Comments

Costco is always coming in for criticism on Wall Street for offering overly generous benefits to its workers at the expense of its shareholders.

Here's something Jim Senegal said about it a while ago:

"The last thing I want people to believe is that I don't care about the shareholder. But I happen to believe that in order to reward the shareholder in the long term, you have to please your customers and workers."

Jeff Bezos of Amazon looks at it the same way. He is refusing to bow to Wall Street pressure to drop the free delivery offer to customers. While I don't think anyone can tell with any degree of accuracy what's going to happen long-term in a business, it's nice to see people sticking by the some of the long-term fundamentals, i.e., if you take care of your workers, they'll take care of your customers and it is satisfied customers that takes care of your shareholders.

Posted by Noel Guinane at July 25, 2005 4:10 PM

In which we see that a leader can be both tough and fair, and considerate of the company's employees. Wow! What a concept! One thing that really struck me was the comments from Emme Kozloff, an analyst at Sanford C. Bernstein & Company. According to the article, she faulted Mr. Sinegal as being too generous to employees. "He has been too benevolent," she said. 'He's right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden."

Hmmm...so, Ms. Kozloff - just speculating here - but you've probably got a great benefits package at Bernstein & Co. Ever suggest to your boss that you "pick up a little more of the burden?"

Of course, I'm compelled to compare this to the struggle small businesses are having to provide even basic health care to their employees. Most small businesses really want to be considerate of their employees and simply can't afford the ever-escalating costs. They often have to choose between providing a job or better benefits for the group - one or the other, not both.

Posted by Mary Schmidt at July 25, 2005 6:02 PM

I STRONGLY believe that the corporation is an organization engaged in mobilizing resources for productive uses in order to create wealth and other benefits (and not to intentionally destroy wealth, increase risk, or cause harm) for its multiple constituents, or stakeholders (employees, customers, suppliers, govt / non-govt agencies, financial institutions, business-partners, regulatory authorities et al..). Therefore, i personally do believe that the CEO should aim to play the 'balancing act' in balancing the needs, wants, goals & aspirations of different stakeholder groups and that is wat makes the CEO successful & talked about rather than jus focusin on one stakeholder component!!

The term STAKEHOLDER VIEW was introduced in a seminal book by R. Edward Freeman called Strategic Management (1984. Freeman used the term stakeholder analysis to remind management that it was in the long-term interests of the company to pay attention to the interests of those who have an impact on or are impacted by the activities of the company.

The BENEFITS of using a STAKEHOLDER based approach are that:

a) You can use the opinions of the most powerful stakeholders to shape your organization at an early stage. Not only does this make it more likely that they will support you, their input can also improve the quality of your governance.

b) Gaining support from powerful stakeholders can help you to win more resources - this makes it more likely that your projects will be successful (minimal time & cost overruns).

c) By communicating with stakeholders early and frequently, you can ensure that they fully understand what you are doing and understand the benefits of your activities (contracts, projects, assignments, engagements etc) - this means they can support you actively when necessary.

d) You can anticipate what people's reaction to your tasks may be, and build into your plan the actions that will win people's support.

So, to conclude, my take on this topic is for CEOs to act responsibly keeping in mind the STAKEHOLDERS and not jus a few individual components who interact with the corporation.

Posted by K.Sriram (India) at July 26, 2005 1:05 AM

Kudos to Mr. Senegal and those like him. If you don't do your best for your internal customers, why should I think that you're going to step to the plate for me (as a customer?) And why should I do my best for you (as an employee?)

I like it
I love it
I want more of it!

It's not all about the money though. To motivate and inspire your employees you must do more than beef up their pay packets (although it is important to offer attractive and FAIR remuneration.) Believe it or not, money is not the primary motivator for employees. Please read my article on "Business as Unusual: Creating an Environment that Fosters Enthusiasm" for things that you can do to create a fulfilling work environment without hiking up your overheads!

http://hrsuccess.blogspot.com/

Hey, I'll be in the job market when I return to the States later this year. As I'm moving to the Seattle/Vancouver area, Costco will be the first place I contact!

Posted by Tom O'Leary at July 26, 2005 5:09 AM

For some reason, I think that Emme Koslov, who believes that Mr. Sinegal is too generous with his employees, wouldn't have a problem with Mr. Purcell getting a $106 million separation package. Most companies could afford to pay their employees more if they only distributed a small percentage of their high executive wages. The disparity between most executive and non-executive pay is discouraging. It also exposes a leader's perception of value in her organization.

Some say that such disparity motivates employees to endeavour through the ranks to the corporate elite some day. But like Ripley's, do you believe it, or not?

Posted by Tom O'Leary at July 26, 2005 6:18 AM

Tom--which choice would you take? Increase the level of the employees' salary and benefits package far beyond the value they add to the product and company OR decrease the chiefs' package so it is not so "demotivating" to the employees? It's too easy to say that CEOs are paid too much and employees too little without looking at the facts and reasons. Chiefs who decrease the value of the company and hurt employees don't deserve the big "go away" packages by any means, but how about those who help the company? How much do you think Jack Welch was paid? Did he deserve it? How about the chief of a small business who has a lot of his own money invested? The question is more complicated, I think, than anyone has addressed here.

Posted by Mike at July 26, 2005 6:39 AM

Isn't it usually the case these days that a board decides on a CEO, and then negotiates pay? Likewise aren't board decisions usually along the lines of 'this is the right person for the job, and whatever the cost, it's worth it'?

If that is indeed the case, negotiating power is naturally tilted a long way in favour of the CEO and away from the shareholders and everyone else. This would naturally flow through to what the conditions would look like if the CEO were to leave or be pushed out.

Posted by Dave at July 26, 2005 7:02 AM

Mike - I think that that your point about investing your own money is a good one. I would have had no problem in any legal circumstances with Mr. Purcell walking away with $106m if he had created the company, risked his own money to build it and finally decided to cash in and retire to the Bahama's. But he didn't. Put bluntly, he was a hired hand. Sure, he was operating at the top level but he was a manager, looking after a business on behalf of it's owners.

Is it capitalism to pay the guy (already well remunerated during his time) $106m to walk away from a mess that has devalued the price of the stock, devalued the company's name and seen folk put out of work?

Is it capitalism to pay above the market rate to everyone in the company because you are trying to build a business that will last for years and which appears to be on course for sustained stock, dividend and profit growth?

Personally, I think the former is a cop-out and the latter is enlightened.

Posted by Mark JF at July 26, 2005 7:05 AM

Since I'm from Seattle in the 1980's - I'd like to toss Microsoft in to the Costco, Amazon, Starbucks fray.

Microsoft has created incredible wealth for their people and the families they support - plus the Gates foundation has given a record $50B in charity world-wide.

Software is mentioned in Radical Evolution as a somewhat limiting factor in human evolution - it doesn't exponentially grow as fast as chips and hardware. Nevertheless - Microsoft is innovative enough to be No. 2 world-wide in branding, 2nd to Coca-Cola [BusinessWeek August 1].

And Microsoft is No. 3 in the Top 20 Inovative Companies in the World list in the August 1 BusinessWeek special report issue: Get Creative.

http://www.businessweek.com/

Posted by Sean at July 26, 2005 8:47 AM

You sold me Sean! My family and I are relocating from Ireland to Bellingham WA this year (October) and I already have 3 innovative doors to knock at with resume in hand (or should I present it as a scroll, or a video, or a telegram?): Costco, Starbucks and Microsoft! Did I choose a great place to move or what!

Posted by Tom O'Leary at July 27, 2005 3:52 AM

Tom - yes indeed you did - and Washington State has no state sales tax nor tax on food/drugs ... so the Seattle/Bellingham area is quite the place.

Nordstrom, Boeing, Seattle University, U of Washington, Cingular may also be potential career outposts.

Posted by Sean at July 27, 2005 4:32 AM

Sean:

Correction: Washington DOES have a sales tax, a whopping one. As you correctly note, it's not on unprepared food or perscription drugs, but there are (depending on which county you live in) local surcharge sales taxes which make rates on certain items up to 18+%.

High real property taxes except for non-commercial vehicles, where they are close to flat-taxed so owner of $40,000 vehicle pays roughly the same as owner of $4,000 vehicle.

Terribly regressive business taxes that use small businesses to subsidize established corporate giants, and are especially punishing on those small businesses that want to create jobs as opposed to pushing around passive wealth or other non-jobs-or-goods-creating wealth.

I think no-one is really enthused about our state tax structure except off-the-books businesses like drug dealers, people whose wealth comes from clipping bond coupons, people who inherited their wealth, or people who inherited their wealth and now dabble in bonds and dealing drugs.

Posted by jeff angus at July 27, 2005 10:07 AM

Interesting article you reference, Ed. The distinction "real capitalist" or "true capitalist" versus "mass capitalist" seems timely.

Posted by John O'Leary at July 27, 2005 10:46 AM

As I have written elsewhere - staff at the front line know all the answers all of the time - end of story - it's as simple as that.

Posted by Trevor Gay at July 27, 2005 11:40 AM

Jeff - thanks for the correction - a typo on my part - no state INCOME tax - Zero - Nada ... a $5k "promotion" for me moving there from New Mexico. The property tax in eastern Washington on homes is very moderate - I think King county picks up most of the tax burden, whereas Chelan county is low for example.

Posted by Sean at July 27, 2005 12:46 PM

Someone recently asked "How can you ensure creativity in a growing business?" ...here is your answer. Innovative thinking comes from a trust filled environment where everybody knows they are free to be themselves, where they will be supported in the process, where family members know "who they are" and understand the accountability and majesty behind obligation, and, most importantly, where management understands that their associates = consumers. COSTCO is heroic in my mind.

Posted by Wendy at July 27, 2005 1:13 PM

I am in awe! Hats off to Costco! When are these guys coming to India?? :) Metro's already here.

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Posted by Mukesh at August 2, 2005 2:18 PM