Scott Freidheim of Freidheim Capital On Five Things You Need To Be A Highly Effective Leader During Uncertain & Turbulent Times
Balance can lead to a life with constant fireworks of happiness and fulfillment.
As part of our series about the “Five Things You Need To Be A Highly Effective Leader During Turbulent Times,” we had the pleasure of interviewing Scott Freidheim.
Scott Freidheim (https://scottfreidheim.com/) is the managing partner of Freidheim Capital LLC and the author of Code of Conduct: Tales of the Roller Coaster of Life. He is a family-focused, community-minded, risk-taking adventurer and businessman. Freidheim has served on senior leadership teams across multiple industries, including financial services, mass merchandising, brand management, product development, engineering, and staffing. He’s been a CEO for a New York Stock Exchange-traded company and in private equity and a board member of for-profit and not-for-profit institutions. Freidheim has served on the global executive committees of Investcorp, Sears Holdings, CDI Corp, and other companies, and has run businesses ranging in size from $1 billion to $45 billion.
Thank you so much for your time! I know that you are a very busy person. Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?
So how’d I get started on authoring Code of Conduct? Well, I guess I was on a bicycle ride from Aspen to Colorado Springs. It was a two-lane 60 mph speed limit highway at this point. I peered over my left shoulder and saw that there were no vehicles coming down the hill headed north as I was. There was a rumble strip on the shoulder. I had passed over a few on the trip and deduced that at 30 mph, I had the speed to maintain a straight line.
As I leaned to my left to get on the highway, my front wheel wobbled. The bike was heading left into the highway, but the wobbling increased right, left, right. Eject. I was traveling 30 mph — they were traveling 70 mph. Trucks always win contests with human projectiles. The mental math kicked in mid-flight. Was there anything I could do to improve my chances of survival? No. The math was clear to me. There was no chance for survival. We were close enough to each other that there was no chance for them to change their course. I was not afraid. I did not fear the pain. I knew there was an inevitable course of action that was underway. I surrendered myself to the inevitable. I hit the pavement close to the middle of the north-and southbound lanes. What I saw next was an indecipherable series of photo stills akin to YouTube videos posted of skiers with GoPro cameras on their helmets falling at high speeds and tumbling. Flashes of hundreds of images processed and developed too fast for my mind to synthesize clearly.
My midair calculation had me hitting directly in the middle of the white truck. The hundreds of images were unclear. As I rolled along the asphalt into oncoming traffic, I fully expected the lights to simply go out. When I knew I hadn’t been hit by the grill of the truck,
I expected to be run over by a wheel or hit by the undercarriage of the truck or a following car. I did not anticipate pain, just lights going out.
Whatever was next for me was where I was headed. I thought about my wife, Isabelle, and my kids, Alexander, Leopold, and Anastasia. They would have enough financial resources to have a wonderful life, but I worried about the impact of my death on my children.
I knew that this moment was now about me and God; I let them go. It’s a very individual moment in time when you know you are going to pass on. I placed my faith in Him. I wasn’t begging or praying. I knew that whatever life I had lived had already run its course. I was now embarking on the next phase of existence. Yet, I was at peace with that.
At some point, I opened my eyes and lifted my head. I was alive. The revelation: the only thing that matters in life is how you live your life. Now, what was I going to do with that? That’s how things got started.
It has been said that our mistakes can be our greatest teachers. Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?
I entered a small, dark office overwhelmed with stacks of workbooks and pamphlets for my obligatory meeting with New Trier High School’s college counselor. Sparing pleasantries in light of his packed schedule (my class had 1,350 students), he abruptly began the meeting. “What schools are you planning to apply to?”
My credentials at the time were a mixed bag on the backdrop of an unconventional upbringing with a great score in the math portion of the all-important SAT standardized tests but a miserable one on the verbal. Having grown up in Brazil and France, I had as much Portuguese and French language instruction as English through eighth grade, thus was woefully behind in English. My GPA was a 3.7 under New Trier’s weighted system, anchored by a C+ in English and buoyed by As in two French advanced placement courses with varying flavors of grades in between. With no idea how to respond to his question, I said, “Yale, my brother goes there. Georgetown, my sister goes there. Notre Dame, my dad went there. Northwestern?” In my family, there was no doubt that you went to the school that had the best academic reputation.
My immaturity and lethargy contributed to a pathetic level of project management on my part for such an important decision.
Universities are gateways to opportunity. The best universities provide the widest aperture of career choices.
The counselor responded, “Umm, those are all great schools. Maybe you should pick one of those as your stretch target and apply to some other schools where you are more qualified and then pick a safety school.”
Fast-forward nineteen years to the spring of 2002, I flew to Chicago to go to the Chicago Club. It was an insanely busy time on Wall Street, but my dad’s retirement from a thirty-year career at Booz Allen & Hamilton was an event I couldn’t miss. The Chicago Club, founded in 1869, is a private social club located at Van Buren Street at Michigan Avenue.
Working the crowd of executives paying tribute to my father, a warm, familiar face stood out: Vicki Anderson. We hadn’t seen each other in about ten years. Vicki had been my father’s executive admin for a couple decades. She threw me off at our encounter with a question. “Do you forgive me?”
“I beg your pardon? Why in the world would you ever have to ask me for forgiveness for anything?” Vicki had always managed a heavy balance of family matters and professional duties and done it all with alacrity.
“You know!”
“Uh, no, I don’t. Truly.”
“You know, when I transcribed (with a typewriter from my handwritten pages) your college application essays for you. I accidentally typed ‘Northwestern’ in every essay instead of the name of each individual school you applied to.”
When my application response letters came in as a senior in high school, they were a steady stream of rejections: Yale, Georgetown, Notre Dame, and more.
The event, the people, the room, all disappeared for a moment. My mind drew up storylines of how my life might have been different had I been a more mature high schooler. In my professional life, I triple-check everything. On my college applications, I clearly hadn’t checked the final version. Your reputation on Wall Street is highly correlated to never making a mistake; it is the cornerstone of your credibility.
I wished to have awoken earlier in life, including starting the college selection process earlier and approaching it with professionalism. This decision, more than any other, defines the set of opportunities that you are afforded when launching your career. I didn’t select the college I wanted to attend. My laziness had selected my college for me.
Delegation is a requirement in life. A team gets more accomplished than the individual. Harnessing the different skills of each member of a team is critical in delivering outperformance across sports, business teams, community projects, and so on. One cannot and should not do everything. However, delegation must be done for the right reasons and with the right oversight considering the importance of the task. How you delegate something is up to you. Whatever the result, you own it because that was your decision.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story?
In the summer of 1978, my parents had just told me it was time to go to the enclosed swimming pool area. They said let’s stick together. Perhaps because I had just become a teenager earlier in the week in Nairobi, my thinking was that parental direction was no longer necessary.
I walked along a path from the main structure of the Samburu Game Lodge toward my wood and straw hut. Huts were spaced out every twenty yards or so on the right side of the path. On the left was a gradual slope of wild grass about ten yards wide that led down to the Ewaso Nyiro River. There were no fences to separate wildlife from tourists, just a couple signs that apparently sufficed.
It was a hot day. Kenya is bordered by Uganda, Tanzania, Somalia, and the Indian Ocean. We were forty miles north of the equator on the border of the Samburu and Isiolo counties. No surprise, an elephant was cooling itself by the river. I walked past a woman who was standing on the path with a small camera aimed at the elephant on the riverbank. Forty yards later, I glanced back and noticed that she had stepped off the path and was walking very slowly toward the elephant to get a closer picture. I stopped and watched. The woman proceeded to take one step closer when the elephant trumpeted to let everyone know it was game on.
The woman took two steps back and stumbled backward to the ground. The elephant turned around facing the woman and put his mass into drive up the slope. Out of nowhere, a Samburu savior ran and got in between her and the elephant waving his hands. The elephant ran up the hill to teach the Samburu savior his final lesson. Just before the elephant trampled him, the Samburu savior dove out of the way.
The sensational save by the Samburu savior was truly unforgettable. As was the fact that the elephant was now charging straight at me.
I quickly assessed the situation. Forty yards away from me was an African bush elephant (the official term is apparently, difficult to pronounce, Loxodonta africana). It is the largest living terrestrial animal with bulls reaching shoulder height of up to thirteen feet and a body weight of up to ten tons, or 20,000 pounds. I stood five feet tall weighing around 105 pounds. What I did not realize was that my challenger, Loxodonta africana, had a top speed of twenty-five miles per hour. Mine was about eight to ten miles per hour.
Run! I spun around and launched out of my starting blocks down the path away from the charging elephant. Running past a hut on my right, I glanced back at Loxodonta africana only to see he had been closing in rapidly. Run faster. As I approached another hut on my right, I took another glance over my shoulder at Loxodonta africana. He had now closed to within ten yards.
He was going to catch me.
He had closed the distance that separated us so quickly; I knew that was the last glance over my shoulder I could afford. Instinctively, I took a right turn around the hut I was about to pass. Unfortunately, Loxodonta africana thought that was a pretty good idea too.
At this point, I didn’t know exactly how close Loxodonta africana was to teaching me the lesson that he really wanted to teach the woman taking his picture at the riverbank but knew that there was no chance of escape by running straight. I figured taking another right turn around the back of the hut. If he followed me, he’d catch me. If he didn’t, I’d escape. Fortunately, this time, Loxodonta africana charged straight on.
I continued to circle the hut in a panic, only satisfied that I’d live to see another day when I saw Loxodonta africana in the distance after having run all the way around the hut.
There’s a poem in French about fathers that comes close to encapsulating how valuable a parent’s wisdom is and how too many people waste too much time before they figure it out. It goes something like this:
At 6 years old: Dad knows everything
At 10 years old: Dad knows a lot of things
At 15 years old: I know as much as Dad
At 18 years old: Decidedly, Dad doesn’t know much
At 30 years old: We could at least ask Dad’s opinion
At 40 years old: Dad, at least, knows something
At 50 years old: Dad’s right
At 60 years old: Ah! If only we still had Dad around to ask
Parents are biologically coded with wisdom for their children. Use it.
Let’s now turn to the main focus of our discussion. Can you share with our readers a story from your own experience about how you lead your team during uncertain or difficult times?
I’ll tell you about one of my role models and how he performed in a most difficult circumstance and, more importantly, his takeaway.
My brother and I took our seats in the recently renovated Estadi Olimpic de Montjuic in Barcelona twenty or so rows up from the finish line. Eight athletes loosened up and got set in their starting blocks. In lane 3 was the reigning Olympic champion Steve Lewis from the United States, in lane 4 was Cuban record holder Roberto Hernandez, and in lane 5 was Derek Redmond from the United Kingdom, the British record holder. This was the first semifinals of the men’s 400-meter race at the 1992 Olympic Games. Our eyes are on the three athletes in the middle lanes.
Bang! They blast out of their starting blocks and in no time are around the first bend. Halfway down the back stretch, one runner starts limping and grabbing his hamstring. I couldn’t tell from my seat who it was. Seven men are left sprinting around the far side of the track. They’re making their way to the last 100 meters. Here they come. Lewis wins it in 44.50 seconds, about 0.6 seconds off Olympic record pace, and Hernandez is second. Team USA is in the finals.
On the far side of the track, Derek Redmond, who was the one who was injured, waves off the attendants who looked like they were going to escort him off the track to make way for the next race. He starts hopping on his left foot. It looks like he wants to finish the race. This is going to take a while. A minute goes by as he’s still hopping. He’s slowly, and clearly painfully, making his way around the bend. We stand to clap for him. We’re not sure he’s going to make it by the look and slowing pace. I stick my fingers in my mouth and whistle as loudly as possible.
With about 100 meters to go, it looks like a fan is running at him. Attendants attempt to stop him, but he insists. We assume that’s got to be his father. It is. Derek puts his arm around his dad and covers his face of anguish and tears. They stopped. It looks like it is over. Attendants looked like they wanted them off the track. Derek’s dad tells the attendant to go away. Derek and his dad started to walk again. Derek’s face is buried in his father’s chest, and his Dad guides them to the finish line.
Just about everyone is standing in the stadium by then. Everyone is cheering, clapping, whistling.
With every step, Derek’s body unleashes new higher doses of pain and punishment. With every step, Derek’s body contributes less and his father more. With every step, all of us in the stadium cheered, clapped, and whistled louder and louder wanting to support their battle against Derek’s pain.
Derek Redmond and his father crossed the finish line to the loudest roar of the 1992 Olympic Games. Derek finishes what he started.
Derek later said, “Whatever your dream is in life — it could be something quite small, it could be something absolutely huge — you have to have 100 percent belief and confidence you can achieve that goal.If you don’t have that belief, that passion that you can achieve this, I would suggest you are chasing the wrong dream.”
Did you ever consider giving up? Where did you get the motivation to continue through your challenges? What sustains your drive?
I was on my first pilgrimage to Lourdes in France with the Sovereign Military Hospitaller Order of Saint John of Jerusalem, of Rhodes, and of Malta, that founded in 1048 is a Catholic lay religious order that is the oldest surviving institution in western civilization. We take malades (many terminally ill patients) to Lourdes to experience a miracle or grace in their last days on Earth. On the day before departure back to the United States, we were all given a day off. I suggested to him that it might be cool to ascend to the Château Fort de Lourdes if he didn’t need the time off. The Chateau dates to Roman times but was captured by Charlemagne in the eighth century. In 1590, it was a royal domain for Henri IV. In the seventeenth and eighteenth centuries, it was transformed into a prison and was known as the Bastille of the Pyrenees. It stands atop a rock peak in the Seven Valleys and towers over the town of Lourdes. He looked at me, “You think we can make it?” My honesty prevailed. “I don’t know, but if we don’t, it could be pretty bad.” He responded, “Let’s go! If I’m gonna go, that’s the way to go.” The trip from the Hotel Mediterranee where we were staying was only 1.1 kilometers to the top. I had my hands gripped to the pull bar behind me that was carrying my malade in the three-wheeled chariot. How hard could that be? The last few hundred meters are very steep. If my hands let go, he was in for a backward ride down the steep access road. Just put one foot in front of the other. The Jacobs Ladder in the gym had nothing on this. At one point, I went to put one foot in front of the other and failed to advance my foot. Instead, I lost my forward-leaning balance and had to spin around temporarily only holding the chariot with one hand to grab the handle with both hands facing downhill.
“Maybe we should turn around.” I suggested with sweat dripping visibly down my face. “Not a chance,” he replied.
Upon our triumphant arrival at the Chateau Fort, my malade poured out his hopes, his fears, his life, his love. We spent close to two hours talking about things that matter. Our backgrounds could not have been more different. Our most closely held priorities could not have been more similar.
I’ve considered giving up lots across many moments in time. For me, fear of failure has always been a motivator, that being said, the most powerful motivation is when your giving up negatively affects others.
For me, sustained drive comes from the obligation to give back based on what we were given. To whom much is given, much will be required. I am way behind and have a long way to go. Thus, I wrote this book to share what I have witnessed and learned. 100% of my royalties are going to charitable institutions, so this is only about trying to help as so many have helped me. That being said, I am actively thinking about where I can serve to most positively contribute.
I’m an author and I believe that books have the power to change lives. Do you have a book in your life that impacted you and inspired you to be an effective leader? Can you share a story?
I was reading The Giving Tree by Shel Silverstein to my children at bedtime. Here’s the key passage:
And after a long time, the boy came back again.
“I am sorry, Boy,” said the tree, “but I have nothing left to give you —
My apples are gone.”
“My teeth are too weak for apples,” said the boy.
“My branches are gone,” said the tree.
“You cannot swing on them,”
“I am too old to swing on branches,” said the boy.
“My trunk is gone,” said the tree.
“You cannot climb — ”
“I am too tired to climb,” said the boy.
“I am sorry,” sighed the tree.
“I wish that I could give you something … but I have nothing left.I am an old stump.I am sorry …”
“I don’t need very much now,” said the boy, “ just a quiet place to sit and rest.I am very tired.”
“Well,” said the tree, straightening herself up as much as she could,
“Well, an old stump is good for sitting and resting.Come, Boy, sit down.Sit down and rest.”
And the boy did.
And the tree was happy.
For all of us — whether in leadership positions or not — it’s not about what you accomplished, achieved or accumulated. It’s about how you live your life. Good news is that we have so many modern day heroes in our communities from which to draw inspiration; first responders, care givers, humanitarian aid workers, teachers, medical professionals, spiritual leaders and our warfighters. Their collective code is humbling. The Giving Tree is a children’s book. Yet, it is a behavioral heuristic of sorts that creates a selfless blueprint for leadership as well.
3 Shel Silverstein, The Giving Tree (San Francisco: Harper & Row, 1964).
When the future seems so uncertain, what is the best way to boost morale? What can a leader do to inspire, motivate and engage their team?
Harnessing the collective talents of the team to deliver unexpected results and share in the success is a most powerful motivator.
I was the newly appointed president of Kenmore, Craftsman & Diehard staring at the business’s five-year historical performance deterioration in market share and profitability. Kenmore was a brand with no manufacturing; its primary manufacturers were LG, Samsung, Whirlpool, GE, Bosch, and Electrolux. I decided to meet with the CEOs or presidents at each of the manufacturing companies as part of my first thirty days’ assessment.
In my first meeting with the president of Samsung, I asked, “How many product developers do you have?” He said, “Five thousand.” “Yikes,” I thought.
We needed a new strategy fast because forty product developers in Hoffman Estates, Illinois, weren’t going to cut it against the armies at each of the manufacturers. The storyline was the same across the business functions. We had two product designers. The CEO of Whirlpool told me they had 500.
We thought about the leverage we had and devised a new strategy. The entire team got involved. We would have speed brainstorming lunches in the cafeteria. I created a universe of generic strategies on an illustrative strategy wheel, and each team member would have sixty seconds to come up with their ideas. We’d go around and around the table for each strategy type. Everyone got involved. Everyone was vested in the creation of what we were to become.
When the query about what percentage of each manufacturer’s capacity utilization was attributable to Kenmore, the answer that came back was great news. Typically, the manufacturer’s plants were running at 85 percent capacity. Kenmore products generally accounted for about 25 percent.
Soon thereafter, I met with the head of the major appliances business of each of the manufacturers to explain that we wanted a better relationship than we previously had and asked for them to provide us with their three-year forward innovation road map. There was immediate pushback because revealing their future product was the most sensitive competitive information. However, we were only going to select manufacturers to produce Kenmore products from those that provided the innovation road maps. We could afford to lose some of them if push came to shove.
Our leverageable advantages were really twofold:
- the high marginal utility that we delivered to them by adding capacity utilization to their manufacturing plants, and
- we had a 30 percent market share in major appliance retailing in the United States at the time; thus, they needed us to sell their product.
It was hard to refuse our request because any business head who caused their plants to go from 85 percent utilization to 60 percent overnight would be in a difficult spot with their boss. Everyone complied.
As a result, we were able to handpick the best products from the manufacturers with full visibility of what innovation was coming in the years ahead from the industry. This led to the most formidable product line in the industry as well as in the history of Kenmore.
The strategy delivered transformational results. We improved quality across the brand extending our lead in Consumer Reports (double the number of #1 ratings versus our closest competitor). Kenmore improved from #3 market share (behind GE and Whirlpool) to #1 in the US.
The team was celebrated. Pride and morale surged. The doors to a new bright future of exciting options opened.
Think through where leverage exists. From there, much of the right strategy will fall into place.
What is the best way to communicate difficult news to one’s team and customers?
Quickly, directly, honestly, truthfully.
How can a leader make plans when the future is so unpredictable?
Culture.
I had just sprinted down the empty stairwell of 3 World Financial Center and sprinted to the top of the escalators and froze. The four-story tall windows of the lobby on both the north facing Vesey Street and the east facing the North Tower of the WTC were completely black.
I did not know at that moment that the South Tower had collapsed and that the resulting black smoke was what blocked the view from the windows. I thought that there was a plane lodged in an upper floor of our building and the upper portion of the building must have collapsed and we were now trapped, buried under debris. I froze.
For the first time today, like so many others I had seen become frozen fixtures, I was one of them. My brain was consumed by an unconsciousness of sorts. Acquiescence. Capitulation.
“Run that way!” screamed a fireman standing at the top of the escalator right next to me. It sounded like a muffled yell from somewhere. I didn’t even notice that he was there during my slide to the escalator. “Run that way!” he repeated. I had never heard an official, police, firefighter, or otherwise yell. He woke me from my paralysis.
I sprinted west inside the building, thinking about the fireman who was standing his ground. He stayed behind to help others like me as the world was crumbling around him — waiting at death’s door simply for the prospect that he might be able to save someone who might still be in the building. As I reengaged into a full-on loafer slippery sprint, the prospect of exiting the building and hope of survival began to creep back into my thinking.
As I was scanning for a stairwell or escalator to get to street level, I couldn’t stop thinking of the selflessness and bravery of that fireman. Would he get out? Certainly not. Who was he? What was his name? Did he have a family? Unreal selflessness. Unreal bravery. I had to get out — at a minimum for his sacrifice.
I don’t know what escalator or stairs I took (for whatever reason I can’t recall at all), but I somehow exited the World Financial Center from the western-most building. I escaped and then distanced myself from the building and made my way toward the Hudson River to walk north by Stuyvesant High School and back onto the West Side Highway. With each step closer to the West Side Highway, the more people there were and the louder the wailing of sirens. The crowds on the street were dense. I was out. It was sunny. The skies were blue. I was out!
I walked up the West Side Highway, stopping intermittently to stare hypnotically in astonishment at the burning North Tower and the deluge of first responders continuing to make their way toward danger. It was astonishing to see how many people sacrifice themselves for others for which we owe a debt of gratitude.
Two people, undoubtedly in the midst of experiencing a horrific death in the inferno, leapt holding hands, falling together.
Why was I spared? What’s my life purpose? What’s my responsibility now?
At 10:28 a.m., I stood and watched the North Tower sink in a cloud of smoke to a thunderous noise and a chorus of screaming and crying around me.
The North Tower imploded and sliced through my building about ten stories above my floor. My office disappeared from view, engulfed in an eclipse of smoke.
I ran the rest of the five miles from the building up the West Side Highway to meet with our CEO who was in an office on Park Avenue in midtown Manhattan. I stopped in a bar that happened to be open on the way and downed a bottle of Heineken to calm my nerves.
Upon arriving in his office, a TV station focused on a picture of smoke billowing from downtown Manhattan from a distance. It seemed so removed from the graphic and tangible horrors of the site.
We discussed what it was like on site, where we thought we stood in the midst of an unfolding sequence of events and the potential implications.
He decided to have the executive team meet first thing the next morning at our disaster recovery site in Jersey City, a city in New Jersey directly across the Hudson River from our 3 World Financial Center building. He gave me my marching orders. “Put an agenda together.”
At the same time, our 7,400 New York/New Jersey–based employees began rebuilding the firm — securing thirty new locations around the city and rebuilding debt and equity trading floors in real time.
While our business continuity plans were left behind in binders in the building, the One Firm culture of collaboration that our CEO had established was the real plan.
Is there a “number one principle” that can help guide a company through the ups and downs of turbulent times?
Never compromise on ethics.
A major firm on Wall Street was struggling. They had a great business that our Wall Street firm didn’t have. As a result, we had done the analysis on acquiring them, and it looked like a good strategic complement to our business, and the math worked.
The next step was for our CEO, to meet their CEO. I had my final briefing session with our CEO the morning before his dinner at the other CEO’s apartment. I couldn’t wait to hear what had happened when we met the following day. This was going to be a transformational acquisition.
Our CEO gave me a detailed account the morning after. To my naive surprise, their CEO cared about one thing: himself.
Our CEO: “So, what are your plans? What do you want to do?” To which their CEO replied, “I don’t care about the premium you pay (meaning the final purchase price above the then current stock price). My number is $100 million.”
“Meaning?” probed our CEO.
“You can do it many ways. You can set me up with a multi-billion-dollar fund to manage and create a consulting agreement for the balance.”
What did he mean by that? The math on carving out a $5 billion fund for him to manage as part of the transaction would be that he would make 2 percent in management fees on the $5 billion every year plus 20 percent of the annual profits that it generated (a standard in the industry called “2 and 20”). If he only invested conservatively and made a 5 percent return per year on the funds invested, he could use the 2 percent in fees, or $100 million per year, to rent the most lavish offices and pay for a fabulous team, and he’d personally pocket $50 million in profit sharing per year. A consulting arrangement of any sorts would be a cherry on top.
The deal was dead. Our CEO walked wanting no part of that. Challenges and failure are omnipresent; don’t let them sway you from an ethical compass beyond reproach.
Another boss of mine gave me a thoughtful perspective: “You only really get to learn who a person is when things are going against them.”
Can you share 3 or 4 of the most common mistakes you have seen other businesses make during difficult times? What should one keep in mind to avoid that?
I’ll focus on a big one that has a ripple effect. Not listening.
A friend of mine is a venture capitalist. He told me about a new company he was involved with and said that another friend of mine should use their services for one of the companies that he had invested in. The fit seemed logical. I told the venture capitalist that if I engaged my friend and they used this company’s product, they would want equity in the company in return for having used the services as it would make the company more valuable considering its early stage of development. He said they could have 10 percent of the equity if they used it.
I then called my investor friend, and he quickly cut me off. He had studied his investment in this company and had little patience for anything he hadn’t previously thought about.
Not long after, the company I referred to him filed for an initial public offering (IPO) valued at $11 billion. The stock traded up to about $15 billion shortly thereafter. Even two years later, it had a market cap exceeding $7 billion. No matter how you slice it, it was about a $1 billion listening mistake.
The reason I chose this particular investor friend to make the point of the importance of listening is to establish that no matter how great your brain may be, how successful you may be, or how wealthy you may be — and my friend ticked all the boxes sensationally — you’d be better off if you were a great listener. It’s hard. He is someone who can get away with not listening at times. He’s that smart, and he works that hard.
When I applied to colleges, there was a standard essay question something along the lines of “What’s your biggest weakness?” My reply was, “I have a hard time being open to others’ ideas after I have already thought carefully about the topic.”
Assuming the person who you are listening to knows things, or has a perspective you don’t, is a pretty good place to start.
Here is the primary question of our discussion. Based on your experience and success, what are the five most important things a business leader should do to lead effectively during uncertain and turbulent times? Please share a story or an example for each.
There are a number that come to mind. Here are my top five and how I think about them.
- Reinventing: As H. Jackson Brown Jr. said, “Seek opportunity, not security. A boat in harbor is safe, but in time its bottom will rot.”
- Strategy: Think through where leverage exists. From there, much of the right strategy will fall into place.
- Preparedness: Achievement stands on a foundation of preparedness.
- Ethics: Never compromise on ethics.
- Prioritization: Personal and professional, prioritize.
Since I haven’t touched upon preparedness, prioritization or reinventing, let’s share a couple stories on those.
On preparedness, in 2006, I attended the Annual Meeting of the World Economic Forum in Davos, Switzerland. The attendees usually include something like 50 heads of state, 100 ministers, 600 CEOs, and founders of companies, so the opportunity to speak directly with lots of decision-makers is like no other conference in the world.
The four-day affair is a plethora of choices. The official program affords the opportunity to listen to global experts and world leaders on a range of topics. Unofficially, there are countless invitations to breakfasts, lunches, dinners, and after-dinner events.
Among my invitations was a lunch hosted by Rijkman Groenink, chairman and CEO of ABN Amro. Jean Claude Trichet, the head of the European Central Bank, was the marquee guest attendee. I really looked forward to it. There were ten of us at a round table. Every other industry attendee was a CEO of an institution larger than mine. What happened next was a wake-up call.
The conversation was a central bank policy master class. I was so out of my league. I looked for opportunities to engage — whether a comment or a question. Each time, there was a gap in my knowledge that could expose my ignorance. These were things that I should have known as the representative of a major Wall Street firm. I was the co-chief administrative officer at the time. Each participant had about fifty years of relevant experience and were putting it to the test among formidable intellectual adversaries — save one. I was weaponless, naked. The two-hour lunch was endless. I felt weak and just wanted to get out of there.
Just because you’re invited doesn’t mean that you belong.
On prioritization, I was on a one way flight from Chicago to London reading through research reports on the European Sovereign Debt Crisis prior to beginning my new job at Investcorp, an alternative investments firm best known for having acquired Gucci, Tiffany, and Saks Fifth Avenue. The timing was right to capitalize on the dislocations in the marketplace.
The research reports showed how the credit spreads of sovereign debt of Greece, Ireland, Italy, Portugal, and Spain had blown out, essentially meaning that the interest rates those countries had to pay had increased greatly. The corporate spreads had increased similarly by country.
It made me think about my days as an executive on Wall Street and how some large financial institutions might react during this sovereign debt crisis: pull all sovereign and corporate investments out of the affected country if that made sense holistically.
That would create forced sales.
On my first trip to the Gulf with Investcorp soon thereafter, I visited investors in Bahrain, Kuwait, the United Arab Emirates (UAE), and Saudi Arabia. My arrival coincided with a violent period known as Arab Spring that began when a jobless student in Tunisia lit himself on fire when police did not allow him to operate his cart.
Violent protests had already led to the ousting of President Zine El Abidine Ben Ali of Tunisia who fled to Saudi Arabia, President Hosni Mubarak of Egypt who was detained in a military facility, and Colonel Muammar Gaddafi of Libya who was cornered and killed. The successful ouster of long-standing regimes inspired a wave of violent protests in neighboring countries.
My first stop was to our Gulf headquarters in Manama, Bahrain. The clashes had begun earlier in the year with an anti-government “Day of Rage,” and a protester was killed. Another was killed the next day when police clashed with the funeral procession. The protesters then camped out at Pearl Roundabout until police reclaimed the traffic circle, killing seven in the process. The Saudi government brought in over 1,000 troops. The UAE also sent in troops. Martial law was imposed. Global headlines ensued when F1 canceled their regularly scheduled race as a result.
Reading what felt like highly scripted government propaganda in the local paper in the Ritz Carlton looking out onto the placid Persian Gulf crystallized to me my new dynamic: Shi’ite protesters were trying to take out King Hamad bin Isa Al Khalifa and the 200-year-old dynasty, and the Royal Family was an investing client and Shaikh Mohamed Bin Isa Al Khalifa was on our board of directors.
In my first meeting with our Chairman, Nemir Kirdar, we discussed the opportunity to buy European companies with little or no exposure to the European economy that might be forced to sell. Nemir’s office appeared identical to his offices in New York on Park Avenue and London. That was deliberate, as he employed the same architect to execute his desire — floor-to-ceiling wood paneling, beautiful collection of books and dignitaries, fireplace, gold-framed oil paintings, and Tiffany silver frames of family. Nemir was a man of few words. He listened intently for twenty minutes, saying nothing. His message was simple: “Let me know if I can help.”
I had regular security briefs, including background checks on my drivers. Routes were chosen with the latest security information. Streets were blocked. Neighborhoods were off-limits. Thick black smoke was visible daily from the tire-burning protests.
Clearly, I didn’t share with the head of security when I went to my Bahraini business school friend’s house each time I was in town.
When I arrived at meetings with investors in their offices and homes, the Euro crisis wasn’t lost on any of them. One of my meetings in Jeddah, Saudi Arabia, summed it up.
Jeddah is a port city directly across from Sudan in Africa on the Red Sea. The city has been settled for about 2,500 years and serves as the gateway for pilgrims journeying to Mecca. Coral buildings dating to the seventh century, 1,300 mosques, laws prohibiting buildings of other religions, hotel swimming pools and restaurants all separating men from women and children, alcohol prohibition, a parking lot that we drove by that serves as a weekly execution site — all contributed to a culture that felt like it was a long way from Bahrain or Dubai.
Upon showing my business card at the outset of our meeting, the centimillionaire investor proclaimed, “You are Europe? Buy nothing. I don’t want to invest in anything in Europe.”
To which I replied, “What if we found a company headquartered in Italy or Spain, that was growing in both revenues and profitability throughout the European Crisis, that had little or no exposure to the European economy, that typically would cost eight to ten times the multiple of their annual cash flows and that we were able to buy for three to four times their annual cash flows because they were forced to sell for some reason?”
“You bring me that company!” was the enthusiastic reply.
For the next year at our Grosvenor Street office building just off Grosvenor Square in Mayfair, London, I focused on identifying situations where there might be a need to sell off a business as a first lens of screening and prioritized the thinking in virtually all discussions with our investment professionals. Then, I went on a tear and hit the road. I had the audacity to engage whoever I thought could contribute to my prioritized mission and did my best to cover all angles of opportunity.
I met with prime ministers, CEOs, managing partners of dozens of private equity firms across Europe, and dozens of founders of businesses.
Within a year, we ended a three-year drought of acquisitions for Investcorp, Europe, and ended up buying five companies in two years, including Esmalglass, a company in Villarreal, Spain. Esmalglass had virtually no revenue exposure to Spain and little in Europe and had been growing revenue and profitability throughout the European Crisis. We acquired the company for under four times cash flow. Investcorp later sold the business for an extraordinary return.
The degree of variables in my day-to-day work relating to culture, language, economic volatility, social conscience, and regime change was high. Focus was an imperative.
On reinventing, it’s 1991, and I’m sitting with George Foreman. He just lost the Battle of the Ages: his fight against Evander Holyfield, a champion 14 years younger and 50 pounds lighter.
Big George has a towel over his head. It’s only the third loss in his career. Everyone wants to know if George will retire for good this time. The tension and disappointment is palpable. Jonathan Jackson, a business school buddy of mine, turns to George and to the best of my recollection says,
“Big George! You’re the champ. You’re the people’s champ. You just stood toe to toe with the heavyweight champion of the world. He’s in his twenties; you’re in your forties. He couldn’t drop you; he was hanging on to you. You proved to everyone we can all go toe to toe with the champions of the world. You proved it to everyone who is told they are too old. You proved it to everyone who is told they are too poor. You proved it to everyone who is told they are the wrong color. You proved it to everyone who is told they come from the wrong country, the wrong neighborhood. You proved it to everyone who doesn’t believe in themselves. You proved it to all of us. We can all do it. You’re the people’s champion of the world!”
George Foreman takes the towel off his head and begins to preach the gospel to a cameraman who had just barged into the locker room.
In this moment, George, with the help of Jonathan, redefined a moment. Defeat can’t make you a loser; only you can do that.
The next time I saw George fight, he went on to reclaim the heavyweight belt wearing the same trunks he wore in his loss to Ali in Zaire 20 years earlier. He made hundreds of millions of dollars selling outdoor grills as the symbol of hope.
Defeat is the price of doing business. It does not matter how smart or talented you are, you will fail. But you can turn these defeats on their ear. Win or lose, get up off the mat and keep going. Reinvent yourself; think of a new approach; take what’s happened and make it part of your success story.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
My boss once told me, “Mediocrity is like the lollipop of life, one lick and you suck forever.” I was committed to never taking a lick of that lollipop.
Wall Street meant suspending or jettisoning virtually everything in life. “No” was my response to everything and everyone other than work for eighteen years.
My wedding reception was in southern France during the last week of August 2008. We had rented a place for ten days and had planned a full week of activities.
The week of my departure, my boss walked into my office and said, “I’ve got good news and bad news for you. Which one do you want first?”
It was August 2008. Over the past year, our firm had been getting pounded daily in the press and suffered a stock price per share decline from the $60s to the mid-teens. At that point, handling bad news was as habitual as getting my morning cup of coffee. “Bad news. Bring it.” “This thing in France … you can’t go.”
I looked at him incredulously. “You mean my wedding reception? For which, Isabelle and a dozen of her friends are already there and one hundred people are coming? That thing?”
“Yeah, that thing.”
“What’s the good news?” I asked.
“I need you.” He left my office.
I skipped the week in France and, instead, flew on a red-eye Friday night, landed the day of our wedding reception, and returned to New York on Sunday morning immediately following the reception.
This was my first missed weekend at work in about six months. The last time I missed weekend at work was when I took Isabelle to Turks & Caicos and was on the phone the entire weekend as Bear Stearns took its last breath as an independent company.
Naturally, I was the last passenger to board the plane Friday evening, having cut it dangerously close to departure time. To make matters worse, the red-eye was painful as I was traveling with a freshly broken hip.
Before I knew it, my precious hours away from the office had expired, and I was on a plane headed back to New York wondering what had just happened. There was no honeymoon.
That framework kept me at work on Wall Street for an average of over ninety hours per week over an eighteen-year period.
While I was making eight figures, the firm collapse combined with the pay structure (where virtually all my compensation was in stock with five-year sales restrictions) wiped me out. Nearly two decades of total commitment and I was about to be broke. I had to start over.
It took me a long time to figure it out, but balance matters. My Pops once said to me, “Have a home where you love it so much you don’t want to leave. And have a job for which you feel the same.”
Take that thought, but apply it to much more than just work and family. Construct a portfolio approach to life. Define each of the aspects of your life for which you want to dedicate time — for example, family, professional, spiritual, fitness, friends, not-for-profit endeavors, culture, and travel. Then for each allocation of time, plan for that slice of your life, one that you can’t wait to get to and don’t want to leave once you are there. Each slice should be a highlight of life. It took me a long time to figure that one out, but I’m much happier now that I got it.
Balance can lead to a life with constant fireworks of happiness and fulfillment.
How can our readers further follow your work?
Connect with me through my website www.scottfreidheim.com
On my website you can create your own personalized Code of Conduct that will get you started if you don’t already have a list of tenets by which you aspire to live by. I look forward to engaging.
Thank you so much for sharing these important insights. We wish you continued success and good health!
Scott Freidheim of Freidheim Capital On Five Things You Need To Be A Highly Effective Leader During… was originally published in Authority Magazine on Medium, where people are continuing the conversation by highlighting and responding to this story.