Case in Point: In Bethlehem, Pa., a road map for Detroit

July 26, 2013

The big idea: In 1995, Bethlehem Steel closed the doors of its historic structural steel facility after almost 100 years. Because it stretched along 4.5 miles of the Lehigh River’s south bank in downtown Bethlehem, Pa., senior management was committed to closing this facility in accordance with the company’s four-point mission: to increase shareholder value, serve customers, establish partnerships among employees and be a good citizen. Today, Detroit, home of the American automobile industry, faces a financial crisis and bankruptcy similar to that of Bethlehem Steel. Might the repurposing of the proud steel town offer lessons for Detroit’s way forward?

The scenario: Like Detroit, Bethlehem Steel was once a symbol of American industrial dominance. The company provided steel for more than 1,000 U. S. ships during WWII and girders for such landmarks as the Golden Gate Bridge and the Empire State Building. Founded in 1904, Bethlehem Steel employed 60,000 workers and turned out 8.5 million tons of steel annually by the 1920s. Its growth and prosperity continued until the 1970s when foreign competition, domestic mini-mills and substitute materials began to adversely affect sales. In addition, the customer base began to shrink as U. S. manufacturers moved work to lower-cost countries or shut down. The company’s legacy costs in terms of pensions and health-care benefits had become a significant financial obligation. Despite the challenging business and financial situation, management kept up its unsustainable top-heavy structure while the company’s sprawling mills required large infusions of cash.

By the early 1990s, the demand for structural steel fell off. This left senior management with three options for its steel plant in downtown Bethlehem. The first option, to fix it, proved unsuccessful. The second option, to sell it, was equally unsuccessful. The executives were left with this: Close the plant. Management was committed to closing its Bethlehem facilities in a manner that would make the most of an unfortunate situation.

The resolution: Clearly, the simplest solution would have been to comply with the minimum legal requirements, put a fence around the property and walk away. This would have devastated the city. Thus, the CEO asked his executives for a plan that would revitalize the city’s South Side. This included renovating the industrial complex into an intermodal freight terminal, a mixed-use industrial park and Beth Works: a family-oriented theme park and retail complex. Perhaps the greatest challenge to re-purposing the city was balancing the diverse interests of the multiple stakeholders involved: shareholders, employees, creditors and the community. Another significant issue was dealing with serious environmental contamination from nearly 100 years of steel making. This area had the dubious distinction of being the largest U.S. private brownfield site. Working with Pennsylvania, the company supported the enactment of Act 2, which was passed in 1997, that enabled Bethlehem Steel to formulate and complete an environmental remediation plan that, once tested and certified, allowed the company to sell its property without conveying any potential environmental liabilities to the buyers.

Other new and important collaborations became necessary as part of the re-development process, including among the Lehigh Valley Communities, constituencies within the Bethlehem community and a variety of developers and other organizations, including the Smithsonian Institution and the Sands Casino. Because of the strong historical presence of the Moravian Church, having a casino in the redevelopment plan was controversial. This effort would require many difficult trade-offs.

The lesson: A successful re-purposing of an American industrial city, while challenging, is possible. It requires at least six essential attributes: vision, leadership, compromise, cooperation, collaboration and a relentless commitment to get the job done. Detroit, the world is watching.

E. Richard Brownlee II and June A. West

Brownlee is Dale S. Coenen Professor of Business Administration and West assistant professor of business administration at the University of Virginia Darden School of Business

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