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I Like to Think My Gray Hair Brings Wisdom

Back to my first day on the job. I joined LVMH and Donna Karan International in October 2006, following a whirlwind series of meetings. First I went to the LVMH tower, where I was introduced to the corporate staff as the CEO of LVMH Inc. Then I was whisked away to the DKI offices on Seventh Avenue in midtown Manhattan. I was very careful about how I intended to integrate myself into the company. Even though I was the chairman and CEO, I didn’t want to come in with a heavy hand or behave as if I knew it all or had all the answers. If I hadn’t been interested in people’s input, I believe I would have soured the relationship immediately and not been successful. This is important for anyone who has ever been brought in to a company to implement change. Change is difficult for many people: during my career I’ve found that everybody wants change until you ask him or her to change.

I also had a great deal of respect for what was built before I came, so even though they needed help because they weren’t reaching their financial goals, I respected what they had accomplished against all odds. I needed to consider how I could enhance what they had done and perhaps improve on it but certainly not throw it all out and start over. That was where my gray hair came in: that was the wise thing to do.

I had eight direct reports when I joined the company (who, by the way, were all women). Typically, when a new CEO comes in, he or she wants to bring in his or her own people. Although DK is a great company, I felt the business wasn’t as big as the brand, and in many similar situations a new CEO finds fault and replaces the people who might be responsible for the company not doing what it needs to do.

I had a different point of view. I generally like to love the one I’m with unless there’s a reason not to, and so I wasn’t focused on replacing people; I was focused on evaluating the team. I tried to understand what they did well and what they did not do well. I spent time with my direct reports, and I found that they were all very strong and very good at what they did and that their direct reports were all excellent in their roles. So what was the problem? They were talented, but it became clear that they were not a team. In short order, I determined that it was not the individuals but a collective lack of discipline and leadership, particularly in terms of procedures, timely decisions, and financial opportunities. In short, rules! And the know-how and the will to enforce them.

If you ask people if they like rules, I believe most will say no. Yet internally, we all need rules and we respect them. Where would our streets be without red lights or stop signs? Business is the same. We need to know when to step on the gas and how to navigate. Leadership and discipline go hand in hand. We learn these concepts as children, and in the workplace rules (or policies or plans or corporate governance) are road maps. They must be established and explained in detail, with the benefits outlined clearly. And they must be strictly enforced.

That was what I did. I figured I had a better shot at delivering the goals that were set forth by the parent company by working with the people who were already there and who had the experience, the history, and the expertise to move forward. If I could get them to work well together, we could meet our goals. Also, I thought to myself, If I can turn the company around using the same team and I’m the only differentiator, that will make quite a statement about management—my management.

That’s basically what happened: here I am eight years into a three-year agreement, with the same management team as when I started. The only difference is that the company hasn’t missed a financial goal in the last seven years. Before I came, the management team presented a forecast every year that showed numbers that were financially aggressive, and at the end of that year the numbers missed the goal and were never even close. Then they came back the next year with even higher targets on their sales projections, and at the end of that year they again missed their goal by a wide margin. But after I instituted systems that would enable them to work together better, they never missed a number. They were finally able to deliver the financial results they had forecast.

Meeting the numbers is difficult in any business but always essential. It is especially challenging in the women’s fashion business, which is filled with chaos. After all, the apparel business requires us to reinvent ourselves every four months with new product lines and new concepts, and so it stands to reason that there’s a tremendous amount of volatility. Nevertheless, I believe that the CEO’s job is to manage that chaos, and the only way to do that is to have the right structure, the right organization, the right people, the right rules, and the right disciplines. We had a terrific team of truly talented people, and so the people weren’t the problem. We just needed operations in place to help them work together, and that’s what I believe I brought to the company.

In fact, during those first few months at DKI, I was reminded of a conversation I had had many years earlier, when I first joined PVH. The patriarch of Phillips Van-Heusen was Seymour Phillips, whose grandfather had founded the business. Seymour was in his late seventies or early eighties at the time, and he was a special man. He had dignity, style, and class: when he walked around the office, everyone wanted to bask in his glow.

One day, Bruce Klatsky and I were in the hallway when Seymour walked by and asked us, “Why are we in this business?” One of us (I don’t remember who) said, “We’re in this to have the greatest brand in the world.” “Nope! Try again.” “We want to have the largest market share and dominate this marketplace.” Seymour was a little happier with this answer, but he clearly had a lesson to impart. He looked straight at us and said, “You know what, guys? There’s only one reason you’re in business: to make money. Yes, there are many benefits accompanying earning profit, but you’re in business to make money, and I suggest you never forget that.”

I never did forget it, not while I was at PVH and not when I took over Donna Karan International. DKI had to understand that it needed to make money, and to do that, the company needed to establish and follow certain financial rules. First, when you put a number down on a piece of paper and present it, you own it. You must deliver; you must make it happen. Period. Those numbers have to mean something. You have to believe you can do it, and you have to be able to justify, explain, and support that estimate. Those numbers are you: your future, your credibility.

Second, when you put numbers down on a piece of paper, they have to be monitored very closely. I immediately instituted financial controls at DKI that needed to be in place, including once-a-month financial meetings, and all the division senior managers (i.e., all my direct reports and their direct reports, including the division heads Mary Wang, president DKNY; Carol Kerner, president DK Collection; Carol Sharpe, president DKI Retail; and Cathy Volker, Executive VP of Licensing) were required to be at every meeting. In addition, if we had any new interns working in the company, I wanted them to have the benefit of listening to what went on in those meetings so that they could learn about the financial side of the business.

I think our company should be run more like an investment bank than an apparel company. I think we should always have our eyes on the bottom line while at the same time recognizing that having a strong brand and the right products is what will enable us to meet our financial goals. There is nothing more important than having the right product, at the right time, at the right price, in the right quantity. However, having all those elements in place is critical not to make you feel good about your work, not to make you look good to the rest of the company, not even to have the greatest market share. Instead, it’s so your company can make the most money.

My first order of business was to build trust, financial trust. Credibility. Performance. The company runs like precision clockwork now, and we haven’t sacrificed the product. We are not stagnating. We’re not holding back creativity. We’re just methodical.

Of course, the financial team, headed by Tisha Kalberer, applauded this attention to discipline, and the employees wanted leadership. Many people had been with the company a long time and wanted to see success and were eagerly waiting for someone to come in and lead. I’m not afraid to stand up for what I think is the right thing to do, and I wasn’t going to let anyone stand in my way as I established discipline at DKI. I had the title that enabled me to make changes, but I also knew I was in the right. I knew what LVMH wanted, and that gave me an enormous amount of strength. The major operating principle of LVMH is to support the creative people and give them an environment in which they can thrive. Yet it’s a business, and the business has to work. All the CEOs of LVMH are charged with that mandate: to ensure that there is a proper blend of creativity and business. This mandate was spelled out in a letter from Bernard Arnault to our shareholders in a recent annual report.

I had been a corporate officer for 15 years by the time I joined DKI. I knew what LVMH was looking for and what it expected: they had made it quite clear. And I knew how to present to them. Also, as I had told Donna, I was pure of heart. I wasn’t there for personal gain. I wasn’t there to fight for the CEO job in Paris. I was there to deliver on the plan and thank LVMH for its confidence in me. All I really wanted was a new start, and I was hell-bent on doing the right thing. Couple that with not being needy and with the skills and experience of having led departments, divisions, and an entire company, time and time again, and I believe I was a very effective leader. Trust is the key factor in managing a business from a distance. Paris is a long way from New York. Therefore, I knew we needed to deliver, avoid surprises, partner with the key management in Paris, and build a foundation. We did that.

One thing I thought I was going to teach DKI was how to manage inventory. However, I was surprised to learn that they had a system for managing inventory that was better than any I had ever seen. Inventory is the lifeblood of a company and the death knell of a company. If you have the right product at the right time in the right amount, you’re going to have a winning company. If you have the wrong product at the wrong time and too much quantity—more than you need—it destroys a company. Donna Karan International knew how to manage its inventory: that was one of the pleasant surprises.

In contrast, one thing they weren’t handling well was shipping. “To fly or not to fly” is one of my favorite business stories. It has to do with air freight from Asia, which may seem mundane but is very “luxurious” in terms of cost. One day, in a management meeting, I wanted to discuss transportation and freight, and I asked a question: “What sea-freight company do you work with, and how has ANERA affected your rates?” Dead silence. I thought maybe they weren’t familiar with ANERA—the Asia North America Eastbound Rate Agreement—and so I rephrased the question in simpler terms. Again silence, but this time people were looking around the room uncomfortably, as though they had a secret they didn’t want to admit to. I asked, “Am I asking the question wrong?” Sure enough, someone finally said, “We don’t ship anything by boat.” I was incredulous! Everybody in our industry ships by boat, because it costs a fortune to ship by air; it can cost more than 20 times the price of shipping by boat.

When I asked for details, this person said, “We ship everything by air. We really don’t have a calendar, so we’re always late. As a result, we have to ship by air to ensure that our products arrive on time.” Again I couldn’t believe what I was hearing, but I calmly asked, “What do you mean you don’t have a calendar?” The head of design answered that question: “We have a calendar; we just don’t use it.” Having a calendar (which is essentially a time and action plan) but not using it is tantamount to not having a calendar. I said, “I don’t understand. Do you guys realize the difference in freight between shipping by boat and shipping by air?” They told me they did, “but we need to make decisions at the last minute.”

Even though I was committed to learning how the company did things before I made any changes, this was too expensive a problem to ignore. I said to the head of merchandising, “I’m going to give you a week to put together a calendar that has no air freight. Tell me what needs to be done, and we’re going to eliminate air freight.” She replied respectfully, “We can’t do that. It’s impossible.”

Of course, “it’s impossible” is just another way of saying “no,” and I wasn’t going to take no for an answer, not when so much money in shipping costs was at stake. We were going to find a way to solve this problem. And in this case, it was as simple as setting a calendar and sticking to it.

To make a long story short, they came back with a calendar, and it ended up that if we had, for example, 20 delivery shipments a year, if I allowed them to use air freight for only 2 of those shipments (one in the beginning of fall and one in the beginning of spring), for the other 18 shipments the calendar would enable all of them to ship by boat. This saved the company millions of dollars in that first year.

My point is that even though you want to respect the traditions of a company or a division or a department, you don’t just give up when people say things like “This is the way we’ve always done it” or “There’s no other way to do this.” There’s no way in the world I’m going to accept someone telling me “No, we can’t do that” or “We’ve never done it that way before.” And you shouldn’t either, even if you’re new to the company. Don’t accept no for an answer if you think there’s a better, more efficient, or less expensive way to do things. I believe it’s important for everyone in business today to confront “no” and find a way to turn it into “yes.”