Hays T. Watkins
Chairman and CEO (retired)
May 12, 2021
Brooks Bentz: So, I want to welcome you to our series, The Spirit of the Railroaders, and our oral history program. Today, we’re in the Richmond, Virginia, home of Hays Watkins, former chairman and CEO of CSX during a very transformative period not only for the company, but for the history of the industry. There were a host of mergers and bankruptcies and acquisitions, and throughout the end of that, culminating in deregulation and ultimately in the renaissance of the industry. So, I’m Brooks Bentz. We’ll be gently grilling Hays Watkins on his personal history. And so, what we’d like to do is start at the beginning, when you were growing up in Kentucky, and talk about your childhood, and growing up through the Depression, and deciding on a career in railroading as opposed to farming -- or banking.
Hays Watkins: Well, I grew up on a farm in Kentucky -- Henry county, Kentucky. My father grew up on a farm, became a banker until President Roosevelt closed the banks in 1933. Then we moved back to the farm. My father was a farmer then for the next twenty or so years. I grew up not having any money but eating well. The middle thirties were hard times for any farmer. Tobacco was our main crop, but even then, that was a life’s -- a year’s work, which went to the warehouse and usually sold for somewhere in the twenty-to-thirty-dollar range for the year, so if we didn’t have a good farm -- a good garden, we were in trouble.
I went to school in Newcastle and graduated in 1942 from Newcastle High School, decided that I wanted to go to a business school, so I looked for several schools. One was Chillicothe Business School in Missouri. Another one was Bowling Green Business University in Kentucky. I chose the latter. Went to Bowling Green for three years until I was -- I graduated from high school at sixteen, so I had the chance to get in three years of college before I was drafted. After that, I went in the Army in 1945. Studied Japanese for the planned invasion of the homeland of Japan in early ‘46. But the atomic bomb came along and ended my study of Japanese. So I was -- having become proficient in Japanese, the Army sent me to Panama for a year.
HW: Where they speak Spanish, not -- not Japanese. So I spent a year in the Panama Canal zone, came back in 1947, finished my last year of college at Bowling
Green, which is now Western Kentucky University, then went to -- was accepted to Northwestern for grad school.
BB: Which was your dad’s Alma Mater?
HW: Which was my dad’s school. He had not finished at Northwestern, but he had gone there in his early life. I finished my MBA degree, took the CPA exam in Illinois in the fall of 1948, passed on the first go, then went to work for the Chesapeake and Ohio Railroad on January the 2nd, 1949. So that’s my -- that’s my life.
BB: That’s the beginning. And so, I was -- we were talking earlier about, when did you decide that railroading was a career, and not farming, or banking?
HW: I’d always been interested in railroads, and when I was in Chicago, I spent a lot of my time taking pictures of all of the passenger trains in and out of Chicago, and there were a lot in those days. So that when I graduated from Northwestern, I had to make the choice between railroads and accounting, which was my major. I interviewed several accounting firms. And I interviewed several railroads in Chicago. Decided that railroading was a much more exciting future than being an accountant. Ended up, one of my college professors had a friend at C&O in Cleveland, so he arranged for an interview for me in Cleveland in the fall of ‘48. I went over. They offered me a job, and I decided that railroading was my career.
BB: It was interesting, you said you went to the Canal zone after learning to speak Japanese, and my dad grew up in the Canal zone. His fath--
BB: His father was US General Counsel for the zone, and they loved it there, and I was just curious about -- I was -- I had the opportunity to go with the Lexington Group a couple years ago, and see it and see the house my father grew up in, and so forth, but it was hot and steamy and tropical --
HW: It was hot and steamy. It rained most every afternoon. Fifteen minutes later the sun came out and dried everything. But it was a delightful place. We -- I enjoyed being there for the year, and occasionally we’d go back to Old Panama, the ruins. The Spanish ruins back in the 1600s. So we enjoyed the -- I enjoyed the Canal zone.
BB: Do you retain any of your Japanese?
HW: Not a bit.
BB: Not a bit.
HW: Not a bit. A few words like, uh, tomodachi (friend), and Ohayou gozaimasu (Good morning), and a few, but not many.
HW: Interestingly enough, our son spent four years in Tokyo, working with Abbot Laboratories, and we went over to visit at Christmas for three of the four years. And I picked up a few words, but most of them had gone.
BB: So, when you got married, Betty was a local girl, then?
HW: Interesting. I said, I grew up in Kentucky. My -- one of my college roommates in Bowling Green moved to Louisville after he graduated, lived at the YMCA in Louisville. Betty’s aunt ran the food service at the Louisville YMCA. And when I would get home on the weekends from Cleveland, I would call my friend, occasionally go to Louisville, and see him. One day he arranged for me to have a date with the niece of the lady that ran the food service. And so, we had a -- Betty and I had a blind date. The next day we had both decided that that was it. I went home, told my mother that I had met the girl I was going to marry. Betty told her aunt that she had met the fella that she was going to marry --
BB: Did you tell each other that, too?
HW: We didn’t tell each other, no.
BB: [Laughs] Not yet.
HW: But that went on for about a year, and so we were married about a year later. But it was all because of the roommate having dinner at the YMCA in Louisville.
BB: So you would take the train down?
HW: Take the train. I spent my first year in Cleveland. Then I was transferred to Richmond just after we were married, and so we would take the train from
Richmond back to Louisville to see Betty’s aunt and my parents, uh huh.
BB: So you could do that relatively easily. Not so anymore, right, there are very limited services…
HW: We -- this was just after C&O had acquired a new bunch of equipment, and Betty and I had the reputation of going from Richmond to Louisville in one roomette. Cozy…
BB: [Laughs] Right.
HW: But, uh, we got quite a reputation, but that was the way to go. And it was free, so we enjoyed it.
BB: Roomettes are cozy for one.
HW: You’re right! For two, it’s really cozy.
BB: [Laughs] Oh, my goodness. So you didn’t know her beforehand, to come back to it.
HW: No, I never met her until we went on the blind date.
BB: I did want to ask you about your thesis in graduate school, because it struck me -- you were doing the separation of railroad operating expenses between freight and passenger services.
BB: And I -- so, what prompted you to do that, and can -- maybe talk a little bit about, what was in it. What was the content like, and how did you get it?
HW: When I went to grad school and had to find a subject for our -- for a thesis, I looked around the libraries about something to do with railroading. And I found several books about the Interstate Commerce Commission, and their activities regarding separating costs between freight and passenger service. And somehow it just intrigued me, and so I decided to write my thesis on the history of the separation, which I guess was the first attempt for any type of cost accounting for passenger service. I can’t say it was a very exciting thesis…
HW: But it was different, and so I passed the oral exam, and got my MBA degree.
BB: Probably because you knew the subject and the examiners didn’t know it at all.
HW: I knew it and the professors didn’t, that’s right.
BB: [Laughs] Well it’s an interesting topic that, you know, I think is -- the industry struggled with for years, how do you --
HW: That’s true.
BB: How do you properly cost things? And --
HW: It came in handy later because I went to work for C&O. After the first year, I was sent to Richmond to become an internal auditor, and one of my assignments was to figure some type of cost statement for C&O’s passenger service. So I -- I knew all about the separation of services, and I ended up writing an accounting book and teaching it to people in the accounting office of C&O in Richmond. And I had several -- I think I had three separate classes teaching C&O accounting officers about accounting. Because, in those days people in the accounting department didn’t know a credit from a debit. So, I like to say I introduced several people to the finer arts of accounting.
BB: [Laughs] Interest. And so the railroad, at that time, did no kind of profitability analysis on traffic, or --
HW: We didn’t, and so I was charged with coming up with some type of report on the profitability or loss on passenger service. So I developed a plan to allocate cost, direct and indirect cost of passenger service, found what people knew: that passenger service was a huge loss, even the best trains were losing money. But this helped when we went to the Public Service Commissions to abandon trains. Why, my cost studies helped to take the passenger trains off.
BB: So at one point after the war, Chessie placed an enormous passenger car order --
HW: Robert R. Young was the chairman of C&O. He decided that the railroad business could survive if they modernized. So he ordered something like 240 different types of passenger equipment. By the time it was deli -- that was ‘46, ‘47 -- by the time the equipment was delivered in ‘49, ‘50, the passenger trains were running empty. So part of the equipment was put on C&O trains. Probably half of it was sold to other railroads.
BB: Was part of it -- was your analysis -- did your analysis have an impact?
HW: I think it did. I think it showed that there was no way that passenger service could survive airplanes. People who were in a hurry would take a plane. People who wanted to go for pleasure would drive. There just was not enough market between the cars and the airplanes to make rail passenger service worth it, and that’s been true ever since. Still true.
BB: True. Still true.
HW: Still true.
BB: And the crewing agreements then with the hundred-mile day and all that made it very difficult.
HW: It did. It did. But even with modernized labor agreements, there was just not enough way to attract people to ride the train.
BB: Right. So, there was a point when you got released from Cleveland due to -- there was a coal strike, and they cut jobs, and you were out for a period of time.
HW: I went to work for C&O in Cleveland in January of ‘49. In April, there was a coal strike, and coal was about 50 percent of the traffic of C&O. So the order went out from the president that every department had to eliminate 25 percent of the jobs. My job was one of the 25 percent, so after three months, I was sent back to Kentucky. Stayed there three weeks, coal strike was over, I was called back to Cleveland with a 10 percent increase in salary, and then was working ever since.
BB: So it didn’t occur to you to say, Maybe I’ll go into the banking business, or a CPA firm?
HW: No, I --
BB: You were going to wait it out?
HW: By that time I was enjoying my railroad career, three months as it was, and so I just waited until they called me back.
BB: And you ended up working for a guy named John Cusick.
HW: John Cusick was an immigrant from Estonia who had worked for General Electric for many years, then was brought over to the C&O as Vice President of Finance. He had ideas about railroads, about computers, about systems, decided that the C&O accounting department needed a change, so he brought in many changes, including the first UNIVAC computer. Different systems, different plans, and different people. And I happened to be one of the people that he felt had potential, so I got moved into the new accounting department.
BB: How did he find you? How did he pick you out of the herd?
HW: I don’t -- I don’t really know. I had worked for the first year with C&O in Cleveland, then I had gone to Richmond, but -- had gone there in a junior supervisory job. And he had apparently got reports that I was somebody to look at, so he brought me back to Cleveland and moved me through a few jobs. Interestingly enough, after I had been back to Cleveland, most people in the accounting department were sent to computer school to learn about the new UNIVAC computer. I spent three weeks in computer school, finally one morning the head of the school said, Mr. Watkins, I don’t want to offend you, but I don’t think you’re designed to be a computer operator, so why don’t you go back in the regular accounting department. So I had the distinction of flunking out on computers.
BB: [Laughs] But that didn’t sour you on computer technology?
HW: Didn’t sour me on computers. I learned how to use them, but I am not very good at coding.
HW: Or programming.
BB: Well, it was interesting that -- I mentioned to you, Rob Krebs, early in his career, ended up going into the IT department because that’s where he was recruited, and he evacuated himself from there into operations. So you were in internal audit for a period of time…
HW: Yes. Yes. One of the ideas that Cusick has was that there should be an internal auditing department, so I was the first internal auditor. Then we assembled several others and started making audits of different parts of the railroad, and that took me into a lot of different jobs and gave me a lot of opportunity to learn about different facets of the railroad.
BB: So, I watch Blue Bloods on television about the police, and the internal audit -- or internal affairs people are always looked on as, you know, the enemy.
HW: That’s right, they aren’t -- we were --
BB: Yeah, internal auditors much the same way, right?
HW: Yes, absolutely. Absolutely. Whenever we went anywhere, we were greeted with suspicion, and --
HW: --and questions. But I managed to survive, and we ended up with a very good internal audit department that I think made some improvement on different procedures.
BB: Was that the role where you started to really seriously study the passenger train costs?
HW: I think that was one of the -- one of the things that -- yeah, mmhmm.
BB: And did you -- the ICC had a formula for costing. Did you --?
HW: Had a formula for cost and I used that as the basis, and of course there were some costs of passenger service that were direct -- fuel and wages, joint facility operations -- there were other costs that had to be allocated: track maintenance had to be allocated between freight and passengers. So, passenger train cost statements were really a combination of direct and indirect costs.
BB: And that was, as you mentioned earlier, used in the train-off cases --
HW: Right, right.
BB: -- before the commission.
HW: Because we could show that it was a drain on the railroad’s finances, and that most people were not using the railroads anymore. So we took off an awful lot of trains in the early fifties. Mmhmm.
BB: And you got the opportunity to write a book on how to use computers?
HW: [Laughs] One of the things that John Cusick wanted was to explain to layman how computers worked, so he decided that I was the one to write that. Since I didn’t know about computers and had failed computer school, he figured that I would have to put it in layman’s language, which I was able to do, and we ended up with a little eight, ten-page book explaining in layman’s terms what computers did, and it turned out to be a very good book, which explained computers to non-computer users, young.
BB: Do you know what happened to that? Do you have a copy of that around?
HW: I’m sure I have a copy somewhere, I --
BB: [Laughs] Somewhere.
HW: -- I don’t know where it is, but I’m sure there’s one somewhere.
BB: I get the impression -- and I guess I should mention that -- and I’d like to get into it a little later -- that you wrote a very, I thought, thoughtful and provocative book on your career, Call me Hays, which I enjoyed reading. But I get the impression from that that Mr. Cusick was a bit of a -- a bit challenging. And uh --
HW: He was a tyrant [clears throat]. He was a tyrant [clears throat]. He kept challenging me. He would move me to different jobs that I had nothing -- that knew nothing about.
BB: Did he confer with you and say, Hey, I have an opportunity. Would you like to go do this --
HW: No, no. He --
BB: No, he’d just volunteer you.
HW: He would call me in his office and say, I think it’s time for you to be in this department, so I’m moving you over here tomorrow morning.
BB: And you always said, Yes, boss?
HW: I liked my job. I wanted the paycheck, so I said, Yes, boss. But he had the habit of calling at night, probably eight or nine o’clock at night, after his fourth drink…
HW: And then lecture me on what I did not do right, or what I said was wrong, or what I did was wrong. And he’d lay me out for half an hour, and all I could do was to say, Yes, Mr. Cusick. You’re right, Mr. Cusick. But that got to be pretty -- pretty hard to take. One night my wife decided she would --
BB: [Laughs] She’d answer the phone.
HW: She would answer the phone, and she said, Hello Mr. Cusick, how are you? / I’m fine, let me talk to Hays. And she didn’t charm him any more than anyone else did.
BB: And there were never times when you were unavailable?
HW: Oh no. Oh no, I was… I answered that phone whenever he called.
BB: Because you knew.
HW: Yeah. Still shudder when I think of some of those calls. One night he called at ten o’clock on New Year’s Eve. We were having --
HW: We were having a group at the house for a New Year’s Eve party. He called at ten o’clock and he raged until eleven twenty. All I could do was to stay in -- stand in the kitchen on the phone saying, Yes, Mr. Cusick. No, Mr. Cusick. But -- and I told him we had a group of people there. Didn’t faze him a bit.
HW: No. No.
BB: You should have invited him over. [Laughs]
HW: [Laughs] No. No, I’d had enough on the phone.
BB: It seems that almost everyone I’ve talked to, over their careers has had somebody like that in their past that’s been that sort of dominant force, but also influential and helped shape your future career, right?
HW: He did, and he challenged me every day. Put me in several different jobs, moved me from one area to another, and I benefited from it. I recognize that. But it was painful at the time.
BB: So at one point you moved into a position that was Senior Budget Analyst --
BB: -- And you were engaged in doing something that was foreign to the railroad, which was financial planning and forecasting.
HW: Yes. Yes, we decided it was time to make a projection about the future, so we set up an elaborate system of being able to forecast revenues and costs, and we had an Office of Budget Services, which Mr. Cusick used, but nobody else. But he at least had the idea that we should plan for the future. Another one of his ideas was that reporting for the results should be fairly quickly after the end of the month. At the time, usually the account -- accounts for the month were summarized by the twenty fifth of the following month. He decided we were going to make our reports on the tenth of the month. And so that caused a great upheaval. He ended up coming -- bringing that down so that C&O in the 1970s was reporting its earnings three days after the end of the month. That took a lot of estimating, but it worked. His theory was that there’s very little you can do about last month, and the sooner you know what happened, the better prepared you are for the future.
HW: And it’s a logical thought, so we ended up reporting for several years on the third day of the month. Now, after I left, my successors moved that back until -- they’re back now about fifteen days after the end of the month, but we were reporting on the third day.
BB: So, were you creating -- I got the impression you were creating budgets for, say, the Operating Department --
HW: We were creating budgets for every department. Some of -- some departments tried to follow -- the Operating Department had nothing to do with budgets, and they went on their merry way doing whatever -- whatever Operating Departments do, but -- Cusick had an idea that the President would be interested in budgets, and he was. Walter Tuohy. So, our budget forecast testing ended up, I think, doing a lot of help to the President.
BB: So, how long did it take to institutionalize budgeting within the Operating Department. Because, eventually, they got there, right?
HW: The first step was to assign someone from Budget Services in the Operating Department that the Operating Department would accept. And so, we found a fellow that had operating experience, but that also knew about budgets, and he moved to Richmond with the Operating Vice President and was able to work within the department in creating budgets. So I’d say it probably took five years before the Operating Department would even look at budgets, but eventually they did, and I think everyone profited by it.
BB: So, there is a time when you actually go outside the company and interview for another job?
HW: One of the -- one of my predecessors as the head of Budget Services left C&O, went to, I think, the Becton Dickinson? But anyway, in New York, and he called me one day and said, I’ve got a vacancy in my department, and I’d like for you to take a look at it. And I said, I really don’t have any interest in leaving C&O. But he said, Well, why don’t you come and talk to us, see what we can offer you, and see if it has any interest. So I did. Without telling anyone where I was going, I went to New York and met with this individual and his associates. And they were favorably impressed and said, We’ll be back to you, but I think we’d like to have you with us.
The next day, Cusick called me in his office and said, I’m moving you to another job with an increase in salary. Whether he knew where I had gone or not, I don’t have any idea, but it was an unusual coincidence that I had looked for an extra job and then gotten -- got a new job at C&O with an increase in pay. So I never knew the full story, but I always wondered.
BB: So, you’re now in auditing -- general auditor --
BB: At some point you move into looking at mergers for the company. And acquisitions. How did that --
HW: I moved from being an auditor to being assistant treasurer, and about that time C&O and B&O were talking about possible affiliation, and so Mr. Cusick asked me to do some studies on the B&O based on available financial information, and to tell him what I thought might be feasible. So I made quite a study of the B&O, found they were in horrible shape, but that the potential was probably there, so from then on, I was a member of the merger study group because of the B&O.
BB: So, was Jervis Langdon there at the time?
HW: Jervis -- uh, no, Howard Simpson was still the President. He and Walter Tuohy, head of C&O, got together, then later Simpson moved up to Chairman and Jervis took over. But originally it was Simpson and Tuohy.
BB: And do you know why they picked B&O and say, not Southern Railway or N&W to look at? I mean, B&O has always sort of been the weak sister financially in that area, where the others were strong --
HW: I think that this was at the time that the Pennsylvania and the New York Central first talked. They had some talks and so the other railroads -- B&O, C&O, Erie Lackawanna, Delaware & Hudson, other… Redding, Central New Jersey -- figured they had to do something to combat a possible Pennsylvania / New York Central merger. Later, that fell apart, but Tuohy and Simpson by that time had decided that there may be some -- some chance of getting together.
Then Al Perlman of the New York Central, after having left the Pennsylvania studies, decided he wanted the B&O. And so -- and Simpson said, Well, let’s have a three-way merger: C&O, B&O, New York Central. Tuohy said, No way. No way to do it. New York Central is not financially strong. We don’t want a part of it. So C&O made an offer then to the B&O stockholders for B&O stock. Perlman was mad because he was not included, so the New York Central made a counteroffer for the B&O. And so for all of one summer -- ‘59, I guess, or ‘60 -- there was competing offers for the B&O from the C&O and from the New York Central.
Initially, the New York Central offer was far superior to the C&O, but over the summer, the price of Central stock went down, price of C&O stock went up, so that by the fall, most people favored C&O taking over the B&O. Then later, I think Central ended up with 20 percent of the B&O, C&O with about 60 percent. So then, Tuohy and Perlman got together, and C&O bought the Central share of the B&O, so that C&O ended up with something like 80 percent of the B&O. That’s when they started the hearings before the Interstate Commerce Commission for putting the two roads together.
BB: But it wasn’t a merger, it was just control --
HW: It was not to be a merger, because the C&O was afraid of the B&O’s finances. The B&O was in terrible shape. They were not paying their bills. When we first went to the B&O, I remember the Treasurer’s office had bills piled in the corner due six months earlier. So, Tuohy and the C&O decided it would be an affiliation until the B&O got stronger, and then eventually they could study a merger later.
BB: So it’s curious that it was -- the B&O was attractive at all as a partner --
HW: Not a bit. Not a bit. Uh uh. No. And C&O, with its coal traffic, was a very profitable railroad, and B&O was losing money. I think one year the B&O lost 31 million dollars. And so that made a merger impossible. Impractical, anyway.
BB: So, what was the attractiveness, do you think? Was it Tuohy just wanting to acquire the company for personal reasons?
HW: Tuohy felt that putting the two together would give C&O access to most of the eastern business areas: St. Louis, Chicago, Philadelphia, New York… and the C&O was just a regional railroad: West Virginia, Virginia, Kentucky, Ohio, but not getting the business-producing areas. With C&O and B&O together, there was a system large enough to attract a lot more traffic. So the potential was there, it just meant that there had to be financial stability.
BB: And that took a while --
HW: And that took a while. We applied in, I think, 1961 to the Interstate Commerce Commission, and permission was granted in February of 1963. So, for the first couple of years, C&O did all it could to support the B&O -- selling scrap cars, supporting its financial activities -- until B&O finally turned the corner and became profitable again, about ‘64, ‘65, yeah.
BB: So, did you get to know Al Perlman well, through --
HW: I did not deal with Perlman. Perlman only dealt with Tuohy. He didn’t deal with subordinates.
BB: [Laughs] Okay.
HW: I knew -- I got to know all the B&O people, and some of the Central people, but not Perlman, no.
BB: Yeah. And Jervis Langdon was --
HW: Jervis Langdon, later -- I think in ‘63 or ‘64 -- Simpson moved up to Chairman of the Board, and Langdon took over. But there was a problem between Jervis Langdon, who wanted to cut coal rates to the east, and the C&O, who was against it. So there was a conflict. Walter Tuohy and Greg DeVine, who was there pre-Tuohy, moved up to Chairman, Greg DeVine became President. DeVine and Langdon did not agree on coal rates, and finally, Langdon gave up and went to the Rock Island. But that was all because of -- Langdon wanted to cut coal rates to the east.
BB: And that never happened?
HW: That never happened, no. Langdon left. The end.
BB: And they didn’t carry on in his name to try to get it done?
HW: No, no.
BB: So, there was a time when you were going to the board meetings when Eaton was the Chairman of the Board.
HW: Cyrus Eaton was the Chairman of C&O. He had taken control when Robert R. Young decided to go to the New York Central. And so Eaton was an industrialist in Cleveland, became Chairman of the C&O board, and Cusick would take me to the board meetings occasionally, because I had a lot of the underground -- underlying financial data. And Mr. Eaton got used to me and said, Young man, why don’t you just stay and sit here and be quiet and listen. So that was when I was first exposed to Board of Directors meetings, yes.
BB: Did you enjoy the opportunity to listen?
HW: Oh, very much. Very much. That -- for -- I was Vice President of Finance then, but I was still -- was over-awed at the -- all of the Directors and things. Because these were the real bosses.
BB: Was it a big board?
HW: I think there was maybe nine. Nine people on the board.
BB: Oh. that’s relatively small.
HW: Relatively small, yeah. And a lot of them were Mr. Eaton’s --- His son was on the board. His son-in-law. His banker from Washington. Head of the Cincinnati Inquirer newspaper that Eaton had supported, and one or two others. So it was pretty well an Eaton-controlled board.
BB: And there was a time when you were asked to sort of investigate all those interconnections?
HW: Later. Later, when I -- after I became president, certain members of the board, including Milton Eisenhower, who was president of Johns Hopkins, Larry Kimpton who was chancellor of the University of Chicago, those two in particular somehow heard that Eaton had a lot of his staff on the railroad payroll. And they asked me if -- again, I was -- by that time I was president, and they asked me to investigate it, and I did. And found out that ten people on Eaton’s staff were on the railroad but not doing any railroad business whatever. Now, today, that would have been --
BB: Red flag.
HW: That would have been terrible, but at that time it was, I guess, not unusual. So I reported back to the… Mr. Kimpton and Mr. Eisenhower and the committee, and they said, Well, we just can’t do that. So let’s have a meeting, our committee with Cyrus Eaton, and tell him something has to change. So we set up a meeting. The committee with me and Cyrus Eaton. A week before the meeting was to happen, one member of the committee was Eaton’s son-in-law, so he came to me and said, I can’t be involved in this, a family deal, so I’m not going to attend the meeting. Three days later, Mr. Eisenhower called and said, I’m not able to attend the meeting, so you and Mr. Kimpton should go on and tell Mr. Eaton what the problem was.
So the meeting ended up with three people: Kimpton, Watkins, and Eaton. When we got to the meeting, Mr. Eaton said, Now, what’s this all about? Mr. Kimpton said, bless his soul, Hays has something to tell you.
BB: [Laughs] And that’s the first you hear of it.
HW: That’s the first I heard that I was to be involved. So I explained to him that this board committee had felt it was not proper for all these people to be on the railroad payroll, so they should be taken off the board. Eaton was highly offended, said, I’m a Chairman of the Board. We’ll do what I say, and walked out of the meeting.
I reported back to the committee. The next week the committee called a special board meeting, voted Eaton out as Chairman, and Watkins in as Chairman.
BB: Did you know they were going to do that?
HW: I didn’t know they were going to do that, no. So when Eaton, Mr. Eaton’s office on terminal tower were on the same floor, 36th floor, he in one corner and I in another corner. The next day -- that was on Saturday. The board meeting was on Saturday. On Monday, Eaton came into my office -- he had never come into my office before. I always went to his office. But he came to my office and said, You can’t fire me as Chairman, I’ll sue you and I’ll get rid of you. So, I said, Yes, Mr. Eaton. That’s about all I could say. Then I went back to the committee. The committee said, Well, we’ve done it. Let’s see what happens.
Two days later Eaton’s lawyer called and said, Mr. Eaton will accept the edict of the committee and will take these people off the payroll, but he’d like to stay on the board, and receive a salary, and have an office staff on railroad payroll. I said, Fine. I said, How much do you want? His lawyer said, I think maybe 60 thousand dollars a year would be appropriate -- which was a lot in those days -- and a staff of four people. I said, No, that’s just not possible. It’s too expensive. So he went back. Three days later he came back and said, Mr. Eaton can accept that, but he’d like a salary of 30 thousand and two associates. And I said, No, we will give him one associate, a secretary, but no salary.
Two weeks later we had another board meeting. Mr. Eaton was invited to the board meeting. The committee decided they would elect Cyrus Eaton as Chairman Emeritus, with a staff of two, and stay on the board, and we lived happily ever after.
BB: Now you had a reasonably cordial relationship with him before all this transpired?
HW: Yes, yes. Oh, yeah.
BB: So, did this disrupt that entirely, or…?
HW: After we had the love feast, and he got back on the board, he was as pleasant as ever, for the rest of his life. And he stayed on the board until he was ninety-five. And he was a very valuable member of the board. It was as if nothing ever happened. But that was Eaton. Eaton, in his lifetime, had made and lost more fortunes than anybody ever dreamed of. He was an associate of Samuel Insull in the utilities in Chicago.
HW: He formed Republic Steel back in the ‘20s. He had all sorts of investments, but he was used to playing rough. And when he won, fine, and when he lost, fine. And it was as if nothing ever happened.
BB: Now, Chessie ended up controlling the Southshore Railroad, which was an Insull company at one time --
BB: Was that --
HW: But Insull was gone by then.
BB: Right, but was that related to that relationship?
HW: No, no it was -- it was just because Bethlehem Steel was one of Chessie’s largest customers. Bethlehem Steel had a steel mill in Northern Indiana served by the Southshore. And we figured this would be a way to handle Bethlehem Steel coal mines on the C&O to their steel mill at Burns Harbor, Indiana. So we made a play for the Southshore.
BB: Okay, so in the late ‘60s -- ‘68, ‘69 -- Pennsylvania / New York Central gets created, which looks like it’s going to be this mega deal, and not a mega flop that it turned out to be…
HW: Right, right.
BB: As that was coming together, what was -- what were the things you were thinking about and doing at headquarters?
HW: I think everyone was concerned that Pennsylvania / New York Central would be a giant enterprise that would swamp every other railroad in the east. So, I don’t know what the initial impetus was, but Walter Tuohy of C&O, and Herman Pevler of the Norfolk & Western, decided that maybe they should talk about creating a system that would be equal to Penn Central. And so that started in December of 1964. We all went to New York and had a press conference. C&O and N&W announced they were going for a merger. That -- studies went on from ‘64, ‘65, ‘66, Penn Central was still building up steam at that time. We finally got to the place where merger terms were agreed. Ten Norfolk & Western and six Chessie people would be on the new board, so N&W felt they were the majority holder. I felt that Chessie had good people, and that in time we would do alright, so I was in favor of the merger.
We studied merger savings, found that there were a lot of savings that could be made, and when you looked at a map, C&O / N&W, together with the small eastern railroads -- Erie Lackawanna, Redding, Central New Jersey -- would be a system essentially equal to Penn Central. About the same number of cities were served by each system, and there would be a true competitive two-system east. And so we went along with that. Tuohy died in ‘66, Greg DeVine took over, but the studies continued: ‘67, ‘68.
We had hearings before the Interstate Commerce Committee -- Commission. I think the ICC would have permitted it, but by ‘69, Penn Central was having problems, financial problems. By early 1970 it was obvious that Penn Central was not going to make it. I remember having a meeting with DeVine in early 1970 saying Penn Central is not going to make it. He said, You’re completely wrong. They’re too big to fail. They went bankrupt in May or June 1970. And when they went bankrupt, that essentially ended the C&O / N&W merger. We went through the motions for another year, but DeVine finally called it off in ‘71. But…
BB: You just didn’t think you’d get approval for it?
HW: I don’t remember whether the ICC approved it or not. I think they would have.
BB: Why did he call it off then? Because it sounds like a sensible merger.
HW: Because without Penn Central, there was no reason to have a competitive system. And we didn't think that the ICC would approve it if Penn Central was bankrupt.
BB: So, you know, it’s really interesting -- much easier now, looking back, but to take -- the New York Central was not financially strong…
HW: That’s right.
BB: I don’t know, the Pennsylvania probably wasn’t a whole lot stronger, and the New Haven was in terrible shape.
BB: One of the VPs used to say, We have vast problems and half-vast solutions…
BB: And yet somebody thought it was wise to dump the New Haven in onto this troubled system, too, and you wonder: what was the thinking? Why didn’t people foresee the fact that this thing had so many problems? The labor agreements were not favorable. I recall that the size of Penn Central at the time of the merger was around 130,000 employees, and I think when Conrail was finally filleted between NS and CSX, they were down around 20-23,000. So it was a huge transition.
BB: Why do you think people could -- you seem to have thought this wasn’t going to work. How -- how did everybody else --
HW: Well, the one thing that tipped me off was, early in 1970, Penn Central was not able to sell its commercial paper. Commercial paper was a financing system that railroads used for short-term financing. And it worked for years and years. But when Penn Central couldn’t sell commercial paper on the market, seems to me that was the tip-off. And that’s the basis on which I told DeVine, They can’t make it. And he said, They’re too big to fail.
BB: I’ve heard that phrase before.
HW: [Laughs] Yeah, that’s right. That’s right.
BB: So, so with that mess in the northeast -- because that tipped off Erie Lackawanna and C&J and Redding and everybody, basically --
HW: Everybody was bankrupt.
BB: Right, and I guess there was talk of nationalization.
HW: Right. There was, very much.
BB: And were you involved in any of those discussions at the AAR [Association of American Railroads] level?
HW: At the AAR level, and also at various committees. Brock Adams, Jim Florio, House and Senate had a lot of hearings on nationalization, yeah. I spent a lot of time in Washington with our Washington representatives talking to these people about what can be done. William Coleman was Secretary of Transportation, and his idea was that, rather than continuing Conrail, we’d split it up between N&W and C&O, and that was when we had the meeting, [John] Fishwick and I with Coleman, and he offered us the 500 million cash and 2 million -- 2 billion in loans, each of us, if we would split Conrail between the two of us. And I was ready to go, Fishwick said, No way. He wouldn’t have any part of it.
BB: Yeah. He never liked the Northeast.
HW: He never liked the Northeast, no. So he was the one that put the kibosh on that. So then, the 3R Act and then the 4R Act, which created Conrail, and then they brought Ed Jordan in, insurance man, who was not the right man to run a railroad. And then we went through the several years of Conrail’s problems until Conrail brought Stan Crane in. Crane got Conrail started, got it back on the track…
BB: Yeah. So to speak.
HW: He ran it, and then Jim… Jim...
HW: Hagen, yeah. Mmmhmm.
BB: Did you know Stan Crane?
HW: Yes, very well.
BB: I presumed you would.
HW: Yeah. He was -- he was rough, but he was able. Very able financial man. Ran a good railroad. Southern was an excellent railroad, and he ran it well.
BB: I bumped into him in Penn Station in Baltimore one day, and he was -- he’d retired, and he was still dressed like the chairman, briefcase and all. I don’t know where he was going, we just chatted for a minute. But, you know, he maintained his eminence in retirement.
HW: Yeah, he was lord and master. But he earned it.
HW: He earned everything that he got. And he did a great job in rescuing Penn Central.
BB: And you got to the top of the heap without ever having to be a trainmaster, division superintendent…
HW: I was rare because I came up through finance, that’s right.
HW: And I always liked to ride trains. I was -- after I became president, I used to ride the inspection trains everywhere, so I’ve been over almost every mile of Chessie and almost every mile of CSX.
BB: Did you ever ride freight trains, as well, to just interact --
HW: No, just --
BB: Just the inspections.
HW: No, the inspection trains… mostly the inspection trains. Sometimes in the rear car, sometimes in the locomotive. But I enjoy -- always enjoyed that.
BB: So, how did you -- with all of this going on in the Northeast -- you started to really stitch together what became family lines and CS -- eventually -- CSX. Can you take us through that period?
HW: After Penn Central failed and C&O / N&W failed, there was a period where there was little activity, and one day at an AAR meeting, Ben Biaggini of the Southern Pacific came up to me and he said, Have you ever thought about getting our railroads together? And I said, no, I really hadn’t, because we didn’t connect anywhere except St. Louis, so it really wasn’t very logical for Chessie and Southern Pacific to get together. So he said, Well, let’s think about it. So we had a couple of meetings and then decided that, the one railroad that could have tied the two systems together was the Rock Island. Rock Island was right in the Midwest. Both of us connected several places with it. So we made some studies with the Rock Island, but we found that the Rock Island by then was --
HW: -- In its last legs, and it was just a quagmire. We just couldn’t afford it. So we went back to the drawing boards and looked at our maps and said, Well, maybe we need a Southeastern Railroad. Either the Southern or the Coast Line, of the Seaboard Coast Line. So when you put one of those two roads with Chessie and Southern Pacific, it made good sense. You covered most of the South, the West. So we called Tom Rice, of the Seaboard Coast Line, said, Would you have any interest in talking? And he said, Yes. So we had several meetings, Biaggini, Rice, and Watkins, about putting the three railroads together. And the more we studied, the more it looked good.
So we got to the place where we either had to make some announcement, or be quiet. So, at a meeting in Cleveland, Terminal Tower, let’s each of the three of us see what part of the new system we should have. And I’d figured that probably Southern Pacific 40 percent, Chessie 30 percent, Seaboard 30 percent, which would have made a hundred. Biaggini said, No. I want 55 percent or I’m not involved. He said, You all can separate -- split the rest any way you want to, but I have to have 55 percent. And Rice and Watkins said, No deal. So that broke it up.
Then, Biaggini, at that time, was enamored with the Sea Board, so they bought 10 percent of the Seaboard stock in the open market. And then when Biaggini went to Rice and said, Now, let’s merger -- let’s merge, Rice wasn’t very happy, but he didn’t have much choice, so they studied putting those two together -- see, as Chessie was on the sidelines then.
BB: Did you know that was going on?
HW: Yeah, I knew it was going on. Well, Seaboard -- I mean, Southern Pacific had bought 10 percent. So it was obvious what they were in favor of. I knew Rice was not much in favor of it, but he didn’t have much choice, since Seaboard -- Southern Pacific was their largest stockholder. That went on for about a year, and finally, at the Seaboard annual meeting, Prime Osborn and Tom Rice announced they would not merge with the Southern Pacific under any dealings, and they called it off.
A week later I called Tom Rice, and said, Now that Seaboard is not talking to Southern Pacific, would you have any interest in talking with Chessie? He said, I don’t know. But he said, Why -- that was May -- Why don’t you come to Richmond? We’ll have lunch and see what -- talk about it. So on June the third, I came down to the Commonwealth Club, had lunch with Tom Rice, and I brought up the subject again as to whether we might find some common interest. He said, Let me think about it. That was June the third. He said, I want to talk to Prime, because Tom was about ready to retire, and Prime would take over. That was June the third. He said, I’ll -- let me think about it, and I’ll call you. Didn’t hear anything in June. Didn’t hear anything in July. Finally, I called Tom end of July, and I said, I’m waiting two months and I haven’t heard anything from you. He said, Well, Prime has become the president -- Tom became the Chairman -- and so let’s get together sometime in August and see.
So we set up a meeting with Jim Price from Baltimore, who was the Chessie director, Mike Kelly, who was the Seaboard director, at Mike Kelly’s place on the Eastern Shore sometime in late August, and we spent the day -- two from Chessie and three from Seaboard. And it seemed like there was some interest, but not much. But enough that there was some merging -- the big attraction was that there was no overlay. It was strictly an end-to-end merger. I think there was one line between Lexington and Winchester, Kentucky. Twelve miles was the only duplication in the entire 25-thousand-mile system. So we agreed that we’d have another meeting in September.
So we had another meeting, the same people, at Mike Kelly’s place on the Eastern Shore. We spent all day, never got anywhere, and that was when I made the suggestion, Look. Let’s split everything down the middle, 50/50. Equal board. Equal officers. Everything. 50/50. And that did the trick. And from then on -- that was September of ‘78 -- we went through the hearings and got approval and merged on November the first, 1980. But the 50/50 was the --
BB: Was the trick.
HW: Was the thing that did it. They were a bigger system. Had more miles, more employees, but we were financial -- Chessie was better financially off. So, it worked out well. The rest is history.
BB: I wanted to back up just a minute to when you got the call in ‘71 from Cyrus Eaton that you were going to succeed Greg DeVine as the new boss in town. Can you just amplify on that a little? Because that’s a pretty interesting story, I think.
HW: I think it was February of ‘71, and I had gone out of the office to the office of our auditors, Peat Marwick Mitchell, there in Cleveland. I don’t know what it was about, something about the audit. And Cyrus Eaton called me -- found out where I was -- called me at the Peat Marwick office, and said, Greg DeVine will call you and tell you that he has selected you as his successor, and I wanted to let you know that I made the selection, and I wanted to tell you first. So help me. And so, I said, Thank you Mr. Eaton. That’s wonderful. Went back home -- went back to the office. Next day, Greg DeVine called me up to his office, said, I just wanted to let you know that we have decided that you are going to be my successor, and I wanted you -- We will go at the April board meeting -- it’s now February -- I just wanted you to know that you’re in line to be my successor. I said, Thank you, Mr. DeVine, that’s fine. And I never told him about Eaton’s call. I never told Eaton about DeVine’s call, but Eaton wanted to make sure that --
BB: He got the credit.
HW: He got the credit, yeah.
BB: Did -- do you know, were there any other internal or external candidates, or were you basically it?
HW: The other candidate, which DeVine favored, as a matter of fact, was Vernon Cowan. C. Vernon Cowan, who was the Execut -- Vice Operating -- Chief Operating Officer. And -- head of the Operating Department -- who had an office in Cleveland, when I became President, I moved him to Cleveland, made him Executive Vice President. He had essentially the whole thing, and Greg DeVine was his supporter. And Greg had wanted him as the President. But Eaton wanted me. So we were the two candidates.
BB: Okay. And they never looked outside at all? I mean, today, you know, you get complaints if you don’t do that.
HW: As far as I know, we were the only two, yeah.
BB: Okay. Okay, so in 1971, Amtrak comes along and relieves the railroads of this massive burden of passenger losses. Leading up to that, obviously you must have had some discussions with the federal officials and so forth about --
HW: Yes. There was quite a discussion between the AAR board and government officials about taking over the passenger service. Some of the railroad presidents were in favor, some were against it. Graham Claytor, for one, on the Southern, wanted to run his own passenger service. But most of us were very happy to get rid of the passenger burden. So finally, after a lot of discussion back and forth, Amtrak took over -- I think our payment was two years deficit that we paid in, and so we --
BB: Plus the equipment? You had to contribute equipment?
HW: We had to give the equipment, yeah. Mmhmm. Gave all of our equipment. Amtrak used some of it. Roger Lewis became the President of Amtrak, who was an airline individual, and he had terrible problems the first winter, because he didn’t know what to do when the cars froze. But Amtrak survived, still survives -- still loses…
HW: Six or eight hundred million a year, yeah. But we were very happy to get rid of the passenger service.
BB: It’s interesting that they used to report operating ratio for Amtrak like everyone else in the freight side does. And they -- a number of years ago, they switched,
and they don’t report operating ratios --
HW: Oh, they don’t do that anymore?
BB: No, they report revenue recovery or some other metric that doesn’t look quite so appalling. It’s just a tough -- a tough business.
HW: It is. It is. Again, passenger service has to be a national priority, but it can’t be profitable. There’s just no way for it.
BB: Nowhere in the world is it.
HW: Nowhere in the world it is, that’s right. Most places you have nationalized systems; we have sort of a hybrid system.
BB: Right, the worst of both. [Laughs]
HW: Worst of both. Right, that’s right.
BB: So, in ‘73, you created the holding company, the Chessie holding company.
HW: Yes. Yes, we decided… I think Illinois Central was the first railroad that went that route, and several others did, so we decided we would create a holding company in case we could find any ways to get involved. And so we came to Richmond and appeared before the General Assembly, and they passed a bill allowing us to have a holding company.
BB: And the governor was Holton at the time?
HW: Governor was Hol -- Lin Holton, mmhmm.
BB: And his brother was -- I worked at Norfolk & Western at the time, in operations planning, and his brother was in the operations planning group.
HW: Oh, was he? Oh.
BB: Vah Holton, yeah. Small world. So when you create the holding company, is there a design in your mind, or the minds of your people, for what they -- what you were going to do with that?
HW: No, no there really wasn’t. We just wanted to have the opportunity in case anything came along, and something did. Texas Gas Transmission came along; we had a chance to get together with them about that time. So that’s when we acquired Texas Gas.
BB: So, there’s a time a little further down when John Hanifin was president, and there was some consternation in the ranks with -- at least the ranks of the board.
HW: When Eaton was voted out as Chairman, and I was moved to Chairman, John Hanifin, who had been our Executive Vice President, was moved to President. John was a very able individual, very intelligent, but had strong views about things. When we were working with the government on what would be the future of the Penn Central, or Conrail, part of the idea was that Chessie would acquire the Erie Lackawanna, and the Southern Railway would create -- would acquire part of the Penn Central line over in the Delmarva peninsula. And we worked with the federal official and the Erie Lackawanna, to see if we could find a way for Chessie to acquire Erie Lackawanna. When we found that it might work, depending on labor agreements, we brought it to the Chessie board. Hanifin didn’t think it was a good idea, and he expressed himself to the board, to the extent that he waved his finger at them and said, I’m the President of this Railroad, and we should not do this. When the board meeting was over, I said, John, you went a little too far with the board, but we’ll wait and see.
That night I had several calls from board members saying, We don’t like to be lectured to by anyone, Hanifin or otherwise. So you have to do something about it. So the next morning, I asked the Vice President of Law to join me. We went in Hanifin’s office and said, John, the board has decided that you should no longer be with the board, so I’m terminating you right now. And he got in a huff and left, and that was the end of it. He threatened lawsuits, did all sorts of problems, but he just had an overwhelming personality that said that he had to be right, or else. And it was the else.
BB: In that case, sure. So who succeeded him?
HW: No one succeeded him in that job. I took over as President as well as Chairman and stayed that way until CSX was formed.
BB: So, there’s a time when you utilize John Snow as your DC rep.
HW: Yes, he --
BB: How did that -- how did that come about and how did you find him, and pick him to do that?
HW: [Clears throat] I didn’t find him. Our -- B&O’s representative, and then later Chessie, was a fellow named Charles Van Horn, who was an old pro in Washington, knew his way around, been there for years and years. In fact, Charlie’s father had been, I think, Vice President of Operations of the B&O. So, he was well aware of B&O. When he retired, he suggested John as his successor. I don’t know the background of that, but he felt that John would be a good successor. John had been deputy something in the highway section of the Department of Transportation, so Charlie recommended him, and we accepted it. So that was pretty much it.And then he stayed in that job for a couple of years, and then we -- when CSX was created, we brought him to Richmond and replaced him with Woody Price, who was our Washington assistant there, and then John stayed in Richmond as, really as my assistant, almost from the beginning of CSX.
BB: Okay. It’s an unusual path to the leadership to come out of lobbying and government affairs.
HW: It is. It is. It is, but John was able, and then we later on moved him to Jacksonville as the head of the Operating Department, to give him some operating experience. And then brought him back as President. It is an unusual path.
BB: And then -- I’m probably a little bit out of order here, but one of the things we were talking about earlier was your relationship with Prime Osborn when you put the two companies together...
BB: Was a very close and collaborative relationship.
HW: Very much.
BB: The antithesis of Stuart Saunders and Al Perlman.
HW: Exactly. Exactly.
BB: Maybe you could talk a little bit about that.
HW: Well, we had seen the problems of Stuart Saunders and Al Perlman, so Prime and I decided early on that we had to find ways to work together, and he’s a very
-- was a very engaging individual, very able, so we didn’t have that much of a problem working together. We hit it off very well.
BB: So, when deregulation surfaces, the reactions across the industry were varied. I wonder if you --
HW: They were.
BB: -- could give your point of view on that.
HW: Most railroad people were concerned about deregulation, and how -- whether the railroad industry could survive with free enterprise, and I guess I was one of the very few that expressed my opinion at the AAR that we oughta try it and see. In fact, we had several staff meetings within Chessie about deregulation and our Vice President of Sales, Vice President of Marketing, said, No, we’ve got a good system. We have the rate bureaus and we have -- we have a good system. Let’s keep it as it is. And so, finally, we got to a vote, of -- as to whether we favored deregulation. I think the vote was two to ten, and I was one of the two.
BB: So it carried.
HW: So it carried. [Laughs]
BB: Yeah, that’s a…
HW: And our people had a hard time getting used to it, but I think it was the savior of the industry, really. I don’t think railroad industry could have avoided nationalization without deregulation. It just could not have happened otherwise.
BB: Think you’re…Think you’re right about that.
BB: The -- I mean the rail -- the renaissance of the industry really stemmed directly from that --
HW: Absolutely. Absolutely.
BB: It just --
HW: There were a lot of fits and starts, and we had a -- we had some problems with so-called captive customers, but it all worked out in the end, yes. Mmhmm.
BB: I recall, I was at Boston & Maine at the time, we were very much in favor of it, having suffered through bankruptcy for a long time, and I -- we had the opportunity to start a truck line, similar to what CMX [Chessie Motor Express] did, and, well, for Chessie -- I recall talking to our counsel for our trustees and saying, I don’t know what we can do or what we can’t do. Your job is to keep me out of jail. We’re going to go do this.
BB: And it was experimentation.
HW: Mmhmm. Yeah.
BB: We didn’t really know the limits of what we could do, so we just kept pushing the envelope. And it really rescued the company.
HW: Oh, it, no question it rescued the whole industry. No question of that.
BB: You make a comment in the book that having a flexible operation and having flexible people is important, but you don’t get the first without the second. Flexible, creative people who are upbeat and looking for opportunities get you a flexible operation. And the industry is not known for its flexibility and --
HW: That’s true.
BB: -- and nimbleness. So how did you foster that?
HW: Well, first, you look for good people. Then you give them a challenge to find better ways of doing things, and then you leave them alone and let them do it. And they either succeed, or they’re replaced. So, I’m a firm believer that the key to any success is finding able people and letting them do their job. And that’s my philosophy all my life.
BB: Not one that was common in this industry.
HW: [Laughs] No.
BB: At least not historically, even more so...
HW: No, particularly in the operating department, that’s true. Yeah, well, too many traditions, too much, We did it this way last year, so we’ll do it again next year.
BB: Well, I think -- and there was a culture, too, Failure’s not an option. If you try something new and it doesn’t work, you’re punished for it.
HW: That’s right. That’s right. Well, there had to be a certain amount of discipline, because the trains had to run on time. There was very little room for error, very little margin, so I can understand how that philosophy took over. It just went to excess. Yeah.
BB: So, you started to diversify into things like fiber optic.
BB: Not into the business, but to providing right-of-way for it.
HW: Yeah, we -- a company called Southern New England Telegraph -- Telephone came to us and asked if they can use our right-of-way for fiber optics. And it was a bonanza, for them and for us. And MCI [Microwave Communications, Inc.] was the successor of Southern New England, and it worked very well. I remember a fellow named Bill McGowan, who was the head of MCI, saying, We’ll never get anything done with you railroaders. I said, Wait and see. And I had the pleasure of putting his words back in his mouth when he made an agreement to put fiber optics along our lines. And it was -- it was a great help for us. Gave us money, and the right-of-way was there, and, why not use it?
BB: So, how did you decide how much to charge for the use?
HW: I really don’t know. I --
BB: Somebody else did the numbers?
HW: I really can’t answer. I don’t know. I don’t know. We found a figure that everybody agreed on, but I don’t know where it came from. I didn’t develop it.
BB: You were one of the first. I know the SP got into the fiber optic business, as well, but you guys were among the first to actually --
HW: Yeah. We were. Mmhmm.
BB: -- to do the thing. Probably didn’t have much of a precedent to go by. And then, you started to diversify into the barge business, and then ultimately with Sea Land you’re now in the ocean carrier business.
HW: Yeah. We -- well, my idea always was that we’re a transportation company, and there’s no reason we should stick to one form of transportation if we can find other ways to develop. So we got into the barge line business. Then we got into Sea Land. But we found out after a period of time that really, there’s not that much commonality between different forms. There is, of course, between trucks and piggyback -- carrying trucks on trains -- but as far as barge lines to railroads, or ocean shipping to railroads, there’s really not that much commonality as I thought there should be.
And we finally ended up realizing that most forms of transportation are capital intensive. And when you have so many units that are capital intensive, you have a problem, because you just can’t cover them all. And that’s why we decided after several years that we probably ought to go back to sticking to what we know the best. And so we got rid of the barge lines and the pipeline, and then made a good deal with Maersk for Sea Land, and ended up being a railroad.
BB: Again, yeah.
HW: But I still think there ought to be some common interest, but there wasn’t. I was wrong.
BB: Yeah, well I think -- I understand conceptually what you were trying to do. When I look at the shipper side of it, I think maybe the presumption was they were more sophisticated and could see the benefits of it, and they didn’t.
HW: Oh, yeah, well… I don’t know. I really have thought a lot about that, but it just didn’t work out for us. And maybe it works for some people, but it didn’t work for us.
BB: Yeah. Well, the railroads have had difficult challenges diversifying into other businesses.
BB: Historically, anyway.
HW: Yeah. So we ought to stick to what we -- doing what we do.
BB: Yeah. You did restructure the company -- I recall when this happened when you put the mechanical equipment business unit together on the commercial side.
HW: We were looking for some way to put Seaboard and Chessie together in the early ‘80s, mid ‘80s. Because we had operated them as separate systems for several years, but we felt it was getting time that we should start getting them together. And we made a lot of studies about how we could structure the company without offending everyone.
HW: And our consultants came up with the idea, Let’s group by function rather than by geography. And so we-- let’s go to Sales, let’s go to Operations, and let’s go to Mechanical. And it sounded like a good idea. It was revolutionary. Nobody thought it would work. But we restructured and everybody was so upset that they forgot whether they were Chessie or Seaboard and everybody worked together. But the biggest benefit was in the mechanical area where, the mechanical department had sort of been a stepchild furnishing whatever the operating department wanted. And so we decided, Let’s make mechanical a separate cost center, and let’s look at the economics of having a viable, profitable, sensible mechanical area, regardless of what sales and operations wanted.
And it worked. We made many savings on consolidating our fleet, standardizing things, and so by having these three groups, as I said, everybody forgot about their background, and then we ended up putting them back together as one railroad. But without that, I’m not sure how we would have gotten Chessie and Seaboard people working together as well as we did. People look back and say it was a mistake, but it was not. It was -- it did exactly what it was designed to do, and that is, find ways for people to work together on similar interests. And it’s different, it’s new, but it worked.
BB: Interesting perspective on it. I thought it was clever in the sense that it made everyone accountable for their own set of numbers.
HW: Exactly. Exactly.
BB: And --
HW: And John Snow had experience -- got experience running the operating area, Jim Hagen with the -- first Dick Sanborn and then Jim Hayburn -- Jim Hagen with the sales part. Fellow named Dick -- Richard Leatherwood with the equipment. And it worked far better than anyone ever dreams.
BB: You also set up CSX Intermodal, which I thought was an innovative way to look at it, because it basically gave you access to a nationwide network beyond your own rails.
HW: Right, yeah. We had a lot of problems with intermodal. We had a trucker named Ernie Wright who started it, had a lot of pluses and minuses and a lot of false starts. But I’m convinced that’s the -- one of the bright parts of the future, is intermodal.
BB: And it took a long time -- I remember when I was asked to go from a marketing position into intermodal, which was then, historically been piggyback.
HW: Yeah. Mmhmm.
BB: And I remember saying to my wife, I don’t know about this. This could be a career ender. Because the operating department hated it.
HW: That’s right. That’s right.
BB: Yeah, and the pricing department didn’t like it because we were doing things that were not in concert with the rate bureaus, and so forth.
BB: But if you look at it today, and it’s the growth engine.
HW: It is a growth industry, it is. But it’s been a long, hard road.
BB: Yeah, well I always felt like we were the mavericks or the redheaded stepchildren out there.
HW: [Laughs] Absolutely.
BB: And that’s -- the worm has turned and now it’s -- you know, it’s mainstream business.
HW: That’s right. Yeah.
BB: So, you at some point, then, bring John Snow in to actually -- you’re grooming him to be the next Hays, right?
BB: Now, did you -- did you have other candidates you were thinking of? Or was he pretty much the guy you had settled on as the next leader?
HW: I would say he was the most logical successor. We had other people -- Dick Sanborn, who later went to Conrail, was an excellent operating man. Jim Hagen. But I guess John was sort of a logical -- the logical successor. I’d worked with him long enough that I knew his strengths and his weaknesses. He was not a nuts-and-bolts man, but he had great ideas, had an economic background, so we thought probably he was the best logical choice.
BB: And you present that to the board, and they concur?
HW: I present that to the board.
BB: Yeah, and they didn’t say, Hey, have you got anybody else for us to look at?
HW: They may have, I don’t know. I used to talk to a lot of board members from time to time about various people. I don’t remember anyone questioning whether he was the one or not.
BB: Yeah, okay. One -- this is a little off that track, but B&O and C&O actually merged in ‘87.
HW: Yeah. Yeah.
BB: What tripped the decision to go from affiliated to actually --
HW: Well, B&O, for many years was exempt from any taxes in the state of Maryland. And that’s why B&O was kept as a separate company as long as it was. And so it got to the place that there was not that much advantage to keeping B&O separate, so we finally put it all together. But it was that tax exemption for many years that kept it apart.
BB: So, you retired in ‘91. Forty-two years of railroading.
BB: Was that a big -- it had to be a huge shift emotionally and intellectually.
HW: Uh --
BB: Or were you just ready for it at that point?
HW: In ‘89, I was visiting our son, their place in Michigan, and I fell and broke my leg. So I was out of commission for several months. First at home, and then with a cast. And Snow had taken over more and more by then. ‘89 -- that was August ‘89, and then ‘90. So, I think by the end of 1990, I was ready. I had had this enforced rest, if you call it that. I worked from home a lot, and the secretary would come out every day, or every other day, and get my instructions or write letters, and so on. But I think the broken leg really was the thing that made me ready for retirement, yeah.
BB: Interesting. Interesting timing. I want to spend a little bit of time on the B&O museum because you were -- I think it was another one of those close two-to-ten votes where --
HW: Two-to-ten votes. The B&O museum is -- was a priceless asset, but was getting expensive, and in the ‘60s the roof was beginning to fail, and it would cost, I think, a million dollars to place the roof. And this was, I guess, ‘71 when we had the coal strike, just after I became president. And spending a million dollars on a museum roof was not a very good idea.
HW: We had laid off people. We had eliminated our dividend for the first time in fifty years, and so we had had a full day staff meeting about what to do with the museum. Finally, we got to a vote, and the vote was two to ten in favor of keeping the museum. The PR guy and I were the ones that voted yes, and so we --
BB: You were able to save the day.
HW: -- spent the million dollars. Then we decided that, really, the museum really ought to be a separate entity. So we set it up as a separate operation. I think we gave them a five-million-dollar endowment, and a lot of the old records and stuff, and set it out on its own. And, which it is today, and which I’m very proud of.
BB: Yeah, it’s a marvelous institution.
HW: It’s a wonderful place. And they’ve done a great job there.
BB: The other key element that was part of the company for a long time was the Greenbrier.
HW: The Greenbrier. And this was really the heart wrenching decision, but it was after my time, and the Greenbrier was not producing much income, and so John Snow and his associates decided it was time to sell it. So, they did it. I didn’t. I’m not sure I would have --- would have ever done it. I should have, because it’s -- we have no business being in the railroad business in hotel business, because initially the hotel was bought was to bring passengers on the railroad. And once that day had passed, why it was time to leave. But I’m not sure I could have ever done it.
BB: So one tidbit was the government bunker.
HW: The government, yeah. I was the Treasurer at the time, and I was the only one outside of the President and one board member that knew about it. So I used to get the government -- twenty-five thousand, later fifty thousand -- called dormant rent, and I’d take it to the bank and deposit it for the White Software Company.
Only cash I ever held in my hand, for the railroad, and I was Treasurer for several years.
BB: As the Treasurer [laughs]. Is that facility -- is that still there?
HW: The facility is still there. If you’re at the Greenbrier, you can take a tour.
BB: Oh, you can? So it’s no secret anymore.
HW: No, it’s no secret anymore. The Washington Post revealed it, I think, sometime in the ‘90s. Yeah. But it’s a complete city all by itself. Has its own power plant. They could have kept Congress there for weeks without ever coming above ground.
BB: May not be a bad idea [laughs].
HW: [Laughs] Well, I don’t know.
BB: So, your management philosophy on growing resources and talent and pushing decision making down in the organization is something that was probably pretty novel for its time. I mean, the railroad industry was always sort of a militaristically organized and run --
HW: That’s true, yeah. But it was time for a change. And I’d always felt that you find good people and put them to work. And so, that’s what I tried to do. Didn’t always succeed, but I usually looked for the best people and put them to work.
BB: So, there was one comment you made that, You should never let your emotions cloud or overrule strategic business sense. It’s a luxury you cannot indulge. I thought that was a pretty insightful comment.
HW: That’s right. That’s right.
BB: And I think, you know, that seemed to be something that played a role in the disaster that became Penn Central, right? The personalities there…
HW: I think personalities, no question. No question. Because Penn Central should have been the home of the railroad industry today. Should be. Should have been. But you had two people -- Saunders and Perlman -- that just couldn’t learn to work together.
BB: Couldn’t accommodate. And you were able to do that with Prime Osborn to great effect.
HW: Oh yeah, yeah. Well. We had a good example of what not to do. That was exhibit one.
BB: [Laughs] So, just to wrap up, could you just spend a little bit of time talking about the book? What motivated you to do it? How did you do it? And…
HW: I don’t know. I just… I had had so many experiences with acquiring companies or acquiring people. Dealings with Mr. Cusick, Mr. Eaton, Mr. Hanifin, and the others. I just thought, I’d like to write it down for my own use, if not for anyone else. So Tom Hoppin, who was our Vice President of PR had an associate in the Jacksonville office that helped me, and we talked about it. And he said, Well, why don’t we write it down and put it in a publication or something? At least you’ll have it for yourself. So we did, and the more we got into it, we thought, Well maybe… maybe a few people might be interested in it. So we ended up with a book. Really, what sort of -- grew like topsy was not an intention to glorify anything. It’s just to… make notes while we remember things. So I’m not a John Grisham or David Baldacci.
BB: No, but it’s great to capture the thoughts and motivations and things that you did for posterity.
HW: Well, I -- other people had written their own thoughts, and so I thought I might as well write mine.
BB: Well, I can tell you --
HW: For what they’re worth.
BB: Yeah, I enjoyed going through it --
HW: Well, thank you.
BB: It gives everybody a perspective on the industry that you can’t get any other way.
HW: Well, it’s a -- it’s been an interesting life. Interesting career. I’ve been very fortunate. I’ve had good people to work with. I’ve had good health. Had a wife that helped me all the way through, so I have nothing to complain about.
BB: It’s interesting that the feeling I got reading the book, and also listening to your conversation here today, is that you were sort of on a glide path through your career. And things just happened in sort of an orderly fashion, one after another, where --
HW: I’ve always felt that whatever happens, happens for the best. And whether you are faced with something you don’t like, if you make the best of it, things will turn out well. I guess I’m an eternal optimist. But I’ve always felt that you do the best you can, and it will turn out well.
BB: So, if you had to say what the proudest moment, or moments -- you know, it’s not restricted to one -- if you said, What are the things that I’m most proud of in my forty-two years -- or ninety-five years, what would you put on that list?
HW: I think the creation of CSX as a modern progressive railroad, probably is the top thing. It could have turned out differently, but it worked out well. It’s provided employment for a lot of people, good service, and there’s been a lot of changes with CSX, but I think that’s my proudest moment.
BB: Not to end on a down note, so we’ll have to come back to the next proudest moment, but what are your biggest disappointments or things that were troubling to you during that period?
HW: I think the biggest disappointment was when Fishwick turned down Secretary of Transportation Coleman’s offer to split Conrail. I think that -- it could have saved so much money, and so much time, and so much suffering. I think that’s probably my biggest disappointment.
BB: Did you ever talk to him about that afterward, and try and convince him to --
HW: No, no. No, he was determined he wanted no part of it. And I’ve -- I don’t remember if I said that to him or not. I probably did. But... didn’t make a difference. Jack was a very strong, opinionated individual, and very able, but he was wrong there.
BB: Well, thank you for having us into your home, and for your time today. It’s really been a delight to --
HW: It’s been my pleasure. I’ve enjoyed it. I hope I haven’t talked too much about myself; I hate to do that. But it’s been a pleasure.
BB: No, it’s -- we need people like you to do that, so we have it for the record because, well, we’re transitioning into a new era, with the advent of things like autonomous vehicles and technology and so forth. And I think we need to keep a handle on how we got where we got, and what drove things.
HW: Well, it’s been an interesting life. I’ve been very fortunate. The Good Lord has been good to us. And I have no complaints. And I thank you for this opportunity. And thank you all.