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Spy Capitalism

Spy Capitalism: ITEK and the CIA

Jonathan E. Lewis
Copyright Date: 2002
Published by: Yale University Press
Pages: 336
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  • Book Info
    Spy Capitalism
    Book Description:

    What happens when the world of venture capital collides with the world of espionage? To find the answer, Jonathan E. Lewis takes us inside the executive suite at Itek Corporation during the Cold War years from 1957 to 1965. Itek was manufacturing the world's most sophisticated satellite reconnaissance cameras, and the information these cameras provided about Soviet missiles and military activity was critical to U.S. security. So was Itek. This intriguing book examines in unprecedented detail the challenges Itek faced not only as a contractor for the most important national security program of the time-the CIA's Project CORONA spy satellite-but also as a start-up company competing with established industrial giants.In telling the story of Itek Corporation, Lewis fills important gaps in the history of American intelligence, business history, and management studies. In addition, he addresses a variety of important themes such as the compatibility of secrecy and capitalism, the struggle between profits and patriotism, and the workings of power and connections in America. Lewis explores how Itek executives contended with myriad business problems that were compounded by the need to raise capital without revealing the complete truth about the company's highly secret business. He also presents for the first time information about Laurance Rockefeller's venture capital operations and his role in financing Itek, based on the financier's private Itek papers. The book is both a remarkable case study of a company at the heart of the American intelligence-industrial complex during the Cold War and a thought-provoking examination of the impact of the CIA on the capitalist system it was created to defend.

    eISBN: 978-0-300-12905-2
    Subjects: History

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
    (pp. 1-7)

    Could he save the company? In May 1962 it was a question that must have weighed heavily on Laurance Rockefeller’s mind.

    It was the most dangerous year of the Cold War. Assassins from the Central Intelligence Agency were stalking Fidel Castro, communist insurgencies in Laos and Vietnam were gaining momentum, and the moment of near Armageddon, the Cuban missile crisis, was just months away. Yet Rockefeller, grandson of the Standard Oil founder, John D., and younger brother of Nelson, was about to make decisions critical to the security of the nation. He didn’t hold elected office or serve in a...

    (pp. 8-24)

    May 14, 1944. Maj. Franklin Lindsay, aboard a British Halifax bomber, prepared to jump out of the plane into German-occupied Yugoslavia. Lindsay was a member of the elite Office of Strategic Services. Established in 1942 by Gen. William “Wild Bill” Donovan, the OSS was America’s wartime spy service. Lindsay’s mission was to join Tito’s partisans and fight the Germans from behind their own lines.

    The plane descended to a low altitude for the final approach to the drop zone. The time to jump arrived. Lindsay leaped through the small opening in the floor of the plane and into a 120...

    (pp. 25-45)

    The trajectory of Lindsay’s career, from commando to corporate consultant, was not unique. Just as the war redirected Lindsay’s life in unexpected ways, it had the same impact on others. Laurance Rockefeller, Richard Leghorn, and Teddy Walkowicz were all veterans who made essential contributions to the birth of Itek. Although they served their country individually, they reached a shared conclusion—technology and national security were now inseparable.

    Dwight D. Eisenhower had the same realization. For him, the Battle of the Bulge was the moment of epiphany. In late 1944 heavy cloud cover prevented Allied reconnaissance operations from gathering any intelligence...

  6. 4 SPUTNIK
    (pp. 46-63)

    On October 4, 1957, just days before Richard Leghorn closed his deal with Laurance Rockefeller, the Soviet Union launched the world’s first satellite into space. Sputnik weighed 185 pounds, measured about twenty-three inches in diameter, and did little more than go “beep.” Yet that lonely beep from outer space was enough to shatter America’s confidence.

    Within hours of Sputnik’s launch, a political uproar began. Republicans and Democrats alike were furious.¹ The national security of the United States, which appeared so impregnable, now seemed disturbingly fragile. The only solution, many concluded, was to spend more money on satellites, rockets, missiles, and...

    (pp. 64-78)

    Opportunity and little downside risk—certainly, that is how Richard Leghorn must have viewed Itek’s acquisition of the lab at Boston University. The opportunity was clear, the short-term risks seemed manageable, yet long-term dangers remained. The threats, hidden within the culture of the lab itself, were also the very qualities that Duncan MacDonald had worked so hard to cultivate over the years—unconventional thinking, willful self-determination, and independent thought. These characteristics, prized in a nonprofit research organization, would lead to unexpected outcomes within Itek’s corporate structure. If Leghorn failed to recognize these threats, his error was understandable. His focus was...

    (pp. 79-96)

    There was no holiday cheer for Henry Kissinger. During the 1957 Christmas season, while most New Yorkers were enjoying the city’s wintry beauty, Kissinger was hard at work carrying out Nelson Rockefeller’s orders. Kissinger’s mission was clear — complete the military report of the Rockefeller Special Studies Project as soon as possible. By New Year’s Eve, Kissinger’s job was finished, and the report was at long last ready to be released to the press.¹

    The Rockefeller Report, as it quickly became known, made headlines across America. The report was a call to arms. Its grim portrayal of America’s military establishment—mismanaged,...

  9. 7 PUGWASH
    (pp. 97-102)

    The same day that Walkowicz wrote to Laurance Rockefeller at the Caribe Hilton, Richard Leghorn arrived in Canada as U.S. delegate to the Second Pugwash Conference of Nuclear Scientists. Pugwash was a peace movement with a highbrow pedigree. Bertrand Russell, an early advocate of conference meetings between Western and Soviet scientists to reduce world tensions, was the inspiration for the cause. For nearly a decade after the atomic explosions at Hiroshima and Nagasaki, he had warned the world about the cataclysmic consequences of nuclear war.

    By 1955 Russell had drafted a manifesto that was nothing less than a call to...

    (pp. 103-121)

    On April 9 Richard Leghorn was back in the office after “ten days of ‘negotiations’ with the Russians in Quebec.” Over the next few weeks Leghorn had a lot of work to get accomplished. Once the Vectron merger was out of the way, he was going to have to focus on building a new board of directors. Now that Laurance Rockefeller was no longer the only major investor, the other major shareholders would require board representation. Leghorn proposed that Elisha Walker Jr. represent the Long Island Company on the board, that James T. Hill sit in for William A. M....

    (pp. 122-141)

    In the first days of 1959 Richard Leghorn and the Itek management team put the finishing touches on a letter to the company’s shareholders. Nineteen fifty-eight had been a breathtaking year for the company, but as Leghorn’s letter made clear, 1959 was going to be even better.

    Leghorn’s plan for the New Year was confident, if not brash. First, he asked shareholders to approve a five-for-one stock split, a slight revision to the plan recommended just weeks earlier to the company’s board of directors. Then Leghorn explained that if the increase in authorized capital was approved, shareholders would be asked...

  12. 10 “AN EXCUSE TO SELL”
    (pp. 142-156)

    In July, while Itek bathed in the glow of national press attention and Leghorn worked on plans for his next acquisition, the entire CORONA project team continued its effort to get a spy satellite into space. Meanwhile, unknown to any of them, Eisenhower’s peace gambit began.

    In summer 1959 the press was filled with stories about the “new” Eisenhower. The aging general, fully recovered from both a stroke and a heart attack, displayed renewed vigor and enthusiasm for his job. Ike was getting ready for one last battle, one final campaign. His objective—secure the peace. In secret he invited...

    (pp. 157-175)

    Nikita Khrushchev wanted to be good host. In the first weeks of 1960 he put the finishing touches on the agenda for Eisenhower’s trip to the Soviet Union in June. Certainly, there was still the Paris summit in May to be successfully negotiated, but after his own triumphal trip to the United States in 1959, this probably seemed just a formality. In a January meeting with America’s ambassador to Russia, Khrushchev said that Eisenhower was free to go “anyplace in the Soviet Union,” even restricted areas. Ike’s welcome would be “friendly in the extreme.” Khrushchev would take Eisenhower and his...

    (pp. 176-186)

    The annual meeting of the National Federation of Science Abstracting Indexing Services was not the typical venue for an important speech. Nor was the location of its 1961 conference, Cleveland, usually associated with futuristic themes. Yet when Richard Leghorn rose to speak at the podium to deliver the keynote address, both unlikely scenarios materialized. Leghorn regaled his audience with tales of his trip to Moscow. He explained how freedom of information was linked with the future of disarmament. Then Leghorn turned to a new subject, the emerging information industry. Leghorn had written and spoken on this theme in the past....

    (pp. 187-198)

    On the morning of June 4, 1961, John F. Kennedy arrived at the Soviet Embassy in Vienna for the second day of his summit meeting with Nikita Khrushchev. It started amiably enough. There was small talk about Khrushchev’s hometown, a little barbed banter about Laos. But the discussion quickly turned to a matter of lethal seriousness—Berlin. Since the end of World War II, Germany had been divided between East Germany, controlled by the Soviet Union, and a free West Germany. Buried deep in the Communist East Germany, like an outpost of freedom, stood lonely West Berlin. Khrushchev threatened to...

    (pp. 199-210)

    On February 14, 1962, Itek’s board of directors held a special meeting at 30 Rockefeller Plaza. All the usual members of the board were present, including Frank Lindsay, who was now a director. The meeting had been called on short notice to discuss proposed changes in Itek’s management structure. Leghorn, who sponsored a motion on the subject, wanted immediate board action. His motion had a simple objective, to get rid of Jack Carter, president of Itek Laboratories. Soon the motion was seconded and the meeting was opened for discussion.

    According to the minutes of the meeting, written by Leghorn in...

    (pp. 211-218)

    “The last few months have been a difficult time for all of us at Itek.” That is how Frank Lindsay began his letter to Itek’s top personnel. On June 22, when Lindsay signed his letter, he had been Itek’s president for barely a month. He faced many difficult challenges in those first days, and he knew that he could succeed only with the complete support and confidence of his staff. His letter, an honest appraisal of Itek’s grim situation, was part of an effort to build bridges to the people around him, letting them know that he understood their feelings...

    (pp. 219-239)

    Although fiscal 1963 had begun on a promising note, revenues and profits for the first five months were far below the original projections. Lindsay’s monthly progress report to the board of directors wasted few words in getting to the heart of the matter. “The delay in additional contracts in the reconnaissance field,” he explained, was due to “organizational problems in Washington.”¹

    It was a vexing phrase. “Organizational problems in Washington” could mean many things. For Lindsay it had a very definite meaning, one that he could not share with his board of directors. Since the Cuban missile crisis, when President...

  19. 17 FULCRUM
    (pp. 240-261)

    On January 11, 1965, Bud Wheelon sent CIA Deputy Director Marshall Carter a brief update on the status of negotiations with the NRO’s Brockway McMillan over the future management of CORONA. The brevity of Wheelon’s cover note was more than balanced by the attached “Memorandum of Agreement” hammered out over an extended period of time between CIA and NRO executives. Past agreements, revised as the relationship between the two agencies deteriorated, had grown longer and more complex. And they did little to improve the situation. It was unlikely this agreement would, either.

    In this draft, CORONA was defined as a...

    (pp. 262-267)

    In 1965, when Itek’s management walked away from FULCRUM, Frank Lindsay and the others still had reason to be optimistic. Corona remained central to America’s intelligence efforts and continued to be the nation’s reconnaissance workhorse until 1972. But there were to be no big follow-on systems for Itek, no new contracts for spy satellite cameras.

    At first it seemed that everything would somehow work out. Although Itek’s stock suffered a steep correction in the second half of 1965, falling back below $40 a share, it resumed its upward climb in 1966. Speculation over Itek’s promising RS technology fueled the rally,...

    (pp. 268-272)

    In the aftermath of Sputnik, during a time of national crisis, when America’s need for intelligence about the Soviet Union was greater than ever, Pentagon budget cuts threatened the existence of a group of scientists at Boston University—Duncan MacDonald’s team of spy camera experts. Although their skills were essential to the nation’s intelligence efforts, the demise of MacDonald’s group seemed inevitable.

    Yet they survived. An entrepreneur with vision and connections, Richard Leghorn sensed the gravity of the government’s error and seized the opportunity it created. Teddy Walkowicz risked his reputation with his boss, Laurance Rockefeller, and asked him to...

  22. NOTES
    (pp. 273-314)
    (pp. 315-318)
  24. INDEX
    (pp. 319-330)