Georgia-Pacific CEO Jim Hannan speaks to CSUEB business students in February, 2012

Okay. Thank you, Terri. So you can see by what you heard of my background that I have an incredibly difficult time holding down a job. Moved lots and made lots of changes. I had some prepared comments I was going to make, but I think I'll first talk a little bit about my experiences and how I ended up from California to Atlanta. But first let me tell you a few other things about myself. I have three daughters, ages 12, 10 and 6. When I'm not doing all that other stuff, that's what I spend my time working on. My wife and I have been married for 17 years, and we had those three daughters in three different states, which might tell you a little bit about my career and the changes in our lives. We also have two dogs, a guinea pig and two hamsters. I tell you all that so you can connect to the challenges we all face in our lives, balancing family with everything else. I try to apply a set of principles and beliefs to everything I do, and that can't be different at home than at work. When you think about your own beliefs and values, you'll find those things transition between work and home. So how did I get to where I am today? Education provides a great foundation, but it's theoretical. When you leave school, you have a great foundation that you then have to go figure out how to practically apply. Throughout my career, I've continued to learn. I learned how to develop relationships, follow opportunities, and interview. For me, working in restaurants for six years taught me how to interact with people, which is surprisingly useful in everything. Then I took accounting classes and it fit well with how I thought, so I went with business administration emphasizing accounting. I worked for Coopers and Lybrand in Oakland for six years as an auditor, which gave me the opportunity to go in and out of different kinds of companies and see how they worked, what made them successful or not. That taught me a lot about comparative advantage. Then I moved to a small gold mining company, where I got more ingrained in operational aspects of a business and learned how to implement changes. Then I went to work for Koch Industries, a large private company with about $100 billion in revenue and 70,000 employees. There I was involved in business development and acquisitions, learning how to set strategy and execute against a vision. The key is that all those different opportunities, from the restaurant to the mining company to Koch, were opportunities to learn. The most important thing is that I never looked for any of those jobs; they came to me because of other reasons. You have to be comfortable with not having a fixed path, but you should have a plan and goals without being so fixated that you won't take a different opportunity. You have to be willing to try something new and fail. And you have to make trade-offs — my wife and I have moved six times in 17 years. But all those moves and changes have made us better. You also have the opportunity to work with people smarter than you, and losing your ability to be humble is the fastest way to the bottom. I've never had a formal mentor, but I've relied on watching good role models. So those are the factors I think about.

He's been in his house 24 years.

So there you go. But the reality is all of those things are trade-offs and decisions you make. Being prepared to consider them creates more opportunity. You also have the chance to work with people smarter and more experienced than you. Losing your humility or intellectual honesty is the fastest way to the bottom. I've never been involved in a formal mentoring program, but I've always had folks I relied on, not just for advice but to watch how they did things. That has been a big part of how I've made decisions. Now let me share a little about Georgia-Pacific. It's an 85-year-old company, founded in 1927 as the Georgia Hardwood Lumber Company. We're in three businesses: consumer products, packaging (mostly brown boxes), and building products. The building products sector has been tough with nobody building anything. The company is just under $20 billion in revenue with about 40,000 employees, most in the US. In consumer products, we make tissue, towel, napkin, plates, cups — brands like Brawny Paper Towels, Sparkle, Quilted Northern, Angel Soft, Dixie plates and cups, Vanity Fair. That's about half our business. The packaging business starts with fiber and recycled fiber, making paper and converting it to boxes. We have about 1200 employees in California, mostly in packaging and gypsum wallboard. The last three years have been the best three years in Georgia-Pacific's history, despite the tough economy, and also the safest three years. We have a philosophy of reinvesting about 90% of earnings back into the business. Since Koch acquired GP, we've put about $7 billion back into capital, innovation, and acquisitions, and paid down about $8 billion in debt, achieving investment grade. Our management philosophy is called Market-Based Management, which applies free market principles inside the firm. It starts with 10 Guiding Principles: integrity and compliance are necessary but not sufficient; value creation is the reason business exists; others include customer focus, fulfillment, respect, principled entrepreneurship. We model these principles and ask our leaders to be the best models. We hire and compensate based on fit with our culture. For leaders, there is no double standard; they must model the principles or they have to go. We apply five dimensions to bring free market principles inside: vision, values, knowledge processes, decision rights, and incentives. For example, property rights externally become decision rights internally. People earn more decision rights based on track record. Incentives are structured to reward long-term value creation. I want to challenge you to think about the growth of government — today about 25% of GDP is spent on government, up from 18-19% historically. This is nonpartisan; both recent presidents have done poorly on economic freedom. We must hold people accountable for being true to these principles because of our future. We have $15 trillion of debt, which is scary.

So yes, Brawny Paper Towels, Sparkle, Quilted Northern, Angel Soft, Dixie plates and cups, Vanity Fair — that's all our stuff. We also do away-from-home products, but that's not here because that's Kimberly-Clark. That's an opportunity for us. So the consumer business is about half our total size. The packaging business makes boxes — we make boxes for Rockstar fruit boxes, for example. I spent last week visiting facilities in California. We have about 1200 employees there, mostly in packaging and gypsum wallboard. The building products include wood panels, plywood, Dens Gypsum Wallboard, and structural lumber. Despite the tough economy, Georgia-Pacific has had its best three years financially and in safety. We run big heavy manufacturing facilities, so safety is important. We have a shared value around compliance and safety. We reinvest about 90% of earnings back into the business. In six years, we've put $7 billion into capital and acquisitions and paid down $8 billion in debt. That financial performance is due to our Market-Based Management philosophy. I challenge you to learn more about economic freedom and hold leaders accountable for the principles because our prosperity depends on it.

One of the easiest ways to make money in business is to go to the government and ask for mandates and subsidies. That crony capitalism is rampant everywhere, and business leaders should resist it. The tax code is full of such distortions. We need to return to the principles that made this country great. Personally, I've taken on increasing roles at Koch and been generally successful. A key is learning from others, not needing to take credit, and being a servant leader who removes obstacles. My biggest challenge is getting used to not having the most knowledge and making decisions confidently anyway.

Humility, intellectual honesty, and respect are crucial. Our principle of Principled Entrepreneurship means thinking and acting like entrepreneurs—urgency, experimentation, good judgment. We want people to think and act like owners because competition is relentless. Creative destruction is constant; look at Kodak and Borders. We need to be irrationally uncomfortable and continually improve faster than competitors.

Any leader is responsible. Ideally, we would measure company value changes annually and share a portion, but that's impractical. We evaluate contributions to short-term and long-term performance subjectively. We have stock-like programs but no direct ownership. Accountability is key. Technology enables personalization, which is a game changer. The bad idea is trying to solve every problem through government rather than letting markets work.

The bad idea is the inverse of what I said earlier: we need to stop trying to solve every problem centrally and let the market handle it. Leaving public accounting for a client was easy because I knew them. Moving to Koch was harder; I initially declined a controller role but accepted a business development job later. Since then, I've trusted the leadership. When making decisions, we focus on key drivers and have a challenge process to improve decisions, not to avoid blame. Culturally, we aim for a single-page paper approach rather than over-preparing.

I try not to overreact and to get over what happened and figure out what to do next. I call it the pebble in the pond theory—my words can create ripples. Most mistakes are learning opportunities, not reasons to punish.

Thank you.