John D. Rockefeller (July 8, 1839 - May 23, 1937) still ranks as one of the richest men in modern times. Rockefeller is one of the great figures of Wall Street – reviled as a villain, applauded as an innovator, but universally recognized as one of the most powerful men in history. Let's take a closer look at his life and achievements.
J.D. Rockefeller, Son of a Peddler
Rockefeller's father, William Avery Rockefeller, led a nomadic life selling goods across the country while his mother raised the children, eventually landing in Cleveland. Rockefeller received an unusually good education for his time and found work as a commission house clerk at age 16. He left the commission house to form a business partnership with oil driller Maurice Clark that would later become Rockefeller, Andrews & Flagler, a company focused on oil refineries rather than drilling.
Rockefeller, the Oil Refiner
The first thing that distinguished Rockefeller from others was his understanding of risk. He knew that speculators in oil had the potential for huge profits if they hit a deposit, but they were also losing money when they didn't. Instead of getting into the speculation business, Rockefeller chose the refining business, where the profits were smaller, but more stable.
Putting all of his money into his first refining business, Rockefeller transformed it by emphasizing what we now call research and development (R&D). He disliked that all by-products were discarded during the refining process, so to make the process more efficient and put byproducts to use, his company created various lubricants, common grease and the forerunners to Vaseline, paint and many other useful products.
Rockefeller's Road to an Oil Monopoly
Rockefeller saw the cutthroat competition in the oil industry as a ruinous influence and began to methodically stamp it out. Under his firm hand, and due to his seemingly super-human abilities to choose excellent managers, by 1890 Rockefeller's company, Standard Oil of Ohio, was well ahead of the industry and enjoying a high profit margin.
He used these profits to buy out competitors. If a competitor did not want to be bought out, Rockefeller had his means of persuasion that included:
- Buying up all the oil barrels and causing a shortage that crippled smaller companies
- Orchestrating price wars between wholly-owned subsidiaries, thus forcing holdouts to sell at a loss to compete
- Limiting the number of trains available for shipment by using his close relationship with the railroad companies
- Purchasing all the equipment and equipment suppliers and refusing to sell replacement parts to holdouts
More often than not, Rockefeller simply made an offer and the competitors took the deal rather than try to fight against the tide. Standard Oil of Ohio became simply Standard Oil and continued to grow.
Rockefeller's Path From Oil to the Railroad Industry
Bothered by the inconsistent support of competing rail companies, Rockefeller backed the creation of the South Improvement Company to improve the transport costs for his company. He also agreed to help this company buy up all the railroads in return for bulk rebates. Competitors in both rail and oil lobbied the government to stop this move.
Today, rebates for consistent bulk shippers are a common business practice, and oil producers do indeed get shipping rebates, but Standard Oil also wanted rebates on other shipping as a meaningful gesture for its financing efforts. Essentially, the company was asking for rebates while also planning to take a cut from the rail companies' profits when it shipped competitors' products. This was asking too much, and the deal fell apart.
Rockefeller's Standard Oil Trust
After his failure to reorganize the rail industry, Rockefeller decided to get his sprawling empire in order. He and his partners created a trust, the first of its kind, where they swapped their individual holdings for shares in the trust. Rockefeller now had centralized control and veto power on all of the corporate boards within his conglomerate. The immediate benefits included even lower costs, lower kerosene prices and standardization across the industry. Rockefeller's company now had the size to build pipelines and other infrastructure on a scale previously unthinkable.
Standard Oil also employed chemists to develop ways to increase the types and quality of combustible fuels and to convert waste into usable substances. The petroleum coming out of the ground was being refined into various products: diesel, paint, hair gel, varnish and so on. The new products and kerosene were cheap and becoming cheaper as the company created an economy of scale across the globe. Rockefeller wasn't directly involved in the day-to-day operations of Standard Oil at this time, but he was still seen as the figurehead.
Antitrust Action Against Rockefeller
The government disliked the near-total monopoly in the oil industry and broke up the trust in 1892. Standard Oil's legal team quickly converted the trust into a holding company, a clever arrangement that functioned like a trust, but was outside of the legal definition. The government adjusted its legislative attack accordingly and broke up the holding company in 1911.
Standard Oil was carved up into smaller, but still sizable, chunks under the government's supervision. Although their names have changed over the years, Chevron (CVX), Exxon Mobil (XOM) and ConocoPhillips (COP), among others, all share a Standard Oil pedigree. These companies had the advantage of Standard Oil's R&D and infrastructure, so they easily made the transition to gasoline producers when kerosene sales dropped as a result of Edison's electric light bulb invention.
Rockefeller the Philanthropist
Rockefeller retired in 1896 and devoted the rest of his life to philanthropy. He put the same drive for improvement and efficiency that built Standard Oil toward his charitable endeavors. He gave away hundreds of millions of dollars over the latter years of his life and, with his son's help, set up the Rockefeller Foundation to carry on his work after he died. The New York-based foundation still exists today.
The Bottom Line
Rockefeller is a rare figure in history, not only because of his wealth, but due to his lasting influence on the world in both the oil sector and philanthropy. Rockefeller was seen at times as the anthesis to Henry Ford, who essentially did to the auto industry what Rockefeller did for oil, yet Ford was applauded while Rockefeller was seen as controversial.
Despite the general sentiment toward him, Rockefeller did not halt his philanthropic efforts. He threw himself behind business and charity with the same vigor. Moreover, his path of building a fortune and then giving it away has become a template for wealthy individuals such as Bill Gates and his eponymous foundation.
Through Rockefeller's foundation, more wealth has been dispersed than Rockefeller personally earned during his lifetime. He inspired others like him to give even more. Some people might fault him for how he built his fortune, but his business practices and his philanthropy have ultimately benefited millions of people.