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Could he save the company? In May 1962 it was a question that must have weighed heavily on Laurance Rockefeller's mind.
It was the most dangerous year of the Cold War. Assassins from the Central Intelligence Agency were stalking Fidel Castro, communist insurgencies in Laos and Vietnam were gaining momentum, and the moment of near Armageddon, the Cuban missile crisis, was just months away. Yet Rockefeller, grandson of the Standard Oil founder, John D., and younger brother of Nelson, was about to make decisions critical to the security of the nation. He didn't hold elected office or serve in a president's cabinet. He was a businessman, a venture capitalist. And he made this contribution to America's national security anonymously.
A venture capitalist is a special breed of investor. Not content with the returns produced by mere stocks or bonds, a venture capitalist seeks investments of a higher order. Greater returns can be attained only by taking bigger risks. Namely, calculated long shots. For the venture capitalist this can mean providing capital to the kind of small, start-up company that often can't get a loan from a bank. But if the company succeeds, the payoff can be huge.
Laurance Rockefeller was a different kind of venture capitalist. He believed that there was a strong link between the quality of American technology and the credibility of U.S. national security. Jets, rockets, and nuclear bombs could make America safe. But only as long as the jets were faster, the rockets stronger, and the bombs more powerful than anything the Soviet Union could build. Rockefeller wanted to achieve a high return on his investments, but his primary goal was to invest in technologies that would strengthen U.S. national security. As an heir to one of America's great fortunes, he had sufficient means to pursue his vision, and the acumen to build a staff that could implement it. Rockefeller invested in jets, rockets, and nuclear research. And along the way he multiplied his millions. Suddenly, one of Rockefeller's best-performing investments was on the verge of collapse. The company was Itek.
In response to the emergency, Rockefeller had just flown up from New York City in his private plane and landed at a small airport outside of Lexington, Massachusetts. A driver in an unmarked car belonging to the Itek Corporation took Rockefeller the short distance to a small Lexington motel. The Battlegreen Inn, as it was aptly called, bordered the historic field where almost two centuries earlier, the minutemen took their stand against the British in the effort to gain America's freedom. That evening Laurance Rockefeller would take a stand of a different kind to preserve it. Rockefeller was scheduled to attend an emergency meeting of Itek's board of directors. Although Rockefeller wasn't on the board, he was Itek's largest shareholder.
Founded in 1957 with seed money from Rockefeller, Itek was the kind of investment that venture capitalists dream about. In the first three months of the company's life, its payroll swelled from a handful of executives to more than one hundred scientists, engineers, and technicians. By the end of the company's first full year of operation, revenues and profits soared from zero into the millions. And when Itek decided to sell its stock to the public after less than two years in operation, investors were eager to buy their share of what the financial world considered a miracle company.
Wall Street analysts, journalists, and investors alike believed that Itek was leading an information revolution that would sweep America into the future. The company's crisp-sounding name was a phonetic contraction of the very words information technology. The investment community bought Itek's story and they also bought the stock. Less than eighteen months after the initial offering, the price of a share of Itek's stock had soared from $2 to more than $200 a share.
Itek's tale was more than breathtaking; it was, in part, a cover story. Wall Street tycoons and main street investors who owned stock from 1958 through 1962 had scarcely an idea about how the company made money. They didn't know the true source of the company's profits or the name Of its biggest client.
Laurance Rockefeller knew.
Itek was the most sophisticated manufacturer of reconnaissance cameras in the world, and its products were the crown jewels in the most important CIA program in U.S. history - Project corona. Corona was the code name for America's first spy satellite program. Itek cameras, launched into orbit aboard Lockheed rockets and returned to earth in a General Electric capsule, took photographs of the Soviet Union from more than two hundred miles in space. Analysts at the CIA's National Photo Interpretation Center used the photographs to locate Soviet missile sites and to develop overall assessments of Soviet military strength. Information obtained by Itek cameras was critical to U.S. national security. So was Itek.
Now the company was in a state of crisis. The crisis had been brewing for months. After three years of consecutive record growth in earnings and revenues, the company reported a surprising loss for fiscal 1961. The stock price was down and a painful restructuring was on the drawing board. These were symptoms of troubles far greater than either the investment community or CIA officers at the time would ever know.
A key group of Itek scientists, engineers, and executives wanted the board of directors to fire Richard Leghorn, the company's president. Leghorn was the visionary entrepreneur who had made Itek possible. He had developed the company's original business plan and persuaded Rockefeller to invest in it.
The mutineers, as the scientists termed themselves, demanded a meeting with the board to state their case. Members of the Itek board quickly assembled to hear their story. The mutineers explained that Leghorn was hurting the company. And hurting Itek meant endangering national security. Leghorn, the mutineers insisted, had to go.
Under ordinary circumstances, the men on Rockefeller's handpicked board of directors would keep the president and fire the mutineers. After all, the board was filled with men who had served in high levels of government and the military, or were members of old-money families. In their conservative world, the sanctity of the corporate command structure was unquestioned.
The board faced a difficult problem. The mutineers comprised some of the top scientists and engineers in the country. If the situation at Itek deteriorated any further and affected their work - or worse, if any of them left the company - the single most important national security project in the country would be seriously jeopardized. Would the board back Leghorn or the mutineers? As Laurance Rockefeller arrived at the Battlegreen Inn, it was probably not yet clear in his own mind what course of action he would choose.
The Itek board of directors meeting began that night at about 8:00 P.M. Not long afterward, the mutineers marched in to present their case. The national importance of the decisions to be made that day in Lexington was unquestionable, yet no representative of the CIA, the Department of Defense, or the National Security Council was present. No government officials were aware of the meeting, and no security officials swept the room for listening devices despite the acutely sensitive nature of the meeting.
Albert Pratt, former assistant secretary of the navy and current partner with Paine Webber, was chair of the board's executive committee and ran the meeting that night. Laurance Rockefeller listened quietly as scientists and engineers like Walter Levison, Dow Smith, and John Wolfe presented the case against the man who had founded and built Itek. Wolfe stood up and faced Rockefeller. Where had he been the past year? Why had he allowed the company to nearly disintegrate? Surely, this was not treatment to which a Rockefeller was accustomed, certainly not from an employee of a company that he controlled. As the meeting wore on, Leghorn's supporters waited in the hallway for their turn to speak.
That evening, Frank Lindsay sat at home and considered his future. One of the few American spies to penetrate Hitler's Third Reich, Lindsay was a risk taker. Now he was Itek's executive vice president. He joined the company after leaving a job at the prestigious consulting firm McKinsey and Company. That evening he wondered whether this gamble was a mistake. Technically speaking, he was the number two man at the company. In actuality, he felt like an outcast. When he had left his job as a McKinsey consultant to join Itek, he had had high hopes for his future. Now, almost a year later, he had yet to make his mark at the company. He had no operating responsibilities and spent most of his time on long-range planning documents. Leghorn had effectively shut him out, and Lindsay was thinking of resigning. The idea of leaving the corporate world and becoming a professor at his alma mater, Stanford, seemed attractive.
Yet Frank Lindsay was an unlikely professor. Although Lindsay was a soft-spoken, articulate man, above all else he was a man of action. Given his temperament, it seemed unlikely that Lindsay would spend the Cold War on the sidelines as a professor, or in a corporate staff position - precisely his two career options at that moment.
Late that same night, the telephone rang at Lindsay's house. It was Albie Pratt.
Why should we care what Pratt told Lindsay that night? After all, Itek is a forgotten name and the company itself was dismantled years ago.
But there was a time when Itek was one of the great glamour stocks on Wall Street. At its peak, Itek's fame rivaled the notoriety, and the price-to-earnings ratio, of the top Internet stocks of the great NASDAQ bubble of the late 1990s. Its name was splashed across the front pages of The Wall Street Journal and Business Week. Its virtues were extolled in the likes of Barron's and Forbes. Yet the significance of Itek's story goes well beyond its value as a stock market parable for all ages.
In part Itek deserves to be remembered because of its historic contributions to U.S. national security. Without question, Itek's camera technology was critical to the success of the CORONA spy satellite program. When Itek's cameras began clicking in space during the summer and fall of 1960, the photographs they produced tore the Iron Curtain to shreds. The Kremlin's ability to keep great military secrets was destroyed, and the myth that a missile gap existed was shattered. Pictures taken by Itek cameras helped Presidents Eisenhower, Kennedy, Johnson, and Nixon to better understand the nature of the Soviet threat, and to effectively structure America's defense posture in response.
But just as Itek cameras helped secure America's defense, they also paved the way to peace. Technology developed at the company allowed the CIA to monitor the Soviet Union's intercontinental ballistic missile forces. Thanks to Itek's cameras, U.S. diplomats were confident that verifiable arms control agreements could be negotiated with the Soviet Union. When President Nixon signed the Strategic Arms Limitation Treaty (SALT) with Soviet Premier Leonid Brezhnev in 1972, the world became a less dangerous place. It would not have happened without Itek's technology.
Itek's birth in 1957 heralds the rise of the intelligence-industrial complex. In the history of the CIA, the period of the 1950s and early 1960s was a golden age of daring innovation led by the visionary Richard M. Bissell Jr. Manager of the U-2 program, architect of the SR-71 Blackbird, and artificer of CORONA, Bissell ripped government red tape to pieces and pulled the CIA from the era of Mata Hari into the space age. Along the way he built a pioneering partnership between business and the CIA that harnessed the ingenuity of the nation's industrial base to achieve important intelligence objectives. Today, as the CIA again seeks to leverage the best ideas in the private sector, Bissell's management approach remains fresh and relevant.
Unlike many other firms that became key CIA contractors, Itek was a start-up company. During this period Itek had to overcome a series of technical, financial, and managerial problems in order to grow and survive in a world of industrial giants. For the company's executives, the pressure of being a contractor on the most important national security program of the time was magnified by the challenge of managing a new corporation.
In order to build manufacturing facilities and research laboratories, Itek needed capital. At first Laurance Rockefeller provided it. Itek's story, written in large measure from his papers, offers a rare glimpse inside his trendsetting venture capital operations. Later the company turned to the American public for funds. But management could never tell the vast majority of its shareholders about the true nature of Itek's business. During this critical period, which lasted from 1957 to 1965, management made many difficult decisions as it balanced the need to keep secrets, grow a company, and meet shareholders' interests.
Told from documents never before available, Itek's story provides an inside look at a company positioned at the crossroad where business and espionage intersect. As a result, its story helps us to understand the questions raised by the CIA's partnership with business. In working behind a cloak of secrecy, for example, did management work more wisely, or more recklessly? Did company executives guard the best interests of shareholders, the CIA, the nation, or themselves? And when the interests of these constituencies diverged, was it possible to reconcile their differences? Before these questions can be answered, at least from Itek's perspective, it is important to place the company in the context of its own place and time. The men who founded and managed Itek were all veterans of World War II. Richard Leghorn, Itek's president, flew dangerous reconnaissance missions over Normandy and brought back intelligence that General Eisenhower used to plan for D-Day. Franklin Lindsay, Itek's executive vice president, was among the first American spies to penetrate the Third Reich. The lessons and ideological values men like Leghorn and Lindsay learned during the war shaped the way they looked at the postwar world and influenced how they managed the company as well.
Although World War II was the shared experience that bound Itek's management team together, their operating environment was the early years of the Cold War. It was a time when the Soviet Union loomed large in the minds of all Americans and the very existence of the United States seemed threatened.
In a time of great danger, men who might ordinarily have led quiet lives chose to live with an uncommon purpose.
Excerpted from SPY CAPITALISM by Jonathan E. Lewis Copyright © 2002 by Yale University. Excerpted by permission.
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|1||The Battlegreen Inn||1|
|2||"You damned fool, now look what you've gone and done"||8|
|5||The Coffee Slurpers and the Front-Office Pros||64|
|6||Into the Black||79|
|8||Bissell for Vice President||103|
|10||"An excuse to sell"||142|
|11||"Friendly in the extreme"||157|
|12||"This is no group of long-haired scientists"||176|
|13||"Then, Mr. Chairman, there will be war"||187|
|14||"I am today forming a new corporate management team"||199|
|15||"We are probably going to have to bomb them"||211|
|18||Brains into Gold||262|