717 H ISO hi-10ml Forma 291-5. M.I,. P. Dear Danniet prasej. came in on Sunday afternoon to see us before we left that evening by train for Mexico City. As I have already told you, all the examinations turned out very well* Fron Tuesday to Friday of last week Dr. Bucky made a very thorough examination of the stomach and intestinal tract and it could not have been more complete and searching and everything turned out all right. In fact all the examinations were satisfactory. Dr. Dresel took a cardiogram again the Friday before we left and it showed an improvement over the one he took on our arrival. In fact, the net result of the examinations which Dresel made show there is nothiig wrong except some straining of the heart muscles to which this high pulse rate can be attributed. The only prescription there is, of course, for that is a more quiet life for some time until they regain their strength and normal functioning. The fact is that since Marion has been taking it more easy this situation is steadily improving and without any medication. Since we left New York her pulse rate is running around J2 when she wakes up in the morning and does not go up much above 8I4. during the day which is very satisfactory, and it seems to be getting more normal all the time and without any medication* It was very satisfying to make this trip and Dr. Dresel showed us every attention. He is really a great doctor. While we were in New York Dresel told me about some of the difficulties which he has in getting his patients into certain hospitals and I told him I would be glad to help him. He also said that he would be glad to have a letter from me which he could use with the medical examiners of the State Of New York. Because of your interest in Dr. Dresel and great friendship and help to him I am sending you herewith a copy of a letter which I wrote to Nevil Ford and Arthur Dean, who I am sure will be able to help him with regard to the Doctors' Hospital, We had a good trip down by train and were fortunate enough that when we arrived at Laredo and had just got settled in the Mexico City train, Ned Woodul, from Mexico City (the head of the American Smelting & Refining Company, whom you know) appeared in the doorway of-the compartment and invited us to join him in his private car which he had attached to the train. As a matter of fact, I learned that he had found out at Monterrey, where he was on an inspection trip, that we were likely to be on this particular train, so he brought his private oar all the way from Monterrey to Laredo and hitched it onto our train. He and Marion and I had the car all to ourselves and we had a delightful trip to Mexico City. One of the things that Marion loves is to ride in this private car and Ned knows it, so he was good enough to go to all this trouble* We are
2 «We are a^ Cuerjl&vjsSa C IL.,&&.SJS! L!?fe9ft^ with our friends the Katzes and Helen HaYlTTs here with us also as the Katzes guest and I am behaving very badly by asking her to write a few letters for me this morning, but I did want to get off this word to you without delay* I want to write you a bit about the company affairs* The long-term lean from the World Bank was declared effective yesterday. We got the opinion of the Attorney General in time and there were all sorts of things which had to be done to make it possible for the World Bank to declare the effective date and we had only a short time after the receipt of the opinion of the Attorney General to do it, but Toronto and Mexioo City and the bank really made an excellent job of it. I should like to say here that Bernier has been really doing an excellent job. He has been more interested in his work than he was for many years and he is a very good lawyer. Buchanan, formerly of the World Bank, who is now his number two is turning out to be all that we expected, and L6pez Llergo, the head of the legal department in Mexico City, is really first-class. The JLnterim,loan, of $10,000,000 has been cancelled as of June 30 and the full-term loan of $26,000,000 dollars is effective as of the same date. There now remains only the protocolization of the in** denture and things like that in Mexico City, but these are routine steps all of which are in order and to date, but the protocolization will of course take some time but we have plenty of time to do it» Every possible step in connection with the reorganization has been carried through and there is only the exchange^ of ^securities, and that of course takes some time and is a routine matter* We have settled our labor contract, as you know, for two years, and while"the settlement is going to give us a lot of headaohes in practice with the syndicate, it is in many ways the best settlement we ever had and in it the government and the syndicate recognize the rate of return on the invest-- ment set by the Tariff Commission in the definitive rates. This labor corntract is for two years and while we are going to have lots of headaches with labor, there isn't, I suppose, any important company in the United States or in Mexico and in a good many otherplaces that doesn't have this problem to deal with. It does so happen, however, that our labor problem in Mexico has certain special characteristics that I want to tell you about. The situation now is that so far as the company is concerned we are.on. a firmer and sounder basis^than we have perhaps been at any time in its long history. The reorganization is certainly a major achievement and is a sound one and it will be helpful to us in so many ways. It is not only the reorganization which is so helpful, but in connection with it many problems and situations which grew up during the years have been liquidated definitely. The long-term loans from the Financiera and the bank will enable us to go ahead with the indispensable program of works and we can now devote ourselves to that. It was, of course, fundamental for the future of the company that we -be able to build these works. The important thing about the loans from the bank and the Finanoiera is not only tha't we have the money to do the works, but that our cfedit position for the future is tremendously improved. I agree with you that the question as to how much equity financing we will be able to do in the future, and this is of course something we must work for very hard, is not clear and this will have to be determined by the results
- 3 - results we can show during the next years, but certainly our general credit position is tremendously strengthened by the reorganization and the loans and the work^ which we are now building. What has happened during the reorganization and the loan negotiations in Mexioo, in the United States, in Canada, in England, in Belgium and elsewhere has done the company a great deal of good. The company is better known and more of it is known than before, and what is particularly important is that more of It is known in Mexico than before. This latter is extremely important and I will revert to this later. There is, however, a great deal to be done in this field still. The publicity campaign which we have been carrying on in Mexico particularly with reference to rates and the work which the company is doing and is planning to do and on the part which the company plays in the Mexican economy has been very helpful but we have to do some more. The Bank of Mexico, which is the national bank here, has just told us that it is getting out at its own expense a pamphlet of considerable size on the Federal Power Commission and one on: the company and we are collaborating with them in the preparation of this. You will appreciate that it is a quite significant and useful thing that the government national bank of issue should take sufficient interest in this matter to issue at its own expense and initiative this comprehensive pamphlet on the company. We are finally improving the form and content of our annual report which is something I have wanted to do ever sinoe I joined the company, and as I have already told you, the result we have achieved this year is not all that we would have desired but is the best that we could do with all our other burdens. You will shortly be getting a copy of the report and I think you will agree that its more attractive form and the additional substance will cause a good impression among our owners and others. The Madigan & By land report which will be available on and after the appearance of the annual report will also cause a good impression. I am not particularly happy about the rapid increase in the quotations of our shares as I think this is largely due to circulars which some investment houses, or rather brokers, have been issuing about the company. I would be happier if this interest came from the more responsible houses in the United States and elsewhere rather than from some of these firm3, but that is something we cannot help and I feel sure that in the next years more responsible houses will take an interest in our securities. During the course of the year we will have to give consideration to the desirability of listing our securities on the New York Curb Market, where I suppose we woult^ave**" : Eo'"* TDegln rather than on the*bxg^'*ltoa"fd^"a.hcl all the steps which that involves. I am presently inclined to the opinion that this is something we should do, but we will have to talk it over a lot. We really have three major situations now, to occupy us and to which we can give our practically undivided attention. The first of these is to carry through the construction Drogram. I will not go into this in this letter except to say that everything is developing so far satisfactorily and on schedule and I will be writing you about this in the near future. Brussels and Mexico City seem to be collaborating with each other adequately in this respect and I need not tell you that here we are pressing things rapidly. Another problem is the ijiterna j l c p_rj;an,i^^ operation of the pom-, pany. Our legal department and our technioal departeents"'a"nd** actual operating sections are working very satisfactorily. Our treasury department I think
-Uthink requires some overhauling, as we must get out our accounts more prompt" ly than we have in the past and there are a good many improvements which we can make in the treasury department. These I believe we can make without too much difficulty. Our commercial -section, which involves the contracting, billing and collecting, is really far from being in good shape. A part of the inefficiency in this department grows out of the rapid increase in our customers and services, but the major part of the inefficiency grows out of the situation we have with our syndicate and the lack of control which we have over our workers. Every effort which has been made before I joined the company and since I joined it to improve the efficiency of the operations in this department have been thwarted completely by the arbitrary acts of the syndicate leaders. You will recall that we had two very good men from the Consolidated Edison make a complete study of this department and they made a very good report, but we weren't able to do a thing because the syndicate leaders flatly said H No." Maryssael and I and Martinez are working on the basic plan for a complete reorganization of our commercial department. We had a two hour session on this yesterday and Martinez is being of a great deal of help, for he is a much more effective worker than Eddy, who is the head of this department. We recognize that whatever plan we work out we can't put it into effect if the syndicate leaders will not collaborate. We are nevertheless working out the plan, on which of course we have been wording for several years but could not actually do too much because we had these major preoccupations or reorganization, loan^fs and rates. Wo are now going to definitely work out a plan, for it is absolutely essential for the health of the company that this particular department be put into first-class operating shape 0 Completely aside from the fao% that we may be losing some money through the inadequate operation of this section, we have to do it to improve our relations with the public The service which we are giving to the public is not what it should be in contracting,frillingand collections and if the company is going to live, in spite of these fundamental things we have accomplished, these services will have to be improved for the public* Incidentally I want to say that I do not think that the money which we are losing through these inadequate services is considerable in volume, but that does not make the problem less important, for our relations with the public so far as the future of the company is concerned are even more important. I am only mentioning this matter of the commercial department as it is one of the three problems which requires and is getting our attention* The third problem is our relations with the syndicate» or ratherwith its leaders. Our syndicate leacgrlt hlive"lwen"hpor years and are still practically waging war on the company. This does not mean that the company workers for the most part are not loyal and good. They are. We have syndi«cate leaders who are about as bad as can be found in any country. Their major objective is to hold their own position which is a very comfortable one and which they use for their political advancement, and to bring about the nationalization or the expropriation of-the company. They tried very hard during the last negotiation of a labor contract to accomplish this and got nowhere, but Maryssael and I recognize that they have not given up their efforts and will not give them up as long as they remain the leaders of the syndicate. Immediately after we had signed this last labor contract they began to make further difficulties and stopped ejrtra time, and before we could get it reestablished we had again lost eleven days in billing. It
«5* It io impossible for our company or any other company to live if the labor leaders in the syndicate can interfere with management and operatons to the degree that they are doing in our company. We did our very best to get this matter definitely settled during the negotiation of the last contract but we'were unable to do it because of the reasons which I have set forth in previous letters* Maryssael and I are of the opinion that it is absolutely necessary for us to improve these operating methods in certain sections of the company and we cannot do this unless this state of war created by the syndicate against the company is eliminated. We have made this clear to the Ministers of Labor and of Economy and they understand it. We have made it clear to the President through them but he has not chosen to deal with the situation adequately as already the beginnings of the next presidential campaign are with us. I am sure he understands the situation thoroughly but so far lie has not chosen to deal with it adequately for political and electoral reasons. I think he fully understands the situation and I think he wants to deal with it adequately and I believe for reasons of his own and of the Mexican economy he wants to help the company, but Chiefs of State in every country have many problems to deal with whether the country is large or small and we have already learned what we can expect and what we cannot expect under certain circumstances. The principal responsibility, therefore, of settling this labor matter rests on us in the company, but we cannot settle it adequately without help from the government. Maryssael and I are giving this matter our daily attention now and are working out our strategy and as soon as we have definitely completed our plans for what we wish to do in the commercial section, etc., we will take up the matter with the syndicate leaders, and if we do not get their cooperation adequately we will take it up with the Ministers and then with the President. I somehow feel that when we are able to take it up with the President in this definite form which I have envisaged we will be able to convince him that irrespective of certain political difficulties which he may have, he will have to adequately help us. Unless we can settle this labor situation satisfactorily we cannot settle a lot of other problems, such as our relations with the public on which the longrange future of the company depends. You were good enough,_tp write me a letter which I got just before leaving Mexico City but which I diet' nottoring with me to Cuernavaca and to which I cannot therefore refer definitely. In this letter you refer to some of the things I brought up in recent letters from New York and in which I asked for opinion and counsel. I appreciate your writing me so fully and your letter is most helpful and I will be writing you in reply to it when I have the letter before me in Mexico City. What I wish here to refer to is one specific natter, and that is of the Board. I am glad that you are going to explore this matter with Binder and hope that he will agree to accept. If Binder is in agreement about Leeper I think we should invite him also while you are in Europe. It may be that lie has some more capable man to recommend than Leeper. I agree with you that under the circumstances it is difficult not to reelect Dawes and may be ready to go along with his staying, but I am glad that you agree that it is not advisable to continue Richard. So far as Canada is concerned, we can
. 6 - oan find two good men who can attend meetings to replace Holmstead and Finley* It is important that they be men who can be present at meetings* I will not now discuss the question of anyone additional from the United States, for I do not think that is so pressing at this time and there may be reasons why we do not wish to add any other American in the United States to the Board at this time. What concerns me principally about thj,s matter, qf the Board is Mexico^. We have^^eltideaxioelect MartinejL and that is a very wise a*nct"sound thing to do from every point of view. You know the very great thought we have given to another man from Mexico, but neither Maryssael nor I can decide what to do in this respect. I myself have come to the conclusion for the present that if we tai any other Mexican for the present it would have to be Carrillo Flores, the head of the Pinanciera. He is a very fine man. There are^any r ~ikmber of heads of banks in Mexico who would be friendly and helpful, but we cannot select one without creating problems for ourselves with others. There are any number of very important business men in Mexico who I am sure would join the Board, but by selecting one of them we would be creating problems for ourselves with others. I just don't know what to do about the second man from here. Perhaps in any event we should consider taking Carrillo Flores. fife have to consider that the Mexican Government has guaranteed our long-term loan and has in addition lent us these pesos at a considerable saorifice and hasshown a great deal of good will* I am inclined to think, and I think Maryssael shares this view, that they may expeot and have some reason to expect that we invite someone oonnected with the government to join the Board, and in this particular respect because we could ask Carrillo Flores as hoad of the Financiera and everyone would appreciate that that would be a very proper choice, and so far as the company is concerned he would be helpful. I am increasingly of the opinion that we have to consider this very carefully and perhaps affirmatively and from my conversations with Maryssael I think he thinks the same way, but we want to talk it over some more* Maryssael and I are definitely of the opinion that we have to get Mexicans more interested in the company and in a concrete way. For the long-range we not only have to have government but public interest in the company. We will never be definitely able to fight effectively nationalization and expropriation, no matter what the policy of the government may be, against such measures, unless we have public and government support of the company and understanding of its problems and what it is doing* The problem of putting Mexicans on the Board will always be a difficult one. My present thinking runs along the line that in addition to Martinez we should invite Carrillo Flores to be a member as the head of the Financiera. He may not be able to attend Board meetings but we can discuss things with him here as we now do with the other members resident in Mexico and that will be helpful, as he is an excellent man and friendly and understanding. In addition to this, as a help to us in all our problems in Mexico, Maryssael suggested since my return that it might be desirab^^^to^jbave^a^ committee hjjre^^composed of an Qual numbs r" ofsbersoif lihecorapany staff he*re~*ano"* = bf Mexicans not in the company 0 This committee would have Ixa pbweri" exce^flisvisory ones but it could meat at stated intervals to dis«cuss
- 7 - cuss company problems and the company members could bring to it all of the problems which we have here with respect to rates and labor, etc*, which are so important, and they would be in a position to strengthen our representa** tions to and relations with the government and the public I do not know why the idea of auch a committee had never occurred to me and I welcomed Maryssael's putting forward this idea which I think is really an excellent one and whioh we have to consider very fully. We are already doing it here and Maryssael and I will write you of our further views. I do not know whether we can appoint such a committee without a change in our by-laws and under our statutes, but I will consult Allan Graydon and E. A. Graydon on this. I am really inclined to the opinion that if we can do it now and during our Annual Meeting in Toronto in early September we should do it* If we cannot do it under our statutes and by-lews then, we ought to do the necessary then to do it for another year. I am more than ever of the opinion that we should do it now if we can possibly do it rather than put it off a year. It would be of tremendous help to us in solving these important problems whioh we have in order to definitely settle this question of the company' future in Mexico. The composition of such a committee would be relatively simple as we could find excellent men and in every way acceptable and helpful to serve on it. I do not know just what the Buenos Aires board or committee does nor what its exact functions are. I would be glad if you would have Colinet write me immediately a memorandum on the CADE committee or board in Buenos Aires. All I know is that it has no functions except of an advisory character and then any of its action is subject to review and final decision by the Board of the CADE. I would appreciate your, asking Colinet to write such a memorandum and the more details he gives me the more helpful it will be. Perhaps this idea of a committee or local board with limited functions and responsibilities here comes as a surprise to you from me as I have never mentioned it before. The fact is that the need of such a thing has been in the back of my mind but for some reason or other it never crystallized until Maryssael made this suggestion the other day as something to think of and immediately a lot of pieces fell together in my own mind. Last night here in Cuernavaca and this morning I have been able to give-this a lot of thought, and while it requires further going into before I form my own conclusions definitely, I have so far not been able to find a single reason why we should not rfo it and any number of reasons why we should do it. I do not know what the experiences in Buenos Aires have been, but I am inclined to think that whatever unfavorable we may have had there should not influence us in any decision our Board may reach with regard to such a Mexlight committee in Mexico City* This has got to be much too long a letter and I must not go on with a lot of other things I have in mind* I do hope that you and H ttie are enjoying your stay in Brussels and I am sure you are. Yie look forward to seeing you on your return. I expect to go'north some time after August 20 so as to talk things over in Amitas and with Duncan and Hooker and then go to Toronto* I am somewhat doubtful as to whether you will be able to get back for the general meeting early in September but I hope that you may be back for some of the Board Meetings immediately following the meeting of stockholders are of major importance in Toronto. and There we really are,so need many J your things ftdvlce we ffifett ought to^s,attle conn's SIS 4-0 whioh Jimmy
*"7! - 8 ~ Jimmy and June are well. June came in and had lunch with Marion ye star* day before we left for Cuernavaca but I was not able to get back for lunch so have not seen her. Jimmy looks very well. With love and good wishes to you all from us both, Cordially and faithfully yours. D. N. Heineraan, Esquire, o/o Sofina, 38, rue de Naples, Brussels, Belgium,