Ep 91: "I whooped his ass!" Legendary Investor & Home Depot Founder Ken Langone on Leadership, Courage & Defeating the Bad Guys

0:00The most important person in the company are the people on the floor of the stores because they're the ones that interact with the customer. We have 3 ,000 people that started pushing carts in from the lot. It's about as entry-level as you get that are multimillionaires today. And I took him on, and you know what? I whipped his ass like he was a rented mule. My bill was$23 million, my legal bill. If he ever sticks his head up again, I got more. I wake up every morning, and I put my American flag pin on my lapel. I look up at the ceiling, and I say, Grandma and Grandpa, thanks for coming to America.

0:39Ken Langone is an extraordinary American. He's an entrepreneur, an investor. He's a fighter. Ken helped start Home Depot, which he's been helping build for over 40 years. He's the largest shareholder in companies like Eli Lilly. He's a personal mentor of mine and a friend. Really excited for you to meet him. One thing that's interesting about Ken is that when the government used lawfare against his friends, he stood up for them. And then the government came for him and he fought back and he won. Some of the things we're seeing right now in our country with lawfare is the stuff that Ken dealt with and pushed back on and defeated the bad guys 20 years ago.

1:10It's a good role model for how you stand up strong, how you show courage, how you get people around you to show courage, too. We need more Americans like Ken. I'm Joe Lonsdale. Welcome to American Optimist. We have a friend and mentor and great American Ken Langone with us today. Ken, thanks for joining. Thanks for having me, Joe. I'm honored to be here. It's amazing to see you. I want to ask you to start about Eli Lilly. This is things on fire. Stock's been on a tear. You're now the largest shareholder. How did that happen and what's going on there? I will only say I own a lot of stock, a whole lot of stock.

1:38And I've been told, although I don't know, that I'm the largest individual stockholder in the company. How did that happen? It happened because there's two things I think work well for me. Loyalty and patience. In 1977, I had a small medical device company in California by the name of IVAC Corporation. Lilly was very interested in getting into the medical device business. And bottom line was we made a deal with Lilly for Lilly to buy IVAC. 1977. So that means you've been a shareholder for - 47 years. So give us a crash course in your investment philosophy. Is this normal? You hold these things for a long time?

2:21My average holding is 42 years. 42 years on average. Right, on average. I believe in getting to know management very well. I believe that the key to any great investment are the people at the end of the day. Sure, technology is important, but where does the technology go? Doesn't management change multiple times during those periods? And sometimes you have ups and downs. For example, we sold out in 77, and there was a palace revolution at Lilly. and the guy that had been made CEO for a year got fired, born Bryson. And they brought in a fellow who ran a phone company to be the head of the company.

2:58Bryson got fired and the guy that was there that should have gotten a job was Sidney Terrell, who I knew very well. And Sidney stayed, thank God. And Sidney finally did get the job. But you held even though it was the wrong CEO for a while because you thought it'd be fixed. I got to know the company. Well, by the way, when Lilly sold to me, they had a market cap of$2.5 billion, and they had sales of$2 billion. Pretty low market cap to sales. And they gave us roughly 2.5 % of Lilly for our company. There's inflation in the economy, then things were valued really cheaply back then. Yeah, but also, you know, unless you had a, by the way, a big drug then was$100 million a year.

3:37Wow. That was considered to be a successful drug. What's their big drug doing now? Is it GLP-1 stuff they're doing now? Is it the biggest? Well, I think that Mangiorno probably, by 2030, the pundits say, probably will be over$30 billion a year, well over$30 billion. The whole market now is up to those GLP ones. Amazing. You know we're producing a few billion dollars for them with one of our companies right now worth this stuff on the wholesale side, advanced biomanufacturing. Oh, sure. Well, there's such great demand. They're in short supply. And that's then a novel. So Lily, I think the profile on the Lily molecule is far more beneficial than the Novo, but Novo's got a great product too.

4:22So anyway, I got it. I got to know the management. I got to know everybody in the company. I had enormous respect for them. I think they were conservative. They had a great balance sheet. And by the way, they had a nice dividend. So I took a company that was, by the way, IVAC, when I took control in 1972. in a proxy fight, had a market value then of a million and a half dollars. Public company. Public company. A million and a half. Public by accident. The guy that was running the company, the guy that I threw out in the proxy fight, would take a packet of stock certificates and one of the devices they made, which is an electronic thermometer, and go to Las Vegas and go to the back where the band was and take out the thermometer, and he'd sell a guy's stock for a dollar a share,$2 a share.

5:10Crazy. And that was his undoing because factably we had to go in and register all those shares. Then you have to go public when you have to shareholder. So for five years we were public from the time we took control. But we got it cleaned up good. We put a good group of guys in to run it. That's funny. So anyway. So to put a good group of guys in, what have you looked for in management and leadership? What does that mean to you? First of all, I look for honesty. That'd be the basic stuff. I look for honesty. I look for wisdom in terms of breadth of thinking. Are they thinking provincially or are they thinking globally?

5:46Are they thinking about the opportunities and the possibilities? The thing I loved about Lily's research was they had a strong franchise in antibiotics back then. They had a significant animal health business. Ironically, they owned Elizabeth Aud and the cosmetics company, which they eventually sold. But more importantly, they made their mind up. They wanted to go into medical devices in a bigger way. So they bought a cardiac pacemaker company. They bought a defibrillator company. They bought a number of companies related to devices. Most of the devices, of course, were related to it. So integrity, expansive thinking.

6:28And also, Joe, were they willing to stick their neck out and take chances? Research in R &D, R &D and pharmaceuticals is a high risk business. And you got to spend a lot of money to be in the game. Really right now this year, I think their budget, their R &D budget is going to be over$10 billion. They're still taking risks. They're still being bold. Well, they're doing it. And included in their research are the cost of clinical trials. Yep. So you can't make a claim unless you go through significant. Of course. They've spent a lot of money developing these products and applying them to new markets.

7:03and the results look very, the point is it's always about the people. So my focus always has been, I'm not a scientist. I don't know molecule from a, whatever the hell else you want to call something scientific, but I know people and I have a pretty good nose. What are you bullish on right now? Are there certain teams or certain areas? Yeah, I'm bullish on a company right now called Option Care Health at-home services, medical services. So for example, if you're a patient and you need a certain medication intravenously, they have pharmacies all over the United States. They ship the drug to the home for the next day.

7:41A nurse shows up the same next day. That's amazing, yeah. And the nurse does the administration there. It seems like keeping things out of the health systems, you save a ton of money. Well, you save money, but also it's safer. Lower infection rate, believe it or not, hospitals are dangerous places. The hospitals kill people by mistake. Well, because disease is in the hospital. That's what the hospital is there for. So they got a hell of a good management. They had a weak start, but the guys that came in to run the company have pulled it together. And I'm very excited about that. And I've already owned that stock now almost five years.

8:17And we've done okay, but I think we'll do a lot better in the future. Amazing. Ken, I want to ask you a little bit more about what it takes to be a leader. Your father was a plumber. Your mother was a cafeteria worker. Neither of them went to high school. you started working at age 11 or 12. How'd your upbringing shape you and help you become a leader? For example, one of the things I won't take a backseat to is judgment of people. I got a pretty good nose for people. That talent or that ability became conscious to me when I was a caddy. Oh. And I'd caddy for people. There were two types. There were guys that if they had a bad shot, They didn't blame it on anybody else for themselves.

8:59And there were guys that they had a bad shot. They're looking around. Who's around that I can blame? And typically the guy that gets the punishment is the caddy. The caddy, yeah. But I learned close up, because these guys, don't forget, they think we're just mechanical. We don't evaluate. We don't observe. We don't do the things. I made it a point to studying the men I was caddying for and how they behaved and how they treated each other and how they talk to each other and how they treat the caddies. To this day, Joe, one of the things I love to do, if I'm being asked to evaluate somebody for a job in one of the companies, I like to take them to a meal.

9:40And I love to watch how they interact with a waiter or the busboy. How do they talk to them? Yep. What's the tone of their voice? How do they value them as people, you mean? Exactly. Do they have empathy? Do they have the ability to make a bridge? I know if you have a waiter that feels good about you, for some mysterious reason, whatever, the service is always better. Yeah. I'll be right back or I'll bring you this or I'll bring you, oh, you want this? I'm sorry. It shows awareness of what matters to them too. That's the whole point. That's their life. Yeah. And one of the things that really disturbs, I was having been in that category myself, you don't feel good when you're beaten up upon by somebody that you can't fight back.

10:23Yeah. Because, you know, that guy's going to give you your tip after your caddy. You don't want to tell him to drop dead because if you do, he goes, oh, you told me to drop dead here. I'm going to stiff you. Yeah. Same with waiters. And where I get superb service, I like to reward them exceptionally. This reminds me, I know the story of Home Depot is well known. You talk about it a lot, but it reminds me of how you talk about the managers and associates there, right? Tell us a little bit about that. Well, I just had a meeting Friday. I took 25 store managers and district managers to lunch. I do it once a year.

10:53At Home Depot, I still take him to lunch. And I have him around in a big circle. We'll go to an ice restaurant. I let him off the menu, whatever they want. And we go around a room and we talk about what they like and what needs to be fixed and what's wrong. And you've got to listen as much to what's wrong as to what's right. Because if it's wrong, you've got to fix it. But one of the things that comes through loud and clear, again and again, the positive side, the culture. how we take care of each other, how we care about our associates. I'll make a bet that of those 25 remarks from each one of them, I'll bet 75 % of them focus on the culture.

11:34And that was something we developed day one. That was something we said, we're going to be mindful that the most important person in the company are the people on the floor of the stores because they're the ones that interact with the customer. They're the ones where if they give the customer a great experience, The customer's got a room in. The waiter. One of the things that always stuck with me, Ken, is when we met early on, you were talking about Home Depot. You were so proud of how many people you made successful by building that. We have 3 ,000 people that started pushing carts in from the lot.

12:05That's about as entry level as you get. That are multimillionaires today. And by the way, most of them - 3 ,000 multimillionaires from this time. And most of them are still working here. Now, guess why? When we went public, we had a$50 million capitalization. 50 that's all last year we had a 400 billion dollar market cap that's real money these days do the math it's 27 % compounded annually so these kids that hung in there these kids, I mean and by the way these years of service, 30 years 28 years, 35 years amazing how many people and why do they hang in there they liked where they worked, they felt They were important.

12:48They felt that they mattered. They were rewarded. They were given opportunities for progression. All the things that motivate people, that's what we did. That's America in a nutshell. Let's switch gears a little bit and talk about fighting for America. Your book, Ken, is called I Love Capitalism. Right. I love the title. You know, a cynical young person might say, of course you love capitalism. You're a billionaire. What would you say to them? I said, but I wasn't when I started. Right? I didn't have a silver spoon in my mouth. If I did, I never saw it. The point is, Joe, we bring a lot of people to the party with a stink of the fact that Bernie, Arthur, and I and Pat Farah, four of us, with$2 million in capital, today we have a half a million associates.

13:31And by the way, last year we initiated significant pay increases for the hourlies. Our attrition rate has plunged. And that's important because you know what? Those people are now trained and they're on the floor. if you replace them with somebody new, you got to go through the whole course of indoctrinating them, orienting them, training them. That goes away. So you know what we did? We're realizing that by not having to recycle people or not having to put new people in, we're able to do so much more for our people. So capitalism actually led you to want to give them ownership, which led you to want to make them millionaires because you all went together.

14:07I want them all to be billionaires. I want them all to have a good, I want them all to be like my friend Joe Lonsdale. I'm serious. That's what I want. So, Ken, you're a fighter for values you care about. You're a fighter for America. You know, there's a lot of successful people who don't speak out. Like, what are the ways in which you're fighting? And what led you to be willing to be controversial? Joe, no pain, no gain. I believe that it's incumbent on me, it's a moral obligation on my part, to do all I can to propagate all those things that I benefited by in this country. The most sinful thing right now in America, in my opinion, is the dire straits public education is in.

14:49It's a mess. I went to a public school in Long Island. I got a great education, even though I wasn't too excited about getting educated. But in spite of myself, most of it got through to me, and I benefited by it. So starting with that, I'm very passionate. I'm very supportive of the Catholic schools here in New York. How do we fix the public education system? It's a mess. The woman who used to be smart and go into it, they have other jobs now. How do we get talent? How do we make it work? The teachers were brilliant. They organized themselves into a political force and they have great sway over the politicians.

15:25There's a lot of reasons why public education is bad in America, but one of the biggest reasons, in my opinion, is a lack of quality instruction, teaching. And I think unless we address that to start with, nothing's going to change. You've got to hold the teachers accountable for... Absolutely. And you know what? There should be a capital. There should be an incentive for those teachers. You should make the best teachers wealthy. Those teachers that show results, a test, an objective test, like New York State has the Regents. Yeah. Nobody sees that test until the morning the test is given to the students, not even the teacher.

16:00The teachers that taught Regents courses, not all courses are Regents, like math was geometry, trigonometry, history, English. those teachers, the tests results are as much for them as it is for the student. Yeah. Because if there's a high failure rate of those tests, you have to ask yourself the question. What are the teachers doing? What happened? Yeah. Where did the transmission of knowledge? We have to have some kind of accountability. Absolutely. So that's one thing. The other thing is job creation. I'm excited about the number of kids that we've hired at Home Depot, barely out of high school, 18 years old.

16:39A store, Home Depot store in Long Island, has$100 million a year revenue, one store. He's got 250 people working for him in that store. He's got an enormous responsibility in inventory and management, in positioning the company in terms of products and knowledge of the market. He's in business for himself. He can go run any business after five years as a Home Depot store manager. So we benefit there. We benefit. They benefit. They develop skills they never would have had a chance. When I talk about capitalism, I'm saying right up and down the line, the more we can do to bring people to the party, the stronger the capitalistic base becomes.

17:18We're only going to keep the country capitalist if we fight for everyone to win. Kids that work at Home Depot now, they're conscious of the stock they own. That's great. They're conscious of what it's worth. They're conscious of what they're now able to do. One guy I'm sitting next to yesterday, the other day, he's from the company a long time. He's telling me about this big boat he's got. I'm saying to myself, hey, that's great. he comes to work in a bunch of stores every day and at night he goes home to his boat and that's the benefits of capitalism there's no sin in living well that's what you want I want to ask you about education one more time because you guys did something here in New York and you've done a lot of things in education but the Harlem Children's Zone I thought was such a cool thing so you had a part of town where the kids were some of the worst scorers in the nation just really really failing and you guys did a series of things where you and our friend Stan Druckenmiller and others Stan brought me into it early on And for 10 years, I was chairman of this.

18:11What we did, we started with the afternoon school program. And Jeff woke up and said, wait a minute. By three o 'clock, there's too much going wrong. We got to get these kids to go to school. This is Jeff Canada, who's an African-American at Harvard. Yeah, African-American. He founded it. And he said, we got to have a school. And now, every single kid that's going to our school has graduated from our school. Every one of those kids has gone on to college. You're giving them male role models. You're teaching their parents when they're young. Well, to the extent they have parents. A lot of these kids come from broken homes.

18:47A lot of these kids don't live in any kind of a home at all. It was shocking to me the number of kids that we had that were homeless. Wow. So we take them blind. We don't care what their background is. We take them and thank God for Stan's rucking mother. He got into it early. I just thought that was amazing. and you took the most troubled area, one of the most troubled areas of our country and you iterated and you worked with these kids and you proved the kids from any background could actually succeed if you worked on them hard enough. And by the way, now that program is being adopted all over the United States.

19:18So Jeff has now effectively moved on from HCZ to a higher level where he's now working with communities all over the United States because President Obama, when he heard about it, said, we got to do this all over America. It works. That's great. It works. I hear the teachers unions don't like it very much usually. No, because, hey, we're showing them. We've got the same kids they had. Here are our results. Their answer is, well, they come from broken homes. And we say, yeah, that's right. That's why you've got to do more. You've got to do more to help them. So it's only President Obama is smart enough to see that that works.

19:52He wants to help the kids. And yet he supports the teachers unions who are against it. He's playing both sides. How does that work? Hey, Joe, politics is politics. It's complicated, huh? And, well, where is his bread buttered? He's getting money from one side, so he can't fight them. If he has the school teachers, don't forget this, what,$380 ,000 or some huge number? And$80 a month dues? Think of the amount of money they can throw into the political process. And that's all going to help his party, so he can't really fight them. That's going to help who feathers their nest for them. That's what it's all.

20:25Who's being compromised are the kids. Look at the Catholic schools here in New York. Look at the results from the Catholic schools. And by the way, in New York, kids that go to religious-based schools get zero support from the state. Yeah, it's crazy. I think we get 27, HCZ gets$27 ,000 or$28 ,000 per student from the state of New York. Well, that's why it's working better then. Well, because we could have, and by the way, we have bonus programs for teachers. We have an extra period of time at the end of school. The kids have to go. We have summer school that's mandatory for kids that are failing.

21:00to bring them up to speed. So we're making the effort and we're spending the money. And as I said, Jeff was the creator, but he had the wisdom, I guess the good fortune, to latch on to Stanley early on. And what Stanley has done here and Stanley brought me and other people in. What you guys have done is amazing there. I want to switch over, Ken. You're a fighter. You fight for what you believe is right. In the early 2000s, you had a front page showdown with the New York Attorney General Elliot Spitzer. You were the chairman of the New York Stock Exchange. No, no, no. I was chairman of the comp committee.

21:31So you're chairman of the Dinger Stock Exchange comp committee at the time. That's right. And he was going after Wall Street to make a name for himself. The typical thing people do is they back down, they settle. Most of them did. Yeah. Why do you take the fight to Spitzer? Because it was wrong. We did it legitimately. More importantly, we were not a for profit. We were not a not-for-profit. So we weren't under his jurisdiction. We paid sales taxes. We paid insurance. We paid, I'm sorry, income taxes. We paid real estate taxes. Charities don't pay any of those things. Yeah. We made one year a couple hundred million dollars for the exchange.

22:06We paid big federal taxes and state taxes. He comes after us because at that time, this is right around when Enron blew up, the big issue was how much these guys were making. They didn't want people making too much money. Well, here's where they all blew it. The typical New York Stock Exchange chairman came from outside the industry. So a fellow by the name of Mel Batten, who was a retired CEO of JCPenney, he served for five years as chairman. Bill Donaldson, who had been on the board of Philip Morris, and he founded Donaldson, Lufkin, and Jen Redd, he served for 10 years. We had SERP and SES.

22:50We had these plans for paying people. When Dick Grasso got the job, he was the first person to start at the very bottom and go to the very top. He started as an$82.50 a week clerk. Wow. Union clerk. A union clerk almost. He had 40 plus years of service. When you look at what it did with the payout, it drove the number through the roof. But that was the deal that was made. Yep. It was in place. All of a sudden, I had these captains of industry. I might have been there. I'm not sure I was there. I don't know if I knew about this. I think I might have known about it. Because people were just afraid to say they knew about it.

23:29They were terrified by Spitzer. They were terrified. No one wanted to stand up to him. I asked one of them, a good man, a good man. I said, how can you say you don't know? You knew everything. He said, I know, I know. But you know, he said, Spitzer's a bad guy. And if he comes and gets you, you're going to be in trouble. I said, well, he's coming for me. Let's see how much trouble I get in. And I took him on and you know what? I whipped his ass like he was a rented mule. It reminds me today of how they came after Elon Musk for getting paid too much. The judge tried to take out the deal. He's fighting back.

23:59No, there's an example. And old Elliot, the only thing I regret that it ended. I was having more fun. And more importantly, my legal bills were all covered by DNO insurance. Oh, that's funny. So you keep fighting. Oh, I'd have gone on as Dick Grassus. But he tried to put you in big trouble after you stood up to him. What did he do to you after you stood up to him? claims, his claim was that I misled the other members of the comp committee about Grasso's pay package. Well, I had a very interesting practice. I kept very strong records of who showed up for the meetings. People that were on that committee that didn't show up for a meeting where we were going to go over Grasso's pay package, I would have the head of HR go to their office with all the information in their office for as long as it was took, go down and give them all the information.

24:49And I had proof that every single one of them knew everything that was going on. And in the case of one guy, this is a great story. I love it. For his deposition, I showed up and he says, what are you doing here? I said, you know, I said, Martha Stewart went to jail for lying and she wasn't even under oath. Yep. you're going to be under oath. And I have the evidence. And as soon as you lie, I'm going right down to the U.S. attorney's office and say, lock him up. This guy's lying. Here's the proof. He said, why are you doing that? I said, I'm doing it for one reason and one reason alone. Now, let me give you a little bit of the flavor.