The first thing was to get a charter—quietly. At a meeting held in Philadelphia late in the fall of 1871 a friend of one of the gentlemen interested mentioned to him that a certain estate then in liquidation had a charter for sale which gave its owners the right to carry on any kind of business in any country and in any way; that it could be bought for what it would cost to get a charter under the general laws of the state, and that it would be a favour to the heirs to buy it. The opportunity was promptly taken. The name of the charter bought was the "South (often written Southern) Improve ment Company." For a beginning it was as good a name as another, since it said nothing.
With this charter in hand Mr. Rockefeller and Mr. Watson and their associates began to seek converts. In order that their great scheme might not be injured by premature public dis cussion they asked of each person whom they approached a pledge of secrecy. Two forms of the pledges required before anything was revealed were published later. The first of these, which appeared in the New York Tribune, read as follows : That the promoters met with encouragement is evident from the fact that, when the corporators came together on January 2, 1872, in Philadelphia, for the first time under their char ter, and transferred the company to the stockholders, they claimed to represent in one way or another a large part of the refining interest of the country. At this meeting I,Ioo shares of the stock of the company, which was divided into 2,000 $foo shares, were subscribed for, and twenty per cent. of their value was paid in. Just who took stock at this meet ing the writer has not been able to discover. At the same time a discussion came up as to what refiners were to be allowed to go into the new company. Each of the men represented had friends whom he wanted taken care of, and after considerable discussion it was decided to take in every refinery they could get hold of. This decision was largely due to the railroad men. Mr. Watson had seen them as soon as the plans for the com pany were formed, and they had all agreed that if they gave the rebates and drawbacks all refineries then existing must be taken in upon the same level. That is, while the incorpora tors had intended to kill off all but themselves and their friends, the railroads refused_ to go into a_schane which was going ta4ant–anybody_oat–oLhusiness—the planif they went into it must cover the refining...trade as it.stood. It was enough that it could prevent any one in the _future going into the business.
Very soon after this meeting of January 2 the rest of the stock of the South Improvement Company was taken. The complete list of stockholders, with their holdings, was as follows: Mr. Watson was elected president and W. G. Warden of Philadelphia secretary of the new association. It will be noticed that the largest individual holdings in the company were those of W. G. Warden and 0. F. Waring, each of whom had 475 shares. The company most heavily interested in the South Improvement Company was the Standard Oil of Cleveland, J. D. Rockefeller, William Rockefeller and H. M. Flagler, all stockholders of that company, each having 18o shares-54o in the company. 0. H. Payne and J. A. Bost wick, who soon after became stockholders in the Standard Oil Company, also had each 18o shares, giving Mr. Rockefeller
and his associates goo shares in all.
It has frequently been stated that the South Improvement Company represented the bulk of the oil-refining interests in the country. The incorporators of the company in approach ing the railroads assured them that this was so. As a matter of fact, however, the thirteen gentlemen above named, who were the only ones ever holding stock in the concern, did not con trol over one-tenth of the refining business of the United States in 1872. That business in the aggregate amounted to a daily capacity of about 45,00o barrels—from 45,000 to 50,000, Mr. Warden put it—and the stockholders of the South Im provement Company owned a combined capacity of not over 4,600 barrels. In assuring the railroads that they controlled the business, they were dealing with their hopes rather than with facts.
The organisation complete, there remained contracts to be made with the railroads. Three systems were The Central, which, by its connection with the Lake Shore and Michigan Southern, ran directly into the Oil Regions; the Erie, allied with the Atlantic and Great Western, with a likewise tapping the heart of the region; and the Pennsylvania, with the connections known as the Allegheny Valley and Oil Creek Railroad. The persons to be won over were: W. H. Vanderbilt, of the:Central; H. F. Clark, presi dent of the Lake Shore and Michigan Southern; Jay Gould, of the Eire; General G. B. McClellan, president of the Atlantic and Great Western; and Tom Scott, of the Penn sylvania. There seems to have been little difficulty in per suading any of these persons to go into the scheme after they had been assured by the leaders that all of the refiners were to be taken in. This was a verbal condition, however, not found in the contracts they signed. This important fact Mr. Warden himself made clear when three months later he was on the witness stand before a committee of Congress appointed to look into the great scheme. "We had considerable dis cussion with the railroads," Mr. Warden said, "in regard to the matter of rebate on their charges for freight; they_did not want to give us a rebate unless it was with the undetttand ing that all the should into the ment and placed upon the samelevel." A second objection to making a contract with the com pany came from Mr. Scott of the Pennsylvania road and Mr. Potts of the Empire Transportation Company. The substance of this objection was that the plan took no account of the oil producer—the man to whom the world owed the business. Mr. Scott was strong in his assertion that they could never succeed unless they took care of the producers. Mr. Warden objected strongly to forming a combination with them. "The interests of the producers were in one sense antagonistic to ours: one as the seller and the other as the buyer. We held in argument that the producers were abundantly able to take care of their own branch of the business if they took care of the quantity produced." So strongly did Mr. Scott argue, however, that finally the members of the South Improvement Company yielded, and a draft of an agreement, to be pro posed to the producers, was drawn up in lead-pencil; it was never presented. It seems to have been used principally to I quiet Mr. Scott.