Not On This Year’s “Most Admired Companies” List

Hereu00e2u20acu2122s the lead to a recent story in The New York Times that you may have missed: u00e2u20acu0153Circuit City Stores, Inc. said on Wednesday that it would cut costs by laying off about 3,400 retail workers, or 8.5% of its in-store staff, and hiring lower-paid employees to replace them.u00e2u20ac

The consumer in me wants never to set foot in a Circuit City store again.The journalist in me wants to rewrite the lead:

u00e2u20acu0153Circuit City said on Wednesday that it would alienate its customers, torpedo its future, and sacrifice its reputation for having a knowledgeable sales force by firing 3,400 of its customer contact employees and hiring poorly paid and inexperienced trainees to replace them. Executive comp plans will not be affected.u00e2u20ac

Now itu00e2u20acu2122s not like I donu00e2u20acu2122t have my own ax to grind here: Circuit City has long been my vendor of choice for all sorts of electronics. And the biggest reason for that was never the priceu00e2u20ac”it was those Circuit City salespeople who could always be counted on to provide intelligent answers as to why that 4.0 megapixel digital camera was really any better than the less expensive 3.2 megapixel model, or why the highpriced color copier was cheaper over the years because of its lower ink usage. Inevitably, I was convinced to spend the extra money.

Those knowledgeable front-line salespeople may well be gone next time you drop into a Circuit City store.Theyu00e2u20acu2122re victims not of a competitive global economy, always the fingered culprit in such moves, but of a cockamamie scheme dreamed up by financial types willing to sacrifice a company for a quarter or two of improved numbers, and maybe a year of bigger bonuses for senior managers, whose performance in recent years has fallen woefully behind major competitors like Best Buy.

As I got ready to write a paragraph about how all this showed contempt for its employees and its customers, I thought Iu00e2u20acu2122d take a look at Circuit Cityu00e2u20acu2122s most recent annual report. Hereu00e2u20acu2122s what CEO Philip Schoonover had to say in his 2006 shareholder letter:

u00e2u20acu0153We are placing more emphasis on training, coaching and mentoring our Associates. u00e2u20acu00a6 Associate engagement is a combination of emotions including satisfaction, commitment, pride, loyalty and a willingness to be an advocate for the company. Simply put, Associates who are engaged perform better, which leads to more satisfied customers.u00e2u20ac

So I guess I was wrong.This is an inspired policy, sure to build loyalty among those capital-A Associates who will be paid less and will know less than the Associates whom they replaced, but will feel better about the company they work for.

What is the message here for bank directors, beyond the fact that we buy a lot of electronic toys? First, think twice before telling the world youu00e2u20acu2122re firing your loan officers and tellers so that you can replace them with cheaper models. Second, be very careful youu00e2u20acu2122re not making short-term decisions that have a long-term impact on how your customers feel about youu00e2u20ac”the $32 overdraft, that never-a-human-voice automated phone system, the flex-time staffing plan that leaves customers standing in a long line during inexplicably busy u00e2u20acu0153slowu00e2u20ac times at the bank.Watch how great retailers like Starbucks and Southwest Airlines deal with customers; though the big banks arenu00e2u20acu2122t particularly good models for winning lifetime loyalty, frankly I canu00e2u20acu2122t think of one that, when faced with some market pressures, said, u00e2u20acu0153Hereu00e2u20acu2122s a great idea, letu00e2u20acu2122s fire the people who know our products and our customers best and dumb down the staff when we replace them.u00e2u20ac

But maybe Circuit City wonu00e2u20acu2122t have to replace those supposedly valued Associates, because hereu00e2u20acu2122s the corker: CEO Schoonover announced that after 10 weeks, terminated employees could reapply for their jobs and, if approved, come back at a lower pay rate.Talk about attitude! Think you might get a little u00e2u20acu0153attitudeu00e2u20ac next time you encounter one of these rehires at the end of Circuit Cityu00e2u20acu2122s checkout line?

Turning around companies is tough, but it happens every day in this country. Itu00e2u20acu2122s nothing compared to the difficulty of building a trusted brand, nothing compared to building a lasting and admired corporate culture. When a company attacks that culture, when it attacks internal values that have taken decades to develop, its best people leave, and those left behind cease to be the evangelists who keep the momentum going in the really great American companies.

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