CHAPTER XII

QUESTIONS OF POLICY Almost since the date of its organization the activities of the Steel Corporation have been guided by a definite set of policies. At the beginning, when the Corporation was going through what might be described as its “tooth-cutting” period, this was, perhaps, not the case, as there was, as suggested elsewhere in these pages, a lack of concordance on its Board on many questions, particularly in regard to relations with competitors, with employees, and the general public. But the policies advocated from the very beginning by the chairman eventually were accepted in full by all concerned, and they have for many years ruled the Corporation’s actions. [Illustration: Ingot on Way to Rolling Mill] Broadly speaking, the Corporation’s policies might be divided under five heads--relations with competitors, prices, publicity, relations with employees and, finally, with stockholders. No better proof can be offered of the wisdom and success of the big company’s methods of treating its competitors than the fact that, in its hour of trial, when the Government of the United States was seeking to disintegrate it, its competitors, the men who met and fought it for industrial success, came forward practically in a body to its defense and testified that its dealings with them and with the public had always been fair and honorable. The era that preceded the birth of the Corporation was one of unrestrained, bitter, and often unfair, competition in the steel trade. Too many manufacturers then worked, to paraphrase a well-known piece of advice, on the principle of: “Sell steel, honestly if you can, but sell steel.” But the management of the big company had the foresight to realize that a new day was dawning and, to help to make the morning of that day brighter, it adopted the policy of candid treatment of competitors, the principle of coöperation. Possibly its motives were not entirely altruistic. The Corporation itself benefited, as appeared later, from its course of action. However this may be, it sought to make friends rather than enemies of its competitors. In this it had no easy task, for the trade had too long been used to fear gift-bringing Greeks, to view with suspicion every unhostile act of a competitor, to believe that business could possibly be done on the higher plane adopted by the new consolidation. “Live and let live” was then unknown in business, or, at least, in the steel trade. But gradually the fears alluded to were overcome and the steel trade changed, or its methods did. The Steel Corporation was an evolution, the natural result of the integration in the industry that had been going on for many years. In it were concentrated into a single organization all the processes of steel making from ore mining to the manufacture of the most highly finished products of all kinds, including transportation. And the evolution was not merely a physical one. The new company stood for development along the lines of modern thought of business methods and practices. It was a fortunate thing that the Corporation from its organization had as its chief executive officer a man far-sighted enough to see that so vast an enterprise must avoid unfair practices and methods that, even if fair legally, were hardly so morally, if it would live itself; a man with sufficient acumen to realize that the Corporation’s very strength contained the germ of weakness, and to guide it clear of the dangers to which it might otherwise easily have fallen prey. In formulating its policies governing competition the Corporation had a difficult course to steer. The laws governing the actions of big business in the United States were by no means clear and for that matter, are not so to-day. On one side was Scylla and on the other Charybdis. To obey the law, the Corporation was bound to engage in active and sustained competition with other steel makers; at the same time, it had equally to refrain from any act which might be interpreted as an attempt to take advantage of its great size and resources and to overdo this competition. In endeavoring to avoid the legal rocks, the Corporation, perhaps naturally, did not meet with the most complete success. Indeed, to do so would have been impossible, as there is no true middle course between competition and coöperation--the best that can be hoped for is a compromise. It is interesting to note that the Government, in attacking the great company, charged it with doing both the apparently forbidden things, drawing from the Supreme Court the suggestion that these charges were paradoxical and presented contradictions. Said the Court: “In one, competitors (the independents) are represented as oppressed by the superior power of the Corporation; in the other, they are represented as ascending to opulence by imitating that power’s prices, which they could not do if at disadvantage from the other conditions of competition.” And the Court naturally asks, respecting competition: “Are the activities to be encouraged when militant and suppressed or regulated when triumphant, because of the dominance attained?” This same idea was suggested by Judge Gary in his testimony before the Stanley Committee, where he said: It has seemed to me that the Sherman Law, so-called, has two different provisions that, in their application, are more or less antagonistic one to the other. One provision is against monopoly and the other is against restraint of trade. If one manufacturer should undertake to enter into any combination or agreement, expressed or implied, to fix prices, to restrict output, to divide territory, it would be considered an arrangement in restraint of trade and inimical to that provision. On the other hand, except for some basis whereby destructive competition could be avoided, whereby the old methods of doing business under which, as you probably know, a few only of the steel companies were allowed to survive and do business, and a large majority were wrecked; if we should enter into that kind of competition, it would mean that a large percentage at least of the manufacturers of steel would be wrecked; and that would secure to the survivors, to a greater or less extent, a monopoly; and our effort was to find a position between those two extremes and what we have done has been open and aboveboard, whether right or wrong. We have met and laid our business on the table, so to speak, telling one another frankly and freely just what we were doing, and while that has not maintained prices, that has not prevented a good deal of cutting by different ones at different places and times; while it has not controlled the business in any sense of the word, yet it has had a very steadying influence, and has prevented the destructive competition to which I have adverted. That is the frank and honest statement of facts, whether they are justified or not. In its answer to the Government’s charges, the Corporation claimed that, far from restraining competition, it had fostered it, and the majority of its competitors themselves swore to the truth of this defense. The United States District Court, before which the suit was first tried, pointed, in summing up, to facts and figures of the growth of competitors which fully and completely substantiated the Corporation’s claims. These figures showed that the Corporation’s business from 1901 to 1911, in which year the suit was brought, had increased over 40 per cent., but that in the same time the Bethlehem Steel Co. had shown a gain of 3,780 per cent. in business, the La Belle Iron Works of 463 per cent., Jones & Laughlin Steel Co. of 206 per cent., the Cambria Steel Co. of 155 per cent., the Colorado Fuel & Iron Co. of 153 per cent., the Republic Iron & Steel Co. of 91 per cent., and the Lackawanna Steel Co. of 63 per cent., to say nothing of the rise and expansion of entirely new companies, such as the Youngstown Sheet & Tube Co., during the same period. For many years, ever since the period of consolidation in manufacturing and other industries began, big business had been viewed with suspicion and something of hatred by the mass of the people--and by no means without cause, in many instances. There was no question that the powers that controlled more than one great industry used their resources to crush competition and, too often, their money and influence for political ends. No argument is necessary to convince the unprejudiced mind that such acts were inimical to the good of the nation. It was perhaps natural that the stigma that attached to some as a result of this was used by demagogues and others, often sincerely enough, against big business in general as an aid to themselves politically. In short, “Smash the trusts” was for years the great vote-getting slogan, and unfortunately, is so still to some extent. Small wonder then that the Steel Corporation, the largest and most powerful of all the so-called “trusts,” was a shining mark for these attacks. Small wonder that the man in the street, looking to his leaders for guidance in such matters, was easily persuaded that the giant company was necessarily a menace to the body politic. Apparently this it was that Judge Gary foresaw when he insisted that the organization at whose helm he stood must so conduct itself in all its dealings with competitors and the public that it could at any time show clean hands; could prove that its power had been used not destructively but constructively for the good of all affected by its actions--and this means the entire population of the United States. He has said publicly either in a public address or when testifying that these policies were justified on two grounds either of which is sufficient, namely: first, because they are right, and secondly, because they will pay in the end. He evidently saw that the very life of the Corporation depended upon this; and time has proved the accuracy of his judgment. It is safe to say that had the Corporation misused its power it would have been picked out many years before it was for legal attack, and the attack would have been successful. The Corporation would not have been in existence to-day. To the lay mind, it is passing strange that the so-called “Gary dinners,” which provided the principal example of the Corporation’s attitude toward its competitors and the public, should have been made the subject for special attack by the Stanley Committee and the Government’s attorneys, and should have been criticized by the Lower Court. However, the Court’s criticism appears to have been based largely upon a technicality, as the judges in their opinion practically admitted that there was no intent shown on the part of Judge Gary or his associates to restrain trade by these functions. In fact, the criticism seems rather to have been based on certain meetings held in Pittsburgh as a result of these dinners, but at which meetings the head of the Corporation was not present. Judge Woolley, who rendered a separate opinion, said of these dinners: The first Gary dinner was given on November 20, 1907, to meet an unquestioned exigency arising out of the panic then existing.... The dinner was given in order to devise ways and means to prevent calamity to the [steel] industry. Ways and means were found which, no doubt, contributed greatly in preventing disaster not alone for the producers of steel but also to those intermediate consumers who were carrying large and costly supplies. The ways and means consisted then of nothing more than the urgent request of a strong man that in the stress of panic all should keep their heads, and avoid the consequence of reckless cutting of prices. In this the others acquiesced, and in the light of the emergency then existing and of the disaster averted, I am of opinion that the purpose and conduct of those who participated in the first Gary dinner were not unlawful, improper, or questionable. In view of the notoriety that these functions had received and of the use that had been made of them against the Corporation, it may be worth while to devote a little time to them here. The Gary dinners! Feasts that will rank in the business history of the United States as did the feasts of Lucullus in epicureanism or Cleopatra’s dinners to Antony in romance. Occasions where the heads of the steel companies of the United States gathered at the festive board with amity and good will, to consider and discuss a situation that threatened not themselves alone, but the country at large; where these Titans of industry, only a few years before mortal enemies, met as friends and openly and without fear discussed with one another the intimate details of their businesses. It was right after the first great shock of the panic of 1907. The country was still trembling from the effects of the great financial disaster, and no man knew surely whether the worst had been passed, whether financial and industrial chaos had been staved off, or not. The storm clouds had not passed away, and the men engaged in the steel and iron business, truly called the barometer of trade, having on more than one previous occasion--many of them, at least--seen a similar situation lead to years of distress and of prolonged industrial depression and unemployment, in a word to what the trade knew as soup-house days, had especial reason to be fearful of what the immediate future held for them and the concerns with which they were associated. Nor were these panic fears confined to the steel giants alone. In fact, the smaller manufacturers, the jobbers and the retailers, having generally smaller resources, were in much worse case. Most of these latter were piled up with heavy stocks of steel which they had purchased during the boom in the earlier part of the year, and a sudden drop in steel prices would have meant not alone the wiping out of all hope of profit, but certain bankruptcy for a large percentage of them. To the head of the biggest of the steel producers, then, all eyes were turned. Judge Gary was deluged with letters from all quarters asking him to use all his power and influence to help weather the financial tempest. Naturally, it was very much to the interest of the Steel Corporation, as well as of other steel manufacturers, to do all that was possible to prevent the failure of the steel middlemen. Not only would bankruptcies have meant the drastic cutting down of accounts due, perhaps their total loss in some cases, but each failure would have meant the loss of a customer. These things the steel men knew from past experience. One thing above all others seemed to be needed, the great essential in panic of every kind--that those concerned should keep their heads, should remain cool and face the danger steadily, and with the strength of unity. A leader was needed, and a strong one, and Judge Gary, head of the Steel Corporation, was looked upon to assume the post, which he did. To Judge Gary it seemed that the first and essential step was to bring the steel producers together and to explain the situation to them, pointing out that the only hope of salvation was in coolness and unity. So he wrote a letter to practically all the large steel producers inviting them to a dinner at the Waldorf-Astoria, in New York, on November 20, 1907. The response was unanimous, and on the evening of that day there gathered around the table in the ballroom of that hotel the representatives of concerns producing more than 90 per cent. of all steel made in America, as well as the representatives of some Canadian companies. At the proper time the host explained the object of the meeting. What he said can best be related in his own words: I stated the purpose and object of the meeting were if possible to prevent the demoralization of business. I stated that the first object of the meeting was to secure a better acquaintance with each other, and come into close contact in order to know one another, hoping that we might deal with and toward one another as gentlemen and not as enemies. That the purpose was, if possible, to prevent demoralization of business, to secure as far as practicable stability of business conditions, as opposed to wide and sudden fluctuations; to prevent, if possible, failures on the part of our customers and to comply with their wishes in every respect; to prevent, if we could, a long continuance of the panic, which meant failures to a great many people and manufacturers themselves, because of their debts at the banks or because of their commitments for extensions, and to customers because of the large stocks they had on hand, the sudden change in the prices of which might be very damaging; and so far as we properly could, to maintain, or to assist in maintaining, business conditions generally, the opposite of which should be deplored. * * * * * I stated distinctly ... at that time that, as they all understood, we could not make any agreement, expressed or implied, directly or indirectly, which bound us to maintain prices or restrict territory or output; it must leave us free to do as we pleased, and must rely upon a disposition of all others to do what they considered fair and right, and for the best interests, not only of themselves, but all others who had any interest in that or any other work. I made that perfectly plain. Judge Gary’s remarks made a profound impression, and his hearers unanimously agreed to adopt the means he suggested for obviating the worst of the panic dangers. Resolutions creating a general and several sub-committees were made and passed and the meeting adjourned, subject to call. Following this dinner similar sessions were held in January, April, May, and December of 1908. The December feast was the last of the Gary dinners proper, although some meetings were held subsequent to that time. Were prices fixed at the Gary dinners? Let us settle this point as it was one of the chief things charged against the Corporation in the Government suit, and is the question on which the ethical morality of the holding of these dinners rests. At the first of the Gary dinners the host explained that the fixing of prices was forbidden by the laws concerning restraint of trade, and that nothing could or should be done which would not conform in all ways to the law. Yet it is plain that the effect of these dinners was to stabilize prices for steel. It does not appear that there was any definite agreement between the different interests represented as to what quotation they should ask for their products, but it is obvious that the mere statement, between gentlemen, that one intended to adopt a certain course in regard to prices tended to influence his colleagues to follow a similar course. It must be suggested, nevertheless, that there was never any question of restraint, as all were free to act as they saw fit, and it seems that on some occasions there was not even absolute agreement. At the worst the participants at the Gary dinners stretched the interpretation of the law a little to do a great right--the financial salvation of the steel industry, which, remember, was, and still is, the leading industry of the country. What was the result of the Gary dinners? Simply that, whereas in previous panics gravestones of steel producer and middlemen had been numerous, not one important failure in the trade was recorded as a result of the 1907 panic. There is no question that this was due to the leadership of the head of the Steel Corporation. Early in 1909--on February 18th--another meeting of the steel leaders was held, this time taking the shape of a luncheon. This occasion, in a sense, was the formal breaking up of the Gary dinner programme, as it was then that Judge Gary, satisfied that several of his competitors had departed from their intention to maintain for themselves respectively stability of business and prices, announced that the Steel Corporation would in future “go it alone.” That it would get what business it could and would not divulge its affairs to competitors. This was followed by the so-called open market in steel which sent prices down to a very low level. And here might be inserted an interesting fact. Orders were sent out to the various sales managers of the different Corporation subsidiaries that they were to go after business and get all they could, orders particularly welcome to those who had longed for the flesh pots of Egypt, the old Carnegie methods, and who believed that the big company could force its competitors to the wall by such a course. A vigorous campaign for orders followed, both on the part of the Corporation subsidiaries and the independent companies, but the result went largely to prove that the big company did not have the power which its enemies claimed it had, of crushing competition. In the words of Colonel H. P. Bope, vice-president and sales manager of the Carnegie Steel Co., and a graduate of the Carnegie steel school, the result of the 1909 sales campaign was a disappointment to him, the Corporation failed to cut into its competitors’ business, losing a little to them in some lines as a matter of fact. There was yet another dinner to come. On October 15, 1909, the steel makers of the United States and Canada joined together to honor the man who had first called them together during the stirring and dangerous panic times two years previous. The leader of the movement was Charles M. Schwab, and many of the most prominent men in the trade made speeches in honor of the guest of the evening. It was, as Mr. Schwab said, “the first time when the heads of all the big concerns in the United States and Canada had gathered to do honor to a man who has introduced a new and successful principle in our great industry.” T. J. Drummond, vice-president of the Algomah Steel Corporation, in his address defined this principle as the doctrine that “what is good for my competitors is good for me.” Referring to the Judge Gary leadership in the trying times the trade had passed through Mr. Drummond said: “Always the voice of our leader rang strong and clear, ‘Steady, boys, and play the game.’ And by the Lord, you played, and played it fair.” A beautiful cup of gold was presented to the Judge by his steel colleagues at this, the very last of the Gary dinners. The question of price restraint, or the Corporation’s influence in maintaining or depressing the price of steel, is suggested naturally by that of price fixing at the Gary dinners. This question is one seriously affecting the Corporation’s existence, being interwoven closely in that of the treatment of competitors. Getting down to basic facts the principal objection of the man in the street to trusts or monopolies is that the securing of unchallengeable power by one concern in any industry is likely to lead to higher prices or lower quality, either of which would swell the profits of the monopolistic corporation and would harm the public. It is therefore important to consider the Corporation’s general policy in the matter of prices. During the Steel dissolution suit a number of competitors and of steel consumers testified that the big company had always endeavored to “steady” prices, a fact evidenced by the very holding of the celebrated dinners. That it had always been the last to advance, and was equally loath to reduce. They agreed, however, that the steadying influence was brought to bear, not to keep prices at levels where enormous profits could be reaped, but rather at such quotations as gave the manufacturer only a fair and equable profit on his investment, evidenced by the fact that the Corporation, unlike many of its competitors, fixed an approximate high-water mark for prices in boom times, and made no attempt, in fact refused to sell above these, although they were much lower, to use a phrase made familiar in the old days of railroading “than the traffic could bear.” These witnesses also asserted that the tendency of prices since the birth of the Steel Corporation had been downward and finally that the quality of the product, and these were men qualified to know whereof they spoke, had been appreciably bettered. In its decision the U. S. District Court pronounced itself as satisfied that the Corporation did not have the power, even if it wanted to, to force prices to an abnormal level. The Court found it proven that steel prices could not be advanced arbitrarily above the level quoted by any important competitor in the field, and that the so-called independent companies were themselves too large and too powerful to be forced to the wall by the methods that have been employed by some “trusts” to secure monopoly. Regarding the question of the course or tendency of prices the testimony of Professor Jeremiah Jenks is particularly illuminating. Professor Jenks, whose reputation as an economist is world-wide, verified and explained charts previously put in evidence showing that the purchasing power of steel, the real price obtained by what is known as the index system, recognized by economists as the best test of price fluctuations, had decreased decidedly between the date of the organization of the Corporation and the time of the steel suit, as compared with a similar period before the birth of the Corporation. The same table showed that apart from the economic test and merely on the basis of actual prices received the average prices of steel and iron in the same period had declined slightly between the same periods. From all of this evidence the observer must conclude that the policy of the Steel Corporation has not been to inflate prices or to depreciate quality, and that it has been its endeavor to give the consumer the best steel possible for the smallest amount of money compatible with decent profits. Incidentally, the lower prices of steel shown by Professor Jenks’s charts were made in the face of advancing wages amounting altogether to more than 27 per cent. And labor forms the most important item of expense in steel making. The chart on opposite page 230, a copy of one of those testified to by Professor Jenks, is illuminating and needs no explanation. [Illustration: _RELATIVE PRICE AND PURCHASING POWER OF IRON AND STEEL IN THE UNITED STATES._ _TEN COMMODITIES (IRON & STEEL)_ _GENERAL COMMODITIES_ _PURCHASING POWER_ ] Conditions in the steel trade at the time this is written, October, 1920, provide a striking commentary on the Corporation’s attitude respecting prices. But to understand them one must go back about eighteen months. In March, 1919, the President of the United States, desiring to bring about a deflation of the high prices for all commodities that had prevailed during the war, created an Industrial Board to take charge of the matter and urged manufacturers in all industries to coöperate. Because of the immense importance of steel in the country’s economic life the steel trade was selected to set the example of deflation, and it responded loyally. As a result, on March 20th of that year, a scale of prices was agreed on at a level which it was calculated would give the lower-cost producers a reasonable profit, and those prices were immediately put into effect generally. Shortly afterward the Government itself, through one of its agencies, the Railroad Administration, refused to abide by this agreement. The immediate effect was injurious to the industry, but shortly afterward the demand for steel became so strong that prices, beginning in the late fall of the year, advanced rapidly till they were, in some cases, $50.00 a ton or more above the quotations agreed on between the manufacturers and the Industrial Board. But the Corporation, holding that public policy demanded that living costs and all factors entering into living costs should be held down as low as possible, continued and still continues to sell steel at the prices fixed the previous March. This, notwithstanding the fact that it has since advanced wages and that its costs have been materially increased by the advance in railroad rates on its raw materials, put into effect on August 26, 1920. The Corporation could easily have obtained the same prices as did its competitors and would have reaped enormous profits as a result, but it contented itself with a reasonable return and the consumer and the public at large have benefited from its course. Important among the policies of the Corporation, in its dealings with the public, has always been publicity. The organization of the big company was marked by open dealing, all details of the proposed merger being published widespread before the deal was carried through. And ever since the Corporation began its existence the policy of keeping the public and its stockholders informed as to its actions and business has been adhered to. The results of the Gary dinners were promptly given to the public press; and there is testimony in the record in the Government case that the Department of Justice of Washington was always kept fully informed. Moreover, no complaint was ever made by any one of the “Gary dinners” until the Stanley Committee intimated an illegality, after which it has never been claimed there was any such dinner or meeting. Almost since the date of incorporation it has been the custom to issue quarterly a report of earnings showing the results of the operations of the three months covered. These reports are issued on the last Tuesday of the month following the quarter covered in the report. On the tenth of each month a statement of the unfilled tonnage on the Corporation’s books is issued from the head office, and in other ways the stockholders are kept informed as to what is going on in their company. [Illustration: Rails on Cooling Bed] Annual meetings of the Steel stockholders form a decided contrast to those of many other companies. One is accustomed to look upon the annual meetings of corporations as mere formalities attended by a few officials with perhaps a lone stockholder not holding office; and reticence in discussing the company’s business or policies is the general thing. But the Steel meetings are always well attended, and stockholders are encouraged to discuss fully the affairs of their company, and to criticize to their heart’s content. Chairman Gary is ready and willing to explain at length on any issue raised, and the whole effect of these meetings is one of openness, of candor. [Illustration: Pouring Ingots] How ready the management of the big company is to meet criticism half-way is illustrated by the events at the annual meeting in 1911 when a stockholder moved that a committee be appointed to investigate the condition of the steel workers in the Corporation’s mills and to report thereon, suggesting such remedies for evils they might find as seemed wise. The mover particularly criticized the twelve-hour day and the seven-day-a-week schedule of labor. It was questionable whether the mass of stockholders present, having absolute confidence in the desire of Judge Gary to give at all times the fairest possible treatment to the worker, would have carried such a motion, but Judge Gary himself, holding proxies for the majority of the stock, voted all this stock in favor of an investigation, and a committee was appointed. Thus did the management of the Corporation give proof of its readiness to face investigation and to answer fully and satisfactorily any honest criticism, just or unjust. The attitude of the Corporation’s management in the matter of publicity, it seems to the writer, is simply that the company’s vast size and the number of its stockholders, as well as the army of men it employs and its influence upon industrial conditions generally, render it in a sense a public institution, one in which there is an enormous amount of warranted public interest, and that this interest should be satisfied. That so great a company must work in the open, all its actions being able to bear the full glare of daylight. Up to the time of the Corporation’s organization publicity on the part of big industrial enterprises was almost unknown. Certainly steel makers did not show any desire to take the public, or even the small stockholder, into their confidence in regard to details of their business. The immense profits made by the Carnegie company were not revealed until the Carnegie-Frick quarrel caused their revelation. But all this has been changed and the necessity for full reports to stockholders and to the public at large is recognized by the corporations themselves. Steel companies, in particular, give detailed information of their earnings, operations, etc., at least once a year, and in some cases every quarter. And this is doubtless due to the example of the Corporation. Sooner or later all big business must fall into line in the matter of publicity. For the leaders of business thought are coming to recognize that secrecy breeds suspicion and enmity, while openness makes friends. And they will all follow--as many have already done--the example of the Steel Corporation of doing business in the full glare of daylight. In the chapter on Welfare Work and in that on the Steel Strike two aspects of the Corporation’s policies regarding its relations with employees are discussed at considerable length. Broadly speaking, the Corporation’s attitude is that every worker is entitled to as large a wage as conditions in the industry and justice to investors warrant, decent living conditions, and the right to work when, where, and for whom he pleases. By encouraging the worker to invest in its stock it seeks to make sure his full coöperation in its activities and to bring home to him the realization that the interests of labor and capital are identical. Finally, we come to the Corporation’s relations with stockholders, its financial policy. For twenty years the big company has been steadily building up its assets with a view to making its common stock the safest investment of its kind in the world. It is not too much to say that it has now attained that eminence, and if its stockholders in the past have not always shared in profits as liberally as they may have considered their due, there is no question that their loss in the past has been much more than made up for by the security which the future promises.