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Ethics are the Reell 

Deal for St. Paul Company

Published Thursday, April 25, 2002 in the Star Tribune.

By Neal St. Anthony

As orders fell precipitously in early 2001, the brass at Reell Precision Manufacturing Corp. in Vadnais Heights went to the 280 employees with a proposal to avoid layoffs.

The workers agreed to pay cuts.

A dozen senior executives already had taken 16 percent cuts to their own pay. The rest were made at a wage-corresponding scale that ranged down to 7 percent. Those who made less than $11.50 per hour were exempted.

The pay trims saved the company a half-million dollars and limited the year's net loss to $100,000 on revenue of $21 million.

Dozens of jobs were spared.

For its humane approach to weathering an abrupt business storm, Reell Precision -- which has a history of such worker-management cooperation -- was one of three Minnesota companies out of 160 nominated to be awarded the 2002 Minnesota Business Ethics Award Wednesday night by Minnesota Chapter of the Society of Financial Service Professionals and the Center for Ethical Business Cultures. The awards seek "to raise the bar for Minnesota companies" and honor exemplary firms.

"There was a lot of discussion," Reell co-Chief Executive Bob Carlson recalled. "Our shareholders, the founding families of the company and employees, who now own about 45 percent of the company, are willing to keep everybody at full pay until profits hit zero. That's unusual.

"The economy is coming back now. The pay cuts enabled us to keep our co-worker group intact. The sales and engineering people pursued new business. Our production people are here to fulfill the orders. We expect revenues to be up around $23 [million] or $24 million" for the fiscal year ending in October.

"RPM has a value proposition, and they sure seem to live it," said Karen Himle, a former St. Paul Companies executive who judged the finalists. "My sense is that management understands that the creation of an ethical business culture is a work in progress. There was no arrogance of achievement.

"The question is: Do you have an environment that will yield the right answers? That was very much present at their company."

The other award winners were:

• S&W Plastics of Eden Prairie, which since 1970 has provided plastic injection-mold design and production to customers in the medical, electronics and industrial markets. S&W, an 80-employee firm that was the small-business winner, was cited for embracing a diverse workforce, practicing open communications at all levels and using independent investigators to pursue reports of unethical conduct.
  
  
• HealthPartners, the 9,300-employee, Bloomington-based health maintenance organization, which was credited with "excellent and well-communicated policies and practices" and for exhibiting and encouraging a "zeal for corporate integrity" and doing the right thing.

Carlson, who joined RPM several years ago from a larger company, said the company's culture was put in place by several former 3M employees who founded it in 1971. RPM, which makes electric and mechanical clutches and hinges, gets most of its revenue from making hinges that hold laptop computers together for the likes of Dell, Toshiba, IBM and Compaq.

Carlson, 60, who started as a sales engineer at IBM, said he wanted to be involved with a different type of company.

"I came to the realization that I wanted to work in a different place," said Carlson, who shares leadership duties at RPM with 20-year veteran Steve Wikstrom. "I was successful, but I wasn't energized. I saw too many things that were not right."

At RPM, executive pay generally is limited to seven times that of entry-level workers, or about $125,000. Production workers average $15 per hour, and the pay ranges up to to $23 per hour.

Asked about his management philosophy, Carlson refers to a comment made once by Dee Hock, the founder of Visa: "Make a careful list of all things done to you that you abhor. Don't do them to others -- ever."

"When I started my working career at IBM in 1970, the CEO, Tom Watson Jr., was making about $100,000," Carlson said. "Those people making millions today . . . the change in the consumer price index doesn't explain that."

Carlson, 60, is an engineering graduate of the U.S. Military Academy at West Point, a combat veteran of Vietnam, and a graduate of the prestigious Wharton School of Economics.

He and the other executives are known to dine in the company cafeteria and greet workers on a first-name basis. The company donates 10 percent of its profits to charity and community organizations.

"We do what we do because it's the right thing to do," Carlson said. "I can't prove this, but I believe it makes us more profitable."

Bob Shoemake, director of programs and membership at the Center for Ethical Business Cultures, said a research paper just finished by the center indicates that large and small companies that subscribe to sound ethical principles and practices do best.

"You can have wonderful ethics and still get hammered if your business plan doesn't work," Shoemake said. "But assuming that your strategy is right . . . and it's somewhat hard to measure, but as best we can tell, by a factor of about 7 to 1, ethical companies that create an ethical culture . . . tend to be more profitable over the long term."

As if to emphasize the point, RPM restored full pay for all of its workers and expects to be profitable in the fiscal year that ends in October.

The author

Neal St. Anthony reports on companies, people and trends in the Twin Cities business community. His column appears Tuesdays and Fridays.

© Copyright 2002 Star Tribune. All rights reserved.

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