Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside The ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business. The dream drivers that have made the NYSE and indispensable institution of global growth for 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism, right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
"Eventually, all things merge into one, and a river runs through it. The river was cut by the world's great flood and runs over rocks from the basement of time. On some of the rocks are timeless raindrops. Under the rocks are the words, and some of the words are theirs." Those are the words from one of my favorite books, A River Runs Through It, another stories by Norman Maclean, made of course into the classic 1992 movie, starring Craig Sheffer, Brad Pitt, and Tom Skerritt, directed by the great Robert Redford.
Josh King:
And here's another word to ponder: transfluent. Look it up in the dictionary. Webster defines it as flowing or running across or through as in a transfluent stream. Apply that to an organization, to be successfully embraced across an organization, it has to run through it like a river. Things like building trust, like operating transparently, like a common set of core values, like having meaning and purpose when you come to work, put it all together, a leader and a company might have what you could call transfluence.
Josh King:
Our guest today, Walt Rakowich, knows a thing or two about building trust among a team. He took over as CEO of Prologis, that's NYSE ticker symbol PLD, during the height of the global economic collapse of 2008. You can look at that symbol today, the share price is just over a hundred dollars a share, but back then, the stock had dipped from around $70 a share to around two bucks, just that over the course of 10 months. That wasn't a river, that was a waterfall. But after joining Prologis as CEO, Walt orchestrated a dramatic turnaround, his ingredients, pure unadulterated leadership, and a construed effort to rebuild trust. Walt is now the author of TRANSFLUENCE: How to Lead with Transformative Influence in Today's Climates of Change, and he joins us for a deep dive on leading in the midst of a crisis. That's right after this.
Speaker 1:
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Josh King:
Our guest today, Walt Rakowich is just out with TRANSFLUENCE: How to Lead with Transformative Influence in Today's Climates of Change, the former CEO of Prologis. He rose to that role after joining the company in 1994, serving first as its head of its Mid-Atlantic region, then CFO, then president and COO, eventually assuming the corner office and taking a seat on the company's board of directors, graduated from Penn State, got his MBA from HBS, and now serves in the boards of three NYSE listed companies: Host Hotels & Resorts, that's ticker symbol HST; Iron Mountain, that's NYSE ticker symbol IRM; and Ventas, Inc, that's NYSE ticker symbol VTR. Welcome, Walt, inside the ICE House.
Walt Rakowich:
Great to be here, Josh, thank you for having me.
Josh King:
First of all, Walt, you now live in Colorado. You've got Cory Gardner and John Hickenlooper vying for the Senate seat out there. And we've all got this choice between Donald Trump and Joe Biden coming up in about 30 days. We are in a time of crisis. I mean, given all of your experience, what advice do you have for either your next Senator taking office in January or the president taking the oath of office on Inauguration Day?
Walt Rakowich:
Well, great question. I wish I had better advice or good sage advice for that one. It's going to be a very interesting election, I think. And I will always vouch to not really spend a lot of time talking about politics because 50% of the people would agree and 50% wouldn't agree. But I do think, from my perspective, long term... I read an op-ed four years ago, which I think had a real impact on me, and it was written by Howard Schultz, who was the CEO of Starbucks. And you might recall at that point in time, Howard was thinking about running for president, and actually the op-ed was his out where he basically told people he opted out, and that he wasn't worthy, but I thought it was a very interesting op-ed because he went on to say that the country needs a servant leader. And I'll let the audience figure out who that servant leader should be.
Walt Rakowich:
And I won't really opine on that one way or the other, but I would say that my book and the things that I've written about, and what I like to talk about in corporate America is servant leadership. It really is. I believe that's the leader that can do great things. And I talk a lot about how that type of leader can turn around a company, and quite frankly, build trust in an organization. And I'd like to think that long term, that we will have more servant leaders in political office as well.
Josh King:
Let's pivot then right to the book, Walt, TRANSFLUENCE: How to Lead with Transformative Influence in Today's Climates of Change. It comes at a time when companies are placing a premium on true leadership, servant leadership, you might say. You must get that, not only thinking about your time at Prologis, but when you sit in the nominating committee meetings for Host, Iron Mountain, and Ventas, but your perspective, I think, Walt, comes from Pittsburgh. You were the son of working-class parents. You tweeted recently, "My parents weren't wealthy, but they taught me a wealth of enduring values that I have used as a yardstick for my life journey. One is to view challenges and opportunities."
Josh King:
Walt, neither of them had a college degree, but they taught you the value of working hard and treating people with respect. How has that shaped who you've become today?
Walt Rakowich:
If I look at my parents, basically, they appreciated people for who they were and not what they had. And I think that that's a lot because they didn't have much. They truly saw people and saw through of their heart. That really had an amazing impact on me growing up. And it's interesting, Josh, a lot of times you don't notice these things until you're 20, 30, and 40 years old, and you're looking back, but boy, they really shaped the way that I thought about leadership.
Walt Rakowich:
You had mentioned before, I went to HBS, Harvard business school, and I remember sitting there in my first day of class, and looking around in the classroom and thinking, "I'm not the smartest person in this room and I may be the least smart person in this room." I had this fear that leading was all about brilliance, and I thought, "Geez, if that's what it's all about, I'm not going to be a captain of America. That's for sure." But you know what? I took my first job, and I worked for a guy that reminded me of my dad. I worked for a guy who loved his people. I worked for a guy who spent time with his people and cared about his people.
Walt Rakowich:
At the end of the day, he came to work with one thing in mind, and that was to make us all better at what we did. And you know what? I would've killed for this guy. At the end, it's funny because he had an objective and that was to be profitable, but his real objective was to make a difference in people's lives, and as he did, he became profitable. And I think about my dad's influence on me, my mother's influence and then his influence, and it's interesting how those things all come together to, in essence, shape the way that you are.
Josh King:
Well, you mentioned in the book that this new reality we're facing didn't impact anything about the content of the book, other than maybe trying to connect it to today's times. What do you think is the biggest difference between leading, let's say seven months ago, back in February when everything seemed relatively normal, and then in March, April and may, when everything seemed to go hell?
Walt Rakowich:
I mean, I'm asked that question all the time. You're absolutely right. When you write a book, you start years in advance, and I started this book four or five years ago. It's just amazing that we'd be in these times when the book would come out. Look, I think empathy and flexibility are so important today, even more important than when I first started writing the book. I've been on Zoom calls where you've got dogs barking in the background, and you've got babies crying, and you're on Zoom calls at six o'clock in the morning or nine o'clock in the evening. It is a difficult time. I've never seen a time where there's a confluence between personal and business work, if you will, than I see now. I've never seen this before.
Walt Rakowich:
You wake up and you sort of do some business, and then you take care of your kids, and then you come back and do some business, and then you got something else personally to do. And that's really hard. I mean, it's really hard. And so, I talk a lot about the importance of managing with a heart, with a real humanity in the book. I look at it now and it's even more important. I do think leaders need to be empathetic and they need to be flexible. I talk in the book about the fact that they need to have a caregiver a versus a caretaker mentality, and really giving to the people that work for them and listening to them.
Walt Rakowich:
I mean, I have to tell you, in one of the boards that I'm on, just a few weeks ago, they had three suicide attempts. And you hear that. And as a board member, I've never heard that before. I've never heard that before as a board member. And you think about how that begins to change your heart as a leader. In many respects, I think this COVID situation hopefully will change people over time, will make us more empathetic leaders, because I think that's what the next generation is asking for and I think that's the essence of real leadership.
Josh King:
Walt, the NYSE has helped American businesses and people flourish for more than two centuries. I think we're up to 228 years now. I've been inspired every day, down on the trading floor, watching how our community is helping others to work through and find solutions to crises. From your years of experience leading an NYSE listed company, how do you think a crisis informs the way employees watch and listen to their leader?
Walt Rakowich:
Well, I'll tell you this. I found out that it magnifies it. When I came into the office, when I came back to Prologis in 2008, I found that people were hanging on every word that I said. In fact, it puts a lot of pressure on you. I'm like, "Well, I can't really make a mistake here. This is not good." But the thing that I found is that, "Okay, if they're going to listen to me, when you think about it, I will never have more influence in someone's life than I do right now." And I thought about that. We talk about the book TRANSFLUENCE, you talked about a river running through it or water running through it, and in many respects, I think that transfluence is similar because it comes from the heart of a leader, flows from the heart of the leader. But that word transfluence is really transformational influence.
Walt Rakowich:
I believe that leadership is not about the destination that you're after. It's about the journey. It's about the things that happen in between. And I believe that real leadership starts with this notion of, it's not about you, it's about the transformational influence that you have in the lives of other people. That's what I believe. Sometimes, we get so focused on the end game, the destination, which for me was turn around the company, and we forget about all the things in between, which is how do I change somebody's life? That's what leadership is. How do I make them better at what they do? How do I lift them up? How do I empower them? And what I found, to your question, is during a difficult time, that's when people listen the most. And actually, you can have the most influence on people during times of crisis. And so I would just encourage the leaders that are listening to this today.
Walt Rakowich:
I tell you what, I was on the line with Ed Bastian a couple weeks ago who's the CEO from Delta. Keep in mind that Ed's revenues went down by 90% in the month of March, and they're still down 70% now. Okay? And these were his words, he said, "This is a time that we were anointed for." He said, "This is me and my management team. This is a time that's a blessing, not a burden. This is an amazing time in a chapter in my life, and what an honor and a privilege it is to be managing at a time like this." Now that is amazing. That's attitude. Right? And that's a man who thinks about coming to work every day and really thinks bigger picture about why he is really there as a leader. And yeah, there's some people going through some really tough times right now, but if you come to work with that attitude, as to how you can make a difference in someone's life and change their life, it's powerful. It's really powerful.
Josh King:
We could talk about examples like Delta all day long. I mean, it just flies off of every newspaper, Harvard Business review article you're reading these days. Everyone is talking about who's stepping up, who's not. We're going to be talking a lot in the next few minutes, Walt, about Prologis. So I want to give listeners a sense of this company whose name Prologis sort of belies its scope and business. This started really in 1983, when Hamid Moghadam and Doug Abbey used a $50,000 line of credit to found this company, Abbey, Moghadam and Company. Today, as a real estate investment trust, it owns nearly 4,000 buildings, comprising over 800 million square feet around the world, warehouses mostly, where 1.3 trillion worth of goods are transferred annually. What's the special sauce of this company. Where did it come from? And what does it do?
Walt Rakowich:
Great people. The special sauce is always great people. I think great leadership. I think they do things in a classy way. They own the best of the best buildings in the world. They focus on their customers. They treat their customers with dignity, respect. They do things the right way. They own the best real estate in the world, as it relates to industrial lens. But I do think it really boils down to the people. They have some of the best people. They attract some of the best people in the world because they have great leadership, and they have great product, and they are customer-focused organization.
Josh King:
It wasn't always that way, certainly not at a moment when you took over in 2008. During the downturn, Walt, the stock had dropped, as I mentioned the introduction, from over $70 a share to approximately two bucks, just over the course of 10 months. It was, as history might recall, I think the third worst performing company in the S&P 500. After you joined as CEO, you're able to orchestrate this dramatic turnaround. Take us back to that time. Is there anything that could have prepared you for that moment? What did you do when you showed up?
Walt Rakowich:
Boy, that's a loaded question. I don't know that there's anything that could prepare me for that time, but I will tell you this, and I'm not afraid to say this and I say it in the book, I was scared to death. And I'll take you back. I had been with the company for roughly 14 years, as you mentioned, 1994. Actually, I worked for a year before that, before I joined the company for them as a consultant, but just say roughly 14 to 15 years. And I had grown up in the company. We had great leadership. We were expanding throughout the world. We had a tremendously passionate company. And at that point in time, my 14th year, if you will, 13th, 14th year, I'm now president and chief operating officer, the number two position in the company. Previous to that, as you mentioned, I was chief financial officer. And by the way, I spent a lot of time at the New York Stock Exchange. I love it there, and I rang the bell on a number of occasions and the like.
Walt Rakowich:
But I tell you what, I had risen through the ranks, and here we were in '06 and '07, and the market's still humming pretty good. And we had a new CEO that had been promoted a couple years prior to that, truly one of the most brilliant people that I had ever met. I loved many aspects of him, but he believed that he was always right and really paid little attention to what, at least, I had to say and a number of other people in the organization had to say, and I think we started making a lot of mistakes. I mean, we lacked discipline. There was not a lot of delegation and we were working in silos in the organization, and I was struggling with it.
Walt Rakowich:
I mean, it was so funny because from the outside, looking in, we looked damn good, our stock price continued to rise, but from the inside, looking out, it really did not look so good. And so I went to the board of directors in late 2007 and I said, "I just don't want to be a part of this anymore. I don't know what's going to happen, but I don't feel good about it." Now, I had no idea nor did anybody have any idea that the market in 2008 would crash. The S&P would be down, close to 40%, year on year. But here we were in January of 2008 and I formally resigned, and our stock at that point in time was at an all time high. And I spent the next 10 months just trying to think about what my next step would be in my career. And I watched that stock price go from 70 to 60 to 50 to 40 to 30 to 20 to 10. I mean, on the sidelines, just watching this whole thing.
Walt Rakowich:
And then the board called me in early November. They said, "You know what? We didn't see it a year ago, but you're right. We think it's time for a leadership change. We'd like to make that change, but we'd like to bounce it off of you in advance. Would you come back and run the company?" And I was scared to death, Josh. I really was. In fact, I didn't want it. My initial reaction to the lead director, I said, "I really don't want to do this." The only thing that kept flashing through my mind was the brain damage associated with turning around, not even turning around, but dealing with bankruptcy. I mean, that's three or four years of your life. And I really struggled with that. You know?
Walt Rakowich:
But I had hired a number of the people there over the years and I just couldn't let it go. I had a long discussion with my wife. He gave me 24 hours to think about it. And I had a long discussion with my wife and I said, "Yes." And I went back and it was different and it was difficult. And I have to tell you, I tell people a time, I knew it would take a herculean effort. Our people really had lost confidence in leadership. The board had lost confidence in leadership. Obviously, investors had lost confidence. When your stock goes down 96%, it's not just the market. We were over leveraged. We had 10 or so billion dollars of debt coming due in the next 18 months. It was tough. But I will tell you this, crucible moments are sometimes our best opportunities, and we shy away from them. We don't want them.
Walt Rakowich:
But when you look back, and I look back on this, it was the greatest opportunity I ever had to truly go to school on what leadership was all about because, to your question, I actually didn't know I didn't have the answers. In fact, I didn't have any answers, but I'll tell you what, man, I had one hell of a management team, and they were eager to make it happen and turn it around. And all I had to do was to figure out how to tap that management team to make it work. I learned a lot. I didn't coin transfluence at the time. I didn't know what to call it. It was called turn this company around.
Josh King:
I mean, let's talk about that management team for a second, because during your tenure as CEO, one of the things you did was made sure that everyone on the senior management team was tested, evaluated, and coached.
Walt Rakowich:
Yep.
Josh King:
I've been at a couple companies, and I know that sometimes people rail against that idea that you're going to be tested, evaluated and coached. How did it pay off for you?
Walt Rakowich:
Well, I'll tell you this, and you know I talk about this in the book a lot, I really believe that one of the ways that you can become more transparent to the outside world is to become more transparent with yourself. Unfortunately, most leaders don't do that. They think they know themselves, but they actually don't, and so I'm a big believer in coaching. I'm a big believer in 360-degree evaluations where other people tell you how you're doing. When I rejoined the company, I could see that I had the best management team in the world, and yet it was the most dysfunctional for the first X number of months. And as you can can imagine, anytime you're working for a company where a stock goes down like that, I mean, people take it personally. It's hard.
Walt Rakowich:
So anyway, I hired this coach, and he does extensive personality testing and 360-degree evaluations. I mean, it was brutal, I mean, just how much work you had to put in. But anyway, first time I meet with him, he said, "Well, Walt, I've got some good news and I got some bad news for you." I said, "Okay, what's the good news?" He said, "Well, the good news is, actually people like working with you. That's good." I go, "Well, that's good. Let's stop there." He said, "Let me tell you the bad news." He said, "The bad news is that, you were running around like a chicken with your head cut off. You fear failure." I said, "Yeah, I do."
Walt Rakowich:
And he said, "Unfortunately, your relationships are suffering." I said, "What do you mean?" He said, "Well, your management team is telling me that they love working with you on one hand, and on the other hand, they can't even get into your office to talk to you because you're never there, or you're running around like a chicken with your head cut off. You almost look frazzled to them." And he said, "The way I look at it, your empathy scores could be a heck of a lot better." And I thought, "Oh my God," it was like someone put a dagger in my heart. Honestly, I was bummed out.
Walt Rakowich:
But the more I thought about it, the more I thought, "You know what? I could have never given myself that kind of feedback. I would've never given myself that kind of score." Actually, I thought I was a people person. I always did. But the fact of the matter is that, it doesn't matter if you're a people person, it's sort of, I was letting my fears get in the way of building relationships in the organization that mattered. So yeah, I'm a big believer in coaching. I'm a big believer, and I think it helped my management team come to grips with some of their fears and their insecurities and their anxieties. I think it made us a better team as time went on.
Josh King:
You talk about your empathy scores. What do you actually do as a leader to give your team hope at a time like that when Prologis has gone from one of the best performing stocks to one of the worst performing stocks?
Walt Rakowich:
You don't lie. And it's interesting, I know that there's a lot of leaders that are really good at standing up and raising the flag and saying, "Follow me," and creating that sense of hope. I will tell you that I don't think I managed that way, candidly. Don't get me wrong, I think it's important to give people some level of hope, but I think what's more important is brutal honesty and transparency, because you get to a point where sometimes you can be so hopeful that people don't understand and they almost think that you're lying to them, and you lose that believability.
Walt Rakowich:
So, actually, what I found myself doing more, is just trying to communicate and get in town hall meetings in front of employees and saying, "You know what? I got to tell you something. I'm not going to tell you today that we're going to make it. I'm not going to tell you we're not going to make it, but I am going to tell you that we're working our butt off to do it. And I am going to tell you, I think we have the right direction, but the markets could prove me wrong. I just don't know. Okay? But we're spending in a heck of a lot of time thinking about this and trying to do it, and I need your help. I need your help. I need your ideas. I need you to tell me if you don't think we're doing well."
Walt Rakowich:
One time, I've never even told this story, but one guy who was in the accounting department felt bold enough to walk into my office one day and say, "Well, I don't think we're doing things the right way." And I sat there and we had a half an hour meeting, and I think I actually convinced him. He left and he goes, "Okay, I feel better now." But that's important, that we... Iron sharpens iron, and so one person sharpens another person. I think that through that level of brutal transparency with our employee base and amongst the management team, we were able to sort of persevere. So how do you give your people hope? I actually think you do it through brutal honesty and transparency, and not necessarily trying to pull the wool over their head. Don't get me wrong, you got to carry the flag. You're the leader. But I think a dose of realism is not all that bad, and people really expect to hear that.
Josh King:
Well, you retweeted Mark C. Crowley the other day. He wrote this, "Amazingly, it still quite common to find organizational mission statements that emphasize maximizing shareholder value and delivering unparalleled customer service and quality, but omit any commitment to advancing the needs and wellbeing of their workers." Now, Walt, I've spent a lot of hours struggling to articulate a company's values, working closely to harness the vision of a CEO that I'm working with. Those words that mark talked about, shareholder value, customer experience and quality, they're always at the top of the list. Where should the needs of workers be on that ladder of importance on a company's values?
Walt Rakowich:
I actually think it should be number one. And I could tell you that our... You might say, "Well, Walt, you're hypocrite because I don't remember your mission statement saying that." But you evolve your mind over time, and the more I think about it today, the more I realize that your employees are number one. I think if you take care of your employees, you ultimately will meet the needs of your customers. And meeting the needs of your customers and maximizing shareholder value should also be there. I'm not saying they shouldn't, but I think you got to take care of your flock. And I'll tell you this, people ask me all the time, "Why are you writing this now?"
Walt Rakowich:
I just want to harken back, if you don't mind. I'm going to go back to my first job in 1979. I worked for Price Waterhouse, which was an awesome organization, don't get me wrong, PwC now. But I just think that back then, I think jobs were more transactional. I went to work to get a paycheck, and I did what they wanted me to do, and they needed me to do the job. But really, nobody even talked about culture back then. "Leadership was granted to those who had done their time." Nobody was vocal. So then, fast forward 30 years to when I took over, first day of my job, I'm telling you, Josh, I had at least 1,000, and I'm telling you, 1000 voicemails, emails, touch points from people in the marketplace.
Walt Rakowich:
Now, don't get me wrong, this is a company that was just in The Wall Street Journal front page, we're going bankrupt kind of thing. But still, I had emails from investors, bond holders, sell side analysts, employees, rating agencies, news publications, you name it. Right? And then, their online chats were rampant, man, like, "What's the future of Prologis? What kind of job is Walt going to do? What kind of culture is he going to..." I mean, it was crazy. If I had to read all this stuff that was written the first day that I came back, I mean, I'd still be reading it now.
Walt Rakowich:
So what does that mean? So we live in a world today, and I talk about in the book, with greater access to information, greater diversity, accelerating progress, it's a fast-moving world, man. And we live in a world of glass houses where everybody can see what every leader does. Okay? That's the good news in some respects, because we advances a society even more quickly, but the problem is it's a really tough environment to lead in. Okay? And you realize how important your employees are, and they're also seeing the same thing.
Walt Rakowich:
People aren't in closets anymore, so you have to... It requires a constant drumbeat to communication today and transparency, brutal transparency. In my view, it requires values-based leadership, where people can really see into your heart the type of leader you are and trust you. It requires leadership that enforces the human element. It requires leadership that has a greater degree of expectation than it ever did in the past. And by the way, it's just increasing even more and more and more. You look at the younger generation, you want to attract them as talent. Six months ago, we just had three and a half percent unemployment. Okay, we have more now, we'll get back to that. You want to attract the best of the best. That's how you have to lead. And it's just that simple.
Josh King:
So Walt, as we head toward our sort of midway break, let's just finish for our listeners the story of Prologis from that point of $2 a share, at the years that followed, I'm curious, like how did the story evolve? How did it change for you and the management team and your employees? And on a parallel path, what did you learn about your own leadership skills throughout the process?
Walt Rakowich:
I would say this, it took a good year till I really thought we would be able to make it. I mean, I had an inkling prior to that, that yeah, we were on the right track. And I heard a lot of good things from investors that yes, you guys are on the right track, really appreciate your transparency, and the like. But what I saw was a management team that started, I think, again, some of the smartest people in the world, but started dysfunctionally and so did I, not really knowing where we were headed, and then feeling more confident as time went on because of some of the things that were happening, and the stock price started to rise more and more. We did three equity issuances that helped. We sold somewhere in the neighborhood of $7 billion in assets, which helped and paid down debt. So it evolved, but it really, really took time. It really did.
Walt Rakowich:
And as regards to our employees, I don't know, I guess you might have to ask one of them, but I do think that they became more and more confident as time went on as well, and saw the value of heart-led leadership and what that really looked like.
Josh King:
Heart-led leadership. After the break, Walt Rakowich and I delve into his new book TRANSFLUENCE, and what leaders can take away from it in today's current climate. We'll be back right after this,
Speaker 1:
In our time of greatest need, we want to thank the true heroes around the world for stepping up, for taking care of us, and keeping us safe. With your expertise, your commitment, your sacrifice and your selflessness, we'll work together to create a brighter future. And we thank you for reminding us what really matters. From all of us, thank you.
Josh King:
Welcome back. Before the break, Walt Rakowich and I were discussing his tenure at Prologis, which was near collapse when he took over as CEO in 2008.
Josh King:
Walt, let's delve into a little bit of a different part of your life. Talk about your time at Penn State and HBS. My brother is an HBS grad. I did their executive program. Of course, one of my seminal books growing up was Mark McCormack's 1984 classic, What They Don't Teach You at Harvard Business School. Did Penn State and HBS teach you what you needed to know in those first roles at Price Waterhouse and Trammell Crow? Or did you have to learn by doing?
Walt Rakowich:
Well, first of all, I think the world of Penn State University, and I am on the board at Penn State right now, I have been for almost seven years now, it's a remarkable university and I have nothing but great things to say. I'm very active also with the business school there and have taught classes from time to time. And I just love giving back to the younger generation. So Penn State is near and dear to my heart. Harvard Business School was hard. I mean, Harvard Business School, to me, I started to mention to you before, I remember that first day in class, just looking around and thinking, "Man, I may be the dumbest person in this classroom. This is not good." You know?
Walt Rakowich:
I tell you what it did. This is way back when I used to say, it's like playing tennis. And at that point in time, John McEnroe was a tennis star. And I said, "You know, it's like playing tennis with your best friend versus playing tennis with John McEnroe. Which one do you think is going to make you a better tennis player?" What HBS did for me is it raised my expectation. I went from being very nervous about my abilities to get along and my lack of brilliance, to a person that realized that over time I could survive and I could thrive. HBS honed my leadership, I think, skills more than anything. And I think it prepared me a little bit more for not the entrepreneurial part of real estate, but the managerial part of real estate, which happened more when I became a chief financial officer, chief operating officer, and CEO of Prologis.
Josh King:
You mentioned real estate. Well, I'd be remiss if I didn't ask your take on the state of the commercial real estate industry and this sector right now at a time when, I think The Wall Street Journal reported this week, only about one in 10 people are in their offices in Manhattan, me being one of those 10 people today. What's going on?
Walt Rakowich:
Most people talk about office buildings and retail outlets and hotels, because that's what they're used to seeing, right? So I would bifurcate real estate into two different buckets right now. One bucket is, if you will, the people and the leisure driven real estate. Okay? And that bucket is suffering big time, hotels, office buildings. Well, office buildings aren't necessarily suffering yet because the leases are long term, but they will. As the leases turnover, they will have vacancies. And retail outlets for sure, because people are buying things online. Those are the have-nots today. By the way, I don't believe there'll be have-nots forever, but I'll talk about that in a moment.
Walt Rakowich:
On the plus side, you have houses, particularly in the suburbs are on fire right now. You have warehouses, which is Prologis' business. People don't think about that. That's on fire. Why? Because everything you click in order in your house is now coming from a warehouse, not a retail center, and data centers. And so the data and distribution real estate is on fire right now. And not that houses are data and distribution, but the commercial part of it. And so-
Josh King:
I mean, the Amazon is talking about how many thousands of warehouses they're going to build closer to urban cores.
Walt Rakowich:
Yeah. Exactly. And that's real estate that people are less familiar with it because they don't touch it and feel it. When they drive down the freeway and they see a Prologis warehouse, trust me, they're not exactly thinking, "Oh, I'd like to go visit that thing." What people do see is office buildings and retail centers. So part of real estate is getting crushed, and part of real estate is actually thriving. And there isn't that much in between. It's very interesting. I guess you could argue, maybe apartments are in between. Some are doing well and some aren't, but for the most part, it's a haves and a have-nots.
Walt Rakowich:
Now, do I think that'll continue? The one thing I've seen about real estate over the years is whatever you think is going to happen, is not. It might happen for a few years, but you're already beginning to see some of these retail centers get repurposed. And I do think that once we find a vaccine, people will begin to shop outside again, or at retail centers. I think people will float back into offices. I just think it's going to take a little bit of time.
Josh King:
So pivoting now a little more deeply into your own unique management philosophy that is Walt Rakowich, in the book, you say that mentors are the people who get the most direct and unfiltered views into your heart because they're the most qualified to help you shape what they see there. Did have such a mentor throughout your time at Prologis?
Walt Rakowich:
I had one person who I would say I wouldn't call a mentor because we didn't meet regularly, but I had an amazing conversation with him that shaped how I was as a leader, and what I wrote in the book. And I'd like to tell that story. It's with somebody who will be very familiar to most of your listeners, and that's John Mack, who was the CEO of Morgan Stanley during that same time. So we were a pretty good client of John's. And I had an investment banker friend of mine, Guy Metcalfe who called me up and said, "Hey, Walt, obviously, the market believes you're going bankrupt, otherwise your stock wouldn't be trading at two bucks a share." Keep in mind that people thought Goldman Sachs and Morgan Stanley were going to go bankrupt. Right? And you imagine what John Mack is going through, but he said, "Would you like to spend some time with Mack on the line?" And I said, "Sure, that'd be great." Man, I needed to talk to somebody.
Josh King:
Yeah.
Walt Rakowich:
And Mack got on the line with me and I said, "John, look, I hear all these rumors. You don't need to address anything that is out in the marketplace about you guys, your stock, tarp, you name it." I said, "I just want to know how you're managing your people." And he sat back and he said, "You know what, Walt? I manage my people on the basis of three Hs, three words that I think are impactful leadership that all start with an H." Now he had me intrigued. I said, "Okay, you got to tell me about this." And he said, "I will." He said, "The first is humility." He said, "The leaders that I like to hire are humble, and they don't think too much of themselves." He said, "The second thing is honesty. Brutal honesty is what we need in leadership today." And he said, "The last thing is, the banker these days has to run a company with a sense of humor."
Walt Rakowich:
I thought a lot about those three words. And actually, the first two really resonated with me, the third one I kind of liked, but I never really viewed myself as a humorous person. You know? But I think what John was really saying, is you got to run your company with humanity, with humanness. I mean, let's face it, people that are funny, do it to connect. They do it to relate to people. Right? And that's really what John was saying. By the way, that humanness also, it happened to start with an H. And so in the book, I talk a lot about the importance of humility, I talk about the importance of honesty, and I talk about the importance of humanness, or I call it heart, in the book. And what a mentor, just the short time that he spent with me, it really changed the way I thought about things. And you talked about transfluence and looking up transfluent in Webster's. You look up the word humility in Webster's Dictionary, and you find words like weak, and you find words like unassertive and submissive.
Josh King:
Mm-hmm (affirmative).
Walt Rakowich:
And you say as a leader, "Well, why do I want to be that?" Right? But you see, real humility is not about being weak. It's about admitting you've got them weaknesses. And once you start admitting them, you defeat them. It's really amazing. To me, it's about vulnerability, and just being vulnerable enough to look at yourself in the mirror and say, "I'm not good at this. I need somebody to help me with this," makes you a better leader. And that's what I think Mack was talking about.
Josh King:
So Mack is talking to you about humility, honesty, and heart. Let's talk about one other thing that is woven throughout your book, which is trust. And you go back to 2008 and the folks who've been working for Prologis for so long have their restricted stock or their options, which is now so underwater. They need to trust someone, something. In your opinion, what's the most challenging part of building trust in an organization, and why is it so essential?
Walt Rakowich:
The most challenging part of building trust for a leader is looking at his or herself in the mirror and dealing with their pride and their fear. I really mean that. When you talk about looking outside of yourself and focusing on other people, which... By the way, just to back up, transfluence, as I mentioned before, really the notion that the idea of transfluence is it's not about you, it's about the influence you have on other people. Well, the only way you can get there, is to deal with your own pride and fear because pride and fear as a leader, really forces you to look too much at yourself. To me, and I talk a lot about this in the book, but I think authentic pride can be good. Don't get me wrong. I have pride in my children. I got pride in Prologis. I got pride in my work. The problem is when you get into hubristic pride.
Josh King:
A guy who went to Penn State and was on the board of trustees, you got to be a big football fan. I'm a big football fan of Vince Lombardi, the Green Bay Packers, read that great biography of him when pride still mattered a couple years ago. And there's got to be positive aspects of being a proud person and having pride as an organization. What's the difference between authentic and hubristic pride, and what can a leader do to balance those things?
Walt Rakowich:
Well, I think it really has to do with yourself. Okay, I'm really proud of my children. I'm really proud of Penn State football. I'm really proud of Penn State University in general. Right? I think that's great. When you start saying, "I'm really proud of myself," that's the problem. It's okay to feel good about your accomplishments and all that stuff, but the problem is, the more you feel really good about that stuff, the more you start dwelling on it. And I'm telling you, it's really a recipe for disaster. By the way, I find myself fighting it, we all do. Look, I'm not any better than anybody else is out there, but I think the key thing is recognizing when you get there, that you really need to jump off that ship because you can sail down those waters really far and begin to believe that you're the greatest thing since slice bread. And I think that's where the problems really, really start mounting.
Josh King:
You've been very honest with me about the fear and the fears that you felt when you took over in 2008, as your book relates. And you've been telling me here, very transparent, about the vulnerability that you showed both to your management team and the coaches that you were working with. Why do you believe leaders need to show vulnerability now more than ever?
Walt Rakowich:
Well, I think leaders should have shown vulnerability a long time ago too. It's because it's the most human and most difficult thing you can do. If you want to create trust, do something where somebody else just can't believe that you're doing it, like, "I just can't believe Walt just said that about himself." That starts with vulnerability. I'm going to tell you a quick story that happened to me that's also in the book, but really changed my life in terms of thinking about vulnerability.
Walt Rakowich:
So we were on the job, I mean, I had been on the job for a month or two. It was sometime in the month of December of 2008, pre-Christmas. We were working dog years, Josh. I mean, we were working, it's like one o'clock in the morning. There was a bunch of my finance people in the room with me, and they were taking me through what the projections looked like. And unfortunately, the projections did not look good. And somebody said in the room, "Hey, Walt, I think we're going blow our bond covenants for billions of dollars of bonds," which were cross collateralized, some of them were cross collateralized, so once you blow one, you blow a number of them. And I'm like, "Oh, my God." I said, "So what does this mean?" And somebody said, "Well, we're going to probably need to declare bankruptcy." I go, "When?" They said, "I don't think we're going to hit our numbers the first quarter, 2009."
Walt Rakowich:
So I got really, really lightheaded. I mean, I felt like I was going to faint walk down the hall. And I was fainting and I see this desk in the distance with the chair next to it in one of the executives rooms. And I beelined to the chair and I don't make it. Okay? I fall and hit the corner of my head on the corner of the desk and cut it pretty badly. There I was, laying in the pool of blood for what turned out to be about 10 minutes.
Josh King:
God.
Walt Rakowich:
And I woke up. First of all, I did not know where I was. I mean, it's like 30 seconds, 45 seconds, whatever. I just had no idea. It's dark outside. And then, all of a sudden I realized, "Holy moly, there's like 10 people still waiting for me in the room." So I ran to the bathroom, tried to get the thing to stop bleeding, which I did. I walked in, I said, "Oh, let's talk about out this bankruptcy thing," and one of the guys there said, "No, Walt, let's talk about that lump on your head. How did that happen?" And you know what? I felt like I was busted, like I just... I looked around the room and I said, "I'm the leader of this organization. And I have no idea. You just told me we're going to go bankrupt. I have no idea where to start. I just don't know. It's one o'clock in the morning. I'm tired. I have no idea." And everybody is just like this cone of silence for about 10 seconds, which seemed like two minutes.
Walt Rakowich:
And finally, somebody goes, "Hey, Walt, don't worry about it. We're going to get through this. Let me think about it. Let us think about it." And you know what? They thought about it. And they figured it out, not me. And I realized that actually, we all feel vulnerable. It's just that most leaders don't like to show that vulnerability. Not all, but in some cases, it's actually very powerful because it is the most amazing manifestation of our honesty that one can ever demonstrate because it's really, really hard. And so, they came up with the answers. We never had to declare bankruptcy. I don't know how we got through the first and second and third quarters. I really don't. But man, we tiptoed through the tulips, and we figured it out.
Walt Rakowich:
We sold our China operation, which generated a billion and a half dollars of cash. And we immediately paid down debt. We went to our creditors, we renegotiated some of our covenants. I mean, we were constantly doing something for three quarters, but we ultimately got through it. And we got through it. Not because of any bright idea that I had, that just didn't happen. What happened was the answers came from below or throughout the organization. And I'll just say one more thing. And that is that, I believe that most leaders think they have all the answers, not most, I shouldn't say most, but many. The fact of the matter is that, your people have 10 times more answers than you do. They're closer to the action than you are. And your job is to empower them, lift them up, let them feel comfortable coming to you with solutions, giving them credit, recognizing them. That's what leaders do. You know? You don't need to have all the answers. The best CEOs are great listeners
Josh King:
Leaving that ugly scene of that pool of blood on the floor and the threat of imminent bankruptcy, pivoting now to this modern leadership environment that you write about. It exists at the convergence of three distinct and dynamic climates, which you described as access diversity and acceleration. What does it take to lead now in these three climates?
Walt Rakowich:
Well, I do think I described earlier in this conversation that it is crazy being a leader today. And I would sum all of that up by saying that, again, we live in glass houses. There is nothing you're going to do as a leader that you're not going to keep from people. And so, if you're going to operate in this transparent world, you better be more transparent. And so, I talk a lot about acting openly, transparently. I think the world has higher expectations of leaders today than they ever did because we live in this transparent world. So, that's the first thing. The second thing is, people are looking for authentic values from leaders. They're looking for something, they can hang onto, something that they can also emulate. Think about the world today. We live in a world with so many false narratives that are out there, that other people have to deal with. People need leaders that they can believe.
Walt Rakowich:
And the third thing is, and this became really important to us at Prologis, I think leaders more and more today need to demonstrate a purpose for their people. And not just the purpose for what they do in their jobs, but why it's relevant. What are they doing that is relevant to society? And by the way, what is the company doing that's relevant to society as well? To the extent that leaders can point people in that direction, sort of point them as to what the true north star is that they're all working towards, I think people will stay longer and I think you'll attract better employees. Leading in that, while it's more difficult, just simply requires a different type of leadership, a more transparent leadership, a more authentic type of leadership with the true north. And so I talked a lot about that in the book.
Josh King:
Well, let's end on a letter that you wrote a few days ago to a man named Bob Buford. The strange thing is Bob is a man who died over two years ago at the age of 78. Tell me about Bob and what you put in that letter.
Walt Rakowich:
So Bob Buford built and sold a very successful cable company and was very fortunate enough, blessed enough to retire. And he reached a point in his career, which he later called halftime, where he could have doubled down and recreated what he created, and in essence, doubled and tripled his net worth, or he could have given back. And he decided that he would devote the second half of his life to giving back and he wrote a book called Halftime, and the tagline underneath the Halftime was taking your career from success to significance. I read that book when I was a chief financial officer at Prologis. And actually, Bob started something then called the Halftime Institute. I read that book when I was a chief financial officer at Prologis and I thought to myself, "You know what? If I was ever at a stopping point, a stop off point in my career where I felt good about it, I was going to devote the rest of my life to giving back."
Walt Rakowich:
Well, I hit that point whenever I was at Prologis for about four years as CEO. I really felt like I had hit the moment where I had made the most difference in the company. And we, as a management team, had turned it around, and I was having a halftime moment. I went to my board and I told my board, I was having a halftime moment and I really wanted to retire and devote the next half, if you will, not necessarily the next half, but in my age, the last third of my life, to charitable endeavors, giving back to society one way or the other.
Walt Rakowich:
And so, I wrote my letter on my publication date, Bob Buford since then died. And I wrote my letter to him as a tribute to him and the influence that he had on my life. And in the letter, I wrote that, number one, I appreciated how influential he was in my life. And number two, I didn't see that influence stopping with the publication of this book, that I wanted to be influential until the day I died. And the reason is because, he spent time with me, talking to me over the phone at his institute face to face, and he made a difference in my life. So, yeah, that's why I wrote the letter, and it was very meaningful to me to do it on the date that I published my first book.
Josh King:
Well, I started this conversation quoting from Norman Maclean's book, A River Runs Through It. Let me quote from your letter to Bob as a way of thanking you for joining us today. You write, "I never feel like I'm done. That can be a bad thing if it means I'm failing to find satisfaction or contentment in my work. Most of the time, however, it keeps me thinking about the horizon. The next thing in my journey to be influential the day I feel like I'm done is the day I feel like I can no longer make a positive impact. I can't very well challenge others to have a transformative influence if I'm not actively working to do that myself."
Josh King:
Walt, thanks so much for joining us today.
Walt Rakowich:
Thank you, Josh. My pleasure.
Josh King:
And that's our conversation for this week. Our guest was Walt Rakowich, the author of TRANSFLUENCE and the former CEO of Prologis. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question, you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @ICEHousePodcast. Our show is produced by Kearney Ferguson, with production assistance from Ken Able and Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
