The Day Charles Schwab Bought Lunch

FinanceStocks, Bond & Forex

  • Author David Reavill
  • Published September 6, 2022
  • Word count 870

The year was 1978, and I had recently started working for a new brokerage firm. And not only was the firm new, but the entire concept would become a revolution. The firm was named for its founder: Charles Schwab & Company. You're no doubt familiar with that name; it is, by some measures, the largest brokerage firm in the country. However, we didn't know that at the time.

But in 1978, it was like any other newbie, trying to get noticed. What made Schwab so unique was its commission rate. Until 1975, all brokerage houses that did business on the New York Stock Exchange were required to charge the set NYSE commission. And in those days, all the major companies, like General Motors, IBM, Procter and Gamble, and many more, traded exclusively on the "Big Board."

Brokers who traded off-board were considered "bucket shops." But in 1975, all that changed. In what were the most sweeping changes since the 1930's brokers were allowed to charge whatever they chose. Legend has it that Hugo Quackenbush, a character as colorful as his name, suggested to Schwab that they form a "discount commission broker." And as soon as the new law went into effect, that's just what they did.

So the brand new Charles Schwab & Company began. I joined a couple of years later, and as you would expect for most new ventures, it takes a while for word to get around. The first months were busy yet manageable. I was on the trading desk, and it seemed like just enough trades were coming across my desk daily. Enough, so I wasn't bored, but not so many as to be overwhelmed. Now, remember this was well before the internet, so clients placed orders over the telephone or in person. And in those days, Schwab had two significant offices, headquarters in San Francisco and the one I worked at in Century City, a suburb of Los Angeles.

Schwab also had three satellite offices at the time. Each primary office had a central trading desk, the company's heart and soul. We sat in front of a telephone switchboard, with flashing lights telling us someone was on the line. In front of us were two stacks of tickets: buy white, sell pale red.

When someone called, we filled out one of the tickets and sent it down on a conveyor belt to the order entry clerk. They would then cut a ticker tape, put it on the Western Union ticker, and Schwab then routed the order to New York or the various other stock and bond exchanges.

Just a side note: as you can imagine, we would build up a large stack of ticker tape by the end of a busy day. And it was this ticker tape they would throw out the window in New York during a parade. And the long tapes would float there for seemingly hours. It was quite a site to see.

Let's get back to the Schwab trading desk in those early days. As the summer of '78 began to fade and the subtle Southern California autumn began, you could feel a noticeable increase in momentum.

Schwab's marketing effort began to pay off. Schwab had cornered a prime advertising spot in the Wall Street Journal, and investors were responding. This ad, combined with increased volume in the market, meant that the trading desks had to pick up the pace. There used to be periodic lulls in the day when we could catch our breath, but now those lulls were becoming few and far between.

As fall wore on, we found ourselves coming in earlier and leaving a little later. The phones seemed to be constantly ringing. We needed more hours to answer the increasing number of phone calls.

Suddenly we were running to keep up with the pace. Interestingly, we didn't mind. Most of the staff just assumed that was the way it would be. Yes, it was arduous work, but we knew we were changing the world. That the way people invested would never be the same again. It was a financial revolution, and we had a front-row seat.

It was then that something remarkable happened. One Friday afternoon, Mr. Schwab flew down from the San Francisco Head Quarters and bought the entire office lunch.

Of course, we could not leave our desks; those phones were still ringing. But Schwab joined us, sitting up by the teletype operator. He would banter between bites. Thank us for our hard work., and answer any questions we might have.

And as a growing, changing company, we had lots of questions. Where's the next office going to be? Answer Chicago. Are we going to get a big mainframe computer? Yes. And on and on.

We ended the week on a natural high. The boss was with us, and we were going places. And he didn't do it just once, as I recall Schwab came down several weeks, as we worked through this tremendous surge of new business.

Over the years, Schwab would face this kind of surge over and over again. It would become standard in this incredible company.

On this Labor Day 2022, I hope you're lucky enough to have a Boss who buys lunch now and then...

David Reavill: financial writer, iconoclast, hiker.

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