“To endure, the competitive enterprise system must be practiced within the framework of a strict moral code. Indeed, the whole fabric of the capitalistic system rests to a large degree on trust . . . on the confidence that businessmen and women will deal fairly and honestly, not only with each other, but also with the general public, with the consumer, the stockholder and the employee.” - James Fish, U.S. Better Business Bureaus
“If I followed the Test explicitly, I would starve to death. Where business is concerned, I think The Four-Way Test is absolutely impractical.” - Unknown
Imagine if you ran your business bound by Rotary International's Four-Way Test:
Of the things we think, say, or do...
1. Is it the truth?
2. Is it fair to all concerned?
3. Will it build goodwill and better friendships?
4. Will it be beneficial to all concerned?
Sound like a great idea? Or is it too scary to contemplate? Mine isn't a public test: you're the only one who needs to know your answer. But either way, it's something to think about, isn't it?
*****
Doing the right thing pays.
I've built my career, and my reputation, around that one piece of wisdom. It sums up the essence of Savvy Capitalism.
"Doing the right thing - always, every single time, even when no one's watching - pays" is a bold claim, and I'm sad to say it still flies in the face of conventional wisdom. Despite paying lip service to more enlightened principles, most businesspeople today remain Primitive Capitalists in deed, out for a quick buck at the expense of customers, rivals, employees; even stockholders. So as you can imagine, I'm always on the lookout for evidence to prove the validity of the Savvy way of business.
A couple of years ago, I learned the story of the Club Aluminum Company. What you are about to read are excerpts from a longer piece I found on a Rotary International website (for attribution, read to the end).
In 1932, Herb Taylor was in line for the presidency of the thriving Jewel Tea company in Chicago, when an opportunity came his way to salvage the flagging Club Aluminum Company. The cookware manufacturing company owed $400,000 more than its total assets and was barely staying afloat. Herb responded to the challenge and decided to cast his lot with this troubled firm. He resigned from Jewel Tea, taking an 80 percent pay cut to become president of Club Aluminum. He even invested $6,100 of his own money in the company to give it some operating capital.
Looking for a way to resuscitate the company and caught in the Depression’s doldrums, Herb sought inspiration to craft a short measuring stick of ethics for the staff to use.
As he thought about an ethical guideline for the company, he first wrote a statement of about 100 words but decided that it was too long. He continued to work, reducing it to the four searching questions that comprise the Test today.
Next, he checked the statement with his four department heads: a Roman Catholic, a Christian Scientist, an Orthodox Jew and a Presbyterian. They all agreed that the Test’s principles not only coincided with their religious beliefs, but also provided an exemplary guide for personal and business life.
And so, “The Four-Way Test of the things we think, say or do” was born:
1. Is it the TRUTH?
2. Is it FAIR to all Concerned?
3. Will it build GOODWILL and BETTER FRIENDSHIPS?
4. Will it be BENEFICIAL to all concerned?
Profound in its simplicity, the Test became the basis for decisions large and small at Club Aluminum.
But any test must be put to the test. Would it work in the real world? Could people in business really live by its precepts? One lawyer told Herb: “If I followed the Test explicitly, I would starve to death. Where business is concerned, I think The Four-Way Test is absolutely impractical.”
The attorney’s concerns were understandable. Any ethical system that calls for living the truth and measuring actions on the basis of benefits to others is demanding. Such a test can stir bitter conflict for those who try to balance integrity and ambition. Sizzling debates have been held in various parts of the world on its practicality as a way of living. There are always some serious-minded Rotarians, not to mention skeptics and negative thinkers, who view The Four-Way Test as a simplistic philosophy of dubious worth, contradictory meaning and unrealistic aims. The Test calls for thoughtful examination of one’s motives and goals. This emphasis on truth, fairness and consideration provide a moral diet so rich that it gives some people “ethical indigestion.”
But at Club Aluminum in the 1930s, everything was measured against The Four-Way Test. First, the staff applied it to advertising. Words like “better,” “best,” “greatest” or “finest” were dropped from ads and replaced by factual descriptions of the product. Negative comments about competitors were removed from advertising and company literature.
The Test gradually became a guide for every aspect of the business, creating a climate of trust and goodwill among dealers, customers and employees. It became part of the corporate culture, and eventually helped improve Club Aluminum’s reputation and finances.
One day, the sales manager announced a possible order for 50,000 utensils. Sales were low and the company was still struggling at the bankruptcy level. The senior managers certainly needed and wanted that sale, but there was a hitch. The sales manager learned that the potential customer intended to sell the products at cut-rate prices. “That wouldn’t be fair to our regular dealers who have been advertising and promoting our product consistently,” he said. In one of the toughest decisions the company made that year, the order was turned down. There was no question this transaction would have made a mockery out of The Four-Way Test the company professed to live by.
By 1937, Club Aluminum’s indebtedness was paid off and during the next 15 years, the firm distributed more than $1 million in dividends to its stockholders. Its net worth climbed to more than $2 million.
Too idealistic for the real world? The Four-Way Test was born in the rough and tumble world of business, and put to the acid test of experience in one of the toughest times that the business community has ever known. It survived in the arena of practical commerce.
In 1942, Richard Vernor of Chicago, then a director of Rotary International, suggested that Rotary adopt the Test. Herb Taylor transferred the copyright to Rotary International when he served as R.I. president in 1954-55, during the organization’s golden anniversary.
Today, more than six decades since its creation, has the Test lost its usefulness in modern society, as some critics maintain? Is it sophisticated enough to guide business and professional men and women in these fast-paced times?
Is it the TRUTH? There is a timelessness in truth that is unchangeable. Truth cannot exist without justice.
Is it FAIR to all concerned? The substitution of fairness for the harsh principles of doing business at arm’s length has improved rather than hurt business relationships.
Will it build GOODWILL and BETTER FRIENDSHIPS? Man is by nature a cooperative creature and it is his natural instinct to express love.
Will it be BENEFICIAL to all concerned? This question eliminates the dog-eat-dog principle of ruthless competition and substitutes the idea of constructive and creative competition.
The Four-Way Test is international, transcending national boundaries and language barriers. It knows no politics, dogma or creed. More than a code of ethics, it has all the ingredients for a successful life in every way. It can and will work in today’s society.
The final test is in the doing. William James, the noted psychologist, once said, “The ultimate test of what a truth means is the conduct it dictates or inspires.” At the heart of Rotary today is The Four-Way Test, a call to moral excellence. Human beings can grow together. Modern business can be honest and trustworthy. People can learn to believe in one another. At the 1977 R.I. Convention, James S. Fish of the U.S. Better Business Bureaus said, “To endure, the competitive enterprise system must be practiced within the framework of a strict moral code. Indeed, the whole fabric of the capitalistic system rests to a large degree on trust . . . on the confidence that businessmen and women will deal fairly and honestly, not only with each other, but also with the general public, with the consumer, the stockholder and the employee.”
Few things are needed more in our society than moral integrity. The Four-Way Test will guide those who dare to use it for worthy objectives: choosing, winning, and keeping friends; getting along well with others; ensuring a happy home life; developing high ethical and moral standards; becoming successful in a chosen business or profession; and becoming a better citizen and better example for the next generation.
Eloquently simple, stunning in its power, undeniable in its results, The Four-Way Test offers a fresh and positive vision in the midst of a world full of tension, confusion and uncertainty.
By Darrell Thompson, who is a member of the Rotary Club of Morro Bay, California. This article is adapted from a speech given by Darrell, with contributions from Rotarians Douglas W. Vincent of Woodstock-Oxford, Ontario, Canada, and Myron Taylor.
Saturday, February 20, 2010
Tuesday, February 16, 2010
Mind the Store, not the Score
Would you rather invest in a company whose stock price rises a dollar this quarter, or that doubles in five years?
It depends on your investment goals, of course. But if you ask me, I'll go for the long-term investment over the short-term bet every time.
To gauge the future health of a company, look to its CEO every time. Does the "Chief in Chief" slavishly react to the whims of the stock ticker? Or does she largely ignore that "score," instead focusing all of her attention on the "store" - whatever that means in her particular business.
Primitive Capitalism is all about maximizing the short-term gain. It counts pennies and ignores pounds.
Savvy Capitalism is focused on the long-term health of the company. It won't skimp pennies to earn more pounds.
Are you savvy?
It depends on your investment goals, of course. But if you ask me, I'll go for the long-term investment over the short-term bet every time.
To gauge the future health of a company, look to its CEO every time. Does the "Chief in Chief" slavishly react to the whims of the stock ticker? Or does she largely ignore that "score," instead focusing all of her attention on the "store" - whatever that means in her particular business.
Primitive Capitalism is all about maximizing the short-term gain. It counts pennies and ignores pounds.
Savvy Capitalism is focused on the long-term health of the company. It won't skimp pennies to earn more pounds.
Are you savvy?
Saturday, February 6, 2010
A Tale of Two Recalls
In my previous post, I shared my all-time favorite service-recovery story, the act that catapulted Lexus to #1 in its class and has kept it there ever since.
I also shared that I'm going to hold off judging the current Toyota recall until it has played out a while longer. I'll stick by that: I am going to wait before I weigh in.
But not so The New York Times, which claims, "(Toyota) may suffer far more than anyone could predict for the worst example of crisis management in the history of the auto industry."
Ouch! This is undoubtedly one of the harshest-yet-most-enjoyable, snarkiest pieces of business writing I have ever read. Note how the author, Matthew DeBord, gives it to GM and Apple toward the end of the article: no one is safe from his stiletto-wit.
A few choice excerpts:
"This chain of events could cripple Toyota for years. After all, the fanatical devotion that the company has inspired in owners is based on the perception that the cars and trucks it builds are nearly perfect. They always start. They never leak. In the case of the Prius and other hybrids, they save the planet."
...
"Companies that aim for cultish loyalty are vulnerable... Apple doesn’t respond well to customers criticizing its products. Toyota, likewise, doesn’t have much experience being attacked. It just wasn’t ready to handle doubt, dismay or the obliteration of trust."
...
"Contrast this with the eight-decade reign of G.M. as the world’s largest carmaker. Now there was a company that could handle hatred. There were times, in fact, when it seemed that G.M. didn’t care what its customers thought. Consumers loved Saturn — so naturally G.M. starved it, then killed it."
Your thoughts on this piece are quite welcome. Enjoy!
http://www.nytimes.com/2010/02/06/opinion/06debord.html
I also shared that I'm going to hold off judging the current Toyota recall until it has played out a while longer. I'll stick by that: I am going to wait before I weigh in.
But not so The New York Times, which claims, "(Toyota) may suffer far more than anyone could predict for the worst example of crisis management in the history of the auto industry."
Ouch! This is undoubtedly one of the harshest-yet-most-enjoyable, snarkiest pieces of business writing I have ever read. Note how the author, Matthew DeBord, gives it to GM and Apple toward the end of the article: no one is safe from his stiletto-wit.
A few choice excerpts:
"This chain of events could cripple Toyota for years. After all, the fanatical devotion that the company has inspired in owners is based on the perception that the cars and trucks it builds are nearly perfect. They always start. They never leak. In the case of the Prius and other hybrids, they save the planet."
...
"Companies that aim for cultish loyalty are vulnerable... Apple doesn’t respond well to customers criticizing its products. Toyota, likewise, doesn’t have much experience being attacked. It just wasn’t ready to handle doubt, dismay or the obliteration of trust."
...
"Contrast this with the eight-decade reign of G.M. as the world’s largest carmaker. Now there was a company that could handle hatred. There were times, in fact, when it seemed that G.M. didn’t care what its customers thought. Consumers loved Saturn — so naturally G.M. starved it, then killed it."
Your thoughts on this piece are quite welcome. Enjoy!
http://www.nytimes.com/2010/02/06/opinion/06debord.html
Monday, February 1, 2010
The Immaculate Recall
Say "Toyota" and "recall" in the same sentence all of a sudden, and you're sure to get a conversation started.
We'll see how the current recall plays out for the world's largest automaker. In the meantime, I'd like to share the lesson of another Toyota Corporation recall, this one from 1989.
At that time, Toyota had just introduced a new division, Lexus, with the express goal of redefining the very meaning of luxury car and of "made in Japan." Now, at that time Japanese cars were popular for their fuel efficiency and, sure, reliability - but luxury? The very notion had auto executives in the US and Germany in hysterical fits of laughter, and much of the buying public shared their skepticism.
Still, within a few months Lexus had managed to sell 8,000 of its LS 400s. Then one American customer reported a problem with her cruise control. Shortly thereafter, another customer in a different city experienced the same problem.
Two faulty cruise controls out of 8,000 cars. Not the end of the world, right?
How you answer that question has everything to do with how savvy a businessperson you are. You see, the executives at Lexus weren't just trying to sell cars that quarter or that year: they were trying to redefine the national "brand" that was the Japanese automotive industry. To them, the question was never, "Will this problem blow over with minimal expense and (please-oh-please!) minimal bad press?" To the leaders at Lexus, the question from the very beginning was, "What will we do about this problem to show the world that no one does luxury like the Japanese?"
So, Lexus recalled every one of the 8,000 cars it had sold. Dealers drove to customers' houses and left customers a high-quality loaner car while the work was done. They returned repaired cars washed and detailed, with a full tank of gas and a present on the front seat - all, remember, for a faulty cruise-control: nothing more than a slight nuisance, when you think about it.
What's more, in the cases where the owner lived some distance from the dealership, a mechanic traveled to the customer's house with the new part and did the work there in his driveway. In one example, a customer had bought the car in Los Angeles and driven it to his home in Alaska, so a mechanic flew to Alaska to do the repair.
Short-term, this was way over-the-top: "Come on!" I can just hear some suits in Detroit and Stuttgart exclaiming. "They can't be serious!" But if there was any laughter, it was now tinged with more than a bit of nervousness. Because in this one heroic act Lexus did, indeed, show the world that the meaning of "luxury car company" would never be the same.
Foolish choice? For years, Lexus has held two proud distinctions: they are the perennial top choice of customers for "best service reputation." And they are #1 year in, year out, in luxury auto sales.
Was it worth it to spoil customers this rotten? Ask any savvy capitalist, she'll tell you: saving pennies on customer service will cost you dollars.
*****
I've heard this tale from several sources over my career, but my favorite version comes from Satisfaction (2006) by Chris Denove and James D. Power IV. I can't recommend their book highly enough.
We'll see how the current recall plays out for the world's largest automaker. In the meantime, I'd like to share the lesson of another Toyota Corporation recall, this one from 1989.
At that time, Toyota had just introduced a new division, Lexus, with the express goal of redefining the very meaning of luxury car and of "made in Japan." Now, at that time Japanese cars were popular for their fuel efficiency and, sure, reliability - but luxury? The very notion had auto executives in the US and Germany in hysterical fits of laughter, and much of the buying public shared their skepticism.
Still, within a few months Lexus had managed to sell 8,000 of its LS 400s. Then one American customer reported a problem with her cruise control. Shortly thereafter, another customer in a different city experienced the same problem.
Two faulty cruise controls out of 8,000 cars. Not the end of the world, right?
How you answer that question has everything to do with how savvy a businessperson you are. You see, the executives at Lexus weren't just trying to sell cars that quarter or that year: they were trying to redefine the national "brand" that was the Japanese automotive industry. To them, the question was never, "Will this problem blow over with minimal expense and (please-oh-please!) minimal bad press?" To the leaders at Lexus, the question from the very beginning was, "What will we do about this problem to show the world that no one does luxury like the Japanese?"
So, Lexus recalled every one of the 8,000 cars it had sold. Dealers drove to customers' houses and left customers a high-quality loaner car while the work was done. They returned repaired cars washed and detailed, with a full tank of gas and a present on the front seat - all, remember, for a faulty cruise-control: nothing more than a slight nuisance, when you think about it.
What's more, in the cases where the owner lived some distance from the dealership, a mechanic traveled to the customer's house with the new part and did the work there in his driveway. In one example, a customer had bought the car in Los Angeles and driven it to his home in Alaska, so a mechanic flew to Alaska to do the repair.
Short-term, this was way over-the-top: "Come on!" I can just hear some suits in Detroit and Stuttgart exclaiming. "They can't be serious!" But if there was any laughter, it was now tinged with more than a bit of nervousness. Because in this one heroic act Lexus did, indeed, show the world that the meaning of "luxury car company" would never be the same.
Foolish choice? For years, Lexus has held two proud distinctions: they are the perennial top choice of customers for "best service reputation." And they are #1 year in, year out, in luxury auto sales.
Was it worth it to spoil customers this rotten? Ask any savvy capitalist, she'll tell you: saving pennies on customer service will cost you dollars.
*****
I've heard this tale from several sources over my career, but my favorite version comes from Satisfaction (2006) by Chris Denove and James D. Power IV. I can't recommend their book highly enough.
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