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Bethlehem Steel Is Just the Latest Project For Turnaround Artist Steve Miller

October 14, 2002

STANFORD GRADUATE SCHOOL OF BUSINESS—Think your career has had its ups and downs? Listen to how Bethlehem Steel CEO Steve Miller describes his three decades in the business world: "On my first job as a chief financial officer, my employer lost $2 billion in 18 months…as a semi-retired corporate drifter, I've had the distinction of having served as chairman of not just one but three multi-billion-dollar companies that filed bankruptcy last year." And don't forget Miller's role in a $20 billion real estate collapse.

Don't be fooled by the self-described black marks on his resume. Miller has become one of the nation's top turnaround artists, helping one-time basket cases including Chrysler, Morrison Knudsen, and Aetna come back from the brink. Now he's facing what could be his biggest challenge: reviving the fortunes of Bethlehem Steel, once a symbol of America's industrial might, now reduced to seeking a life-saving merger while struggling to survive Chapter 11 bankruptcy.

On Oct. 14, Miller, who earned both his undergraduate degree in economics and his MBA (Class of 1968) at Stanford, returned to kick off this year's View from the Top lecture series at the Graduate School of Business. In a funny and insightful 60-minute talk to several hundred students and faculty members, Miller joked about his career ("I'm officially listed in the Yellow Pages under 'Flaming Disaster'"), offered serious advice for would-be turnaround artists (don't assume failing companies are staffed by bozos), and shared his views on asbestos litigation and steel import tariffs ("helpful, but not essential").

Thoughts of Chairman Iacocca
Not all of Miller's post-Chrysler efforts have been completely successful-Reliance Insurance was "beyond salvation," and Waste Management, according to BusinessWeek, "fell back on hard times after he left." But the management lessons extracted from Miller's long career and association with some of the most influential corporate players in the last few decades are worth some thought.

"Listen to the customer" is a phrase repeated so often it has become an irritating cliché. But when Miller joined the foundering Chrysler Corp. in 1979, he learned that not listening to the customer was killing the company.

"The average car we sold was returned to the dealer for 12 different repairs in the first year on the road. In [Lee] Iacocca's subtle phrasing, 'We were shipping a lot of crap,'" Miller recounts. Iacocca's solution? Extend the warranty program from 12 months to five years, an idea that Miller initially hated. "I told him it was crazy; we'd go broke on the warranty bills. The manufacturing guys were apoplectic at the notion of being haunted by their mistakes for five years."

But Iacocca was right. And to make sure his management team understood that, he imposed a bonus system that paid zero to every executive in any year that quality didn't improve by the targeted amount. "That got our attention," says Miller. "Defect rates were reduced over time by at least 90 percent."

Steve Miller's Playbook
"The first rule is great leadership. It is just incredible what a difference an inspired leader can make to an otherwise hopeless situation. As a corollary, it usually requires an outsider to effect a turnaround. The former management tends to spend too much time plowing old ground. A new manager may not know as much, but at least you can focus on the future rather than the past. Further, a new manager gives confidence to investors, employees, and customers," Miller says.

Miller counsels executives in turnaround situations "to be decisive. In a critical situation, people are often paralyzed by fear of failure or confused as to why things got so bad. It is important to make decisions and take action."

Failing organizations, he says, are often characterized by finger pointing and bureaucracy. "Employees are highly political and so consumed by internal dispute that no one has time to respond to the customer." The remedy: "In each successful turnaround, I have witnessed a major streamlining of the organizational concept."

And finally: "Companies that have fallen on hard times are not necessarily populated by a bunch of bozos down in the ranks. Instead they typically have cadres of experienced, hard-working people who know their craft and want to do well, but are frustrated by poor leadership and organization. Once new turnaround management is in place, the same troops that couldn't shoot straight often turn into an incredible fighting machine," Miller says.

Torts Run Amok
Although his tenure as non-executive chairman of auto parts maker Federal-Mogul was relatively brief, Miller came away from the experience shaken and sounding somewhat bitter at the company's descent into Chapter 11. "It's a real case study in our tort system having run amok," he says.

Simply put, Federal-Mogul, which never manufactured asbestos, was brought down by its acquisition of several companies that carried asbestos liability, including one that had produced the cancer-causing material for fireproofing, according to The Detroit News.

Miller says he's sympathetic to asbestos victims and believes "we can easily afford to pay reasonable compensatory damages to people who are sick from exposure to our products." But "we were overwhelmed by an accumulation of over 500,000 individual claims filed in every state by over 600 law firms." Ninety percent of these claims, Miller says, are by people who maintain they have been exposed to asbestos, but who are not even sick.

"I can't think of a stupider way to deal with a legitimate problem in our society—how to care for the true victims of asbestos. The way things are going, the lawyers—who take about two-thirds of all payments—and people who aren't sick will clean out the till and leave all the payers bankrupt, thus providing no source of support for people who turn out to really be sick," he says.

What's next on Miller's agenda? Now 60, he doesn't expect to stay at Bethlehem for the long haul and says he really wants to return home to Oregon to pursue his model-railroading hobby in retirement.

On the other hand, he's said that before.

—by Bill Snyder

Related Links

Miller is profiled in Stanford Business magazine.