Cyrus S. Eaton

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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 over 70 years.

For decades one of the most powerful financiers in the American mid-west, 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.

Early years

Cyrus Eaton was born on a farm near the village of Pugwash in Cumberland County, Nova Scotia, Canada, in 1883.^[1] The Eaton family’s North American roots extend back to one John Eaton, an English farmer of Puritan persuasion, who left his home in Warwickshire and landed at Massachusetts Colony ca. 1640.^[2] Over a hundred years later,in 1761, a descendant of his, one David Eaton,^[3] left New England for Nova Scotia as a member of the so-called New England Planters. In a plan for resettling politically dependable colonists onto farmlands taken from the Acadian French in North America, English farmers from the American colonies were offered free land in what is today Eastern Canada. In return for relocating his family from Connecticut, David Eaton received 640 acres of rich orchard land in the Annapolis Valley, and throve there to become the founder of a new branch of the Eaton family, the Nova Scotia Eatons, from which Cyrus Eaton came. On his mother’s side, Cyrus was a descendant of the McPhersons, United Empire Loyalists who had chosen to leave New England after the American Revolution in favour of an uncertain future in the far-flung English colony. They first landed at Shelburne, Nova Scotia, ca. 1783.^[4]

Cyrus’s parents, Joseph Howe and Mary Adelia (McPherson) Eaton, raised their large family on a moderately prosperous farm near Pugwash Junction, Nova Scotia. Joseph also had lumber holdings, and ran a rural general store and post office. The Eatons were Baptists, and in the absence of a proper church building in the area, often hosted religious services for friends and neighbours in their rural home. Cyrus was a good student who at first was inclined to fulfill his mother's ambition and become a church minister, with the aid of his uncle, Charles Aubrey Eaton, who could act as his mentor. Charles Eaton was a self-made man from rural Nova Scotia who after experiencing a religious conversion, became a Baptist preacher in Canada and in the United States. Later, he went into business, journalism and politics, and eventually became a Republican congressional representative from a district of New Jersey. He had a long tenure as a Congressman and Cyrus's friendship with him lasted until Charles’s death in 1953. Cyrus was greatly influenced by his uncle.

Formative years

Education

After finishing public schooling in Pugwash, Cyrus left Nova Scotia at age sixteen for further education at Woodstock College, in Woodstock, Ontario, a preparatory school for the Baptist affiliated McMaster University located in Hamilton, Ontario. After graduating, he enrolled as a freshman at McMaster in 1901. He declined assistance from his family and worked part-time in a jewelry store to support himself. In his studies, he concentrated particularly on philosophy and finance.

Influence of Rockefeller

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At the age of seventeen, Cyrus traveled during his first summer break at McMaster to visit his uncle Charles, who was then minister at the Euclid Avenue Baptist Church in Cleveland, Ohio. Charles Eaton was a popular man who ran an evangelistic style of ministry preaching to the rich parishioners of Euclid Avenue. During his visit, Cyrus met with John D. Rockefeller after his uncle Charles, an acquaintance of Rockefeller, obtained an invitation to dinner. After the meeting Rockefeller eventually decided to offer Cyrus work as his private secretary. The position provided Eaton with an insider's view on the world’s business affairs which eventually influenced his decision to give up his ambition to become a minister. Later, Eaton would express great admiration for Rockefeller, calling him the world’s greatest capitalist. He opined that he could not have had a better tutor for his entry into the rough and tumble world of American business and finance, and wondered aloud how different his life might have been if he had accepted Rockefeller’s offer of a job with Standard Oil in New York, instead of striking out on his own.

After graduating in 1905, and still under the Rockefeller influence, Eaton went to work as a construction supervisor and troubleshooter for one of Rockefeller's utility companies, Eastern Ohio Gas and Power, laying gas mains in Cleveland. Approximately during the same period, he worked for about a year as a lay preacher at the Lakewood Baptist Church. According to a parochial history of Baptist Church activity in the Cleveland area, “under him, the work advanced well.” Cyrus also advanced in the ranks in business. He exhibited good negotiation skills, and he was asked by a syndicate of investors associated with Rockefeller interests to bargain on their behalf for urban utility franchises. The people he represented were seeking opportunities to market natural gas, a byproduct of the oil well drilling, and this work led him on travels throughout the American mid-west and into the prairie provinces of Canada. One of their targets, the Canadian city of Brandon, Manitoba, needed a reliable year-round source of power for street lighting because their current supply, from a hydroelectric facility, was stalled each winter when the river froze. However, in October, 1907, on the same day that Cyrus 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. For a brief period, money for American investment was in extremely short supply, and the situation temporarily deprived the syndicate Eaton represented of their borrowing power. The short-lived panic shook their confidence in the future viability of the Canadian venture. The City of Brandon, however, had issued a franchise, and they expected something to be done, so Eaton seized his opportunity to take it over. He enlisted a Canadian partner, obtained financing from a Canadian bank, and they soon had a steam plant built. 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 ventures. He later sold the Canadian company for a considerable profit.

American and Canadian business career

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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 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.

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 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.

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. 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 & Ohio, and the Chessie System had been created, he largely retired to take care of his philanthropic interests.

Later years

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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".

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 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”.

Existing Family

Cyrus Eaton left a number of descendants. Augustus Farlee, a daughter of his, had 2 children: Stephen Eaton Hume, and David Hume, both born in the mid to late 1940s. Stephen Hume lived in the United States for his childhood, attending military and boarding schools. David also lived in the US, but attended different schools than his brother. When they grew up, David remained in the states and had 4 children. Years later, he moved to Colombia and added 3 more branches to the family tree: Katherine, Carley, and Alexander. Stephen, on the other hand, moved to Canada, and had 2 daughters: Natalie Inez Eaton Hume, and Georgia Farlee Eaton Hume.

References

External links

• Bio at the Cyrus Eaton Foundation