Trust factor Featured

8:00pm EDT June 28, 2005

When John Anderson was a law student at Loyola Law School in the 1940s, he was always the last guy left in the law library. That's because Anderson worked eights hours a day as a CPA before heading off to law school each night.

"The father [head priest] of the Catholic law school would always come around and kick me out," recalls Anderson. "I guess he got tired of doing it, so one time he came around and said, 'You know, Anderson, if you're going to be a lawyer, you've got to be trusted.'

"So he put his hand on my shoulder and slapped something on the table and said, 'Here's the key to the law school. Be sure to turn the lights off when you leave. I trust you.'"

That one simple action forged a lifelong business philosophy for Anderson.

"The back of my neck still pricks up when I think about it," he says. "Since then, I've often thought that trust is very important. You can get burned, and I have, but in the long run, I've trusted people, and it's worked for me."

Anderson, an octogenarian and Forbes billionaire, is one of the best-known executives and philanthropists in Los Angeles. As chairman and CEO of Topa Equities Ltd., he oversees a multibillion-dollar empire comprised of 42 businesses in such diverse industries as agriculture, car dealerships, insurance, real estate and wholesale beverage distribution. And he has applied his lesson in trust at every step along the way of his business life.

"I have a strong belief in people," he says. "I trusted people a great deal during my career and try to count on them and treat them accordingly."

Operating from that base philosophy, Anderson has applied three other important lessons to his businesses.

First, take care of your company and your employees. Compensate your staff fairly, but don't do so at the expense of your operations.

"I'm a great believer that if you take care of a company, it will take care of you," Anderson says. "But if you abuse it, you'll lose it. So I always try to protect the company and not milk it."

Second, always conduct yourself ethically.

"Having integrity is very important," he says. "I'm not a goodie-goodie, but I believe that doing the right thing is not only proper, but in the long run, it's the smart thing to do. Over the years, I've seen it work to my advantage."

And finally, be willing to take off the blinders that most focused businesspeople wear and recognize a good opportunity when it presents itself.

"I would like to think I planned all of this when I was attending Harvard Business School," Anderson says with a laugh. "But the truth is, most of it just comes along. And you have to be sure you're in a situation that isn't all tunnel-focused. You have to learn to see opportunities."

The eighth wonder of the world

A Minneapolis native, Anderson, arrived in Los Angeles in 1936 to play ice hockey for UCLA. After graduating with a degree in business administration, he headed east to Harvard for his MBA, then returned to California for law school.

While his law library experience at Loyola solidified his belief in others, it was his Midwestern upbringing that laid the foundation for his well-grounded outlook on life.

"It is a great honor to be trusted," he says. "If you can convey that to your employees -- that you trust them -- it goes a long way."

Trust, in turn, builds loyalty, he says, which leads to longevity and stability in an organization. And stability builds faith in the business from vendors and customers, which is the primary driver for growth. Anderson says a critical part of the process is compensating people fairly, which doesn't always mean paying top dollar today.

As an example, he points to something he did about a decade ago with the 15 car dealerships he owns, something that has since become standard business practice with all of his ventures.

"I've made it a habit of having four key players," Anderson says. "At the dealerships, it was the parts manager, service manager, sales manager and general manager. I called each of my dealerships' [management teams] together and said, 'I want you to go home and talk with your wives. As of the first of the month, none of you are going to have a salary.'"

The announcement took his management team by surprise. But Anderson, who became legendary for not taking lavish salaries out of the companies he owns or runs, explained that he would open the company's books and, with nothing to hide, restructure how they were paid to let them share in the profits.

"I told the parts guy, 'You're going to be paid at the bottom of the parts department. And in the interest of the overall business, the same would go for the service manager, sales manager and general manager,'" Anderson says. "After everybody else has been paid, you're going to have 20 percent of what's left over. They were very apprehensive at first, but they've all more than doubled their original income."

Anderson says getting key employees to buy into his philosophy -- take what you need and invest the rest -- proved critical to his ability to grow his companies and, at the same time, build loyalty. Part of the promise included setting up a structured deferred-compensation system that allowed for compounding the interest every month based on his money cost.

"That was when I owned a bank," he says. "I ended up doing the same thing with the bank's chairman, president, operations officer and chief credit officer ... and since then, with the four key people at every company I own. There are seven wonders of the world. The eighth is compound interest. I have a number of people on my team that are compounding, every month, over a million dollars.

"I love to see people accumulate capital. I have a secretary that's been with me for a long time who has accumulated over a million dollars."

Do the right thing

"I've been giving a lot of speeches recently about doing the right thing," Anderson says when asked about the business issues that occupy his time. "I was slated to speak before the Southern California Honda dealers. One week before the speech, they called and asked if I would speak to them on business ethics.

"I explained to them that in my businesses, I look for leaders who will treat their employees and customers with integrity. I don't try to dominate. My role is to support them [my senior management].

"They know I want them to do the right thing; to run a business like it's their own, but run it right. You've got to have guys that lead by the work they do. Work ethic and integrity are two things I look for in my hires. I don't want a goof-off and I don't want somebody I can't trust."

Integrity comes into play when something inevitably goes wrong -- a mistake is made, problems occur with a customer or a deal falls through. When that happens, Anderson doesn't sugar-coat the problem or try to hide it.

"If something's wrong, you've got to cure it," he says. "And cure it quickly."

In his 50-plus years in business, Anderson has earned a reputation as an honest businessman. When he gives his word, he follows through. Recently, he purchased an office building in Beverly Hills that has a unique architechtural design, sits back off the street in a wooded area and has a waterfall and fountain on the grounds. The previous owners were looking for a new owner who would keep the design and green space intact, Anderson says.

Although he didn't submit the highest offer, Anderson says he landed the deal by pledging to preserve the property. Two weeks later, he received an angry phone call from another suitor.

"I pick up the phone and the voice on the other end says, 'Damn you, John Anderson, I offered $750,000 more for the building than you did,'" Anderson says. "And I said, 'So why do you think you didn't get the deal?'"

The angry competitor said the only reason he was given by the sellers for their decision was that they knew Anderson would do what he said he would -- keep the property intact.

"So I said to him, 'Isn't that what you're supposed to do in business? Be honest?' The next thing I heard was a loud boom -- the sound of him slamming down the telephone-- in my ear. I never found out who it was."

This Bud's for you

In 1987, Anderson donated $15 million to his undergraduate alma mater for naming rights to the school of business. Today, UCLA's Anderson School of Management ranks among the top business schools in the nation.

One of the key skills students learn in business school is the ability to recognize business opportunities. Not surprisingly, it's a skill Anderson has displayed throughout his career.

Over the years, he co-founded a bank that was later sold to Mellon Financial Corp. for more than three times what he invested in it. And he invested in real estate and development in Hawaii and, after a series of acquisitions in the early 1980s, became one of the largest property holders in the U.S. Virgin Islands.

"I've gone a little crazy over the years in the real estate market," he says. "I've bought over a billion dollars in real estate. But for me, the quality of those purchases is worth it. You can get some pretty darn good returns."

Anderson's ability to see opportunities where others didn't showed itself early, when he was a practicing attorney at Kindel & Anderson, a law firm he co-founded in the early 1950s.

He was teaching law at night and giving business seminars through the Young Presidents Organization in his spare time. A beverage distributor heard him talk, and soon Anderson represented more than a dozen distributors in California.

"I had some ideas they seemed to like, and I was eventually asked to speak at a state convention for Hamm Brewing Co.," Anderson recalls. "The general manager asked me after the speech if I could help him with the distributorship in downtown Los Angeles. They were having some problems."

Anderson presented several ideas to solve logistics issues, including an plan to set up new delivery routes to compensate for the abundance of one-way streets downtown and make distribution more efficient. He also suggested that, to succeed, the distributorship needed more products than simply Hamm's beer.

The general manager was so impressed that he offered Anderson control of the distributorship, and suddenly, he was in business as a beer distributor, with Hamm's beer as his main product and a promise for more products to be added later.

Six months later, however, the general manager hadn't followed through on a key promise.

"I called him up and told him I was going to get out of the business unless he kept his promise and helped me get another product to sell," Anderson says. "He called me back very apologetically a couple weeks later and told me the only thing he could get me was Budweiser."

It was the 1950s, and the top-selling beer in America was Schlitz.

"I wasn't happy, but I decided to take it," Anderson says. "I was selling 20,000 cases of Hamm's each month, and Budweiser wanted me to sell 6,000 cases each month. Well, today, Budweiser has become the No. 1 beer in the world, and here in California, it has between 50 percent and 60 percent of the market share.

"Even with a Harvard Business School education, it's kind of hard to screw up when you go from 6,000 cases a month to 800,000. So, I've been very lucky."

HOW TO REACH: Topa Equities Ltd., (310) 203-9299 or www.topa.com