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Westinghouse Electric Corporation - Lehman Brothers Collection

Westinghouse Electric Corporation

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Westinghouse Electric Company was founded by George Westinghouse in Pittsburgh in 1886. Westinghouse's intention was to develop an economical system of transmission using alternating current (AC). His company installed the first U.S. AC power system in 1891. The company scored two further successes two years later when it provided the generating system that powered the World's Fair in Chicago and won a contract to provide generators for the new hydroelectric power station at Niagara Falls.

The company expanded rapidly and spent a great deal of money in a patent-accumulation race with its rival, Edison General Electric. Edison and Westinghouse finally called a truce in 1896; at that time the companies set up a patent control board to avoid further patent disputes. By 1910, after a couple of decades of expansion, Westinghouse was unable to produce the necessary cash to pay $14 million worth of debt that was about to come due because a stock panic had depressed the financial markets and made it impossible to raise money through them. The company was placed in receivership, and the bankers who reorganized it appointed a new Board of Directors.

During the 1910s Westinghouse accumulated patents in the area of wireless communication. In 1919 and 1920, it joined RCA, General Electric, United Fruit, AT&T, and Wireless Specialty Company in a series of cross-licensing agreements that paved the way for the commercial introduction of radio. Under these agreements, Westinghouse and GE carved up the exclusive right to manufacture radio receivers between them, with RCA as the selling organization. In 1920 Westinghouse set up the radio station KDKA. Over the next five years the company opened several more stations across the country, and broadcasting has remained a substantial part of its business ever since. Westinghouse, however, missed a chance to get in on the inception of television manufacturing. Vladimir Zworykin, the inventor of the electronic picture tube, began his research at Westinghouse in the early 1920s. His superiors showed indifference to his work, and RCA was able to woo him away from Westinghouse. While at RCA, Zworykin filed the patent that would form the basis for the modern television set. Westinghouse was in the forefront of the consumer electrical appliance field, which was introduced in the 1920s. The company offered a variety of products, from electric ranges to smaller household appliances. It introduced a line of electric refrigerators in 1930 and later added washing machines to its repertoire. It also entered the elevator business in 1927 when it acquired Kaestner & Hecht Company.

The company did not expand very much during the 1930s. During that decade, the company focused on making huge turbines and generators as well as nuclear reactors for ship propulsion. In 1941, however, Westinghouse entered the military electronics business. The company became one of the leading contractors for radar, which was invented before World War II. During the war years, Westinghouse grew at a rapid pace. The company's performance during the postwar economic boom evidences a mixture of successes and difficulties. Its longtime connections with electrical utilities enabled it to move quickly into the burgeoning field of nuclear power, and the company has remained a leading producer of nuclear-generating equipment ever since. It also became the leading supplier of reactors for the U.S. Navy's nuclear submarine fleet. During the Korean War, Westinghouse developed the axial-flow jet engine, which became the prototype for jet engines for the remainder of the decade. Following a change in weight specifications for navy airplanes, the navy cancelled millions of dollars worth of contracts for Westinghouse's J-40 and J-46 engines. The company also moved slowly in targeting other branches of armed forces, with the result that from 1955 to 1957 it ranked only twenty-fifth in sales among defense contractors. Poor marketing plagued its consumer-appliance operations and it all but conceded the foremost place in this business to GE.

Westinghouse suffered through a five-month electrical workers strike beginning in October 1955, the longest walkout against an American corporation since the Depression. In the early years of that decade, the three principal manufacturers of heavy electrical machinery—Westinghouse, GE, and Allis-Chalmers—waged a devastating price war that cut into revenues. As a result of the price war those three companies, along with twenty-six smaller manufacturers who did business with electrical utilities, entered into a bid-rigging scheme in 1955 in hopes of securing their profit margins. Under the plan, each of the participants agreed beforehand on the amount of each bid and on who would win the contract. In 1957 the Justice Department began to investigate possible violations of the Sherman Antitrust Act. Forty-five executives from twenty-nine companies were indicted, and all pleaded guilty. After this scandal, Donald Burnham stepped up as Westinghouse's CEO.

Burnham reorganized the corporate chain of command, decentralizing authority and giving individual division heads more freedom. He also cut costs and used incentives to improve managerial performance. Burnham set the company on a program of diversification and bought into businesses as divorced from its core operations as soft-drink bottling, car rental, motels, transport refrigeration, land development, and mail-order record clubs. One of its most unusual ventures was Urban Systems Development Corporation, which Westinghouse set up in 1968 to respond to the need for low-cost housing by building pre-fabricated residential units. It was a venture consistent with Burnham's belief that social responsibility and corporate profitability could be compatible. In 1964 Westinghouse recorded record sales of $2.1 billion, but profits were sharply lower than in the previous year because of continued depressed prices in its major product lines. Two year later, however, profits reached $119.7 million, nearly a threefold increase from 1963. By the latter years of the decade, the company's financial outlook had brightened considerably, and Burnham was hailed as a hero of corporate America.

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