Eugene G. Grace

Eugene Gifford Grace was not the founder of Bethlehem Steel, that distinction belongs to the flamboyant Charles M. Schwab, who bought the small Pennsylvania producer in 1901 ^[1][2]. But Grace was the man who actually ran it, and for far longer: as president from 1916 and chairman from 1945 until his retirement in 1957, he was the operating brain of the company for more than four decades, and the two men together turned a firm with less than one percent of national ingot capacity in 1905 into the world's second-largest steel producer in fewer than thirty-five years ^[2][3]. If Schwab was the salesman and showman, Grace was the relentless, golf-playing tonnage man whose single creed, make more steel, flowed, in his historian's phrase, "through every vein and sinew of the firm" ^[3].

The son of a New Jersey ship's captain, Grace graduated valedictorian in electrical engineering from Lehigh University in 1899, turned down a professional baseball offer, and took a job at Bethlehem running an electric crane for about $1.80 a day ^[1][7]. Schwab spotted the young engineer's discipline, sent him to untangle the company's iron-ore mines in Cuba, and brought him back on a fast track: superintendent, general manager, vice president by 1911, and president of the whole corporation in 1916 at age thirty-nine ^[1][7]. By the 1920s Schwab had handed Grace day-to-day command and retreated into the role of public figurehead and stock-market speculator ^[1][2].

The two world wars made the company and the man. In the First World War, before American entry, Bethlehem held a near-monopoly on Allied munitions contracts, pouring out armor plate, gun forgings, and shells for the British, French, and Russians ^[2][6]. In the Second, Grace ran one of the great arsenals of democracy: Bethlehem's fifteen shipyards launched 1,121 vessels, more than any other builder, roughly a fifth of the U.S. Navy's two-ocean fleet, and the steel plants produced tens of millions of tons of armor, ordnance, and gun forgings ^[3][6]. In 1943 Grace personally promised Franklin Roosevelt a ship a day, and beat it ^[6]. By 1945 the company employed over 300,000 people and booked sales above $1.3 billion ^[6].

Grace's compensation became a national scandal and a permanent footnote in the history of executive pay. Under a percentage-of-profits bonus plan inherited from Schwab, Grace kept a nominal salary of just $12,000 while collecting enormous bonuses, averaging some $814,000 a year through the 1920s and a stupefying $1.6 million in 1929, making him the highest-paid executive in America ^[4][5]. When stockholders sued in 1931 to claw back $36 million in bonuses paid since 1911, a judge forced Grace to testify in open court that his 1929 bonus had been $1,623,753 ^[5]. The suit settled within months with no money returned but new disclosure rules and a cap ^[5].

Grace was also among the hardest of the anti-union steel men. Bethlehem ran company unions and fought the Steel Workers Organizing Committee through the violent "Little Steel" era of 1937, holding out until federal pressure and a wave of 1941 NLRB elections finally forced recognition of what became the United Steelworkers ^[9]. And the same monomania for tonnage that built the empire seeded its ruin: Grace and the management culture he stamped on the firm equated ever-larger capacity with success, refused to groom a successor, and dismissed the mini-mills and foreign imports that would gut American steel within a generation ^[1][3]. He died in 1960 a titan; the company he built would not outlive the century ^[1][3].

He was born August 27, 1876, in the village of Goshen, in Cape May County on the New Jersey shore, the son of a retired sea captain who kept a general store ^[1][7]. He clerked in his father's store and grew up with a ballplayer's competitiveness; at Lehigh University he was captain of the baseball team, a shortstop who reportedly batted over .400, and good enough that the Boston Braves offered him $200 a month to turn professional ^[1][7]. He turned it down. In 1899 he graduated valedictorian with a degree in electrical engineering and gave a commencement address titled "The Future of Electricity" ^[7].

Instead of the ballfield or a power company, Grace went to work at Bethlehem Steel for about $45 a month, running an electric crane in the yards, roughly $1.80 a day ^[1][7]. It was a deliberately humble start for a top graduate, and it impressed the men above him. Charles Schwab, who had bought Bethlehem in 1901, came to see in Grace the methodical operating discipline he himself lacked, and gave him a series of escalating tests ^[1][2]. The decisive one was Cuba: Schwab sent Grace to sort out the troubled Juragua iron-ore operations that fed Bethlehem's furnaces, and Grace ran them as superintendent and then general manager before being called back to Pennsylvania ^[7].

The rise after that was vertical. By 1911 he was vice president and general manager; in 1913 president of the Bethlehem Steel Company; and in 1916, at thirty-nine, president of the parent Bethlehem Steel Corporation, with Schwab moving up to chairman ^[1][7]. He would never work anywhere else, and would run the company, in one form or another, for the next forty-one years ^[1][3].

Eugene Grace died in 1960 at the apparent summit of American industry: Bethlehem was the nation's second-largest steelmaker and its largest shipbuilder, and his funeral at Lehigh's Packer Chapel drew the financial aristocracy of the country ^[1]. He had been, for a generation, the very image of the powerful American executive, the self-made engineer with a Plaza suite, a Southampton estate, golf partners named Crosby and Jones, and a paycheck that scandalized the nation ^[1]. The Charles F. Rand Memorial Gold Medal his profession gave him in 1948 honored "profound influence on the growth and health of the American iron and steel industry" ^[8].

Yet the more searching judgment of historians is that the culture Grace embedded in Bethlehem carried the seeds of its collapse. His successors were, in Kenneth Warren's words, "intelligent, hard working, and loyal employees who had striven to save the company", and yet they had absorbed from Grace and Schwab a faith that ever-larger output was the measure of success, a faith that proved illusory against global competition ^[3]. Grace refused to groom a successor, dismissed the mini-mills and foreign imports that would hollow out American steel, and left behind a management bred to defend tonnage rather than to question it ^[1][3].

The town of Bethlehem, Lehigh University, and the warships of two world wars are his monuments; so is the bankruptcy of the company in 2001, four decades after his death, a fall chronicled by the Pulitzer-winning local editor John Strohmeyer as a study in "the self-indulgence of both the unions and industry management" ^[3][10]. Grace remains a paradigm of the twentieth-century industrial executive at both his most formidable and his most cautionary.