Invest Like the Best with Patrick O'Shaughnessy - Frank Blake - Leading By Example - [Invest Like the Best, EP.377]

Episode Date: June 11, 2024

My guest today is Frank Blake. Frank is the former chairman and CEO of Home Depot. I recently interviewed Home Depot co-founder Ken Langone and became fascinated by the business’s impressive lineup of leaders through the decades. Frank led the company from 2007 to 2014 and shares how he carried on the legacy of Ken and the others, upholding their culture of an inverted hierarchy and producing seven consecutive years of growth for the largest home improvement retailer in America. We discuss his hyper focus on solving their customer’s problems before their own, investing time into the employee experience, and his intentionality with how he is perceived as a leader. Please enjoy this discussion with Frank Blake. Listen to Founders Podcast For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Tegus, where we're changing the game in investment research. Step away from outdated, inefficient methods and into the future with our platform, proudly hosting over 100,000 transcripts – with over 25,000 transcripts added just this year alone. Our platform grows eight times faster and adds twice as much monthly content as our competitors, putting us at the forefront of the industry. Plus, with 75% of private market transcripts available exclusively on Tegus, we offer insights you simply can't find elsewhere. See the difference a vast, quality-driven transcript library makes. Unlock your free trial at tegus.com/patrick. ----- Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.  Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com). Show Notes: (00:00:00) Welcome to Invest Like the Best (00:04:37) The Inverted Pyramid Leadership Model (00:08:38) Communication and Listening in Leadership (00:15:19) Lessons from Legacies of Great Home Depot Leaders (00:27:02) Frank’s Personal Leadership Journey (00:33:32) Reagan's Leadership Style and Influence (00:37:26) Key Responsibilities of a CEO (00:40:27) Delta's Leadership During COVID-19 (00:46:45) Financial Strategies in Asset-Intensive Industries (00:47:27) Home Depot's Strategic Shift (00:53:33) Competitive Dynamics with Lowe's (00:55:36) Building an Effective Board (00:58:16) The Impact of Home Depot on Employees' Lives (01:01:52) The Kindest Thing Anyone Has Ever Done for Frank

Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at join colossus.com. Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of positive sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of positive sum may maintain positions in the securities

discussed in this podcast. To learn more, visit psum.vc. My guest today is Frank Blake. Frank is the former chairman and CEO of Home Depot. I recently interviewed Home Depot co-founder Ken Langone and became fascinated by the business's impressive lineup of leaders through the decades. Frank led the company from 2007 to 2014 and shares how he carried on the legacy of Ken and others, upholding their culture of an inverted hierarchy and producing seven consecutive years of growth for the largest home improvement retailer in America. We discussed his hyper focus on solving their customers' problems before their own, investing time into the employee experience, and his intentionality with how he is perceived as a leader. Please enjoy this discussion with Frank Blake.

When I did my episode with Ken Langone, he talked a little bit about this notion of the inverted pyramid that was so incredibly powerful at Home Depot. But then when I've learned an astoround since then, I've learned that really you were an architect and steward of that concept. I would love to spend literally as long as we can or you would like to on this very powerful idea in all of its ins and Now, it's not just at the consultant PowerPoint level, but at the deep, nitty-gritty level of why this is such a powerful way of thinking about leadership. I love it. And I think it is one of the most powerful business concepts.

And obviously, if we had a little visual here, it's the CEO and the leadership team are at the bottom of the pyramid, not at the top. And the customer and your frontline employees are at the top of the pyramid. I have no pride of authorship on this. This came from Bernie Marcus and Arthur Blank and Ken, the founders of Home Depot. It was part of the Home Depot culture. And so when I first became CEO, it was the first thing I talked to our associates about. And when I first talked about it, honestly, I didn't really understand it.

I just, okay, that's a nice phrase and it sort of a humility to it and a servant leadership element. And then I, for the next eight years, tried to work through what does this actually mean? How do you take it beyond, as you say, the generic speak and what does it mean to run a business that way? Here's my overview of it. The first is the most obvious is, yes, it's humble in one way, but it's not in another. And the way in which it's not humble is the weight of the organization's on you. When you're leading an organization, it's a weight-bearing position. You need to be singularly devoted to the success of the organization and not self-regarding

because that leads to fracture. And there are a lot of anxieties and it's a hard job. First, second, everything is uphill. I'm always amused when I hear leaders talk about messages cascading down to an organization, as if gravity were your friend. And gravity is not your friend. Your team, for the most part, through the organization, they're not waiting with bated breath to hear from you.

They actually, for the most part, really don't care what you have to say. You have to work up through osmosis. I mean, it's a reverse effort to get your message through an organization. My joke would be, this is easier in the retail context to get it. But if I walked a store, and this conceptually is true for every organization, I walk a store and I go up to a store manager and I say, how's everything going? There is only one right answer to that in any organization. The answer is, everything's going great.

You are wonderful. Please leave. And you need to understand, leaders need to understand, this fundamental fact that they have to work hard to get their message and get their direction through an organization. that in turn leads to how you think about the people who report to you about your leadership team and an understanding that you need them to radiate out through the organization with the same aligned message that you have and you almost need to select for that energy quotient the ability to radiate out the alignment with the message more than technical competence. Not that technical competence isn't important. It's sort of the entry to the game, but you need

energy. You need energy to work through the organization when you think of yourself as at the bottom of it. The next part is it emphasizes how important communication and listening. First on the listening, everything that's important is happening several layers or multiple layers above you. And leaders need to understand that organizations kind of tend to put them in the bubble. Bernie Marcus had a great comment to me when I became CEO. He said, look, you're going to get into the around the table with your leadership team, and you're going to tell a joke, and everybody's going to laugh. And just remember, you're not funny.

And it is so true. The organization molds itself to fit your opinions. They feed back what they think you want to hear. Most organizations don't thrive on confrontation or seek out confrontation. And so there's a real risk that you never actually know. What's happening with your frontline associates, never mind what's happening with your customers other than some general survey instruments. And so taking the time as a leader to step back and listen and figure out your modes of listening

to skip level throughout your organization, your frontline associates, and to your customers and vendors is hugely important because, as I say, it's all happening above you. no one's coming to you with the truth on a platter. And then on communication, again, thinking about this as moving a message up to the organization, the message has to be simple, it has to be repeated over and over again, it has to have something that is compelling to the rest of the organization and compelling to the organization's self-interest so that effectively it gets adopted as each person adopts that message as his or her own. And I'm a lawyer by training. That's why you used to get paid for

making simple things seem really complicated so that you'd have to pay thousands of dollars an hour for me to unwind it. The leadership stuff is the reverse. You've got to make it clear and portable throughout your organization. And then finally, because this was the most important thing for me to realize is, as you're thinking about communication, the most effective way to communicate is through stories and through recognition and celebration. So it is by saying if what we want is customer service, then it's taking Joe or Jane on the literal or virtual stage, bringing them up and saying,

here, you want to know what customer service should look like for us? It's what Joe or Jane did. And then tell the story about what Joe or Jane did and do that consistent. It's a fascinating thing to me how powerful that is, but it is enormously powerful. People in the audience are going, well, I do what Joe or Jane does every day. I can do that too. If you do it intentionally and if you do it consistently and if you do it through compelling story within the context of your business, you actually do get the alignment from this very

ungainly upside down organization. What are the tradeoffs? Obviously, most places are more of a traditional pyramid hierarchical top down, and counting on information flowing through the organization with gravity. Are there any benefits to that more traditional way of thinking about things? Like, what are the hard tradeoffs of adopting an inverted pyramid way of approaching a business and leadership? I think one of the things that is a tradeoff is it takes time. You can make big changes in allocation of resources.

And I think that's a really important thing to do. And it's really important to think about how you change directly. through reallocating resources. But the nature of things is it's not one directive. You've got to plan on doing something consistently, or in my case, who would do it hopefully consistently for eight years, pick something that's enduring and important.

That would be one trade-off. The other trade-off bit is, in my view, as I said, in terms of how you think about your team, that you really do need full alignment of your team. team. The team is bearing the same weight as you are. I get this conversation a lot with CEOs who are thinking about their team and how they build their team or what do they do with Joe or Jane, who's really not on the play sheet, but is very talented. And my answer is always more important that they get on the play sheet. You can work around the talent, but you can't

work around someone who's not aligned with where you're trying to take the organization. How hard for you was it to pick the things that mattered? We'll talk about Home Depot specifically. We can talk more generally about leadership roles elsewhere, but it seems like this method is incredibly powerful if you know the three or four things the organization should be doing and the strategic goals or whatever you want to call them. But picking those seems equally important. How hard was that for you? Any advice you would give about doing that well inside of a business? hopefully it's pretty clear from your customers. So I think that's the other advantage to it, I would say, is the only way it works is if you look to what's at the top of the pyramid, which is your customers. And the other reason why I think it's really important to flip the pyramid is I work from a belief that great organizations always start because they provide a great solution to a customer problem.

And then over time, there's some law of entropy that over time, companies get more interested in solving their own problems, not their customers' problems. So as long as you hold yourself to the discipline of, am I solving the problems that my customers want me to solve, am I effectively still aligned with that, it's not that hard. The difficulties come when you start getting things that are solving your bureaucracy's problem,

you're not solving the customer's problem. What other things did you learn watching some of the great leaders that you've been around and with and supporting or leading yourself, whether it's Jack Welch or Bush or Nardelli or Ken Langone or Bernie Marcus? You've been around an unbelievable amount of interesting leaders. I'd love to just like tick through some of the things that you've watched them do that you think are most powerful. Oh, for sure. Because I was such an unlikely person to be running Home Depot, it's something that I gave a lot of thought to,

which is what are some of the learnings from great leaders? I'll start with Jack Welch, since you mentioned Jack first. The genius of Jack Welch, and I wasn't able to represent. the genius of Jack Welch's in my career, I started as a lawyer in GE, and there is nothing less relevant than a lawyer in GE. We had a wonderful general counsel, but structurally not that important within GE. And yet, I internalized that a path to success at GE was going to be disagreeing with the CEO and chair and being right. Now, I knew that if I disagreed and I was wrong, that might make for a short career.

But that was it. It was disagreeing and being right. And Jack loved the push and pull of an argument. At some level, sometimes I felt like he was just arguing something to argue it and to see how much I or whoever else was pitching, how much we really care about, were we willing to take him on? and boy, there's just not enough of that. There's not enough of people who see that their boss. I mean, every boss says that he or she wants to hear the candid opinion from their employees,

but it doesn't play out that way around the table. And with Jack, it genuinely did. I genuinely got the sense of he wanted that confrontation and that disagreement. and the energy level that he brought was just extraordinary. Those were the two biggest lessons, just the high energy, phenomenal. He's a really good leader, high energy and willing to tolerate and actually invite disagreement. And then Ken, since he was on your show, I had the privilege of having Ken as my lead director. I learned so much from Ken.

I think not only as a founder of the company, but just as an investor mindset, and you also had Anne-Marie Peterson on your show, and Anne-Marie was one of the big investors at Home Depot. And what I learned from people who are great investors, I mean, Ken's role within Depot was much larger than that. But what I learned from people who are great investors is just not that I could always replicate it, but boy, this was interesting to see,

was the incredible brain processing speed. I mean, they could process information really well. They would have strong opinions. Ken would have a strong opinion. It wasn't lightly held like Mark Andreessen comment, strong opinions lightly held. It was a little more than lightly held. And the same with Anne-Marie, but you could move them all. that opinion, but having an opinion, having a point of view, the rapid processing of information,

and just the curiosity, the level of curiosity, when I would talk to them, I would feel like somebody had extracted every piece of knowledge and then some from my brain, just the intense curiosity and willingness to ask questions. A lot of lessons on this. I learned a lot from George Bush, vice president when I worked for him in terms of that element of recognizing people. How did he do it? So one of the great things about working for the vice president

is small staff. Remember, this is back in 1981. So small staff, you get to see what the guy does on a daily basis. He would come in and first thing in the morning, 7.30 or 8 o'clock in the morning, He would spend an hour typing individual notes. And you knew it was his because, you know, the E wouldn't be lined up and all that stuff.

And sometimes made out. But you get these personal notes from the vice president. As a staff person, you get a note like that and it just made you walk on air. And I think anybody who worked for the vice president would tell you they'd go through a wall for it. Then when I ran Home Depot, that was one of the things that I leaned pretty heavily into was writing notes. I have a whole theory of the case for why writing notes is important. But every Sunday, I would spend half a day writing about 200 handwritten notes.

And they were all around if customer service was the thing we were working on. We had a system with Shores would give examples to the district. The district to the region, the region would send them to me of great customer. service. I write the note saying, Dear Joe or Jane, I understand you did X, and I would try to be very specific about it. I understand you did X in the store. What a great example of customer service. Thank you so much, Frank. And we try to write about 200 of those a week. It's hard to quantify what the impact of that was, but I knew that it was something important when within, oh, a few months of being CEO, I'm walking a store and an associate comes up to me and says, you wrote me a

really nice note a couple of weeks ago. Would you mind writing it to me again? And I said, yeah, yeah, no problem. Why? He said, well, we were all standing around and we figured you couldn't possibly have written this. This must have been Robocend. We put it underwater. The ink ran and we ruin the note. And one of my theories about the importance of something that is unique to you in terms of recognition and thanks is people want a piece of you as a leader. They want a piece it. You need to be thinking about how you show them that you're invested in their success and that you recognize what they're doing well. And if you do that, they're much more inclined to be invested in your success.

And my analogy is, you know, I'm pretty old and I used to get baseball cards and hang outside Fenway Park to get my baseball cards autograph. And the only baseball card you'd get autographed would be the utility infield. You know, the stars, right? But if you got a baseball card autographed by the utility infielder, what happened? boy, I want that person to play. I want that person to be a star. I've got his autograph.

The same thing happens. So my view is within a business, as you do things like that, people invest in you. Now it's even more so. I mean, now it's the whole thing about taking photographs and selfies with the folks who are on your team. I learned a lot of this, not I from George Bush, but from David Novak, who was the CEO of Yom, he was just brilliant in coming up with ways of doing that. And I saw one of his, which is he would take photographs with his associates in the restaurants, and I would do it in the stores.

And I said, I'm going to put these in the wall in my office. You're a great associate. I got you and me a photo on the wall in my office. anytime you come into Atlanta, you can come up and look at your photo. Some of the most amazing times where people would bring their families and come up and see their photo on the wall of the CEO's office. I've had the opportunity to learn so many lessons of great leadership from so many great leaders and I'm leaving out way too many.

Are there any missing parts that you haven't mentioned to your theory of why this form of communication is so powerful? It's obviously something that you've thought a lot about. I think it connects you to folks. And so my next theory about this, because I did justify spending so much time on this, I had to have a theory around it. So my theory is that most people do want to do a good job at what they're doing. And most leaders are surprisingly not terribly clear about it.

And one of the advantages of doing something, whatever it is that you as a leader want to see throughout your organization, one of the advantages of whether it's writing notes or some people have different things than that, doing that is it gives concrete expression to what it is that you want. Because otherwise, without that, I'll fill in the blank on what you want, and by and large, I won't be right. And this gives content to it, and it gives something that the organization at an individual level can understand and rally around. So if I say, as I did, customer service is going to be hugely important at Home Depot.

And here's my memo on customer service. All right. I mean, seriously? What is that done? That's done nothing. And if I put up banners on customer service all around, our breakrooms and whatever, I say, we're customer service. We love customers. No one cares, yeah.

I mean, seriously? No one cares. No one cares about that. But I'll give you the first example of this was I got a great note from the leader here in Atlanta. He actually runs the largest church in Atlanta. But I got this note that I read at our big store manager's meeting, and it was right at the start. And the note was about a customer who sent him a note, customer of Home Depot, who's going through the register and talks to the cashier. Cashier does, as she's trained to do. She says, did you find

everything you were looking for for your project? And he says, yes, thank you. And she said, what is your project? And he said, I'm building a conference. from my grandson. And she says, don't even think about pain. That, if you're saying, I want to empower associates to do right by our customers, no one's going to forget that story. It has an emotional impact and a meaning that just saying you're empowered to do something for your customers doesn't have. And so to me, it's very important that the notes or whatever you do, It's not just I'd like you, your awesome prank. It is, you did this.

It's brilliant. You said something earlier, which piqued my interest, which was that you were an unlikely candidate for the CEO job when you got it. Why'd you use that word unlikely? Oh, I mean, it's beyond unlikely. That was an understatement. So understand that I'm a lawyer by training. I transitioned from being a lawyer to the business side by doing M&A.

at GE, ending up doing M&A for Welch. But if you're running M&A, it's a very professional teams, highly motivated small professional teams. All right. So then one of the people, Bob Nardelli, raid operator, I worked for him at GE. He gets picked to run Home Depot after he doesn't get Jack Welch's job. and I'm doing the same thing fundamentally at Home Depot. I'm buying companies. We built up this business called Home Depot Supply.

But that's largely what I did. No one knew who I was at Home Depot. I mean, genuine, no one knew. Within the retail world, no one knew who Frank Blake was. To the extent that they knew who Frank Blake was, it was, well, he's a lawyer. He comes from a GE, and he doesn't really know. retail, pretty bagged strikes. Over and above that, I tell this story and it happens to be true that when the board called and said, we'd like you to be the next CEO, I said, you need to spend a day

thinking about this. And I need to spend a day thinking about whether I can do it. So it was far from an obvious choice. And the final comment that I would add to it, Ken Langone tells the story that Larry Bossidy, who hired me at GE, bet $10,000 so I wouldn't last six months. So it was very unlikely. So with the unlikely start, what was that for six months like? Why did you last it? What did you do that was effective? For whatever reason, I'm just really interested by transitions like this,

of the passage of the sacred flame of a business from one person to the next, which very often does not go that well. And so I'm curious why, with your unlikely beginning, you were able to not only survive, but then start to really thrive. So first, I did have the advantage of having been in the company for several years, for five years. And so I had a notion of what some of the issues were. My son worked and still works at the company. My son had at the time, there was a program at Home Depot where returning veterans from Iraq could go work in a Home Depot store. And my son had served in Iraq and had done that. By the time I became

CEO at Home Depot, he'd become a store manager at Wilmington, North Carolina. So I kind of knew, I mean, he always had this great line around the dinner table of, well, I'm sure that briefed well in Atlanta. I had some notions of what was going well and what wasn't going well. And then on the transition side, Ken Langone was my lead director, was absolutely awesome lead director. I relied a lot on Bernie Marcus and Arthur Blank, the other two founders of Home Depot to kind of help what are some of the centering principles around this business and how does it work and how should it work. And then I did just where your questions were going, I truly sat down. went through all of the great leaders, because it's George Bush, Ronald Reagan, Jack,

Welch, all of these people, and say, what did I learn from them? And what should I be thinking about doing in this job? And then, as I said, at the very top of this, that was sort of the operational side. And then on the financial side, just cribbed a page from Aslaas's book. I can't remember which book it was, but just cribbed a page on, with the, The top line is shareholder value creation and how do I think about it? What's the right way to think about that? What's the structure of thinking about it? And I was very fortunate to have folks like Ken and a really strong board and a great team. My CFO is now running UPS. My head of stores is now running lows. The head of merchandise ultimately came to run Home Depot

and the person who's now running Home Depot was on the team. We had a really strong team. I should started there. I had a really strong team. What advice would you give involved directors, like the role Ken played and others played, in how to push leaders and steer them? What did they do, bring us into the room with them at that time? Like, what did they do to push and steer you that was most effective? I can tell you what was most effective with me, and I don't know if that is always true with leaders. But what Ken was great about and what some of the other directors were terrific about was asking a lot of questions and through their questions going, oh, okay, yeah. I would have a better answer to that than what I just gave. You got some sense of it from your interview with him.

I mean, a phone call with Ken. It's not boring. Yeah, it's not boring. It's not boring. And I could tell you, there's not a one of them that I wouldn't come away with, oh, I should have a better answer to that than I just did. I mean, it was training. If you're lucky enough to have a board with some directors who've got real experience and understand how to ask smart questions and you're open to understanding what you don't know. And I was definitely open to that. It helps a lot. You mentioned Reagan. And randomly just yesterday, I saw for the first time his, I guess, famous address in Normandy on the 40th anniversary of D-Day, which is a very powerful thing to go watch. I'm a total sucker for that kind of stuff.

What was it about Reagan beyond his incredible communication skill and ability that you look back on with interest? Reagan really was, in my view, I try to bracket the politics, but he actually was a really great leader. I mean, I'm politically aligned. but even if you're not politically aligned, he was a great leader. I'll give you one example and an anecdote. I wasn't an important person in the Reagan administration. I ultimately, I was General Counsel of EPA at one point, but I mean, you'd go in for a shake of hands

and Reagan wouldn't be able to pick me out from a lineup. But I had no doubt as one of the 100,000 or however many people there are who are political, and the federal government. If I got an issue, I had no doubt of what my president wanted me to do. I had no doubt. And interestingly, I took that with my goal at Home Depot was I want the 400,000 associates on the floor of the store. If somebody goes and says, what is your CEO want? I want them to be able to give the same answer. Reagan was brilliant at just, I know what the president stands for.

And one of the first meetings of all the political appointees that they had not all, but a good large number, one of the members of his cabinet got up and said, he does this emotional speech about how much people have given for public service and people who died, like folks of the beaches of Normandy, just very eloquent. And then he pauses and he says, I want you to know what the president wants from you. Silence in the room and he said, he wants you to be able to take a negative article in the New York Times. And that was the perfect example of understand that you're not here for self-regarding behavior that's going to get you praised in the New York Times. We have something to do here.

If you do it right, odds are the New York Times isn't going to light. And you have to be able to live with that because other people have lost their lives. If I think about the exact opposite of some of these principles, the phrase ivory tower comes to my mind. That's often a phrase used about leaders who are out of touch and not connected to their organizations. So the question I have is, what is the ivory tower behavior that you've seen most commonly amongst other leaders that you've watched or worked with or whatever. Basically, the question is like, what to avoid doing that's on the other end of the ledger? So what to avoid doing is thinking you're funny.

When people are laughing, thinking you're funny. I think what you need to internalize is that your organization, you know, the phrase boiling a frog. Yeah. The organization is effectively boiling the frog of the CEO. Organizations generally are resistant to change plus or minus five percent. organizations are generally conflict averse and organizations generally want to control the behavior of the CEO by filling up his or her schedule, by controlling the information that he or she sees. I say it as an organization because it is, it's an organizational behavior. It's not that people are bad. It's just this is what organizations do. It's the constant, don't let that happen to you. Don't let your

yourself get out of touch. You need to have the skip level meetings. You need to be meeting with your customers, your vendors, your frontline people. You need to make sure that people know that they can disagree with you. I think CEOs and leaders lose sight of how much an organization orientes to their behavior and their wants. And so if they're not constantly cutting across their own lines in a way, they risk isolating. You mentioned last time we talked to this great line, you said two key jobs of the CEO are to allocate capital and allocate people and that the entire organization is built to stop you from doing those two things.

Exactly. That's it. So in my view, to be a successful leader, you've got to allocate capital right, you've got to allocate human resources right. If you do those two things right, everything else will fall in place. If you do them wrong, you can do everything. everything else right, you can have great culture, all the rest, it's not going to matter. What does the organization not want?

The organization wants resources allocated, give or take the same way they were last year. The organization wants, given its choice, I mean, they'd like it if somebody else got laid off, but they don't want to leave. And so they'll more than happily do the trade-off that, hey, our culture is such that no one ever leaves. We are very protective and kind to everybody. You're always working against that. You're always working against that. And you need to understand that you're working against that. The number of times that you can see people who make a great pronouncement on, here's the new direction the company's going in. Here's our new strategy. And then if you did the second

question, how is that strategy tied to a change in financial or human resources? And you get not much of an answer. You'd say, well, okay. Good luck with that. Yeah. In all of the M&A work that you did across your career, what did you learn was the key to getting deals done, to dealmaking? I had another advantage, which is the person who was in charge really of deals at GE. I might have had a title nominally would say that. But the person who was really in charge was the vice chair, Paulo Fresco. He ended up running Fiat, just a brilliant guy. And I heard Ken Langone talking about the same thing on your podcast.

Deals are not zero sum. The objective of a deal is not to come out thinking, I squeeze the last penny out of the person. The objective of the deal is on your side trying to figure out how can I take advantage of the economic engine of this business in a way that the current owners or current business is not taking advantage of it. Therefore, make this a positive value creation effort for me.

And then I want the other side to be going, yeah, okay, this is a reasonable deal. Let's get it done. The small differences of half a gear or something on what you pay is going to be lost in time if you've done what drives the economic engine of the business, if you've accurately understood that. Could you tell us the story more recent of what it was like to be in Delta inside that boardroom during what must have been the most stressful, imaginable period in early COVID when the literal business is not possible to run. And how you as a leader there, how the CEO Ed Bastion and others managed this incredibly difficult challenge, just the story I would love to hear. Patrick, first,

thanks for asking it because I think, and I've told Ed Bastion this and the leadership team at Delta, I think this is ultimately going to be written up as one of the great case studies of leadership in a crisis. And I learned a lot while I was on the board with Ed. I learned a lot from Ed on leadership, just a tremendous leader. This was a proof point. So if you can imagine, and this is literally true, in February 2020, we're sitting around the board room.

And first, we're thinking, this is going to. to be the greatest year in Delta's history. Second, gee, we want to make sure that Delta continues to remember some of the difficult times and how you have to be creative in responding to difficult times. And we were actually talking about we may need some training module or some video that captures this. Within a month, 95% of the revenues of business leave. By early March, it starts and then

you're falling down the mountainside, it was a really rapid fall. It didn't take a long time for the business to get down to revenues almost effectively disappearing. In that time frame, so in the March time frame, Ed comes to the board and he has a single piece of paper with seven bullet points on it saying this is what we're going to do. And it starts with take care of the customers and taking care of the employees. And then it goes through all the key elements on the financial side. We're going to raise every dollar we can off of our assets, the planes, and we've got to be prepared to park our planes, et cetera.

But it was a very clear list of this is what we're going to do in this crisis. And they followed through with it. I mean, we had a lot of communication around it. But fundamentally, the pattern was set right from the start. And I think looking backwards, Ed and Delta as a whole is justifiably proud that it never involuntarily furloughed an employee. I mean, that's extraordinary. If you look at that industry, for any industry, losing 95% of revenues is brutal.

for an industry that is so capital intensive, it's sort of beyond imagination. And as the business exited, if you remember, there were a lot of decisions that Delta made that added cost to the operations when every instinct was to do the opposite. So Delta was maintained an empty middle seat, long past the other airlines. So it's very conscious in making decisions that would would be viewed as protective and considerate for its passengers. And I think it's part of a longer story of how Ed and his team have taken, what, seven or 10 years ago, everybody would be saying, this is a commodity business. And he's taken the business and decommodified, made it a business that people are

willing to pay extra for the improved customer experience than Delta Airlines. How do he do that? What were the ingredients of that? The first is it's real. So it's operational performance. And I tell people who are passengers, and if you're not a passenger, hopefully you will be a passenger in Delta. You would be really pleased if you were a fly on the wall, Delta board me because the company would begin with, here's our operational performance. Here's on time. Here's on time to park on time arrivals, lost bags, involuntarily boarding, which never happens. But just a series of customer-focused metrics, how are we doing? Safety issues, whatever it was, all focused on the first

premise of getting beyond a commodity is actually to perform better, perform at a high, high level. And they held themselves accountable. The leadership team gets paid on net promoters. score. And so they can tell you what moves net promoters score and they're always in a drive to improve net promoter score. It goes to the capital allocation philosophy. So if you look over time, Delta has moved away from the smaller regional jets. So now, while there are still some in service, odds are you're going to get on a regular mainline airline. And the other part that was really interesting was when we were going through the succession process at Delta, Richard Anderson was a great CEO before Ed.

When Ed sat down with the board, he said, here are the three things we need to do. And they're all pretty much directed towards, how do I move this airline away from a commodity product? And he was right on all three, and he remained consistent to all three. So it's that vision. But the vision without the execution

and without the focus. I mean, you know, Patrick, it's a complicated. I used to joke, selling table saws is complicated in its way. But running an airline, that's really complicated. And it's the attention to detail and the focus that Edna's team have. So the vision is powerful, the execution even more. What have you learned about the financial side of these more complicated businesses, especially in an era where some of the big businesses that people talk about are software businesses

where the model itself is kind of amazing. Often customers pay you cash up front. There's not a lot of financial engineering required to make the thing go and work. Whereas when I think about a business like Home Depot with just tremendous amounts of physical things and places that need to be moved around and stored and to say nothing of an airline where safety is so important and all these things, bring us into the, behind the curtain on like the finance side of businesses like Home Depot Delta and others like it? Two very different things. So with Home Depot, one of the big changes that we made around

capital allocation was we stopped building new stores. In fact, we took a half a billion dollar write off and cleaned out our entire real estate pipeline and just said, we're going to grow from our existing store base, which from the financial capital allocation perspective, freed up $2 billion of capital, that we could invest in improving our supply chain, improving online, and returning to our shareholders. And to a significant extent, reduce the capital intensity of the business. That's a whole another discussion, but it was a really important part of the Home Depot story. An airline doesn't have that.

airlines need the physical assets. It's an asset intensive industry. Having said that, I think the great leadership teams and Delta are an example of that, start thinking about, okay, what are the adjacent things that we can do that may not be a SaaS model, but that give more leverage to this physical asset. So if you travel recently on Delta, you know this free Wi-Fi. With the free Wi-Fi, you think about you've got how many passengers in a plane that are using the Wi-Fi and the portal on the Wi-Fi is a customer connection that can be shared with other companies that care about that customer, and that's a business model that you can start to build off of the fact that you have this customer base. Similarly, the relationship at Delta with Amex is an amazing

relationship in terms of the loyalty of the Delta cardholder and the value that the MX cardholder, who's also a Delta passenger, gets. So there are ways of building out around the poor part of the business that's inherently capital intensive and difficult into creating value beyond that. They're still tied, but it gives you more flexibility. My belief, is, I think Delta is going to be showing the path, that as investors start understanding those opportunities within a delta of real value of the Amex, the real value of having these customers, having these passengers in the plane, the free Wi-Fi, those things are going to help in terms of the valuation of the business. I don't know if we'll ever get Warren Buffett back on the

stock. Maybe there's somebody, we'll get him back in the market. We'll get him back on the will stop. If you think back to that decision you made to stop the new store growth, what was behind that decision? Like, what did you see that convinced you that was the right way to go? The first site is for any of your listeners who've ever been to Apollosos, Louisiana. They go to Apollosus, Louisiana. There are two major home improvements stores, a Lowe's and a Home Depot sitting side by side. And no offense to Apalusus, Louisiana. Does Apollosus Louisiana need two massive home improvement stores? No. It was, so go back one of your first questions of frameworks. And why don't people change the framework? Well, think about the framework of a retailer. And particularly

of high growth. I mean, Home Depot was the fastest growing retailer in history of the United States, the fastest $10 billion, $20 billion, $30 billion, $40 billion. And the basic economic model was by the time I got there, we were opening over 200 stores a year. Every time you open a new store, you can count on a certain amount of revenue, certain amount of growth, hopefully some pop growth from the new store. If you thought about what drove your economic engine, that drove your growth. And if you're an investor, you go, I can model this. I know how many stores you're going to open. I can do my assumptions of what the new store will do, one, two, three, four, you. You years, model that out and that should grow. What was absolutely clear when you looked at the

financial returns is this was genuinely Wiley Coyote. We just overrun the needs for stores at that particular time and we're putting stores that weren't really going to be an effective return on cap. The more dramatic, stopping it completely and clearing out the pipeline was honestly probably more psychological than financial. So in my mind, we needed to say it was like, we're on this life rack now. We got to optimize our existing stores. There's no other choice.

We're not building any new ones. So we got to look to the 2000 plus that we have in the ground and we got to figure out how who improved them. And to be honest, a lot of investors said, yeah, no, that's not right. That's a mistake. And then it proved out. There was more productivity in the store. And obviously, if you're thinking about an economic model, you're a lot better off getting productivity from your existing asset than growing up and spending $2 billion in new cap bags. But yeah, so it was a combination of going to Apalususus, Louisiana and seeing two stores, and then just going, if we're going to be serious about this, and even doing it, I can't tell you the number of times for the next three

years that I would get presentations on, well, let's come up with a new store mob. Let's do something different. Let's start building stuff, because that's what everybody was used to doing. What was it like having lows as part of your world? So, I mean, I guess like Delta American Airlines would be kind of a similar adjacency where you could go to those stores for the same sets of jobs to be done for the most part for customers coming into one of the other. I know Home Depot is probably two and a half, three times the size of Lowe's by Market Cap or something. But nonetheless, Lowe's is still more than $100 billion, huge, well-known public company. What was it like having a competitor that was so well-known in the same arena or even tighter than that of job to be done

for the customer and seem like a formidable competitor? The untrue answer would be, oh, we just did what we thought was right for our customers and let whatever happened because everything was going to take care of itself. That would be the untrue answer. We had been outcomped. We had been losing share to Lowe's for a while. And so it was a big point to start to gain share. How did that play out?

What did you do? What were those conversations like? Was there a blows bullseye in your office? What was like the mentality around it and the tactics around it? It's a funny thing. And they probably don't do it anymore. I think at some point they decided it was not correct. But the Home Depot cheer used to end with, let's kick ass.

And the ass was always blue. Let's kick ass. So that was absolutely, absolutely number one on our site. And Carol Tomey, who's now running, UPS, Carol's a wonderful person. And on earnings day, she would always wear blue shoes. That's so cool. Just to make the point, great leader.

But that was one of the things. Everybody goes, yeah, I got it. If we're not kicking these people's ass, we're not doing our job. Now, having said that, I'm sure everybody at Home Depot would still, job one is making the customers happy and doing the right thing by the customers and the associates. But boy, don't lose sight of this is still competitive. If you had to design a perfect board in a lab, having been on some very effective boards,

a bunch of boards, been CEO reporting to a board, what do you think makes for an exceptionally productive board to the extent there is such a thing? So two different answers, both the CEO's perspective and then the board's perspective. From a CEO's perspective, my comment to CEOs is you really probably don't need your board until you need your board, and then you really need your board. That's why you pay attention, and that's why this is important. Because when you do need your board, when there is a crisis, when things aren't going your way, you really need them and you need their support. And in that context, as a CEO, when you're thinking about who to put on a board over index on mature judgment,

And that isn't a statement of age. That's just a statement of who will be cool under fire because you need people who are steady and wise. I was fortunate. I had lead directors both Ken and Bonnie Hill and then Greg Brennerman who were all that way. That's what you want to get from your board. From the board's perspective, I think the most. important thing to try to do as a board is avoid as much as possible the senator from. So sometimes

boards can get into, you know, I'm on this board because I have blank expertise. So every comment I'm going to make is about blank. You're really not on the board for blank expertise. If the company really cared about it, they go out and hire an expert. Higher grid executive, yeah. Yeah, exactly. So that's a part of your judgment, but don't become the senator from X, try to broaden out in terms of how you cover what the company does. And then the hardest part is be willing to be candid, which either candid one-on-one, candid in the committee, or candid around the board table. But you're there to give some candid advice as much as possible, make it relevant and thoughtful, but you're there for some candid advice. And then the final thing is avoid the forensic board member. Don't be the person who's going. I know something's going

wrong here, and I'm going to waste everybody's time finding out what's going wrong. I mean, if you want to do that in another room. You really stopped me in my tracks earlier with the story about the grandfather buying materials for the coffin for their grandkid. In closing, any other favorite story that stands out from all this discovery that you did of great stories inside the business that would be held up as a great example of how to be? I guess my favorite. I'll tell this story is a closer just, it's a very Home Depot story, but it was probably the most meaningful for me. In my eighth year or so, wanted to take Ken Langone and Bernie Marcus, two of the founders of Home Depot and do a storewalk.

with them. And we went to Columbus, Ohio. We had 30 or 40 associates, they had about 30 associates around a table to have lunch with Ken and Bernie. For a variety of reasons, Ken and Bernie were not in a good mood going into that lunch. And I'm going, oh, gosh, this is just not going to go well. Sometimes they're a great mood. They weren't in a great mood. They weren't in a great room. We sit down at the table and everybody introduces themselves. And the first person, says, I'm so-and-so, and I've been working at Home Depot for 20 years, and because of working at Home Depot for 20 years, I now own a house and have sent my kids to college. I can't thank you enough, Bernie and Ken, you've changed my life.

And then there was a version of that from every single person around the table. For me, in the time at Home Depot, and this is a very retail kind of story, no one's starts in a retailer. No one goes and gets a job shagging carts at Home Depot or work in the register going, this is my career. It's a fill-in job for everybody. Over some period of time, you get it in your blood and you like it and you stay and you advance through the company and people become, I mean, we do well by our associates and eventually people can become. the most successful people in their family. Literally with, I mean, 75 to 80% of our store managers don't have a college degree. These are people who made their own lives. It is the American dream

every single day. And it is the most impressive thing imaginable. And the most, I just, every time you just light up at the stories. And by the same token, for me, I will never forget that lunch and never forget all of those stories. And when I made an effort, I didn't get to do it every week, but pretty much as much as possible every week, whenever I'd fly into a city, I'd sit down and I'd have dinner with hourly associates, 14, and everybody would describe their life story. If I were to ever write a book, that's the book I'd write, because if you ever get down on where we are as a country, you see people who are working really hard, who are developing

incredible skills and who care about their success. And I always came away from those going, this is the highest privilege that I could ever imagine the opportunity to help. Yeah, I had a lot of great stories. It's a wonderful bridge to my favorite and traditional closing question for you. What is the kindest thing that anyone's ever done for you? First off, I love that question, and it is such an important question, and I will say that one of the things when I retired, because of the example that I saw set by Ken and Bernie and Arthur and others of generosity, one of the things I thought is I need to learn how to be more generous. I'm not generous enough. So that gratitude and who do you say thank you, who's done a nice

thing. Hence, there are a lot of personal folks who've done amazing things, my wife, my kids, but Penn Langone hands down. Ken took a risk on me that I think very few people would take in terms of giving me the job at Home Depot. And Ken always understates it. But I tell people, which is true, every day. While he was my lead director, I got a call from Ken every day. Yeah, most CEOs go, oh, my God, that must have been horrible. Right, that must have been horrible. And it was actually entirely the opposite.

I got so much advice, so much counsel, and so many sort of, I'm behind you, go get it. And if you think back on the time, it was 2007 when I became CEO, So housing crisis was on us. 2008, everything went south. But the housing crisis was already there in 2007. It was raining frogs. And here was this guy every day saying it's okay. It's okay.

Unbelievable kind thing. Unbelievable. What a true legend that guy is. Yeah, true legend. True legend. And the number of people whose lives he's impacted and reached out and helped, it's amazing. Frank, I've really enjoyed our time together. I love part of and led. Thank you so much for your time and for all your stories today. Thank you, Patrick. This is an honor. I look at the folks you've had on this podcast and I know this is I am an outlier on this, but it is a real privilege.

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