Thunder in Pittsburgh

Pittsburgh is a city with a head of steam, a heart of steel and one subject on its tongue. The steel chieftains ponder it in their exclusive Duquesne Club; the middle managers anxiously debate it in the Bar D'Or at the Penn-Sheraton Hotel; the mill hands chew it along with pretzels and pistachios in beery saloons from Ambridge to Donora. The subject: the change that is coming over the United States Steel Corp. Behind the closed doors of its executive suites, the world's largest steelmaker is shaking through the greatest reorganization in modern U.S. business. On July 1 the giant that steelmen everywhere know as "The Corporation" plans to announce that Phase One is over, that its thorough shifting of executives and sorting of divisional boundaries have been successfully completed.

"It Was So Obvious." The thunder has been rolling in almost every corner of a company that pours more steel (27 million tons a year) than all of Great Britain. Since 1960, U.S. Steel has cut its work force from 225,000 to 183,400. Some 3,000 executives--more than 10% of the company's management--have been released or sent to early retirement. Another 2,500 executives, who have what one U.S. Steel official calls "good records and good attitudes," have been rooted up from such outposts as Birmingham, Cleveland and Provo, Utah, leaving behind a surfeit of $35,000 to $50,000 homes. Transferred to Pittsburgh, they now overflow the 41-story headquarters into four other downtown buildings. They have been brought together as part of the corporation's effort to slice through its layer cake of supervisors, consolidate its sprawling divisions and end the costly overlapping of its sales offices. The company has united many of its independent accounting and engineering offices in central headquarters, reduced the number of its regional sales offices from 53 to 28, and ordered all salesmen to sell its full range of 10,000 kinds of steel instead of only a limited number. Says President Leslie B. Worthington: "It was so obvious that we could improve our effort by bringing together these divisions."

The obvious need is to increase sales and earnings. The company that controlled 65% of the nation's steel sales 60 years ago has slipped almost steadily to a low of 24.2% of the present booming market; each percentage-point drop now means a loss of $150 million in annual sales. Though U.S. Steel last year reached a three-year peak in sales ($3.6 billion) and earnings ($203.5 million), its profit as a percentage of invested capital (4.9%) was the lowest among the majors, and as a percentage of sales (5.6%) was just average. In comparison, National Steel, which is one-quarter the size, led by both measures with returns of 8.4% and 7.5%. In 1962 U.S. Steel was forced to cut its quarterly dividend from 750 to 500, and its stock closed last week at 53 3/4--less than half of what the price was five years ago.

Lawyers & Bankers. Such losses in income and image have stirred up criticisms of the company's management. In the 63 years since J. P. Morgan bought out Andrew Carnegie for $500 million and brought in Judge Elbert Gary to organize U.S. Steel, the company has been guided mostly by lawyers and bankers. Of the six chairmen in its history, only one--the late Ben Fairless --ever worked regularly in a steel mill and was not a lawyer. Says a vice president of a competing steel company: "The operating people simply do not have an equal voice. The corporation would do much better if they did."

High policy at U.S. Steel today is made by three men--two of whom came from consulting jobs outside. Chairman Roger Miles Blough, 60, probably the best-known U.S. businessman, was recruited 22 years ago from the company's law firm, White & Case, and today is in charge of its relations with Washington and with stockholders. Finance Committee Chairman Robert C. Tyson, 58, a cool accountant who came from Price, Waterhouse, looks after the money. Leslie Worthington, 61, an ebullient salesman who was lifted several ranks to the presidency in 1959, runs day-to-day operations. Steelmen and securities analysts consider Blough and Tyson to be adequate specialists, rate Worthington as the most imaginative and popular of the three. "In sum," says one Pittsburgh steel executive, "the top managers are conservative men who tend to practice what they already know."

Penalty of Size. Instead of leading the industry, the company's cautious managers were slow in adjusting to some of the great marketing and technological changes that have vastly altered the steel business over the past decade. Such companies as Inland were quicker to react to the fact that the great postwar and post-Korea steel shortage ended in 1957, and they stepped up their selling drives. While U.S. Steel continued to concentrate on the heavier and less profitable grades of steel, such specialists as Armco and Youngstown marketed more and more of the lighter and flat-rolled steels that have taken larger bites of the market.

European firms developed the two major postwar steelmaking innovations --the oxygen process and continuous casting--and companies such as McLouth, Kaiser and Jones & Laughlin built oxygen furnaces before U.S. Steel did. Progressive McLouth was also first with continuous casting. In addition, U.S. Steel declined to meet lower prices set by aggressive domestic and foreign competitors, sometimes abandoned markets rather than compete.

U.S. Steelmen say that they are penalized by bigness. Theirs is the only truly national steel company, with plants stretching westward to Pittsburg, Calif., and it often cannot change prices or products as rapidly as smaller but more profitable regional companies. At the same time, the corporation is among those most hurt by cut-price imports from Japan and Europe, for it is a major producer of the products most heavily imported--bars, wires, pipes. Many U.S. Steelmen also complain that Government harassment prevents them from expanding their markets or raising prices as high as they would like. The Government has filed no fewer than six anti trust suits against U.S. Steel since Roger Blough's price fight with President Kennedy in 1962.

"The New Competition." U.S. Steel has begun to make up for its inadequacies. "Changes occur at such a rapid pace," Roger Blough told stockholders last month, "that we might call this business ferment the new competition." The corporation has tripled its research budget over the last five years, is introducing new or improved products at the rate of one a week. Among them: a cheaper wire rod to battle the imports, and a .002-in. "thin tin" to foil aluminum's inroads in the packaging business. U.S. Steel recently opened its first two oxygen furnaces at Duquesne, Pa., may build four others at Birmingham and Lorain, Ohio. To capture more of the rich Midwestern market from Inland, Republic, National and Bethlehem, U.S. Steel is building three oxygen furnaces and a continuous casting line at Gary and a strip mill at South Chicago capable of turning out enough tin cans to supply almost all the nation's needs.

First quarter sales, helped by price increases on 75% of its products last year, were 11 % higher than the same period of 1963. But not even its managers expect the full effect of their corporate changes and capital spending to be felt until 1966 or 1967. Competitors believe that U.S. Steel is still in the midst of upheaval, and they hope to exploit it to their own advantage for several years. President Worthington agrees in part. Says he: "Nobody around here is saying that this reorganization is the last word."

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