CEO EXCHANGE #501 – FLORIDA

CEO Exchange Episode #503

CEO EXCHANGE PROGRAM #503 TRANSCRIPT

“BIGGER BANG FOR THE BUCK: Bringing Value to Middle America” FEATURING CLARENCE OTIS, JR. and MACKEY J. McDONALD

TAPED ON SEPTEMBER 28, 2006 AT THE ROSEN COLLEGE OF HOSPITALITY MANAGEMENT, UNIVERSITY OF CENTRAL FLORIDA

TEASE These days casual is cool but cool customers don’t want to spend a

fortune to eat well, and look good. And they don’t have to, thanks to our guests, who head up the leading casual dining chain and the largest apparel maker in the world. From the University of Central Florida’s Rosen School of Hospitality Management in Orlando, Clarence Otis, Jr. of Darden Restaurants. “We are affordable on an every day basis, serving every day people.” And Mackey McDonald of VF Corporation. “The low rise trend was not appropriate for every woman.” Coming up next on CEO Exchange.

SPONSOR SPOT Funding for CEO Exchange is provided by SHRM (the Society for

Human Resource Management). In today’s knowledge-based economy, the nature of work has changed. Once driven by materials and machines, success is now powered by people. Competitive strength is no longer only tied to physical resources, but upon workforce talent. SHRM believes that the power of people is not a cost to be managed, but an asset to be leveraged.

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OPEN One world, many ideas, inspiring the next generation, shaping

trends and forging the future, ideas that change the way we live. CEO Exchange. And now your host, Jeff Greenfield.

JEFF GREENFIELD Thank you. Welcome to CEO Exchange and I am Jeff Greenfield.

Question. What’s in a name? If you were asked, if you’ve ever eaten at a Darden Restaurant, you might likely say no. Even if you were here with us at the Darden Auditorium on the campus of the University of Central Florida’s Rosen College of Hospitality Management. Okay? Have you ever worn a piece of VF clothes? No? That’s your final answer? How about Red Lobster or Olive Garden, which helped make Darden Restaurants the largest publicly traded casual dining restaurant chain in the world? Ever hear of Wrangler, Lee jeans, Nautica, North Face, Vanity Fair lingerie? They’re all part of VF, the biggest apparel maker in the world. And both companies target the same types of customers. Middle class shoppers and diners, who are looking for value.

Mackey McDonald was raised in a southern Baptist family, earned

his stripes during the Vietnam War. Setting out to run a business by age 40, he found the apparel industry to be a pretty good fit, and we’ll be talking to Mackey McDonald, Chairman and CEO of VF Corporation in just a few minutes. But first, an American storybook success.

Born in Mississippi, Clarence Otis, Jr., son of a janitor, grew up in

the troubled Watts neighborhood of Los Angeles. He credits his mother for the discipline and focus that led him to scholarships from blue chip Williams College and Stanford Law School. He pursued careers in law and investment banking, when Darden Restaurants came calling, and a decade later, we want to know if he’s found the recipe for success. So please welcome the Chairman and CEO of Darden Restaurants, Clarence Otis, Jr. (applause)

Welcome. Good to see you. I want to take you back to your first

experience in the restaurant business you now run. I think you were making $3.50 an hour at a restaurant in Los Angeles Airport?

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CLARENCE OTIS, JR. That’s right. JEFF GREENFIELD I’ve heard it said that you can tell, people can tell after a while,

within seconds, whether they’re in for a good experience with their customers or a bad one. Is that true?

CLARENCE OTIS, JR. That’s absolutely true, Jeff. That was my experience and it was

interesting, cause in an airport restaurant, generally people are pretty harried, less harried then they are today. Uh, but you could tell pretty quickly.

JEFF GREENFIELD So you think you developed pretty good radar in being able to

judge whether people were being straight with you? Whether people were at heart good or maybe not so good?

CLARENCE OTIS, JR. I think being able to discern those kinds of things is clearly

important, and I’ve always tried hard to be able to put myself in other people’s shoes and see the world through their eyes, and so, even with people who might give you a bad time; if you look at it from their perspective and understand what’s agitating them, I think you can understand them, respond to that constructively. So clearly, it helped.

JEFF GREENFIELD One other thing. You’re now at a somewhat different place on the

food chain, you should pardon the expression, in your business. (laughter) But when you think about the waiters, the busboys, the cooks, does some of your – do some of the policies at Darden Restaurant reflect the fact that you were there at one time?

CLARENCE OTIS, JR. I think they reflect the fact that the leadership of Darden over time,

has been there. We’ve been in those shoes. We understand all the people in the restaurants, even as we’ve grown up in the industry, and gotten more remote. We work hard to continue to try to understand where the people in the restaurants are coming from,

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because it’s very important to do that, to know how to inspire and motivate those folks.

JEFF GREENFIELD Okay, so how do you get from Watts to the corner office of a

Fortune 500 company? We’re here with a look at Clarence Otis, Jr., and Darden Restaurants, is CEO Exchange correspondent, Kevin Smith.

CLARENCE OTIS, JR. PACKAGE KEVIN SMITH “Now is this the one you’re serving right now or are you

experimenting with something new?” Finding out what’s cooking is an important part of the CEOs job at Darden Restaurants. And the menu is not all that’s changed around here. Clarence Otis, Jr. became CEO in 2004, when Joe Lee retired after 30 years. “But it is a good flavor if done right.” “Yes it is.” Now Darden’s slowly rolling out its Seasons 52 Restaurant. Testing recipes at the company’s Orlando campus.

So it’s kind of a healthy eating concept or at least more so than

perhaps -- “Well we say fresh, because when you say healthy to people, that has connotations that are not consistent with delicious. And this is delicious food that is also though very healthful.”

Darden’s best known restaurant chains, Red Lobster and Olive

Garden, have both shown strong growth, the past few years. They target Darden’s core customers; middle income folks looking for good value when they eat out. “One of the key things for casual dining restaurants is to make sure that we are affordable on an every day basis, to every day people.” Darden also owns two smaller chains, Bahama Breeze and Smokey Bones, which have been losing customers and need attention.

DEAN FOUST At some point in the coming years, the growth rate of Olive

Garden and Red Lobster are going to start to slow down. Clarence’s biggest challenge is finding a new vehicle for growth for the company.

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KEVIN SMITH Clarence Otis, Jr. started life far from the executive suites.

Growing up in the poor Watts community of Los Angeles after the family moved there from Mississippi. He was 9 years old when the infamous Watts Riots erupted in 1965. Otis credits his parents for emphasizing school work.

DEAN FOUST Clarence told me there was a lot of pressure to join a gang right

down the street from his house, was the housing projects, where the Cripts were formed.

KEVIN SMITH His top grades led him to elite Williams College in Massachusetts,

then Stanford Law School. Otis became a corporate lawyer on Wall Street, then an investment banker, when a head hunter came calling about a job at Darden.

Having come from careers in law and investment banking,

Clarence Otis, Jr. was not a seasoned executive when he arrived at Darden Restaurants. But he soon found out he had a taste for management.

Starting out as Darden’s Treasurer, Otis worked his way up to run

the Smokey Bones BBQ chain. Long time CEO Joe Lee, who was around when founder, Bill Darden, steamed ahead with the first Red Lobster, picked Otis to succeed him in 2004.

JOE LEE Leadership means that you have to have followers right? So he is

a person that people love to be around and love to support and help.

KEVIN SMITH Darden is known for its corporate philanthropy. A good match

with Otis. This is evident in Eatonville, an historic town outside Orlando, founded by African-Americans. Otis belongs to the committee to preserve Eatonville, which stages an annual festival and operates a museum, exhibiting works of African art.

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Jerry Rivers praises Otis’s contribution. “I don’t know how he find the time or what, but I don’t think he ever sleeps, because Mr. Otis is always there if we need him.” Otis and his wife also attend Sunday Services at the Life Center Church, just up the street. His modest style impresses Eddie Cole, who runs a church program to help young people. “Before Clarence Otis was working for Dardens, Dardens was a giver of the community. But Clarence coming in, as a giver himself, it’s a perfect fit.”

CLARENCE OTIS I think part of it is really making sure that the people in a

community that can easily feel like it’s forgotten, believe that people are interested in them and that they matter. “What kind of squash is this?”

KEVIN SMITH Whether in Watts, Eatonville, the Darden kitchen or the

boardroom, Clarence Otis, Jr. seems at ease with his surroundings, displaying the kind of leadership that has brought him to the very top of the food chain. In Orlando, Florida, I’m Kevin Smith for CEO Exchange.

JEFF GREENFIELD First, I’ve got to think that you must be very happy that one of

your predecessors renamed Red Lobster, because I can’t imagine my – chomping my lips at the prospect for going to a place called The Green Frog. (laughter)

CLARENCE OTIS, JR. (Laughing) Well The Green Frog was actually Bill Darden, our

namesake – company namesake and founder, Green Frog was his first restaurant in Way Cross, GA. And he started a series of restaurants after that, most of them fine dining restaurants. But ultimately, saw the opportunity with Red Lobster, and so it’s a different restaurant, but he stuck with that notion of color and animal. And Red Lobster works a little better, I think. (laughter)

JEFF GREENFIELD On a, on a perhaps on a more serious note, we mentioned you

came out Watts, not an easy neighborhood, so where does the

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determination come from, not only to finish high school on time, but to do it with a 4 point average and become valedictorian?

CLARENCE OTIS, JR. Well, it comes from a lot of things. I mean, I think it starts with,

with my parents, who were special people. Everyone says that about their parents, but I believe that to be the case. And they were folks who didn’t have the most opportunities, growing up African-Americans in the 30s and 40s in Mississippi. So they didn’t finish school, but they were “A” students when they were at school, both of them. And so they believed in excellence. They had aspirations for themselves. They didn’t feel that they could realize in Mississippi, and so they moved and moved to a place, Los Angeles, where they didn’t have family for the most part. And so their expectation was that we would excel, because they had. And so it wasn’t – they didn’t really expect to see “B’s” on report cards. And so we didn’t bring home a lot of “B’s” on report cards. They expected to see “A’s” - they’d gotten “A’s” in tougher situations, I think, in their minds.

But they had a lot of help in a community like Watts, where you do

have so many opportunities to go off on the wrong track. You need a lot of other people, beyond your family, to help. And so we had teachers and community leaders, and Watts was a community that because of the riots, attracted a lot of attention. And that was very helpful. It told us, growing up at that time, that we mattered, and that people cared. And so we saw that in the efforts of volunteers throughout our youth.

JEFF GREENFIELD Is it fair to say that some of the kids you grew up with took

different paths? CLARENCE OTIS, JR. Yes, absolutely. Absolutely. But as I think about it and I always

look at statistics, and there are two sides to every statistic. There’s the negative side, the positive side. It’s also fair to say that just a tremendous number succeeded.

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JEFF GREENFIELD Let me take you into the, into the business world you entered.

When you took the reins, you succeeded Joe Lee, I don’t know if you consider him a mentor?

CLARENCE OTIS, JR. Yes, I do. JEFF GREENFIELD One of the things that Joe Lee was, I gather, was a pretty strong

proponent of diversity. You were talking about the fact that your restaurants draw a lot of what I guess the word, minority customers. And you said part of the reason why we’re strong with these guests, is why I’m CEO of Darden. Did you mean that because you had a lot of minority guests or customers, that was the reason to pick you or that you understand what appeals to them?

CLARENCE OTIS, JR. I think we – part of our success is that our culture is an inclusive

culture. And so as one looks at people who are different, and think, what can I learn from this person? What can they bring to the table to help us get the job done? And so, it’s that inclusive culture, I think, that allows someone like me to succeed at any level. And ultimately to be able to be chosen to run the organization.

JEFF GREENFIELD In concrete terms, are there things your company does to make

sure that the people who are on your front lines, project what you want to project to the customers?

CLARENCE OTIS, JR. There are a great deal of things that we do. I think it starts with

making sure that we have a culture that says you are valuable and so we talk in our world about our core purpose being to nourish and delight everyone we serve. And there’s tremendous power in that. We talk about nourishing and delighting, obviously in the physical sense, but also nourishing and delighting people’s spirit. And that means that we’ve got to nourish and delight our employees. They have to feel that we’re listening to them, that we understand their dreams and aspirations, that we’re committed to

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helping them accomplish those dreams and aspirations. So we’re trying to develop them.

JEFF GREENFIELD We always talk about successes, but I also think people learn

sometimes from things that didn’t go right. A few years ago I think, you had a crabs leg special, $24.99, all you can eat. (laughter)

CLARENCE OTIS, JR. Right. JEFF GREENFIELD I believe what you discovered was, for many people, that is an

expansive opportunity. (laughing) All I can eat? Stand back! CLARENCE OTIS, JR. Yeah, yeah. JEFF GREENFIELD So when the word comes that this is actually losing money, you’re

the CEO and somebody comes to you and says, “(clears throat) Well chief, it’s certainly working ...” (laughing) What do you learn from something like that?

CLARENCE OTIS, JR. Well I think what we learned was that, that was really the

culmination of a series of steps that we’d taken that weren’t working. And so we were in a position where we were – the brand wasn’t as strong as it needed to be. A strong brand really operates both functionally. We were trying to compensate for that, on the functional side. And so what we learned is, we were completely out of balance and we needed to step back and really rethink the strategy.

JEFF GREENFIELD I mean I’ve been on a couple of ships and my assumption has been

people believe if they eat enough, the cruise is free. (laughter)

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We’re going to meet our second guest in a minute but we’re also going to take a question or two from the audience here at Rosen College of Hospitality Management.

FROM THE AUDIENCE Good evening. My name is Andrew […]. I’m a Ph.D student here

at the Rosen College. According to your website and reputation, Darden Restaurant’s commitment diversity is, is a strategy, it’s a way of life, and it’s a commitment. Given your success, why haven’t other companies followed your model, and if you were to give advice, what advice would you give to companies considering more diversity?

CLARENCE OTIS, JR. I think as I look around the corporate landscape, I think everyone

recognizes that diversity really is a business imperative. And so, as they look at the work force, as they look at the consumer environment, as they see the world really shrinking, global players having to understand other cultures, everyone recognizes that that’s a business imperative. The challenge is that diversity is hard. It really means asking yourself some tough questions. Having conversations that people aren’t used to having. Where it’s easy to offend. And so you’ve got to create environments where it’s easier to have those conversations, where people aren’t as sensitive. And so what I would encourage people to do is really try to foster those conversations, those difficult conversations, so that people can ask questions of one another. They can put their assumptions on the table, even if those assumptions are not the ones that we’d like them to have. But you have to have the dialogue.

JEFF GREENFIELD Thanks for the question. I think we have one more question from

our audience right now. Please come on up. FROM THE AUDIENCE Hello! I’m Erin […]. I’m the Manager of People Services with

Donata’s Pizza here in Orlando. What kind of programs and methods do you use to really instill and ingrain that premium customer service mentality in the hourly employee?

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CLARENCE OTIS, JR. Yeah, we have to do a form of internal brand management. We

have to let our people know this is what we’re trying to deliver. This is what we’re promising to guests. And this is your role in helping deliver that. And as you do that, this is what you accomplish in the larger sense of what you accomplish. You really do nourish and delight people. And hourly employees for us are critical, because they are where the interchange with the guests occurs. And they’re also our source for managers. And so a significant percentage of our management personnel come out of our hourly ranks.

JEFF GREENFIELD Thanks for the question. Clarence Otis, Jr. will be back with us

shortly, after we meet our second guest. Mackey McDonald’s sister said he told her early on, he planned to be a CEO by age 40, and he did it. Becoming head of VF’s Wrangler Jeans Division and a few years later, McDonald became CEO of VF itself, and began to move the company more into so-called lifestyle brands. So how did Mackey McDonald come to head the world’s largest apparel maker? Maybe it was in the jeans (laughing). So please welcome, please welcome the Chairman and oohhh, please welcome the Chairman and CEO of VF Corporation, Mackey McDonald. (applause)

MACKEY McDONALD Hi, Jeff. How are you? JEFF GREENFIELD Well I guess product placement happens even on PBS, doesn’t it?

(laughing) MACKEY McDONALD Isn’t it great to be able to wear casual clothing all the time? JEFF GREENFIELD I think it’s terrific. Yes. Which leads me actually to my first

question for you, which is, what is it about jeans that has such widespread appeal? You know? You’ve got would-be cowboys, traditional values, the most kind of conservative people around wearing jeans, and then you know, at Woodstock, you had long

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haired counter culture people, wearing the jeans, when they weren’t taking them off. (laughing)

It seems to be a piece of clothing that knows no boundaries, why? MACKEY McDONALD Well, a part of that is, it’s a U.S. product. A lot of apparel products

were developed in other parts of the world. Jeans are uniquely U.S. and then they spread across the, across the globe of course. And they’re very versatile. They’re versatile from a practical standpoint, but also from an image standpoint. And what people wear is usually as a result of the statement they want to make about their lifestyle and who they are. And with jeans you can do that.

The brand of jeans that you wear has an image. Has a strong brand

connection. Our brands, as you discussed with Wrangler, really stand for that western attitude, but it’s much bigger than cowboy, it’s the masculine, outdoor, rugged individualistic approach, and people when they wear that product, they feel that that’s the statement they’re making about their lifestyle.

JEFF GREENFIELD So does that mean that someone who identified more, say with the

counter culture would choose maybe Lee jeans as opposed to Wrangler jeans? Would it be that specific?

MACKEY McDONALD I wouldn’t call Lee a counter culture jean. (laughing) No. No Lee

jeans is more middle America, great fit, very versatile, social jean. Actually it had a work wear heritage when it was first developed over 110 years ago.

JEFF GREENFIELD Let me ask you something. Are there some people who shouldn’t

wear jeans? (laughter) And what I mean by that is, when I look around, I think of the old philosophical question, Mackey, does the end justify the jeans? (laughter)

MACKEY McDONALD There are some jeans that some people should not wear. (laughing)

Let’s say that. The low rise trend was not appropriate for everyone. (laughing)

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JEFF GREENFIELD I’m glad we cleared that up for any people in the audience.

Obviously, we’re going to continue this chat with Mackey McDonald, but we want to have a look at his background and VF Corporation from correspondent, Jill Bennett.

MACKEY McDONALD PACKAGE JILL BENNETT If you’ve never heard of the name Mackey McDonald, or the name

of the company he runs, VF Corporation, that’s just fine with him. He’d prefer you know the names of his labels, like Wrangler, Lee, Vanity Fair, Nautica and North Face. After all, he’s the man who pushed the cowboy image for Wrangler and is well known for his knack for branding. “When I was a sales clerk at the lowest level, trying to sell something to someone, I mean it became very apparent, that people who had a real strong attachment to the lifestyle behind the brand, were very enthusiastic about the product lines. And if they didn’t have that, then then just selling it on style alone, was tough.”

Growing up in Georgia, McDonald’s first job in retail was in a

men’s clothing store during high school. Around that time, he got one of his first life lessons from his southern Baptist parents, both educators and a bit strict. They urged their son, a football star, to put education first.

While at Davidson College in North Carolina, McDonald joined

the ROTC. He ended up in Vietnam flying planes like the Otter and Bird Dog for the U.S. Army. “I understood that life is precious and doesn’t last forever. I encountered some issues where I lost my engine and had to land the plane and the training that I had gone through in the military was, was a lifesaver and so those are the types of things you take with you, and I think as a result of that, I’ve always focused a lot on planning and preparation and being prepared for things that are unexpected.”

Following Vietnam, McDonald earned an MBA from Georgia

State University and landed his first job at Hanes, before moving on to VF in 1983. He told his sister he’d be a CEO by the age of 40, and he was, heading up VF’s Wrangler Division. He became

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CEO of VF in 1996. McDonald’s biggest challenge came five years later, when VF cut 13,000 jobs and moved manufacturing overseas to better compete. VF has since gone on to post record sales and earnings in each of the past three years, while boosting sales overseas in places like India and China.

VF Corp is the world’s largest seller of jeans. It’s the new so-

called lifestyle brands, including Nautica as well as North Face and a handful of others, are quickly becoming a cornerstone for the company. And many industry watchers say that is where the significant growth will be in the years ahead.

MARSHALCOHEN VF has shown a really good track record so far of being able to

acquire brands that have very strong, consumer recognition. They’ve avoided getting involved in the high risk fashion brands, and have stayed more into the commodity brands. The brands that are offering product that you use almost every day.

JILL BENNETT Before adding the lifestyle brands, including Vans & Reef, VF was

largely a jeans and intimate apparel company, which made a point of saying, it didn’t focus on fashionable trends. “Our brands all have the right fashion, very appropriate fashion. But we’re not trying to drive our brands off leading edge fashion.”

McDonald’s goal to have the lifestyle brands make up 60% of

VF’s business compared to 30% now. Terry Lundgren, CEO of Federated Department Stores, the parent of Macy’s and Bloomingdale’s, credits McDonald with energizing the lifestyle brands.

TERRY LUNDGREN, CEO, FEDERATED STORES They put fashion, you know, into the business, and then marketing

into the business. And I think it’s taken it to an entirely, entirely new level and our success with the North Face brand has just been fantastic.

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JILL BENNETT While McDonald confirms he’s on the hunt for new companies,

he’s also busy putting his mark on the brands he knows so well. For CEO Exchange, I’m Jill Bennett in New York.

JEFF GREENFIELD When we talk about a lifestyle brand, I thought I’d actually go to

the man at the top and get an explanation. This is the front page ad. It’s an ad for Nautica. It doesn’t tell us anything really about the suit. Doesn’t tell us how much it costs. All we know about the guy is, he’s cute and he’s got that Dr. McDreamy, you know, three-day growth of beard going. (laughing) But clearly, you know, you don’t spend the hard earned money of your company without knowing what you’re saying. So help us as a CEO. What are we – what do we think we pick up here about Nautica that you want a prospective customer to know?

MACKEY McDONALD Well, you’re right. It doesn’t just happen. In order for a lifestyle

brand to be successful, it has to connect emotionally with the consumer. It won’t connect with all consumers, because each consumer has their own individual taste. In order to do that, there’s a lot of science behind apparel. There’s the art, there’s the design, there’s having the right fashion. If that suit was not a fashionable suit, it wouldn’t sell or that sport coat.

But the other part of this and what really drives the value is does

that product represent my lifestyle? Does it make a statement about me as an individual? Does it tell someone, by the fact that I’m wearing that brand, that there’s a certain aspect of my lifestyle that’s very important to me? Clothing is a great way to do that. Very few consumers have empty closets. They don’t buy clothing because they need some more clothing or another pair of jeans. They have plenty today. But what they’re looking for is something that makes a statement about them and also, obviously, the product has to perform as well. We combine those elements. There’s a lot of other attributes to the jean that you prefer or don’t prefer. Some people buy them because they have holes in them, they’re worn out, they look cool. Other people would prefer to put their own holes in their jeans, (laughing) they don’t want to pay us to do it.

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JEFF GREENFIELD But I believe you also, maybe this counts as brand extension,

you’ve developed a different kind of North Face for people who aren’t out for eight days on the face of K2, but just people who are out maybe for a mile or two walk on an autumn day. These are lighter clothes. So I guess the question is, to what extent can you extend the brand’s reach without beginning to undercut what it’s all about?

MACKEY McDONALD The North Face product is designed for different elements of

exploration and mountain climbing. It’s not all designed to climb Mt. Everest, but it is designed to perform if you’re going on a hike, if you’re going on the trail, if you’re going on a camping trip. And even though a lot of the people that wear the product are not ever going to climb Mt. Everest or perhaps even go on a hike, they know that they are a part of that lifestyle and they could do that, if they wanted to do that.

JEFF GREENFIELD Well I have a North Face tee shirt or two. I’m not sure I ever could

climb Mt. Everest, but (laughter) – let me take you to the work side. You’re very candid in a lot of your interviews. You once said that the toughest job in your company is your executive assistant. What do you do to this poor person?

MACKEY McDONALD (Laughing) Oh keeping up with our time, and finding a way to use

our time wisely is one of the most difficult challenges I think you have, no matter what job you’re in. And when another person has a lot of the responsibility for that, and at the same time, is trying to make sure that they hear you and they understand what your priorities are, it makes it a very challenging job.

JEFF GREENFIELD You also said and I really thought this was striking, you told

Apparel magazine, “I always try to understand my weaknesses as well as my strengths. And I surround myself with people that support my weaknesses and not just praise my strengths.” So, let’s ask, what are those weaknesses?

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MACKEY McDONALD Well, I tend to be a broad thinker. I tend to look strategically at

things. I don’t think as tactically at times. I don’t think in detail level at times. And that’s why I’ve made sure I’ve surrounded myself with people that do that. And what that leads to is a lot of debate, a lot of argument, it’s uncomfortable a lot of times, but the end result is, we reach better conclusions and I think that’s why VF is where it is today.

JEFF GREENFIELD But when you have arguments, do the people who work under you,

since you are the CEO, understand that they can argue without being punished for it? Sounds to me like you encouraged that or -

MACKEY McDONALD Well if they didn’t understand that, then they wouldn’t argue with

you. They’d all say yes that’s great. And what you’d end up with is an amplification of all the mistakes I would make on my own. (laughing) And, it would not be the most successful apparel company that it is today.

JEFF GREENFIELD Since you were a football player, at one point, I think dreamt of

going to University of Georgia and playing. The way you described the approach of VF, reminds me a little bit of Woody Hayes’ famous Ohio State offense, “three yards and a cloud of dust.” So is there something to this that you, that you approach the work in a kind of steady – we’re not going to be – we’re not the most flamboyant company in the world, but we’re going to produce results that way. Is that a fair description?

MACKEY McDONALD Yeah I think so. Both the athletic teams I was on and also the

military experience, I think was very good in helping me to understand that big things don’t, don’t always drive success. A lot of times it’s preparation, it’s the details, it’s the little things that have to happen and it’s the execution. I think that’s probably the most important part, is, as I look at VF, a lot of the things we’re doing today, other companies are doing. They’re attempting to do the same things. I believe our execution is superior and that’s what makes them successful.

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JEFF GREENFIELD All right. Like to take a question or two from the audience again.. FROM THE AUDIENCE Good evening, Mr. McDonald. My name is Ian […]. I’m a second

year master student here at the Rosen College. I’ve notice that here in Orlando, VF Corporation has retail outlet stores. Is this a growing trend in the clothing industry, as opposed to traditional retail stores and department stores?

MACKEY McDONALD We use our retail outlets to improve the profitability through

disposing of our overruns. In many cases, you’ll find outlet stores that are regular retail. They’re the way the product is distributed. We don’t believe that that creates the right image for many of our brands. So they are truly outlet stores. So what you’ll find are merchandise that is old season merchandise, irregulars, this type of product. Gives the consumer great value, but at the same time, we don’t feel like it’s the best way to build the image of brands.

JEFF GREENFIELD Thank you for the question. Clarence Otis, Jr. will be coming back

out in just a few minutes, but first, both of our CEO guests run companies originally founded by entrepreneurs. Today’s colleges and universities have become learning labs for student entrepreneurs, who want to launch their own businesses. Correspondent Randal Pinkett takes a closer look at some of them in his new book, The Campus CEO, and he has found one right here at our host school. Randal?

SCHOOL TOUR RANDAL PINKETT Indeed Jeff. The University of Central Florida’s Rosen College of

Hospitality Management and its beautiful location here in Orlando, certainly one of the world’s largest laboratories for the study of hospitality and tourism, made it the perfect place for PAC candidate, Pamela Allison, to launch a company that measures quality and customer satisfaction for hotels and restaurants. We’ll have Pamela tell us just how she did it, Jeff.

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PAMELA ALLISON Thanks Randal. The Rosen College of Hospitality Management is

the largest, free-standing hospitality school in the world. Let me show you around.

Professors from 13 different countries teach courses in the

management of restaurants, hotels, theme parks and even golf courses. As a student at Rosen, I learned how to conduct economic and statistical analysis, and feasibility studies before launching my company.

When I was an undergraduate student here at UCF, I learned web

design. Now my business site is interactive for both my clients and my staff.

In 2004, the college opened as a satellite campus of the University

of Central Florida, when a gift by one of Florida’s most prominent hotelier, Harris Rosen, was matched by the State of Florida.

At restaurant and hotels, like Rosen’s Shingle Creek here in

Orlando, my staff and I make anonymous visits to measure and report on all aspects of our experience as guests, and then provide a complete analysis to our clients. From the time I check in, until the time I leave, I’m grading the hotel on everything from the bell staff to the cleanliness of the room, to the food in the restaurant.

Back here at the school, undergraduate and graduate students take

advantage of the hands-on learning, and the unique culinary laboratories and beverage management center, including a wine cellar and microbrewery, so that eventually they’ll make you a satisfied customer. With 52 million visitors a year, Orlando is the place to learn hospitality and to extend it.

RANDAL PINKETT Here’s the campus CEO, Pamela Allison, we wish you much

success with your business, and thanks to the Rosen College of Hospitality Management for hosting our show. Back to you Jeff.

(APPLAUSE)

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JEFF GREENFIELD Okay, let’s thank Randal and Pamela and the Rosen College for

helping us out with the show, and speaking of hospitality, would you please hospitably welcome back Clarence Otis, Jr. (applause)

JEFF GREENFIELD In the interest of full disclosure, we should mention that Clarence,

you are a board member of the VF Corporation? That’s right? CLARENCE OTIS, JR. That’s right. JEFF GREENFIELD Is there anything you guys would like to settle now, so the

audience can see how (laughter) this works? CLARENCE OTIS, JR. Not now. MACKEY McDONALD Not now (laughing). JEFF GREENFIELD Okay, transparency only goes so far. So we’ll move on. Both of

you are involved with companies that appeal to middle class people looking for value. You’re also looking to extend the reach of your company. VF has done it mostly by acquisitions, Darden Restaurants has grown these new restaurants within itself, so I’m interested in knowing the ups and downs of each approach.

MACKEY McDONALD Our strategy is growth through building lifestyle brands. Takes a

long time to build a lifestyle brand that really is attached to the consumer and the activities they’re involved in. The North Face, with its outdoor exploration, Vans with the skateboarders, Reef with surfing, it took entrepreneurs years to build that. We like to find those entrepreneurs, bring them in to become a part of our culture. And that is, we feel the best way to get there. Obviously, on the downside, it’s more expensive. Because you’re paying for all that experience, and the business they built. We think it gets us there much faster.

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JEFF GREENFIELD And your approach? CLARENCE OTIS, JR. And we have really done it more through growing our own. And

the advantage there is we get to implant the Darden DNA right from the start, and so people who are from the organization or if they’re from the outside, really begin to understand the organization right from the very start of an enterprise, and that’s very valuable to know how we do things, what makes our approach work.

JEFF GREENFIELD But whichever approach, you can only take an existing brand so

far, that is, if you try to attract new customers by doing something different, or by positioning a clothing brand differently, your old customers are saying, wait a minute, that’s not who – that there is a limit to what you can do? To who will go to an Olive Garden, to who will buy a particular pair of jeans?

CLARENCE OTIS, JR. In the food business, brands are pretty flexible and so at a Red

Lobster, Olive Garden, that core customer, the one that comes with the greatest frequency, would have a household income between $45,000-$75,000. But, Olive Garden has reached above that, and below it, and Red Lobster, the same thing. And you can do things to broaden that reach, to attract customers above it. Your core customer, for example, from a menu perspective, will have a group of favorites. And that’s where they live. And you can add around the edges of that things that do reach out and so, they might experience those dishes with some frequency. Every once in a while, but those same dishes will be the things that take your reach higher than that, that core middle and so you get people that wouldn’t come if you didn’t have those more pushed out recipes. And so, there is a lot of flexibility in a single brand.

MACKEY McDONALD Yeah, the biggest danger with a brand, I believe, is stretching it too

far. I mean you not only will not pick up the new customers, if it doesn’t fit, you also lose your existing customers. So you have to

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be extremely careful. That’s the reason we, when we decide we’re moving into different areas for example, in the whole outdoor category. We’re moving into more surfing, skateboarding, mountain climbing. We had to go find the brands that really stood for that, versus taking Wrangler, for example, and trying to stretch into all those activities.

JEFF GREENFIELD We are not ever going to see a jean that you sell, sold with a barely

out of her teens, if that actress, whispering that she doesn’t wear anything underneath those jeans! Is that a safe bet?

MACKEY McDONALD Well it won’t be Wrangler, if it is. (laughter). JEFF GREENFIELD Yes and I guess across from any Wrangler with VF lingerie has its

own individual (inaudible) (laughter). Okay. The kinds of things that keep you guys up at night that don’t have to do with any decision you can make. In a certain sense, are you hostage to events beyond your control? In your case, when the gas prices went way up, you know, did that keep people from coming out to your restaurants?

CLARENCE OTIS, JR. There’s a tremendous amount of resiliency, when it comes to

consumers and there are cycles that are driven by economic factors, and so you prepare for those. And you build a brand that has enough strength to work through those and so I worry less about those cyclical sort of things, than geopolitical events that are not cyclical. That may be outliers. Things that 9-11, those sorts of things and what that might do to people’s confidence levels.

MACKEY McDONALD The way I look at it, every problem that’s created through

economic changes, whether the trends in the industry create opportunities for those people that figure out how to deal with that quicker than the rest of the industry. For example, when gas prices go up, when the consumer’s disposable income is stretched, they’re looking for innovation, even more than ever. They’re looking for value, and if you can combine great value and exciting

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new product, you, you draw them into the stores. You make the sales.

JEFF GREENFIELD Let me turn to this lifestyle issue, because it’s so fascinating. There

is a book, I apologize about this, Clarence, the book was called Applebee’s America, I think only because they wanted it to get it alliterative. But, it’s a study of how people make choices on businesses, on religion, on politics. One of the remarkable conclusions, or maybe you folks won’t find it remarkable, is that basically people make choices based on their hearts rather than their heads. That values trump interests in politics. That, that people won’t necessarily go to a store and really want the details of that garment. They want to know what that garment says. That people will go to a restaurant because it embodies something more than what’s on the menu.

So, how do you know what values your customers are taking with

it? How much research goes into what you, what you do, based on that perception?

CLARENCE OTIS, JR. There’s a tremendous amount of research. Brand management

really starts with consumer insights. You have to ask people. You have to observe people and it’s critically important when you’re a national brand, you’re a mass brand and so your customer base is enormous. And you can’t really pretend that you’re the customer. You have to go out and really probe that customer. And then you have to take what they say, and apply science to that. Because often, what people say and what they do, diverge. And so there’s a great deal of work triangulating from what they say to what they do.

JEFF GREENFIELD That’s fascinating. You’ve made the same point in an interview.

People say one thing and do another. Give me an example. CLARENCE OTIS, JR. Health. People say that it’s very important to them to eat healthy,

but that’s not how people eat. (laughter)

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JEFF GREENFIELD That’s bringing up that question about the jeans. MACKEY McDONALD That’s right and we like that, because we sell more jeans as they

grow. (laughing) (applause) JEFF GREENFIELD Okay, well I think you’re getting a heck of an education (laughing)

here tonight. But that’s but that’s a very significant point. What do they really, what do they really want? What do they really do as opposed to what they say they want.

MACKEY McDONALD You have to do the research to understand what they’re actually

doing versus what they’re saying, and we feel one of the real competitive advantages we have in VF across all of our brands is, is and what Clarence was talking about, the science of the business, because most apparel companies are good at the art, the creativity, the design of the product. It’s the science of understanding how far will each consumer want to go from a fashion standpoint? When you talk about all the different brands of jeans that we sell, each one is a very different consumer profile.

And each one buys their products in different retail outlets. And

some of them want them leading edge fashion, some of them want them basic, but most of them want them somewhere in

between. And you can’t just ask the question. You have to put the product out there. You have to test it. You have to see what they do. You have to observe them in the shopping environment.

JEFF GREENFIELD We’re going to turn to the audience to take a question or two. FROM THE AUDIENCE Good evening. I’m Will […], recent new CFO and college alumni.

To move up in a career is not uncommon to take a step back before you take a step forward. That can be taking a lower position in a company temporarily, or starting over in a new company or new career, as both of you guys have done. When you’re not making

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that forward progression, how does that play with your emotions and what kind of mindset do you have to have at that time?

MACKEY McDONALD It’s challenging to step out of something that you’re not succeeding

in. It’s very difficult to do. I went through that as part of my career when I was trained in marketing. I end up in more the operations end of the business, with one company, and couldn’t, it’s very successful moving up, but that’s not the area that I really loved and the passion that I had. So, I had to leave the company and move, it’s the only change I made in my corporate career.

But I made that move, took a lower position, and more of a

merchandising marketing area. It was the best move I would say that I made in the career. At the time, I had real doubts about whether it was the best move I made. But I do believe that understanding where your passions are going to take you, and what is really going to drive you – what are you really going to love and enjoy, is going to help guide you in making those kinds of decisions.

CLARENCE OTIS, JR. Yeah I would echo that. I mean the biggest move I made I was a

lawyer. Came out of Stanford Law School, practiced law for four years and was fairly good at it. And making progress, in the law firm environment. But I didn’t love law. I mean it was not a passion. I was a financial lawyer and so had exposure to the corporate finance side of the equation and really found that exciting and so I made the decision to try to move from law to finance and had to step back and do an entry level finance job. And it was the right decision for me. Finance has been a passion. It’s been a great platform to really learn more about the total business world. And so I’d say, you absolutely have to do something that you love. You may be good at it for the moment, but if you don’t love it, you’ll never be the best at it.

JEFF GREENFIELD Thanks for the question. Want to turn to the broad topic I guess of

corporate culture, because in both cases, you folks talk about your companies way beyond the bottom line. You have a very strong reputation about corporate ethics in a company. Starting with you,

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when we talk about that, what specifically does it mean? Does it mean a zero tolerance for certain behavior? You tell me.

MACKEY McDONALD Well, the real underlying essence of our corporate culture is

respect for the individual. It’s the thing that I think is most important. Every person in our company needs to feel like they’re making contribution to their fullest. And if you make them feel that way, if they feel that way, then they’re going to continue to expand their performance.

JEFF GREENFIELD But you were, if I’m not mistaken, asked to join the board of Tyco

in 2002 and I’m just wondering from your perspective, when you got there, and you looked at what I think can fairly be described as an ethical train wreck, how – what was your sense of how that was allowed to happen? Was it just a rogue CEO? Was it something else? Was it lack of oversight? How does something like that happen from your perspective?

MACKEY McDONALD Well, I think any time you find a situation like that, there are

leadership issues that are pervasive. The reason I went there, in that environment, in that situation is I became convinced that there was a great company there with over 300,000 employees doing tremendous work, and some of the things had really slipped at the top. And as a result, everyone in that company was being affected. And someone had to come in and really turn that situation around.

JEFF GREENFIELD I want to turn the question to you in a somewhat different way.

You, like Mack, you run a company that’s very successful. And you’re well compensated. But by the standards of modern day CEOs, there are people making a whole lot more whose companies have done a whole lot worse. And I’m wondering from your perspective, as a guy who’s made it to the top, I think it’s fair to say the hard way, what do you think about that kind of culture or do you?

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CLARENCE OTIS, JR. I believe firmly in the market. And so I think ultimately, the

market dictates what people are compensated. And I do believe even in situations where companies have not performed, the board believes that this is the right leadership team to get this company to perform. And if it’s not the right leadership team, they don’t respond by reducing their compensation. They respond by getting a new leadership team.

JEFF GREENFIELD Am I wrong in thinking that there are cases where the relationship

between the CEO and the board is one that is sometimes described as more cronyism than it is a long, cool look at what’s really going on?

CLARENCE OTIS, JR. I think that has certainly been true. I think there is less and less of

that with the current scrutiny, with the continued maturation of boards and corporate governance. And so, I think the transparency around compensation, around performance, is a good thing.

JEFF GREENFIELD In a slightly different notion about corporate culturing, apart from

the obvious, what do you regard as unforgivable behavior from a subordinate?

MACKEY McDONALD The thing that is most important, I think in any relationship and

certainly in a business relationship is the ability to trust the person that you’re dealing with, and if you don’t have trust, then there’s not much else you can build on. I sign a letter every quarter saying that everything we turn in here is absolutely correct, and do I know that? No. (laughing) There’s no way I can look at everything we do. But I believe that the associates that we have that are looking at those things, I can trust. So, you have to build on trust.

JEFF GREENFIELD Clarence, what about you? Is there something – is there a kind of

behavior from somebody working under you, where you just say, you know, “That’s over a lot.”

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CLARENCE OTIS, JR. We have core values that we work hard to articulate throughout the

organization. Help people understand. There are certain behaviors that are associated with those core values. Those values speak to how we behave with one another, how we behave with our guests, with our vendors, and when you see people consistently not live in accordance with those values, you start to lose trust in them.

JEFF GREENFIELD Like what though? What kind of behavior would do that? You

mean like abusing a subordinate? CLARENCE OTIS, JR. Well certainly abusing a subordinate, because we talk about really

respective caring. So that’s one of them, and if you’re showing a lack of respect, a lack of caring on a consistent basis, that becomes problematic.

JEFF GREENFIELD We want to hear from our audience one final time before our last

segment. FROM THE AUDIENCE Good evening. My name is Cheryl […] and I’m a Region HR

Manager from Metro PCS. My question is in regards to workplace balance, life living issues. Basically, our society has become a sandwich generation where the employees are now caring for both children and parents. Do you offer similar programs in your organization that will support our up and coming generation? And if so, do you feel they are effective in reference to your recruiting and retaining talent?

CLARENCE OTIS, JR. I would say that, that there’s a lot of work to be done there.

Certainly when it comes to elder care, there are some programs that we’ve just started. I think that start to scratch the surface there, but we haven’t dug as deeply as we would like to, I think, on the elder care side. And really understanding what are the dynamics of that? What could we do to facilitate that?

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On the childcare side, and on people who have children in the home, we’ve spent a lot of time and attention there and so we have programs. We have an awareness that we need to be sensitive to those issues and we work pretty hard to stay on top of that. But on the elder side, I think we’re less far along.

MACKEY McDONALD Yep and as we look across the many different cultures we have

within our company, we, we do address this in different ways. We have some of our companies that have their own childcare, and they provide it for the employees, and in most cases we don’t have that. What we do try to adopt across all of our businesses is, is the flexibility to apply the standards that are appropriate for the particular group that we’re involved with.

In our IS/IT area, for example, you can have flexible work hours.

You can have people working very different schedules from home at times. Other, other areas, it’s a little more challenging. So I would say it’s a very versatile approach to this issue.

JEFF GREENFIELD Thank you. Before we close we’re going to turn to a part of this

program that we call the lightening round. I’m going to ask each of you very short questions; I’m looking for very short free association answers. A sports figure you most admire?

MACKEY McDONALD Babe Ruth. CLARENCE OTIS, JR. Roberto Clemente. JEFF GREENFIELD It’s your last meal, not at one of your restaurants (laughter), what

are you eating? MACKEY McDONALD Pasta. CLARENCE OTIS, JR. Southwestern.

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JEFF GREENFIELD A book or a writer that really touched you, that stayed with you? CLARENCE OTIS, JR. Beloved, Toni Morrison. MACKEY McDONALD The World Is Flat, Friedman. JEFF GREENFIELD Your biggest mistake and what did you learn from it? MACKEY McDONALD We bought a company that I started running, that was in a category

that was not going anywhere, and I didn’t get the right kind of expertise in. I didn’t surround myself with the right people. We didn’t make it successful.

JEFF GREENFIELD And you learned from that? MACKEY McDONALD What I learned from that is stick with the principles, which is

always make sure you’re surrounded by people who know how to do things you don’t know how to do.

CLARENCE OTIS, JR. We started a brand that had tremendous attributes, but we started to

expand it before we fully understood it and so some of the weaknesses that it had, we needed to address at a scale that was – made it much more challenging.

JEFF GREENFIELD How do you turn the machine off? You both work incredibly long

hours, what do you do to – can you turn the machine off and if so, how?

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CLARENCE OTIS, JR. It’s difficult to turn it off. I, I find that I need to take a vacation to a

remote place. I mean to actually leave the country. It comes as close to turning it off as I can.

MACKEY McDONALD Exercise almost daily. 5:30 in the morning. JEFF GREENFIELD If you weren’t doing this, as much as you love it, what do you

think you’d be doing? MACKEY McDONALD Teaching. CLARENCE OTIS, JR. Acting. (laughter) MACKEY McDONALD You are acting. (laughter) JEFF GREENFIELD I guess the point about this is, that no matter how good a meal is or

how well made a pair of jeans is, eventually, they have to wear out. They don’t last forever and neither does this show. So I really want to thank Clarence Otis, Jr., Mackey McDonald for taking the time to visit with us today.

If this meeting of the minds has helped contribute in some way to

the world’s marketplace of ideas, that is the business of CEO Exchange. I’m Jeff Greenfield. Thanks so much for watching, and we’ll see you next time. (applause)

To learn more about the CEOs featured on this program, and other

leading CEOs, visit PBS.org. To order this episode of CEO Exchange on DVD, call PBS Home Video at 1-800-PLAYPBS.

Funding for CEO EXCHANGE is provided by SHRM (The

Society for Human Resource Management). We recognize people drive organizational success and organizations with the best talent win. Human Resource Management is strategically finding,

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developing and channeling that talent into success. SHRM, a global Human Resource Management Association more than 200,000 members strong. Leading people. Leading organizations.

CEO EXCHANGE is produced by WTTW National Productions in

association with Business Week and is exclusively underwritten by the Society for Human Resource Management in Alexandria, Virginia. © 2007 Window To The World Communications, Inc.

All rights reserved. Unauthorized reproduction or transmission is a violation of applicable laws.

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