Lord Melchett and the crisis in steel
BY A STEEL ECONOMIST
The Brtish Steel Corporation is in a bad way. Its financial performance has turned out to be far more disastrous than anyone expected and the prospects, even in the medium term, are appalling. Its extensive development plans have ta Ken far too long to formulate, with the result that they are already obsolete, and impossible to justify on the basis of any reasonable return on capital employed. Op timistic long-term projections are somehow still being produced, but nobody in Whitehall believes in them any more. The sense of urgen cy which was vaguely discernible when the Corporation was set up in 1967 has now become totally imperceptible. The BSC never had much time to catch it, but the Corporation now knows that it has missed the bus.
Throughout the organization morale is painfully low. The Head Office staffs continue their ineffective proliferation, while the new baronial chieftains in the provinces have given up all hope of obtaining a replacement for Lord Melchett.
Melchett may have won most of the struggles with Whitehall, but he is losing the only battle that matters: the battle for the longterm economic health and vigour of the UK steel industry. It is inconceivable that having given in to him over hiving-off, short-term investment and financial ' targetry,' the Government will now approve Melchett's long-term development programme, which envisages the expenditure of £4,000 million in order to increase the BSC's crude steel output from 26 million tons to 43 million tons by 1980. Nobody outside the BSC is prepared to defend the programme and there are signs that Melchett himself is no longer promoting it with anything like the demoniac fervour he displayed in, say, fending off denationalisation. Yet the irony is that the BSC's 1980 output target is not unduly ambitious. Even if it were fully achieved it would still represent a reduction in the UK share of world steel production; world output of steel could well double over the next decade. But the demand for steel may not grow quite as fast as this and so, if the BSC's target were achieved, Britain although it would not have caught up with the rest of the world would at least have succeeded in more or less marking time. The fact is, however, that by incompetence, dilatoriness and disarray, the BSC has made its essentially unambitious long-term development plan look hopelessly unrealistic. Seen against the background of the
Corporation's present difficulties, Lord Melchett's enthusiasm for joining the Common Market is nothing but a piece of euphoric masochism. All that Common Market entry can achieve for the British steel industry is to make its decline more respectable.
The BSC's financial plight is so grave and its future so uncertain that a full scale inquiry into its affairs is long overdue. But all that the Government has so far done is set up the socalled Joint Steering Group, which has been chaired by a Civil Servant and largely dominated by Melchett. The JSG will have been in session for practically the whole of this year. Set up in February, the JSG, indeed, now looks all set for a semi-permanent existence. Torn between the desire to see nationalization fail and the need to ensure a minimum of efficiency in anything as large and important as BSC, the Government has deliberately refrained from the quick kill; hence the resort to the JSG technique, Whitehall's equivalent of the death of a thousand cuts. The JSG, which has in fact taken away a great deal of the BSC Board's authority, is part of a war of attrition in which Melchett won most of the earlier vic tories. It is possible that by the time the JSG is wound up (assuming that it ever is), Melchett, or his apparition, will still be left nominally in control of the BSC. His one out standing quality is tenacity and he is also impervious to any kind of humiliation; so that the Government knows by now that the more usual Whitehall methods for dislodging unwelcome office-holders will not work in his case. Two unsuccessful attempts to get rid of him were made earlier this year: one in public when the PM delivered a personal snub at the time of the Government's rejection of a BSC 14 per cent price increase application; and he other, a more serious effort, which has so far not been publicised, the production of a scathing report by management consultants commissioned by the Government, which roundly condemned the BSC's financial management. Melchett refused to be moved or impressed by either the PM or by McKinsey, whom he had himself hired in the past.
If the long overdue BSC inquiry were to be set up, Melchett would have, or ought to have, three principal charges to answer. The first is that the BSC's present organization, for which he, and not the Iron and Steel Act, is responsible, is all wrong. It is the worst possible combination of centralization and de-centralization. Ostensibly based on line and functional authority, it is in fact stifling both. Steel is a homogeneous article and the Product Divisions, into which the BSC has been divided, have made a complete nonsense of commercial policy, reducing the Head Office commercial staff to the role of unwelcome interferers and busybodies in a sphere which, more than any other in the steel industry, needed to feel the smack of firm management. Knowing how starved the steel industry was of management talent as a whole, Melchett accepted a set-up which spreads the available talent as thinly as possible instead of concentrating it where it is most needed; in, for example, the financial and economic forecasting sphere, and on the commercial front.
The BSC Product Division organization was the outcome of a fierce internal struggle between Melchett and the steel industry old guard. Melchett himself favoured a non-centralized system based on nine production units, each of which would have been a cost centre and not a pseudo-profit centre, as the product divisions are. But the Melchett plan, conceived for him by the same management consultants who were hired by the Government this year to demonstrate how ineffective he has been, was pigeon-holed after several months' confrontation between Melchett and his opponents in the industry. Characteristically, he would not beard them at Board meetings, but individually in his office afterwards, where they stood their ground and forced him to abandon the only organization that might have made sense in the BSC's context as a single commercial entity. It is conceivable that the compromise organization actually adopted might have worked better if there had been a really strong Chief Executive to bang the heads of the Product Division bosses together, and generate some sense of direction and enthusiasm in both London and the provinces. But this brings us to the second charge that Melchett needs to answer: his inability to attract and retain the services of good subordinates, coupled with an excessive loyalty to mediocrities. For example: Wilfrid Molyneux, the Finance Director, resigned earlier this year, while Ron Smith, the ex-Post Office Trades Unionist, who is paid £17,500 a year to superintend the BSC's labour relations, is still there. Lord Layton is still ostensibly responsible for sales and marketing, though, in fact, this has been done, or rather half done, by the Product Divisions. Melchett did however get rid, admitterly under strong government pressure, of Will Camp, his public relations man.
The problem of the missing Chief Executive was not solved by Melchett's decision to do the job himself and, earlier this year, to share it with one of his Deputy Chairmen, Dr H. M. Finniston. It is difficult to say which of the two is the more unfitted to this role: Melchett with his passion for detail, inability to delegate, and almost pathological lateness for appointments C' He couldn't run a sweet shop as one member of the Government has been heard to say), or Finniston, a professional ballof-fire and ideas man, who is important because the twentieth idea might turn out to be not only brilliant but feasible. Any time now the Government might insist that the Chief Executive job should go wholly to Finniston, and then the BSC will really have to look out.
By far the most serious charge that Lord Melchett and his colleagues have to answer is that they took so long to get the BSC development programme off the ground. Now that it is under way, it is almost certainly the wrong one. The so-called ' heritage ' programme, which involved expanding existing steelmaking sites, only made sense if it could be brought about quickly. By the time the BSC has extended and expanded the badly-located sites it inherited in 1967, they will no longer stand a chance of producing steel at competitive prices in terms of world competition. And by the time the BSC finally makes up its mind where it wants its interminably discussed giant ' greenfield ' steelworks to be, it will be much more economic not to build it in Britain at all, but to import the steel from aboard. The fatal delay was caused by a number of factors, including Melchett's nine months' illness in 1968, followed by the protracted struggle with the steel barons, whose temperaments proved more durable than his own; but it was also due to a basic indecisiveness and a plethora of competitive committee work. During this period of anarchy, which is still not over, Melchett has consoled himself by achieving a reputation as a multi-nationalist. He has scoured foreign countries looking (unsuccessfully) for other steel producers or raw material suppliers with whom he might be able to do deals or form mergers. He never forgets that he is the grandson of Sir Alfred Mond, one of the founders of ICI, even though there was nothing spectacular about his own career in the City, which fizzled out with the Hill Samuel merger. (He was previously Managing Director of Samuel.) Although he has always been a Conservative (his wife is Labour) it is difficult to believe that a Conservative government would have appointed him to such an important job in industry. The Labour government, ever reluctant to groom Socialists for important public appointments, often had to fall back on the kind of industrialist or financier who was on everybody's transfer list. They also developed a somewhat uncritical taste for merchant bankers of whom, of course, Melchett was one. The BSC appointment was a somewhat difficult one to fill. No doubt the Civil Servants were asked to examine their short lists; but they lunch at too few clubs and do not meet many talented people. If Whitehall had a candidate, his name was never publicly mentioned and he would have stood little chance against Melchett, who was recommended by Sir George Weidenfeld, blessed by Lord Balogh, vetted by Ronnie Grierson and approved by Sir Solly Zuckerman. That was the kind of patronage that mattered under the Labour government.
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