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INTERVIEW:
An Exclusive Interview withJohn Kador
Author, Charles Schwab:
How One Company Beat Wall Street and Reinvented the Brokerage Industry


John Kador's interest in the dynamics of the business world is matched only for his love of family and writing. The marriage between writing and business flourishes in Charles Schwab, his fourth book and the first since the best-selling Net Ready, which he co-authored in 1999. Kador weaves a number of compelling and enlightening stories together to present a company—Charles Schwab—that bucked the trend of other Wall Street brokerage houses from its outer flank position in San Francisco and reinvented the brokerage business.

We spoke with Kador as Charles Schwab hit the bookstands nationally. Besides its insightful look at a company, this book also addresses core issues to which the scandal-wracked corporate world ought to take heed.

Bookstand: First of all, with all of the corporate scandals, malfeasance and accounting irregularities, it seems like a great time for Charles Schwab to come out. How does this sense of timing strike you?

John Kador: Itês a mixed blessing. On the one hand, Chuck Schwab and the organization he leads stands out as a Mount Olympus of integrity and ethics against a backdrop of corporate conflicts of interest and securities industry sleaze. On the other hand, reading is another form of investing. Readers may be so cynical about the business world that they withdraw from all forms of investing… trading as well as reading about business. That would be a shame, not just for my book sales, but because people would miss so many opportunities for learning.

Q: You really mesh storytelling well with business/finance writing. Could you talk about your general approach to business writing, and how you're able to blend in classic elements of storytelling to your work? Also, when you write, are you aware of how much more this resonates with readers than straightforward business writing?

A: The business of business writing is telling human stories. Think about the most powerful human motivators: sex, fear of death, editing another writerês copy. All have the power to organize human activity. But just as mighty as those things is the subject of money. Stories about its accumulation, management, and distribution are the most powerful stories we can tell about ourselves. In my business writing, and in the Schwab book, I try to tap into that power.

Q: In your research and discussions with the Schwab people, and the conclusions you drew, what vital quality stands out for doing business today stand out above the others?

A: Number one is having standards. Great companies need not goals, not targets, but standards. Goals can be achieved, and then what? Targets are invariably set too low. Standards are what set great companies apart. Schwab is built on standards of integrity and ethics. Standards proclaim: Here's what we stand for, this is the ground we stand on together; here's how we stand apart and stand out; and this is where we stand together. The qualities that make Schwab great depend on an unwavering set of ethical standards around which the business revolves.

Q: Can you talk about the flexibility and forward-thinking adaptability of the Schwab environment, and why that is such an important attribute to doing business in the 21st century?

A: From the beginning, Schwab favored building products by working from the customer in, rather than existing processes out. In other words, it identified what customers wanted and then determined if they could supply the requirements at a profit. If it could, it built the product or service. Its competitors tended to develop products and then tried to create a market for them. This approach kept Schwab and its customers on the same side at a time when competing brokerages often had adversarial relationships with their customers.

Q: As a specialist in writing about e-business, it must have given you great pleasure to write about Schwab's migration to the Internet. Now that we've seen both the Himalayas and Death Valley in the dot-com explosion and e-business, what elements of doing e-business have stood the test of time?

A: Schwabês migration to the Internet literally saved the company. It could not hope to survive the downturn had it not embraced the Internet so wholeheartedly in 1998. The Internet allowed it to reduce costs, get closer to its customers, and position itself for delivering targeted value-added services such as banking. Schwab took a huge gamble in realigning itself as a Net-ready company. It was not an easy change to implement. It was the best decision it ever made.

Q: You're a talented writer who can probably write about anything—and, judging from the quality of your narrative, shift back and forth between fiction, non-fiction and biography. Why did you choose to write about businesses, corporations, corporate figures and business practices? What intrigues you so much about the machinations of the corporate world?

A: I appreciate the compliment, but I've struck out on everything but non-fiction. Fiction I restrict to my income tax returns! All kidding aside, I like to write about business because it is endlessly fascinating. With the possible exception of dating, business is the most self-correcting human activity. Itês immediately clear in both dating and business if a strategy is working or not. The other thing I like about business reporting is that business is a team effort. Lately the popular press has bought into the myth of the all-powerful chief executive. But not even Jack Welch, retired CEO of General Electric, believes that. The real drama lies in getting people with individual goals to transcend their separate agendas to work for a common goal. Chuck Schwab continues to be able to exert this special and extremely rare form of leadership.

Q: A looking-glass question for you: When the dust settles from the corporate scandals, and the economy heats up again, how will the business climate be different from what it was when it took off in the mid-1990s?

A: As I mentioned, the American capitalist system's greatest virtue is that it self-corrects. We are already seeing new rules, new regulations, and a greater sense of accountability. Individuals will go to jail. But the biggest change will be acknowledgment that the system suffered from inherent conflicts of interest. Securities brokers must not be compensated by commission. That's why Schwab pays its brokers a salary. Brokerages cannot serve their customers if they also have to protect their investment banking arms. Those businesses need to be separated. The biggest change will be at the board of directors level. Shareholders will demand and get a new level of accountability and independence from the directors that represent them.

Q: A few years ago, you and your co-authors enjoyed a run on the bestseller list with Net Ready. How did this experience change the way you approach books—as well your standing in the business community, etc.?

A: Net Ready definitely opened doors for me with the Schwab book. Schwab people are very protective of Chuck and their company. It turned out that in Net Ready we talked about Schwab as a very positive example of Net-readiness. Many of the busy Schwab sources I went after would not have returned my calls had they not recognized my name and remembered how generously we treated Schwab in that book.

Q: Can you give us an example of a cherished myth that limits, rather than expands the companyês possibilities?

A: The company is tearing itself apart over the issue of giving advice. One of the company's founding myths was that brokers could not give conflict-free advice, so Schwab would not give advice. It became a moral imperative. It's what made Schwab not just different than other brokers, it made Schwab better than other brokers. Schwab brokers were routinely fired for giving advice. And for many years the taboo helped differentiate Schwab. But now it turns out that Schwab customers really do want advice. And Schwab now understands that what it really had a problem with was not the advice, but the conflict of interest. Yet even though Schwab customers are asking for advice and the company wants to provide it, it is having a hard time delivering a meaningful advice offering because it continues to trip on this old piece of myth.

Q: What was your favorite single interview or experience while writing Charles Schwab?

A: Crashing a Schwab holiday party. Initially the company refused to have anything to do with my book. I believe they felt that I'd go away if they stonewalled me. They were wrong. To demonstrate my persistence, I actually went to the San Francisco coffee shops where Schwab people hang out. I met a few employees, and then a few more, and one thing led to another and I found myself at a holiday party full of Schwab employees. I was very upfront. I wanted them to know exactly who I was and what I was up to. I wanted the word to get back to the Schwab executives that I was already inside, and they could work with me or not, but that I wasn't going away. Eventually we worked out an accommodation. The lesson? For a reporter there is no substitute for working these things in person. Woody Allen observed that 80 percent of life is just showing up. I have come to believe that the percentage is considerable higher. Incidentally, the event I crashed was a first-rate celebration. Schwab people really know how to party!

Further Information:
• Excerpt from Charles Schwab
• Review from Charles Schwab