Tale Of A 'Maverick'

June 8, 1998
As fate would have it, F. Kenneth Iverson did wind up working for a big steel company. In fact, he built one. But he did it his way -- cultivating a culture where wide-awake employees keep setting productivity records that are the envy of the steel industry. He also has spurned textbook formulas, defied Wall Street, and refused to create a mission statement.

While working on his master's degree in mechanical engineering at Purdue University, Ken Iverson got his first close-up look at steelmaking during a field trip to a large integrated mill in Gary, Ind. The year was 1947 -- and he wasn't overly impressed with what he saw.

"It was late afternoon," he told a Purdue alumni publication some years later. "Going through the plant, we actually had to step over workers who were falling asleep there. I decided right then that I didn't ever want to work for a big steel company."

As fate would have it, F. Kenneth Iverson did wind up working for a big steel company. In fact, he built one. But he did it his way -- cultivating a culture where wide-awake employees keep setting productivity records that are the envy of the steel industry. He also has spurned textbook formulas, defied Wall Street, and refused to create a mission statement.

Today his company, Nucor Corp., the king of the minimill producers, is the second-largest steelmaker in America, after USX Corp.'s U.S. Steel Group. Headquartered in Charlotte, N.C., Nucor produced 9.72 million tons of steel last year -- up 15% from the year before -- slipping past Bethlehem Steel Corp. and LTV Steel Co. Inc. into the No. 2 spot.

By one estimate, Nucor has accounted for 83% of the U.S. steel industry's growth in shipments during the last decade. That achievement is particularly remarkable because, when Iverson joined the company in 1962, it didn't make any steel at all. The firm (then known as Nuclear Corp. of America) had just ventured into the steel-fabrication business by acquiring Vulcraft Corp., a manufacturer of construction joists, and hired Iverson to run the new unit.

In 1966, a year after being appointed company president, he persuaded the board of directors to invest in steelmaking operations -- arguing that the firm would save money by producing its own steel for joist fabrication. The company's first mill, in Darlington, S.C., went on stream in 1969.

A Turning Point, in Retrospect

In retrospect, that event can be regarded as a turning point that ushered in the modern era of electric-furnace minimills that have revolutionized the steel industry. Nucor, which now has eight steel-producing mills as well as a number of steel-fabrication businesses, has experienced phenomenal growth during the last three and a half decades.

In 1964, the year before Iverson became president, its sales were just $17.5 million. But in 1997, Nucor's revenues totaled $4.18 billion -- representing a 15% gain from 1996 and a whopping 23,811% increase in 33 years. It now ranks 422nd on IndustryWeek's list of the world's 1,000 largest publicly held manufacturing companies.

Known as a pioneer in commercializing new steelmaking technology -- including the thin-slab casting process introduced with the start-up of its Crawfordsville, Ind., mill in 1989 -- Nucor reinvests most of its earnings in growth-oriented expansion projects. Nonetheless, it has managed to increase its dividend payout to shareholders every year for the last 25 years.

"Poking Around" for Secrets

Any number of business-school professors, journalists, and other analysts have come "poking around" to try to uncover the hidden secrets of Nucor's success, says Iverson, who relinquished the CEO reins to John D. Correnti at the end of 1995 but still retains the title of chairman.

"I get calls from students at prestigious business schools all the time," he chuckles during an interview with IW. "The first thing they ask is, 'May I have a copy of your mission statement?' And I say, 'We don't have a mission statement.' Then they ask, 'Well, can we have a copy of your job descriptions?' And I say, 'We don't have any job descriptions.' The next thing they say is, 'Wait till my professor hears this!'"

The answer to the company's fortunes aren't likely to be found in any of the complex formulas spelled out in M.B.A. textbooks. If anything, Ken Iverson and Nucor have been successful because they've been willing to buck corporate tradition and do things as they saw fit.

In a book chronicling the company's history, The Legend of Nucor (1997, Write Stuff Syndicate Inc.), author Jeffrey L. Rodengen states: "The amazing thing about Nucor's success is that it is so simple: give employees a stake in the company's growth; focus on the business at hand; keep red tape and bureaucracy to a minimum. While many other companies waste energy on internal politics, Nucor continues to make money by making steel and steel products."

If there is a Nucor success formula, the primary ingredients include:

  • Maintaining a lean management structure -- The corporate headquarters office in Charlotte has a staff of just 25 people, and there are just four management layers between the CEO and front-line workers. Moreover, the company has no corporate legal department, purchasing department, engineering department, public-relations department, or marketing department.
  • Pushing decision-making down to the lowest possible level -- which means that the firm's business-unit managers have a high degree of autonomy, and production workers are extensively involved in devising methods to improve operations.
  • Encouraging experimentation and risk-taking -- Nucor accepts that roughly half of its investments in new ideas and new technologies "will yield no usable results," Iverson says. Yet the company has been at the forefront in introducing new steel-related technology, such as its iron-carbide plant in Trinidad & Tobago, completed in 1994, which converts iron ore fines into a new type of scrap substitute that reduces the amount of energy required in electric steelmaking.
  • A performance-based bonus system -- one that rewards managers and other employees for improving return on assets and production crews for increasing productivity. (Last year, the company generated a record $623,000 in sales per employee.)
  • A commitment to fostering two-way loyalty -- by cultivating a sense of "shared purpose" among managers and workers. Not only do employees at all levels share in the financial success of their work groups or business units, but a "share the pain" philosophy dictates that everyone bears part of the burden during difficult times. (Although it has gone to reduced workweeks in slow periods, Nucor has never laid off an employee or shut down a facility for lack of work.)
  • Cultivation of an egalitarian atmosphere -- with few, if any, of the management perks common at many other firms. Everyone, including senior executives, flies coach on business trips. And there are no company cars, no reserved parking spaces, and no executive dining rooms.

Many of the principles embodied in the Nucor business philosophy have gained credence in management circles during the last decade or so -- or at least now get increased lip service -- but they weren't widely accepted and practiced when Iverson introduced them. The Nucor chairman has been regarded as an industry "maverick."

It's a reputation, he asserts, that is well-deserved. And when it came time to pick a title for the recently published book in which he puts his own spin on the Nucor story, he settled on Plain Talk: Lessons From a Business Maverick (1997, John Wiley & Sons).

"I am a maverick," he tells IW. "There are lots of things that are very different about Nucor."

Many companies today talk about reducing management layers and pushing responsibility down into the organization, he concedes, "but I did that 20 years ago -- and they laughed at me. Nobody believed it back then."

Follow Your Instincts Rather Than Conventional Wisdom

Becoming a maverick, he suggests, may simply be a matter of following your own instincts rather than accepting conventional wisdom. "We just decided," he says, "that we were going to run the company the way we thought would be the best way to do it."

Iverson, whose early career included a stint as a research physicist for International Harvester (now Navistar) and management posts at several small metals companies, understands how poorly conceived -- even inane -- instructions from corporate brass can frustrate the efforts of managers running operating divisions. Part of the rationale for not having centralized engineering, legal, marketing, and purchasing departments, he explains, is to give greater autonomy to the general managers who are responsible for bottom-line results at the business-unit level.

"They really do make the day-to-day decisions without having to worry about a big corporate headquarters looking over their shoulders," Iverson says.

Rex Query, controller for the company's newest steelmaking division -- the Berkeley County, S.C., thin-slab casting mill -- confirms that Nucor managers do have a great deal of autonomy. Working for Nucor, he says, is like working for a family-run business.

"I'm the controller for this division, but sometimes I get involved in sales and marketing, and sometimes in shipping or in production," he says. "And sometimes I do all of those things in a single day. If you don't like having responsibility, setting your own schedule, or making decisions for yourself -- rather than having other people making decisions for you -- then Nucor isn't for you."

Query recalls a conversation several years ago that reinforced the firm's commitment to delegating responsibility. Just before Query left a corporate-headquarters post to assume his first field position -- as controller at the Vulcraft unit in Florence, S.C. -- Nucor President John Correnti paid him a visit.

"He said, 'We know that you're going to cost the company millions of dollars with some of the [bad] decisions you'll make. Just promise me that you won't make them all in one year!'"

"People have to have the leeway to make mistakes," Iverson emphasizes. Nucor, he says, understands that managers will occasionally cost the company money by making poor decisions. "We're not concerned about that," he stresses. "We're concerned about them not making the decisions."

In Plain Talk, Iverson discusses many of the achievements and practices that helped reshape Nucor from a "confused, tired old company" into a leading force in the steel industry. "Along the way," he stresses, "we showed that many of the so-called necessary evils of life in corporate America are, in fact, not necessary. . . . We have little tolerance for the politics, the pettiness, the fixation on rank and status, and the insensitivity to employees' legitimate needs that people in most big companies endure as a matter of course."

One reason senior executives in many firms often are insensitive to the concerns of rank-and-file workers, Iverson tells IW, is that they have very little contact with lower-echelon employees.

"But at Nucor we require the general managers to meet with every employee at least once a year. And most of them do it twice a year -- in groups of no more than 50. They normally do it at a dinner. That means, if you run a steel mill with 500 employees, you've got to have 10 dinners every year."

After dinner, the general manager is allowed to speak for no more than 20 minutes; the rest of the evening is an open forum in which the employees ask questions or express their views about company policies and practices. Nucor's egalitarian culture helps the company avoid the "us-vs-them" mentality that fosters adversarial relationships in many industrial organizations.

"Everybody here has the same vacation. Everybody has the same holidays. And everybody wears the same color hard hat," Iverson points out.

Hard Hats as Status Symbols?

In the past, the color of an employee's hard hat was a status symbol of sorts. Production workers wore blue hats, foremen wore white hats, department heads wore green hats. In time, however, it dawned on Iverson that the different colors reinforced a class structure that was inconsistent with Nucor's culture. So one day he issued a memorandum declaring that, after a specified date, everyone would wear the same color hat -- green.

"I got all kinds of flack from our foremen," he recalls. "They said, 'You can't do that!' . . . So we held training programs to explain that their authority didn't come from the color of the hat that they wore."

In hindsight, however, the Nucor chairman realized that his edict was not entirely proper.

"We made a mistake," he says, "because you can't put everybody in a steel mill in the same color hard hat. In an emergency, you have to be able to spot the maintenance people quickly. So we changed the policy, which now requires everyone to wear green hats except for maintenance people, who wear yellow, and visitors, who wear white hats."

Incentives as a Driving Force

Perhaps the real driving force behind Nucor's success is its approach to incentive systems -- which link the fortunes of employees at all levels with the performance of the company. While the base pay of most hourly and salaried employees is only about 70% of the industry average, the firm's bonus payouts make them the best-paid workers in the industry.

The typical mill worker at Nucor now earns close to $60,000 a year -- including productivity-based bonuses that often amount to 150% of base salary. (Despite its high overall compensation level, the company boasts the lowest labor cost per ton of steel in the industry.) An important aspect of the incentive system, Iverson asserts, is that "all the bonus plans are written down. There are no discretionary bonuses. None. . . . I don't like 'em."

With discretionary bonuses, he notes, favoritism can come into play. "And they are subjective -- based on what you think someone has done. I don't want to sit as King Solomon on anybody. And I don't want them to do it to me, either."

Nucor has little use for performance appraisals, because employees earn according to what they produce. And it doesn't bother with job descriptions.

"We let our employees define their own jobs," Iverson says, "as they search for ways to optimize productivity."

Iverson's maverick tendencies also are reflected in the firm's executive-compensation practices. Unlike companies where top executives receive huge bonuses despite laying off thousands of employees in a down year, when a business slump occurs at Nucor, production workers on a reduced workweek might experience a 25% drop in pay.

"But at the next level up, a department head's bonus -- which is based on return on assets -- can represent 75% of his pay. So when earnings drop, his pay might go down by 30% to 40%," Iverson says.

At the corporate-officer level, the bonus plan -- based on return on shareholders' equity (ROE) -- puts an even greater percentage of compensation at risk.

"At 8% ROE, the bonus is zero," Iverson points out. "But at 22% ROE, you get twice your salary in cash plus stock equal to one year's salary. So it can be very big. But in a down year, the officers' compensation might drop by 65% or 75%."

Iverson recalls that in 1981 he earned $450,000 in salary and bonus. But the following year the company failed to hit its 8% ROE target, and he made just $110,000. A magazine article listed the Nucor chairman as the lowest-paid CEO of any of the nation's 500 largest companies.

"I wasn't ashamed," he asserts in Plain Talk. "The company was not performing. I'd have been ashamed to earn more. . . . To compete over the long term, a company needs loyal, motivated employees. Can management expect employees to be loyal if we lay them off at every dip of the economy, while we go on padding our own pockets?"

Speculators Vs. Investors

Although his company is publicly traded, Iverson is equally irreverent about the influence that Wall Street exerts on corporate decision-making. In his book, he chides executives for bowing to the whims of the financial community. "These days," he says, "you can't swing a dead cat without hitting some corporate executive whining that Wall Street won't let him run the company for long-term growth. But . . . you have to choose your master -- the investor or the speculator.

"What's the difference? Time. Over a three-to-five-year period, the success and growth in equity of a business will be reflected in its stock price, rewarding the investor. . . . Speculators, of course, believe in the fast buck. They wave the capital in your face and expect you to abandon common sense. The amazing thing is, it works! Time and again, executives dance to their tune. At Nucor, we refuse to do it. Every decision we make as managers is rooted in long-term perspective."

A willingness to implement new technology, despite the lack of a corporate R&D unit or a centralized engineering department, has been another hallmark of Nucor's success. At a time when the federal government was planning to fund a five-year joint study to stimulate U.S. steelmakers' interest in thin-slab casting methods, Nucor executives decided to take the plunge on their own and install the technology at the Crawfordsville mill. The primary incentive for pioneering thin-slab production -- in which continuous-cast steel comes out of the mold in 2-in. slabs, rather than the 8-in. thickness of earlier casters -- was to reduce capital costs as well the cost of operation, Iverson notes.

"You can build it a lot cheaper since there is no big breakdown mill. And we eliminated a lot of labor costs. We went into it because it was a way to get into the flat-rolled market economically."

Although Iverson concedes that it would be unrealistic to expect Nucor to continue its historical 35% to 40% annual growth rate, he isn't about to abandon the emphasis on expansion and exploring new horizons.

"We still expect to grow at 15% to 20% a year," he says.

With some $400 million budgeted for capital projects in 1998, Nucor is currently constructing a new steel-beam mill at Berkeley and a major addition (including galvanizing, rolling, and pickling and annealing facilities) at its Hickman, Ark., mill. It is also evaluating potential sites for a new plate mill and has plans for a flat-rolled mill in the U.S.' Northwest. And it is exploring the possibility of a steelmaking joint venture in Brazil.

Although he underwent heart surgery several years ago and will turn 73 this September, Iverson dismisses any notion of retirement any time soon.

"People often ask me when I'm going to retire," he smiles. "And I tell them that this company has mandatory retirement at age 95. . . . But when I get there, I think we're going to change it."

That may be a prerogative reserved for executives who have become legends in their industries. When John Correnti assumed the No. 2 slot as Nucor's CEO, he asserted that no one could hope to fill Iverson's shoes, adding: "When [they] open up the history books, our grandchildren, 30 or 40 years from now, are going to open it up to 'Steel in America,' and they're going to see two names and two pictures. They are going to see Andrew Carnegie, father of the integrated industry, and Ken Iverson, father of the American minimill. That's just the way it's going to be."

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