It's Time For Usx To Take Labor's Outstretched HandKeith L. Alexander
United Steelworkers President Lynn R. Williams chose a bold course early this year when he set out to negotiate new labor pacts in the steel industry. Instead of the usual demands for better pay, he decided to stretch out a cooperative hand to management. By the end of July, three of the six major steelmakers--Inland, National, and Bethlehem--had agreed to meet him halfway. And LTV Corp. already had done so in bankruptcy court. The companies gave the union job guarantees and decision-making power, including seats on boards of directors. In exchange, the USW agreed to slash work rules, install teams on the factory floor, and alleviate disruptive strike threats, signing six-year pacts.
Now, it's USX Corp.'s turn. The company's U.S. Steel Group unit, whose union contract expires in January, already has said that it doesn't like Williams' terms. The reason may be a long history of antagonism toward labor and USX management's antipathy toward power-sharing. Similar motives may be keeping Armco Inc., whose pact ran out in July, from accepting the union's offer. But it would be a major error if either company let ideology blind it to the benefits of the USW's deal. Without the efficiency gains that should flow from the new work arrangements, both run the risk of being left behind.
Increasingly, USX "is going to be competing with nonunion minimills, which have few work rules, as well as with the other steel companies that have redesigned their work rules under these latest contracts," says Christopher Plummer, a steel analyst at Philadelphia-based Resource Strategies Inc.
SHARP CLIMB. Indeed, the four big USX rivals that signed on with Williams had little choice. The industry has lost money for three years. And while its productivity and quality have climbed sharply in the past decade, overseas rivals continue to raise the competitive hurdle. Foreigners retain 15% of the domestic market. And the competitive outlook intensified in late July, when the International Trade Commission overturned many of the tariffs on imported steel that Big Steel had sought. What's more, minimills are stealing market share almost by the hour.
Although it's not easy to make cooperative labor relations work, there's plenty of evidence that it can be done. Take National Steel Corp., which chose this path as long ago as 1986. The change wasn't free of friction. Despite no-layoff promises for union members with a year's seniority, some 20% of National's 9,500 workers still don't like cooperation, the USW says. But hourly workers act as foremen, gaining more input into decisions. And USW officers get data on everything from earnings targets to market conditions. Result: Productivity at National's main plant, in Ecorse, Mich., is among the industry's best, at 2.95 labor hours per ton.
The most dramatic payoff came in 1991, when the recession brought a $101 million loss in the first half and pushed National close to bankruptcy. When management asked workers for help, hundreds of ideas poured in. For example, workers surveyed the shop so rental equipment that wasn't being used could be returned. Costs fell by $100 million, and productivity jumped by 11% in one year. National became the only major steelmaker to turn a profit in the second half. Management ran newspaper ads saying: "We're partners with labor because we can't imagine a future without them."
The new pacts go several steps further. The union has agreed to help set up work teams on the factory floor, which will require an extensive overhaul of how work is organized. For example, Inland electricians and plumbers will help each other out when needed, which will reduce the need to shut down a plant or work station for maintenance as has been traditional practice. And as a part of the process, joint management-labor committees will oversee practically all aspects of steelmaking.
TOUGH STANCE. The companies hope all this will bring dramatic new cost reductions. For instance, Inland Steel Co. executives say they will be able to use attrition to slash annual labor costs by 20%, or $65 million, by 1995. And the company's productivity, which now stands at four labor hours per ton, should fall to three, officials say. "This contract will definitely make us more competitive," says Inland President Maurice "Sandy" Nelson.
USX is leery of cooperation in part because its confrontational approach made it one of the most efficient of the big U.S. steelmakers in the 1980s. However, much of those gains came from slashing capacity and shuttering old plants--a strategy that won't produce many more gains in the future. At this point, the company has a choice: swallow its pride and take the hand Williams has offered, or stick to its management-knows-best attitude and hope that rivals don't pass it by.