‘Give people a license to say what is going wrong’

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Frank Blake, Home Depot's "accidental CEO," turned around the troubled company by restoring employee morale, outperforming the stock market and boosting its competitive edge.

Nine days ago, Blake stepped down as chief executive after leading the world’s largest home improvement retailer for nearly eight years. He’ll remain chairman of the board until early next year, which is when new CEO Craig Menear is expected to get that job, too.

Blake, 65, inherited a mess when he was picked to follow Bob Nardelli, who had alienated employees and investors alike, while leading the company astray by expanding into non-core businesses that Blake had to shed. Nardelli, a cost-cutter, also reduced the company’s focus on customer service — the key driver of its $80 billion business.

Blake talks about what he did to fix Georgia’s biggest company, including the mistakes he made and what he learned from them.

Q: You followed three larger than life leaders, co-founders Bernie Marcus and Arthur Blank, as well as Nardelli. When you took over, a Wall Street analyst called you the “accidental CEO.” That was partly because you had limited retail experience, partly because you had never been the top leader of a company and partly because your mild manner was in sharp contrast to your predecessors’ styles. Was the analyst right?

A: I wouldn't argue with the accidental CEO characterization.

Being CEO wasn’t on my radar. I never had a large number of people reporting to me and we have about 350,000 associates. It was a big jump.

Q: What did you learn while making that jump?

A: Bernie set out a pretty good road map and learnings for me that all proved to be true.

One of the toughest things in the job is having people speak candidly to you, telling you what’s going wrong. Having an effective listening process is important.

Q: What’s your process?

A: One of the things you learn is how to ask a question. In general, if you ask how things are going, employees will say OK.

It’s better to assume that there’s a problem, which gives license for people to be more forthright. You can start the question with, “Gee, I understand we’re having real problems with the new process we’re rolling out.” If you ask it that way, you can start to understand the issue.

You have to give people a license to say what is going wrong. Otherwise, everyone is smart enough to realize that their career isn’t made by identifying problems.

Listening is an active process and requires effort. Follow-up questions are important.

Q: What else did you learn?

A: The importance of employee recognition. That's the way you communicate best about what you're looking for.

We have been targeting customer service for improvement. All of our communication is about reinforcing that.

When you take the time to recognize someone and celebrate it in a public way, you more effectively communicate your goal than anything else you do. You have to be very intentional and consistent.

The most effective communications are stories. The most effective stories are personal. The most effective personal stories are linked to some sort of recognition and celebration.

Q: There’s also a negative aspect to personnel decisions, and you’ve made mistakes on that. What were they?

A: Unfortunately, when you look back at your mistakes, they are always on the people side.

The pace of change in business is so fast these days. Some managers may have been great in the past, but time has gone by them. You don’t want to make a change. You want to duck the decision, so you delay.

But the right answer is to have them move on.

When you make the change that you knew you had to make, you say, “Oh my God. What a difference.”

It’s not easy to fire someone. I remember the first person I fired in my career more than 30 years ago. It’s the worst feeling.

Bonus questions

Q: You succeeded by getting Home Depot to return to basics — improving the performance of your existing stores. You ended your experiment in China and have had little store growth anywhere. Why?

A: We have about 2,000 stores in the U.S., slightly under 200 in Canada and slightly over 100 in Mexico.

While going overseas is interesting, and it’s not like we didn’t try China, the dominant value driver is improving the U.S. business.

The co-founders of the company built lots of stores in the U.S. really, really fast. We’ve pretty much saturated North America with stores.

There are two paths going forward. One is trying to do the same thing in another world. The other is to maximize what we have now.

It’s the right time to optimize the existing stores and drive the sales per square foot. Let’s think about the productivity of each store and invest in that. Last year, our U.S. business grew $5 billion by focusing on our core asset.

Q: What’s the lesson for other leaders in completely different businesses?

A: Every company needs to understand what it's passionate about. We identified customer service.

Every company needs to identify what it wants to be best in the world at. We said product authority for home improvement.

Every company needs to understand what drives its economic engine. The big change for us was saying we’ve got to shift. Our economic engine is not going to be driven by new stores, but by increased productivity within our existing stores.

Q: What about Internet sales? Weren’t you late getting started?

A: If I had the benefit of 20-20 hindsight, we would have made more of an investment in the Internet earlier.

I feel good about where we are now, but we’ve been playing catch-up for a few years. It’s like everything else in business, it’s a question of resources and people.

Q: Two months ago, you had a data breach affecting more than 50 million customers. What mistake did you make and what did you learn?

A: We thought we were in pretty good shape. We were implementing chip-and-pin technology, phasing it in across the stores, and we had a plan for data encryption beyond that. We weren't fast enough.

But the big learning is — we’ve been thinking about data breaches largely through detection, such as finding malware. But what we learned is that your odds of detection are not that high. The mode of attack right now is to replicate your system — to make it seem that nothing has changed. The detection systems are not catching that.

An analogy for this wrong thinking is that if we were a bank, we were thinking about a rock going through the window from the outside, instead of a corrupt teller on the inside.

The more sophisticated level of data security now is looking across deeper patterns of behavior within your system. You have to uncover the normal looking activity that is not normal. The sensitivity of the system must be more sophisticated. We’re putting in more resources for that now.

Q: What was the most fulfilling part of your job?

A: Creating economic opportunity for the associates that work here.

The great thing about Home Depot and retail is that you can start on the floor of the store and advance. Our southern division president started as a part-time cashier. She now runs a division of about $20 billion. Our northern and western division heads started as hourly associates.

The trajectory has to be starting at $10 per hour, but seeing the assistant store manager making $65,000 and the store manager making $110,000 or $120,000, and saying, “Those are jobs within my reach.”

The most rewarding part of my job was having dinners with a group of hourly associates. They were about — how do I move my life forward?

Q: How are you going to move your life forward? How long will you stay as chairman?

A: It will be a limited period of time, to the end of this fiscal year (in January), certainly no longer than to the annual meeting (in May). But I would not anticipate far beyond the end of this fiscal year.

Q: Have any plans after that?

A: Nope. I haven't figured that out.