Here’s the formula. Take one semi-obscure Midwestern company with innovative workplace management. Add one bright and ambitious workforce-management executive to reinterpret and reinvigorate the firm’s philosophy. The result: an even happier workforce nearly three times bigger than it was six years ago, lavish national attention and a slew of prestigious awards.
The company is Edward Jones. The St. Louis-based retail broker has become stealthily successful--primarily by shunning wheeler-dealers and risky stock picks and instead focusing its employees on helping customers, their colleagues and then themselves. The executive is Michael Holmes, a balding 45-year-old man of average height, who since 1996 has been a principal partner and chief human resources officer. The awards: the prized No. 1 spot on Fortune magazine’s list of 100 Best Companies to Work For--for the past two years. And in the past five, a ranking on the same esteemed list that has never fallen below 11.
In the anonymous, random survey that makes up two-thirds of a company’s score for the Fortune list, 79 percent of all Edward Jones employees polled agreed with the statement "I receive a fair share of profits made by this organization." Eighty-six percent affirmed that "Promotions go to those who deserve them best"; 95 percent report, "I am proud to tell others I work here" and 83 percent said that they planned to work at the firm until retirement.
Over the past six years, Edward Jones has had a 38 percent pre-tax return on equity, while many of its Wall Street-based competitors, struggling through the bear market that followed the dot-com bubble, have had their hands full just keeping their books balanced and their executives out of jail. During Holmes's seven-year tenure at Edward Jones, the company has grown from around 11,000 employees to more than 29,000. It is currently growing at the rate of more than 200 new hires a month and is on pace to receive nearly half a million job applications in 2003. The company also tied for the top spot last year in J.D. Power’s survey of retail investor satisfaction. And the National Association of Securities Dealers reports that Edward Jones paid out $104 per broker in arbitrator-ordered restitution to aggrieved customers. This compares to $4,615 per broker for Prudential Securities and $4,930 for fellow Wall Street giant Salomon Smith Barney.
No one at Edward Jones, least of all Michael Holmes, claims sole responsibility for all this success. But few would deny that Holmes has been indispensable, a vital piece of the puzzle. That pleases him immensely. As a boy growing up in a deeply religious home, and as a member of one of the few African-American families in the St. Louis suburb of Berkeley, Holmes sat down to dinner every evening with the man he most admired: his father. John Holmes, now retired, was a machinist at McDonnell Douglas. During his career, he worked his way up to superintendent, in charge of 2,000 employees.
"Back then, he was always ‘the first one’ of everything. The first black supervisor. The first black superintendent," Holmes says. "And when dinner was on the table, he’d talk about what was going on at work. I heard a lot about his struggle, how he was constantly having to train other people for jobs he should have gotten. He had to do more, over and over again, just to be able to crawl his way up the ladder."
He pauses, then speaks very deliberately. "And so I will tell you that if you look at my career--and now you’re going to the deepest part of me--you will see that when I’ve left an organization it’s when I’ve reached a point, for the most part, where I said, ‘I’m being held back from being able to make the maximum contribution that I can.’ And I think of my father and I say, ‘I will not let that happen to me.’ "
So far, Holmes says, his subsequent determination--to work for the good of Edward Jones his way--hasn’t clashed with the company’s plans for him. John W. Bachmann, a legend in the financial world who will retire this year as managing partner of Edward Jones after 23 years, says that Holmes has more than met his high expectations. "The thing you have to remember is that when we realized we needed a person of Michael’s stature, we had to look outside the company," Bachmann says. "Because we had nobody like him internally. In other words, there was nobody here to teach him."
When Michael Holmes joined Edward Jones in 1996 he was named to the firm’s 16-person management committee. Several years later he joined its newly formed executive committee, made up of six members of the larger group. He subsequently has participated in all of the company’s major workforce-management decisions, including its expansion to the United Kingdom in 1998.
One of Holmes’s first self-appointed tasks was to immerse himself in the firm’s five-month investment representative (stockbroker) training course, earning his Series 7 stockbroker’s license. He then worked for several weeks as an investment representative--rising at 3 a.m. to cram in his regular job--for an IR veteran at an Edward Jones office in Hillsboro, Oregon.
He quickly determined that the biggest problem facing Jones--excessive employee turnover--was caused by low pay. Over the years the firm had turned inward, away from its city cousins in the securities industry, and the salaries of its employees, many of whom now lived and worked in major metropolitan areas, lagged behind those of its competitors. Holmes "aligned" compensation by giving raises to most associates; those working in areas where it was more expensive to live had their pay adjusted accordingly. Turnover shrank from 20 to 10 percent a year. At $75,000 to $100,000 to train each new IR, the savings were considerable. Another significant saving: Jones was using an outside vendor to provide screening tools used to predict an IR candidate’s likelihood of success. Recently Holmes dropped the outside vendor, at an annual saving of $2 million, because he determined the company had developed more effective tools internally.
Holmes and his department also conducted an extensive series of in-house, in-depth interviews. "We did them with both managers who were successful and those not as successful," Holmes says. "And then we took a look at what the successful leaders had in common. It was things like respecting the history, culture and values of Jones. Treating others the way you want to be treated. Initiating things and being focused on helping the customer. But we added to it. In fact, we took a look and said, ‘Okay, that’s what it takes to be successful today, but given consolidation, convergence and globalization, what’s it going to take to be different tomorrow?’ And we decided that you’d need to be open to change. So we added that one."
These attributes, Holmes says, were factored into the curriculum of a new leadership-development program that he set up. Periodically, managers who have been identified as being on their way up are run through an instruction and evaluation program. A basic tenet of the program is that everyone is given honest feedback--on weaknesses as well as strengths--at the end of the sessions. Many of the designated-as-desirable qualities are also sought out in raw recruits during the interview and testing process.
"When you’re growing a business, which [talent] pool do you want to fish out of? Do you want to fish out of the small pool forever, or would you rather fish out of the best pools and get the best possible talent you can?"
Holmes also has instituted an employee-assistance program and a company-wide diversity program. He prefers to call it an "inclusion" program. "It seems to me that ‘diversity’ means we want to be different," says Holmes, speaking from his smallish, narrow corner office on one of the three large floors his department occupies. "Inclusion means we want to include everyone. So we call it that by design." The inclusion initiative began two years ago with a three-day off-site discussion about the issue with the management committee. "We said, ‘Okay what does this really mean? Is it important to us? And if so, why? And why does it make good business sense to do this?’
"Here’s why we decided it makes good business sense," he adds. "When you’re growing a business, which [talent] pool do you want to fish out of? Do you want to fish out of the small pool forever, or would you rather fish out of the best pools and get the best possible talent you can?"
Currently, 16 percent of the company’s Investment Representative workforce is female and 4 percent are minorities. Holmes considers that a good beginning; his ultimate goal is for the Jones workforce to mirror the composition of American society at large.
A different world
Darryl Pope, a colleague and admirer of Michael Holmes, is an Edward Jones principal and the firm’s executive in charge of internal services. Pope has worked for Jones since 1958, the year Michael Holmes was born. "Back then we were a small family firm, the ninth-largest brokerage--in all of St. Louis," he says. At the time, the firm was well known on Olive Street--in downtown St. Louis--but not on Wall Street. "We were 38 people. Women? Yes, there were a few women in the back office, working as administrative assistants. Secretaries. Minorities? We had a messenger. He was a very nice man who delivered all the securities by hand, up and down Olive Street, all day."
Michael Holmes acknowledges that racism has been a factor--though far from the deciding one--in his life and career, but he is circumspect about citing specific instances. "My approach is, ‘Yeah, that happened. Yeah, I realize it. Yeah, if it happens again I’ll understand it when it’s coming.’ But I’m not going to focus on it to the point of making myself a negative person."
He will, however, recount one aspect of his childhood. "When I started kindergarten, my older brother and I were the only black kids in the school," he says. "When I graduated from high school, it was 60 percent black. I think that this experience helped me, because now I’m comfortable in almost any environment, from the loading dock to the boardroom. I’ve seen and touched a lot of things." Holmes stood out academically, managing somehow also to fit in.
"He has the gift of being able to learn and retain things very quickly," says Charles Butler, an accountant at the U.S. Department of Agriculture. Butler and Holmes met in fourth grade and have been best friends ever since. "School was, well, not exactly easier for him, but he had more time left for other activities," Butler says. Holmes was head of his Junior Achievement group, vice president of his senior class and co-captain of the track team. He also found time as a sophomore to begin dating a freshman named Gail Carter. She was his last girlfriend. They were married six and a half years later and now have two teenage children.
By working several jobs--including selling power tools at Sears and manning concessions at the St. Louis Municipal Opera--Holmes graduated from Washington University with a triple major in political science, managerial theories and black studies. Things came into sharper focus when he began a nine-month postgraduate internship program offered by Coro, a leadership and public affairs institute. Through the program, he met a man named Bob Ebers--superintendent of Monsanto’s J. F. Queenie plant in St. Louis.
"Bob was my first mentor. He was a graduate of Nebraska University’s master’s program in what was then called personnel and industrial relations. He was the one who basically said, ‘Let me talk to you; you’ve got what it takes to do this.’ "
In the late 1960s and the 1970s, Edward Jones found its niche. It concentrated on selling conservative stocks and bonds, mostly to individual "buy and hold" investors, marketing them out of mostly rural and small-town offices. Also, instead of being reorganized as a public company existing largely to show earnings growth to its shareholders, it remains steadfastly a private partnership, somewhat like a law firm. A percentage of the profits is distributed among 200 general partners (mostly high-ranking front-office executives and the crème de la crème of the investment representatives) and about 6,000 limited partners. Limited partners, named by the general partners, can and do include everyone from IRs to home-office techies to training-center bus drivers.
The firm is run by the full partners, and they and the limited partners receive yearly distributions. All employees are eligible for bonuses three times a year. Bonuses are determined by a formula that factors in both an individual’s performance and the performance of the firm as a whole. Thus, if the firm doesn’t make enough money, nobody gets a bonus--no matter how good a year a particular employee has had.
This leads to two pillars of the Edward Jones corporate culture. The first, a concept called "volunteerism," means that longer-term investment representatives and other employees are required to advise and mentor their newer counterparts. The second is the single-IR branch office. "We’d rather put two branch offices across the street from each other--which we do in a number of cases--than put them together, competing," Bachmann says. In 1980, the year Bachmann took charge, Edward Jones opened its 304th branch office. In 1981, at the suggestion of management guru Peter Drucker, the firm began planting branches and IRs in big cities as well as the heartland. While most observers focused on sexier topics such as junk bonds and arbitrage, the company was doing nicely by satisfying the needs of risk-averse investors in Beverly Hills as well as Dubuque. There were, however, growing pains. Rapid expansion revealed flaws in the company’s recruiting, training, compensation and benefits systems.
Michael Holmes was also experiencing success--and hitting some speed bumps. In 1980, he was hired by the human resources department of Monsanto. His first few assignments were in St. Louis, at headquarters. In 1983 the company relocated him to its Chocolate Bayou Plant in Alvin, Texas. He was in charge of employment and equal employment opportunity functions for the 1,300-employee chemical factory. Monsanto required its executives to live in the communities where its facilities were located. For Holmes, however, the plant’s only black manager, the top brass pointedly made an exception. Nevertheless, he says that working in Texas was a valuable learning experience. "I had a great boss. His name was John Hagood, a tough, tough leader but one of the best personnel people around."
Hagood, it would appear, was a hands-off manager. "One day, one of the superintendents, one of the powerful foremen of the plant, walks in, drops an application on my desk and says, ‘I want you to hire this kid.’ And I say, ‘I’ll be happy to interview him.’ He says, ‘You don’t understand. I want you to hire him.’ And I say, ‘Bill, I don’t come down to your department and tell you how to run it. I’d appreciate it if you didn’t do the same to me.’ He says, ‘Boy, do you understand who I am?’ I say, ‘You’re the foreman, and I’m the employment guy.’ "
The foreman--who was Hagood’s best friend--stormed out of Holmes’s office and into Hagood’s. "And about an hour later, John comes walking into my office, chomping a cigar. John says to me, ‘Michael, when I told you not to take any crap off of these fellas, I didn’t think you’d take on the biggest alligator.’ I told John, ‘I figured if I whupped the biggest one, the rest would fall in line.’ He kind of laughed, turned around and walked out."
When Holmes’s supervisors at Monsanto headquarters heard what had happened, they moved him back to St. Louis. He left Monsanto soon afterward and spent the next decade working his way up the ladder at PepsiCo and then Continental Airlines. In 1991 he moved his family to New Jersey and began a five-year stint at Automatic Data Processing, the financial outsourcing firm, as corporate vice president for human resources.
Why Holmes was receptive to Edward Jones’ subsequent overtures--besides the fact that they returned him and his family to their home town--can best be illustrated by the contrast between his current post and his situation at ADP. It was there, he says, that he made the biggest mistake of his career. "To be successful--their model for success--you cut costs and proved you could be as tough as anyone else. The way you do it is, you say, ‘I can take cost out, I can take people out.’ And you can be very successful doing that. And I was."
He soon realized that what his boss really needed was someone to tell him what he didn’t want to hear: "No, that’s the wrong thing to do. You’re thinking too short term." But Holmes didn’t--and the longer he reflected on it, the worse he felt. "I accomplished the goal, but I accomplished the wrong goal. My role as a business partner isn’t to give them what they want but to help them understand what they need, to help move the business forward."
Workforce Management, August 2003, pp. 28-34 -- Subscribe Now!