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Fly Right

Cover Story
Written by Jill Rose
Monday, 31 December 2007
James Parker says Southwest Airlines� principles are simple, but many fly in the face of today�s corporate wisdom. The idea behind James Parker�s new book, Do the Right Thing (Wharton School Publishing, 2008), makes perfect sense�treat your employees well, they�ll treat your customers well, the customers will become loyal, and your company will prosper. James Parker, Author and Former Southwest Airlines CEO But if it�s such a simple idea, why aren�t more companies prospering the way Southwest Airlines has? (Parker was CEO of the airline from June 2001 through July 2004, and his book is a joy to read.) In talking to Parker, the answer becomes clear: yes, the ideas are straightforward, but some of them go against the core beliefs held by today�s executives. Here�s a perfect example: if you can�t measure it, you can�t manage it. �It�s an interesting thought,� said Parker. �But it leads to an excessive focus on analysis, rather than the elements that may not be so easily quantified.� He is, of course, talking about things like culture, employee engagement, and even training. �There is a mindset among people who are so accustomed to analyzing things they can measure that they tend to overlook the human element of an organization,� explained Parker. �It leads to an attitude that people are basically fungible�if you use up one person or group of people, you�ll just go out and get some more.� Report from the front line Nowhere is that human element more important than on the front lines of a business. And that, says Parker, is where many companies stumble. �Your front-line leadership, in a lot of respects, is the most important level of leadership in the company. It�s also the level at which most companies fall apart.� Supporting front-line leaders is something Southwest does exceptionally well, selecting the right people for these jobs and giving them the tools they need to succeed. �Typically, those front-line leaders are the newest leaders in an organization,� Parker said. �They may have been selected out of a workgroup or hired from outside the company as their first job. They don�t necessarily have the experience or training to know what�s expected of a leader.� Training is, of course, one of the tools needed for success, and this is a place Southwest deviates from typical corporate thinking. Because it�s difficult to quantify the benefits of employee training, it�s considered a soft expense and is usually one of the first budget items cut, Parker said. �A lot of companies shoot themselves in the foot by failing to dedicate the time and the resources to give new leaders the tools they need to be able to perform at the highest level.� At Southwest, training is not a cuttable item. New employees receive orientation training to understand the company�s history and culture, followed by job-specific training. Recurrent training is available for all employees on a voluntary basis, and those in lower or mid-level management positions may apply for the company�s manager-in-training program. �We could have almost qualified as a higher education institution at Southwest�we did so much training at so many levels,� said Parker, who joined the Dallas-based company as general counsel in 1986. Those obligations are junk Finance is another area where Southwest�s philosophy breaks with traditional corporate beliefs. In the book, Parker describes the company�s conservative views on growth and debt. �Southwest is alone among major US airlines in having its unsecured debt considered creditworthy by the major credit rating agencies. The unsecured obligations of other airlines are considered �junk,�� he writes, noting that the company owns about 80% of its aircraft and pays favorable lease rates on the rest because of its outstanding credit rating. During his tenure, Parker said the company was sometimes criticized for being under leveraged. �But the strong balance sheet gave us the strength to make the right decisions in the long-term interest of the company,� he said. The airline�s handling of the devastating period after 9/11 is the best example of this. �[Many airlines] were literally faced with the prospect of bankruptcy within hours or days if they didn�t take drastic actions to cut their costs, even to the point of breeching existing covenants in some cases,� said Parker. �We didn�t have to do that.� Indeed, the company did not lay off any workers or refuse a refund to any affected customer. But the company�s financial philosophy is not just about being able to survive a crisis; it�s part of the common-sense approach that allows the company to do the right thing day in and day out. �You need to have the financial strength to be able to make the right decisions,� Parker said. �Most of us were taught that you have to pay for what you get and that you ought to take on a modest level of debt, a level you can afford,� he noted. �The same is true of business and, unfortunately, I think a lot of executives who focus on esoteric numbers like return on investment and internal rate of return tend to become so focused on numbers that they lose sight of common sense.� We are warriors What about that famous Southwest culture�surely that�s not just a matter of common sense. Well, yes and no. A large part of Southwest�s culture stems from the struggles the company had getting off the ground (pun intended), which Parker details in the book. �It did create a warrior spirit in our people and help them bond�it was our common mission, it was our airline, and we�re going to make it succeed, by God,� said Parker. But it�s certainly possible to create a great company without that type of background. Indeed, he said, any business should be able to identify outside threats of the type people can rally around. The problem, said Parker, is that so many people spend their time focusing on internal battles that they neglect to turn their attention to the outside world. Similarly, Southwest�s profit sharing plan (the first in the airline industry) went a long way toward getting employees to think like owners. But Parker points to schools, hospitals, and government entities as places where employees, if properly supported by their leadership, can have a sense of a shared mission. In the book, he describes how his wife, a high school teacher, often bought classroom supplies with her own money. �Most teachers I know do the same thing. They don�t own shares of stock in the school. They just have that intellectual and emotional bond with their missions. And in my wife�s case, she had a great principal who let her know she was appreciated and was making a difference. Those words of encouragement, along with her own determination to make a difference in her students� lives, sometimes kept her going.� In fact, said Parker, financial involvement is not enough to create a real sense of ownership. He refers to United Airlines, which traded majority ownership of its company to employees in 1994 in return for pay concessions but filed for bankruptcy in 2002. �You can see it at companies that are theoretically employee owned,� he said. �If they have a management team that doesn�t include people and give them the sense that this is their company, they�re doomed to failure.� That example and many others in the book make Parker�s argument for paying greater attention the softer side of the business absolutely compelling. �I think that leaders in any organization will do well if they remember a few of the things I learned from my 25 years of watching the highly motivated, dedicated, and spirited people of Southwest Airlines build the most successful airline in the world,� he writes. �Dedicated employees really do create loyal customers and large profits.�

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