled that Standard Oil should be broken up, and they should pay the largest fine in corporate history

1913

  • Rockefeller's net worth peaked at about $900m, 3% of GDP, more than federal spending that year and equivalent in size to the entire USA national debt ($1.2b)

1914-1918

  • World War 1 - Rockefeller would cooperate with European rivals to supply the allies with oil

1937

  • Rockefeller dies at age 97, Rockefeller said "see you in heaven" to Ford, who responded "you will if you get in"

Rockefeller the Oil Barron

Entry into the Oil Business

  • As a merchant Rockefeller capitalised on volatile oil prices by trading
  • Rockefeller wanted more exposure to the growing industry, and chose to enter oil refining, he viewed it as a more stable business than production. Oil producers were exposed to more risks: exploration, extraction, transport and price variability
  • Rockefeller waited for another large oil discovery in Pennsylvania before buying out his partners and doubling down on the oil refinery business.
  • Rockefeller learnt from his early business partners, but found ways to part company with them, he had more ambition.

The Monopoly Years

  • Rockefeller used capital from banks to fund rapid growth. He knew that to borrow money it was important he looked like he didn't need it.
    • Standard Oil later self funded expansion, and became a banking force in its own right (Chase). Rockefeller later bailed out wall street in the panic of 1907
  • Rockefeller saw that when transporters had a monopoly, they raised transport prices and extracted all the profit from the oil supply chain
    • Rockefeller positioned refineries so they could be served by both rail and sea
    • He then quickly entered into alliances with the railways, promising them large amounts of regular freight in exchange for exclusive discounts (of c.33%)
    • He deepened these alliances overtime, adding more railroads, dividing his trade amongst them. He also coerced them to raise prices on his competitors. They provided him with information on competitor shipments and payments when his competitors moved oil
    • To keep the upper hand in the relationship, Rockefeller stopped building barrels and instead erected infrastructure at rail terminals to load oil on and off tanker cars that he provided
    • This gave him almost complete control over who shipped oil where and enabled Rockefeller to wipe out competition in entire areas. In just 10 days he acquired 22/26 Cleveland competitors, paying 25 cents on the dollar for their assets
    • Standard Oil didn't just look after its own, it actively tried to cripple competitors. No threat to the empire was too small to overlook (despite publicly saying I wouldn't use a cannon to shoot a mosquito)
  • As pipelines became increasing important Rockefeller reacted quickly, laying his own network (40% of pipelines) and striking key deals elsewhere
  • Rockefeller would occasionally cripple a competitor by buying up key infrastructure or inventory. For example buying up pipe so a rival company couldn't complete a pipeline. "Run children or Rockefeller will get you" was a common phase in oil towns.
  • He took advantage of recessions, to expand when others couldn't and snap up bargains
  • He acquired the competition, but in secret, leaving them trading under their own names
  • Rockefeller would refuse to expand pipelines to producers he didn't favour.
  • Rockefeller would win praise for his business administration skills, Standard Oil was one of the first multinational corporations. They were one of the first to manage the coordination of sprawling businesses such that they both cooperated (sharing best practices) and had a healthy sense of competition between devisions.
  • Rockefeller dominated the worldwide oil trade, exporting to London, Paris, China and India. When competition grew in Europe from Russian oil, Rockefeller reacted by building large oil tankers so he could lower prices. He also spread rumours about the safety of Russian Oil in Europe.
  • He used underselling to stamp out competition, selling at or below cost until they went out of business. He cut prices only in response to competition. To pay for price cuts he would raise prices in areas with less competition.
  • Even when dominating, two things worried Standard Oil. The prospect of oil drying up in Pennsylvania, and the prospect of oil being discovered widely elsewhere, lowering the price below cost
    • Rockefeller moved into production in an attempt to control supply. There was resistance from directors so he put up his own money to purchase Ohio crude oil fields. The oil was of low quality, but he hired chemists who successfully invented refining techniques that made the oil usable. He brought science into the industry and created a vertically integrated oil giant, like the ones we have today
  • Rockefeller was continuously innovating, despite his monopoly position. He drastically lowered the cost of oil overtime, he saw cooperation and economies of scale as the industries saviour and a better model than competition

The Breakup

  • In 1880 legislation banned railroad rebates, Rockefeller said he stopped the rebate practice and welcomed the legislation. However, he hadn't stopped, instead he had found ways to obscure the fact they were still benefiting from rebates
  • Rockefeller mishandled the press and the public. He rarely appeared in public and never spoke out to defend himself. He would never allow himself to be pictured alongside an oil refinery. "If we were right they wouldn't favor us, if we were wrong, all of our commenting wouldn't help"
  • The Standard Oil story ends in the issuing of the largest fine in corporate history (30% of market cap) and the order to disband the trust into its component companies.
    • It seems though, that Rockefeller even came out on top of this verdict. First, Rockefeller stalled in the appeal courts. He also managed to avoid jail and maintain stakes in all of the new component companies. He'd historically been really conservative in the valuation of Standard Oil and its assets, so the fine wasn't as large as the government hoped, and when the component companies listed on the stock market they all shot up in price, helped by the fact that the government action was now over
    • He then encouraged the owners of the smaller companies to meet on a regular basis and continue to collude
  • Even in retirement, he would profit hugely from the adoption of the motor car, petrol became a bigger market than Kerosene ever was
  • Exon, Mobil, Amaco, Chevron, Dupont, BP are all component children of Rockefeller's Standard Oil

Rockefeller the man

Humble Beginnings

Rockefeller was born into a poor family, wearing dresses until aged 8 as his family couldn't afford children's clothes for him.

When ready to get a job, he relentlessly canvassed firms in the city, 6 days a week for weeks on end. Eventually he secured an entry level job, every year for the rest of his life he'd celebrate that day (26th September), as 'job day'.

Making the Most of Time

Rockefeller had an incredible work ethic in the early years, he said "Life was a serious business to me." He scrutinised how he spent his days, and tried to focus on work. He tried hard not to waste time, maybe taking it too far he viewed idol chit chat as a sin. His compulsion to work was so strong that he had to challenge himself not to be in the office after 10pm for 30 days, he failed.

An Unhealthy Obsession?

Rockefeller had an obsession with money, he loved facts, figures and book keeping. After starting work, it was reported he kept retrieving a $4k cheque from his employers safe just to look at it. As a young man, he kept a ledger and accounted for every cent he spent. Later, even as the worlds richest man he'd spend hours scrutinising a hotel bill in France questioning expenses (he didn't speak French).

Publicly Restrained but Privately Lavish

Rockefeller avoided extravagant displays of wealth in public. He was largely keen on austerity and tried to simplify his wants.

To get the most out of his days, he spent lavishly on his private estate to create his ideal environment. It required 130 staff at its peak, he relocated a railway line and a village to make room for a golf course, swimming lake and other amenities.

Rockefellers' Generosity Came Before his Wealth

Just after he started work, Rockefeller was already giving to charity. We know from his ledger that despite earning just $1 a day he was giving 10-12% of that to charitable causes... such as giving money to a man so that he could buy his wife out of slavery (he was an abolitionist).

How to Make the Most of Life

Rockefeller was keen on making the most out of life, both by increasing his longevity and getting the maximising each day.

Rockefeller valued his time highly and ran his life by the clock, he was never late for a meeting.

Once he became successful, he got others to fit into his timetable (at 30 he refused to visit a powerful 70 year old railway tycoon).

He religiously stuck to a daily routine, that he adapted throughout his life. Initially it favoured his business pursuits, but the focus later changed to leisure, philanthropy and health.

His later life routine included: reading papers, correspondence and having mail read to him. Multiple rounds of the Numerica game, golf, driving cars, formal dinners and 8 hours of sleep.

He wouldn't change his schedule for the weather, having snow cleared so he could play golf.

He tried very hard to live to 100 (but died at 97). His tips for longevity included:

  • avoiding anger and worry, he believed them to be more damaging than hard work
  • abstaining from alcohol, tobacco and lavish dinners
  • engaging in healthy hobbies including swimming, walking and golf
  • thinking of food as fuel, he rarely ate cooked meals

Beware of Men Executing God's Will

Rockefeller was a church goer and generous philanthropist, he lived a life of strict abstinence and morality at home. However, he was accused of compartmentalising his life, and engaging in aggressive immoral tactics at work.

Rockefeller believed his calling was to acquire wealth and distribute it for the benefit of humanity. That it was God's will. This conviction helped him justify his ruthless business operations. He also looked for character flaws in his opponents, which helped him further justify his actions.

He thought he was saving the oil industry from ruin by encouraging cooperation over competition.

Some examples of Rockefeller's ruthlessness and confidence:

  • When refused a loan in the early days he said "someday I will be the richest man in the world"
  • He noticed his barrel maker had an extravagant home, he dissected the accounts and decided to cut out the barrel maker and produce them himself.
  • On a number of occasions he bought up crucial infrastructure or inventory, not for his benefit but just to cripple his competitors. "Run children or Rockefeller will get you" was a common phase in oil towns.
  • He wanted to purchase a property that was surrounded by his estate, when the owner refused, he planted tall tree's around their property until they gave in.
    • Trump did something similar in Scotland.

The Strong Silent Type

Rockefeller equated silence with strength. He used to say as little as possible in meetings and negotiations. He liked everyone to express their opinions before voicing his own.

He was calm, and took pride in being unflappable he never lost his cool. When he learnt Standard Oil had been issued the largest corporate fine in history he was on the golf course, he shrugged it off, finished the game and had one of his best ever rounds.

If you do it, do it well

Every time he wrote something, he did it with the upmost care and attention.

Continuous Improvement

He asked his team to reduce the number of welds on an oil barrel. From 40 to 38, 38 wasn't enough, but 39 was, so that became the new standard.

He hired a golf coach and a photographer to help improve his swing, along with a boy to say 'keep your head down' every time he swung.

Tactics to Avoid Prosecution

Rockefeller knew he was sailing close to the wind with his business tactics. He deployed a number of techniques to reduce the chance he would be prosecuted

  • Railroad contracts were verbal and not written on paper
  • He tried to maintain an illusion of competition in the market:
    • He didn't announce acquisitions - companies continued to trade under old names
    • He allowed small players to have about 10% of the market, as it was good for optics
  • He reduced his official responsibilities at Standard Oil overtime
  • He was accused of burning historical records and papers
  • He concealed his location, turning his estate into a fortress
  • He extended a trip to Europe to avoid being arrested on his return
  • He spoke in generalities not specifics, and wrote letters carefully to avoid incrimination
  • "The virtue of forgetting, which is one of the most useful when under investigation is something Rockefeller had to the finest degree"

Rockefeller the Philanthropist:

His Giving Strategy

  • He setup a single trust with a broad mission to "Promote the well being of mankind throughout the world". This largely enabled him to keep hold of his wealth and remove it from any anti competition settlement with the government. The Rockefeller foundation is still going today and has an endowment of more than $4b
  • The trust enabled him to give at scale. He received 15k letters a month requesting aid, largely from individuals... it was impractical to give money that way.
  • He was concerned charity could cause dependence, so he never promised follow up donations or commitments
  • He would give his endowments in instalments over 10 years periods, to encourage sensible budgeting.
  • He chose where to donate carefully, he thought it was easier to start a bad charitable venture than it was to end it one
  • He chose to fund things that weren’t controversial, and had broad appeal.
  • He visited his beneficiaries infrequently, and resisted things being named after him.
  • He must rank as the greatest philanthropist in American history

Causes he Supported

  • Rockefeller was an abolitionist. Giving to a man so he could buy his wife out of slavery.
  • He saved supported a black woman's college that would later teach Martin Luther King's mother and grandmother "I hope they secure knowledge from books, strive to learn to do all kinds of work better than any class of men"
  • He focused on progressing healthcare and education. He went after infections diseases, developing a vaccine for yellow fever. Of the $530m he gave away in his lifetime, 80% went on healthcare.
    • He funded the The Rockefeller University in New York. To forward medical research into infectious diseases and other things.
    • He also founded the University of Chicago, he wanted to create a new technical class of professionals, by supporting universities and bringing about scientific reform
    • He setup the General Education Board to help rural education in the South.
      • Realising they needed to fix the economy of the south to fix education they modernised farming practices in the South and helped eradicate hookworm (curing 0.5m people of it over 5 years)
      • The GEB was originally intended to progress black education, they gave it a more generic name to make it less controversial. Unfortunately, the white directors funnelled 90% of the aid into white schools
  • His son donated virtually all the inheritance to similar causes, and gifted land in New York for the UN Headquarters
  • Winston Churchill said that Rockefeller’s donations to research maybe seen as a milestone in the history of the human race. Stating that science today owes as much to Rockefeller as the art of the renaissance owes to the patronage of popes and princes.