By Joel Magalnick, Editor, JTNews
Jim Sinegal, co-founder and CEO of Costco Wholesale Corp., has a charitable streak. In advance of his speaking engagement at Jewish Family Service of Greater Seattle’s annual Community of Caring luncheon, JTNews spoke with Sinegal about philanthropy both personally and for his company. The full transcript of the conversation can be found here.
JTNews: You’re active in several charities, United Way, Children’s Hospital, to name a few. What is your own personal philosophy on charitable giving?
Jim Sinegal: It’s all directed toward health and human services. I don’t think I give a thousand dollars a year to the arts. It’s all directed toward things like Children’s Hospital, toward education. I’m on the board of trustees at Seattle University, so I’ve set up a fund for the school of nursing, for which I think there’s a big need in our community. My wife and I have done that.
My wife is very active in Children’s Hospital, so we’ve not only supported children’s hospital ourselves personally, but Janet has devoted enormous amount of time to Children’s Hospital. She’s been on the board of trustees at the hospital. She was at one time on all three boards: The guild board, the foundation board, the hospital board. She was the first person, I think, in history, who was ever on all three boards at one time.
I’m also on the board at Mendoza School of Business at Notre Dame, and provided a scholarship program there, and I’m on the board of San Diego State University, where both Janet and I went to school and we provided a scholarship program for disadvantaged kids to get teaching credentials. Disadavantaged is probably a bad choice of words — people who just need help getting through school. Even though it’s an inexpensive school, it’s still costly to go. Then I’m on the board of the United Negro College Fund on a national basis, so as you can see, education and children and that type of thing is generally where we given most of our money?
JT: What’s driven your desire to be so charitable?
Sinegal: Why wouldn’t I be? Look how lucky I’ve been. I’ve been very fortunate. I came from a very humble background — my father worked in the coal mines and steel mills in the Pittsburgh area. It’s quite a leap from there, an immigrant family, to be in a position like I am in right now. So life has been very good to me, the country has been very good to me. You’d have to be pretty foolish not to understand how lucky you’ve been and to want to share that. And, I think, I’ve been fortunate to have people who have mentored me in that direction. This is a gentleman right there [Points to article about Sol Price, who created the discount warehouse club concept] I mentioned — this guy, [I was] very close to him. I had lunch with him just four days before he died, he was 93 at that point.
I started working for him when I was 18, and I’m 74, so that’ll tell you how long.
It goes back to when I went to school. The nuns would beat it into our heads, “To whom much is given, much is expected.” I guess after a period of time it starts to seep in. Why they ever thought we would ever have anything, I don’t know. But we were fortunate enough in my particular case, and in many of my colleagues’ at school at that time.
So that’s it. We were lucky and we have an obligation to share that, and it’s something I’ve been taught ever since I was a young kid, including my formative business career.
JT: How do you take that belief and put it into this huge company you’ve built?
Sinegal: Listen, I started in the retail business actually even before 18. I started working in a drugstore as a soda jerk when I was about 13, I started working in a supermarket when I was 15, and then I started working really when I was in college, working in earnest at the discount store business. So I’ve been doing this all my life. There’s absolutely no question that an awful lot of what I’ve done has been patterned after what I learned from Sol. To give you an idea, I remember in 1960, we were going to put a unit in Dallas. We were retrofitting an existing building and having it constructed, and I was a young kid at that time — about 24. I remember the contractor came to us and said, “You guys have a mistake on these plans. You don’t have separate restrooms for white and colored.”
And Sol heard that, and he said, “No f—-in’ way.”
And we opened up with one set of restrooms in there. That was the type of person that he was, and you can imagine how much that affected all of us who were young at that point. Here was a guy who had principles, even though he was running counter what the normal culture was in that part of the country, he was prepared to fight it. I was lucky. I was very, very fortunate to have a teacher like that.
JT: You have many stores now?
Sinegal: 567.
JT: How are you taking those charitable values to the stores, to the employees, to the customers, to the company?
Sinegal: Well, first of all, we’ve got a pretty simple code of ethics. You may know it, maybe you’ve heard it. We think as a company we have to do four things: We’ve got to obey the law, we’ve got to take care of our customers, we’ve got to take care of our people, and respect our supplies. And we think if we do those four things, pretty much in that order, that we’ll do what we ultimately have to do, which is to reward our shareholders.
We think it’s possible to reward your shareholders without paying attention to all those four things, but we think if you don’t you’re going to stumble somewhere along the way. Obviously, if you break the law you’re going to get in trouble. If you’re not taking care of your customers they’re going to stop shopping with you, if you don’t take care of your people you’re going to have labor strife, and if you don’t respect your suppliers obviously you’re going to get the short end of the stick somewhere along the line. They’re either going to stop selling to you or they’re going to cheat you in some fashion. So we try to stay true to that in every sense of what we do.
The customer is entitled to know that we’re going to be honest with them. We’re not going to slip shoddy goods in on them, we’re going to make sure everything is high quality. Not only that, if they’re dissatisfied, bring it back. Because we’re going to make sure that not only do you get the very best prices that you can get anywhere in America, but you’re going to get the best warranty on any product that you’ve ever gotten. We determined that we were going to pay our people the very highest wages in the retail business, provide the best health care. We thought, that’s the right thing to do for your people. They have a right for their kids go to schools, and have good health care and all the things that are necessary and important in their lives. I do believe that creation of jobs is one of the highest forms of social work. That is the highest form of social outreach, because you provide not only jobs, but also dignity.
So we feel pretty good about some of the things we do, then to be able to make a profit out of it, that’s gravy. And that’s what it’s all about, obviously. You can have the loftiest goals in the world, but if we weren’t showing a profit, weren’t able to out-efficiency the other guy and make more money, nobody would give a s—t what we were doing, we would be just another asterisk, another company that was flying a supersonic, low-flying jet.
JT: To name an example, right? There’s a donation matching program with United Way, for example, that employees can give and Costco would match?
Sinegal: I think at the moment we’re matching about 50 percent of what they give. They can make a contribution — I think that’s what the match is, 50 percent — and then we also match a portion of what we collect for Children’s Hospital as well.
So yes, employees can do that, of course they can designate if they want, or they can put it into the United Way safety net, or designate to specific charities, which many people do. As a matter of fact, that’s really made it more popular than ever, that they can designate their own charitable giving.
JT: Talking about not just Costco, but corporate America in general, what role should companies play in giving to charity or give a leg up to people who might not be fortunate enough to shop at your stores?
Sinegal: I think an awful lot of it goes back to the philosophy that Peter Drucker has, the business guru, I don’t know if you know who he is, but running a business is, and I think I stated in the last sentence, is, it’s about more than making money. Making money is important, of course, but it’s about more than making money. It’s about the fact that you have a contract with society, that there’s a social contract that you’re going to do the right things in the community where you’re doing business, that you’re going to provide good jobs, that you’re going to provide good merchandise, and you’re going to be honest and above board in what you do, and that the people that count on you, all of the stakeholders that count on you, and that includes suppliers who count on you. We have 150,000 employees in our company now, and if you said that’s 2.2 people you can see very easily, you’ve got yourself somewhere in the 330,000-350,000 range. Think of the suppliers that provide goods for us, and their families, and how many factories would go out of business or have serious layoffs if we weren’t around. And the customers and the people in the community who count on us. The community of Issaquah, the community of Seattle, counts on us being a good neighbor in the community, which means we’re running a good business, and they’re proud to have us in their community.
JT: Do you see a lot of companies not holding up their end of that contract?
Sinegal: I think in corporate America we have allowed ourselves to get sucked into the situation where there are a lot of short-term goals that are forcing everybody to act differently than they would if they really were looking at how they survive their business 50 years from now. One of the things about Costco, one of the things that we’re proud about, when Jeff [Brotman] and I started the business, we could have sold the business hundreds of times. There were all kinds of people coveting the business in the early days. But we never wanted to sell it. That was never part of our M.O. I said hundreds of times, it’s probably an exaggeration, but certainly dozens of times we could have sold the company. That was never part of our M.O. We wanted to build an institution, we wanted the company to be here years from now, and still be flourishing and still be prosperous and still to be an important part of the community. I think you look at things a little differently when you look at it in that fashion. One of the criticisms that I had of e-commerce, when that e-com business was so hot back in the ‘90s — all those guys were thinking about was how do they start the business and sell it and get the hell out?
Amazon, and [CEO Jeff] Bezos, was one of the few who really was trying to build something where he wanted to have the business, and it showed. It showed in the way he ran it.
I was just a judge at a contest down at San Diego State [University], an entrepreneur contest, and it was from different schools. They had invited in about 50 schools, and I had helped along with some others to judge the winner out of the top six finalists.
Every one of these six finalists that came in did their presentation to us, and they did it almost in the fashion that they were looking for seed capital or as an angel investor. And every one of them had — as one of the key points, they stressed, right from the beginning — was an exit strategy. How do they get out of the business? I asked the professor there, I said, “Doesn’t anybody teach anyone how to make s—t? How to build a company and how to employ people?” Unfortunately, it’s what the schools are teaching, so is it any wonder that these kids are coming away from that, these kids that are the most educated in our country now, MBAs, who are coming away with the concept that that’s all that’s important?
I’ve been involved here recently with Rwanda. I was introduced to the president of the country, and met him and have introduced him to several other business people. His attitude was, he was the guy who liberated the country from that terrible genocide that was taking place, they lost like a million people in 100 days in the worst fashion you can imagine — machetes out in the street. It was just horrible. He came in and liberated the country and, as the president of the country, he’s determined that aid is bad.
Just taking money and continuing to take money is never going to move his country forward. If he’s ever going to have any chance of success in his country, they have to build some commercial base. They have to develop a middle class and to have a form of business. And really, businesses in every country of the world, in every successful country, in every non-third world country, that’s really what makes the difference: Successful business, a middle class that develops out of that business. That creation of jobs, as they say, is the highest form of social service, and it also creates the types of entrepreneurs that you see flourishing in our country.
If you look, this is an amazing city to look at, because you’ve got the Microsoft thing here, and you’ve got the Starbucks thing here, and you’ve got Bezos, and you’ve got Costco here, and you’ve got, I mean, all kinds of examples of companies that have just sprung up and are very successful.
It’s amazing also, I just saw a list of the 50 most admired companies in the world, and five of them were from Seattle. Ten percent, from one little corner of the world.
Boeing, forgetting the fact that Boeing is ostensibly in Chicago, but they’re really here. Nordstrom, Microsoft, Costco…Starbucks. So there were five of us listed, and Amazon very easily could be, and probably should be. That’s kind of interesting, isn’t it, for our little corner of the world?
JT: Is it up to these companies, this entrepreneurial interesting educated part of the country to start getting people jobs again?
Sinegal: I think it’s no coincidence that Seattle and the Puget Sound [were] hurt less than many other parts of the country by this, and I don’t think you can put all the pressure on that, but I think it says something about the community and the culture of the community, that entrepreneurship. You don’t just have Microsoft. Look at all the ancillary companies that have sprung out of Boeing, who supply parts.
I’m sure I’m digressing just a little, but it shows why the interest of this fellow from Rwanda would be to build a commercial base in his country. Because he realizes that in the final analysis that’s what’s going to bring them into some kind of prosperity, where they’re not going to have to count on aid.
JT: You can take that argument pretty much anywhere, like Rwanda, or you can take that to our country here, in poorer areas as well. Do you see that same argument possibly working? Putting programs into play as opposed to welfare?
Sinegal: Sure. We’ve put some warehouses in some areas of towns where you would probably be surprised, because it would not necessarily match up with the demographics of what you would think our customer would be. We’ve got one right in Inglewood, which is as close to South Central as you can get in Los Angeles. We have another one that we just opened up in Pacoima, which is a gang-infested part of the San Fernando Valley. We have another one in San Diego which is clearly one of the most diverse parts of the whole community, and we’ve been successful in all of those.
JT: What has that done for those communities?
Sinegal: It provides jobs, it’s pretty well documented that generally pricing is higher than it is in other neighboring communities. They charge more, and here are the people who most need bargains and values in what they’re shopping for who get charged the highest prices.
I started to tell you, in Rwanda, so we sent our coffee buyers over there — it’s a great coffee-buying country, they went over, and without any prompting from any of us, they very cleverly set up a program with the farmers over there, to number one, make sure the money was getting to them and not going into all sorts of middle men’s hands, and secondly to show them how to enhance their crops so they were getting more premium coffee out of it. So we now represent something like 25 percent of the premium coffee that comes out of Rwanda.
In addition I introduced [President Paul Kagame] to my friend Howard Schultz. And he also bought coffee from them and, as a matter of fact, he liked this guy Kagame so much he brought him to his annual meeting, and had him come in there; and I introduced him to Boeing people, and they announced a deal the other day: They’ve sold him two airplanes and they’re going to help him set up an airline in Rwanda.
So that’s the beginning of how associations with different people in American businesses can help teach them things, which is going to leave something more than if you just gave them aid.
JT: So you’re thinking more as a supplier, not setting up a store in the middle of Rwanda.
Sinegal: No, I don’t think we’re going to set up a store. I don’t think Rwanda is ready for a Costco, and I don’t think we’re ready for Rwanda. It would be tough for us, because we typically need to go, and are required to go, someplace where we can set up a series of places. We need a country where, after making all the investment and languages, and buying and everything else, that you could be there. But we did bring over some of their people. I did offer the president an opportunity to intern four people that he considered potential entrepreneurs. They had them come over and work with us for a couple of months. We paid them, gave them jobs, but they got to rotate through our system and see whether or not they can take anything, go back home with it, and help build business back there. Not that they’re going to start a Costco, but they might learn something about business in general.