The Men Who Loved Trains

The Story of Men Who Battled Greed to Save an Ailing Industry

Rush Loving

• Publisher: Indiana University Press
• Year: 2006
• ISBN:
  9780253000644
• Topic: Business
• Subtopic: Transportation Industry
• Index: Business

An award-winning account of a crisis in railroad history: "This absorbing book takes you on an entertaining ride." — Chicago Tribune A saga about one of the oldest and most romantic enterprises in the land—America's railroads— The Men Who Loved Trains introduces the chieftains who have run the railroads, both those who set about grabbing power and big salaries for themselves, and others who truly loved the industry. As a journalist and associate editor of Fortune magazine who covered the demise of Penn Central and the creation of Conrail, Rush Loving often had a front-row seat to the foibles and follies of this group of men. He uncovers intrigue, greed, lust for power, boardroom battles, and takeover wars and turns them into a page-turning story. He recounts how the chairman of CSX Corporation, who later became George W.Bush's Treasury secretary, managed to make millions for himself while his company drifted in chaos. Yet there were also those who loved trains and railroading—and who played key roles in reshaping transportation in the northeastern United States. This book will delight not only the rail fan, but anyone interested in American business and history. Includes photographs

1 The Forrest Gump of Railroading

Dawn was creeping up over Lynnhaven Bay as Jim McClellan walked briskly out of his kitchen, down a hallway, and out the back door. It was a perfect October morning. The air was brisk, barely 50 degrees. McClellan drove to his office in downtown Norfolk. He was going early to clear his desk of any unfinished work because he was leaving later in the week for four days of vacation in southern California.

James W. McClellan was vice president for corporate planning at Norfolk Southern Corp., one of the nation’s five largest railroads. His job was to advise NS’s chairman, David R. Goode, on a wide range of key questions that the railroad faced, issues as subtle as changes in the corporate culture or as visual as deciding which tracks to shut down or which railroads to acquire in order to keep the company viable.

It was 1996, and for nearly 20 years he had been watching the moves of NS’s archrival, CSX Corp., and its chairman, John W. Snow, who later was to become George W. Bush’s treasury secretary. The two railroads served almost the entire eastern half of the country save for a highly contested block of states in the Northeast, and both needed to get into those states for access to the rich port of New York and the chemical plants of New Jersey. The only way to do that was to acquire Conrail, a railroad that held a monopoly of the rail markets in New York, New Jersey, and most of Pennsylvania. The railroad that won Conrail would then be able to negotiate a merger with one of the western roads at favorable terms and form a system that spanned the continent. McClellan was worried because he knew that if NS lost this race, it would remain a regional line that would be at the mercy of one of those western roads. Moreover, NS had another reason for wanting Conrail, a need so crucial to the future of the company’s most critical source of revenues, McClellan and others at the top of the company kept it a closely held secret.

Up in his twelfth floor office in the Norfolk Southern tower, McClellan sat at his desk disposing of memos and reports. Outside he could see the Elizabeth River and the Portsmouth Navy Yard almost directly below, festooned with destroyers, frigates, and supply ships. He was just getting into the stack of papers when his telephone buzzed. “What have they done!? What are you going to do about this!?” cried a voice on the other end. It was NS’s chief of investor relations, Deborah Wyld. “CSX and Conrail have just announced a merger.”

Stunned, McClellan suddenly saw his career, which had always been an up-and-down affair, once again teetering on the brink.

He was hurrying into the elevator lobby when he encountered one of his top assistants. McClellan’s eyes were dark, his face grey and haggard. So shocked was his assistant at the sight, she dropped her briefcase. She thought someone had died.

When he got to the boardroom, other officers were trickling in. Some were dumbfounded. Others were ready to take charge. Known for his down-home informality and unflappable demeanor, David Goode was cool and unfazed, despite his surprise. Even though he had feared such a thing for years, McClellan remained stunned. Yet he also was beginning to conceive a plan, and the next day, in a one-page roughly hewn memo to Goode, he outlined the strategy that NS was to follow.

Fifty-seven years old, McClellan was well prepared for this crisis. Moreover, he had an advantage over John Snow: he loved trains, and he shared that love with David Goode and seven older railroaders: Alfred E. Perlman of the New York Central, W. Graham Claytor Jr. of the Southern, Robert Claytor of Norfolk Southern, John P. Fishwick of the Norfolk and Western, Hays T. Watkins Jr. of CSX, and Conrail’s L. Stanley Crane and James A. Hagen. Over four decades each of the seven had come and gone from the stage of U.S. railroading, moving from crisis to crisis, battle to battle, and as they had interacted they had reshaped transportation in the northeastern United States.

McClellan was the junior of them all, but he was the thread that wove them together. He was present as each dramatic encounter was played out. Ambling from job to job, often by misadventure and sometimes even by getting fired, McClellan had happened into the center of every major event in the railroad industry. “I call myself the Forrest Gump of railroading,” he said later. “I happened to be there as opposed to showing up. I was part of it out of accident.” Accident or not, his presence would have an ongoing impact on Norfolk Southern and on American transportation. Each in his own way, McClellan and the other railroaders created from a sinkhole of bankrupts two strong networks of rail lines that today keep the region alive, supplying food, clothing, electronics, and even automobiles to every household east of the Mississippi. It was their love of railroading that made them decisive managers, men who knew their business so well that they had no doubts about how to make it work. Moreover, they all lived by a code that set them apart from modern corporate standards: they all performed their jobs because they loved the business. Although they enjoyed all the accoutrements of office and were well compensated, they were not driven by a quest for power or riches.

McClellan and the others were born in the days of steam locomotives and deluxe passenger trains, when many young men were drawn by the romance of railroads. It was intoxicating, the mystery and excitement of great rumbling engines that seemed human, belching steam and sooty smoke and whistling mournfully as they thundered past crossings and around curves and on across the endless farmlands of America. Even today, 40 years since steam succumbed to less personable diesel locomotives, railroading is romantic to many men. Jim McClellan was one of them, a man who took any opportunity he could to ride trains, and his odyssey plunged him into the struggle to save the nation’s railroads from wholesale bankruptcies and nationalization as well as a bloody fight for control of the rail lines in America’s populous Northeast.

A tall, lanky man with the big-boned body of a Scotsman, piercing blue eyes, and a baritone drawl sprinkled with the idioms of Texas, McClellan had spent his early years moving all over the country. His father had been an officer in the Army Signal Corps. When he was three, in 1941, just as the United States was about to enter World War II, McClellan’s mother would walk with him down to a Victorian edifice called the King Street Station in Seattle, and he would watch the giant black steam engines, their great piston rods pushing in and out as their drive wheels slowly turned and they set off to carry thousands of passengers on exotic trains like the Empire Builder and the North Coast Limited to distant places with enchanting names like Missoula, Bismarck, and White Fish.

As his family moved about, McClellan fell more and more under the spell of railroads. When he was five or six, the family’s backyard in Florida abutted the tracks of the Atlantic Coast Line Railroad, and the boy stood transfixed as the Coast Line paraded its first diesel engines past the house. Soon he was drawing pictures of trains, and as he grew older he began painting them, a pastime he would continue as an adult. When he was 11, he took his first ride on a locomotive. His grandmother in Dallas had a friend who was an important freight customer of the Texas and Pacific Railroad, and he arranged for McClellan to ride a steam switch engine. It was unforgettable, but the boy broke what on some railroads is a cardinal safety rule, climbing off before the engine had come to a full stop. He fell flat on his face and remembered the fall more vividly than the ride.

He was soon begging rides on the steam locomotives that pulled the Colorado and Southern Railroad’s Texas Zephyr between Ft. Worth and Dallas. His pleas got him aboard until he was in his teens. “Begging seemed to work when I was small,” McClellan said. “I guess I stopped being a cute kid when I reached high school.” By the time he was ready for college, he was living in San Antonio. Fewer trains went by there, but he remained transfixed nevertheless.

So badly had the bug bitten him that he chose to major in transportation economics at the University of Pennsylvania’s Wharton Business School. His studies there offered him a unique marriage between his romantic love of trains and a foundation in the practicalities of railroading, a business that had economic rules and a management personality all its own.

While in college McClellan discovered that if he wrote to the railroads they often would let him on their locomotives, and he rode more engines, including the cab of the crack California Zephyr. The same day the Soviet Union disclosed it had sent Sputnik, the first satellite, up into space, the Baltimore and Ohio Railroad announced it was discontinuing all its passenger trains north of Baltimore. “I thought it was worse news than the fact that the Russians were first in space,” said McClellan. The B&O’s announcement symbolized much of McClellan’s adult life. It was the beginning of an era when trains, rail lines, even entire railroads would be wiped out, and McClellan was to be involved nearly every time.

After college, McClellan went off to the navy as an officer on a destroyer, the USS Decatur. He waited impatiently to conclude his military obligation and to work for a railroad, and as soon as he was released he sent letters out wholesale to every railroad he could think of. Some never responded; the rest rejected him. But on a visit to Washington, he walked into the headquarters of the Southern Railway System and told the security guard he wanted to talk to someone about a job. He was ushered upstairs and on the basis of his boyish face, résumé, and personality, he was hired as a trainee in the Southern’s marketing department.

McClellan’s boss was Robert Hamilton, the Southern’s colorful vice president for marketing. Unlike most railroaders, Hamilton possessed a bright, creative mind and encouraged originality and innovations. He saw similar traits in McClellan and did whatever he could to help him. Armed with passes from Hamilton, McClellan spent every available day and weekend riding the sleepers and observation cars of passenger trains all over the South and in the Northeast. He talked to the crews, learning the routes, the ways they operated their trains, and all the basics of railroading.

It was easy to be in love with trains. They had built American society. Railroads had been the adhesive that had bound together the U.S. economy and its society, enabling the nation to spread from the Atlantic to the Pacific.

When the first train made its inaugural run outside Baltimore in 1830, other railroads already were being built. Less than three decades later, on the eve of the Civil War, rail lines crisscrossed the eastern United States and were even spreading across the prairies toward the Pacific. Railroads quickly became the logistics tool of the generals, and entire campaigns were waged around rail lines. The first battle of the Civil War, at Manassas, outside Washington, was fought for control of a rail junction.

The nation’s industrial economy owed itself to trains because they carried the ore, the coal, and the coke to the steel mills and the steel to the plants that built goods from it. And the American people as a whole depended on the railroads’ vaunted sleepers, diners, and coaches to carry them from town to city and even across the continent.

By 1900, railroad tracks sliced across the farmlands and meandered up and down almost all the river valleys. In the Northeast, many river valleys had two competing railroads paralleling one another on opposite banks. Railroads soon became the nation’s high-tech industry. More than a million Americans were working for the railroads by 1900. The industry’s annual revenues totaled nearly $1.5 billion, or three times what the federal government spent each year.

Although it was as late as 1962 when McClellan joined the Southern, he was entering an industry that retained many of the vestiges of those early years. The railroads’ way of doing things was a museum piece of how corporations functioned in the nineteenth century and how the people who worked for them conducted themselves and related to one another. The railroad culture had enshrined many beliefs and habits that had slipped away from most Americans after World War II.

Many people today are unaware of it, but most Americans born as late as the mid-1930s spent their formative years in a society of nineteenth-century ethics and principles where people took pride in work and were driven by a sense of honor to their commitments. Most of the men and women of that day had been born at the turn of the century or earlier. Some older citizens even remembered the Civil War. It was a simpler society where revival meetings and the ethics lectures of the Epworth League still influenced many American homes. Honor meant something; so did the work ethic and allegiance to friends and fellow workers and a firm adherence to principles. They were paid their wages or their salaries in return for work, not because the company was there to make them rich.

It was a different world from the one that has produced Enron, WorldCom, and the like. The men who ruled the railroads and many other portions of American business as late as the 1980s were inculcated to some degree in the mores of the nineteenth century. They did not take home the multimillion-dollar bonuses so common today.

While most were not driven by greed, many did suffer the stupidity, the arrogance, the hubris, and all the other weaknesses of many executives today. When McClellan went to work for the Southern, the industry’s leaders were driven by unsurpassed egos. So strong-willed and unwavering were some of these rail barons the board meetings of their trade group, the Association of American Railroads, often turned into shouting matches, and on at least one occasion one chief executive threatened to punch another.

“These were the days of Wayne Johnson of the Illinois Central, Stuart Saunders of the Pennsylvania Railroad, Alfred Perlman of the New York Central, Tom Rice of the Seaboard Coast Line, Ben Biaggini of Southern Pacific, Downing Jenks of the Missouri Pacific, and Bill Brosnan of the Southern Railway. They all knew how to run things better than anyone else, and each expressed his infinite wisdom to the group, whether the group was listening or not,” recalled Hays Watkins, who as a young officer at the Chesapeake and Ohio sat in some of those meetings with his boss. “When you are that good, you have to make sure that everyone realizes it. When honesty and modesty conflicted, these gentlemen always thought honesty was the best policy.”

Since its beginnings, the industry had been a military system. Many of its early presidents were former army officers. Since the early engineering schools in America were military institutions and it took engineers to build and oversee the early rail lines, many senior managers came from schools such as West Point and the Virginia Military Institute. Thus a culture grew where subordinates always addressed their superiors as “sir” and called them by their formal names. And, although he disobeyed the rule to his peril, McClellan and other young officers often were discouraged from speaking up.

Operating departments, which maintain the tracks and run the trains, were dominated by bands of tough, stubborn men, many of them civil engineers, who believed fixedly that people should function with the same certainty as machines. Astoundingly, much of that culture still prevails today at some railroads. Their way of thinking fostered a conservative view of the world outside. Since the minds of the engineers were governed by the laws of science, where everything is presumably known, they distrusted the unknown. Thus change often was resisted assiduously.

Like an army division, all the officers in each railroad viewed their own company as special. It was inculcated into every young officer that all the other railroads weren’t as good as his. Each railroad had its own way of doing things, almost as if it had to be different to survive. If another railroad came up with something better, its idea was commonly dismissed as inferior. For instance, each had its own specifications for fitting out its steam engines. No two lines’ locomotives were exactly the same, even if they had come from the same builder.

Signal systems, which control trains like the standard traffic lights that grace America’s streets, differed from railroad to railroad. Some companies used semaphores; others used oblong signal boards with colored lights one above the other. The Pennsylvania used yellow lights spread horizontally, diagonally, and vertically on a round backboard. The neighboring Baltimore and Ohio used a round backboard with the same pattern, but its lights were red, green, and yellow and there were only two across rather than the Pennsy’s three.

Senior managers—and most who aspired to higher posts— viewed people like McClellan as aberrations and often fired them if they took risks that led to mistakes. Since the culture demanded such a high price for change, the men who ran the railroads stuck by the traditional military style of leadership. Even when other industries began to profit by fostering innovation and promoting risk-takers, the railroads continued to distrust more creative managers.

McClellan brought a rare addition to railroading, an ingredient that is all too uncommon in corporate management: a high standard of intellectual honesty. One or two industry leaders of 1960s and 1970s had it and occasionally paid for it at the hands of their peers. So did McClellan. Sometimes his allegiance to the truth would not work because his ideas were impractical and even naïve, making him so ineffectual that those seniors who were more enlightened than the rest and who appreciated his talents had to step in and save him from his folly. Nevertheless, his vision, his love for trains, and his unswerving search for the perfect railroad network propelled him into a major role in the development of a national passenger rail system, the government’s consolidation of all the Northeast’s rail lines, and a 14-year war that led to the creation of two giant freight railroads that now dominate transportation between the Mississippi and the Atlantic.

2 Meeting the Blue-eyed jew from Minnesota

Life on the Southern Railway in the mid-1960s was interesting for McClellan because this was one of the most progressive railroads in the United States....