How Companies Can Succeed in the Short Term While Investing for the Long Term — David Cote
How Companies Can Succeed in the Short Term While Investing for the Long Term — David Cote
He’s the ultimate leader … When David Cote became CEO of Honeywell in 2002, the company was practically in shambles. But under his leadership, Honeywell turned its image around and became the posterchild for positive big company behavior. And as it rose from the ashes, Cote helped his employees succeed alongside him. Cote discusses his book and the importance of solid management with host Charles Mizrahi.
• An Introduction to David Cote (00:00:00)
• CEO of Honeywell (00:05:24)
• Surviving Becomes Thriving (00:07:34)
• Growing Leadership Capabilities (00:13:46)
• Rising Through the Ranks (00:17:36)
• Character Matters (00:26:15)
• Problem-Solving at GE (00:29:29)
• Turning Honeywell Around (00:35:45)
• Giving Back to the Community (00:44:26)
• Great Positions, Good Industries (00:53:23)
• Independent Thinking (00:57:23)
David Cote is a bestselling author, former CEO of Honeywell and the textbook definition of a strong leader. When he took the reins in 2002, Honeywell looked even worse on the inside than it did on the outside. But over the next 15 years, Cote scrubbed the company’s financial foundation and helped its operations thrive. Best of all, he took care of his employees and helped create millionaires among Honeywell shareholders.
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DAVID COTE: Good leadership pushes them beyond that — but not beyond what they’re truly capable of. That’s one of the tricks of leadership: being able to figure out where the line is. But they’re always capable of doing a lot more than they tend to think they can.
CHARLES MIZRAHI: My guest today is David Cote. When David took over as CEO of Honeywell in 2002, the company was a train wreck. David quickly saw that, as bad as the company looked from the outside, it looked even worse on the inside.
CHARLES MIZRAHI: Honeywell was plagued with unhealthy and aggressive business practices, a huge asbestos liability and a culture that was no longer inspired. He didn’t have many believers in his corner. In fact, he wasn’t Honeywell’s first choice. His management team viewed him as an outsider. And for the first four and a half months, he wasn’t even allowed to see the company’s financials — even though he was the CEO!
CHARLES MIZRAHI: Over the next 15 years, under David’s leadership, Honeywell’s market cap rose from $20 billion to over $120 billion. And the company’s stock soared over 800% — more than 2.5 times the S&P 500’s return.
CHARLES MIZRAHI: David’s book is, Winning Now, Winning Later: How Companies Can Succeed in the Short Term While Investing for the Long Term. Forbes said that David’s book is one of the best guides ever on how to lead a company. I recently sat down with David, and we talked about why leadership matters. Whether you run a local coffee shop or the largest Fortune 500 company, his approach can help strengthen your business — no matter how dire the current circumstances may seem.
CHARLES MIZRAHI: Dave, thanks so much for coming on the show. I want to tell you: I’ve been following you for a long time. I wasn’t stalking but following you. I’ve been following your accomplishments. And last year — I think it was last August — you came out with your book. And I said: “I want this guy on my show.” I have so much to talk to you about. Through mutual friends, I was learning more about you and following what you were doing. I’m really excited to have you here today.
DAVID COTE: That’s very kind you to say. And my bad for not realizing that somebody with your reputation didn’t penetrate early on.
CHARLES MIZRAHI: That’s OK. No problem. I’m glad you’re here today. The name of the book is, Winning Now, Winning Later. What’s the full title of this? This a really big name. Winning Now, Winning Later: How Companies Can Succeed in the Short Term While Investing for the Long Term. So, it’s great that marketing got it down to just a few top words there, huh?
DAVID COTE: I ended up learning that book publishing was a whole different kind of industry.
CHARLES MIZRAHI: I wrote one book: Getting Started in Value Investing. I wrote it in 2006. It was printed in 2007. You couldn’t pick a worse time in the world. In October 2007, it comes out at the top of the market. And they said: “Are you ready to write another book?” I said: “Never again.” It tore my guts out. It took a year’s time. You have to research. And the return is what?
DAVID COTE: It’s a lot more work than anybody realizes to put out a quality product. That being said, it was worth the effort. We got great reviews from guys like Hank Paulson, who said it was the best business book he’d read in his life. I have to say, that made me feel pretty good.
CHARLES MIZRAHI: Just to dovetail on him, I don’t know why he said that, but let me tell you what I got out of it. Ninety-nine percent of business books are one page with one idea surrounded by 200 to 300 pages of crap.
CHARLES MIZRAHI: When I came out with my book, it was around 80 or 90 pages. And the publisher — Wiley — was a great publisher. Love them. God bless them. Thank you for publishing my book. [I was] an unknown author. They said: “We can’t sell this book if you don’t have at least 200 pages. At 300 pages, we get X amount. We can sell for $29.99. We can’t sell it for less. I said: “I have no filler.” And they said: “Well, add some good stuff.” All these books on management — it’s one page, and you get sick of the stories.
DAVID COTE: I always said that most business books would make great pamphlets because it’s 10 pages of concept followed by 280 pages of stories that say the same thing over and over again. And that’s why you can fly through business books. I didn’t want to do that. I wanted to do something where every page had something substantive that caused you to think.
CHARLES MIZRAHI: Before we even begin talking about the book, which I’m really excited to talk about. In my organization, last week, I recommended it to everybody. I sent a video of you at Columbia — CBS — Columbia Business School. I said: “Just watch that. We have to start implementing these things.” It’s common sense.
CHARLES MIZRAHI: By the way, folks, when we get into it, there is no rocket science here. I don’t mean to say that Dave is not a rocket scientist. But a business is about making things, selling things and treating people well. That’s really it. We could put all the crap around it, but that’s what business is all about. But anyway, before we even begin, I want to talk about your…
CHARLES MIZRAHI: Hold on. Let me back up one second. Folks, here’s a guy who took Honeywell from $20 billion to $120 billion in market cap. And I think the stock went up 900%, right?
DAVID COTE: It was 800% — two and a half times S&P.
CHARLES MIZRAHI: And I was smart enough not to invest one nickel throughout his whole tenure at Honeywell because I never thought the time was right. So, that’s the genius I am.
DAVID COTE: Well, from what you said, you were smart when it came to Vertiv though. So, you ought to take credit for that.
CHARLES MIZRAHI: I have to make up for lost time. I really do. All right. So, before we begin talking about the book — and there were so many great things with the book. You did it. You came into a terrible situation. You had nobody cheerleading for you. In fact, they were rooting for your failure. Your CFO and your inner team didn’t even want to show you the books. They thought you were radioactive.
DAVID COTE: Actually, that started at the board level.
CHARLES MIZRAHI: The board hires you and says: “Keep your nose out of the numbers.”
DAVID COTE: Correct. And that was at the request of the chairman and the rest of the board. They told me not to look at the numbers for the first four and a half months until I became chairman. It was my job to just learn the company. I can remember asking a finance guy a couple of times: “How’s the quarter going?” It’s a typical question. At both times, I was told: “I’m sorry, Dave. But I’ve been instructed not to answer any questions like that from you.”
CHARLES MIZRAHI: Wow. Talk about a confidence builder.
DAVID COTE: Yeah. So much for being CEO. But I thought: “OK. It’s four and a half months. I’ll just live with it.” But it seemed kind of odd to me.
DAVID COTE: Then, I ended up learning that there was a reason for that. Things were in such sad shape. There was a reason for keeping it hidden.
CHARLES MIZRAHI: Yeah, it looked even worse from the inside than it looked from the outside — if that was even possible.
DAVID COTE: Yeah, exactly.
CHARLES MIZRAHI: All right. So, before we begin, you were in working class family. You were one of eight and living in a house with one toilet, one shower and one bathroom. You had a 1.8 GPA. So, you weren’t the sharpest student in the world. You were living in New Hampshire. Your windows were drafty. You had a kid. You were married. Your fishing boat career plummeted because the guy’s wife, who you were partners with, said: “What a nut this guy is. Stay away from him.” You were there. How the heck did you become CEO of Honeywell, write a book and teach America what’s important about business?
DAVID COTE: Well, you’re right. Those early days were fraught with maybe not disaster, but certainly bad decisions. I credit my oldest son with the change in my life because he an epiphany for me. I’m sitting up there in this uninsulated, unheated apartment in New Hampshire. And all of the sudden, my wife is pregnant and says she can’t work anymore. I realized that even without buying Christmas gifts, or anything like that, we were spending $2 a week more than I was making. I had $100 in the bank, so I figured that I had 50 weeks left to figure out what to do.
DAVID COTE: The only thing that I seemed to be good at school. Anything I tried to do mechanically didn’t work. So, I quit smoking cigarettes. I started exercising, went back to school and got 4.0 that year because I actually paid attention and showed up to class. I worked nights and went to school during the day. I focused on making more money.
DAVID COTE: And for a long time, every week, I would sit there trying to figure out which bills had to be paid because the collection guys would come by. And which one could I let slide because nobody would bother me for another week or two? I hated living like that. I told myself that I was going to get myself out of it. That’s what caused me to really buckle down. I’d say that — in the beginning — I was driven by a need to make more money to survive.
DAVID COTE: It was only when I started to realize that I actually enjoyed the work I was doing — I enjoyed the accomplishment — when I started to think: “Maybe I could do this. Maybe I could do that.” It wasn’t until I was 39 or 40 years old before I thought: “Maybe I could be a CEO somewhere.” Up to that point, it never even entered my mind.
CHARLES MIZRAHI: You know what I find fascinating? Your book is great stuff. And we’ll get into that in a second. Your story is not only the American dream, but how someone could change their life — even at middle age. Just because you went to bed with the GPA of 1.8 and couldn’t pay your bills, it didn’t mean that you had to wake up that way tomorrow. You could take control of your life and change it. You didn’t do it from Wharton. You went to The University of New Hampshire. No Ivy League schooling. No basic contacts. Your uncle was a carpenter. So, you were a working-class guy. You came to the realization of: “I have to get my life together.”
DAVID COTE: I agree with everything you just said. I need to correct one thing. I got a 1.8 during one semester. That’s when I decided to become a fisherman. So, I stopped going to school. But it’s a point that I make to a lot of people. Yeah, you do need to have an aptitude for things. There’s no doubt about it. But it’s really surprising what you can accomplish if you just stay focused a have a goal. It doesn’t mean you’ll always get there. But you can change your life if you want to. Your life doesn’t have to be over at 25, 35 or 45 [years old]. You can always change it. Just because you’ve inherited certain conditions, that doesn’t mean it has to stay that way.
DAVID COTE: In fact, one of the phrases I’ve always hated is: “He’s keeping it real.” I said: “If I’d kept it real, I’d have stayed stuck in New Hampshire at a mill-type job and never gone any further.” I was the first one of my family to graduate from high school. So, that was viewed as an accomplishment in my family. And I could have stayed right there. I had no idea what was possible. But if you get out there, start pushing, see what you can do and see what you’re made of … There’s no reason that you should allow anybody to ever put a limit on you.
DAVID COTE: One of the things that I also found interesting is that some of the tougher limiters can be your own family and friends. I don’t know what causes it. It [could be] because they want to keep you right where you are. Or, they think they know you really well. I’ve talked to others where the same thing has happened. Their friends were the ones who were inhibiting them. So, you have to think it through for yourself. You have to decide what it is you want. The advice I’ve given to a lot of people — and I do it to kids and middle-aged folks — is: “Picture yourself at 60 years old. Look back at your life. What would you like to be able to say about yourself?”
DAVID COTE: It depends on who you are. Some people like to be able to say: “I played it safe, and it worked out. I just wanted this kind of job, not have to do too much and live in the same house.” And that’s fine. But there are others, and I was one of them, who thought: “I don’t want to be 60 years old, look back and say: “Gee, I wonder if I could have done it.” That’ll drive me crazy. I don’t want to be 60 years old and questioning myself like that. I’d rather find out whether I can or can’t. Now, I thought I could. Otherwise, I wouldn’t have tried it. But I find it quite rewarding that it actually worked out as a result.
CHARLES MIZRAHI: Yeah. We had a guest who was a captain in the Marines. And he has a Ph.D. in finance. He leads a $1.5 billion money management firm. He told me something about 11 years ago. He said: “We have a Marine saying: ‘Grow where you’re planted.’ Whenever you’re stuck, don’t bitch about the problem. Go ahead, and solve it. Whatever it is, deal with what you have.”
DAVID COTE: That’s pretty good. I like that.
CHARLES MIZRAHI: He was recently on the show. And he said: “Grow where you’re planted.” Take anything around you and just make it work. If you bitch about it, you’re going to end up in the same spot, and nothing will change. So, I think that’s what you did.
DAVID COTE: To that point, there were two or three times during the course of my career when I ended up having to take a job that I did not want and was not consistent with what I thought my goals were going to be. One of them was a job that I got. And three months later, they cut the job in half. I thought: “This is a killer.” But you still find a way to differentiate, grow and have people notice your outperformance and say: “Maybe we ought to give this guy another opportunity.” So, I like that phrase. I think that’s a good one.
CHARLES MIZRAHI: Grow where you’re planted. I tell my kids that. I tell my boys that, and it always served me well. In fact, when I spoke to Captain Wes Gray, who runs his firm now, I told him: “I’ve got to thank you. Eleven years ago, you told me that, and it made all the difference.”
DAVID COTE: That’s a good one.
CHARLES MIZRAHI: Yeah. Look, they’re Marines, man. They know what they’re doing. I like what you wrote. I looked in the back of the book, and I’m going to read this aloud. This this should be the subhead. Someone should write this and put on a Post-it. “I got my life together to illustrate a simple but underappreciated fact. Individuals and groups can push themselves much further than they think.”
DAVID COTE: Mm hmm. Boy, is that true. That is so true. The one that I used to use when people in the organization would maintain that they couldn’t or didn’t have the capability…
DAVID COTE: I’d point to stories about plane crashes in Brazil and this 17-year-old girl, who was not even in the condition, managed to walk 40 miles out of the jungle. And all of a sudden, she showed up in a city, and everybody was wondering: “How did she do it?”
DAVID COTE: The fact was, there was a lot more to her than she or anybody else ever realized. And organizations are the same way. Organizations and people are very self-limiting. Good leadership pushes them beyond that — not beyond what they’re truly capable of. That’s one of the tricks of leadership: being able to figure out where the line is. But they’re always capable of doing a lot more than they tend to think they can. Now, I know I’m saying “all.” There are always people who are exceptions. But in general, I’d say that’s very true.
CHARLES MIZRAHI: Think about what we went through last year during COVID-19. Did you ever think that you could work [from home], and the business could be successful and decentralized? People worked out of their homes and basements with their kids and pets. And the economy continued. Life went on. Who would have thought that just three months before?
CHARLES MIZRAHI: OK, let’s start moving through your business career. Your business career is absolutely fascinating. There was one part where I was laughing when I saw it. You worked at GE’s silicone business in 1994, which you inherited there. You put yourself together and said: “I’m changing my life. I have to make more money. I have a kid here. I have a wife. I have cold seeping in through the windows.” What’s your first job after that? What do you do?
DAVID COTE: My first job in silicones?
CHARLES MIZRAHI: Way before that — when you want to start putting your life together. You say: “I could do so much more.” Where do you go? You don’t end up as the CEO of Honeywell in a day. You go through a career path. So, what’s your first big job after you put everything together?
DAVID COTE: I was an hourly employee — on the night shift — working a punch press at GE.
CHARLES MIZRAHI: Dave, could you explain to people what a punch press is? We have many viewers who have no idea what a punch press is.
DAVID COTE: Yep. It’s where you take a small piece of metal, put it in the machine, hit two buttons and this press comes down from the top that does something to the metal, which can compress or cut it. And then, you’d take that piece of metal out and put it in a basket. I would do that from 3,000 to 7,000 times a night. It’s one of the reasons why my hearing is not always good. We didn’t have ear protection then. I’d go home with headaches from the noise of that thing.
CHARLES MIZRAHI: OK, so you weren’t splitting the atom here. You were doing pretty manual labor — right at the bottom. Hourly labor. That’s the point I want to get across. You had no cushy job.
DAVID COTE: No, no. Far from it. Interestingly, while I can’t say that I liked the job, I ended up learning a lot there that made me a more successful leader overall. I had a better understanding of what it was like for people who were working like that. That’s what their life is. How do they look at things?
DAVID COTE: It’s one of the reasons why I used to tell my own folks: “When you go to a plant and talk to the people there, don’t spend all your time talking about the total company or stock price. They really don’t care. It doesn’t matter to them. What they really want to know is: ‘Am I going to have a job here five years from now?’ And: ‘What can I do to make sure that I increase the chances that I’ll have a job?’ Recognize that it’s a different perspective.”
DAVID COTE: I can remember that they had this company-wide effort to focus on quality. Remember, I’m an hourly employee, but I’m also going to college. So, I spent a bunch of time trying to understand this quality board. Whenever I had a break, I figured: “OK, this is a way for me to learn.” So, I keep reading this board called: “Customer Squawks.” I did this for a couple of nights. After four times, I spent 40 minutes looking at the thing.
DAVID COTE: Finally, a foreman was walking by. And I said: “Hey. Excuse me, could you tell me how to read this thing? How do I know what it’s saying?” And he said: “Nobody understands that thing. That’s just some of the stupid money that the quality guys spent to make it look like they were doing something.” Well, that’s the sort of thing that, as a leader, I became a lot more sensitive to. I’d say: “Whatever we do, make sure it resonates with the people that we’re trying to inform — in a way that makes sense to them.”
DAVID COTE: So, I graduated and was still an hourly employee. I did not have an exempt job at that point because it was a recession. It was 1976. We were still dealing with the OPEC recession. [There weren’t] a lot of jobs around. I only had two interviews — neither of which I got. I actually wanted to be a security analyst. It’s what I thought would be fun to do. This accounts payable job was posted, and my lead hand told me: “Why don’t you apply for it?” I remember saying: “Well, I don’t know anything about accounts payable.” And he said: “You’ve got a college diploma, for God’s sake. Why don’t you at least apply?” And I remember thinking: “God, he’s right. Why am I putting this limit on myself? I should be trying to grab the opportunities that I can since I’m trying to advance my family.”
DAVID COTE: So, I applied and came to find out it was something called a “bag job” — meaning they already knew who was going to get it. They were just going through the posting process so that it looked like they’d done everything right. It ended up going through three separate interviews. What they ended up doing was saying: “OK, this other person who we’d allocated the job to gets it. And this guy goes to Lynn, Massachusetts as an internal auditor in the jet engine business.”
DAVID COTE: I knew nothing about auditing or anything like that, but it was a great place to learn. I worked with a good bunch of people. And like I said, my boss took an interest in me. I was an experiment for him. They’d always wondered if a manufacturing guy could become a financial auditor. Would that give them a different perspective on things? So, I was a bit of an experiment for them, and it worked. Everything worked out great.
DAVID COTE: From there, I went on to GE’s corporate audit staff, where I was only home about 60 days a year. Of the five years, two of them were spent outside the country. It was 80 to 100-hour work weeks. It was pretty intense. But man, did I learn a lot. In terms of advancing and learning about countries, people and different kinds of businesses, it unbelievably accelerated my learning. It opened my mind up to what was possible out there.
CHARLES MIZRAHI: Yeah, and it’s your attitude. Anyone else would have taken that job — or any of those jobs — and said: “What am I punching metal for? What am I going to get out of this? Let me look for something else.” But you basically had your antennas up. You had the attitude of: “Let me learn as much as I can, keep my ears open and opportunity will find me.”
DAVID COTE: And it did after I got off that audit staff. Just to get this back to the point about how you treat people, I ended up getting a job. And a year after I had it, it consolidated with another business. My job — and all the others — disappeared. There weren’t a lot of jobs in the company at the time because we were just getting through the ramifications of another recession.
DAVID COTE: There were no jobs. I was sending resumes out and hoping to get a job somewhere. All of the sudden, I got a call from the person who was the finance guy and running finance HR. He gives me a call and says: “Dave, there’s only one job the company opened at your level.” This is GE. So, it shows you how tight it was. And he said: “It’s yours if you want it.”
DAVID COTE: Obviously, given the alternative, which was no job at all, it looked pretty good. And I said: “That’s great, Denny. I appreciate it. But why me?” I thought he was going to say: “You need special auditing skills” or something like that. But he said: “Remember when you audited me? Well, you wrote me up more than anybody had in my entire career. But you were nice about it. I ended up liking you when the whole thing was done. And I thought, ‘That’s worth something.'”
DAVID COTE: That really stuck with me. It was kind of like: “OK, you can do your job. You don’t have to be a twit about it.” You can be a regular person. I have to say, that’s a big teaching from my mom and dad. That really stuck with me. You were nice about it. You knew what you were doing. You wrote me up more than anybody else, but you were nice about it. It makes a difference.
CHARLES MIZRAHI: It’s amazing you say that because I remember listening to Charlie Munger talking. He said: “When you do positive things in this world, there’s an invisible force that pushes you forward. Do negative things, and it’ll push your back.”
CHARLES MIZRAHI: About a year ago, I’m walking home with a friend of mine. He says: “I’m looking for a CEO. It’s a $300,000 job. And I was thinking about so-and-so.” Now, I had a dealing with Mr. So-and-So years ago. And it wasn’t anything major on business. But the way the guy acted was not nice. I wouldn’t want him as a brother-in-law.
CHARLES MIZRAHI: I said: “He’s not for me, but interview him.” He says: “Nope. This guy just lost a $300,000 job.” He didn’t know how much it cost by acting a little terrible to certain people. And it hit me that there are so many things you go through life. I was like: “Call up Cody. He’s a nice guy.” And you never knew what that was. You held the door open for someone. Or the flip side: “Mizrahi — he’s a loudmouth.” You never know those opportunities you could have had — or lost by not being a nice person. And you’ll never see him show up in the boxcar.
DAVID COTE: For me, it gets back to the [idea] that character matters. If you have the opportunity to do somebody a favor, and it’s not that hard for you to do, do it. I remember this guy. I had a seven-mile drive home. This other guy, who was my boss at the time, had a six-mile drive home. And I was stuck for a ride one day and said: “Hey, would you mind giving me a ride home?” And he said: “Well, that’s a mile out of my way, Dave.” I looked at him and said: “Well, that’s true. If that’s how you want to look at it, I guess that’s true.”
DAVID COTE: Instead, I had to scramble and try to find somebody who’d be willing to go more than that out of their way to allow me to get home. And I knew what happened to that guy and his career. He didn’t end up doing so well. He was a smart enough guy, but he didn’t do quite so well.
CHARLES MIZRAHI: You know, my litmus test is when you ask someone: Could you do me a favor? There are usually three responses. The first response is the great one: “Absolutely!” They don’t even know what it is. The second one is: “It depends.” And the third one is: “No.” So, I try to stay away from two of those.
CHARLES MIZRAHI: And I respond the same way. [They ask:] “Could you do me a favor?” [And I say:] “Sure, what is it?” You see those kinds of people who say: “You’re taking me a mile out of my way.” And I think it gives you insight. I don’t care how smart a person is or how gifted they are. It speaks to the attitude that they’re going to bring to the game. Those aren’t the players I want to be around.
DAVID COTE: Yep. Character matters.
CHARLES MIZRAHI: The people on my team … I can ask them anything at 3:00 in the morning, and I just see two words: “On it.” That’s all you need to say: “On it.” Those are the people. You have to go through 100 of them to find one. And it’s worth it. It’s worth everything.
DAVID COTE: I’m impressed that you write an email at 3:00 a.m.
CHARLES MIZRAHI: I have one analyst who I send stuff to at 3:30 a.m. because sometimes I’m not sleeping. He responds in a half hour. And I say: “You don’t have to.” Our HR person said: “Please don’t do those kinds of things. You’re not allowed to.” And I always write: “Please respond in the morning hours.” And a half hour later…
CHARLES MIZRAHI: All right. So, you work at GE. And I want to just point out one thing that blew me away. “When my boss introduced me to the team, he casually asked the environmental leader how the fire at the site’s underground landfill was going. The environmental leader responded: ‘It was fine.’ I asked how long the fire had been raging. He said: ‘Four months.’ I thought it was a joke. It wasn’t. It would take us four more months to put the fire out.” So, you never got into situations where the table was set. You went into blood and gunk [that was] up to your knees each time.
DAVID COTE: Well, it’s funny. I’ve observed that about my own career and said: “Jeez.” I didn’t advance by always going into the high-profile, big-image jobs. And I don’t know what it was — my background or something else — but it was almost like: “OK, well, Dave did well with this. This one is in trouble anyway. Nobody really wants the job. Let’s give it to Dave.” And that’s what it felt like. I never got the high-profile, this-is-where-the-people-who-are-really-going-to-take-off-are-going-to-go kind of job.
DAVID COTE: But it also created a heck of a lot of learning for me. When you’re dealing with those troublesome situations, you learn a lot. You can’t rely on what people are saying. You have to figure things out. I always used to look at it and say: If I’m going to fail, I’m going to fail differently.” So, I’m not just going to do what everybody did before. I’m going to figure out what I have to do differently. And hopefully, it’ll work. By and large, it did.
CHARLES MIZRAHI: You talk about pushing yourself and your team. You talk about siloxane production. You were in a situation where you would have to shut down production entirely because this siloxane was required for all chemical processes in the plant. All right. Boom, boom. You have a whole bunch of things there. You didn’t take “no” for an answer. You said: “It’s 5 p.m. Come back to me the next day with how we’re going to handle this problem.” And your team came back and did what?
DAVID COTE: I had only been in the job three weeks. My manufacturing leader comes in and says: We have to shut down siloxane production because we have an air permit issue. It’ll shut the entire plant down for two weeks.” And like you said, that’s the basic chemical used for all the processes. So, if you don’t make that, then you’re not making anything.
DAVID COTE: I was livid. I thought: I can’t believe this. I’ve only been here three weeks and I’m going to have to call my boss and tell him what a problem it is. I couldn’t think of what to do. So, I just got angry and said: “You, the environmental person and an engineer — you guys get together. And by tomorrow at 5 p.m., I want a different answer than what you gave me.”
DAVID COTE: I drove home, ticked off, and spent the whole night thinking: “I have to call my boss tomorrow and tell him what’s going to have to happen.” And the manufacturing guy meets me at 8 a.m. in my office — nine hours before he had to. And he said: “We solved the problem!” I said: “What?” And he said: “Yeah, we solved the problem. Not only that, but it’s an annual saving of $100,000.”
DAVID COTE: I was incredulous. I was shaking my head and saying: “What happened?” So, he explained it all. And I said: “Why didn’t you just do this in the first place?” Then, he said: “Well, nobody ever asked us to before.” OK, there’s another insight into pushing people beyond what they think they’re capable of and having them work together.
DAVID COTE: By working together, they were able to come up with a solution instead of this poor schlub just sitting there by himself trying to figure it out. He got together with a team. They bounced ideas off each other. They started thinking about things in a different way. And they ended up with a much better solution. You can tell what an impact it had on me. That happened 25 years ago, and it’s still fresh in my mind.
CHARLES MIZRAHI: When I was reading more about you through your book and other interviews you did — you have several of them on YouTube. You spoke at Columbia’s business school. It was an hour-plus lecture. I highly recommend watching that. It’s really great stuff. It seems like you went through life with a notepad. And every time you were faced with a challenge, you found a solution, and you chalked it up. You wrote it down. You remembered it. And next time it came up, you already had the model.
DAVID COTE: Yeah, I did try to do that, of course. But importantly, I tried to watch what other people did. I would look at the decisions that my boss made and try to think through: “Would I have done the same thing? Would I have done something differently? How did it turn out? Was he right? Was he wrong?”
DAVID COTE: It’s the same thing if you read about other companies and some of the things they do. Did it work? Did it not work? You can learn a lot. Yogi must have said something like that. I think it was: “You can learn a lot by watching.” And it’s true. Just look at what other people have done or what they are doing — the decisions they’re making.
DAVID COTE: It was the same thing with whomever I was working for. I would always look at what they were doing and why. I would try to understand it and why they made the decision the way they did. And did it work? You can learn a lot by doing that.
CHARLES MIZRAHI: You’re living proof of that. Let’s fast forward. Honeywell just finished a merger. Was it a merger or an acquisition?
DAVID COTE: It was an acquisition of Honeywell by AlliedSignal. It kept the Honeywell name and went to the AlliedSignal headquarters in New Jersey.
CHARLES MIZRAHI: OK, so you have that. They’re looking to turn the company around. The board hires you. Why was everyone betting against you? I shouldn’t say everyone was betting against you. Let me rephrase. CNBC’s Joe Kernan basically said: “This guy doesn’t have the right stuff.” I think The Wall Street Journal was also saying that you didn’t have the right stuff. I remember there were a couple of editorials about Honeywell. It wasn’t doing well. You had environmental problems.
DAVID COTE: You do your homework really well, Charles!
CHARLES MIZRAHI: I’m speaking to you. I had better be. I better do my homework.
DAVID COTE: One of my learnings has been that all those negative things that people said back at the beginning: they completely forget later on.
CHARLES MIZRAHI: Oh, 100%.
DAVID COTE: It was about six years into my tenure. I met with The Wall Street Journal editorial board. And the person who was the leader of it at the time looked at me and said: “I went back and read all the stuff that we wrote about you. We were not kind. And it wasn’t right.”
CHARLES MIZRAHI: They were downright nasty. You could look them up on the web. They were being nasty when they didn’t have to be nasty. They could disagree with what you did, but they didn’t have to be personal. They were questioning a lot.
DAVID COTE: A lot of it ended up being along the lines of what was said on CNBC, which was: “We’re not sure this company can be turned around. And if it can, we’re not sure that this is the guy who can do it. He didn’t make it to the first tier of the GE succession race, and he wasn’t even the first choice to run Honeywell” — both of which were true.
CHARLES MIZRAHI: But it doesn’t matter. You frame it that way. It’s like: “The company can’t be turned around. And we got a guy who I guarantee you will not turn it around. So, we’ve got blank both ends of the stick. You couldn’t have picked a worse situation.” That’s pretty nasty. I don’t know. Maybe I have thin skin coming from New York. I don’t know now.
DAVID COTE: It was pretty uncomfortable in the beginning — whether it was analysts, reporters or anything else. And this is why I still give a lot of credit, if I can, to Jim Cramer. I had only been in the job about a year at that point. And I was getting beaten up because I’d taken reserves for environmental asbestos, started funding the pension and trying to do all these things.
DAVID COTE: Jim Cramer was the first guy to come out publicly and say: “Finally, somebody is doing the right things at Honeywell. This is a story to watch.” And it still took a year or two for analysts to slowly start coming on board. But I’ve always given Jim all kinds of credit because of his ability to think independently about it.
CHARLES MIZRAHI: You know, you look back at that. I think Honeywell had a 30- or 40-year liability on this that they never solved with the environmental issues — especially in Baltimore.
DAVID COTE: Yeah, we had a bunch of them.
CHARLES MIZRAHI: It was terrible. I remember you looked at Honeywell — just as an investment — and there were so many live wires that could explode at any time. There were so many things. There were so many fires. Literally. Forget about the environment, but the negative reaction. It’s was like Honeywell was trying to piss off as many people as it could by constantly doing the wrong thing. Dave, am I right or wrong on that?
DAVID COTE: It was a skillset, yes.
CHARLES MIZRAHI: It had to piss off as many people as possible. So, you come in — and I think this is a really important story for people to hear. You didn’t do the financially right thing. That’s not what was driving you because it would take a while for that to even filter down to the income statement. And even then, it might not have ever filtered down. So, you did the right thing, and everything worked for you. Could you share that with us — especially with Baltimore?
DAVID COTE: Yeah. To your point, there were a number of things we had to solve. The first one was scrubbing the financial foundation to get something that was buildable. When more than 30% of your earnings are coming from one-time items, accounting transactions and one-time deals, you can’t grow from that. You’ve got no base. It’s the same thing with the asbestos liability, pension fund and investments for the long term.
DAVID COTE: If you haven’t done any of this stuff, then you’re never going to get anywhere. You have to scrub it down to the foundation and make sure that you’re building on something solid. I’d been given the advice, by my predecessor, that the only way to handle the environmental was to fight it in court until you lost and then pay.
DAVID COTE: I remember sitting there and thinking: “I’m a product of the 1960s, and it’s not exactly how I want to think about myself. This is a ticking time bomb. All these things get more expensive over time — especially if you’re adversarial. Do I want my employees to feel like they’re a part of a company that skirts issues like this and tries to be clever and get by it?” And I thought: “No. This is not who I want to be.” This is getting back to deciding who you want to be. That’s not who I am. I don’t want to be sitting here, 15 years later, saying: “I can pass the same problems on to my successor with that same silly strategy.”
DAVID COTE: So, I took a different tack and hired a very good environmental lawyer — two of them, actually. I said: “OK, I want to resolve all of our environmental liabilities.” And if you have a 100-year-old chemical company — which we did with AlliedChemical — then you’ve got environmental issues. The laws changed, and that changed all the liability. You can argue about whether the laws are correct or not, but it is what it is.
DAVID COTE: So, I told them: “OK, let’s look at this as a 10-year project to get this all resolved. I’m going to assume that it’ll cost me $2 billion.” And I had no idea. But that seemed like an awful lot of money. Our market cap was $20 or $22 billion at the time. I thought I was making a pretty big commitment. Well, it actually took us 15 years and cost me $3.5 billion.
CHARLES MIZRAHI: Hang on. Don’t tell us the results yet. I want to frame this properly. You spent $3.5 billion, which didn’t go into anything to increase shareholder value. You didn’t build plants, there were no capital expenditures or a new product line — nothing. This was $3.5 billion to make up for past mistakes that compounded. So, fiscally, this was not the smartest thing to do — especially when that’s 10% to 15% of your market cap. You were pissing money out the window. You could have done much better fighting in a court, settling for $1 billion and called yourself a winner. Agreed?
DAVID COTE: Yeah, I’d say that’s probably true.
CHARLES MIZRAHI: OK, good.
DAVID COTE: I viewed it differently, though. I thought that if I really believed this was the right thing to do for the long-term value of the company — getting back to Winning Now, Winning Later — I thought: “OK, yeah, it sucks. I wish I didn’t have to deal with this, but I do. I can’t turn a blind eye to it. I need to address it.”
DAVID COTE: We went from being vilified — federally and at the state level — to being the poster boys for how a big company should operate. Take Lake Onondaga in upstate New York. That was considered to be the most polluted lake in America because of the sewage that the city of Syracuse put in the water — plus all the historic issues that we had.
DAVID COTE: By working with Syracuse, putting in hundreds of millions of dollars and working with the federal government, we developed a plan. And now, you can swim in the lake. It’s not like you can swim. Make sure you take a shower afterwards. The water is clean. Our own folks swim in it. And it is a huge success story.
DAVID COTE: It was the same thing with Baltimore’s harbor. We worked cooperatively with the government, state, federal and county to arrive at a solution that cleaned it all up so they could actually build on these sites again. It was safe for people.
DAVID COTE: We ended up completely turning our image around. A new one came up that we didn’t even know existed. There was a park where kids played in Maryland that they discovered had arsenic in the soil. Now, it wasn’t going to kill anybody. But nobody wants their kids playing in a park that has arsenic in it. So, the state fully expected that we were going to do the big-company thing and fight it. And instead, we told him immediately: “Sorry, we didn’t even know it was there. We’ll remediate the whole thing.”
DAVID COTE: Within a year, we fixed that entire park — addressed it so that everything was removed and new soil was brought in. Kids could safely play in it again. And I had a U.S. Senator pull me aside to say: “You guys are a class act. If there’s ever anything I can do for Honeywell, please let me know. You guys act the way a big company should.” Now, I wasn’t looking for that in the beginning. We were looking to say: “OK, this has our name on it. This is not how we want to be treated or thought about.” We ended up in a much better place than I think anybody ever expected.
DAVID COTE: And 15 years later, it was kind of nice, after starting where we did, to be getting awards — not just for financial performance but environmental performance from the Audubon Society. That’s a nice change, and it made employees feel better. I have to say, when I first started it, my environmental and PR folks wanted us to be very public about what we were doing and accomplishing. And I said: “No, absolutely not. I’m scared to death of attracting the crazies.” You get people who have nothing to do but yell and scream. And whatever you’re doing, it’s not good enough because you’re a big company. So, by definition, you’re bad. And I said: “Nope. We’ll keep this under the radar until it’s just about done.”
DAVID COTE: Well, it was in the 11th year of my 15 years when I finally said: “OK. We can be more public about this.” I was amazed at the positive reaction — especially from employees — because they didn’t know that we were doing all this. I kept it quiet. I didn’t want it showing up in the press and attracting the crazies. And man, what it did to make employees feel better about the company … “You mean, we can have a stock price that’s over a $100, and we’ve done this sort of thing? I can go home and be proud of my company with my kids.” It’s very gratifying.
CHARLES MIZRAHI: Yeah, and when capitalism’s done the right way, the repercussions are huge — to the point where that guy is playing with his kid and feels happy to wake up every morning and come down to work.
DAVID COTE: Yep. That is exactly right. I have always said that 90% of people want to go home at night and be able to brag to their spouses and kids about where they work and what they did that day. They want to be proud of what they’re associated with, and they want to be able to say they’re making a difference. They’re not just a pair of hands [that are] getting repetitive tasks done hour by hour. They want to feel like they’re contributing. And that’s a big part of building a culture.
CHARLES MIZRAHI: Yeah, absolutely. Two more things, Dave, and we’ll cut it there. I could speak to you for the next 10 hours, man. Everything that you speak about isn’t so hard to fathom. It doesn’t take spreadsheets to figure out. It’s common sense and deals with the greater good. At the same time, you’re showing how you can increase shareholder value, make your employees happier and more productive people and make the world a better place. It’s not pie in the sky, and it’s not something that’s impossible.
DAVID COTE: To build on your point, doing well gives you the resources to do all those other things that are important to society. And it’s one of the reasons why we want to have a very good economy. The better your economy is, the more resources you have to do things. And finally, while a lot of things are common sense, there’s an old saying that I’ve always liked to use a lot. It says that common sense is very uncommon. And boy, that is true.
CHARLES MIZRAHI: Just from the economic perspective, your team … I’m going to give you credit. But you had a brilliant bunch of people who are like-minded that you built around you to help you facilitate this. I’ve watched some of your interviews, and the first thing you do is point to your team and the people you work with. The modesty is staggering to me. So, you created over 2,500 millionaires in your company, who, in their 401(k)s had Honeywell stock. You increased the stock price by increasing the underlying worth of the business. So, pension plans made more money. You’ve created people who’ve invested alongside you, are extremely wealthy and have a better quality of life — just in your small neck of the woods.
DAVID COTE: Yeah, I’ve always liked being able to say that whether they were investors, employees, customers or suppliers, I wanted everybody to be able to say that they did very well and made a lot of money while they were associated with me. One of the statistics that I’m most proud of is that of our 2,500 401(k) millionaires, 95% of them are below what we would call the “executive level.” And the lowest-paid person in that bunch made $43,000 a year and became a 401(k) millionaire because they steadily maxed out in terms of their own contribution. All of our contribution was in stock, and they left it all in Honeywell stock. And as Honeywell continues to prosper and do well, this guy who was making $43,000 a year became a millionaire! Man, that makes me feel good.
CHARLES MIZRAHI: Yeah, you think: “OK, he’s a millionaire, but the guy is able to put his kids through school. He’s able to help his sick parents. He’s able to have a better retirement. The quality of life that this afforded him compounds. It’s amazing. The last thing I want to ask you this: When investing in any company, I look at three things. I look at the industry. I want to make sure that it’s an industry with a tailwind. Buffett owned The Washington Post. No matter how brilliant a businessman you are, you can’t fight a headwind. And OK, newspapers. The second thing I look at is the CEO. I want a CEO with a track record. I want a CEO who has increased shareholder value. And lastly, I want to buy at a bargain price.
CHARLES MIZRAHI: I want you to speak for a moment. When you look at other companies — as an investor and other projects you do — how important — based on your experience and impact — is finding the right manager?
DAVID COTE: Oh, it’s a huge deal. Building on your point, I had this phrase: “great positions in good industries.” And I still look at it that way — even when I did a SPAC and ended up combining with a company called Vertiv. I did it because it had a great position in a good industry that focused on data centers. And it has done very well. We went out at $10, and a year and a half later, we’re at $28 and performing very well. So, that matters.
DAVID COTE: The second one is a bigger deal than it gets credit for. I think too many of these comp-rating and institutional analysis kinds of companies look at things and figure that leaders are light bulbs. You unscrew one and put in another. It’s 100 watts, and you get 100 watts. Well, like anything else, there’s a standard distribution to the S&P 500 CEO leaders. Picking the ones who are at the far end of the performance tail makes a difference. Figure out who those people are. If you have a great position in a good industry, you can probably still overcome having an average leader. But if you can have what we call a “GPGI” — a great position in a good industry —combine it with a very good leader, and world’s your oyster.
DAVID COTE: I would say that even if you feel you have overpaid on that third item, you are still going to do very well. So, I would rank those criteria in exactly the order you did. First, make sure it’s GPGI. Second, make sure you’ve got a really good leader. And third, I wouldn’t worry about it too much. If you have those first two, you’re probably still going to do well.
DAVID COTE: I can remember talking to investors, and they’d say: “We love Honeywell. We’re just waiting for a dip, and then we’ll buy.” And I would say: “Unless there’s a recession, it ain’t gonna dip. I’m not going to let it do that. I know what’s coming. I know how we’re performing. I know how we’re investing. So, you’re never going to get your chance.” And there are people who, because they felt like it was already high, and they were going to wait for a good price, missed out on 600 of the 800 points of outperformance.
CHARLES MIZRAHI: Yeah, 100%. There’s that short-termism. How did you do the next quarter? You missed your next quarter. They’re out. It’s absolutely staggering. People who are paid to invest money over the long term look at it over 13 weeks. I’ve never understood that. They’re given long-term pension money, and they look at it every 13 weeks.
CHARLES MIZRAHI: If you owned a dry-cleaning store, would you sell the business the first day there was sunshine, no rain and no one was bringing in clothes? It makes no sense to me. To conclude our conversation — but I wish I could speak to you longer — most of the people who make these kinds of decisions never owned the business. They have never owned a lemonade stand. They never knew what it was like to go to sleep at night and try to figure out: “How am I going to make payroll?”
DAVID COTE: I think that’s an interesting perspective to have. I’d say that’s probably true. The other one that has kind of struck me is…
DAVID COTE: I’m fond of saying independent thinking is a lot rarer than being smart. You can find a lot of smart people. [They have] great educations, do well on tests and know why things are the way they are. But you don’t do a great job in investing just by knowing what everybody else is doing and how they’re analyzing things. You have to be able to look at things independently and ask: “OK, do I agree with what the consensus is or what the herd seems to be thinking?” That doesn’t mean the herd is always wrong, but it means that if you can figure out those areas where the herd is incorrect — and you do something differently — you’ll do very well.
DAVID COTE: That ability to think independently — especially with some of the schooling that gets done — is not so easy to come by. It’s a skill that you have to develop. I credit my mom and dad. Some people think I have it to a fault. I would credit my mom and dad — who were both very independent thinkers. And my dad used to always say: “Be a leader, not a follower.” My mom used to always say: “Think for yourself.” That, while irritating to hear — the thousands of times you hear it as a kid — end up making a difference over time.
CHARLES MIZRAHI: Yeah, my father used to say that every time. I’d say: “But, Dad, everyone else was doing it.” And he said: “If everyone else was jumping off a bridge, would you jump off?” And it made sense! So, think differently.
DAVID COTE: That was the same phrase my mom used. And it’s really irritating when you keep hearing it. But of course, she kept hearing from me that all my friends were doing it, too.
CHARLES MIZRAHI: Makes sense. The name of the book is, Winning Now, Winning Later: How Companies Can Succeed in the Short Term While Investing for the Long Term. It’s written by Dave Cote. I’ve never, ever recommended a business book. I think this is probably one of the best business books I have ever read. It’s written by a guy who not only wrote it but succeeded in doing it. It’s example after example.
CHARLES MIZRAHI: And one more thing before I let you go. I don’t think I’m going to let you go yet. But what I liked about your book is that, unlike other business books, you gave a story, made a point and moved on. Your stories were not unrelated to the point. Your stories supported and made the point.
CHARLES MIZRAHI: And you know that when you read all these crappy business books, the stories are just there to be stories. They have nothing to do with the point. But every one of your stories made a point. I read this over the weekend, but I remember one of the stories that stuck out in my head was the environmental problem. And I said: “Wow. You do the right thing because it’s the right thing, and stuff will happen to you.”
DAVID COTE: Yeah, it really does. It may not seem like it sometimes. But if you do it, and you do it right, it does work. And I can say that we’re implementing the book at Vertiv. That is why I know it works. It’s not like it was unique to Honeywell. If you ask the Vertiv folks, they’ll say: “We’re doing what’s in the book.”
CHARLES MIZRAHI: Yeah, amazing. Dave, you did a great service to the business community — and not only the business community. This is the point, folks: You don’t have to be running a Fortune 500 company. If you own a hardware store on the corner, the lessons in here are just as applicable —if not more so — because it’s you. You don’t have to deal with 40 layers of management to get the message through. Get it through to your customer. Get it through to the people who are working around you. Change is not hard to come by. It actually works. And lo and behold, you’ll make more money and be happier.
DAVID COTE: Yep, that absolutely true. And thank you for saying that. There’s a tendency for people to think: “This is Fortune 500 CEO stuff.” I’ve tried to tell them: “No, this is stuff that whether you’re early or late in your career — or in a small business, big business or nonprofit. These are all principles that are applicable anywhere. It should cause you to think about how you’re doing things — and if you’re doing it the right way. Could you improve your — and your organization’s — performance overall by changing how you do some things?
CHARLES MIZRAHI: Yeah, that’s really great stuff. Dave, thanks so much. This has been a treat and my honor. I’m so privileged to have spent so much time with you. I wish I could spend more time with you. Get the book, folks. It’s well worth the $20. You’re going to gain a lot more out of it. And Dave, thanks so much. God bless, and continue doing great stuff.
DAVID COTE: Thank you kindly. And I’ve got to say, I really enjoyed it, Charles. You have a real knack for how you do this stuff. Thanks for making it so much fun.
CHARLES MIZRAHI: Thanks so much, Dave.
CHARLES MIZRAHI: Thanks for listening to this episode of The Charles Mizrahi Show. If you’re a new listener, welcome! If you’ve been listening for a while, we’re glad to have you back. Either way, we’d love to know what you think of the show. Please leave a review if you listen on Apple Podcasts. Reviews make it easier for others to find the show. You can also see the video of the interview on The Charles Mizrahi Show channel on YouTube.
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