SCHWAB, CHARLES MICHAEL 1862-1939

Steel manufacturer and financier

The Beginnings

As a young grocery clerk in Braddock, Penn-sylvania, the site of the Edgar Thomson Steel Work of Carnegie Steel, Charles Michael Schwab made the acquaintance of "Captain" William R. Jones. Jones was the plant's general superintendent and got Schwab a job as an engineer's helper at two dollars a day in the early 1880s. From this position Schwab was able to learn a great deal about the steel business. He studied the chemistry and metallurgy of steel late into the night in his chemistry laboratory in his home. Schwab rapidly moved up within Andrew Carnegie's company by using his managerial skills to solve labor and public-relations problems. In 1897 he was appointed president of Carnegie Steel Company, earning more than $1 million a year with bonuses, most of which he reinvested in the firm.

U.S. Steel

In 1900 Schwab sparked J. P. Morgan's interest in the profit potential of a huge new steel combination at a 12 December dinner at the University Club in New York City. He drew up a basic list of companies to be integrated and proposed the financing by which the combination was to be accomplished. Once he had gotten Morgan interested, he encouraged Carnegie to sell after a golf match at St. Andrews. At Morgan's stipulation, Schwab became the first president of U.S. Steel in 1901, at only thirty-nine years of age. Although he was earning $2 million a year in the position, he resigned in 1903 because of difficulties with the board of directors. They had criticized his extended travel and his gambling, and Morgan was also extremely critical of side investments Schwab had made, notably in the United States Ship-building Company, which Morgan felt were detracting from his ability to run U.S. Steel in the best interests of the bondholders.

Bethlehem Steel Company

In 1901, as a spinoff of the U.S. Steel formation, Schwab purchased control of the Bethlehem Steel Company. Because of conflicts of interest Schwab suggested that Bethlehem be merged with U.S. Shipbuilding, with Schwab receiving $30 million in securities and a mortgage on the company's property. The new company, however, collapsed in the midst of a financial scandal, with its assets going to Schwab as the largest bondholder. Buying out the other investors, he made U.S. Shipbuilding and Bethlehem Steel into a giant enterprise under his own control, Bethlehem Steel Corporation, in 1904.

Exercising Control

Six weeks prior to Schwab buying controlling interest in Bethlehem Steel, the owners had dismissed Frederick W. Taylor, the controversial pioneer of scientific management. When Schwab took over Bethlehem he discarded almost all of Taylor's policies. Bethlehem was a holding company, not unlike U.S. Steel, and operated seven shipyards and one manufacturing company. Schwab had plans for enlargement so that the plant could produce all types of guns, gun forgings, and tools. In an effort to bring Bethlehem into greater prosperity, Schwab proceeded to sell off its unprofitable properties and invest the proceeds in shipyards, which had the greatest profit potential.

Risking It All

Expansion into the field of commercial steel was foremost among Schwab's plans for the growth of Bethlehem. He decided to risk his fortune and the future of the company on a new and largely untried product. Henry Grey had perfected a new steel beam that could be rolled as a single section instead of being riveted together as conventional beams then were. Into this new concern Schwab poured every penny he owned and every penny he could borrow. He succeeded in bringing the company into a solid competitive position by concentrating on the eastern market and specializing in the new rolled-steel girders, called Bethlehem Beams. The rolled-steel girders were in great demand with the dawning age of the skyscraper.

The Later Years

During World War I, Bethlehem Steel became a major arsenal for the Allied powers. Schwab got huge war contracts from Allied governments, and by the end of the conflict the company had handled orders totaling more than $500 million. After the war Schwab increasingly functioned as an elder statesman of the company, which had by then become a major rival of U.S. Steel, and the senior spokesman for the steel industry as a whole. In his later years he was paid a salary of $250,000 per year for only nominal functions at Bethlehem Steel. Schwab began investing his money in new enterprises. Such ventures as International Nickel, American Steel Foundries, and Chicago Pneumatic Tool, all of which he helped found, were successful. But others, especially those outside the steel industry, turned out badly. He was, indeed, often an "easy mark" for investment capital, and when the Depression hit, his fortune of some $200 million was depleted. He died, insolvent, in New York City in 1939.

Source:

Robert Hessen, Steel Titan: The Life of Charles M. Schwab (New York: Oxford University Press, 1975).

Charles Michael Schwab

Charles Michael Schwab (1862-1939), American industrialist, became a multimillionaire in the steel industry but died bankrupt.

Charles M. Schwab was born on Feb. 18, 1862, in Williamsburg, Pa. He graduated from high school in 1880 and 2 years later joined the steel enterprise of Andrew Carnegie as an unskilled manual laborer. In 6 months he was an assistant manager. He was appointed superintendent of Carnegie's Homestead Works in 1887. No wonder Carnegie declared about Schwab, "I have never met his equal."

The steel industry at the turn of the 20th century was in the throes of a competitive struggle in which Carnegie was the ruthless competitor and other firms attempted to achieve stability. Schwab served as the intermediary between Carnegie and banker J. P. Morgan, and the sale of Carnegie's company became the main step in organizing the U.S. Steel Corporation in 1901. Morgan chose Schwab as president of the new giant corporation. In 1903 Schwab left because of internal disagreements with his associates.

Schwab acquired control of the Bethlehem Steel Company in 1901. When the concern was merged into the United States Shipbuilding Company, Schwab's stock was exchanged for bonds. When this company failed owing to an improper financial policy, Schwab as the prime creditor became the owner. Bethlehem Steel Corporation, organized in 1904, was his own creation, and he made it a major steel producer and a worthy competitor of U.S. Steel. During World War I Bethlehem Steel became an important producer of materiel for the Allied war effort. He also spurred the American shipbuilding program to new heights after he was appointed director of the Emergency Fleet Corporation in April 1918.

After the war Schwab entered into semiretirement. He continued as the chairman of the board of directors of Bethlehem Steel until his death but delegated the responsibility to the president. During the 1930s Bethlehem was accused of having earned extortionate profits during the war, but the courts upheld the company's actions. Schwab died in London, England, on Sept. 18, 1939.

Further Reading

There is no biography of Schwab. Information on various phases of his career must be pieced together from works which have another emphasis: James H. Bridge, The Inside History of the Carnegie Steel Company (1903); Ida M. Tarbell, The Life of Elbert H. Gary (1925); Arundel Cotter, The Story of Bethlehem Steel (1916) and United States Steel: A Corporation with a Soul (1921); Burton J. Hendrick, The Life of Andrew Carnegie (2 vols., 1932; new introduction, 1969); Stewart H. Holbrook, Age of the Moguls (1953); Joseph Frazier Wall, Andrew Carnegie (1970); and Louis M. Hacker, The World of Andrew Carnegie (1968). Both Arthur S. Dewing, Corporate Promotion and Reorganizations (1914), and Henry R. Seager and Charles A. Gulick, Jr., Trust and Corporation (1929), contain a chapter on the U.S. Shipbuilding Company.

Additional Sources

Hessen, Robert, Steel titan: the life of Charles M. Schwab, Pittsburgh, Pa.: University of Pittsburgh Press, 1990. □

Charles Michael Schwab , 1862-1939, American steel magnate, b. Williamsburg, Pa. He started as a stake driver in Andrew Carnegie's steelworks and rose to become (1897) president of the Carnegie Steel Company and then the first president (1901) of the U.S. Steel Corp. He resigned (1903) to run the Bethlehem Steel Company, which under his direction became the largest independent producer in the field.