The Indiana engine-maker believes deeply in the anachronistic idea that investing in its community is smart business. Could it be on to something?
Just past the factory’s lobby, with its worn, grey chairs and a safety video droning on a flat-screen TV, through thick plastic curtains clouded by age and grime, there’s a whirr of air tools. Cummins Diesel workers are hunched around stocky engine blocks, adding crankshafts, pistons and piping. Every once in a while they look up, distracted by construction noise at the other end of the building. There, bright light bounces off brilliant white walls. Construction workers in clean orange vests and hard hats are bustling, laying new rail tracks and setting giant turntables into freshly poured concrete floors. The newest section of Cummins’s Seymour, Indiana engine plant is like another planet.
The expansion is making room for the Hedgehog: The company’s new high-horsepower engine, one of the most powerful and efficient diesel engines in the world. With a price tag of a quarter of a million dollars, it’s a behemoth—16 cylinders, 4,000hp and the size of a trailer home—but it needs to be to power the locomotives, oil rigs and mining equipment that will depend on it.
The Hedgehog is propelling a lot more than machinery, though. With its $100 million investment and 200 new jobs, Cummins CEO Tom Linebarger is making a long-term bet that he can transform Seymour where it’s difficult to find employees with high school diplomas, much less attract engineers from the nation’s best universities, in the same way it helped Columbus, Indiana, Cummins’s hometown.
While many of the schools around Seymour are struggling and literacy levels are low even among adults, Columbus is a pocket of midwestern prosperity, with the highest concentration of mechanical engineers per capita in the country (31 per 1,000) and the lowest unemployment rate in Indiana (5.2 percent). It has new preschools, a college campus offering joint degrees from three Indiana universities and a training centre for advanced manufacturing. Cummins was instrumental in all of it, creating an education partnership that has become a model for tackling the US skills gap. And it aims to have a similar impact in every one of the 190 places where it does business around the world.
None of which is new for Cummins. In the 1950s long-time chief executive J Irwin Miller embraced the postwar notion that a healthy company can’t exist without a healthy community. Miller created a stakeholder model that balanced the interests of employees, shareholders, customers, suppliers, regulators and the community in every decision. Unlike most other companies, Cummins stuck with it for the next 60 years. The result: Cummins, Columbus and Seymour are living laboratories for how business and community can work together. Attracting, retaining and cultivating scarce engineering talent is now a core business concern for many technology companies, and that anxiety is propelling the resurgence of the altruistic ‘company town’.
Quicken Loans’s billionaire-owner Dan Gilbert is buying up downtown Detroit in an effort to renovate and revitalise the bankrupt city—and attract young tech workers there. In Brooklyn, New York, IBM co-founded P-TECH, a public school aimed at turning students into IT workers. “What they’re doing is just taking an intelligent self-interest in their community rather than a selfish interest,” says Harvard Business School professor Joseph L Bower, who has studied Cummins. Linebarger agrees. “Is it self-interest? Yes,” he says. “But it’s easier to attract people to your company if you’re in an area that has good schools, a clean environment and opportunity for all.”
This idea—that the role of a corporation extends to the care of the community around it and that the company has a responsibility to help guide the community—is, of course, hardly new. With distant roots in feudal pre-industrial Europe, the ‘company town’ flowered at the turn of the 20th century as industrial titans like Henry Ford and Milton Hershey decided they not only knew what was best for employees on the factory floor but off it as well. From Hershey, Pennsylvania to Kohler, Wisconsin the company—and company town—remained the centre of life for millions of postwar American workers. “In the Fifties, corporations were supposed to take care of society. That was the managerial perspective,” says Aneel G Karnani, associate professor of strategy at the University of Michigan’s Stephen M Ross School of Business. “In the last few decades there’s been a shift to more of a shareholder perspective. Managers are agents of the shareholders. Government is supposed to take care of the rest.”
Cummins has been at the centre of life in Columbus since its founding in 1919 by a mechanic named Clessie Cummins and a financier named William Glanton ‘WG’ Irwin, scion of a prominent banking family and the great-uncle of Irwin Miller. A tinkerer, Clessie Cummins was among the first to see the commercial potential of an unproved engine technology invented two decades earlier by Rudolf Diesel, and in 1929 he created America’s first diesel-powered automobile—a used Packard limo he’d adapted. Almost a century later Cummins is the world’s largest supplier of diesel engines and components to the trucking industry, with $17 billion in revenues and $1.5 billion in net income in 2013. More than half its sales are generated outside the US, especially in China and India, where it is the market leader.
How much does all this do-gooderism cost? In 2012 Cummins invested approximately $31 million in corporate responsibility efforts, including $14 million to the Cummins Foundation, which in turn doled out $8 million in grants. While it’s impossible to precisely quantify the benefits, the costs are hardly a drag. Through most of the 2000s the company enjoyed strong growth, despite being hit hard by the recession. Sales fell almost 25 percent from 2007, to $10.8 billion, but rebounded by 2010 to $18 billion. The last three years have been softer, with sales of $17.3 billion on weak demand in key international markets.
(This story appears in the 16 May, 2014 issue of Forbes India. To visit our Archives, click here.)