The scene with Captain Grace shows the root of Queeg's problem. It wasn't so much that he made mistakes. It was the fact that he refused to admit to them or that he had done anything wrong.
In his first two weeks on Caine, not only had they cut the towline, but they had run aground when getting underway (it was the first time Queeg tried getting the ship underway). Instead of sending in a grounding report, as the regulations required, Queeg, instead, gets a harbour tug to pull the ship out and goes on his way. Later, he's ordered to send one in and simply submits one full of doubletalk.
Grace points out that running aground can happen to anyone. What upset him and the Admiral was the fact that Queeg tried to dodge a report then sent on in that was a "phoney gun-deck job". Likewise, it was Queeg's behaviour when the towline was cut that caused the Admiral to blow up. (When the towline was cut, Queeg's officers tried to get him to retrieve it. Instead he radioed a request for instructions. On being ordered to use his own judgement, he opted to head for port, despite the strong suggestions of Maryk and Gorton -the previous XO. Queeg's written report blamed the helmsman and his officers).
Captain Grace says that ships lose targets all the time. He says that retrieving one takes about a half-hour and is a simple procedure. What upset him was that Queeg couldn't make a common-sense decision that a Seaman 2nd Class could make. Grace then goes on to say that when HE was new to his first command, he didn't want to make any mistakes. However, he did make them, paid for them and learned from them. That was how he grew into a competent officer. He then says that the rest of the interview is off the record. He then says:
"Let's be frank with each other . Commander Queeg, for the sake of your ship and, if I may say so, your future career. Forget this is an official interview. From here on in everything is off the record."
Queeg's head was sinking down between his shoulders and he regarded Grace warily from under his eyebrows.
"Between you and me," Grace said, "you didn't try to retrieve the target because you didn't know what to do in the situation. Isn't that the truth?"
Queeg took a long, leisurely puff at his cigarette.
"If that's the case man," said Grace in a fatherly way, "for Christ's sake say so and let's both put this incident behind us. On that basis I can understand it and forget it. It was a mistake due to anxiety and inexperience. But there's no man in the Navy who's never made a mistake..."
Queeg shook his head decisively, reached forward, and crushed out his cigarette. "No, Captain, I assure you I appreciate what you say, but I am not so stupid as to lie to a superior officer, and I assure you my first version of what happened is correct and I do not believe I have made any mistake as yet in commanding the Caine nor do I intend to, and, as I say, finding the calibre of my officers and crew to be what it is, I am simply going to get seven times as tough as usual and bear down seven times as hard until the ship is up to snuff which I promise you will be soon."
Grace then asks if Queeg steamed across his own towline. Queeg denies it. Grace says that the Admiral heard the rumour floating around and wanted to find out about it, in view of Queeg's other problems.
Grace even tells Queeg he could arrange for Queeg to be transferred to a State-side assignment, with no bad reflection on him. Queeg says he wonders what that would look like on his record -relieved of his first command after only a month. Grace says that he'd guarantee a fitness report that would relieve all doubt. He goes on to say that doing so would correct an erronous assignment, since -among other things- Queeg is very senior for a DMS like the Caine. The squadron is filling up with CO's who are reserve lieutenant-commanders and even lieutenants.
Later, with the Admiral, Captain Grace says he thinks Queeg is one of those officers who can never admit to an error...even when it's glaringly obvious they've made a mistake.
"What's your impression of this Queeg? That's the main thing."
Grace drummed on the desk softly with his fingers for a moment. "An old lady, I'm afraid, sir. I think he's earnest enough and probably pretty tough, but he's one of those that are never wrong, no matter how wrong they are -always some damn argument to defend himself, you know -and I don't think he's very bright. One of the low men in his class. I've been checking around."
"How about the towline? What's the story? Did he cut it or didn't he?"
Grace shook his head dubiously. "Well, it's one of those things. He got terribly offended when I asked about it -seemed sincere enough. I more or less had to take his word that it didn't happen. You'd have to run a court of inquiry to get at the definite facts, sir, and I don't know..."
"Hell, we can't go tracking down scuttlebutt with courts of inquiry. But I don't like the cut of the man's jib, Grace. Too many questionable occurrances too fast. Do you think I ought to recommend to the Bureau that he be relieved?"
"No sir," said Grace promptly. "In all fairness to the man, he's done nothing that we know of definitely to warrant that. Overtension in his first command could account for everything that's happened so far."
So, in the book, it's clear that if Queeg HAD been willing to admit to his mistakes -either to superiors or his subordinates- his command of the ship would likely have been far, far smoother. It was Queeg's refusal to admit to any errors that really started the chain of events that led to the relief during the typhoon.
In the film, the problem is that Bogart is simply way too old for the part. In the book, Queeg is supposed to be around 30 years old, or so. (Queeg graduated from the Naval Academy in 1936, and takes command of the Caine in 1943. So, he would be around 29 or 30 during his time on the Caine.) Thus Queeg was inexperienced as a commanding officer and found himself suffering badly in a job he likely didn't want and -deep down- knew he wasn't cut out for. During his time in command, he reacts anxiously whenever dispatches arrive from the Bureau of Personnel (i.e. orders for reassignment). His worst moods come when orders come for other officers. He haunts the radio shack as the one-year anniversary of his arrival on the ship nears, as few captains hold their posts longer than a year. He never comes to his officers and asks for their help. Instead, after Kwajelein he declares a state of hostility exists between him and his officers. Instead, the film makes it look like Queeg is a tired old seadog who has simply been worn down by long combat service and is rejected when he turns to his officers for help. In the book, he never turns to them for help, since he never admits making any mistakes.
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