I heard the news today, oh boy. Commerce Bank—one of my favorite companies in the world, filled with some of the most energetic and enthusiastic executives and front-line employees I’ve ever met—announced that it was selling itself to Toronto-Dominion Bank for some $8.5 billion. (The company’s market cap was just $400 million at the end of 1996, so it’s been one hell of a decade!)
This transaction will bring to an end Commerce’s existence as an independent, publicly traded company. But it is not the end of the Commerce story. Indeed, it is a confirmation of the power of the ideas that founder Vernon Hill and his colleagues have stood for and fought for over the last 34 years. Back in June, when Vernon Hill stepped down as CEO of the bank after a run-in with the SEC over governance issues, most pundits suggested that Commerce would eventually be sold. My hope is that once the pundits get done evaluating the price that TD Bank paid, and what the transaction says about dealmaking in the financial sector going forward, everyone will step back and reflect on the Commerce legacy over the last three decades—and what that legacy means for the future of business and competition.
Here are a few of my own quick reflections:
1. It pays to be different. Retail banking is a slow-growth, minimal creativity, low-margin business. Retail banking in the Northeast, a region of the country that is essentially losing population, is even slower and less creative than elsewhere. In this stultifying environment, Commerce was a true breath of fresh air—brash, colorful, and built around what was right for customers, not what was easiest for the bankers. As one analyst told The Philadelphia Inquirer this summer, “Vernon did a great job of building a new business model in a very lethargic business.” That, folks, is the maverick approach to strategy.
2. Sharing your values is more important than just selling values. When the media and Wall Street discuss what makes Commerce different, they usually point to hours and fees—a big supply of the former, as the bank is open late into the evening during the week as well as on Saturday and Sunday, and a limited supply of the latter. (Not only does Commerce not charge customers ATM fees, it rebates to its customers fees they have to pay to other banks to use their machines.) But those dollars-and-cents issues aren’t really at the heart of the Commerce brand. It was and is about the bank’s psychological connection to its customers: Red Fridays, the Penny Arcade coin-counting machines, street fairs and outdoor festivals—countless ways that Commerce developed an authentic commitment to surprising and even entertaining the people with whom it did business.
3. If you want to be disruptive in the marketplace, you have to be distinctive in the workplace. Lots of companies talk about their “culture.” Few companies have the kind of powerful culture—and commitment to reinforcing the culture—that defines Commerce. The passion, enthusiasm, and borderline insanity that Commerce’s 15,000 people show for their company is almost hard to believe—especially when you see it, as Polly and I did on many occasions, up-close and personal. The sight of hundreds of store managers, all dressed in football jerseys, some even sporting “eye black,” as part of a Super Bowl competition among the stores, and then watching as these store managers chanted, did the wave, shouted each other down—well, Polly and I would keep looking at each other and saying, “These are bankers?”
That’s how you win in the marketplace today. Last spring, I attended an invitation-only conference for retail bankers organized by Tom Brown, one of the most thoughtful hedge-fund managers I’ve met. Most of the talk emphasized how brutally competitive the business had become: The Internet was wreaking havoc with profit margins; mergers were creating a handful of giants; customers had become tough, demanding, fickle.
It was enough to make me, as an outsider, feel sorry for the group—until one industry expert explained the real source of the bankers’ problems. This consultant, whose firm has conducted thousands of “mystery shops” and interviews with front-line employees at retail banks, told the gathering that during their visits, his researchers always ask bank employees a simple question: “As a customer, why should I choose your bank over the competition?” And two-thirds of the time, he said, front-line employees have no answer to that question—they simply “make something up on the fly.”
How can any business expect to outperform the competition when its own employees can’t explain—simply and convincingly— what makes them different from the competition? Everybody at Commerce Bank—and I mean everybody—had a crisp, clear, convincing answer to the question of why customers should choose their bank over the competition. Which is why so many customers made that choice.
So here’s to Vernon Hill, Dennis DiFlorio, Linda Verba, and all the Commerce leaders that we have come to know and admire, and from whom we have learned so much. Commerce may have come to an end as an independent company, but that ideas around which the bank was built will help to shape business for years to come.PermaLink: The End of an Era, Not of an Idea