Haniel

Like father, like son

12/03/2018

The separation of ownership and management has a long tradition at Haniel. As early as the 19th century, the owners of Gutehoffnungshütte left the management of the company to the non-shareholding relatives Wilhelm (1792–1864) and Carl Lueg (1833–1905).

Is success genetic? Wilhelm Lueg, the first quasi-external manager of Hüttengewerkschaft und Handlung Jacobi, Haniel & Huyssen (JHH) – later to become Gutehoffnungshütte (GHH) – would probably say: No, success is something you learn! When he was born in 1792, there were no signs that he would one day become the director of a vast smelting conglomerate. By contrast, his son’s career path appeared predetermined: When Carl Lueg was born in Sterkrade (now part of the city of Oberhausen) 185 years ago, on 2 December 1833, his father Wilhelm had already been in charge of the company for a decade.

From private tutor to director
Wilhelm Lueg began his career in 1812 as a private tutor for the children of JHH co-founder Gottlob Jacobi (1770–1823). Jacobi quickly recognised Lueg’s interest in the business, as he would read the then-standard reference works on iron smelting in his spare time. In 1817, Jacobi appointed Wilhelm Lueg as a “factor”, a kind of managing director, and allowed him to gather practical experience on “fact-finding missions” to Rotterdam, Liège and England. In 1819, Wilhelm Lueg married Sophie Haniel (1798-1884), a niece of Franz Haniel (1779-1868), and became a member of the family – but not the owner family. When Gottlob Jacobi died in 1823, he left his shares in JHH to his son, August Jacobi (1801–1847), but he bequeathed the management of the company to Wilhelm Lueg. With this move, Jacobi became one of the first industrialists to separate ownership from management.

Lueg demanded that the other owners appoint him as a director and threatened to form his own company if his wish was not granted. The owners could not afford to lose Lueg and his expertise, so they agreed to his demands: Lueg was given an employment contract for life, a free apartment, commercial power of attorney, and a generous salary of 1,130 thalers. One thaler in 1823 was equivalent to around 40 euros today. This meant Lueg earned a salary of around 45,000 euros. (For comparison, the cost of living for a family of five in the mid-19th century was three and a half thalers a week.) He managed the company in line with the resolutions of the owners, who kept a close eye on him, not least since an owner was always required to be present at JHH in Sterkrade. At the same time, his director’s contract gave him a remarkable degree of independence in terms of how he ran the company.

The role model
As well as representing JHH externally as a director, Wilhelm Lueg ensured a balance between the interests of the owners, and in particular between Franz Haniel and Heinrich Arnold Huyssen (1779–1870). In this role, he advised his superiors and had the casting vote in the event of a deadlock. His proposals introduced innovative ideas to the company’s day-to-day operations: As a factor, he already constructed steam engines and blowers using the English model for the blast furnaces in Sterkrade. In 1829, he established a steamship yard in Ruhrort after previously securing exclusive orders from Kölner Schifffahrtsgesellschaft. He enticed the corresponding experts away from the shipyards in Rotterdam. In 1830, “Stadt Mainz”, the first steam ship to be built in Germany, was launched on the Rhine in Ruhrort.

In both shipbuilding and mechanical engineering, Lueg ensured that expertise was widely spread in order to prevent damage to the company in the event of one of his employees being poached. He appointed family members with university degrees, tied engineers like Nicholas Harvey (1803-1861) to the company through marriage, and sent his technicians on frequent foreign trips.

Under Lueg’s management, JHH enjoyed a significant expansion in its ironworks and mechanical engineering. He also initiated something we would now describe as diversification. At the time, it was a unique selling point and hence a competitive advantage. 1842 saw the start of production of the railway tracks that would connect the mines and ironworks in Oberhausen to the Cologne-Minden railway. In 1845, JHH also began building industrial ships, known as tugs. By the mid-19th century, the company’s product range included machines for furnaces and collieries, iron steam ships, boilers, railways and bridges. The manager stood for the gradual modernisation and coexistence of pig iron and wrought iron production and processing. However, profitability was more of a priority for Wilhelm Lueg than innovation. To this end, he himself performed the final calculations for major shipbuilding and mechanical engineering orders until the very last.

Following in big footsteps
Wilhelm’s son, Carl Lueg, was readied for a management role at JHH from a young age. Following his education at Hagen vocational school and the University of Karlsruhe, he joined the company in 1855. The first coke blast furnaces were springing up around the Ruhr area at the time, with the lucrative bituminous coal having been mined in the region since 1849. Bituminous coal formed the basis for coke production, and hence for the manufacture of steel. In just a short space of time, Carl Lueg became the chief engineer of the furnace in Oberhausen and the head of the ironworks. When his father, Wilhelm, died in 1864, he succeeded him as director.

His suitability as a manager was put to the test during the crisis triggered by the Panic of 1873. In the year of the stock market crash, he converted Jacobi, Haniel & Huyssen into a stock corporation with share capital of ten million thalers (around 190 million euros at corresponding purchasing power of 19 euros to the thaler): “Gutehoffnungshütte, Aktienverein für Bergbau und Hüttenbetrieb” (GHH). Prior to the conversion, JHH had 47 owners whose interests could no longer be represented by a single individual and whose consent for legal decisions was difficult to obtain.

In the years that followed, the financial stability of the company was threatened by falling demand for iron and low commodity prices. Carl Lueg had to issue bonds and take out additional loans. GHH also refrained from paying dividends to its owners between 1875 and 1878. Lueg’s strategy was to counteract falling prices by cutting production costs in order to remain competitive. Reaching this goal meant taking the bull by the horns and investing in modernisation. Lueg switched production from wrought iron to steel, set up production lines for iron girders, sheet metal, and fine steel, and established the steel and rolling mill in Neu-Oberhausen, which used state-of-the-art production techniques. He ensured the supply of iron ore for his ironworks by developing new ore fields, particularly in Lorraine. Under his directorship, pig iron production increased 24-fold between 1873, the year in which the company became a stock corporation, and 1903. Turnover grew from two million to 57 million marks in the same period. By the time of his death in 1905, GHH had 10,000 more employees than before the crisis.

The networker
Can Carl Lueg’s success be explained solely by his initiative, his sense of innovation and his willingness to take risks? Not necessarily! Another key factor will have been his ability to establish networks. He was a member of the Association of the German Iron and Steel Industry and the Central Association of German Industrialists and Chairman of the Association of German Steel Manufacturers. In his positions on various bodies, he repeatedly argued for protective tariffs on iron in order to protect the market from English products. In addition to this form of lobbying, Carl Lueg was involved in local politics in Düsseldorf. The establishment of the Oberkassel neighbourhood, the formation of Rheinische Bahngesellschaft in 1896 (now Rheinbahn) and the organisation of the 1902 Industrial and Commercial Exhibition, which allowed Düsseldorf to compete with the world fairs in the major cities of London and Paris, can all be traced back to him.

For around 80 years, the Luegs literally laid the foundations for iron smelting in the Ruhr area, helping the region to emerge from the shadows on the Prussian periphery and take its place at the heart of a globalising economy. Although they were closely related to the owner family through Wilhelm Lueg’s wife and Carl’s mother, Sophie Haniel, they did not hold any shares in the company. The Luegs occupied a new kind of intermediate position: neither shareholders nor outsiders. They were appointed as quasi-external managers from the wider family circle. And perhaps the Luegs were so successful in business precisely because Jacobi, Haniel & Huyssen did not belong to them, but because the owners actively chose to entrust the company to them.