Suspended from the ceiling in Chuck Schwab's corner office high above the financial district of San Francisco is a mobile whose delicate parts sway in response to the slightest breeze or environmental change.
Beneath this symbol — Schwab says he hopes his firm can be as sensitive and nimble in its response to customers and the markets — I conducted my first interview with the founder of the famed discount brokerage operation. It was a moment that I had thought might never come. Schwab has a lot on his plate these days, and he had repeatedly turned away my requests for interviews in the past, even when I was writing my book on the company. But 30 years in business (Charles Schwab & Co. will be that old in May) has a way of creating perspective, I suppose. So it was, then, that I got a chance to hear The Man's take on the industry he rocked to its foundation and on what the future holds for the retail brokerage business.
Welcome Back, Chuck
Schwab got its start back in 1975 when brokerage commissions were deregulated. Many of the East Coast brokerage firms saw the change as an opportunity to raise commissions, but, out in San Francisco, Chuck Schwab had a vision of a new kind of business — the discount brokerage. The premise was simple: If you slashed commissions by 75 percent and provided a clean, well-lit platform, people of average means would beat a path to your door. Charles Schwab & Co. now serves more than 8 million people, and not all of them are of just average means.
Chuck had stepped back a bit from the operation a few years back, but in the wake of the resignation (under duress) of one-time heir apparent, David Pottruck, the 67-year-old Schwab is back at the helm of the company he founded. Unsurprisingly, he's making waves. In the last few months, he has dismantled many of the ventures that were distancing the company from its brokerage roots. The company has sold its Schwab SoundView Capital Markets unit, a failed attempt to add institutional trading and research to its franchise. Following its exit from the capital markets business, the company is selling its three seats on the New York Stock Exchange. It is closing more than 50 branches. The retreat will leave Schwab with fewer than 290 branches, down from about 400 three years ago. The company admits it still does not have its costs in line, but investors apparently think it is heading in the right direction: It's stock has bounced about 25 percent from its lows of below $9 in the summer of 2004.
Come to Jesus
The book I wrote about Schwab, Charles Schwab: How One Company Beat Wall Street and Reinvented the Brokerage Industry (2002, John Wiley & Sons), was not a fawning one, but in our recent meeting Chuck went out of his way to praise the parts he liked. He also apologized — on behalf of the company and personally — for declining my prior interview requests. It was a mistake, and he wanted me to hear it from his lips.
If this is a change, it's a welcome one. Schwab has a reputation for being prickly with outsiders who question the company. Perhaps Chuck reaching out like this is a signal that the company is ready to change other aspects of its deeply embedded culture.
There are other reasons to believe this. For the first time, the company will offer clients the ability to build a relationship with a Schwab broker. This is a significant shift in strategy for the brokerage, which for many years resisted the term “clients” in favor of “customers.”
Chuck Schwab radiates a determination to protect the company that bears his name. As my book described, he thrives when dealing with crisis. It's at those times that his vision is most clear and the personal loyalty that he can draw on from thousands of employees becomes most valuable. It's times like these that have spawned innovations, such as the mutual funds supermarket (Mutual Fund OneSource program) and the willingness to cannibalize its relatively high-fee telephone transaction model with lower-fee online trading.
For customers and shareholders, Schwab's commitment to preserving his legacy is both a blessing and a curse: A blessing because there is no one better positioned than Chuck Schwab to move the company to the next level; a curse for the same reason.
Writer's BIO: John Kador, the author of 10 books, published Charles Schwab: How One Company Beat Wall Street and Reinvented the Brokerage Industry in 2002. www.jkador.com