Chairman, President and CEO of Carlisle Companies Inc. - 1st Tuesday

Thanks again, Sheree. Carlisle is headquartered in Scottsdale, Arizona, quite a change of climate for a third-generation Duluth, Minnesota kid like me. In fact, people in Scottsdale ask me quite routinely, with such a tough winter climate, why is Minnesota such a successful place for so many businesses? And I tell them, and I'm going to give a shameless plug to my friend and our own Professor Miles Shaver, I tell them the headquarters economy that Miles published in 2018. It's a great billboard for why Minnesota has some structural benefits that enable corporations there to thrive. Now on a little more serious note, well, First Tuesdays are important. We don't want to forget that we are in the midst of a global pandemic, and our thoughts must continue to be with those affected by the virus, their grief-stricken families, and those on the front lines combating the coronavirus for our collective well-being. Also, last week the United States faced national protests of violence surrounding another death involving law enforcement, this time in Kenosha, Wisconsin. Simply put, there is an immediate need to address the systemic racism that exists within our country and the degradation into violence and social unrest that has permeated all of our lives as a constant threat to our future. Finally, I just want to thank all the Carlisle employees around the globe for their resilience and determination during this really difficult year. I'm here speaking today, but each one of them will likely have just as meaningful a story to tell if they stood here and told you what they did both personally and professionally to get through this crisis. Turning to today's subject of my talk, I've spent the last 12 years at Carlisle. Over that time and before, I've had the great fortune to work with a variety of leaders at many levels who I've learned a lot about management, life, and leadership. What I'm going to share with you today might seem a bit simple, boring, or you may feel it's been said by others, but what I've found is that the most fundamental lessons in business are often quite self-evident. The real challenge for us is systematically executing on those fundamentals every day. It's baseball season for Twins fans on the call, of which I'm one. No one has a clearer view of what is required for a World Series ring than those players whose livelihood depends solely on clear objectives and executing the basics every day: catching fly balls, running bases, pitching, taking batting practice, throwing no-hitters. It's the clarity around what is required to win that coalesces the team. So what I'd like to share with you today is a continuation of that fundamental thought: that there is power with clarity in a crisis, and I'll emphasize that especially in a crisis. When I use the word clarity in the context of Carlisle and maybe even baseball, what I really mean is clarity of strategy, clarity of communications, which drives clarity of execution, and basically how you win. There's one element I would suggest you need to utilize as a leader in today's uncertain and turbulent times: it's clarity. As I'll talk about in the presentation, at Carlisle, having clarity in our strategic plan coupled with a fundamental understanding of how the business works increases the likelihood of successful execution, provides great comfort to our leadership team, helps smooth investor communications, and I believe provides Carlisle's frontline workers with the confidence they need to operate for success in turbulent times like these. Carlisle has tended to be a low-profile company over the years that, when I run into people, is somewhat misunderstood and seems to be more complicated than expected. We've been around for over 100 years in many different industries. I think it's become known as a portfolio of industrial businesses, but rather than tell you all about Carlisle, let me show you a short overview video which Carlisle's marketing team actually just produced. In fact, they were very happy to hear that the world premiere of their work would be this First Tuesday event. So let's look at the video, and it will show you some highlights of who we are as a company and what we've built as a team over the past 100 years.

Now that you know a little bit more about Carlisle, let's turn our attention back to this idea that clarity matters. Everyone in this audience understands that driving growth and profitability consistently is very hard, and let me repeat that: it is very hard. In a recent Bain study of approximately 5,000 companies around the world over a 10-year period, fewer than one in ten consistently grew and earned profits and returned their cost of capital over five sequential years. That's less than 10% of the companies, and that's really a statistic that when I heard it seemed unbelievably low, but reconfirmed how difficult driving growth and profitability is. At Carlisle, we understand the pressure to grow by our daily interactions in the capital markets and by simply looking at our share price. I'm reminded of the early days at HB Fuller where I had the honor of spending some time with the well-known management advisor Ram Charan. Ram shared with us the simple concept that a company's share price is the management scorecard. So if you believe this, then every day in a public company you get feedback on how you're executing your vision. So it's really important to understand how to manage the company to best optimize the chances to achieve superior performance, because that performance is what drives sustained shareholder value over time. So why specifically is it hard to sustain growth over time? In my experience, it's largely due to the fact that organizations lose focus on what matters most and waste valuable time, energy, and talent pursuing non-critical activities. As a senior leader, an essential part of my job is just to cut through that complexity and communicate a clear, direct, simple strategic vision for the organization that informs their priorities, educates them on mission, and guides their everyday actions. As a CEO and leader, all the work is really done through others, and one has to be sure that the strategies and actions we seek to drive aren't diluted as the message spreads through the organization. It is really essential that one be clear, simple, consistent, and importantly, repetitive in communication. As a leader, one gets paid to allocate talent and capital effectively. The organization has to understand very clearly what is expected. If the message isn't incredibly clear, the business will, as I said before, waste resources including time, which we all know may be the most valuable resource we have. Unfortunately, the fact is that organizations will get the answers right some of the time but not all the time, despite our best intentions. With the understanding that no one in an organization seeks to fail, the fact of the matter is, like the old game of telephone, we lose a fraction of our message each time it is repeated, and by the time it reaches a few people down the line, it's fundamentally altered. So think about that: just from CEO to a mid-level manager, without clarity, the message can be lost. At Carlisle, we found the best strategies focus on answering a few key questions like those on this slide to resolve resource allocation and ensure there is clarity on those few elements of the business model which differentiates us in the eyes of our customers. It's also important to understand that strategy done well appears almost self-evident. So realistically, many of you sitting in the audience at home maybe saying right now, 'Yeah Chris, I get it, we learned all this stuff at the Carlson School.' And we did. But what I mean by this self-evident statement is that the most powerful strategies are almost always very easy to understand, but the hard work comes in translating those strategies into actions that employees can implement. So despite a clear message and a solid framework, it is extremely important that the fundamental communication piece be done with clarity, at least that is what I'm finding during my tenure here at Carlisle. So I'll say it again: though not difficult to understand this idea, it's extremely difficult to communicate clearly and to drive efficient execution completely through the organization, especially in an uncertain work environment like we are all experiencing now. So how do we address these five questions at Carlisle? In January of 2019, when I took over as CEO, a couple of things were on my mind. First, we all knew that the leadership transition to a new CEO is fraught with challenges. Quite simply, change is hard for everybody, so the most important thing was to have a successful transition from the previous CEO to me in that first year. Secondly, as a new CEO, there was an expectation that there would be a new vision. Investors, board members, employees, and shareholders are all asking you the question as a new leader: 'What are you going to do now that you've taken the helm?' And one thing was for certain, there was no question I wanted to take a ground-floor-up approach. The reason this was important is it was tied into clarity. It was important for everyone in the organization to understand where we were headed. So first, we needed to have a common set of communication tools with the business from shop floor to C-suite. Next, we needed to be clear on the key drivers of value that would differentiate us, and to be clear on those activities and actions we absolutely were not going to pursue. For example, some of Carlisle's focus was to be on maximizing price, utilizing the Carlisle Operating System to unlock value, and clarifying where we would focus and again not focus our M&A efforts. What we were concentrating on was indoctrinating the organization on clarity. And as a reminder, clarity was important not just for the internal team; we were also seeking to provide clarity to our board and the investment community, whose support of Vision 2025 was essential. What's interesting is that when we presented our approach to investors, one of the first questions I got was why we spent so long developing the strategy, because we took probably a year to do it. My answer was we really didn't spend the year solely on strategy; we spent some of the time on strategy, but the majority of the time was focused on driving clarity in the message and within the entirety of the organization. So we had clarity of mission, but how good is clarity of mission if you don't have an ability to fund it? In addition to having strategic clarity, we also focused on having clarity on our sources of liquidity, cash flow generation, and the balance sheet strength for the duration of the strategic plan. Even to this day, when I talk to investors especially after the onset of COVID, I'm frequently asked: 'Do you have enough funding to continue to execute on Vision 2025 in this time of crisis?' And the answers are really simple: yes. We've always concentrated on driving yearly margin leverage and we avoid too much debt to maintain flexibility and liquidity even in the toughest situations. Through the crisis though, I've been reminded of a quote supposedly attributed to Jamie Dimon that came out of the 2008 recession, and that quote was: 'You can never have too much liquidity.' Our financial strength has historically served Carlisle very well, and it's continued to serve us well during this COVID crisis. So big question: how did we do on Vision 2025? By all objective metrics, Vision 2025 was delivering solid performance for Carlisle shareholders. We had excellent traction in the marketplace. Our shareholders rewarded us for our consistent improvements in growth and profitability. And then the pandemic hit in early 2020, bringing tragic consequences to people worldwide and devastation to all our economy. Needless to say, in the first few days of the crisis for the Carlisle leadership team, clarity of mission and clarity of communication focused on the health of our global team, their families, and the communities in which they live. Once we put in place the safety and security requirements for our team members, the question then occurred quickly: can Carlisle continue to execute Vision 2025 while facing this unprecedented market turbulence? And even more importantly, was the clarity of focus that was developed as part of Vision 2025 still relevant when the COVID crisis hit us in early January, first at our Chinese facilities? The initial focus was, as I said, to respond to the immediate threat by protecting employees and stabilizing the business. Carlisle's strong balance sheet and ample liquidity ensured that leadership's focus was on the employees and serving the customers, not dealing with a financial existential threat to the business. Carlisle's financial position allowed our leaders to rapidly move to the next and current phase: accelerating through the recovery. In fact, our goal was not only to accelerate through the recovery but to quickly move on to retooling for what would be the new paradigm. That was essential: to reconfirm Vision 2025 and get moving on accelerating through that recovery to gain a competitive advantage where we could. Even now, we are actively focused on where and how to create additional value for our shareholders, identifying attractive new opportunities that might be pursued at a discount, and delivering to our customers at an even higher level of engagement. It's still early days, but our business is recovering. We fully expect to accelerate our growth trajectory and come out of the pandemic with an unchanged focus on our vision. So back to Vision 2025 for a minute, and how clarity helped us through the crisis. Let me offer a few observations here. First, we built a strategy not just for a two or three year time period; to me, that's just long-term budgeting. We actually looked out seven years so that we could pressure test our vision in good times and bad, to understand if even in the case of recession or some other negative impact we'd be able to perform. So lesson one then was to incorporate the difficult decisions around what could go wrong and how to manage around it over a longer time period. Finally, we leverage our conservative financial mindset. A great example of this was early in the crisis we refinanced a portion of our debt, taking advantage of lower interest rates that were created by the downturn. All this has given us the ability to react quickly to new market opportunities, and more importantly, we tried to treat all the key constituents we serve very well through the crisis, because I think as everyone knows, people remember being treated well, and that generates long-term positive growth and a lot of employee satisfaction. So lastly, and more broadly, let me offer a few thoughts on other important elements of clarity, strategy, and leadership that I've found useful as I've progressed through my career since I graduated from the Carlson School. We talked about the leader's role in allocating capital and talent. Great leadership enables teams to succeed and reach their full potential. It's really as simple as that. Without leadership, even the best strategies will falter. It's the role of the leader to both stay out in front of the organization but also to be able to stand behind the team and push them to accomplish more than they think is possible. Returning to the baseball analogy, it's the coach's job to ensure the fundamentals of the game are understood, practiced, and executed flawlessly at game time. That wins baseball games. So from my perspective, there are three critical elements to great leadership. First, steady, consistent focus on the goals and targets that have been agreed to: Carlisle's Vision 2025. Sometimes organizations can get distracted by the latest diversion. It really is the job of the leadership team to consistently reiterate the vision and hold the team accountable to the commitments they made. Secondly, you can't have clarity in the organization as a leader if you only stick to the 30,000-foot view. You must have the ability to dive down to the front line and understand what matters to the people doing the work, and more importantly, understand how the work gets done. Without a clear understanding of where and how the business adds value, it's difficult to see how a leader can drive efficiencies and effectiveness through their teams. And finally, leaders need to be balanced. That's what clarity of vision brings. Even in a crisis, you don't get overwhelmed or panic. People don't see tension or anxiety; they see the leader having clarity, sticking to the mission, and driving an organization with purpose. When there's stable leadership in a crisis, people don't focus on the crisis; they focus on their work and on the execution of the work, because that is what will bring them together and get them through the crisis. Humor me for a minute as I choose to close with a few thoughts on common mistakes leaders can make when thinking about strategy. I won't review all of these, but let me highlight two in particular. When I took over from the previous CEO of Carlisle, we made a conscious decision to challenge everything. And the great thing was the former CEO was still Chairman, and he supported that approach because we both understood that you can't assume what made you successful yesterday would work tomorrow. Part of a great strategic planning process is then questioning everything you take for granted. It's always surprising to me how often people take performance for granted and are surprised when their world changes unexpectedly. It's important to examine every aspect of the business and ask questions that may seem incredibly basic or fundamental. You'll often find great insights as you examine the answers. And finally, it's our human nature to be equitable; we all want to treat our businesses the same, but that's not the reality. Rather than allocating those precious resources of management time, talent, and capital evenly across the businesses, it's the job of the leader to make the tough decisions on talent and capital allocation. I found this at Carlisle and in my previous work experiences, and by the way, this is something all of you have heard before and it's true, but I'll reemphasize it: making the tough decisions can be lonely and uncomfortable, but as a leader, there will be times where you are in a situation where the support seems thin and you have to make the call. Those decisions will define you as a leader. I really appreciate everyone taking the time today to hear my thoughts, to hear about Carlisle, and to hear about the power of clarity in a crisis. I want to once again, on behalf of everybody at Carlisle and my team, thank Sheree and the entire Carlson School for giving me and Carlisle this First Tuesday opportunity to speak. Sheree, back to you.

Well, Sheree, again, it's almost you can't reiterate it enough. I mean, the first thoughts in this were really around the people that we work with, their families, the communities. And once we did get the processes in place across the globe to operate safely, and I'll say we are operating safely, I think we publicly said that here today: over 15,000 employees, we've only had 130 or 140 infections. We found that through the summer things started to accelerate, and most importantly, I think we have a real bias for action in our company. So once we got through the health concerns and we felt we had a framework in place where we could protect the employees, then we really focused on this idea of accelerating through the economy, getting back, dealing with the Zoom meetings and Zoom calls, figuring out how to get out to job sites, and more importantly supporting the people in the factory. So for us, I'm not going to say nothing's changed, but Vision 2025 is intact. Everybody knows what they're working on, we all know what to do, and so we're focused on that, really getting back to work and just dealing with what we've got to deal with as something that might be the new paradigm.

Yeah, I think that the thing that we saw with investors was obviously concerns around the financials. I mean, we could just do it on the P&L, and first thought was revenue and how are you going to generate revenue. And as we've said in some of our quarterly reports, it did get worse than it was when we started the year. But then investors quickly, once we reached out and we did reach out and we asked them if they had questions and we wanted to make sure that the Carlisle model was intact, that we're still working on Vision 2025, and then they really turned to the future. And I think that's where there's been a lot of uncertainty, because obviously we have a lot of different opinions about what will happen with the aerospace industry or what will happen in China or what will happen with trade negotiations with different countries. But that's the great thing about Vision 2025: they can see with clarity where we're going to head, what we're going to act on, and more importantly, they can see that strong cash flow, that strong balance sheet, that they know we're going to have enough firepower to get through this. And I think that's when they turn back to asking questions again about Vision 2025 and how we're implementing it.

They really haven't. You know, we have four key capital deployment strategies. Obviously, we're going to fund the businesses and what they're doing every day to drive that organic growth and leverage that growth. Two, we're going to pay the dividend. It's the, I think this year we paid in August the 44th year of consecutive dividend increases for Carlisle Companies, so we continue to do that. Then we look for these strategic and synergistic acquisitions, and we still see that as a very viable way to grow our business. You can see from one of the slides that we've made quite a few acquisitions over our time period. We still think that's a great way to drive a portion of our growth. And then lastly, when we have situations where our stock price is below its intrinsic value, we look opportunistically to purchase shares. And honestly, with our financial position, it's been great. We've been able to do all those things to the extent that we wanted to under Vision 2025.

Yeah, that's great. We have hired some University of Minnesota graduates. We like the ones we've hired; they've done some great things at our company. They've gone out to many divisions and had a solid impact. I think what really is important to us is that they fit in well with our culture. Our culture is we're a diversified company, decentralized, entrepreneurial, and continuous improvement. And the thing I like about the Carlson grads really is in that decentralized, entrepreneurial vein. They don't need a lot of coaching to get started, to take on the new projects, and to add value very quickly. We're pretty impatient; we want to grow, we want to improve ourselves. We look pretty critically at our operations, and I think they come in with a great critical eye, an understanding of what needs to get done, and most importantly, they're very pragmatic and they get to work. They understand the theory, but they really do a nice job in implementation of that theory.

Yeah, I think you have to take a different view. Obviously, it's going to be challenging. I saw in the Wall Street Journal I think today there was an article on MBAs entering the workforce and how it's creating anxiety and tension. I think that's normal. I can remember when I graduated, I was very tense about getting my first job. Thank goodness I found such a great company in the HB Fuller Company to hire me and give me that rotation program that set me off on my career. So I look back on that and I think about that time. And I think for us, we acknowledge it's going to be difficult, but again, I think this idea of clarity around Vision 2025, on looking for a diverse pool of high potential candidates, I'm not sure that that changes. And so we'll be back at Carlson School, and we'll be looking for interns, and we'll be looking for graduates that can really come in and help us drive the value. And it's going to be a lot more difficult obviously going forward to drive value, so we welcome that group in, and hopefully they'll provide some new ideas that can help us grow.

So it is correct: productivity, process, people. I think it's all embodied in what I would call COS, our Carlisle Operating System. For those of you who know the history with Ohno at Toyota and the Toyota Production System, and then the great work that the Danaher company did around the Danaher Business System, and Honeywell and other great companies that use the Honeywell Operating System, I think it uses those three things. The people obviously are the most important. We put them in processes to drive productivity. And what we do is we look for areas of opportunity through Kaizen events. And really, this work, when you talk about the strategy, how often do people see it? They're seeing it every day, because as part of COS we have a process called Policy Deployment. Policy Deployment really begins at the corporate strategic level, and then as you work your way down through to the factory floor, it cascades all the way down to what we call the SQD board: Safety, Quality, Delivery, and Cost. And those are worked on every day. We see the charts, we see the newspapers where the employees will write comments, criticisms, concerns, and they get addressed. So it's really about involvement. We've driven quite a bit of savings, multiple millions over the 10 years since we've developed it and since it was implemented at Carlisle by Dave Roberts, my predecessor. And it's been one of the great signature ways to get people involved. And I'd say not only our current employees, but when we do an acquisition, COS is one of the first things we come in and train on. And that idea of getting people together and immediately working on a problem alleviates a lot of the tension you see around acquisitions and gets people pushed in a direction of productivity and of work, which really makes things go quite well in our acquisitions.

Well, it's interesting. The team that put together Vision 2025, at least at the executive level, is the team that constructed it. And I refer back to that idea that we used a ground-floor-up approach. And really, we did have some partners in this. One of the partners was Bain, and Bain had an interesting phrase, a couple of words we liked, called 'full potential.' And I think what happened in the strategic planning process with our stable management team that had been around for a while is they really got to participate in the construction of where we were going to head as a company. And I think that really eliminated a lot of conflict at the senior executive level around what our mission was and what our vision was. And it even did it at the managerial levels within the division, because that's what they were working on for that year: how are we going to maximize the company's opportunities using this full potential concept? So I think though, from time to time, you're right, there are people who may disagree. And I think that's part of the continuous improvement process: voicing those concerns, having them addressed, and then we talk through it. And ultimately, it's your choice to come to work for Carlisle, and if your values don't align, or if your idea of where we should go strategically doesn't align, then you get the option to find a place where you can better utilize your talents.

Right. Well, one of the first things I should tell you is that it's very interesting that ESG has taken a prominent place in business today. I think it's appropriate, obviously it's needed. What I would say is we've been around for over 100 years, and one of the things is we talked about ESG and the construction of it. People started to say, 'Hey, this is how we behave, this is what we do. We're already doing a lot of these things, we're just not talking about it.' And so really, that first ESG report was a pleasure to produce, and it was exciting for everyone because I think in the words of our Director of Sustainability, Dave Smith, he said, 'We finally get to tell our message.' And there's some great messages in there. We recycle an incredible amount of used tires in our Portland facility from an acquisition we made of a company called Denka. And we're doing things around the $15/hour minimum wage that we made part of our company in North America this last year. So we're doing a lot of it. I think it's necessary. I'm pleased it's more formal. Our board is taking this on. It's a serious issue, and obviously there's a long way to go, but we feel like we're making good first steps in this, and we want to be an active participant in making this a better reality for everybody.

Sure, because I go back to the idea that we've been around for 100 years. I don't think we ever, and I hear this from other business leaders, I don't think we were ever solely focused on the shareholder. That takes a lot of the focus just because it's an easy thing to see and it does value your business. But obviously, to run a successful company, to continue to have people engaged in the process, to be able to attract world-class talent like we have from the University of Minnesota, to be able to expand globally like we have in Asia Pacific, Africa, the Middle East, China, I think you have to be deploying and agreeing with a lot of the values around the thought that there are different constituencies in your success that need to be listened to, need to be addressed. And we try to look at that every day and every year. I mean, that's part of our continuous improvement process: constantly looking at the data we have in front of us and then saying what areas can we improve upon.

I don't have any words of wisdom. I do have to let you know honestly that more than a baseball fan, I still play hockey, and I'm a Minnesotan. And you can't be from Duluth and not be focused on hockey. So while I use the baseball analogy, there's no question for four hours a night in our household every night, there's Stanley Cup playoff hockey on. So when we get done with the Stanley Cup, we'll get back to baseball, and hopefully I'll be in time for the World Series.

Thanks, John. I think for me, it's really around that value creation, value generation, and being able to look at things even at the factory floor level. Doug Taylor, our Vice President of COS, spends a lot of time running the program and working with teams. And I think for leaders that are coming in, that idea of being able to get a group of people together and utilize the COS toolkit to extract value and drive value within the organization is extremely important. And I think if we can get entrepreneurial leaders that understand the idea of entrepreneurialism around creating a new program or a new device or something like this, but we also need the entrepreneurial spirit within our workforce in terms of things like, 'Hey, I will raise my hand and I will go to an ex-country, or I will raise my hand even though I've been trained in finance and I will spend some time on the shop floor working as a supervisor because I understand that ultimately Carlisle makes products and I need to understand that process too.' So I think that entrepreneurial mindset really transcends the traditional entrepreneurial thought and gets into a lot of things. What we're really looking for is that self-starter, that self-motivated person, that person that can look for inefficiency and has the courage and push to make change happen, and make positive change happen.

Right. Thanks, Jason, that's a good question. In fact, we just were digging into that. For us, it's been interesting. When you look at our profile, we've spent a long time trying to expand globally, but the fact of the matter is the wonderful job our Carlisle Construction Materials team and Carlisle ESP has done has meant that we have driven a lot more growth out of North America than anywhere else in the world. As a result of that, right now we only spend about 6% of our supply chain on Chinese and foreign source products from that country. And I think that's where the focus of the supply chain question really is. So for us, 183 locations, wonderful talent throughout the world. What COVID has really done is, I would say it hasn't really had an impact yet on our supply chains in terms of the traditional lack of products showing up at the ports or that, but it's made us think about our supply chain strategy. Last year we brought in a new role, we called it the Director of, and it became Vice President of Supply Chain, a gentleman by the name of Mark Smith who's been with our company for a while. He took that job, he came out of our Carlisle Interconnect Technologies business, to be able to really address these issues and get a more global perspective on our supply chain, leverage things across the businesses. But right now, I think Mark would say that the impact has been minimal from a direct impact on Carlisle.

Well, I think part of the dialogue between two people is always a question and answer session for both parties. And so I think really, we do, we're willing to listen. You can listen as much as the person is willing to talk, and then you can also ask the questions. I think both parties have responsibility. That really is epitomized in this Kaizen event where we're getting different layers of management, different responsibilities within the organization out to the front line, we're focusing on a single issue. And yeah, I think it starts off with questions. A lot of times the questions are coming from every direction though: 'Why are we doing this?' And then an explanation comes, and then 'Why does that happen?' And then the person may ask the question back: 'I don't know, you're the one that put that process in place.' So I think it's really just a back and forth. And I can tell you, the goodwill and kind of relationship building that occurs in a Kaizen event is really powerful, and we really like those, and we do those every day.