Little things mean everything

How three disparate but ingenious family companies found success by focusing on their employees.

By David A. Schwerin

Increase revenue 200-fold in less than a quarter-century! Offer customers an unconditional guarantee without flinching! Retain clients for an average of 25 years!

This is precisely what three family-owned businesses I know have done. How? By attracting, retaining and motivating a talented, dedicated workforce. Each of these trend-setting companies has a distinct character. Two are relatively small, with offices on opposite coasts. The third is quite large, with offices worldwide. The roots of the three companies are different, but the visionary leaders now in charge of these flourishing businesses have much in common. A peek at how these businesses have evolved and where they are headed offers important in sights that every family business owner will appreciate.

One company cultivates happiness and encourages feedback—its associates feel empowered; they go the extra mile. Another shares the wealth—its employees think like owners. A third ingrains family values—its workforce feels connected and works with heart. All three strive to provide an enjoyable, rewarding work environment where employees have fun and feel fulfilled—not because the owners are bucking for sainthood, but because it’s a major component of their business success.

Growing like Topsy

Philadelphia-based Rosenbluth International was a cozy little $20 million, 82-year-old travel agency when Hal Rosenbluth, the founder’s great-grandson, joined in 1974. Hal Rosenbluth realized early in his career that to rise to the challenge presented by airline deregulation and the subsequent rise of fare competition and corporate travel departments, he would need to attract top-notch people and find a way to unleash their creativity and enthusiasm. In Rosenbluth’s first book, The Customer Comes Second and Other Secrets of Exceptional Service, he makes a strong case that unhappiness in the workplace is the cause of most business problems—especially in a service business. Serving clients properly, he concludes, is demanding work, and service deteriorates if the people delivering it are not in high spirits. Thus the happiness of his employees became Rosenbluth’s personal crusade.

So how does an employer cultivate happiness? First, Rosenbluth hires for attitude, then he trains for expertise. His company looks for employees who are “nice, fun-loving and playful” to begin with. That sounds like the criteria for a kindergarten class. Yet the fact is that pleasant, caring, compassionate people give service companies a tremendous competitive advantage.

At Rosenbluth Travel, prospective employees undergo an exhaustive interviewing process: Eight to ten interviews may be required before a candidate is chosen. That makes sense, too: Since training is a major expense, a manager needs to be certain that a new hire will fit the corporate culture and be with the company for the long pull. Selectivity and happiness go hand in hand.

(Incidentally, Rosenbluth staffers are called “associates,” not “employees.” That semantic distinction does no harm and may subliminally improve employees’ self-image.)

The next piece of Rosenbluth’s “happy workforce” puzzle is a set of policies that are perceived as fair and flexible and are communicated in a timely fashion. How does this translate to the bottom line? Well, for one thing, it all but eliminates the impetus for office politics, the mother of all time wasters. When people are preoccupied with covering their tails or documenting their worth, cooperation suffers and productivity plummets. So Rosenbluth takes pains to measure and reward teamwork and build a collaborative, trusting cadre of associates. (The company psychologist is a key player.) In other words, happiness is designed into the corporate fabric.

Many businesses operate in a constant state of turmoil. Egos get alternately massaged and mutilated. Feedback on everything from job performance to product acceptance is virtually instantaneous. Every decision is an opportunity to make a mistake. Emotions swing from euphoria to depression as some decisions work out beautifully and others bomb. There are new markets to understand, new competitors to deal with, new personnel to train, new bosses to appease. And then this schizophrenic hyperactivity is taken home and shared with the family, in effect spreading the company’s stresses and strains into the larger society. Rosenbluth’s obsession with employee happiness virtually eliminates this syndrome.

Many employees today seek fulfilling jobs with sensitive employers. They want bosses who understand their desire to balance work and family responsibilities. They want greater informality (like dress-down codes) and more flexibility (like telecommuting and flex-time policies). Rosenbluth Travel not only offers these programs but also, as outlined in Hal Rosenbluth’s second book, Good Company: Caring as Fiercely as You Compete, has developed an employee satisfaction survey to help it assess how well the company’s leaders are doing.

At Rosenbluth, feedback is encouraged in several ways—some predictable, some unconventional. Most meetings are open to everyone and posted in advance. Hal Rosenbluth encourages e-mails from the troops and responds personally. A “360-degree” review process (that is, reviews are conducted by leaders, peers, subordinates and clients) keeps everyone in the loop and on his or her toes.

On the theory that a picture is worth a thousand words, packs of crayons and paper are sent periodically to associates with the explicit request that they draw a picture expressing their feelings about the company. (This curious policy has been remarkably effective in revealing problems that would otherwise be difficult to communicate.) A role-switching program lets leaders and associates change places periodically. (Walking in each other’s shoes can be quite insightful; meaningful ideas are often generated and communications improved.) Multiple entry and exit interviews are conducted at set intervals.

What have been the results of Hal Rosenbluth’s focus on employee satisfaction? Rosenbluth International’s revenues have grown to more than $4 billion today. The company now has the second largest worldwide presence in travel management. Its profit levels exceed its industry’s standards. And the company receives 30,000 unsolicited résumés each year. Rosenbluth’s reputation as an employer of choice relieves it of the need to pay premium salaries for top talent. In today’s labor-strapped economy, that’s another huge advantage.

Sharing the wealth

Sergio Lub is CEO of Sergio Lub Inc., a company that makes and distributes handmade jewelry in Martinez, Calif. The company’s two dozen employees include his mother, sister, wife and, most recently, Russian-born niece. As a student in Argentina, Lub invented and patented a unique system to mold gyroscopic pendants. But a unique product wasn’t the only tool at his disposal when he launched his company more than 20 years ago.

The company also gives its retail outlets a highly unusual guarantee: Any unsold piece of jewelry can be returned for a full refund. What’s more, each bracelet sold to the public carries a lifetime guarantee; if it ever breaks it will be replaced free of charge. This seemingly suicidal policy in fact has enabled Lub to address retailers’ biggest concern: unsold inventory. Consequently, it has enabled him to establish a long-term, win-win relationship with his dealers and customers. Needless to say, Lub has developed a very loyal clientele.

What sort of company can get away with making unconditional, no-holds-barred guarantees? Only a company that’s supremely confident about the quality of its products—and making high-quality products requires experienced, dedicated employees.

When I visited with Lub at his modern, vibrant office building, the energy and enthusiasm of the employees was palpable. I couldn’t help wondering: What’s his secret? The answer, I discovered, is a concept called “Open Book Management.” It gives all employees access to the company’s books, instructs them on how to read the financial statements and then shares a portion of the profits with them, sometimes in exchange for slightly lower employee salaries.

You ask: What closely held business in its right mind would want to do that? As it turns out, Open Book Management has been a lifesaver for many companies. When employees are able to see the interconnections among various parts of the business, they understand how their productivity contributes to the company’s overall performance. They begin to think like owners, taking the initiative to cut costs and increase quality and output.

Each year all Lub employees assemble to review the company’s financial results and make plans for the next year. Suggestions and criticisms are encouraged as they meet as a group to prepare their common long-term goals. At this time all employees receive their share of the company’s profits. This distribution reinforces employee commitment—not only to improve on their individual tasks but also to take part in guiding the entire enterprise. This inclusive approach keeps the quality of their products exceedingly high and their turnover extremely low.

Open Book Management can not only improve the bottom line but also make going to work a genuine pleasure. But it takes courage to initiate, as I can testify from 25 years’ personal experience as owner of a small family investment counseling business. I struggled mightily to implement the concept—mostly with myself, because it’s very hard to relinquish control when you’re a company’s founder and primary decision maker. Sergio Lub’s company used to be a small family business, too. Today, thanks in part to his enlightened employee policies, the company sells 100,000 handcrafted bracelets annually through stores and galleries in the U.S., Canada, Japan, Australia and Europe.

Computers and family culture

Philadelphia’s Fernley & Fernley, established in 1886, is the nation’s oldest association management company. It operates trade and professional societies for associations that are mostly too small to maintain a full-time professional staff. Its clients are groups that you’ve probably never heard of—like the American Brush Manufacturers Association, the Resistance Welder Manufacturers Association, the Aviation Distributors and Manufacturers Association and the National Association of Aluminum Distributors—but that matter a great to their members. The job can be stressful: If any of the myriad chores goes wrong, there’s no place to hide. If all goes right there are few kudos; that’s the way it’s supposed to be.

By all indications, Fernley & Fernley has navigated these choppy waters well. The company ranks among the top 5% of 200 similar firms nationwide; its average client has been on board for 25 years.

G.A. Taylor Fernley, the founder’s great-grandson and current CEO, bought out his second cousin in 1998 and is now 100% owner. That buyout enabled the company’s managers to focus on reinvesting in the company’s technology and people. To that end, they recently upgraded their computer system and reinvigorated their already strong “family values” corporate culture.

As with Rosenbluth and Lub, that culture starts in the workplace. Fernley & Fernley’s employees are offered a company-subsidized hot meal each day so they can conveniently socialize and share ideas. The lunchroom furniture and fixtures are simple and unadorned, but the walls are lined with photos of cheerful employees enjoying a variety of company-sponsored events, like holiday parties and summer picnics. Managers routinely send birthday cards and notes of appreciation to employees’ homes. (Remember how much fun it once was to get letters in the mail, instead of just bills and credit-card solicitations?)

The company also operates a “Rewards and Recognition Program,” which recognizes the top associate (as voted on by all employees) in each of three categories: dedication, leadership and competence. The company also recognizes employees’ spouses and children. Because its employees spend a lot of time on the road, the company throws periodic parties and holds a variety of events intended to give the entire family an opportunity to celebrate together. Another innovative policy: To help compensate for the time spent away from family and friends, Fernley & Fernley gives employees a day off for every two days of travel.

Busy workers often can’t find time to get involved in community activities. Fernley & Fernley’s solution: It provides monthly opportunities, on company time, for its employees to support clothing drives, blood banks, Thanksgiving food basket and children’s book collections, employee raffles for local charities and a breast cancer benefit. Traveling employees are encouraged to drop their giveaway hotel soap bars and shampoo vials to Red Cross emergency relief boxes. The community obviously benefits from these activities, but so do the employees and the company: In the process, employees get a break from a pressure-packed work environment, learn new skills and make new contacts.

This isn’t mere window-dressing. Fernley & Fernley’s corporate culture creates a workforce that’s exceedingly loyal—the typical employee stays more than 12 years.

 

David A. Schwerin is president of DJ Investment Advisors Inc., in Ambler, Pa., and the author of Conscious Capitalism: Principles for Prosperity (Butterworth Heinemann).