United States Steel: A Corporation with a Soul

by Arundel Cotter

Many dangers faced the new-born Corporation. Not the least of these, although it was not realized at the time, was that, glorying in its giant’s strength, it might use that strength mercilessly, like a giant. Had it chosen so to do there is little doubt that it would have reaped some immediate financial benefits, but events of later years proved conclusively that it would have but laid the seeds for its own eventual destruction. That the Corporation chose a different policy, and up to that time one almost unknown in business, was due to the insistence of Judge Gary.

And here it might be said that he did not have by any means an easy time in convincing all of his co-directors that the policies he advised should be adopted. For years he had a constant struggle, but gradually he won over all of his opponents to this point of view.

Another of the dangers that beset the path of the new Corporation lay in the fact that it was not an operating company with a number of plants controlled by one central management, but a holding company controlling by stock ownership a number of industrial units which had previously been owned by utterly conflicting interests and each of which continued necessarily to operate under a separate management.

The natural corollary of this state of affairs was that the management of each constituent, or subsidiary company, troubled itself solely about the success of its own particular unit and took little interest, if any, in the affairs of the other subsidiaries or the success of the Corporation as a whole. And had this condition continued the attainment of the ends for which the Corporation was organized would have been rendered impossible, its very existence made vain.

To illustrate: the Carnegie Steel Co. and the Illinois Steel Co., a subsidiary of the Federal Steel Co., had widely separated plants, and, because of the important item of freight rates, sold for the most part in different territories. But the two companies competed in a middle ground and each had succeeded in encroaching on the other’s natural territory, in some instances had attached to itself certain customers therein. To retain these customers each company was compelled to sell in a locality adjacent to the other’s mill at the same price as its competitor was willing to offer. The Carnegie company, for instance, might have achieved the custom of a railroad whose Eastern terminus was Chicago. To supply the orders of this road it would have to pay freight tariffs from its mills near Pittsburgh and deliver the goods to the road at Chicago at the same quotation the Illinois company was naming for deliveries from its mills in the very suburbs of Chicago. It is extremely doubtful if such a situation was really advantageous to either company in the long run. It is certain that its continuance would have been distinctly disadvantageous to the Corporation that owned the stock of both concerns; it simply meant that the Corporation would have to pay freight for carrying steel hundreds of miles when it was able to deliver it from a mill practically at the customer’s door.

The officers of each company were naturally unwilling to hand over custom they had built up by years of effort to a concern long regarded as a competitor. Even from the standpoint of the then-existing conditions each must have felt that it was his job to make a good showing for the company he managed; he had no concern elsewhere. But, for the good of the whole organization, it was absolutely necessary that these officers should be brought to realize that they were working first of all for the United States Steel Corporation, that inter-company jealousies must be buried for the common good and the interests of the party made subservient to the welfare of the state. And the way to do this was to make the interests of the Corporation, the controlled company, and the individual worker identical.

Andrew Carnegie had built up the greatest steel company of its time by appealing to the loyalty of his men through self-interest. Like Napoleon’s soldiers, each man under him carried a potential marshal’s baton in his knapsack. The Napoleon of Steel held dangling before the eyes of his subordinates the hope of a partnership in the great Carnegie company as a reward for meritorious service, and most of his later partners won their way upward from the ranks. And the scheme worked out by the Corporation’s management to bring about the desired harmony, to assure loyalty to the United States Steel Corporation first and last, was modelled to some extent on Carnegie’s method. It became known as the Stock Subscription and Profit-Sharing Plan.

Before going into the details of the plan an example of its effects may be illuminating. Journeying over the Corporation’s plants and mines the author was impressed by this very spirit of loyalty and coöperation on the part of officers and workers alike, and commented on it to William A. McGonagle, president of the Duluth, Missabe & Northern Railroad. And Mr. McGonagle related the following instance of this spirit of coöperation:

When we were planning the big ore concentrator at Coleraine the engineers and other officers of the various companies concerned were called together in consultation and certain differences of opinion arose regarding the plans, each of the men present urging changes which he thought would be of benefit to the company he represented. While the discussion was at its height somebody rose and said, “Gentlemen, it is not a question of what is best for the Duluth, Missabe & Northern, the Oliver Iron Mining Co., or any other company; the whole question is, what is best for the interests of the United States Steel Corporation!” That settled it. All differences were smoothed out and a harmonious plan quickly agreed on.

This result was due to the plan referred to which was devised to give each employee the stimulus of personal ownership, an incentive not confined, as it had been formerly, to a few individuals, but distributed throughout the organization.