CEO Stories: Leadership Through Communication and Involvement

This Is Capitalism: Steve Odland

RH: This is Capitalism, this is Ray Hoffman. Steve Odland’s career has taken him from oatmeal to auto parts, from Sara Lee to U.S. Commission on National Transportation Surface Policy. Today he’s CEO of one of the nation’s premier business research organizations, The Conference Board, year after year, the source of a lot of great insight into the economy and human behavior. Meet Steve Odland.

Was there anything in your experience or background when you were growing up in Denver that would have suggested this was the career path you were taking?

SO: Well, it’s interesting, I sort of thought through that over time because people say, “well, what advice do you have, how do you…?” And I’ve just sort of viewed my career as a long hallway and sometimes the doors are open and sometimes they’re not open. And you know, you can’t go through those doors that aren’t open. But sometimes they open.

And my career has been made simply by having those doors open occasionally and then I walk through them. So there’s so many people who have things come along, and they say, “well, I don’t want to do that, I want to do this.” And they try to open a door that they can’t open. Anyway, the metaphor breaks down at some point.

But you know, look, I think I have just been really blessed with a great career and an interesting career. And most of the time I’ve done it just by saying yes to things that just seemed strange and odd and new. So that’s always served me well.

RH: And the first door that opened for you I guess was at Quaker Oats and then you went on to be…your first CEO was with Tops Friendly Markets, upstate New York. Is there any better industry for getting up to speed on the daily demands of business, especially a consumer-facing business, than the supermarket industry?
SO: Well, you know, the supermarket industry is interesting. I worked in a supermarket as a kid, bagging groceries from the time I was 14 years old and had the opportunity to interface with customers. And you work a little bit for tips as a bag boy. They don’t have bag boys anymore but taking groceries out to cars, but finding out what it is to connect with people and make them happy and satisfied.

So later, I say most of what I learned about the business world happened in those early jobs starting with a paper route, by the way, and then leading to that. But clearly, the supermarket industry is great. A hundred percent of the population in any country shops. They have to eat and the average supermarket experience is two and a half times a week in this country.

RH: People are always voting at the supermarket.
SO: They do. Everything that they do is a vote, isn’t it? And you can capture that now. So with these frequent shopper cards, we knew exactly who was in the store, what they were buying. And from that, you know where they live, you know how many kids they have, you know what their buying patterns are. So you know so much about people. And it really allows you to get close to your customers.

RH: And that came in even in the ‘90s, right, those frequent user cars?
SO: They did. And so people start talking about big data today as if it’s something new. It’s something we were doing 20 years ago, and by knowing, we knew exactly the price sensitivity, what kinds of specials helped and drove incremental sales. But you could also customize all your offerings because you knew exactly what they were buying. And from that you knew if they had a pet and what the age of their kids were, yadda, yadda. Anyway, so a great industry.

RH: And you cut your teeth in an industry with really narrow margins. That had to help in terms of everything you did afterward.
SO: Well, you know, you count your pennies in the supermarket industry. It starts with how you price because people buy differently on a couple of cents on a can of corn. And that matters. And so it teaches you that it’s important to customize things that way and control your costs to be able to provide the best value for your customer.

RH: And that led you to what you’re known for in terms of your first major CEO job, that of Auto Zone.
SO: Yeah.

RH: 2001, what month of 2001?
SO: Well, I started in January of 2001. It kind of overlapped with the Bush Presidency. He came in the same month. And I think of it that way because we went right from that period of time, which I don’t know if people recall, was great enthusiasm. Any change in administration, regardless of which side of the aisle you’re on, there’s great anticipation.

And we went right into 9/11 that year. So in a very short period of time, we went right into a very scary period of time. And then it triggered a recession and all of the follow-on from that.

RH: And there was decelerating growth in the early months of 2001 as well, which didn’t get us into the recession, but of course, we really fell over after 9/11. So what I’m wondering is, can you take me back to the things you experienced and learned from coming into a company as CEO of a company in a recession year?
SO: Well, it’s interesting. The auto parts industry is surprisingly insulated from that because it’s mostly a DIY business. It’s the automobile, that’s the tool that’s used by people to get to work, to get to school and so forth. So you’ve got to keep that car running. And so by definition, the DIY, you know, the do it yourself business is a business that is a baling wire and Band-Aid approach to sometimes keeping the car. So even in a recession, you change your mix, you change your focus in the auto parts business.

But I will tell you that it’s scary times. And you have to…when you look back on a recession, you know exactly how long it’s going to last, how deep it was, what the impact was. But when you’re living it, going forward, it’s like driving a car and you’re looking through the windshield, you don’t know. You don’t know when it’s going to end, how deep it’s going to be, what’s going to happen.

Just like in the financial crisis of 2008 and 2009, we didn’t know whether the banking system was going to survive, what was going to happen to the global economy, the country, the dollar and so forth. And so you’re learning as you go. And I think these kind of junctures in someone’s career are very scary on one hand, but on the other hand, they’re incredible learning experiences.

RH: Yeah, and I remember AutoZone in 2001 had culture problems and merchandising problems when you came in.
SO: Well, it was a great company that was founded in the ’80s by a supermarket company. And so this was an offshoot of the supermarket company. And so it flowed right in. But anytime somebody’s bringing somebody in from the outside, it’s because they’re having challenges. And so every one of these kinds of assignments is a turnaround and they were not happy with where they were. And it all started with the people and then you got to processes and how you’re interfacing with the customer.

Anyway, we changed a lot of things but it worked very quickly and we were able to take the stock from about $20 a share to over $100  a share in a short time, a couple of years, as we expanded the margins. And our customers were happier than ever. So it’s a great company still today.

My old team is still there, still running the company. Bill Rhodes is the CEO and followed me. I’m so proud of what Bill and the team have done, and they’ve carried on all of the legacies that we’ve had in that company.

RH: And the evidence is in the share price, which I want to get into in greater detail in a different way. But the share price topped at 103. I was looking at the chart yesterday, it topped at 103 while you were CEO, and then, thanks to some of the things that you laid down, it just kept on going essentially right into 2016. What was the high? Eight hundred sixteen dollars a share, no split adjustment.
SO: Yes, it was over $800 a share and you know, the management team that is there deserves all the credit. I deserve none of the credit for that. They deserve all of it. They did a great job.

RH: But you laid the foundation and that was the important thing. And it seems the foundation you put in, and your solutions were somewhat analogous to what Alan Mulally was doing at Ford when he was faced, just a couple of years later, with a poisonous executive culture. And one of the things I read you did was to bring everybody in, not just the accounting department, but everybody in, every senior executive to go over the books all the time, right?
SO: All the time, yes. And I know Alan, and had a chance to interface with him a little bit. He’s a great executive, a great leader. But I’ve always found that people respond well when you bring them in, when you share the good news but you share the bad news. And so my style is to share everything with the organization, the good, the bad and the ugly, and that served me well through the financial crisis.

You know you’ve talked about AutoZone but Office Depot was an incredible experience. You know, through that crisis, people didn’t know if they were going to lose their…by the way, we were headquartered in Florida, which was the epicenter of the housing crisis. People didn’t know whether they were going to lose their homes and whether their jobs…There were 200 retail bankruptcies during this period of time. People don’t remember how frightening it was. Where was the money going to come from? What happened?

Anyway, we brought people together every week during that period of time and then it went to monthly, but just sharing everything. And I’d come to Washington and meet with the Secretary of the Treasury and people from the Fed and we’d share our data. We’d get it back and I’d go back and tell people what was going on. But I think it brings great comfort when people are there and they feel like you’ve brought them into the process.

RH: Leadership through communication.
SO: And involvement.

RH: Yes. Now I want to go back to that AutoZone share price for a moment here.
SO: Okay. [Laughs.]

RH: And I know this is something you can’t quantify but I’ll take a shot at it anyway. How direct was the connection between the more ethical and more completely thorough culture that you installed at AutoZone and that incredible increase in share price, from 24 to 103 while you were CEO and then on up under the next administration to 816 a share? Is there a correlation that you can make?
SO: Well, I will tell you this. AutoZone is in Memphis, Tennessee. The folks in Memphis are some of the finest people that you’ll ever meet. And it was a company that worked at the highest level of ethics before Steve Odland and certainly afterwards. I think that that ethical background, their focus, their hard work, I think really does make a difference.

And I think that that group responded so well to a little bit of leadership, the involvement of that and the changes that we made. And they were so customer-oriented just because of the kind of, the highest level of ethics, the kind of people that are in the company, made them so empathetic to the customers and what… But anyway, it was there before, it’s there since. But what you’re getting at is so important, which is the level of ethics is critical to a company’s success.

RH: Exactly, that’s what I was thinking. Obviously what you did at AutoZone and then at Office Depot influenced the Conference Board. They brought you in to be the head of the Public Policy research organization.
SO: Yes, and so the Committee for Economic Development, it was a 75-year-old think tank in Washington D.C. And I was always engaged in public policy as a CEO through many different organizations. And so after I left the public company world, the Board of CED asked me to move to Washington and run that.

And then a couple of years later, we merged it into the Conference Board and it was a great relationship and we’ve built on that as a combined organization. And now the CEO of the Conference Board has retired and so I’ve been able to come into this role.

RH: I didn’t realize that the CED was an independent organization at first when you came in.
SO: It had been, yes. And we brought it together. Which by the way is really unusual in the not-for-profit world. Typically in these kinds of mergers…Because there’s no money that exchanges hands in a not-for-profit merger, and there are no owners. But we got together and I think that both organizations are stronger for the combination.

RH: Well, you know among other things, that led to a really well reasoned and very readable public policy book. And speaking as someone who does a podcast for Stephens, Incorporated, called This is Capitalism, a book entitled Sustaining Capitalism is very interesting to me.
SO: Yes, and that was a fun book that Joe Minarik of CED and I put together. But really it was a culmination of all of the various work that we had done. Capitalism is the greatest form of economic modeling that has ever been created. And it’s part and parcel interrelated with our form of democracy. So it was created together.

You know, Adam Smith didn’t create it in 1776 when he wrote The Wealth of Nations but he was describing what was going on around him. And the government that we have today was put together around this form of capitalism. But what we said is, “look, it’s not on a stone tablet somewhere, it is an organic system.” And so what was capitalism then was wild and wooly, and now we have a lot of regulation that we’ve embraced and so forth.

But here we are at another juncture where trust in companies has eroded following the financial crisis and the scandals that happened before that. And it’s up to the business community to deal with these issues. Also it’s up to the business community to head-on address things like inequality and some of these other social issues that face the nation and to recognize their role in it. That’s why if we want to sustain capitalism, we need to evolve it and we need as business leaders to address these issues.

RH: And evolve it away from crony capitalism, this insidious relationship between lobbyists and government regulators and other influential people in Washington.
SO: Well, that’s right and so we use the term crony capitalism, some people don’t like that, but it’s meant to say that it’s capitalism that is used to skew the system for your companies or your own benefit, even worse. And that’s not what it’s all about. It’s all about making the system work in total, rising tide.

And I will tell you that capitalism has its faults, it’s not perfect. And we need to continue to address to it and get better. But our form of capitalism has caused global trade to increase and it’s taken more people out of poverty around the world with this form of capitalism than any other economic model.

RH: Human endeavor with rule of law.
SO: Beautifully said.

RH: One of the sub-chapters in the book I really like, The Economic Cost of Crony Capitalism.
SO: Yes, it’s a tax, isn’t it? Because if you are skewing the system for the benefit of one sector or one company or one individual, you’re not creating value that rises to everybody’s benefit, you’re taking it and you’re shifting it.

And this is the same story, by the way, of another chapter, which is the issue of long termism vs. short termism. And you have all of these people who are engineering things for their short-term benefit but all you’re doing is you’re moving it away from the long- term owners. And I think to make capitalism sustainable, you have to be thinking about it long term and you have to be thinking about the benefits for all.

RH: But the long term vs. the short term you’ve got the…how would you ever get away from it based on how the financial markets are all built around quarterly earnings reports?
SO: Well, look, when I was in MBA school, they used to say that there’s only one constituency you need to worry about, and that’s your shareholder. You take care of your shareholder and that’s everything else.

RH: And that was the Kellogg School, right?
SO: That was any school. But I went to the Kellogg School but that was any school at that period of time. But I think that I learned from being a CEO of three different companies that in fact, you have many constituents. And I used to remember it by my title, CEO, customers, employees and owners, and then of course, I would say community and environment. But you have to make it work for all of these constituents.

You know, if you just take care of your customers, well, you just give it away free, right, whatever you’re selling and forget the shareholders. If you’re just out for the shareholders, well, you don’t take care of your customers or your employees. If you’re there only for the employees, well you pay them whatever they want and then forget the customer and forget the owner. It’s none of that. It’s not one, it’s the balance of all of them.

RH: And it what you did at AutoZone and at Office Depot writ large.
SO: It’s what every good business leader tries to do is strike that right balance so that it all works for all the constituencies that they serve.

RH: And you make another important point by distinguishing the difference between a pro-business government policy and a pro-market government policy.
SO: Yes, and that’s a little bit back to the crony capitalism point. And so much of what goes on today is in Washington where I live, is this notion well, let’s game the system. And you know, not all lobbyists do that but the whole point of  “let’s make laws that are to our benefit or regulations that are to the detriment of my competitor so that I can get ahead…” Well, that’s not right, that’s not what you want. You want to be governing yourself and influencing the government in a positive way for the benefit of all.

So that’s why at CED, which is now part of The Conference Board, we talk about reasoned solutions in the nation’s interest. So it’s not in my own parochial interest, it’s in the nation’s interest.

RH: And now you’re at The Conference Board, you get to look at a lot of data on all sorts of economic activity, human activity, not only in the U.S., but around the world, and is there anything that particularly surprises you about this rip-roaring economy that we see at least here in the U.S. in 2018?
SO: Well, you know, nothing lasts forever and so the question is “well, when does it change and how does it change and what’s going to?”…So these are the things that you always worry about. So whenever everything’s going well, and we’ve seen it several times in our lifetime and in our careers where things are just great, and you say, “well, what are the lessons learned so we can continue to repeat it?” And it’s always the people who…and when the lessons are not learned, not understanding why they’re so good.

I’ve often said that that’s the case in the company too. We always study what went wrong. We rarely study what went right and so what creates the repeatability of that? And the misdiagnosis of what got us here…you know, it’s not a politician or this, it’s a series of policies, it’s a series of regulations, it’s the business environment, it’s the whole thing that you’ve got to create. And the study of that is really important.

RH: You know, you just had me thinking back to the early months of 2008. Now we’d already had some of the shocks and the market had gone through some turmoil but there was still a lot of LBOs being squeezed in at the eleventh hour, really terrible LBOs as they almost all turned out to be. And I remember I kept saying, quoting people saying, the world is awash with liquidity.
SO: Yes, it’s interesting. I was in Chengdu, China. And I was at a luncheon because we were thinking about expanding Office Depot in that region. I was a luncheon with the mayor of Chengdu, it would be like the governor of a state here in the U.S., and this very formal thing. And the mayor turns to me and he said, “you live in Florida, how’s Florida real estate doing?” I’m sitting in Panda country with the jungles in Chengdu, China.

And I said, “Florida real estate, why on earth did you ask me that question?” And he said, “well, Goldman Sachs was in here and we just bought all of these mortgage derivatives. And most of it’s based on Florida real estate. It was called strips. And I wondered what the status was. But anyway, this is what happened and we sold these things all over the world,” and of course, the rest is history.

RH: And I did want to touch on the Board’s latest survey on job satisfaction in the U.S. It shows a big improvement in how we feel about job security.
SO: Yes. So this is The Conference Board’s Satisfaction Survey, we do it periodically. The results right now are terrific. I mean, the job confidence is very, very high. And the change, the delta in the numbers has been most prominent in the lower-earning groups, which is great, because it says that there is wage improvement and so forth.

So people are seeing…you know, people work, they want to work, it goes to the core of who we are. They want to be productive. And I think the fact that there is great employment and that they are seeing some mobility in wage movement and moving up in jobs, this is what people want. It’s what we have right now.

RH: And the state you were born in, Minnesota, is the place.
SO: Minnesota’s the happiest state. It’s very interesting. I was born there and I have a lot of family in Minnesota. Look, they have one of the lowest unemployment levels, they’ve got lots and lots of big businesses there but also the small businesses and they’ve got the balance with the farming. It’s a great balanced economy. And they are the happiest, I guess. Maybe it was because we took the survey during the summer when the weather was good.

RH: Minneapolis-born Steve Odland, CEO of The Conference Board.

This is Capitalism. I’m Ray Hoffman.