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If ITT's internal growth had been entirely satisfactory, it is hard to see why the company would have gone to the lengths it did to acquire Hartford. Of course, the insurance company was a highly desirable plum. Last year it posted revenues of $1.3 billion and profits of $ 105 million, or 26% of ITTs operating earnings. In addition, insurance companies generate enormous flows of cash, and usually hold in their portfolios stocks that are worth much more on the market than it had cost to buy them. The acquiring company can reap easy profits by selling these stocks at their higher market value. Still, ITT took a quite uncharacteristic risk in acquiring Hartford over the Justice Department's initial opposition.
In May 1970, when the Justice Department's suit to break up the merger was still very much alive, ITT issued 2 1.7 million shares of preferred stock in order to pay for the company. It is committed to pay almost $49 million in dividends yearly on that stock to the former owners of Hartford. If it had been forced to give up the insurance company, ITT would have had to go on paying those dividends without having Hartford's earnings to cover them. That would have been a heavy drain on the cash Geneen would have had available to reinvest in ITT's other businesses. Possibly ITT could have arranged a sale of Hartford in some way that would have enabled it to get rid of the new preferred stock—and the need to pay dividends—but that would have been a long and difficult process.
At any rate, ITT executives decided to make an all-out effort to keep the Hartford antitrust case from even coming to trial. Geneen and ITT Director Felix Rohatyn, a partner in the investment banking house of Lazard Freres, sought out every available Administration official—Flanigan, Kleindienst and former Attorney General John Mitchell among them—to complain in private meetings about the Administration's antitrust policy. They succeeded, but at enormous cost to ITT's public image. That cost points to the most glaring flaw in Geneen's philosophy and system of management. It can easily produce the kind of surprise that all ITT's figures cannot warn against: the shock of discovering that there is an outside world filled with people to whom continuous increases in ITT profits do not necessarily seem the summum bonum.
ITT does not altogether lack political acumen. In both Europe and Latin America, it has wisely had its companies staffed—although usually not owned —by local citizens. Geneen leaves the local managers fairly free to set their own policies so long as their profit figures satisfy him. Says Frank Pepermans, a former Ford Motor executive who is managing director of ITT's Belgian telephone-manufacturing subsidiary: "At Ford, all policies were made in Dearborn. At ITT, I am not a Belgian working for an American company. I am a Belgian running one of Belgium's most important companies." In Latin America, ITT's profile before the Chile blowup was so low that Orlando Saenz, head of the Chilean equivalent of the National Association of Manufacturers, says, "I have a telephone in my house and it usually works. Until recently, that was all I knew of ITT."