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FORTUNE
magazine, "Costco
continues to be a company that is better at serving the club member
and employee than the shareholder."
Fortunately, Sinegal trusts his gut more than he trusts Wall Street
analysts. "Wall Street is in the business of making money between
SPLIT HAPPENS
229
now and next Tuesday," he said in the
20/20
interview. "We're in the
business of building an organization, an institution that we hope
will be here fifty years from now. And paying good wages and
keeping people working with you is very good business."
The amazing insight in all of this is not just how inspiring Sinegal
is, but that almost everything he says and does echoes Sam Walton.
Wal-Mart got as big as it did doing the exact same thing— focusing
on WHY and ensuring that WHAT they did proved it. Money is
never a cause, it is always a result. But on that fateful day in April
1992, Wal-Mart stopped believing in their WHY.
Since Sam Walton's death, Wal-Mart has been battered by scan-
dals of mistreating employees and customers all in the name of
shareholder value. Their WHY has gone so fuzzy that even when
they do things well, few are willing to give them credit. The com-
pany, for example, was among the first major corporations to de-
velop an environmental policy aimed at reducing waste and
encouraging recycling. But Wal-Mart's critics have grown so skepti-
cal of the company's motives that the move was largely dismissed as
posturing. "Wal-Mart has been working to improve its image and
lighten its environmental impact for several years now," a column
published on the
New York Times
Web site on October 28, 2008, read.
"Wal-Mart is still selling consumerism even as it pledges to cut the
social and environmental costs of making the stuff in its stores."
Costco, on the other hand, was later than Wal-Mart to announce an
environmental policy, yet has received a disproportionate amount
of attention. The difference is that people
believe
it when Costco does
it. When people know WHY you do WHAT you do, they are willing
to give you credit for everything that could serve as proof of WHY.
When they are unclear about your WHY, WHAT you do has no
context. Even though the things you do or decisions you make may
be good, they won't make sense to others without a clear un-
derstanding of WHY.
START WITH WHY
230
And what of the results? Still running on the memory of Sam
Walton, Wal-Mart's culture stayed intact at first, and the value of the
two stocks was about even for a few years after Walton died. But as
Wal-Mart continued to run its business in a post-Sam, post-split
manner while Costco maintained clarity of WHY, the difference in
value changed dramatically. An investment in Wal-Mart on the day
Sam Walton died would have earned a shareholder a 300 percent
gain by the time this book was written. An investment made in
Costco on the same day would have netted an 800 percent gain.
Costco's advantage is that the embodiment of their WHY, Jim
Sinegal, is still there. The things he says and does help reinforce to
all those around him what the company stands for. Staying true to
that WHY, Sinegal draws a $430,000 salary, a relatively small
amount given the size and success of the company. At Wal-Mart's
peak, Sam Walton never took a salary of more than $350,000 per
year, also consistent with what he believed. David Glass, the first
man to take over as CEO after Sam Walton, a man who had spent
considerable time around Walton, said, "A lot of what goes on these
days with high-flying companies and these overpaid CEOs, who're
really just looting from the top and aren't watching out for anybody
but themselves, really upsets me. It's one of the main things wrong
with American business today."
Three more CEOs have attempted to carry the torch that Walton
lit. And with each succession that torch, that clear sense of purpose,
cause and belief, has grown dimmer and dimmer. The new hope lies
in Michael T. Duke, who took over as CEO in early 2009. Duke's
goal is to restore the luster and the clarity of Wal-Mart's WHY.
And to do it, he started by paying himself an annual salary of
$5.43 million.
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