Allegheny Ludlum Steel—1980s profitability under Dick Simmons

The one US steel company that didn't lose money in the 1980s overcapacity crisis. Used to make the "CEOs who understand their industry beat business-school CEOs" point.

There was only one steel company I know of in the United States that never had an unprofitable quarter all through the 1980s. It was Allegheny Steel. Anybody know why they never had an unprofitable quarter? In my opinion it's because they had a CEO, a guy named Richard Simmons — not the guy who does the exercises, but Dick Simmons of Simmons Hall. Dick Simmons was an undergraduate at MIT. He had a hard time getting through MIT. He learned to work hard at MIT, he said. He went off, became CEO of Allegheny, and he understood the industry he was in. He didn't go to some business school to learn how to manage a business. He kind of figured it out on his own. He knew when they should invest in a new technology, not because it made economic sense to all the bean counters and the financial people, but because he knew this is going to revolutionize the industry. It helps to have a CEO who's not just a business-school-trained automaton.

Dick Simmons (MIT '52) became Allegheny Ludlum president. Two 1980s leveraged buyouts made him a half-billionaire. The only U.S. integrated steel company with no unprofitable quarter in the 1980s. Tom's anecdote about Simmons's private plane.

There was one guy, a graduate of this department, named Dick Simmons. Anybody here live in Simmons Hall? It's an undergraduate dorm. Dick Simmons graduated from this department in 1952. He went to work for a steel company. Eventually he became president of Allegheny Ludlum Steel, and through two leveraged buyouts in the 1980s he became a half-billionaire. In the 1990s his son-in-law took that half billion dollars and through venture capital made him a billionaire. Dick Simmons is worth a lot of money. He's a very nice person, very humble guy. He dropped in my office once when the department head asked him how the department was doing. He had been here for an MIT Corporation meeting. I said, you need a ride to the airport? He said sure. So I went down, got my car. He very sheepishly said to me, Tom, we're not going to the main terminal — we're going to general aviation. So you've got your own plane, right. He was very embarrassed that he happened to own his own plane. He was a billionaire. But he was very modest in his manner — he said he never expected, his wife never expected, they would be so wealthy.

Used to set up the 40%-of-auto-cost-is-health-insurance claim. Simmons's Pittsburgh hospital-board move to control employee health costs is the bridge between steel profitability and material-cost arithmetic.

The CEOs of a lot of the big automobile companies and other companies have gotten very interested in health costs. Anybody live in Simmons Hall? Do you know who Dick Simmons is — was, actually still is? Dick Simmons was a graduate of this department around 1952 or '53, got a bachelor's degree, went to work for a steel company, ended up owning the steel company and making about half a billion dollars for Allegheny Ludlum Steel in two leveraged buyouts in the 1980s. When the American steel industry was losing money regularly in the 1980s, Allegheny Ludlum never had an unprofitable quarter. Dick Simmons, being an MIT student, didn't have to take economics or go to business school to learn to play with numbers — he could do them in his head. But he also understood the industry he was in and he knew when to invest and what to invest in, because he knew how to make steel.

the incumbent that fought back. Allegheny Ludlum, run by Dick Simmons (MIT alumnus, namesake of Simmons Hall), never had an unprofitable quarter during the 1980s steel industry collapse, because its CEO knew how to make steel. Workforce loyalty contrast: workers hated management generally but loved Simmons.

So he measured it, found out it had ten times less hysteresis loss than the silicon iron that Allegheny Ludlum Steel was producing. By the way, Allegheny Ludlum Steel at the time was essentially owned by a guy named Dick Simmons. You've heard of Simmons Hall. Dick Simmons was a graduate of this department — barely got through here with his bachelor's degree, I won't tell you that, but he did graduate. The problem with Allied Signal: they hadn't signed a nondisclosure agreement with Chad Graham, and so it turns out the University of Pennsylvania and Chad Graham had the intellectual property rights to the low magnetic loss properties of the amorphous metal. That created a huge problem. Because of that faux pas, there's virtually no one in industry today that doesn't make you sign an intellectual property agreement to talk about what they're doing. That was a hundreds-of-millions-of-dollar loss to the company that had developed it, because they didn't think about the intellectual property aspects.