Click here to view the presentation that accompanied this speech. (Note: you must have MS Powerpoint.)

Good morning. Can you hear me all right? Okay. I’m not sure I like the introduction that I’ve been around so long before his children were born – (laughter) -- but I guess it’s a place to start. I mentioned to a couple of folks this morning that, one, I’m honored to represent Cummins this morning, but I’m somewhat reluctant to talk about corporate social responsibility, because the minute you do something – some disaster is going to happen somewhere in the world and we’ll have some public relations challenges. But today I’ve been asked to talk about corporate responsibility at Cummins, and just let me begin with a simple statement that corporate responsibility is good business; acting with integrity, treating people with dignity and respect, valuing diversity, and giving back to the community just makes good business sense. And I start with that premise and I’ll probably end with it. In order for you to kind of understand corporate responsibility at Cummins I thought I’d hit five subjects quickly.

First of all, Cummins’ history, so you can see the context of corporate responsibility there; the importance of guiding principles, the challenge of living the values, how corporate social responsibility is evolutionary and dynamic, and how it’s changed over the years. And then finally, the base case for corporate responsibility. Just in case you’re not familiar with Cummins, we’re $11.4 billion in revenue. We’re the largest independent diesel engine manufacturer and components in the world. We operate in about 160 countries with 40,000 employees. That’s the paid political announcement.

So, moving on, I think we may be unique, versus some of you, in the sense that the roots of corporate responsibility actually started with the founding family in 1919. W.G. Irwin was the local banker, and he financed the diesel engine company. It lost money for the first 19 years, and W.G. Irwin and Clessie Cummins, the inventor, wanted to close the business, and Mr. Irwin’s sister, who was a local Sunday school teacher wouldn’t let them do that, because she wanted to provide employment for the students that she had in her Sunday School class. So, from the very beginning there was an element of providing employment so people would stay in the community. The most influence was J. Irwin Miller, and I don’t know whether you’re familiar with him or not, but he was a great man. He started with the company in 1934, and was active up through 2004, when he passed away at the age of 95. One of the great privileges I had was to work with him, and see how he operated for more than 30 years.

To give you an example is back in the ‘30s, he promoted unionization when the automotive industry was violently opposed to it. In fact, he encouraged our employees to start two unions in Columbus, Indiana, and they still exist today. He also was very active in civil rights in the ‘50s and the ‘60s. He was the first lay president of the Council of Churches, and worked with Martin Luther King, Jr. on the March to Washington. Martin Luther King, Jr. referred to him as the most progressive businessman in America. And in 1982 – and I’d like to read a quote – this is on diversity – “That in search for character and commitment, we must rid ourselves of our inherited, even cherished biases and prejudices. Character, ability, and intelligence are not concentrated on one sex over the other, nor in persons of certain accents or in certain races, or in persons holding degrees from universities over others. When we indulge ourselves in such irrational prejudices, we damage ourselves most of all and ultimately assure ourselves of failure in competition with those more open and less biased.” Again, this is Mr. Miller, and it was back in 1982, and gives you some idea of the influence that he had.

Also, in 1972, he wrote in our annual report that, “While some argue that business has no social responsibility, we believe that our survival in the very long run is as dependent upon responsible citizenship in our communities and society, as it is on responsible technological, financial, and production performance.” Again, we could put that in our annual report today. The reason I emphasize this is that he was the first one to come up with the stakeholder concept, where businesses had to balance the interests of shareholders, employees, customers, suppliers, the communities in which we operate, and regulators. And this was in an environment where you had Milton Friedman saying your job is to make money, to pay dividends, and we’ll spend our own money the way we see (influent). So, we were very, very fortunate to have this kind of leadership, and so it wasn’t creating an ethical environment, it was building upon one that was already there.

And finally, as I mentioned, corporate social responsibility has evolved. It evolves with how our company has grown, where we’ve gone globally, and with society. So, we’re constantly asking questions: For example, does social responsibility mean the same thing in every country? What are the most important needs today? And how are they changing? And I can talk later on, if you like, about what are some of the issues that we’re facing right now in change.

I would argue that without guiding principles a company cannot achieve sustained growth and lasting success. And I’ll give you an example at Cummins in 2000, right after I’d taken over as Chief Executive Officer, we felt we needed to revisit our guiding principles. We knew what was in our minds and hearts, and we went through a process where we engaged thousands of people around the world in questionnaires and focus groups to talk about what was important, who we are, and how we wanted to operate. And the value of this came out as it really created an alignment among the leadership group. It forced us to have a very clear definition by putting it in writing, and it really renewed the excitement of who we were. So, I’ll just briefly touch on the vision, which we see as aspirational. It had to be simple, and it’s an attempt to say where we want to go, simply stating making people’s lives better by unleashing the power of Cummins. Now, that doesn’t mean anything to you on the surface, but making people lives better, say, we have a higher purpose, whether it’s our products, or our people serving the communities, and unleashing the power of Cummins is not just our products and the horsepower, but the power of innovation and imagination of our people. The mission defines how we’re going to achieve the vision, and the role each employee plays, and the values are the ethical compass. They are the boundaries in which we operate; they define who we are, and how we want to operate. And I thought I’d just touch on a couple.

Beginning with integrity, it is do what we say we will do; diversity, treat people and their ideas with dignity and respect; corporate responsibility; serve and improve the communities in which we operate, and global involvement, which was a new one, is seek a world view and act without boundaries. So, the vision is where we’re going. The mission is how we’re going to get there. And the values are the boundaries in which would operate, and it equals the guiding principles. I think a company has to have this in order to understand this whole business of ethics and corporate responsibility, and is absolutely critical, one of the most important things that we did in this decade.

I thought I’d give you a couple of examples of living the values. Core values create an ethical framework to make difficult and complex decisions. In our business, usually, there’s no right or wrong answer, but the discussion in an ethical framework helps us think about what we want to do. And I’ll give you three examples. In 1980 in South Africa, we had a leadership position, a market share position in heavy-duty trucks, as well as mining equipment. We were asked by the government, who was sponsoring apartheid if we would manufacture engines and components, and we said we would have to operate where we have anywhere else, so we would have an integrated workforce, and we would select managers without regard to race, and we didn’t want our equipment going on in military applications. Obviously, we were not allowed to do that, and in fact, we said we will withdraw – we will not have anything to do with South Africa with apartheid, thinking that we would lose the business. Today we have two thriving plants and a master distribution system there. We’re very active in corporate responsibility in townships in literacy, AIDS. We sponsor Students in Leadership at the University of Capetown. In the same period of time, while we exited South Africa, we sponsored black South African scholarships to study in the UK, and we provided employment.

A second example – and I’ll make the point – is that in March of 2000, we implemented domestic partner benefits, one, to be able to attract the best talent, and two is to have equity of benefits across the board, which is part of, again, our value system. This came about that we have a system – it was the Chairman’s Diversity Council, where I would meet once a quarter with the Council, and we discussed diversity issues, and several employees came forward and said, you know, if we really believe in diversity, we should do this. This created a firestorm in Southern Indiana. We were accused of promoting immoral acts. It was led by the clergy and government officials; it upset our employees, but as a result of it in making that issue visible, I think we became a better company, and I think the community is a better place to be, as well. And this example is that when you have these values, your employees and other forces are going to force to walk the talk. And so, it’s – there are challenges associated with it.

And finally, last year on a Friday, Amnesty International called and said would you comment on the fact that you’re selling engines to a Chinese truck manufacturer that is exporting those to the Sudan and the Darfur region? Now, we didn’t know anything about that. They published an article in Europe over the weekend, and on Monday I sent one of our senior leaders to China. We have a joint venture there that manufactures engines, and indeed, they had manufactured engines, sold them to their parent company – a truck OEM – and in fact, were going to the Sudan. So, it wasn’t our engines, but it was our technology. So, rather than trying to defend that, we renegotiated an arrangement with the joint venture partner that they wouldn’t do that in the future. We can back and changed our export laws, and made them tougher – or our export policies, and made them tougher. We took a training program to anybody that would be involved with this process, and we trained our employees around that, and then we said look at our JV templates in other emerging economies, and at that time we were negotiating a deal in Russia, where they had the ability to take joint venture engines, put them in military equipment that could go places we wouldn’t want them to go. And we actually changed how we operate with our joint ventures. So, here’s an example where there was a public relations disaster. We had shareholders that were upset, but by making it visible, and trying to do the right thing, we became a better company.

Social responsibility at Cummins today is very different. In the ‘70s it was more of an activist; it was not as well structured. Today, we view that as a key strategic business initiative. It is not about image building; it’s not something nice to do; it is who we are. So, we have policies and guidelines and infrastructure, and training programs, and formal communication. We have metrics that measure many different things. Our Cummins Foundation is over 50 years old, and it sets the direction for charitable giving. We fund that with 2 percent pretax profits in the US, and this foundation has created two new foundations for us -- one in Mexico, and one in India -- and we will probably do the same thing in China and Brazil, and it gives us a very effective way of charitable donations. Our policies – and these are not all of them – include treatment of others, code of conduct, a supplier code of conduct, sustainability, and we’re now developing a climate change policy that will probably be completed by the end of the year.

When I talk about guidelines, there are some really important things. First of all, most of the ideas come from the employees, and employee involvement is absolutely critical for a successful investment. Also, we’ve changed our strategy about four years ago, where we used to have defined program areas -- so, civil rights, social programs, the arts, education – and we said we will have no program guidelines. What we said is that the site leaders around the world must be involved with community and identify gaps where we think we can get involved and make a difference. Most of these are now social and human services for people living on what we call the margins of society. We do less on bricks and mortar, and endowments, and that type of thing.

Also, on infrastructure, we have 51 community involvement teams around the world. Usually, the leader of that business unit leads the community involvement team, and they build on this site leadership that I was talking about, where they identify the needs in the community to close the gaps; they are able to fund these with their own monies, and they also apply for grants from the corporate foundation in a competitive environment. So, as you can see, this is a very structured effort; it’s developed over a long period of time. It’s not just something that’s nice to do.

One of the fun things I like to talk about are some of the projects that we’ve had over time, and again, this will show you the involvement of employees, and the importance of that. Two years ago, when we were named the “Best Corporate Citizen” by Business Ethics magazine, we went through the deal of were we going to give medallions or pens or something to all of our employees? And our employees came up with the idea that we gave every employee in the company a half a day off to volunteer and work in the community. We had 2,600 employees donate 12,600 hours in 42 different countries, and it’s interesting that two of the countries that were most active were Russia and China, showing that community service is important anywhere in the world. This will be our third year.

Each year more people volunteer, and one of the important things for me – I had an employee stop me. It was a woman, a single parent – mother – and she said, “I just don’t have time to volunteer. This gave me an opportunity to do it, and I just really feel good about myself.” In China, our employees wanted to get involved with education, and there’s two schools that are in a poor area about 40 miles outside of Beijing. Now, these schools get their funding based on the number of books they have in their library. So, they’re loaded with Communist Manifestos, and other things that people never read. So, our employees came up with the idea is that we would change out those books, and give books that the kids would want to read. And the way they funded that is that they paid $5 every Friday, if they could wear jeans to the office. So, we’ve already gotten rid of the bad books; we’re putting in new books, and they’re so good, the kids are taking them home, and not bringing them back. So, now we have to generate more funds to buy more books. But this is – you know, it doesn’t cost a lot of money; really great employee involvement.

In Brazil, there’s three activities. Back in the ‘80s, we had – our plant was in a very poor area, and we had kids from the neighborhood going over the fence, and picking up bits of metal to sell, and it was very dangerous. So, we went to the community and said what do you need? These kids didn’t have a school to go to, so we converted the basement of the gymnasium that we had into a school, and today 250 kids go to school for free, and we fund teachers, as well as the books. And their parents go to school at night to learn how to read. Then they said we need a medical center, so our employees in the plant helped build one that gives prenatal care, vision, dentist advice, that type of thing. And now we’re building a community center, where they will teach job training skills, and they’ll have a place to meet. Again, all of this came from the employees. It didn’t cost a lot of money.

In Mexico, we had a plant manager that was very interested in (blind) disability; had a relationship with the school, and the problem they had was they couldn’t find employment when the people would graduate. So, for ten years – we formed a business – loaned them $25,000 to build pallets. Today we have 25 very seriously disabled people producing pallets for our plant and many other plants, and… they paid us back the loan, and they’re actually generating a profit. Followed by that, were women that learned how to sew, and they manufactured uniforms that go into our plant and other plants, the same type of thing. There’s a day school center for their kids. We teach them how to cook. There’s classes on cutting hair, and so forth. So, it sustains what’s going on.

In India in 1991 we loaned or gave $60,000, and formed the College of Engineering for Women. Women were not afforded the opportunity to learn technical skills there. Today we’re giving $1.4 million to put in a mechanical engineering department, so 250 women will graduate with BSME degrees. We’ve also had exchange programs with Purdue and Rose-Hulman Institute. And finally, in Indianapolis we just did a grant where they have Anne Frank, Ruby Bridges, who is the – she was the one that desegregated the second grade – desegregated the schools in New Orleans that Norman Rockwell painting, if you remember that, and Ryan White, who died of AIDS. And the theme of this is that children with courage have changed lives and society, so it’s very inspirational. So, these are some examples over time – I could probably talk all day about some of the things that we’ve done that I can get so excited about.

Finally, the business case, again, healthy communities, and we define that by a welcoming, inclusive community with a vibrant school system, and very strong economic development, but business and employees are only as healthy as the communities in which we live, and it is in our self-interest to serve and make those communities better.

The second thing is I don’t know of any other management development or leadership development tool than volunteerism. When our people go out and work in the communities, they come back and they are better human beings, and better leaders as a result of it. Also, people come to Cummins because of our values and what we stand for. That’s why I joined in 1971, and have stayed for 36 years. Our president today came for that reason. Our CFO came for that reason. Our General Counsel came for that reason. And there’s a sense pride.

Finally, it’s the right thing to do. And it’s a lot of fun. I’m a lucky person. I get to go all over the world and see our plants and visit our people, and I always stop by and meet the community involvement teams, some community leaders, and find out what we’re doing, and it’s one of the most exciting and fun things that I do. So, final thoughts: There’s no magic bullet to create a responsible company. It is something very fortunate for us that it was part of our heritage, anyway, so we build on that legacy. Having guiding principles, being able to talk about them and live them is absolutely critical to this. If a company doesn’t have that, I personally don’t know how they can sustain success, and I end with where I started that good citizenship is good business. Thank you, and if there’s time for questions I’ll be glad to try and answer any questions.

Jay Whitehead (INTERVIEWER): Thank you Tim. We all thank you. (Applause.) One of the questions we get asked all the time is -- we go around the country, and we’re here in New York; we’re in Los Angeles, we’re everywhere, but we seem to see that there’s a significant pocket of corporate leaders, like yourself, who are from the Midwest, who feel that these corporate responsibility values are more core than those on the coasts. Can you comment on that bias?

Tim Solso: I wouldn’t comment on that in New York City. (Laughter.) You know, I don’t really – I don’t know about that. I can say that I think today there are more companies seeing the value of this, and as I said in my prepared remarks, Cummins is incredibly fortunate to have had the influence of Irwin Miller – J. Irwin Miller, and he is a legend, and what he stood for, and the stories live on, and I think that’s why we have it. I really don’t know enough about other companies, and so I can’t say whether there would be bias on the coast. It’s an unfair question. (Laughter.)

INTERVIEWER: We specialize in those. (Laughter.) So, you’ve got practitioners here. You’ve got vice presidents, directors, senior vice presidents, executive vice presidents. If you could give them one strong piece of advice on how they would – if their companies are challenged in this area, especially at the top, how to get this message through? What’s the clutter buster? What’s the thing that really makes a difference?

Tim Solso: Well, you’ve got to go back to the business case. And I mean, this is a – it is the right thing to do; it makes you feel proud of your company and so forth. But the fact of the matter is you do make better communities, and as a result businesses succeed. You are able to attract and retain more people. It is a form of leadership development, and if each company on their own can define the business reasons for doing that, then it becomes legitimate, as opposed to something nice to do, or image building. I do think from an historical standpoint, there are companies that see this as more of a PR effort, as opposed to fundamentally changing the culture of a company.

I also talked about these guiding principles, and that was an enormous amount of work that confirmed who we were, but if we hadn’t done that, I don’t think we would have had some of the success that we’ve had, at least in the way that we’ve had it. And finally, your opening remarks, you talked about, I guess, corporate responsibility officers. I would be careful about that, even though I know there’s some people here that have that title. I view myself as the corporate responsibility officer for the corporation in terms of ethics, in terms of where we invest in the communities, and I expect the other leaders to do that. I think the corporate responsibility department or officer is there to help give direction and enhance that, but I worry that if you have this corporate responsibility officer and department that the leadership, then, delegates this effort to them, and quite frankly, the tone at the top is one of the most critical things that do it. So, the corporate responsibility group has to work in tandem with the leadership, but the buck stops with the leadership.

INTERVIEWER: That makes sense. Ladies and gentlemen, Tim Solso, CEO of Cummins. Thank you, Tim, for your comments today. Thank you very much.

Click here to view the presentation that accompanied this speech. (Note: you must have MS Powerpoint.)