Confessions of a Turnaround Junkie

For the past 30 years, Delphi chairman Robert “Steve” Miller has been salvaging America’s most troubled companies, from Chrysler to Morrison Knudsen, Aetna to Bethlehem Steel. His first rule: Choosing the right leader spells the difference between a turnaround — and a financial disaster.

by Photography by Ian Spanier , Steve Miller

There’s something that makes big machines — sawmills, ships, earth-movers, trucks — irresistible to many of us. Whether they growl, grumble, whine or roar, the engines of industry fill us with excitement and maybe even a sense of importance. Big machines shape the land, bend steel and deliver goods. They also take away the waste and recyclables produced by a dynamic economy.

Yes, I’m talking about garbage trucks. Civilization requires that someone clean up, and for that reason the garbage business is a vitally important and potentially profitable enterprise all over the world. The truth about garbage and our need to handle it properly is obvious, and yet even savvy businesspeople were long willing to leave this enterprise to an almost ad hoc system of local governments and thousands of small operators. In some older cities, we even tolerated the presence of organized crime, in part because so many people thought the job was too dirty to merit their concern. By the 1990s, a handful of multibillion-dollar companies dominated the business, including Waste Management Incorporated. When I was asked to join the board of directors in 1997, I had no idea that this mission would bring me one of the most memorable encounters in my long and varied career. Three months later, I was drafted as interim chairman and CEO upon the abrupt resignation of the prior CEO.

“You have a bloated bureaucracy,” a shareholder explained, “and the right guy to deal with it is Chainsaw Al Dunlap.”

Leader of the Sunbeam appliance company, Dunlap was the CEO of the moment, a master of self-promotion whose recently issued book, Mean Business, was rising on the bestseller list. His main claim to fame was a turnaround job at Scott Paper, where he sold off parts of the business, slashed the workforce and cut costs, allegedly by ignoring maintenance and repair schedules. I dismissed the chainsaw approach because I believed that indiscriminately slashing costs to meet short-term investor goals hurt companies when it came to their long-term prospects in the global economy. There is nothing wrong with efficiency, but it has to be matched by smart management and investment in the kinds of things that prepare you to offer the best goods or services in the future. Dunlap’s “mean business” approach didn’t consider these things. But now, in New York, everyone in the room seemed to think Dunlap was the answer for Waste Management, and as owners they were my bosses.

Before the day was out, Dunlap and I spoke on the phone and agreed to get together on the coming Sunday at his home in Boca Raton. That morning I read his book, discovering a remarkably self-confident fellow — “I’m a superstar in my field” — who graduated from West Point and took a slash-and-burn approach to troubled businesses. He didn’t study problems or innovate. He simply issued orders for drastic cost reductions and asset sales and then made sure they were carried out.

I confess I wasn’t optimistic after reading Dunlap’s book, and the car trip to his home made me even more skeptical. He lived in a community that was so exclusive and protected it reeked of paranoia. You had to be admitted at two guardhouses just to get to his driveway, and that was protected by yet another gate. The house itself was a 6,500-square-foot palace with a Spanish tile roof. Two enormous German shepherds snarled behind the door as I waited for someone to answer the bell.

Al led me on a little tour through the house, which was decorated like a shrine to Chainsaw Al. There were more portraits of him than I could count. As we walked he spoke rather loudly, like someone who is a little hard of hearing, and recited a stream of platitudes, many of which I had already read in his book. In our more formal conversation, conducted over sandwiches, Dunlap said he would be interested in the job at Waste Management and believed he was very nearly finished with Sunbeam, which he was hoping to sell. The ultimate decision would be left to our directors, of course, but before I even got back to the car I knew I wouldn’t recommend him for the job. Al reveled in being called a pinstripe Rambo who tore companies apart. I considered myself a careful rebuilder who saved as many jobs and assets as possible. He worshiped share price. I believed that executives should consider the interests of customers, employees, communities, lenders and others along with shareholders. Quarterly profits are important, but they are not the only measure of a company’s worth, value and potential.

Corporations are, in the end, only as good as the people who run them, and the best ones are open about their management moves, their mistakes, their personal finances and their health. If you don’t practice this kind of honesty, it won’t matter whether the public thinks you’re a genius or a chainsaw-wielding tough guy. The truth always comes out eventually, and you hurt everyone. My final effort to help find a true leader for Waste Management led to a pair of solid candidates. Dave Cote was a hotshot at the best-run corporation in the world, General Electric. Our other candidate was a more rumpled, workaday CEO named Maurice “Maury” Myers of the Yellow Corporation, a big trucking concern, who had also worked at Ford and for several airlines. Myers was down-to-earth and likeable. Once, during our extended deliberations I asked him to be patient, and he said, “Don’t worry about it. I know you’re just keeping me warm while you check out your other options. Call me when you decide.”

Younger than Myers, David Cote was brilliant and polished, and as head of appliances for GE, he knew how to work with union labor, having once been an hourly worker himself. He was intrigued by the challenge at Waste Management, but we sensed that he had reservations about the trash business and moving to Houston. We offered him the job, and he took some time to think about it. Meanwhile, I had a long conversation with my most reliable adviser: my wife, Maggie. When I told her what we were doing, she had to restrain herself from physically shaking some sense into me.

“You’ve got one guy who’s down-to-earth and enthusiastic about the job. He’s worked in airlines and trucking and understands what Waste Management does. The other guy is not in love with the job, and he doesn’t want to go to his next cocktail party and explain that he works for a garbage company. He is never going to be comfortable at Waste Management.”

She was right, and after consulting with the board, I called Cote and withdrew our offer. He was stunned, as if the idea of us turning him down was beyond his comprehension. Maury Myers, on the other hand, was calmly pleased when we offered the post to him. He moved to Houston and dug into the job with both hands.

Most turnaround specialists share certain qualities. Among them are the ability to focus intently in a crisis and a relatively short attention span. Although we can leave it to the experts to determine for certain if this is a kind of attention deficit disorder, the special qualities shared by corporate firefighters do echo the traits of gifted students with ADD. We are easily bored by a routine flight in a cloudless sky but thrilled to take the controls when crosswinds blow and the engines start to fail. Of course, we can’t bring the plane in for a landing if someone bigger and stronger refuses to let go of the controls. Reliance Group Holdings was already in a tailspin when its chairman, CEO and major stockholder, Saul Steinberg, called for help at the end of 1999. An insurance and investment firm, the company was losing more than $1 million per day and faced a $700 million debt load without the resources to pay it. Several years earlier, Steinberg had suffered a stroke and was recovering slowly. He still had a fundamental financial wisdom, but not the stamina to work long hours or focus on details. The future looked bleak.

Steinberg was a charming man who seemed very open about his company’s troubles and very eager to have me come help. But his board said no when I was first offered the job as president at a multimillion-dollar salary. Months later he came back with a more modest offer, which was fine with me — I was interested in the challenge, not making a killing. Even then I had to cool my heels more than an hour outside the boardroom, as the board debated whether I’d be worth it. I assumed I would have real power inside the company since I’d report directly to Steinberg and carry the lofty title of president.

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By the time I arrived in December, the press was filled with reports of the empire’s collapse. Although he was recovering from his illness, Saul was still too weak to spend more than a couple of hours per day at work. Meanwhile, disappointing investments and big losses in the firm’s workers’-compensation program were draining cash at an alarming rate. Angry investors who were losing money on their Reliance shares and lenders who feared they would never be repaid were bellowing about the lavish salaries taken by top executives.

Given a chance, I might have been able to help salvage something at Reliance, but the chance never came. Although Saul wanted my aid, it was almost as if he tried to perform a heart transplant but the body rejected it. Some of the directors he sent me to consult praised the very executives I thought should be replaced, while others kept canceling ­appointments until I understood that they didn’t want to deal with me.

The board excluded me from executive sessions, where the important decisions were made. Equally important, the organization chart was structured so that no one other than my secretary actually reported to me. I was so out of the loop that the major decision-makers excluded me from working lunches.

The chill at Reliance was so deep that I would serve for just three months. In that time I developed what I termed a Plan B rescue strategy, which called for cutting costs by replacing the existing high-priced executive team with more aggressive, lower-cost young Turks, moving to much cheaper offices and finding someone new to take over Saul’s leadership position. Although no guarantees were made, I also talked with the CEO at one of the world’s largest insurance companies who was ready to invest in Reliance if this kind of reorganization were done.

The board rejected my ideas, and I was kept almost completely isolated in my short time at the company. With that rebuke, I felt I was not doing any good by hanging around. I voluntarily resigned and waived any contractual rights to compensation or any severance whatsoever.

About a year after I left, Reliance would be sunk by its losses, and every officer and member of the board of directors — except for me — would face charges of wrongdoing from insurance regulators who assumed control of the company in order to protect policyholders.

I’m glad I left when I did.

In the case of Bethlehem Steel, I got the call about a week after 9/11, when everyone in America felt a strong sense of duty and the urge to do something for their country. Few corporations had played such a critical role in America’s growth as an industrial and military power, and Bethlehem was still a functioning, strategically important national asset.

The contract issues were similar to the ones affecting the auto business. When times were good, Big Steel and the United Steelworkers had loaded all sorts of benefits for both workers and retirees into their contracts. Then global competition (much of it from companies subsidized by foreign governments) and new technology in the form of small mills that turned scrap into new product brought low-priced steel into America. As their market share declined, the fully integrated companies that made virgin steel from iron ore kept cutting back until there was too little income and too few active employees to support benefits for a vast number of retirees.

For a very sick company, Bethlehem operated some very impressive and productive facilities, including huge blast furnaces and mills near Baltimore and Chicago. The company made everything from railroad rails and bridge girders to flexible and resilient sheet metal for cars. The steelworkers who remained on the payroll were, by and large, very skilled or brave or both, as my tour of the sprawling complex at Sparrows Point, near Baltimore, revealed. The heat is so great that even men wearing fireproof clothing can work no more than a few minutes in the most hazardous spots before retreating. Between the noise, heat, smoke and fire, it was the closest thing to hell on earth I had ever seen.

The place was also magnificent, a monument to American industry, and far more lively than the scene in the company’s hometown of Bethlehem, Pennsylvania. The massive buildings, smokestacks and piping at the hometown mill remained, however, looming over the city like an army of giant alien robot monsters. These hulking and decaying facilities, which were visible from the office tower where top managers still worked, were constant reminders of the company’s better days. Indeed, wherever you went in Bethlehem you got the feeling that you were in a once prosperous, even mighty place that was in rapid decline. The mood was worse inside the company’s 23-story headquarters building — called Martin Tower — where I found the most discouraged team I have ever encountered in a troubled corporation. But somehow people still clung to the memory of the good old days and couldn’t really accept that they were over. I imagine this is what it felt like during the fall of the Roman Empire, when everyone accepted that the glory days were finished, except the Romans themselves.

Finance specialists came around to offer debtor-in-possession loans that would let us keep operating. The best offer, by $100 million, came from GE Capital. General Electric didn’t become the most successful company in the world by playing soft. As lenders, they were as tough as the mafia and had a reputation for punishing borrowers who slipped in the slightest way.

Wary of this, I called CEO Jeffrey Immelt and told him we really appreciated GE’s offer, which would make $450 million available to us right away.

“But I’ve got to know one thing,” I said. “If we get into a rough patch, will you work with us, or will you pull my fingernails out?”

“We’ll work with you,” he said.

In the meantime we were going to keep making steel, as always, and deliver it to our customers. The last thing we wanted to do was let our furnaces go cold, because once you let that happen, they virtually self-destruct, and it can be hugely expensive to fire them up again. I had already started talking with Thomas Usher, CEO of U.S. Steel, about a merger. We were also working with industry and union leaders to get relief from Washington on unfair imports. And strange as it may seem, I never feel more at ease than when I’m dealing with a large number of troublesome issues at the start of a big mission. Though Bethlehem Steel had entered new territory, things really were under control and there was no reason why we couldn’t operate in a normal manner.

The mating dances we had to perform over selling pieces of Bethlehem were extremely complex. Given the company’s importance in Bethlehem, local reporters covered each step. I reassured them that I was trying to find “the best, strongest, most logical partner” for each plant. But in the end, United Steelworkers president Leo Gerard did not want to follow our lead. He believed that a breakup, with facilities in different communities going to separate buyers, wouldn’t create the kind of strong global competitor that would preserve jobs in America. “I’m looking for the next Andrew Carnegie,” he said. This meant that he hoped that a single entity, perhaps even a solitary wealthy man, would come along to consolidate the American steel industry and make it boom as Carnegie did in the late nineteenth century.

A very bald, very plain-looking man, Wilbur Ross lacked Andrew Carnegie’s strong chin, thick white hair, dancing eyes and dapper style. But from an early age he had shown Carnegie-like energy and ambition. His International Steel Group (ISG) would establish new work rules, and pay arrangements gave managers greater flexibility to use union employees in various roles and eliminated old retirement benefits. Ross was the only investor with the resources, vision and money to carry out the kind of transaction that would transform the Bethlehem plants into a functional steelmaking operation.

In mid-February 2003, Bethlehem’s board approved the sale, closing the cover on the story of a once-great company that was one year shy of its hundredth birthday. For everyone involved, and most especially the local community, it was a sober moment. Over time, perhaps a million people had worked for Bethlehem Steel, possibly more. “The Steel,” as so many called the company, had been a source of wealth, pride and even identity, and now it had gone the way of all living things. But they could take solace in what they had accomplished. In a very real and tangible way they had built modern America, and many of their contributions — bridges, skyscrapers, railroads and more — would stand for generations to come.

During another time in my life, I went home to Oregon for the wedding of my son. I took a few friends out to the edge of the harbor to see a lumber mill that my grandfather had managed in the 1910s. The harbor was there, in its choppy, steel gray beauty, but where the mill was supposed to be we saw the charred remains of its massive wooden beams and joists and the pilings of the pier that supported it. The mill had burned during the night while we all celebrated Chris and Missy’s marriage. An investigation would eventually conclude that a worker dismantling equipment with a blowtorch had accidentally set a tiny fire that he didn’t even notice.

Since the mill was closed and we were already engaged in transforming our family firm into a forest-management company, the effect of the fire was more symbolic than financial. But still the sight was a shock, and the smoldering wreckage spoke to the vagaries of life. Nothing, other than our values and character, is permanent. Change is inevitable. The mark you leave on this earth depends more on what you do for others than what you accomplish for yourself. 

From the forthcoming book The Turnaround Kid: What I Learned Rescuing America’s Most Troubled Companies, by Steve Miller. Copyright © 2008 by Robert Stevens Miller. Published by arrangement with Collins, an imprint of HarperCollins Publishers.