Signature Characteristics of FoE Companies.

Firms of endearment share a distinctive set of core values, policies and operating attributes. Here is a sampling:

· FoEs actively align the interests of all stakeholder groups, not just balance them. In other words, instead of trading off the interests of one group versus those of another (e.g. higher wages for employees versus higher profits for investors or lower prices for customers), they follow business models in which the objectives of each stakeholder can be met simultaneously and are in fact strengthened by other stakeholders. (Whole Foods captures this idea in its formal “Declaration of Interdependence,” which acknowledges the fact that stakeholder groups constitute a family whose members depend on one another.)

· Employee compensation and benefits are significantly greater than the standard for the company’s category. (Trade Joe’s pay and benefits in the first year for full time employees comes to $47,000.)

· FoEs devote considerably more time than their competitors to employee training. (The Container Store first-year employee gets 241 hours of training versus the retail industry’s average of seven hours).

· Employee turnover is far lower than the industry average. (Southwest Airline’s employee turnover is half of that of other major airlines.)

· FoEs empower employees to make sure customers leave a transaction experience fully satisfied. (A Wegmans Food Markets employee once sent a chef to a customer’s home to overcome a customer’s mistake and cook the Thanksgiving meal. Yes, Wegmans employs chefs, some from 5-star restaurants.)

· Executive salaries are relatively modest. (Costco CEO Jim Senegal’s salary was $350,000 accompanied by a bonus of $200,000 in 2004 – a year in which sales reached $49 billion while stock value increased 10 percent in comparison with a five percent decline in the value of Wal-Mart’s stock.)

· FoEs make a conscious effort to hire people who will be passionate about the company and its products. (Patagonia tries to only hire people who are passionate about mountain climbing. Whole Foods tries to draw as many employees as possible from the ranks of “foodies.”)

· FoEs operate at the executive level with an open door policy. (When Honda has a big problem, it implements waigawa – temporary suspension of social protocols based on rank— making it possible for workers on the lowest rungs to personally present a proposed solution to the highest executives involved. Harley-Davidson has a similar policy, except less ceremonial: any employee on any day has access to the highest offices in the company.)

· FoEs consciously humanize the company experience for customers and employees. (Commerce Bank strives to give “Wow!” experiences to employees and customers on a daily basis. Google provides free meals around the clock for all employees.)

· FoEs’ marketing costs are far lower than those of their industry peers, while customer satisfaction and retention are far higher. (Jordan’s Furniture spends less than one-third the industry norm on marketing and advertising, while generating industry-leading sales per square foot that are more than five times the industry norm. Google has built one of the most valuable brands in the world with no advertising.)

While financial data surely is important in analyzing a company’s strength and future prospects, a number of qualitative indicators appear to us to be no less important in assessing a company’s future prospects. In fact, we go so far as to say that qualitative factors can be more revealing in drawing a picture of a company’s future performance prospects than quantitative factors.

Comments

[Mike Pulis]

What I take from both my contact witht the above mentioned firms and your comments is that if you give your employees a shared sense of purpose - it will show in their relationship with their customers, who will in turn become loyal advocates. This will boost sales and create happy shareholders.

For myself, flying Southwest provides me with the tangible benefit for being assisted by happy company representatives who are anxious to help. I have never left Trader Joes without a smile on my face.

As a result, I support both companies, in one case paying less, in the other slightly more, but always feeling that I have made the right choice.

[David]

Mike,

It all sounds so simple, doesn't it: give employees a sense of purpose and they become more productive and if dealing with customers directly, help build customer loyalty.

Thanks for your comments,

DBW