We are all familiar with the visionary entrepreneur Charles R. Schwab who pioneered the discount stock brokerage industry in the 1970s. But almost no one remembers the unrelated Charles M. Schwab, one of the most important business leaders in American history.
Born in modest circumstances in Pennsylvania, at the age of thirty-five this Charles Schwab was running one of the most important companies in America. At thirty-nine, he became President of the world’s first billion-dollar corporation. He then went on to build yet another company which at its peak was the third largest industrial company in the nation, the size of Ford and General Electric combined. Charles Schwab built a mansion in New York City, the largest single-family home ever constructed in Manhattan. He played a key role in the Allies’ victory in World War I. At times he was celebrated as America’s greatest business leaders; at others he was vilified in the press. Here is his intriguing story.
In 1861, John Schwab and Pauline Farabaugh, both children of Catholic immigrants from Germany, were married in the small mountain town of Loretto, Pennsylvania. A center of Catholicism, Loretto was known for the presence of the renowned Father Gallitzin, one of the few priests in “the west,” in whose church the two were married. They moved to nearby Williamsburg, where their first-born child, Charles Michael Schwab, came along in 1862. When young Charlie was twelve, they moved back to Loretto, where he grew up in the remote little town.
From the earliest age, Charlie seemed destined to be an entertainer. He loved to perform for his family, do tricks, and play the piano and organ – he even went so far as to teach those keyboard instruments to others. His father worked as a weaver in his grandfather’s woolen mills, which got a contract to make blankets for the Union armies in the Civil War. While not wealthy, the family was comfortable.
Charlie’s father also owned a livery stable and got a contract to deliver mail in the area. Outgoing, curious Charlie would pick up the mail in the larger town of Cresson, which also had a railroad stop. In order to make some extra change, he would meet the incoming trains and grab people’s luggage before they realized what had happened, then take them to their destination. He loved meeting people. In school, he learned bookkeeping, surveying, and engineering and was a voracious reader, especially of history and biography. The boy began to have big dreams, unlike his father who was easy-going and satisfied with life as it was.
In 1879, at seventeen, without a high school degree, Charlie Schwab set out for the big world – moving about seventy miles to Braddock, near Pittsburgh, where he got a job at $10 a month as a store clerk. He was soon working twelve-hour days and doing the bookkeeping for the store. A regular customer for the store’s cigars was “Captain Bill” Jones, the most important person in town. Jones ran Braddock’s massive (for the time) Edgar Thomson steel works, owned by Andrew Carnegie and his partners.
Impressed by the boy’s energy and enthusiasm for work, Jones offered him a starter job at the steel mills at $25 a month. Charlie’s first task was to carry the rods used by surveying teams in the engineering department. (The Thomson works were named after the President of the Pennsylvania Railroad, where Carnegie worked early in his career. Not only did that railroad carry steel and ore for Carnegie, but it was the mills’ biggest customer for steel rails, an important product.)
With his energy and commitment to “proving himself indispensable,” Charlie Schwab continued to catch the attention of his supervisors. One time, when Jones had a major new engineering project in mind, the head of engineering asked him which young engineer to assign it to. Jones said, “Just ask all of them to work late tonight, overtime (without extra pay), and I will observe them.” The only one who never looked at the clock was Charlie, and he got the job.
At twenty-one, Charlie married Emma Eurania “Rana” DInkey, a few years older than he was. They remained married until her death, eight months before Charlie died. Rana did not share Charlie’s love of the spotlight and lively lifestyle, and over time became extremely obese. But she did enjoy the gifts and attention that Charlie showered on her.
Jones had to make weekly reports to Carnegie in Pittsburgh and grew tired of the time and travel, so Charlie took over the task for him. Carnegie, a believer in promoting from within and paying his top men well, took a liking to the youngster and saw in him the management potential he was always seeking. Charlie quickly proved his total knowledge of the steel business. What he didn’t know, he read up on at night or asked the veterans in the mills. (Throughout his life, everyone was amazed at Schwab’s photographic memory. He could memorize whole speeches in a minute and never forgot a statistic he had seen in a report.)
At the same time, the energetic and extroverted Schwab developed the ability to talk to anyone and was respected by the men in the mills, no matter their position or age (most were much older than he was). If he found a worker smoking in the mills, against the safety rules, he took the worker aside and gave him a fine cigar “to smoke after work, outside the mill” (Schwab always carried the cigars with him but did not smoke and was not a heavy drinker).
At twenty-three, Schwab earned the thanks of Jones and Carnegie when he designed and built a bridge to carry molten steel over some railroad tracks, accomplishing it ahead of schedule and under budget. Jones gave Charlie a diamond pin and Carnegie gave him ten $20 gold pieces.
Carnegie was always among the first to adopt new technologies, at first the Bessemer steelmaking process, then the open hearth process. At each stage, Charlie became his “go-to” expert, designing, building, and running the works. The two men were made for each other: both ambitious, both aggressive, and both visionaries compared with their competitors. They also believed in developing their subordinates, paying them bonuses for work well done, and continuously lowering costs and selling steel at lower prices than their competitors. In recessions, Carnegie took the opportunity to expand, build new facilities, and buy out weak competitors. All these attitudes and behaviors stayed with Charlie Schwab long after he left Carnegie’s employment.
One promotion led to the next, until, in 1886, at twenty-four-year-old Charlie Schwab was appointed as the general superintendent of another steel works that Carnegie had acquired and was improving. The works were in Homestead, Pennsylvania, a few miles closer to Pittsburgh than the big Edgar Thomson works in Braddock. Schwab’s salary zoomed to $10,000 a year (about $300,000 in 2021 dollars).
When big rail customer Pennsylvania Railroad was disappointed in the quality of some of Carnegie’s rails, the railroad began to explore the internal chemistry of the steel. Few in the steel industry had studied such chemistry. Charlie Schwab set up a lab in his home kitchen and quickly became an expert.
In 1887, a British steel maker offered Charlie $50,000 a year to run the big works in Birmingham, England, even agreeing to a five-year contract with annual increases. In 2021 money, that would have been $1.5 million for the twenty-five-year-old, but Schwab turned the offer down when the Brit would not agree to also paying big salaries to Charlie’s lieutenants.
Rising to the Top
Captain Bill Jones took charge when one of his Thomson works’ furnaces jammed in the fall of 1889. The Furnace exploded and Jones died shortly thereafter. 10,000 men and their families lined the streets for his funeral.
Carnegie needed to replace Jones, but did not want Schwab to leave Homestead, where he was doing an exceptional job. Charlie persisted until Carnegie gave his approval. At twenty-seven, Charles M. Schwab became the general superintendent of the biggest steel works in America. He had been working for Andrew Carnegie for ten years.
Like Carnegie, Schwab rewarded his employees for high productivity but also drove them hard. He believed in carrots much more than sticks. One day he asked the men coming off a shift, “How many heats has your shift made today?” When they said “Six,” he wrote a big 6 in chalk on the floor. The next morning, the overnight shift had erased it and written 7 in its place. The next day, the day shift had again erased it and written 10.
In 1892, workers called a strike in the Homestead works, which became violent and made national headlines when armed Pinkerton’s men unsuccessfully tried to oust the strikers. Schwab was called back to Homestead to help settle the situation, which was ultimately resolved. While throughout his career Schwab fought unionization like almost every other industrialist of the era, he also had a rapport with workers that most did not. He did not fear meeting directly with the union organizers and leaders of the workers in his efforts to settle labor issues. He talked to virtually every worker on the day and night shifts, knowing them by first name. During this crisis, Schwab lived at the plant and worked seventy-two hour stretches, with only a few short naps. The man was tireless.
(While the steel industry paid better than most American factories, and far better than European steelmakers, pay rates were 12 to 30 cents an hour for ten-and-a-half hours Sunday through Friday and five-and-a-half hours on Saturday. These hourly rates did not increase if the workers had to work overtime beyond those hours, which they often did.)
Upon his return to Homestead, Charlie Schwab was given his first equity in Carnegie’s operations – a one-third of one percent ownership.
Carnegie Steel was a major supplier of armor for ships and big guns for the US military. In 1893, some disgruntled employees filed a suit claiming that the company had misled government inspectors on the quality of the armor, violating a big contract with the Navy. Carnegie and his men, including Schwab, thought the inspectors did not understand steel and were interfering with their work. The steel involved had superficial flaws, but the steelmen knew that it was sound. So they fudged their reports. In testing, all the armor exceeded the contract standards. Nevertheless, the issue became a widely publicized scandal and the first major public black mark on Schwab’s record, one which was raised any time someone had a beef with him in the future.
Carnegie continued to reward those who served him well. He told Schwab he would give him 1% of the company, and if he did well in the next six months, raise that to 2%. But in just five months, Carnegie gave him 3% instead.
Charlie Schwab always lived life to the fullest, and by his own standards. While Carnegie was a puritan who fired any executive who drank too much, gambled, or chased women, Schwab was of a different stripe, despite his Catholic education and upbringing. While Charlie and Carnegie became best of friends and frequent golfing partners, Charlie had to keep his other side secret from his boss. He loved a good poker game and sired a daughter with a nurse who was caring for his niece. While he made sure the child was financially secure and even visited her, their relationship never became public knowledge in Charlie’s lifetime.
Throughout these tribulations, Carnegie Steel continued to innovate, to lower costs, and to lead the industry, producing far more steel than any competitor. In 1890, profits reached $5 million. In 1893, the nation was struck with a major recession which lasted a few years. Many companies did not survive and most steelmakers lost money. Yet even in the depths of the recession, Carnegie Steel made a profit of $3 million, and by 1897 made $7 million.
In April of that year, Charles M. Schwab, thirty-five years old, was named President of the Carnegie Steel Corporation. Profits reached $11 million in 1898, $21 million the next year, and $40 million in 1900, a remarkable record. Few corporations of any type were as profitable. Andrew Carnegie and Charlie Schwab were on top of the world.
While Charlie Schwab was renowned in the world of steel and a leader of industry groups, he was less known to the broader business world, in large part because he was overshadowed by Carnegie. In December of 1900, he was invited to present at a dinner of New York’s top businesspeople and bankers. (Over time, Schwab developed the reputation of one of the nation’s best orators and after-dinner speakers.) JP Morgan and the other top leaders of the New York business community attended. Charlie gave a speech in which he outlined a vision of a large, integrated steel organization which could make the best steel at the lowest prices while giving its workers job security. After dinner, he had a chat with Morgan, who had formed the General Electric company a few years earlier and was a leading advocate of industrial consolidations. Morgan asked Schwab to list the companies that he thought would best fit into a giant steel company. The ultimate list understandably included Carnegie Steel.
Though Schwab was only thirty-eight, Andrew Carnegie was sixty-five and more interested in giving away his wealth than making more money. Yet Charlie hesitated to bring the idea to Carnegie, instead approaching Mrs. Carnegie. In the final event, the Morgan syndicate paid Carnegie and his partners $400 million in (very safe) bonds of the new corporation, the United States Steel Corporation. Charlie Schwab, as 6% owner of Carnegie Steel, received $24 million worth of the new bonds (about $800 million in 2021 dollars).
In April of 1901, the thirty-nine-year-old Schwab was named the first President of US Steel. The corporation, commonly called “Big Steel,” was the first corporation whose assets exceeded one billion dollars, far larger than any other enterprise in the world. The holding company controlled 213 steel mills and transportation companies, 78 blast furnaces, 41 iron ore mines, 112 ore barges, 57,000 acres of coal and coke properties, and nearly 1,000 miles of railroad tracks. The company dwarfed all other steel companies in revenues and profits.
Charles Schwab was now a national figure. While anti-business forces decried the giant steel “trust,” business leaders came to see Schwab as one of the greatest industrial managers of the era, if not the greatest. He joined the circle of the top business leaders of the era, gambling with John “Bet-A-Million Gates” and socializing with Kings and Presidents.
Charlie and Rana (they never had children) moved to New York City, where in 1901 they began construction of the largest mansion in the city, named “Riverside.” Located at 72nd Street and Riverside Drive, overlooking the Hudson, the home had over ninety bedrooms served by six elevators. It had a sixty-foot indoor swimming pool, its own power plant, one of the biggest pipe organs in the city, a gymnasium, a bowling alley, and its own telephone system and switchboard. Capped by a 116-foot tall lookout tower which gave a view of the city, the mansion took four years to build and cost $3 million, plus millions more on furnishings. Manhattan had never before and has never since seen such a huge single-family freestanding dwelling.
At the same time, Schwab developed a fabulous estate back in Loretto, covering 1,000 acres and employing hundreds of workers and servants. The giant parallel stairways that led up to the main mansion were separated by a continuous, electrically operated waterfall.
At the same time that Charlie seemed to reach the top of the business world, he also found himself with much less authority. Andrew Carnegie found good men, paid them well, and left them alone, a philosophy shared by Schwab. But the Chairman of US Steel, Elbert Gary, was a lawyer and judge without a deep background in making steel. Gary and the other board members tended to be more conservative than Schwab with his desire to always expand, to always invest in new technologies and plants. Charlie especially ached under the board’s desire to sell steel at high, stable prices, whereas he wanted to keep prices low, competing for big jobs, as had Carnegie Steel. The two sides increasingly clashed over policy. (Gary later did authorize the building of one of the largest steel mills ever built, on the south shore of Lake Michigan, to serve the “western market.” The company built a model town there, named after Judge Gary: Gary, Indiana.)
At the same time, Charlie was also free of Andrew Carnegie’s puritanical beliefs, and could be more relaxed about “being himself.”
Charlie and Rana then took off on a long vacation to Europe, something they (or more often he alone or with a mistress) continued in future years. They crossed the Atlantic in eight suites on a French luxury liner. In January of 1902, they arrived in Monte Carlo, where Schwab’s longstanding love of gambling led him to the tables. Crowds and reporters gathered around as the famous American placed huge bets and often won. Charlie did not anticipate the reaction in the States. Not only did the newspapers consider his behavior scandalous, but his old friend Carnegie sent him letter after letter telling him how disappointed he was, berating Schwab in the harshest language. He told Schwab that he must resign from the Presidency of US Steel, and many American newspapers said the same thing. Carnegie’s letters so distressed Charlie that he became sick and lost weight. His doctors ordered him to rest, and he returned to Europe, though he continued to stay in regular touch with the affairs of US Steel as its President. It would take years before Schwab and Carnegie would heal the wound and again become friends.
Upon returning to New York, the conflicts with the board, intensified by the bad press over his gambling, led many to demand Schwab’s resignation from US Steel. This did not happen immediately, as JP Morgan stood behind Schwab, believing in his managerial talent. Morgan also felt that a businessman’s personal behavior was his private business. (For this and other reasons, Morgan and Carnegie were never close. And while most titans of the era like Morgan and Rockefeller shunned the press and publicity, Charlie was always eager for attention, ready for an interview or a speech.)
In 1903, forty-one-year-old Charles Schwab resigned the Presidency of US Steel and left the Board of Directors the following year.
Round Two: Bethlehem Steel
With his enormous wealth, Charlie had three major uses for the money. First, he took care of himself, with his mansions, the finest automobiles money could buy, and valuable books and works of art. Second, he loaned money to anyone who would ask for it, financed their business ideas, and sent regular checks to all his relatives. But thirdly, he still had plenty of money to invest. He helped create the International Nickel Company and other successes.
While many might have retired at that point, that was out of the question for Charles Schwab. He knew only hard work and loved the steel industry, for which he had become the leading public spokesman.
His largest investment was in a small steel company in eastern Pennsylvania, the Bethlehem Steel Company. While still at US Steel, he bought the whole company as a personal investment. Tiny compared to US Steel, Bethlehem made a profit of $1.4 million a year. (US Steel was making profits of $70-100 million a year at the time.) Like Carnegie Steel, Bethlehem supplied the Navy with armor plate. The company was also a major maker of gun forgings for the same ships. When a group of investors decided to create a shipbuilding trust by merging several major shipbuilders, they wanted to include Bethlehem. Charlie offered to sell them Bethlehem for $9 million cash, but the promoters had no cash and instead offered him $30 million in stocks and bonds in the new company, US Shipbuilding, which offer he accepted.
The Shipbuilding company turned out to be a financial disaster. Most of the shipyards were badly run and in disrepair. Above all else, they were losing money. In less than a year, US Shipbuilding was bankrupt. Following lawsuits and more bad press for Schwab, he ended up again in control of the company, which was again named Bethlehem Steel.
From that difficult start, Charlie assembled a team of talented managers and built up Bethlehem. He continued the kinds of policies he and Carnegie had used to make Carnegie Steel a great success. He found a young man, Eugene Grace, who worked as hard as Charlie did. Grace, like Charlie, rose rapidly even before he was forty, and ultimately became the President of Bethlehem. A scandal hit the papers when it was revealed that Grace was being paid a bonus of over a million dollars a year on top of his $12,000 annual salary. Grace and Schwab developed a working relationship very much like the earlier one between Schwab and Carnegie.
In 1910, Bethlehem was making a profit of $2 million a year. From 1915 through 1929, the company usually earned about $15 million but, in some years, as much as $40 million. By the late teens, lists of the largest industrial companies of America ranked Bethlehem third, behind US Steel and Standard Oil of New Jersey (later named Exxon). (Prior to the Securities and Exchange Commission requiring that companies report their sales numbers to shareholders, many companies did not reveal that “confidential” information. Thus size lists at the time were based on assets rather than sales, as has been the standard practice since at least 1950.)
Over this period, Bethlehem rose from being an insignificant steel maker to become the clear second largest company in the industry, passing up much older firms like Jones & Laughlin. This growth was propelled by three factors. First, the company was the world’s largest shipbuilder, which led to huge contracts with the Allies in both World Wars. Second, Schwab took a big risk on a new concept in structural steel used in buildings. He obtained the patents on the Grey beam, an H-shaped beam that was stronger, lighter, and less expensive than that used previously. No other big steel company believed in the beam, but Schwab did. As a result, Bethlehem beams were used in an estimated 80% of the skyscrapers built in the 1920s boom in New York City, including Rockefeller Center and Madison Square Garden. Third, Bethlehem aggressively acquired other mid-sized steel companies, including Midvale and Lackawanna.
Via those acquisitions, Bethlehem Steel operated giant steel mills near Buffalo at Lackawanna, New York (employing 20,000 at its peak) and at Sparrows Point near Baltimore. Maryland. Both works were far larger than the original Bethlehem operations in Bethlehem, Pennsylvania.
Whatever damage that had been done to Schwab’s image by his prior scandals was undone during World War I. By the end of the war, he was an international hero.
Before the United States entered the war, the British Admiralty under Winston Churchill asked Schwab to come to England. When the Germans announced their submarines would torpedo any British passenger ships, few dared risk the crossing. Schwab’s ship proceeded under guard and rescued 900 people when the ship ahead of it was hit. Schwab made it across the Atlantic and proceeded to the war offices, where the top people in the British Navy told him they needed twenty submarines as fast as possible. Wiring home in coded messages, Schwab said he could get it done. While submarines normally took over a year to build, he said he could start delivery within six months. He sailed home with a large contract and a multimillion-dollar deposit on the order.
Upon arrival in America, Charlie was immediately called on the carpet in Washington, where President Wilson and others made it clear he was in violation of the law and could not build the submarines: America had declared itself neutral and would not provide any weapons to either side in the European conflict.
Charlie returned to England, where Churchill was outraged and called Charlie a lying cheat. Then Schwab told him he had worked out a solution. The parts of the submarines would be made in the US, but then shipped to a British-owned shipyard in Montreal, where they would be assembled. This process was cleared with US authorities, Bethlehem’s people took over the Canadian shipyard, and all the subs were delivered on time or earlier, and on budget. Charles Schwab earned Churchill’s enduring admiration.
Once America entered the war, the US government created an agency called the Emergency Fleet Corporation (EFC). Its task was to ramp up the building of cargo and troop ships. But it failed. When the US wanted to send 100,000 troops a month to the European front, American shipbuilders under the command of the EFC could not meet the demand. After months of poor results, they turned to Schwab and begged him to come run the EFC. He turned them down, as he felt it would be a conflict of interest as the owner of big shipbuilder Bethlehem Steel. In order to put pressure on him, the government people arranged for him to meet with President Wilson, who had been a frequent adversary of Charlie’s. When Wilson came out of another meeting, he walked up to Charlie and thanked him heartily for agreeing to take the job. Schwab was unable to resist, but made a series of demands, including that he be given total freedom and authority, that he only be paid a dollar a year, and that he not be involved in any dealings with Bethlehem. To no one’s surprise, the EFC was soon pumping out ships and beating deadlines, its troop ships carrying 350,000 soldiers a month to Europe.
These events again put Charles Schwab in the spotlight, a miracle worker and wartime hero.
Years later, in an all-too-common political circus, members of Congress and the government tried to claw back the profits Bethlehem had made during the war. They wrongly accused Schwab of having a conflict of interest, which he had carefully avoided. While nothing came of the uproar, it dragged on for years and again placed Schwab’s name in vilifying newspaper articles.
Bethlehem Steel continued to prosper in the 1920s, but like virtually every American business, was hit hard by the 1929 stock market crash and Great Depression. In 1932, Bethlehem lost over $19 million. Ever an optimist, the aging Charles Schwab continually preached that recovery was just around the corner, but it was not to be. As his fortune shrunk, he was forced to part with Riverside, offering it to the City of New York as a home for the Mayor at half of what it cost to build. But Mayor Fiorello LaGuardia thought it a bad time to live lavishly and turned it down. Ultimately Charlie’s creditors took over the mansion, and years after he died it was demolished and replaced by apartment buildings.
In January of 1939, Rana died. While their marriage had rarely been intimate and Rana was aware of his philandering, there was a mutual support between them that never died. A depressed Charlie moved into a small apartment on Park Avenue. Much to his despair, he had to cut back on the generous checks he had been sending to friends and family. Eight months after Rana’s death, in September 1939, Charles Michael Schwab, age seventy-seven, died of a heart attack.
Schwab’s estate showed assets of $1.4 million and debts of $1.7 million, making him technically bankrupt when he died. The executors were his younger brother and another man. Against the brother’s wishes, the other man, more conservative, required that Schwab’s Bethlehem stock be sold before it might drop even lower in price. Had the estate held on to the stock, it would have soon become solvent as Bethlehem again became a major wartime supplier.
Bethlehem After Schwab
In 1938, Bethlehem made a profit of $5 million. In the 1950s and 1960s, it consistently made profits of over $100 million a year, maintaining its position as the nation’s number two steel maker by a good margin. Schwab’s protégé Eugene Grace continued to be the dominant force in the company until the late 1950s.
Yet, by the 1970s and 1980s, the steel industry came under tremendous competitive pressure from both foreign steel makers with newer plants and from domestic “minimills” using newer technologies like electric and oxygen furnaces. Many companies merged and were bought and sold by various parties. As the industry shrunk, they could not honor their pension plans. Bethlehem had five retired workers for every active worker, the reverse of the ratio in its glory days.
Despite the best efforts of its management, in 2001 Bethlehem Steel declared bankruptcy. Its facilities were ultimately bought by the Indian Mittal Steel company, and then became part of the world’s largest steel maker, ArcelorMittal. In 2020, that giant sold its US operations to Cleveland-based Cleveland-Cliffs. The only operating remnant of Bethlehem today is the large plant at Burns Harbor, Indiana, which Bethlehem built in the 1960s. The former Lackawanna and Sparrows Point grounds near Buffalo and Baltimore, which employed tens of thousands of men, are now under “brownfield” redevelopment. The Bethlehem works in the company’s hometown include a casino and entertainment and arts complex, with some of the furnaces still standing but inoperative.
The company’s headquarters in Bethlehem, the Martin Tower opened in 1972, was the tallest building in the city. It was demolished in 2019. In yet another twist, before its closure it was the operations center for business information company Dun & Bradstreet, owners of the Hoovers website, a company co-founded by your writer.
Like all men (and women), Charlie Schwab was a flawed person. None of us is perfect. Yet a close study of his management methods can teach much to managers today. His success in developing and running two top companies in one industry is perhaps unique in business history. His speeches and enthusiasm inspired tens of thousands of employees. His steel holds up some of the world’s most famous buildings and his armor and ships helped win two world wars. Yet, like all of us, his dust returned to dust, and with it, even the world’s awareness of his existence.
(For a much more detailed examination of Schwab’s life and achievements, read Steel Titan: The Life of Charles M. Schwab, by Robert Hessen, and Industrial Genius: The Working Life of Charles Michael Schwab, by Kenneth Warren. Warren also wrote Bethlehem Steel: Builder and Arsenal of America, which covers the company before and after Schwab. All three of these books are excellent.)
American Business History Center