David Cote Transcript

David Cote is the former Chairman and CEO of Honeywell and author of the bestselling book, Winning Now, Winning Later: How Companies Can Succeed in the Short Term While Investing for the Long Term.

During his time at Honeywell David fixed a toxic work culture and grew the company’s market capitalization from around 20 billion to 120 billion, delivering returns of 800%. Currently David is Executive Chairman of Vertiv Holdings Co, a global data center products and services provider. He is a member of the Aspen Economic Strategy Group on Foreign Relations and the Conference of Montreal.

David’s journey to being CEO is anything but ordinary. He nearly quit high school, because although he was good at school, he hated it. He ended up sticking with it and became the first one in his family to graduate high school. David was accepted to the University of New Hampshire, but decided he didn’t want to pursue college so he went to work as a mechanic with his dad in a small garage.

After that job didn’t pan out he went to Michigan to work as a carpenter with his uncle, but learned he wasn’t good at that either. So he enlisted in the Navy for six years on a nuclear submarine. The day before he was supposed to swear in he called the chief petty officer and asked what would happen if he didn’t show up. And although the chief petty officer made it sound almost impossible to get out of, when David realized cops wouldn’t just show up at his door and arrest him, he made the decision not to go.

After that David decided to go to college, but after two years there the Assistant Dean of Students told him he could no longer live on campus because he was too much of a troublemaker. So, needing some money, David decided to get a job working second shift while going to school, which he did for 6 months, when a buddy of his invited David to come work with him on a fishing boat in Maine.

Because he was spending so much time on the boat he ended up doing very poorly in school, so he decided to quit. He ended up getting married and one month later his wife was pregnant with their first child. David says this is the moment he realized he had to do something, he had to get direction and stay focused. He was scared he wouldn’t have enough money to raise their child. And from that moment on he had a purpose and a focus that has brought him to where he is now.

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Becoming the leader of an organization with a toxic culture
David remembers the first days as CEO of Honeywell very vividly, and they were not very pleasant. He says there were some things that were fairly straightforward at first–introductions to employees, doing a lot with the press, etc.. But there was another part of those first days that really took David by surprise.

He was instructed by the board early on to not focus on any numbers or the financials until he became Chairman four and a half months later. He would be in meetings and he would ask a finance guy, “so how’s the quarter going?” and they would respond with, “Dave, I’ve been instructed not to answer any of those questions from you”. He said it got very weird.

Then when he became chairman he realized why they were keeping it all from him. David says, “The aggressive bookkeeping was, I’d say unhealthy to be conservative. You look at it over a previous decade, we only generated 69 cents of cash for every dollar of income we ever generated, which gives you a sense for the bookkeeping. We have a severely underfunded pension plan. That also had aggressive accounting. We had environmental liabilities that 100 years old, chemical company has that had never been addressed, nor recorded. And we had exposure to asbestos in two areas, none of which had been recorded or addressed”.

Things looked bad. And on top of all of the financial and legal issues they also had three warring cultures inside the organization. David knew he had to bring all of the cultures together under one new culture. In a few days David and his team developed a new culture, which they ended up calling the 12 behaviors. He knew that he had to have a culture where people work together and actually act on strategic decisions before any strategies could be put into place to fix the accounting and legal issues.

There were people who were thankful for the new way of doing things, but there were others who pushed against it because they were used to doing things a certain way. David knew that in order to make the new culture stick, he had to be firm and not give way to anyone trying to push back.

He says, “That’s when you’re in the crucible at that point. Because writing all the values down writing all the behaviors down, that’s the easy part. The tough part is when you get to walk the talk, do you stick with the investment in the seed planting that you talked about? Do you not allow them to do the accounting transaction or the distributor load? And those are the ones where I can say, to a fault, maybe, I never succumbed on any of them. And I would tell them, I want you to make it. You still have to figure out how you either sell more or cut costs, but I’m not going to do this and if you miss it, you miss it, but it’s on you. And I made sure I put in audit practices to make sure that none of this stuff happened. But it’s easy to know whether the accounting happened, distributed loadings a little tougher, you got to do a little more work to find out, was that happening. But once the employees start to see you walk the talk, that’s what starts to change the culture. You can have all kinds of posters and all that, but posters don’t do it. People need to actually see that it’s working that way.”

How David defines leadership
When defining leadership David breaks it down into three crucial elements. Good leaders must:

  • Have the ability to motivate a large group of people–this is the most visible part of the job, but it’s only about 5% of the job
  • They can pick the right direction–too many leaders can sound great, but do they make the right decisions to put the organization on the right path, in the right direction? You may be able to motivate people, but if you spend years wandering around with them instead of having a specific direction to lead them in, your not good for the organization
  • You have to mobilize everyone–So you’ve motivated people, you’ve picked the right direction, now you have to get the whole organization to move there step by step

How to lead in tough times
Leaders today are definitely leading through difficult times, and David has led through his share of challenging times as well. He says one of the toughest times was the great recession of 2008-2009. And he knows how it feels to be in the middle of a crisis and feel like it is the worst one ever. But it is important to realize that while these recessions are unique, there are certain actions that we can take regardless of the situation that can help organizations to survive it.

David’s advice for anyone leading in tough times is:

  • Don’t panic
  • Make sure that you keep thinking independently
  • Never forget to put the customer first
  • Be thinking about the recovery even while you’re in the middle of the recession

Why leaders must focus on short term and long term goals, not just one or the other
One of the main reasons David wrote his book, Winning Now, Winning Later is because he saw that most leaders feel that they have to choose between focusing on the long term or focusing on the short term. Leaders tend to see them as two conflicting things.

But David argues both have to be done at the same time. Because if you are not investing in the long term, eventually the long term becomes the short term and you’re out of gas, you’ve got nothing. Performance in the short term is also a validation of whether your long term plan is any good.

As David shares, “I think it’s a mistake if you pick one or the other. And I oftentimes said, one of the most deadly questions to respond to, is when an employee says something like, Hey, boss, which one do you want me to do? And the answer always has to be I expect you to do both. I want things right. And I want them fast. So I don’t want it to be–I have to choose between the two, I want you to always find a way to accomplish both.”

Advice for people who feel stuck in their job
Some people may read or hear David’s background story of what he went through before he became CEO of Honeywell and they may feel like they are in a similar situation where they feel stuck in a job. Maybe you feel like there is not a clear progression forward in your career. David gives his advice to people in this situation, some things that helped him get to where he is now.

And he breaks this advice up into a few different points. First of all, you have to have performance, and your performance can’t just be okay. You’ve got to be like the top 10%. Where you went to school makes a difference for your first job, after that it is up to how you perform. Be a standout in all you do.

You also need visibility. If you are performing very well, but the person who can do something about your career can’t see it, nothing will happen. So make sure you have visibility. But you have to be careful with this one because you don’t want to go around tooting your own horn or wearing your ambition on your sleeve. It is a delicate balance.

If you have a boss who doesn’t feel that you are performing as well as you think you are, this is where you have to be self aware and figure out is there something you can fix or do you just have a bad boss, which David says happens less often than people think. So learn to be self-aware and realize when there is something you need to fix. We all have issues, and it’s important to know what they are.

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