Encyclopedia of american business history part 7 pps

He left Harvard after only a year and, with Allen as his partner, founded a small software company in 1974 that would later become the Microsoft Corporation.. During the bull market of t

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G

Gallatin, Albert (1761–1849) banker and

politician Born into a prominent Swiss family

in Geneva in 1761, Gallatin attended the

presti-gious Academy of Geneva, where he displayed

considerable academic promise Against his

fam-ily’s wishes, he immigrated to the United States

in 1780 after refusing a commission in the

Hess-ian army After arriving in Boston, he began

vari-ous business ventures, most of which were not

successful As a result, he also lectured in French

at Harvard College in order to help support

him-self He took the oath of allegiance in Virginia in

1785 and then moved to Pennsylvania, where his

political career began

Gallatin was elected to the state legislature in

1790 from a constituency in western Pennsylvania

and then to the U.S Senate in 1793 but was

rejected by that body because his citizenship was

in doubt He left the Senate after only three

months in office and after infuriating Alexander

HAMILTON, secretary of the Treasury, by asking him

for an itemized statement of the national debt as of

January 1, 1794 In the same year, his constituents

led the Whiskey Rebellion in Pennsylvania over

the matter of a tax on spirits produced in the area

In 1795 he returned to Congress as a member of

the House of Representatives, which then was meeting in Philadelphia He became a member of the Standing Committee of Business, one of that body’s first finance committees

After the hotly contested presidential election

of 1800, new president Thomas Jefferson appointed Gallatin secretary of the Treasury In the same year, Gallatin produced a famous tract entitled “Views of the Public Debt, Receipts & Expenditures of the United States,” a report criti-cal of U.S financial policy over the previous decade He took office pledging to reduce the national debt and actually did so, reducing fed-eral indebtedness by almost $14 million He pro-duced a plan to pay down the federal debt by

1817, but the Louisiana Purchase and the War of

1812 intervened In 1813, he was part of the del-egation that negotiated peace with Great Britain

He served as secretary until 1814 but declined reappointment to the job when it was offered by James Madison In 1826, he served as ambassa-dor to Britain

At John Jacob Astor’s request, Gallatin was named president of the newly formed National Bank of New York in 1831 In the same year he wrote another famous tract, “Considerations on

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the Currency and Banking System of the United

States.” He was a strong supporter of the Second

BANK OF THE UNITED STATES, advocating hard

money policies and free trade Later, the National

Bank of New York was renamed the Gallatin

National Bank

Gallatin was also a founder of New York

Uni-versity in 1830 and president of the New-York

Historical Society in 1842 He died on Long

Island in 1849 He is best remembered for his

views on the soundness of government finances,

opposing Hamilton and the Federalists, and

serv-ing in government durserv-ing a critical period of

American history, especially at the time of the

Louisiana Purchase

Further reading

Adams, Henry The Life of Albert Gallatin 1879.

Reprint, New York: Peter Smith, 1943.

Stevens, John Austin Albert Gallatin Boston: Houghton

Mifflin, 1895.

Walters, Raymond Albert Gallatin: Jeffersonian Financier

and Diplomat New York: Macmillan, 1957.

Gary, Elbert H. (1846–1927) lawyer and

industrialist Born in Illinois, Gary worked on

his father’s farm and served in the Union Army

during the Civil War He then worked briefly as a

teacher before deciding to study law Gary

gradu-ated from Union College of Law in Chicago and

served as a court clerk for three years before

beginning his career as a corporate lawyer He

entered politics when he was elected mayor of

Wheaton, Illinois, and later served as a county

judge in DuPage County From that time, he

acquired the title Judge Gary, which he used

throughout his professional life

His work with corporate clients piqued an

interest in the STEEL INDUSTRY, and he organized

the American Steel and Wire Co Coming to the

attention of J P Morgan, he joined the Federal

Steel Company in 1898 and moved to New York

He was asked to organize the U.S STEELCORP in

1901 after Morgan purchased Carnegie Steel He

became chairman of the board of directors and personally directed the expansion of the com-pany into the largest steel producer in the world,

a position he would keep for the next two years

He also helped develop the steel-producing town

of Gary, Indiana, which was named after him As chairman of the company, he organized the famous Gary dinners at which steel executives from other companies were invited to discuss matters of mutual interest and concern The first was held at the Waldorf Astoria in New York City

in 1907 and was attended by 49 steel company executives who were invited to achieve gentle-man’s agreements about prices and production, not price fixing, as Gary always maintained The dinners later became evidence in Justice Depart-ment antitrust suits against the industry as exam-ples of collusion among steel executives to fix prices and control production

Gary’s reputation within the industry was one of a fair employer who paid high wages and promoted safety for his employees He also was

a proponent of employees owning stock in their employers’ companies, although he was opposed to labor unions His greatest coup was

a favorable ruling by the Supreme Court in

1920 adjudging that U.S Steel did not violate the SHERMAN ACT, as the Justice Department had contended in a suit filed years before The ruling was favorable in part because he had always been forthcoming about the company’s policies, dating back to the Roosevelt adminis-tration when the president tacitly agreed not to prosecute the company for its part in many potential antitrust problems caused by the Panic of 1907 and J P Morgan’s activities He remained active in the company until his death

in 1927

Further reading

Allen, Frederick Lewis The Lords of Creation New

York: Harper & Brothers, 1935.

Tarbell, Ida The Life of Elbert H Gary: The Story of

Steel 1925 Reprint, New York: Greenwood Press,

1965.

178 Gary, Elbert H.

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Gates, Bill (1955– ) computer software

pio-neer Gates was a cofounder of the Microsoft

Corporation Born in Seattle, Gates began

pro-gramming while in his teens He teamed with

schoolmate Paul Allen and began taking on

free-lance projects while still in high school and

before enrolling at Harvard He left Harvard after

only a year and, with Allen as his partner,

founded a small software company in 1974 that

would later become the Microsoft Corporation

Originally, their company was located in

Albuquerque, New Mexico, and developed

pro-grams based upon the BASIC computer

lan-guage It was not until the advent of the small, or

personal, computer (PC) that the company got

its initial break When IBM introduced the first

PCs in 1980, Microsoft was given a contract to

develop an operating system for the computer

hardware Gates and Allen had moved their

com-pany back to Seattle, where a small competitor,

Seattle Computer Products, had developed an

operating system called the Quick and Dirty

Operating System Gates changed the name to

disk operating system, or DOS After making

improvements, DOS was licensed to IBM From

that point, Microsoft operating systems and

soft-ware became the standard for PCs around the

world, with the exception of the products of its

smaller competitor, Apple Computer

Because of the ease and user friendliness of

the Apple operating system, Microsoft announced

its Windows operating system in 1983 Unlike its

older DOS system, Windows employed a

graphi-cal interface that allowed users to access the

sys-tem as easily as they could the Apple syssys-tem

Allen retired from the company in the same year

However, Windows was not released for another

two years, and Microsoft soon was sued by Apple

for copyright infringement Although the suit

continued into the 1990s, Windows became

extremely popular and helped solidify Microsoft’s

hold on the PC market Subsequently, the

com-pany launched a successful IPO in 1986, which

made Gates extremely wealthy and provided the

capital Microsoft needed to develop new

prod-ucts and buy out smaller competitors, a strategy the company successfully employed as it grew larger

In 1990, Windows 3.0 was introduced and provided further competition for Apple software Eventually, Apple’s suit against Microsoft was dismissed Microsoft continued to introduce software products based upon the Windows sys-tem By the 1990s, the company held a virtual monopoly over the operating systems of PCs, with an estimated 80 percent of the world’s PCs using either DOS or Windows Microsoft’s agree-ments with manufacturers also called for a fee to

be paid to the company for each PC sold, a prac-tice that, critics contended, illustrated its virtual dominance of the industry

In 1998, the Antitrust Division of the Justice Department filed suit against Microsoft, charging

Gates, Bill 179

Microsoft chairman Bill Gates (GETTY I MAGES )

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it with violations of the Sherman Antitrust Act.

The company vigorously defended itself against

the charges, although the initial trial judge found

against Microsoft and ordered the company

bro-ken into two parts Gates continued to maintain

the company’s innocence against the charges and

filed an appeal During the bull market of the late

1990s, the advance in the company’s stock price

easily made Gates the wealthiest man in the

world, with an estimated fortune valued

some-where between $70 and $90 billion He also

became actively involved in philanthropy

See also CONGLOMERATES; LAZARD FRERES;

MERGERS

180 Geneen, Harold S.

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Further reading

Geneen, Harold The Synergy Myth New York: St

Mar-tin’s Press, 1997.

Schoenberg, Robert Geneen New York: Norton, 1985.

Sobel, Robert ITT: The Management of Opportunity.

New York: Times Books, 1982.

General Electric Co. Founded as the Edison

Electric Co by Thomas EDISONin 1878, the

com-pany is one of the few American companies to

retain its original corporate name, later adopted

in 1892 Under Edison’s guidance, the firm

developed the incandescent lightbulb before

merging with the Thomson-Houston Electric Co

in 1892 For the first 20 years of its life, the

com-pany was run by Charles Coffin, a former shoe

company executive Its technological

develop-ments were overseen by Charles Steinmetz, its

chief electrical engineer, who was responsible for

steering the company’s development

The company then branched out into electric

transformers and locomotives, although Edison

himself ended his involvement with the

com-pany several years after the merger When

Charles Dow initiated his stock market average

in 1896, GE was one of the first stocks included

Today it is the only original member remaining

in the Dow Jones Industrial Average

During World War I, the company did

research work for the U.S Navy When the war

ended, it was attracted to the market for radios

and the nascent broadcasting industry It

manu-factured radio receivers and also helped organize

an early radio station, WGY, in Schenectady, New

York, the home of its research division GE also

produced a wide array of small appliances, which

made it a household name with consumers

Dur-ing World War II, the company produced

air-plane engines, including the first jet engine

produced in the United States

After the war, the company continued to

expand its line of household electronic devices

while also moving into more sophisticated areas

such as jet propulsion, medical technology, and

financial services In 1981, John WELCH was named head of the company, and he overhauled its operating divisions, adding new ones and cut-ting others He also began an aggressive acquisi-tions program, helping the company to become a successful conglomerate Among GE’s continued interests were broadcasting (including NBC), appliances, electrical distribution, power systems, medical systems, and INVESTMENT BANKING GE acquired Kidder Peabody, an investment banking firm, before divesting it in 1995 Many divisions were subsequently sold and others bought in a relentless quest to maintain profitability

In 1997, GE became the world’s largest com-pany in terms of stock market capitalization One

of its divisions, GE Capital, became one of the country’s largest nonbank financial service com-panies, offering CREDIT CARDS, insurance, MUTUAL FUNDS, and wholesale lending General Electric continues as one of the most successful, highly diversified companies into the 21st century See also CONGLOMERATES; MORGAN, JOHN

PIERPONT

Further reading

Carlson, W Bernard Innovation as a Social Process.

Cambridge: Cambridge University Press, 1992 O’Boyle, Thomas F At Any Cost: Jack Welch, General Electric and the Pursuit of Profit New York: Knopf,

1998.

Generally Accepted Accounting Principles (GAAP) A body of accounting rules that con-sists of agreed-upon standards, conventions, and procedures that define financial accounting and reporting in a society Accounting standards are necessary for the economy to function efficiently Financial reports prepared according to GAAP help investors and lenders to allocate their resources among business organizations

The SECURITIES EXCHANGEACT OF 1934 gives the Securities and Exchange Commission (SEC) the legal authority to establish GAAP for compa-nies that issue securities to the public in the United States Throughout its history, the SEC

Generally Accepted Accounting Principles 181

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has relied upon the private sector to establish

GAAP, as long as it performs this function in the

public interest From 1936 to 1959, the

Commit-tee on Accounting Procedures (CAP) of the

American Institute of Certified Public

Accoun-tants (AICPA) issued 51 accounting research

bul-letins (ARBs) on various subjects to establish

GAAP In 1953, the CAP issued ARB 43, which

codified preceding research bulletins and

remains widely influential From 1959 to 1973,

the Accounting Principles Board (APB) of the

AICPA established GAAP through its 31

opin-ions Unlike the CAP, the APB had a full-time

research staff

The FINANCIALACCOUNTINGSTANDARDSBOARD

(FASB) began operations in 1973 to provide an

equal opportunity for all interested groups to

participate in the standards-setting process In

contrast, independent auditors dominated the

CAP and the APB The FASB has seven board

members who work full time to resolve financial

accounting issues, communicate with

con-stituents, and serve as a focal point for research

Members preserve their independence as

stan-dard setters by severing ties with their previous

employers, unlike the part-time members of the

CAP and APB The FASB endorsed the

pro-nouncements of the CAP and APB as GAAP,

unless superseded or amended by its own

pro-nouncements The FASB creates GAAP through

three types of pronouncement: statements of

financial accounting standards (SFAS),

interpre-tations, and technical bulletins The board

fol-lows due process publicly before issuing any

pronouncement

Statements of financial accounting standards

(SFAS) consist of principles at the highest level,

approved by a two-thirds majority of board

mem-bers As of February 2001, the FASB had issued

140 SFAS, although many amend or rescind prior

standards Among the topics covered by SFAS are

accounting for leases, income taxes, pensions,

derivative financial instruments, not-for-profit

organizations, segments of an enterprise, motion

picture films, oil and gas producing activities,

insurance enterprises, foreign currency transla-tion, research and development costs, earnings per share, and contingencies The development

of an SFAS often involves controversy Employers fought against SFAS 106, which caused them to recognize a liability for postretirement benefits other than pensions The business community vigorously criticized a proposed standard to charge executive stock options against earnings The relevant standard, SFAS 123, required dis-closure of the cost of most stock options in foot-notes, rather than on the income statement Unlike its predecessors, the FASB issued seven statements of financial accounting con-cepts (SFACs) as a framework for standard set-ting The SFACs, while not GAAP, have significant implications for the development of GAAP The seven existing SFACs describe objec-tives for financial reporting, qualitative charac-teristics of accounting information, elements of financial statements, recognition and measure-ment in financial statemeasure-ments, and use of cash flow information and present value in account-ing measurements

See also SARBANES-OXLEYACT; SECURITIESACT

OF 1933

Further reading

Baskin, Jonathan B., and Paul Miranti A History of

Corporate Finance Cambridge: Cambridge

Uni-versity Press, 1997.

Previts, Gary, and Barbara Merino A History of

Accoun-tancy in the United States: The Cultural Significance

of Accounting Columbus: Ohio State University

Press, 1998.

Mary Michel

General Motors Corp. Founded in 1908 by William Crapo DURANT, General Motors became the world’s largest car maker and largest corpora-tion after World War II In the early years, it was created by consolidating several car companies and other specialty companies under one umbrella The company captured almost 50 percent of the

182 General Motors Corp.

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domestic market for cars and trucks before losing

some of its market share in the 1980s

Durant, a former cigar salesman, got his start

in transportation by building the Durant–Dort

Carriage Company into the country’s largest

car-riage manufacturer before turning his attention

to automobiles He began by purchasing the

Buick Motor Company in 1904 and sold stock to

finance its operations By 1908, Buick had

become the largest producer of cars in the

coun-try The same year he founded General Motors in

order to diversify his product line Within a year,

GM had sold more than cars and trucks on sales

of $29 million But Durant’s management was

poor, and he lost control of his company in 1910

He regained control in 1918, after having created

Chevrolet in the interim The new GM included

Chevrolet, and he soon purchased Fisher Body,

which was to become the standard carriage

designer for the company The General Motors

Acceptance Corp was also founded in 1919 to

act as the finance arm of the company

Durant lost control of GM again in 1920 One

of his former appointments was Alfred SLOAN,

and in the 1920s Sloan began introducing a

series of then-radical management changes that

led to a more efficient and productive company

In 1923, Sloan was named president Another of

his innovations was changing models slightly

from year to year so that the public would sell its

older models in favor of the new During World

War II, the company was heavily involved in

war-time production of military vehicles In the

1950s, the company recorded its first

billion-dol-lar profit year Sloan retired in 1956, and its new

chairman, George Wilson, was on the cover of

Time magazine, having made headlines by stating

before a congressional committee that “what is

good for General Motors is good for the country.”

The company managed to hold its grip on the

worldwide auto market for another 20 years

before encountering serious competition from

overseas automakers in Japan and Europe

In the 1980s, domestic market share

contin-ued to drop to about 35 percent The company

remained as the world’s largest automaker, but its market dominance was about 12 percentage points below what it had been during Sloan’s administration The company also began an aggressive campaign of adding other nonauto divisions It bought Electronic Data Systems (EDS) from Ross Perot in 1984 and Hughes Air-craft in 1986 It also launched ventures with for-eign automakers, especially Toyota, and purchased Saab of Sweden in 1989

In 1990, GM launched Saturn, its first new line of cars in decades, as an independent oper-ating subsidiary Jack Smith was named chair-man in 1991, and the company began a turnaround It experienced its best net income ever in 1995 But the company’s market share continued to drop and was only about 28 per-cent in the late 1990s EDS was sold in 1996 as the company sought to streamline its operations

By the late 1990s, its sales were slightly less than

$200 billion per year

Further reading

Farber, David R Sloan Rules: Alfred P Sloan and the

Tri-umph of General Motors Chicago: University of

Chicago Press; 2002.

Freeland, Robert F The Struggle for Control of the

Mod-ern Corporation: Organizational Change at General Motors, 1924–1970 New York: Cambridge

Uni-versity Press, 2001.

Jacobs, Timothy A History of General Motors New

York: Smithmark, 1992.

Madsen, Axel The Deal Maker: How William C Durant

Made General Motors New York: John Wiley &

Sons, 2000.

Sloan, Alfred My Years with General Motors 1964.

Reprint, New York: Doubleday, 1996.

Getty, J Paul (1892–1976) oil magnate

Jean Paul Getty was born in Minneapolis, Min-nesota, on December 15, 1892, the son of an insurance lawyer In 1903, his father relocated the family to Oklahoma to engage in the nascent oil industry The endeavor proved successful,

Getty, J Paul 183

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and young Getty gradually acquired an intimate

knowledge of wildcat oil practices After working

on his father’s rigs for several years, he briefly

attended college in California and Oxford,

Eng-land, but failed to graduate Instead, Getty came

home to concentrate his energies on starting a

business of his own In 1916, he acquired his

first lease in Oklahoma, struck oil, and gradually

acquired a small fortune However, Getty’s

profli-gate lifestyle gradually alienated him from his

father; after his father’s death in 1930 he was also

on increasingly strained terms with his mother

The source of trouble was Getty’s single-minded

determination to become rich: He exhibited real

flair and intelligence as a businessman but

proved utterly ruthless in the pursuit of lucre He

was also apparently incapable of sustaining

long-term relationships Over the course of his long

life, he was married and divorced no less than

five times and was on less than salubrious terms

with his three surviving sons Nonetheless, by

1929 Getty was well on the way to becoming a

multimillionaire, and the onset of the Great

Depression only accelerated that trend As the

national malaise increased, he quickly bought up

millions of dollars in stocks at a fraction of their

costs, confident—and correctly so—that their

value would increase with time By 1936, his

suc-cess spurred him to acquire Pacific Western, the

largest oil concern in California That same year,

he also engaged in an internecine struggle with

Standard Oil of New Jersey to gain control of the

Tidewater Associated Oil Company, another

large and lucrative business In 1936, he had to

settle for controlling 40 percent of company

stock, but in 1950, he had finally consolidated

his hold

By 1939, Getty was one of the world’s richest

men, and he frequently visited Europe to acquire

rare art, his lifelong passion He also socialized

with many of Nazi dictator Adolf Hitler’s circle,

which made the American government suspect

his loyalties Accordingly, when the United States

entered World War II in 1941, Getty applied for a

naval commission but was denied He

neverthe-less acquired control of the Spartan Aircraft Company and produced training aircraft for the armed forces After the war, Getty took his inter-est in oil exploration overseas In 1949, he paid the kingdom of Saudi Arabia $30 million for rights to explore the Neutral Zone between that nation and Kuwait After many unsuccessful years of drilling, Getty tapped into the fabulous oil reserves of the Middle East By 1956, he was touted as the world’s richest man and its first acknowledged billionaire Getty himself simply shrugged off celebrity and concentrated on what

he did best—making money By 1957, he had consolidated control over the three pillars of his commercial empire—Tidewater, Mission, and Skelly Oil—which were subsequently amalga-mated into the new Getty Oil Company Thanks

to Getty’s foresight, this functioned as a com-pletely self-contained entity managing its own exploration, refining, marketing, and distribu-tion of petroleum products Its dramatic success further demonstrated Getty’s business acumen and his indomitable will to prevail

With time, Getty also acquired a reputation, deservedly or not, for a degree of eccentricity rivaling that of his great contemporary, Howard

HUGHES He deliberately cultivated a miserly, grasping persona, reinforced by stories of his rumpled outfits, his refusal to leave tips at restaurants, and the installation of payphones

on his lavish European estate Most stories, in fact, were exaggerated, but Getty did little to disown them He also gained renown as a seri-ous art collector who built a world-class insti-tution, the J Paul Getty Museum, to house and display his treasures When he died at his man-sion in Sutton, England, on June 6, 1976, he endowed the museum with $2 billion, render-ing it the world’s richest Getty may have been a curmudgeon by nature and difficult to influ-ence on a personal level, but his spectacular career in the unpredictable oil industry under-scores his reputation as the 20th century’s fore-most oilman

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