At Southwest, the Culture Drives Success
Chief executives should place a higher priority on creating strong corporate cultures, not to give employees warm, fuzzy feelings, but to spur profitability, says James Parker, former CEO of Southwest Airlines (LUV). Parker, who was CEO from 2001 to 2004, guided Southwest through the aftermath of September 11, which temporarily grounded airlines and caused a downturn in the travel industry.
Parker, author of the recently published Do The Right Thing: How Dedicated Employees Create Loyal Customers and Large Profits (Wharton School Publishing, 2008), also argues that CEOs spend too much time grooming high-potential executives, but not enough developing frontline managers. Here are edited excerpts from a recent conversation:
What's the key to creating and maintaining a corporate culture that helps create profits?
I think it's all about people, and it starts with finding and hiring the right people. We at Southwest put a lot of effort into our selection process. We received over 100,000 applications every year and hired a very small percentage of those people, maybe 2,000 or 3,000. We used to say that we hired for attitude and trained for skill, which is obviously a little bit of an oversimplification.
If you're hiring a pilot or a mechanic, a lawyer or an accountant, you want people with a high level of skill. But what we really looked for was people who had the right attitudes, who were "other-oriented," who were not self-absorbed, who wanted to accomplish something they could be proud of.
Does hiring the right people make everything else fall into place?
No. You can hire great people and put them into a lousy environment and make them bad employees. The next thing is to create the culture where people feel like they are using their brains, they're using their creativity, they're allowed to be themselves and have a sense of humor, and they understand what the mission of the company is.
We tried to define it as a grand mission. We weren't just carrying passengers or freight. We were giving America the freedom to fly. We tried to give them an understanding of how their role fit into that mission and how they contributed to that mission. We didn't have a lot of this conflict between workers that you see in a lot of companies where people think the guy in the next department is a slacker. We tried to educate people as to what the other employees were doing so they could understand the entire workflow, so there wasn't this silo mentality that you see in so many workplaces.
How can you possibly know whether someone you're hiring is other-oriented or self-absorbed?
[Interviewing] was a collaborative effort between the People Dept., which is what we called our human resources department, and the managers in the various departments. You tried to get a feel for people by talking to them, by looking them in the eye, by seeing how they responded to questions.
And I always used to see if they had a sense of humor—I think that's very important.
How did you break down the silo mentality that's so pervasive throughout Corporate America?
You don't break it down if it doesn't exist. We tried to prevent it from existing. Every new employee would come in for orientation. It would be all sorts of employees, everybody from pilots and ramp agents to reservation agents to mechanics to executives.
Creating the culture starts from day one. For example, there was no executive dining hall. You see vice-presidents and CEOs sitting around the cafeteria having lunch with regular people. If people get the idea that this is all one organization with one mission, not individuals on a bunch of individual missions, then it's a lot easier.
Did you have a strategy to make sure top management wasn't isolated from the workplace?
Sure, and it wasn't just me. All the officers would go out regularly to make station visits to locations where people were actually working, maybe at the Spokane airport or maybe the reservation center in Albuquerque.
One of themes of my book is that in any large organization, you have to have greater leaders at every level. The reality is, when you have 30,000 employees spread out all across the country, most of those employees are never going to meet the CEO. They'll probably never read the company's mission statement. If they don't see the kind of culture that you want to exist in your organization, if they don't see it right there on their shift and in their workforce, if they don't see leadership from their leaders right there, they're going to think all that other stuff is just a bunch of corporate propaganda, just a bunch of b.s.
So how do you reach those people?
Unfortunately, frontline leadership, which is in many ways the most important level of leadership, is the area where a lot of companies fall apart. When they think about leadership training, what they're usually thinking about is executives who might be a vice-president or CEO someday. They don't put as much effort into training those frontline leaders, which is where a company most directly touches its customers and its employees.
Another thing employees look at is executive compensation. How did you handle that?
I took pride in being the lowest-paid CEO in the airline industry. I always thought it was hypocritical to be preaching frugality to the employees, which was of course very important to the business strategy, especially after 9/11, if you were practicing profligacy in the executive suite.
How did you structure it so that you were still rewarded but it didn't appear to be out of line?
People think that because Southwest is a low-fare, low-cost airline, it must be a low-wage operation. Nothing could be further from the truth. Actually, Southwest is the most heavily unionized airline in America. Because we put a premium on never making a promise we didn't keep to our employees, we didn't ask our employees to take pay cuts after 9/11. The only people who did so were the officers of the company, who did so voluntarily.
When all the other airlines started cutting back on employee pay, Southwest turned out to be the highest-paying airline in America. We dedicate a higher percentage of revenues to employee compensation than any other airline. Yet Southwest has the lowest overall cost structure. Obviously you have to have a lot of dedicated, motivated employees to achieve that.
Did all Southwest employees get stock options?
While I was CEO, we gave stock options to every employee at every level, contract or noncontract, from the CEO to the guys who cleaned the bathrooms. There is an element of ownership that goes into this ownership mentality that I like to talk about. It's not the only thing. You can have people who have a financial interest in the company, but don't feel like owners, as happened at United Air Lines when they had their employee ownership period.
How was that different from the Southwest experience? At United, they did have an employee stock ownership program and employees actually owned the airline.
They did own the airline, yes. But the problem was they were never able to break down that culture of conflict. They still had pilots thinking like pilots, and mechanics thinking like mechanics, and managers thinking like managers. They never shared a common feeling of mission. They never created a culture where they had an ownership mentality.