For Cummins, taking care of employees first priority
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Some Columbus natives are most proud of their architecture. Others point to a sports championship. And several have never been more proud of their hometown than when everybody pulled together after the devastating flood of 2008.
But the source of my greatest pride from being a Columbus native came when I covered a Cummins Inc. shareholders’ meeting in April 1991.
At that time, the diesel maker was experiencing a four-year string of losses after finding itself stuck in a mature, highly cyclical business. The company’s market share in heavy-truck engines fell from more than 50 percent in 1988 to about 38 percent that year.
Many companies would have opted at that time for quickly enhancing shareholder value. But that wasn’t the way Cummins did things.
I watched with astonishment as former CEO Hank Schacht did something utterly amazing. He took the question away from the board of directors and dumped it smack into the laps of the shareholders themselves.
Schacht told more than 500 investors they could make short-term profits by getting rid of employees and hurting the communities where Cummins operates. Or they could absorb another year of losses, keep the workers employed and wait for the company’s long-term gains to kick in.
And they had to vote their choice that very day.
Only six shareholders in the filled Columbus East auditorium voted to grab the quick bucks.
“We’ll never know whether we could have made higher net present value returns by harvesting instead of sowing,” Schacht said in 1991.
But the following year, he admitted that Cummins “would have been in decline if not out of business” if the shareholders didn’t agree to invest in the long haul.
Cummins also has a history of leading by example. In 1992, the Diesel Workers Union agreed to significant concessions in wages and benefits. But the vote came no less than three years after the corporation cut the pay of officers with titles of vice president and above by 7.5 to 10 percent.
I can’t help wonder if there’s a link between Cummins success and its longstanding reputation as a leader in “corporate social responsibility.”
A socially responsible company operates in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business. In other words, the stakeholders are more than the shareholders. They are customers, employees and communities.
My nephew, who earned his master’s of business administration from the Harvard School of Business, feels most companies view corporate responsibility as little more than gestures motivated by marketing or public relations benefits.
But longtime Cummins board member William I. Miller once said if you let any stakeholder down for a lengthy period of time, it will eventually have a negative effect on the bottom line.
A company might give money to worthy causes and get a nice tax break. But for Cummins, charity begins at home — by taking care of its employees, communities and other stakeholders.
Is that bad business? Well, American entrepreneur Henry Ford paid his workers more than twice what his competitors were willing to pay. As a result, he was ridiculed by investors and fellow business owners.
But as Ford pointed out: “Where people work longest and with least leisure, they buy the fewest goods. As people are overworked, they become less and less valuable. Therefore, they earn less and less and buy less and less.”
Is satisfying all stakeholders, as well as shareholders, the key to a company’s long-term success and profitability?
That’s a question that deserves more than just a corporate public relations response.
Mark Webber is a reporter at The Republic. He can be reached at 379-5633 or mwebber@therepublic.com.
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