You've heard about the big financial companies going bottom up due to excessive speculation, liar loans, and mortgage ARMs with Pick-A-Payment programs; car companies begging for subsidies because of a lack of desire to change failed policies; and home builders over stocked to the point of setting discounts that are more than 30% over cost from just a year ago. But not all is bleak. There are companies surviving even thriving. They have the key to how business should be run, not only for the here and now but for the long haul.
What are those values that are so important to business? Business, the department of life, whether you like it or not, that this country relies on for its jobs, housing, schooling, and maintenance of its infrastructure.
Discipline, Focus on the Long-term, and Avoidance of Gluttony:
Wells Fargo
The financial sector, the hardest hit, had few survivors, never mind those that made a profit. But one of the survivors is now being looked to as a leader while just a year or two ago it was seen as too conservative and timid.
During high times when other companies in the financial sector were living high on the hog, Wells Fargo was doing things that were not considered "sexy." It didn't get involved in the risk of investment banking and trading for its own account. It didn't get involved in "liar loans" or loans that
weren't based on actual income and mortgage ARMs or Pick-A-Payment programs. It never was tempted by SIVs (structured investment vehicles), a strategy that involves borrowing money by issuing short-term securities at low interest and then lending that money by buying long-term securities at higher interest, making a profit for investors from the difference. Being of great risk (doing in its originator, Citigroup), as of October 2008 SIVs are no longer going concerns.
Wells Fargo's focus then and now is on traditional banking by making money on the spread between deposit and lending rates. And because it has the lowest cost of funds (interest cost financial institutions pay for use of money), it makes top profits using this less than sexy method. In addition, because of Wells Fargo's stability and focus on serving the customer, customers not only stay with Wells Fargo they're unlikely to go elsewhere. Retail customers average six products while business customers average eight. And contrary to popular belief, banking in such a traditional way actually pays better than raising money from many sources, a method used by other corporations.
In the past, because of its un-risky behavior, Wells Fargo began to lose money in the pre-bust era and even alienated brokers by pointing out their abusive actions. In its policy of looking to the long term, investing wisely, maintaining integrity, and serving the customer to the hilt, Wells Fargo has not only stayed alive but has thrived.
Johnson & Johnson
Residing in a different sector but with a similar management style is Johnson & Johnson. It also can be seen as more traditional, cautious, disciplined, and looking to serve the customer with integrity.
CEO Robert Wood Johnson, who took the company public, passionately states that "reserves must be created" and "adverse times must be provided for." This philosophy has helped J & J maintain a triple-A rating, for it borrows little money and only when it has to. Johnson believes that the company must always be looking at least 10 to 20 years into the future not only for monetary reasons but for other reasons that will help keep the business intact.
And it's not that J & J follows an unusual, complex, or brilliant business plan. Quite the opposite. What it does is rather simple. It has created rules and sticks to them, rules that according to Colvin and Shambora of
Fortune magazine "you probably could have thought . . . up yourself."
One rule that J & J follows is that restraint must be used in overcoming the innate desire to indulge. Those companies in the financial sector that didn't use restraint in this area are no longer with us. There have been stories told of parties with champagne mist coming from overhead sprinkles or celebrants smashing a five or six figure bottle of wine only to scoff at a "lesser" individual who attempted to do the same with a bottle that cost
only hundreds of dollars.
These are self-indulgent acts those of the New Economy (leaders coming from the Old Economy) would never practice.
Another rule J & J follows is discipline in all business transactions and an avoidance of competition for mere competition's sake. One time, J & J got caught in a bidding war for a company. But instead of giving in to pride or testosterone, it allowed its competitor to win at the point which it would have been impossible for J & J to earn a sufficient return from the business. How has the other company faired since its purchase? Its stock has stagnated ever since.
But beyond discipline, long-term focus, and avoidance of gluttony, J & J practices honesty and integrity. The formal statement of its purpose or Credo is more than just words. Many companies have a Credo, but few have the discipline and integrity to stick to it. It begins by stating, "We believe our first responsibility is to the doctors, nurses, and patients, to mothers and fathers and all others who use our products and services."
J & J believes so much in its Credo that it even turned itself in to the SEC when a possible violation of the Foreign Corrupt Practices Act occurred in 2007.
CEO Ralph Larsen states that the principles in the Credo "Define what we stand for, and we would hold them even if they became a competitive disadvantage in certain situations."
Just like Wells Fargo, J & J's focus is on integrity and honesty, discipline in all business practices, saving for the future, and running a business with the small guy in mind. Really. And that's no bull.
