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Clicks and Mortar: Passion Driven Growth in an Internet Driven World

Clicks and Mortar: Passion Driven Growth in an Internet Driven World

by David S. Pottruck

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In a world where companies are rushing to add an "e-" to everything they do--e-commerce, e-tailing--the real key to success still lies off-line. In this fascinating, behind-the-scenes look at the electronic revolution, an inspirational leader and operator and a talented and thoughtful coach and consultant, both engaged in the meteoric rise of The Charles Schwab


In a world where companies are rushing to add an "e-" to everything they do--e-commerce, e-tailing--the real key to success still lies off-line. In this fascinating, behind-the-scenes look at the electronic revolution, an inspirational leader and operator and a talented and thoughtful coach and consultant, both engaged in the meteoric rise of The Charles Schwab Corporation, articulate and demonstrate the elements of long-range success. Their take on culture, personal leadership and the transformation of business practices will help leaders, employees, investors, and customers all come out on top in this high-stakes, opportunity rich economy.
For excerpts, Andorsements, detailed author biographies, and more, visit the special Clicks and Mortar website.

Editorial Reviews

From the Publisher
"The bible for future heroes of e-commerce. It's brilliant and down-to-earth; a fast read, yet deep. This book is the playbook for igniting the power of passion in your business, written by those who have done it." --Scott Cook, founder and executive committee chairman, Intuit, Inc.

"Pottruck and Pearce reveal the secrets to corporate vitality in an upside-down world." --Gary Hamel, chairman, STRATEGOS

"The new Internet economy means high-velocity change and requires extraordinary leadership. Clicks and Mortar emphasizes the courage for the passionate leadership that is needed in this environment . . . a major contribution." --Ann Winblad, co-founding partner, Hummer Winblad Venture Partners

"Gives current and potential business leaders an inspiring road map with which to navigate the inevitable journey into e-commerce. It has perspective, precision, and heart: the necessary attributes of tomorrow's enterprise." --John Quelch, dean, London Business School

"Advice on how to build a corporate culture that weds the spirit and skill of people with the marvels of new technology in a winning business combination." --Laura Tyson, dean, Haas School of Business, University of California, Berkeley

"An instant classic about hands-on leadership." --Management General

"...keeps the readers interest...a very good book, well written by two people who know what they are talking about..." (M2 Communications, 4 July 2001)

"...packed with examples...it is worth attention...some valuable insights..." (e. Business January 2002)

NY Times
If there is a better handbook on adapting to the Internet economy, I have yet to find it. Mr. Pottruck and his co-author, Terry Pearce, have produced an eminently readable guide to building a great enterprise in this era of relentless change and ephemeral relationships.
Gives practical advice to help organizations adapt to changes prompted by today's technology-driven business revolution. Early chapters explore culture as the primary driver of growth. Later chapters outline the new brand of leadership necessary in the Internet era, and describe how to transform traditional business functions of measurement, marketing, and technology management. In a final chapter, eight business and academic leaders discuss factors for commercial growth in the next 20 years. Pottruck is president The Charles Schwab Corporation. Pearce is an executive communications officer at Schwab, and a teacher at the University of California-Berkeley. Annotation c. Book News, Inc., Portland, OR (booknews.com)
Internet Bookwatch
Clicks And Mortar: Passion Driven Growth In An Internet Driven World is organized around the three marketplace issues of building and sustaining corporate culture; leading for commitment rather than compliance; and building inspiration into traditional business practices. David Pottruck and Terry Pearce effectively collaborate to provide the reader with solid research, practical hands-on advice, and insightful personal examples drawn from their real-life experiences with the online Internet trading business, as well as examples drawn from such diverse companies as Harley-Davidson and Hewlett-Packard. Clicks And Mortar is an exceptionally recommended leadership guide for aspiring corporate managers in the rapidly evolving and expanding age of the Internet.

Product Details

Publication date:
J-B US non-Franchise Leadership Series , #201
Edition description:
Product dimensions:
6.14(w) x 9.06(h) x 0.87(d)

Read an Excerpt

Chapter One


Steve Jobs wanted to make the computer easy to use. He was and is a visionary, and saw himself and his charges as "changing the world." That vision sustained Apple Computer for a long time. Reportedly, it was due to the vision that former Pepsi president John Sculley took over at Apple. Jobs's idea of the nature of the business as a vehicle to contribute showed an unusually meaningful view for the times, and it paid off for him and for Apple—at least for a while. What happened?

    Jobs clearly said the right words. He defined Apple's culture as "other-directed" (changing the world), but the company was just as clearly focused inward. The company's strategy and actions reflected its real values: to keep others out, to build a bastion of Apple-based users. Oddly, about the same time, IBM was making a similar blunder regarding the mainframe computer. IBM's declared values were also impressive, calling for "the best customer service in the world," but the company ignored the customers' clear desire for a distributed environment supported by personal computers. Apple and IBM started to believe that they could control a major portion of the world of computing. They both shifted their focus from the customer to themselves, trying to partition that world to serve their own needs. Therein lies the mistake of perspective: they forgot to take their own values seriously when they developed these business strategies. It was a turn away from what had inspired their respective worlds.

    The Apple case is perhaps moreunderstandable, because even in those times, when the PC was just being born, the cultural values of start-ups could be summarized as "work hard, work long, go public, and get rich." This is a very successful formula for the first few years of a business, and it prevails today. Most Internet start-ups and even second-stage companies view themselves as equity factories. They all compete with the same formula for the same competencies, the same people, that we want at Schwab. This, at a time when the unemployment rate for technical people in Silicon Valley is estimated as minus 3 percent. There are more jobs than qualified applicants.

    The labor shortage gets compounded for firms like ours when we add the other major components of our company, the broker, the customer service representative, and the myriad of financial services experts that are required to administer our business as we expand. These competencies are very much in demand by every major financial service company in the world. Most brokerages, mutual fund companies, and banks pay high commissions and offer tremendous incentives to the best in these fields. What is the role of culture in this Internet world of competition for human capital? What kind of cultural foundation attracts the people we need? It took me awhile to learn the answers to these questions. Indeed, it took me awhile to ask those questions.

    My introduction to Schwab was also my introduction to culture and what it could do for a company to sustain it over the long haul. Until I joined the company in 1984, my work experience was really focused on my own learning and my own career growth. I had worked for some great companies where the internal rules clearly encouraged individual accomplishment and internal competition for the top jobs. The cultures of these companies were expressions of the more traditional rules of business: make money, pay homage to the hierarchy, and promote yourself with hard work and exposure so that you could race your peers up the corporate ladder. These rules had worked for a long time and across a wide range of companies.

    I soon found that life was different at this little discount brokerage on the West Coast. Charles "Chuck" Schwab had certainly started the firm to make money. But he believed that could be done by actually serving others, giving market access to people who wanted to manage their own accounts. He knew if he provided value to customers and paid attention to good business principles, profit would follow. He was determined "to provide customers with the most useful and ethical brokerage services in America." Talk to Chuck for an hour and you will hear all about the things we should be doing for customers. You'll probably never even hear the word "profit." Chuck's vision reflects his personal values—fairness, empathy, responsiveness, service—and these have become the bedrock for how he expected everyone in his company to behave. I personally have never seen Chuck behave any other way. Hearing him, people respond with a resounding, "Me too!"


"A chance to serve others," "A chance to make a difference," "A chance to leave a personal legacy that is meaningful"—these are some of the comments that are repeated and repeated in our employee opinion surveys. These statements reinforce the rational models of Maslow and Rogers on human development. We need food and shelter, we want love and acceptance, we want to find and express our individual gifts, and ultimately, we want to leave the earth with the knowledge that others are better off for our having been here. Aside from the academic verification of these giants of psychology, direct experience tells us that helping others and knowing that we are helping others is a great joy in life. At Schwab, it is actively encouraged.

    Let me tell you a brief story to make the point. In 1998, at one of our Midwestern branches, the phone rang late on a Thursday evening. The representative answered the phone to hear what sounded like an elderly lady telling her that she needed to check a particular trust account to make sure that it was funded. It seemed that her husband was dying, and it was important to make sure that the loose ends had been sewn up.

    The representative checked the account, and found that although it was open, the balance was not nearly what the customer had expected it to be. The lady told our representative that her husband had intended to fund the account with some stock in a large communication company. Having worked for the company in New York, he had accumulated the shares before he retired, which was before the company was merged with another, larger company. She was sure that he had kept the original stock certificates, but he was in a coma, and she didn't know what the shares looked like.

    Our rep realized that the tax implications could be substantial. She called the company in New York, and found that, indeed, certificates had been issued to the customer's husband. She then called back and described the certificates to the woman, asked a few more questions about the family, and with the lady's permission, phoned the couple's adult children and told them the problem. The children instituted a full-scale search for the certificates.

    Late Friday, one of the children arrived at the branch with some certificates that they had found in a box. They turned out to be only copies of the originals, but now at least the family knew what they were looking for. Our representative gave them her home phone. Saturday morning, they called to say they had found the originals in the back of the family's grandfather clock. The rep took the necessary paperwork to their house and completed the transfer of assets into the account.

    The gentleman died early Sunday morning.

    The representative's involvement and attention made a six-figure difference to the family. As a result of the extraordinary service, they transferred several million dollars to other Schwab accounts. But the significance to the representative, and to everyone who hears this story, was not the added revenue to the company. The significance was the effect of her action on this family; she felt enormous personal satisfaction—as did the rest of us, vicariously.

    Telling this story and others like it is an integral part of what we do to sustain the culture, as you will see in the next chapter. Will people always serve for no compensation? No, except for the very rich and the saints. But given a level of compensation that seems fair, that gives people a chance for financial security, most of us will opt to serve others for a living. We often refer to it as "doing well while doing good," and it is the linchpin of our company. It connects our employees with our customers and benefits both groups immensely.

    If serving is the foundation of a culture that attracts people, then, as other companies have shown, keeping the focus on serving is critical to success in culture building. There are multiple opportunities for distraction, including the lure of market share or—as we are currently seeing in much of the high-tech world—a focus on a particular competitor or even a personality. But beating a competitor or cornering a market does not create inspiration, nor do such dreams create real long-term success.

    This book describes a number of aspects of growing a business in the new Internet environment. Above all else, and regardless of the technology, the driving force is the customer experience: our desire and ability to create it, and the customers' satisfaction with it. Serving, serving, serving. It is the heartbeat of a company that works.


In contrast, the financial services industry was modeled on banks and old-world brokerage houses with the prevailing attitude that customers needed them, which indeed they did. Until the last two decades, access to financial markets was limited to the wealthy, the well-connected, and the institutions that enjoyed virtual monopoly through regulation. As a customer-focused company, Schwab plowed new ground for the retail investment business. Rather than model ourselves after the traditions of this industry, we have modeled ourselves after great retailers—Wal-Mart, Home Depot, and the Gap—companies that have thrived by being responsive to customers' needs.

    As I'll discuss in Chapter Nine, at Schwab we practice specific habits to assure that we are hearing what the customers need and then providing what they need in the most efficient way possible. For now, the central point is that service is the value that inspires, it is at the heart of people's willingness to commit, and in today's world, its practice is difficult to maintain as the focus of a company. When the desire to serve is applied to something as important as a family's financial future, it can inspire us and it can inspire our customers. As we have seen, it can also inspire competitors—and in fact, an entire industry.


In 1997, I had a chance to listen to Lew Platt, then president and CEO of Hewlett-Packard, as he explained his diagram of a corporate universe. The drawing showed values—which he described as the "why"—as the sun, an unchanging, unmoving core, with everything revolving around it. In close orbit—like Mercury—was the corporate vision, which he described as the "what." One orbit out were procedures, processes, and practices, which he called the "how." The further out the orbit, the more subject it was to change, Platt said. Procedures, processes, and practices change all the time. A vision may need updating every ten years or so. But the values stay put. The gravity of values keeps everything else in order.

    I wish I had seen this model a few years earlier, because when I arrived at Schwab, the values and vision that remain the heart of culture had not yet been committed to writing. That didn't happen until 1991. By then, we had three thousand employees and the company had grown big enough that Chuck was no longer able to call everyone by name. I thought it was time to write the values down on paper. Clearly, I was being infected with the culture of the company. I was beginning to see it as at least a part of our competitive advantage, and I knew how important it was for everyone in the company to feel the same way.

    Chuck seemed surprised. "Why write them down? Everybody knows them." I said, "Yes Chuck, all the people you talk to know them. The other hundreds we're hiring who've never met you don't. We're too big. You can't assume they know what you and this company are and are not."

    Until then, it hadn't dawned on us that the firm had gotten big enough that we needed to communicate the fundamentals of the culture explicitly. In a way, it was like the drafting of the Declaration of Independence. It put in writing what we understood to be the truths of our company, truths that we had been operating with for a number of years, but that could now stand as a beacon to guide our actions not just as a company but as individuals within that company. It was a major step—the beginning of the formal culture-building process at Schwab. (See Appendix A for other significant events in Schwab history.)

    Chuck concurred, and the values found a home on paper. The entire Executive Management Team worked on the project. We gave Chuck our thoughts, and he huddled himself away and emerged with the values of "fairness, empathy, teamwork, and responsiveness, constantly striving to be worthy of our customers' trust." For years, not a word of the vision or the values changed, and every employee knew them by heart. We kept growing larger and larger.

    By 1994, I was president of the corporation, and we had started an annual opinion survey of our employees. We had grown to over five thousand and were feeling a little out of touch with the way people saw the company from the inside. The results of the survey were surprising—and not that pleasant. Many of our employees (more than 30 percent) expressed concern or ignorance about three critical elements: the direction of the company, trust in senior management, and their own career possibilities.

    The top ten officers of the company debriefed the survey and we quickly found ourselves mired in denial. Some of us blamed others, some of us didn't believe the survey results, and others just commented sarcastically that we had hired the wrong five thousand people. But in the end, we realized that once again, as the company had grown, we had failed to communicate effectively. So we set out to etch the vision and values we believed to be our cultural DNA into the mind and heart of every Schwab employee. To make this process tangible and effective, we also needed to articulate the strategic priorities that would bring us to where we wanted to be.

    At this point, Terry had been working with me for more than three years; he was fully embraced by the management team as the right person to take the lead in the communication process. I glibly told him that I would take my laptop to my home in Lake Tahoe over the Easter weekend and clarify the vision and define the strategic priorities. I thought all we needed was a clear and motivating document. So I spent the weekend swapping drafts back and forth with Terry, my wife, Emily, and a couple of my other most trusted colleagues. I figured if it resonated for them I had a winner.

    But I had defined the problem badly. As I learned, the process was to prove far more important than the paper. The challenge was not document creation, it was commitment generation. To achieve that objective, a process of much broader inclusion was essential.

    In truth, it took ten months, the input of eighty executives, and a million-dollar communication project to realize what we wanted—the commitment of the entire company to continue to grow the company in new directions by living the rules of the Schwab culture. Virtually every executive had an opportunity to have extensive input into the process. We traced the history of the firm, created a rich context so that newcomers could understand our heritage, revisited the original purpose of the company, reviewed our long-range goals, and finally, at a ritual in a hotel ballroom in San Francisco in August 1995, all eighty senior officers of the company raised glasses of champagne and then signed their names to the written versions of the vision, values, and strategic priorities. (See Appendix B for the text.) We had changed only three words in the vision, shifting "investors" to "customers," "brokerage" to "financial services," and "America" to "world." Our values remained the same. Our strategic priorities were clearly defined, more specific than anything we had set to paper before but reflecting many of the things we were already doing, so they resonated with familiarity and credibility. We committed to a shared goal of serving 10 million investors and having $1 trillion in custody within ten years, multiplying our 1995 totals by a factor of five.

    We took our expanded vision, values, and strategic priorities on the road, talking to all seven thousand Schwab employees in face-to-face meetings. Everyone traveled to one of seven central locations, where Chuck and I met them and discussed the fundamentals of our own commitment, the goals for our joint effort, and the values that we used to measure our actions. We asked for their engagement, for their thorough review of these critical elements, and we asked them to consider two questions:

• Do the values of the company fit with your own personal values?

• How does what you do day to day contribute to the achievement of one or more of the strategic priorities?

    This may seem like a lot of effort and a lot of time away from the "work" of the business over three changed words, a one-page statement of vision, and ten strategic priorities. But the process was one of culture building and reinforcement. It affirmed our values, created a common language, and recommitted us to actions that would make the values real in the world of serving customers.

    In each of the seven venues, Chuck and I engaged in about ninety minutes of "Town Hall" questions and answers. Some of our colleagues raised heartfelt issues like compensation, career progression, or job security that everyone was thinking about but few wanted to risk bringing up. We discovered that communication about these issues can take a back seat in the rush of double-digit growth. But as soon as one of these issues surfaced, we would congratulate the questioner, asking everyone to give him or her some rousing applause as a way of reinforcing a cultural norm. The questions became more real; few wanted to hold back concerns that had been on their minds for some time. New employees, particularly, were impressed with the candor and access in these sessions.

    That's culture building, and that's inspiring. Top management can tell employees they are important forever, but employees believe them only when leaders actually demonstrate that importance with openness. I've stopped counting the number of employees and recruits who have candidly expressed that their reason for being here or wanting to be here is our full-bodied dedication to living our values.

    I consider the 1995 process of revisiting the values and vision and defining the strategic priorities for the next decade as a major turning point, a major foundation for growth, for the company. Although only a few words in our vision statement changed, they were the right few words, and in the process all the other words were called into question, scrutinized, and embraced once again. In the end we had succeeded in defining our corporate genetic code. These values, applied correctly, act like DNA, through which each cell—regardless of its own specialized job—knows the master plan for the whole body. They are critical for the individual and the organization.


As we learned over time, and have constantly reinforced, culture fills four important needs:

• It grounds people in something unchanging.

• It builds a basis of alignment.

• It serves as a virtual filter for people and practices.

• It exports values to customers.

    These needs, like the DNA, speak to the individual and the organization.

A Sense of Stability

A strong culture grounds people in something unchanging. Since 1900, technology has moved us from the stagecoach to the space shuttle, from the telegraph to the Internet. In only seventy years, the world saw the rise and fall of Marxism, one of the most influential political systems in history. In only the past ten years, we have seen the map of the world and the cultural landscape that the map represents go through painful upheaval. Old cultures and cults have reemerged to assert their special place on the world scene.

    Socially, just in the United States, and just since the 1960s, we have moved from Snoopy to Snoop Doggie Dog, from Ozzie and Harriet to Beavis and Butt-Head, from occasional concerts in the park to MTV, 24/7.

    Some see such rapid change as negative, yet this social shift has also been accompanied by the end of the Cold War, the rapid expansion of democratic values worldwide, and progress in medicine and other life sciences that have put us on the brink of some magnificent breakthroughs in the treatment and prevention of disease. We are no longer bounded physically by Earth, and rapid and global communication has moved us well into a new era of expanded—perhaps unlimited—personal knowledge and personal ability to respond to life. While this century may not have been the Age of Enlightenment, it has certainly been the Age of Change.

    In such an environment, people long for the unchanging security of the values of truth, integrity, and ethical behavior. A healthy culture can offer that kind of stability, and it draws people to it like a magnet. Many of our best business scholars, including Peter Drucker, have commented on the growing need for community and the possibilities for creating that community in a business organization. After all, this is where people are spending more and more of their time. What better place for them to find their community, their "common unity"?

    This need for community explains the phenomenon of logowear—employees' actually wearing shirts, caps, jackets and other apparel that shows the company logo. It is a sign of belonging, a symbol to the outside world that you are part of something bigger than yourself. Wearing a company shirt is the equivalent of flying the flag. If the culture of the company is one that is admired in the community, then the incentive to be identified with it is even stronger. Such is the case with great companies.

    IBM probably created the first corporate culture widely recognized in American business. There is a legend that the founder, Tom Watson Sr., personally checked up on his managers to make sure they were living the values of the company, even when they were at home. The traditional IBM salesman was often teased about his sincere tie, conservative suit, and wing-tipped shoes. But these "IBMers" took pride in setting the standard for their industry if not the entire world of business with their principles of "excellence, the finest customer service in the world, and respect for the individual." Likewise, Nordstrom, Hewlett-Packard, and other great American companies have flourished with their focus and dedication to their own values.

    For those who share their company's sense of values, purpose becomes infectious. Within the unchanging values of the culture, employees learn to expect and even welcome the unexpected. Culture gives them a firm footing. Only when people know the values of the culture can they reply when the company asks, "Want to come along?"

A Basis for Alignment

If the answer to "Want to come along?" is yes, then you can take that as a pledge of willingness to align with others around those values and common vision. That alignment is a very powerful force: everyone facing in one direction, understanding what the company is trying to do, and moving with conviction toward it. Many organizations have to watch their people going in different directions, dissipating and even canceling team energy. We see this particularly in mergers, when the cultures of two companies come together. The fit is never perfect, and energy is dissipated while alignment takes place, if indeed it ever does.

    In our industry, the merger of Citibank and Travelers was a very big deal, but I don't believe that either CEO, Sandy Weill or John Reed, fully appreciated the benefits or difficulty in building common culture. In an interview with Business Week, both men said as much. Reed, in particular, was thoughtful about the issue: "The business promise is greater than we expected ... [and] the human part of making it happen has been more difficult than I might have imagined."

    Certainly, the idea of synergy was terrific, and it may well be that in a few years, the operation will be smooth and seamless. At Schwab, we learned the difficulty on a much smaller scale when our company was acquired by Bank of America in the 1980s. Clearly, there were advantages in terms of capital for expansion, but the cultural differences were severe. Beyond question, Schwab would not have thrived in that banking environment, and the millions of customers and thousands of employees who benefited from Schwab's culture would have missed a great opportunity. In retrospect, we were fortunate to have been able to buy ourselves back, and realign around a core set of principles.

    This kind of cultural binding is an organizing principle that forms lasting bonds with those who are aligned with you. It's incredibly powerful and worth almost any amount of effort to create. This sense of alignment is especially important now, when the pace of change actually prevents us from seeing a clear picture of the future. At Schwab we often use the phrase "we're heading west" to suggest that we have a clear direction. But we are also communicating that our destination is not so clear. This lack of clarity can be unsettling. Confidence in our culture is the central factor in keeping us aligned even as we rush forward toward a distant horizon.

A Filter for People and Practices

Culture is a de facto recruiting, staffing, and procedures tool, naturally winnowing out people and behaviors that don't support our values and our mission. Since we have a very clear set of values to guide behavior, and since people believe in those values, the chances are pretty high that they'll do the right thing in any given situation. It's a good thing, too, for we simply can't write policy manuals fast enough to guide all the behaviors we need. Besides, who could have foreseen the instance of the elderly lady with the urgent need to locate missing stock certificates, and then written a procedure to deal with it? Nordstrom's procedures manual gives a short, effective cultural statement that provides part of the base: "Use your best judgment at all times." This one incantation is evidence of the strength of the corporate culture and the trust the company has in its power to guide employees to do the right thing.

    Just as a culture guides those who are in alignment, it opens the exit door for people who don't share the values. For example, Schwab is team oriented and rejects self-servers very quickly. You can bet that someone who is asked to contribute to a solution and responds, "Sorry, no time—I'm not measured on that," won't last long. In the final analysis, we are all measured on our team skills.

An Exporter of Values

A strong culture exports values to customers. Harley-Davidson builds a distinctive motorcycle. It's not an engineering masterpiece, but it does make a strong statement about style and philosophy. Where Harley-Davidson truly stands out is more in the spirit it shares with its customer than in its paint and iron. Harley riders don't buy a bike as much as they buy into a company, a marque. Even Mercedes owners won't drive all weekend to attend a factory rally and meet the people who assembled their vehicles. But Harley owners enthusiastically do—showing an ironic power that this marque (which champions maverick independence above all else) has to compel its rebel riders to gather and share common values. For them, who the company is truly becomes more important than what the company makes. In fact, Harley-Davidson now makes more money from logowear than it does from motorcycles. That's a remarkable—and invaluable—market commentary. Belonging to the family seems to be more important than using the product.

    How do you do it? Build around a distinctive idea, a value that is uncommon. Chuck Schwab certainly did this, and still does. Once I rode an elevator with him to a senior management gathering in a hotel, and a fellow passenger noticed his badge and asked some quick advice between floors. Chuck would not let him go—quizzing him on his needs and circumstances—and as I tried to drag him off the elevator to attend the meeting, I caught a glimpse of the passionate fire that sparked his remarkable company. Everything flowed from an intense sense of identity: his plan, his engagement with people, his purpose—they were just under the surface, and now focused like a laser on the fellow in the elevator.


Culture, unfortunately, is only a concept until it is actually lived. The next chapter is about breathing life into that concept from day to day. I can give you a preview: it is hard work. There are lots of symbols of the culture around ... signs on the wall, sayings in the annual reports. But the only way to know if it really works is by watching and listening. In that regard, the Internet has provided a wonderful tool to hold companies accountable for consistency between rhetoric and reality. Dilbert (the cynic) is present every day, on-line and in print, and every day, employees have the capability to instantly communicate with everyone else in the company about their perception of what is really happening. They can chat, complain, and encourage like never before. In short, the days are gone when a few company executives could get away with platitudes about culture. Now, to inspire, the action that follows the rhetoric has to be consistent. If it isn't, the new communication tools will be used to alert everyone that the emperor has no clothes. The same tools can also enable stronger affirmation than was ever possible. Once we learned of it and began retelling the incident of the funded trust, it spread throughout the company in a matter of hours—with positive results. A negative incident can spread just as rapidly, or more so—and with deleterious effect.

    We've known for a long time that company culture was eventually reflected in performance. The speed and reach of the Internet magnifies the possibilities, both negative and positive. It gives us the possibility of including the widest possible range of employees in events that were once reserved for select audiences.

    One of the most powerful expressions of the culture came from a man that I admire a great deal, and it happened under what would be considered rough circumstances. I had to decide to pass over one of my dearest friends in the company and appoint someone else as president. Tom Seip would've made a fine president, but we felt at the time that there was a better choice. I asked Tom to take another assignment, one that was exciting and certainly important, but it was not the presidency of the company.

    The affirming lesson from that experience was watching Tom stand up before our senior management team a few weeks after being passed over for the biggest promotion of his career and talk from his heart. The cultural DNA showed through, loud and clear. Here's what he said, pretty much in its entirety:

I would not for one moment want you to believe that I didn't want the job. I did. I was at first angry, and of course it was a fairly significant blow to my self-esteem. And to the degree my identity is linked to my job, the answer to the question "Who am I?" in this case comes back very quickly, "You are not the president." And so now what?

    For me, there was the issue of how all of you would perceive me. That was the biggest hurdle. In a sense, I felt I had somehow let you all down, and that this was one glaring sign of it that I could never recover from. That idea was nearly unbearable. There was a part of me that just wanted to disappear.

    But I didn't.

    The decision not to retire was easy. But deciding to stay here or go elsewhere was not easy. It was, however, a chance to grow a little. Growth means change and adventure, and of course, the phrase "growing pains" was not coined without cause.... growth is usually painful, and absolutely essential to life. And those ideas about growth were predominant in my thinking about staying or leaving Schwab. Here is just some of my thinking.

    First: I needed to not just understand, but really experience, the value of commitment and loyalty to the mission of the company and to all of you, and to see how far that commitment went beyond my own particular disappointment.

    Now that might sound like B.S. but it isn't, at least not for me. I really believe at our level in the organization, we should be expected to carry the mission of the company inside of us ... at a gut level.... In fact, it should be part of the requirement to be an officer of the company.

    Along with that responsibility comes the requirement to recruit peers who can compete with us, people who can be better than we are. I have always preached this and practiced it. But of course, this means that we have to face the inevitability that our subordinates will become our peers, and our peers will become our bosses. But there is a payoff. It also means that we can take pride in those people rising to be our peers in the organization. This is just part of the biology of a good organization, and I think it is part of the DNA of a good leader.

    But I had to really go through some questions and answer them truthfully. Here's what I asked myself:

    Do you believe in the mission of the company?

    Answer: of course.

    How does the fact that you didn't get this job affect your commitment to the mission of the company?

    Answer: not at all.

    Is there any place else, other than starting your own company, where you could express that commitment?

    Answer: probably not.

    Do you believe in the strategy?

    Answer: I helped fashion it.

    Is there any group of people that you would rather be with, leading and following, with all the foibles and all the successes? Can you imagine having the kind of long-standing and committed relationships in another environment?

    Answer: of course not.

    Do you respect the new person you are going to be working for?

    The answer is "absolutely."

    So then, for me, the only reason to leave would be petulance ... because I didn't get to play the position I wanted to play. And then I asked, "How am I going to explain this to Jake, my twelve-year-old son, that I quit the team because I didn't get to be starting center forward? I had no answer to that ... and I couldn't find one.

    To have to answer the question years from now ... to my son or to anyone else ... when someone asked me why I left Schwab ... to answer that it was because my ego was injured ... that was totally unacceptable to me.

    So I decided that I wanted to stay. But there was a final set of questions. The moral issue about whether or not it was right to continue taking a paycheck from the shareholders. Someone asked, "Are you really here or are you `in transition'?" And we all know what he meant. Was I excited? Did I have the energy? Or would I just be going through the motions?

    Well, his question started me thinking, and in the final analysis the decision was pretty easy. The hard part was coming to grips with growing up as a leader, to decide not to retreat but to go forward to the next challenge and continue to build on what we have here that is so very, very special.

    So I'm still playing, better than ever, I hope, in the right industry, where we can actually provide something that people need, in the right company, where we are truly serving, not selling, and with the right group of people ... all of you and the thousands who are not here. As Chuck said ... it's nice to go to work every day feeling like you are doing something important ... fundamentally to help people ... and doing it with people you care about.

    Truthfully, it doesn't get a whole lot better.

    Tom was right—it doesn't get a whole lot better than that. I don't know if I've been more proud of anyone. My own emotional reaction was mirrored in the rest of room, and thanks to the Net, in the rest of the company. Everything he expressed pointed to the success of our culture. Obviously we'd recruited a highly principled, thoughtful, and dedicated man. He was part of our team ethic, and he put the higher good—including the customer and shareholder, as well as management—ahead of himself.

    Tom retired from Schwab about a year after this event, and is enjoying a well-earned rest. But I'm still grateful for his remarks that afternoon, which reaffirmed his belief and dedication to the values he so ably reinforced. Tom Seip that afternoon was a living, breathing poster boy for the power of culture, done right.

    And done right, it means this: Everything else can fall away; the industry and products and circumstances may change; but an abiding culture can serve as the custodian of dreams for your company team, and for the customers on whose faith you build your house of business. It is an unchanging constant in the midst of a tornado of change, and it is something people want badly. It allows us to offer a choice to those who work here and for those we want to work here ... to live and work with others who want to make a lasting contribution, who are guided by their values, and who will toil together toward something larger than themselves. Steve Jobs did catch that part of the key idea. The company, at its best, can be a vehicle for everyone to make a difference.

What People are Saying About This

Andy Grove
As many of us try to figure out how to properly use technology in our business processes, these authors? backgrounds--lifetimes spent dealing with just such issues--comes in very handy. And the book provides excellent case studies of the evolution of successful ?click and mortar? businesses.
Gary Hamel
Pottruck and Pearce reveal the secrets to corporate vitality in an upside-down world.
Ann Winblad
The new Internet economy means high-velocity change and requires extraordinary leadership. Clicks and Mortar emphasizes the courage for the passionate leadership that is needed in this environment...a major contribution.
John Quelch
Clicks and Mortar gives current and potential business leaders an inspiring road map with which to navigate the inevitable journey into e-commerce. It has perspective, precision, and heart: the necessary attributes of tomorrow?s enterprise.
Scott Cook
Clicks and Mortar is the bible for future heroes of e-commerce. It's brilliant and down-to-earth; a fast read, yet deep. This book is the playbook for igniting the power of passion your business, written by those who have done it.
Laura Tyson
The authors provide practical and inspired advice on how to build a corporate culture that weds the spirit and skill of people with the marvels of new technology in a winning business combination.

Meet the Author

DAVID S. POTTRUCK is president and co-CEO (with Charles Schwab) of The Charles Schwab Corporation TERRY PEARCE is president of Leadership Communication, a teacher at the Haas School of Business at the University of California, Berkeley, and an executive communications officer at Schwab.

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