"I came to (Jim Sinegal) once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty," Jelineck recalled[..]. "We are losing our rear ends.’ And he said, ‘If you raise the effing hot dog, I will kill you."
That's not structure, that's leadership. They were about to change the price, but one guy at the top with authority and an opinion said no. You could say "it's structure" that there was one guy at the top with authority, but it still depends on him having the right opinion. You need both a good structure and an unwaveringly idealistic (and correct) leader.
If you think Costco has endured only because of leadership, because of its strong ethos and its immense size, because you think it's just too big for Wall Street to mess with, you are not correct. My friend, nothing is too big for Wall Street to mess with. Wall Street has tried many times to dismantle Costco's ethos, and every time the unique structure of Costco is what has allowed them to resist.
Which it doesn’t seem you have refuted in any meaningful way. You just restated what the parent comment is responding to with no further reasoning as to why leadership doesn’t account for it.
What I hear you saying is that the original comment simply said that leadership by itself is enough to preserve the Costco ethos. It didn't say anything about size or Wall Street or anything else. Is that right?
The reason I responded the way that I did is that the claim that something by itself is enough has to explain why most companies are able to be destroyed, even though they have really good leadership. I think the common answer when people ask about Costco is that the reason why, for them, leadership was enough when it hasn't been for other people, is something like they're so large. Does that make sense?
Either way, in order to say that leadership by itself is sufficient, we have to figure out why Costco has been able to endure as a gigantic public company when, for most companies, the larger they become, the more valuable they become as a target. Meaning that Wall Street or other financial forces will intervene to change their values.
And the answer, which I lay out in the book (not in my original comment), is that Costco is protected by a very distinctive thing I call a "governance fortress." This fortress (and not merely their leadership) is the reason why they have been able to endure for forty years.
In fact, the predecessor company of Costco, spiritually speaking, was a company called FedMart that had the leadership and ethos but did not have the fortress. I'll leave it to you to read to find out what happened to them.
I think most of us are happy to believe that most companies simply have bad leadership, that leadership quality really is the axis on which Costco differs from others. If you want us to believe that other (destroyed) companies' leadership is just as good as Costco's, you need to make that case.
> Costco is protected by a very distinctive thing I call a "governance fortress." This fortress (and not merely their leadership) is the reason why they have been able to endure for forty years.
Can you sketch out your actual argument here (I think doing so would help rather than hinder your book sales, though of course that's a biased judgement)? What is this "governance fortress", and why should we believe that that, rather than the personal qualities of this one guy, is the reason they kept the hot dog?
In the book, I give dozens of examples of companies that were well-lead and then suddenly destroyed, often by outside actors who found a way to profit from their destruction. This often happened at the governance layer, while leadership watched helplessly from the sidelines.
So why hasn't this happened to Costco? I don't think it's a coincidence that Costco has a variety of "bad governance" provisions, such as a super-majority (of all shares, not just votes) provision threshold for shareholder votes, as just one example. When activists, analysts and other Wall Street actors have tried over the years to force Costco to change, its leadership has been insulated from this pressure. I think that is a structural factor that is important.
Again, structure does not _cause_ ethos. It protects it. My argument in the book is you need both.
Do you believe there's a fundamental tradeoff between structural constraints (i.e. the 'democratic' model, where dispersed shareholders and markets have a voice) vs. insulated leadership (i.e. the 'benevolent dictator' model, where competent leaders are shielded from short-term shareholder pressure)?
Also, thank you for your quick replies.
Somewhat related: https://en.wikipedia.org/wiki/Benevolent_dictatorship
I don't believe this for a second.
I don't know if this makes me the minority or not though!
It trivializes forces influencing large public companies.
Yes - there can be good and bad leadership - and bad leadership is just bad.
But good leadership can be totally helpless in a public company.
Not recognizing this is a huge gap.
The other forces that incluence a company:
- Board
- Shareholders (via board)
- Banks. Lots of companies have loans. The banks generally have the companies by the balls and can dictate many things when things go south - either due to leaderhip or just prevailing market winds
As an example of shareholder/board direct and rapid influence: an activist purchases shares. Installs board member. Causes rapid change in one or more aspects of business structure or strategy to support _their_ portfolio strategy (of course aligned with interests of other shareholders).
etc.
I see size as negatively correlated (maybe as a semi-direct cause) with preserving company mission. Hence why I was confused by you addressing it. It would never cross my mind to argue that size has protected Costco.
I haven’t read your book, just skimmed the post so I don’t know if it’s convincing. But I’d like to argue that those companies failing their mission is proof that they did not have good leadership. however, that makes the argument a little circular.
I’m aware of FedMart (Acquired podcast on Costco is very entertaining). I think Sol Price was a bad leader and selling out to Hugo Mann was putting profit above other things.
If you're right and it is AI, the comment only points out what many of us can already see. If you're wrong and it isn't AI, then the commenter you're responding to can either argue with you about how it's not AI or just say nothing because there's nothing of substance to say.
Yeah, there's no rule structure that can't be skirted and subverted by new owners with different objectives. The most resilient way to preserve your values is to:
Only take care, and keep your soul diligently,
lest you forget the things your eyes have seen,
and lest they depart from your heart all the days of your life.
Teach them to your children and to your children's children.
It isn’t about being idealistic, it’s just about understanding what makes people tick, and how to best get them to part with their money - and understanding that a business is not one dimensional.
It sounds like a really toxic working environment. I sincerely hope they made up this story as an ad about how cheap their hot dog is.
Or, as you say, it could be a really horrible environment - but I don't think you can tell from one anecdote.
> "What we figured out we could do is build our own hot dog-manufacturing plant (in Los Angeles) and make our own Kirkland Signature hot dogs. Now we are doing so much hot dog business that we’ve opened up another plant in Chicago. By having the discipline to say, ‘You are not going to be able to raise your price. You have to figure it out,’ we took it over and started manufacturing our hot dogs. We keep it at $1.50 and make enough money to get a fair return."
https://www.425business.com/news/costco-ceo-craig-jelinek-on...