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REVIEW:
Charles Schwab:
How One Company Beat Wall Street and Reinvented the Brokerage Industry
By John Kador

John Wiley & Sons: 2002
ISBN: 0-471-22407-3
324 pp., $24.95

www.wiley.com/business
www.jkador.com

Reviewed by Robert Yehling

Let's start at the beginning. The Arab oil embargo and recession of 1973-74 had just passed. The long-held Wall Street monopoly on commissions for stock transactions was finally being broken by new federal regulations. A young, aggressive San Francisco broker and former publisher of an investment newsletter was ready to make his move onto the brokerage scene. This is the moment:

Every story organizes the collision of random events into an opportunity for learning. So it has been from time immemorial. Every story points to a beginning before which there was chaos. "Once upon a time" the most memorable stories begin, demanding that the storyteller assign a marker to separate the now from then, the light from the dark. So it is with the Schwab story.

Such is the way John Kador opens Charles Schwab, his provocative look at the company that reinvented the brokerage industry, and the man whose virtuous stand on helping average investors help themselves served as the physical and spiritual beacon for a great revolution to take place within corporate walls. Kador spent more than a year interviewing more than 200 people for this book, many of whom worked for Schwab. He also did his homework and talked with people from all sectors of the brokerage business. Once he put all the notes and transcripts together, Kador drew out a delicious narrative and perspective of how, why and when Charles Schwab turned Wall Street on its ear and brought such unheard-of phrases as "the customer comes first" to an industry fed by institutional greed.

Charles Schwab explores all angles of this company's rise to prominence and its owners insistence on playing not by Wall Street's 200-year-old rules, but by his own—which put integrity and virtue above all else. Three of the company's core standards are serving the investor of modest means, eliminating broker conflicts, and trusting the customer to know what stocks to buy. Imagine how much the landscape of corporate America would change if we implanted these concepts into a post-Enron culture. Schwab did it in an equally hostile and protectionist environment, reinventing itself three times in the process—including the incredible step, taken in the mid-1990s, of becoming an online brokerage house.

Kador navigates us through this process. He explores the innovation of Schwab, the way in which Schwab branched out his business, crucial mistakes the company made along the way, how the company rebounded from the stock market crash of 1987 with a new strategy, and the huge gambles the company has taken throughout its 27 years of existence to assert itself as a forward-thinking organization.

This book is deep, full of business strategy, and loaded with corporate intrigue. It is also honest. Much of it reads like a salute to Charles Schwab, but then the author pulls no punches in investigating the errors the company made. One took place just after the stock market crash in 1987, when a Hong Kong customer flooded by debt exposed the company to $124 million in liability—at a time when Charles Schwab had just $22 million in available cash. Obviously, the company made it through this episode, but it was a painful lesson that—true to form—became a mighty piece of bedrock in the future course of the organization. He also shows no mercy in his investigative reportage of Charles Schwab's painful, soul-searching dilemma in re-inventing itself as a profit-driven financial services provider for the wealthy, which bristles against the wind of the company's own standards.

Charles Schwab should find its way to the business bestseller list—a space Kador has occupied before, with Net Ready, the book he co-authored with Amir Hartman and John Sifonis in 1999. Besides its business acumen, the book is very well written. It reflects a rarity among business writing—the author is a great writer and storyteller who also happens to be an expert evaluator of business and corporate strategy. He can analyze a case study or construct a strong narrative with equal skill; he does both throughout the book. The first paragraph sends a clear message: The reader is embarking on a compelling journey through the inner workings of a company whose insistence on high standards is a welcome change in the current climate. Because of the Schwab people who spoke candidly with Kador, this journey moves deep and wide and gives us a rare look into the mind and soul of a financial genius and his culture. Because of Kador's writing and storytelling ability, the voyage is riveting and a fabulous read.

Further Information:
• Excerpt from Charles Schwab
• Interview with John Kador