When we look at the dictionary definition of manage or management for that matter, it's all about getting to people below us, may be in some other unit to do well. We promote them if they have succeeded. But management in my view is a kind of a 360 in reverse. We've gotta manage people below, of course. We gotta manage partners, joint venture people that we're working with. Providers out here that may have on our part picked up some of the outsourced functions that they can do better than we can do. And today, we also have to be able to manage our boss, manage with our boss. That's not about currying favor, it is about making certain that Chuck Schwab is going to be on board. We gotta manage that, if we're actually going to do it. If he gets in the way, it's not going to happen. Thus, David, look at the photograph there at the bottom, sits down with Charles Schwab. They talk for a couple weeks, knowing your boss so you can manage. Charles Schwab is a very analytic guy, along with all the other ways we think, of course, the intuition's very powerful. But he says to David, David knew it, show me the numbers. If we cut our revenue by 70% with that price cut, what's the evidence that we are going to make up for that in a huge new flow of new customers. We'll make up for price cut in radically rising volume. The two of them talk about that that for two and a half weeks, lots of going back and fourth. It is pointed out, that a 20% or 25% loss of stock price by the company Charles Schwab may cost Chuck Schwab himself close to $500 million, maybe even $1 billion. Because so much of his own net worth and that of his family is Charles Schwab's stock. Probably not a billion, but maybe at least a couple of 100 million. And that loss by the way might happen in just a couple of days when the stock price plummets maybe by 22% in line with the drop in pre-tax profits. And at this point, the question for Chuck Schwab, an obvious one, David, you're asking me to kind of bet my family fortune. Should I trust you? And the answer is, well, you should. I have been working with you for quite a while. You've seen make management decisions before. I've explained them to you unlike our firefighter and man Golgi who didn't explain almost anything. David Pottruck of a school that he had an opportunity to think through has been explaining to people below, outside and above this case Charles Schwab, how he makes decisions. With that, Chuck says, let's do it. Now, we're not quite done as we begin now to push this through, though, because we've got two areas of people that we still have to manage not yet articulated or identified. The first is the board of directors itself. We tend to think if you're in a big company it's way up there, but this is a kind of bet the company decision. Do they want to know about it? Of course. And we have to not only take it to them, we actually have to manage how they think about it in the best sense of management. Not to manipulate, but to put the facts out so they can make their own independent, reasoned, judgment call. At the next board meeting thus Charles Schwab says to David Pottruck, David the Board has to look at this of course, has to approve it, for sure, and I'd like you to take it into the next Board meeting. David walks in and in about two and a half hours at the next Charles Schwab Board of Director's meeting, lots of non executive directors people from the outside there, it takes David only a couple of hours to make the case and to find approval. And that quick, talking good and timely here of course, yet again, that quick decision came in part, because David had earlier, won't go into it now, but had earlier forced himself to master the art of managing not only in the direction of the Chief Executive. I gotta get better managing my relationship with Schwab. I've gotta get really good at managing with all these non executive directors. By the time they got to that meeting thus it went extremely well, two and a half hours, it's a go. And now for the final group of people, all part of our question here, how do we build an organization, design a well, and then change it when the world is changing around us as the Internet is doing that to the retail brokerage market in spades. He now appreciates going back to that earlier eight-item set of warnings. What can get in the way that 14,990 people don't know about this and most of them are probably going to be skeptical, if not outright hostile to it. Why is that? Just work the logic. If we cut 70% of our income, how are we going to pay people's salaries at the end of the month? Sounds like cut backs. Maybe even store front closures, the Schwab offices are all over the country. Maybe people are going to get no bonus, maybe we're going to get cut in the people's retirement. And thus, even though intellectually it might sound appealing as people think about the home mortgage and the family they probably do think this better be good otherwise, it’s going to be a personal catastrophe. So, David does this, mindful of all the above, despite on that earlier chart. He arranges for everybody in the top several hundred ranks of the company. He’s gotta be careful because if you publicly announces this or privately but in a public way through the company announces this plan all the competitors are going to get wind of it and they may jump the gun. They maybe announcing cuts before his own cut on January 15th is announced. So secrecy that's something that's another management function here. Keeping the secret critical, thus, on an early San Francisco morning, David asked his top several hundred people to meet him essentially over breakfast at a hotel near the San Francisco airport. Now San Fransisco, we all know three hours behind New York, New York Stock Exchange open, big customers are calling, I want to buy and sell stock. So there's some question, why are they, in the middle of a trading hour, going off to have a breakfast at a hotel? Even worse, one of the speakers that David brings on the podium, is a historian that's going to tell about the history San Francisco. And he begins to say, everybody's kind of blinking on this one, that the decision to build the Golden Gate Bridge goes back to 1917. Took 20 years, it opens in 1937. Along the way, there were a lot of people said it could never be done. There were a lot of people whose lives were at risk, it's a dangerous business. But the people who decided to build the bridge, pushed through, against all those sources of organizational inertia. The ferry operator, for example, violently opposed building a bridge, you can see where they're coming from and the company that built it took special measures to protect the life of construction workers. Okay, so where is this going? Everybody's thinking. And Pottruck himself, stands up at the podium and says look, it took 20 years for that to happen. Of course, when it did happen it transformed San Fransisco from what it was to an icon of American life. What's across the bridge, Marin county, just a huge development that would've never prospered like it would without the bridge. The bridge transform San Francisco, California it is an icon of American life. And by the way, almost no life was lost during construction. So we can see where that is going. He then says I am here to announce today that on January 15th this is October 15th, we're going to go full service trading at $29, kind of a gasp out there in the audience. And in doing that, we're going to make every effort to avoid layoffs, hence that illusion back to the worker's loss on the bridge but in doing that we're going to transform the industry before it transforms us. Back to this somewhat bland words of this topic, we're going to redesign our architecture before we're force to do so. I know there are a lot of forces of inertial resistance to that, but he then two final steps here to get it those, he asked all the assembled managers, quite senior, arranged, though, cross-functionally. Let's go back to that idea. People in finance, next to the people in sales, next to people who were back office, next to people who were information technology. And he asked each table there to take a few minutes talking privately. Everybody is going to have a chance now to talk. This is how we make for organizational change. He asked each of the tables for the eight people around them to take about ten minutes and identify the points that resistance, that they're going to encounter. Well a course was on Earth that's really interesting has to be managed as a topic, managing people. And by the way, the other great value of that method to say the obvious here is that in asking people to refer not to their own reason to fight it, but to those below them they also have a chance to put in their answers what other people are going to think, their own thinking. Because David Pottruck is Chief Executive. Knowing that a chief executive one time told me that the higher he goes the better the information gets because nobody wants to bring up resistance or bad, bad news. This was David's way of understanding from his top people, the top 200, why would they resist? Equally importantly why would people below them push back as well. With that then and I'm going to really kind of bring this to a summary point right here, Davis says great, thank you for all the input. You've heard from our historian and now have a bunch of luxury coaches out the door of this hotel and we're going up to the San Francisco side of the Golden Gate Bridge. There it is, seen from across the Golden Gate, Marin County. And they begin at the far end, they get off the buses, everybody, David has got this plotted out. Gets a nice warm blue jacket. Unfortunately, turned out to be one of the warmest days ever in October. But David says then, we're now going to walk from the San Francisco side of the bridge all the way across to the Marin terminus of the bridge. A few of you have done that, most have not. I've been out there many times, I've never made that walk. It's a long walk just look at it. And then they get up on a hill at the far end and they take the following photograph. You see it right there, captioned as it now is going to hang on office walls, all through Schwab, is Crossing the Chasm, October 15. What's that got to do with new pricing, and re-doing back office algorithms, and how we charge a customer? Well nothing, technically, but everything with the fact that we got people who have a head, gotta go for that, and they also have a heart. It's a way of saying we gotta get to the cognitive side of the brain. We also have to get to people's emotions. Is this a big deal? Of course it's big. Just look at this, we're crossing this chasm. Epilogue. January 15th. It is a shock. It is a well-kept secret. Everybody, all the people you see right here, pretty much on board. They made all the changes required. And in the days that follow, Wall Street, even though it's explained by David what's going on the stock drops about 25%, huge losses. In the middle of all this, I happen to work with David Pottruck. Along the way I call him up, I say hey David, how's this going? I've read all about this. He said, well it's going. He said, you should know, actually I'm sleeping like a baby. I said, really? And he said yeah, I'm actually waking up every two hours and crying. So it was a tough very stressful period. Go back to our previous topic, when's a great team most vital to for a group, a team to work well or a group of people to work well? During the period of high stress, this team was well built, they all had the same jacket, they knew each other. And over the next nine months actually the next 12 months, really, with the loss of 70% revenue, it's more than made up for by new customers. They just came pouring in. Pretty hard to resist buying a seat on an airline that's going to do 70% discounted ticket. Or in this case, sell you a 1,000 shares of Cisco for 70% less than you could do it the day before on January 14th. That's gets then to a summary. More affirmatively you've taken those eight opening thoughts on what gets in the way. And here we have a more affirmative model for you. The kind of steps, this is from John Kotter, in my view when it comes to managing then, we said that this also that the course, it really is the matter of the judgment and having a dozen or so, a couple dozen working concepts that you apply. I say all that as a intro into this particular Eight-Step model for Leading Change. Take a look at these, I recommend you grab a few like a burning platform, that's what David did. He set up this event at the hotel, look, this industry is changing e-trade is coming along, if we don't change now we're going to be out of business. There's a burning platform. And the other factors, look at number four getting buy-in, taking the top 200 people across the bridge. All part of the enactment, but look at the eight points here as guidance for your own judgement. That concludes our thinking here on the fourth and final topic of human and social capital managing people at work.
