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No Laughing Matter: Eaton and the Racist Joke

Sitting at Eaton's headquarters one day in late March of 2004, Dimitri Kazarinoff, Director of Global Marketing for Eaton Corporation's Roadranger brand, could focus on nothing except TruckComm , one of Eaton's media communications suppliers.

Though they were uttered three days ago, the incredibly racist words of TruckComm's CEO were still ringing in his mind.

"The plane was going to crash if they didn't lose some weight, so the pilot decided how to fairly throw people off..."

"Going in alphabetical order, African Americans, blacks, and colored people..."

"How are you two still on the plane?"

"One replied, the pilot never got to ‘N'..."

As Dimitri mulled over the horrible words, he knew he had to do something. His next steps, however, could have a significant impact on Eaton's bottom line, not to mention Eaton's relationship with that supplier.

Eaton Background
Eaton Corporation, incorporated in 1916, is engaged in the design, manufacture, marketing and servicing of electrical systems and components for power quality, distribution and control; fluid power systems and services for industrial, mobile and aircraft equipment; intelligent truck drivetrain systems for safety and fuel economy, and automotive engine air management systems, powertrain solutions and specialty controls for performance, fuel economy and safety. Eaton operates through four business segments: Electrical, Fluid Power, Truck and Automotive. Eaton has 82,000 employees and sells its products to customers in more than 150 countries. Under the leadership of Alexander M. "Sandy" Cutler (Tuck '75), the chairman and chief executive officer of Eaton Corporation, the company has significantly outperformed other industrial manufacturers. The outcome is a result of emphasizing customer-driven, new market opportunities and an M&A strategy that has led to 19 acquisitions since Cutler took charge in 2000.

Roadranger: The Eaton/Dana commercial vehicle partnership
In 1998, Eaton Corporation and Dana Corporation entered into an agreement in which the drivetrain components from both companies would be marketed as a single system: Roadranger. Eaton divested its founding product line with the sale of its Axle & Brake division to Dana, and Dana sold its 50-year-old Spicer Clutch Division to Eaton. Dana integrated the best of the former Eaton product line into its Spicer product line in order to offer the industry's highest quality medium and heavy duty axles. Meanwhile, Eaton strategically aligned its new clutch products with its transmission products, enabling the company to offer a complete and robust transmission product line. Through these efforts, Eaton and Dana developed the collective resources to create Roadranger: a one stop drivetrain solution backed by the highest level of service in the industry.

Eaton's commitment to Ethics
Eaton has always had a strong commitment to Ethics. Company leaders such as Sandy Cutler, lead by example to reinforce this commitment. In light of Eaton's global expansion, the leadership pays particular emphasis on consistent standards throughout the world instituting a global ethics framework. Cutler says Eaton's approach is rooted in the belief that its employees have high standards. "Personal ethics have to be the basis from which people make decisions in business," he says. The company offers extensive employee training at all levels to reinforce its value-based culture. In his message to the employees, Sandy says, "Nothing is more important to Eaton's overall success as an enterprise than our ethical values. Our shared regard for the highest standards of honesty and integrity is our biggest strength." (Exhibit A). Eaton was named one of "World's Most Ethical Companies" in Ethisphere magazine's 2008 list out of the several thousand organizations that were analyzed. Eaton not only maintains an internal code of ethics (Exhibit B), but also a supplier code of conduct (Exhibit C), which Eaton insists that all of its suppliers live up to. Eaton was also ranked #2 in CRO's 100 Best Corporate Citizens in 2008 .

An Abrupt End to the Fun in the Sun
Dimitri had just returned from the Truck Maintenance Council meeting in Fort Lauderdale, FL, an annual event of the American Trucking Association which brought together key players in the trucking industry to discuss vehicle maintenance best practices. Although Eaton is a large company with a diversified business, a large part of their business and Dimitri's responsibility was the trucking supply business. The event was a key part of the Eaton marketing plan and the business plans centered on Dimitri's PR campaign that would introduce a new product line to the trucking customers. As with most marketing ‘splash' events, the Eaton team relied on their long-term Media suppliers, such as TruckComm, to help manage and execute the PR. TruckComm was based in the Southern United States and had been a contracted vendor for over ten years. They had an excellent reputation for delivering successful media campaigns and many business units of Eaton used their services on a regular basis. They were in effect a "valued partner" of Eaton and other trucking-related companies.

True to expectations, the conference was a huge success and to celebrate, Dimitri and a junior colleague were invited to a nice seafood dinner in Miami's South Beach with the TruckComm CEO, Jake Longly, and senior executives and one other non-competitive supplier.
The group was ethnically homogeneous - all were middle-aged Caucasian men. Several drinks were served but nothing excessive. Conversation was light, but professional until, while desert was being served, Jake Longly decided to tell "the joke".

The "joke" had a long complex set up and storyline and Dimitri showed his discomfort on his face from the beginning. Although Jake seemed to believe that Dimitri "fit a profile" of someone who might enjoy this joke, it was in fact the opposite. Dimitri had been raised by a very forward thinking and openly liberal family that valued diversity of backgrounds a key part of a young person's education. He was raised in Europe and Western Canada by parents who were involved in academia, and was heavily involved in promoting the cause of racial diversity whilst he was an engineering undergrad at MIT. These values were very important to him and in fact one of the hallmarks of his career at McKinsey & Company prior to Eaton.

As Jake continued with the joke, Dimitri's look of confusion and disgust did nothing to deter Jake. In fact, one of Jake's subordinates leaned over to Jake while he was in the midst of his joke and whispered that Jake should stop. Jake, however, was undeterred and continued on with what seemed to Dimitri to be a fifteen minute joke. When Jake ended with the punchline - the "N-word" - Dimitri quickly ended the evening and the Eaton team parted and went back to the hotel. Dimitri was nauseated at the horrible implications of the joke and was saddened how such a successful event and promise of future business growth for Eaton could have ended on such a sour note. He could not even order his nightly tea before bed and spent a fitful night beneath the sheets of the hotel bed wondering how to rectify the situation.

Deciding the Best Course of Action

Back at Eaton's Cleveland headquarters, Dimitri realized that he needed to learn more about TruckComm before he could decide the best course of action. He therefore called Joe Sallierno, the Eaton field representative out of Atlanta that was responsible for the TruckComm relationship. After Dimitri described Jake Longly's poor attempt at humor, Joe replied:

"Listen, Dimitri- I don't like the joke any more than you do. But you need to put it in the context of the South. TruckComm is out of Georgia and well . . . those kinds of jokes are just a little more common around there. Besides, we have a longstanding relationship with TruckComm and it's an important account. They provide us with nearly a million dollars worth of services annually and no one can do quite what they do. As you know, they are also a big player in the trucking industry and are chummy with lots of our customers. I know I personally wouldn't want to get on their bad side . . ."

Feeling more confused than ever about what he should do, Dimitri resolved to call his boss. Dimitri recounted his story once again and his boss indicated that he was "saddened by the joke", empowered Dimitri to act as he saw fit, and stated that he would fully support Dimitri's decision.

As Dimitri hung up the phone with his boss he suddenly wondered if Eaton might have a formal policy regarding how to handle an issue like this. He therefore called Deborah Servers, Eaton's Director of Global Ethics. Unfortunately, Deborah was not able to give much guidance on how Dimitri should handle the situation. She did, however, outline some of his options. Dimitri was informed he could potentially 1) do nothing, 2) tell TruckComm either verbally or in writing that he was offended by the joke, 3) put TruckComm on probation such that punitive actions could be taken with any further offenses, 4) suspend all business with TruckComm for some defined period of time, or 5) cease doing business with TruckComm all together. Deborah also reinforced Dimitri's boss' point that Eaton would stand behind Dimitri's decision.

Dimitri leaned back in his chair and weighed his options. On the one hand, Dimitri felt this would eat at him if he failed to take action. Additionally, Dimitri felt a responsibility to be a good role model for his subordinates at Eaton and also hoped he might serve to bring about change at TruckComm. On the other hand, Dimitri recognized there could potentially be a severe cost to addressing the issue with TruckComm, as it would be costly to replace TruckComm as a supplier. This could also pose a risk in acquiring future customers, who depended on TruckComm's publications for purchasing decisions. Even more worrisome, upsetting TruckComm could also damage Eaton's reputation in the market given the supplier's standing in the industry.

With the horrible words of the joke going through his head, Dimitri decided to write a letter. He turned on his computer, opened a new Word document, and started typing.

 

Exhibit A - Message from Sandy Cutler, Eaton CEO

 

Exhibit B - Eaton Code of Ethics

Code of Ethics
Eaton Corporation requires that all directors, officers and employees of Eaton, its subsidiaries and affiliates ("Eaton"), abide by the fundamental principles of ethical behavior listed here in performing their duties.
Obeying the Law - We respect and obey the laws, rules and regulations applying to our businesses around the world.
Integrity of Recording and Reporting our Financial Results - We properly maintain accurate and complete financial and other business records, and communicate full, fair, accurate, timely and understandable financial results. In addition, we recognize that various officers and employees of Eaton must meet these requirements for the content of reports to the U.S. Securities and Exchange Commission, or similar agencies in other countries, and for the content of other public communications made by Eaton.
Respecting Human Rights - We respect human rights and require our suppliers to do the same.
Delivering Quality - We are committed to producing quality products and services. Our business records and communications involving our products and services are truthful and accurate.
Competing Ethically - We gain competitive advantage through superior performance. We do not engage in unethical or illegal trade practices.
Respecting Diversity and Fair Employment Practices - Throughout the world we are committed to respecting a culturally diverse workforce through practices that provide equal access and fair treatment to all employees on the basis of merit. We do not tolerate harassment or discrimination in the workplace.
Avoiding Conflicts of Interest - We avoid relationships or conduct that might compromise judgment or create actual or apparent conflicts between our personal interests and our loyalty to Eaton. We do not use our position with Eaton to obtain improper benefits for others or ourselves. We do not compete with Eaton.
Protecting Our Assets - We use Eaton property, information and opportunities for Eaton's business purposes and not for unauthorized use. We properly maintain the confidentiality of information entrusted to us by Eaton or others.
Offering/Accepting Gifts, Entertainment, Bribes or Kickbacks - We do not offer or accept gifts or entertainment of substantial value. We do not offer or accept bribes or kickbacks.
Selling to Governments - We comply with the special laws, rules and regulations that relate to government contracts and relationships with government personnel.
Political Contributions - We do not make contributions on behalf of Eaton to political candidates or parties even where lawful.
Reporting Ethical, Legal or Financial Integrity Concerns - Any person may openly or anonymously report any ethical concern or any potential or actual legal or financial violation, including any fraud, accounting, auditing, tax or record- keeping matter, to the Director-Global Ethics of Eaton. For reports that are not made anonymously, confidentiality will be maintained to the extent possible while permitting an appropriate investigation.
Reports may be made openly or anonymously by regular mail to Director-Global Ethics, Eaton Corporation, Eaton Center, Cleveland, Ohio 44114. Reports may also be made to the office of the Director-Global Ethics by e-mail or telephone through Eaton's Ethics and Financial Integrity Help Line.

Exhibit C - Eaton Supplier Code of Conduct
Supplier Code of Conduct
Eaton's Supplier Code of Conduct helps us to select business partners who follow workplace standards and business practices that are consistent with our company's values. These requirements are applied to every supplier of Eaton Corporation globally.
A. Code of Conduct
1. General Principle: Suppliers' plants shall operate in full compliance with the laws of their respective countries and with all other applicable laws, rules and regulations.
2. Environment: Suppliers' plants must comply with all applicable environmental laws and regulations.
3. Child Labor: Suppliers shall employ only workers who meet the applicable minimum legal age requirement. Suppliers must also comply with all other applicable child labor laws.
4. Forced Labor: Suppliers shall not use any prison, indentured or forced labor.
5. Wages and Hours: Suppliers' plants shall set working hours, wages and overtime pay in compliance with all applicable laws. Workers shall be paid at least the minimum legal wage or a wage that meets local industry standards, whichever is greater.
6. Discrimination: Suppliers shall employ workers on the basis of their ability to do the job, not on the basis of their personal characteristics or beliefs (including race, color, gender, nationality, religion, age, maternity or marital status).
7. Freedom of Association: Suppliers' workers are free to join associations of their own choosing and have the freedom of collective bargaining where the local law confers such rights.
8. Gift and Gratuity Policy: The offering or acceptance of kickbacks, bribes and other illegal payments subverts the very essence of competition and erodes the moral fiber of those involved. These include gratuities (i.e., anything of value) offered to governmental officials or employees. Such activities are not condoned and will not be tolerated. Also, Eaton prohibits the offer or acceptance of gifts or gratuities that the recipient likely would consider to be of substantial value. Any supplier that violates this item A (8) Gift and Gratuity Policy risks immediate loss of all existing and future Eaton business.
B. Compliance Monitoring
The supplier will allow Eaton Corporation and/or any of its representatives or agents unrestricted access to its facilities and all relevant records at all times, whether or not notice is provided in advance. Eaton will continue to develop monitoring systems to assess and ensure compliance.
C. Application to Subcontractors
This Code also applies to any subcontractor(s) to the supplier, and the supplier is fully responsible for compliance by any such subcontractor(s) as if it were the supplier itself in noncompliance. Eaton reserves the right to approve all subcontractors.
D. Event of Violation
If the supplier does not comply with this Eaton Corporation Global Sourcing Supplier Code of Conduct, Eaton requires that the supplier implement a corrective action plan to cure the noncompliance within a specified time period (furnished by Eaton in writing). If the supplier fails to meet the corrective action plan commitment, Eaton will terminate the business relationship, including suspending placement of future orders and potentially terminating current production. Eaton has the right to hold supplier responsible for any costs of investigating noncompliance. An exception to the application of this item D is a violation of item A (8) Gift and Gratuity Policy, where the penalty is as stated.

 No Laughing Matter: Eaton and the Racist Joke (B)

Dimitri braced himself for the worst as he caught Jake Longly, CEO of TruckComm, approaching him out of the corner of his eye. Dimitri had considered that Longly might be at this American Trucking Association Conference since it is one of the largest trucking conference in the country. That said, he was not expecting a direct confrontation with Longly, as Dimitri had not heard anything from Longly since Dimitri sent the letter to him three weeks ago. His mind now raced to think of how he should respond to this potential confrontation . . .

The Letter
Three weeks prior, Dimitri had resolved that the best course of action would be to confront Longly through a letter. Dimitri drafted up an eloquent letter (Exhibit A) that described his reaction to the "joke" as well as its consequences- Dimitri wrote that Eaton would be suspending all business with TruckComm for a period of one year and would evaluate whether to do business with TruckComm after the one-year period based on the strides TruckComm makes to commit itself to ethical (and therefore non-racist) behavior.

The Reaction
Jake Longly extended a handwritten apology letter as he neared Dimitri. He also apologized in person to Dimitri and stated that this "joke" was entirely out of character. Jake explained that he is very active in his church life and believes in the equality of all races. Furthermore, Jake committed to training himself and his employees in diversity training.

Exhibit A - Letter from Dimitri to Jake Longly

 

 

 

March 22, 2004

Mr. Jake Longly
President / CEO
TruckComm

Dear Jake,

I am saddened to have to write this letter.

I sincerely appreciate the hospitality you and your TruckComm team members extended to me while in Fort Lauderdale for TMC. However, given the commitment I have made to Eaton Corporation to uphold ethical business principles, and my own long standing personal commitment to the fair and equal treatment of all humans regardless of race, ethnic origin, gender etc, I must express my most serious objections to the inappropriate ethnic joke you stated during dinner on March 16th, 2004. I am sure members of your team recognized that I was visibly shaken as you were telling that racist story about the airplane flight. I was genuinely sickened by your derogatory references to African Americans and your use of the "N" word.

In keeping with the tenets of Eaton's ethical business policies and practices, we have made the decision to withdraw all Roadranger business from TruckComm for a minimum of twelve months. Manager marketing communications and I have also elected to cancel our participation in the April TruckComm Invitational event. This one year moratorium is not negotiable. In the interest of our Roadranger customers, we will deliver on our commitment to sponsor the TruckComm Symposium.

As a leader of Eaton Corporation, I have a duty to take this action. If you and the TruckComm team can demonstrate a true commitment to ethical, non-racist business practices in this coming year, we will reconsider our advertising relationship. We believe that this commitment to ethical business practices is one you need to make in the interest of the long term health of your business.

We look forward to hearing how you and the TruckComm team are going to demonstrate a true commitment to equal and ethical treatment of all individuals in your business practices. It is only through demonstration of this commitment that Eaton and TruckComm can renew a mutually beneficial full business relationship in the future.

Sincerely,


Dimitri N. Kazarinoff
Director of Global Roadranger Marketing

 

Last Updated: 1/27/09