From the September/October 2010 issue of Ethikos
Why Cummins Inc.'s CEO Reads His Firm's
Ethics Investigation Reports — All 400 of Them
Details matter. That applies when drawing a contract, furnishing a house, or designing a health care plan. It's also true when managing an ethics and compliance program.
That insight hasn't been lost on Cummins, Inc. (Columbus, IN), the storied manufacturer of diesel engines.
About 10 years ago, the $11 billion (2009 sales) company stationed 10 "master investigators" around the world to manage investigations into alleged ethics violations involving Cummins' employees.
The investigators report to Sondra K. Bolte, human resources (HR) director, Global Ethics Investigations, who helped develop the network and is the closest thing that Cummins has to an ethics officer. Last year the company conducted some 800 investigations, half of which (about 400) were substantiated.
There is nothing particularly unusual in this.
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What sets Cummins apart from most other large companies, however, is that each substantiated investigation summary—a single report typically runs one to two pages—is read by Cummins Inc.'s chairman and CEO, Tim Solso.
"Mr. Miller taught me a long time ago that the only way you really know what's going on in your company is to walk the shop floor or the research labs," Solso told us via e-mail. "The company today is too big to do this, so reading these individual investigation reports is one way of learning about what's going in the organization at a grassroots level and how we are responding. It's important that I know that." Solso is referring to J. Irwin Miller, the company's president from 1947 to 1951 and chairman from 1951 to 1977—and mentor to generations of Cummins leaders.
Bolte delivers the summary reports to Solso each quarter. She recently handed over a packet of 150 cases to him. The CEO then sits down and reads the reports all at one time. He may read them on a long airline flight.
Consistency is critical
What is it that Solso is looking for?
Consistency, for one thing. "If it's not OK in the United States, then it's not OK in India or Australia," explains Bolte. If the CEO has questions, he will go right back to the master investigator for answers.
If the company leaves all decision-making to the managers in the native countries, those managers' views "might be colored by that culture," suggests Bolte. They might be more tolerant of behavior, say, that would not be acceptable in Columbus, Indiana.
Solso wants to know what grievances exist within the organization, he told us, but also "I need to know that we are consistent across the board in terms of what the remedies are for certain violations. If somebody is cheating on their time card in Plant A and they are fired, and the same thing happens in Plant B and the person only gets a write-up, that's not good."
The master investigators are stationed around the globe: in Australia (covering the south Pacific), Mexico, China, India, Brazil (covering Latin America), the UK (covering Europe, plus, most recently, Russia), Africa (including the Mideast), and Singapore (covering north and southeast Asia). Cummins, a truly global concern, draws more than half of its sales from overseas business. Three investigators are based in the United States. Most master investigators have human resources backgrounds.
These master investigators "represent Tim Solso in those countries where they work," adds Bolte, who has worked at Cummins for 30 years in various areas of finance, training, human resources, and customer support. Once a year the investigators all gather in a single room to meet with Solso.
Yet one has to ask: the CEO himself reading 150 one- to two-page reports a quarter—is that really the best use of his time? Isn't it a kind of imposition?
"No. I see this as a fundamental responsibility, not an imposition," Solso responds. "I am the senior person in management and I have great responsibility in the sense of creating the right environment and making sure that our people are treated well and have the opportunity to contribute to their full potential and their full ability."
Besides, he learns a lot from reading these reports, particularly how the company's "leaders" are responding to grievances. "I go back to Mr. Miller who said that when someone is mistreated, you want to have a sense of outrage. I have a sense of outrage, and have had throughout my entire career, about these types of things."
Cummins has achieved iconic status in the areas of corporate ethics and social responsibility, in good part because of the aforesaid Mr. Miller, a Renaissance man among businesspeople—he studied the classics at Yale. Among other accomplishments, Miller recruited world famous architects like Eero Saarinen, I.M. Pei, and Robert Venturi to design many of the municipal buildings in Columbus, Indiana, turning that small Midwestern town into an architectural Mecca. Martin Luther King, Jr. once called Miller "the most progressive businessman in America."
When Miller died in 2004 at age 95 he was hailed by the New York Times as "the industrialist whose patronage turned Columbus, Ind., into a showcase for modern architecture."
In an interview with Ethikos in 1992, Miller told us that "responsible business behavior is basically the best kind of long-range planning. You have to do many things in this world that don't pay out tomorrow. But it may be the key to your survival 10 or 20 years from now."
Miller, too, immersed himself in the details of the business. In that 1992 interview, he explained to us how as leader of Cummins he dealt with so-called facilitating payments in the developing world:
The company, founded by Clessie L. Cummins, the chauffeur of Miller's great uncle, Will G. Irwin, today sells its diesel engines and generators all over the world. Some time ago, Miller recounts, one of its engines broke down in a Far Eastern country. The company had to fly in a spare part. When the replacement piece arrived at the Asian port, however, it was made clear to the Cummins representative on the scene that the part would never reach its destination unless he paid the customs officer $50.
"What do you do?" asks Miller.
"We went to the government and explained the situation.
"The government official answered: 'You pay the $50.'" The official went on to explain that customs officers in that part of the world were simply not paid a living wage. They were expected to supplement their income with facilitating payments—the sort demanded on the docks.
"But $500," the government official continued, "that's a bribe."
Such distinctions may appear arbitrary. But the key thing, according to Miller, is that "we encouraged our guys to get it out in the open. Not to keep it secret. Talk to the government. 'What role do you expect us to play?'
"There is a gray world out there. We tell our representatives: If you're in doubt, don't do it." ("Influencing J. Irwin Miller: Socrates, Saarinen, Stradivari," Ethikos, May/June 1992, p. 6.)
Ethics training
It helps that the company's senior leaders talk about ethics regularly as part of their agenda, says Bolte, who has been in her current position for 10 years. The company also conducts regular ethics and compliance training.
Employees undergo code-of-conduct training every other year. In areas with "issues" (e.g., problems with sexual harassment or abusive behavior), they'll do the training every year, sometimes alternating between online training and face-to-face training.
In live sessions they can address directly issues that have been causing recent problems; trainers can point out that the people "who behave like that are no longer here." At Cummins, notes Bolte, "It doesn't matter how many patents a person has"—a sign of distinction at an engineering-based company—"if they misbehave, they're not going to last."
Moreover, if managers tolerate wrongdoing in the people they supervise, "they (the managers) will be disciplined."
Different cultures pose different challenges, of course. In India, older people tend to be venerated, notes Bolte, by way of example. That is simply the culture. Not surprisingly, there tend to be more older people at the top of business organizations in India. There is nothing wrong in itself with that. However, if senior managers yell at employees, humiliate employees, forcing their subordinates to "suck it up and wait" until they themselves can move into those top positions and do the same things to their subordinates—if that is the "culture" of the land—then it behooves Cummins to take matters in hand and "let them know that is not how we manage. This is not the Cummins way."
"People around the world are the same," observes CEO Solso. "Everyone wants to be treated with dignity and respect. You'll hear people talk about certain cultures, and that certain things won't work in some areas because their culture won't accept it. I just don't buy that. I've traveled all over the world for the last 35 years and I'm certain that people are the same in this regard."
How do they turn these kinds of situations around? "We work hard to put the right people in top positions and we expect them to mentor" those under them, says Bolte.
A 'measure of confidence'
Cummins established an ethics hotline in the United States in 1997 and later brought it to its overseas locations. Things went fairly smoothly when the hotline was introduced in the UK, but it proved more problematic in some other countries—Cummins operates in more than 50 countries and has customers in 190 countries. It was "less readily understood," recalls Bolte. Some time back, Cummins moved hotline management to an outside vendor, EthicsPoint (Lake Oswego, OR).
Earlier, 50 percent of employees identified themselves on the ethics line. Now 75 percent do—a "measure of confidence," says Bolte.
"It says the employees trust the process." They don't fear that they will be retaliated against.
It's much easier to conduct an investigation when employees identify themselves. It's easier to pose follow-up questions. The (EthicsPoint) system will ask questions, too, of course. As Bolte noted in an Industry Week article:
"The reporting process is precise. Today, when a Cummins employee reports any action that is inconsistent with the code of conduct, the individual is directed to a specific set of questions that makes sure the company gets the information necessary to resolve the incident. These details include where the incident took place, at what time, which items were involved and whether particular individuals were involved. Reporters can also upload documents, name witnesses and provide any other details that can help Cummins recuperate losses and understand how to prevent similar events from happening." (Bolte, Sondra, "Reduce Misconduct by Making Ethics Everyone's Business," Industry Week, April 15, 2009.
But the system has its limitations. It will typically record most necessary information, but sometimes, says Bolte, the reporting employees ("reporters") "will tell you what they assume, not what they have seen." Some probing and follow-up is often necessary.
Follow-up questions are more difficult to pose with anonymous callers. Reporters must log back into the system via their computers, or they have to call the hotline again. It's easier if they supply their name and number at the outset.
Cummins wants to resolve cases quickly. The longer a case stays open, the more disgruntled employees become, in Bolte's view. (Some recent Ethics Resource Center data, interestingly, has suggested resolution time is not that important. See the Duke Energy story in the July/August 2010 issue of Ethikos.) You can't allow cases to remain open indefinitely. If employees are preoccupied with and worrying about their investigation, they become less productive, she suggests.
What are the most common issues that are reported via the hotline? Most are human resources related—as is the case at most other companies. In about 70 percent of cases, the issue centers on "employees and how they get along with each other," says Bolte. "How do we treat each other at work?"
About half of the reports are substantiated. Investigations are overseen and signed off by the master investigators, but they must also be approved by the relevant business unit, HR officer, and Bolte herself.
The master investigator often draws upon other functional departments to conduct the investigation, including legal, security, safety, internal audit, HR, and information technology (IT).
Statements are made at the beginning and the end of an investigation that there will be no tolerance of retaliation. This is for the reporter as well as others who may be interviewed.
The company tracks how long it takes to close a case. It also tracks the number of situations by country as well as type of issue. They are looking for trends, themes, what's 'happening' out there. They can also compare their own findings with those of their vendor, EthicsPoint, which has a much larger database containing input from many organizations.
A spike in reports
Recently there was a spike in hotline reports in one of Cummins' overseas markets. Supervisors reportedly were verbally abusing employees; they were rude and condescending. The problem was traced to a single business unit. There had been several similar reports over a six-month period. The company ordered up some special training for this business unit.
When CEO Solso reads the summary reports, he, too, is looking for trends. "For example, if all of a sudden in one organization or in one location, I see an increase in sexual harassment claims, then I really want to know what's going on because there could be a leadership issue. I'm not saying all the time you have patterns, but there have been circumstances where all of a sudden you seen an increase in a certain type of report and something's changed to make that happen.
"Also, if we know the nature of the grievances and the location, we can design training programs to try and address these issues. The type of problem that bothers me the most is when you have a shop foreman, general manager or some other leader, and there is a pattern of abusing your people. I would say that usually a third of the issues are poor leadership. That's one of the reasons we have leadership training."
When 'people quit calling the hotline'
During the economic crisis in 2008, the company did some "downsizing." During this period, "people quit calling" the hotline, recounts Bolte. They felt grateful that they just had a job. This lasted about nine months. Then the company experienced a spike in calls. Employees were making up for lost time, apparently, releasing pent-up frustration. Soon after that, things reverted to normal.
How long does it take Cummins to resolve cases? The company's goal had been to resolve cases within 24 days. They recently cut that goal to 15 days. They met the new 15-day goal this quarter, overall, but many individual locations did not make it.
The company began recently to classify cases by complexity. Cases are deemed more complex if they involve international travel on the part of an investigator, for instance. Sometimes heaps of data need to be reviewed—as in certain fraud cases. This, too, could make for a more "complex" designation.
These complex cases may reasonably require more time to resolve, and thus Cummins may soon track the amount of time it takes to close a case by complexity level. The new centralized database has helped:
"Case histories, notes and documentation stored in the centralized database give investigators information to help guide their cases. A member of the legal department, for example, could find out whether an employee has been implicated in a particular type of issue before, which disciplinary actions were taken with similar issues, and how the employee was treated. New investigators can be easily added to the case and familiarize themselves with what steps have been taken toward the resolution of the issue."
They tend to have faster case resolution in the United States, but that's because there are more "petty" cases, says Bolte. Complaining is more common in U.S. work culture. People in China, by comparison, are less likely to complain. Two-thirds of hotline calls are from the United States. But that, perhaps, overshadows the fact that the company has seen a "huge [call] increase in the rest of the world" in recent years.
"People here worry about when we get an increase in grievances," comments Solso, "but actually you know some things are always going on in your organization, and if people don't use all the avenues you have to report them, we won't know about the problem.
"So, in a way, an increase in grievances is a good thing because it means more people trust the organization, and they trust the organization because we are responsive and they feel safe in raising these issues. That's not always the case in some businesses," notes the CEO.
"How a leader responds to these sorts of issues is one of the most important things they do," Solso continued. "If leaders don't deal well with these sorts of issues, then it tells me a lot about their capabilities and their potential to go forward."
Overall, one of the company's strategic principles is to create the right environment for success, "and that means every employee anywhere in the world is treated with dignity and respect—and when you have an environment like that, the business will be successful," says Solso.
But details are critical, too. It's become well known among senior executives at Cummins Inc. that the company's CEO makes it his business to stay informed on the details of the company's ethics investigations, "and if I do it, then they need to do it as well," he adds.
— Andrew Singer