[Weekly Compilation of Presidential Documents Volume 32, Number 20 (Monday, May 20, 1996)]
[Pages 862-869]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
Remarks During Panel II of the White House Conference on Corporate 
Citizenship

May 16, 1996

    The President. Thank you, Dean. 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 described the growth of his business manufacturing rubber 
products for the automotive industry from 25 employees in 1967 to 1,400 
at present and said that foreign competition inspired him to begin using 
statistical process control techniques. This was the beginning of a 
major educational effort which has continued to expand to presently 
include a GED program, 140 courses, a learning center at Plumley 
Companies, and a goal of 40 hours of formal education a year for each 
employee. Mr. Plumley said that his business has won four Total Quality 
Excellence Awards, and education was the basis of his success.]

    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 said that Cummins Engine Company was the largest diesel 
engine producer in the world, employing 24,000 people in 40 plants 
worldwide. Growing out of a labor dispute 24 years ago, the company com- 


[[Page 863]]

mitted itself to two principles: first, establishing a good relationship 
with all employees based on trust, open communications, and genuine 
problemsolving and second, investing in shop floor workers, giving them 
great responsibility for planning their work and for improving results 
for their customers. This meant extensive investment in training. He 
went on to relate how they had to close a plant in the late eighties 
because of foreign competition but reopened it in the early nineties 
with a strong partnership with plant workers. The relationship has 
proven a solid success.]
    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 said that his mission was to make money and empower his 
employees to act as company owners and make money for themselves, 
sharing risks and rewards. He uses a skill-based pay system which pays 
employees for additional skills acquired. The system is completely 
administered by the workers themselves, so they basically decide how to 
pay themselves. Ultimately, Cin-Made trains workers to be managers and 
all managers to be workers, blending the work force together so it's one 
unit.]

    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 and Mr. Davis told of how Republic Engineered Steels forged 
an alliance with the United Steel Workers, which reached from the board 
of directors to the shop floor. When Republic's parent company went 
bankrupt in the late eighties, management, with the support of the 
United Steel Workers, bought the assets, making it 100 percent employee-
owned. When the employees owned the operation, they began to learn about 
the shareholders end of the business, and that was the beginning of a 
major educational effort which ultimately led to greater employee 
involvement in cost cutting and efficiency measures that made the 
company truly competitive.]

    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 said that other members of the panel had shown that other 
models are possible, and he believed more will evolve. Mr. Maier said 
that he would like to see every company have an element of employee 
ownership, adding that a new system must align compensation systems and 
reward systems.]

    The President. Thank you very much.
    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 said that in responding to global challenges, the Kellogg 
Co. tried to find solutions that were good for both shareholders and 
employees, and when faced with a need to reduce capacity and improve 
efficiency, the company's strategy was implemented through a 
consultative process, a negotiated agreement with their employee union. 
Faced with oversupply of workers in some factories, the company 
implemented a practice of large-scale transfer of workers to factories 
in need

[[Page 864]]

of workers in other parts of the country. The strategy worked so 
effectively that there were more jobs open than employees who chose to 
transfer, so in effect, no employee lost a job.]

    The President. Thank you very much.
    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 3\1/2\ years had 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 said that the Kellogg Company's traditional approach was 
working through attrition to reduce staff, but in recent cutbacks, they 
needed something more. Management sat down with the union and discussed 
different approaches and were able to use voluntary transfers as an 
alternative to involuntary severances. He concluded that recent changes 
in accounting laws no longer allow deductions for employee education 
which must result in reduction in the educational component of the 
company's operations.]

    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. 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 said that when they began the National Performance 
Review, they looked into 50 earlier efforts to reorganize the Federal 
Government and none of them had approached Federal employees for input, 
which was the first thing that the National Performance Review had done. 
In the process, they discovered many strong ideas which they 
incorporated into the downsizing and quality improvement efforts. He 
indicated that the effort has reduced the Federal

[[Page 865]]

Government by 270,000 employees, using methods such as buy-outs, 
voluntary retirements, attrition, and hiring freezes. None of this would 
have been possible without a strong labor-management partnership. The 
idea came from a meeting of business leaders in 1993, which resulted in 
the establishment of the National Partnership Council. The Vice 
President then discussed several examples of the new cooperative 
relationship with the Federal Government and examples of excellence in 
quality service. He said that they were encouraging employees to take 
risks to make things better and concluded in saying that they were 
trying to establish an unprecedented trust level with Federal 
employees.]

    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 6 weeks to give you an 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.
    Gerry.

[Mr. Greenwald said that United has 80,000 employees worldwide, and the 
majority of stock is now held by employees. United, he said, was trying 
to pass two tests: the first was to be profitable; the second was to be 
a good place to work. He said that United has a no-layoffs policy, but 
they approach it by not allowing the company to get too large to begin 
with. The result of the policy is that now the employees are looking for 
operational efficiencies without fear of layoffs and making the company 
more competitive. Further, managers and employees are now looking for 
things that could be handled more effectively by outsiders because they 
do not feel threatened. He concluded in saying that employees' stock 
options can only be converted to usable cash in very limited 
circumstances and that he hoped that would change.]

    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?

[[Page 866]]

    Mr. Harman?

[Sidney Harman, CEO of Harman International, said that he believed the 
central theme of the meeting was that there are many techniques to reach 
the desired end, that to be competitive, we must be productive, but that 
people would not advance productivity at the price of their jobs, and 
that the ultimate challenge was to increase workplace security. He 
concluded by joking that it took 6 months to make up lost productivity 
due to the President's visit to the Northridge, CA, plant.]

    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.
    Participant. [Inaudible]--once every 4 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]

[The participant said that there is a good deal of data correlating top- 
and bottom-line productivity to the kinds of practices expressed in the 
day's conference. He added that such hard data could be used as a basis 
for giving incentives to businesses to pursue the methods discussed at 
the conference. He concluded by suggesting that a task force be set up 
to create incentives for businesses to allocate a certain percentage of 
profits for training, another percentage for employee ownership or a 
basic benefits program for elderly or child care assistance.]

    The President. Thank you.
    Two back here. You and then you and then the gentleman in the 
corner.

[A participant said the type of employment his fast food company offers 
is not lifetime employment but that his company was concerned about the 
mental, emotional, and psychological security of its employees. He said 
that one area that needed Government attention was in providing the 
flexibility which would allow his employees to have portable health, 
pension, and other benefits, thus preserving the economic benefit of the 
years they spent in those jobs.]

    The President. Thank you very much.
    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

[[Page 867]]

on the way to, hopefully, an even better future.
    Thank you very much for what you said.
    Yes, sir.

[A participant said that corporations blame the financial markets for 
the need to downsize and asked if it would be possible to create new 
financial instruments that take into account certain social goals.]

    The President. Would anyone like to take a crack at that, what he 
said about the--[laughter]--Gerry?

[Mr. Greenwald said that he wanted to clarify an earlier point when a 
participant said that there is clear evidence that, if you do the right 
thing, you become a more profitable company. He said he did not believe 
that Wall Street analysts or institutional investors believe that, 
because if they did, they would not reward instant massive layoffs as 
they do today. He added that the challenge is to demonstrate that it's a 
fact, that if we can do so, Wall Street will respond.]

    Participant. 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 3 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.
    Participant. 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 directors. 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

[[Page 868]]

that's some of what we have seen here in some of the most highly 
publicized ones.
    Sidney, what were you going to say?

[Mr. Harman said that not too long ago it would have been impossible to 
assemble a group of chief executive officers to discuss the material 
they had covered today and added that there may still be hope for Wall 
Street. He indicated that one Wall Street CEO had invested in Harman 
International because he thought they were a model and he sees value in 
what the conference was discussing today.]

    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 followup with you all.
    Yes, ma'am.

[A participant said she worked with small corporations and that they 
believe corporate citizenship to be a luxury item, something that you 
can afford as you get to be bigger. She suggested that any followup 
conference stress that good corporate citizenship is essential for any 
size company.]

    The President. Thank you. And I agree with you. And I would, you 
know, just point out we have had some companies represented on this 
platform today that have under 100 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 
another 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 followup 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. 
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.

Note: The President spoke at approximately 2:10 p.m. in Gaston Hall at 
Georgetown University. In his remarks, he referred to Robert Parker, 
dean, Georgetown University school of business. A por- 

[[Page 869]]

tion of the President's remarks could not be verified because the tape 
was incomplete.