The transcript from this week’s, MiB: Hubert Joly, Best Buy CEO, is below.
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BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. Hubert Joly is the man who helped turn around Best Buy when they were floundering about a decade ago. The stock has since returned 10X from when he joined as Chairman and Chief Executive Officer.
He is the author of a fascinating new book, “The Heart of Business: Leadership Principles for the Next Era of Capitalism.” He’s really a fascinating guy, has an amazing background, both as a consultant for McKinsey and being on a number of different boards and running a number of different companies. Everybody who’s looked at his work always put him amongst the best CEOs, top 100 this, top 30 that, really just a tremendous, tremendous track record.
And I had a fascinating time speaking with him. I think if you’re at all interested in anything involving leadership or the next era of capitalism or why the old-school Neutron Jack approach to just firing everybody and cutting costs away to restore profitability no longer works, you’re going to find this to be a fascinating conversation.
So, with no further ado, my interview with Hubert Joly.
VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: This week, my special guest is Hubert Joly. He is the former Chairman and Chief Executive Officer of Best Buy. He is currently the Senior Lecturer on Business at Harvard Business School. He is on the boards of directors at Johnson & Johnson and Ralph Lauren and has been named one of the top 100 CEOs by Harvard Business Review, one of the top 30 CEOs by Barron’s and one of the top 10 CEOs to work for in the U.S. by Glassdoor. Hubert Joly, welcome to Bloomberg.
HUBERT JOLY, Senior Lecturer, Harvard Business School: Well, thank you, Barry, very much looking forward to our conversation.
RITHOLTZ: So, let’s start with a little bit of your background, you’ve been the CEO of three major companies. Tell us about how that came about. Take us to the beginning or early days of your career.
JOLY: Yes, Barry. I started my career with McKinsey & Company in France and then also in the U.S. Essentially, I didn’t know what I wanted to do. So, that, I thought, it’d be a great training ground and I ending up staying a dozen years at the firm, done a great deal and had wonderful opportunities to lead great companies.
At first, I left McKinsey to lead a client that was EDS, Electronic Data Systems in France and I ended up doing a number of turnaround and transformations of companies in industry sectors that were challenged by technology. So, in videogames, in travel, and then, of course, ended up with Best Buy. And I’ve ended up working a variety of industry sectors and those specializations there and every move was a move that was based on — it was – there was somebody with whom I had developed relationship that played a critical role.
And so, for example, when I left Vivendi Universal to become the CEO of Carlson Wagonlit Travel, the CEO of (inaudible), which was one of the two shareholders, had been a client of mine and where we have stayed friends. So, Barry, one of the key lessons is that try to minimize the number of people you annoy or irritate along the way and try to focus on doing a great job when you are and then I hope that God provides in the end, which is, I think, the lesson for me of my career.
RITHOLTZ: So, I want to spend more time talking about your career. But I have to ask, how did you find yourself moving from France to the United States, what led to that and what was that transition like? Because every time I’m in Paris, I always end up saying to myself, God, I could live here.
JOLY: Yes. Thank you for that, Barry. So, the first time I moved to the U.S. in 1985, I was with McKinsey & Company. I’d gone to school in France and there had been discussion of should I do an MBA in the U.S. and after a while, McKinsey said no, you really don’t need to do that. But if you want to spend time in the U.S., we’ll send you to one of our offices. So, I ended up in the San Francisco office, quite the years where the minors were at the top of their game, right? So, that — it’s quite fascinating.
And then the last time I moved to the U.S. was in ’08, 2008, when I became the CEO of Carlson Companies. So, I moved there from Paris, France to Minneapolis, Minnesota. And I love France. I think it’s a great country. I love the U.S.
What I love about the U.S. is that since Jefferson, we’ve been optimistic. It’s been the dream of a better life and it’s this optimism. Let me tell you, in France, you talk about a problem that has never been solved. People will say, well, who are you to talk about it. Nobody has been able to solve it, right.
But in the U.S., if a problem has never been solved, immediately, your friends is like, this is interesting, let’s see whether we can solve it. I love this optimism in this great country and I’m now a dual citizen, Barry.
RITHOLTZ: Very — really, really interesting. So, let’s talk a little bit about how one becomes a good CEO. Is it effectively on-the-job training or is it a function of your experience and ability that makes you a great leader?
JOLY: Yes. There’s the myth that you’re born a leader. I think that every leader was born, of course, but none of us were born leaders and I think it’s a learning journey. And for me, it’s been — yes, I’m learning by doing, learning on the job, learning from great mentors.
One thing I learned the most about — with McKinsey was watching my client’s lead and I learned so much from a number of them. Learning from colleagues, at Best Buy, I learned so much from the frontliners and some of our great executives and then our coach.
So, let’s slow down here. Can we agree, Barry, that exactly 100% of the top 100 tennis players in the world have a coach.
RITHOLTZ: Sure.
JOLY: I think the same is true for all of the NFL teams, all of the Champions League teams. What about us executives, right? And so, it’s interesting that now, for CEOs and senior executives have coaches much more popular. But 10 or 15 years ago, not so much.
And I’ve benefited enormously, my first coach was the inimitable Marshall Goldsmith. I’ve learned a ton from him. He helped me deal with feedback and focus on getting better and asking for advice. And without Marshall, I would not be – it is infomercial before and after picture, it’s most improved.
RITHOLTZ: Marshall Goldsmith was where? Was that at McKinsey or?
JOLY: It was — the first time I worked with Marshall was in 2009. I had just became the CEO of Carlson Companies and my head of HR, Elizabeth Bastoni, told me, would you like to work with a coach and my first reaction was, am I doing anything wrong, is everything wrong with this? He said, no, no. I know Marshall, he helps in a great deal get better. His clients are – were, at that time, Alan Mullally of Ford and Jim Kim of the World Bank. I said, that’s cool, I want to be a member of that club.
And Marshall was so helpful because when I was getting feedback, you do a 360 and you hear the goods and then you hear the other parts and my reaction initially was, what’s wrong with them, right? What are they talking about?
And Marshall helped me — and the way he helped was — so, I did the 360. He gave me first all of the good things that people have said and says, spend the time to swallow this, digest this. And then the next day, he gave me the other stuff and he said, here’s the scoop, you don’t need to do anything with it, right? There’s no god that says that you need to get better at any of these things but you can — but you get to decide what you want to work on and get better at, right?
And think about, so, here’s a question that we could ask, right, think about things that you’d like to get better at, right, and if you cannot think about anything, try humility, right, as a potential area. And then what Marshall made me do is talk to my team and said, thank you very much for all of the feedback you’ve given me and then based on what you said, I’m going to start to work on three things, number one, number two, number three, and I’m going to follow up with each of you to ask you for advice on how I can get better at these three things and then a few months from now, I’ll follow up to see how I’m doing.
Now, believe me, Barry, first time I did this, this was excruciating pain having to admit to my team that I was not perfect. They knew it. They knew I was not perfect but having to say it out loud and then I wanted to get better at something. But this getting better at something makes it very positive.
And then — so, later on, when I joined Best Buy, I repeated that signaling to every one of the executives that it was OK to want to get better at something. And so, later on, everybody at Best Buy had a coach and we were all helping out each other on getting better at our job, which is what I think you need to do. So, coaching — executive coaching plays a key role in my life.
RITHOLTZ: Very interesting. And I recall seeing Marshall Goldsmith’s name on a book, “What Got You Here Won’t Get You There” and a quick Google search shows me that like you, he also is a professor. He teaches at Dartmouth’s Tuck School of Business and has quite an impressive CV.
But I want to stick with the concept of coaching and mentors, what did you learn at McKinsey who helped you when you were there sort of develop into the CEO that you are today?
JOLY: Yes. So, there was — for me, there were two phases, Barry, at McKinsey that we serve, before the partnership and then the partnership. So, in my first say six years as an associate and then a manager, I learned a lot about problem-solving, communications, serving functional matters and so forth. So, I could say I learned a bunch of technical skills.
But when I became a partner, the opportunity I got was sit down next to the CEO of the clients, watch them do their thing and listen and learn from them and that makes me — I got a great deal, right, because they were paying us and I was learning from them, right? Couldn’t get a better deal than that.
And so, I will always remember, there was a client in, Jean-Marie Descarpentries was the CEO of a computer company Honeywell Bull and this is the guy who told me that the purpose of the company is not to make money, right? It’s an outcome, right? In business, you have three imperatives. You have the people imperative, which are the right teams. We have the business imperatives, which are the customers or clients and then great products and services. And then there’s a financial imperative and, of course, you have to understand that excellence on the financial imperative is the result of excellence on the business imperative, which itself is the result of excellence on the people imperative. So, it’s people, business, finance and finance is an outcome.
And by the way, it’s not the ultimate goal because if you think about a company as a human organization, a bunch of people working together, they’re probably in there to create something in the world, right, and we can dig into this but that was — and believe me that was 30 years before the BRT statement of 2019 that we said we need (ph) in August the second anniversary.
And so then, it was — the practical implications around this is that when you do your monthly review with your team, start with people and organization. Don’t start with financial results. If you should start with financial result, you’re going to spend your entire time on financials and you want to understand what’s driving these results whereas if you start with people and organization, you have a chance to spend time on that, then business, customers, products and then the CFO will make sure that you’ll spend enough time on the financial results.
So, for me, that was a game changer and I applied this throughout my career and you could say whether it was in videogames or in travel or hospitality or in Best Buy, this focus on people first and treating profit as an outcome was a big driver performance. And this has not smoked anything illegal when I say this, Barry. As you know, the share price of Best Buy went from beyond low, it was $11. Recently, it’s been between 110 and 120. So, time spent in nine years, that’s not bad. Maybe you could have done better, Barry, but it’s OK, I think.
RITHOLTZ: No. I don’t think I could have done better than 10X and PES no longer illegal in New York. So, you could smoke whatever you like. We’re going to — by the way, those three steps that you just mentioned are right from the book and we’re going to talk a little more about the book in a few minutes.
But before we get to that, I have one last question to ask you which has to do with the fact that Best Buy, you mentioned it’s up 10X, it’s a publicly-traded company. Before you were at Best Buy, you are also at a giant company but it was privately held. Tell us a little bit about what that transition was like having to answer to shareholders and Wall Street. How did you manage that? Very different experience from everybody I’ve spoken with over the years.
JOLY: Yes. Barry, so, I’ve worked in a public company, Best Buy. I’ve worked in a family-owned company, this was Carlson Companies. I’ve worked in a partially private equity-owned company, Carlson Wagonlit Travel, one equity partner of JPMorgan with 45 different shareholders and frankly, I think it’s pretty much all the same.
You have shareholders whether they are large entities like Fidelity or Wellington or it’s a private equity player or it’s a family, they have expectations and needs and, by the way, all of them are human beings, right, by the way and that’s focused on the high-intensity trading that all the longs and all the shorts, they are human beings, and I’ve had – even though I say profit is an outcome and is not the ultimate goal, shareholders, even in stakeholder capitalism, are very important stakeholders.
They’re taking care of our retirement. So, we love them for that. And so, when I was a CEO of Best Buy, I so enjoyed spending time with our shareholders sharing with them what we’re doing, answering their questions, they’re smart. It was always taking things away and the key was pay attention, listen and then pay attention to the say/do ratio.
Best Buy had lost its credibility because they were saying a lot but not doing much, right? So, with my wonderful CFO sharing the column with me, we’re going to say less and do more and that’s how we’re going to build our credibility and we would be very transparent, share our situation, the opportunities we saw, what we’re going to do, and then we update them in our progress.
And so, I really enjoy the competition. But in many ways, Barry, I think public, private equity or a family is largely the same. It’s people, we have to respect them and take care of their needs.
RITHOLTZ: My extra special guest this week is Hubert Joly. He is the former Chairman and Chief Executive at Best Buy, a company that he helped turn around over the course of his tenure there. Let’s talk a little bit about that. If you would have asked me a decade ago what the future look like for Best Buy, I would have said they were toast that Amazon was going to eat their lunch and they were heading to the garbage pile. Tell us what the key was to turning the company around so successfully.
JOLY: You’re, right. Everybody thought we’re going to die. There was zero buy recommendation on the start in 2012 and what I found as I was examining the opportunity to become the CEO because my first reaction when I was approached was this is crazy, right? This is the same reaction as you described.
But what I found is that there was nothing wrong with the markets or the business outside. All of the problems were self-inflicted. In fact, the customers needed Best Buy because we needed a place where to see and touch and feel the products and ask questions. And the vendors ultimately needed Best Buy. They needed a place where to showcase their products, the fruit of their billions of dollars of R&D investments.
The problems were self-inflicted. Prices were not competitive. The online shopping experience was terrible. Speed of shipping was bad. The customer experiences in the stores have deteriorated. The cost structure was bloated and, and, and. That’s great news because if a problem is self-inflicted, you can fix it.
RITHOLTZ: Right.
JOLY: And so the first phase was all about fixing what was broken and the advice I had been getting, Barry, was cut, cut, cut. We’re going to have to close stores, cut headcounts. We did the opposite. All of the stores were profitable. So, frankly, there was no point of closing stores in a significant fashion.
RITHOLTZ: Right.
JOLY: It was very — the first phase was a very people centric approach, listening to the frontliners. My first week on the job, I spent it in the store in St. Cloud, Minnesota. I think in France, we would say St. Cloud but over there it’s St. Cloud so there you go. And really listening to the frontliners, they had all of the answers about what needed to be done.
And so, my job was pretty easy, it was do what they have to — what they said we needed to do like fix the website, make sure the prices were competitive and so forth.
The second on the people centric approach, build the right team at the top and then instead of focusing on headcount reduction, focus on growing the top line by meeting the customer needs and fixing what was broken in the customer experience and treating headcount reduction really as a last resort. And then focus on mobilizing the team on what we need to do for the customers.
That sounds soft but that was our opportunity and that’s what we need to do in the first two or three or four years. And then once we have saved the company, it was about how do we — where do we go from here, how — what kind of company do we want to build for the future. And that’s why we focused on designing our purpose as a company. We said we’re actually not a consumer electronics retailer. We are a company in the business of enriching life through technology by addressing key human needs, which we’ll talk more about this. But this was transported because it’s expanded our addressable market and have to mobilize everybody.
And as a company, we have to work on making this come to life in all of our activities and really creating an environment where – I think the summary at that time was we unleashed human magic. We had a hundred thousand people plus, I think spring in their step, connecting would drive them in life with their job and doing magical things for customers. And frankly, Barry, I learned so much along the way and, again, all of this sound soft but go back to — we went from $11 to 110 or 120. That was the key.
RITHOLTZ: To say the very least. So, let’s talk a little bit about what you guys had done in the physical stores. The big threat to Best Buy was people showrooming, meaning showing up to look it up products and then buying it for a little cheaper at Amazon. How did you — and this is the line from the book, quote, “How did you kill showrooming and turned it into showcasing?” unquote.
JOLY: Yes. So, everybody was talking about showrooming at that time. The frequenct was not that high actually but of course, it was incredibly frustrating for the blue shirt associates in our store to spend time with you, Barry, we love you but we spent 30 minutes with you answering all of your questions about the TV and then you buy it online.
So, after 30 days at the company, we actually decided that we were going to take price off the table by lining up places with Amazon and giving the blue shirts the authority on the spot to match Amazon prices. And so, I took price off the table …
RITHOLTZ: Right.
JOLY: … and the customers, once they were in our stores, they were ours to lose.
RITHOLTZ: Right. When you want to drive home with the TV in the back of the car instead of waiting a couple of days from it to come from Amazon, immediate gratification has to be a huge benefit you guys have as the physical store.
JOLY: Exactly. And then, yes, of course, the (inaudible) but you’re still going to die because your cost structure is too high, it’s higher than Amazon or Walmart. So, we did take $2 billion of cost out.
RITHOLTZ: Wow.
JOLY: But the way we won in the end was we just had aha moment of, as I said, showcasing. If you are a Samsung or HP or Amazon and Google products, you need a place where to showcase your products, right, because you spend billions of dollars on R&D and if it’s just I’d say vignette on a website or box on a shelf, you’re not going to excite the customers.
RITHOLTZ: Right.
JOLY: You need a place where to showcase your products. And so, we did deals. The first one was with Samsung where we had a meeting in December of 2012, Barry. J.K. Shin, the then CEO of Samsung Electronics came to visit us in Minneapolis in December of 2012 and over dinner, we did a deal where in a matter of months, you would have 1,000 Samsung stores within our stores where you could showcase these products. It was just across the aisle from — we already had an Apple store within the store and it was good for the customers because they could see the products, they could compare with Apple.
It was good for Samsung, right, because the alternative for them first was to build 1,000 stores in the U.S., it takes time, it’s difficult, and. of course, we have this great location and great traffic. And good for us because it was part of our OPM strategy, other people’s money strategy, right, because there were some good economics for us.
And so, that allowed us to offset the cost advantage in Walmart or Amazon we have and then over time, we did deal with all of the world’s foremost almost tech companies, including Amazon for crying out loud, and that was the game changer. And we look — if you look at our stores today, they are shiny because — we have all of these shiny objects and you can see and experience all of these products. So, that was really a game changer.
RITHOLTZ: So, let’s talk a little bit about both Samsung and Amazon. First, I’m always surprised that people don’t realize what a giant product company Samsung is. It’s not just phones but it’s phones, its TVs, it’s washers, dryers. I mean, Samsung basically anything in your house is a product that Samsung makes and not just entry-level washer, dryers or refrigerators. I think was it last year or two years ago, they bought Dacor, which is like a subzero, high-end manufacturer of kitchen appliances.
So, when you set up the store within a store with Samsung, tell us about what that did and how did that impact Samsung’s sales at Best Buys?
JOLY: Sure. Yes. I mean, you’re right to highlight this great company. The first deal we did with them was focused on phones and tablets and cameras. So, in a matter of months, they had these stores within our stores and it really put them on the map.
It is I think — if you go back to the ’90s, Samsung was not the same company. They were really low end and the chairman at that time, so, the father of the current — of J.Y. Lee now, came to the U.S. and said, at some point, I want Best Buy to carry us and it would be the ultimate goal. And now, they’re one of our top five vendors, probably better than top five.
And so, it really gives them the physical presence and to prove that it’s worth for them was then we did the same in the TV department and then in the appliance department. So, it’s been a series of wins for them.
And once we have announced the deal with Samsung, other — we had similar conversation with Microsoft, Steve Ballmer, we had a conversation at CES and then two months later, we did the Microsoft stores within Best Buy and then it went on and on.
And Tim Cook at Apple told me that he didn’t really like what we were doing, he understood it but he didn’t really like it and Apple has been a very important vendor to Best Buy. So, what we decided to do with them is do more. And so, it was stronger partnership.
So, Best Buy is not simply carrying products and partners with the world’s foremost tech companies and with some of these companies and partners on product development, new product introduction and because there’s so much innovation that drives the business, it’s a critical role we play.
We also partner in service, Best Buy sells AppleCare, an authorized Apple service provider. So, these partnerships really changed the game. And in the U.S., I think it’s not arrogant to say that Best Buy is the only player which these large companies can do these meaningful deals. So, it really changed the trajectory.
RITHOLTZ: I have to ask you about the Geek Squad. Whose idea was that and how significant is it to the company?
JOLY: Sure. Robert Stephens was a student at the University of Minnesota, was the — is the founder of Geek Squad in 1994. Very creative guy. The name itself is good — is cool, the logo and so forth, and then Best Buy acquired the company in 2002 when it was quite — still quite small and now, of course, it’s become really big, it’s 20,000 employees.
And it’s the key elements of Best Buy’s differentiation because Best Buy is not just in the business of selling you something. We’re — our target customer — people who are excited about technology need technology but also need help with it. And so, with the Geek Squad and the blue shirts, we’re able to advise you when you’re looking at what to do but also help you implement in your home, helps you figure out if something is not working across, right?
Of course, let’s take an example. If Netflix is not working tonight at your house, Barry, is it because of Netflix, is it piping to the home, is it the router, is it the streaming device, is it the TV, honey, what is it, right? And we’re honey, right, and we’re going to be able to help you across all of these vendors. And so, that’s a big differentiator for the company. So, really genius.
RITHOLTZ: My extra special guest this week is Hubert Joly. His new book is called, “The Heart of Business.” Let’s talk a little bit about writing a book which is quite an endeavor. What motivated you to sit down and say, sure, I’ll write a book?
JOLY: Well, this is not a traditional field book. So, this is not a memoir. This is not about the story of the Best Buy turnaround per se. It was reflection, Barry, and it’s really been something I’ve been thinking about for the last 30 years that so much of what I’ve learned at business school, what McKinsey or the early years of my career is wrong, dated or incomplete.
And when sit back today or in the last couple of years, even though I’m the eternal (ph) optimist, I have to say it out loud, the world as we know it is not working, right? We’re in this multifaceted crisis, you have, of course, the health crisis and economic crisis, suicidal issues, racial issues, environmental problems, geopolitical tension, it simply is not working.
And what’s the definition of madness, right? It’s doing the same thing and hoping for different outcome. And for me, on my FBI’s most wanted list, is two people. One is Milton Friedman, shareholder primacy, and two is Bob McNamara, the former Secretary of Defense and executive at Ford who’s the — almost the inventor top-down scientific management.
These approaches don’t work and I think they got us in trouble and there’s a growing number of us, right, and certainly, I’m not the only one, who believe that there’s a better formula that business can be a force for good that — it’s the idea that business should pursue a noble purpose and take care of all of the stakeholders that you put people at the center. You embrace all stakeholders in some kind of declaration of future dependents. There’s no need to choose between employees and customers and shareholders. It’s by taking care of customers and employees and the community that generate great returns for shareholders.
We treat profit as an outcome and this formula, people call it stakeholder capitalism or purposeful leadership, I think everybody now talks about it and embrace it, most people. There’s still a few who don’t agree.
But the challenge then is how do you do this, how do you make this happen and, Barry, I felt that with my experience and the credibility of the Best Buy turnaround, I could add my voice and my energy to call this necessary foundation of business and capitalism around purpose and humanity and provide like a guide for any leader at any level frankly who is keen to move in that direction but like the rest of us, we would help.
And so, that was the genesis of the book and the subtitle of the book is leadership principles, right, for the next era of capitalism and the book is full of very concrete examples and stories and illustrations. There’s questions at the end of each chapter that people can use to reflect and act at their company. So, that’s the book.
RITHOLTZ: Speaking of the book, it got a terrific review from all — of all people, Amazon’s Jeff Bezos. How did that come about, how did Bezos give you a review and what’s the relationship like between Best Buy and Amazon these days?
JOLY: Sure. Best Buys has always sold Amazon products because we think about Amazon as the retailer, of course, as a cloud company but Amazon is also a product company, right? They have the Kindle and, of course, all of their Echo products.
And Best Buy have always sold Amazon’s products in the stores. Other retailers say it otherwise but we felt these were great products and we’re here to serve customers. I got to know Jeff firstly through the business council. Both of us were members there on the executive committee and once, I was invited to discuss our turnaround and how we had approached that transformation and Jeff was in the first row and being very kind.
But then we did this significant partnership where I think it was in 2018. Amazon gave Best Buy exclusive rights to Fire TV platform, which is their smart TV platform, to be embedded into smart TVs. So, any smart TV with the Fire TV embedded in it, Best Buy is going to control that. It’s only going to be sold at Best Buy or by Best Buy and Amazon.
And when we did the announcement for this deal, we did it in a store in Beverly, Washington, and Jeff came and we had some media there and Jeff said, TV is a considerate purchase. You got to see the TV. Best Buy is the best place in the world we you can do this. That’s why we’re doing the partnership and we built this stress-based relationship.
And, of course, the media was — this was a jaw-dropping moment and Jeff is a very generous man. It’s interesting because it raises another question which is how do you think about competition. As you lead a company, do you obsess about competition or do you obsess about your customers and what you can become. And that’s one of the things that Jeff and and I share which is you obsess about your customers and becoming the best version of yourself you can be.
Of course, at Best Buy, we look at Amazon. We wanted to — actually, in the sense, we neutralize them, right, because same prices, same great shopping experience and we ship as fast as they do. So, let’s call it a draw on the online business and then we have unique asset.
And so, you’re not obsessed about your competition. In fact, in some cases, you partner with them and I think the world — other than the COVID pandemic, there’s another pandemic in the world which is the fear or the obsession about zero-sum games.
The only way that Amazon could win is if Best Buy loses or vice versa. The only way this podcast can be successful, Barry, is if you win and I lose. That’s crazy, right? You get to collaborate and create great outcomes and I think in this world as leaders, we have to think about how we can create when win, win, win outcomes for our customers, our employees, our vendors, the community and ultimately, their shareholders.
RITHOLTZ: And to put some flesh on those bones, some numbers on it, in 2007, before the financial crisis, Best Buy had done about $35 billion in revenue. In 2020, they were somewhere in the neighborhood of 47 billion and this year, I think the company is looking for an excess of 50 billion. So, clearly, that’s been heading in the right direction.
Let’s talk a little bit about your experience on other boards. You’re in the board of directors of Johnson & Johnson and you’re on the board of directors at Ralph Lauren. What have you learned from those firms that were applicable to Best Buy and what do you bring to the table for those companies?
JOLY: Yes. So, I joined — the first board I joined was Ralph Lauren in 2009 and I was the CEO of Carlson Companies, which was Carlson Wagonlit Travel, TGI Fridays and then a bunch of hotels, Regent and Radisson. The reason why I was interested in joining another board was to try to become a better CEO in the relationship with my board and sitting on somebody else’s board, you can see the needs of the board and then you can see how the CEO and their team are dealing with you.
So, that was a great experience because when you become CEO and you deal with the board, you have zero experience, right, dealing with the board. So, that’s one of the things you learn on the job. So, that was a great way for me to learn.
And these two companies, J&J and Ralph Lauren, they’re two amazing companies. J&J, I joined recently. I joined about 18 months ago. And so, watching Alex Gorsky and his team navigate the pandemic, their Credo-based approach. I mean, they’re the inventor of stakeholder capitalism before (inaudible), right, with their Credo that they created in 1943 that’s focused on all of the stakeholders. They’re one of the most innovative companies. So, they show the value of doing meaningful innovation for the benefit of, in their case, their patients.
This is a wonderful entrepreneur. The company was founded in ’67 and it’s a great company, one of the most iconic brands on the planet. So, how do drive this and how do you balance left brain and right brain and, of course, enjoying cooperating with Patrice Louvet, the CEO, who is a terrific guy.
And so, learning — I’m like a sponge, I love learning (ph) from others. What I bring, I would frame it along the lines of what I was looking for my board to do when I was CEO and I was not looking for the board to give me all of the answers and do my job, right?
But I use the board — I wanted — I build a board that would give me complementary skills. So, I wanted to have the best people on the board that would have skills that would be additive to our management team and use the board as a sounding board to — I would get 80 percent of the value of the board meeting in preparation to the board meeting.
And then getting reaction at the sounding board. When you are in the weed, sometimes, you’re missing something and then being able to access unique expertise from my board. So, what I try to bring on these boards is I try to be a resource for the management team, a sounding board, and helping them with their most important issues.
I really enjoyed that. I’m in the state now where I started a new chapter as you highlighted, I’m no longer a CEO but it’s a matter of giving back and helping the next generation of leaders be the — become the best version of themselves they can be. So, I do that through boards and through executive education at Harvard Business School, also coach and mentor of a number of CEOs and executives. So, it’s — I just love doing that.
RITHOLTZ: So, let’s talk a little bit about what you’re doing now. Tell us about the class you’re teaching at Harvard.
JOLY: So, on Monday, August 30th, that is the first day of school for the incoming MBA class. So, I’m one of the professors in the first year. I teach marketing, which is about — it’s focused really on how do you grow a company focusing on the customers.
So, that’s one of the things I do. I’m also part of the faculty that’s — as a program for new CEOs. So, twice per year with a small bunch of new CEOs, I did this when I became CEO, that come here for three days and we try to help them out.
I’m also part of the faculty that’s doing a program called Leading Global Businesses and last but not the least, I’m really passionate about this, we’re designing and we’re going to pilot program for companies and then also in the MBA program called Putting Purpose to Work and Unleashing Human Magic. So, many companies on this purpose journey today.
And so, there’s going to be a series of workshops for the top 30 people, custom programs, one company at a time, and we’re going to try to support them in their journey. We’re doing our first pilot this fall and to look forward to learning from that experience.
And I think we’re just in the early innings of that new era of capitalism. So, so much to learn. I’m super excited to be part of that journey with a number of companies.
RITHOLTZ: Quite interesting. I have to ask you the obvious question, is your book a book you assigned to your students? What do you have them read?
JOLY: So, HBS is a school where there’s really not, for the most part, mandatory reading of any books. So, I know that last year, before the book was established, my wonderful Section E from the MBA program, they all got a copy of the manuscript and they had great conversations, too.
Sometimes, the book gets distributed to the participants of the executive education programs. But in the MBA, there’s little mandatory reading. It’s all about, as you know, the case study methodology, which is a wonderful way to learn because it’s hard to learn just from reading. Reading, I mean, I encourage people to read the books for sure but it’s by practicing that you really learned, right? So, that’s the HBS way.
RITHOLTZ: To say the very least. And one of the things that Bezos specifically mentioned was that he thought your turnarounds at Best Buy was going on eventually become a Harvard Business School case study. What are your thoughts on that?
JOLY: Well, we’re actually working on that with Professor Gupta and it’s going to be taught for the first time. This is going to be fun, right? It’s going to be the last case of the marketing class in December.
And so, of course, in my section, it’s going to be ironic. I’m going to be Professor Joly and I’m going to be one of the protagonists. There’s been other cases on Best Buy but this one is going to be much on the turnaround and transformation. So, that’s going to be fun.
I’ve also taught it — we’ve also taught it in some of the executive education programs. So, Jeff – I know Jeff is right, there’s a Best Buy case now at Harvard Business School.
RITHOLTZ: Really, really quite interesting. So, you mentioned purposeful leadership. Let’s delve into that a little bit. How does one become a purposeful leader who’s focused on creating the sort of environment where others can flourish and perform at their best?
JOLY: Yes. This is, for me, such an important information and I grew up believing that as the leader, what was important was to be smart, right, where I went to school and to — some of the best schools and in the early years of my career, this is the left brain would highlight being the smartest person in the room.
I’ve learned over the years that this is not what drives great outcome over time. I had an entire reflection and we slowed down. One of the things that is important to do is reflect on why do we work. Is work markedly a mixed reputation, right? We work — is work a punishment because some dude send in paradise, right, or is work something we do so that we can do something else that’s more fun or is work part of our fulfillment as a human being, part of our quest for meaning, right, to talk about Victor Frankl.
And one of the things that I really invite myself to do and every leader to do is reflect on this. What’s going to be the meaning of my life professionally? How do I want to be remembered?
One of the things we ask the CEOs to do in the CEO program in Harvard is write your retirement speech or with my wife when I — when we coach or mentor CEOs, we ask them to write their eulogy. What would you like other people to say on that day when you’re not here to listen?
And I think this is so meaningful because people talk about the purpose of the corporation. I think it starts with our individual purpose, right, because motivation is intrinsic, right? And so, how can you lead others if you cannot lead your life and yourself? For me, that’s the beginning.
And very practical, one of the turning points in our journey at Best buy, Barry, was every quarter, we would get together as an executive team for an offsite and one day, I asked every one of the executive team members to come to the offsite with a picture of themselves when they were little, maybe two or three years old.
We got some really cute pictures, Barry, I can tell you that and over dinner, we spent the evening sharing with each other our life story and what drives us in life, what’s the meaning of our life. And what came out of that discussion, several things, one is we realized that all of us were human beings, not just a CFO or CMO or CHO, and that, with a couple of exceptions, all of us had the same kind of goals in life, which is it is the golden rule, do something good to other people.
And that was transformational because we said, well, we’re the executive team of Best Buy. At that time, Best Buy — we had saved Best Buy and it was — where do we go from here? Why don’t we use Best Buy as a platform to do something good in the world and become a company that customers are going to love, employees are going to love, community is going to love and, of course, shareholders are going to continue to love.
And so, there’s a similar idea in my mind which is connecting what drives us as individuals with the purpose of the company and the thing for companies that are embarked on the purpose journey, they write down their purpose but if they just try to cascade it down and communicate it to everybody and say, why don’t you — why aren’t you excited about this new purpose, right, it doesn’t work.
We really have to start with what drives every individual and the company and then you realize that, yes, what is your role. So, in the book, I talked about the five Bs of purposeful leadership. The first B is be clear about your — what we are talking about, be clear about your own purpose, be clear about the purpose of people around you and how it connects with what you’re doing at the company.
The second one is be clear about your role as a leader. It’s not to be the smartest person in the room but to create the environment in which others can be the best version of themselves. And, of course, if you’re leading a significant company and Best buy has more than 100,000 people, the only thing that happens is the thing that you decide that you come up with, you know it’s going to go far, right? So, it’s all about creating this environment which is significant mind shift.
It’s also about — yes, Barry?
RITHOLTZ: I was going to say, I’m struck by your comments and this comes through the book about showing vulnerability, inspiring people, embracing your humanity. I think back to the former CEO of General Electric, Jack Welch, whose nickname was Neutron Jack for how frequently he would lay off people and close divisions and fire other executives. When you were putting your philosophy to work at Best Buy, were you aware that this is a radical break from what had come before you?
JOLY: Yes. And to quote — so, to go back to France in 1789, at the moment of the Storming of Bastille, there is Louis XVI asked La Rochefoucauld, is this a revolt, and La Rochefoucauld’s response says, no, sire, this is a revolution. And I think that’s what it is and it’s really shifting things.
People are not the problem. They’re the source and they’re also the ultimate goal. And I think that most people agree with this, Barry, the challenge is not agreeing with this now, I think it’s really doing it and it’s — I can speak from experience.
If you were to look at my face, you would see all of these scars on my face. Learning from experience and trying to get better at this is a lifelong journey of learning to be vulnerable. I was raised — being taught that I — you couldn’t say I don’t know and now, in the world we live, did you have a manual for the COVID pandemic, did you have a manual for back-to-the-office, Barry? No.
So, it’s clear that we don’t know. So, we have to be able to say my name is Hubert and I need help and we’re going to work together to figure it out. So, there’s a C change in leadership, meaning from a place of purpose and with humanity and a great deal of humility.
RITHOLTZ: So, I want to talk about the pandemic in a moment. I want to stick with this revolution that you mentioned. There’s a quote from the book that I really like, quote, “The Milton Friedman version of capitalism got us here. But now, this model is failing.” Explain to us how it got us here, why it’s failing now and what comes next.
JOLY: I used this to highlight the idea which mainly has been Milton Friedman’s, only I get was the context when he spoke. But the obsession with profits being the only thing that matters is proven to be poisonous and excessive focus on profit is poisonous and there’s several reasons for this.
One is when we look at the reported profit of the company — by the way, if anybody believes that U.S. GAAP really tries to equate economic performance, study your accounting again, it’s not even trying, it’s a set of principles. There’s many things that GAAP profit does not capture, including your negative impact on the environment or how well your sales force is trained.
The other thing is that it focuses on an outcome. So, in medicine, the (inaudible) analogous is my MD was focused on my temperature, right, and I don’t want a doctor that’s purely focused on my temperature because maybe he’s going to put the thermometer in the fridge or in the oven, right, depending. I want somebody who’s going to be interested in what’s driving my health and try to help me get healthy.
And so, we got confused by this obsession and that was (inaudible) and, of course, there’s extreme cases. Enron is one of them but — where we lost track of why we’re on this planet and responsibility with doing the right thing. So, this new model, the reinvention of business probably going back to some of our roots, right, with the idea that business is here to purse enabled (ph) purpose.
And this is not about socialism, this is about doing something good in the world that could be responding to needs of customers in a way that’s responsible. It’s about putting people at the center embracing all of the stakeholders in a harmonious fashion, refusing zero-sum games and treating profit as an outcome. I think that’s the formula that’s employed by some of the best companies on the planet.
And as leaders, we need to go back to that and to learn new things because we’re so influenced by some of the techniques we learned last century, including this top-down management approach and using it extensively. So, that’s something you’re going to learn over time.
There’s research by the MIT that shows that financial incentive deteriorates performance, which is the opposite of what we’ve learned, right? But if you feed somebody with carrots and sticks, beware because you’re going to get a donkey, right?
RITHOLTZ: Right.
JOLY: And in a world where you need creativity and people to be their best, motivation is going to be intrinsic. So, that’s what you need to be able to touch and get to the environment where people want to be their best and make a meaningful contribution in their work.
So, I think this is a very exciting phase. This is an urgent phase because I’m concerned probably like you and many others that we have a few ticking timebombs and I have three wonderful granddaughters. I want to do my best to try to, quote-unquote, “make the planet” be a better world, right, than the current trajectory.
RITHOLTZ: And this is very consistent, I have a fuller understanding of your philosophy that profit should be an outcome and not just the goal in and of itself. You’ve really put some meat on those bones.
JOLY: Yes. Thank you, Barry, and there’s practical implications of that again and starting your monthly business meetings or even your board meetings with people and organization and then customers and business and then basically (ph) with with financial results. You should take care of the first two, the profits will follow.
So, it’s a significant practical and philosophical transformation. Talking about quotes here, we quoted Milton Friedman, but I love this quote from the Lebanese prophet, Kahlil Gibran, who said that work is love made visible.
RITHOLTZ: That’s a wonderful quote. And let’s talk a little bit about visibility of some of the changes you did. By the time you stepped down from the board of directors in June of last year, Best Buy’s board of 13 directors had, for the first time ever, a majority of women and three African-American directors. Tell us how you brought about this increase of diversity. What about diversity throughout the rest of the company and what was the impact of so much inclusion and a shift away from the older homogenous types of boards?
JOLY: I think, Barry, it’s clear for every one of us today that having diversity is going to get to a better business outcome and I do believe that has there been Lehman brothers and sisters instead of Lehman brothers, we would have had a different outcome.
But if you also take it a very practical fashion, in one of our stores in Chicago that’s in the Polish neighborhood, if the blue shirts don’t speak Polish, they’re not going to sell much.
RITHOLTZ: Right.
JOLY: Or when we had Brazilian tourists in Orlando, the blue shirts didn’t speak Portuguese, they were not going to sell much. So, having diversity of every dimension, talent, skills, profiles, gender, race, the country’s color is changing very rapidly, it’s becoming black and brown, we have to represent — it’s very simple, we have to represent the diversity of the customers we serve. If we don’t, bad things happen.
And so, there’s a business imperative, there’s also a moral imperative when we see the state of the country. So, from a gender standpoint, as I said, I have three granddaughters, I want them to have the best opportunities, and why would it make sense to only recruit from a quarter of the population, right?
RITHOLTZ: Right.
JOLY: The board’s — I’ll say the board’s composition was a great place to focus now. It’s not the only one. When we rebuilt the board study in 2013, we want to have the best skills. We were determined to be diverse. So, we had an early focus on gender diversity and when I started to focus more on ethnic diversity, probably starting in 2016, 2017, I met — I had a great meeting with Mellody Hobson of Ariel Investments and …
RITHOLTZ: Sure.
JOLY: … she’s now the Chair of Starbucks, everyone knows Mellody, she’s amazing, one of the things she told me is that people cannot be who they cannot see. And so, starting at the top and having a board that would signal the direction was important.
So, what’s really — and changing the composition of the board is not that hard with only 10 or 12 or 13 people, how hard can it be? So, we told the headhunter don’t bother giving us resumes of non-black directors, right, and if you believe that you are unable to find great black candidates, well, say that’s OK, we won’t have a problem with that. We’ll just work with another firm. It’s not a problem.
And so, we recruited three amazing directors and we got them on the board that they’ve concluded (ph) in this direction and I think it makes a huge difference. And, of course, Best Buy is headquartered in Minneapolis and following the killing — the murder of George Floyd, it’s pretty simple, if you — if the city is on fire, right, if the community is on fire, you just can’t open stores, right? You can’t run a business.
RITHOLTZ: Right.
JOLY: So, in this country, we have this big racial issue that has been going on for centuries. I think generation has the opportunity to end systemic racism and that’s something we, I think, business can play a big role in this. So, that was determined and that’s what we did.
RITHOLTZ: Let’s jump to our favorite questions that we ask all our guest starting with tell us what you’re streaming these days, give us your favorite Netflix or Amazon Prime, what’s keeping you entertained during the pandemic?
JOLY: I have so much electronic equipment in our place that I’m doing a lot of streaming. I love — I always listen to music. I’m a movie buff. I have a collection of probably 800 movies on my (inaudible) setup.
Our favorite I would say recently has been “Good Doctor.” I think that’s Season 5, it’s starting at the end of September. We’re very excited about this. And then from a podcast standpoint, I like listening to HBR’s Idea Cast. That’s a weekly – a great weekly podcast. Whitney Johnson has a great leadership podcast called “Disrupt Yourself.”
And then I have to mention, there’s a young teenager, well, teenager would be young anyway, right, but let’s call him a teenager, Logan Lin has got a FinanZe podcast that focused on the Z generation. My God, the guy is so cool. So, everybody joins and downloads FinanZe spelled F-I-N-A-N-Z-E and that’s Logan Lin.
RITHOLTZ: Quite interesting. We hinted at some of your mentors but let’s jump into that in more depth. Tell us some of the people who helped to shape your career.
JOLY: There’s so many, Barry. Jean-Marie Descarpentries, a client of mine, had this big influence on me teaching me so much about how to put people first and treating profits as an outcome.
There were two great friends, yes, who happened to be monks in a religious congregation in the early ’90s. That was a turning point. They asked me to write a couple of articles with them on the theology and philosophy of work which is where I got a lot of my roots in terms of work as part of our search for meaning as individuals, as human beings. It changed my perspective on work.
Another turning point, too, in my early 40s, you could say throughout the book, it was at the top of my first mountain, right, had been a partner at McKinsey & Company. I was on the executive team of Vivendi Universal, by many measures., I’ve been successful, right, except I think the top of that first mountain was very dry which was not fulfilling. There was no real meaning.
So, I call it my midlife crisis, right? So, instead of going on to an island, I did — I stepped back and I did the spiritual exercises of Ignatius of Loyola. So, you could say the founder of the Jesuits, of course. You could say he was one of my mentors that was really helpful to help me discern my calling in life, which today or since then has been to try to make a positive difference on people around me and use the platform I have to make a positive difference in the world which is what I’m doing now teaching and mentoring and so forth.
And then we mentioned Marshall Goldsmith, my first coach and a good friend. Later on, I also worked with Eric Pliner at YSC. When the board — so, Marshall was doing my annual — having that board with my annual evaluation and the board realized that Marshall and I were such good friends and said, we need somebody more objective now. And we got Eric Pliner, who is now the CEO of YSC, worked with me but also his firm works with every one of our executives and helps us with executive team’s effectiveness and that was quite transformative. You should have spent more time earlier on not just on building the right team but enhancing our team effectiveness and I learned a lot working with Eric in that journey.
RITHOLTZ: Let’s talk a little bit about everybody’s favorite question, tell us about some of your favorite books and what are you reading right now.
JOLY: I read three books this summer. The first one is by Rakesh Khurana who’s now the President of Harvard College and it’s called “From Higher Aims to Hired Hands” which is the history — exactly for me, the history of business education in the U.S. over the last 120 years and how the business school curriculum were saved and how — and why he believes and I do believe as well that we need to evolve it not just learning techniques but also with — it’s not just about learning something or learning to do something, it’s also learning to be, which is I think an entire journey.
I also read “Caste” by Isabel Wilkerson and a book by my colleague, Tsedal Neeley, “Remote Work Revolution” which is, of course, a very timely book. Best book ever read, I have to mention Marcel Proust being French, “In Search of Lost Time.” It’s only 3,000 pages. So, if you have a minute or two, I encourage you to get to it. Victor Frankl’s “Man’s Search for Meaning” is another favorite.
And you mentioned the Marshall Goldsmith’s “What Got You Here Won’t Get You There.” And finally, I have to mention my wife’s book called “Aligned: Becoming the Leader You’re Meant To Be” and her name is Hortense Le Gentil. It’s one of the best leadership books that I’ve ever read and, of course, a little bias maybe.
RITHOLTZ: Maybe you’re a little bit bias. So, you work with grad students and college students, what sort of advice would you give to a recent college graduate who is interested in a career either as an executive or leadership or even in retail?
JOLY: I think the advice is the same as we give the new CEOs is write your retirement speech or even better, write your eulogy. And I know my good friend John Donahoe, who’s now the CEO of Nike, did this when he graduated and he’s always kept it. And I understand he goes back to it every year and it’s hard. (Inaudible) between the ages of 26 and 34, early in your adult life, you don’t necessarily know everything but try to write it and see what journey you want to be on and how you want to be remembered. That would be one plot.
RITHOLTZ: Quite interesting. And our final question, what do you know about the world’s of leadership and executive management today that you wish you knew a couple of decades ago when you were first getting started?
JOLY: Well, there’s so much over the years. I think it has to do with profits being an outcome not the goal. It’s about importance of looking at drivers of performance. It’s about my role as a leader is not to be the smartest person in the room but to create the right environment. Not about being perfect. Nobody’s perfect.
And I think the quest for — maybe I’ll finish with this, the quest for perfection can be very dangerous, can be evil, right, because if you’re trying to be perfect, guess what, you’re not going to be successful. You’re going to be incredibly demanding and harsh with people around you because you expect them to be perfect.
And so, you have to be laxed and be kind with yourself and others around you and be able to open up and share what you are struggling with, understand what they’re struggling with and help each other out. That’s the — I think to me, that’s — it’s such an important consideration. The quest of perfection can be very dangerous. Be kind to yourself.
During the pandemic, we learned so much, right? We used to fly around Barry, long time ago on planes, right, and we were told by the steward or the stewardess, if the oxygen mask comes down, put it on yourself first before you help others. So, as we continue to go through challenging time, taking care of yourself as a leader, making sure you meditate, you reflect, you exercise, you ask for help either from your personal board of directors, your best friends, that’s the key thing, that’s going to be the way that we can then help others. So, take care of yourself first.
RITHOLTZ: Quite interesting. We have been speaking with Hubert Joly, former Chairman and CEO at Best Buy and currently a lecturer at Harvard Business School. Thank you, Hubert, for being so generous with your time.
If you enjoy this conversation, be sure and check out any of our previous 376 former discussions that we’ve had. You can find those at iTunes, Spotify, Acast, wherever you feed your podcast fix. We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net. You can sign up for my daily reads, you can find those at ritholtz.com. Follow me on Twitter @Ritholtz.
I would be remiss if I did not thank the crack staff that helps put these conversations together each week, Charlie Vollmer is my audio engineer extraordinaire, Atika Valbrun is my project manager, Paris Wald is my producer, Michael Batnick is my researcher.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio
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