United States Steel: A Corporation with a Soul. Arundel Cotter

      J. Pierpont Morgan

      It may seem absurd to accuse the management of the Steel Corporation of socialistic leanings. But among the 160,000 stockholders of the big enterprise more than one third are men who work in its furnaces, mines, mills, and offices, and these have become stockholders under the plan that permits employees to acquire stock on the instalment plan and offers a premium as an inducement to hold it. Does the history of the industrial world contain another so striking instance of a step toward ownership of the product of labor by labor itself, toward the highest and best socialism?

CHAPTER III

       EARLY HISTORY AND GROWTH—1901 TO 1907

       Table of Contents

      It was perhaps natural that the early years of the big new corporation were not entirely without their troubles. The work of bringing together and making into one harmonious whole a number of different companies, with the smoothing out of mutual jealousies and dispelling of distrust, was a far greater task than the actual financial organization. And it was only with the passage of years that this was successfully accomplished.

      It will be remembered that Schwab, in his speech at the Simmons dinner, had pointed to the advantages of integration which would be possible in a big steel merger, and the fact that a concern like the Steel Corporation, and such a concern alone, could successfully invade foreign markets and develop, in competition with European manufacturers, a permanent outlet for American steel. This was the same thought held by Gary when he had previously urged Morgan to finance a big steel combine. Briefly, these were the principal reasons for the Corporation’s existence; and these were the objects which its founders immediately set themselves to attain.

      The early history of the Steel Corporation, therefore, will naturally be found to have concerned itself largely with achieving these ends. It is to a great extent the narrative of the various steps taken to coördinate the more or less divergent units brought together in the new Colossus of Steel, of the work that had to be accomplished, the difficulties that had to be overcome, before it could fulfil its raison d’être and win the place it now occupies as the most important business enterprise in the world.

       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