Standard Oil Company

Standard Oil Company

Fact File:

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Founders: John D. Rockefeller, Samuel Andrews and Henry M.

Flagler

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Distinction: World's largest oil refiner before dismantling by

Supreme Court.

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Primary Products: Kerosene, fuel, lubricant, other petroleum

by-products.

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Founder and president: John D. Rockefeller.

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Founding location: Cleveland, Ohio.

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Market value before dissolution: $100 million.

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Major competitors: None.

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Year in Existence: 1870-1911.

Whenever anyone mentions the Standard Oil Company, two things

immediately spring to mind: Rockefeller and monopoly. The linkage is

unavoidable, for nobody but Johan D. Rockefeller could have built this oil

refining goliath–and nothing but a charge of monopoly could have torn it

down. Further, the three are forever intertwined because all reached their

zenith in an era when the industrial revolution was transforming American

business into the global force it remains to this day.

Rockefeller didn't run this gargantuan enterprise on his own, of

course. Even a titan of his stature required an extraordinary management

team to handle the so called "octopus" of the refinery industry, which at its

peak controlled almost all U.S. oil production, processing, marketing and

transportation. But it was J.D., as he was known, who put it all together

and ran it. Until, that is, he and his company ran afoul of the federal antitrust

laws that eventually shut them down.

But Rockefeller was more than one of the most astute businessmen

of his time; Rockefeller's estate was worth about $1 billion when he died at

age 97–a sum that would be 10 times that today. A lifelong philanthropist,

he gave away money even when he barely had any. (He donated $20,000

to help build Cleveland's Euclid Avenue Baptist Church the year Standard

Oil was born. Over the next seven decades he also financed the

Rockefeller Foundation and Rockefeller Institute for Medical Research,

among other charities, while funding the University of Chicago and

presenting countless additional gifts to many more colleges and churches.

During the course of his life, in fact, he gave away an estimated $500

million in philanthropic gifts. Yet these days he is primarily remembered by

many, and none too fondly at that, for the infamous oil refinery from

which he made his fortune.

From most accounts of his remarkable life, however, it is apparent

that this contradiction never bothered him much. John Davison Rockefeller

was born on a farm in upstate New York in 1839. One of four children, he

was raised by a very religious mother while his father was busy swindling

locals with financial con games and phony medical cures. When J.D. was

10, his father was accused of raping a household worker and the family

fled. Eventually, they wound up in Cleveland. Not long after, the elder

Rockefeller ran off to South Dakota on his own.

J.D. landed his first job in 1855, working as an assistant bookkeeper

for the Hewitt & Tuttle commodities house. He earned $3.50 a week and

donated regularly to his church. Nonetheless, he managed to save $800 in

just three years. With that and a small borrowed stake, he and a British

immigrant named Maurice B. Clark opened a commodities business of their

own. The firm, which dealt in hay, grain, meats, and other goods,

prospered.

Rockefeller was only 19, but he was restless to expand. Oil was then

a booming industry, and had been since a successful well was sunk in

Pennsylvania's Allegheny Mountains about 10 years earlier. Clark had a

friend in the business, and in 1863 he came to the pair seeking funds.

Rockefeller invested $4,000 and took his first step into the field that was

to make him rich.

The exploration and drilling for petroleum always has been an upand-

down business. It certainly was no different in those days, when a

barrel fetched anywhere from 10 cents to $20. By the time Rockefeller

entered the fray, the price was fluctuating around $5. But that wasn't what

really interested him. Rockefeller was savvy refiners to produce and

market the resulting by-products. He also realized that there was much

more money to be mad on this end. So, with Clark and a new partner

named Samuel Andrews, he formed a small Ohio refinery in 1863 and

dubbed it Excelsior Oil Works.

With growth on its mind, the new company began buying other

existing refineries. It quickly picked up 50 in Cleveland, and another 80 in

Pittsburgh. Sensing that profits would be even greater if they controlled all

aspects of their operation, the partners also started purchasing

warehouses, timber stands (to make their own barrels), and even fleets of

ships (to transport the products they produced). In 1865 Rockefeller

bought out Clark's interests and two years later brought in local

businessman Henry Flagler, who had money and the inside track in an

emerging transport mode–railroad–that would prove even more important

to their industry than ships. They renamed the company Rockefeller,

Andrews & Flagler. It evolved into Standard Oil within three years, and

soon could legitimately claim to be the largest operation of its kind in the

world.

Standard initially had competition both domestically and overseas.

The Nobel Brothers of Sweden and Britain's Shell Transport & Trading, for

example, were a large reason why America had captured just over half all

global production by the late 1880s. But Standard continually hired the top

chemists, marketing specialists, attorneys, and other professionals. It also,

according to most accounts, closed secret rapidly grew in size as well as

profitability. Eventually, it was the exclusive supplier of petroleum

products to some 37,000 communities.

The late 19th century was a period of astounding change in American

business. Cities sprang up almost overnight and railroads tied them

together. Manufacturing became the dominant force in the U.S. economy,

and a handful of individuals– Andrew Carnegie, Cornelius Vanderbilt, J.P.

Morgan, and Rockefeller, among them–controlled the most powerful

companies leading the way. These men were resourceful and imaginative,

and sometimes not opposed to pulling any strings necessary to stay atop

their respective fields. Because most states at the time prohibited local

companies from holding shares in other headquartered outside their

borders, Rockefeller devised a way around the applicable laws in order to

expand. In 1882, he formed the Standard Oil Trust to combine Standard

with affiliated companies in other locations. Utilizing a maze of obscure

legal devices that made the structure difficult to decipher, it brought some

40 corporations under his authority and continued to exercise ironclad

control in its industry.

Charges of illegal rebates, coercive tactics, and predatory pricing

continued to mount. In 1892 the Ohio Supreme Court stepped into the

fray and ordered the trust dissolved. Undaunted, Rockefeller continued

operating from his New York headquarters. In 1899, when states began

relaxing their incorporation statues, he reorganized as the Standard Oil of

New Jersey holding company and transferred all assets to this new entity.

Rockefeller's actions did not go unnoticed by other industrialists.

Some forged similar trusts in the cotton, whiskey, sugar, and tobacco

industries. Others consummated megamergers that created corporate

giants such as General Electric, AT&T, and U.S. Steel. These vast

concentrations of wealth and power increasingly struck observes (and

would-be competitors) as unfair, if not downright criminal. Journalists

began taking notice and one–Ida M. Tarbell–put Standard under the

microscope in a 19-part expose that appeared in a McClure's magazine

beginning in 1902. In issue after issue, Tarbell hammered at Rockefeller's

claims that his corporation did nothing untoward. Rather, she wrote,

Standard Oil's rise to prominence was "accomplished by fraud, deceit,

special privilege, gross illegality, bribery, coercion, corruption,

intimidation, espionage, or outright terror."

The series made Tarbell a celebrity, withy President Theodore

Roosevelt among her many fans. (Rockefeller offered no comment, but

reportedly savaged the writer in private conversations.) The series also

initiated a federal investigation, and in 1906 the government field suit

under its 16-year-old Sherman Anti-Trust Act. This officially alleged what

long had been whispered: that Standard Oil monopolized the oil industry,

and thereby restricted free trade.

In 1907, the company was found in violation of antitrust laws and

fined about one-third of its $100 million market value. That penalty was

thrown, but a little more than four years later–on May 15, 1911–the U.S.

Supreme Court ruled that Standard's structure was indeed "a monopoly in

restraint of trade" and ordered it split into some three dozen separate

companies. Rockefeller was out on the golf course when he heard the

news, and reportedly advised his playing partners to "buy Standard Oil." It

proved a wise tip, as the pieces of his empire soon were worth far more

than the single entity ever had been. Rockefeller's own considerable

fortune soared to even greater heights, and later that year he retired.

The breakup created many names that to this day are well-known in

the oil business, including Exxon, Amoco, Mobil, and Chevron. It long

remained controversial, though as many suspected that Standard might

have escaped its fate had Rockefeller been more politically astute–or more

willing to kowtow to regulators and officials. (Although it was equally in

control of its own industry, for example, the contemporary U.S. Steel did

not similarly fall victim to antitrust regulations.) But Rockefeller was never

one to genuflect to secular powers, or shrink from the doctrine under

which he lived his life. "I believe it is a religious duty to get all the money

you can, fairly and honestly; to keep all you can, and to give away all you

can," he once said. When he died in 1937, no one could dispute that he

ever doubted what he was doing. Or that he hadn't followed those beliefs

unerringly to the end.