Laura Scher, Working Assets Funding Service Inc. A privately-held long-distance telephone and credit-card company uniquely designed "to build a more just, humane and environmentally sustainable world" in the process of delivering conventional services. By generating $7 million in donations since 1986 at no cost to the customers, through everyday activities like talking on the phone or using a credit card, the company provides them with ways to be effective activists and philanthropists. Scher is married to consulting actuary Ian Altman and has a seven-year-old daughter named Alison. Birthyear 1959, phone (415) 788-0777, HQ San Francisco.

Part One: Family and Professional Background

Frank Gregorsky: Tell me about mentors or role models in your business career -- and go way back, before the career started.

Laura Scher: [Laughter] My mentor is my mother. I was raised in New Jersey, and she is still a college professor at Montclair State (University, now). Also, an active volunteer, served as League Of Women Voters president, served on the board of one of the local hospitals -- and then, after my father passed away, ran his business. (We were grown-up by then.)

FG: What company?

Scher: Specialty Chemical Manufacturing. Very small, but with an interesting [main] product, which my father invented -- basically, polyemulsions, which use water instead of oil as their base. That kind of shift was an early environmental-movement goal. It's an ingredient in both industrial and commercial products -- a very small ingredient but, because it works, the demand was strong.

FG: This was in the '70s when she took over?

Scher: Eighty-one. Before that, she had taught school, been an active volunteer, and raised the three of us. My sister is a doctor, and we both went to Yale.

FG: Are you the eldest? Most people in these interviews are.

Scher: I'm the middle. Probably goes against all the things --

FG: It skews the pattern somewhat, yeah [laughter].

Scher: But she's my "role model" -- of someone able to do all of those things. She had been frustrated by what she was "allowed" to do after graduating college, and that's one of the main reasons I cite her as a mentor. She would've preferred to become a doctor, but this was the early 1950s and, if you wanted to do anything, you went and become a teacher. But she decided not to teach elementary; went to Columbia, had unbelievable professors, and parlayed that into a teaching position at a University.

FG: And she later faced the alternative, when your dad died, of "either I sell this or I run it"?

Scher: Yes, yes. When she took over the business, she knew nothing about it -- she really took over the Finance side. (She teaches economics, and was also chair of the Economics Dept.) And the "friends of the family," all of whom were men, came to offer their "help" -- both directly, and thru me. Even in the early '80s, there was a sense, at least in her age group, that a woman couldn't [lead a business].Yet she went on to do it on her own.

FG: Tell me about the years between when you got out of college and 1988, when you launched this company.

Scher: Graduated in 1980 with a B.A. in Economics from Yale. I worked for Paul McAvoy on a book about deregulation and studied the break-up of AT&T as part of that research. I spent a year in Geneva on a Rotary Fellowship -- studied international economics, saw the beginning of the Solidarity Movement in Poland, had friends from both Iran and Iraq as their horrible war began.

FG: This was a Rotary Fellowship? As in Rotary Club?

Scher: Yes, yes. Oh, they have great Fellowships. Unlike the Rhodes and Marshall [ones], you can go anywhere you want in the world, plus there are more recipients so they're easier to get. (They give 'em out geographically.) When I came back, I went to Bain & Company, the management consulting firm in Boston. It's like McKinsey or Booz Allen, though the firm was a lot smaller back then. I was an associate consultant, had a great two years there.

FG: Did you think of becoming a consultant [for the long haul]?

Scher: No, I thought I wanted to be a Professor.

FG: Then why were you at Bain?

Scher: Because it's the type of place, along with investment banks, that people who come out of Yale work at before they go on to business school. Friends recommended Bain to me -- it was a great education. Nothing you learn in college is really business, and Bain was a fabulous education about business. After learning about our clients for the first six months, I began to spend significant time at the client locations. One was a monopoly, and they used their "monopoly profits" to significantly better the world -- even in 1981, they had an incredible day-care center and employee benefits. The other one was a steel company -- so, two completely contrasting industries.

[Then came two years at Harvard Business School where, to the extent she focused on anything, it was marketing and finance. Opted to move to California in 1985. Joined Working Assets that December, when it was not in the telephone business. The subsidiary was charged with raising its own capital so it was operated very independently. For three months, she was the sole full-time employee at a subsidiary whose "first product was a donation-linked credit card." She tested this concept by offering credit cards to the mutual-fund investors of the parent company, Working Assets Money Fund.]

FG: You were already married?

Scher: Got married the year before. We'd known each other for five years. In the spirit of your study, could I have [made the bet on Working Assets] if I weren't married and my husband weren't earning a salary? It would've been very risky. I got paid a third, or a quarter, of what I might've got paid anywhere else. Could I have even afforded the flat we had in Haight-Ashbury? You know, probably just barely. So this was an opportunity that worked out well for someone who had another means of support.

Part Two: A Unique Business Model

FG: When did the phone component emerge?

Scher: In 1988. Our first phone service was as a sales-agent for U.S. Sprint. We took the same model we had been using in credit card, as in: "What if you could have Sprint, just like you could get it anyplace else, but for every call you make we'll donate 1% of your long-distance phone bill to a pool for non-profit groups?" That's the Working Assets [innovation].

FG: The causism was the product-differentiator, but the customer could still feel secure in getting a brand product.

Scher: Yes.

FG: But you didn't have to do anything like go out and get financing to buy a fiber-optics network?

Scher: No, and we've never done that. All we've done is raise money to do marketing and to cover working capital. We never built the wire-and-line infrastructure of a "phone company." We did build the billing systems, the customer-satisfaction, etc. There's a lot of difference between the service and the manufacturing, and we're in an industry of giants. You read about "500 long-distance phone companies," but most of us are little fleas on the back of elephants. While our pricing is extremely competitive and in fact for customers above $50 a month in domestic traffic we are lower-priced than the big three, we don't market ourselves based on price. Our customers sign up for Working Assets because of the donation [model], the opportunity to speak out on pressing political and social issues, the information on the phone bill is designed, and to be part of a community of people who care about the world around them. No one else is offering that.

FG: And you've sharply expanded your customer-base since '88.

Scher: Yes. Because of the lack of customization, and taking note of an emerging "reseller market," we decided in 1990 to become a Residential reseller. But the economics are quite different. It took us over a year -- doing research, running models, finding billing companies etc. -- to try to see whether it was going to work. We have much thinner margins than commercial resellers. Our billing costs are much higher as a percent of the phone bill than the commercial reseller.

FG: So the cost of administration per dollar of revenue is --

Scher: Right. You still need a CEO, you still need an Accounting department, you still need to file taxes -- and it's harder to keep track of a [residential] customer-base. We need to keep track of 230,000 customers; a commercial reseller with the same revenue would only have to keep track of 23,000 customers -- so it's a different scale. We took a year getting from the idea to the point where it felt viable. Then, to make our phone service even more distinctive, we designed our own billing system. Some residential resellers use their local phone companies' billing. But our phone bill is, in and of itself, a product. It's printed on both sides. It's 100% post-consumer recycled. It looks a little bit like a newsletter. And each bill has on it two actions directed at corporate and political decision-makers. First hundred days of this year was a "Fight the Right" campaign [delighted laughter]. So -- we are an intentionally political phone company.

FG: Your donations come off the top line -- revenues -- rather than the bottom line, which sets a high hurdle for management. And then how do you let customers allocate money for the 36 listed non-profits?

Scher: Every year our customers nominate groups they would like to see receive funds. No non-profit can be funded unless it's nominated by a customer. And they have to work in [one of] four issue areas: Peace, human rights, economic justice, or a cleaner environment. They need to have been in existence for more than one year. And they can't be local -- they have to be national or international.

FG: What about statewide?

Scher: We don't support local, regional or state-based nonprofits, because our customers are all over the country. But we make an exception when a [state-based] organization has created a model -- something we think should be emulated around the country. We get 400 or 500 nominations each year, and then we work with two different outside advisory groups -- one is a foundation, the other is a group of people we've pulled together -- who do the "due diligence" make recommendations. Then we vote internally on who should receive the funding, and finally the board picks the final 36 groups. Then the 36 groups go out to customers on a ballot, which customers use to vote on how they want the money allocated.

FG: So there's a pool of money in a given year, based on your sales, and all votes come in -- and there's a weighting? Nobody could check all 36 boxes, I guess.

Scher: Yes, you could. You have to allocate 100%. It's like the U.S. Budget -- you get to allocate 100 points among the 36 groups. A computer company tallies it all, then we send out the checks.

Part Three: Taxation and Governance

FG: Let me get your views on three types of taxation: Capital gains, FICA as to both employer and employee, and the corporate income tax itself, which you pay as an "Inc."

Scher: We are fully taxed! But I don't think we need to cut taxes. The biggest mistake of the '80s was cutting taxes during a time of prosperity. We should've been doing what we do as individuals [during good times]: Saving money for when times get bad. Certainly domestically we could we have used additional capital in the '90s to provide housing for the homeless, food for the hungry, health care for those without it, job-retraining, etc. In addition, the United States could have had even more influence throughout the world if it had capital to invest in Eastern Europe and the Soviet Bloc, from 1989 onward. This is a traditional Keynesian view of the economy as opposed to a supply-side view. As for business, an enormous amount of capital is flowing into that sector. There's a reason why the stock market is so high; the money is chasing --

FG: You're saying the private sector is not Short of fuel now.

Scher: Exactly. So why make the [tax-reduction] mistake of the '80s again?

FG: There must be some tax break you could make a socially conscious case for.

Scher: Maybe a jobs-creation tax credit. Right now it's only in enterprise zones; we really don't have a national program available to all businesses regardless of size. We allow investment tax credits, but not job tax credits. If 20 companies add 100+ people each, like we've done in three years, then you've made a dent in San Francisco's unemployment rate. So I think a lot of [federal tax] policies are designed for much bigger companies.

FG: One lady in this study runs a five-person chemical firm and she says virtually all the government agencies treat her the same as a chain of used-car lots, or any such entity that could have as many as 499 employees.

Scher: Right. Even though Congress would like to be small business-oriented, they keep missing the boat on how small "small business" really is.

FG: Do you like what [Labor] Secretary Reich has sought to do with federal training programs?

Scher: Um-hmm. We support the federal training programs even if they are irrelevant to us.

FG: Give me some examples, even if you have to go back a few decades to find them.

Scher: Clinton's AmeriCorps is a great concept -- trading off your education with giving something back, working in the public schools. Education -- now that I have a kindergartner -- is a serious issue we are completely unprepared for as businesses, 15 years from now, when our employees can't read and write. I went to Vietnam last Christmas (it was just a vacation). Their literacy rate is 97%. People are starving, but they can read and they can write. So they [the rulers of Vietnam] can say, to the rest of the world, you put your manufacturing and your services here, because we have the job-base for you, we have the workers for you. We can't say that in America any more. So anything that enhances education by bringing in qualified teachers is very positive. Other programs I support include the Head Start program, the soil-conservation service (which is under the USDA), the school-lunch program, the earned-income tax credit, the Mine Safety Administration (under the Labor Dept.) and the fuel-efficiency standards, which should be expanded. These programs have all had been very beneficial to society at-large, the environment and poor people and are threatened under the new budget. I would urge Congress to keep these particular programs. If I were to change something [in this state], it's Proposition 13. Our property taxes should not be fixed at what they were [in 1978].

FG: A lot of other taxes have gone up, though.

Scher: Well that's why! And that's another problem with the [federal] tax-cutting of the '80s -- it just raised all the state taxes. As a percentage of my income, I pay close to the same percentage of my income, today, as I did before Clinton raised the rates in '93, and before [marginal rates were cut] in '86. As federal taxes are lowered so are federal programs, so states increase their taxes to fund the programs that they now need to fund. I don't consider this particularly efficient. In the end, I pay as much in taxes as before -- I just pay it to different agencies. I also receive less benefit. There are more homeless on the street, more people living below the poverty level, etc.

FG: But isn't this the old [Robert] LaFollette model of letting the states be "laboratories of democracy"? Each state tries different mixes of tax and levels of taxation.

Scher: Well -- I think it's crippling the country. Programs are being pushed to the state level which should not be pushed to the state level. We're inviting huge inefficiencies, having 50 entities run something instead of one. I'm into efficiency [laughter]. But do I have suggestions for how to re-create it? Not necessarily, but it has to be done. Why not bring in 30 CEOs to sit on some committee? Dynamite CEOs should be asked to help redirect government -- rather than a bunch of legislators who make their decisions based on a campaign finance system that shuts out the individual citizen. Our politicians are beholden to the large companies that fund their election campaigns, rather than to the constituents they were elected to represent. Telecom is a perfect example of this corruption in our system.

Part Four: Telecom, Passion and Growth

We here at Working Assets have a passion to make the world a better place -- so that drives everything. I went to business school in the early '80s: "Greed is good," and 150 people [from my class] probably went to Drexel-Burnham. There was no sense that your values mattered -- I mean, people checked their values at the door. But I urge people to never think of work in that way. A job should never be something so distinct from who you are and what you believe is important. By keeping what you believe is important in the forefront of your decision-making, I believe you'll make much better decisions. To put it very simply, "Take your values to work" -- that's my message [laughter]. Now, I agree you can have passion about a lot of different things. We'd encourage everyone to have passion like we do, though we recognize they don't. But that will lead a leader to make consistent business decisions, which are easy for other people to understand and implement. And it may be easier for a woman to do that than for a man.

FG: Because they are less likely to get blinded by pure gamesmanship and profit, or what?

Scher: No, I think women are a little more used to thinking of the world in terms of passion, perhaps. And passion is not just financial success.

FG: You mentioned telecommunications. What is your take on the deregulation bill moving toward its White House showdown?

Scher: It's a battle being fought out by the titans. Congress is about to forget who elected them -- the consumers. Based on everything I have read, this bill will raise what people pay -- for cable, media and telephony.

FG: Maybe for awhile, but the microchip revolution will bring the cheapness of digital to all the rest of telecom.

Scher: The microchip revolution is gonna happen whether you let the RBOCs into long-distance or not, and whether you let media concentration happen or not. If you do, for five years, people will pay $60 a month to have a phone working in their house, versus $11 a month, until the whole thing settles down. That's very detrimental; it could also kill Working Assets and the other 500 small businesses that serve niche markets in the telecom industry. These businesses have created jobs throughout the country, have increased choice for consumers, have lowered long-distance rates and have developed new products like prepaid calling card, "international callback," etc. They are valuable contributors to the U.S. economy, yet are being ignored in the telecom debate. The RBOCs have brainwashed Congress to believe that the competitive-access providers have made a dent in their market-share and to believe that the RBOCs cross-subsidize long-distance rates. There is no competition in the residential marketplace. The long-distance industry gives $20 billion a year in subsidies to the local marketplace. Legislation needs to provide for true competition in the local market, including alternative technologies, before the local companies should be allowed into long-distance -- it's that simple. We need an opportunity to have a level playing field. As for broadcasting: It's a public good, but it's no longer being treated that way. The whole Children's Television Act of 1990 still has yet to be enforced. My daughter became a video addict because we don't let her watch any real TV, period.

FG: Good for you! The broadcast empire is a national disgrace.

Scher: You can't call G.I. Joe and Teenage Mutant Ninja Turtles "educational TV," but the networks try to get away with it. So I hope the people on the [telecom conference] committee will look beyond "AT&T versus Time-Warner versus Pacific Bell" [and the other RBOCs]. If that's the real choice, I would agree with them: Who cares who wins? But, unfortunately, the choice is not really that. It's really what happens to 500 small [phone] companies. This industry is creating a lot of jobs, a lot of opportunity, and a lot of innovation: The whole international callback will lower international tariffs more than anything else that has happened [in a trade negotiation]. It's not the deals cut between AT&T and British Telecomm. It's the entrepreneurs who figured out how to get around the current systems, so that someone in England can call someone in France, for one-fifth of what they would pay BT. That's all brought about by entrepreneurs, not by AT&T -- or PacBell.

FG: So what's your 10-year outlook?

Scher: I think we will reach the day of full and equal competition. You will be able to choose among wireless and wired systems for your house. But I don't think the way to get there is to let the RBOCs into long-distance before that market is open. The way is to create [genuine] competition. I believe in competition, but the current bill does not create competition.

FG: That's exactly the way MCI puts it.

Scher: Oh no, we're not in disagreement. We're PART of the Competitive Long-Distance Coalition. Then again, AT&T and MCI are gonna survive, no matter what Congress does. We may not. The public knows so little about it, but this issue will have a profound effect on us all. In 10 years, we will be doing things completely different from what we can imagine today.

FG: Beyond the liberal idealism, what would you say is the corporate motivation, the key driver for Working Assets?

Scher: Growth. We've been on the INC. 500 list of fastest-growing privately-held companies for three years in a row now. We're highly motivated to continue growing our business. One, we want to donate $10 million -- since we're at $2 million this year, we need to be bigger. Two, we want our citizen-action program -- where you can check a box or make a phone call -- to have concrete results. The organized Right can generate a million letters and phone calls on one issue. We're not there yet, but we're the biggest progressive group -- we can generate 100,000.

FG: What hobbies do you have?

Scher: Hiking, travel, tennis. But I never had the time to learn to play golf [laughter]. I prefer very active things. On weekends, I don't sit still very long.

Scher: I don't play golf. In my industry, everyone plays golf. But I don't. Every year, I'm invited to six golf tournaments. Have I missed anything by not going?

FG: I'm the wrong person to ask.

Related Links:

• Discovery Institute
• Joint Economic Committee
• Women Business-Owners in Post-Corporate America