[Congressional Record Volume 140, Number 81 (Thursday, June 23, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 23, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                 ANOTHER EXAMPLE OF UNFAIR COMPETITION

                                 ______


                          HON. JOHN P. MURTHA

                            of pennsylvania

                    in the house of representatives

                        Thursday, June 23, 1994

  Mr. MURTHA. Mr. Speaker, recent news articles carried the story of 
yet another example of unfair competition by a foreign-controlled 
corporation doing business in this country.
  On May 31, five top mangers of USX Corp.'s Gary Works plant in Gary, 
IN, suddenly and without any advance warning, submitted their notices 
of resignation to USX. Within 24 hours, all five managers showed up for 
work at their new positions with the National Steel Corporation, a 
subsidiary of the Japanese NKK Corp.
  This corporate raid apparently resulted from a well planned strategy 
by NKK to persuade top managers of the U.S. Steel Group of USX to jump 
ship, and in the process, to bring highly confidential business 
information with them. NKK of Japan has now gained access to the most 
sensitive kinds of trade secrets of its steelmaking competitor--
marketing strategies, pricing information, profit margins, and even 
supplier and commercial lists. NKK is now in a position to do great 
harm to USX's commercial and strategic position. As NKK is only too 
well aware, USX ranks as NKK's most important competitor in the 
worldwide steel production marketplace.
  NKK's actions represents a last ditch effort to prop up a failing 
company. Over the past few years, while USX and Gary Works have enjoyed 
a resurgence, NKK/National Steel has consistently reported operating 
losses. The USX managers were targeted by NKK because they had received 
industry-wide recognition for their innovation management strategies of 
USX's Gary Works. NKK's actions seems to be a systematic effort by NKK 
to replace its own executives by persuading senior USX managers to 
desert USX and to bring with them a wealth of confidential information 
and trade secrets.
  Mr. Speaker, as long as we allow this type of hostile and 
anticompetitive attack to occur, American companies will be sitting 
ducks for well financed and aggressive foreign corporations. in the 
post-cold war era, the American people demand that our Government 
protect its workers and their innovations. Unfortunately, there is 
evidence that this is not an isolated instance of anticompetitive 
activities against a U.S. firm. This month's actions mirrors a similar 
raid of several key General Motors personnel undertaken last year by 
Volkswagen A.G. That case is still pending in Germany, but a 
preliminary finding has found merit to General Motors' complaint.
  I have no doubt that American firms can compete in the global 
marketplace. The resurgence of the domestic steel industry is strong 
evidence that the spirit of teamwork and innovation which has let 
America through the twentieth century, continues to thrive today.
  With the likely liberalization of the world trading system later this 
year, international trade is entering a new phase of heightened 
competition. If a fail to step forward now to prevent incipient 
commercial espionage, we will be abandoning a critical domestic 
industry at a pivotal point in our economic history.
  A recent article in the Pittsburgh Post-Gazette entitled ``National 
Steel Rolls USX'' describes the details of this unprecedented raid by 
NKK. I ask unanimous consent that the article be included in the Record 
at the conclusion of my remarks.

            [From the Pittsburgh Post-Gazette, June 2, 1994]

                        National Steel Rolls USX

                           (By Kerry Johnson)

       In what USX Corp. termed an ``insidious raid,'' troubled 
     National Steel Corp. yesterday hired away the top six 
     executives of USX's largest steel mill.
       The move was unprecedented in the normally staid and clubby 
     steel business. It also suggests that the Japanese, whose 
     steel industry has been held up as a model of manufacturing 
     efficiency, now think they could use a little Yankee 
     ingenuity to fix their own troubles.
       National Steel, headquartered in Pittsburgh until two years 
     ago and owned by Japan's NKK Corp., fired president Ronald 
     Doerr and chief financial officer Richard Newsted, replacing 
     them, respectively, with V. John Goodwin, general manager of 
     USX's Gary Works, and Robert Greer, controller of the Indiana 
     facility and a 33-year veteran of USX.
       Goodwin's 27-year career with USX included service as 
     general manager of its Mon Valley Works from 1984 to 1987.
       National Steel would not confirm the names of the 
     executives who were also recruited along with Goodwin and 
     Greer. However, industry sources identified them as 
     metallurgist George Lukes, who was chief of quality control 
     at Gary; Bob Pheanis, who run Gary's finishing operations; 
     Dave Peterson, who oversaw raw steelmaking; and Dave 
     Pryzbylski, Goodwin's chief of human resources.
       U.S. Steel replaced Goodwin with the general manager of its 
     Mon Valley Works, John H. Goodish, 45. Goodish has been with 
     U.S. Steel since 1970.
       The exodus from USX, which lost in one fell swoop the 
     manager of its largest and most profitable steel making 
     operation as well as his five top aides, was unlike any event 
     even the industry's oldest veterans could recall.
       A similar employment raid occurred just one year ago in the 
     auto industry. In that instance, Volkswagen A.G. recruited 
     Jose Ignacio Lopez de Arriortua, a tough, results oriented 
     executive, and several key aides from General Motors Corp. GM 
     subsequently sued Lopez, alleging in German court that he had 
     stolen trade secrets. German law enforcement officials are 
     still investigating the charges.
       Although USX yesterday made no such accusations against 
     NKK, the company said it is weighing its legal options.
       Industry observers played down the impact the defections 
     will have on USX. ``It's not the end of the world for USX. 
     They have lots of talent, but it sure came as a cold shock,'' 
     said one steel executive.
       It surely was. While several of the executives who left 
     were known to be unhappy, and had shopped resumes privately, 
     their mass departure was totally unexpected, and could give 
     USX ammunition for a lawsuit if it decides to pursue one.
       What kind of case USX might be able to mount is unclear. 
     But mass recruitments have in some cases been enjoined by the 
     court.
       ``The general law is that individual employees can move 
     from one company to another, but in situation where there's 
     been a mass hiring, courts will enjoin * * * if they believe 
     it involved unfair competition or the hiring is occurring to 
     obtain confidential information.'' said Arthur Schwab, who as 
     chair of litigation for Buchanan Ingersoll PC a Downtown law 
     firm, has tried such cases. National's bold grab for a 
     talented team of managers who have the operating skills the 
     company desperately needs marks a radical departs from the 
     normally polite conduct of Japanese companies. ``This is very 
     un-Japanese,'' said one steel executive.
       But industry sources said NKK, which has been trying to fix 
     National ever since it bought a 50 percent stake in 1984, had 
     simply lost all patience, Directors finally moved swiftly 
     after tolerating years of indecision and missteps. Doerr the 
     departing National chief executive who Goodwin replaces, had 
     a back-ground in accounting, and had recently jettisoned 
     several lieutenants in an effort to fix chronic operating 
     difficulties.
       ``The board's decision was that it wanted to focus 
     attention on operations and obviously John Goodwin is a good 
     operations man,'' said National Steel spokesman Robert 
     Toothman.
       The raid come at a time when the U.S. steel industry, 
     having shrunk its work force and investment heavily in new 
     technology, is rebounding with a vengeance. That National is 
     not capitalizing on the best industry conditions in more than 
     20 years is galling to NKK.
       Analysts give Goodwin, 51, high marks for making Gary the 
     premier U.S. steel mill. The plant can produce 7 million tons 
     of steel a year, slightly more than National's entire 
     capacity, and accounts for as much as two-thirds of USX's 
     operating profits from steel. Goodwin's prospects for 
     advancement at U.S. Steel were limited because he is the same 
     age as his boss, U.S. Steel President Thomas J. Usher.
       National's problems have been many. They began the day NKK 
     bought into it. Although know as a savvy steelmaker in Japan, 
     NKK early on was reluctant to assert its control.
       In recent years, however, its problems have been more 
     fundamental. National's strategy is to sell high-profit 
     steels to the automotive, container and building industries. 
     To be successful, National must meet tougher standards for 
     quality, on-time delivery and customer service. Despite NKK's 
     considerable investments, the company can't consistently 
     produce the quality of steel its customers want As a result, 
     National has been forced to sell rejected metal to less 
     demanding, lower paying buyers.
       The problems have been most acute at National's flagship 
     steel operation, the Great Lakes division near Detroit that 
     serves the auto industry. In the fourth quarter of last year 
     National cut back shipments by 100,000 tons to compensate for 
     its problems.
       ``I think they (NKK) have been a little bit embarrassed by 
     how bad National's done. National's clearly been a loser,'' 
     said Charles Bradford, a steel analyst for UBS Securities.
       The nation's fourth-largest steel producer, National had 
     operating losses of $215 million in 1993, $13 million in 1992 
     and $131 million in 1991, according to Salomon Bros. steel 
     analyst Michelle Galanter Applebaum.
       Another problem has been a 1986 labor pact National struck 
     with the United Steelworkers that gave its union employees 
     lifetime job security, a hallmark of Japan's own industry. 
     Competitor's scoffed at the deal, saying it would come back 
     to haunt the company.
       While National's operating difficulties are complex. ``It's 
     safe to say [overmanning] is one of their problems,'' Plummer 
     said.
       Strife between National's Japanese owners and its U.S. 
     managers has also plagued the company, industry observers 
     say.
       Doerr, in mid-1991, said National might be forced into 
     bankruptcy without major and immediate cost reductions. Its 
     losses were staunched by the end of that year.
       In 1992, National moved its headquarters from Pittsburgh to 
     Mishawaka, Ind., which would cut corporate overhead and put 
     the company closer to its Midwest customer base.
       Christopher Plummer, an industry analyst with Resource 
     Strategies Inc., said the drastic overhaul at National 
     reflects heightened urgency for the unit to perform at a time 
     when its Japanese parent and other Japanese steel producers 
     are still struggling with a recession.
       Goodwin has his work cut out for him as the new president 
     and chief operating officer, but industry observers say he 
     will have an advantage his predecessor didn't enjoy: A clear 
     mandate for change.

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