March 12, 1995 in Business

An Uneasy Truce Kaiser’s First Strike Is Over, But Deep Divisions Remain

Michael Murphey Staff writer
 

If Ray Milchovich could make the call, you get the feeling that Kaiser Aluminum Corp.’s smelter at Mead would be history.

“Who wants to commit strategic capital where you’re faced with an adversarial labor relationship?” Milchovich wonders. “If I’m chief executive officer of this company, I damn sure wouldn’t.”

But Milchovich is not CEO of Kaiser. As vice president of Kaiser’s flat-rolled products division, he runs Kaiser’s Trentwood rolling mill.

At that plant, Milchovich and the leadership of United Steelworkers of America Local 338 have forged what each agrees is a progressive relationship that ties both management and labor’s financial interests directly to the productivity of the Trentwood mill.

The labor-management partnership has worked well there, Milchovich and Local 338 President Joe Thorp say. Trentwood has been setting records in quality and productivity, and Kaiser has made commitments of capital investment that ensures Trentwood’s future well into the next century.

So Milchovich was completely frustrated to have those accomplishments threatened with a strike that was driven by the work force across town at Mead.

George Haymaker is Kaiser’s CEO, and while he’s not as adamant in his frustration with Mead as Milchovich, clearly his view of Mead’s long-range viability in the Kaiser system has been affected by the strike as well.

“At the moment, we have represented in our plants a broad spectrum of views,” Haymaker says. “At some plants, there is a strong alignment in the goals of individual employees, and the goals of the company.

“In other plants, there remains the view - a view in my opinion that is a throwback to days that are long gone - that your adversary is someone within your own plant.”

Kaiser has a strategic plan, Haymaker says, for future growth and competitiveness in the world market. That plan calls for broad changes in the way plants are managed, changes in the responsibilities borne by labor and management, and changes in the way the profits of success are shared.

None of that can be accomplished, Haymaker says, where labor and management can’t get along.

“At the moment,” he said, “we have too much of an adversarial relationship (at Mead) … That will be a consideration going forward, no question about it.”

Solving the problem, says Mead Works Manager Dave Kjos, “is not a skills issue. It’s a relationship issue. We have a good work force here.

“We can’t let 5 or 10 percent of the people drive us away from a partnership with our entire work force,” says Kjos. “The core people are no different than those at Trentwood. These are Spokane people. The basic work ethic is good.

“We’ve got to get through this.”

Jerry Miller, president of United Steelworkers Local 329 at Mead, says management-labor problems are a two-way street.

“The adversarial role is always going to be there,” Miller says. “I can’t make it go away. When are they going to quit blaming us? When are they going to look to themselves?” When Kaiser and the Steelworkers

reached a tentative contract agreement in January, Trentwood’s union leadership and negotiators from the Steelworkers international office recommended acceptance. Mead union leaders asked their members to vote no, and acknowledged that a strike would be the result of contract rejection.

The contract was rejected by a narrow 1,448 to 1,211. Workers at all five of Kaiser’s U.S. plants went on strike. The two sides resumed negotiations, and after a nine-day strike, the Steelworkers accepted a slightly revised contract package by a vote of 1,672 to 1,050.

By a count of 498 to 351, Mead was the sole plant to reject acceptance of the contract in the second vote. Trentwood workers, on the other hand, backed ratification in a 733-to236 landslide.

While they are all tied together in a single labor contract, Trentwood and Mead operate as completely separate business units within the Kaiser system.

Milchovich explains that he is held “directly accountable by George Haymaker” for the profitability of the Trentwood plant as an independent entity. And the Steelworkers’ who are employed at Trentwood have a bonus package directly tied to the productivity and profitability of their plant.

But, Milchovich says, Trentwood’s performance potential has been jeopardized by a strike that his employees didn’t want.

“The thing we’ve marketed over the years is that we’ve had excellent labor relations,” Milchovich says. Trentwood has been able to assure its customers of Kaiser’s reliability in delivery of product “because we’ve never had a strike.”

“Well,” says Milchovich, “we can’t market that anymore.”

The strike occurred, he says, in the “hottest market I’ve ever seen” for flat-rolled products. Customers are waiting in line to buy. Suppliers can’t meet the demand.

That means that at some point this year, Kaiser customers who chose Kaiser over other producers may come up short because of production lost during the strike.

“This strike had implications on our ability to service markets and the way customers are going to view us strategically in the future, without question,” Milchovich says.

Trentwood union leader Thorp shares Milchovich’s frustrations.

“The last thing we wanted to do was to reduce our customers’ confidence in our ability to deliver,” Thorp says. “One of the things that sells aluminum for us is the unionmanagement relationship we have here.

“So we’re behind the 8-ball a little bit right now, and we’re going to have to catch up. But jointly, we intend to do that.”

Stripped to the basics, Milchovich says, this strike was about labor frustration over a 10-year period in which standard of living has eroded.

What the Mead workers haven’t grasped, he said, is that no company can combat that erosion in the competitive atmosphere of a global economy by playing the labormanagement game the way it was played in years past.

“You can’t negotiate over a pot of money that doesn’t exist,” Milchovich says. “I want the employees of Kaiser to be able to improve their standard of living, but you can only do that by creating value, by making these businesses positive so there’s gains to distribute.

“Frankly, the Trentwood union has shown a willingness to do that, and the Mead union hasn’t. That’s a major frustration to me, and I know it’s a big frustration to Dave Kjos.”

In a few short years, Kaiser’s

strategic plan calls for Mead’s management-labor relationship to look a lot like Trentwood’s.

The work force must become smaller and more efficient through mechanization, says Kjos. It’s the price of competitiveness.

“In the 1980s, we took 600 jobs out of this plant in order to remain competitive,” Kjos says. “On a percentage basis, we’re going to have to do that again.”

Those reductions can be accomplished over time without layoffs, Kjos says, with attrition and early retirement packages doing the job over a few years if the union will cooperate.

By 1997, the company wants employee teams to take on the responsibility of figuring out the best way to do their jobs, and motivate themselves to maximize their performance. “Capturing the energy, creativity and brain power of our employees,” is the way Haymaker puts it.

Under today’s management-labor relationship, achieving any of that would be next to impossible. Kaiser’s strategic plan, Kjos agrees, requires the enthusiastic buy-in of the labor force.

The reality, though, Kjos says, is that, “Since November, Mead’s behavior has been less than stellar.”

Production slowdowns prior to the strike and some questionable picket line activity didn’t do anything to endear the Mead work force with top corporate management, Kjos says.

A crucial step toward the labor relationship the company wants, Haymaker says, would be acceptance by the Mead work force of a bonus compensation package tied to the plant’s performance and profitability. Such a package aligns the financial interests of both labor and management. Haymaker says it’s a system that rewards workers for creating value, and puts their fate in their own hands.

While Trentwood workers have chosen the profit-sharing bonus package, Mead workers have clung to a bonus plan that is tied to the world price of aluminum.

The metal price bonus, “is a system that is much more unreliable, and something over which we have little control,” Haymaker adds.

Miller says that’s one of the attractions about the metal price bonus to Mead workers - the company can’t control it.

“Once we do that (accept the profit-sharing package),” Miller says, “we start playing by their figures. And they aren’t exactly forthright with their figures.

“It’s a trust issue.”

Miller says the managers haven’t displayed an ability to make a profit at Mead, so what good is a profitsharing package? And without the kind of capital investment that has been made at Trentwood, he doesn’t think a profit will be made.

“We’re going to do what we need to do to improve,” Miller says, “but we’d like to see some capital poured into the place, too.”

So it becomes a chicken and egg argument. Which comes first? The labor-management trust or the capital investment? In this case, the company holds the cards. If labor and management can’t find some common ground in the next couple of years, Kjos says, “the company won’t make that investment.”

“As disappointed as we were, first

by the strike, and then by the subsequent vote at Mead, we are by no means giving up on our objectives to make all of our plants competitive and profitable, and have all our employees share in that,” says Haymaker.

The crisis of survival Kaiser went through in recent years has passed, he says.

“Our liquidity is very strong, we have substantial reserves, and we fully expect to have a profitable 1995, particularly in the last three quarters of the year.”

He sees world aluminum inventories continuing to drop, and by the end of the year, the aluminum industry should be entering an extended boom period in which companies will need all the production capacity they can muster.

“We are hard at work now trying to grow as a company,” says Haymaker. “And you don’t grow by shutting down facilities. You grow by maximizing the competitiveness of the facilities you have, and by adding to that.”

So while, Haymaker concedes, Kaiser is working on sources of metal in places like the former Soviet Union, Venezuela and China that could replace Mead’s production capacity, the best solution is to have all that and Mead as well.

“The question of what happens at Mead,” he says, “has to do with Mead itself. It’s not a trade-off with something else.

“We need,” he adds, “to take Mead to a new level involving a major change in the way we do work there. That will take capital. But it will also take creativity and enthusiasm on the part of the work force.”

Responds Miller, “Given the productivity we have achieved and the quality of metal we produce, I don’t foresee them shutting this place down. If they can’t operate it, I’m sure somebody out there would be willing to buy it and operate it.”

Two Charts: 1) Kaiser’s lost years; 2) Primary aluminum market prices


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