Costco's Character
What Costco's founder, Jim Sinegal can teach us about character
As a business leader there will come a time when you’re faced with a choice.
Do something that benefits your business and you personally or do something that benefits your people and your customers or supporters.
Often these decision points happen in the dark, out of the view of others. You could easily make the decision that benefits you or your organization without anyone knowing.
There are two great examples of this concept from Jim Sinegal, founder and former CEO of Costco.
The first of these comes from a story shared on the Founders podcast. In my opinion, this is one of the most valuable and powerful business resources around. If you aren’t familiar with it already, check it out.
On the podcast they share a story about a time in Costco’s history where one of the company’s product buyers was able to secure a purchase of blue jeans for $22 per unit compared to the typical cost of $32 per unit if they made a massive bulk buy (like a million units). Costco of course made the deal and purchased this inventory — because who doesn’t like a great deal, right?
The buy then came to Jim Sinegal and suggested that because they saved so much, they could actually increase the margin that they captured per unit by still selling these products at the “regular” price, capturing all or a majority of their savings as profit for the company.
This could have resulted in millions of dollars of additional profit for the company. And the customers would never have known. They would still have bought the blue jeans and received a fair price for them.
But Sinegal blocked this highly profitable move. And in doing so, he set the tone for how the company would relate to customers in situations like this in the future. He simply said, “If I let you do this once, you’ll do it again. And again. And that will violate the contract we have with our customers.”
It was more important for Sinegal to maintain the trust he had with Costco customers and protect their relationships than it was to generate more profit in the moment. This is the essence of integrity and character in leadership.
Sinegal tells another story about a decision he and the Costco leadership team made regarding their employees. In this video he shares the story of how costs of their employee health program were increasing and Costco corporate had to shift from paying 95% of their employee health costs to only paying 90%. They informed employees that the additional 5% would be charged to employees. At the end of the year the company realized that they had over-projected on the increase in costs, and they actually had several million dollars in savings because of that. They could easily and quietly have taken those savings as company profits. But instead, they decided that the right thing to do was to distribute those savings across the company into employee 401k accounts.
Employees never would have known if the company took those savings as profits. They had already accepted that their costs would increase. But Jim and the Costco leadership team knew that wasn’t right. And that the relationship and commitment they have with their staff would have been damaged if they had hidden those savings. But that decision would have been wrong. It would have been dishonest and would have violated the trust they’d built with their people. Instead, they shared them with the entire team because they are focused first and foremost on taking care of their people.
When you are faced with one of these key decision points in your leadership — and if you lead people and organizations long enough you will face a situation like this — the decision you make is critical.
In the moment you might be tempted to increase company profits or make the decision that benefits you instead of your people or those you serve. But I challenge you to delay the personal gratification and success and instead focus on how your decision would be considered in the light of day.
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