Cyrus S. Eaton

Cyrus S. Eaton

Cyrus Stephen Eaton (December 27, 1883 – May 9, 1979) was a Canadian-born investment banker, businessman and philanthropist in the United States, with a career that spanned seventy years.

For decades one of the most powerful financiers in the American midwest, Cyrus Eaton was also a colorful and often-controversial figure. He was chiefly known for his longevity in business, for his opposition to the dominance of eastern financiers in the America of his day, for his occasionally ruthless financial manipulations, and for his outspoken criticism of America’s Cold War brinkmanship. He funded and helped organize the first Pugwash Conferences on World Peace, in 1955.

Contents

Nova Scotian youth

Cyrus Eaton was born on a farm near the village of Pugwash in Cumberland County, Nova Scotia, Canada, in 1883.[1] Cyrus Eaton's family roots can be traced back to one John Eaton, a Puritan English farmer who left Warwickshire, Great Britain, and arrived at Massachusetts Colony, ca. 1640,[2] and to one David Eaton,[3] a direct descendant of John, who left Connecticut in 1761 to join the so-called New England Planters who responded to a call to re-populate farmlands in the English colony of Nova Scotia left uninhabited by the expulsion of the Acadian French. On his mother’s side, Cyrus was a descendant of McPhersons, who were United Empire Loyalists and chose to leave New England after the American Revolution in favour of an uncertain future in the struggling northern colony.[4]

Cyrus was raised on a farm near the hamlet of Pugwash Junction, Nova Scotia, where his father, Joseph Howe Eaton, also had lumber holdings, ran a small general store and functioned as district Post Master.

Education and a new start

Cyrus Eaton left Nova Scotia at sixteen for Woodstock College in Woodstock, Ontario, a preparatory school for the Baptist-affiliated McMaster University, which was then situated in Toronto. Intending to follow his mother's ambition for him and become a Baptist preacher, he enrolled at McMaster in 1901 where he with concentrated on philosophy and finance, and earned his Bachelor of Arts degree in 1905.

During his first summer vacation from McMaster, Cyrus went to work in a hotel in Cleveland, Ohio, where his popular, dedicated uncle, Rev. Charles Aubrey Eaton, led a congregation of the wealthy that included John D. Rockefeller. A meeting at a dinner party led to an invitation for Cyrus to work for the summer as the elderly businessman's assistant at his lakeside Cleveland estate, and the experience changed Eaton's direction in life away from a religious vocation toward a career in business. Rockefeller advised him to concentrate his efforts, as he himself had done, on the resource industries, and when Cyrus graduated from university his first job was with a Rockefeller affiliated company, the East Ohio Gas and Power Company, which was laying gas mains in Cleveland. After a period as a construction crew supervisor and troubleshooter for the public relations department, his negotiating skills earned him an opportunity to represent a syndicate of investors associated with Rockefeller who were buying up urban utility franchises in the American Midwest and the Prairie Provinces of Canada. This work led directly to his first substantial opportunity.

Brandon, Manitoba

One of their targets was the Canadian city of Brandon, Manitoba, which needed a reliable year-round source of power for street lighting because their current supply, from a hydroelectric facility, stalled each winter when the river froze. In October, 1907, on the same day that Eaton finalized arrangements with the mayor of Brandon for a franchise to supply the town with electric power from a steam generated power plant, a financial panic struck American banks, and for a brief period, American investment money was in such short supply, that the confidence of Eaton's backers was shaken. The City of Brandon, however, had issued a franchise, and wanted something done. Eaton seized the opportunity, and with the blessing of his previous backers, borrowed enough to take over the franchise himself. Within a year, the Brandon Gas and Power Company was generating power to light Brandon's streets, and also producing capital for Eaton’s next venture. He later sold the Canadian company for a considerable profit.

Rockefeller offered him employment with Standard Oil in New York. Cyrus declined the offer so that he could go into business for himself.

Continental Gas & Electric Corporation, Delaware

Eaton had become an investor and an operator in one of the fastest growing industries on the continent. From 1900 through 1920 the number of private electric systems in the U.S. grew from approximately 2,800 to 6,500. There were plenty of opportunities for imaginative entrepreneurs, and Eaton's next big opportunity came to him through the good offices of his father-in-law, Augustus F. House, a distinguished Cleveland physician and banker whose daughter Margaret had become Eaton's wife in 1909. Dr. House had profited, with Eaton's assistance, from the merger of Lakeshore Banking and Trust, a bank he founded, with Cleveland Trust.

As a result of this, and because of his success with Brandon Gas and Power, House introduced his son-in-law to an important Cleveland utility and traction magnate, George Taylor Bishop. Bishop took a personal liking to Cyrus, and invited him to join his office to learn more about the 'art' of financing electric utilities. Over the years, as he worked with Bishop on consolidations of utility holdings, the 'Eaton interests’ grew into controlling stakes in a significant number of utility operating companies.

The Eatons began a family with the birth of a daughter in 1909, the first of seven children, and in 1912, the year Cyrus Eaton became an American citizen, he and Bishop incorporated one of the country's first utility holding companies, Continental Gas and Electric, of the state of Delaware. The Eatons used part of their growing fortune to build a mansion on Euclid Avenue, and Cyrus purchased a country estate near his friend Bishop's, with a one hundred and fifty year old farmhouse and over 300 acres (1.2 km2) of farmland in Northfield, Ohio, south of Cleveland.

In 1916 became a partner in Otis and Company, a major investment banking firm with head office in Cleveland and branches in New York and Chicago.

Continental Shares Ltd.

Under the Eaton/Bishop management, Continental Gas and Electric grew eventually to be one of the largest utility holding companies in North America. But its success marked just the beginning of Eaton's ambitious plans. At that time he was most active, Cleveland was the center of the wealthiest industrial area in North America, yet it was, he felt, unfortunate that the financiers of Wall Street in New York controlled so much of the industrial decision making at the local level in Cleveland, and throughout the region. Eaton thought that local financiers had a better understanding of the local economy and could better respond to the region's economic development needs if they had a greater degree of autonomy. The expansion experienced by the post war American economy provided Eaton with the opportunity to realize his goals. His strategy was to use the investment trust to gain financial control from Wall Street.

With hundreds of thousands of new investors turning to American stock markets, an early form of the mutual fund, called the investment trust, was becoming a popular way for investment managers and investment bankers to attract and to absorb new pools of available capital. Investment trusts fed on investors who lacked expertise of their own, and were eager to place their money and confidence in the hands of managers with a reputation for success. The Eaton group certainly had that, and in 1921, Eaton ventured beyond Continental Gas and Electric, the utility holding company he and a group of other investors controlled, to create and sponsor an investment trust with a similar name, Continental Shares Ltd., listed on the New York Stock Exchange. The ultimate design was to use the power vested in him as Chairman of the Board and board member of many important corporations to challenge Wall Street's hegemony and exert his own control over financial decision making in the region.

Under the utility holding company format, a limited group of wealthy investors usually pooled resources to invest in operating utilities and other utility holding companies they could control and manipulate for their own profit. However, because of a history in America of abusing and mismanaging their prerogatives, from the public point of view, privately held utility company operators and utility holding company managers were facing increased competition from public sector power providers, and as well, the prospect of greater government regulation. Both factors were reducing the attractiveness of these investments in the eyes of the wider public, and promising to hamper their future profitability. The investment trust was founded on a wider mandate. It raised capital from investors no longer content with clipping railroad coupons or cashing predictable utilities dividend checks. It appealed to investors who were willing to risk some of their new affluence on a chance to participate in the booming profitability of the wider American business community in the enlarged postwar economy. It offered shares in a new form of holding company, and it managed that money on behalf of the investors by trading in a diversity of important new industries that would hopefully raise share values and pay dividends. By using 'other people's money,' the organizers and managers of these funds obtained positions of power and control in the market which was out of all proportion to the magnitude of their personal investments. As trusted managers who retained all decision making power, they could engineer stock market coups at minimal risk to their own capital, and derive day-to-day income from management fees. As well, it was usual for the investment bankers who sponsored these trusts to derive income from the banking and management sides.

In this case, Eaton used his dominant position as Chairman of the Board of Continental Shares to capture banking business for Otis and Co., his investment bank, to include substantial fees for consulting and for underwriting the sale stock and bond issues.

United Light and Power

Cyrus Eaton’s Continental Shares, with its diversified portfolio of stocks in basic industries that stood to profit from the burgeoning auto industry, was at first extremely successful. In 1924, he parlayed its utility holdings derived from Continental Utilities into a major position in the large utility-traction conglomerate, United Light and Power.

Auto industry

By 1928, Eaton had begun to carry out the final stage in a campaign to become a dominating force in many of the major links in the auto industry’s chain of supply.

In addition to electrical power, his investment trust purchased dominant positions in the Cleveland-based paint company, Sherwin-Williams, the world's major supplier of auto coatings, and in Goodyear and Firestone, Ohio-based world leaders in the manufacture of tires and rubber.

His next major target was steel, and he was particularly interested in controlling companies that produced the strong, light steels used in auto manufacture. These plans led to a series of rapid purchases and mergers of several medium sized steel companies in Ohio and Pennsylvania, culminating in the merger that formed a new company, Republic Steel, at the time of its founding the third-largest steel producer in the United States.

The stock market crash of the 1930s caused Eaton a major, though temporary, setback, and the conditions that prevailed during the slow recovery of his and America's fortunes forced him to scale back his financial and industrial ambitions permanently. As well, it was during this period of the late 1920s and early 1930s that Eaton first gained a reputation in the English-speaking world for financial daring and for controversial decision making. In later years he would turn this reputation from celebrity to notoriety, and use it to assist him in focusing public attention on important issues, such as détente with Russia, nuclear disarmament and the dangers inherent in American militarism.

Eaton's many financial interests included organizing the mergers that formed Republic Steel Corporation and the Chessie System. He assumed the helm of the Chesapeake and Ohio Railway (C&O) in the mid-1950s when his colleague Robert Ralph Young of the Alleghany Corporation had to step down from the C&O to make a bid for the New York Central Railroad. Once the C&O had obtained control of the Baltimore and Ohio, and the Chessie System had been created, he largely retired to take care of his philanthropic interests.

The Pugwash Conferences

Eaton gained visibility outside the business community in the 1950s, when he became an ardent critic of the United States foreign and military policies during the Cold War. He became particularly controversial for engaging in personal diplomacy between the United States and communist countries in an effort to promote friendlier relations and more trade between the ideologically opposed segments of the world’s economy.

Eaton also gave personal and financial support to efforts to limit the nuclear arms race, and was involved in founding and financing the original Pugwash Conferences on Science and World Affairs, which took their name from Eaton’s hometown of Pugwash, Nova Scotia where the first meeting was held in July 1957 at his summer estate overlooking the Northumberland Strait.

The Pugwash Conferences were ultimately awarded the Nobel Peace Prize in 1995. Eaton's 1950s efforts at rapprochement with the Soviet Union won him the 1960 Lenin Peace Prize. He was dubbed "the Kremlin's favorite capitalist". He was elected a Fellow of the American Academy of Arts and Sciences in 1958.[5]

Eaton had an estate in Blandford, Nova Scotia and create a wildlife reserve on the Aspotogan Peninsula.

Eaton died at his home in Northfield, Ohio at age 95.

In 1994, a residential developer bought Eaton's estate in Sagamore Hills, Ohio, a village 15 miles (24 km) southeast of Cleveland, Ohio and 20 miles (32 km) north of Akron, Ohio. The Eaton Estate had an area measuring approximately 200 acres (0.81 km2) and the developer constructed over 300 houses ranging in prices of $250,000 to about $500,000. Street names in the development called "Eaton Estates" include Pugwash, McMaster, and Republic as an homage to Cyrus Eaton.

The elementary school in Pugwash is named Cyrus Eaton Elementary School in honor of him.

Lee Eaton Elementary School in Northfield, Ohio was named after the daughter (Lee) of Cyrus Eaton who donated 12 acres (49,000 m2) of land for the school in memory of his daughter. In his dedication speech Mr. Eaton stated, “I hope the children of this school will make the most of their opportunity to know the best of both the country and the city”.

References

  1. ^ www.nseaton.org: Cyrus Stephen Eaton, 1883-1979
  2. ^ www.nseaton.org: John Eaton 1590-1668
  3. ^ www.nseaton.org: David Eaton 1729-1803
  4. ^ www.nseaton.org: Amos Eaton 1785-1862
  5. ^ "Book of Members, 1780-2010: Chapter E". American Academy of Arts and Sciences. http://www.amacad.org/publications/BookofMembers/ChapterE.pdf. Retrieved 7 April 2011. 

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