LTV Bankruptcy - Lessons for Labor?

["Vic Thorpe" <just.solutions@pandora.be>]

Dear Friends,

The US steel company, LTV, is in trouble again.  In 1985 the company was the
scene of the biggest corporate failure in US business history (at that
time).  After four years of bankruptcy negotiations (in which the United
Steel Workers' Unions were major creditors) the company was refloated with
union participation.  In addition to 7.5% of stock and a seat on the board,
USWA members at LTV got back their benefit pension plan and health plan
without loss, and with an improved collective agreement.  Most importantly,
many jobs were saved among the 56.800 employees and benefits for the 60.000
retired workers.

Now, after a further 16 years, the pressures of competitive globalisation
have once again undermined the viability of LTV.  Once again bankruptcy
stares its workers in the face.  And, once again, the USWA has put forward a
new business plan that aims to salvage as much as possible from the
wreckage.  As the union points out, its aims are to maintain members'
standard of living and health-care benefits.

This case (and others like it) raise the key issue for trade unions of
whether it is worth intervening at the last-ditch stage to delay a company's
inevitable decline.  Would it be better (and more economically 'efficient')
to allow the company to die, pay off its workers and put efforts into
establishing new employment in the area?  Or is it worth giving up some
aspects of work control to gain some years of further employment in an
uncertain job market?

The attached discussion on LTV is taken from our sister site on Employee
Ownership under Privatisation'.  It would be good to hear your feedback.

Vic Thorpe


Mike Wood wrote:
This article from the Cleveland Plain Dealer discusses, in popular
terms, the potential purchase of the assets of LTV by members of the
Steelworkers Union. This would come about through a corporate
restructuring, rather than an ESOP. I'm wondering what the success ratio
on these last-gasp purchases by workers in industries that are
undergoing upheaval. The results of emergency surgery are never as
positive as those of a planned operation, so I would probably expect a
low success ratio where the corporation was already in bankruptcy.
Mike Wood
Cincinnati
.
Business News
Union wants more say in running LTV affairs
04/26/01
By JENNIFER SCOTT CIMPERMAN and SANDRA
LIVINGSTON
The Steelworkers want a much bigger voice in LTV Corp.'s decisions
and suggest that workers and retirees should own most of the ailing
Cleveland steel maker.
The United Steelworkers of America proposed those and other
measures in an effort to fend off drastic cuts in benefits sought by
LTV,
which is operating under Chapter 11 bankruptcy protection from
creditors. In a summary of the union proposal obtained by The Plain
Dealer yesterday, the union wants discussion of:
A 67 percent share of common stock for workers and retirees.
Union rights to name a third of the company's directors, approve
another third and have a say in "all significant corporate
transactions."
The union now has the right to name just one board member.
Profit sharing.
Restrictions on LTV imports of steel and related products. (The
company has said it plans to bring in Latin American steel to make up
loss of output when it closes the West Side of the Cleveland Works in
June. The union's proposal calls for saving the West Side mill.)
The two-page summary does not include union explanations of how
these ideas could be carried out.
David McCall, Ohio district director for the Steelworkers and
chairman of the LTV bargaining committee, said the union was focusing
most on maintaining its members' standard of living and retirees'
health-care benefits and pensions. "If in doing that we also get a piece
of the stock of the company, we're willing to do that," he said.
"The most striking thing is, we are prepared to give the company all the
keys to be able to work smarter, because they can't figure it out,"
McCall said. ". . . I know our jobs are too important to allow [LTV
executives] to keep managing the way they're managing."
On Tuesday, union leaders met with LTV officials in Pittsburgh to
discuss their proposal and the steel maker's restructuring plan, which
includes an estimated $261 million savings a year, largely from wages,
benefits and pensions of hourly workers. LTV, which sought
bankruptcy protection on Dec. 29, says the cuts are necessary to keep
the company afloat. It has said it needs total savings of $800 million a
year from actions including contract changes, cuts in white-collar
staff,
and the closing of most of the West Side mill. Talks between the
company and the union are to resume tomorrow.
The union's proposal said it would discuss changes to work rules and
the health-care system - if LTV considers its ideas - provided that the
company crafts an "acceptable" reorganization plan and that the
government enacts "comprehensive" programs to limit steel imports,
improve access to capital and help with so-called legacy costs,
including pensions for retirees.
LTV spokesman Mark Tomasch would not comment. But in a printed
update distributed to managers and supervisors yesterday, LTV
cautioned that "government relief on imports or legacy costs will not
arrive in time to save LTV Steel."
"It is important that LTV Steel managers understand," the internal
memo says, "that the union's proposal does not begin to address either
the need for immediate cash savings or longer-term changes needed to
create a viable cost structure" for its mills in Cleveland and East
Chicago, Ind.
Still, workers at steel mills have completed successful buyouts. A
buyout bought years for West Virginia's Weirton Steel Corp. In 1984,
employees swapped wage concessions and some benefits for
ownership. But Weirton, like other domestic steel companies, has
posted losses in recent years. (Since the buyout the company has sold
stock to the public, and the majority of its shares are now publicly
held).
Weirton workers were represented by an independent union, but the
Steelworkers have used the tactic as well. In the 1990s, Dofasco Inc.
put a subsidiary, Algoma Steel Inc. in Sault Ste. Marie, Ontario, into
the Canadian equivalent of Chapter 11 bankruptcy protection. The
union rejected Dofasco's reorganization plan, which included major
cutbacks and worker concessions. Instead, it led the company into the
biggest employee buyout in Canadian history. Workers got more than
60 percent of Algoma, the right to appoint or approve a majority of
board directors, veto rights over a company sale and involvement on
the plant floor.
But on Monday, Algoma again sought protection from creditors.
More than a dozen U.S. steel makers also are in bankruptcy court. So
worker ownership isn't a guarantee against cheap imports and falling
prices, but the deals have provided some respite.
"Some haven't been successful," said Michael Locker, president of the
consulting firm Locker Associates in New York, but "all lasted much
longer than they would have lasted if they hadn't done the deal. It
lengthened the period of time that people had jobs and got benefits."

Reply from Dan Bell follows:

Dear Mike Wood,

Your 4/26/01 question regarding LTV and the success ratio of last-gasp
purchases by workers would probably fit better in the discussion
on promoting employee ownership at the subnational level,
eosubnat@cog.kent.edu.

Nevertheless, allow me to respond to your question:

>I'm wondering what the success ratio
>on these last-gasp purchases by workers in industries that are
>undergoing upheaval. The results of emergency surgery are never as
>positive as those of a planned operation, so I would probably expect a
>low success ratio where the corporation was already in bankruptcy.

Regarding the success ratio of last-gasp worker buyout efforts, there
are two "successes" to measure:

1. Success at completing the buyout
2. Success at running the company profitably going forward

Our Center, the Ohio Employee Ownership Center at Kent State University,
has worked with about 380 buyout groups and companies exploring
employee ownership since 1987.

Of these, 51 employing 11,000 people implemented some form of employee
ownership. So about 1 out of every 7 considering ESOPs actually
implemented them.

Of the 51, 13 were implemented to avert a shutdown. The other 38
were non-stressed succession planning situations or employee
benefit decisions by healthy companies.

While not having the specific numbers at my finger tips, I would
describe these 380 efforts as follows:

  144 healthy businesses exploring of which 38 chose to go forward
  (one in four).

  236 stressed situations exploring of which 13 successfully completed
  the buyout. Of the 236, about 52 (one in five) decided after their
  initial assessment interview with the OEOC to have a prefeasibility
  study done (paid for by state and local government grant money in most
  cases) by professional consultants. Following the results of the
  study, perhaps 16 were closed, 7 were retained by existing ownership
  utilizing the findings of the studies, 16 remained open under new
  ownership, and 13 became employee owned.

Of all 51 ESOPs mentioned, only 2 failed. Assuming these were part
of the 13 (which may be a mistake), 5 in 6 succeeded in preserving
the jobs.

Of all 51:

  2 failed
  1 repurchased the stock back from the employees
  5 were subsequently sold by the employees
  43 remained partially or wholly employee-owned

The last time LTV went into Chapter 11, several ESOPs emerged
around the late 1980s. These include Republic Container and Republic
Storage Systems, which are still operating as 100% employee-owned
companies, and Republic Engineered Steels, Inc. (RESI).

RESI was an LTV bar mill division which was slated to be closed in
1989. The employees bought it and operated it for 10 years, keeping
their jobs with union level wages and benefits, cutting $80 million
in annual operating costs out of a $800 million budget through
ownership education of the 4500 employees and employee involvement
teams. Around 1999, the employees sold the company, each walking
away with on average $40,000 in capital. Employment was downsized
to about 3200. Under the current steel crisis, the company is now
operating in Chapter 11.

When compared to being shut in 1989 and putting 4500 people on the
street, I'd say this was a great success.


--
Dan Bell
International Program Coordinator
Ohio Employee Ownership Center
Kent State University
Kent, OH 44242
(330) 672-0333 << New direct number!
(330) 672-4063 fax
dbell@kent.edu
http://www.kent.edu/oeoc/
http://cog.kent.edu