How Ltv's Grand Scheme Hit The Smelter
Companies rarely suffer a humiliation as thorough as the one LTV Corp. just endured. It's even more unusual for a labor union to be the cause. But over the past months, the No. 4 steelmaker lost its chairman and signed an unprecedented deal with the United Steelworkers (USW) that amounted to a total about-face, giving the union carte blanche to organize workers at a fiercely antiunion Southern minimill.
And that's not all. Since LTV only owns 50% of the Alabama-based minimill, Trico Steel Co., the steelmaker must get its co-owners, British Steel and Japan's Sumitomo Metal Industries, each with 25% of Trico, to agree to welcome in the union within a year. If they refuse, as seems likely, Cleveland-based LTV must "exit" its partnership in the minimill, states its pact with the USW, which was ratified by members on Sept. 2. The terms are enforceable in court, and should the union need to sue, LTV is even on the hook for its legal fees.
How did LTV get into such a corner? Trico started out as a bold attempt by LTV to fend off low-cost, nonunion minimill operators such as Nucor Corp. LTV and its partners sank $450 million into Trico, putting top-notch technology into a new plant in Decatur, Ala. David H. Hoag, LTV's chairman and CEO when Trico was announced in 1995, trumpeted the plans, vowing to build similar mills in Asia and Europe.
CRYING UNCLE. But the strategy blew up in his face. The crusty CEO misjudged how bitterly the USW would oppose the move. After all, members had swallowed 15% pay cuts to help LTV through nearly seven years of bankruptcy ending in 1993. Then, during 1994 contract talks, Hoag asked the USW to form a partnership to beat back the minis. Becker agreed, giving more flexible work rules to LTV, which promised not to buck unionization in any unit in which it controlled more than 50%.
When LTV announced the Trico venture a few months later--exempt from the clause because LTV kept its stake to exactly 50%--USW President George Becker went ballistic. Ever since, the union has waged war against LTV, staging demonstrations at company mills to show it couldn't expect a partnership if Trico remained nonunion. "Trico was an out-and-out betrayal of the partnership they asked for," says Becker.
This February, LTV cried uncle. Hoag, 60, retired that month; Becker insists he was pushed out after directors realized that Hoag had burned his bridges with labor. Hoag declined to comment, as did J. Peter Kelly, LTV's new CEO. LTV director M. Thomas Moore says the allegation about Hoag is "pretty wild." Meanwhile, the 57-year-old Kelly, who joined LTV in 1963, has expanded the 1994 neutrality pledge to cover Trico. Kelly, who has had good relations with labor, also agreed that Trico CEO Richard Veitch should send a letter to his employees saying that Trico "welcomes unionization of our employees....What's more, we prefer to have a union such as the Steelworkers." Veitch declined to comment, as did British Steel and Sumitomo.
Kelly may have caved in to avoid spending even more on what has so far been a lousy investment. LTV has sunk $243 million into Trico, which has lost $187 million since 1997 because of equipment failure and cheap imports that flooded in during the Asian crisis. LTV's partners have already indicated they won't go along with the neutrality clause, insiders say. So LTV may have little choice but to sell out and move on.
SWELLING RANKS. As for the USW, its victory is a striking example of a new effort by unions to use bargaining muscle to stanch the decades-long slide in membership. The Steelworkers used the LTV campaign to persuade the four other major steelmakers, which also ratified new pacts this summer, not to oppose unionization drives at subsidiaries or joint ventures. All told, these pledges could bring in up to 10,000 new members on top of the 148,000 the union now has in basic steel.
What's more, the two sides need each other in their battle against imports. In the past year, Becker has met with Kelly and the CEOs of USX Corp. and Bethlehem Steel Corp. to plot strategy, and together they have won some import relief from the Clinton Administration. Kelly seems to have decided, after learning the hard way, that it's better to join the union than fight it.