Steel Firms Watch Strike at Wheeling : Industry Hopes Push to Lower Wages Will Set Pattern for Rest
It is an improbable situation:
- The chairman is using the bankruptcy laws to annul the company’s labor contract and force employees to accept dramatically lower wages.
- The union has hired an investment banker to look for ways to oust the chairman.
- The largest shareholders--including the firm’s erstwhile Japanese partner--are trying to form an independent committee to gain a voice in the dispute and possibly take over.
- And the company’s big competitors are taking it all in, hoping that the union is so bloodied by the battle that it will give them lower wages, too.
The ongoing strike at Wheeling-Pittsburgh Steel has become one of the strangest labor disputes in recent memory. Since workers at the nine plants run by the nation’s seventh-largest steelmaker hit the streets two weeks ago, nothing about the strike has been ordinary.
“This is entirely different from the last steel strike we had in ‘59,” Wheeling-Pittsburgh spokesman Ken Maxcy says, with noted understatement.
Major Test of Law
It started in April, when loss-plagued Wheeling-Pittsburgh was unable to hammer out concession agreements either with its lenders or the United Steelworkers, which represents Wheeling-Pittsburgh’s workers, and was forced to enter Chapter 11 bankruptcy proceedings.
Later, Wheeling-Pittsburgh, under controversial Chairman Dennis J. Carney, asked a federal bankruptcy judge to allow it to cancel its labor contract and arbitrarily cut the wages and benefits that it pays its unionized employees. It was the first major test of a 1984 amendment to the federal bankruptcy laws allowing companies to void their labor agreements with court approval, and Wheeling-Pittsburgh won.
Immediately after gaining court approval on July 17, the company warned the union that it would impose a new, six-month contract cutting average hourly labor costs from $21.40 to $17.50 beginning July 21. The union, which is appealing the court’s decision, responded by threatening to strike if the company went through with its plan, which Wheeling-Pittsburgh did anyway.
Neither side has flinched since, and federal mediators have been unable to get company and union negotiators to sit down together since the strike began July 21. Earlier, Wheeling-Pittsburgh had warned the bankruptcy court that it might be forced to liquidate if the union walked out, but a spokesman now refuses to say how long the company can survive. (Carney and the rest of Wheeling-Pittsburgh’s management team refuse to discuss the situation publicly.)
Meanwhile, the strike has put the union in an awkward position. In addition to representing 8,600 members at Wheeling-Pittsburgh, it has a big financial stake in the company. It holds in trust for its members $40 million worth of Wheeling-Pittsburgh’s preferred stock and is an unsecured creditor in the bankruptcy case as well, with huge claims for back wages given up in previous rounds of contract concessions.
With so much invested in Wheeling-Pittsburgh’s future, the union has already proven itself quite willing to help the company stay afloat. The union has granted Wheeling-Pittsburgh concessions over the last few years that have reduced its average hourly labor costs to the point where they are now more than $1 per hour below the industry average of $22.50.
Willing to Accept Cuts
Paul Rusen, the steelworkers’ chief negotiator with Wheeling-Pittsburgh, says the union is still willing to accept some concessions that will take wages and benefits below the current $21.40 per hour because it knows the company is in severe financial straits. Before the strike, in fact, the union offered to lower wages and benefits to $19.50 per hour but was rebuffed by Carney.
“This company is needy, and we are willing to help,” says Rusen, director of the union’s District 23 in Wheeling, W.Va. “But there is a difference between being needy and greedy.” He claims that the company’s current proposal would actually take wages and benefits down to $15.60, rather than the $17.50 per hour figure released by the company, and adds that such a huge pay cut would be impossible for the union to swallow.
Unwilling to accept the voiding of its labor agreement without a fight, the union has asked its financial adviser, the New York investment firm of Lazard Freres, to fight back against what the steelworkers see as Carney’s efforts to break the union.
Dick Fontana, a steelworkers spokesman, says Lazard Freres, which had earlier studied Wheeling-Pittsburgh’s books for the union, has been asked to contact company shareholders to explain the union’s position in the strike.
“Lazard Freres has been in touch with the shareholders to get the union’s message across that some rational thought has to be brought back into these labor negotiations,” Rusen says. The union’s advisers are also telling shareholders why the union believes that Carney is mismanaging the company and should be fired.
“We are trying, through Lazard Freres, to get the shareholders to dump Carney,” Fontana says. The steelworkers clearly hope that a new management team would be more willing to negotiate with the union.
The union’s dump-Carney campaign follows a move by the company’s two largest shareholders to petition the bankruptcy court to give them a voice in the bankruptcy proceedings through a new, independent shareholder committee. The petition was made by investor Allen E. Paulson, who holds about 34% of Wheeling-Pittsburgh’s common stock, with the backing of Nisshin Steel of Japan, which bought 10% of the company last year as part of an agreement, later put on hold, to set up a U.S. joint venture with Wheeling-Pittsburgh to produce rust-resistant galvanized steel for the auto industry.
So far, Paulson and Nisshin have refused to comment on the widespread speculation in Pittsburgh that they are planning an attempted to take over Wheeling-Pittsburgh. But both are clearly upset with Carney, especially since he took the company into bankruptcy proceedings.
“I can certainly say we are not always in consensus with (Wheeling-Pittsburgh) management on management matters,” says Kiichi Mochizuki, president of Nisshin Inc. in New York, which supervises Nisshin’s U.S. investments. “I’m frustrated and concerned.”
Maxcy says the embattled Carney has no plans to step down, however. “He’s got his hand firmly on the tiller,” the spokesman notes.
Meanwhile, the rest of the steel industry is watching the strike to see how low Wheeling-Pittsburgh’s wages go; with negotiations throughout the rest of the industry scheduled for next summer, big concessions at Wheeling-Pittsburgh could set a pattern for the larger steelmakers. United Steelworkers President Lynn Williams last week termed the Wheeling-Pittsburgh situation a special case that won’t apply to the union’s talks with the larger and healthier steel companies, but U.S. Steel Chairman David Roderick warned last week that the wage settlement at Wheeling-Pittsburgh will be a “reference point” for his company’s negotiations with the union next year. Rusen counters that, “if U.S. Steel wants to file Chapter 11, then we’ll look at it. Otherwise, forget it.”
But industry observers don’t see how the union can stop a settlement at Wheeling-Pittsburgh from establishing a new, lower wage standard, especially since any new agreement will follow the first major strike in the industry since 1959. In addition, the industry’s united bargaining council has just broken up, and each major steel company would like to negotiate separately with the union next year.
That could make it more difficult for the union to maintain a high, industrywide wage pattern.
“I think it has to have a significant impact on future negotiations in the steel industry,” says Bob Strauss, an economist at Carnegie-Mellon University in Pittsburgh. “If Wheeling-Pittsburgh becomes the low-cost producer, it will discount its prices accordingly to gain market share,” Strauss says. That will put greater pressure on the union to grant similar deals elsewhere so that other domestic firms can continue to compete, he believes.
“All of this bodes for a time of labor confrontation in Pittsburgh,” Strauss says.
