William N. Thorndike, Jr. founded Housatonic Partners in Boston in 1994 and has been Managing Director since that time. Prior to that, he worked with T. Rowe Price Associates where he did investment research in the nascent field of business services and Walker & Company where he was named to the Board of Directors. Will is a graduate of Harvard College and the Stanford Graduate School of Business. He is a Director of Alta Colleges; Carillon Assisted Living, LLC; Liberty Towers, LLC; OASIS Group Ltd.; QMC International, LLC; White Flower Farm, Inc., a Trustee of Stanford Business School Trust, and College of the Atlantic (Chair) and a founding partner at FARM, a social impact investing fund/collaborative. His book, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, was published by Harvard Business Review Press (October 2012).
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Morris: Before discussing The Outsiders, a few general questions. First, who has had the greatest influence on your personal growth? How so?
Thorndike: My wonderful parents, both of whom are still alive, as well as selected teachers and coaches and professional mentors across many years.
Morris: The greatest impact on your professional development? How so?
Thorndike: I worked in a lean, entrepreneurial operating (publishing) company right out of college and then in an investment management operation. I was shaped enormously by both of these professional experiences and by a lot of outside reading (including years of Berkshire Hathaway annual reports) over the first 10-15 years of my career.
Morris: Years ago, was there a turning point (if not an epiphany) that set you on the career course you continue to follow? Please explain.
Thorndike: At age 23, on a summer vacation in Maine, I read the first chapter [on Buffett] in John Train’s Money Masters and realized two things: (1) there were both good and bad businesses in the broader economy and it was much better to be invested in the former than the latter – a simple but powerful idea, and (2) one could make a living as an investor outside of a large firm.
Morris: To what extent has your formal education been invaluable to what you have accomplished in life thus far?
Thorndike: I’ve been fortunate to have an excellent mix of a liberal arts (English literature, history, etc.) background and a grounding in the analytical foundation of the MBA curriculum. I’d like to think this combination allows for a varied “latticework” of perspectives and models.
Morris: What do you know now about business world that you wish you knew when you when to work full-time for the first time? Why?
Thorndike: The importance of getting on the “right train” in your career. Finding an industry that’s intellectually interesting and has attractive growth and economic characteristics (my first job was in book publishing which had plenty of the former but none of the latter).
Morris: Of all the films that you have seen, which – in your opinion – best dramatizes important business principles? Please explain.
Thorndike: The Conversation starring Gene Hackman and directed by Francis Ford Coppola, in which a lone protagonist tries to make sense of a fuzzy recording of a clandestine conversation. Much like a CEO trying to focus and prioritize on what is important in a sea of data and media noise.
Morris: From which non-business book have you learned the most valuable lessons about business? Please explain.
Thorndike: Two non-business books served as loose models for The Outsiders – JFK’s Profiles in Courage and Richard Hofstadter’s The American Political Tradition, both interesting group biographies that highlighted a variety of non-conformist leaders and approaches.
Morris: Here are several of my favorite quotations to which I ask you to respond. First, from Lao-Tzu’s Tao Te Ching:
“Learn from the people
Plan with the people
Begin with what they have
Build on what they know
Of the best leaders
When the task is accomplished
The people will remark
We have done it ourselves.”
Thorndike: I think his quote speaks to the power of decentralized organizations, of delegating power and autonomy to local managers, which, as Capital Cities’ Dan Burke said releases entrepreneurial energy while “reducing both costs and rancor…”
Morris: Next, from Voltaire: “Cherish those who seek the truth but beware of those who find it.”
Thorndike: The best companies have open, truth-seeking, clear-eyed, bad-news-first cultures, that emphasize the importance of data and analysis. All the Outsider companies had these types of cultures, modeled by their CEO’s.
Morris: And then, from Oscar Wilde: “Be yourself. Everyone else is taken.”
Thorndike: This is a pitch for independence and iconoclasm: I agree with Wilde’s thought and again think it’s highly consistent with the ethos of the Outsider CEO’s.
Morris: Finally, from Peter Drucker: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”
Thorndike: This points to the importance of time management and prioritization – one of the most important topics for any CEO and much more difficult in today’s data-heavy, media- intensive world.
Morris: In Tom Davenport’s latest book, Judgment Calls, he and co-author Brooke Manville offer “an antidote for the Great Man theory of decision making and organizational performance”: organizational judgment. That is, “the collective capacity to make good calls and wise moves when the need for them exceeds the scope of any single leader’s direct control.” What do you think?
Thorndike: I potentially agree – I think the CEO has an enormously disproportionate effect in any organization regardless of size. However, I think there is tremendous power in decentralized organizations, where power and autonomy are shared broadly and corporate staffs are kept to a minimum.
Morris: Here’s a brief excerpt from Paul Schoemaker’s latest book, Brilliant Mistakes: “The key question companies need to address is not ‘Should we make mistakes?’ but rather ‘Which mistakes should we make in order to test our deeply held assumptions?'” Your response?
Thorndike: I agree. Intelligent risk taking is essential to business success. Mistakes are inevitable, however I think the best CEO’s tend to take their time and make a smaller number of larger, higher probability bets.
Morris: In your opinion, why do so many C-level executives seem to have such a difficult time delegating work to others?
Thorndike: I think a big part of that has to do with cultural norms in different organizations and with conventional wisdom around executive roles.
Morris: The greatest leaders throughout history (with rare exception) were great storytellers. What do you make of that?
Thorndike: Every CEO needs to be able to communicate priorities. These narratives, however, do not need to be grandiose and florid. Often short and clear is most effective and metrics can play an important role in these stories as well.
Morris: Most change initiatives either fail or fall far short of original (perhaps unrealistic) expectations. More often than not, resistance is cultural in nature, the result of what James O’Toole so aptly characterizes as “the ideology of comfort and the tyranny of custom.”
Here’s my question: How best to avoid or overcome such resistance?
Thorndike: The best antidote is long term consistency of the message and the reinforcing (hopefully high) quality of results.
Morris: In recent years, there has been criticism, sometimes severe criticism of M.B.A. programs, even those offered by the most prestigious business schools. In your opinion, in which area is there the great need for immediate improvement? Any suggestions?
Thorndike: I think generally MBA programs do a very good job. I think, however, capital allocation should be an essential part of introductory Corporate Finance classes. I also think efficient market theory should be emphasized less in Finance and Investment Management classes (and more time should be devoted to studying best practitioners).
Morris: Looking ahead (let’s say) 3-5 years, what do you think will be the greatest challenge that CEOs will face? Any Advice?
Thorndike: Over any time period, how to tune out the noise of media and peer activity and think independently – what are the key drivers of value, how can I structure my time to focus appropriately on them?
Morris: Now please shift your attention to The Outsiders. When and why did you decide to write it?
Thorndike: After preparing the Singleton material for an internal CEO conference, I had a chance to work with another talented HBS second year student to look at another company (Capital Cities) and began to realize this could be a broader project.
Morris: Were there any head-snapping revelations while writing it? Please explain.
Thorndike: I was stunned by the strength of the pattern, the number of similarities. I expected some overlap but the number and consistency surprised me. Pretty powerful…
Morris: To what extent (if any) does the book in final form differ significantly from what you originally envisioned?
Thorndike: There’s more material and meat in the introductory sections and concluding chapter due to the above pattern being more powerful than expected.
Morris: What are the defining characteristics or core components of what you characterize as a “radically rational blueprint for success”?
Thorndike: An intense, unshakable focus on optimizing long term value/share versus growth in overall revenues or employees or profits. All sorts of specific decisions/actions flow from this simple, powerful shared focus and mindset.
Morris: You focus on eight exceptionally successful CEOs, all of whom have an “outsider” mindset. Please explain what you consider to be the single most important defining characteristic of each. Let’s begin with Tom Murphy (Capital Cities Broadcasting)
Thorndike: Avuncular, yet extraordinarily focused and disciplined.
Morris: Henry Singleton (Teledyne)
Thorndike: Brilliant, analytical/scientific, an optimizer
Morris: Bill Anders (General Dynamics)
Thorndike: Blunt, decisive, action-oriented.
Morris: John Malone (TCI)
Thorndike: Engineer, coldly analytical, bold and visionary
Morris: Katherine Graham (The Washington Post Company)
Thorndike: Consummate “convener” and recognizer of talent, an unexpected iconoclast
Morris: Bill Stiritz (Ralston Purina)
Thorndike: Poker player, free-thinking insider, sponge for new ideas, tough-minded
Morris: Dick Smith (General Cinema)
Thorndike: Patient but occasionally bold, team builder, family man
Morris: Warren Buffett (Berkshire Hathaway)
Thorndike: The Exemplar, CEO/Investor, Investor/CEO, Teacher/Philosopher
Morris: Here’s a question I have wanted to ask ever since I read your book. What do all eight share in common in terms of who and what they are not?
Thorndike: Promotional, free-spending, and visionary but certainly not a follower or conformist
Morris: You refer to them several times as being “iconoclasts.” How specifically has that helped them to achieve extraordinary success for themselves and for their companies?
Thorndike: As it relates to capital allocation, this independence of mind, or iconoclasm, is what allowed for occasional, effective high selling and low buying over very long periods of time with related large effects on per share value.
Morris: Which (if any) of them would you characterize as “charismatic”? Please explain.
Thorndike: In the traditional sense of personal magnetism – Tom Murphy and Warren Buffett probably had the highest levels – both could light up any room they entered. All, however, would have been fun to sit next to at dinner.
Morris: After Reginald Jones selected Jack Welch to succeed him as chairman and CEO of General Electric, he urged him to “blow it up.” In your opinion, what is the significance of that remark?
Thorndike: Jones was wisely signaling to Welch the importance of new approaches in continuing GE’s long term success.
Morris: To what extent (if any) was Jack Welch’s leadership of GE “radically rational”? Please explain
Thorndike: Welch looked with clear eyes at GE’s portfolio of businesses and made the very hard decision to exit those where the company was not a leader/(# 1 or 2 in market shares). Hard and rational and unconventional at that time.
Morris: Obviously, there is much to admire about each of the eight CEOs but I think that Henry Singleton seems to be especially significant. Is that a fair assessment? Please explain.
Thorndike: Singleton was the earliest of these Outsiders, taking the CEO slot in 1961. He was also truly brilliant and came to the CEO spot relatively late in life (aged 43). He was a scientist first and businessman second and he pioneered a whole set of these outsider practices – minimizing dividends, buying in shares, making selective use of debt, selling and spinning off companies when appropriate, eschewing Wall Street and media attention, etc. Buffett was an early admirer of his…
Morris: Here’s a hypothetical question. You have been asked to select four pre-20th century U.S. business leaders to be honored with a monument for Outsiders that is comparable with the one honoring four U.S. presidents on Mount Rushmore. Your choices? Please explain the selection of each.
Thorndike: Can’t say I’m terribly well-versed here, but from my reading, both Andrew Carnegie and John D. Rockefeller exhibited significant Outsider traits (frugality, humility, analytically-based rationality, etc.).
Morris: In your opinion, what are the most important lessons to be learned from Benjamin Graham?
Thorndike: The idea of “Mr. Market,” the manic-depressive who shows up daily to offer to purchase your shares or sell you his. The concept being that the market exists to serve investors and will provide occasional, irrational opportunities for patient investors.
Morris: Tom Murphy had Dan Burke and Warren Buffett has Charlie Munger. What are the most important business lessons to be learned from relationships such as these?
Thorndike: All of these Outsider CEO’s benefitted enormously from strong #2’s/COOs who managed the operations, allowing the CEOs to focus on broader strategic/capital allocation issues.
Morris: In the Epilogue, you provide “The Outsider’s Checklist” to assist business leaders with making effective resource allocation decisions (and hopefully avoiding value-destroying ones). Of the ten, which seems to be the most difficult to accomplish? Why?
Thorndike: Probably determining the hurdle rate (or minimum acceptable return for investments) and then appying it by consistently calculating returns (using conservative assumptions) and going forward only with those that exceed the hurdle.
Morris: Let’s say that a CEO has read and then (hopefully) re-read The Outsiders and asks you to help institutionalize the “outsider mind-set” throughout her or his organization. Where to begin?
Thorndike: Again, start with agreeing on a hurdle rate. Creating a culture that focuses on data and returns. If a public company, systematically calculating the return from buybacks and using that as a benchmark.
Morris: For more than 25 years, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies, those with $20-million or less in annual sales. In your opinion, of all the material you provide in The Outsiders, which do you think will be of greatest value to leaders in small companies? Please explain.
Thorndike: I think there’s enormous value to any business leader in being exposed to best practices, to models of excellence and to self-selecting those that best fit your own specific personality and circumstances. As a generality, take time to analyze all growth-related decisions using conservative assumptions, ignore your peers.
Morris: Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?
Thorndike: “Who embodies these outsider principals in a non-business setting?” I think there are great related examples from science where people outside the “academy” (Franklin, Darwin, Shannon, Hamilton/Price, etc.) have been consistently responsible for some of the greatest advances.
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Will cordially invites you to check out the resources at these websites:
Housantonic Partners website
The Outsiders Amazon page