Standard Oil
Standard Oil Company was a corporate trust in the petroleum industry that existed from 1882 to 1911. The origins of the trust lay in the operations of the Standard Oil Company, which had been founded in 1870 by John D. Rockefeller. The trust was born on January 2, 1882, when a group of 41 investors signed the Standard Oil Trust Agreement, which pooled their securities of 40 companies into a single holding agency managed by nine trustees. The original trust was valued at $70 million. On March 21, 1892, the Standard Oil Trust was dissolved by order of the Supreme Court of Ohio and its holdings were reorganized into 20 independent companies that formed an unofficial union referred to as "Standard Oil Interests." In 1899, the Standard Oil Company of New Jersey acquired the shares of the other 19 companies and became the holding company for the trust.
Jersey Standard operated a near monopoly in the American oil industry from 1899 until 1911 and was the largest corporation in the United States. In 1911, the landmark Supreme Court case Standard Oil Co. of New Jersey v. United States found Jersey Standard guilty of anticompetitive practices and ordered it to break up its holdings. The charge against Jersey came about in part as a consequence of the reporting of Ida Tarbell, who wrote The History of the Standard Oil Company. The net value of companies severed from Jersey Standard in 1911 was $375 million, which constituted 57 per cent of Jersey's value. After the dissolution, Jersey Standard became the United States' second largest corporation after United States Steel.
Jersey Standard, which was renamed Exxon in 1973 and ExxonMobil in 1999, remains one of the largest public oil companies in the world. Many of the companies that disassociated from Jersey Standard in 1911 remained powerful businesses through the twentieth century, and have since merged into other oil and gas companies; two of the largest include Chevron Corporation, the continuation of the Standard Oil Company of California, and BP, which while founded separately from Standard's lineage later acquired Standard Oil of Ohio and Standard Oil of Indiana.
Founding and early years
Standard Oil's prehistory began in 1863, as an Ohio partnership formed by industrialist John D. Rockefeller, his brother William Rockefeller, Henry Flagler, chemist Samuel Andrews, silent partner Stephen V. Harkness, and Oliver Burr Jennings, who had married the sister of William Rockefeller's wife. In 1870, Rockefeller abolished the partnership and incorporated Standard Oil in Ohio. The company was established with $1 million in capital. Of the initial 10,000 shares, John D. Rockefeller received 2,667, Harkness received 1,334, William Rockefeller, Flagler, and Andrews received 1,333 each, Jennings received 1,000, and the firm of Rockefeller, Andrews & Flagler received 1,000. Rockefeller chose the "Standard Oil" name as a symbol of the reliable "standards" of quality and service that he envisioned for the nascent oil industry.In the early years, John D. Rockefeller dominated the combine; he was the single most important figure in shaping the new oil industry. He quickly distributed power and the tasks of policy formation to a system of committees, but always remained the largest shareholder. Authority was centralized in the company's main office in Cleveland, but decisions in the office were made cooperatively.
Image:Standard Oil Company 1889 CP04381 - DPLA - 032e381bb16b1a45abecfd1a6a86ae3a.jpg|thumb|right|Standard Oil Refinery No. 1 in Cleveland, Ohio, 1897
The company grew by increasing sales and through acquisitions. After purchasing competing firms, Rockefeller shut down those he believed to be inefficient and kept the others. In a seminal deal, in 1868, the Lake Shore Railroad, a part of the New York Central, gave Rockefeller's firm a going rate of one cent a gallon or forty-two cents a barrel, an effective 71% discount from its listed rates in return for a promise to ship at least 60 carloads of oil daily and to handle loading and unloading on its own. Smaller companies decried such deals as unfair because they were not producing enough oil to qualify for discounts.
Standard's actions and secret transport deals helped its kerosene price to drop from 58 to 26 cents from 1865 to 1870. Rockefeller used the Erie Canal as a cheap alternative form of transportation—in the summer months when it was not frozen—to ship his refined oil from Cleveland to the industrialized Northeast. In the winter months, his only options were the three trunk lines—the Erie Railroad and the New York Central Railroad to New York City, and the Pennsylvania Railroad to Pittsburgh and Philadelphia.
Competitors disliked the company's business practices, but consumers liked the lower prices. Standard Oil, being formed well before the discovery of the Spindletop oil field and a demand for oil other than for heat and light, was well placed to control the growth of the oil business. The company was perceived to own and control all aspects of the trade.
South Improvement Company
In 1872, Rockefeller joined the South Improvement Co. which would have allowed him to receive rebates for shipping and drawbacks on oil his competitors shipped. He successfully convinced refineries in Cleveland to sell their businesses to Standard Oil in exchange for cash or stock. But when this deal became known, competitors convinced the Pennsylvania Legislature to revoke South Improvement's charter. No oil was ever shipped under this arrangement. Using highly effective tactics, later widely criticized, it absorbed or destroyed most of its competition in Cleveland in less than two months and later throughout the northeastern United States.Hepburn Committee
was directed by the New York State Legislature in 1879, to investigate the railroads' practice of giving rebates to their largest clients within the state. Merchants without ties to the oil industry had pressed for the hearings. Prior to the committee's investigation, few knew of the size of Standard Oil's control and influence on seemingly unaffiliated oil refineries and pipelines—Hawke cites that only a dozen or so within Standard Oil knew the extent of company operations.The committee counsel, Simon Sterne, questioned representatives from the Erie Railroad and the New York Central Railroad and discovered that at least half of their long-haul traffic granted rebates and much of this traffic came from Standard Oil. Even independent companies not allied with Standard Oil confirmed receiving these rebates such as Simon Bernheimner, who was once a partner of the Olefin Oil Company. The committee then shifted its focus to Standard Oil's operations. John Dustin Archbold, as president of Acme Oil Company, denied that Acme was associated with Standard Oil. He then admitted to being a director of Standard Oil.
The committee's final report scolded the railroads for their rebate policies and cited Standard Oil as an example. This scolding was largely moot to Standard Oil's interests since long-distance oil pipelines were now their preferred method of transportation.
Standard Oil Trust
In response to state laws that had the result of limiting the scale of companies, Rockefeller and his associates developed innovative ways of organizing to effectively manage their fast-growing enterprise. On January 2, 1882, they combined their disparate companies, spread across dozens of states, under a single group of trustees. By a secret agreement, the existing 37 stockholders conveyed their shares "in trust" to nine trustees: John and William Rockefeller, Oliver H. Payne, Charles Pratt, Henry Flagler, John D. Archbold, William G. Warden, Jabez Bostwick, and Benjamin Brewster."Whereas some state legislatures imposed special taxes on out-of-state corporations doing business in their states, other legislatures forbade corporations in their state from holding the stock of companies based elsewhere. "
Standard Oil's organizational concept proved so successful that other giant enterprises adopted this "trust" form.
By 1882, Rockefeller's top aide was John Dustin Archbold, whom he left in control after disengaging from business to concentrate on philanthropy after 1896. Other notable principals of the company include Henry Flagler, developer of the Florida East Coast Railway and resort cities, and Henry H. Rogers, who built the Virginian Railway.
In 1885, Standard Oil of Ohio moved its headquarters from Cleveland to its permanent headquarters at 26 Broadway in New York City. Concurrently, the trustees of Standard Oil Company of Ohio chartered the Standard Oil Co. of New Jersey to take advantage of New Jersey's more lenient corporate stock ownership laws.
Sherman Antitrust Act of 1890
In 1890, Congress overwhelmingly passed the Sherman Antitrust Act, a source of American anti-monopoly laws. The law forbade every contract, scheme, deal, or conspiracy to restrain trade, though the phrase "restraint of trade" remained subjective. The Standard Oil group quickly attracted attention from antitrust authorities leading to a lawsuit filed by Ohio Attorney General David K. Watson.Earnings and dividends
From 1882 to 1906, Standard paid out $548,436,000 in dividends at a 65.4% payout ratio. The total net earnings from 1882 to 1906 amounted to $838,783,800, exceeding the dividends by $290,347,800, which was used for plant expansions.1895–1913
In 1896, John Rockefeller retired from the Standard Oil Co. of New Jersey, the holding company of the group, but remained president and a major shareholder. Vice-president John Dustin Archbold took a large part in the running of the firm. In the year 1904, Standard Oil controlled 91% of oil refinement and 85% of final sales in the United States. At this time, state and federal laws sought to counter this development with antitrust laws. In 1911, the U.S. Justice Department sued the group under the federal antitrust law and ordered its breakup into 39 companies.Standard Oil's market position was initially established through an emphasis on efficiency and responsibility. While most companies dumped gasoline in rivers, Standard used it to fuel its machines. While other companies' refineries piled mountains of heavy waste, Rockefeller found ways to sell it. For example, Standard bought the company that invented and produced Vaseline, the Chesebrough Manufacturing Co., which was a Standard company only from 1908 until 1911.
One of the original "Muckrakers," Ida M. Tarbell, was an American author and journalist whose father was an oil producer whose business had failed because of Rockefeller's business dealings. After extensive interviews with a sympathetic senior executive of Standard Oil, Henry H. Rogers, Tarbell's investigations of Standard Oil fueled growing public attacks on Standard Oil and monopolies in general. Her work was published in 19 parts in McClure's magazine from November 1902 to October 1904, then in 1904 as the book The History of the Standard Oil Co.
The Standard Oil Trust was controlled by a small group of families. Rockefeller stated in 1910: "I think it is true that the Pratt family, the Payne–Whitney family, the Harkness-Flagler family and the Rockefeller family controlled a majority of the stock during all the history of the company up to the present time."
These families reinvested most of the dividends in other industries, especially railroads. They also invested heavily in the gas and the electric lighting business. They made large purchases of stock in U.S. Steel, Amalgamated Copper, and even Corn Products Refining Co.
Weetman Pearson, a British petroleum entrepreneur in Mexico, began negotiating with Standard Oil in 1912–13 to sell his "El Aguila" oil company, since Pearson was no longer bound to promises to the Porfirio Díaz regime not to sell to U.S. interests. However, the deal fell through and the firm was sold to Royal Dutch Shell.