Stewart-Warner-Alemite

To the motoring public Stewart-Warner used to mean only two things--speedometers and vacuum tanks. As patents expired and vacuum tanks gave way to fuel pumps, the name Stewart-Warner began to mean radios, refrigerators and cinema equipment. Depression stifled the market for these new products no less than for automobile accessories. By last year the outlook for Stewart-Warner was dismal indeed. Last week the company published its annual report for 1933 revealing a thoroughgoing house cleaning from products to personnel. While Stewart-Warner was slowly slipping, one of its subsidiaries, which is better known under its own name, continued to pile up profits. Alemite Corp. now makes lubricating systems for 99% of all automobiles produced. Many of Alemite's gadgets were developed by a tall, thin, long-nosed inventor named Oscar Ulysses Zerk, who once served in the Austrian army. When Alemite took over certain of Mr. Zerk's patents, it also took over Mr. Zerk. Inventor Zerk fiddled around in Stewart-Warner's laboratories for five years without much encouragement. When his contract expired in 1929, the company offered him $25,000 per year for a five-year trip around the world. Inventor Zerk did better than that. He went to work and developed new gadgets which he sold the following year for $500,000 to Stewart-Warner, together with an agreement to stay out of the lubricating business for eight years.

If the Stewart-Warner management had been astute, they would also have induced Mr. Zerk to agree to stay out of Stewart-Warner's business. For Mr. Zerk happened to be the fourth largest stockholder (5,000 shares) and had no intention of watching his investments depreciate without a murmur. Last spring Mr. Zerk launched a ferocious proxy campaign to oust the management, charging them with pocketing unconscionable fat bonuses, with gross inefficiency and general lack of business acumen.

Meantime Alemite Corp. had produced another person who was equally determined to set aright the parent company's affairs. Alemite's head since 1925 has been Joseph Edward Otis Jr., son of the chairman of Charles Gates Dawes's old Chicago bank. A baldish, pleasant man of 41 who graduated from Yale in 1916 and spent a few years with Union Carbide, he lives on Chicago's Gold Coast, likes to hunt and fish in Florida. Able Mr. Otis' problem was to get outside representation on Stewart-Warner's board which, with the exception of his aging father, was composed entirely of company executives.

Finally convinced that the outlook was desperate, the Stewart-Warner management yielded. Last June six new directors were elected, including such potent Chicago names as Eugene Van Rensselaer Thayer, American Telephone & Telegraph director, Lawyer Ralph Shaw, shrewd, hard-bitten member of Winston, Strawn & Shaw, Robert J. Dunham, close associate of the late Jonathan Ogden Armour. But because no one relished the idea of having Inventor Zerk tearing his thick black mane at directors' meetings, a temporary coalition was formed to defeat the Zerk slate with one exception. To soothe Mr. Zerk's temper, they made one of his candidates, Robert James Graham of Belleville, Ontario, boardchairman of Stewart-Wrarner.

It took the new directors only six weeks to learn that Inventor Zerk's accusations against the management were substantially correct. They promptly ousted President Charles B. Smith, and before the year end they also ousted his two senior vice presidents. Mr. Otis was made active head of the parent company. Suits were hastily brought against the old officers to recover salaries and bonuses. Unprofitable lines including cinema equipment were dropped. Alemite's operations were consolidated with the Stewart-Warner Chicago plant. Superfluous subsidiaries were dissolved. A new accounting system was installed and assets were written down. Stewart-Warner reported a $1,791,000 loss for 1933 but in February sales were running 150% ahead of last year. In last week's annual report, a model of frankness, the new management asked the stockholders at the annual meeting in April to authorize a reduction in par value of the stock so that another write-off of $2,400,000 could be taken. Stockholders were also asked to sanction a new name for their company--Stewart-Warner-Alemite Corp.

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