Vol. 17, No. 23, December 6, 2004

IN THIS ISSUE:

This Reveille Home Page | The Friday Program: The Costco Code of Ethics | Giving Tree Makes Out | Calendar Updates | Friday Potpourri | BBRC Railroad Runs on Time | Classification Talk: Carlos Aragon | Sergeant At Arms Celebrates Birthday | Of Caring and Coffee | Web Fun

The Friday Program:
The Costco Code of Ethics

Jane Kuechle introduced John Matthews, Senior Vice President, Human Resources and Risk Management for Costco Wholesale. John is an active member of the Mercer Island Rotary Club, currently serving as club secretary. It was noted that MI Rotarian Gary Smith was the winner of the 2004 BBRC Raffle. Matthews confirmed that Smith’s new found bonanza simply “doubled his Paul Harris contribution!”

Kuechle gave a thumbnail on Costco: 110,000 employees in eight countries, with 417 warehouses open. The company is on a schedule of opening 35-42 new warehouses each year. In addition to his Costco duties, John Matthews is a member of the board of Pacific Science Center. His successful Rotary Foundation fundraising efforts have brought him before Rotary District audiences to show how it’s done.

Matthews noted that the group gathered for breakfast last Friday was meeting at Costco’s World Headquarters. “It’s unusual for Costco to host a meeting like this,” he said. Matthews stressed the importance of Costco’s reputation, “experiences both within and without the company. It’s a great place to work, with lots of positive feedback from the community. We focus on employee communications. We want them to share in how we develop our culture ­ we hired 30,000 people last year. So, the question is: How do you integrate that many new people each year into your operation? We urge our employees to tell the stories of why Costco is different ... and how they’re making a difference.”

John told of one example of going the extra mile. A customer had completely loaded the hand truck with groceries and other items. With help from one of our employees, the load was taken to the customer’s car. Problem was, the car wasn’t big enough to hold all the purchases. The employee thought quickly, returned to the store to tell his supervisor that he would load the excess groceries in his car and follow the customer home and help unload both cars. It happened and both employee and customer got satisfaction from this experience.

In 1983, Jeff Brotman and Jim Sinegal joined to form Costco Wholesale. Jim, as president of the company, has always been the person to explain the culture behind Costco. “We long for the days when we sat around the campfire and told stories,” Matthews said. “We learned that’s how you pass on the culture of an organization.”

“Father Bob Spitzer, then a professor at Seattle University and now president of Gonzaga University, had presented programs on ethics to our company. We wanted to know how do we characterize our ethics? How do express our company culture to our new employees?

At this point, Matthews offered a company video that amply describes the organization’s culture which includes its Code of Ethics. The video featured President Sinegal discussing the company’s mission statement and how it does business.

Sinegal told of the issue of the company’s filing for a beer and wine license in the State of Washington. "We were put through all kinds of hoops, since the Liquor Control Board was not quite sure how to handle the prospect that our prices might be lower that other outlets. How is Costco different? Our company policy is to get over all the objections that we’ll get when we begin business. Thanks to the state liquor inspector, we took all the objections and overcome them."

Costco’s Mission Statement simply states:

Obey the laws.

Comply and exceed requirements (landscaping, for example)

Be mindful of anti-trust laws.

Be a good citizen.

A test of this was a voluntary recall of ground beef. This was a "terrible event when Ecoli was discovered in some product. We had 37,000 phone calls in two days. We confronted the issue, took back food even if it wasn’t contaminated. A big part of our work is taking care of members and we offer our customers a double guarantee ­ better than any retailer in the U.S. We cheerfully give refunds. We buy products at the very best price and if that doesn’t work, we’ll refund your membership. Costco won’t sell loss leaders."

Sinegal told of a purchase of $40 million dollars of Calvin Klein jeans, which Costco had always priced at $29. "This purchase was for jeans that were being closed out at a cost to Costco of $21. We priced the jeans at $22. We were keeping the faith with our customers, although none would ever know. Our policy is to stay true to the process ... no irregulars or seconds. No fraud products. We hire good people, give them good jobs at good wages, and offer our customers quality products at good prices.’

The company has a two-year termination rule. After two years of employment, an employee can’t be terminated without okay from a senior officer. They provide opportunities for all their employees to grow into their job. They teach their managers that teaching the employees is most important.

Costco also respect its suppliers. The company is "extraordinarily tough in negotiating our deals. We treat suppliers as our guests. We do not accept bribes or gratuities. And, no employee can bribe a supplier. This is an important partnership."

The video also made it clear that Costco employees “must be honest ... and suppliers must also be honest. We’re in a pursuit of excellence. Not after perfection, but excellence is attainable and worthy.” And finally, Mr. Sinegal said that Costco’s mission was to “reward our shareholders. We must be profitable and prosperous.”

John Matthews returned to answer audience questions. “An average warehouse does $110 million annually with 250 employees. Our employee turnover rate is 5.5%. This may be lowest in the industry.”

When asked about the middleman’s role in business particularly in distribution in the liquor industry, Matthews responded that “we’re working hard to take the middle costs out of everything we do. Our livelihood is small business. We owe it to them to keep costs down. Our greatest risk is losing our reputation. We are always continuing to offer value to our customers. We’re in business for long term and not for next quarter’s results. We are paying people well, and our benefit program puts us in the top 75 companies in the U.S.”

Thanks to Jane Kuechle for her introduction and the hard work performed on making this off-site meeting such a tremendous success. For John Matthews, President Norm awarded a certificate noting that 1220 pounds of food would be donated to area food banks in his name, a gift from Rotary First Harvest.

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