Organized Labor

Our recent memorandum updating you on our efforts to review and revise W.’s strategy of associate benefits represented the product of phase one of a three-phase task our fifteen-person team set itself. Phase two reviewed the benefit cost structures of our suppliers in search of steps we might recommend to restrain or reduce effects on pricing. We are providing you the resulting brief memorandum under separate cover. Summarized, it finds few cost savings possible there, as benefit costs of our suppliers are and will continue to be of marginal relevance.

This memorandum is the product of phase three. I, again with the support of M. & Company, led the team in reviewing the benefit cost structures of our construction contractors. We arrived at two conclusions about present conditions:

1. As with our suppliers, benefit costs of our construction contractors are of marginal relevance.
   
2. Our construction contractors are under pressure to provide or expand benefits, and in particular healthcare benefits, to their associates [employees — Ed.’s note] and to their associates’ families.

Provision or expansion of healthcare benefits among our construction contractors coupled with national healthcare cost trends would inevitably lead to unacceptable increases in construction costs. We have evaluated certain traditional responses to such increases and determined that they are insufficient at this time and carry their own risks. For example, active discouragement by W. of the provision or expansion of benefits by our construction contractors to their associates would quickly be exploited by our critics in a campaign of adverse publicity. Our critics would make similar use of any encouragement by W. of reductions in benefits by the few of our construction contractors that offer them. The team decided that direct action against benefits was inadvisable.

In reviewing the conclusions at which we had already arrived, the team remarked that if the sources of the pressure to provide benefits could be identified and relieved the effect of benefit costs could be maintained at its present marginal level. Accordingly, members of the team interviewed our construction contractors and their associates at sites across the country. The data assembled from the interviews led us to four further conclusions:

1. With few exceptions, associates did not want their wages reduced in exchange for benefits.
   
2. Associates with families or with plans to start families were far likelier to express a desire for benefits. Presented with a choice between provision of benefit plans and a slight increase in wages, this associate segment was likelier to choose the benefits.
   
3. Associates without families or plans to start families had less interest in benefits. Presented with a choice between provision of benefit plans and a slight increase in wages, this associate segment was likelier to choose the wages.
   
4. Wages are easier to control than benefit costs, and particularly health care costs, and so associates without families or plans to start families will produce less upward momentum to W.’s cost structures.

I encouraged the team to imagine bold steps in applying these conclusions to achieve effective cost control initiatives for W. The team responded with energy and enthusiasm. The Board should commend them for their fearlessness in this effort, even though most of the approaches they suggested were rejected in the end.

We did examine each of their suggestions thoroughly before rejection. For example, it was only after extensive consultation with Miami and New Jersey organizations with long experience in family removal matters that we decided that this approach could not be effective at the required scale without substantial adverse publicity.

The birth control policies of the government in China, where most of most of our suppliers manufacture, offered us a model that might in other circumstances be useful. The team decided, however, that to provide associates of our construction contractors with birth control materials and advice might again bring adverse publicity among certain communities in this country and might itself entail through heightened activity more than marginal additional expense.

Our attorneys explored with us also legal justifications for hiring only unmarried associates. While marital status was an acceptable criterion in past business hiring, our attorneys could not determine strategies by which it would now withstand litigation. They did express some expectation that the appointment of a more business-friendly judiciary by the current administration would make such an option more tenable in the future. At any rate, further consideration by the team of this option convinced us that it was only a partial solution. An unmarried associate might still have a family, marry, or plan to start a family. An unmarried associate who did not plan to start a family might be more inclined to late nights and absenteeism. The ideal associate segment would be not just unmarried, but celibate.

I, then, tasked the team with considering ways in which W. could encourage the hiring of ideal associates by our construction contractors. The team responded by arriving at an entirely new paradigm for our construction services.

Recognition of this paradigm began when one team member recalled interviews with associates of a merit shop [non-union – Ed.’s note] reinforcing steel contractor at one of our sites in California’s Sacramento Valley. Stickers on the hard hats issued by the contractor to its associates referred to “I Corinthians 3:10,11.” The contractor’s website makes the same reference. On returning to her hotel room, our team member followed this reference in the Bible provided there. It discussed foundations. Reading further, the team member came to another passage, I Corinthians 7:32-35, which we quote here in full:

“But I would have you without carefulness. He that is unmarried careth for the things that belong to the Lord, how he may please the Lord: but he that is married careth for the things that are of the world, how he may please his wife. There is a difference also between a wife and a virgin. The unmarried woman careth for the things of the Lord, that she may be holy both in body and in spirit: but she that is married careth for the things of the world, how she may care for her husband. And this I speak for your own profit; not that I may cast a snare upon you, but for that which is comely, and that ye may attend upon the Lord without distraction.”

Others on the team with a background in small retail prior to their association with W. recalled that annual inventory services had long been provided by young members of a major and growing American religious denomination; earnings went to the denomination.

Michael Theriault is sworn in as a member of the San Francisco Building Inspection Commission on January 6, 2006. L-R: SFBTC President Larry Mazzola; Mayor Gavin Newsom; Michael Theriault; and John O¹Rourke, Vice President of SFBTC.

We presented this material to the Executive Benefits Steering Committee in late August. They received the recommendation enthusiastically. They cautioned against sharing it widely within W. until our team had tested and refined the strategy.

I, then, and the team are now studying practical steps toward achieving this paradigm shift. The sole pre-existing denomination with a tradition of recruiting members to a celibate life is at present demonstrating insufficient recruiting capacity for its own needs. It is possible that through careful overtures we can convince another pre-existing denomination to adopt an emphasis on celibacy. Failing this, we should explore the creation of a new denomination. This must be accomplished with maximum discretion. Some of our most fervent management associates might prove a resource in this once they are identified and extensively interviewed.

Our attorneys are researching legal issues involved in the new paradigm. Among these are licensing, bonding, and insurance requirements. Another is whether services can be purchased anywhere directly from the faith-based organization or must instead always be purchased from its members as independent contractors.

We believe that our involvement with one or more faith-based organizations will elicit criticism in some communities but praise in others. To blunt the criticism we must be ready to demonstrate the precedents for this involvement. In those communities where we expect or receive criticism we may further blunt it by expanding our practice of contributions to arts and neighborhood organizations, schools, and public radio and television stations. The team believes that the savings available through the proposed paradigm far outweigh the relatively minor expense of these contributions.

If the new paradigm is successful we may wish to explore other comparable paradigms. One is suggested by such passages in the Epistles of Paul as Ephesians 6:5,7, Colossians 3:22-24, I Timothy 6:1,2 and Titus 2:9. Although the present political and economic climate is not conducive to successful application of these passages, we should prepare application scenarios in the event an opportunity arises.

Meanwhile through careful planning we can have the services of ideal construction associates, associates who are clean, celibate, without any burden of family considerations, and dedicated in all respects. Our aspiration is to complete work on details of an implementation strategy for this initiative by late December, receive Executive Committee approval on the overall strategy by early January, and hold a special session with you in February for further discussion.

I appreciate your taking the time to engage so fully on this topic and look forward to discussions with you at the special Board meeting in January. In the meantime, I would welcome hearing your reactions to our work to date.