View the most recent Walker Webcast, where Willy Walker spoke with former Prologis CEO Walt Rakowich about the leadership lessons outlined in his book "Transfluence: How to Lead with Transformative Influence in Today's Climates of Change" and his experience leading Prologis through the Great Recession.
Willy Walker is chairman and chief executive officer of Walker & Dunlop. Under Mr. Walker’s leadership, Walker & Dunlop has grown from a small, family-owned business to become one of the largest commercial real estate finance companies in the United States. Walker & Dunlop is listed on the New York Stock Exchange and in its first ten years as a public company has seen its shares appreciate over 800%.
Walter C. Rakowich is the former CEO of Prologis a NYSE company and a member of theS&P 500. Prologis is a leading provider of distribution facilities and services with over $50 billion in assets and operations in the Americas, Europe and Asia. Mr. Rakowich was Co-CEOof Prologis and member of the Board of Directors from June 2011 through December 2012. He was CEO of Prologis from November 2008 through June 2011. He was a member of the Prologis Board of Trustees from January 2005 through June 2011.
Prior to becoming CEO, Mr. Rakowich was the President and Chief Operating Officer of Prologis from January 2005 through November 2008. He joined Prologis in 1994. From December 1998 to January 2005, he served as Managing Director and Chief Financial Officer for Prologis. Prior to this position, Mr. Rakowich was the Senior Vice President/Director of the company’s Mid-Atlantic region where he was responsible for expanding the reach of Prologis to the leading logistics markets in the Midwest and Atlantic states.
Prior to joining Prologis, Mr. Rakowich spent nine years as a partner and principal with real estate provider Trammell Crow Company in Los Angeles. Before that, he was a senior audit and tax consultant for Price Waterhouse in Pittsburgh, Pennsylvania. Mr. Rakowich received his M.B.A. from Harvard Business School and his B.S., with distinction, in Accounting from The Pennsylvania State University.
Mr. Rakowich currently serves on the board of directors of Host Hotels & Resorts, where he is the company's audit committee chairman and member of the governance committee; Iron Mountain Inc., where he is chairman of the audit committee and member of the governance and investment committees; and Ventas Inc., where he is chairman of the audit committee. All three are companies listed in the S&P 500. He also serves on the advisory council of Gender Fair. He has served as a member of the executive committee and the board of governors for the National Association of Real Estate Investment Trusts (NAREIT), the primary industry group for REITs in the United States. Mr. Rakowich was appointed to The Pennsylvania State University Board of Trustees in 2014 and serves as chairman of the university board's audit and risk committee. In 2010, the Penn State Alumni Association named Mr. Rakowich a Penn State Alumni Fellow, a lifetime designation and the highest award given by the association, recognizing outstanding professional achievement. He also has served on the real estate advisory boards of the Smeal College of Business at Penn State, The Owen Graduate School of Management at Vanderbilt University and The Kellogg Graduate school of Management. In addition, he served on the Global Leadership Council at Colorado State University. Mr. Rakowich currently serves as chairman of the board of Colorado UpLift and is a member of the board of the Alliance for School Choice in Education (ACE) and of PIVOT, three non-profits focused on educating at risk children in the inner city.
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Willy Walker: Thank you, Susan, and good afternoon to those of you on the East Coast and good morning to those of us who are in Western time zones and welcome to another Walker Webcast. As I look back on the last two webcasts and the work that I did in preparation for today's discussion, I had no idea how the three webcasts would weave together so seamlessly, to give our listeners insights and perspectives on where our world is going, and what leaders and corporations need to do to effectively compete and win going forward.
My discussion with Wharton Professor Mauro Guillén on his book 2030, set the stage with fantastic data on demographic shifts, environmental challenges, and technological innovation that will transform our world for better and for worse. That discussion was followed by Michael Bush, CEO of Great Place to Work®, and Gary Pinkus, Chairman of McKinsey's US practice, talking about not only what makes great companies great today, but how the changing corporate landscape will challenge leaders and management teams to remain great going forward.
And today, in my discussion with Walt Rakowich, we will not only discuss how Walt saved and turned around Prologis in the depths of the financial crisis, but we will discuss how leaders need to adapt to a rapidly-evolving economic landscape with almost ubiquitous access to data and products, accelerating technological innovation, and increasing diversity with regard to our population and what consumers want. Mauro Guillén, at the end of our discussion two weeks ago, commented that had he known how much the pandemic would accelerate technological change, he would have titled his book 2028 rather than 2030.
I think the final thing I would comment on before starting my discussion with Walt, is the paradigm that Walt explores in his book, Transfluence, between fear and faith. The two emotions are states of mind we use to explore and understand the future and the unknown. There seems to be a lot of fear in our world today and not enough faith. I very much look forward to exploring with Walt how we can instill more faith and compassion in our world and less fear and hate.
With that, let me do a quick introduction of Walt and we'll dive into our conversation. Walt Rakowich led one of the most dramatic turnarounds in Wall Street history as CEO of Prologis. He won the support of investors and employees with his genuine honesty, transparency, and heart-led leadership. Walt believes that a leader should be humble, honest, and human. And Walt expanded upon these beliefs in his book, Transfluence: How To Lead With Transformative Influence In Today's Climates Of Change. Walt grew up in Pennsylvania, was the first member of his family to attend college at Penn State University and has an MBA from Harvard Business School. Walt sits on the Board of Directors at Ventas, Iron Mountain, and Host Hotels & Resorts. He is also very involved with numerous charities including as chairman of Colorado UpLift; Penn State University's Board of Trustees; and is a founding trustee of the PIVOT Foundation.
So, Walt, first of all, thank you very much for joining me. I want to start with the day in 2004 when you found out that Jeffery Schwartz was selected to be CEO of Prologis, and that you would be President and CEO and his #2. How did you process the disappointment of not being named CEO?
Walt Rakowich: Well first of all, Willy, great to be on with you and have this opportunity to speak to your audience. As it relates to that question, interestingly enough, I wasn't disappointed at all, I was actually elated. You know, Prologis is a very large company and it's a company that you know, has its tentacles all over the world. And you know, the year leading up to that, I think I maybe flew 250,000 miles. And I believe Jeff probably, I think he set the… he was the top flyer, or in the top 10 in the United miles. I think he hit close to a half a billion miles. And you know it's just a lot. And I had a really young family and probably meant as much to me, if not a lot more, than being CEO. And the truth of the matter is, I was actually elated. I was actually relieved, because there was an expectation, I think, that was one that I didn't really feel I could meet at the time. And Jeff was a really smart and very capable partner, and both of us were asked to go on the Board, and so I was happy about that because I had an interest and a vote, if you will, on the things that we did, and so it was actually the right thing at the time.
Willy Walker: So, as you outline in the book, you had an incredible run at Prologis. It was a private company with $50 million in assets and 50 employees, when you joined it. It went public with a stock price of $11.50, and over the next 14 years it grew to $36 billion in assets and 500% appreciation in the stock. But as you described, something wasn't right at Prologis in the early 2000s. Was it hubristic pride a term that you use in your book that destroyed the leadership team at Prologis?
Walt Rakowich: Well let's just put it this way, I think the two biggest challenges, and I write about this in the book that leaders have in general, are personal challenges: are pride and fear. Many times we think that the challenges are external; in fact, they're really internal. And we had both as an organization, not just at the top with our people, but also manifested its way in the things that we did. And when I say pride: pride, which says that everything that we buy, or everything that we bought, would turn to gold, which just wasn't the case. And fear, which said that you know, we're the largest player in the industry and we just can't lose that position because there are good things that go along with that. And unfortunately, you know, looking back on it, and this would be 2006 and 2007, you know, we made poor investment decisions. We made some good investment decisions, I’m not being really critical, but I think we made some poor investment decisions. I think we refused to take the pedal off the metal when things like Lehman happened, and we leveraged the company too much during that period of time. And quite frankly, what began to happen is lots of disagreements in the management ranks as to what we should and shouldn't do. And so, there was this aggressive camp and there was this non-aggressive camp, and I think we lost trust in each other. I think we lost trust in our decision-making capability and people began acting in silos. And that happens when you're not in the same page. And so, I think a lot of it had to do with the pride, and I’d call it hubristic pride, and the fear associated with and the insecurities associated with where we were at that point in time, and I think we handled it the wrong way.
Willy Walker: So you also use a term, organizational arrogance, and when I read your description of organizational arrogance, I thought back on General Electric and Fannie Mae, two corporations that thoroughly dominated their industries in the 1990s and then ended up paying a huge price for it and the 2000s, and even to today. And I read you talking about the growth that Prologis went through between 2004 and 2007, when you tripled the size of the assets. And as you just talked about, there was some significant disagreement on what to buy, what not to buy, and almost a fear that if you guys didn't buy it, someone else was going to. So whether it was a good deal or bad deal, it was just sort of, Well let's just make sure the competition doesn't get it versus It's a really good asset for Prologis to own. I guess my question to you would be, having lived through that, what telltale signs, or what can you tell listeners today who are inside of other organizations that either may have that today, or may have that in the future, to sort of sit there and say, ”Whoa. That's a warning sign that says to me I’ve either got to pull my management team together to get us all on the same page… I’ve got to talk to my board,” or “I’ve actually got to exit this organization, because this is not headed in the right direction.”?
Walt Rakowich: You know, Willy, I would say that you know you identify it obviously by what you see, I think. This whole notion of narcissism, and you know, we're always right, I mean, you can spot that pretty quickly. I think when people stop listening to each other. You know, when management doesn't value the varying viewpoints that people have in organizations, when management isn't willing to sit down and really have you know heartfelt conversations about what we should do and what we shouldn't do. When you see dictatorial leadership. You know, leadership that doesn't delegate, but leadership that hoards. I mean there's just a plethora of things that we saw. And all of those things begin to build a situation where people don't trust each other. And one of the things that I think we did well --after the downturn in 2008, and really 2009 and 2010, is we brought on a coach. And we had somebody outside the company looking us in the eye and saying: “Here, you're screwing up,” or: “You can do this better.” And ‘cause sometimes it's hard to say that to each other. But having an independent person outside come in and talk to us about how we could actually work together and not be dysfunctional, but actually function together as a team, is sometimes what you need. And I felt we really needed that in 2009.
Willy Walker: Having a coach requires you as CEO at that time, so I’ve just jumped from the 2004 to 2007 period right over into when you are CEO, but bringing in a coach requires you to have, if you will, some thick skin as it relates to the feedback and the challenges that the coach might present to you and to your management team. Talk about the decision to, I mean they're not many CEOs who sort of say you know... a lot of CEOs like to say “Look, I’m the boss, what I think is right is where we're going to go; let's go, let's go do it,” and it sounded like in that earlier period at Prologis just that was a little bit of what gotten away. What made you have the faith and confidence having not had a coach in the senior ranks previously to take the decision to bring somebody else in?
Walt Rakowich: Well, I think - look, I think you know, one of the biggest fears that CEOs have, or leaders have, period, is the inability to be vulnerable. I truly believe it if you can break that point of view, you can do a lot of things. I had a coach came in to see me one time... One of the first times I met with him, he said “Hey Walt, let me just tell you something. Let me tell you the good news and the bad news.” I said “Sure.” He said, “Well, the good news is people like working with you.” I said, “Well that's good; can we stop there?” and he goes “No, no, no. Let's keep going”. I said, “Okay what's the bad news?” and he said, “Well... to be honest, your empathy scores could be higher.” I’m like, “What!? Are you kidding me? Empathy scores - come on! You know I get along with people,” this and that, “I think I’m a decent people person,” blah blah blah, and he said, “No, no, no.” He said, “Let me tell you something man; you're running around like a chicken with your head cut off trying to save this company,” and he said, “You know what? You're not going to save the company. All the people that work with you are going to save the company. You're just going to point them in the right direction.” He said, “You need to stop running around like a chicken with your head cut off and start listening to people. You know? And, at least visually, showing them that you know, that you care about them.” And I said, “Well, I do,” and he said, “Yeah, but too many people have said that they don't even want to walk into your office because you're just too busy! Not because you're not approachable... you're just too busy.” You know, I mean when would you ever think about that? When do you ever view yourself that way? Come on, like you're running around like a chicken with your head cut off, right? And so, I think it is helpful to have somebody from the outside, from time to time, observe, do 360-degree evaluations, do personality tests, whatever it is, right? But really try to understand who you are and make you a better person. And by the way, when you listen to other people, nine times out of ten, you do become better at what you do.
Willy Walker: So, you talked about vulnerability. I want to get to the moment where you really showed vulnerability stepping back into Prologis, but I have to give it a little bit of the backdrop. So, you after seeing Prologis not functioning and making some investments in levering up too much, you left the company, where the stock price was over $70 a share. Within six months, the stock price had fallen to $5 a share and when the Board brought you back in as CEO in November of 2008, the stock price was down to just over $2 a share. You've arrived back into Prologis, you clearly knew the team, but you're also confronted with the great financial crisis that is happening. $10 billion of debt at Prologis which is rolling in the next 18 months and a whole set of factors that you haven't been engaged in for nine months, if not longer than that. So, you describe a night in the office where the team is trying to figure out sort of how to tackle the problems and you get up to go take a break and say, I’ve just got to walk down the hall for a moment and stretch my legs and get my wits about me and you end up walking into an office and something happened. Can you describe what happened and then when you return to the conference room with your colleagues?
Walt Rakowich: I did. I’ll just go backward, just a little bit. There was about 10 or 12 people in the room, it was one o'clock in the morning and we're working dog years, as I just described and I really did not want to hear this word bankruptcy, but I heard it, and one of my trusted financial advisors basically said: “We're on the brink and we're going to probably blow the majority of our bond covenants by next quarter.” I turned white as a ghost and, as you said, I said to him “I need to leave” and they said “Sure Walt,” and I walk down the hallway and I noticed this desk and it was you know right there in front of me, but I wasn't sure I could get there. Excuse me not desk, but chair, and there was a desk next to it; and I beelined to that thing and I just said, “You know, I just want to get to that chair and sit down,” and I didn't make it. On my way down, you know, unfortunately, I hit the corner of my head on the desk and I was laying there for 10 minutes and I woke up and there's a pool of blood on the floor, and first thing for about 30 seconds, Willy, I said, “Where in the hell, am I?” I honestly had no idea where I was! And then I looked around I go, “Oh my God, I’m in the office!” and the second thing hit me that always people are still waiting in the room for me. So, I went into the bathroom and tried to suture it up as best as I could and stop the bleeding, and there's this huge honking lump on my head. I walk back in the meeting and I said, “Well let's talk about this bankruptcy thing,” you know? And someone in the meeting said “Well let's not talk about bankruptcy, let's talk about that big lump on your head first! What...what happened?” and I, you know, the first thing that hit me was “busted”, right? And I looked around the room, and I said, “You know, I was asked to come back to run this company, and leaders are supposed to have all the right answers and to be honest with you I don't have the answer. I have no idea what we're going to do,” and I said, “You know you guys all have the answers - not me. You're closer to it than I do, so let's start working on suggestions and thinking about this.” You know the most uncomfortable thing for leaders is to be vulnerable, and yet it's the most powerful thing you can do. Not at all times, but from time to time, because it's human and it's the ultimate expression of honesty; because people know you don't want to be that way, but you kind of are there. And I found that by letting your guard down, and you know, being vulnerable from time to time invites others to do the same thing. And that's where real communication happens. I think too few leaders think of it as a plus. In fact, it's a major plus. Again, I’m not saying you need to do it all the time, but if you want to create an environment in your office where people really do communicate, and they feel great about things, you have to be vulnerable as a leader, and I learned that lesson that night.
Willy Walker: Do you think that your colleagues’ reaction to that vulnerability would have been the same had you been a new CEO to the company? In the sense that, given your track record at Prologis and having left and come back, they all had empathy for you as a person, because they all knew you. If you had been some, you know, Spencer Stuart... a big CEO found by the Board of Directors and put in there, and you'd been in that seat for a week and had that similar type of situation, do you think the team would have reacted to it the same way they did? Where they all kind of gathered together and lifted you up?
Walt Rakowich: Great question. I don't know. I do think I was given a hall pass based on the fact that I had been there 15 years prior to that, and people did know me. But, that said, I wouldn't say that it's not appropriate. I think it's absolutely appropriate, given the facts and circumstances and whatever you're dealing with, and people want to see leaders who are human. They just do, right? And they realize that we all have our insecurities, we all have things that we struggle with, and sometimes it's not bad to allow people to see that. I just think people respond better to it. So, you know look, I can't put myself in different shoes and say exactly how it would have happened or wouldn't have happened, but I do think it's a powerful thing to use and you should have it in your toolbox.
Willy Walker: You said a wonderful quote in the book from Paulo Coelho which says, “The world has changed by your example, not your opinion.” So when you stepped into that CEO role, what did you do differently to lead by example as CEO that you hadn't done as President and COO?
Walt Rakowich: Well I don't know if I would say it's anything I hadn't done, but I would say that we needed it in the organization at the top. And I would say this, I wrote in the book about, I think the idea of leadership is about building trust. In other words, I really believe that the best leaders are those in time that build trust; and I think the tagline that I use in the book is “it's not about you, but it is about the influence that you have on other people”. So, if you come to work with that attitude, meaning it's not about you, but it is about the influence you have on other people, I think you build more trust in the organization, which means that you need to be taking the focus off you. Unfortunately pride and fear, the things I talked about before, they're all about you and you can't be that way. You got to take the focus off you, put it on other people. So, one of the things I do think that we did as a management team, a better job, is this whole notion of transparency. Now when I talk about transparency, Willy, I'm not talking just about clarity and communication, because when people talk about transparency, you know, “this person really communicates well, they're clear so forth”, and yeah that's part of it. But when I talk about transparency, I'm talking about, at least in the book, and as I think about it, is deeper. And that is leaders that actually provide a window into their soul, and when people look in their soul, they see values. They see the set of values and virtues that that leader lives his or her life by and consistently applied as to how that leader thinks about them and how they think about themselves and their role in the organization and the like. People used to ask me all the time, “Who are the types of people you like to hire?”
I want to tell a quick story, and that was that I had a conversation, and this is in the book also, with John Mack, who is the CEO of Morgan Stanley and, as you know, and many know, he and Jamie Diamond are two of the more revered CEOs in the banking business and I had an opportunity to spend some time with him. And I said, you know, think of what he's going through 2008 right? You know, I mean, you know TARP, the Fed, the Treasury Secretary, jamming banks together, you know? I mean it was nuts, right? And he was nice enough to spend some time over the phone with me and mentor me and I said, “John you got to tell me how you're dealing with this. You know how is it that you act in your organizations?” and he said, “You know Walt, I come to work, and I think of the three H's,” and I was like “What is that?” and he said, “The best leaders are humble and they're honest and in this day and age, a banker needs to have a sense of humor.” And I really thought about that, you know, what he really meant is not necessarily being humorous, but being human around the people that you lead. If that meant cracking a joke from time to time, great. And that became the Litmus test for me as to how I thought about decisions in the organization. I thought about how I was acting around people, you know? I always would ask myself, am I being humble about this or am I jamming this down peoples’ throat? You know, am I being brutally honest when I even don't want to be? Am I walking into a room and there's an elephant in the room, and I don't want to talk about it, but I got to? And am I being human? Am I treating people with dignity in the things that I say in the things that I do? And it might sound simple; it might sound actually very basic. But in fact, it's actually really hard to implement from time to time. You'd be surprised how many times there's an elephant in the room, and as a leader, you don't want to address it. You know that everybody else wants you to. Are you building trust in the organization by not addressing it? Not at all! Yet you have to and unfortunately got to do things you don't want to do. And I just found that being intentional about that, being intentional about those three H's was one way that I could go about building trust in the organization. And those three H's became, in my view, the virtues and the values that people hopefully saw in me over time when they looked into my soul and saw... they looked into the window and into my soul.
Willy Walker: So, you just talked about transparency and honesty. You mentioned in the book that when things were really ugly at Prologis, you and your CFO, you mentioned that your CFO did a spectacular job of this presentation, basically pulled everyone together and kind of showed everyone in the company how bad things were. And that transparency and honesty actually, you were very concerned about how people would react to it, and it was a pretty bleak picture and there were probably upcoming layoffs and what it would do to morale inside the company? And you actually got almost the inverse of that where people kind of pulled together and they were very appreciative of the honesty and the transparency that you and the CFO were giving them to give them a sense. Talk through what gave you this sort of the courage to have that kind of an open and honest dialogue with everyone in Prologis at that moment.
Walt Rakowich: Yeah so you are right, that did relate to layoffs and just so your audience understands, we did. We laid off between 30 and, but let's just say a third of our workforce we laid off. And you know, I tell you one thing when you lay off 5% of your workforce that you could argue is fat. But when you lay off 33% that's bone and marrow, I mean that's everything right, you know, and that was really hard. A lot of folks are people that I hired. And you know, so we had a management meeting and, and in the management meeting we said, well, we could lay off anywhere from 15 to 30% depending on how bad we thought the recession was going to be and we thought it was going to be bad recession, so we figured 30% now. And one of my colleagues said to me in the management meeting but Walt we you know we're probably going to take 30 days to figure out maybe 45 days to figure out who we need to lay off. So we can’t make an announcement on this. And I remember just the day before that walking down the hallway, Willy you could see the look on people's faces man they know it's coming, right. There was a lot of water cooler talk or even if there weren't water coolers there was a lot of coffee. You know, coffee talk around the coffee stand and people were saying you know who's going to be around at everybody in the management meeting I said no, no, no. This is not the company, we want to run, we want to run a company that is uber transparent with everybody like as soon as we make a decision, we need to tell them. And my CFO said, well, we can't, we have to make an announcement in the marketplace we're not ready to make the announcement. I said well let's make an announcement, like in a day or two. Let's say to the market and let's go out to our employees and say look here's the deal we just made this decision and you are the first to know. Unfortunately, a public company, we have to make an announcement, but you are the first to know. And by the way we don’t, and we called it a town hall meeting, we did it, we said look we don't know the people, we don't know the heads, so we risk people just walking out of this company at this point in time, right. I mean who wants to work for a company that is on the verge of bankruptcy, right. And by the way, here's the math here's why we have to do this and you know, the most important thing is saving the jobs of the two thirds of the people that are still here and everybody needs to be in that mindset. And you know what it was brutally transparent, it was way before we needed to make the announcement, it was way before we had any details. We said look, you know we're gonna we're going to handle this in a dignified way. We don't have a lot of money, but we're going to make sure that there's outplacement services, emotional support, financial advice you name it. But, at the end of the day, we need to do this. And you know what is amazing, there was an, I mean people were at peace with it. Yeah was it hard yeah but you know, sometimes you fear telling people things right, when in fact they know it's coming. And the most important thing is, you want them thinking that you just made that decision and you're coming down the hallway to tell them about it, right. In other words you're not stewing about it for 30 days, because that's not fair to them or for you know, whatever it is. I just think we handled it in a really good, dignified way and looking back on it, interestingly enough. Many of that, not many, but several of those one third of the people that we let go actually came back and became employees in two or three years, when the markets, you know we started doing more development some markets came back. And it just underscored the importance of transparency to me in everything we do, and sometimes we fear the worse. But actually the worst never happens, and people actually give you positive accolades when you do something that's courageous and something that they think is right.
Willy Walker: So that Tees up this sort of paradigm between fear and faith which you go into in quite some detail of you know, we use fear and faith to try and define the undefinable, the unknowable. And on the bad side of it we go into these fearful positions where we dream up all sorts of scenarios and, just as you just outlined plenty of the employees at Prologis in 2008 2009, we're creating their own fears about what was going to happen to their career, what was going to happen to their family, etc, etc. And then there's the faith, the faith that things are going to get better. The faith that we are going to find solutions to a pandemic. We are going to find solutions to this technological innovation that seems to be threatening so many people's lives in America.
Talk for a moment Walt about that framing because, as you talk about it in the book you rightfully talk about the fact that many CEOs, me included, fear a lot of things. Fear that things can go wrong. Fear that, and we'll talk about this in a moment, but fear that they might be seen as being incompetent and we'll get to that. But talk for a moment about that paradigm of fear and faith and in those darkest moments when you were being so good, to try and alleviate other people's fears, what you were drawing upon to maintain your own faith.
Walt Rakowich: So, I write about this in the book, but I think fear and faith have one thing in common, and that is that they're both focused on the future. Fear believes in a negative future. Faith believes in a positive one. And I think the antidote to fear is actually faith and it's really only a thought away. One thing I realized in leading in a crisis is that people listen to everything you have to say. You could actually be wrong, but they're listening, or they might think you're nuts, but they'll they listen because it's a crisis and they're all worried. And I used to say to my employees that adversity leads to perseverance, perseverance builds character, and when you have character is a person you actually have hope. So, persevere positively and as many people have said, I’m not the first one, but don't waste a crisis. I look back on the time and I realize that people were so attentive and so focused back then that I felt like I could be a great influence just in terms of being positive about where we were going to go as a company and I had that opportunity. I was blessed to have that opportunity actually.
Now some people have faith in various things I choose to have faith in my creator, and we can talk a little bit about that, if you like, but that's you know, I think I think you gotta have faith and you know H.P. Lovecraft, I write about in the book, he was you know this horror fiction guy that everybody, you know I mean he created the worst horror fictions out there. And one time was quoted and I'm going to read this, he said that the oldest and strongest emotion of a man is fear and the oldest and strongest kind of fear is the fear of the unknown. And when I thought about that, you know the unknown is some bucket that's out there right, and it's just a question of what we put in the bucket. Like if we fill that with you know faith or things that are hopeful actually, we fear less, but if we fill it up with oh woe is me kind of stuff, you know we're going to fear. And, and so it was really a matter of, as a CEO, of filling that bucket up with faithful things and communicating you know good and hopeful things to our employees over time. And I just look back at it like this is one of the greatest opportunities I ever had.
Willy Walker: You talk about the corporation well, one of the things you talk about of how to manage all these things is creating microclimates and I want to get to microclimates and why companies are somewhat unique and being able to kind of control the variables and that inside of companies. And particularly as CEOs you do have an incredible amount of power to establish a microclimate and instill into that microclimate certain things that you've been talking about.
Before we get to that I want to go to a little bit broader and ask you just to kind of a difficult one that's no easy answer, but we have talked about this before, which is just that, on this fear and faith issue. The world is changing so quickly, and it feels like our politics in America are as divided as they've ever been. Many people would challenge that and say that there have always been sort of you know, if you will very, very strong debates wherever the seat of power in the United States is right now, it happens to be Washington DC but back to our founding. And I kind of disregard that the partisanship is any more rancorous today than it has been in the past. But what I am concerned about is the fear that exists out there. That there has been this somewhat fomenting of fear that the world is changing in a way that nobody can control it. That your health care is going to be taken away on one side of the aisle, your guns are going to be taken away, on the other side of the aisle. And both sides seem to just never not find the opportunity to jump in and re-instill fear into their followers and rather than putting forth, something that is faithful and positive and where we're going to go. It seems as if both sides seem to just build off of this fear and that it's more of the fear-faith dynamic than red blue in my mind, you have any thoughts on that Walt?
Walt Rakowich: I do well, first of all I don't want to get political. And I don't think that's productive but I would say this, stepping back from it. I think what you read in the media, or what you listen to in the media, if you listen to it too much, you'd believe that the world is spiraling out of control. You’d believe that the worst time that we're experiencing the worst time that we've ever experienced in the world. I think my issue is that if you choose to put your faith in things that are seen, or things that are heard, I mean we live in an imperfect world and we live in a world with imperfect people. And so, you can easily get swept up in it. You can have expectations that aren't met and frustrations that seem like they go on and on and on. I would just say this, I can't answer, for you know how difficult relative times that we're in but I choose to put my faith in something bigger and more powerful and that's my creator. It's just that simple. He may be unseen but very much a part of my life, and you know he helps me to reckon with the difficulties and this insane world and basically allays my fear and he's a rock to stand on. And I will tell you that when I went through the crisis my typical day was to get up at four o'clock in the morning. I would spend 60 to 90 minutes with him every day. And sometimes on my knees Willy. He gave me wisdom, he gave me strength, and he helped me to keep things into perspective, and I think we still need to approach life that way today. If you read too much of the media and social media, you get too swept up in it, it'll take you down the wrong path. I think you need a rock to stand on and that's where I am today.
Willy Walker: So, at the at the beginning of the of the webcast I mentioned Mauro Guillen’s book 2030 and talking about the next 10 years and the challenges that we're going to face from demographic shifts, from environmental degradation, to how technology can both help and potentially hurt our future 10 years from now. You do a really good job I think in your book of talking about three dynamics that are happening right now. That leaders must really understand how to manage through, and lead through, and that is access, diversity, and acceleration. Can you talk about access, diversity, and acceleration and why those three, I guess variables, trends, come to you and say, these are the things that great leaders are going to have to focus on and be really good with over the next decade now.
Walt Rakowich: Let me go back. The way that I can explain this best is to look back in 1979 I got out of college and I took my first job. And you know, I was happy to be employed. I think it was transactional, jobs were transactional my view, back then, and you know people paid very little attention to culture. Leadership was granted to people that were next in line, as opposed to you know who deserved it, in my opinion, and people were less critical. There were no chat rooms and the like. You couldn't really be vocal. Frankly it was command and control leadership at the top. You know, and so, therefore, when I worked there, it was transactional, meaning that I was going there for a job to collect a paycheck. And they needed a job done and that was the transaction, and I was happy and that's the way we went we went forward, and nobody ever questioned the way a leader led.
Fast forward this to 10 years ago and it's even worse today, but when I took over as CEO. In my first day or two I received over 1000 urgent calls; you know emails, texts from equity investors, bond investors, sell side analysts, rating agencies, news publications, social media outlets. The Mayor of Denver, the Governor of Colorado you know, not asking but demanding that I get back to them, okay. Online chats were ranting about me, my future, our future as a company, you know, Prologis’s future. Our employees wanted the answers quickly. You know I just think that we live in a completely different world today, with greater access to information. More diversity in people, more diversity in geography, people working all over the world. More diversity in choice and acceleration every day of what I just described, accelerating progress. And you know these are climates, their climates of change and they could create tremendous opportunities, on one hand, to enhance productivity. And we all know what the pluses they bring. The minuses they bring is they create challenges for leaders, because we now live in a world of glass houses. Where everybody can see every move that we make. We can keep nothing secret anymore. And so, the result is that expectations are higher about leaders. I believe people expect more because they know more, and they can see more of what you do, and the more they expect, the more they expect more right. And so, they create situations well, first of all, you know you have fewer face to face interactions. And these are things to deal with as leaders, you've got an overabundance of false narratives that are out there particularly through social media, you have more voices to be heard, you have anxiety like you talked about that's building anxiety associated with falling behind in the workplace right, a more distributed workforce.
And I just think as a leader, it requires a more constant drumbeat of communication and transparency, I think it requires leadership that is values based. Where people know that this is what you're about, no matter what happens out there, this is what this person is about. This is how he or she is going to lead consistently, and I can trust that. And I think it requires leadership that enforces the human element like never before, meaning leaders that are empathetic. Leaders that lift other people up. Leaders that recognize. Leaders that are purpose driven. People want to work for organizations today that have meaning and purpose right. I mean I didn't care about meaning and purpose 30 or 40 years ago. Who cares I just got a paycheck, right. Now, not at all, you want to attract good talent you better have meaning and purpose in the things that you do and your organization does. So, it just requires so much more in terms of leadership, and I think people need to pay attention to that as they lead organizations today command and control is out, it doesn't work anymore.
Willy Walker: So, two of the terms you use there were access and diversification. And one of the things you talk about that I found very interesting was that you went on to Amazon, and I think it was 140 or 160 different brands of strawberry jam that you found on and just saying there's this massive access and then diversification of options and yet it's driving companies to be more specialized. Can you talk about that because I thought that was so interesting that you think about access and diversification and sort of like you know everyone's out there, but then, at the same time, you say and that's requiring companies if they want to succeed, to be more specialized.
Walt Rakowich: I think they need to be much more focused, because you just can't be all things to all people, the more people have, the more they want. So I just think it requires a lot more focus, a lot better you know communication, because people get confused with all of the things that they have to deal with, and so I think it's it really boils down ultimately to how well you communicate as a leader and how focused you can be. Focusing the attention of people on the things that you believe matter, because otherwise they can just get sidetracked so many different areas.
Willy Walker: You mentioned about artificial intelligence and the future as far as technological innovation, a quote that Ginni Rometty the former CEO of IBM made of talking about new-collar workers. What's it what's a new-collar worker?
Walt Rakowich: Well you know I grew up in Pittsburgh, Pennsylvania and I was surrounded by people in the steel mills. So I can tell you steel mill workers are not new-collar workers, they are old-collar workers. New-collar workers are what you and I are wearing today, I mean it's just a much more professional workforce. I believe that there's a lot of fear out there, as a result of AI and there's a lot of fear that people think that that the world is going to, you know, we're going to have to all retool our thinking and become different people. And it's interesting to me that, in a pre-COVID world that we had 3% unemployment and we've had technological change in the last 10 years that eclipses anything that we've had in any 10 year period of time and likely hundred year period of times you know, and yet we have a 3% unemployment rate. So I think there's a tremendous amount of fear that's being created out there about technology and about the workforce and what it's going to bring and I would just say, have faith that in the future the technology, the technology will actually create more jobs, not less. You are just going to have to put on a different collar than you have in the past but we'll all get there as a society and look there may be there may be some friction over time. There's no question there's friction. I know that there are people out there that don't have jobs and they would as easily argue with me that I'm wrong. But, in general, if you look across the landscape, people are employed. And, and they are employed, notwithstanding the fact that 10 years ago they couldn't even pronounce some of the words that we're talking about like Zoom today, you know, and so you know, I just am a big believer that technology, over time, will create jobs and we'll adjust as a society.
Willy Walker: That's actually, your point about the unemployment rate pre-pandemic I’ve made the comment recently in a number of my analyst discussions that you know the Bureau of Labor statistics has us at a 6.9% unemployment rate. When Barack Obama was reelected in 2012 it was at 7.9%. That's an apples to apples comparison. There are many people who say they're 4 million people furloughed. There are many people who say that people have exited the workforce. But the Bureau of Labor statistics is still calculating unemployment in the same way in 2020 as they were in 2012. And my point is that we weren't looking for stimulus bills at that time, we weren't looking to put trillions of dollars into the economy in 2012 when we had 7.9% unemployment, and to exactly your point that's not in any way to either diminish or belittle the fact that there are plenty of people who are hurting by this pandemic and people who have lost jobs and industries that have been hit very hard. But at the same time as it relates to holding tight and getting beyond this crisis, the numbers actually still look quite good.
Walt Rakowich: You know quite good, I mean obviously we'd like to see them better than where they are today, but we know why they were created that way and I think that the vaccine will overtime bring the numbers down even further. But you know, make no mistake about it, technology in general is not, people talk about and putting people out of jobs and yes it's this displacing but it's not putting people on a long term basis out of jobs it's creating jobs.
Willy Walker: You look at Amazon now having over a million employees it's hard to argue that Amazon is a job killer. Walt, turning back to the book I mentioned previously, I was going to bring this up, but you cite a study that looked at what CEOs fear. And what I thought was fascinating by it was the number one fear of CEOs is being deemed incompetent and that none of the top five things that CEOs fear had anything to do with either the company they lead or the team they lead it was all individual. Talk about that for a second.
Walt Rakowich: Yeah so this is an article that came out in Harvard Business Review so very credible source. It came out about five years ago and it was called What CEOs are Afraid of, although they didn't really interview CEOs only they interviewed a bunch of C suite people throughout the world, not just in the United States and they asked them what's your biggest fears. And you know you would have thought well okay, the biggest fear is like you know, competition. Or maybe the biggest fear is my people, you know. Or maybe the biggest fear is financial well-being I don't know whatever right. No, the number one fear that that C suite executives had was incompetence. It's like what? So these C level executives talked about how they were worried that they weren't competent enough to make the decisions, that they had the chops to be in the jobs that they were in. And how it undermined relationships with other executives. And they talked about how it led to dictatorial leaders. Leaders that didn't listen because they were fearful that other people were smarter than they were. I mean it's just bizarre. So, then you go down to the second one, you say okay what's the second one surely that's competition or people. No, it's underachievement. Is like okay, underachievement. And so you know C level people talked about how it caused them to take risks that they shouldn't have taken, you know. It led to a lack of discipline which by the way, that harkens back to some of the things I said about Prologis and kind of where we were in ’06 and ‘07. And then the third fear, and this relates to something I just talked to you about you know, a couple minutes ago, and that was appearing too vulnerable. You know being politically attacked internally, because of some vulnerability and C level executives talked about how it led to a lack of delegation, because they wanted to hoard everything right, and you know, internally and be the person that had all the answers and so forth, and so on. And so, and you just go on and on about this stuff. And what I began to see is that you know the fears were about the leaders themselves. Not their people, not their organizations, but like sort of where they fit within their organizations and what other people thought of them. And I gosh you know that's where mistakes are made, you got to get out of that stuff right. And the more you can and, by the way, you know you mentioned it, we all have them I got I still have insecurities today that you know I had them 10 years ago, I still have them today. But it's really a question of how you deal with them, right. And if you deal with them, if you become insecure about them.
You know it's interesting Taylor Swift talked about the fact that before she gets in front of a concert, or before she has a concert she is fearful and that fearful helps you know raise her ability to perform, and I do think that there's an element of fear that is actually good. Don't get me wrong. But when it becomes an insecurity and it's lasting and it goes past raising your performance, it can it becomes much more about you, people recognize that. Everybody that works for you recognizes it. And they become isolated. You become isolated and you lose their interest and you lose their trust over time.
Willy Walker: So take that into the to the Pauliw Fry exercise that you outlined as it relates to a group of people, sticky notes, three of them on IQ, TQ and EQ and talk about that for a second because I found that study to be fascinating.
Walt Rakowich: Yeah so A and B and Prologis you know, Hamid and I we got our heads together we merge the companies it was great and the first thing we did was we hired a consultant to come in and talk to the leadership team, you know this leadership speaker. And this this guy gets up JP Pauliw Fry gets up and he says okay. Well, first of all, there were probably 100 of us in the room and so, he divides it into two, 50 people on one side 50 people on another, and he gives each one of us three sticky notes. And he said okay everybody on the right side of the room, I want you to write down three characteristics of the best leader you ever had. And everybody on the left side of the room, I want you to write down the three characteristics of the worst leaders you ever had, okay. Just write them down on three sticky notes and be prepared. So everybody writes down these things you know, then he gets up in the front and he any breaks down on this huge chalkboard he writes down IQ, TQ, and EQ. IQ standing for intellectual qualities, TQ technical qualities, and EQ emotional qualities. And he said now everybody in the left side of the room, I want you to bring all your sticky notes up and if you love the Leader because of his or her technical qualities put it underneath that that column. Intellectual qualities that column. Emotional qualities this column. 95% of the sticky notes go under EQ. Same thing for the people who didn't like their boss, then they come up 95% under EQ. Let me tell you something, you get to a leadership role, not because of how smart, you are right yeah, I mean that's a given. You get to a leadership role, great leaders are loved by their people, people want to work for you, they want to kill for you, because of the way you are. The way that you treat them. Treating them in accordance with the golden rule. Treating them the way you want to be treated. That's how great leaders emerge over time and I thought that was such a telling exercise. I use it sometimes when I give speeches from time to time because, inevitably, it will be 95% plus that will put them underneath of that column. I just think it's a great exercise.
Willy Walker: It was a fantastic exercise and it makes me think… We had Marc Brackett from Yale, the Yale Center for Emotional Intelligence on the webcast back in the depths of the pandemic to talk about mental health and how people were getting through it. But just last week, when I had Michael Bush and Gary Pincus on, we all laughed about the fact that, when we were all in business school the sort of soft skill classes, we all sort of skipped and didn't really get that prepared for and sort of said oh it's an HR class who really needs to prepare for that. And we all sat around for our finance classes and spent hours in our study groups trying to get ready for them. And you fast forward 20 years later, 30 years later, and you realize that it was actually the HR or EQ classes that you should have paid a little bit more attention to and that the finance classes, you're going to figure out the numbers, one way or another, and that really wasn't where you should have spent your time.
Walt Rakowich: It's so true. it's so true. At Harvard Business School is called OB and people used to call it different words, other than that if you can you can make up a lot a number of words. That you wouldn't want to hear but you know, look, it's hard the soft skills are really hard but, at the end of the day, leaders need to pay close attention to it and because people, people are looking for it.
Willy Walker: You put a quote in your book by Rick Warren the author of The Purpose Driven Life that says: “humility is not thinking less of yourself it's thinking of yourself less.” And you and you tell a great story Walt in your book just from a humility standpoint about having proposed to a girlfriend way back when three times and getting turned down three times. Fortunately for you both she turned you down three times because you ended up marrying somebody else and had a great life subsequently and that probably wasn't the relationship you wanted to go into. But it made me think back to a to a quick story that I’ll say when I was in my first week at HBS in my section, and we all did introductions. And the first person to stand up says hi my name is John Smith, I went to Yale undergrad, I was on the US National Rowing Team, I worked at Goldman Sachs, and I applied to one Business School, Harvard, and I got in. And that person sits down and the next person who has this brilliant story gets up and tells us their resume and I'm sitting here is St. Lawrence University graduate who went to Latin America to work for a nonprofit foundation and was doing backflips the day that Harvard Business School said that I could come, saying man, when I stand up everyone's going to laugh at me. And the conversation, the introductions keep coming around the room and all of a sudden this gentleman named Tim Huckabee stands up he says “My name is Tim Huckabee I went to Georgia Tech University, I applied to Harvard Business School five times got turned down four and on the fifth I got accepted, and I am absolutely thrilled to be here.” And what was so interesting at that moment, is from that moment on all of the introductions went off the resume and to the people. And somebody else stood up and talked about the fact that he loved to cook, and a woman stood up and said my fiancée is here at HBS is with me or whatever the case, might be. But the introductions went from being so static and resume to being real and personal and I thought when you brought up that story about the three propositions and getting turned down three times. I couldn't help, but the humility that you showed in bringing that story up and also it made me think about Tim Huckabee and how his courage and leadership in our section allowed everybody else to get off the resume and get to real issues.
Walt Rakowich: Well, I appreciate you saying that Willy. I have to tell you I think humility can really be taken out of context, you know. If you read it, and you look it up in the dictionary you'll see words like weak, unassertive, you know, submissive and you say to yourself well that's not the leader I want to be. But actually I think real humility takes courage. You know it's not about being weak but it's about accepting that we all have weaknesses and, by the way, being willing to admit them. It's not about being unassertive, but it is about you know first taking into account other people's positions before you make a decision as a leader. And it's not about being submissive, but it is about serving other people. That's what leadership is all about. Getting out of your own way in serving other people, and I think humility fits into that very, very well. It's not about you know people that admit their fears and admit their vulnerabilities actually in doing so, they defeat them. And they change the people the way that people react around you. Just like you said that happened at Harvard Business School all of the sudden, to change the narrative. That's what you want to do in your companies. You want people to be able to communicate, talk, and feel great and open about what they think, and I think humility really leads to that.
Willy Walker: Well, it's a real pleasure to have you on, somebody who has not only practiced what they preach, but then also taken all that practice and put it into a book that I found to be gripping, insightful, super super helpful as someone who tries my best to lead Walker & Dunlop every single day and I'm just deeply appreciative Walt of you taking an hour to share with us both your experience in turning around Prologis and then all the thought and time and effort you put into writing Transfluence and all the different messages in there. So thank you very much for joining me today.
Walt Rakowich: Oh you're so welcome Willy. To all of your listeners go out and buy the book it's called Transfluence and it was fun to write, and I think you'll get a lot out of it. Look, I have had a great, great hour and it's been awesome to be on with you, and thanks so much for the opportunity.
Willy Walker: Thanks Walt. To everybody who's joined us today thanks for joining us and we'll see you again next week have a great day.
Walt Rakowich: Thanks everybody.