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Reputation and Social Ties: J. P. Morgan & Co. and Private Investment Banking

Published online by Cambridge University Press:  18 December 2013

Susie J. Pak
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Abstract

Focusing on the private investment bank of J. P. Morgan & Co., this article examines the unique perspective that the history of private investment banking offers the study of reputation with regard to the role of social ties. Drawing from a larger study that looks at intersecting social and economic networks of New York private bankers before the Second World War, the article studies the ways in which the Morgan partners' social networks worked to maintain their reputation by creating an institutional structure for firm cohesion, establishing access to information and resources outside the firm, and fostering a culture of exclusivity that signaled the firm's standing and its ties relative to their competitors or other elite bankers.

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Articles
Information
Business History Review , Volume 87 , Issue 4: Corporate Reputation , Winter 2013 , pp. 703 - 728
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Copyright © The President and Fellows of Harvard College 2013 

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References

1 J. P. Morgan & Co. was the leading branch of the House of Morgan, an international merchant bank with branches in Philadelphia (Drexel & Co.); Paris (Morgan, Harjes & Co./Morgan & Cie.); and London (J. S. Morgan & Co./Morgan, Grenfell & Co.). The same partnership agreement bound Drexel & Co. and J. P. Morgan & Co., and the American firms were partners in the British and French branches as firms. In this article, the focus is on the New York house of J. P. Morgan & Co.

2 Money Trust Investigation: Investigation of Financial and Monetary Conditions in the United States under House Resolutions 429 and 504 before a Subcommittee of the Committee on Banking and Currency, parts 1–29 (Washington, D.C., 1913)Google Scholar. (Hereafter, Money Trust Investigation.) Morgan's testimony appears in Money Trust Investigation, part 15, 1050–52, 1081–83.

3 See Carosso, Vincent P., The Morgans: Private International Bankers, 1854–1913 (Cambridge, Mass., 1987), 485Google Scholar. See also J. P. Morgan & Co. Syndicate Books, ARC 108–ARC 119, Morgan Library and Museum, New York (hereafter ML).

4 See Rindova, Violina P. and Martins, Luis L., “Show Me the Money: A Multidimensional Perspective on Reputation as an Intangible Asset,” in The Oxford Handbook of Corporate Reputation, ed. Barnett, Michael L. and Pollock, Timothy G. (Oxford, 2012), 19Google Scholar.

5 Pak, Susie J., Gentlemen Bankers: The World of J. P. Morgan (Cambridge, Mass., 2013)CrossRefGoogle Scholar.

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8 Schiff was writing to his partner, Jerome Hanauer, in 1919. As quoted in Cohen, Naomi W., Jacob H. Schiff: A Study in American Jewish Leadership (Hanover, N.H., 1999), 9CrossRefGoogle Scholar.

9 Morrison, Alan D. and Wilhelm, William J. Jr., Investment Banking: Institutions, Politics, and Law (New York, 2007), 15CrossRefGoogle Scholar.

10 Morrison and Wilhelm also distinguish between trust, which is more intrinsic to the relationship, and reputation, which implicitly holds the threat of expulsion or censure from a larger community. Morrison, Alan D. and Wilhelm, William J. Jr., “Trust, Reputation and Law: The Evolution of Commitment in Investment Banking,” (working paper, 02 2013), 1–5, http://web.law.columbia.edu/sites/default/files/microsites/law-economics-studies/Morrison,%20A%20-%20Spring%20%202013%20BS.pdfGoogle Scholar.

11 See Morrison, and Wilhelm, , Investment Banking: Institutions, Politics, and Law, 5Google Scholar.

12 Numerous studies have made this point about traditional merchant banks and also commercial banks. See, for example, Supple, Barry E., “A Business Elite: German-Jewish Financiers in Nineteenth-Century New York,” Business History Review 31 (Summer 1957): 143–78CrossRefGoogle Scholar; Perkins, Edwin J., Financing Anglo-American Trade: The House of Brown, 1800–1880 (Cambridge, Mass., 1975)CrossRefGoogle Scholar; Carosso, Vincent P., “A Financial Elite: New York's German-Jewish Investment Bankers,” American Jewish Historical Quarterly 66 (09 1976–1977): 67–88Google Scholar; Lamoreaux, Naomi R., “Banks, Kinship, and Economic Development: The New England Case,” Journal of Economic History 46 (09 1986): 647–67CrossRefGoogle Scholar; Olegario, Rowena, “‘That Mysterious People’: Jewish Merchants, Transparency, and Community in Mid-Nineteenth Century America,” Business History Review 73 (Summer 1999): 161–89CrossRefGoogle Scholar; Beckert, Sven, The Monied Metropolis: New York City and the Consolidation of the American Bourgeoisie, 1850–1896 (New York, 2003)Google Scholar.

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20 For a description of what that process was like in traditional merchant banks, see Chapman, Stanley, The Rise of Merchant Banking (London, 1984), 64Google Scholar; Forbes, John Douglas, J. P. Morgan Jr., 1867–1943 (Charlottesville, 1981), 26–31Google Scholar; Lamont, Edward M., The Ambassador from Wall Street: The Story of Thomas W. Lamont, J. P. Morgan's Chief Executive (New York, 1994), 22–29Google Scholar.

21 Harrington, Melissa H., The New York Yacht Club, 1844–1994 (Lyme, Conn., 1994)Google Scholar. The River Club was co-ed: “River Club Interests Society,” NYT, 4 05 1930Google Scholar. Racquet and Tennis was a combination of two clubs, Racquet Court Club, which was founded in 1875, and Racquet and Tennis Club, founded in 1890. See Racquet and Tennis Club: Club Book for 1917 (New York, 1917), 4Google Scholar; Weber, Bruce, “Members Only,” NYT, 14 06 1992Google Scholar.

22 Clubs in the suburbs were usually more like country clubs to which families belonged as a unit as compared to metropolitan or city clubs to which members belonged as individuals. Baltzell, , Philadelphia Gentlemen, 335–36Google Scholar.

23 See History of the Somerset Club, 1852–1913 (Boston, 1914)Google Scholar. Charlick, Carl, The Metropolitan Club of Washington: The Story of Its Men and of Its Place in City and Country (Washington, D.C., 1965)Google Scholar. White's predecessor was that of White's Chocolate House, which began as a coffee house, the predecessor to the private men's clubs in London. It was a “meeting place for men of fashion” and later became the private club for “the leading men of the day.” The Honorable Algernon Bourke, The History of White's, vol. 1 (London, 1892), 6, 8, 10–12, 33–34Google Scholar. The Athenaeum was “an association of scholarly men, including authors, littérateurs, members of Parliament, and promoters of the fine arts.” Alexander, , A History of the University Club, 6Google Scholar.

24 The chairman of the Pecora investigation, Senator Duncan U. Fletcher (Fla.), used the term “rights and interests”; Pecora hearings, part 1, 8–9.

25 See Pak, Gentlemen Bankers, 247n114; and Pak, Susie J. and Halgin, Daniel S., “The Significance of Social Clubs: Syndicates, Interlocking Directorates, and the Network of J. P. Morgan,” paper presented at International Network for Social Network Analysis (INSNA) annual conference, 03 2012Google Scholar. See, for other examples of work that study the structure of advantage, Burt, Ronald S., Neighbor Networks: Competitive Advantage Local and Personal (New York, 2010), 23Google Scholar.

26 Baltzell, E. Digby, The Protestant Establishment Revisited (New Brunswick, N.J., 1999), 102, 105Google Scholar. For an extensive and thorough history of Philadelphia clubs (among other social ties including prep schools and university ties), see Baltzell, , Philadelphia Gentlemen, especially pages 335–63Google Scholar.

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28 When J. P. Morgan & Co. was first founded in 1895 (or reorganized from the banks inherited from Junius S. Morgan and Anthony Drexel), the percentage of partners with kinship ties in the American branches was 50 percent. After the First World War, the overall percentage of kinship ties did not exceed 40 percent. It remained in the 30-percent range up to World War II.

29 Baltzell, , Philadelphia Gentlemen, 335Google Scholar. See also Hood, Clifton, “A Collision of Aspirations: Elite Men's Clubs and Social Competition in Gilded Age New York City,” paper presented at 2011 Business History Conference, St. LouisGoogle Scholar.

30 “Morgan to Announce New Partners Soon,” World, 29 12 1926Google Scholar.

31 “A. M. Anderson Expected to Be Morgan Partner,” New York Herald Tribune, 29 12 1926Google Scholar.

32 Hall, Proctor, “The House of Morgan—A Close up View,” NYT, 23 01 1927Google Scholar. The subtitle read: “Our partners, to which three more have just been added, hold fast to their traditions of dignity.”

33 Barnett, Michael L. and Pollock, Timothy G., “Charting the Landscape of Corporate Reputation Research,” in The Oxford Handbook of Corporate Reputation, ed. Barnett, Michael L. and Pollock, Timothy G. (New York, 2012), 8Google Scholar; Burt, , Neighbor Networks, 4–6Google Scholar.

34 Between 1894 and 1914, J. P. Morgan & Co. participated in 660 different deals involving other firms (including syndicates, joint accounts, and other activities) out of a total of 898 deals listed in its syndicate books (such as stock purchases and sales). Out of those 660 deals, 308 were syndicate participations given to J. P. Morgan & Co. (JPM & Co.) by other banks or firms. For the period between 1915 and 1934, JPM & Co. noted approximately 929 deals. Of that total, 491 were deals that JPM & Co. initiated and involved the participation of another bank. Syndicate participations given to JPM & Co. by another bank numbered 279. Thus, for the entire 1894–1934 period, as indicated by its syndicate books, the vast majority of JPM & Co.'s business involved cooperation with another bank, firm, or individual.

35 The list of directors from the eighteen institutions was taken from the Money Trust Investigation part 14 (Washington, D.C., 1913), 980–1003Google Scholar. See also Exhibits No. 243 and 244, 25 Feb. 1913. Special thanks to Eric Hilt for his assistance in obtaining a complete copy of these exhibits. I then looked up all of the directors in the Social Register, Locater and the Social Register, New York for the year 1912. Special thanks to Leslie Hannah for the suggestion to look at the Locater.

36 Continental and Commercial National Bank of Chicago eventually ranked at 173 among all syndicate participants in the Morgan syndicates for 1894–1934 (out of 2,466) with a total participation of $4,045,000 for eight participations (one with the amount unknown) for three unique clients, but they did not appear in the syndicate books until after 1914. Unless otherwise noted, all of the information on Morgan syndicates comes from J. P. Morgan & Co. Syndicate Books, ARC 108–ARC 119, ML.

37 Source: The Social Register, New York (New York, 1911–1912)Google Scholar.

38 Indicates rank among all Morgan syndicate participants by 1910, the total amount of the individual's syndicate participation between 1894 and 1909 inclusive rounded to the nearest thousand, the number of participations, and the number of participations where the amount was unknown. J. P. Morgan & Co. Syndicate Books, ML.

39 The rank of the key individuals in the Pujo interlocking dataset shows their standing in the Morgans' economic network among all individuals, who were given participations in the Morgan syndicates for the entire 1894–1934 period: Baker, who died in 1931, ranked number four, Frick, who died in 1919, number fourteen, and Stillman, who died in 1918, number eight. See Pak, , Gentlemen Bankers, 247n114Google Scholar; and Pak, Susie J. and Halgin, Daniel S., “The Significance of Social Clubs: Syndicates, Interlocking Directorates, and the Network of J. P. Morgan,” paper presented at International Network for Social Network Analysis (INSNA) annual conference, 03 2012Google Scholar.

40 Money Trust Investigation, 1034.

41 Burt, , Neighbor Networks, 7Google Scholar.

42 As quoted in Hall, , “The House of Morgan—A Close up View,” NYT, 23 01 1927Google Scholar.

43 See Burrows, Edwin G. and Wallace, Mike, Gotham: A History of New York City to 1898 (New York, 1999), 682–85Google Scholar; Peterson, Theodore, Magazines in the Twentieth Century (Urbana, Il., 1964)Google Scholar; Mott, Frank Luther, A History of American Magazines, 1741–1930, 5 vols. (Cambridge, Mass., 1958–1968)Google Scholar; Mott, Frank Luther, American Journalism: A History of Newspapers in the United States through 250 Years, 1690–1940 (New York, 1942)Google Scholar.

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45 Example of articles on rumors that J. P. Morgan & Co. would admit new partners: “A. M. Anderson Expected to Be Morgan Partner,” New York Herald Tribune, 29 12 1926Google Scholar; “Morgan to Announce New Partners Soon,” The World, 29 12 1926Google Scholar. Example of profiles on bankers including Morgan: see Moody, John, “The Masters of Capital in America,” McClure's Magazine 36, no. 1 (11 1910): 3–24Google Scholar.

46 “The Social Register: Just a Circle of Friends,” NYT, 21 12 1997Google Scholar; Logan, Andy, “That Was New York, ‘Town Topics,’“ New Yorker, 14 08 1965, 78Google Scholar; Porzelt, Paul, The Metropolitan Club of New York, 107Google Scholar; Clair, Guy St., A Venerable and Cherished Institution: The University Club of New York, 1865–1990 (New York, 1991), 254Google Scholar. After the Civil War, the New York Times was “the largest daily paper in the United States.” Rock, Howard B. and Moore, Deborah Dash, Cityscapes: A History of New York in Images (New York, 2001), 144Google Scholar.

47 “Club News and Gossip,” NYT, 31 05 1891Google Scholar; “Gossip of the Clubs,” NYT, 4 01 1891Google Scholar; “Levi P. Morton Dies at Rhinebeck Home on 96th Birthday,” NYT, 17 05 1920Google Scholar. Levi P. Morton's former partner was Walter H. Burns, who married the sister of Junius S. Morgan, Pierpont's father. Strouse, , Morgan: American Financier, 118Google Scholar.

48 Town Topics was a weekly gossip magazine that was published by Louis Keller, the founder of The Social Register. Baltzell, , Philadelphia Gentlemen, 8, 19–30Google Scholar.

49 “Society at the Opera,” NYT, 20 11 1894Google Scholar. Other examples: “Nassau Tulip Prize Won by Mrs. Field,” NYT, 23 05 1928Google Scholar; “Notes of Social Activities in New York and Elsewhere,” NYT, 27 10 1931Google Scholar.

50 Pierpont Morgan datebooks, Pierpont Morgan papers, ARC 1196, Box 28, ML.

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52 “Miss Morgan's Wedding,” NYT, 16 11 1900Google Scholar.

53 The New York Times also reported, “In this year's social register [the Hamilton's] home is given as 32 East Thirty-sixth Street.” “Special to the New York Times,” NYT, 4 01 1924Google Scholar. Hamilton's second wife, Theodosia Carlin (née Sisson), lived in California. They married in 1924. “Marriage of Miss Juliet P. Morgan,” NYT, 13 04 1894Google Scholar; “Morgan Partner Retires,” NYT, 1 01 1922Google Scholar; “Hamilton's Remarriage Reveals Divorce from the Late J. P. Morgan's Daughter,” NYT, 4 01 1924Google Scholar; “Mrs. W. P. Hamilton,” NYT, 12 09 1941Google Scholar; “W. P. Hamilton, 81, Retired Financier,” NYT, 9 05 1950Google Scholar. Juliet Morgan continued to be listed in the Social Register, New York as Mrs. Morgan Hamilton. See Social Register, New York (New York 1925, 1930)Google Scholar.

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55 Letter to Jacob H. Schiff from Mortimer L. Schiff, 31 July 1916, Jacob H. Schiff papers, MS 456, 449/4b, American Jewish Archives, Cincinnati, Oh.

56 Chernow, , House of Morgan, 367–69Google Scholar; Carosso, Vincent P., Investment Banking in America: A History (Cambridge, Mass., 1970), 337–39Google Scholar; “Notes regarding Mr. J. P. Morgan: typescript of interviews with TWL and Dwight W. Morrow,” Morgan Firm papers, ARC 131798, Box 1, ML.

57 Pecora Hearings, part 1, 36–39, 42–49, 53–87 (see especially the testimony of Leonhard D. Keyes. It includes sections on the syndicate lists, which the Morgans provided but objected to making public).

58 “New Guilty Plea Made by Whitney,” NYT, 1703 1938Google Scholar; “Whitney Expelled by New York Stock Exchange,” NYT, 18 03 1938Google Scholar; “Richard Whitney, 86, Dies; Headed Stock Exchange,” NYT, 6 12 1974Google Scholar.

59 Chernow, , House of Morgan, 421–29Google Scholar.

60 “Richard Whitney, 86, Dies; Headed Stock Exchange,” NYT, 6 12 1974Google Scholar; “George Whitney, Banker, 77, Dies,” NYT, 23 07 1963Google Scholar. For a longer treatment of this case, see Mackay, Malcolm, Impeccable Connections: The Rise and Fall of Richard Whitney (New York, 2013)Google Scholar.

61 See Burt, Ronald S., Brokerage and Closure: An Introduction to Social Capital (New York, 2005)Google Scholar.

62 Partners in Kuhn, Loeb & Co., 1906–1910: Heinsheimer, Louis A., Kahn, Otto H., Schiff, Jacob H., Schiff, Mortimer L., Warburg, Felix M., and Warburg, Paul M.. “Kuhn, Loeb & Co. Partnership Agreements,” Lehman Brothers Records, Boxes 517 and 518, Baker Library Historical Collections, Harvard Business School, Boston, MassGoogle Scholar.

63 See Birmingham, Stephen, “Our Crowd”: The Great Jewish Families of New York (Syracuse, N.Y., 1996)Google Scholar.

64 Supple, , “A Business Elite,” 145Google Scholar.

65 Ibid., 164–66. See Supple for an extensive map of marriage ties within the German Jewish community.

66 As quoted in Cohen, , Jacob H. Schiff, 53Google Scholar.

67 Mercer, Lloyd J., “Harriman, Edward Henry,” American National Biography Online (02 2000): http://www.anb.org/articles/10/10-00738.htmlGoogle Scholar.

68 Klein, Maury, The Life and Legend of E. H. Harriman (Chapel Hill, 2000), 110–13Google Scholar.

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70 Burr, Anne Robeson, The Portrait of a Banker: James Stillman, 1850–1918 (New York, 1927), 125Google Scholar.

71 Ibid., 129.

72 As quoted in Burr, , The Portrait of a Banker, 124, 109Google Scholar; Klein, , The Life and Legend of E. H. Harriman, 125Google Scholar.

73 As quoted in Strouse, , Morgan: American Financier, 419–21Google Scholar. See also Klein, , The Life and Legend of E. H. Harriman, 229Google Scholar.

74 Carosso, , The Morgans, 474–78Google Scholar; Cleveland, Harold van B. and Huertas, Thomas F., Citibank, 1812–1970 (Cambridge, Mass., 1985), 311–17Google Scholar. For a history of the Northern Pacific Railroad Panic and the relationship between J. P. Morgan and Kuhn, Loeb & Co., see also Strouse, , Morgan: American Financier, 418–34Google Scholar.

75 Quoted in Adler, Cyrus, ed., Jacob H. Schiff: His Life and Letters, vol. 1 (Garden City, N.Y., 1928), 179Google Scholar.

76 Nine were with Speyer & Co., and an additional four included banks such as Vermilye & Co., Spencer Trask & Co., Blair & Co., Ladenburg, Thalmann & Co., and Hallgarten & Co. Though we cannot say with great detail due to the lack of comparable data, Kuhn, Loeb's actual participant list was most likely just as diverse and as extensive as the Morgan network.

77 Morrison, and Wilhelm, , “Trust, Reputation and Law,” 22, 24–28Google Scholar.