[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
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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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