Customer Reviews

Firms of Endearment: How World-Class Companies Profit from Passion and Purpose

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What is a Firm of Endearment? The authors argue that their example companies share a common set of core values, policies, and operating attributes which include:

1. aligning the interests of all stakeholder groups (customers, employees, partners, investors, and society) rather than seeking profit optimization

2. below-average executive compensation

3. open-door policies

4. employee compensation and benefits are above average for their industry

5. above-average employee training

6. empower employees to satisfy customers

7. hire employees who are passionate about the company's purpose

8. humanize customer and employee experiences

9. enjoy below-average marketing costs

10. honor the spirit as well as the letter of laws

11. focus on corporate culture as a competitive advantage

12. are often innovative in their industries

Companies identified include extensive examples drawn from Commerce Bank, Container Store, Costco, Harley-Davidson, Honda, IDEO, IKEA, jetBlue, Johnson & Johnson, Jordan's Furniture, New Balance, Patagonia, Southwest Airlines, Starbucks, Timberland, Toyota, Trader Joe's, UPS, Wegmans, and Whole Foods.

These companies are often contrasted with Wal-Mart and the Good to Great Companies identified by Jim Collins in 2001 in terms of stock price growth.

The authors argue that there is a new level of consciousness emerging that rewards those who do good while doing well. The implication is that all firms should shift to stakeholder optimization and the cultural values identified in the example companies.

While they don't make this argument, it's clear that the authors have identified many of the mindsets that lead a company to seek optimizing results for all stakeholders.

Before you assume total cause and effect, I would like to raise some issues not fully addressed in the book:

1. This is an after-the-fact evaluation. As such, (like Good to Great), we may mostly be seeing what the leaders are proud of . . . rather than what caused their success. For example, Southwest's success is focused on their corporate culture. But the company also has a better business model than almost any other airline (Ryanair's is better) and does a better job of fuel cost hedging than any other U.S. airline. Those factors aren't mentioned.

2. These companies are almost all in consumer products or services. A class of socially conscious consumers has sprung up who look hard for such firms. It's not clear that OEM and industrial buyers have evolved their preferences nearly to the same extent. So many of the lessons may only apply consumer goods and services (except for those validated by Gallup for having a motivated and effective group of people working for you).

3. Almost all of these firms are highly effective business model innovators who have gained enormous advantages over competitors who seldom innovate their business models. As a result, they can afford practices that may or may not pay off in profit without incurring any negative reaction. The next business model innovation will pay for the cost.

I was surprised that this book didn't look at the study I made from 1992-2001 that identified continuing business model innovation as the single best factor for explaining high levels of corporate performance (see The Ultimate Competitive Advantage). The books share some examples in common (including Jordan's Furniture and Timberland), but many of FoE's examples are also superior business model innovators (Amazon, BMW, CarMax, Caterpillar, Container Store, Costco, eBay, Google, Harley-Davidson, IDEO, IKEA, jetBlue, Patagonia, Starbucks, Trader Joe's, UPS, Wegmans, and Whole Food).

4. It often pays better to serve stakeholder interests than to ignore them. Why? Because ignoring stakeholders often burdens both the company and the stakeholder with costs and experiences that neither want. This economic case for stakeholder focus isn't fully developed outside of the customer arena.

5. The book emphasizes sustainability, but much of that argument is built around companies disappearing from the Fortune 500 (something that happens whenever a merger happens . . . which doesn't mean that the organization goes away, just the corporate headquarters in most cases). In the research of my students on environmental sustainability (see Hiroshi Fukushi's work, A Strategic Approach to the Environmentally Sustainable Business, for example), it's apparent that making the environment cleaner than when you touched it is economically advantaged in most situations. The idea of sustainability is based on the outmoded notion of not doing too much damage rather than finding profits in making the world better than you found it.

But it's a good book that creates more questions than it answers. This one will probably stimulate some more careful thinking in the area of where seeking to be more considerate of others is going to create better results as well as better sleep.

This book outlines a possible shift in the way people are thinking about their roles and purpose within the companies they work. Basically people are seeking more 'meaning' from their work and as a result companies are changing their basic assumptions and approaches in the field of people management.

The authors assert that changes in demographics, consumer knowledge and an ageing population (which is working longer) is moderating the effects of Hard Capitalism, which favoured shareholders, and introducing a more egalitarian form of Capitalism which favours all stake holders.

The theory is highly seductive and desirable, but the book did not provide any strong evidence to support these claims. They provide plenty of stories and examples to illustrate the theory in action, but it should not be presented as supporting evidence without considering those organisations that also have these 'Enlightened' traits but were nevertheless unsuccessful.

In addition it is not clear which form of employee policy comes first, could it be that only when a company is successful can it treat its employees better with higher wages and enlightened thinking? or will higher wages and an enlightened policy make a company successful?

This book provides a theory which you wish were true, but wishing does not make it so.

According to the authors, a Firm of Endearment or FoE is a company whose decisions are made with the social consequences in mind. This runs contrary to what many people consider to be the fundamental principles of capitalism, which is to maximize your value at all costs within the acceptable legal, moral and ethical bounds. The authors demonstrate that many companies are achieving better growth than the "hard-core capitalists" by actively considering the overall consequences of their actions. In fact, some of the most telling passages are quotes from the hard-cores about how foolish the behavior of the FoE's is. This is then followed by data demonstrating that the performance of the companies run by the hard-cores is dwarfed by the FoE's. In some cases, those who proclaim an increase in shareholder value to be the pinnacle of success run companies where the stock price has declined during their tenure.
There have been problems with capitalism and the corporations since both were first invented. In the late nineteenth century, business leaders were known as robber barons and it took government action to break up the trusts. In retrospect this was an excellent action as it allowed the free market to emerge from the previous one controlled by the powerful.
At the start of the twenty-first century we have a global economy and major threats from global warming. Capitalism also needs to change to reflect the new reality. The authors of this book show that the latest version of the robber barons that get enormous salaries for mediocre performance are a fading breed. The best new corporations have passion, heart and a sense of the common purpose of humanity. Not only are they the kind of people that you would want to have over for dinner, but they are also some of the best run and most profitable businesses. This book should be required reading in all introduction to business courses.

With the tidal wave of publicity for Al Gore's "An Inconvenient Truth" and the spotlight it has given to the green movement, it seems like a ripe time to take stock of companies who are incorporating more social responsibility into their charters. Co-authors Raj Sisodia, Jag Sheth, and David B. Wolfe make a compelling case for how such thinking is not only a much-needed injection of humanism into private enterprise in this country but also the impetus for long-term success at a time when people are seeking greater meaning in their lives. Wolfe, the only non-academic of the three, ventures the furthest in delineating what he considers the art of empathy and the power of bringing soulfulness to the workplace. Such seeming intangibles have been repeatedly dismissed by those unwilling to recognize the human equation at the base of such operations.

Wolfe's bottom line is that soft skills translate into hard numbers, and he feels the days of well-known autocratic CEOs like Disney's Michael Eisner and Hewlett-Packard's Carly Fiorina are numbered if not over. The book's coy title actually refers to the model firms - Whole Foods, Harley-Davidson, Trader Joe's, Costco, Southwest Airlines, JetBlue, Patagonia, IKEA and New Balance among them - who have aligned principles of emotional intelligence with shareholder value in ways that induce more loyalty among the most valued employees. The data gathered by the co-authors suggests that firms which encourage emotional intelligence are more likely to have workers who benefit from feedback and achieve more for themselves and their companies over time. Emotional intelligence manifests itself in several ways, whether it is more modest executive salaries, open-door policies, better employee benefits, better training or a stronger focus on the customer experience. Moreover, the co-authors place high value on environmentally friendly practices and social consciousness as part of a company's vision.

The emphasis on emotional intelligence represents a major paradigm shift and one that has been working in tandem with globalization in recent years. It has given birth to the stakeholder relationship management business model (SRM), which supersedes the well-established customer relationship model with its primary focus on products and profits. Reflecting a much broader vision, the SRM is more dependent on coordinating systems which help keep healthy the company's economic ecosystem, which is the basis of its growth, development and economic health. The ensuing loyalty among employees gives rise to what the co-authors term "share of heart". It's an elusive concept but one mastered by a new breed of CEOs who manage to inspire with their idealism even when short-term profitability looks bleak. Sisodia, Sheth and Wolfe provide intriguing portraits of these leaders and the unique cultures they have managed to develop over time while still delivering on their bottom lines. If anything, this eminently readable book is a testament that Machiavellian tenets need not guide companies at the expense of the people who maintain them.

David Wolfe, through his corporate exemplars, has turned the American business model on it's head - and maybe not a momemt too soon.

Doing Good Means Doing Better might be the mantra of these modern, enlightened and successful "Firms of Endearment." And while "greed is good" may be the more likely mantra of most large businesses today, the authors point out there are two inherent flaws in this management theory: one, they certainly don't do "good," and two, they don't do better (in fact, they are measurably inferior).

What Mr. Wolfe and his co-authors are talking about is a sustainable way to do business that is incomparable in its fulfillment for all workers (as they point out, even Jim Collins' profiles in "Good to Great" have not sustained their growth.)

Mr. Wolfe is a social engineer, apparently, and this book is a blueprint to save capitalism from its darker side. Not to mention making it more productive.

Firms of Endearment is the most important business book ever. The authors have for the first time that I am aware of, conducted a scientific study designed to identify businesses that use a wide range of ethical issues to guide their operations. I have long believed that an ethical business model will outperform any other. It just makes common sense. Now I have solid evidence that my view is correct.

While I was not surprised that an ethically driven business model performs well, I was surprised by the level of its success. I expect the authors were as well. After all, they didn't set out to identify companies that were highly profitable. They were looking for the good guys. They didn't set any arbitrary number like the Top 100, they just wanted to find companies that met high standards. They had found 28 at the time they wrote the book.

It wasn't until after they had their list that it occurred to them that they had better look at the financial performance of their poster children. About half of the companies they chose are public companies. When they checked the return these companies posted over a ten-year period, it showed an eight-to-one advantage over the average of the S&P 500. That's eight-to-one over the average --not the worst, the average.

This book should be required reading in every executive suite, boardroom and business class. The members of every corporate board should use the principles outlined in this book to guide their oversight of the companies whose shareholders they represent. Directors are there to maximize the return their investors receive and Firms of Endearment gives them the tools to do just that. Let's hope this book marks the beginning of a new way to do business, worldwide.

Firms of Endearment is a critical, insightful and inspiring piece of work. One of the major contributions of this book (and there are many) focuses on the impact that employees and stakeholders have on the success of an enterprise. Many in business say how important their people are, yet it is more often than not that facts prove otherwise. When employees and leaders come to the workplace with their "hearts connected to the brains", their creativity, productivity and performance quality is exponentially greater than those who come just to do a job. People build companies - they always have, they always will. Firms that endear their people will win. Hat's Off to David Wolfe, Rajendra Sisodia, and Jagdish Sheth. You have enlightened many. - Sharon P. Whiteley, CEO, ThirdAge Inc.

There is an age old debate amongst business school professors over which corporate stakeholder trumps all others, especially when those stakeholders have conflicting wants. For instance, customers usually want the most of a product or service for the least cost while owners want to maximize profits by selling a service or good at the highest price. Such dynamic tensions contribute to some of the jerky, spastic movements of organizational earnings, revenues and stock prices across the corporate landscape. However, the book Firms of Endearment discusses a class of companies that are seeking to neutralize the discord amongst varied stakeholders by aligning their individual interests along a unifying vision. Soundview recommends this book because it champions a novel concept that mirrors a reverse engineering of divergent colors of the rainbow back into a single, illuminating white light. The authors coined the term Firms of Endearment to articulate how leaders of these non-personal entities are striving to endear their respective organizations to internal and external audiences by doing what's both subjectively and objectively right by embracing a positive perspective of capitalism's role in society. In light of the recent bad behaviors on Wall Street, this is a book whose time has come.

In the Prologue, when discussing The Age of Transcendence through which the contemporary business world is now proceeding, the co-authors (Rajendra S. Sisodia, David B. Wolfe, and Jagdish N. Sheth) suggest that it is "a cultural movement in which physical (materialistic) influences that dominated culture in the twentieth-century are ebbing while metaphysical (experiential) influences become stronger. This is helping to drive a shift in the foundations of culture from an objective base to a subjective base: People are increasingly relying on their own counsel to decide what the truth is...That shift acknowledges a long-suppressed idea in a world largely guided by Newtonian certainty that chemistry Nobel laureate Ilya Prigogine says is scattering to the winds: Ultimately, everything is personal."

Thus do the authors establish a frame-of-reference for the thesis of their book: That each stakeholder in an organization tends to thrive best when all stakeholders thrive. That is, no stakeholder group is more important than any other. "It is disciplined dedication to the well-being of all stakeholders that separates firms of endearment from their competition." Stakeholder relationship management (SRM), the authors suggest, can achieve and then sustain superior business performance that, in turn, will create n a decisive competitive advantage. They are convinced that SRM business models will increasingly be seen "as the most efficacious way to achieve sustained superior business performance in years to come" but only if (huge "if") the interests of all stakeholder groups are brought into strategic alignment.

Two Questions: Are all stakeholder groups of equal importance and do they have the same interests? Also, are all members of a stakeholder group (e.g. shareholders) of equal importance and do they have the same interests? These questions occurred to me as I read the first chapter, especially the brief discussion of the "distinctive" core values, policies, and attributes that firms of endearment (FoEs) share in common. Eventually, Sisodia, Wolfe, and Sheth provide answers to these questions, answers best revealed within the narrative.

If indeed "endearing companies tend to be enduring companies," how do the 28 FoEs that "made the final cut" for this book compare with the 11 companies praised by Jim Collins in Good to Great? "Over a 10-year horizon, FoEs outperformed the Good to Great companies by 1,026 percent to 331 percent (a 3.1-to-1 ratio). Over five years, FoEs outperformed the Good to Great companies by 128 percent to 77 percent (a 1.7-to-1 ratio). Over three years, FoEs performed on par the Good to Great companies: 73 percent to 75 percent." (FYI, there are no duplicates on the two lists.) As with the exemplary companies discussed by Thomas J. Peters in Robert H. Waterman, Jr. in In Search of Excellence, not all companies on any such list continue to meet the criteria that were the basis of their initial selection.

For me, some of the most interesting material is presented in Chapter 11, "Crossing Over to the Other Side." At one point, the authors cite Oliver Wendell Holmes's observation "I would not give a fig for the simplicity this side of complexity but I would give my life for the simplicity on the other side of complexity." They then quote one of my favorite passages in James O'Toole's The Executive's Compass:

"To move beyond the confusion of complexity, executives must abandon their constant search for the immediately practice and, paradoxically, seek to understand the underlying ideas and values that have shaped the world they work in. Managers who clamor for how-to instruction are, by definition, stuck on the near side of complexity."

According to Sisodia, Wolfe, and Sheth, the big challenge of the times is to transcend the zero-sum mindset because, given the profusion of new opportunities, absolutes (by nature limiting) are found everywhere on the near side of complexity. "They emerge from people's perennial quest for pat solutions, or `silver bullets,' as they are sometimes described. This is a key point because, as Sisodia, Wolfe, and Sheth explain, a zero sum mindset leads to the conclusion that one stakeholder group can only benefit at the expense of the other stakeholder groups...However, opportunities increase by an order of magnitude when the mind breaks free of zero-sum thinking."

There are specific reasons why endearing companies tend to be enduring companies and one of the most important is their having "the ability to transcend ruthless competition and embrace the fruits of cooperation [which is] the essence of evolved humanness."

Those who share my high regard for this book are urged to check out Bill George's Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value and his later book, True North: Discover Your Authentic Leadership, co-authored with Peter Sims. Also Michael Ray's The Highest Goal, Adrian J. Slywotzky's The Upside: The 7 Strategies for Turning Big Threats into Growth Breakthroughs, Enterprise Architecture As Strategy: Creating a Foundation for Business Execution by Jeanne W. Ross, Peter Weill, and David Robertson as well as Ram Charan's Know-How: The 8 Skills That Separate People Who Perform from Those Who Don't, Lynda Gratton's Hot Spots: Why Some Teams, Workplaces, and Organizations Buzz with Energy - And Others Don't, Robert J. Herbold's Seduced by Success: How the Best Companies Survive the 9 Traps of Winning, Jack Alexander's Performance Dashboards and Analysis for Value Creation, and Michael Useem's The Go Point: When It's Time to Decide--Knowing What to Do and When to Do It.

Firms of Endearment masks some solid business ideas in layers of fluffy analogies and flowery wording. It could easily have been a 20 page essay. They are definitely onto some good ideas, but I wouldn't recommend this book for solid advice. It's also short on ways to implement their ideas.