Firms of Endearment

The foundations behind Firms of Endearment (FEO) are the 5 stakeholders:  Society, Partners, Investors, Customers and Employees (SPICE). Each stakeholder is important on its own but also linked to all the other components.  Professor R. Edward Freemon was the first to frame the idea of a SRM (Stakeholder Relationship Management) Business model. From his point of view, a stakeholder is "any group or individual who can be or is affected by the achievement of a firm's objectives". 

A distinguishing core value of FOEs is service to all stakeholders without favoring one over the other, and through this perspective, the debate on "shareholders Vs. stakeholders" seems irrelevant. In the long run, the best way to serve shareholders is by embracing a SRM business model that satisfies all stakeholders.  This leads to highly motivated and productive employees (that are well-paid), satisfied customers and suppliers, good money for investors and an open door into every community it wants to enter.

This business model is not a moral code and can be difficult for analysts to understand. Most of them haven't yet discovered the secret behind these companies' successes and as a result criticize them for operating in a way that defies conventional management logic. However, this seems to be an enduring trend helped along by a moral revolution in the executive suites of America, and will probably not pass quickly.

The firms examined in this book show that shareholders can gain more when their interests align with those of the other stakeholder groups, and placing shareholders far above all the other stakeholders may be the worst long-term position a company can put them in.

Costco vs. Walmart

In American retail, Wal-Mart is known for it's bad practices as an employer and considered the "bad guy" while its competitor, Costco, consider to be the "good guy".

Costco pays employees more: a Wal-Mart employee starts at 10$ and makes 12.50$ after 4.5 years. A Costco employee starts at 11$ and makes 19.50 after 4.5 years.  In addition, he receives a 2000$ bonus every 6 months and better health benefits.

Are better paid workers more beneficial to the company?

-   Costco's revenues per employee are 5 times higher than Wal-Mart's, however, this is also due to the fact Costco sells more expensive stuff with higher margins.

-   Costco's employees are less likely to leave the company: Costco's turnover rate is 20% and drops to 6% among employees who stay at least a year, while Wal-Mart's turnover rate is 50%. But this is not necessarily an advantage, because long term employees are more expansive and not more productive for sure.

-   Higher paid workers are 'better quality" employees, who can better represent the company in the eyes of the public. But it's very difficult to measure effects of such workers quality on Costco's business.

Investors in recent year have rewarded Costco significantly more than Wal-Mart. This could have a lot to do with Wal-Mart's public image: in the years 2004/5 Wal-Mart received a lot of bad publicity: news stories exposed child labor, overtime abuses and exploitation of immigrants. At these years Wal-Mart's stock went down 9.7% while Costco's went up 37%. Analysts's expectations on long term growth are higher for Costco than they are for Wal-Mart even though Wal-Mart is more profitable. But the analysts' confidence in Costco could come from many reasons other than employee relations, such as Costco being more "recession proof" (due to their richer customers) or that 70% of Costco's earnings come from membership fees.

 It's very difficult to calculate the payoff for "being nice" to workers, so why bother?

-   Union: 11% of Costco's employees are union members, as opposed to 0 Wal-Mart employees.

-   The CEO's personal values: Costco's CEO, Jim Sinegal, has a very big part in maintaining the company's policy of generosity towards its workers.

Until the benefits of Sinegal's philosophy can be proven, it's unlikely other companies will follow his footsteps, or even Costco itself will keep it up once he is not around anymore.

Make-up

Where community members who select to make-up for missing activities post make-up work that would benefit our community.

Apologies

Where our community members let the class community know they had to miss a session or part of the session, or other course event.

My Business Model

In this section each student will write a post about his/her personal business model. He/she will update their business model by writing comments to their post. As the course advances each student should update the business model and the rest of the class can comment on it. Each post in this section will represent a business model of one student.

Discussion on Readings

Here we will discuss articles: Each week a different group will post an extensive review about the weekly reading as a post in the Blog. The rest of the students (who are not in the weekly group) will post a comment about the reading.



Tips for writing comments
1.  Does the comment raises an interesting question related to the main topics in the articles (title of each comment should be a question)
2,  Does the comment answer the question raised by adding useful insights? (based on personal experience, other readings, etc ...)
3.  Is the comment "reader friendly"?  - not too long and boring (maximum 200 words).

Scale for evaluation
1 point or 0.75  = Comments is very useful or somewhat useful
0.50 - 0.25 = Comment can be more useful or much more useful
0 = Comment was not posted


The rest of the students (who are not in the editorial or referee committees)  will post a comment about the reading NO LATER THAN 24 HOURS before the session in which the comments will be discussed.