The Daily Deal, June 28, 2000
Industry Insight Technology

Schwab's Secret

by Susan Webber

David Pottruck and Terry Pearce preach that a caring corporate culture is a better motivator than fear or greed

Disciples of Machiavelli's "The Prince" and Sun Tsu's "The Art of War" will surely detest David S. Pottruck and Terry Pearce's "Clicks and Mortar: Passion Driven Growth in an Internet World," for its lessons contradict their cherished beliefs. Yet in spite of the difference in outlook, this book is as useful as these classics.

"Clicks and Mortar" is not the sort of book that I usually like. It is mainly about the soft side of management, which too often can be soft-headed. Clicks and Mortar, by contrast, is incisive, despite its liberal use of words like "passion,", "caring," and "love".

The title misleads – "Clicks and Mortar" is not about the Internet per se but the larger topic of how to manage today. Pottruck, president and co-CEO of Charles Schwab, and Pearce, a consultant specializing in leadership, believe that culture and values are central to lasting institutional success, particularly now that the Internet enables customers and employees to ferret out managers who fail to live up to their promises.

The authors dispute the notion that fear and greed are the best motivators, particularly where innovation is concerned. As they put it, "Filling a need is not just the way to make money, it is the way to create commitment. ...The desire to serve others is a greater motivator than the desire to beat the competition. And if these two ideas are right, then playing collaboratively on a team helping others to be as good as they can be, is a more desirable state to most people than competing with others within the organization for position and power." They cite supporting evidence, such as studies demonstrating it takes strong bonds within research groups to achieve superior performance

Even though this thesis may sound consistent with leading-edge conventional wisdom, it is actually quite radical, for most organizations' commitment to team play is only skin deep. Even for Internet companies, the lure of stock-option-based riches is the glue that binds most organizations together. And Pottruck and Pearce illustrate how their model differs from typical corporate practice. The authors present alternating chapters, with Pearce concentrating mainly on general principles, Pottruck providing examples from his experience as Schwab,Citibank, and other companies.

The strength of "Clicks and Mortar" lies in its detail. Most books about new organizational precepts stay at a level of generalization that conveniently obscures conflicts (like how to reconcile lofty principles with profit targets) and glosses over implementation.

One major theme is the central role that values play, and how management must reinforce them every day. Pottruck depicts Schwab as a company that goes to considerable lengths to adhere to its values and argues that its success results largely from this effort. Fittingly, Schwab's value statement is pithy: "Fairness, empathy, teamwork, responsiveness, constantly striving to be worthy of our customers' trust."

As the book recounts, Schwab managers do more than tell stories consistent with these principles – every major decision is allegedly measured against them. For example, Schwab spent $2 million to give employees covered parking in Phoenix because it would be unfair to have their cars ruined by the blistering summer sun, and even redesigned products because the staff felt they were not "Schwab-like."

Pottruck and Pearce are generous with their knowledge, and "Clicks and Mortar" is chock-full of pointers for anyone who wants to become a better manager. It covers everything from how to structure performance reviews, foster greater diversity (Schwab, alone am one financial services firms, has achieved gender parity), manage technology projects, devise advertising, and evaluate marketing research. Pottruck describes how he changed his own style to be less domineering and more cooperative, and even describes mistakes he made and the steps he took to remedy them.

A cynic might ask, if culture really is the key to Schwab's success, why would the authors share the company's secret? There are two likely answers.

First, it is that it is extremely difficult to create and maintain a values-driven organization, because it demands the punctilio of honesty. Schwab constantly questions whether it delivers what customers want, not only reviewing surveys but also probing their meaning, and relying on small scale market tests as the only reliable indicator. The company is equally rigorous about examining its own practices – unlike most corporate managers who feel threatened by uncomfortable data.

Second, Pottruck and Pearce appear to believe they are leading a seismic shift in how managers operate, and like all evangelists, they want to spread the word. Whether or not one becomes a convert, "Clicks and Mortar" is a welcome and badly-needed antidote to the high speed, hyperventilating, soulless New Economy ethos expounded by the likes of Fast Company and Business 2.0. In fact, much of what these journals preach is merely traditional management practice adapted to Internet time, uncertainty, and pay scales.

What "Clicks and Mortar" sets forth is a much more fundamental, and ultimately more rewarding, change in priorities.