Chapter 97 - Talks It Over
Today’s Chapter is based on the book “Talks It Over” by Robert Wood Johnson II.
Robert Wood Johnson II was a key figure in the history of Johnson & Johnson, serving as president from 1932 until 1963. He is best known for establishing the company's "Our Credo" in 1943, which prioritized the needs of consumers, employees, and the community.
Here’s what I have learned:
Transparency
"Radical transparency fosters goodness in so many ways for the same reasons that bad things are more likely to take place behind closed doors."
— Ray Dalio
Transparency is the cornerstone of any successful organization according to Robert Johnson. He argues that every employee, regardless of their position, should be informed about the business and should understand how their role contributes to the overall success of the company.
Johnson mentions that "It makes no real difference whether one is an executive, a secretary, or a salesman; whether one runs a machine in the plant, works in an office, or serves as a member of the Board of Directors. He needs to know about the business—and the more he knows about every part of it, the more effectively he can do his work as a member of the team that keeps it in operation."
As a matter of fact, Johnson understood that for a business to succeed, everyone needed to be on the same page. This meant not only sharing information but also ensuring that employees at all levels felt like part of the larger team. He believed that when employees understand the business, they are better equipped to work in ways that contribute to its success.
Another critical reason for open communication, according to Johnson, is the need for accurate information in decision-making, and some times the best information come not from executives but from the bottom of the pyramid.
"One reason is our need for facts—facts about the business, about our own places in it, and about the ways in which our work affects the work of other people. We need these facts in order to understand what we ourselves are doing, and also to answer the question of what makes our whole business tick."
— Robert Johnson
This reminds me of Ray Dalio’s idea meritocracy, a system that allows the best ideas to win regardless of who or where they come from. According to Dalio, this is the best way to produce the best possible decision by enabling the best thinking of all team members. As he explains, “In an idea meritocracy, decision-making power is based on the quality of one's ideas and not on seniority or position.”
Another famous entrepreneur who used an idea meritocracy to make decisions is Sam Zell. As we have learned previously, Zell loved to be challenged by his employees and more than welcomed debates. It was important for him to create a work environment where his employees’ voice could be heard. He once said, “I constantly challenge my people to “take me on.” I want them to challenge me just like I’m challenging them. We should both be able to succinctly defend our positions on any deal. It just makes us all smarter. I’m getting the most out of them, and they’re getting the most out of me. Win-win.“
As a risk taker, Zell’s greatest fear was to not have information that could have protected him from making a mistake due to the lack of communication with his staff. As such, he made sure to implement a meritocracy culture in his company to allow all his employees to be part of the decision making process. He mentions that, “ I tell people “No surprises” and I mean it. I’m confident enough to believe that if I catch a problem early on, we’ll be smart enough to fix it. So, don’t hide things. Relax. We don’t kill the messenger around here.”
As Zell explains “A meritocracy gives you the freedom to be yourself by eliminating superficial markers, so you are measured only by what you produce. In essence, it is an equalizer that focuses everybody on what’s important so you have the opportunity to reveal your best. Once you’ve worked in a true meritocracy, it’s very hard to settle for anything else.”
“I give my people a lot of freedom to explore and problem solve while I control the risk through big decisions. This autonomy, coupled with the access to fast decisions, is like crack to my people.”
— Sam Zell
People Make The Business
“Four Seasons is the sum of its people—many, many good people.”
— Isadore Sharp
Considering how much importance Robert Johnson puts into being transparent with his employees, it is not surprising that at the heart of Johnson’s philosophy is the belief that businesses are fundamentally about people. He believed that it was not the machinery, buildings, or products that made Johnson & Johnson successful, but the people. For Johnson, employees were not just workers; they were the very foundation of the company’s success.
As a matter of fact, Johnson once said, "The real fact is that buildings, goods, and machinery are only things business employs in order to do its work. Business itself consists of human beings. They make all the physical things we have mentioned. More important, they form the organizations that turn goods, equipment, and so on, into useful, going concerns."
For Johnson, employees were not just cogs in a machine but partners in the company’s success. He believed that employees should be empowered to take ownership of their work and contribute to the company’s growth. In fact, he was clear in his belief that the future leaders of the company could come from any rank within the organization.
"They fill important jobs, but those jobs are not set aside for special, important people. They are open to anyone with ability, imagination, foresight, and certain other qualities that make an executive. We are constantly looking for just such people, and are glad to see them come up from the ranks of our own employees."
— Robert Johnson
Furthermore, more importantly, Johnson implemented a work environment in order to empower his employees through decentralization. In fact, he advocated for a management structure that allows for greater autonomy among employees which he believes lead to enhanced efficiency and innovation.
By delegating authority and encouraging input from all levels of the organization through meritocracy, Johnson believes that managers and employees can make decisions that are best suited for their specific contexts. More importantly, by delegating authority and encouraging input from all levels of the organization, businesses can foster a culture of ownership and accountability. He explains that "Each department is given a responsible head, who has authority to make his own decisions, formulate plans in consultation with employees, and build up a real working group."
This reminds me of the story of Peter Kiewit. After being diagnosed with a life-threatening disease called phlebitis, he realized that he could not do everything alone and started delegating responsibilities to others. Kiewit explains that this was a game-changer: "If I had not had the illness, I might still be running a small, one-man show. What appeared at the time to be a misfortune actually caused me to depend on other people to carry on many phases of our work, and our present organization is the result.”
“A business dominated by one man, who makes all the decisions, who is reluctant to deputize responsibility lest his assistants make mistakes, lacks the elements of a permanent organization because it denies men the chance to grow and be ready for the larger responsibilities, which eventually someone must assume.”
— Peter Kiewit
Kiewit realised the benefit in having a management philosophy of decentralization. As a matter of fact, Kiewit developed a system of district offices where each managers had the complete authority in making decisions affecting their own operations. As such, district managers were responsible for bidding on projects, preparing estimates and to hire new employees. This allowed a major advantage considering that each local market opportunities are different and should be handled differently.
But more importantly, if one is to delegate, it is primordial to train employees in order for them to be ready for leadership roles. As such, Kiewit encouraged his employees to train and mentor a successor. He once said, “Before you can go on to a position of greater responsibility, someone must be trained to do your job, unless the job you are doing is not an essential one. If any of you fellows wants to admit that your job is not essential, you do not need to do anything about trying to see that anyone else is trained for your job.”
“In some organizations, top jobs are reserved for relatives. I would like to say again that this is not the case in our company. It has always been our policy, and will continue to be our policy, to promote on the basis of their ability to perform. It has also been our policy to fill vacancies by advancing qualified [employees] whenever possible.”
— Peter Kiewit
Social Responsibility
“A business that makes nothing but money is a poor business.”
— Henry Ford
Johnson was a pioneer for what he called “service capitalism”, a form of capitalism that prioritized the well-being of employees, customers, and the community. As a matter of fact, he believed that businesses had a responsibility to contribute positively to society and that profits should be earned through ethical practices. This concept of corporate responsibility was central to how Johnson ran his company.
In his speeches, Johnson mentions that the first obligation of a business is to “provide good products and good service. We have little respect for the individual who loafs at public expense or demands wages for shoddy, inefficient work. We can hardly call any business a good corporate citizen unless it makes good products, or gives good service to its customers." As a matter of fact, he explains that **businesses could not succeed by cutting corners or providing subpar products. For him, high-quality goods and services were not just a business imperative; they were a moral one.
Furthermore, Johnson also mentions that businesses have a social duty of paying good wages to his employees and to treat them well. As he once said, "The first social duty of business is that of paying good wages. Good wages not only hire good workers; they mean well-being and prosperity for the community." In Johnson’s view, businesses had a duty to ensure that their employees were paid fairly and that the working conditions were safe and conducive to their well-being.
Johnson was also an advocate for corporations “to contribute to the convenience, beauty, and healthfulness of the community in which it operates.” This forward-thinking approach to corporate responsibility was ahead of its time, emphasizing the importance of environmental sustainability and community well-being long before these became mainstream concerns. Johnson’s belief in service capitalism was not just about making money but about earning profits through ethical practices that benefited everyone—employees, customers, and society at large.
“The first social duty of business is that of paying good wages. Good wages not only hire good workers; they mean well-being and prosperity for the community. Most citizens are wage earners; their incomes provide the money to buy products of farms and factories, maintain hospitals and churches, and pay for public services. Any company that willfully underpays its workers is trying to coast along at the expense of neighbors who pay their labor bills in full.
(…)
As a second social duty, the good corporate citizen provides healthful, pleasant conditions of work, and tries to make jobs satisfying. At the same time, it supplies recreation facilities and health insurance, both of which contribute to each worker's well-being and security.
(…)
A third duty requires business to contribute to the convenience, beauty, and healthfulness of the community in which it operates. There was a time when no one objected to ugly factories; to smoke, chemical fumes, polluted streams, and run-down industrial slums. Today, we realize that business has no right to destroy the value of its neighbors' property or to make its community unfit for civilized life. The good corporate citizen accepts this fact and tries to make both its buildings and their surroundings assets to the neighborhood in which it operates.
(…)
The fourth duty of business as a corporate citizen is to live and act as a true member of its community. In every town and city, there are programs organized for civic betterment—cleanup campaigns, community chest drives, holiday celebrations, hospital campaigns, and others. Business must enter into the spirit of those programs, must take in their work, and must support them generously.”
— Robert Johnson
Similarly, we previously learned from Henry Ford that it is wrong to assume that businesses only exist for profit. In his opinion, business exists to provide services. In fact, after working in business for so many years, Ford came to these three conclusions:
(1) That finance is given a place ahead of work and therefore tends to kill the work and destroy the fundamental of service.
(2) That thinking first of money instead of work brings on fear of failure and this fear blocks every avenue of business—it makes a man afraid of competition, of changing his methods, or of doing anything which might change his condition.
(3) That the way is clear for any one who thinks first of service—of doing the work in the best possible way.
As such, Ford reminds us to not be too greedy for money when running a business, as that is the surest way to not get any. He believes that when one focuses on providing great services, then money will abundantly takes care of itself. As he once said, “For the only foundation of real business is service.”
He explains that “The most surprising feature of business as it was conducted was the large attention given to finance and the small attention to service. That seemed to me to be reversing the natural process which is that the money should come as the result of work and not before the work. The second feature was the general indifference to better methods of manufacture as long as whatever was done got by and took the money.”
“ It is the function of business to produce for consumption and not for money or speculation.”
— Henry Ford
Beyond the Book
Watch "How to have an idea meritocracy in any organization" by Ray Dalio
Watch "Berkshire Hathaway's decentralized structure" on YouTube
If you enjoy reading my newsletter, please consider becoming a paid subscriber. You’ll be able to keep this newsletter going! Here’s what you get when you upgrade:
Voting on polls: you’ll get to vote on who I should write about next.
Requesting biographies: you can request a biography for me to read and write about next.
Supporting my next book purchase: all payments received will be used to purchase a new biography.