The steel crisis of 1998-99 wreaked havoc among employee-owned steel companies and suppliers. Weirton Steel laid off a quarter of its workforce. Republic Technologies, in which employees sold their interest in 1998, laid off one thousand workers, and shut eight operations. Indiana Steel and Wire filed bankruptcy. Sharpsville Quality Products was thrown into crisis. And Bliss-Salem, long the flagship of Ohio employee buyouts to avert shutdown, went into liquidation.

In 1986, employees led by Steelworkers Local 3372 bought the E.W. Bliss plant in Salem when it was threatened by shutdown. E.W. Bliss, a producer of metal forming equipment founded in 1857, had served as a cash cow for a number of years, first for Gulf & Western, a conglomerate, and then for Carlisle Capital, a financial investment house. By the time the employees bought it, it had been badly drained.

Through employee sacrifice and hard work, the Salem operation, renamed Bliss-Salem, struggled back from the brink. A builder and retrofitter of rolling mills for the steel and aluminum industries, employee-owned Bliss rebuilt its business in the 1980s as the only domestic full-service rolling mill builder, doing engineering as well as mill construction. It added a line of transfer cars for the same customers, and started building them in Salem too. It reoriented itself in the 1990s to focus on the foreign as well as the domestic market. In 1996, Bliss won the Governor's award for excellence in exporting.

All this turned sour in 1998, as both foreign and domestic steel producers cancelled or deferred most capital investment. Bliss's orders plummeted. The timing of CEO Rick Collins' previously announced departure could not have been worse.

Bliss's Board, which followed the Steelworker formula of two union, two management and three outsiders chosen jointly, hired a new CEO, Lal Teckshandani. After a few months, Teckshandani took the company into bankruptcy and then into liquidation. The engineering department was sold to DMS Engineering Corporation, a French-based firm.

Despite the existing work, the shop was shut and the remaining assembly work was contracted out. The guys in the shop nicknamed one manager "the secretary of agriculture" because it appeared that his entire job consisted of farming work out. "As they shipped all that work out," commented Tom Moyer, former union local president, "the plant looked just like a truck depot."

How could an employee-owned company go from being an outstanding success in 1996 to collapse in 1998-99? The answer lies in the economics of the new global economy.

Global economics 101
When the Thais devalued the baht in July 1997, few Bliss workers thought their jobs were in danger. But in the new global economic order, a round of competitive devaluations thousands of miles away set off the meltdown of the emerging economies in Asia and did immense damage in Main Street America.

Over the next 15 months as speculative capital fled, a number of major developing steel exporters -- Indonesia, Korea, Brazil, and Russia -- slashed the values of their currencies by 50 to 75%. Their internal markets collapsed because of the economic crisis caused by capital flight. So they stopped ordering American equipment, and started dumping the steel that they could no longer sell at home in the US market.

Meanwhile Japan and our NAFTA partners Mexico and Canada let their currencies decline relative to ours by 10 to 25% to protect their international market share. This made their exports into the US cheaper too.

The result: imports flooded our market, American steel prices plummeted, and American producers laid off workers, shut mills, and stopped ordering equipment.

Unbelievably, our government did nothing whatsoever in the first months as steel hemorrhaged red ink and jobs, except to mouth pious platitudes about global "free" trade. It wasn't until the damage had already become severe that the government ruled in case after case that foreign producers were illegally "dumping" steel -- i.e., selling for less than production costs -- in the American market. Finally we slapped countervailing duties on the dumping, but by then, much damage had already been done.

Riding out the crisis
"Could we have survived as a smaller company?" wondered Moyer in retrospect.

Thirty miles away in Sharpsville, PA, another Steelworker local at a steel industry supplier put together its own operating plan for the company as a survival strategy as it, too, faced a market collapse in late 1998.

Sharpsville Quality Products (SQP) got national coverage when the employees occupied the plant for 42 days in 1993 to keep liquidators out; they reopened the shut facility in 1994 (see Owners at Work, summer 1994).

There are easier things to do than reopening an ingot mold foundry. From the day SQP reopened, the company has struggled with the dual problems of recapturing an adequate share of a declining market and raising capital to renovate and upgrade the plant. It's never been an easy task, and it has worn out more than one manager. Indeed, SQP has been run by four different CEOs and, for a period, by a collective management team since reopening in 1994. Still the company managed to reach breakeven and reinvest more than $1.2 million in upgrading the plant... before the steel crisis hit.

The steel crisis that sank Bliss virtually sank SQP as well. In fall 1998, its orders dried up and the company began hemorrhaging cash. Outside shareholders, who had made the 55% employee buyout possible, lost patience and decided to pull the plug. At Thanksgiving the Chairman of the Board instructed management to cease taking orders and begin an orderly shutdown.

The local union and managers together drafted a new operating plan, premised on a wage and manning reduction, to reach breakeven despite the collapse of orders. After two heated board meetings on the plan, the board voted 5-2-1 to accept it and to keep the company open. That precipitated the resignation of the Chairman of the Board and the CEO. (OEOC Director John Logue serves on the SQP board as an outside director nominated by the Steelworkers, and voted with the majority.)

Moving with alacrity, the remaining board members hired a new CEO, New York investment analyst Harry Kokkinis, who had done business analysis for the SQP buyout committee in 1993-94. Together, Kokkinis and the employees slashed costs, brought down overdue payables, reassured customers, and stabilized the business. In December 1999, employees celebrated the first anniversary of the second rebirth of the company with a substantial order backlog.

"This was the second time conventional business judgement said 'Shut the plant!'" commented Logue at that SQP employee meeting. "First time around, you had to sit in for 42 days to get your jobs back. The second time round, we did it with a vote in the board room. That was a product of your owning a majority stake in this company."