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Citadel News Service
29 Nov 2005

Arthur M. Blank: Principles of Leadership

Photo of Arthur Blank Thank you, General Poole. It’s a great honor to be here with you today.

Now, I suppose that’s something every speaker says when they come to The Citadel. But in my case, I can assure you it’s absolutely true.

I am honored. I’ll tell you why.

Throughout the years, so many outstanding and distinguished guests have spoken here – presidents, statesmen, world leaders; famous authors and military legends – you’ve hosted them all.

And then there’s me – a home improvement retailer turned football club owner.

The question that naturally springs to mind – at least to my mind – is:

“Why am I here?”

What could our organizations possibly have in common?

Actually, quite a lot.

To begin with, we both want to “wear the ring,” as one of your most famous sons, Pat Conroy, might say. Mine happens to be a Super Bowl ring. But trust me – I want that ring as much as you want yours.

More importantly, there is something deeper and more profound that ties this institution with The Home Depot and the Atlanta Falcons.

It’s this:

We are organizations defined by principles and values. We understand that principles and values ultimately drive success. That’s certainly true at The Citadel.

Look around – your commitment to principles is everywhere, beginning with your vision statement:

“Achieving excellence in the education of PRINCIPLED leaders.”

It could just as easily have said, “Turning out smart graduates who can get great jobs and make a ton of money.” But it doesn’t.

Look at your Code of Honor. Your “Ethics and Leadership Program.” Your Four Pillars – “Education, Athletics, Military and… CHARACTER.”

Look at The Citadel’s outstanding record of community service – the more than 30,000 hours of community service logged every year…the good work you do with Habitat for Humanity… the helping hands you’ve provided to Hurricane Katrina victims.

These things don’t happen by chance. They happen by design. They happen because of principles. That’s what I want to talk about today.

These days, in the world I come from – the world of business – it’s not always popular to be talking about principles and business in the same breath.

Over the last several years, a string of corporate accounting scandals has shaken public trust. Enron. WorldCom. Adelphia. The list goes on.

These scandals have had a big impact on public perceptions of business leadership. Some have even said that principles in business are a thing of the past.

A recent Gallup Poll News Organization survey ranked occupations according to the trust Americans place in each.

At the top are teachers, followed by military officers – reassuring news for many of you, I’m sure.

Toward the bottom, just after journalists and lawyers, are American CEOs.

Only two occupations rate lower than CEOs in the trust department: the managers of HMOs and car dealers!

That’s a pretty sad state of affairs.

It’s especially sad to those of us who have devoted our careers to business.

Running a business is a sacred trust, because the well-being of shareowners, associates and customers is at stake.

But trust has to be earned.

Building trust was vital to the Home Depot culture I was proud to be part of for 23 years.

With the help of a lot of good people, and the trust of our shareholders, my partner Bernie Marcus and I built the business from scratch – literally.

We had an idea: a revolution for the retail home improvement business…something no one had tried before.

It seemed crazy to some people, and we hit so many brick walls, we knew we had to earn trust before we could gain support.

The only way to do that was to build our company on a bedrock – a foundation of values and principles that could stand the test of time.

So that’s what we did. Time has proven how important that decision was.

In the wake of the go-go 90s, with a lot of lost faith in the New Economy and corporate responsibility, there’s been a renewed interest in old-fashioned concepts like values and principles.

Just last week, former President Jimmy Carter’s new book – Our Endangered Values – shot to number one on the New York Times best-sellers list. I think there’s a reason for that.

More people want to talk about values and principles.

It’s a discussion we need to have – particularly in business. Business Week writer John Byrne puts it this way: “In the post-Enron, post-tech bubble world, there’s a yearning for corporate values that reach higher than the size of the chief executive’s paycheck or even the latest stock price. Trust, integrity and fairness do matter, and they are crucial to the bottom line.”

Today, I want to talk about principles for one simple reason: Because, my friends, principles matter.

To this day, I believe the principles of leadership we followed at Home Depot literally drove our success. The real magic dust was the culture, principles and values that we lived throughout the year.

We follow the same principles today at the Atlanta Falcons and the Georgia Force, our arena football team.

We also follow them in my family’s philanthropic foundation, and at our Mountain Sky Guest Ranch – the number one dude ranch in Montana.
Some of them were learned from success, some from setbacks.

Most of them can be applied to other businesses – and almost all can be applied to life in general.

I want to share some of them with you today.

Principle Number One is this:

Put the People you Serve First, and Success will Likely Follow.

Taking care of our people was the single most important reason for our success at Home Depot. Simply put, it was about them, not us.

We naturally saw our associates as our most precious asset. It was our obligation – our responsibility as managers – to take care of our people, because they took care of our customers.

Our core value was respect for the individual.

We picked people to work for us who had talent and integrity. Then we followed the principle that it was our job to nurture them, and to inspire their loyalty by our own behavior.

We also inspired loyalty by paying people what they were worth…by providing training and career growth opportunities, and by giving our associates a stake in the financial success of the business… treating associates not as an expense, but as an investment – the most critical one we could make.

As a result, we had one of the lowest employee turnover rates in the retailing industry.

By putting our people first and checking our management egos at the door, our company flourished.

Ninety percent of the time, our Home Depot associates and our customers had the answers. So all we had to do was listen to them.

That’s Principle Number Two:

Listening is a Cornerstone of Success.

The customer is at the core of any business.

Listening to customers helps us understand what they want.
Their needs are opportunities. Their frustrations are potential pitfalls – but really opportunities in disguise.

Listening is a cornerstone of success because it’s the foundation for building relationships.

A company like Home Depot isn’t in the transaction business – it’s in the relationship business.

Transactions last a minute. Relationships last a lifetime.

The same principle holds true in the football world. The first thing we did after buying the Atlanta Falcons was to reach out to our fans – our customers.

We asked them to tell us the good and the bad. We asked them to tell us what they wanted.

And they did.

They told us they wanted a consistently winning team – or at least one that was in the hunt every year – and ownership that would do what it takes to support a winner. And they wanted a great game day experience:

• Affordable tickets
• Better parking
• Great entertainment
• And terrific service at the Georgia Dome.

So, we put programs in place to address every single item on their list. We own our fans – driveway to driveway!

It worked and it’s still working. During our first year, we saw a 100 percent increase in season ticket sales. That’s an NFL record.

We’ve sold out every home game since then – 38 out of 38. By contrast, in the three years before we bought the team, only five of 30 games had sold out.

Today, we have the club’s first-ever season ticket waiting list – a legitimate list of over 44,000 fans waiting to join.

Our fans are the 12th Man in a sold-out Georgia Dome. They give us a competitive edge.

That’s important to our players. The players are the ones who put their bodies and minds on the line on the field of play. They make it all happen.

We listen to them, and to the rest of our staff, too.

On a plane ride just before I bought the team, I asked our players what I, as a new owner, could do for them – since I couldn’t suit-up or draw-up plays – both of which would have been really ugly. Some of them thought I was joking.

Then they started talking.

Aside from their overwhelming desire to fill up the Dome with our fans they told me one of the things they wanted was a place to get together, to meet and relax as a team – a players’ lounge at our training facility.

I gave them the keys to the mailroom and told them to redesign it as their own lounge. They did. It’s added a new spirit and camaraderie to our team. They have a sense of ownership over the facility now.

That’s just one of many examples.

By listening to our fans – and to our players and staff – we’ve created a new culture that makes the Falcons a special place – a place the best players, coaches and staff will want to come to live, to work, to play and coach football – a truly special place in the NFL. In our approach, we assume all of them are free-agents, every year. They can always choose to go somewhere else. Our goal is to create a positive environment so they won’t want to.

I’ve learned one of the most valuable things I can do as a leader is to ask our players, coaches and staff what they need to be successful – and then listen to the answers and respond.

That’s the essence of Principle Number Three:

Good Ideas Are Everywhere.

Sometimes in business you have to put management in the back seat and let associates take the wheel.

At Home Depot, most of our best ideas came from our sales associates. Some of the ideas were brilliant – some were risky.

One of my colleagues, Pat Farrah, in the earliest days of our business, had a wild idea to get people to notice our stores in Atlanta. Business was slow – slower than slow. We needed a big idea.

Pat bought an entire truckload of 3,000 fireplace screens – a $100,000 investment – which at that time was the single largest purchase we had made at that point in our history. The screens normally would have sold at retail for up to $139 a piece. We could have sold them for $89 and made a ton of money. Heck, we could have sold them for $79, or $69, and made a ton of money.

Pat bought the entire shipment at $35 a piece, marked the screens up exactly two dollars – and sold them for $37.

The minute people saw the newspaper ad, our parking lots were filled. People drove from fifty miles away to buy these high-quality, ridiculously-priced screens.

It was an insane idea – but it was outrageously successful. It attracted people to our stores in droves to discover the Home Depot secret. It made people wonder, “Who are these guys?”

Once people came to the stores, they never left.

Brilliant ideas, like brilliant people, need room to run.

Importantly, good ideas come from empowered people.

These days we get great ideas from our football players, our coaches, the ushers, the ticket takers, the food servers, the folks in the equipment room and the staff that cuts our grass on our practice fields – everybody is part of the team, part of the family.

Letting people give voice and life to their ideas creates a culture of inclusion. People who feel included have energy and ideas. People who feel excluded hide in bureaucracy.

Principle Number Four:

Lead by Example.

Simply stated, walk the talk.

At Home Depot, we never expected our associates to do anything we didn’t do ourselves.

If we expected associates to shag carts in the parking lot, we had to shag carts in the parking lot. If we expected our associates to volunteer for community service, we volunteered, along with our families.

It works the same way in football. During training camp, I stay in the same dorm as our players, eat the same meals and live the same schedule. Why? To see the team experience from their perspective.

That gave me direct insight into the kind of facilities we would have to build to accommodate the move of our Training Camp from Furman back to Atlanta – back to our fans.

You simply can’t ask anyone to do something you won’t do yourself.

Principle Number Five:

Giving Back is Not Optional – It’s Essential.

My own passion for giving back to the community predates my financial success at Home Depot. My parents always found a way to give their scarce time – and even scarcer dollars – to charity.

They taught us to do the same – to behave as though everything we do in life can make the world a better place.

They taught us we have an obligation and the opportunity to be our brother’s keeper.

During my tenure at Home Depot, we made a very deliberate commitment to give back to the communities we serve. That included financial contributions – some $113 million – and tens of thousands of hours of volunteer time donated by our associates.

Social responsibility became a core Home Depot principle.

We were there first when natural disasters devastated communities – shipping needed products from other part of the country, physically helping with rebuilding – and never raising prices.

Later in the life of our company, Home Depot led the industry by committing to phase out the sale of wood and wood products from endangered regions, and to shift to purchasing and selling only certified sustainable wood products.

Partially because of this, in 2001 Home Depot was voted #1 in social responsibility by the Harris Interactive Poll, chosen among the companies most-often mentioned for corporate reputation.

That said something about our values, and it meant more to us than any management award we could have ever received.
Bottom line is this: Giving back is simply the right thing to do. You can’t separate the well being of business from the well being of society.

As a leader, it’s important for me – and it’s important to you, as leaders – to encourage giving back as a guiding principle in all of our businesses.

At the Falcons, one way we do that is by recruiting the very best individuals to our team – players who want to win on the field and off the field.

We use a system that measures aspects of their character, as well as their football talent – before they’re ever asked to join the team. It’s called the “Falcons Filter” – and it’s helping us build a high-character, high integrity organization that can win the ultimate game -- the “Super Bowl of Life,” as we like to call it.

Today, our players spend hundreds of hours of their personal time out in the community doing good works. Nearly a dozen of them have their own charitable foundations. And, the same giving spirit is taking hold at the Georgia Force, our arena football team, as well.

Our players aren’t giving back because I tell them to. They do it because they already have a passion to do good things for others. We simply tap into that passion, nurture it and help them bring it to life. We help them connect the dots, and try to act as their “coaches for life”.

Finally, Principle Number Six:

Creating Value Depends on Values.

It may not have seemed like it lately, but business is all about values.

In the long-run, only a values-driven culture creates enduring value for stakeholders.

We created a value system at Home Depot that permeated the company and drove decision-making throughout the organization.

We’ve created a new culture at the Falcons, and the Force, built on many of the same values: integrity, customer service, relationships, esprit de corps, and giving back to the community.

Creating value for shareholders, for associates, for communities is the core mission of business. But you can only do it if you maintain a strong set of core values.

Home Depot grew from the three stores we opened in Atlanta in 1979 to more than 1,100 stores when I retired.

But growth never changed our focus on our values.

As a result, we created shareholder wealth of unprecedented proportions over a long period of time.

Our stock price grew at a compound annual rate of 45 percent from our IPO in 1981 through the end of fiscal 2000, when I retired.

Earnings grew 49 percent, sales 46 percent.

It’s all about values.

Business leaders who cater to self-enrichment at the expense of their shareholders and their communities don’t create value – they destroy it.

Principles function as our North Star. They are the compass points that provide direction to our lives.

They are promises we must keep.

If we follow these principles – and keep our promises – as individuals, business leaders and as a society – we can find our path back to a world that creates lasting value, not just for a privileged few, but for everyone.

Ultimately, that value will be measured – not by our personal return on investment – but by what we return to society. My personal standard is always “Is this company, or this institution, worthy of your life?”

The answer needs to be “yes.”

If it isn’t, you’re in the wrong place.

Thank you again for the opportunity to be here today.
Achieving excellence in the education and development of principled leaders
Media Contact:
Jennifer Wallace
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