On a Friday in May, members of U.S. Steel’s audit department received an email ordering them to report to a department-wide meeting the following Tuesday.
The email heightened anxiety many had felt for months, as the management team responsible for losing $3.7 billion over the previous five years was replaced by a team of outsiders led by President and CEO Mario Longhi, a former Alcoa executive.
The management makeover had already generated a wave of retirements and departures, voluntary and involuntary, by the time the audit staff arrived for the meeting.
The presence of personnel from U.S. Steel’s security department did little to alleviate their fears. They had seen human resources and security personnel escort fired employees out of 600 Grant St. as part of the Carnegie Way, Mr. Longhi’s relentless efficiency drive that has investors once again excited about the steelmaker’s surging shares.
But many were not prepared for what new CFO David Burritt told them: The audit staff would be eliminated and the work they did would be outsourced to Ernst & Young, a Big 3 accounting firm and one of three consultants that had been brought in to recommend how to slash costs.
“There was no thought that they would eliminate the entire department,” said one former employee, who asked not to be identified.
After a short explanation from Mr. Burritt — that audit staff employees posted to the steelmaker’s plants heard in a conference call — human resource staff explained the separation process, the employees cleaned out their desks and were walked out the door.
The episode, recounted by former employees in interviews, puts a human face on the Carnegie Way.
U.S. Steel has provided few specifics on the initiative, not even disclosing how many jobs have been eliminated. In a quarterly securities filing, the company said it paid severance-related charges of $14 million in the first half of this year for “headcount reductions ... in conjunction with the Carnegie Way transformation efforts.”
The former employees asked not to be identified. Several said they signed separation agreements that prohibit them from talking about their former employer.
They said staff reductions occurred in at least four other departments: legal, information technology, aviation and public affairs. The reductions in aviation, which managed U.S. Steel’s corporate jets, came as the company reduced its fleet from three jets to one, according to records of the Federal Aviation Administration and FlightAware, a service that tracks jet ownership.
Although the company has announced the departure of some executives, including the retirement of controller Gregory Zovko in June, it has not said anything about the status of senior vice president Susan M. Suver, the company’s top human resources officer and the executive who signed letters offering Mr. Longhi and Mr. Burritt their jobs. She appears to be among those out of work. Ms. Suver’s biography no longer appears on the U.S. Steel website. Ms. Suver did not return calls seeking comment.
U.S. Steel declined to comment on reports that Ms. Suver has left the company, as well as on the status of its jets and whether Ernst & Young has replaced its audit department.
In a statement, it said Carnegie Way is “a transformational journey for the company,” not a headcount reduction program. The company employs about 4,000 in the region.
Mr. Longhi joined U.S. Steel in 2012 as the steelmaker’s problems mounted. They included a 90 percent drop in the company’s share price; the failed acquisition of Canadian steelmaker Stelco; an ill-advised investment at its Gary (Ind.) Works in an effort to find a substitute for coke, the baked coal that fuels blast furnaces; and a costly software project.
The company has said little about the software initiative, other than a comment by Mr. Surma in April 2013 that it was expected to cost “multiple hundreds of millions” of dollars. One former employee put the price tag at $1 billion, a figure that matches with one software industry official’s estimate. The company declined comment.
Last week, Mr. Longhi announced the company’s Canadian subsidiary was filing for bankruptcy after losing $2.4 billion since December 2009. The company also pulled the plug on the Gary project.
Mr. Longhi took over the Carnegie Way efficiency initiative shortly before he was promoted to president and chief operating officer in June last year. He replaced Mr. Surma as president and CEO three months later.
The stories of former employees contain common threads. They said fears over job security grew gradually as Mr. Longhi’s appointees got down to business and more senior executives retired.
In addition to Mr. Burritt, Caterpillar’s former CFO, new top management who were brought in from outside included chief procurement officer Christine Breves, who worked with Mr. Longhi at Alcoa; former Caterpillar executive Geoff Turk, who is now in charge of the Carnegie Way initiative; and general counsel Suzanne Rich Folsom, a former lawyer for insurer AIG and the World Bank.
“After about six months, I said, ’Ah, oh, we’re in trouble,’ ” one former employee said.
Based on the steelmaker’s miserable performance, most employees had realized changes were needed. Some were distracted by the looming cuts or began searching for jobs elsewhere.
“Morale is horrible. It’s the worst I’ve ever seen it,” said a worker who was laid off earlier this year.
Making sudden, massive changes is difficult for any organization. It is even harder in a large, bureaucratic company with entrenched management and a corporate culture that is resistant to change, former employees said. Several used the word “arrogant” to describe the old regime’s attitude, a posture not in sync with the steelmaker’s streak of five unprofitable years.
“The new executives are much more aggressive, quicker to react,” said one former employee.
Most of the employees said as tough as the cuts are, many are necessary.
“A lot of the things they’re doing, they need to do,” said one former employee. “There’s things that need to be done and they are unpopular.”
Source: http://www.post-gazette.com