THE WHITE HOUSE
Office of the Press Secretary
CONFERENCE ON CORPORATE CITIZENSHIP PANEL II
Gaston Hall Georgetown University Washington, D.C.
2:00 P.M. EDT
DEAN PARKER: My job is pretty simple, it's to open this afternoon's session. And I'd like to say good afternoon to you, Mr. President, Mr. Vice President, members of the Cabinet, business leaders and other distinguished guests that are with us this morning and this afternoon.
I'm Bob Parker, Dean of the Georgetown School of Business. It's my pleasure to welcome you back to the second half of this important White House Conference on Corporate Citizenship.
As Dean of the Business School here, we as a school are committed to value-based leadership in a rapidly changing global community. And I personally applaud the President's efforts in convening this critical conference. I also applaud the panelists that were up here today, and the CEOs, all of you in the audience, for your willingness to spend your time addressing these difficult business issues.
Before I came here 10 years ago I spent 20 years in business. Most of it was with a firm called McKenzie and Company. And I understand the tough issues and decisions that you people are going through to compete in the global economy in this rapidly changing world. And I also applaud the stories that I've heard here today about caring, about people, and about mixing together, creating value for the shareholders as well as building a community, and recognizing not only productivity through people, as McKenzie used to say, but productivity with people.
The Georgetown School of Business has a longstanding tradition of educating students -- it's our job -- in social responsibility of business. We teach students in addition to making a profit, which they have to do if they're going to be successful, that they should endeavor to make a difference in their companies, with the people they work with, and in their communities. And they as students are dedicated to making a difference.
We at the Business School are delighted to host this conference that reflects our missions as educators of future business leaders. And I'm sure that we all look forward to this afternoon's panel, Investing in Employees, which promises to be a continuation of this mornings productive dialogue.
In getting something like this started, talking to each other and sharing experiences, we'll all learn a lot and you people -- all of you here on the stage as well as you out there -- are the role models for our students and others that are sitting over there.
Thank you. (Applause.)
THE PRESIDENT: Thank you, Dean. (Applause.) Thank you very much, Dean.
The last panel will cover the last two elements in corporate citizenship, training and investment in employees and partnerships with employees. And so, I'd like to begin here discussing training and investment in employees. And the first company and the first presenter will be Mike Plumley, the Chairman and CEO of the Plumley Companies.
MR. PLUMLEY: Thank you, Mr. President and Mr. Vice President for the invitation to be here today.
I come from a rural town in west Tennessee of about 10,000 people -- a really nice place to raise a family, work, send your kids to school. My dad started our company in 1967. In his first year of operations, we had 25 employees and sales of approximately $600,000. I started to work in the firm in 1972 and my dad had just crossed his first $1-million sales year and had about 75 employees.
By the close of our business year in 1995, our company had grown to roughly $125 million in total sales and employs approximately 1,400 people right now. We're a manufacturer of rubber products to the automotive industry. We make rubber fuel hoses, rubber gaskets, and a variety of vibration isolation type components for automobiles.
In the early '80s, we in the automotive business encountered the competitive challenge of the Japanese -- the Japanese not only selling cars in the United States, but moving their car plants to the U.S. Suddenly, we found ourselves in a position where the quality of our products was no longer good enough or acceptable for many of our customers.
Following the lead of the Big Three, we began to read about W. Edwards Demming and his work in Japan. We thought, as a lot of Americans do from time to time, suddenly we saw this statistical process control idea and that's where our education and training program got its start. Before that, the way we trained people was, we put them out on the machine and somebody worked with them a couple of days, and after that, they were workers. But that was no longer adequate to produce a good quality product.
So we began teaching SPC. Well, statistical process control requires more skills than just a person being able to sit in the classroom. We began to find that we had a more serious problem in training and education than we ever would have thought imaginable. We found that we had some employees that struggled with basic reading and math skills, basically reading, writing and arithmetic, and found that even though 70 percent of our employees had a high school education, 30 percent did not. And the weakest link of the chain is that link that couldn't necessarily compete at the same level as all others. Today we find ourselves competing with companies around the world.
As we got involved with this, we just uncovered a mass of problems within our company -- the level of understanding of many employees in terms of what our business was about, what we were trying to do, where the products went that we manufactured, the tolerances that they had to hold. So starting with hiring our local vo-tech school to teach SPC and then realizing that we had a greater problem just multiplied our efforts over and over again to improve the quality of training and education within our workplace.
Before long, we started GED classes in our company at night where employees were encouraged that didn't have a high school education to attend those classes. We hired high school teachers; they came in, and I'm proud to say today we have -- we are nearing 100 employees just in the past seven years that have completed their high school education while in our employ. And what an uplift for those folks. I don't know how many times someone who is amongst this group has said to me, I would never have gotten my high school education without the efforts of the company. And certainly that's rewarding because I think we can all understand if you don't have a high school education, what a position that puts you in, especially even just telling your coworkers that you aren't a high school graduate.
Well, from GED to SPC to 140 courses now that we have either offered in the past couple of years or presently offer today in both self-study courses and courses with instructors -- we even bring in college professors from time to time -- we teach everything from geometric tolerance and blueprint reading, SPC, continuous improvement awareness, to occasionally we have a Japanese or a German language class for those people in the sales, marketing and engineering functions who come in contact with people from other parts of the world in those regions.
We now have a corporate goal within our company that every employee will receive 40 hours of training and education per year within the company. And that's a goal we monitor weekly and chart and watch and encourage constantly to get people involved.
Today, we have 57 employees in our company who are certified professionals. Fifteen years ago, we had none, no certified professionals. But we have professionals certified not only in accounting, but quality and technician work, reliability engineers, and the list can go on and on.
Along with that, this past year we built a learning center, a whole center dedicated -- 20,000 square feet -- dedicated to the learning for our employees. And, in fact, at night now we have a family night once a week where we encourage employees to bring in wives, children, whatever to receive whatever training might be applicable to the entire family in the evenings. We also have a gain-sharing program that goes along with this that's consistent with reward for improvements within the work we do every day.
I guess in our findings we find that quality really essentially begins with education and it ends with education. So the beginning of our thrust was not one of something that was just nice to do, it was out of necessity to compete in a global market. And as time has gone on, after we had implemented several programs and five or six years later, we found our company in a position where we had gone from one of the lowest-quality suppliers to the automotive industry in our products to be perceived by our customers as one the highest-quality suppliers of rubber products.
In fact, that's witnessed and evidenced by the receipt of four Total Quality Excellence Awards, and only 20 companies in the world today have achieved that level. We've achieved General Motors Mark of Excellence, Chrysler's Pennistar, Nissan's Quality Master, and now have achieved a level of quality that is considered world-class at less than 50 parts per million defective with our customers. And believe me, just a little while back, that was somewhere around 20,000 parts per million just five or six years ago.
The bottom line is the ultimate measure of our business success in education and training has been the continuing effort to improve the quality of our product and process, and it's very relevant. Thank you. (Applause.)
THE PRESIDENT: Thank you very much. Let me ask you one question. When you brought the teachers onto the premises of your factory to teach the GED programs, did the workers, did they take those classes either before or after their shift started? Is that when they did it?
MR. PLUMLEY: The GED program was after the shift. And it's a voluntary.
THE PRESIDENT: And did you have to pay for that or did the state provide the service?
MR. PLUMLEY: No, we paid the instructors ourselves, the teachers from the local high school.
THE PRESIDENT: When I was -- back when I had another life, when I was governor, we started a program where we actually sent GED instructors to any work site with more than 100 employees. And I was stunned by the number of people who wanted it, still needed it, and it seemed to work very well. But I applaud you for doing that.
Our next presenter is the Chairman and CEO of Cummins Engine Company, Mr. Jim Henderson.
MR. HENDERSON: Thank you, Mr. President. I'm pleased to be here to tell you a little about what Cummins people have accomplished. We're the largest diesel engine producer in the world. We employ 24,000 people in 40 plants around the world. And we compete with the very best from not only the U.S. and Europe, but from Japan. And we have competed successfully in large part we believe because we have invested in our people.
And at the outset, I think I should verify what Ken Lehman said today. Fel-Pro is, indeed, a fine company. (Laughter.) I can see a discount coming on the horizon. (Laughter.)
Our company was founded on the belief many, many years ago of the importance of a close relationship with our people. But it was an event of 24 years ago that changed our thinking from the importance of a close relationship to partnering and investing in our people. And that was a 57-day strike at our principal plant in our headquarters city.
During the course of that work stoppage, I ended up as a chief negotiator. And I really couldn't understand how a company that had such fine people relationships could have that happen. So, when the work stoppage ended, several of us went out on the shop floor and talked to our people and said, what is this? And what they told us was the issues were not economic but, in fact, we had grown so fast and had added so many mangers that they felt like, one, they didn't know the management anymore and, two, they couldn't trust the management. More importantly, perhaps, they felt like the management did not trust them, and that we didn't want their ideas.
Well, neither of us liked fighting, so we decided to do something about it. And we committed ourselves to two principles which have really tried to guide us since. The first is that we would do our best to establish a relationship with all of our people but, particularly, shop floor workers based on trust and open communications and genuine problem-solving, and not only in good times, but in the very tough times. And we're in a very cyclical industry and there are times our business just drops away quickly and those are tougher times.
The second is that we would invest in our shop floor workers so they could assume responsibility for planning their own work and for achieving and improving results for their customers in a rapidly changing and very competitive world, and that requires an extensive investment in training. Our objective is that five percent of our people's work time, or a day a month, is devoted to in-house training, and we also totally reimburse tuition.
I'd like to cite three examples of these two principles. Right after that strike in the mid-'70s, we pioneered the first team-based work systems in several plants we opened. And the idea was for people to organize themselves in groups around a particular task, manage their own work, largely without traditional supervisors. And we confirmed our belief in that process that people really want to do excellent work, they like to work in teams, they welcome the added responsibility, they want the added education, and they're truly committed. And the commitment was unusual.
I remember trying to reach one of our plants one whole day on a Friday, and nobody ever answered the phone. When I finally reached the plant manager on the weekend, he laughed and said, "All of us -- I, the receptionist, the operators -- we were all out in the plant helping to ship engines to meet our goals."
We have two major U.S. plants now, one with over 1,100 people and the other with over 1,500 people, which have been building very high-quality engines this way now for 20 years.
The second example combines both team base working and partnering, which is the next subject. We went through a very difficult downsizing in Southern Indiana in the late 1980s to get world competitive, particularly with the Japanese. But we worked very closely through those difficult years with the Diesel Workers Union.
Fortunately, in the early '90s we were able to reopen a plant that we had mothballed, and we build smaller diesels for Chrysler there. And my colleague on my right had something to do with that, Gerry Greenwald. We agreed with the union leadership to give employment preference to our people who had been laid off; to make the plant absolutely world-class, the best in the world; and to build a team-based work system.
To do that, we invested very heavily in training on the front end. We asked each employee to take 230 hours of orientation and skills training before the plant ever started up. And the results have been terrific. The plant started up at lower cost and faster than we had planned, and has never missed a delivery, in spite of the exceptionally rapid volume growth because of the phenomenal success of the Dodge Ram pickup.
Our workers our very committed to seeing the plant succeed. A young woman named Patty Morris who's still a member of Team Five said when the plant opened, "I want to give you gentlemen from Chrysler my personal guarantee that the workmanship from my station on your product will be perfect every time. And also, I want to say there's nothing that a Japanese plant can do that we can't do better in this plant." Well, clearly, our workers see the Japanese as setting a very high standard.
The final example I want to share is that in 1993 we reached a landmark 11-year contract with the Diesel Workers Union. It includes a team-based work system which is a virtual, total change from the way we had worked traditionally for 75 years, and it will mean much higher quality and much lower cost. And the union and the management together are jointly leading the 200,000 hours of training that will be delivered this year.
Now, why so many years? Well, first it takes a long time to make change of that magnitude. We agreed to wait two and a half years and train people before we started the new system. But the contract also includes and employment commitment for 11 years. And that's when the least senior union member employed as of the date of the contract can retire. And this has permitted employees to focus on improvement without fear of being let go either because of productivity gains or a down turn in business.
We've learned some valuable lessons over these 24 years. First, you can't take trust for granted, you have to work at it every day. Second, two way problem solving is the foundation for working together. The third is learning must never stop. And finally, working together really works. Once people trust management, know they're responsible, and are given the training, it's astonishing what they can do for customers and ultimately for the shareholders.
I hope that's helpful, Mr. President. (Applause.)
THE PRESIDENT: Thank you. Thank you very, very much.
Our third company dealing with this issue of training and investment in employees is Cin-Made Company and Bob Frey, the president, is here. I'd like to call on him now to speak.
MR. FREY: Thank you, Mr. President.
Our mission is very clear. Our mission is to make more money. In 1984, I bought a failing company in a declining industry. It had worn out equipment and it had a worn out union-management relationship. The union had traded wages and seniority and traded away responsibility and power. All responsibility, all decision-making rested with the management. It was perhaps a good bargain in the 1930s and 1940s but a poor bargain in the 1980s and 1990s.
Today, in 1996, our mission, as I said earlier, is to teach the people that work for us how to make more money for themselves -- to empower them to act as company owners; to open the books, share all information, have no secrets, ask and answer all questions honestly; to share the risk and rewards that come in the output of any company. Our employees enjoy a 35-percent pre-tax profit sharing plan. Their wages were frozen in their base wages at 1984 levels; there hasn't been a raise since then. The only way you can make more money is twofold. The company makes more money; you make more money. In our case, we average over $4,000 a year in profit sharing bonuses.
And secondly, you can make more money with a skill-based pay system. A skill-based pay system pays for additional skills acquired. It's 100-percent administered by the hourly workers themselves. Managers aren't involved with them. So the workers basically decide how to pay themselves. All people that work for the company are expected to be managers. The word in our company is, don't ask for permission, just go do it. Ask for forgiveness if you blow it big time, but go do it. (Laughter.)
Now, we're very profitable -- we weren't very profitable, obviously, when I bought a failing company -- and we're in a very competitive industry. A few examples of what our workers do: They hire their fellow workers, and they approve all managers and office workers that come into the company. They schedule their own work hours, including overtime. They schedule their own production. They order their own raw materials. They purchase their own materials. Anyone in the company at any level can sign any kind of purchase order for any amount without a cosignature. We trust our employees. The only thing I tell them -- if you're going to bet the farm, you might want to talk to me. (Laughter.)
They calculate each day on each of the production lines what the contribution margin was -- and of course, they have to calculate the variable cost first -- and whether they made money that day on that line. And, specifically, we break that down to shifts, individual production units and the like. They see each order as it goes to the operating floor; they notice the price, they notice the raw material cost, they assume labor costs. And they know in a heartbeat whether they made some more scrap that day and how much of it came out of their pockets.
Remember, a dollar of every expense, 35 percent comes out of the employee's pockets, and a dollar of contribution, 35 percent of that or 35 cents goes into their pocket. And they get very well acquainted with the bottom line.
We've obviously trained people to be managers. We want all workers to be managers; we want all managers to be workers. We've tried to blend the work force together so we're one unit. It isn't managers versus workers, it's one unit.
I'd also say that collective bargaining is an asset. if -- and that perhaps is a big if -- if you bargain for the right stuff. Now, our management bargained away the management rights clause and bargained away responsibility; it bargained away power; it bargained away control; it bargained away secrets. And our union bargained to assume those types of responsibility, so we became a team.
Now, the power to make these changes rests with leadership -- the leadership in this room. And the most important components of leadership to make this type of change is courage and tenacity -- the courage to let go, the courage to take risk, the courage to manage by the force of your ideas and not by your position power; and the tenacity to see it all through. Because it takes a very, very long time and there's always some backsliding that's going on in the organization. Even today at Cin-Made there's always somebody who says, gosh, wasn't it nice -- I just heard this before I came here -- in 1984 when we didn't have to think about what we were going to do today, somebody was going to tell us. (Laughter.)
Now, we believe Cin-Made makes the five corporate citizenship challenges, and we do it to make more money. What's good for Cin-Made and like-minded companies in this room is good for the country. It's good for the economy, the workplace and the family. Thank you. (Applause.)
THE PRESIDENT: Thank you. I believe you could sell that position. (Laughter.) Good for you.
Now, moving along in our story of partnerships with employees, we have a particularly unique example in Republic Engineered Steels. I want to call on Russ Maier, the Chairman and CEO, and then he'll be followed by Dick Davis, Vice President of United Steel Workers. And they'll tell you the story of Republic Engineered. It's a good story.
MR. MAIER: Thank you, Mr. President. I'm quite proud to represent our employees at today's meeting. Republic is a specialty steel producer. We produce very difficult steels for applications from automotive to aircraft. So when you land on most commercial aircraft in the United States, you're probably landing on our landing gear; you hope we made it right. (Laughter.)
We have about $800 million in sales, 5,000 people, 10 plants, five different states. We're basically spread out across the Midwest. Our real partnership started with the United Steel Workers of America. We embedded that partnership in our contract language. It goes to everything we do. It starts at the board level. There are four seats on our board that are represented by the Steel Workers -- some right from the plant floor; in fact, three people are elected from the plant floor.
We have tried to push this partnership down from the board level to every level in the company. At the corporate planning and strategic planning area, we have joint planning agreements. At the plant level, the department level, the crew level, all the way through, self-directed work teams, performance-based pay, all the things that you've heard about today we've tried to put in place throughout the organization.
But to understand Republic and our unique partnership, I think you need to understand a little about our history. Some of our plants are over 100 years old. We were part of Republic Steel and then we were part of a merged company in this merger mania of the '80s called LTV. We were part of the LTV bankruptcy. And if you could imagine, in November of 1986 the corporation announced that they were going to exit bankruptcy without us. They didn't say how they were going to do that or where we were going to go. They just said without us.
And employees came to me and they said, what does that mean. I said I don't think it means anything good -- (laughter) -- but I said, I know one thing -- I don't know what's going to happen, but I know one thing: If we have value, if our customers perceive that we provide value, and our investors perceive that we provide value, and we provide good jobs -- if we can create that, somehow we will survive.
But the short story is, we did survive and we decided that we ought to just buy ourselves. So in 1989 with the urging, I might say, a real urging and total support of the United Steel Workers, we bought he asset from LTV, 100 percent employee-owned.
Now, it wasn't easy. We became one of those 1980s highly-leveraged companies. We went into a downturn in 1991 in the automotive business; by the end of 1991, we had 103 percent debt to equity. That's not good. (Laughter.)
We got through that period of time, however, because we relied on this partnership. We didn't -- one little vignette. In the middle of 1991, I inferred I guess that one of the ways out of this mess was maybe we'd have to cut employment. That didn't sell so well. Within about four weeks I came back and they said, okay, we can't cut employment; what we're going to do is we're going to cut costs and all the employees are going to work on it because we've got to cut cost.
And they did that. They took $40 million -- within 18 months it took $40 million of the cost of doing business. We didn't fire anybody.
Now, as we went through this whole process another kind of interesting thing happened, because when we became employee-owned we started to give employees, because they were now shareholders, the kind of information you give share holders. You give them reports, you give them earning statements, and you give them balance sheets. And one day they came to me and they said, you know, in 40 years you didn't give us anything. You didn't even tell us about the business. Now you give us all this information; we really don't know how to interpret it.
That provided a great opportunity again for the steel workers and the management to come together and create an educational program. We spent over $6 million on that program to do business education -- how to read a balance sheet, how to read an income statement, all that kind of thing. What is the result? Where are we today?
Well, as you know, we're in a difficult industry. We don't have brand new equipment, but we have been able to reinvest $300 million in our facilities. We've been able to purchase and start up two new plants to grow our employment. The average employee in our company put $4,000 of their hard-earned money up when we started. Last year we paid them back $10,000. So in addition to having their jobs through that whole period, their investment really paid off. Today they own 58 percent of the stock.
And another little story: Last year we decided the right thing to do was to have an ideal -- a public offering of some stock. In our charter we were required to get a vote of the shareholders, the equivalent of 72.5 percent. Now, Mr. President, you know how tough it is to get 51 percent. (Laughter.)
THE PRESIDENT: Haven't gotten it yet. (Laughter.)
MR. MAIER: We got 80 percent. (Applause.) We got an 80-percent positive vote to take some of our stock to the marketplace, because, I'm convinced, education and the work we did so that everyone understood where their best interest was served in this program.
That's our story from the management side.
MR. DAVIS: Mr. President, that's a terrible act to follow -- (laughter) -- but I've been doing it for a number of years. Russ has described the story of the creation of RES and why. The alternative for our union and for our members was not a very good one. It was to let it disappear, and those good well-paying jobs disappear. We helped to engineer a structure for allowing the employees to purchase and to manage their own company, rather than have it simply go by the wayside as part of that dramatic restructuring that Russ talked about.
The members of our union who work in that plant are fascinating, those plants are fascinating, because they're part of a culture that, quite frankly, was not only hostile, but was quite violent years ago. The stories of the little steel organizing and all those difficulties is well-known. To watch the transition, not in a paternal way, but in a smart, practical way, is amazing. To be told by a 60-year-old, I was really looking forward to my retirement but, for the first time in a 38-year career, I'm changing where I work; I've got an opportunity to make it different and better and more satisfying, so I think I'll hang around for a few more years -- it's fascinating to learn that people are taking pride in being able to change a system or a process or a procedure that has frustrated them for years.
But there's never been a mechanism to change it. Russ described the partnership that literally goes from the board of directors to the shop floor. Decision-making, data-sharing is the way those facilities are run. There are no more different data bases. When decisions are made in those facilities, they're made jointly and equally with the same information -- all the information.
An important piece of that -- and it's an important piece of the incentive of our partnership -- is to help create a sense of employment security and employment opportunity rather than employment threat because of changes in technology and improved productivity. What we've done is to agree as part of our contract, as part of that partnership as we change into newer, better, more efficient work systems, there will be no layoffs. We're jointly responsible for finding alternative methods of using people for training them for doing something. There will be no layoffs -- once we've jointly designed and implemented a new -- whole new work system.
The process of union leaders on sharing in decision-making and becoming proactive rather than reactive to the acts of management is a novel one for local union leaders as well as some international leaders. We're learning, we think, to do it better. Clearly, what we did in structuring our partnership as part of the collective bargaining agreement -- it is not subject to change because Russ changes his mind; it's part of the way we do business and it is institutionalized -- I think our people take a lot of pride not only in their company, since they are owners, but in their company because of the way it operates. (Applause.)
THE PRESIDENT: Thank you. I can't let you go -- both of you -- without asking you what is clearly the obvious question which is, do you believe that what you have done and how you have done it could be made to work just as well in a setting in which the company is not employee-owned? And if so, would there have to be some other kinds of incentives for the employees? Would there have to be some other kind of compensation scheme or something that would help to kind of recreate the conditions which exist from the get-go when it's an employee buyout on the front-end? I'd like to just hear both of you comment on that.
MR. DAVIS: Mr. President, I think there are models there with other employers. Some examples of how you drive that had been offered by other members of this panel. Clearly, other unions and other companies in our economy are developing those kind of models, not out of a crisis and not out of a total or significant employee ownership, but out of a real commitment to making it a long-term secure place to work; better, safer place to work; better, more secure company. And they're helping to develop those models in a joint design fashion. I think they exist and I think more will evolve.
MR. MAIER: I think so, too, Mr. President. I would say this: I would love to see every company in this country have some piece of employee ownership because I think it's important. It's just an important hook, if you will. But beyond that, I think what we must do is we must align compensation systems and reward systems.
In our company, for example, in our labor agreement with the steel workers right now we give pay raises based on how fast we can take cost out of the system. So we hit a plateau, we give a pay raise; hit a plateau, and essentially, we're paying for it. Now, what we've then done is we've aligned the salary pay with that same incentive system so that I can't get a raise unless they get a raise. I'm incentivized to get cost out and make the company better. I think you just have to take every facet of what you do and make it work and consistent with what you say you are going to do. If you do that, people are going to believe you. If you don't do it, they're probably right, they shouldn't believe you.
THE PRESIDENT: Thank you very much. (Applause.)
The next person I want to call on is a 40-year veteran of a company that may be the only company represented in this room that I feel comfortable in saying we have probably, every single one of us, been a customer of. Mr. Arney Langbo, the Chairman of the Kellogg Company. (Laughter.)
MR. LANGBO: Thank you, Mr. President and Mr. Vice President. I very much appreciate being here today. And may I say at the outset, Mr. President, that I think this forum is a very good idea.
I think it's been well-documented here today by many of our colleagues on the panels that dramatic change is obviously the order of the day today in the global market place. And I think our business strategies need to be -- maybe must be -- innovative and flexible if we're to provide any security for American workers in the very long term context. And as we respond to global competitive challenges and address work force issues, for me, it is morally right and it, I think, just makes good business sense to find solutions that are certainly good for our shareholders, but also good for our people. And as with the case of the Johnson and Johnson credo, it comes right out of our philosophy and values document.
Now, we've been working our way through a somewhat difficult period in the last year in the Kellogg Company when we addressed a need to reduce capacity and improve efficiency in our U.S. cereal operations. And we take great pride that our strategy was implemented through a consultative process -- a negotiated agreement with our employee union. And the agreement included such incentives as early retirement, of course, and voluntary severance payments.
But I'm particularly proud that our agreement included a tactic which we thing could be used to help worker security in a lot of business adjustment situations, perhaps. I'm thinking of the opportunity for voluntary large-scale transfer of hourly, on-the-line workers. Now, transfers in areas such as sales and marketing and finance have always been a part of business careers. But in today's global economy, every experienced employee including the skilled production worker is a very important competitive resource.
So when we faced this over supply situation, if you will, of human resources at several plants, but also had a need for more resources at our other plants in Omaha, Nebraska and Lancaster, Pennsylvania, we worked with union leadership to include an hourly transfer program in the agreement that we reached last fall. Our workers had the opportunity to fly with their spouses to Lancaster or Omaha to visit the plant and the community, and I might say that was before deciding whether to apply for transfer.
And we ended up with more than 150 people transferring. And we provided each family with a comprehensive relocation package plus an orientation program in their new plant and in their new community. The reports from our people and from our plant managers indicate that the process has gone extremely well. And we have preserved the Kellogg careers of a lot of good people. And we have helped ourselves by keeping skilled, experienced human resources on the Kellogg team who, incidently, are recipients of stock options as are all of our United States employees and, for that matter, our employees in 21 other countries in the world where we have manufacturing operations.
Now, the other good news is that we actually ended up with more transfer opportunities available than people who chose to apply for them. So the net effect is that not one person will have left the Kellogg Company -- in fact, they had four separate opportunities to apply -- not one person will have left the Kellogg Company in this program without the opportunity to pursue transfer to a full-time, full-benefit union covered position in one of our other plants.
Now clearly, Mr. President, these transfers of this type are not for everyone, and they don't fit every situation. And I would be less than honest if I sat here today and said that we still don't have some level of anxiety. But I certainly believe that it's at a significantly lower level than it might otherwise have been. And I would serve up this concept as an example of the win-win thinking that can help address the needs of business and the people in the global economy.
THE PRESIDENT: Thank you very much. (Applause.)
I might say, just sort of by way of information background, that the ESOP concept was established in 1974, and since then, the number has grown from 200 to over 10,000. And there are an estimated 12 million ESOP participants that own $60 billion in stock in this country now.
Participation in deferred profit sharing plans has grown from 8.4 percent of the work force in 1980 to 18.3 percent in 1991. That's the last year for which we have any figures. But you can see that this is not an insubstantial percentage of the American people that are out there working in these kinds of environments.
And, again, I think it's important to point out because we nearly never hear anything about it that there are literally millions of people out there working in partnerships trying to make their companies more profitable, their lives better, and their country stronger. I think it's worth pointing out.
I thank you, sir, very much. If I might ask you one just brief question because it leads in -- I want to ask the Vice President to speak after you about an issue which has been a difficult one for us, and that is how we handle the downsizing of the federal work force, because I think it's quite interesting. You hear a lot of talk about downsizing in the private sector and how bad it is. I guess that the United States government in the last three and a half years has been the biggest downsizer in the country. And I know that you had to have a modest one at Kellogg. I'd like you to just explain how you handled it, if you might very briefly.
MR. LANGBO: Well, as I said, we, first of all, sat down with the union leadership and talked about the need to do what we needed to do -- because a fundamental truism first, before all of this, is that we must be globally competitive, because that, in the final analysis, is job security for everyone.
We historically have had a policy of working through attrition. This situation was a little different in that it was a little -- it involved more jobs than what we've historically done in an annual context. And so we had to sit down with the union. We worked on an agreement, we talked about the numbers of people involved and we talked about how we could do this. We talked about the level of inducements, or I should say, incentives for early retirement. And we talked about the number of involuntary severances that we might have, and we were hopeful, frankly, through this voluntary transfer program to other plants that that might overcome the involuntary transfers, the involuntary severances, I should say.
And so we're almost through it. And as I said, it's been -- we've had some anxious moments through all of this thing and there certainly still is some anxiety there. But I think it's much less than what otherwise might have been.
We were talking at our table this morning, Mr. President, that when we talk about these restructuring charges, or these one-time nonrecurring charges that we take to accomplish these things, there has been a change in the accounting laws here over the past year that now no longer allows us to take the training -- or I guess I should change that word this morning -- the educational component required to retrain, upgrade the skills of our employees. It's no longer possible to take that charge in the restructuring charge, but rather it's required now that you take it as you incur that cost over the next year or two.
And I think it's unfortunate because I think, frankly, that's going to have a constraining effect on the amount of money that we're able to spend in upgrading employees. And I think, you know, the ultimate answer to all of this, I guess, is along the lines that we talked about, Ralph Larsen talked about this morning, is that we have to guarantee the employability of employees going forward, and that is to say they need ongoing upgraded skills -- and, of course, the portability issue, as we talked about, in terms of medical coverage and pension and what have you. But I think that's what we have to guarantee going forward.
THE PRESIDENT: Thank you very much for that. I didn't know that.
There's another related issue which is that the tax -- the nontaxability to the employee of employer expenditures on education has historically been $5,250. It lapsed, and it's in the process, we hope, of being reenacted. But there are certain restrictions on it which I think are excessive, although they cover most -- they don't cover all of the kinds of educational programs that employers would like to do for employees, especially if there might be a downsizing, because the restriction now says that the educational benefits paid by the employer up to $5,250 a year are not taxable to the employee if they're necessary to retrain for the existing job or to train for another job in the company, up the hierarchy. So there -- if it's sort of an off-line education program, if you will, it's not covered.
In addition, in the reenacting, if the Congress -- the Ways and Means Committee apparently has proposed to eliminate graduate education, which I think is a big mistake as it applies to higher-tech companies. I hope we can still get a change in that. But in my view, we need that reenacted with the broadest possible meaning, because that also really matters to the employees, especially if they might be facing another downsizing. And we have proposed -- we're going to send a note up to the Hill which also gives a little extra credit to the smaller businesses that may not be able to afford to undertake this, because I think it's a very good -- a big thing. And I will look into this accounting tax issue. I didn't know anything about it. Thank you.
Mr. Vice President.
THE VICE PRESIDENT: Well, thank you, Mr. President.
I want to describe a success story. Before I do, I want to pick up on Mr. Langbo's comments, and admit that one of the areas where we're having problems in the federal government is with the fact that our employees are telling us that across the board, it's very frequent that when the budget cuts come, training is one of the first things to go. And while I think we've done a really good job in building partnerships -- and I want to describe that -- I do think that we need to do a much better job in giving our employees transferrable lifetime skills.
And I just wanted to acknowledge that we have followed the President's lead in putting out these initiatives, like school-to-work opportunities and one-stop career centers, and a lot of things that have assisted this in the private sector. And, yet, I think, just like you were saying in the private sector, I think we need to do a better job of that here.
On building partnerships, again as with the discussion on the first panel, we in the federal government have a lot in common with business, but some significant differences. Our board of directors is 535 -- (laughter) -- and they all have opinions on how we should manage. Then there is our budget on the days that we have one -- (laughter) -- and operating and capital are all lumped together.
In any event, we set out to create or reinvent a government that would work better and cost less. And just as many of you have faced the challenge of recapturing market share and improving the quality of your product at the same time you were going through a downsizing, we face a very similar challenge.
Again, in responding to the President's request and challenge, we started by going to those in the private sector and a few pioneers in the public sector who had been down this road. And we found 50 previous efforts in the federal government, well-known ones like the Grace Commission, successful ones like the Hoover Commission 50 years ago and so forth, but 50 in all. Not a single one of them went to the federal employees for the ideas and the blueprint about how to proceed. That's where we started. And we had meetings, town hall-type meetings in every single department, in every agency, and asked the employees in very lengthy sessions designed to establish trust and open up the lines of communication about what the changes really are that need to be made.
As many business leaders often say, the people who know the most about the way to improve any business are the men and women who are right there where the rubber meets the road, on the front line. If they will share their ideas and creativity and if they're asked to participate in the implementation of the ideas, then you can really make progress.
Well, that's what we did, and we asked them to buy into it fully. And the ideas were very impressive, and things that you would never, ever find out or think about, never would occur to you unless you had worked there in that same place for a dozen years and learned what needed to be changed.
So we used their ideas as the basis for the downsizing and the quality improvement. We have now had a reduction of 11 percent of the work force in just three years -- a little over 240,000 people. We will hit our mark of 275,000 people this calendar year. It will continue to a reduction of more than 300,000 people. But this calendar year, the federal government will reach a size that is smaller than it has been since John Kennedy was President of the United States.
And all departments and agencies have had significant reductions in force, with exception of the Justice Department where, of course, the President insisted we're putting more police on the streets and more crime-fighting, drug-fighting and the like. But all of the others have had downsizing, the majority by 10 percent or more.
To soften the downsizing blow on employees, we created a buy-out program with cash amounts up to $25,000. We have had 111,578 federal workers who took buy-outs under that authority. It expired last year. We're seeking new authority, incidentally.
In addition to that, voluntary retirements, attrition, hiring freezes and programs to put priority on rehiring displaced employees allowed us to keep involuntary separations to less than .7 of one percent of the work force. There have been some -- our goal was to have none, but we have had .7 of one percent of the work force.
We feel that one dedicated public servant out of work is one too many, and so at the President's direction, we have stepped up career transition services as well. In fact, here in the District of Columbia, where the biggest single geographic impact has taken place, we just opened a new transition center at 800 North Capitol Street that provides services linking federal, state and local programs.
Now, none of this could have been possible in our wildest imagination without a strong labor-management partnership. Now, I know that some people will automatically assume, well, these guys are Democrats; obviously they're going to go to the unions to reach an arrangement. Well, let me tell you where the initiative for this came from.
In 1993, when we were trying to figure out how to do this, I had a long workshop in Philadelphia at Independence Hall, and a Who's Who of corporate business leaders, most of them Republicans, probably like most of this crowd here today -- (laughter) -- sorry. (Laughter.) There are a couple who don't resemble that remark -- but a Who's Who of Republican business leaders said in Independence Hall that if we were going to make government work better and downsize it to cost less, the only way to do it was with a strong labor-management partnership.
And so, by executive order, that year, the President established the National Partnership Council which called for partnership in all departments and agencies. In some areas it was a little rough going at first, but you always confront the trust issue. But we got over the hurdle in most places. At many agencies, the Partnership Councils are working extremely well.
When it takes hold, the results are really astounding. One example -- at the Denver Mint, disputes were a way of life; customers were an afterthought. The local AFGE President and the Mint Superintendent agreed to agree. Within two weeks, they resolved 185 disputes, many of which had been lingering for a long time. A new atmosphere of mutual respect was born and both productivity and product quality shot way up. The last time I was there, the local president said that something had bubbled up that both sides got a little hot about, and he couldn't remember how the dispute mechanism worked anymore. They had forgotten how to go that route, and that's really a good outcome
As you in business know, the turmoil of downsizing, no matter how well it is managed, takes a terrible toll in morale. You can recall your own experiences. Just try to -- just consider what you face and try to imagine what the two government shutdowns did to morale, not to mention the terrible tragedy in Oklahoma City and the hatred and ill will that that kind of symbolized.
The miracle in government is the resilience of our dedicated employees when they are faced with this kind of adversity. During the downsizing, they have improved service measurably. We have now put out customer service standards throughout the federal government and we are measuring exactly how close we are to meeting the standard, inviting feedback, and trying to improve the standards.
We found that in the process of creating the standards, when they began to notice the standards inside the organization, on several occasions I got calls back from the agency head saying, wait a minute, hold up on that standard. And the first time I thought, oh, no, they're going to say they can't meet this. But in every one of the half dozen times that happened they said, no, no, we think we can do better than that; we are a little embarrassed to have this standard go out because our employees have told us they've looked at the share of the task that they have to do and we think we can shave more off it, and so forth. And when people involve themselves and give of themselves to the task, it really creates good things.
There are now, believe it or not, many examples of private businesses benchmarking against parts of the federal government for quality of product, delivery of service. One store chain that went into the pharmacy business in one state looked for the best in business and pharmacy to benchmark against, and they ended up going to study the air combat command in the Air Force because they were by far and away the best.
This past year a private sector survey ranked the best 1-800 service in the entire country. And the customers didn't pick Southwest or Nordstrom or Fidelity or L.L. Beane or any of the others that are well-known for high-quality 1-800. They picked the Social Security Administration. And the employees there are so proud of that. And they have a right to be because they've worked hard to make it so. And they've since gone back and looked at the only area in the survey where they didn't get a good grade, and they have dramatically improved that particular category.
And I was thinking earlier when Jim Henderson described the way his employees use Japanese products as kind of a mental standard, how that phrase has changed in meaning. Many here will remember back in the '50s when "Made in Japan" meant shoddy workmanship, poor quality and all the rest. And now your employees and others sort of routinely consider the phrase, "Made in Japan" as something that means good workmanship, high quality. And luckily, we're beating them now. But the change in that phrase is one that we've set as a goal for another phrase.
Think of the feeling you get when you hear, "good enough for government work." (Laughter.) It means a little bit what "Made in Japan" meant in the '50s. Well, we believe that it is not only possible, but likely that sooner than you believe it is possible, the phrase, "good enough for government work" will mean not just in a few organizations, but in the majority of organizations, a very high level of quality and service and achievement. And the reason for it is the commitment of the federal employees to the partnership approach that has characterized this whole effort.
Now, in closing, we are asking Congress for new buy-out authority to use as we continue to downsize. And that same bill would extend health care benefits to displaced workers for 18 months and allow co-workers to volunteer to take the place of workers who are being involuntarily separated. We're using forgiveness coupons and encouraging people to make mistakes. We're trying to abandon the "gotcha" atmosphere and tell people, look, if you not making some mistakes you're not trying hard enough. We need to innovate, we need to do it in a brand new way. And above all, we're trying to establish that level of trust to let them know that we do trust them. We're not out to just catch them in variations from the routine. But all of that comes back to a partnership with the employees which is the real key to it.
Thank you. (Applause.)
THE PRESIDENT: I know you may think that the Vice President sounds like a shameless booster -- (laughter) -- but we're pretty proud of what these federal employees have done. And they did it at a time when they were being routinely condemned and held up as an object of ridicule.
And I might just say that there are companies -- there are some really successful companies in this room today that started out with an SBA Loan. So before I sign off and go to our last participant, I'll just take the SBA -- three and a half years ago, they had a loan form that was an inch thick; now it's a page-long. Three and a half years ago, they took six weeks to give you answer; now it's 72 hours. Their budget has been cut by something like 25 percent and they've doubled the loan volume.
So it's simply not true that public service is not capable of operating at a very high level of productivity and quality based on pride and partnership of the workers. And so I'm very proud of them. And the Vice President deserves a lot of credit for the work he's done on this.
Our last presenter also has a rather astonishing story to tell. He's the CEO of United Airlines, Gerry Greenwald.
MR. GREENWALD: Dick, you thought you had a tough act to follow. (Laughter.) I've been with United Airlines only two years. I've been in the airlines industry only two years. But I do have a lot of miles on me -- (laughter) -- 22 years with Ford Motor Company in four countries and 11 years with Chrysler -- and if you ever want to think of a way that something could take your breath away, it's a Wednesday and you have 140,000 employees and you're not sure you can meet the Friday payroll -- (laughter) -- and a year trying to help a truck company in the Czech Republic, which leads me right into United.
I'll never forget this experience. This is right after communism and I was getting ready to go to United. And there I was in the Czech Republic explaining to them that I would have to start to phase out because I was going to try to help the employees of United buy 55 percent of United. And they all looked at me and they said, wait a minute, we just finished with all that. (Laughter.)
But this experience or experiment at United has nothing to do with what they went through. I call it worker capitalism. It is an experiment to determine whether employee ownership can create even more profit. And we've been at it almost two years. We have, today, over 80,000 employees around the world -- 76,000 of whom are in the United States.
And we're trying to pass a test -- or two of them. One is to become the most profitable airline in the world. And I'm proud to tell you that, in 1995, United Airlines became the most profitable airline in the world. Now, we haven't passed the test yet because one year's not good enough. Our second test is we want our company to be a good place to work -- a place that our people tell us through serious scientific employee attitude surveys that this is a good place to work. And we think we're making quite a lot of progress in that regard, but we've got a ways to go.
I'd like to take a moment and describe I suppose what I'll call more questions than answers, mostly from our two years of experience at United, but in part, I suppose, from all those other miles I have on me.
The first one is maybe sort of a screen for thought here, and that is I'm uncomfortable with an acceptance that "employable" is good enough , that "employed" is lost to our industrial system. Employable except churning and is counter to, in my view, the opportunity to have well-trained people. What is the best training then if it isn't getting somebody trained and then they stay? Isn't that worth investing in still? And is employable and churning good or bad for productivity? And it strikes me the answer is, directionally, it's bad. And isn't that worth dealing with?
We at United have an no-layoff policy. I should say it more strongly. It's written into union agreements. It goes over five and a half years. We think we're earning some benefits from that policy, which I'll come back to. Maybe this is easier for me to say because I've been there. We all talk about this issue of downsizing. None of us want to talk about who let all those companies get oversized in the first place. And is there something we can learn from that as we move forward in planning for our companies and the numbers of people needed to get the jobs done as we go forward?
Now you might say, well, wait a minute, you mean you won't hire as many people? Well, maybe not. If what we've really been doing is hiring and firing and creating anxieties throughout our whole industrial system as a by-product.
Don't we in today's modern world of computers have a greater responsibility to use attrition as a means of getting smaller in population long before even we think of buy-outs, but certainly before we think of layoffs? Isn't there a pay-off in terms of profits from being able not to see if populations in a company go up and go down. I think there is. I don't know that there's any scientific evidence of that. I think maybe it's time we go try to find out.
Can employees and unions and managements accept the fact that we are, in fact, not -- that we do not control our destinies, that markets do, and that some of us really are in cyclical businesses, which means there are going to be times when we've got to get expenses out and there are going to be better times?
And I'll just relate a story that -- well, I'll restate this. I ask myself a question: Are relationships among employees, unionized employees, and management at a stage that some are prepared to say the next time we face a downturn, we're all going to take a 20-percent pay cut rather than cutting back by 20 percent? I don't know. Some people have said that the bigger issue isn't management, it's distrust. Unions wouldn't trust management to do the pay cut and then when times get better give it back.
And then it got really tough when -- some of us have really gone through this and we've done employee attitude surveys. And what jumps back at most American companies is that employees do not trust senior management. That's a pretty tough one. I mean, simply stated, you could end up telling everybody, we're going to take this hill and you turn around and you're at the top of the hill and no one's followed because it entrusts you.
The closest answer I can come to and one we're trying very hard to practice at United is it comes from not enough openness and not enough communication and fundamentally not enough honesty. Well, one of the ones that keeps bothering me is -- too many of us still use this term -- they are "our troops." Well, are we theirs, really? Shouldn't we be, the senior people of these companies of ours?
I'll tell you one that really gets to me. About every CEO in corporate America says this: Employees are our most important asset. Well, if that's true, why do we invest more in the overhaul of our machinery than we do in the training and communications of our employees? And why, as I think, Mr. Vice President, you pointed out it's true even in government, that when there's a budget cut, the first thing to go is training or communications programs in the case of companies? Doesn't that say we never really believe that training and communications were a fundamental part of our companies?
What does employee ownership really do? We have a majority -- our company is owned 55 percent by our employees. Well, after two years of our efforts, my answer is, it is a catalyst for change. Most companies, when wanting to go to a more modern form of management, empowering employees and all of the things we've all been talking today, have to take two or three years, really, to move out of shake loose the status quo. Employee ownership creates expectation, virtually the demand for change. And so in our case, the day after the employees became majority owners, we were on our way.
Now, I must say to you, neither we nor our employees had a blueprint the next day, but we sure started running pretty quick with a whole series of all of the things you've been hearing about today. And, second, it really does draw closer employees and shareholders.
I think we've missed our bet. We should have asked for a big discount on the thousands of Wall Street Journals our employees buy every day now, checking on our stock price, which I am proud to say from the day employee ownership occurred in July of '94, the price was 88, I think it closed at 217 yesterday.
And, finally, I wanted to come back to can a company come close to a no layoff policy, and what do you get from it. In a cyclical business, you've got to do a lot of things to make something like that stick, and I doubt you can make that commitment and make it stick to 100 percent of the population of your company. But you can get -- you don't have to go to zero, and what we're finding is that from that commitment so far, I've seen a few things that I had never seen in all my years. In my past, to get productivity out of a group of 10 people doing a job, some supervisor had to -- force is not the right term, but the idea of how eight people could do 10 people's jobs never came from the group of 10 people, and it begins now, it has begun at United; we're seeing examples of that, because the other two are going to have two other assignments, and everybody knows it; they're not getting laid off.
And the second thing that I have never seen before is that we now have teams of people -- managers, employees, working together to sort out examples of work we do that could be better done by outsiders -- again, because no one is going to lose their jobs over it -- while at the same time, we are looking and are successfully achieving lots of examples where we are bidding for other airlines' business, like maintenance, that we do better than others do -- there's a lot more flexibility in what we do, what we want to do for others and what we want to source outside.
And, finally, because I may never get this chance again in my whole life -- (laughter) -- I do want to take a moment and say if I could only pick two things that I would ask of government, the federal government, the first is: ESOPs are wonderful, there are tax advantages created in the ESOP legislation, but in my mind, there is one flaw, and that is, in order to qualify for the tax advantages under the legislation, the employees who own stock have only three ways of eventually converting the stock into cash.
I hope it turns out to be only the first way, but it's retire, die, or quit, which --I mean, for old-timers like me, that's fine; I'm a few years from retirement and I can smell the value of my stock, and it's okay. (Laughter.) But for somebody who is 30 years old, they're 35 years away from converting it into more than bragging rights. And if the legislation permitted -- I don't know, after 10 years or something, some ability to get liquid, I think it could be really a wonderful stimulation for ESOPs effectiveness in America.
And I'll just close by saying we have become a very competitive, world-scale, competitive company. And we would sure like -- and I'm not suggesting that lots of people in the federal government aren't trying, but we would sure like as much help as possible to free us to compete in a free trade way across Asia, particularly in Japan and across the Atlantic, particularly in the U.K., let us loose and watch us go. (Applause.)
THE PRESIDENT: Let me say, as far as I know, you're the first person who ever told me that about the ESOP, that ever presented that as a problem, and I'll be glad to look into that.
Secondly, as you doubtless know, our trade office has spent untold hours in airline negotiations trying to open new routes and be willing, taking on all comers, saying, if you want more routes in America, let's just have totally open competition; we can't find any takers for that, because the American airlines are so much more productive and competitive than anywhere in the world, and it's a real tribute to you and to the others in that business. But we will continue to work on that.
Let me say, I'd like to -- we've got a couple of minutes here and I'd like to open the floor again to comments, but I do want to say that one of the most heartening things that's come out of this today for me is to hear so many of you say that the job security of your employees is a goal of yours, and that you believe in it, and that it matters to you, and that you believe that you can withstand the cycles of the market and still by and large preserve it, recognizing that from time to time, there will be significant problems that will cause some companies to have to downsize; the fact that it is a goal its companies are trying to preserve and pursue, I think is very important, and especially publicly traded companies who are under enormous pressure to keep their quarterly review of their stock prices up; this is very encouraging to me.
Would anyone like to comment on this whole issue of partnership in training and investment?
MR. HARMAN: I'm Sidney Harman, I'm the CEO of Harman International. We're a company engaged in industry abandoned 40 years ago by this country to Japan, Korea, we made marvelous high fidelity audio equipment. I've been active in this field for a lengthy time; I'm talking of the field we are engaged in discussion about today, and I can remember a quarter of a century ago when a young journalist with a Tennessee newspaper came to a plant of ours in Bolivar, Tennessee, and became very interested in our very early experiments.
We must have been doing something right, because we're still here, and he's now the Vice President of the United States of America. (Laughter.) The central message I hear in today's discussions is that there are many, many techniques, many procedures that can be followed in one plant or another; indeed in our own company, we don't follow precisely the same formulas in each plant.
But the principle that we must be competitive, and to be competitive we must be productive, there's no way we're going to be productive if our programs are such that the people who generate that productivity are going to work themselves out of jobs. Therefore, finding a way to increase security in the workplace is the central point.
I would finish by making the observation first that in one of our plants in Indiana, following these procedures, honoring the people who do the work, in just the last five years the productivity represented by annual sales value produced by each employee has gone from $165,000 to over $320,000. In that one plant, employment on the direct production lines has increased from 510 to 712, and sales revenues have gone from $85 million to $320 million. That is double productivity, 50 percent increase in number of employees and the tripling of sales. That, for me, is central.
And, Mr. President, I'm really delighted to tell you, sir, that now, some six weeks after your, for us, historic visit to our plant in Northridge, California, we have recovered the enormous productivity we lost that day when you were there. (Laughter and applause.)
THE PRESIDENT: All right. I'm going to call on you. Let me just make one very brief comment -- it was worth it, it was a great day. The thing that I liked about what you had done is that it seemed to me that you were in a market where you could not possibly control dramatic fluctuations in the orders that were coming in. And, yet, it was clearly not in your interest, both from a human point of view and from an economic point of view, to have to keep bouncing these workers on and off like a basketball, or having them on a yo-yo string.
And so you were actually able to create a whole alternative way of working for them that was just purely ancillary to your primary mission, but it had the effect of allowing you to pursue the goal that the gentleman at Lincoln Electric has set for his company and held to. And I think it's very impressive. And I would think a lot of companies that have similar circumstances would want to take a look at how you did it, because they would save a lot of energy and productivity and loyalty for their company if they could do the same thing.
Yes, sir. And then there were two more back here. Go ahead.
Q (Inaudible) -- once every four years we lose an enormous amount of productivity, so I can relate to your point. (Laughter.)
THE PRESIDENT: Especially when I was up there. (Laughter.)
Q But it was worth it. In the "where do we go from here" category, one thing I'd like to point out is that quite a number of guests who you have invited today belong to an organization called Businesses for Social Responsibility. Our co-chair and our president are both here. And this is an organization -- as well as mine, the Social Venture Network -- which is really working on this business of standards.
And, interestingly, one of the things that's happening out there is that Wall Street is starting to get the story here. There is a plethora -- the Business School folks, I think, will back me up on this -- there's a plethora of data now linking top and bottom line productivity, correlating top and bottom line productivity to the kinds of best practices that we're seeing today. And, as a matter of fact, I speak on this topic often and I believe this is still true -- there's yet -- no one has shown a negative correlation, no one in any academic review has shown a negative correlation between worker-friendly or employee-friendly or environmentally-friendly companies and their top and bottom line productivity.
And I say this by way of suggesting something that came up at breakfast again, that, you know, where the rubber hits the road on all of this is where we can have measurable, verifiable standards for corporate responsibility or corporate citizenship. Not for use as punishment, but for what today is all about -- for positive incentivizing, whether through tax relief or low interest loans or other kinds of assistance.
And the one thought that has occurred to me this afternoon hearing the fantastic stories and the really positive stories that don't get out in the press is that the people who can write those standards are right here. And I'd like to encourage you, as a thought as to where we go from here that whether through BSR or Social Venture Network or just this very body here, that you empower a task force of a number of us CEOs to set about something that, as you said, Mr. Vice President, both sides of the aisle, so to speak, will agree to. It might be X percent of profits into training. It might be Y percent into employee ownership or a basic benefits program for assisted care for elderly or for child care assistance.
But the bottom line is, I have a feeling that while they would be debatable standards, we could all probably agree on a very few that would enormously ratchet forward our own productivity, as well as our economy in general. Thank you. (Applause.)
THE PRESIDENT: Thank you.
Two back here. You, and then you; and then the gentleman in the corner.
MR. DORF: Mr. President, my name is Dave Dorf (phonetic), I'm with Tryor (phonetic) Companies, we own RC, Diet Rite and the Arby's Roast Beef -- we are very concerned about the security -- either mental, emotional or even psychological security of our employees and the programs that have been talked about today.
But as the gentleman from Starbucks mentioned this morning, even the best of our industry -- which is in the quick-service fast food -- 50 percent turnover is a great measurement. We are, as with the military for many years, the first step out of poverty and the first jobs for many people. We're the launching pad for the economic American Dream for a lot of people. And it would be foolish for us to believe that we're going to offer lifetime employment to everyone coming out of that segment.
And we appreciate all that you and the Vice President are doing to get government out of business. But one area that we need government to help us with is providing the flexibility and the friendly environment that allows of to have a portability of health and pension and other programs across, so as they come out of our industry and to others and realize the American Dream, the don't lose the economic benefit of the years they put with us. (Applause.)
THE PRESIDENT: Thank you very much. (Applause.)
There's a gentleman back there in the corner. While you're passing the microphone back, I just want to sort of support that and say that, if you look at the Kassebaum-Kennedy bill which passed the Senate 100 to 0 -- which is the sort of thing we ought to be doing in this country, I mean, obviously we've got a manifest need like that. It doesn't solve all the problems but, at least, it will make portability the rule rather than the exception, and it will make available insurance -- even if it's expensive now -- for people who have had someone in their family who is ill.
And then the next big challenge will be to make sure that those of you who are in tough margin and, particularly, smaller businesses are able to get into really, really large pools of purchasers so that people who have a pre-existing condition don't have to get soaked on their premiums because the impact on everybody else is so negligible. And we'll just have to do this one step at a time, but we've got to pass the Kassebaum-Kennedy bill first so that we can get to that next step. And when we do, I think it will make a huge difference in stabilizing the whole work situation for people in these smaller companies and where that job is the first stop on the way to, hopefully, an even better future.
Thank you very much for what you said.
MR. CUNNINGHAM: Hi, my name is Bill Cunningham, from Trade Investment Research. One thing I wanted to talk about today, a little bit, were the financial markets. I mean, we see a lot of the bad corporate citizens blaming the financial markets for lopping off 40,000 people of their work force. They say that Wall Street make me do it. I really didn't want to do it.
How do you re-engineer the financial markets to be a little more humanistic? Or is that possible? I mean, you have some experience and expertise on the panel, it seems, people who really have had to deal with the issues of dealing with the financial markets. Is it possible to create new financial instruments, for example, that take into account certain social goals?
We, for example, at Trade Investment Research, on the local level, we suggested to one of the local corporate citizens, Fannie Mae, that they issue bonds to rehabilitate the D.C. public schools as a way of meeting their local obligations instead of paying local taxes. I mean, that's the type of financial instrument innovation and expertise that we'd like to see developed in the capital markets.
If you have any comments, I'd like to hear them. Thank you.
THE PRESIDENT: Would anyone like to take a crack at that, what he said about the -- (laughter.) Gerry?
MR. GREENWALD: I'd like to come back to an earlier point and link this question to it because I do think there's a disconnect at the moment. I think a statement has been made that there is clear evidence, there is clear evidence that caring for employees, broadly speaking, avoiding harsh layoffs that create a shock through those who remain and become disloyal, that there is clear evidence that if you do the right thing, that you become a more profitable company.
Now let's pause for a minute. I do not believe today that Wall Street analysts or institutional investors believe that, because if they did, they would not reward instant massive layoffs which is done today. That's the disconnect. And it seems to me our challenge is to demonstrate that it's a fact, that if we can do so, Wall Street will respond.
Q Instant massive layoffs means that management has failed.
THE PRESIDENT: Let me just follow up on both of those comments. Look -- and let's talk about this -- people make mistakes. The President even makes a mistake now and then. (Laughter.) People make mistakes. And sometimes -- and the world changes sometimes. Sometimes a decision that was good this year looks pretty bad next year because things that you couldn't foresee change.
Now, if that happens and you're running a really big company, and, let's say, two out of six divisions of it no longer make sense for you to be running and you want to have a no-layoff policy. And maybe you shouldn't have gotten into all these things that you got into when it looked like a profitable thing, at least from a financial transaction point of view to do. How do you get the time from the markets and from your board to make the transition? Maybe if you had three years you could figure out something for all these people and then you wouldn't have to lay them off.
I mean, I think that's the thing that plagues me, you know. I think over the long run the markets make pretty good judgments. I don't think you can stay very strong in the market over the long run if you're not producing a quality product or service that somebody wants to buy.
But I think what has happened is, as these markets have become more global and our ability to move money around just like this -- and the people who are moving it make money based on quarterly returns and also based on how many transactions are churned, it really forces people who are in a tight -- in the near-term at least, to make decisions that seem draconian. I mean, at least that's what it seems to me.
And is there a fix for that? I mean, is there something that can be done about that, even if it's no more than -- to go back to the question the gentleman asked -- even if it's no more than changing the attitude of the people that are making those judgments? Because my perception is that some of these managers are under extreme market pressure in a dimension for short-term results that was not the case even a few years ago.
That's my perception. And I would like -- anybody else want to comment on that? This is a tough issue.
Q I think that's true, Mr. President. And also there are other factors at work, too, that in this day of increased corporate governance today -- boards, I think, are looking for more of that, not only the financial markets, but there are higher levels of expectations with boards of directs. I'm not sure it's all bad. Is it good or bad?
THE PRESIDENT: Well, I think the point they were making is, if you could be more reluctant to have layoffs because you knew that these folks could be made productive if you had time to do it, are you robbed of the time to do it if you're market-dependent on a quarterly basis? I think that's -- to go back to our friend, again, from Lincoln Electric, if you stick with your mission and you stick with your mission over decades, and then you broaden your production line or you broaden your services, sort of flowing naturally out of your mission, this might not have ever happened to you.
But if, in the last 15 years, you have got into expansions that were basically adopting unrelated or tenuously related enterprises, then you are liable to get caught on one of these whipsaws. And I think that's some of what we have seen here in some of the most highly publicized ones.
Sidney, what were you going to say?
Q Just a quick comment, Mr. President. I can remember when it would have been impossible to assemble a group of chief executive officers such as you have on the stage today to talk about the material we have been talking about today. It was regarded as kooky 15 years ago. There is hope in the financial markets. I am not here to shill for Wall Street, but yesterday I visited with Robert Doran, who is the chief executive officer of Wellington Management Company in Boston. They have $120 billion under management, and he told me that they invested in our company because they think we are a model and they see value in what we're talking about here today. I think there are many people in the financial community who are coming up behind this crowd, thinking very well of the same point of view.
THE PRESIDENT: If I might just make one other point, then I want to call on the lady over here in the corner; then we have to adjourn. Earlier today -- maybe it was this morning at breakfast, someone said, the enemy is us. And some of our representatives of the unions here were laughing about it because, of course, the employees pension funds are among the biggest investors in the stock markets. And if they invest in mutual funds, let's say, their money managers are trying to get the highest return they can for the pension, and perversely, they could be undermining the employment stability of the very people whose retirement they're trying to protect. At least that is arguable.
But if you want the people who are representing you -- this is something, it seems to me, that would be really a worthwhile discussion and maybe we could put one together for corporate executives and the union folks and the people in the middle, the people that are supposed to make these investment decisions that you asked about, sir. You see, you gave us a topic for a whole other day. (Laughter.)
But, I mean, I think, these markets, on balance, have served us all very well over time. And so we have to be reluctant to mess them up. But on the other hand, when the incentives get a little out of whack, we have to -- we ought to look at it. And I think -- anyway, I'll pursue it and I'll follow up with you all.
MS. REDMAN: Thank you, Mr. President. My name is Deborah Redman, and I'm the president of the Soho Group, which is a marketing consulting firm. And we work with companies of all different sizes, helping them improve their practices. And one of the things that we run into when we're dealing with corporate community programs -- we have one called Suits in the Hood that we introduce educational programs within the company. And we find that the smaller companies, those with less than a hundred employees, less than $20 million, find corporate citizenship to be a luxury item, to be something that you can afford as you get to be bigger. And they don't see it as a necessity.
And if you're going to take up on the suggestion made by the gentleman from BSR, that a task force be assembled to address these issues for all of corporate America, then I think it would be a prudent move to keep in mind that most companies in this country are small and that maybe part of the task would be to suggest that corporate citizenship is a necessity for all companies, regardless of size.
THE PRESIDENT: Thank you. And I agree with you. And I would, you know, just point we have had some companies represented on this platform today that have under a hundred employees. And we have even more in the audience. And all of them have various stories to tell. So I think that it is more important, but that's one place where the government should come in. You know, if there is a particular policy that is more difficult for a small company than a large company to implement, then maybe that's the place where we ought to have a little extra incentive -- on, for example, extra educational benefits or something like that.
Well, this has been an amazing day for -- certainly for me. I hope you think it has been worth your time. I thank you all for coming. I thank you for your support of the idea that we do have responsibilities to one other in the workplace, and that if we fulfill them in the appropriate way, more money will be made, the free enterprise system will be stronger, more jobs will be created, and America will be a better place.
There will be, I assure you, some follow-up with all of you on this conference, and we'll try to determine where we go from here. But let me say I called this conference for two reasons. One is I wanted to change the perception that there were no companies in America that cared about the employees and that were sticking up for them and trying to do right by them. And the second is, I wanted to change the reality, where we could, by using the good examples here to influence people in the rest of the economy.
I believe today we have gone some significant way toward both of those objectives, and I think there are some other things we can do. I think -- again, I want to thank the executives who have agreed to serve on the board for the Ron Brown award, and we will follow up on that as well.
Thank you all for coming, and we will be back in touch. Thank you very much. (Applause.)
END 3:45 P.M. EDT