Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Ken Langone
[00:00:00] S0: What was that? [00:00:00] S1: I didn't want that. When Cuomo replaced him as AG, and when the Court of Appeals found in our favor 7-0, Cuomo called me up, and it was a Wednesday. It's when their decisions came out. He said to me, he said, "I don't know, give me some advice." He said, "I'm thinking of appealing it." I might -- he's lost, and I know he's playing with my head. He says, "I'm thinking of appealing it. What do you think?" I said, well, there's 2 things I think. Number one, the most joyous thing I could hear is the fact that you're gonna appeal it, that the game goes on. Because I'm having a hell of a time with my life. And number two, you haven't got the balls to appeal it. He and I became good friends, by the way. So loyalty is in short supply in the world. [00:00:00] S0: The idea about loyalty rings through The Home Depot story in such an incredible way, like so many stories of people, kind of like Grasso, starting as a cashier and becoming a senior executive. I would just love to hear the beauty of the long term at Home Depot as you've experienced it as a co-founder and now an incredibly long-term holder of that business.
· Ken Langone
[00:00:00] S1: The most precious thing that Home Depot has are the kids on the floor, where the orange aprons are. We had what we call the -- most corporations have a triangle that's the base and the point at the top, and the point at the top is where the CEO is, and the base is where the newly hired employee is. We turned it upside down. We say the most important person to the company is the person that comes in touch with the customer. If that customer gets what he wants at a fair price and feels that he got great service, he's never going any place else again. The most precious part of that equation there -- I call him a kid -- anybody under 88's a kid, because I'm 88 years old. You're under 88, you're a kid. They don't get pissed off. Those kids, really challenging jobs. They need to learn what they're selling. They don't have the luxury of not being able to handle a difficult customer. They have crazy hours and most of them are still right at the bottom without a college education. And those kids made this company. If there's one thing that Home Depot is known for, it's our service. They think -- we give you great prices, no question about that. We're always in stock, no question about that. We have every imaginable item you could want in any a given category, so you've got assortment. But the thing that holds it all together, is the kid that's dealing with you. I'll give you a for instance. This is a good friend of mine, customer. His faucet was dripping. When he turned it off, it was still dripping, meaning that the washer had failed, so water got through where the valve is, end of the nozzle to the faucet and drip, drip, drip. It's 3:00 in the morning and your wife kicks you and says, "Go fix the stupid faucet. I can't sleep. The drip is keeping me awake." Guy gets up in the morning, he goes to The Home Depot store, out in Long Island near me. He says to the kid, "I need a new one of these." But the kid says to him, "A new one of what?" He said, "I need a whole new stem, it's leaking." "You need a washer. Follow me." We have little glassine bags of the shorter size washers. Kid take 25 seconds, takes it off the pane, opens it up, it's the right size washer, has a screwdriver in his apron, takes it off, unscrews the screw, takes the bad washer out, takes the good shop washer, puts it in, puts the screw back in.
· Ken Langone, Patrick O'Shaughnessy
And he says to the guy here, go home to your wife. Guy says, "What do I owe you?" He says, "Nothing." So he said, "Happy he came to Home Depot." Three months later, the wife wants a new kitchen. She says, I want to go to one of these foo-foo joints, Kitchen and Bath Guys. They go back. They found the kid. Kid brought them over to the kitchen designer where we sell kitchens. We've got the $100,000 kitchen order. That's the value. So we make an effort to train the kids, we make an effort to treat them fairly. Last year, unilaterally, we raised wages $1 billion across the company. Why? Because we really feel for our kids. They own stock. Like I say, it's them that makes the money. [00:00:00] S0: Just a bit. [00:00:00] S1: I sure did. I'll tell you this. The greatest number of the world to me is not my net worth. We have 3,000 kids that are still working for the company today. 3,000 of them. They started out pushing carts from the lot. They're multimillionaires, and they're still working for the company. You want to talk about culture carries, trust me. That's the value of treating your people right, they're taken care of. We do everything that we can for them, and they know it. [00:00:00] S0: What in the history of Home Depot went the most wrong? And how did you fix it?
· Ken Langone
[00:00:00] S1: Well, the thing that went most wrong was a mindset that cost was more important than the culture. How did we fix it? We changed leadership. That simple. Frank came to the company in what I guess, around 2003, 2004. At that point, we were 23, 24 years old, but I have called Frank Blake the founder of the company. Why? Frank restored the culture. He led by example. No doubt about it. His selection as CEO was, I think, the smartest decision, and I take great pride in that personally, because when we were confidently decided that we had to go different ways with Bob -- by the way, give Bob credit. The first 4 years that Bob was with the company, everything he touched he made it better. Everything. However, once we got past that 4 years, he started to now be a little too aggressive, and I think got away with the culture. Frank was not a popular choice. He's a natural. And the reason Frank is a natural is he embraces the finest of values you and me could have. One year, Frank didn't even want to take a bonus. I don't know why that is. We're just getting this thing going right out of this year. Frank is selfless, right? Frank is always the a smartest person of the house. He graduated from Harvard. Columbia Law School graduate. Clerk to Justice Stevens of the Supreme Court, going on to be, within a year, the number 2 or 3 guy, I think in the Department of Energy. Comes to Depot to work on strategy and already got it evaluated. He'll never get a prize for beauty or a picture in Sartorial Splendor, okay? And I say that because I tell him -- I mean, that's Frank's charm. What you see is what you get. And I talk about being authentic, he is the best example of authenticity I could imagine. So culture is it. Interesting aside, when I was at a job at NYU Medical Center, place was at a shambles. Both morale was terrible. They had just merged their hospital with Mount Sinai and ironically, it is an example of bad faith. He saw other side. They were getting rid of a bad hospital, so we were getting 2 bad hospitals and made it 1 huge bad hospital. The element of distrust was palpable. So when I took the job, I went and said to Marty, look, if you want me to do this, I clearly need help. I thought that would be easy -- legally and technically it was a terrible thing. We did it.
· Ken Langone
And I think we at Home Depot, we, Bernie, Arthur, myself and Pat, we put this culture in place day 1, and we lived it. We lived it. I tell people here, I had highly educated double-degree, triple-degree doctors. And the same thing I did with an eighteen year-old kid that barely got out of high school I did with this professional, highly accomplished, fabulous doctor, treat them the same way and it worked. Because guess what, they're human beings at the end of the day. Got to celebrate hourly people on the floor. They are the key -- this is the magic sauce, okay? This is the secret sauce. Not so much a secret, but it takes effort. It takes time. And you try to do everything you can to let these kids know that they really matter, they can make a difference, that their opinion -- share with us your ideas, share with us. You'll be amazed the number of great ideas we had that we've implemented at the stores that came out of the mind of a kid that barely got out of high school because we encourage them to be open, to come express themselves. I'll give you a for instance. We were opening a store in Elmont. So the Wednesday, before the stores got to open, I'm in there. Then the kid in the plumbing department comes up to me, and he said, "Are you somebody in this company?" I said, yeah. "Come on. I'll show you something. Because I'm curious. Are you guys born stupid or just become stupid?" Okay. I said, maybe it's a combination of both. You don't want these kids to feel intimidated or threatened. You want to get it out of their head. I say, okay. So he takes me over and he showed me a big cardboard box that's on the floor at the bottom of the rack. And in the box are a bunch of plungers. We stock them a lot. "If you put your hand in that box, you'd think you were at a coal mine. You come out black. So nobody sees the plungers." Now think of this. You don't wake up on a Saturday morning and say, let's go to Home Depot and buy a plunger. It's 3:00 in the morning. The toilet's stopped up and you haven't got a plunger. You get your ass to the Home Depot store as soon as it opens to get a plunger. So I go back to the kid. I say, okay, what would you do? "If I get pipe hooks like in a gun store, how they show guns on a wall, and I put the plungers at the end of the thing, on a rack, why don't you do it?" Can I ask you? Why can't you? You think it's such a good idea.
· Ken Langone, Patrick O'Shaughnessy
Why don't you do it? Okay. Saturday morning at 11:00, the store's now open. People come. And I see the kid. "Hi, come here, come here!" So I go over, and it's like, well, there's no plungers in the pipe hooks. You put them back in the box. "No, they sold!" "Hey, honey, $3. Plunger, you could buy it for $3, $3.50. Hey, honey, we need a plunger. I don't have a plunger." You made it an impulse item. That was out of the mind of a kid that barely got out of high school. You don't know where you're going to find a gem. But you're never going to find them if you don't look for them. [00:00:00] S0: What do you think was the reason you've been able to hold on to these investments, these positions for so much longer than everybody else? Saw the average length of your investments is 35 years or something crazy like that? [00:00:00] S1: 42 years. [00:00:00] S0: 42 years, sorry. I don't want to take that...