Harold James - Krupp: A History of the Legendary German Firm

KRUPP

A HISTORY OF THE LEGENDARY GERMAN FIRM

HAROLD JAMES

Princeton University Press Princeton & Oxford

COPYRIGHT 2012 BY THE KRUPP FOUNDATION

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Library of Congress Cataloging-in-Publication Data

James, Harold, 1956

Krupp: a history of the legendary German firm / Harold James.

p. cm.

Includes bibliographical references and index.

ISBN 978-0-691-15340-7 (hardcover : alk. paper) 1. Fried. Krupp GmbHHistory. 2. Krupp familyHistory. 3. Steel industry and tradeGermanyHistory.

I. Title.

HD9523.9.F697J36 2012

338.7'6691420943dc23

2011024639

BRITISH LIBRARY CATALOGING-IN-PUBLICATION DATA IS AVAILABLE

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PRINTED ON ACID-FREE PAPER.

PRINTED IN THE UNITED STATES OF AMERICA

1 3 5 7 9 10 8 6 4 2

Risk: Friedrich Krupp

Steel: Alfred Krupp

Science: Friedrich Alfred Krupp

Diplomacy: Gustav Krupp von Bohlen und Halbach I

Tradition: Gustav Krupp von Bohlen and Halbach II

Power and Deglobalization: Gustav and Alfried Krupp von Bohlen und Halbach

Reglobalization: Alfried Krupp von Bohlen und Halbach and Berthold Beitz

I should like to thank the Alfried Krupp von Bohlen und Halbach-Stiftung (Foundation) for financial support for the research involved in producing this book. Professor Berthold Beitz, the chairman and executive member of its board of trustees, kindly received me for some agreeable conversations. I had full access to the important historical archive of the company and the family, beautifully housed in a wing of the Villa Hgel in Essen, the historic home of the Krupp business dynasty. Especially I should like to thank Dr. Ralf Stremmel of the Krupp archive for his invaluable assistance in locating archival and pictorial material. Dr. Detlef Felken and Dr. Stefanie Hlscher of the Beck Verlag Munich and Brigitta van Rheinberg of Princeton University Press have assisted with their customary care and acumen. In addition, this book reflects insights that I have been developing in the course of working on a European Union research project on corporate governance and family firms (MEXC-CT-2005-024362). The resulting book reflects solely the views and interpretations of the author.

Princeton, New Jersey, September 2011

Alfred Krupp made the name Krupp into a German icon. For him, it was not a coincidence that the dramatic period of expansion of the small enterprise that his father had established in 1811 coincided with the creation of the German Empire. He proudly announced to Wilhelm I, the new emperor, that they were now living in the steel age. Kaiser Wilhelm I and Bismarck were both quick to see and confirm the parallels between the new politics and the new business. But the identification between the house of Krupp and the German political order did not stop with the death of Krupp in 1887 or of Wilhelm I in 1888. Krupps son, Friedrich Alfred, cultivated an even closer relationship with Wilhelm Is grandson, Kaiser Wilhelm II. The new business culture reflected the kaisers own search for modernity and greatness. For Adolf Hitler, Krupp was also an icon. In Mein Kampf and again in 1935 at the Nuremberg party rally, Hitler exhorted German youth to be as quick as a greyhound, as tough as leather, and as hard as Krupp steel.

On the eve of the First World War, Krupp had been by far the largest German company, with assets of 599.5 million marks in 1912, although it was only one-fifth the size of the largest American corporation, the giant U.S. Steel, and half the size of the largest British firm, the thread and textile maker J. & P. Coats. Its owner, Bertha Krupp von Bohlen und Halbach, was listed as being, with assets of 283 million marks, the wealthiest person in Germany (the kaiser was only the fifth richest). By 1937 it was still the fourth-largest German firm in terms of market capitalization (behind the steel giant Vereinigte Stahlwerke, IG Farben, and Siemens) and the forty-eighth largest In 2005 ThyssenKrupp was in 85th place on the Fortune Global 500 list (ordered by revenue) and in 2010, 123rd place.

Krupp seemed to stand for a particular German way of doing business. Later analysts called this Rhineland capitalism. It involved several distinctive elements that were blended together into an astonishingly durable and successful synthesis of business culture: a commitment from the beginning to export orientation (an embrace of what we would today call globalization); a close relationship with the state, as a regulator, as a purchaser of industrial products, and as a source and guarantor of credit; a long-term commitment to a skilled workforce that was tied to the enterprise by material inducements but also by a sense of loyalty to a factory community rather than just to an owner; suspicion of capitalists, financiers, and stock markets (even though banks played a prominent part in the financing of much of German heavy industry); and also suspicion of the principle of competition. Instead, the business model relied on obtaining absolute preeminence in a well-defined market for a number of specialized and skilled products. We would speak today of niche markets. But these niche markets were scaled up in the course of the nineteenth century and of German industrialization, so that the niches expanded to fill the world.

What drives a company? To assume that the motive force is simply a rational search for profit is endlessly naive. There are alternative visions of the ultimate purpose of business and of the motivation of owners, managers, and workers. Is the driving impulse service to the nation? Is it the link to political power? Is it a question of the psychic satisfaction of the owner or the leading managers? Is it an idea about innovation? Is it a functioning within a network of trust and relationships? All these answers have been given to explain the alleged peculiarity of continental European capitalism.

Some of the major themes of the subsequent development of the Krupp company (and which are at the heart of the analysis of this book) emerged in the nineteenth century and were then hardwired into a corporate culture that became a sustaining vision: first, the absence of an exclusive focus on profitability. The idea that business was not just about the accounting result was eventually institutionalized in the concept of a foundation (Alfried Krupp von Bohlen und Halbach-Stiftung) as owner of the company, rather than anonymous shareholders or even a large and dispersed family. Thus, at the same time as the student revolution of the late 1960s swept Germany, the Krupp enterprise ceased to be a family business. But the notion of a mission that went beyond profitability had its origins in an extraordinary nineteenth-century story in which for its first twenty-five years the company lost money. Such sustained unprofitability is unfamiliar in the age of modern capital markets, though some technologically dynamic companies do survive in stock market valuations for some time without showing profits, and only on the basis of potential. The early nineteenth century had a deeper answer that still holds true in many major emerging market economies, namely, that a network of family and friends, usually tied in with kinship links, can sustain an idea that they believe in for a very long time. But in reading the early story of Krupp, one must bear in mind that almost any modern company following that trajectory would not survive for the time Krupp needed to become a profitable enterprise: it would simply fizzle and die.