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LOGISTICS

The Great Leaders Series: James Jerome Hill, CEO of the Great Northern Railway
 

James Jerome Hill built a depression-proof transcontinental railroad without a dime from the government.

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Purchasing thousands of acres of land and blasting through tons of rock, building a transcontinental railroad didn't come cheap. The average cost of laying a mile of track in the late 1800s was $30,000. But James Hill, who acquired the well-deserved nickname of "Empire Builder," was the only entrepreneur who managed to do it without any land grants or financial assistance from the government. 

Hill's strategy involved allowing Swedish and Nordic immigrants to travel across the country on his railroad cheaply in exchange for settling along his train route. Then, in an ingenious example of vertical integration, he brought in experts to show the new settlers how to grow more wheat per acre, imported high quality livestock, and made it cheap for the farmers to ship to Buffalo, New York, where he built grain elevators to store their harvests. In total, he provided support to 400,000 farms along 6,000 miles of track and created wealth of $5 billion in land values. All of this strengthened these new communities -- and by extension, Hill's railroads. Because of these measures, Hill's railroads survived the four-year depression that began in 1893, which crippled many of his major competitors.

Born in 1838 in what is now Ontario, Canada, Hill was forced to leave school when his father died in 1852. He soon headed south in search of work and wound up in St. Paul, Minnesota, then a frontier town of about 5,000 people. Working in a number of positions as a stevedore and a clerk for steamboats, Hill learned the ins and outs of river transportation, and when he had the resources, he went into business for himself and was the first businessman to import coal to the area, which soon supplanted wood as a power source for the steamboats.

As Hill was building a successful fuel business, St. Paul was having its first, far less successful experience with railroad building. A few hundred miles were built, a $33 million debt was amassed and the project was abandoned. Hill felt that the abandoned tracks were rich not just in rust, but also in economic potential. He sold all his other interests to the tune of $100,000, and with the help of some other wealthy locals, purchased the skeletal St. Paul and Pacific Railroad. His plan was to expand the line north and west through the Rockies and eventually to Seattle. Critics dubbed it "Hill's Folly" because competing transcontinental routes already existed and the areas he planned to traverse were largely unpopulated. 

In 1882, Hill rose to the position of president of the railroad, and his leadership skills started to shine. He was detail-oriented and a workaholic; he once put forth his formula for success as, "work, work hard, intelligent work, and then more work." Hill also made a slew of minute money-saving changes to the railroad's operations, including replacing wood with coal, replacing old iron rails with steel ones, and charting the straightest, shortest distance for his routes. He once said, "We do not care enough for Rocky Mountain scenery to spend a large sum of money developing it."

Although much of his business success was due to keen instincts and hard work, Hill was not always above the board in his business dealings, though he often thought himself to be in the right. He masked profits from government regulators by reinvesting them in his railroads, thereby upping his operating expenses. He also fought successfully for the right to extend his company into Native American territory, despite an initial presidential veto from Grover Cleveland.  

As Hill acquired more railroads and extended his existing lines, he also drew the scrutiny of President Teddy Roosevelt, the infamous trustbuster. Hill had organized a holding company called Northern Securities Corporation to control both his Great Northern and Northern Pacific railways, but the Supreme Court dissolved the company in 1904 under the Sherman Anti-Trust Law. Hill bemoaned this sort of government interference, saying, "It really seems hard when we know that we have led all Western companies in opening the country and carrying at the lowest rates, that we should be compelled to fight for our lives against the political adventurers who have never done anything but pose and draw a salary." However, Hill's holdings survived the bust, and in 1906 four groups held two-thirds of the tracks in the United States, one of which was Hill's business alliance with J. P. Morgan and the Vanderbilts.

While he would continue to report to work every day until his death in 1916 from a neglected hemorrhoid that turned gangrenous, Hill turned over the presidency and the major operations of his Great Northern railroad to his son Louis in 1907.

When he died, Hill was worth between $200 and $250 million, and Minnesota's Governor Burnquist eulogized him as "the greatest constructive genius of the Northwest."

Last updated: Jan 5, 2010




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