12:00

with CEOs who are thinking

12:02

about their team and how they build

12:04

their team. And what do they do

12:06

with Joe or Jane who's really not

12:08

on the playsheet, but is very

12:11

talented. And my

12:14

answer is always more important that they get

12:16

on the play sheet. You can work around

12:18

the talent, but you can't work around someone

12:20

who's not aligned with where you're trying to

12:22

take the organization. How hard

12:24

for you was it to pick the

12:27

things that mattered? We'll talk about Home Depot

12:29

specifically. We can talk more generally about leadership

12:32

roles elsewhere, but it seems like

12:34

this method is incredibly powerful. If

12:36

you know the three or four things

12:38

the organization should be doing and

12:40

the strategic goals or whatever you want

12:42

to call them, but picking those

12:45

seems equally important. How

12:47

hard was that for you? Any advice you would

12:49

give about doing that well inside of a business?

12:52

Hopefully it's pretty clear from your

12:54

customers. So I think

12:56

that's the other advantage to it. I

12:59

would say is the only

13:01

way it works is if you

13:03

look to what's at the top of the pyramid,

13:05

which is your customers. And the

13:07

other reason why I think it's really important

13:09

to flip the pyramid is I work

13:13

from a belief that great organizations

13:15

always start because they provide a

13:19

great solution to a customer problem.

13:22

And then over time, there's

13:24

some law of entropy that

13:26

over time companies get more

13:30

interested in solving their own problems, not

13:32

their customers problems. So as long

13:34

as you hold yourself to the

13:37

discipline of, am I solving the

13:39

problems that

13:41

my customers want me to solve?

13:43

Am I effectively still aligned with

13:46

that? It's not that hard.

13:49

The difficulties come when you

13:51

start getting things that

13:53

are solving your bureaucracies problem, you're

13:56

not solving the customer's problem. What

13:59

other things? did you learn watching some

14:01

of the great leaders that

14:03

you've been around and with

14:06

and supporting or leading

14:08

yourself, whether it's Jack

14:10

Welch or Bush or Nardelli or Ken

14:12

Langone or Bernie Marcus, like you've been

14:14

around an unbelievable amount

14:16

of interesting leaders. I'd

14:19

love to just like tick through some of the things

14:21

that you've watched them do that you think are

14:24

most powerful. Oh, for sure.

14:27

Because I was such an unlikely person to

14:29

be running Home Depot, it's something that I

14:31

gave a lot of thought to, which is

14:33

what are some of the learnings from great

14:36

leaders? I'll start with Jack Welch since

14:38

you mentioned Jack first. The

14:40

genius of Jack Welch, and I wasn't

14:43

able to replicate it, the genius of

14:45

Jack Welch is in my career, I

14:47

started as a lawyer in GE, and

14:49

there is nothing less relevant than a

14:51

lawyer in GE. We had

14:53

a wonderful general counsel, but structurally

14:56

not that important within GE. And

14:59

yet, I internalized that

15:01

a path to success at

15:03

GE was going to be

15:05

disagreeing with the CEO

15:07

and chair and being right. Now,

15:10

I knew that if I disagreed and I was

15:12

wrong, that might make for a

15:14

short career. But that

15:17

was it. It was

15:19

disagreeing and being right. And

15:21

Jack loved the push

15:23

and pull of an argument. It's

15:25

some level sometimes I felt like he

15:28

was just arguing something to argue it

15:30

and to see how much

15:33

I or whoever else was pitching, how

15:36

much we really care about were we

15:38

willing to take him on. And

15:41

boy, there's just not enough of that. There's

15:44

not enough of people who

15:46

see that their boss. Every

15:49

boss says that he or she

15:51

wants to hear the candid opinion

15:54

from their employees, but that

15:57

doesn't play out that way around the

15:59

table. And with Jack,

16:01

it genuinely did. I genuinely got

16:03

the sense of he wanted

16:06

that confrontation and that disagreement.

16:08

And the energy level

16:11

that he brought was just

16:13

extraordinary. Those were the

16:15

two biggest lessons, just the high

16:18

energy, phenomenal. He's a

16:20

really good leader, high energy

16:22

and willing to

16:24

tolerate and actually invite disagreement.

16:28

And then Ken, since

16:30

he was on your show, I had

16:32

the privilege of having Ken as

16:34

my lead director. I

16:37

learned so much from Ken. I

16:39

think not only as a founder of

16:42

the company, but just as

16:45

an investor mindset. And you also had

16:47

Anne-Marie Peterson on your show. And Anne-Marie

16:49

was one of the big investors at

16:52

Home Depot. And what I learned

16:54

from people who are great investors,

16:56

I mean, Ken's role within

16:59

Depot was much larger than that. But

17:01

what I learned from people who are

17:04

great investors is just not that I

17:06

could always replicate it, but boy, this

17:08

was interesting to see was

17:11

the incredible brain processing

17:14

speed. I mean,

17:16

they could process information really

17:18

well. They would have

17:20

strong opinions. Ken would have a

17:23

strong opinion. It wasn't lightly held

17:25

like Mark Andreessen comment, strong opinions,

17:27

lightly held. It was a little

17:29

more than lightly held. And

17:32

the same with Anne-Marie, but you

17:34

could move them off that opinion.

17:36

But having an opinion, having a

17:38

point of view, the rapid processing

17:40

of information and just

17:42

the curiosity, the

17:45

level of curiosity of when I would

17:47

talk to them, I would

17:49

feel like somebody had extracted every

17:52

piece of knowledge and then some

17:54

from my brain, just the intense

17:56

curiosity and willingness to ask questions.

17:59

A lot of lessons on this.

18:01

I learned a lot from George

18:03

Bush, Vice President, when I worked

18:05

for him in

18:08

terms of that element of recognizing

18:11

people. Pete How did

18:13

he do it? Robert So, one of

18:15

the great things about working for the

18:17

Vice President is small staff. Remember, this

18:19

is back in 1981. So,

18:21

small staff, you get to see what the guy

18:23

does on a daily basis. He would come in

18:27

and first thing in the morning, 7.30

18:29

or 8 o'clock in the morning, he would spend an

18:31

hour typing individual

18:34

notes. And you knew

18:36

it was his because, you know, the E

18:39

wouldn't be lined up and all that stuff.

18:41

It's sometimes straight out. But you get these

18:43

personal notes from the Vice President. As

18:46

a staff person, you get

18:48

a note like that and it just

18:51

made you walk on

18:53

air. And I think anybody who worked for

18:55

the Vice President would tell you they'd go

18:57

through a wall for. Then

18:59

when I ran Home Depot,

19:02

that was one of the things that

19:04

I leaned pretty heavily into was writing

19:06

notes. I have a whole theory of

19:08

the case for why writing notes is

19:10

important. But every Sunday,

19:12

I would spend half a day

19:15

writing about 200 handwritten notes. And

19:17

they were all around if customer

19:20

service was the thing we were working on. We

19:23

had a system with stores would give examples to

19:25

the district, the district to the region, the region

19:27

would send them to me a great customer service.

19:30

I write the notes saying, Dear Joe or Jane,

19:32

I understand you did x and

19:34

I would try to be very specific about

19:36

it. I understand you did x in the

19:38

store. What a great example of customer service.

19:40

Thank you so much, Frank. And we try

19:43

to write about 200 of those a

19:46

week. It's hard to

19:48

quantify what the impact of that

19:50

was. But I knew

19:52

that it was something important when within

19:55

a few months of being

19:57

CEO, I'm walking a store and so it

19:59

comes up to me and says, you

20:02

wrote me a really nice note a

20:04

couple of weeks ago, would you mind

20:06

writing it to me again? And

20:08

I said, yeah, yeah, no problem. Why? He

20:11

said, well, we're all standing around

20:14

and we figured you couldn't

20:16

possibly have written this. This

20:18

must have been Robo-Con. We put it under

20:20

water, the ink ran and we ruined the

20:22

note. One

20:25

of my theories about the importance of something

20:28

that is unique to you

20:30

in terms of recognition and

20:32

thanks is people want a piece of

20:34

you as a leader. They

20:37

want a piece of you. You

20:39

need to be thinking about how

20:41

you show them that

20:43

you're invested in their success and

20:46

that you recognize what they're doing

20:48

well. And if you do that,

20:50

they're much more inclined to

20:52

be invested in your success.

20:55

And my analogy is, I'm

20:57

pretty old and I used to

21:00

get baseball cards and hang outside

21:02

Fenway Park to get my

21:04

baseball cards autographed. And

21:06

the only baseball card you'd get autographed

21:09

would be the utility infield. You know,

21:12

the stars, right? But

21:14

if you got a baseball card

21:16

autographed by the utility

21:18

infielder, what happened? Boy,

21:22

I want that person to play. I want

21:24

that person to be a star. I've got

21:26

his autograph. The same

21:28

thing happens. So my

21:30

view is within a business, as

21:33

you do things like

21:35

that, people invest in you. Now

21:37

it's even more so. I mean, now

21:39

it's the whole thing about taking photographs

21:42

and selfies with the folks

21:44

who are on your team. I

21:47

learned a lot of this, not from

21:49

George Bush, but from David Novak, who

21:51

was the CEO of Young. He

21:54

was just brilliant in coming

21:56

up with ways of doing

21:58

that. all

22:00

one of his, which is he would

22:02

take photographs with his associates in the

22:05

restaurants and I would do it in the stores

22:07

and I said, I'm going to put

22:09

these in the wall of my office. You're a

22:11

great associate. I got you and me on photo on

22:13

the wall of my office. Anytime you come into Atlanta,

22:16

you can come up and look at your photo.

22:19

Some of the most amazing times

22:21

were people would bring their families

22:24

and come up and see their photo on the wall

22:26

of the CEO's office. I've

22:28

had the opportunity to learn so many

22:30

lessons of great leadership from

22:32

so many great leaders and I'm leaving out

22:35

way too many. Are there

22:37

any missing parts that you haven't mentioned to

22:39

your theory of why this form of communication

22:41

is so powerful? It's obviously something that you've

22:43

thought a lot about. I think

22:46

it connects you to folks. And

22:50

so my next theory about this, because I

22:52

did justify spending so much time on this,

22:54

I had to have a theory about it.

22:57

So my theory is that most people

22:59

do want to do a good job

23:02

at what they're doing. And

23:04

most leaders are

23:06

surprisingly not terribly

23:08

clear about it. And

23:11

one of the advantages of doing something,

23:13

whatever it is that you as a

23:16

leader want to see throughout your organization,

23:18

one of the advantages of whether it's

23:20

writing notes or some people have different

23:23

things than that, doing

23:25

that is it gives

23:27

concrete expression to

23:30

what it is that you want. Because

23:33

otherwise, without that, I'll

23:35

fill in the blank on what you want.

23:37

And by and large, I won't be right.

23:40

And this gives content to

23:42

it. And it gives something that

23:45

the organization at an individual

23:47

level can understand and rally

23:49

around. So if I

23:51

say, as I did, customer

23:54

service is going to be hugely important at Home

23:56

Depot. And here's my

23:58

memo on customer service. All right.

24:01

I mean seriously, what what

24:03

has that done? That's done nothing

24:05

And if I put up banners on

24:08

customer service all around our break rooms

24:10

and whatever I say We're a customer

24:12

service. We love the customers. No one

24:15

cares. Yeah, I mean seriously No

24:18

one cares. No one cares about that But

24:21

I'll give you the first example

24:24

of this was I got a

24:26

great note from Leader

24:29

here in Atlanta. He actually

24:31

runs the largest church in

24:34

Atlanta but I got this

24:36

note that I read at our big store managers meeting

24:38

and it was right at the start and

24:40

the note was about a customer

24:42

who sent him a note customer

24:45

of Home Depot who's going through the

24:48

Register and talks to the

24:51

cashier cashier does as

24:53

she's trained to do She

24:55

says did you find everything you were looking for

24:57

for your project and he says yes, thank you

24:59

And she said what is your

25:01

project and he said I'm

25:03

building a coffin for my grandson and

25:06

she says Don't even think about

25:08

paint That

25:11

if you're saying I want to

25:13

empower associates To do

25:15

right by our customers. No

25:18

one's gonna forget that story It

25:21

has an emotional impact and a meaning

25:23

that just saying

25:26

you're empowered to do something for

25:28

your customers doesn't have and so

25:31

To me, it's very important that the notes

25:33

or whatever you do. It's not just I'd

25:35

like you you're awesome, right? It

25:38

is you did this

25:41

is brilliant You said something

25:43

earlier which piqued my interest which was that

25:45

you were an unlikely Candidate for the CEO

25:47

job when you got it, but use that

25:49

word unlikely. Oh That

25:54

was an understatement so understand

25:56

that I'm a lawyer by training I transition

26:00

from being a lawyer to the business

26:03

side by doing M&A at GE, ending

26:05

up doing M&A for Welch. But

26:08

if you're running M&A,

26:11

it's a very professional

26:13

team, highly motivated, small

26:15

professional teams. All right, so

26:17

then one of the people, Bob

26:19

Nardelli, raid operator, I worked for him

26:21

at GE. He gets picked

26:24

to run Home Depot

26:26

after he doesn't get Jack

26:28

Welch's job. And

26:31

I'm doing the same thing fundamentally

26:33

at Home Depot. I'm buying

26:36

companies. We built up this business called

26:38

Home Depot Supply. But

26:40

that's largely what I did. No

26:43

one knew who I was at

26:45

Home Depot. I mean, genuinely, no one knew.

26:49

In the retail world, no one knew who

26:51

Frank Blake was. To the extent

26:53

that they knew who Frank Blake was, it was,

26:56

well, he's a lawyer, he comes from a

26:58

GE, and he doesn't really know retail. Pretty

27:01

bag of strikes. Over and

27:03

above that, I tell this story, and it

27:05

happens to be true that when the board

27:07

called and said, we'd like you

27:09

to be the next CEO, I said,

27:12

you need to spend a day thinking about this.

27:15

I need to spend a day thinking about whether I can

27:18

do it. So it was

27:20

far from an obvious choice. And

27:23

the final comment that I would add

27:25

to it, Ken Langone tells this story

27:28

that Larry Bossity, who hired

27:30

me at GE, that

27:33

canned $10,000, I wouldn't last too much. So

27:36

it was very unlikely. So

27:38

with the unlikely start, what was

27:41

that for six months like? Why did you last

27:43

it? What did you do that was effective? For

27:45

whatever reason, I'm just really interested by transitions

27:48

like this of the passage of the sacred

27:50

flame of a business from one person to

27:52

the next, which very often does not go

27:55

that well. And so I'm

27:57

curious why, with your unlikely beginning, you

28:00

were able to not only survive, but then start

28:02

to really thrive. So first,

28:04

I did have the advantage of having

28:06

been in the company for several years,

28:09

for five years. And so I had a

28:11

notion of what some

28:13

of the issues were. My son

28:16

worked and still works at the company. My

28:18

son had at the time,

28:21

there was a program at Home Depot

28:23

where returning veterans from Iraq go work

28:25

in a Home Depot store. And my

28:27

son had served in Iraq and had

28:30

done that. By the time I became

28:32

CEO at Home Depot, he'd

28:34

become a store manager at Wilmington,

28:36

North Carolina. So I kind of

28:38

knew, I mean, he always had

28:40

this great line around the dinner

28:42

table of, well, I'm sure that

28:44

briefed well in Atlanta. I had

28:46

some notions of what was going

28:48

well and what wasn't going well.

28:51

And then on the transition

28:54

side, Ken Langone was

28:56

my lead director, was absolutely

28:58

awesome lead director. I

29:00

relied a lot on Bernie Marcus

29:02

and Arthur Blank, the other two

29:04

founders of Home Depot to kind

29:07

of help what are some

29:09

of the centering principles around this business

29:11

and how does it work and how

29:13

should it work. And then

29:15

I did just where

29:17

your questions were going. I

29:19

truly sat down and

29:22

went through all of the

29:24

great leaders, because it's George

29:26

Bush, well, Reagan, Jack, well,

29:29

all of these people and say, what

29:31

did I learn from them? And what

29:34

should I be thinking about doing in

29:36

this job? And then as

29:38

I said, at the very top of this, that

29:41

was sort of the operational side. And then

29:43

on the financial side, just

29:45

cribbed a page from Aslan's book, I

29:48

can't remember which book it was, but

29:50

just cribbed a page on where the

29:52

top line is shareholder value creation. And

29:55

how do I think about what's the right way to

29:57

think about that? What's the structure of thinking about it?

29:59

And I was very fortunate to

30:01

have folks like Ken and a really strong

30:04

board and a great team. My

30:06

CFO is now running UPS, my

30:09

stores is now running Lowe's, they had

30:11

a merchandise, ultimately came to

30:13

run Home Depot. The

30:16

person who's now running Home Depot was on

30:18

the team. We had a really strong team.

30:20

I should have started there. I

30:22

had a really strong team. What advice

30:24

would you give involved

30:27

directors like the role

30:29

Ken played, and others played in

30:31

how to push leaders

30:34

and steer them? What did they do? Bring us into the

30:36

room with them at that time. What did they do to

30:39

push and steer you that was most

30:41

effective? I can tell you

30:43

what was most effective with me, and I

30:45

don't know if that is always true with

30:47

leaders. But what Ken was

30:49

great about and what some of

30:51

the other directors were terrific about, was asking

30:53

a lot of questions and

30:55

through their questions, I

30:58

would have a better answer to

31:00

that than what I just gave.

31:03

You got some sense of it from your

31:06

interview with him. I mean, a phone call

31:08

with Ken. It's not boring. It's

31:10

not boring. I

31:13

can tell you there's not one of them that I

31:16

wouldn't come away with, oh, I should have a better

31:18

answer to that than I just did. I

31:20

mean, it was training. If you're lucky enough

31:24

to have a board

31:26

with some directors who've got real

31:28

experience and understand how to ask

31:30

smart questions, and you're

31:32

open to understanding what you don't know,

31:35

and I was definitely open to that,

31:37

it helps a lot. You

31:40

mentioned Reagan randomly just yesterday. I saw

31:42

for the first time his, I guess,

31:44

famous address in Normandy

31:46

on the 40th anniversary of D-Day, which

31:49

is a very powerful thing to go watch. I'm a total

31:51

sucker for that kind of stuff. What

31:53

was it about Reagan beyond his incredible

31:56

communication skill and ability that you look

31:58

back on with interest? Reagan

32:01

really was in my view, I

32:03

tried to bracket the politics, but he

32:05

actually was a really great leader. I

32:07

mean, I'm politically aligned, but even if

32:09

you're not politically aligned, he was

32:11

a great leader. I'll give you one

32:13

example of an anecdote. I

32:16

wasn't an important person in the

32:18

Reagan administration. I ultimately, I was

32:21

general counsel of EPA at one point,

32:23

but I mean, you'd

32:26

go in for a shake of hands and Reagan

32:28

wouldn't be able to pick me up from a

32:30

lineup. But I

32:32

had no doubt as

32:34

one of the hundred thousand or however

32:36

many people there are who are political

32:39

appointees in the federal government, if

32:41

I got an issue, I had

32:43

no doubt of what

32:46

my president wanted me to do. I

32:49

had no doubt. And interestingly,

32:51

I took that with my

32:54

goal at Home Depot was, I

32:57

want the 400,000 associates on the

32:59

floor of the store. If somebody goes and says,

33:02

what does your CEO want? I want them to

33:04

be able to give the same answer. Reagan

33:07

was brilliant at just,

33:09

I know what the president stands for.

33:12

And one of the

33:14

first meetings of all

33:17

the political appointees that they

33:19

had, not all, a good

33:21

large number, one of the

33:24

members of his cabinet got up and

33:26

said, and he does this

33:28

emotional speech about how much people have

33:30

given for public service and people have

33:32

died like folks on the beaches of

33:34

Normandy, just very eloquent.

33:37

And then he pauses and he says, I

33:40

want you to know what the president wants

33:42

from you. Silence in the

33:44

room and he said, he wants

33:46

you to be able to

33:48

take a negative article in the

33:50

New York Times. And that

33:52

was the perfect example of understand

33:56

that you're not here for

33:59

self-regard behavior that's going to

34:01

get you praised

34:03

in the New York Times. We have something

34:05

to do here. If you do

34:07

it right, odds are the New York Times

34:09

isn't going to like. And you have to

34:11

be able to live with that because other people have lost their

34:13

lives. If I think

34:15

about the exact opposite of some of

34:18

these principles, the phrase ivory tower comes

34:20

to my mind. That's often a phrase

34:22

used about leaders who are out

34:24

of touch and not

34:26

connected to their organizations. So

34:28

the question I have is, what

34:30

is the ivory tower behavior that

34:33

you've seen most commonly amongst other leaders

34:35

that you've watched or worked with or whatever? Basically

34:37

the question is like what to avoid doing that's

34:39

on the other end of the ledger. So

34:41

what to avoid doing is thinking you're funny.

34:44

When people are laughing, thinking you're funny. I

34:47

think what you need to

34:49

internalize is that your organization, you

34:51

know, the phrase boiling a frog.

34:53

Yeah. The organization is

34:56

effectively boiling the frog or the CEO.

34:59

Organizations generally are resistant to

35:01

change plus or minus

35:04

5%. Organizations are generally

35:06

conflict averse and

35:09

organizations generally want to control

35:11

the behavior of the CEO

35:13

by filling up his or

35:15

her schedule, by controlling

35:17

the information that he or she sees.

35:20

I say it as an organization because

35:23

it is an organizational behavior. It's not

35:25

that people are bad. It's just this

35:27

is what organizations do. It's

35:29

the constant don't let that happen to

35:31

you. Don't let yourself

35:34

get out of touch. You need to

35:36

have the skip level meetings. You need

35:38

to be meeting with your customers, your

35:40

vendors, your frontline people. You

35:42

need to make sure that people know that

35:44

they can disagree with you. I

35:47

think CEOs and leaders lose

35:50

sight of how much

35:53

an organization orients to their

35:56

behavior and their wants. And

35:58

so if they're not constantly cutting

36:01

across their own lines in a

36:03

way, they risk isolating.

36:06

You mentioned last time we talked this great line,

36:08

you said two key jobs of the CEO are

36:10

to allocate capital and allocate

36:12

people, and that the entire

36:14

organization is built to stop you from doing

36:17

those two things. Exactly,

36:19

that's it. So in my view,

36:21

to be a successful leader, you've got to allocate

36:23

capital right, you've got to allocate human resources right.

36:25

If you do those two things right, everything else

36:28

will fall in place. If you do them wrong,

36:30

you can do everything else right, you can have

36:32

great culture, all the rest, it's not going to

36:34

matter. What does the organization

36:36

not want? The

36:38

organization wants resources allocated,

36:40

give or take the same way they

36:43

were last year. The organization

36:45

wants, given its choice,

36:47

I mean, they'd like it if somebody

36:49

else got laid off, but they don't

36:52

want to leave. And

36:54

so they'll more than happily do the

36:56

trade off that, hey, our

36:58

culture is such that no

37:00

one ever leaves. We are

37:02

very protective and kind to everybody,

37:05

and you're always working against that. You're

37:07

always working against that. And

37:10

you need to understand that you're working

37:12

against that. The number of times that

37:15

you can see people who make a

37:17

great pronouncement on, here's

37:20

the new direction the company's going in,

37:22

here's our new strategy.

37:25

And then if you did the second question, how

37:28

is that strategy tied to a

37:30

change in financial or

37:32

human resources? And

37:34

you get not much of an answer,

37:37

you'd say, well, okay. Good luck with that.

37:40

Yeah. In all of

37:42

the M&A work that you did across

37:45

your career, what

37:47

did you learn was the

37:49

key to getting deals done, to deal making?

37:52

I had another advantage, which is the

37:54

person who was in charge really of

37:57

deals at GE. I might've had a

37:59

title. nominally would say that.

38:01

But the person who was really in charge

38:03

was the vice chair, Paulo Fresco.

38:06

He ended up running Fiat, just

38:08

a brilliant guy. And I

38:10

heard Ken Langone talking about the

38:13

same thing on your podcast. Deals

38:16

are not zero-sum. The

38:18

objective of a deal is not to

38:20

come out thinking, I squeeze

38:22

the last penny out of the person. The

38:24

objective of a deal is on your side

38:27

trying to figure out how

38:29

can I take advantage of the

38:31

economic engine of this business in

38:34

a way that the current owners

38:36

or current business is not taking

38:38

advantage of it. Therefore,

38:40

make this a positive

38:44

value creation effort for me. And

38:47

then I want the other side

38:49

to be going, yeah, okay, this is a reasonable deal.

38:51

Let's get it done. The small

38:53

differences, I have half

38:55

a gear or something on what you pay is

38:58

going to be lost in

39:00

time if you've done what drives the

39:02

economic engine of the business, if

39:05

you've accurately understood that. Could

39:07

you tell us the story more recent

39:09

of what it was like to

39:12

be in Delta inside that boardroom during

39:14

what must have been the most

39:17

stressful imaginable period

39:19

in early COVID when the literal business

39:22

is not possible to run and

39:24

how you as a leader there, how

39:26

the CEO at Bastion and others managed

39:30

this incredibly difficult challenge. Just

39:32

the story I would love to hear. Patrick,

39:35

first, thanks for asking it. Because I think,

39:37

and I've told that Bastion this and the

39:39

leadership team at Delta, I think this is

39:43

ultimately going to be written up as one of the

39:45

great case studies of leadership

39:47

in a crisis. And

39:49

I learned a lot while I was

39:51

on the board with Ed, I learned

39:53

a lot from Ed on leadership, just

39:56

a tremendous leader. This was a

39:58

proof point. If

40:00

you can imagine, and this

40:02

is literally true, in February 2020,

40:04

we're sitting around the boardroom. First,

40:09

we're thinking this is going to be the

40:11

greatest year in Delta's history. Second,

40:14

we want to make sure that Delta

40:17

continues to remember some of the difficult

40:19

times and how you have to be

40:21

creative in responding to difficult times. We

40:23

were actually talking about, we may need

40:25

some training module or some video that

40:28

captures this. Within a

40:30

month, 95% of

40:33

the revenues of business leave.

40:36

By early March, it

40:38

starts and then you're

40:41

falling down the mountainside.

40:44

It was a really rapid fall. It

40:46

didn't take a long time for the

40:48

business to get down to revenues

40:52

almost effectively disappearing. In

40:55

that timeframe, in the

40:57

March timeframe, Ed comes

40:59

to the board and he has

41:01

a single piece of paper

41:04

with seven bullet points on it, saying,

41:06

this is what we're going to

41:08

do. It starts with taking care

41:10

of the customers and taking care

41:12

of the employees. Then it

41:14

goes through all the key elements on

41:16

the financial side of, we're going to

41:18

raise every dollar we can off of

41:20

our assets, the planes, and we got

41:22

to be prepared to park

41:25

our planes, et cetera. It

41:27

was a very clear list

41:30

of this is what we're going to do

41:32

in this crisis. They followed through with it.

41:34

We had a lot of communication around it,

41:37

but fundamentally, the pattern

41:40

was set right from

41:43

the start. Looking backwards,

41:46

Ed and Delta as

41:48

a whole is justifiably

41:50

proud. They never involuntarily

41:53

furloughed an employee. That's

41:56

extraordinary. If you look at that industry,

41:59

for any industry, losing 95%

42:01

of revenues is brutal. For

42:03

an industry that is so

42:05

capital intensive, it's beyond imagination.

42:09

And as the business

42:12

exited, if you

42:14

remember, there were a lot of decisions

42:16

that Delta made that added cost to

42:19

the operations when every instinct was to

42:21

do the opposite. So Delta

42:23

was maintained an empty middle

42:26

seat long past the other

42:28

airlines. So it was

42:30

very conscious in making decisions that

42:32

would be viewed as

42:35

protective and considerate for

42:37

its passengers. And I think

42:39

it's part of a longer story

42:41

of how Ed and his team

42:43

have taken what seven or 10

42:46

years ago, everybody would be

42:48

saying this is a commodity business. And

42:51

he's taken the business and decommodified

42:54

made it a business that people

42:56

are willing to pay extra for

42:58

the improved customer experience and Delta

43:01

Airlines. How did he do that? What

43:03

were the ingredients of that? The

43:05

first is, it's real. So

43:08

it's operational performance. And I tell people

43:10

who are passengers, and if you're not

43:12

a passenger, hopefully you will be a

43:15

passenger in Delta, you would be really

43:17

pleased if you were a fly on

43:19

the wall, Delta board me,

43:22

because the company would

43:24

begin with, here's

43:27

our operational performance. Here's

43:29

on time, here's on

43:31

time departures, on time

43:33

arrivals, lost bags, involuntarily

43:36

boarding, which never happens, but just

43:38

a series of customer focused metrics.

43:41

How are we doing safety issues,

43:43

whenever it was all

43:45

focused on the first

43:48

premise of getting

43:50

beyond the commodity is actually to perform

43:52

better, perform at a high, high

43:54

level. And they held

43:57

themselves accountable. The leadership team gets

43:59

paid. paid on net promoter score.

44:02

And so they can tell you what moves

44:04

net promoter score and they're always going to

44:06

drive to improve net promoter score. It

44:09

goes to the capital allocation

44:11

philosophy. So if you look

44:13

over time, Delta has moved

44:16

away from the smaller regional

44:18

jets. So now, while

44:20

there's still some in service, odds

44:23

are you're going to get on

44:25

a regular mainline airline. The

44:28

other part that was really interesting

44:31

was when we were going

44:33

through the succession process at Delta, Richard

44:35

Anderson was a great CEO before it. When

44:39

Ed sat down with the board, he said, here are the three

44:41

things we need to do. And

44:43

they're all pretty much directed

44:45

towards how do I move this airline

44:48

away from a commodity product? And

44:51

he was right on all three and he remained

44:53

consistent to all three. So it's

44:56

that vision and then, but

44:58

the vision without the execution and

45:00

without the focus, I mean, you

45:02

know, Patrick, it's complicated.

45:04

I used to joke selling

45:06

table saws is complicated in

45:09

its way, but running

45:11

an airline, that's really

45:13

complicated. And

45:15

it's the attention to detail and

45:18

the focus that Ed and his team have.

45:20

So the vision is powerful, the

45:22

execution even more. What

45:24

have you learned about the financial side

45:27

of these more complicated businesses, especially

45:29

in an era where some of

45:31

the big businesses that people talk

45:33

about are software businesses, where the

45:35

model itself is kind of amazing.

45:37

Often customers pay you cash upfront.

45:40

There's not a lot of financial engineering

45:42

required to make the thing go and work.

45:45

Whereas when I think about a business like

45:47

Home Depot with just tremendous amounts of physical

45:49

things and places that need to be moved

45:51

around and stored and to say nothing of

45:54

an airline where safety is so important and

45:56

all these things bring us into

45:58

the behind the curtain on like the

46:00

finance. side of businesses like Home Depot

46:02

Delta and others like it. Two

46:05

very different things. So with

46:08

Home Depot, one of

46:10

the big changes that we made around

46:12

capital allocation was we

46:14

stopped building new stores. In

46:17

fact, we took a half a billion

46:19

dollar write off and cleaned out our

46:22

entire real estate pipeline and just said,

46:24

we're going to grow from our existing

46:26

store base, which from

46:28

the financial capital allocation perspective

46:30

freed up $2 billion of

46:32

capital that we could

46:35

invest in improving our supply chain,

46:37

improving online and returning to our

46:39

shareholders and to a

46:41

significant extent, reduce the capital intensity

46:44

of the business. That's a whole

46:46

nother discussion, but it was a

46:48

really important part of

46:50

the Home Depot story. An

46:52

airline doesn't have that. Airlines

46:55

need the physical assets. It's

46:58

an asset intensive industry.

47:00

Having said that, I think

47:03

the great leadership teams and

47:05

Delta are an example of that start thinking

47:08

about, okay, what are the adjacent things that

47:10

we can do that may not

47:13

be a SaaS model, but that

47:15

give more leverage to this physical

47:17

asset? So if you travel

47:19

recently on Delta, you'd know

47:22

there's free Wi-Fi. With

47:24

the free Wi-Fi, you think

47:27

about you've got how many

47:29

passengers in a plane that

47:31

are using the Wi-Fi and the portal

47:33

on the Wi-Fi is a customer connection

47:35

that can be shared with other companies

47:37

that care about that customer, and that's

47:40

a business model that you can start

47:42

to build off

47:44

of the fact that you

47:46

have this customer base. Similarly,

47:48

the relationship at

47:50

Delta with Amex is

47:53

an amazing relationship in terms

47:56

of the loyalty

47:58

of the Delta card. holder

48:01

and the value that the MX card

48:03

holder who's also a Delta passenger gets.

48:07

So there are ways of building

48:09

out around the core part

48:11

of the business that's inherently

48:13

capital intensive and difficult into

48:16

creating value beyond that.

48:19

They're still tied, but it

48:21

gives you more flexibility. My

48:24

belief is, I think

48:26

Delta is going to be showing the

48:28

path that as

48:30

investors start understanding those

48:32

opportunities within a Delta

48:35

of real value of the MX,

48:37

the real value of having these

48:39

customers, having these passengers

48:41

in the plane, the free Wi-Fi,

48:44

those things are going to help in terms

48:46

of the valuation of the business. I

48:49

don't know if we'll ever get Warren Buffett back in

48:51

the stock, maybe we'll submit, no get

48:53

him back and we'll stop. If you

48:56

think back to that decision you made to

48:58

stop the new store growth, what

49:00

was behind that decision? Like what did you see that

49:02

convinced you that was the right way to go?

49:05

The first site

49:07

is for any of

49:09

your listeners who've ever been to

49:11

Opelousas, Louisiana. They go to Opelousas,

49:14

Louisiana, there are two major

49:16

home improvement stores, Alos and

49:19

the Home Depot sitting side

49:21

by side and

49:23

no offense to Opelousas, Louisiana.

49:25

Does Opelousas, Louisiana need two

49:28

massive home improvement stores? No.

49:32

It was, so go back one of your

49:34

first questions of frameworks and

49:36

why don't people change the framework? Well

49:39

think about the framework of a retailer and

49:42

particularly of high growth. Home

49:44

Depot was the fastest growing retailer in the history

49:46

of the United States, the fastest 10 billion, 20

49:48

billion, 30 billion, 40 billion. The

49:51

basic economic model was by

49:54

the time I got there, we were opening over 200

49:56

stores a year. Every

49:58

time you open a new store, you You can count

50:00

on a certain amount of revenue, certain amount of

50:02

growth, hopefully some pop

50:04

growth from the new store.

50:07

If you thought about what drove

50:09

your economic engine, that drove your

50:11

growth. And if you're an investor,

50:14

you go, I can model this. I know

50:16

how many stores you're going to open. I

50:18

can do my assumptions of what the new

50:20

store will do one, two, three, four years,

50:22

model that app and that's your growth. What

50:26

was absolutely clear when

50:28

you looked at the financial returns

50:30

is this was genuinely

50:32

wily coyote. I mean,

50:35

it was weird just

50:37

overrun the needs

50:40

of stores at that particular

50:42

time. And we're putting

50:44

stores that weren't really going

50:46

to be an effective return

50:48

on cap. The

50:50

more dramatic stopping it

50:53

completely and clearing

50:55

out the pipeline was

50:58

honestly probably more psychological than

51:00

financial. So in

51:03

my mind, we needed to

51:05

say, it was like, we're on

51:07

this life rack now. We

51:10

got to optimize our existing stores. There's

51:13

no other choice. We're not

51:15

building any new ones. So we got

51:17

to look to the 2000 plus that

51:19

we have in the ground and we got

51:21

to figure out how to improve them. And to

51:24

be honest, a lot of investors said,

51:26

yeah, no, that's not right. That's

51:28

a mistake. And then it

51:31

proved out there was more productivity in

51:34

the store. And

51:36

obviously, if you're thinking about an economic

51:38

model, you're a lot better off getting

51:41

productivity from your existing asset than going

51:43

out and spending 2 billion in new

51:45

cap bags. But yeah,

51:47

so it was a combination of going

51:50

to Opelousas, Louisiana and seeing two

51:53

stores and then just going, if

51:55

we're going to be serious about this and

51:58

even doing it, I can't tell

52:00

you the number of times for the next three years

52:03

that I would get presentations on, well, let's

52:05

come up with a new store model. Let's

52:08

do something different. Let's start building stuff

52:10

because that's what everybody was used to

52:12

doing. What was it

52:14

like having Lowe's as part of your world? So,

52:16

I mean, I guess like Delta American Airlines would

52:18

be kind of a similar adjacency where you

52:21

could go to those stores for the same sets

52:23

of jobs to be done for the most part

52:25

for customers coming into one or the other. I

52:28

know Home Depot is probably two and a half,

52:30

three times the size of Lowe's by market cap or

52:32

something, but nonetheless Lowe's is

52:34

still more than a hundred billion dollar

52:36

huge well-known public company. What

52:38

was it like having a competitor that was so

52:41

well known in the same arena

52:43

or even tighter than that of job to

52:46

be done for the customer and

52:48

seemed like a formidable competitor? The

52:51

untrue answer would be, oh, we just

52:53

did what we thought was right for

52:55

our customers and let whatever happen because

52:58

everything was going to take care of

53:00

itself. That would be the untrue answer.

53:03

We had been out comped. We had

53:05

been losing share to Lowe's for a

53:07

while. And so it was a big

53:10

point to start to gain share.

53:13

How did that play out? Like what did you do?

53:15

What were those conversations like? Was there

53:17

a Lowe's bullseye in your office or what

53:19

was like the mentality around it and the

53:22

tactics around it? It's a funny

53:24

thing and they probably don't do it anymore. I

53:27

think at some point they decided it

53:29

was not correct, but the Home Depot

53:31

cheer used to end with, let's kick

53:34

ass. And the

53:36

ass was always blue. Let's

53:38

kick ass. So that was

53:40

absolutely, absolutely number one

53:42

on our site. And Carol Tomei,

53:45

who's now running UPS, Carol's

53:48

a wonderful person and on earnings

53:50

day, she would always wear

53:52

blue shoes. That's so cool. Just

53:54

to make the point, great leader, but that was

53:56

one of the things everybody goes, yeah, I got

53:59

it. If we're not kicking these

54:01

people's ass, we're not doing our job. Now,

54:03

having said that, I'm sure everybody at Home

54:05

Depot, we're still... Job

54:07

one is making the customers happy and doing

54:09

the right thing by the customers and the

54:11

associates. But boy, don't lose sight of, this

54:14

is still competitive. If you

54:16

had to design a perfect board in

54:18

a lab, having been on some very

54:20

effective boards, a bunch of boards, been

54:22

CEO reporting to a board, what do

54:25

you think makes for an exceptionally productive board

54:27

to the extent there is such a thing?

54:30

So two different answers from

54:32

the CEO's perspective and then

54:35

the board's perspective. From

54:37

a CEO's perspective, my comment

54:39

to CEO's is you

54:42

really probably don't need your board

54:44

until you need your board and then you

54:46

really need your board. That's

54:49

why you pay attention and that's

54:51

why this is important. Because

54:54

when you do need your board, when

54:56

there is a crisis, when things aren't

54:58

going your way, you really need

55:00

them and you need their support. And

55:03

in that context, as a

55:05

CEO, when you're thinking about

55:08

who to put on a board over index

55:10

on mature judgment, and that isn't

55:13

a statement of age, that's

55:15

just a statement of who will

55:18

be cool under fire because

55:20

you need people who

55:23

are steady and wise.

55:27

I was fortunate. I had lead directors,

55:29

both Ken and Bonnie Hill and then

55:31

Greg Brennerman who were all that way.

55:35

That's what you want to get from your board. From

55:38

the board's perspective, I

55:40

think the most important thing

55:43

to try to do as a

55:45

board is avoid as

55:47

much as possible the senator from. So

55:50

sometimes boards can get into, you

55:52

know, I'm on this board because

55:55

I have blank expertise. So

55:57

every comment I'm going to make is about

55:59

blank. you're really not on the

56:01

board for blank expertise. If the company really

56:03

cared about it, they could go out and

56:05

hire an expert. Hire a great executive. Yeah,

56:08

exactly. So that's a part

56:10

of your judgment, but

56:12

don't become the senator from X.

56:14

Try to broaden out in

56:16

terms of how you cover what the company

56:19

does. And then the hardest

56:21

part is be

56:23

willing to be candid, which

56:25

either candid one-on-one, candid in

56:28

the committee, or candid around

56:30

the board table. But

56:32

you're there to give some candid

56:34

advice as much as

56:37

possible, make it relevant

56:39

and thoughtful, but you're there

56:41

for some candid advice. And then the

56:43

final thing is avoid the forensic board

56:45

member. Don't be the person who's

56:47

going, I know something's going wrong here and I'm

56:49

going to waste everybody's time finding out what's going

56:52

on. I mean, if you want to do that

56:54

in another room. You really

56:56

stopped me in my tracks earlier with

56:58

the story about the grandfather buying materials

57:01

for the coffin for their grandkid. In

57:03

closing, any other favorite story that

57:06

stands out from all this discovery

57:08

that you did of great stories inside the business

57:11

that would be held up as a great example

57:13

of how to be? I

57:15

guess my favorite, I'll tell this story

57:17

as a closer, just it's a very

57:19

Home Depot story, but it was probably

57:21

the most meaningful for

57:23

me. In my eighth

57:26

year or so, I wanted to

57:28

take Ken Langone and Bernie Marcus, two

57:30

of the founders of Home Depot, and

57:33

do a store walk with them. We

57:36

went to Columbus, Ohio, and we had

57:39

30 or 40 associates, about 30 associates

57:41

around the table, to

57:44

have lunch with Ken and Bernie. For

57:46

a variety of reasons, Ken and Bernie

57:48

were not in a good mood going

57:50

into that lunch. And I'm going, oh

57:52

gosh, this is just not going to

57:54

go well. Sometimes they're a great mood.

57:57

They weren't in a great. They weren't in a

57:59

great. We sit down. at the table and

58:01

everybody introduces themselves. The

58:04

first person says, I'm

58:07

so-and-so and I've been working

58:09

at Home Depot for 20 years and because

58:11

of working at Home Depot for 20 years,

58:14

I now own a house and have set

58:17

my kids to college. I can't

58:19

thank you enough Bernie and Ken, you've

58:21

changed my life. Then

58:23

there was a version of that from

58:26

every single person around the table. For

58:28

me, in the time at Home Depot,

58:30

and this is a very retail kind

58:32

of story, no

58:34

one starts in a retailer. No

58:37

one goes and gets a job shagging

58:40

carts at Home Depot or working the

58:42

register going, this is my career. It's

58:45

a fill-in job for everybody.

58:48

Over some period of time, you

58:50

get it in your blood and

58:53

you like it and you stay, and

58:55

you advance through the company. People

58:59

become, we do well

59:02

by our associates. Eventually,

59:04

people can become the most successful people

59:06

in their family. Literally, 75-80 percent

59:08

of our store managers don't

59:12

have a college degree. These are

59:14

people who made their own lives. It

59:16

is the American dream every

59:19

single day. It

59:21

is the most impressive thing

59:24

in match. Every

59:28

time, you just light up

59:30

at the stories. By

59:33

the same token, for me, I

59:35

will never forget that lunch and never forget

59:37

all of those stories. When

59:40

I made an effort, I

59:42

didn't get to do it every week, but

59:44

pretty much, as much as possible every week,

59:46

whenever I'd fly into a city, I'd sit

59:48

down and I'd have dinner with hourly associates,

59:51

14, and everybody would describe their life story.

59:54

If I were to ever write a book, that's

59:56

the book I'd write, because if

59:58

you ever get... down

1:00:00

on where we are as a country, you

1:00:03

see people who are working

1:00:05

really hard, who are

1:00:08

developing incredible skills, and

1:00:11

who care about their success.

1:00:13

I always came

1:00:16

away from those going, this is

1:00:18

the highest privilege that I could

1:00:20

ever imagine, the opportunity

1:00:23

to help. Yeah, I heard a lot

1:00:25

of great stories. It's a

1:00:28

wonderful bridge to my favorite and traditional

1:00:30

closing question for you. What is the

1:00:32

kindest thing that anyone's ever done for

1:00:34

you? First

1:00:36

off, I love that question. And

1:00:38

it is such an important question. And I

1:00:40

will say that one

1:00:43

of the things when I retired,

1:00:45

because of the example that I

1:00:48

saw set by Ken and Bernie

1:00:51

and Arthur and others of

1:00:53

generosity, one of the things I thought

1:00:56

is I need to learn how to be more generous. I'm

1:00:58

not generous. So that gratitude and who

1:01:00

do you say thank you, who's done a nice thing?

1:01:03

Hence, there are a lot of personal

1:01:05

folks who've done amazing things, my wife,

1:01:07

my kids, but Penn

1:01:09

Langone hands down. Ken

1:01:11

took a risk on me that

1:01:14

I think very few people would take in

1:01:17

terms of giving me the job at Home

1:01:19

Depot. And Ken always understates

1:01:21

it. But I tell people,

1:01:24

which is true every day,

1:01:26

while he was my lead director, I got a call

1:01:28

from Ken every day. Yeah, most CEOs.

1:01:30

Oh, my God, that must have been right.

1:01:33

That must have been horrible. And it

1:01:36

was actually entirely the opposite.

1:01:38

I got so much advice, so

1:01:41

much counsel, and so many sort

1:01:44

of I'm behind you, go

1:01:46

get it. And if you think back on the time,

1:01:48

it was 2007 when

1:01:50

I became CEO housing crisis was

1:01:52

on us. 2008, everything

1:01:55

went south. But the housing crisis was already

1:01:57

there in 2007. It

1:02:00

was raining frogs. And

1:02:02

here was this guy every day

1:02:05

saying, it's OK, it's OK.

1:02:08

I'll leave a bleak kind of thing.

1:02:10

Unbelievable. What a true legend that guy

1:02:12

is. Yeah. True legend. True legend. And

1:02:15

the number of people whose lives he's

1:02:17

impacted and reached out to help. It's

1:02:19

amazing. Frank, I've really enjoyed our

1:02:21

time together. I love part of and led. Thank

1:02:24

you so much for your time and for all

1:02:26

your stories today. Thank you, Patrick.

1:02:28

This is an honor. I look

1:02:30

at the folks you've had on this podcast

1:02:32

and I know this is I am an

1:02:34

outlier on this, but it is a real

1:02:37

privilege. Pleasure's mine. If

1:02:40

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