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1997 FIN – Who’s the Cheapest CEO in America?

May 28
00:00 2009

1997 FIN – Who’s the Cheapest CEO in America?

October 6, 1997 FIN – Inc. magazine sent reporter Marc Ballon out to find the cheapest CEO in America. Ballon spent two months developing a list of finalists and then went on an eight-day trip to investigate six companies in five states. And he singled out a fastener executive as the nation’s king of cheap. Ballon computed the winners personal net worth at $248 million and notes the coupon-clipping CEO buys his suits for $60 – used from a clothing store manager. He has no personal secretary and his office features used furniture. The company glues (fastens) used paper together from scratch pads, doesn’t reimburse employees for meals on the road, and produces its annual reports in-house for 40¢ a copy. The CEO leads a company which “is to cheapness what Michael Jordan is to basketball: the best ever,” Ballon writes. “Is cheapness good? Or is it just a quick fix, a touch of blush that rubs off in the morning?” Ballon asks.
“Either way, what we know for certain is that nobody does it better than the plainspoken, hardworking” Bob Kierlin of Fastenal.
“Kierlin doesn’t just worry about operating costs; he obsesses about them,” Ballon found.
“Being careful about your expenditures, whether large or small requires a total commitment,” Kierlin told Ballon. “Either you do a good job of cost control in all aspects of your business, or you start losing it.” “Cost cutting comes natural to him.” Ballon writes in the October 1997 issue of Inc. Kierlin grew up the youngest of five children. He swept floors of his father’s auto parts store at age 7 and worked behind the counter at 11. Vacations were afternoons in a local park. “Frugality is an attitude you develop,” Kierlin said. “Once you have it, it sticks with you in everything in life. You don’t have to think about it.” The attitude extends through the company, which totals 560 stores in 48 states, Canada and Puerto Rico. Fastenal carries 49,000 types of fasteners, as well as safety supplies, tools, and other industrial products. Cofounder and corporate secretary Stephen Slaggie, who holds fastener stock worth $121 million, can’t bring himself to buy his college dream – a Corvette. Kierlin bested the CEOs of Louisville, KY-based dry-food-mix maker Tova Industries; Regal Cinemas of Knoxville, TN; solid-wood furniture manufacturer Keller Manufacturing Co. of Corydon, IN; and Atlanta GA-based discounter retailer K&G Men’s center Inc. Expenses: Just Say No! Ballon describes the two-story corporate headquarters in Winona, MN, as “practical, austere, and solid,” and signs in managers’ offices tell the corporate spending policy: “Expenses: Just Say No!” Fastenal stock has soared 6,800% creating local millionaires.
Fastenal has no 401(k) plan (“I believe people should be paid all their rewards up front and make their own choices on how to spend their money,” Kierlin explained), has never paid more than $400 for an airline ticket and as the fastener industry knows, belongs to no trade associations. “Frugality as helped make us profitable and profitability is what you need to continue to grow,” Kierlin reflected. Slaggie, a former insurance agent who was a boyhood pal of Kierlin, saves the company by buying no collision coverage for the company’s 1,100 trucks and a $75,000 deductible on its stores. Last year Fastenal saved $300,000 through self-insurance. Such policies have allowed Fastenal a 35% annual earnings growth rate since going public in 1987. Net earnings last year were 11.3%. His search for the cheapest left Ballon with the opinion that Fastenal competitors can’t match the cheapness. “If your company doesn’t work his way not, it probably never will,” Ballon concludes. “Older companies with ingrained bad habits will find it difficult, if not impossible, to slim down. Admire Fastenal if you will; not ever business can emulate it.” Does Cheapness Pay? Ballon notes cheapness advocates say it increases profitability by keeping companies slim, banking cash for growth and giving the advantage over spendthrift rivals. Start-up CEOs must be cheap, Ballon observes. “But as companies grow so, too, does their appetite for amenities. CEOs often become greedy. After years of sacrifice, many come to believe they deserve to stay in four-star hotels, earn big money, drive fancy company cars.” However, cheapness “should not be confused with stinginess,” Ballon continues.
“If you hack away at costs incessantly, quality can begin to suffer,” Ballon quotes UCLA professor Eric Flamholtz. Cutting out quality control can go too far, Flamholtz added. “A cheap company would never become so obese that it had to shed workers,” Ballon writes. “Cheapness is proactive. Downsizing is reactive.”
“A company cannot survive on cheapness alone. Without good products, marketing, and distribution, cheapness means little,” Ballon adds. Clayton Christensen of Harvard Business School asks if competitors match your cheapness, “what advantage do you have?”
“Plenty, if Fastenal’s record is any guide,” Ballon answers. “And Kierlin is happy to let that record do the talking and to leave the management-style debates to others.” “We’ve never really cared how everybody else does things or tried to follow them,” Kierlin said.
Ballon says he found “cheapness is more powerful than its doubters imagine. Fastenal’s obsession with costs promotes a kind of attentiveness to the mundane the inevitably improves quality and increases efficiency.” ©1997/2009 Fastener Industry News.

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