Jim Collins: And then the question becomes, so how does it, how does this translate into something differential? That brings me to the key point. It's really how they translate the values into a set of mechanisms that is enormously powerful, so just bear with me for a moment; you can do with this what you want. It's fascinating, there's a passionate intensity of culture and it's translated into various specific things.
So we were speaking earlier about Nucor, and Ken Iverson,who had this incredible sense of egalitarianism.He built this company that would basically defy gravity, which would be enormously profitable in the steel business, year in and year out. And from a small company to the most profitable steel company,the largest most profitable steel company in terms of total profits in the United States. And how do you do this? And he said, I'm going to make this egalitarian work ethic come alive. He didn't write this down on a sheet of paper, what he did was things like this.
The corporate headquarters staff, when they were a Fortune 500 company, had less than twenty-five people. So, this sends a signal that corporate is not where it happens. If corporate grows too much it becomes unegalitarian, there's corporate and then there's everyone else. They were crammed into a rented office the size of a dental suite. It had cheap veneer furniture and Ken Iverson would, of course, answer his own phone. The corporate dining room was a little strip mall diner across the street called, Phil's Diner, ok? Interestingly, the workers in the company had more perks than the executives -- it was inverted. So, for example all workers, but not executives, were eligible to receive $2,000 per year, for each child to be able to go to post-high school education. That was anybody that was making steel, but it wasn't for somebody who was, for example, the Chief Financial Officer.
When they had a highly profitable year everyone in the company would share in that. But here's what's very interesting. In times when profits would go down, even though they never had a loss, the folks at the top took the biggest hit, rather than the other way around. So, in the '82 recession, you had, I think workers' compensation went down about 25%, but officers' pay went down 60%. So, the idea for management was was, we're all in this together, and by the way, we're going to suffer more percentage-wise than everyone else. Still to this day, if you get the annual Nucor report, every name of every employee in the company, I think it's like 10,000 now, appears on the cover of the annual report. It's a very specific message, you're sort of saying, you talk to me about egalitarianism and all that, I don't know of another company that lists every single employee of the company on the cover of the annual report. And they've had to make the cover multi-pages, to get them all on there in alphabetical order.
Also interesting to note that, all this productivity, they had these productivity mechanisms, they had competing teams and the steel workers were the best paid steelworkers, but only because they had the best productivity, and their pay was tied directly to the productivity of their teams. And they would have people who would come in to work, I mean, it was an incredibly intense place to work. I mean, it was like the starting gun at the races and everybody would have their tools lined up and then it's time to go, and boom, they would go. And anyone who kind of just came in there who just kind of wanted to hang out, didn't want to work that hard, usually didn't last. Very high turnover in the first year, something like 50%, followed by almost no turnover, thereafter, with people who stayed for a long time. So, it was a little bit like a boot camp, right? And if you made it, it was a great place for you and if you didn't make it, you just didn't make it.
So, then you step back and say ok, was it that Nucor's values were distinctive, or was it their ability to translate them into a whole series of specific tangible mechanisms and consistencies that brought it to life. And that is really how they differentiated themselves.
So, if you're a company, or an entrepreneur, or you're building a company, you're bringing folks in, you're trying to get this sort of feeling of momentum and specialness and uniqueness. The critical question is, how do you build those tangible mechanisms of alignment with your values? And not just one, or two, but a whole series of them.
What's interesting in all this stuff I just described to you, it wasn't that they had a better value statement, in fact, we never really found a value statement in Nucor. What we found were these very specific attributes and that's where you really build the company. Then the culture becomes distinctive. Then people that love it stay, people who don't fit with it leave, and that's the whole process.
