Adapting a global company, the Ryder Cup postponement, running a family business, and the importance of companies being an environmentalist as well as capitalists are all things we talk about in this episode with David Kohler, CEO of the Kohler Company.
This podcast was shot live as part of The Milwaukee Rotary Club’s Thursday programming.
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This episode was a cool opportunity to interview David Kohler. He is the fourth-generation leader of the Kohler Company, which does about $7 billion in sales. They have 35,000 employees worldwide. They’re a global leader in the hospitality space, owning places like Whistling Straits. They have the hotel, The Old Course, in St Andrew’s. If you’re a golf nut like me, you’re definitely familiar with them. They’re also a global leader in the kitchen and bath space and the power space. You guys are familiar with Kohler in one way or another.
Milwaukee Rotary Club gave me the opportunity to come to their Thursday program. The Rotary Club is an organization I’ve been a part of for the last few years. It helped me build a great network in the Milwaukee area. They do awesome weekly programming. Even though COVID, they’ve kept things up virtually. Thank you to Mary, Michelle, and the Rotary team over there for making this happen. Thank you again to David for coming on and the Rotary for making it happen. It’s a fun episode. I hope you enjoy it. Thank you again for all your support.
Our guest is David Kohler, the President and CEO of the Kohler Company. He’s a fourth-generation leader of the company that was founded back in 1873. In addition to being the CEO, David serves on the board of directors for the Kohler Company Interface, Inc., Inner Ceramic, and the Green Bay Packers. He was also the General Chairman for the 2015 PGA Championship, which was the six major championships hosted by the Kohler Company. He was serving now as the General Chair of the 2021 Ryder Cup. David, thanks for joining us.
Thanks so much, Richie. It’s an honor to be here. I appreciate the invitation.
Let’s backtrack a little bit. Let’s talk about COVID. What was your initial reaction when COVID hit? Can you give some insights on how you have been adapting and responding over these last several months?
It’s an interesting story because we have a global footprint in our business. We were able to see this impact our business first in China. We watched it move to South Korea, where we have a business and saw it move to Europe and eventually here to the United States. We were able to see it unfold. There’s this whole concept and book written called The Gray Rhino. It’s when you see something coming at you and you don’t fully react. That was the US example. We didn’t believe that it was going to come here with the vengeance that it did. Thus, you saw the stock market go down in the US.
Even though we saw it and it impacted our business, we were a little surprised with the market impact here in the United States, right or wrong. What that did was help inform us of the best practices for fighting the pandemic that the countries used in China, South Korea and Europe, and also in our plants and facilities around the world. In that learning, we understood that we had to put our associates and customers first.
We had to make sure we followed very aggressive safety protocol in our facilities to protect and keep them open as long as we could as an essential industry. We focused on all the safety protocols that everybody talks about in terms of masking, isolation, social distancing, tracing, testing, all of these, as well as scanning for temperature in our facilities. We’re able to see the best practices around the world and apply them in our business.
You are a global leader in three different sectors, kitchen and bath, power, hospitality, and the golf end of the business. Can you touch on how it has affected those different sectors? Has it changed your long-term outlook on any of them? You mentioned you were surprised even though you saw it happening in other countries you were involved in, but I’m sure you couldn’t even imagine that it would last this long. Who knows if a year or two down the road, we could still be dealing with this.Because of COVID, companies had to learn how to put their associates and customers first. Click To Tweet
One of the things all of us have learned in this is how strong Mother Nature is and the powerful force of Mother Nature. You can’t overcome a pandemic or Mother Nature, and you have to work with it. We’ve learned that. If you look at our business, we’ve been very lucky in most of our businesses. Other businesses have not been as fortunate. Our hospitality business, the American Club across the street and our global hospitality business in St. Andrews as well, obviously were the hardest hit because of all the restrictions. We had to shut down and furlough associates in those businesses. That was severely impacted.
Conversely, while we thought the world was going to end in April as we saw the market come down and there was a lot of fear, in May, June, July, August, September and October, we saw a steadier and steadier growth in our plumbing business and power systems business. The consumers around this country and around the world, we see the same thing in China as well, wanted to remodel and improve their homes.
This whole storyline that you hear about consumers’ interest in reinvesting in their space because of the amount of time they’ve been spending working from home is all true. The numbers and the demand strength in all channels for remodeling and new construction are exceptionally strong. We’ve seen levels of demand that we’ve never seen before for consecutive months. It’s stretching and challenging our supply chain.
On the power system side, we’ve also seen it in our backup generator business or standby generator business for homes, small businesses and industry. That business is also booming. People want more resilience and security in the power supply to their homes and businesses. We’ve seen strength there. Everything you hear about China in terms of a V-shaped economic recovery is true. Our business in China was basically locked down in the first quarter, but the second and third quarters had come back very strong. That economy is the strongest performing economy in the world in juxtaposition to other economies that have not controlled the pandemic as well as they are.
Going off the economy, here in the US, I don’t think we’ve controlled the pandemic as good as in other countries. The stock market has seen a V-shaped curve to an extent. The stock markets are near an all-time high. We are in the midst of this pandemic. Do you have any thoughts on that?
It’s very important to distinguish between the stock market and the general economy. The stock market absolutely had a V-shaped recovery. It benefits that segment of society that was able to invest in the stock market. If you look at all of the segments of our society, the percentage that owns equity in the stock market is a very thin percentage that owns the lion’s share of the equity in the stock market. This term that has been used for the general economy in terms of a K-shaped recovery is true.
The more affluent segments of society have done pretty well in those industries that have not been significantly impacted by the pandemic. Those industries like restaurants, bars, hospitality, airlines and travel have been impacted very strongly. There are segments of lower-income households that have been hurt significantly by the decline of the pandemic and the shutdown of these industries.
Those people are much worse off. That’s what we have going on in our society in the US, which is creating challenges. There was income inequality before the pandemic, and that has been exacerbated even more with the strength of the stock market and the loss of some of these industries in society. We wouldn’t say that the recovery for the general economy is going to be a Nike smooch.
The GDP will hit the same size that we were in 2019 sometime in 2022. It’s going to take that much time for the general economy to recover. We still have risks ahead. We have to get control of the pandemic. We’re going to need another better-designed and better-executed stimulus package. We’re going to need that to happen for this economy to recover. We would all like to think it will.
A few minutes ago, you talked about the power of Mother Nature. You created a huge sustainability plan back in 2008. I know you’ve reduced your environmental footprint significantly. It was 25% between 2008 and 2016. I don’t know what you are up to now. In a talk that you gave that I watched, you mentioned that you need to teach more companies to be an environmentalist and a capitalist. Can you touch more on this? Has the sustainability strategy been affected at all by the pandemic? We’re seeing the effects of global warming now more than ever? Australia is on fire pretty much in 2019. These floods that have been happening are terrible. The California wildfires don’t seem like it’s getting any better at this point.
In our company, you can look back at comments by my great aunt and uncle, Walter Kohler, in the 1920s about the environment and all the leaders of our companies throughout history. We’ve always believed in the importance of being a good environmental citizen. We looked around in 2007 and said, “There are a lot of things happening around us. Climate change is going to impact our business and all of these things in terms of scarcity in certain things like water that we need to be more cognizant about.” We need to act and lead. We reset our strategy to be net-zero by 2035 in terms of our environmental footprint. Not only are we doing less bad, but we also want to drive more innovation for more environmentally friendly products.
It was a strategy about growth and differentiation and also used our position as an industry leader to teach other companies how you can be a capitalist and an environmentalist at the same time. They’re not mutually exclusive. It’s just good ethical business practice for the future. If you learn how to do less harm or reduce emissions and waste less, it’s better for your business. It’s better for your bottom line. It’s better for your customer engagement.
We’re seeing it pay dividends. As you pointed out, the pandemic has accelerated a lot of trends. One of them has been the interest in the whole area of clean energy, sustainability and the environment. We’re seeing that interest in the stock market with the focus on ESG around Environment Social Governance, and firms and consumers wanting to invest more in those ethically driven companies.
We’re also seeing it in the share price of firms like Tesla and Nicola and others that are battery or electric base. We’re seeing a number of signs around the level of interest in this. Fortunately, because of the lack of transportation, we’ve also seen a benefit to the environment in this period. I think there was one more of these tipping points that has been accelerating this interest. If you look at younger generations, Millennials want to align and work with companies that stand for more than just making money, and that also want to do business with proper ethical business practices.There was income inequality even before the pandemic, and that really has been exacerbated even more. Click To Tweet
For us, it’s a way of doing business. It has also benefited us from a growth standpoint. If you look at our water-conserving plumbing products, since 2007, the water-conserving plumbing products here in the US have saved over 230 billion gallons of water. Not only do consumers save money, but they also impact the environment through choices of energy, star appliances or water-conserving products like that. We think it’s part of a holistic smart strategy for all businesses. It’s not about compromising profits or success. It’s just doing its part as a business.
You guys have been in business since 1873. You’re a fourth-generation leader. Most family businesses do not make it past the third generation. That’s the guy who messes things up. You guys are at $7 billion in revenue. You have 35,000 associate team members across the globe. What has made you guys so successful? Is this the credit for the longevity of your position?
The credit goes to our employees who built this company over 147 years. I would sum it up into two things. One is discipline and the other is entrepreneurial spirit. First of all, disciplined leaders, disciplined thinking and disciplined action. We have a set of guiding principles that have framed our success and kept us true to those principles over time. The first one is to live on the leading edge of design and technology. The second is to produce one single level of quality. The third is maintaining a strong organization of people and culture. The fourth is consistent and quick delivery. The fifth is re-investing 90% of our earnings back into the business.
We’re a company privately held that has always maintained a very disciplined dividend payout ratio. We want to make sure that the majority of the money is reinvested in this company to grow and strengthen over time. As a company, we’re also in cyclical industries and you can’t carry a lot of debt. In our business, we have no debt. We have a fair amount of cash on the balance sheet. Through that period of time, we’ve been through eighteen recessions, two depressions, the financial crisis, and this pandemic recession.
We’ve been able to survive through that disciplined focus on our principles and our business, but we’ve also had to change and be entrepreneurial. When John Michael Kohler started this business in 1873, in the first decade after he started the business, it was a cast-iron foundry making farm implements. There was a financial panic here in the United States. He had to be creative. He took a horse trough and hog squalor, dabbled with it and furnished it with four feet, and created our first bathroom.
He had to find new products to grow and succeed in that environment. The same is true now. In almost 150 years, we’ve had to change a lot. If you don’t change and adapt to the marketplace and grow into new product categories and new geographic markets and diversify your business, you’re not going to succeed over time. The combination has been that discipline in our culture and our teams, and then the entrepreneurial spirit.
As a leader, what motivates you to run the company and continue innovating? There are a lot of companies that get to a point where they’re a certain size, they move slower and stopped innovating as much. It doesn’t seem like that has happened at all to you.
Only the paranoids survive. For me, to serve in this capacity is a great honor. It’s a privilege and a great responsibility. We want our whole culture to be that of owners. To have that desire to wake up every day with fresh eyes to see the world and see the opportunity. We know that if we don’t continue to innovate, we’re of no value to our customers. Our customers are looking to us to innovate, to have leading design technology, and a single level of quality. They’re looking at us to enhance their lives. If we don’t do that in the best way possible every day, we’re not going to be around. It’s that focus and tenacity to live up to our mission and our guiding principles and our customer’s requirements that drive us every day.
I have a follow-up question. Were you the guy who told my dad the quote, “Only the paranoids survive?” Did you always want to go into the family business growing up? Did you think you were going to do that and run the company?
I always knew that I would be involved somehow with the company, whether it was perhaps serving on the board of directors or being involved in a governance capacity. I worked for the company in the summers growing up. After college, I came back and worked in the company for two years and went to business school. I worked for another company for a couple of years and came back to the company after that. Getting back into the company and getting immersed in it, that’s where you become passionate about it.
For a family member or anybody to succeed in our company, and I’ve now been here many years, you have to be passionate, competent, committed and driven. Getting immersed and passionate about it is what drives us every day. I knew I would be involved in some capacity, but I’ve been lucky enough to be able to rise through the organization to serve in the role I am now. Honestly, I didn’t imagine that when I first started off doing the work that was in front of me, do that right and move up.
I know a lot of people want to hear about the Ryder Cup. Can you talk about the decision-making process to postpone it another year as opposed to having it? What do you anticipate would it look like in 2021?
It was driven by the PGA of America. The PGA of America is working closely with us and talking to state officials here in Wisconsin and the Governor’s Office and understanding what the conditions are here, and also at a national level and internationally. This event is global and we need a large number of European visitors and international visitors. We had to be looking at all of these things, which they did. It was a difficult decision but when you look back, it was the only decision.
You could not have done or executed the Ryder Cup to its true level of excitement and drama without a significant number of fans and doing it in its more natural state. Based on health and safety and the reality or plausibility of getting the people from around the world here to enjoy the events, there was one answer, and that was to postpone it. Fortunately for us, we’re able to do that very easily, working with them as a partner and moving some things around and shifting out. Once we made the decision, we were able to execute it pretty easily.You can be a capitalist and an environmentalist at the same time. They're not mutually exclusive. Click To Tweet
Do you have any concerns that a year from now, we still won’t be able to get those global visitors?
We’re always concerned about that. It goes back to controlling the pandemic. Wisconsin is not leading by example. We’re looking at statistics of Wisconsin counties like Brown County, and it’s not only the worst in the state and the country but also in the world. We have to do a better job here in Wisconsin and the country of doing our part as citizens and companies to get control of this thing.
First and foremost, we need to see that progress as a country. Hopefully, we can execute events and bring them back more. We continue to have a strong interest in the event. We lost a few of our corporate patrons. More corporate patrons come in that were new, and some expand their chalet presence. There has been very little fall-off so far in the level of interest for the event. That’s extremely positive.
I have a few lightning-round questions. If you could describe your golf game in one word, what should it be?
I’ll give you two words, humble and determined.
What is your favorite Kohler-owned property?
Our first hospitality property is called River Wildlife, which is a wildlife reserve and one of our most fabulous restaurants here in Kohler. That would be my favorite, and then St. Andrews, Scotland. The Old Course Hotel in Scotland is pretty close out.
What is your favorite golf course?
It’s River Course Blackwell. That’s my home base.
Are there any hobbies outside of work and golf that people may be surprised by?
I grew up in Wisconsin, so I’m hunting, fishing, hiking or everything outdoors. I’m that kind of person.
My final lightning-round question, what’s one thing business-wise that you are most proud of?
I’m proud of a lot of things. The things I’m most proud of are the people and the spirit of the company and this idea that we can do anything we set our mind to do, whether it’s something technically installing SAP enterprise-wide around the world or attacking sustainability and creating a position of positive change on the environment and the world. Whether it’s solving tough innovations or technical problems to bring new products and technologies to market, that tenacity, the will to drive, and the curiosity in the culture of our teams are what I’m most proud of.
Do you have any interest in running for public office in Wisconsin?As a leader, be proud of the people and the spirit of your company. Know that they can do anything they set their mind to do. Click To Tweet
Do you find it advantageous to be headquartered in a smaller community?
We love it from the vantage point. We love Wisconsin and we love a small community. There are a lot of people to whom this style of life appeals to. There are others that it may not but fortunately, we have North of Milwaukee. There’s a lot of different variety for people to live in depending on the community they want to live in. We get the best of both worlds and being global. We can have people all around the world. We get diverse talent in that way as well.
I’m curious about David and Kohler, thinking about new digital capabilities for their business and trying them toward their environmental priorities. How does technology maybe impact Kohler’s business?
It’s impacting everything. As we’ve seen in COVID, it’s one of the trends that has accelerated everything digital. Our eCommerce business has grown dramatically and continues to. Our whole focus on direct-to-consumer products and services is very important. Our smart products are digitally enabled products. Those are the wave of the future and our fastest-growing category. It’s impacting everything in our business.
Do you have any wisdom on how to get the national political dialogue in the US back on a more rational “We’re all on the same team” type of track?
It’s got to be a little depoliticized. This is not a political issue. This is about leadership and unifying the country and all of us being patriots. That’s what we’ve lost in the dialogue. What does it mean to be a citizen? What does it mean to be a patriot? Let’s put the US first ahead of our own individual desires and put each other first. We need leaders who are going to do that.
Assuming that the Ryder Cup event happened in 2021, what will the Ryder Cup cycle look like in the future?
It will go back to every other year. It should go back to its original cadence. All of the future venues would stay in the current calendar. For those that are interested in any corporate participation, go to RyderCup.com.
Thank you so much for coming on. Thank you, everyone, for joining us.