Part IThe Story
Splendid isolation
The signal began at the gate. Two men from the company's own police force kept watch on the road for one particular chauffeured car. Bethlehem Steel kept its own police the way it kept its own railroads, its own ore mines in Cuba, its own shipyards on two oceans and, eventually, its own country club. When the car appeared, word went ahead to the office building. Inside, every elevator in the bank stopped at the nearest floor. Whoever was riding got off: clerks, draftsmen, a junior engineer with a roll of drawings under his arm. Then the cars, now empty, dropped to the lobby and waited with their doors open. Eugene Gifford Grace, president of the second-largest steel company in the United States, walked in, chose the one he wanted, and rose alone to his office.
Two local newspapers, writing decades apart, reached for the same phrase to describe that ascent: splendid isolation. The Morning Call put it more plainly in 1997. When Grace arrived in the morning, "ordinary employees would be forced to get off the elevator so Grace could ride to the top." A later account from WFMZ's history column said the ritual was "designed to let everybody know who was boss." It worked. Everybody knew. It is less clear that the boss, sealed in a steel box on his way up, ever learned much that he had not already decided he knew.
Hold that image of a man going up alone through a building full of people who have been told to step aside. The rest of his story arranges itself around it. Grace ran Bethlehem Steel for four decades, as president from 1916 to 1945 and as chairman until 1957. In that time it grew from a regional producer with less than one percent of the nation's ingot capacity into the arsenal that armed the Allies twice. Its beams went into the Empire State Building, its cables and sections into the Golden Gate Bridge, and its hulls became more than eleven hundred ships of the Second World War. He was the son of a sea captain. Edmund F. Martin, who would run the company in the 1960s, said Grace steered it the way his father must have steered a vessel.
— Edmund F. Martin, Bethlehem Steel chief executive in the 1960sGrace charted the course of Bethlehem's growth and prosperity with the solitary and supreme status of a ship captain.
The phrase was meant as praise, and it was accurate. A ship captain owes nothing to the crew's opinion. He does not need a successor while he is aboard, and he answers only to the weather and the owners. Those qualities serve well in a crossing and badly in an institution meant to outlast one man's life, and Bethlehem Steel was supposed to be that kind of institution. The company survived Grace by forty-three years. Its decline began with things he did and things he declined to do, and one autopsy after another traced the cause back to the office at the top of that elevator shaft.
He is buried on a hill above the Lehigh River, facing the furnaces. There is a stone bench beside his grave with room for twenty people. That comes at the end.
By the Numbers
The Grace Years at Bethlehem Steel
41Years at the top: president from 1916, chairman until retirement in 1957
$45Monthly wage of his first job, crane operator, in 1899
$522,637His 1941 salary and bonus, the second-highest in America
1,121Ships built in 15 Bethlehem yards during World War II
73MTons of steel produced in six years of wartime production
300,000Total employees at the wartime peak
20Seats on the granite bench at his grave on Nisky Hill
The shortstop who chose the crane
He was born on August 27, 1876, in Goshen, a crossroads in Cape May County, New Jersey. His father, John Wesley Grace, had commanded ships and then came ashore to run a grocery. His mother was Rebecca C. Morris Grace. Eugene and his brother worked behind their father's counter. A captain who trades the open water for a shop's ledger makes a modest story, but it sets out the two halves of the son's character: the quarterdeck and the counting table, command and margin.
He went to Pennington Seminary and then, in 1895, to Lehigh University in Bethlehem, Pennsylvania, on a baseball scholarship to study electrical engineering. At Lehigh he was a shortstop, the position that covers the most ground and has to make the most decisions per inning. He captained the team. His batting average is recorded as above .400, which may be lore and is close enough to the record to matter. In 1899 he graduated first in his class as valedictorian. In 2001, a hundred and two years after commencement, Lehigh inducted him into its athletics hall of fame and called him "an impeccable baseball player."
Then came the choice his admirers retold for the rest of the century. A Boston professional club, which the sources call the Braves, offered him a contract reported at $200 a month. Bethlehem Steel offered him a job operating an electric crane for $45. He took the crane.
The story is so neat that it deserves some suspicion. B. C. Forbes wrote it up in The American Magazine in 1920 under a headline that gave away the genre: "Gene Grace — Whose Story Reads Like a Fairy Tale." Early-century business writing ran on such fables: the boy who refused easy money, the valedictorian who started at the bottom, a career told backward from its ending. Still, the arithmetic is real. He turned down more than four times the pay to sit above a mill floor and move hot metal on a hook. Whatever he expected that job to return, it was not the salary.
It is worth knowing what was happening on that floor. A year before Grace arrived, Bethlehem Iron had hired Frederick Winslow Taylor as a management consultant to fix the cost of its machine-shop capacity. From 1898 to 1901 Taylor and his methods were loose in the works. Measurement was becoming the doctrine of the place, and the question of how much a man could be made to produce in an hour was being asked there with new precision. The young crane operator learned the plant at the moment it was learning to count itself, and a crane cab, elevated above the floor, is a natural place from which to count. It was the first of his elevated posts.
He rose fast. By 1902 he was superintendent of yards and transportation, meaning the internal arteries that moved ore, coal, ingots and finished shapes around a works that had been growing since its first blast furnace was lit on January 4, 1863. On June 12 of that year he married Marion Brown, whose father, Charles Brown, had co-founded the Brown-Borhek lumber supply company. That was a local family with local money, and the marriage tied the outsider from Cape May to Bethlehem by property and kinship. The couple moved into a Queen Anne house at 114 West Fourth Street on the South Side and lived there from 1902 to 1906.
At 2 p.m. on April 19, 1997, the Pennsylvania Historical and Museum Commission and the South Bethlehem Historical Society unveiled a plaque in front of that house. By then the furnaces across town were cold. The plaque marks his first house, not his last. The last one had twenty-three bedrooms.
Schwab's instrument
Grace's real education started with Charles M. Schwab, a man who needed someone like him.
Schwab was a protégé of Andrew Carnegie and had served as the first president of United States Steel, the largest corporation in the world. He left because its committee-bound management kept him from running it the way he wanted. He was portly and about five feet ten, with graying brown hair swept to the right, and he had a salesman's gift for making a stranger feel known. He did not smoke but handed out cigars, and he remembered workers' children's names. He bought Bethlehem Steel in 1901, transferred it to U.S. Steel, bought it back, sold it to the troubled United States Shipbuilding Company, and finally, in 1904, rebuilt it out of that wreck as the Bethlehem Steel Corporation, with himself as president and chairman. The deal-making was close to sleight of hand. What he lacked was someone who would stay in Bethlehem and make the place run.
A corporate history put the arrangement plainly: Schwab "hired an electrical engineer, Eugene G. Grace, whose management skills allowed the more entrepreneurial Schwab the freedom he needed." One man was the showman and the other the stage manager. One supplied charm and the other supplied tonnage. A WFMZ history column described the difference in temperament this way: Grace, "unlike his early mentor... didn't care if he was liked or not." Neither man wanted a union in the works, and both were willing to use force to keep one out. Schwab, though, believed the individual worker had been misled by agitators and should be won back. Grace "regarded most average steel workers as employees that he dealt with abruptly."
Schwab tested his instrument abroad first. In 1905 he sent Grace to Cuba as general superintendent of the Juragua Iron Company, Bethlehem's ore subsidiary in the island's east, and in 1907 made him general manager there. It was colonial mining in its Caribbean form: American capital, American engineers, Cuban ore loaded onto ships bound north. (One footnote from that country has outlived most of the ore. A Bethlehem engineer named Jennings Cox, working at a mine called Daiquirí, is credited with inventing the drink that bears its name. The company's empire left behind a cocktail.) Grace came home in 1908 to become general manager of the whole works, just as Schwab was making the largest bet in the company's history.
The bet was a beam. In 1897 an inventor named Henry Grey had patented a mill that could roll a wide-flange structural section in one piece. It was stronger, lighter and cheaper than the riveted assemblies builders were using. Schwab had tried to get U.S. Steel to make it and had failed. In December 1905 Bethlehem announced it would build the Grey mill itself, borrowing heavily to do it, at a time when the company's ingot capacity was a rounding error in national production. In January 1908 the first commercially successful wide-flange shapes in America came off the rolls. The first major building framed with them was Gimbel's department store in New York, which used twelve thousand tons. The Grey beam helped make the skyscraper an ordinary building type rather than a stunt. It gave Bethlehem the construction market for most of the next half-century, and it was a product the incumbent had been offered and turned down.
Grace was named vice president and general manager in 1911 and president of the Bethlehem Steel Company, the operating subsidiary, in 1913, at thirty-seven. In 1916 he became president of the corporation, with Schwab remaining chairman. For the next twenty-three years the two men worked a division of labor whose terms were understood without being written down. Schwab handled the presidents and the bankers. Grace handled everything else.
— Charles M. Schwab, on Eugene GraceThe greatest steel man in the country.
One scene shows the partnership under pressure. In the spring of 1918, with the German offensive pushing on the Western Front and American shipyards stalled by shortages and sloppy work, the U.S. Shipping Board wanted a famous businessman to take over the emergency shipbuilding program. Its first choice, Henry Ford, refused outright. Its second was Schwab, chairman of what was then the largest shipbuilder in the world. Schwab told the board he was already building ships for the war, that he had put millions of his own money into his plants, and that he could not very well hand government contracts to his own company. On April 16 the board brought him back to Washington. He had a tense lunch with Bainbridge Colby of the Shipping Board and with his own second-in-command, Eugene Grace. Colby pleaded, and Grace, according to the Morning Call's retelling of Robert Hessen's biography, urged his boss not to give in. Then they walked over for a 2 p.m. appointment in the Oval Office. Woodrow Wilson came in from an inner room and went straight to Schwab.
What happened next belongs to Schwab's story. What belongs to Grace's is the lunch: a man of forty-one, with a world war going on, telling his patron to refuse the President on the company's behalf. His loyalty did not run to the country's need or to his mentor's vanity. It ran to the plant.
A billion pounds of shells
In 1914 Bethlehem Steel employed about 15,600 people. Then the guns of August began firing, and orders arrived from London, Paris and Petrograd for guns, shells, armor and finished warships. Bethlehem built warships for Great Britain in its own yards. By 1917 it was the third-largest industrial company in the United States, with more than 35,000 employees. It shipped more than a billion pounds of ammunition to Britain and France alone and then supplied much of what the United States needed after April 1917. The Morning Call later called it "the largest single supplier of arms for the Allied cause." Its profits rose more than 800 percent.
Grace was the man who turned the orders into tonnage. Steel output went from roughly 1.1 million net tons in 1915 to about 3.3 million in 1919. Every account of his career repeats that tripling, as if no one could quite believe it. The war profits were put straight back into capacity. In 1916, his first year as corporate president, Bethlehem bought the Maryland Steel plant at Sparrows Point near Baltimore, the Pennsylvania Steel Company, and the American Iron and Steel Manufacturing Company, whose plants sat in Lebanon and Steelton. The next year shipbuilding was incorporated as its own subsidiary, Bethlehem Shipbuilding Corporation, Limited. The company Grace had joined as a crane operator now ran shipyards from Quincy, Massachusetts, to San Francisco Bay.
One more detail from those years would seem made up if it weren't recorded. In 1917 Bethlehem set up a baseball league among six of its East Coast plants to entertain a workforce that kept growing. The season opened on May 11 and ran twenty weeks, through Labor Day on September 2, with games on Saturdays and holidays. At first the rosters were mill hands and a few retired professionals. Then, in 1918, the War Department's "work or fight" order gave draft-age ballplayers a choice between the trenches and an essential industry. Plant managers started hiring professional scouts. Major leaguers turned up at Bethlehem plants, tightening screws during the week and turning double plays on Saturday. Organized Baseball, according to the Society for American Baseball Research, regarded the Bethlehem Steel League as perhaps its biggest wartime threat.
Twenty years earlier Grace had turned down professional baseball for a crane. Now professional baseball was coming to work for him, and the comparison is hard to resist. He did not need to play the game to own it. He needed to control the industry that the game depended on. (The company also paid for a soccer club from 1914 to 1930 that won eleven national trophies and still ranks among the best American teams of its era.)
The historian Lance Metz said in 2003 what the company's admirers believe and its critics rarely argue with: "We wouldn't have won World War I and World War II without it." The first of those wars made Grace rich and made Bethlehem large. It also taught him that a crisis is a demand curve and that the man with capacity when it arrives can name his terms.
Steel for the skyline
Peace ought to have been dangerous for a company built on artillery. Grace treated it as a change of customer.
The Grey beam was ready, and America was about to build upward faster than any country ever had. Grace pushed the H-beam mills and acquired with the confidence of a man who had just tripled output. In May 1922, the New York Times reported, Bethlehem agreed to buy the Lackawanna Steel Company for $60 million, a purchase that came with the Delaware, Lackawanna and Western Railroad and large coal holdings. In 1923 it added Midvale Steel and with it the old Cambria works at Johnstown, which dated to 1852, along with a railcar division that made Bethlehem one of the world's leading freight-car builders. By 1929 the company ran nine major steel plants. In fewer than thirty-five years it had gone from less than one percent of national ingot capacity to the second-largest steel producer in the world.
The list of what that steel built is part of its claim on history. In New York: the Empire State Building, the Waldorf Astoria, Rockefeller Center, Madison Square Garden, and the George Washington Bridge, started in 1927. In Chicago: the Merchandise Mart. In San Francisco: the steel sections of the Golden Gate Bridge, and Alcatraz. On the western rivers: the Hoover, Grand Coulee and Bonneville dams. Later, after Grace, came the frame of One Chase Manhattan Plaza, the Kennedy Center, and the Staten Island tower of the Verrazzano-Narrows Bridge, whose construction Gay Talese followed in The Bridge. That Talese book is still the best account of what Bethlehem's product looked like at the far end of the supply chain, hanging in the wind with ironworkers on top of it.
In 1923, with the acquisitions underway and the money coming in, Grace moved into the house he would live in until he died. It stood at 1317 Prospect Avenue, on a stretch of road people in town called Bonus Hill, after the incentive pay that let Bethlehem's executives build mansions there. His was the largest. It had a ballroom, twenty-three bedrooms, fifteen bathrooms, three greenhouses, a driving range, a putting green, and eventually an underground bomb shelter. A brick wall enclosed a garden the size of a city block. Maids, cooks, butlers and under-butlers waited on Eugene, Marion and their three children around the clock. Grace's own security guards turned away curious townspeople.
He named it Uwehlan, which is Welsh for "the land over the valley." The WFMZ column remarked that Grace "was never known for having a fanciful imagination," which made the romantic name odd. Perhaps. Or perhaps the name was literal. From the hill he could look across the valley at the works. The house was another version of the crane cab and the elevator: a place above everyone else, built so he could look down on what he ran.
The fourth hole
In the 1920s Grace and fifteen other businessmen, mostly Bethlehem Steel executives, bought 205 acres of farmland less than five miles from the plant and founded the Saucon Valley Country Club. Grace was its chief founder and controlled its development for more than forty years. It now covers more than 850 acres and has hosted major championships. The story still told about it there sums up his character better than any balance sheet.
Sometime in the late 1930s, the story goes, Grace was playing a round with three Bethlehem executives. At one hole his ball kept finding the same bunker. It had happened before. Grace sat on the club's greens committee, and the man in charge of maintaining the course was Vincent J. "Pat" Pazzetti, a Bethlehem Steel executive who had been an All-American football player at Lehigh. Pazzetti is a good example of the kind of man the company liked to promote: a Lehigh athlete brought into management, competent, physically confident, grateful. Grace went over to him.
"Pat," Grace supposedly said, "that sand trap at the fourth hole is giving me a lot of trouble. Maybe it would be a good idea if it didn't do that again."
The next weekend the bunker was gone.
The Morning Call, which printed the story in 1997, framed it with care: the story goes, supposedly. It may have been improved over the years, as golf stories are. But a legend tells you what people thought the man was like, and nobody at Saucon Valley seems to have found it out of character. The point is not that he cheated. He didn't. He changed the course. Nor did he give an order. He made a remark, and other people took it as an order without his having to give one. Pazzetti, according to the paper, "didn't have to second guess Grace's remark." By then Grace's preferences had become something his subordinates treated as settled fact. If the ground was in his way, the ground was removed.
The circle around him was wide. Bing Crosby golfed with him, and so did Fred Astaire. At Uwehlan, Crosby and other stars sang for steel executives in black tie. Winters he spent in Aiken, South Carolina, playing with Bobby Jones and Gene Sarazen. He had a house in Southampton and a suite at the Plaza. His grandson, Charles Grace Jr., remembered the narrowness of it: "A lot of the Aiken people were horsey set people, but my grandfather didn't keep horses, just played golf." That was the household's one indulgence, pursued with the same fixity as tonnage.
The money for all of this came from a pay system that made Bethlehem's executives famous and, after the 1929 crash, notorious. In 1941 Grace received $522,637 in salary and bonuses, the second-highest compensation in the country. That year the average American earned about $1,500 and the average steelworker about $2,055. Grace made roughly what 254 of his own men made together. The Morning Call's 2003 history of the company was careful about the scale. The bonuses, it wrote, were "insignificant for a company of its size," but they "betrayed a smug and ultimately misguided belief that the world would always need Bethlehem's steel." The sums mattered less than the assumption underneath them.
That assumption shaped how Grace dealt with labor. Bethlehem had its own instruments of industrial peace: an Employees' Representation Plan and a company magazine, the Bethlehem Review. A dissertation on both, written in 2008, carries the title Heart of Steel, an irony that needs no help. Grace's reputation for what historians call "strident anti-unionism" ran through the whole interwar period. It gave way only in 1941, after what a Pennsylvania historian called a "seething cauldron" of a strike. WFMZ's account suggests that the only thing that could move Grace was the threat of losing lucrative defense contracts as the country prepared for war. He gave in to the union the way he had dealt with the bunker, as an obstacle to be cleared so the work could continue. He never conceded that it was legitimate. The Morning Call traced the result to the company's last day: a contempt for organized labor "that soured management-union relations to the end."
Gentlemen, we are going to make a lot of money
The second war found him on a golf course too.
In September 1939 Grace was starting a round when a caddie ran up with the news that Germany had invaded Poland and war had begun in Europe. Investor's Business Daily, reconstructing the moment, described Grace as "tall, autocratic and hardworking." The line attributed to him has followed him ever since: "Gentlemen, we are going to make a lot of money."
It sounds monstrous out of context, and it is not much better in context. It was also correct, and he said it to the other men in his foursome without embarrassment, before anyone else had worked it out. He had been through this before. He knew what a European war did to orders, and he knew who would have the capacity when the orders came. Most American financiers were still unsure whether to build plants for a war that might not involve them. A 2026 study of the wartime Defense Plant Corporation notes that "many of the nation's leading financiers and firms were initially hesitant to commit large amounts of capital." Grace was not. He had been preparing for a war with or without the government's help. In June 1938 Bethlehem bought United Shipyards for $9,320,000, adding four yards around New York harbor. By 1940 Bethlehem Shipbuilding was the largest of the "Big Three" American yards able to build any kind of ship. Within months it opened two more, at Hingham, Massachusetts, and Fairfield, in Baltimore.
In June 1941 Fortune published an assessment of Bethlehem that reads now as praise and accusation at once.
— Fortune, June 1941Bethlehem has geared every unit of its empire to a functional efficiency that Adolf Hitler would envy.
On September 27, 1941, designated Liberty Fleet Day, President Franklin D. Roosevelt watched the launch of the first Liberty ship, the SS Patrick Henry, at Bethlehem's Fairfield yard. The same day, Bethlehem launched the Liberty SS James McKay at Sparrows Point and the SS Sinclair Superflame at Fore River. Pearl Harbor was ten weeks away.
What followed is the strongest argument for Grace's methods, and it is very strong. Bethlehem ranked seventh among American corporations in the value of its wartime production contracts. Its fifteen shipyards built 1,121 ships, more than any other builder and nearly a fifth of the Navy's two-ocean fleet. Shipbuilding alone employed as many as 180,000 people, out of a corporate workforce that reached 300,000. In six years of war production the company made 73 million tons of steel. It supplied as much as 70 percent of the nation's airplane cylinder forgings, a quarter of the armor plate for its warships, and a third of the big-gun forgings for its armed forces.
In 1943 Grace made Roosevelt a promise: one ship a day. It was the kind of public number that ruins most executives who state it. Bethlehem beat it by fifteen ships.
The war also took the men. As the draft emptied the plants, Bethlehem hired women to guard the gates, work the floors and staff the offices. They did the work. When the war ended, as company histories note without comment, the women "were promptly fired in favor of male counterparts." The company built the most ships in the war, and when the war was over it returned to the way it had operated before, as if those workers had been a wartime measure like rationing.
"World War II was Grace's finest moment," the Morning Call wrote, and it is hard to argue. Everything that made him difficult in peacetime suited the war: his indifference to being liked, his single slogan, his assumption that more would always be wanted and that one man's judgment could steer a corporation of 300,000. In 1945 he moved up to chairman and Arthur B. Homer became president. The company had never been larger. Neither, though nobody noticed yet, had its exposure.
Three thousand feet down
Grace held one conviction about Pennsylvania geology for most of his career. He believed his home state had undiscovered iron ore beneath it. Bethlehem was importing ore from Cuba, Chile, Venezuela and Sweden, where in 1946 it signed a contract with the mining company LKAB in the far north. Grace wanted ore under his own feet.
In the late 1940s surveys found what he had predicted: a deep deposit under Morgantown, in Berks County. Bethlehem bought more than 5,000 acres and began building the surface plant in 1951. Mining went down as far as 3,000 feet. The ore came up, was crushed and screened, and was rolled in a mill into marble-sized pellets that went by rail to Bethlehem's furnaces. The mine employed more than 1,000 people and later, unusually for the industry, women as well as men. The company kept four stations nearby to monitor sulfur emissions. It opened in 1958, the year after Grace retired, and was named the Grace Mine.
He had once said the following about engineers. It appears in a collection of science quotations that Isaac Asimov edited in 1988:
— Eugene G. GraceThousands of engineers can design bridges, calculate strains and stresses, and draw up specifications for machines, but the great engineer is the man who can tell whether the bridge or the machine should be built at all, where it should be built, and when.
The Grace Mine shut in 1977 because it could no longer bring ore up from that depth at a profit. It had run for nineteen years. The man who said the great engineer is the one who knows whether a thing should be built at all, and where, and when, had pushed for a very large hole on the strength of a long-held belief, and markets that no longer favored it decided the question. That is not hypocrisy. It is the more common failure, in which a principle can be stated perfectly and still go unapplied once it touches something one has already decided.
Other choices in the postwar decade did more harm, and they were quieter. Japan's and Germany's steel industries lay in ruins after Allied bombing. American producers had the world market almost to themselves for about twenty years and, as Wikipedia's history puts it, "resisted modernization." Abroad, rebuilt mills adopted continuous casting, which takes molten steel straight to semi-finished shapes and skips several costly, heat-wasting steps. Bethlehem "experimented with continuous casting but never fully adopted the practice." Its plants stayed integrated, from ore to furnace to rolling mill to finished beam, owned and managed as one large closed system. That was how Grace had built the company, and it had won two wars. It would not survive the mini-mills.
Then there were the pensions. In 2004 Fortune published an autopsy of the company with an unusually blunt finding: during the 1950s Grace "failed to adequately invest in the company's pension plans." At its peak, contributions that should have been made were not made. The arithmetic stayed hidden for twenty years. Workers aged, the ratio of retirees to active workers rose, and each man on the floor had to earn enough to support more and more men who had left it. The shortfall did not cause Bethlehem's decline. It made the decline fatal.
Other things from that period sit badly in the record now. From 1949 to 1952, under federal contract, Bethlehem rolled uranium fuel rods at its Lackawanna plant, and the workers were neither told of the hazards nor given protective equipment. In Latin America the company profited on terms that look extractive. In 1960 Bethlehem and U.S. Steel together earned more than 30 percent on their Venezuelan iron investment, a sum the Uruguayan writer Eduardo Galeano said equaled all the taxes the Venezuelan state had collected in the preceding decade. During Eurico Dutra's presidency in Brazil, from 1946 to 1951, Bethlehem took 40 million tons of manganese "for 4 percent of the income of exporting it."
In November 1955 Grace testified before Congress. A photograph from the hearing shows him with a hand on his face. It shows nothing in particular; he may have been thinking or he may have been tired. He was seventy-nine.
He never named a successor. Schwab had chosen and trained Grace. Grace chose no one. The Morning Call's list of charges against him is long, but this is the first entry: "an autocrat who failed to groom a successor, as Schwab had done." He built "a closed culture hostile to outsiders." He "sacrificed innovation for short-term profits." He retired in 1957. In 1958 the company made 23 million tons a year, and its president, Arthur Homer, was the highest-paid executive in the country. The bonus culture had carried on without him.
There is a particular phrase in a speech Grace gave to Forbes in 1920, when he was forty-four. His hardest problem as a builder of organizations, he said, was "to find men able and willing to take and discharge responsibilities." He complained that too many men, "when given tasks requiring initiative," would "continually run to the boss to get instructions." For thirty-seven more years he ran a company where the elevators emptied when his car came into view.
What the company outlived
Grace died in July 1960, in Bethlehem, at eighty-three. The exact date is unclear. An older version of his encyclopedia entry gives July 7, a newer one July 25, citing an obituary in a South Carolina newspaper headlined "Steel Tycoon Passes At 83." For a man whose company could tell you its ingot tonnage to the hundredweight, the record can't settle his last day. It is a small matter, and it is the kind of small matter that happens to men who leave behind subordinates rather than heirs.
The collapse came slowly and then all at once. In 1962 Bethlehem began building its largest plant, at Burns Harbor, Indiana, on the dunes of Lake Michigan, and installed the world's first 160-inch plate mill there. That was the company at its peak, still investing in Grace's model. In January 1967 the steel contracts for the original World Trade Center, $74 million of them, went to fabricators in Seattle, St. Louis, New York and Illinois. The company that had framed the Empire State Building did not frame the towers that took its place as the tallest buildings in New York. Imports were cheaper by the 1970s. Hurricane Agnes flooded the Cornwall iron mine in 1972, and it closed in 1973. The Grace Mine closed in 1977.
In 1982 Bethlehem reported a loss of $1.5 billion and began shutting down much of its steelmaking. That year Billy Joel released "Allentown," a song about the steelworkers of the Lehigh Valley, their fathers' glory and their own empty days. In 1987 Nucor-Yamato formed to build a mini-mill in Arkansas and went after structural shapes, the market the Grey beam had won for Bethlehem eighty years earlier. Coal mining ended in 1991, Johnstown in 1992, railcars in 1993. In November 1995 the last steel was made at the Bethlehem works, ending about 140 years of metal production on the south shore of the Lehigh. Shipbuilding ended in 1997.
In 2001 Bethlehem Steel filed for bankruptcy. It was the twenty-fifth American steelmaker to do so in four years. The pension fund Grace had underfunded in the 1950s was taken over by the Pension Benefit Guaranty Corporation, covering about 95,000 people. It was the largest such assumption of pension liability in American history. In 2003 the company was dissolved and its remaining assets sold to International Steel Group, which Mittal Steel acquired two years later. Kenneth Warren's Bethlehem Steel: Builder and Arsenal of America is the full institutional account, and it is a sobering one. It covers the whole arc from the arsenal to the auction.
The land went in other directions. The 5,000 acres of the Grace Mine were bought in 1987 by a Chester County developer, Raymond Carr, who incorporated the tract as the borough of New Morgan and built a landfill there, and little else. A planned town called Bryn Eyre broke ground in 2007 and was abandoned in the 2008 recession. The hole Grace believed in became a place to bury garbage.
In Bethlehem, the old works became a casino. Construction began in the fall of 2007, during a global steel shortage, and the developers had trouble finding the 16,000 tons of structural steel they needed for a $600 million complex built on the site of what had been the largest supplier of structural steel in the country. The casino opened on May 22, 2009. The five blast furnaces were left standing, rusting, as a backdrop for concerts. An elevated walkway runs along the Hoover-Mason Trestle, which once carried ore to the furnaces, so visitors can walk at the height of the machinery and look down.
On May 19, 2019, Martin Tower, the corporate headquarters built after Grace's time in West Bethlehem, was demolished by implosion. The older headquarters, thirteen stories, where the elevators had once dropped empty to the lobby for one man, remains on the South Side.
Nisky Hill
Nisky Hill Cemetery belongs to Bethlehem's founding Moravians. They were Protestants who came to the Lehigh Valley in the eighteenth century and buried their dead under flat stones of the same size, so that in death no one would sit higher than anyone else.
Grace is buried among them under a rotunda. A semicircular granite bench around the grave seats twenty. There is a local rumor, which the Morning Call traced in 2003 and found to be false, that he was buried standing up so he could keep watching the blast furnaces. The rumor is wrong, but people believed it because it suited him. About thirty feet from the grave the hill drops off at a high, wooded cliff. The Lehigh runs below. On the far bank are the works: the furnaces, the vacant mill buildings, the thirteen-story office. His grave faces them, as his house on Prospect Avenue faced them from across the valley.
In 1935 Walker Evans photographed another Bethlehem cemetery, St. Michael's, with rows of workers' headstones in the foreground and the company's smokestacks behind them. The photograph became one of the defining images of the Depression. It shows the workers' graves looking up at the plant. On Nisky Hill the arrangement runs the other way: one grave looking down.
In December 2003, a few months after the company was dissolved, a Morning Call reporter asked an old man on the hill for directions to the Grace grave. He was Wilbur Kocher, eighty-five, a former Bethlehem Steel electrician. He pointed down the path, past a rise of modest graves shaded by trees, toward the large memorial beyond.
"He's got chairs around it," Kocher said, "although nobody ever sits there."
Then he went back to what he had come to do. His wife, Joyce, had died in 2002 at eighty. In life she had kept a beautiful house and cleaned the gutters herself. She lies under a simple stone, about two hundred steps from the bench with room for twenty. Kocher was on his knees beside it with his shears, pruning the azalea, keeping the plot neat in case she could see it, the way she had kept the house.
Part IIThe Playbook
Grace's career runs as two experiments over the same forty years. The first tested what one person's unrelenting focus on output can achieve, and the answer was more than any other industrial firm on earth achieved in two world wars. The second tested what that focus costs when it is never balanced by succession, outside information, or obligations that come due after the founder is gone, and the answer was the company. Each principle below takes from both: what Grace did that operators should copy, and the specific way the same habit, unchecked, became a liability. These are not virtues and vices in separate lists. In Grace they were frequently the same trait.
The Grace Principles
- 1.Learn the machine from the operator's seat.
- 2.Be the operator a visionary cannot do without.
- 3.Build the product the incumbent refused.
- 4.Reduce strategy to a single sentence everyone can execute.
- 5.Treat a crisis as a demand curve and have capacity ready.
- 6.Promise a public number, then beat it.
- 7.Never let a new customer find you idle.
- 8.Watch what your preferences do to the ground.
- 9.Ask whether it should be built at all, especially about your own convictions.
- 10.Book deferred obligations as debt.
- 11.Distrust the years without competitors.
- 12.Build a successor as deliberately as a mill.
G
The Grace Arc
From crane cab to chairman's office, and what came after.
1899
Graduates Lehigh as valedictorian; declines Boston baseball contract to operate a crane at $45 a month.
1902
Superintendent of yards and transportation; marries Marion Brown.
1905
Sent by Schwab to Cuba to run the Juragua Iron Company; Bethlehem announces the Grey mill.
1908
First wide-flange beams roll in January; Grace named general manager.
1916
Becomes president of Bethlehem Steel Corporation; acquires Sparrows Point and two Pennsylvania steelmakers.
1922
Agrees to buy Lackawanna Steel for $60 million.
1939
Learns of war in Europe on the golf course.
1941
Union recognized after strike; Grace's pay of $522,637 is the nation's second-highest.
1943
Promises Roosevelt a ship a day; beats it by fifteen.
1945
Becomes chairman; Arthur Homer becomes president.
1957
Retires without a groomed successor.
1960
Dies in Bethlehem at 83.
2001
Bethlehem files for bankruptcy; PBGC later assumes the pension plan.
Principle 1
Learn the machine from the operator's seat
Grace's choice of a $45 crane job over a $200 ball contract is usually told as a parable about delayed gratification. The more useful reading concerns information. A crane operator in a steel works sees how material actually moves, where it piles up, which departments wait on which. By 1902 Grace was superintendent of yards and transportation, the job of running the plant's circulation, which is exactly what a crane operator watches all day. He entered the company during Frederick Winslow Taylor's tenure, when the plant was learning to measure itself. He learned to measure along with it.
The lesson is narrower than "start at the bottom." Start at the point in the system where the most variables are visible and the fewest are under your control. You learn the system's real constraints there, not the ones on the organization chart. His later talent for turning orders into tonnage, tripling output in one war and building a ship a day in the next, rested on knowing where steel stalled because he had once sat and watched it stall.
Tactic: In your first ninety days in any role, spend real hours at the job where material, data or customers physically pass through, and map every point where something waits.
Principle 2
Be the operator a visionary cannot do without
Schwab was a deal-maker who bought, sold and rebuilt Bethlehem three times in three years and could charm a President. He was not going to run a rolling mill. The corporate record says Grace's management skill "allowed the more entrepreneurial Schwab the freedom he needed." For two decades Schwab handled the outside and Grace the inside, and the company went from under one percent of national capacity to the world's second-largest producer.
People tend to undervalue being the second person in a pairing like that. Grace did not compete with Schwab for the spotlight. At the 1918 lunch with the Shipping Board he did the reverse of what an ambitious deputy might do: he urged his boss to stay home and run the company. His influence rested on being necessary. When Schwab stepped back from management in the 1920s, nobody wondered who would take over. The job was already Grace's in everything but name.
S
Showman and Stage Manager
How the two halves of Bethlehem's leadership divided the work.
| Dimension | Charles M. Schwab | Eugene G. Grace |
|---|---|---|
| Primary arena | Bankers, presidents, deals | Plants, tonnage, acquisitions integration |
| Temperament | Charming; remembered workers' children's names | Abrupt; "didn't care if he was liked or not" |
| Labor stance | Anti-union, but sought to win workers back | Anti-union, dealt with workers abruptly |
| Signature bet | Grey mill after U.S. Steel refused it | "Always More Production" across two wars |
| Succession | Chose and trained Grace | Chose no one |
Tactic: If you are an operator working beside a founder, find the work the founder will never do well, become indispensable at it, and use any visibility you gain to protect the institution rather than promote yourself.
Principle 3
Build the product the incumbent refused
Henry Grey patented his wide-flange mill in 1897. Schwab offered it to U.S. Steel, the market leader, which said no. In December 1905 Bethlehem, small and heavily indebted, took it up, and in January 1908 began rolling the beams that made skyscrapers economical. The first large order was 12,000 tons for Gimbel's. Within twenty years Bethlehem dominated structural steel in America.
The incumbent had good reasons to refuse. It had existing mills, existing products, and a structure that rewarded caution. Those reasons were what left the opening. The irony runs forward: eighty years later Nucor-Yamato went after Bethlehem's structural market with a lighter, cheaper process, and Bethlehem, now the incumbent, had its own reasons not to respond. The lesson works in both directions. Look for the innovations the leader has turned down, and if you are the leader, keep a list of what you have turned down and review it every year.
Tactic: Keep a written log of the innovations you have declined to pursue, and once a year ask which of them a smaller, hungrier rival could build a company on.
Principle 4
Reduce strategy to a single sentence everyone can execute
"Always More Production" was not a mission statement. It was an instruction that any foreman in any of nine plants could act on without calling headquarters. The Morning Call called it "an unquestioned credo." It made 300,000 people move the same way, and in a war that is close to the whole job.
The weakness comes from the same simplicity. A one-line strategy cannot tell you when to stop. "More production" does not ask whether the production is profitable, whether the process is modern, or whether the obligations piling up behind it are funded. Grace's slogan was ideal for 1943 and harmful by 1955, and since it was unquestioned, nobody had the standing to question it. A short directive is powerful. A short directive with no expiration date eventually works against you.
Tactic: Compress your strategy into one executable sentence, and write a second sentence, kept private, stating the conditions under which the first one stops being true.
Principle 5
Treat a crisis as a demand curve and have capacity ready
"Gentlemen, we are going to make a lot of money." The line is crass, and it was also a forecast made before most of the market had seen the change. The record shows Grace moving early. He bought United Shipyards for $9.32 million in June 1938, and by 1940 Bethlehem was the largest of the Big Three yards. Hingham and Fairfield were open by the time Roosevelt came to Baltimore on Liberty Fleet Day. Many financiers, by one historian's account, were still hesitant to commit capital to a war that might not come.
What worked was Grace's position and his readiness, more than his patriotism. A crisis rewards whoever already has capacity when the surge arrives, and the time to build that capacity is before anyone else believes the surge is real. The ethical cost is real too. Wars and disasters do produce fortunes, and the people who make them should expect history to remember the sentence they said on the golf course.
Tactic: Identify the one external shock most likely to multiply demand for what you make, and pre-negotiate the capacity, whether plants, suppliers or hires, you would need on the day it arrives.
Principle 6
Promise a public number, then beat it
In 1943 Grace told the President of the United States that Bethlehem would deliver one ship a day. That is a commitment you cannot quietly revise. Bethlehem finished fifteen ships ahead of it. Over the war its yards produced 1,121 ships, nearly a fifth of the two-ocean Navy.
A specific public promise organizes an institution better than any internal target. Everyone below the person who made it knows the number, knows who is watching, and knows there is no room for interpretation. Grace's pledge worked because he had the information, from decades of watching where steel waited, to know it was hard but possible. Big numbers chosen without that knowledge are bravado. Chosen with it, they act as a forcing function.
Tactic: Once you understand your operation's real constraints, commit publicly to a specific, dated output figure that sits just beyond comfortable capacity, and staff to beat it.
Principle 7
Never let a new customer find you idle
After 1918 a company built on artillery had every reason to shrink. Grace redirected it instead. The Grey beam was already in the catalog, the cities were starting to grow upward, and Bethlehem went from shells to skyscrapers: the Empire State Building, Rockefeller Center, the George Washington and Golden Gate bridges, the great western dams. He bought Lackawanna for $60 million in 1922 and Midvale and Johnstown in 1923, and by 1929 he ran nine plants.
The skill was not diversification as such. It was having a peacetime product line developed and proven while wartime orders were still paying the bills, so that when one customer, the War Department, left, another, the American city, was already being served. Bethlehem lost this ability later, when skyscrapers gave way to low-rise construction that didn't need its heavy structural grades and no new customer was ready to take their place.
B
Grace's Major Decisions, Scored
Which bets scaled, and which carried hidden risk.
| Decision | Era | Outcome |
|---|---|---|
| Grey mill and wide-flange beams | 1905–1908 | Scale |
| Reinvesting WWI profits in Sparrows Point, Steelton, Lebanon | 1916 | Scale |
| Lackawanna and Johnstown acquisitions | 1922–1923 | Scale |
| Pre-war shipyard expansion | 1938–1940 | Scale |
| Executive bonus culture | 1920s–1950s | Risk |
| Resisting unions until forced in 1941 | 1916–1941 | Risk |
| Grace Mine at Morgantown | 1951–1958 | Try |
| Partial adoption of continuous casting | Postwar | Risk |
| Underfunding pensions | 1950s | Risk |
| No groomed successor | 1957 | Risk |
Tactic: While your current best customer is still paying, put real engineering effort into the product your next customer will need, and measure progress on it separately from current revenue.
Principle 8
Watch what your preferences do to the ground
The bunker at the fourth hole at Saucon Valley disappeared within a week of Grace remarking that it would be good if it "didn't do that again." The elevators emptied when his car came into sight. Neither required an order. At his level, a mild preference was enough to change things.
This is the most underrated danger of strong authority. The organization starts reshaping reality to suit the leader before the leader asks, and in doing so it removes exactly the obstacles that would have told him something. A bunker is a minor case. A pension shortfall nobody mentions, or a casting technology nobody pushes because the boss has said integrated mills won the war, is not. Grace once said that accurate observation was the habit he would most want to instill in men. Without quite intending to, he built a system that prevented him from seeing clearly.
Tactic: Name one person whose explicit job is to tell you which obstacles have quietly disappeared from your path, and ask them, every month, what they have seen removed on your behalf.
Principle 9
Ask whether it should be built at all, especially about your own convictions
Grace's best-known line on engineering says the great engineer knows "whether the bridge or the machine should be built at all, where it should be built, and when." His own belief that Pennsylvania held undiscovered ore produced a mine 3,000 feet deep that opened in 1958, employed more than a thousand people, and closed nineteen years later because the ore could no longer be raised at a profit. The land became a landfill.
The principle is sound. The failure was in applying it to everything except what he already believed. Long-held convictions are the beliefs that escape the "should this be built" test, because they no longer feel like positions. They feel like facts about the world. The discipline Grace described has to be applied hardest to the projects that feel most obviously right to the person approving them.
Tactic: For any capital project that rests on a belief you have held for more than five years, assign someone outside your chain of command to argue the case against building it before you sign.
Principle 10
Book deferred obligations as debt
Fortune's autopsy named the pension shortfall of the 1950s as one of the root causes of Bethlehem's death. The contributions that should have been made at the company's peak were not made. The cost was invisible in 1955 and unbearable by the 1980s, when an aging workforce left fewer active workers supporting more retirees. When the Pension Benefit Guaranty Corporation took over the plan for about 95,000 people, it was the largest such assumption in U.S. history.
The mechanism carries over to any business. An obligation that comes due after the current leader leaves is, from that leader's point of view, free. Pensions, deferred maintenance, technical debt, a culture that holds only because the founder holds it: each makes current results look better and the future one look worse. Grace's peak years were partly paid for by money his successors' workers had been promised.
Tactic: Every quarter, list every obligation your organization has incurred that comes due after your expected tenure, and report its present value to your board next to your earnings.
Principle 11
Distrust the years without competitors
After 1945 the steel industries of Germany and Japan lay in ruins and American mills had the world almost to themselves for twenty years. Bethlehem's peak, 23 million tons a year and the nation's highest-paid executive, came in that window. The company "experimented with continuous casting but never fully adopted the practice." When foreign rivals rebuilt with newer methods and American mini-mills arrived with lower costs, Bethlehem was still running the system that had won the war.
A market without competitors is not proof of strength. It is a period when the signals that would force adaptation are absent, and the profits it generates make adaptation feel unnecessary. The Morning Call named the attitude: "a smug and ultimately misguided belief that the world would always need Bethlehem's steel." The world did keep needing steel. It stopped needing Bethlehem's.
Tactic: When your market share is highest and competition is weakest, fund a small team to build your replacement as if a well-capitalized rival had already started.
Principle 12
Build a successor as deliberately as a mill
Schwab chose Grace, sent him to Cuba to test him, promoted him step by step, and handed him the company by degrees. Grace did none of this for anyone else. The first item on the Morning Call's list of charges is that he "failed to groom a successor, as Schwab had done." He held command for four decades, much of it as Martin's "solitary and supreme" captain, and he left a culture "hostile to outsiders" that could keep his slogan going but could not revise it.
In his own 1920 words, his chief difficulty was finding men "not afraid to use their own judgment." The problem was largely of his own making. People who use their own judgment develop only where judgment gets used, where the elevator is not emptied for the boss and the bunker stays where it is. Succession is not a document drafted at retirement. It is the result of decades of letting other people make consequential decisions and live with them.
Tactic: Identify two people who could run your organization, give each of them a real decision you would normally make this year, and live with what they choose.
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Part IIIQuotes and Maxims
In their words
— Eugene G. Grace, quoted by B. C. Forbes in The American Magazine, 1920The man who has in him the stuff of which success is made is never afraid to accept responsibilities; then, when he gets responsibility, he doesn't regard it lightly; nor does he ever seek to shirk the consequences or attempt to blame anyone else when anything goes wrong.
— Eugene G. Grace, quoted by B. C. Forbes in The American Magazine, 1920My chief difficulty in building up our huge organization is to find men able and willing to take and discharge responsibilities. So many men can only go to the point of doing routine duties; when given tasks requiring initiative and readiness to shoulder responsibility, they continually run to the boss to get instructions.
— Eugene G. Grace, quoted by B. C. Forbes in The American Magazine, 1920The present-day method of education may be suitable enough for lawyers, doctors, ministers, etc., but it is certainly not suitable for men who are going to enter engineering, industry, commerce, or business of any kind, where the very soul of success is cooperation with others.
— Eugene G. GraceIf I were to prescribe one process in the training of men which is fundamental to success in any direction, it would be thoroughgoing training in the habit of accurate observation.
— Eugene G. Grace, on learning of the outbreak of war in Europe, 1939Gentlemen, we are going to make a lot of money.
Maxims
- Sit where the material moves. The fastest education in any system comes from the job that watches everything wait.
- The best deputy protects the institution, not his own profile. Grace's influence came from being the one person Schwab could not run the company without.
- The incumbent's refusal is your opening. U.S. Steel turned down the Grey beam, and Bethlehem built a structural-steel franchise on it.
- Give every slogan an expiration date. "Always More Production" won two wars and had no means of noticing when it should stop.
- Capacity built before the crisis is worth more than capacity built during it. The shipyards Grace bought in 1938 were launching ships for the President in 1941.
- Make the public promise only when you know the constraints. A ship a day was audacious, and Grace knew his yards well enough to beat it by fifteen.
- Notice what disappears from your path. When bunkers vanish and elevators empty before you ask, you have stopped receiving information.
- Test your oldest convictions hardest. The man who said the great engineer asks whether to build at all dug a 3,000-foot mine on a belief and never asked.
- Unfunded promises are debt. The pensions skipped at Bethlehem's peak made its decline fatal.
- Train a successor the way you were trained. Schwab built Grace on purpose, and Grace left no one behind him.
