United States Steel: A Corporation with a Soul. Arundel Cotter
Among its directors were Phipps, Frick, and Schwab, old Carnegie partners, and firm believers in the Iron Master’s policy of getting your competitor before he got you. Gary was the prominent figure in another faction that had the foresight to perceive that a new day was dawning in industry, an era of coöperation between manufacturer and manufacturer, to realize that the very size of the Corporation rendered it subject to the enmity of smaller concerns and to legal attack and public disapproval, and that the only way of overcoming this danger was to gain the good will of all by an open and straightforward policy. As the years passed these differences were gradually smoothed out. The directors, as a whole, came to see that Gary’s policy was right, in fact the only one to pursue, and harmony was gradually brought out of the conflicting elements and opinions.
With the passing of the years Gary gained the ascendency in determining the courses of action of the Corporation. Always its chief executive officer he eventually became potential. And it is a high tribute to his judgment and foresight that all of those who disagreed with him at first have later admitted, as did Schwab, in a published speech, “He was right and I was wrong.”
Charles M. Schwab did not long remain as president of the Corporation. His health broke down shortly after its formation and, in 1903, he resigned his position and sailed for a long rest abroad, later coming back to America to purchase control of a small independent concern and to build up an organization of his own that to-day ranks next to United States Steel among the steel-making companies of the United States.
At the time of Schwab’s resignation the Executive Committee was abolished, the position of chairman of the Board created, and Gary was elected to that office. William Ellis Corey, President of the Carnegie Steel Co., was chosen President of the Corporation to succeed Schwab, on the latter’s recommendation, and continued in this capacity until the end of 1910, when he resigned to be succeeded by James A. Farrell, the man who had built up the Corporation’s export trade and who was then president of the United States Steel Products Co.
Before the new-born Corporation had passed the first anniversary of its birth Robert Bacon resigned as chairman of the Finance Committee and was succeeded by George Walbridge Perkins, another Morgan partner. Mr. Perkins continued in this office for several years, but later retired, and since then Judge Gary has filled the offices of chairman of the Finance Committee and chairman of the Board. He is by the Corporation’s by-laws named “chief executive officer in general charge of the affairs of the Corporation.”
In the first nine months of its operations the United States Steel Corporation reported net profits of $84,779,298. After the payment of sinking fund and interest charges on the bonded debt $61,420,304 was left for distribution to stockholders. Dividends of 5¼ per cent. (at the annual rate of 7 per cent.) on the preferred stock, and 3 per cent. (at the annual rate of 4 per cent.) on the junior issue, were paid, the balance after these disbursements, $19,414,497, being carried to surplus account.
In 1902 a gross business of $560,510,479 was done and the net profits therefrom were $133,308,764. The year was a fairly profitable one and although a special appropriation of $10,000,000 for new construction was made and more than $14,000,000 was put aside for depreciation and extraordinary replacement, the big company was able to show the full dividends earned on its stock of both classes and a surplus balance of $34,253,657.
The following year was one of general business depression and the steel industry, the barometer of trade, was seriously affected. The result to the Corporation is shown best by the simple fact that on December 30, 1903, unfilled orders on the books of the subsidiary companies aggregated 3,215,123 tons, against 5,347,253 tons a year previous. This falling off in orders was accompanied by declining prices, and the directors of the Corporation were impelled to reduce the quarterly dividend on the common stock for the third quarter from 1 per cent. to one half of 1 per cent. and to eliminate the junior dividend altogether in the final quarter. Gross sales for the year were $536,572,871 and net profits $109,171,152, the surplus for the period being $12,403,917.
Several changes in the make-up of the subsidiary companies occurred in this year. The most important was the incorporation of the United States Steel Products Export Co. (the “Export” was later dropped from the title), headed by Farrell, to conduct the Corporation’s foreign business. The Carnegie and National Steel companies and the American Steel Hoop Co. were merged into one concern, known first as the National Steel Co., the name being later changed back to the Carnegie Steel Co. Lastly, the American Tin Plate Co. and the American Sheet Steel Co. were consolidated as the American Sheet & Tin Plate Co.
The depression that began in 1903 lasted well into the year following and affected earnings of the Corporation to such an extent that, for the first and only time in its history, the wages of the men employed in the plants were reduced. (Incidentally wages were quickly restored.) Gross sales for the year were only $444,405,431, and net profits, $73,176,522. No special appropriation for new construction was made and, despite the small profits, the Corporation managed to show a surplus after the payment of the full preferred dividend of $5,047,852.
But the wave of prosperity was returning. The first signs made themselves felt in the late months of 1904 and the Corporation’s earnings showed marked improvement in 1905. Gross sales amounted in value to $585,331,736 and net profits of $119,787,658.
A surplus of $43,365,815 was reported after the preferred dividend payment, but $26,300,000 was deducted for new construction in contemplation so that the net amount added to surplus was $17,165,815. In this year production reached the highest mark so far recorded by the big company, the output of pig iron being 10,172,148 tons, of ingot steel nearly 12,000,000 tons, and of rolled products 9,226,386 tons.
In the annual report for 1905 is found the following statement by Judge Gary: “It has been decided to construct and put into operation a new plant to be located on the south shore of Lake Michigan, in Calumet Township, Lake County, Indiana, and a large acreage of land has been purchased for that purpose. It is proposed to construct a plant of the most modern standard. …”
About the time those words were being written work on the new plant was being started and the foundations of a new city, now having a population of 56,000, were being laid. It is appropriate that the name chosen for this town should have been Gary, although Judge Gary had nothing to do with the selection of the name.
All previous records for production and profits were shattered in 1906. The betterment in steel conditions that started in 1905 continued throughout the ensuing year, and, indeed, until the latter part of 1907, when the disastrous panic occurred. The Corporation’s report for 1906 showed that it had increased its capacity for pig iron production more than 63 per cent. and its steel capacity nearly 57 per cent. between the date of its organization and January 1, 1907, and this increase enabled it to take advantage of the business betterment and to profit thereby. In 1906 the Corporation’s blast furnaces poured out 11,267,377 tons of pig iron, while its steel plants produced more than 13,500,000 tons of ingots and 10,578,000 tons of finished material. The gross sales of the year amounted to $696,756,926, and the net profits to $156,624,273.
These large earnings justified the resumption of dividends on the junior stock and 2 per cent. on the issue was paid. The balance after dividends was $62,742,860, but special appropriations for proposed expenditures on the Gary plant and for other purposes were made, calling for $50,000,000, this making the net carried to surplus account only $12,742,860.
Another important event of the year in the Corporation’s history was the incorporation of the Universal Portland Cement Co., which was formed to take over the cement plants operated by the Illinois Steel Co., and to erect new plants for the manufacture of this profitable by-product. The production of cement had grown from 486,357 barrels in 1902 to 2,076,000 barrels in 1906. The Universal Company immediately started work on the erection of two new plants, one at Buffington, Indiana, within a few miles of the Gary plant, and the other at Universal, Pa., near Pittsburgh. The results of this enterprise have entirely justified the expectations of the Corporation’s management, and the manufacture of the by-product has increased until an output of 11,197,000 barrels was reached in 1913.
But the most notable event of 1906 was the negotiation of a lease by the Corporation on the ore properties owned by the Great Northern and Northern Pacific Railway