In Good Company with Nicolai Tangen - Jochen Zeitz CEO of Harley-Davidson

Episode Date: June 15, 2022

In this episode Nicolai Tangen talks to Jochen Zeitz, CEO of Harley-Davidson. They discuss electrification, CEO pay, employee stock ownership and Jochen even shares his favourite place to ride a motorcycle!The production team on this episode were PLAN-B's Tor-Erik Humlen and Olav Haraldsen Roen. Background research were done by Sigurd Brekke and Bård Ove Molberg with additional input from our portfolio managers Arnab Seal and Trym Torvund.Links:Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

So Jochen, very welcome to this podcast. It's just such a pleasure to have you on. Thanks for having me. Perhaps we can just start by asking you, what does Harley-Davidson mean? What's in that brand? Well, it's one of the most iconic brands in the world. It's been around for 119 years, and it stands for a lot of things, and in particular, the you know to ride getting on the road and having adventure uh that's what we say freedom for the soul and uh and adventure is is really what makes harley an extraordinary brand that is highly desirable in a global context and you're a biker yourself i am i grew up uh started riding when i was 16 and then stopped like many do once I had my university degree and started working and then went back into, got back into riding in my 30s and been riding ever since.

Yeah. Now, what's happening to the riders, you know, the age group and average age and so on? age group and average age and so on well uh you know we've had many many generations of writers as i said the brand the company was founded in 1913 so next year is our 120th anniversary which is quite extraordinary uh for such an such an american icon and so it's gone through uh you know many ups and downs two world wars the great recession and depression and uh and we've always come out of it on top so there are you know many generations that identify with harley davidson as a company and with right riding itself and you know we obviously always have to make sure that we get new customers new people converted to riding as others age out but just like myself starting starting riding rather early and then

you know stopping for a while you always age back into it if you want a bit of adventure and want to experience the you know the great roads of of this world not just in america but you know in europe asia wherever you might be. What do you ride? Many different bikes. I have a few in my garage, all the way from, you know, traditional combustion engine to electric live wires and a sidecar that I ride with my kids that enjoy riding and our little dog. So it depends on the occasion, really.

And what's the most beautiful drive you've done well as you know i you know i live in america now and uh and there is just stunning landscape i mean i grew up always being a fan of the midwest and uh and the southwest as well and and you know i take every opportunity to ride there as much as i can. Those, you know, huge endless roads, Route 66, the Turquoise Trail and many others, you know, riding through historic cities and contemporary cities. I wouldn't pinpoint one particular ride. Every ride in itself has its own excitement. I'm going back to Sturgis in August, which is the biggest motorcycle rally in the world

with, you know, hundreds of thousands of bikers meeting, coming together, having a big party. So all the way from big rallies, but also being on the quiet road. Maybe one trip that I'd highlight is something I did some months ago, riding from Santa Fe to Taos, where Dennis Hopper is buried. I'm sure you're familiar with Easy Rider, the iconic movie. So riding into the sunset and ending up at his grave was quite a special experience. Wow, wow. Well, we come back to Harley.

But in the meantime, let's talk a bit about your earlier life. So you, I believe, became the CEO of Puma when you were only 29. I mean, that's quite extraordinary. How did that happen? How did that happen? How did that happen? Well, I had been working with Puma for a couple of years, worked with three different CEOs in a little over two years. None of them, unfortunately, worked out.

And then the company was taken over by a Swedish private equity firm. And they asked me what was wrong. And they had heard from a previous CEO that I was doing a good job and wanted me to sort of present what I thought we should be doing. And after I presented my plan, they decided to put me in charge as a young man. So, you know, it's quite a bit of a risk that they took. But after three failed CEOs, including a CEO that was, you know, a Harvard graduate, I guess they felt that a new, fresh approach needed to be taken.

And what I presented made sense. And then, you know, the journey began, really. Better to hire somebody from Mannheim. Well, I don't know. But, you know, I had my first job in New York at Corby Palmolive, worked there for a little over two years, went back to Hamburg, and then a headhunter called me to Puma. And I wasn't the type of guy who would want to climb up the ladder step by step. I wanted as much responsibility as early as possible in my career, and that was the opportunity that was then given to me. What did you do with Puma?

Well, the company was in financial disarray. We had a little over $100 million in sales and a lot of losses ever since the pump company went public in the late 80s. So eight years of consecutive losses, a tired management team. We really had to restructure the company from the ground up we were still manufacturing in Europe while the sporting goods industry had already moved to Asia

so it was a comprehensive 360 overhaul and making sure that the company would make money once in four after eight years of losses so I did a very comprehensive re-engineering restructuring program that i implemented within three months and we we had a record year the following year and ever since and that gave me the opportunity to then pay down our debt our subordinated loans and build a strong equity to then invest into restructuring the brand and re-engineering the turnaround of the brand rather than the company and for that i moved to to America because the trends were all set in the US at the time and then built a team in America to take the brand to new heights, which we then also

accomplished after several years of investment. What were the main learnings from this period? Well, you know, early on, I talked about the virtual headquarter and that was when email was just invented. There was no World Wide Web yet because I felt that we needed competency where it was required, whether that was in Germany

for the more European-driven sports categories, whether it was in Asia from a sourcing perspective or whether it was in America for categories like you know basketball baseball football running and so on so you know building competency regionally rather than trying to centralize everything in one headquarter was was sort of something I truly believed in then being where the action was and for us as a company it was in America and moving to America to do that allowed me to really steer the business through the three headquarters that I created.

And if you fast forward pandemic, that kind of taught me that a virtual organization could certainly function. certainly function and that led me to also restructure Harley-Davidson in a way where we are not just looking to hire, you know, new talent into one headquarter, but think about it in a much more virtual way. So that was sort of the beginning of, you know, the virtual work and the future of work the way we look at it today. You were on the board of Harley for many years before you took over as CEO. That's correct, yeah. And tell me the difference between not being on the board and actually being the CEO in charge. What's the difference? Well, it's a huge difference, as you can imagine.

You know, as a CEO, you're in the driver's seat, you're in the trenches, you know everything that's going on. I'm a very hands-on CEO. I need to know everything that's going on in the business. As a board member, you fly 30,000 feet high and your biggest job is to appoint the right CEO, sign off on a strategy, besides all the governance that is required and supervision that is required, but you are not making the decision. So having been on the board for many years, you know, although I was the one who set up the sustainability committee and pushed the company to go into electric, you know,

there's only so much you can do. And, you know, sometimes it itches in your fingers to make a decision, but you can't because that's really a CEO job. So, you know, your influence is limited. And in a way that, you know, led me to accept the job when the board offered it to me to say, well, I think I know better.

So I might as well put my money where my mouth is in a very difficult time when COVID just started. Did you find a lot of surprises? You always do, I think. I mean, I've found a lot of surprises at puma at the time uh you know once you get very hands-on and roll up your sleeve and and really dig in you always get surprised i was very surprised about the capabilities or lack thereof of the organization and the processes that the company is operating with you know harley had been

resting on its laurels for way too long and so it it required a big shakeup, which we did in the first year under the rewire program, which then led to the hardwire, which is our first five-year strategic plan that we've started to implement early last year. Now, you're also going into electric. I mean, electric Harley-Davidson, isn't that a bit like a vegan steakhouse? Well, vegan can taste like a good steak too nowadays at least uh that's the idea right um well i yes uh it can and it must long term but we also have to recognize that the electric custom of today is not the traditional harley rider simply because

our core categories are in touring uh and and not so much in the street segment. Yes, we are big in touring, in cruiser, you know, to a small extent in small cruisers. But essentially, it's about the journey and not the destination. So electric is much more of an urban experience now as the infrastructure, the electric infrastructure and charging structure is building. urban experience now as the infrastructure, the electric infrastructure and charging structure is building. So we're talking about a different consumer, a different place where electric is riding versus our Harley bikes, not so much in the city, in congested cities. And therefore, I decided to take the model that was called LiveWire and set

it up and spin it off as a separate brand, then Division and now company going public very soon. And that will allow us to really spearhead the electrification of the sport. And at the same time, you know, when the technology is ready and right now, the battery technology is not ready to be put into a long range touring bike simply because, you know, this is not a car where you have a lot of space to put battery it's a small motorcycle with little space that needs to be recharged quickly and that needs you to give you a range to really go across the country and that is the technology is just not there yet but rather than wait i felt that having our own

brand separate brand that that is part of the lineage of harley-davidson and that can sparehead and innovate the electric space uh we we would be able to then also develop a technology that later on would be feasible for harley-davidson and the advantages of having it as a separate company what is that well it's for foremost agility uh you know Well, it's foremost agility. You know, Harley is a big company. It's a big brand. We are certainly more complex than a startup is. And giving a new brand its identity to talk to a different consumer,

be more agile, more quick when it comes to product development, targeting the product and developing a product to a different consumer is only something that you can do under a separate umbrella and therefore i felt it was necessary you know give give that new brand the freedom and the ability to really make quick decisions independently from harley while at the same time still being able to tap into the the nova that harley davidson provides from a manufacturing perspective, from an engineering perspective as well. So we don't have to do what other EV auto brands are doing, having to invest billions into new factories.

We can use the assets that Harley has, but we can act in an agile way, an independent way while using the assets that Harley can provide. And that, I think, is a winning combination that nobody else can bring to the table. Now, if we change tack a bit here. So, Jochen, you are one of the most socially conscious people I know and, you know, like a proper deep thinker. I take that as a compliment. Thank you.

You, absolutely. and, you know, like a proper deep thinker. I take that as a compliment. Thank you. You, absolutely. And I just want to give you kind of an open-ended question here. Tell us about what is important in your life. Well, besides my family, of course, you know, I believe that we need to, you know, improve society, improve humanity, and we have to do that while keeping our planet healthy. So when we talk about

sustainability, which is very important to me, you know, winning means winning for everybody and not just at the expense of our nature or at the expense of society and therefore I truly believe in the triple bottom line approach of people, planet and profit and trying to create

win-win situations for everybody and I'm trying to apply that in my private life, in my philanthropic life and in my business life as well. One of the places you spend a lot of time is Africa. That's correct, I sort of had this as I grew up you know as a kid I had two passions and one was sort of the wild west and one was Africa, uh you know sort of watching westerns as a kid and and watching you know uh the german version of nagio in uh germany um and i was always fascinated by by nature and wildlife in africa so that that became a passion of mine that i later you know managed to put into action by becoming put into action by setting up a wildlife conservancy in Kenya

and at the same time also having a place in the southwestern America where we live part-time when we're in America. But you were also early in Puma, for instance, to use black athletes in your advertising and so on? Yeah, I mean, I love Africa, the diversity of the continent, its cultures. I love African soccer. And I was the first one to really integrate that into Puma

and sign up a lot of African soccer teams because I just always loved watching African football. And I was the first one to sign players that started to play in the Bundesliga a long, long time ago. Now you have African players all over the Premier League, all over the world. At the time, that was a novelty. We then signed teams, won the African Cup of Nations many times. And we also built some products around what we call Puma Creative and Puma Safe

by bringing artists from Africa into the fold and allow them to design some of our products. So I felt that there was sort of in sync and in line with the Puma brand at the time. Jochen, what not many people know about you is that you're a star musician. I'm not sure about the star bit. I'm trying my best. Well, I tell you what, I have even been to one of your concerts

and I loved it. Thank you very much. Tell us about this love for music. Yeah, I mean, I grew up playing guitar and then I stopped for a couple of decades and every time I saw a guitarist on stage, I got really sad and then I picked up my guitar again

and I said, I want to be really good. and that's when I started practicing on it every day and got into percussive guitar playing which is very very technical unfortunately given my travel schedule I wasn't able to play in a band so I'm solo guitarist acoustic guitarist now and from time to time I like to get on stage with or my owner with some friends well it's really impressive I have actually seen you dragging along the guitar onto planes and so on. Always yeah I said that's my that's my my girlfriend that travels with me my wife doesn't mind. Moving back to Harley what are the challenges and opportunities you are seeing just now? Well, challenges, obviously, just like with everyone that is in manufacturing, the supply chain is a huge challenge, continues to be.

Everyone globalizes its supply chain and getting parts, getting chips, getting supplies is a daily battle that we are facing. I'd say that's the biggest challenge we have right now. I think through the rewire and the hardwire, we have a fantastic strategy that we are executing on a daily basis. You know, a lot has been accomplished, but it certainly hasn't been easy considering the headwinds that we had to face, you know, starting with COVID, then tariffs on holidays and motorcycles into Europe,

and now certainly supply chain issues. But, you know, what doesn't kill you makes you stronger. So hopefully we'll get out of it unless the recession is the next step, which we don't know. But we're certainly prepared for the worst. And we hope for the best with a really sound strategy that will make us the most desirable sport and lifestyle and end brand, motorcycle brand in the world over the next few years.

Now, we should also touch on some of the slightly less easy topics, given that we are an active shareholder and as you know we have started to announce our voting intentions ahead of time and we voted against your salary at the last AGM because we thought it was too high and we thought it was too short term in terms of the incentives. What is your view on shareholders like us? Well, I mean, look, it's always good to have another opinion, right? You know, the incentive program that was just put in place is very much driven by us achieving a certain share price, which is aspirational.

And only if that is achieved, there is a significant payout. The difference being that you have to account for it as actual costs in the year that the shares are being granted. I think if I read it correctly, you voted because you didn't feel that there was a new meaning. The Norwegian Pension Fund didn't feel that there was a long term strategy. I would oppose that opinion. In fact, we have a very clear long-term strategy and only if we achieve it, will the shares actually be in the money.

So until then, it's a cost on paper, but it's not an actual cost in terms of the shares being issued and the goals are truly aspirational. So not quite sure I agree with the position but i certainly appreciate the opinion that you might have yeah and as you know we also have an opinion about uh chairmanship and ceo not being the same person and this is has nothing to do with you it's a general policy that we that we advocate what what is your view on that yeah i mean i look i've been always as my as a

ceo i've always been a chairman um so i've kind of never worked any differently we take governance very very seriously we have a great lead director and a great board so um i i would say we have clear division of power and who says and who's not. And I take that very, very seriously myself in terms of, you know, having a close relationship with our lead director. But I've always operated that way and it's served me well. And therefore, I felt it was important to keep that unison in terms of chairmanship and being the CEO, but being very aware of governance as an overriding topic that needed to be very carefully evaluated on a daily basis, really. So, Jochen, one of the things you have done in Harley, as I understand,

is to make the employees shareholders. Tell us about that. Yeah, I think it's important that everyone wins when the company wins. And we came out of a difficult time when I took over. COVID was just about to happen. The factory is closed down and the company had gone through four restructurings in four years. And I just felt that, you know, if the CEO wins, the company needs to win. Everybody needs to win. And, you know, we have some incredible craftsmen in our factories as well that

have been working for decades and are passionate about the brand and i i felt that any everybody including our hourly workers all of our employees around the world should participate in the success of the company and that's why we decided collectively um you know to make everybody shareholder and i think that's the right thing to do. And again, if the company wins, when the company wins, everybody should win and not just a few select people. On a slightly different topic here, you were in a way lucky or fortunate

to get into important positions at a young age. When you look back at yourself at this stage what would you have loved to know that you didn't know at the time it's a good question i actually never look back i kind of think you pick up the ball or you play the ball where it lies right so i i never look back and every situation every decision you take in the past can't be replicated into the future so i i don't think i would have changed much. Of course, you know, along the way, you make some mistakes too. But, you know, I don't look at correcting it because I can't, right?

But I try to avoid making the same mistake twice for sure. I think what served me really well is getting into a leadership position very quickly rather than sort of going through the ranks and, you know, having to deal with all the politics that come along with it. sort of growing through the ranks and, you know, having to deal with all the politics that come along with it. And that made me a very fast and pragmatic decision maker without, you know, necessarily thinking about the politics behind it in business. So, you know, I consider myself fortunate of being able to be put in the position of decision making and responsibility at a very early stage in my life. and that sort of formed me

ever since all the way until today and what would be the main advice to young people today then well follow your follow your passion follow your follow your instincts in a way uh and and and what you've learned and you know see where you where you have an opportunity to get into a position of responsibility early on. You know, at the time when I became CEO, it was very unusual to become a CEO at 29. Today, you know, startups define the future very often. And I'd say it's a little easier, capital is easier to get to. But, you know, you've got to have a relentless energy and passion to succeed.

And I've never given up even at times when I was thinking of is this is ever going to work and you just stick with it even if you sometimes don't know if you come out on the right side of the tunnel I was fortunate enough to always sort of end up at the right side on the right side and but you know you never know until you try and keep trying you know when you fail and get up and keep trying again and that's sort of my motto nothing happens overnight you know you have to plan longer term and if but you if you truly have the energy the passion and you believe in your idea you can always succeed sounds like a very nice place to end. And I love all your passions, Jochen.

Very few people put them into a combination like you have done. You know, a really, really holistic and incredible life. Yeah, thanks, Nikolai. I appreciate it. So thank you so much for taking the time and good luck going forward. Thank you. Thanks very much.