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International Standard Electric Corporation - Lehman Brothers Collection

International Standard Electric Corporation

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Telecommunications and electronics were the original primary businesses of International Standard Electric (ISE), the Europe-focused arm of the telecommunications giant International Telephone and Telegraph (ITT). ISE originated as Western Electric, one of the earliest American telephone companies. Soon after Alexander Graham Bell devised the first transmission of sound over wires in 1876, American Bell Telephone licensed Western Electric to manufacture telephone equipment. Western Electric built its first European factory in Antwerp in 1882, although much of its equipment was imported to Europe from Chicago. From 1880 to 1910, Western Electric manufactured cable and wire and telephone instruments in Antwerp and through a factory in North Woolwich, England, bought from Fowler-Waring Cables. In these years, Western Electric's engineers developed techniques to improve and lay cable and to expand telephonic infrastructure internationally, from Europe to China.

The company was incorporated in 1918 as the International Western Electric Company, a subsidiary of AT&T (formerly Bell Telephone). Each country had its own telephone company under the aegis of International Western Electric; these national companies, such as Standard Telephones and Cables (STC) in Britain, each operated independently.

Over the next few years AT&T faced pressure from American trustbusters. The anti-trust forces eventually succeeded in forcing AT&T to sell its interests in the international arm of Western Electric. Sosthenes Behn (1884-1957), who had founded ITT in 1920, purchased International Western Electric from AT&T in 1925 for nearly $30 million. The company was renamed International Standard Electric and became a subsidiary of ITT. The purchase of ISE made ITT into an international manufacturer of telephone equipment. The newly combined companies soon dominated the European telecommunications business.

Behn was an American colonel in the Spanish-American War and used his multilingual, cosmopolitan allure to business advantage. Behn's parents were Danish and French; he was born in the Virgin Islands (then a Danish possession, but later bought by the United States in 1917); his education took place in Corsica and Paris; his early businesses in sugar trading and telephony were based in Puerto Rico, Cuba, and Spain. Behn's command of languages and glamour gained him business contracts despite his relative inexperience.

After ITT's acquisition of ISE, Behn built an international network of telephone manufacturing companies and providers. Cartel agreements between the major world telecommunications companies—ITT, Siemens, General Electric, AT&T, and Ericsson—gave near-monopoly power to each company in its region. ITT controlled Western Europe's telephony, with additional control of areas of South America. Behn enthusiastically collaborated with the Nazis in the 1930s in order to position his company for further global expansion. By 1943 Behn began hedging his bets to favor the Allies, lending ITT innovations such as the High Frequency Direction Finder ("Huff-Duff," a submarine finder) to the Allies even as ITT telephones communicated Nazi orders to those submarines.

As the war concluded, Behn had somehow positioned ITT to take advantage of the Allied victory. ISE remained the biggest company in ITT. During the succeeding Cold War, Spain and Argentina nationalized the telephone systems and the USSR expanded its influence in Eastern Europe. ITT struggled to fend off further anti-trust action, nationalizations, and shareholder discontent about Behn. Behn left ITT in 1956.

Behn's replacement as president, Harold Geneen (1910-1997), expanded ITT away from its focus on telecommunications companies like ISE. Instead, under Geneen's management, ITT became one of the largest conglomerates in the 1960s. Of English Catholic and Russian Jewish parentage and an immigrant to America, Geneen was known as a demanding and a tremendously dedicated boss. He required constant statistical reports and stricter controls over production by management. Geneen's fame came from his acquisition binge (usually brokered by Lazard Frères) that sought to triple American earnings and reduce ITT's dependence on international branches of the company such as ISE. He instituted large changes for ISE, bringing in American vice presidents and centralizing decision making to ITT instead of to ISE's individual national companies. ITT's focus diverted from the original telecommunications business. Unfortunately for the stockholders, ISE and the other European branches of ITT were much more successful than the expanded American businesses of the 1960s and 1970s.

In his 1973 book, The Sovereign State of ITT, Anthony Sampson described ISE as dual-natured. His summary is worth citing at length:

"It is by far the biggest telecommunications company in Europe, with a third of the total business, twice as big as its nearest competitor, Siemens. On the other hand it is made of a score of national companies, each with special eccentricities and local traditions, beginning with Bell Telephone in Belgium, set up in 1882, followed by Standard Telephones and Cables (STC) in Britain, founded in 1883, followed by the two French companies Le Matériel Téléphonique (1889) and Compagnie Générale des Constructions Téléphoniques (1892). Each of these companies is locked in a close but awkward embrace with its national post office... and most of them compete in some kind of 'ring' with three or four rival suppliers" (Sampson, 105-106).

In short, ISE was a holding company that controlled many national telephone companies in Europe, Latin America, and the Pacific. ISE was still closely governed by ITT, which by the 1970s had become a massive conglomerate with the eleventh-largest world sales of any company in 1972 (Sampson, 109).

During the 1960s and 1970s, ITT distanced itself from telecommunications, and ISE became a decreasingly important part of the conglomerate. ITT acquired Aetna Finance, Continental Baking, and the Sheraton hotels. The 1970s brought several political scandals down on ITT. The Chilean ISE telephone company, Chiltelco, schemed to create financial instability in Chile in 1970 with the aid of the CIA in order to prevent the election of the leftist Salvador Allende. The project failed, and Salvador Allende responded to the plot by nationalizing Chiltelco with no payment to ITT. ITT also was caught paying for Republican election expenses within the United States, and was swept up in the Watergate era Washington scandals. Scandals also arose from ITT's attempts to acquire the broadcaster ABC and from ITT's tax machinations. In his history of STC, Power of Speech, Peter Young said that the ISE companies responded to these larger corporate troubles by distancing themselves from the American management.

In 1997 ITT split into three divisions.

Note: There are several books of interest to those studying ISE and ITT. Peter Young's Power of Speech (London: George Allen & Unwin, 1983) catalogues the largest company within ISE, Britain's STC. A few histories of ITT have been written, most from a critical perspective. Anthony Sampson's Sovereign State of ITT (New York: Stein and Day, 1973) was a bestseller and a harsh critic of Geneen's ITT. Robert Sobel's ITT: The Management of Opportunity (New York: Truman Talley, 1982) was critical and well documented. Thomas S. Burns wrote a harsh criticism in his Tales of ITT: An Insider's Report (Boston: Houghton Mifflin, 1974). A biography of Geneen appeared: Robert J. Schoenberg's Geneen (New York: W. W. Norton & Company, 1985). And Rand Araskog, a successor of Geneen's, wrote an account of how ITT fended off corporate raiders in the 1980s: The ITT Wars (New York: Henry Holt, 1989).

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