01 Oct 1996
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The Drive for Excellence: An Interview with Jim Henderson


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James A. Henderson (MBA '63) is chairman and CEO of Indiana-based Cummins Engine Company, one of America's most respected industrial corporations. Prior to joining Cummins, where he has worked for more than thirty years, Henderson, who graduated from HBS with high distinction, was student body president and served for one year on the School's faculty.

There's a lot of talk these days about corporate responsibility. What are a company's obligations to its stakeholders?

A company's stakeholders should expect that the company will listen carefully, do what it says it will do, obey the law, and operate in an open and direct fashion. From my point of view as a CEO, one of the most important reasons for behaving responsibly is the effect it has on our own people and our organization. It helps attract people who will, in turn, act responsibly with the corporation's customers, suppliers, and the community -- its outside stakeholders. You can have responsibility at the top of the company, but if it doesn't permeate the entire organization the stakeholders can't count on it.

What about bottom-line responsibility to shareholders?

Any senior manager today has to balance pressure for short-term results with adherence to a long-term strategy and direction. At Cummins, we are driven by the concept of maximizing shareholder value -- but the question is, value over the next quarter or two, or over a longer period? Either focus is a legitimate one for investors, but for us, in an industry that requires sizable investments in projects that take several years to pay off, I believe the ideal is some combination of both. We could cut back on investment in future products or international joint ventures, but those efforts are going to pay off handsomely for the shareholder in the not-too-distant future.

Those kinds of questions were very real for Cummins in the last decade as the company was forced by global competition to undergo considerable change. Amid downsizing and restructuring, how do you maintain the work force loyalty and morale that are crucial to a company's performance?

In today's global, competitive environment, restructuring is a way of life. Yet it can severely test what I believe is at the core of management-employee relations -- the notion of trust and fairness. It's important to be open and direct with employees, to share the facts with them so they can see the challenges and opportunities, and to tell them why you are taking the actions you must. Downsizing is a painful last resort. We try to do it as much as possible by attrition, but if we do have to let employees go, we believe it's our responsibility to help them find other employment. It's the right thing to do, but it also contributes to a feeling of fairness on the part of the people who remain.

What are some of the things you've learned from your international experience?

I used to think that Cummins should have a controlling interest in any international alliance we entered into, but I've changed my mind about that. We now seek 50-50 joint ventures with strong partners from whom we can learn -- leaders in their respective countries or regions who know the customers, governments, and cultures. We've found that when neither firm has a controlling interest, neither side can resort to power. Equal ownership means that the parties must work out solutions to problems and differences beforehand, so that they enter the alliance with the attitude that they are true partners. With that mindset, the chances are much greater that the venture will be a win-win alliance for both parties over the long term.

What about cultural differences and attitudes regarding work?

For many years, we have believed in investing in people at all levels in the company, including shop floor workers. This means giving them responsibility for results and improvements that benefit our customers and training them to handle those responsibilities. We have found that people in our operations all around the world -- in Europe, Latin America, India, and China -- respond very positively to this idea.

What is Cummins looking for these days in its managers? How important is it to have an MBA?

We want managers who are restless and persistent improvers for the customer -- people who can put themselves in the shoes of the customer and then drive change inside our company to meet the customer's needs. We want managers who can articulate a vision of world-class performance and at the same time have the technical competence to lead change in that direction. Because of our global perspective, we're looking for managers with overseas experience and multicultural skills. Finally, our managers must be able to inspire the trust and confidence of our people. We've found that while an MBA is not a necessity, it can shorten the time an individual needs to develop some of the traits we look for in a manager. It's often an indicator of a strong desire to learn and grow, because in most cases people have interrupted a career to return to school.

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