Steenland: Odd man out?

  • Article by: CHRIS SERRES , Star Tribune
  • Updated: February 24, 2008 - 10:00 AM

Doug Steenland's relentless drive to cut costs and his tough negotiating style may cost him the top job at a merged Northwest-Delta.

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Doug Steenland, chief executive of Northwest Airlines, during a lobbying visit to Washington, D.C.

Photo: Chuck Kennedy, McClatchy News Service

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Northwest Airlines CEO Doug Steenland has spent a lifetime defying expectations.

In the summer of 1980, when the Democratic Convention appeared deadlocked between Jimmy Carter and Ted Kennedy, Steenland, then a young attorney, helped lead an underground campaign to nominate Edmund Muskie for president. The "Draft Muskie" campaign failed, but became a political legend.

Years later, Steenland and a team of attorneys lobbied the federal government to tear down the Depression-era regulatory walls that separated banks, insurance companies and investment banks. They ultimately succeeded, when Congress in 1998 repealed the Glass-Steagall Act of 1933.

And in 2005, he faced the toughest challenge of his career: Rescuing a legacy airline -- losing $4 million a day -- from possible liquidation. Once again, he defied the odds, achieving what many industry analysts consider one of the more remarkable turnarounds in aviation history.

Yet in the end, Steenland, 56, a consummate cost-cutter and shrewd negotiator, may have worked himself out of a job at what could become the nation's largest airline.

Last week, as Northwest and Delta Air Lines inched closer to a combination that would create the nation's largest carrier, it became increasingly clear that Delta CEO Richard Anderson -- not Steenland -- would lead the merged airline. In an interview last week, Steenland declined to discuss his future. But industry analysts expect him to take a board seat and possibly a management position.

Rightly or wrongly, Steenland has become the public face of an airline perceived by many as uncaring to its employees and uninterested in its customers. Northwest's customer satisfaction ratings routinely rank near the bottom of major airlines.

Among Northwest's rank-and-file employees, Steenland has been criticized for being aloof and unresponsive -- a criticism that many of his close colleagues say is unfair. Morale at the airline, which has seen its number of employees shrink from 53,500 in 2000 to about 30,000, has been waning for years.

David Siegel, former chief executive at US Airways and now CEO and chairman of Gate Gourmet, an airline catering and logistics company, likens Steenland to an airline-era Moses, who led his followers through the desert and into the promised land of profitability. "It's time to heal and move forward," Siegel said. "And the guy who brought you through it can't stay."

In the past, airline executives have been divided between ruthless dealmakers, such as Frank Lorenzo at the now defunct Eastern Airlines, and more-political operatives such as former Delta chief Gerald Grinstein.

Steenland, by contrast, proved equally adept at navigating the political and the business sides of running an airline, former colleagues and industry observers say. He lobbied Congress to pass legislation that rescued Northwest's pensions, expanded the airline's service to China, grounded many of its older jets and operates the world's largest fleet of wide-body Airbus A330 jets.

Though he earned plaudits from Wall Street for cutting costs, his leverage with the airline's unions was significantly strengthened once the carrier entered bankruptcy in 2005, where the threat of liquidating the airline and its jobs weighed heavily on union bargainers.

"Beauty is in the eye of the beholder," said John Budd, a professor of industrial relations at the University of Minnesota's Carlson School of Management. "Wall Street would say the company emerged from bankruptcy with signed labor agreements, and that's a success. But organized labor would say we only agreed to those concessions with a gun to our head, and they would object to these executives profiting from the bankruptcy."

That he survived 19 years at Northwest, through a restructuring, two strikes and a Chapter 11 bankruptcy, is considered an achievement in itself in an industry known for churning through senior executives.

"The thing that's unusual about Doug is that the hotter the fire got, the more he wanted to be in there," said Terry Erskine, a former vice president of labor relations at Northwest. "He loved the challenge."

That resilience might have something to do with his unusual background. Steenland was the third of five children born to descendants of Dutch Calvinists. Steenland's mother was a teacher and his father worked his entire career for American Electric Power Co. in New York City, working his way up from mailroom clerk to executive vice president with only a high school diploma.

Calvinist roots

Steenland recalls his childhood home, a Cape Cod-style house in Clifton, N.J., about 15 miles west of New York, as "cozy." Everyone shared bedrooms, and his father commuted to work on the Erie-Lackawanna Railroad. All the Steenland children attended Christian Reformed Church schools, and Steenland recalls reading Calvin's theological opus, "Institutes of the Christian Religion," which emphasized piety and obedience.

Steenland's parents, Peter and Agnes, were orthodox Calvinists and political liberals, recalls Peter Steenland Jr., the eldest of the children and an environmental law attorney in Washington. In the 1960s, the entire family made occasional trips to Riverside Church in New York to hear Dr. Martin Luther King Jr. preach.

"I don't think there was ever an occasion where Dr. King was at Riverside Church where my parents didn't drag all five of us there," Peter Steenland said. "He was saying things that my parents wanted us to hear."

At Eastern Christian School in North Haledon, N.J., Steenland was a three-sport athlete (basketball, soccer and cross-country), drove a used Chevy Impala convertible, and excelled on the school's debate team. "He was tenacious," recalled attorney David Dykhouse, a former classmate and member of the debate team. "He would take a position and wouldn't back down, and he wasn't afraid to go on the attack."

Like three of his siblings, Steenland attended Calvin College, a small Christian Reformed school in western Michigan. It was academically and socially rigorous. Attendance at chapel services was strictly enforced, and college staff would take photos to ensure that students were in their assigned seats. Female students were required to be back in their dorm rooms by certain hours.

Yet for all its rules, the college encouraged open debate and was hardly insulated from the campus unrest of the 1960s and '70s. Draft cards were burned during chapel. When former Vice President Spiro Agnew visited Calvin College in 1972, students painted "End the War" in huge white letters on the side of the science building.

Steenland, a history major, recalls being against the Vietnam War, but his role as news editor of the campus paper prevented him from participating in campus protests. "I remember it as being a very academically rigorous college with really major-league professors and small classes," he said. "That was my dominant memory of it. ... But it had its sets of rules."

In 1976, he graduated from George Washington Law School and, after a short stint as an attorney at the U.S. Department of Transportation, he joined the prestigious Washington law firm Verner, Liipfert, Bernhard, McPherson & Hand. The firm had a large transportation practice, and Steenland played a role in the Eastern Air Lines bankruptcy reorganization in 1989.

Verner Liipfert, now part of DLA Piper, was just a block away from Washington's famous K Street, home to hundreds of special-interest groups and lobbyists; but Verner attorneys viewed themselves as "tonier" and more versatile than the K Street firms, recalled Berl Bernhard, a founding partner. "K Street was full of fixers," he said. "We were better than that."

Newspaper deals

Steenland was pulled into a number of high-profile projects. In the 1980s, he helped negotiate 30 to 40 newspaper acquisitions for William Dean Singleton, current owner of the St. Paul Pioneer Press, as Singleton was buying up papers all over the country.

Singleton, who today owns 67 daily newspapers, said Steenland often worked around-the-clock to get the acquisitions done. "He was very soothing and very reassuring when he dealt with these family-owned papers," he said. "I don't think I ever saw him get excited."

Steenland was chief outside legal counsel to the Washington Federals of the now-defunct United States Football League, negotiating player contracts on a shoestring budget of $2 million, said Bernhard, who was chairman of the team. (The Federals won only four of its 18 games in its first season, and attendance was woeful.)

The line between legal and political work was murky at the firm. Verner Liipfert's letterhead has boasted several prominent Democrats, including the late Texas governor Ann Richards and the late senator and Treasury Secretary Lloyd Bentsen, as members of its staff.

Steenland admired former Secretary of State Edmund Muskie. In 1980, he set up a phone bank above a Washington bar and recruited local college students to call deadlocked delegates across the country in the runup to the Democratic convention. "Then he'd take the college kids downstairs and buy them beer," recalled John Merrigan, a partner at DLA Piper who was part of the "Draft Muskie" campaign.

Steenland stumped for Muskie on the floor of the convention. Merrigan recalls him speaking to state delegates while Ted Kennedy was waiting in the wings. "It was all Doug's idea," he said. "He's an activist guy and once he gets his mind set on something, there's nothing that will stop him."

In 1989, Steenland represented an investor group that organized a $3.65 billion buyout of Northwest Airlines. The group, led by financier and then-Northwest Co-Chairman Al Checchi, hired Steenland as deputy general counsel at the airline in the fall of 1991.

About a month later, a Halloween blizzard dumped more than 2 feet of snow on the Twin Cities, and Steenland admitted that returning to Washington "crossed my mind."

The storm was only a hint of trouble to come. Hobbled by debt incurred from the buyout, the airline in 1993 narrowly avoided bankruptcy by negotiating deals with its lenders and employees. (The pilots union agreed to concessions just hours before the company's planned bankruptcy filing in Delaware.)

Steenland played a key role in the restructuring, which reduced the carrier's costs by $1.2 billion over three years. Also in 1993, Steenland negotiated Northwest's groundbreaking alliance with Dutch-owned KLM, the largest airline partnership conceived at the time.

Cool under pressure

He quickly developed a reputation as someone who could handle all sorts of assignments -- from negotiating airline leases to labor contracts -- on tight deadlines. "He's like one of those police bomb experts," said Siegel, who was Northwest's director of planning in the early 1990s. "You're there, the clock is ticking down, and he would say, 'Look, if I can just complete these 14 steps.' It was so interesting to watch him maintain his cool."

Among employees, however, Steenland's cool demeanor often made him appear detached and uncaring. Unlike Anderson, his predecessor in the CEO spot, Steenland didn't venture into the hangars to talk to employees. He wears a suit and tie at all times, even during casual meetings, colleagues said.

Steve MacFarlane, national director of the Aircraft Mechanics Fraternal Association, which represented 4,400 striking Northwest mechanics in 2005, still recalls the first meeting he had with Steenland nine years ago.

"It wasn't that he wore a suit, but the way he wore it. It was completely buttoned," he said. "My first impression was, 'Here's a guy who's full of himself.'"

Steenland insists he dealt fairly with all the unions, delivering the same grim message to each. "I wouldn't even say there was a strategy," he said. "We just said, 'Look, we're all in this together. We all have this collective interest in making this succeed. ... And this is the kind of financial profile that we think the airline needs to have.' We were very straightforward."

But Northwest pilots in particular bore a disproportionate share of the cuts. Of the $1.4 billion that Steenland sought in annual labor cuts, about $600 million came from the pilots. Overall, pilots have accepted 40 percent pay cuts, far exceeding any other union at the airline. "The pilots feel particularly aggrieved," said Duane Woerth, the recently retired president of the Air Line Pilots Association.

Steenland has been roundly criticized by union leaders and Northwest employees for last year choosing to accept a $26.6 million package of stock and stock options over four years, after asking employees to take deep pay and benefits cuts. Steenland could exit the company with $19 million in total compensation under his employment contract.

Flap over pay package

"When you're hacking away 30 to 35 percent of the economic value of every employee's contract, then you shouldn't go to the well for a huge pay package," said Robert Mann, an airline consultant in Port Washington, N.Y. "It looked terrible in the context of what was trying to be achieved."

Yet even some of Steenland's critics give him credit for preserving Northwest's pensions.

Three years ago, Steenland was among the few airline executives on Capitol Hill calling for revisions to the nation's pension laws that would help shore up shaky retirement plans for airline employees. Woerth accompanied Steenland on many of his trips, and he estimates that they had one-on-one meetings with nearly every member of the U.S. Senate.

Ultimately, Congress passed legislation in 2006 that gave Northwest extra time -- 17 years -- to make up a shortfall on its defined-benefit pension plan. Woerth estimates that the legislation saved Northwest pilots alone $1.7 billion in earned pension benefits.

"Doug's not a backslapper," Woerth said. "But the other part of that is that he doesn't waste people's time letting you believe that everything's going to be OK. ... He's not always pleasant, but he's also not going to build false hopes."

Chris Serres • 612-673-4308

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