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This document is authorized for use only by christyl murray at NYU. Please do not copyhttp://www.posco.com/homepage/docs/eng2/jsp/prcenter/news/s91c1010025v.jsp?idx=1780 (accessed January 7, 2014). This case was prepared by Jenny Mead, Senior Researcher, Olsson Center; Rajendra Sisodia, FW Olin Professor of Global Business, Babson College; Dean Krehmeyer, Executive Director, IBiS; and R. Edward Freeman, Elis and Signe Olsson Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2014 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com . No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of the Darden School Foundation. Page 1 of 7 " id="pdf-obj-0-6" src="pdf-obj-0-6.jpg">

POSCO AND “THANKS SHARING”

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May 7, 2014

POSCO management had worked hard since 2011 to infuse the company with the tenets of conscious capitalism and to make the company a “Firm of Endearment.” 1 Consequently, it

came as an unhappy surprise when, in 2011, it learned the results of a recent New Economics Foundation (NEF) poll. Despite being a major global economic power, South Korea had been ranked 68th out of 143 countries in the NEF’s “Happy Planet Index.Partially to blame, management thought, was the downside of the country’s rapid economic development: greater

prosperity had created currents of greed and envy within society and some of that had seeped into the POSCO culture. POSCO wanted to address this negative mindset, not only within the company but also in the broader society. But how to do so?

POSCO

POSCO was a South Korean steelmaking company that manufactured and sold products such as hot-rolled and cold-rolled steel, stainless steel plates, wire rods, and silicon steel sheets. Headquartered in Pohang, South Korea, POSCO had approximately 55,000 employees (including those employed by subsidiaries) and, in addition to Korea, operated in North America, India, Japan, China, and elsewhere in the Asia-Pacific region. Roughly 58% of its steel was used in Korea for, among other things, shipbuilding and automotivethe rest was exported to more than 60 countries. The company was founded as Pohang Iron and Steel Company in 1968 in an effort to move South Korea from a primarily agrarian economy to an industrial economy. Led by Tae-joon Park, a former South Korean general, Pohang Iron and Steel was deliberately located far from Seoul, in South Gyeongsang Province on the country’s east coast, in order to establish a South Korean industrial center outside of the country’s capital As the plant was being built,

1 “POSCO Family Proclaims to Become a Firm of Endearment,” POSCO press release, June 17, 2011, http://www.posco.com/homepage/docs/eng2/jsp/prcenter/news/s91c1010025v.jsp?idx=1780 (accessed January 7,

2014).

This case was prepared by Jenny Mead, Senior Researcher, Olsson Center; Rajendra Sisodia, FW Olin Professor of Global Business, Babson College; Dean Krehmeyer, Executive Director, IBiS; and R. Edward Freeman, Elis and Signe Olsson Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2014 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation.

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Korean workers went abroad, primarily to Japan, to learn the technology involved in operating the plant. Pohang’s first production line was finished in 1973 and had an annual capacity of 1.03 million tons of crude steel. POSCO (Pohang’s new name) expanded in the 1980s, building two steelworks (one in Pohang and one in Gwangyang) that, after a number of subsequent expansions, could produce 9.1 million tons (Pohang) and 11.4 million tons (Gwangyang) of crude steel in 2012.

Initially founded by the Korean government, POSCO was state-run until the late 1990s. By 2000, POSCO was completely privatized, and began building partnerships with other international steel companies. The company also shed its nonperforming operations and

increased its “offerings of value-added steel products.” 2 After privatization, POSCO found itself facing stiff competition and worked to move to the global rather than local level of steelmaking expertise. Through extensive research and analysis, POSCO had identified many high-potential markets and unmet needs, and consequently it introduced different products that had an array of

new applications. The company set out to learn more about its customers’ needs, sending

engineers (rather than sales or marketing people) on customer site visits. As a result, POSCO became much more aware of new product lines it could pursue, such as steel that remained rust- free in saltwater, thus opening up opportunities in vessels and equipment that operated on the ocean. Simultaneously, the company was instituting technological innovations that vastly reduced lead times by more than half. After adopting Six Sigma, POSCO realized more than $2 billion in financial gains from 2006 to 2012.

POSCO was also continually applauded for its strong corporate governance structure. Some important features of that governance: the company operated under professionals, not family members; the CEO did not chair the board; the entire audit committee was made up of

outside independent directors; because of its listing on other countries’ stock exchanges,

POSCO’s financial statements had to be prepared using specific guidelines (the United States’ Generally Accepted Accounting Principles, for example) that required more disclosure; and the auditing firm was chosen through open bidding. An indication of the strength of this governance was that Warren Buffett’s Berkshire Hathaway Inc. held a meaningful amount of shares (equivalent to around 5% of the firm) in 2012.

POSCO: A Culture of Quality and Caring

POSCO excelled not only in the areas of quantitative growth in size and economic value, but also in dimensions such as social responsibility, environmental soundness, and future value generated from positive stakeholder relationships. POSCO was considered a “gilt-edged company” 3 and was “commonly regarded as the world’s most efficient and profitable integrated

2 “POSCO History,” FundingUniverse.com, http://www.fundinguniverse.com/company-histories/posco-history (accessed December 19, 2013). 3 K. R. Balasubramanyam, “POSCO Not Just Orissa,” Business Today, May 1, 2001.

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steel producer.” 4 POSCO made the list of Fortune magazine’s Global Most Admired Companies starting in 1999. The company also placed atop Finance Asia’s Best Managed Companies in 2010. In 2009, POSCO placed 49th worldwide and first in Korea on Forbess World’s Most Reputable Companies list, which selected the companies from a survey of local community residents about the degree of credibility, friendliness, and admiration of the company. Starting in 2005 and continuing through 2012, POSCO was given a high rating for global sustainability by the Dow Jones Sustainability Index.

In 2003, POSCO enacted a code of conduct to infuse corporate ethics standards in all its operations and dealings. The company had two mottos: “An employee who makes a mistake can be forgiven, but one who acts unethically will not be tolerated” and “Do not make any decisions that violate corporate ethics even if those decisions bring the company more profits.” 5

In addition to production and financial success, POSCO was deeply concerned with the well-being of its various stakeholders and that of humankind in general. According to its 2010 annual report:

Around the world, POSCO contributes to the comfort and improvement of humankind. We deeply believe in giving back and actively engage in a range of social services and activities that will benefit local, regional and international communities. Sharing is rooted in our corporate culture. POSCO is committed to encouraging a spirit of cooperation and respect in our employees, our business partners and our communities. We are committed to making a tangible difference and to being a responsible corporate citizen. 6

POSCO also believed in furthering itself as a company that “shares the same value and culture with all its stakeholders, including the society, the base which a company grows within, partners, all suppliers, investors, clients, employees and the environment, to enhance competitiveness and contribute to humanity.” 7

POSCO’s Stakeholders

Throughout much of its existence, POSCO had worked to build excellent relationships with all its stakeholders. The conscious capitalism movement emphasized the stakeholder approach, using the acronym SPICEE, which stood for society, partnership, investor, customer, employee, and environment.

  • 4 Marvin B. Lieberman and Jina Kang, “How To Measure Company Productivity Using Value-Added: A Focus on Pohang Steel (POSCO),” Asia Pacific Journal of Management 25 (2008): 209.

  • 5 “Background,” POSCO website, http://www.posco.com/homepage/docs/eng3/html/company/ethics/ s91a3010040c.jsp (accessed January 7, 2014).

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Society

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POSCO had made contribution to national development a priority, and had supported social contribution ever since the company’s establishment. In 2012, 98% of its employees volunteered with various social services, donating a total of 622,872 hours of their timean average of 36 hours per person. The company created the POSCO Scholarship Foundation in 1971 to foster next-generation talent, building 14 elementary, middle, and high schools. In 2004, the POSCO TJ Park Foundation was established alongside various programs: a public prize and support for academic, cultural, and social organizations, as well as support for students from Southeast Asian countries. The company also participated in a microlending project for underprivileged people in South Korea. In 1986, the company also established POSTECH, Korea’s first research-oriented university that in the 21st century was recognized as a top-tier university in the fields of science and technology. Creating sustainable jobs for socially underprivileged people in an age of “jobless growth” was an important step toward achieving balanced and sustainable development. Thus POSCO launched four social enterprises:

POSWITH, POSecohousing, POSPLATE, and Songdo SE, the last of which was an initiative to help and hire disabled people. These social enterprises provided stable employment for the disadvantaged, including single mothers, the elderly, North Korean defectors, disabled people,

and the unemployed. More than two-thirds of the profits of those social enterprises were used to

create new jobs for the socially vulnerable. In 2012, POSCO donated a part of those companies’

shares to local NGOs for better governance of and social benefits for the local community.

Partners/suppliers

A constant problem that many suppliers had was the delay between providing the goods or work and receiving compensation. This lag time could stress the suppliers in many ways; even larger suppliers that possessed economies of scale were not exempt from this problem. Starting in 2004, POSCO instituted a policy of paying its suppliers in cash within three days of delivery. These suppliers could then pay their suppliers on time, and thus all companies maintained healthy cash-flow equilibrium. POSCO had also instituted a certified partner program for suppliers that adopted leading-edge technology, maintained cost-effectiveness and on-time delivery, and continually worked to improve and innovate their operations. The company also created Korea’s first benefit-sharing plan with its top suppliers. Over the years, $119 million of profits went to these suppliers, and in 2010, the program was expanded to include additional suppliers.

Customers

From the start, POSCO, led by Tae-joon Park, was intent on producing high-quality steel in order to compete with other countriesparticularly Japan, which had a high steel output. One story told of Park, after noticing defective steel coils coming out of production, doing his research. When he “learned that the mill manager had a low golf handicap and enjoyed the

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company’s six-hole course, he demoted him and every manager with a low handicap. ‘I thought the job was too difficult’ for someone focused on golf,” said Park. 8 Park was known to have defective concrete footings dynamited, after which he apparently made the managers responsible for the defects break the remaining rubble up with sledgehammers.

Employees

Traditionally, POSCO had treated its employees well, paying them above-average wages and providing generous benefits and vacation time. Tae-joon Park “made sure laborers had restrooms as nice as those in a hotel; workers in a clean environment will make clean steel.” 9 In 1995, the company established the POSCO Educational Foundation to support the education of employees’ children. The company offered employees a benefit-sharing plan. POSCO offered day care, extended maternity leaves and mentoring programs for women, and received a family- friendly-corporation designation by South Korea’s Ministry of Gender Equality and Family. POSCO was strongly committed to developing employees’ skills, talents, self-realization, and autonomy, and to helping them maintain a healthy work-life balance. 10

Environment

Tae-joon Park, in building POSCO, was environmentally friendly before it was fashionable. He had trees and flowers planted throughout the company grounds. Under his guidance, “POSCO spent $1.25 billion for anti-pollution devices before the government demanded pollution control.” 11 Over the years, POSCO planted more than two million trees. Being green could be difficult for an energy- and natural resourcesintense industry such as steel. Unlike most other steel companies, POSCO began releasing a separate carbon report in 2009 that featured independent third-party verification of data. To minimize the effects of its operations on the environment, POSCO instituted a number of programs designed to strategically manage carbon. Aside from the groundbreaking FINEX technology, these included the development of a high-tension, lighter-weight steel to be used in automobiles in order to enhance fuel efficiency and reduce the levels of CO 2 and sulfuric acid emissions, and the establishment of a green partnership program designed to impart its environmentally friendly practices to other companies. Wanting to bring employees and their family members together, POSCO launched a “green walkcampaign in 2011; the goal was to promote adoption of a greener lifestyle, reduce energy consumption, and lower greenhouse gas emissions. 12

8

9

Darlin.

10

11

Darlin.

12

Damon Darlin, “Korean Steelmaker Sets Global Example,” Asian Wall Street Journal, January 23, 1992.

POSCO annual report, 2011.

POSCO, Carbon Report 2011,http://www.iea.org/media/weowebsite/ebc/POSCOCarbonReport2011.pdf (accessed Apr. 3, 2014).

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A Solution? “Thanks Sharing”

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Deeply unsettled by the NEF report, POSCO management set about, in November 2011, to implement a campaign it called “Thanks Sharing.” CEO Joon-yang Chung led the voluntary program by making three daily “Thanks” phone calls to employees. As one POSCO manager

described it,

An employee working at POSCO’s subsidiary company received a special phone

call. “How are you? This is Chairman Chung Joon-yang.” Chairman Chung read an article on POSCO Newspaper about an employee who paints pictures on the

walls of the plants. The purpose of this call was to give him some words of encouragement regarding his great idea. At first, the employee could not believe Chairman Chung called him and became embarrassed upon realizing. The employee said that although it had been a short conversation, he could still feel

the Chairman’s sincerity and consideration of even the small things relating to POSCO employees. 13

The program’s initial exercises and events were small, but they contributed to a more positive mindset. Several employees subsequently created a “5 Thanks” program, in which they shared with fellow employees five things each day for which they were thankful. One department even created a “Thanks” mobile application with which employees could identify particularly positive employees, who then received a bouquet of flowers each month. The program continued to grow and, according to POSCO, had enormously positive effects:

improved employee morale and teamwork, greater organizational solidarity, and better

relationships with the company’s stakeholders.

POSCO was not, however, content merely to keep the “Thanks” program internal. Management encouraged employees to bring the concept into their family life, particularly when there was discord between relatives. A chronic source of strife in Korean families was the relationship between mother and daughter-in-law, who often lived in the same house, and the hope was that the “Thanks” program would help alleviate some of that tension. Employees adopted certain tactics they had learned through the company program, including giving their spouses a list of things for which they were grateful. As another POSCO manager related,

An employee wanted to recover his relationship with his two children and wife. He decided to write 1000 grateful things to them so he started to pay more attention to his family. Consequently he found that he was grateful for everything in his family, and realized that many things he did in his life had been regrettable to his family. As his wife also joined him in writing 1000 grateful things, they were able to talk about their happy family for the first time since their marriage.

13

“POSCO

Case: Thanks Sharing Activities,”

contribution division, received January 9, 2013.

e-mail

from Myung-ho

Lee,

head of

POSCO’s

social

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Thanks Sharingactivities made him realize that a family is priceless and that he has to work harder and more enthusiastically as the breadwinner of his family. 14

At the beginning of the “Thanks Sharing” campaign, employees in general were unenthusiastic. But as time went onand the company created a contest around the activities, approximately 96% of employees began participating. POSCO included its various stakeholderseven the machinery—in the activities, going as far as putting “Thanks” stickers on some of the equipment. Signs such as “Fasten your seatbelt” were changed to “Thanks for fastening your seatbelt.” The general mood in the company improved, and managers noticed increased self-confidence and a greater sense of pride among their workers.

Much to POSCO’s amazement, the “Thanks” campaign was taken up by the outside world. The Pohang city government adopted it, as did the school system, the prison, the army, and the local soccer team, the Pohang Steelers, which began the practice of publicly thanking its fans for five different things at the start of each game. 15 Other companiesincluding Toyota, Dangsan Steel, Samsung Heavy Industry, and Hyosung Heavy Industryalso adopted the campaign, sending representatives to POSCO to learn about “Thanks Sharing.”

In a relatively short time, POSCO had effected change within its organization that appeared to be taking hold on a much broader level. Management reflected on the program:

In POSCO’s “Thanks Sharing” activities, success comes from bottom-up management style….rather than from following top-down style. In addition, because the “Thanks Sharing” activities were not enforced and management

showed great interest in them, the field employees were willing to practice

voluntarily and develop activities which also spread to other employees. 16

POSCO management realized, additionally, that the spread of “Thanks Sharing” not only gave POSCO a competitive advantage, but also made it part of a movement for social change, particularly as it spread through the community and beyond:

POSCO encourages positive thinking and empowerment of employees, offering them something to be proud of through “Thanks sharing” activities. Moreover, POSCO will continue to actively support other “Thanks Sharing” activities, promoting them in order to become a company that receives love from the society, the government, and the public. 17

  • 14 E-mail from Myung-ho Lee, January 9, 2013.

  • 15 The positive effects of the team’s efforts seemed to pay off with an improved season, in which its record went from 5 wins, 6 losses, and 4 draws to 10 wins, 4 losses, and 1 draw.

    • 16 E-mail from Myung-ho Lee, January 9, 2013.

    • 17 E-mail from Myung-ho Lee, January 9, 2013.

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