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Woodward Governor Company

Woodward Governor Company

5001 North Second Street
P.O. Box 7001
Rockford, Illinois 611257001
U.S.A.
Telephone: (815) 877-7441
Fax: (815) 639-6033
Web site: http://www.woodward.com

Public Company
Incorporated:
1902
Employees: 3,654
Sales: $678.8 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: WGOV
NAIC: 333611 Turbine and Turbine Generator Set Unit Manufacturing; 335314 Relay and Industrial Control Manufacturing; 336412 Aircraft Engine and Engine Parts Manufacturing

Woodward Governor Company is the worlds oldest and one of the largest manufacturers of energy control systems and components for industrial and aircraft engines, turbines, and other power equipment. Examples of the companys products include ignition systems, fuel injection systems, integrated fuel systems, and power management controls. The main markets served by the company are power generation, transportation, process industries (such as the processing of oil and gas, petrochemicals, paper, and sugar), and aerospace. The bulk of Woodward Governors sales are to original equipment manufacturers (OEMs), with General Electric Company accounting for nearly one-third of overall revenues. Other customers include Caterpillar Inc., Honeywell Inc., MAN AG, Pratt & Whitney, and Rolls-Royce plc. The company operates eight plants in the United States, two each in the United Kingdom and Germany, and one each in the Netherlands and Japan. Woodward Governor is also distinguished by a unique and proven management philosophy called the Corporate Partnership.

First Product: Waterwheel Governor

The company that would become Woodward Governor was founded in 1870 by Amos W. Woodward. Woodward was descended from the Woodward family that helped to settle Watertown, Massachusetts, in the 1630s. Born in 1829 in Winthrop, Maine, Woodward attended Kents Hill Academy for only one term. In that short time, however, he mastered higher mathematics and physics and was considered by many to be a genius. Woodward eventually went to work in a factory in Worcester, Massachusetts, before migrating to the Midwest, specifically Rockford, Illinois, in 1856. An inveterate tinkerer and inventor, Woodward managed to earn a modest salary by selling his innovations. He also held various mechanic jobs. It was through one of those positions, in fact, that he became intrigued with a major dilemma of the day: how to control the speed at which waterwheels turned.

Woodward solved the problem by designing a mechanismthe mechanical noncompensating waterwheel governorin 1869. He received a patent for the device in 1870 and started a company to manufacture the governors. Despite the usefulness of Woodwards invention, the new company struggled. Besides lacking capital, Woodward also lacked the desire to build a profitable business. Like many other inventors, he was more interested in developing new ideas. Fortunately, his son Elmer Woodward had a greater knack for business. Elmer had started working in his fathers shop as a boy and had, like his father, shown himself to be gifted in math and physics. On one occasion, for example, Elmer devised a contraption that automatically controlled the cutting speed and feeder of a machine that he was operating. Elmer was caught reading a book while the machine worked away.

Elmer Woodwards desire for learning stemmed from what he considered a poor formal education. To make up for the deficiency, he spent years studying technical books after dinner until midnight. As he got older, he became increasingly involved in the companys business affairs. It was then that the enterprise began to prosper. In 1891 the business had three employees and was selling about $8,000 worth of governors annually. During the 1890s, though, the company grew and even expanded into a larger manufacturing facility. At the same time that he was helping to run the business, Elmer Woodward, like his father, continued to invent. Importantly, in 1898, when he was 36 years old, Elmer received a patent for a governor that was an improvement over the one his father had designed. The breakthrough device gave the company an important advantage in the burgeoning market for governors needed to control new hydroelectric generators.

In 1902 Amos and Elmer Woodward incorporated as Woodward Governor Company. By that time they were employing 25 men at their Rockford manufacturing facility. As the hydroelectric power market surged during the 1910s and 1920s, so did Woodward Governors sales. The company also expanded overseas into Europe, Japan, New Zealand, and elsewhere throughout the world. Indeed, by the 1920s the company was making more than 35 percent of its sales to foreign buyers. In 1910 Woodward Governor moved its operations to a new five-story plant. Elmer Woodward continued to tweak and improve the companys governors in an effort to meet new needs in the marketplace, helping the companys revenues to climb. Amos Woodward died in 1919, a few years short of his 90th birthday, and his son continued to lead Woodward throughout the 1920s. Early in 1929, when he was 67 years old, Elmer Woodward hired son-in-law Irl Martin to take over day-to-day operations, while he continued to design new products and make pivotal contributions to the company well into his 70s.

By 1929, Woodward Governor was employing 50 workers and had established itself as a leader in the design and manufacture of prime mover controls (prime movers are machines that convert either heat or hydraulic energy into mechanical or electrical energy); that year, the firm posted net income of $65,000 on sales of $318,000. Unfortunately, the companys fortunes were about to change for reasons outside of its control. The stock market crash of 1929 quashed demand for Woodwards waterwheel and hydropower governors. Martin was faced with a crisis, his handling of which would demonstrate his legendary management abilities and philosophies. Rather than lay off staff, Martin called all of the workers together and offered them a choice: either fill existing orders and hope for more, or keep everyone on the payroll at 20 hours per week and at a cut in pay until business improved. The workers elected to scale back hours and pay. Until the crisis was over, Elmer Woodward paid much of their wages out of his own pocketa practice that was, and still is, almost unheard of in any kind of corporation. It was later discovered that Woodward had borrowed against his own life insurance to meet the payroll.

Expanding the Product Line in the 1930s

The companys shipments began to pick up in 1932 and 1933, although the company was still lagging. Woodward and Martin realized that the company would be forced to find new sources of revenue to supplant lost demand. To that end, Woodward began developing a governor to control diesel engines that were being used at the time as auxiliary systems in hydroelectric plants. Under his supervision, the company perfected a governor for diesel engines in 1933 that would become the core of the companys product line for several years. The pivotal breakthrough provided an important boost to the companys sagging bottom line. In fact, Woodward Governors elated workers were soon making up for lost time with 60-hour weeks. Unfortunately, the federal government, concerned with underemployment, forced the company to cut them back to 40 hours. Martin feared that the company would be unable to meet demand, but their workers, realizing the urgency of the situation, continued to work 60 hours per week at only 40 hours of pay.

Woodward Governor introduced another major product breakthrough in 1934: a governor that could control the pitch of an airplane propeller. An aviation company had approached the company about creating such a control, and several of the companys younger members had gone to work to design the contraption. Unable to solve the problem, they eventually called on 73-year-old Elmer Woodward to finish the job. Within several months his team delivered a perfected governor that would give Woodward Governor a much needed entry into the aviation industry.

Although sales surged during the mid-1930s as a result of the new innovationsand reached $1.4 million by 1939, exceeding the $1 million mark for the first timethe companys equipment and facilities had depreciated by the end of the decade. Rather than borrow the cash to renew the plant, Martin again called the employees together. They all agreed that everyone in the company should forego a pay raise in order to pay cash for new equipment. Thus, Woodward Governor emerged from the Depression with a broader product line, new equipment, little debt, and a family-like bond between labor and management that would distinguish the company in American industry. This bond also led the company to undertake a recapitalization in 1940 that greatly increased the number of shares of common stock, enabling employees to become stockholders in the company; coupled with the recapitalization was an initial public offering of the company stock, which also took place in 1940.

Company Perspectives

Woodward is a world-class company with customer-focused engineering capabilities. We design and manufacture efficient, low-emission, cost-effective products. Woodward takes an aggressive approach to gaining market share and expanding our customer base. We will achieve these objectives using strategic acquisitions and alliances, as well as organic growth.

Woodward is rapidly becoming the preferred supplier for leading global equipment manufacturersa system solution supplier.

Much of Woodward Governors success in the 1930s, and even over the next several decades, was attributable to Martins unique management techniques. In the 1930s, for example, Martin realized that some of his skilled machinists and mechanics were not producing as much as he believed they could. He believed the problem was psychological and was attributable to the workers poor self-image. To solve the problem, he instituted a dress code that included a tie and smock, and began requiring that all employees remain neatly shaven. The workers also agreed to begin keeping their work areas extremely clean and neat. Worker productivity improved greatly and, according to Martin, the workers began to realize the true value of their contribution to the company and society. Among other of Martins management innovations was aptitude testing, which was used to help determine where a worker would perform most effectively and happily. He also introduced a cutting edge health insurance program that focused on personal preventive medicine.

On December 31, 1940, 78-year-old Elmer Woodward, or Pops as he had come to be called, worked a full day, returned home, and then died of a heart attack. His exemplary service to the company spanned 64 years. Among other attributes, the soft-spoken Elmer was known for treating everyone as his equal, regardless of position or stature, as well as for earning the respect of all those who knew him. Irl Martin assumed complete leadership of the company after Elmers death, just as Woodward Governor was entering the greatest growth phase in its history. Indeed, World War II placed huge demands on the companys production facilities as orders for its advanced propeller controls boomed; the advantage that the controls offered was that they reduced vibration in airplanes and ships by synchronizing and phasing the propellers of two or more engines.

Woodward Governor continued to innovate during the war, introducing, for example, the first aircraft turbine control in 1943, and sales skyrocketed. Amazingly, the companys ranks swelled from just 50 in 1935 to more than 1,600 during the wars peak. The explosive growth virtually changed the face of the company, which had moved its operations into a large new factory at the very start of the war. Again, Martin consulted his workers about the new facility and they all agreed to forgo some compensation to build it. The facility was completely state-of-the-art, and was designed with worker productivity and satisfaction in mind. The plant became much less crowded after the war, when the workforce shrank to a more manageable 500. Although demand faded during that period, sales growth resumed in the wake of the postwar economic boom of the 1950s and 1960s.

Instituting the Corporate Partnership in 1946

In 1946 Martin instituted what would become one of his most noted management schemes: the Corporate Partnership. This plan led to a number of innovative management solutions. For example, Martin was concerned about the problem of determining equitable pay rates for everyone in the company, including himself. After much thought, he decided to present a solution to the employees. Under the new system, every employee, or member, would receive no more and no less than ten times that of the least valuable category of worker. In addition, a bonus system was put in place. At the end of each year, workers and management would rank everyone in their department according to a given set of criteria. The rankings were combined and every employee then received a ranking within the entire company. That rank was used to determine an employees percentage of the aggregate annual bonus.

During the mid-1950s Woodward Governor expanded its product line to include main fuel controls for aircraft gas turbines and electronic analog controls. Among the recognized innovations during the 1950s and 1960s were: the electrical cabinet actuator in 1957; the first truly electric governor in 1960; fuel valves for aerodrive turbines in 1962; control for turboprop engines in 1964; and a unique new electronic control system in 1965. As demand for the companys products increased, Martin expanded the company. In 1955 Woodward Governor built a new factory in Fort Collins, Colorado. Subsequently, Martin oversaw the installation of production facilities throughout the world in the Netherlands, England, Japan, and Australia. By the late 1960s, Woodward was generating annual revenues of about $70 million.

Although the 65-year-old Martin officially retired from the presidency in 1960, he remained as chairman of the board and led Woodward Governor into the 1970s. The company continued to introduce new products during the early 1970s and to strengthen its Corporate Partnership program. In fact, Martin became a sought-after speaker in the Midwest by groups wanting to hear about his unique management philosophy. Unfortunately, Martins health began deteriorating in 1975. He resigned in March 1976 and died on April 22 after 55 years of service to Woodward Governor.

Key Dates

1870:
Amos W. Woodward receives a patent for the mechanical noncompensating waterwheel governor and soon begins selling the devices, marking the beginning of Rockford, Illinois-based A.W. Woodward Company.
1902:
Company is incorporated as Woodward Governor Company, with Amoss son Elmer Woodward now largely in charge of the firm.
1929:
Elmer Woodwards son-in-law Irl Martin takes over day-to-day operations.
1930s:
Company expands into controls for diesel engines and for airplane propellers.
1940:
Woodward Governor goes public.
1946:
Martin institutes the Corporate Partnership management scheme.
1955:
Company builds first company factory outside Rockford, in Fort Collins, Colorado.
1976:
Calvin C. Covert succeeds Martin as chairman and CEO.
1994:
Company posts its first loss since 1940.
1995:
John Halbrook takes over as chairman and CEO following Coverts death.
1997:
Company stock is moved from OTC trading to the NASDAQ market.
1998:
Fuel Systems Textron, Inc. is acquired for $174.8 million and is renamed Woodward FST, Inc.
2000:
Company receives a five-year, $500 million contract from GE Power Systems.

Thriving Under Coverts Leadership: 197689

Martin was succeeded by Calvin C. Covert. Covert had joined the company in 1942, going to work in the lowly snagging room, where he shaved rough spots off of castings. One day Mr. Martin came out and said, Sonny boy, you made, Covert recalled in the January 1988 Rockford Magazine. Covert continued, I said, made what. And he said, I gave you one of the dirtiest jobs. Now what the hell do you want to do? That began Coverts rise up the corporate ladder. By the time he took the helm in 1976, he had been working in top management for most of his career. Under his direction, Woodward Governor continued to create new products and to refine its management techniques. Major new products in the 1970s included an eight-bit microprocessor synchronizer and a digital synchronizer for aircraft. Covert also stepped up Woodward Governors international expansion in 1977 with a new plant in Brazil.

The company thrived under Coverts leadership. It experienced a downturn in its important turbine division in the early 1980s, but by the mid-1980s its sales were approaching the $200 million mark. During the mid-1990s the company whipped its internal operations into shape and stepped up its growth pace. Indeed, $100 invested in Woodward Governor in 1976 would have grown to nearly $1,500 by 1988. That growth was largely the result of an economic upswing and increased demand from defense and aerospace industries during the mid-and late 1980s. Woodward Governors sales leapt 13 percent in 1987 to $275 million as net earnings rose 37 percent to $24 million. By the end of the decade, moreover, the company was generating more than $300 million in revenues annually.

Although Woodward Governor was helped by strong markets during much of the 1980s, its success was also attributed to its proven management style, which was getting increased attention within American industry as a result of the companys ability to compete with Japan and other countries. As it turned out, Woodward Governor had long been practicing management techniques (such as employee empowerment and performance-based incentives) that were emerging as major trends in the 1980s. For example, the companys president received only $247,000 in total salary and bonuses in 1986, in keeping with the company rule of not making more than ten times the amount of the lowest job category. Likewise, new Woodward Governor employees were brought into the company by way of a solemn ceremony; other employees attended, and even joined in prayer, as the new employees were inducted into the Woodward family. Finally, while Woodward Governors workers received only about 80 to 90 percent of the salary of their U.S. industrial counterparts, their bonuses consistently placed them well above the national average in compensation.

Early 1990s Setback

Woodward Governor entered the 1990s with record sales and profits; revenues hit $362 million in 1991. Unfortunately, waning defense and aerospace markets were beginning to take their toll on the companys bottom line. Woodward Governor had been trying to reduce its dependence on the aircraft market since the mid-1980s, when over 60 percent of sales were attributable to that sector. But by the early 1990s the company was still getting more than 50 percent of its revenues from the aircraft market and was scurrying to beef up its activity in other sectors. Similarly, the company had seen the percentage of its sales attributable to defense markets fall from 20 percent in 1990 to less than 15 percent by 1993. To make up for the shortfall, Woodward Governor began concentrating on its industrial controls division, its only major segment other than aircraft controls.

Sagging key markets hurt Woodward Governor in 1993 and 1994. Sales slipped to $333 million in 1994, and the company posted its first loss since 1940. By that time, John Halbrook had been brought on board as president and chief executive. Under his leadership, the company instituted aggressive cost-cutting measures in 1994 that resulted in a $24 million restructuring charge, which pinched its net earnings. The charge also forced the company to cut its aircraft division workforce by 20 percent, resulting in one of the biggest layoffs ever conducted by the organization. The restructuring also included the closing of a plant in Stevens Point, Wisconsin. Covert passed away in December 1994 at the age of 70, and Halbrook assumed his position as chairman, announcing his commitment to continue cutting costs and improving the companys market stance.

Despite setbacks going into the mid-1990s, Woodward Governor continued to research and introduce new products. It brought out innovative new digital controls in 1992 and 1993, for example, and had several advanced devices for both aircraft and industrial markets under development. Acquisitions were also completed, including the purchase of HSC Controls of Buffalo, New York, which made electromechanical devices for integrated control systems, especially for aircraft engines; and a small maker of fuel injection nozzles based in Kelbra, Germany, which became part of Woodward Governor Germany GmbH. In 1995, the year of Woodward Governors 125th anniversary, the company bounced back, posting net income of $11.9 million on revenues of $379.7 million.

Growing Steadily, Late 1990s Through Early 2000s

Woodward Governor enjoyed steady growth from the late 1990s into the early 21st century, growth that was fueled by continual expansion of the product line, strategic acquisitions, and alliance formation. In July 1996 the company acquired Deltec Fuel Systems Holding B.V., a Netherlands firm specializing in fuel control systems for natural gas engines. The purchase was part of a company push to grab a share of the burgeoning market for natural gas engines. In October 1996 Woodward Governor and Mountain View, California-based Catalytica, Inc. created a joint venture called GENXON Power Systems, LLC to market an aftermarket emission control system for industrial gas turbines.

Early in 1997 Woodward Governor executed a four-for-one split of its stock. The increased liquidity set the stage for the company to take what many observers considered to be a long-overdue move: listing the stock on the NASDAQ. The move brought a heightened awareness to both the stock and the company because the companys shares had previously traded only via over-the-counter pink sheets, a trading area usually used only for small start-up companies. The move to the NASDAQ, along with the companys increasing emphasis on acquisitions and alliances, highlighted a shift from the more conservative management style of the past to a much more aggressive approach.

The bold new approach was more than evident in the June 1998 acquisition of Fuel Systems Textron, Inc. from Textron Inc. for $174.8 millionby far the largest acquisition in company history. Based in Zeeland, Michigan, Fuel Systems Textron produced fuel injection nozzles, spray manifolds, and fuel metering and distribution valves for gas turbine engines used in both aircraft and industrial applications. The acquired company, which had revenues of $82 million in 1997, was subsequently renamed Woodward FST, Inc. The acquisition resulted in a substantial increase in revenues for the 1999 fiscal year, with revenues surging from $490.5 million to $596.9 million. Meantime, the company also acquired Baker Electrical Products, Inc. of Memphis, Michigan, in May 1998, gaining a supplier of electromagnetic coils for antilock braking systems; and formed an alliance with Lockheed Martin Control Systems to create a company called AESYS that was charged with creating fuel delivery systems for aircraft engine OEMs.

In June 2000 Woodward Generator received the largest single contract in its history, a five-year deal with GE Power Systems valued at more than $500 million. GE Power Systems was a unit of General Electric Company, which had long been Woodward Generators largest customer. Under the contract, the company would supply GE Power Systems with fuel and combustion control systems and components for GEs array of industrial gas turbines for the power generation, oil and gas processing, and marine markets. At the time, power generation was considered a particularly key market as growing demand for power was leading to utilities building new generating plants. Woodward Generator also completed one acquisition during 2000: Hoeflich Controls, Inc., a maker of ignition systems for industrial gas engines, purchased in November.

In June 2001 the company acquired the Bryce diesel fuel injection business of Delphi Automotive Systems, which included a plant in Cheltenham, England. For the fiscal year ending in September 2001, Woodward Generator posted record profits of $53.1 million on record sales of $678.8 million. Hoping to get in on the ground floor of a potentially burgeoning new sector, the company announced in December 2001 that it was entering the market for fuel cell control systems.

Acquisitions continued in 2002. In March the company bolstered its power generation sector by acquiring Leonhard-Reglerbau, which produced monitoring devices for power generation equipment at its plant in Stuttgart, Germany. The company had 1991 sales of $13 million. Also acquired in March 2002 was Nolffs Carburetion, Inc., a private company in Romulus, Michigan, that produced fuel management systems for small industrial engines that use cleaner-burning fuels such as propane and natural gas. That same month, Woodward Generator entered into a joint venture with MotoTron, a subsidiary of Brunswick Corporation that had developed electronic controls technology for pleasure boat engines. Woodward Generator in April 2002 struck a seven-year, $350 million deal with GE Aircraft Engines to supply fuel delivery systems for engines used in regional and single-aisle aircraft. One month later, the company joined forces with one of its chief competitors, Hamilton Sundstrand Corporation, to establish a joint venture in China to repair jet engine parts, including fuel controls.

Many of Woodward Governors initiatives in the early 2000s were aimed at bolstering the firms industrial control operations, thereby continuing the drive to lessen dependence on the aircraft market. By 2002 industrial controls were generating about 60 percent of overall revenues. This trend became particularly important with the slump in the airline and aircraft industries that followed in the wake of the events of September 11, 2001. Despite the dismal economic conditions that prevailed into the following year, which were also slowing demand in the power generation sector, Woodward Generator managed through the first nine months of its 2002 fiscal year to post slightly higher profits and revenues. The company seemed well positioned to survive the turbulent economic times and to thrive in the long run.

Principal Subsidiaries

Baker Electrical Products, Inc.; Woodward FST, Inc.; Woodward Foreign Sales Corporation (U.S. Virgin Islands); Woodward HSC, Inc.; Woodward International, Inc.; Woodward Tianjin Controls Company Limited (China); Woodward Governor de Mexico S.A. de C.V.; Woodward Governor Asia/Pacific PTE. LTD. (Singapore); Woodward Governor France S.A.R.L.; Woodward Governor Germany GmbH; Woodward Governor GmbH (Switzerland); Woodward Governor India PTE. LTD.; Woodward Governor Nederland B.V. (Netherlands); Woodward Governor Poland, Limited; Woodward Governor (Japan) Ltd.; Woodward Governor (Quebec) Inc. (Canada); Woodward Governor (Reguladores) Limitada (Brazil); Woodward Governor (U.K.) Limited.

Principal Competitors

Hamilton Sundstrand Corporation; Parker Hannifin Corporation; Wabtec Corporation.

Further Reading

Anason, Dean, This Isnt the Place to Rest, Atlanta Business Chronicle, May 26, 1995, p. 1B.

Braun, Georgette, Smaller Is More for Woodward, Rockford (III.) Register Star, March 19, 2002, p. 1B.

, Two Local Firms to Team Up in China, Rockford (III.) Register Star, May 23, 2002, p. 1B.

, Woodward Buy Boosts Power Unit, Rockford (III.) Register Star, March 7, 2002, p. 2C.

, Woodward Inks $350 Million Engine Deal with GE, Rockford (III.) Register Star, April 3, 2002, p. 1B.

Bremner, Brian, Caught in Crunch: Growth Crimps Woodward Governor, Crains Chicago Business, January 25, 1988, p. 20.

A Gentleman Named Woodward, Rockford, 111.: Woodward Governor Company, 1974.

Hodge, Bob, The Woodward Way: A History of the Woodward Governor Company, Rockford, Illinois, USA, 18701995, Rockford, 111.: Woodward Governor Company, 1997, 224 p.

Knapp, Kevin, Surging Power Demand Gives Turbine Parts Maker a Boost, Crains Chicago Business, September 18, 2000, p. 47.

Knowles, Francine, Woodward Governor Split Powers Stock, Chicago Sun-Times, November 22, 1996, p. 49.

McGough, Robert, How to Win the Class Struggle, Forbes, November 3, 1986, p. 153.

Murphy, H. Lee, Move to Big Leagues Ignites Woodward Governors Stock, Crains Chicago Business, January 27, 1997, p. 12.

, Shrinking Markets Put Squeeze on Woodward, Crains Chicago Business, January 24, 1994, p. 19.

Osbourne, Randy, An Officer and a Gentleman, Rockford (III.) Magazine, January 1988.

Palmer, Ann Therese, Cost Controls Key for Woodward Governor, Crains Chicago Business, February 6, 1995, p. 24.

Pride, Jackie, Woodward Eliminates 200 Jobs, Wausau (Wise.) Daily Herald, April 2, 1993.

Spivak, Cary, Woodward Shifts Facilities to Handle Product Demand, Crains Chicago Business, January 27, 1986, p. 18.

Weingarten, Paul, Woodwards Way, Chicago Tribune Magazine, July 29, 1984.

Dave Mote

update: David E. Salamie

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Woodward Governor Co.

Woodward Governor Co.

5001 North Second Street
P.O. Box 7001
Rockford, Illinois 61125-7001
U.S.A.
(815) 877-7441
Fax: (815) 877-0001

Public Company
Incorporated: 1902
Employees: 3439
Sales: $374 million
Stock Exchanges: NASDAQ
SICs: 3511 Turbines & Turbine Generator Sets; 3519 Internal Combustion Engines, Not Elsewhere Classified; 3625 Relays & Industrial Controls; 3714 Motor Vehicle Parts & Accessories

Woodward Governor Co. is the worlds oldest and largest manufacturer of controls for prime movers, which are machines that convert either heat or hydraulic energy into mechanical or electrical energy. The company designs and manufactures controls for all types and sizes of steam and diesel engines, hydraulic turbines, aircraft propellers, and industrial and aircraft gas turbines. Woodward Governor is also distinguished by a unique and proven management philosophy.

The company that would become Woodward Governor was founded in 1870 by Amos W. Woodward. Woodward was descended from the Woodward family that helped to settle Watertown, Massachusetts, in the 1630s. Born in 1829 in Winthrop, Maine, Woodward attended Kents Hill Academy for only one term. In that short time, however, he mastered higher mathematics and physics and was considered by many to be a genius. Woodward eventually went to work in a factory in Massachusetts before migrating to the Midwest in 1856. An inveterate tinkerer and inventor, Woodward managed to earn a modest salary by selling his innovations. He also held various mechanic jobs. It was through one of those positions, in fact, that he became intrigued with a major dilemma of the day: how to control the speed at which waterwheels turned.

Woodward solved the problem by designing a mechanismthe mechanical noncompensating waterwheel governorin 1869. He received a patent for the device in 1870 and started a company to manufacture the governors. Despite the usefulness of Woodwards invention, the new company struggled. Besides lacking capital, Woodward also lacked the desire to build a profitable business. Like many other inventors, he was more interested in developing new ideas. Fortunately, his son Elmer Woodward had a greater knack for business. Elmer had started working in his fathers shop as a boy and had, like his father, shown himself to be gifted in math and physics. On one occasion, for example, Elmer devised a contraption that automatically controlled the cutting speed and feeder of a machine that he was operating. Elmer was caught reading a book while the machine worked away.

Elmer Woodwards desire for learning stemmed from what he considered a poor formal education. To make up for the deficiency, he spent years studying technical books after dinner until midnight. As he got older, he became increasingly involved in the companys business affairs. It was then that the enterprise began to prosper. In 1891, the business had three employees and was selling about $8,000 worth of governors annually. During the 1890s, though, the company grew and even expanded into a larger manufacturing facility. At the same time that he was helping to run the business, Elmer Woodward, like his father, continued to invent. Importantly, in 1898, when he was 36 years old, Elmer received a patent for a governor that was an improvement over the one his father had designed. The breakthrough device gave the company an important advantage in the burgeoning market for governors needed to control new hydro power electric generators.

In 1902 Amos and Elmer Woodward incorporated as Woodward Governor Company. By that time they were employing 25 men at their Rockford, Illinois, manufacturing facility. As the hydro electric power market surged during the 1910s and 1920s, so did Woodward Governors sales. The company also expanded overseas into Europe, Japan, New Zealand, and elsewhere throughout the world. Indeed, by the 1920s the company was making more than 35 percent of its sales to foreign buyers. In 1910 Woodward Governor moved its operations to a new five-story plant. Elmer Woodward continued to tweak and improve the companys governors in an effort to meet new needs in the marketplace, helping the companys revenues to climb. Amos Woodward died in 1919, a few years short of his 90th birthday, and his son continued to lead Woodward throughout the 1920s. Early in 1929, when he was 67 years old, Elmer Woodward hired son-in-law Irl Martin to take over day-to-day operations, while he continued to design new products and make pivotal contributions to the company well into his 70s.

By 1929, Woodward Governor was employing 50 workers and had established itself as a leader in the design and manufacture of prime mover controls. Unfortunately, the companys fortunes were about to change for reasons outside of its control. The stock market crash of 1929 quashed demand for Woodwards waterwheel and hydro power governors. Martin was faced with a crisis, his handling of which would demonstrate his legendary management abilities and philosophies. Rather than lay off staff, Martin called all of the workers together and offered them a choice: either fill existing orders and hope for more, or keep everyone on the payroll at 20 hours per week and at a cut in pay until business improved. The workers elected to scale back hours and pay. Until the crisis was over, Elmer Woodward paid much of their wages out of his own pocketa practice that was, and still is, almost unheard of in any kind of corporation. It was later discovered that Woodward had borrowed against his own life insurance to meet the payroll.

The companys shipments began to pick up in 1932 and 1933, although the company was still lagging. Woodward and Martin realized that the company would be forced to find new sources of revenue to supplant lost demand. To that end, Woodward began developing a governor to control diesel engines that were being used at the time as auxiliary systems in hydro-electric plants. Under his supervision, the company perfected a governor for diesel engines in 1933 that would become the core of the companys product line for several years. The pivotal breakthrough provided an important boost to the companys sagging bottom line. In fact, Woodward Governors elated workers were soon making up for lost time with 60-hour weeks. Unfortunately, the Federal government, concerned with underemployment, forced the company to cut them back to 40 hours. Martin feared that the company would be unable to meet demand, but their workers, realizing the urgency of the situation, continued to work 60 hours per week at only 40 hours of pay.

Woodward Governor introduced another major product breakthrough in 1934: a governor that could control the pitch of an airplane propeller. An aviation company had approached the company about creating such a control, and several of the companys younger members had gone to work to design the contraption. Unable to solve the problem, they eventually called on 73-year-old Elmer Woodward to finish the job. Within several months his team delivered a perfected governor that would give Woodward Governor a much-needed entry into the aviation industry.

Although sales surged during the mid-1930s as a result of the new innovations, the companys equipment and facilities had depreciated by the end of the decade. Rather than borrow the cash to renew the plant, Martin again called the employees together. They all agreed that everyone in the company should forego a pay raise in order to pay cash for new equipment. Thus, Woodward Governor emerged from the Depression with a broader product line, new equipment, little debt, and a family-like bond between labor and management that would distinguish the company in American industry.

Much of Woodward Governors success in the 1930s, and even throughout the mid-1900s, was attributable to Martins unique management techniques. In the 1930s, for example, Martin realized that some of his skilled machinists and mechanics were not producing as much as he believed they could. He believed the problem was psychological and was attributable to the workers poor self image. To solve the problem, he instituted a dress code that included a tie and smock, and began requiring that all employees remain neatly shaven. The workers also agreed to begin keeping their work areas extremely clean and neat. Worker productivity improved greatly and, according to Martin, the workers began to realize the true value of their contribution to the company and society. Among other of Martins management innovations was aptitude testing, which was used to help determine where a worker would perform most effectively and happily. He also introduced a cutting edge health insurance program that focused on personal preventive medicine.

On December 31, 1940, 78-year-old Elmer Woodward, or Pops as he had come to be called, worked a full day, returned home, and then died of a heart attack. His exemplary service to the company spanned 64 years. Among other attributes, the soft-spoken Elmer was known for treating all men as his equal, regardless of position or stature, as well as for earning the respect of all those who knew him. Irl Martin assumed complete leadership of the company after Elmers death, just as Woodward Governor was entering the greatest growth phase in its history. Indeed, WWII placed huge demands on the companys production facilities as orders for its advanced propeller controls boomed; the advantage that the controls offered was that they reduced vibration in airplanes and ships by synchronizing and phasing the propellers of two or more engines.

Woodward Governor continued to innovate during the war, introducing, for example, the first aircraft turbine control in 1943, and sales skyrocketed. Amazingly, the companys ranks swelled from just 50 in 1935 to more than 1,600 during the wars peak. The explosive growth virtually changed the face of the company, which had moved its operations into a large new factory at the very start of the war. Again, Martin consulted his workers about the new facility and they all agreed to forgo some compensation to build it. The facility was completely state-of-the-art, and was designed with worker productivity and satisfaction in mind. The plant became much less crowded after the war, when the work force shrank to a more manageable 500. Although demand faded during that period, sales growth resumed in the wake of the postwar economic boom of the 1950s and 1960s.

During the late 1940s, Martin instituted what would become one of his most noted management schemes; The Corporate Partnership. This plan lead to a number of innovative management solutions. For example, Martin was concerned about the problem of determining equitable pay rates for everyone in the company, including himself. After much thought, he decided to present a solution to the employees. Under the new system, every employee, or member, would receive no more and no less than ten times that of the least valuable category of worker. In addition, a bonus system was put in place. At the end of each year, workers and management would rank everyone in their department according to a given set of criteria. The rankings were combined and every employee then received a ranking within the entire company. That rank was used, and continued to be used in the 1990s, to determine an employees percentage of the aggregate annual bonus.

During the mid-1950s Woodward Governor expanded its product line to include main fuel controls for aircraft gas turbines and electronic analog controls. Among the recognized innovations during the 1950s and 1960s were: the electrical cabinet actuator in 1957; the first truly electric governor in 1960; fuel valves for aerodrive turbines in 1962; control for turboprop engines in 1964; and a unique new electronic control system in 1965. As demand for the companys products increased, Martin expanded the company. In 1955 Woodward Governor built a new factory in Fort Collins, Colorado. Subsequently, Martin oversaw the installation of production facilities throughout the world in The Netherlands, England, Japan, and Australia. By the late 1960s, Woodward was generating annual revenues of about $70 million.

Although the 65-year-old Martin officially retired from the presidency in 1960, he remained as chairman of the board and led Woodward Governor into the 1970s. The company continued to introduce new products during the early 1970s and to strengthen its Corporate Partnership program. In fact, Martin became a sought-after speaker in the Midwest by groups wanting to hear about his unique management philosophy. Unfortunately, Martins health began deteriorating in 1975. He resigned in March 1976 and died on April 22 after 55 years of service to Woodward Governor.

Martin was succeeded by Calvin C. Covert. Covert had joined the company in 1942, going to work in the lowly snagging room, where he shaved rough spots off of castings. One day Mr. Martin came out and said, Sonny boy, you made, Covert recalled in the January 1988 Rockford Magazine. Covert continued, I said, made what. And he said, I gave you one of the dirtiest jobs. Now what the hell do you want to do? That began Coverts rise up the corporate ladder. By the time he took the helm in 1976, he had been working in top management for most of his career. Under his direction, Woodward Governor continued to create new products and to refine its management techniques. Major new products in the 1970s included an eight-bit microprocessor synchronizer and a digital synchronizer for aircraft. Covert also stepped up Woodward Governors international expansion in 1977 with a new plant in Brazil.

The company thrived under Coverts leadership. It experienced a downturn in its important turbine division in the early 1980s, but by the mid-1980s its sales were approaching the $200 million mark. That improvement was accomplished with the help of Robert Pope, who was brought in from outside the company in 1983 to act as president, while Covert remained at Woodward Governor as chairman of the board. Under Popes leadership, the company whipped its internal operations into shape and stepped up its growth pace in the mid-1980s. Indeed, $100 invested in Woodward Governor in 1976 would have grown to nearly $1,500 by 1988. That growth was largely the result of an economic upswing and increased demand from defense and aerospace industries during the mid- and late 1980s. Woodward Governors sales leapt 13 percent in 1987 to $275 million as net earnings rose 37 percent to $24 million. By the end of the decade, moreover, the company was generating more than $300 million in revenues annually.

Although Woodward Governor was helped by strong markets during much of the 1980s, its success was also attributed to its proven management style, which was getting increased attention within American industry as a result of the companys ability to compete with Japan and other countries. As it turned out, Woodward Governor had long been practicing management techniques (such as employee empowerment and performance-based incentives) that were emerging as major trends in the 1980s. For example, the companys president received only $247,000 in total salary and bonuses in 1986, in keeping with the company rule of not making more than ten percent of the lowest job category. Likewise, new Woodward Governor employees were brought into the company by way of a solemn ceremony; other employees attended, and even joined in prayer, as the new employees were inducted into the Woodward family. And, while Woodward Governors workers received only about 80 to 90 percent of the salary of their U.S. industrial counterparts, their bonuses consistently placed them well above the national average in compensation.

Woodward Governor entered the 1990s with record sales and profits; revenues hit $362 million in 1991. Unfortunately, waning defense and aerospace markets were beginning to take their toll on the companys bottom line. Woodward Governor had been trying to reduce its dependence on the aircraft market since the mid-1980s, when over 60 percent of sales were attributable to that sector. But by the early 1990s the company was still getting more than 50 percent of its revenues from the aircraft market and was scurrying to beef up its activity in other sectors. Similarly, the company had seen the percentage of its sales attributable to defense markets fall from 20 percent in 1990 to less than 15 percent by 1993. To make up for the shortfall, Woodward Governor began concentrating on its industrial controls division, its only major segment other than aircraft controls.

Sagging key markets hurt Woodward Governor in 1993 and 1994. Sales slipped to $333 million in 1994, and the company posted its first loss since 1940. By that time, John Halbrook had been brought on board as president and chief executive. Under his leadership, the company instituted aggressive cost-cutting measures in 1994 that resulted in a $24 million restructuring charge, which pinched its net earnings. The charge also forced the company to cut its aircraft division work force by 20 percent, resulting in one of the biggest layoffs ever conducted by the organization. Covert passed away in December of 1994 at the age of 70, and Halbrook assumed his position as chairman, announcing his commitment to continue cutting costs and improving the companys market stance.

Despite setbacks going into the mid-1990s, Woodward Governor continued to research and introduce new products. It brought out innovative new digital controls in 1992 and 1993, for example, and had several advanced devices for both aircraft and industrial markets under development. With facilities throughout Illinois, Woodward Governors aircraft controls division remained a leader in the production of high quality fuel controls and control systems for aerospace customers in both commercial and military markets. Similarly, its industrial controls division was supporting offices and plants throughout the United States and Europe, as well as in Japan and Singapore. Moreover, Woodward Governor was a top global supplier of hydromechanical governors and analog controls for products including off-road machinery, locomotives, gas and steam industrial turbines, hydroelectric machinery, and more.

Further Reading

Anason, Dean, This Isnt the Place to Rest, Atlanta Business Chronicle, May 26, 1995, p. 1B.

Bremner, Brian, Caught in Crunch: Growth Crimps Woodward Governor, Crains Chicago Business, January 25, 1988, p. 20.

A Gentleman Named Woodward, Rockford, III.: Woodward Governor Company, 1974.

McGough, Robert, How to Win the Class Struggle, Forbes, November 3, 1986, p. 153.

Osbourne, Randy, An Officer and a Gentleman, Rockford Magazine, January 1988.

Palmer, Ann Therese, Cost Controls Key for Woodward Governor, Crains Chicago Business, February 6, 1995, p. 24.

Pride, Jackie, Woodward Eliminates 200 Jobs, Wausau Daily Herald, April 2, 1993, Business Sec.

Spivak, Gary, Woodward Shifts Facilities to Handle Product Demand, Crains Chicago Business, January 27, 1986, p. 18.

Weingarten, Paul, Woodwards Way, Chicago Tribune Magazine, July 29, 1984.

Woodward Governor Company: 125 Years, Rockford, 111.: Woodward Governor Company, 1994.

Dave Mote

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