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Eaton CEO emphasizes ethics

Cutler thumbnailAlexander Cutler had a problem in the Philippines.

In the town where Cutler’s Eaton Corp. operated a plant, the local mayor pressured the company for a payout by turning off the plant’s electricity every day at 10 a.m. The message was clear: Pay or else.

So Eaton pulled up stakes and left, its name still on the plant. For Cutler, Eaton’s chairman and chief executive officer, the choice was simple: The company would not continue to do business in an area where it was being pressured to compromise its ethics.

“That’s how you have an impact over time in places,” Cutler told a packed audience of Tepper School MBA students in Posner Hall. He appeared as part of the W.L. Mellon Speaker Series, which gives students the opportunity to engage in high-level exchanges about strategy, world affairs, and other key issues with CEOs and leading business executives. The series includes student-only breakout sessions to encourage discussion with speakers in small-group settings.

In his remarks, Cutler emphasized the need for business leaders to take a hard line on ethics and cultivate an environment of continuous improvement, both for themselves and their companies.

“You don’t want to be a leader. You want to be a principled leader,” Cutler said, adding, “You can’t be a principled leader unless you know yourself … What decisions are you willing to make?”

He urged students to ask themselves such questions as, “What’s different because I’m in the job?” and “How do I measure my progress?”

Early in his tenure at Eaton, a global diversified industrial manufacturer, Cutler announced his goals to Wall Street. He vowed to grow sales and earnings by 10 percent, decrease inventory by an additional 25 percent, and realize an 18 to 22 percent return on equity.

That was in May 2000. The following year, the country entered a recession — but Eaton didn’t change its goals. By 2005, Cutler’s targets had been achieved, and Eaton had been transformed from a holding company to an integrated operating company, with one set of best practices that were implemented from the top down, not the bottom up.

The effort to find best practices in virtually all company activities led to “Eaton University,” a model that spreads each of those ideas to the entire company and streamlined a business environment that at one time operated with 26 different methods for accounts payable and 13 different e-mail systems.

Additionally, each new business that Eaton acquires — such as Moeller Electric and Phoenixtec Power — goes through the company’s ethics training immediately.

“That’s our commitment to doing business right,” said Cutler. “We wanted to be very clear that we had one set of global ethics.”

Cutler advised students to think on a broad scope from an early point in their careers.

“We think leadership is something you can get better at,” he said. “It’s a muscle-memory issue.”

And if a company always offers something new to learn, he added: “It’s a really exhilarating environment to be in.”

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Mark D. Burd

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Tepper School of Business
Carnegie Mellon University
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