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Herb Kelleher: Employees First

Herb Kelleher was for many years one of the most innovative, unorthodox, and successful corporate executives. He delivered profits to an airline business every year of 20 years as CEO, in an industry where other airlines could not manage 5 years of profits, and he did so by sticking to a simple mission and placing values first. But the whacky reputation of Southwest Airlines, which he co-founded, belies the clear-sightedness of its long-time CEO.

Herb Kelleher

Short Biography

Herb Kelleher was born in 1931, in New Jersey. He studied English and Philosophy at Wesleyan University, before going on to study law at New York University, from where he graduated in 1956. He spent a couple of years clerking for the New York Supreme Court, and another couple at a Newark Law firm, before moving to Texas, from where his wife had come.

In 1961, he set up a law firm in San Antonio, where one of his clients was Rollin King, who owned a small airplane charter business. One evening in 1966, over drinks, King outlined an idea for a different kind of airline, which would serve the main three Texas cities, with point-to-point services, rather than scheduling to meet international hub flights. Famously, they sketched a schedule on a bar napkin, for flights between Dallas, Houston, and San Antonio. Kelleher was sold on the idea and invested $10,000 for a 1.8 per cent stake.

As Chief Legal Counsel, Kelleher led the acrimonious legal battles to secure the licences and slots that Southwest would need, to fly. This led to court cases all the way up to the Texas supreme court, but in 1971, the company started trading under experienced airline CEO, Lamar Muse. It took three years to become profitable.

In 1978, Muse resigned, and lawyer Kelleher was appointed president, and then CEO four years later. This inspired appointment led to phenomenal growth for the business – in both monetary and reputation terms. Kelleher built Southwest into a widely admired business, which many have tried to emulate (rarely successfully). The figures speak for themselves.

1982, Kelleher becomes CEO

  • Airplanes: 27
  • Staff: 2,000
  • Revenue: $270 million

2001, Kelleher retires as CEO

  • Airplanes: 344
  • Staff: 30,000
  • Revenue: $5,000 million

Kelleher retired as CEO in 2001, and as Chairman of the Board in 2005. He remains a prominent and outspoken contributor to US business life.

Kelleher’s Secret

Kelleher’s secret is far from being secret: it is plain to see for anyone who observes the Southwest Airlines business (and there have been countless business school case studies), and Kelleher has spoken of it many times.

Put simply, Kelleher adopted the attitude of:

Employees first; customers second; shareholders third

Compare that with the behaviour of most corporations and you will see it is exactly the ‘wrong way round’. Yet it has worked phenomenally well. And if you say that there are many who do espouse this sequence of priorities, I’d agree. But the truth is, very few truly (I mean TRULY) do the ’employees first’ thing, and do it properly.

However, this is not the first time we have encountered the ’employees first’ philosophy at Pocketblog: take a look at this post about Vineet Nayar, from 2010.

Stick to the Mission

Kelleher was always determined to stick to the mission of the company – they never did anything that was outside of the airline industry, nor indeed outside of the confines of a point to point US service. Sticking to what you know and do well, can be a powerful way to stay focused and deliver stability and excellence.

And Kelleher stuck to his philosophy of what his business aimed to do, which he articulated as being about happy customers and low costs. This led to a no-frills service that focused hard on keeping costs low, and a business that became famed for its customer care. He achieved both by a fierce loyalty to his staff, which they reciprocated.  This is manifest in two particular ways.

Serious Fun

Kelleher has a love of fun and practical jokes, that means he rarely takes himself seriously. He has been see in Elvis costume, on a Harley Davidson, and has arm wrestled another CEO for the right to use a disputed marketing slogan (and lost).

His staff took his lead and Southwest is famous for on-board pranks, and singing flight attendants. Some of the in-flight announcements have gone viral on social media because of their wit or novelty. Yet all their staff do take their jobs seriously and the airline has never had an in-air fatality.

Staff Care

Kelleher’s commitment to staff care has meant that Southwest has ridden out the peaks and troughs of a particularly volatile industry without ever laying off any staff nor even imposing furloughs (compulsory leave of absence to save the company money). Instead, they have taken numerous hits on short-term profit. The result has been enviable staff loyalty (with among the lowest turnover rates in the industry) and exceptional productivity. Putting staff interests ahead of shareholder returns has, paradoxically, maximised shareholder returns over the long term.

So,what do we learn?

  1. Unorthodox works
  2. … but only when done with the integrity to stick to your values.
  3. Low costs and customer care deliver profits
  4. … especially when your employees share your commitment to both
  5. Exceptional culture delivers great results
  6. … but you need to set the tone, deliver on values, and get out of the way, as a leader.

‘The Business of Business is People; Yesterday, Today, and Forever’
Herb Kelleher in his own words

 

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