Hughes’ Two Most Important Business Decisions: Noah Dietrich and the ClA
We all know the story of brilliant businessman Howard Hughes, who made billions in the oil, movie, aviation, defense and casino industries. But the truth is, Hughes was a terrible businessman.
Hughes’ best business moves were two critical personnel decisions: the hiring of Noah Dietrich in 1925, and his decision to partner up with the ClA. That decision happened no later than 1948, right after the ClA’s creation, but Hughes was likely involved with the OSS and/or various ClA predecessor intelligence units in the military and State Department even earlier, during the war. The decision to partner up with the ClA made Hughes even more money than Noah Dietrich did. But that decision to partner with the agency was also his worst.
Hughes was born December 24, 1905. He inherited 75% of Hughes Tool Co., his father’s company, when his father died on January 14, 1924. His father had invented a revolutionary oil drilling bit that pulverized rock instead of scraping it. The bit was nicknamed “the rock eater.” It got through rock at 10x the speed of any other drill bit.
Within a year of his father’s death, Hughes bought out the other 25% of the company from his relatives. He also hired Dietrich, a CPA with a diverse business background in banking, real estate, and oil. Hughes’ father, like Howard, was never much of a businessman despite his brilliant invention. Dietrich took the company, worth $660,000 in 1925 (roughly $10 million in 2020 dollars), applied sound business and tax-saving strategies to it, and turned it into a $75 million company by 1930 (roughly $1 billion in 2020 dollars), enough to fund Hughes’ stabs at becoming a professional golfer, a movie producer, an aviator, and everything else.
Later, Dietrich won war production contracts for Hughes Tool, invested in real estate for the company, and automated its “hobby shop” style production line. After the war, Hughes Tool made $285 million in profits under Dietrich’s management before Dietrich left the company after 32 years in 1957. That’s roughly $2.4 billion in 2020 dollars.
Dietrich ran TWA for Hughes as well, for which Hughes paid about $1.4 billion (in 2020 dollars) for a 75% stake in 1939. Hughes also paid a $1.1 billion penalty (in 2020 dollars) for mismanagement of the airline in the 1950s. But Hughes sold his stock for $3.8 billion in 2020 dollars when he was forced out in 1965. That’s another $1.3 billion that Dietrich made Hughes.
The value of Hughes’ estate when he died in April 1976 was $1.5 to $2 billion (roughly $7.5 to $10 billion in 2020 dollars), plus another $5-$6 billion in Hughes Aircraft ($25 billion in 2020 dollars), which had been spun off from Hughes Tool into a tax shelter called the Howard Hughes Medical Institute. The “charity” donated virtually nothing to medical research during Hughes’ lifetime.
Dietrich had made Hughes about $5 billion of that (in 2020 dollars). The rest of Hughes’ money appears to have come, in one way or another, from the ClA, and the ClA made sure they got it back. Continue reading Howard Hughes, the ClA, the Mob and Las Vegas