Civic Empowerment in an Age of Corporate Greed:

Chapter 2: New Corporations and New Regulations

59 Chapter 2 new Corporations and new regulations on June 14, 1965, the Chicago and north western railroad (c&nw), headed by Ben Heineman, confirmed rumors of the previous month, announcing that it was buying velsicol Chemical from the regenstein family.1 velsicol now joined the same type of corporate structure that housed fruit of the Loom and Union Underwear. Heineman was in the early stages of moving north western from being a railroad into being the name for a holding company controlling a conglomerate. while there had been holding companies for nearly a century, the new feature of firms such as the north western was that they controlled subsidiaries in unrelated industries. By contrast, the regensteins, while they controlled several companies, began with related companies that separated as their products diverged. when arvey had owned velsicol in the 1930s, it had produced the windows for arvey’s envelopes. in the case of the Chicago and north western, velsicol had no plants on the railroad’s lines, and the railroad was unlikely to be a major customer of velsicol. Heineman had traditional reasons for moving from railroad owner to head of a conglomerate. He wanted to subsidize the operation of his railroad through the cash from highly profitable subsidiaries. the ideal conglomerate , he saw, would bring together additional resources to maintain weak parts of the firm.2 By the time Heineman sold control of his conglomerate in the mid-1980s, his purposes had changed, yet neither he nor the business press saw this transition very clearly. in 1965, it appeared that Heineman merely had found a mechanism to fund a transportation revolution at his railroad. the new conglomerate converted a group of small firms in their respective industries into a large corporation, seemingly with the resources to 60| Chapter 2 sustain long-term progress. meanwhile, the conglomerate’s ceo, Heineman, emerged as a model of responsible corporate citizenship. By the 1970s, all this changed. Heineman’s conglomerate no longer used extra funds to support the railroad; rather, it milked funds from profitable entities to pay debt from acquisition of new parts of a ballooning conglomerate. whatever Heineman’s goals, the funding of expansions forced subsidiaries to follow management practices that risked accidents and transferred costs to communities that trusted the firms to bring benefits, not impose losses. at velsicol’s facility in St. Louis, michigan, management practices contributed to an accident that contaminated the food of several million people. with contaminated cows shot in front of tv cameras, the mistake dramatized the limitations of the new liberal environmental regulatory structures that Heineman supported. Simultaneously, the effectiveness of the interest-group system in shielding the firm from responsibility while allowing greater food-system contamination exemplified the reasons for the regulatory failure. the cozy elite deals at the heart of the modern broker state shielded the powerful from responsibility. Yet, the poor policy response to the problems of velsicol sowed the seeds for a popular critique of the interest-group system. ELitE innovator the recent purchase of michigan Chemical by velsicol had required purchase of the shares of a large number of stockholders. in contrast, the regensteins and their foundation owned 95 percent of velsicol, and therefore received almost all of the $90 million purchase price.3 the transaction marked a new stage not only for the railroad but also for the regensteins. they changed from a private Chicago industrial family to leading regional philanthropists. the major differences between Heineman and regenstein were in their concerns outside of managing their business. regenstein was the quiet philanthropist. Ben Heineman was an active participant in public affairs, personifying noblesse oblige. Unlike the shy regenstein, he served visibly and was glad to be known by the public. Even as corporate managers, the two differed in their early years. regenstein inherited his position and distanced himself from daily leadership. By contrast, Heineman rose from employee to owner, and spent his first decade as head of the railroad as an active transportation reformer and innovator. Heineman was a determined man and accepted more than just the New Corporations and New Regulations| 61 challenge of building a conglomerate. He wanted to play a role in public affairs, whether related to transportation or wider issues, especially of urban life and civil rights. as a loyal democrat with a great interest in social problems , Heineman accepted the responsibility to use his prestige for the public good. However, as with building...