Sunday Pick: Why kindness is the secret to a successful business | Fixable

0:06Hey, TED Talks Daily listeners, I'm Elise Hu. Today we have an episode of another podcast from the TED Audio Collective, handpicked by us for you. Could kindness and a little math be all it takes to save a company? Impact investor, professor, and author James Rhee certainly thinks so. In this episode of Fixable, James sits down with Anne and Frances to chat about the importance of deep mutual respect in the workplace and why acting with grace, even in the toughest times, can lead to unprecedented success for teams, people, and businesses. You can find more episodes of Fixable with Anne Morris and Frances Fry wherever you get your podcasts.

0:46Learn more about the TED Audio Collective at audiocollective.ted.com.

0:56Hi, everyone. Welcome back to Fixable. I'm your host, Anne Morris. And I'm your co-host, Frances Fry. Frances, today we're doing another fantastic Master Fixer episode. we'll be talking to James Rhee, a professor of entrepreneurship at Howard University and MIT Sloan. He's also an entrepreneur, an impact investor, an incredibly effective change leader, and he's the author of Red Helicopter, A Terrible for Our Times, Lead Change with Kindness, and A Little Math. Change with kindness and math? Thank you. Yeah, your two favorite things. When I saw the title of the book, I knew we needed to have him on the show.

1:34He showed up on everyone's radar about a decade ago when he became the improbable turnaround CEO at Ashley Stewart, a company that's primarily serving black, moderate income, plus size women. I'm just I've seen this picture. Yeah, he wasn't an obvious fit for the gig. When he took it, he was a slim, well-paid Korean American private equity investor who, by the way, had never been a CEO before. And he pulled off this spectacular turnaround in part by building a culture of kindness at the company and pursuing a strategy based on deep respect for his customers. And what I love about it is you don't have to be the customer to have deep respect for the customer.

2:18I think we're all going to learn a lot. Yeah, it's such a cool story. And today we want to talk with James about how he did it, the lesson he's taking from this experience, and his current mission to bring more kindness and more humanity to the rest of the business sector. Let's go.

2:49James Rhee, welcome to Fixable. Thank you. Thanks for having me. I've been looking forward to this. So have we. I don't think we've ever liked someone so much before we've actually met them. Oh, no. So thank you for that human experience. Oh, no. The expectations are very high. Nowhere to go but down, James. Yeah, I know. Don't fuck this up. I won't. No, I'm sweating bullets. In the intro, which you didn't hear, we described your mission as bringing more kindness and humanity to business. Is that how you think about it? I think I'm trying to bring more kindness and humanity to life. And work is such an important part of having fulfillment as a human being.

3:32So why not at work too? And so many of the things that we live in, systems we live in, they're so arbitrary, right? So I'm just asking people, what do you think? If there was a way to live more like the way that you want to live in your workplace too, And it was, quote, productive and, quote, efficient and, quote, profitable. What do you think? Would you try? And so that's sort of the nature of the book. But it's mostly focused on a life. We write books also and think a lot about words. It seems like there are kind of a lot of words that we could use to describe what you're getting at. I'm curious about how you settled on the word kindness as a focus.

4:19It was not planned 10 years ago. And I mentioned in the book that it came out of my gut, soul place. I don't know where it came from, but it was in a time of chaos and the most bleak moment. And I hadn't used that word since I don't even remember when. And I said it. I said kindness and math. And I think that in retrospect, I came up with those two words because those were words that they're almost, they're incontrovertible. They are highly intuitive. And they're much more part of the natural order, like physics, music. And then in Korean, there's another word called cheong, which is a feeling of connectedness that can be good or bad.

5:06And in the TED Talk, I talked goodwill. That's the closest English word for it. But the way I would describe it is the movie scene, for those of you who love It's a Wonderful Life, it's the end of that movie that Mary was able to show George, Look at all of this goodwill or chung you've created in your life. And I think it's a concept that's going to be increasingly important over the next 10 to 50 years as we hyper-rationalize and we're just in a zero-one type game. And I think chung and kindness, these are twos. Yeah, you sometimes use the word freedom, too, as the goal here. Where does freedom fit into your story?

5:49I think freedom is not what we are portraying it to be in media, that it's this hyper solo activity where you can do anything you want. I think freedom properly defined really comes hand in hand with mutualism and accountability in a circuitous way. I think freedom is really an understanding of your basic concept of self agency. yeah you know that it's internal motivation it's intrinsic motivation that you really are on a path where you understand who you are who you want to be who makes that path better for you easier for you and that you sort of like come up with your own life money joy equation that and you do your best to do that that that to me is freedom yeah it feels like a very powerful theme in your story.

6:42So we would love to get into what you did at Ashley Stewart to change this company's destiny and really record time. Just to set the scene here, can you give us a sense of the before and after? Yeah, I was early 40s, private equity, Boston guy. And there was a company called Ashley Stewart. It's on the surface diametrically opposite of me. And the company had sort of been bereft of funds for 20 something years. So I had a lot of operating losses. There was a lot of weird stuff going on in the company. Couldn't attract the best talent, money getting siphoned away, heading to its second bankruptcy in three years, no goodwill, six weeks from liquidation.

7:29And that's the status. I had no Wi-Fi. There was no connections on Wall Street. It was going. And it was going to die a quiet death because they also didn't have a lot of clout with the media. There weren't going to be any like uproar about save the company. And that's the before, right? And it didn't sit well with me. And so metaphorically, you can imagine they were servicing and employing plus size black women, moderate income. So when you gather them in an entity, you can imagine how the systems treated the entity. And I was a sort of like reflective law school, public defender, private equity guy who used to teach high school, who cared very deeply about people looking at these women and seeing my mother.

8:14And so I went for six months. It was supposed to be six months. It ended up being seven years. Then the after is that the company went from being worth its inventory, which was like 10, 12 million bucks, to a solid nine-figure valuation, realized cash. Company never made money. We made more money in our first year than I paid for the assets. I mean it was shocking but I think as you all you both are experts at this for the people in the car doing it with me there was no shock that's the before and after and I think these most people didn't know what we had done for a long time because we didn't really want to talk about it like we were really happy like just being and enjoying each other's company but now it's coming out because people are like, oh, the world is starting to hit what I was loneliness and, you know, different convergence of alliances of people and sort of combining Eastern and Western philosophies.

9:20And like, I think that's why there's interest now in the story. Yeah, I see it as a very positive indicator that the world is very interested in what happened here. So in the beginning, you started out going more slowly than your private equity colleagues would have advised you to go. What did you learn from the choices you made in those early weeks and months? I was creating situations that were cognitively dissonant for people where I had no office, you know, and I kept explaining and some people give it lip service, but it was really just operationally made this way, that the people on the front lines were much more important than anyone in the home office.

10:02And so I spent most of my time actually out in the field. I was hanging jewelry. In stores. Yeah. Learning about peplum and like shark bites and just talking to the customers and getting to know the women who had been there for so long. And I asked them, I sort of pleaded with them. I was like, just teach me, like, tell me what's wrong. And you have to picture a group of frontline workers in retail, and then you add gender and race, they were nervous at first to really tell me the truth. Even though they trusted me, it took time for them to feel it, right? And I kept coming back. And tested. Yeah.

10:41And then I got very personal. I just said, you do remind me of my mom. I told the story about the Korean grocery store to them where my mom acted so differently outside of our house, other than when she was in a comfortable place like the Korean grocery store once a year. And I could see it in her whole comportment. And I said, I see the same thing that happens to women when you interact with them. How beautiful. You defined it as a safe place and that you were fundamentally in the business of safety. Safety and fellowship. And I was a beneficiary of that safe place too. They had every right to sort of laugh at me and to like not trust me, but they really gave me a chance.

11:21but that's the basis of real friendship. And so they, they gifted me that. It's beautiful. You mentioned your Ted talk, which everyone should watch. And in it, you lay out a few pillars of your turnaround strategy. And I'd love to just go through those one by one. You talked about creating this culture of kindness. And in our experience, cultures, it's such a big part of change leadership and it can be also hard for people to get their heads around? What are the actual levers of culture change? So what did you do to change the culture of this organization that you think was most impactful? Some of the things we talked about, it was those things, but it was really getting to the heart of it was defining kindness correctly, but not just through PowerPoint, it was through words and ultimately through organizational realignment.

12:22Fundamentally, people were taught that to be successful here and in life, they had to learn the definition of how kindness relates to agency. That kindness, to me, is really an investment in someone else's agency. The ability to sort of be self-informed about decisions. Informed, right? But not perfect to try to help someone find their freedom without asking for a payment. It's not transactional, but it is an investment in them. It's an investment in a system. It is an investment. So it was really sort of getting people to understand kindness, ultimate investment in agency. So from a physical standpoint, all the trappings of hierarchy were eliminated.

13:11No job titles? No, like fancy offices, pecking order on offices. I think I joke in the book, I was driving a beat up Nissan Altima and they kept saying, drive a nicer car. I'm like, no, that's like, why would I need that? There were not laptops, like people in the meetings. There were very few meetings you would see. There was a Monday morning meeting that I think Bezos, you know, I didn't do this. But remember, he has this thing where he set up meetings and no one had computers. He had to write an essay. So it was like almost like running like a humanities class where people were asked, like, to have done all their work and to be able to speak to it.

13:53So people used to laugh and say, we feel like we're at school. And I'm like, you are. I'm learning. And so these are the things people laughed. There was so much self-deprecation. there were ridiculous things like spontaneous karaoke where the worst people would sing and people would be like oh interesting like it was we filmed ourselves and then put it out into marketing to save money but also to show people that this was so people felt very safe in that way too like self-deprecation laughter tears were part of the mix I did not ask people to be humanoids. And in kind of one example of a mindset shift, you started to think about payroll as an investment, which was not very private equity of you, James.

14:44No. Well, I think the way that numbers are organized on a spreadsheet is how you categorize them. So sales is the first thing you see. Cost of goods sold, got it, gross margin. And then expenses, marketing, rent, labor. And so I kept saying to people, pull labor out of that spreadsheet because this labor, it's you. It's the people sitting next to you. It's a beautiful example of math versus accounting. And so like, can you solve for net income before labor? And so you solve for that, But then you're like, oh. And so people who are less accounting or finance oriented, I would sort of say it this way.

15:31I'd say, check this out. When I was growing up, little James wanted to play Little League. But Jennifer, my little sister, she wanted to do ballet. And there was enough money for a new baseball glove or Jennifer's ballet shoes. Jennifer got her ballet shoes. James didn't play baseball. And as a family, we made that decision. And there was a little bit of pouting on my part. But I got over it. because that was best for the family. And so when you pull labor out like this, I kept saying to everyone, I was like, why are you treating the landlords or our social media consultants or whatever the same as your colleague?

16:09Like, shouldn't we create a system where we maximize like a country would, like our inflows? Let's keep as much of the inflows for us. A lot of the things we did, they were so simple. But what does that practically mean? Like if I wanted to leave and I wanted to run my business there because I need to know how much money I'm going to have at the end of the day and I did have to spend money on labor. So by highlighting that net income before labor, you're essentially saying let's look at our profit and let's not concern ourselves with the labor cost. It seems symbolic to me, but I'd love to hear you pragmatically.

16:48If I adopt that mindset, how would you guide me? Yeah. So number one, you are right. Much of the book and how I wrote it and what happened at Ashley and a lot of the brands I'm a part of, it's a mindset first, right? It's like a mental model saying, oh, it's possible to do it a different way. So doing a little bit of that type of manipulation of spreadsheets and pulling things out, it reminds people to just think differently, right? To say, okay, I'm being primed to think a certain way. I should not be so hasty in this. So the second thing is that I watched and I expected people to want to know how the company actually made money.

17:31I'm like, you're opining on things in your, quote, department, but you don't know the impact this has on these four other parts of the general ledger. Do you want to know? And so that was number two. And so that people were compelled to learn about how to build a business from scratch. About the physics of the organization. On this tactical front, I think the third pillar of your strategy that I think was really interesting, you changed the way you worked with your customers and the role they played in the business. Yes. It dovetails nicely with Francis' statement. It's like with labor, I said, okay, our customers, if they are huge net advocates for us, I think our NPS score, I think McKinsey did the study.

18:20I think it went from like 37 to 90 in like two years. it's the highest mps uh so awesome they've ever seen like but i just said well why do you look at the customer aren't don't we want them effectively synthetically to be working for us so it's it's basically creating leverage in your quote labor account it's zero expense it's actually contra expense like don't treat them like just customers like what happens if they were, quote, colleagues. Like, what would you do? And so it's expanding that definition. And then I think the other thing we did well, once so people understood the business, sort of laughed and said, oh, labor is us.

19:03I actually had very detailed conversations with them about the meaning of words, like what does compensation mean? And I was honest with them. And I said, I can't, quote, compensate you in hard dollars, narrowly defined as much as I want to. It's just I can't. And by the way, I also understand if at some point you want to leave and go in a better industry based on the teachings that I'm doing every Friday, I will be the first one to do that. I'm like, that's good. so the compensation on things like this was like it's cash it's also like i focus so much on like the health plan which was one of the worst we had a gold standard health plan we made it a point to afford it it was really important to them the flexibility the leave policies we changed we tried to incentivize if you wanted to start a family i counted babies because the whole get get back to the minds.

20:06I love that as an indicator of a healthy organization. Yeah. I mean, like. The number of babies. And people laughed. And I was at JP Morgan's, they laughed. And it was like 50, and I just said, well, and then they got very serious about it. They're like, you're right. Because think about, you have to do 20, 30 changes at the same time to solve for that problem. And so it gets back to the compensation. Here's some more practical things. One, people worked more joyfully. You can imagine we had very little expense in terms of recruiting and retention. People stayed. I taught them, which was a free investment from James's time, that they got better.

20:46They had better agency. They were more informed. It was an investment in that public good. The workers' compensation expenses insurance went down so much that I, and I labeled this, I said, this savings and insurance is not mana from the heavens. This is our collective asset. And I paid it out in the form of synthetic dividends because when I gave raises, I said, it's coming from this pool of money that we earn together. Beautiful. That's really nice. Right. And so everyone was a quote equity owner in the company and everyone in that business felt and then economically were treated in certain ways as an owner.

21:30Like they owned their mutual behavior. And this is how they, that reward, behavioral reward, it was linked to mutualism. So that was one example. And then, I mean, the other example in terms of just the math, in terms of math being kind, after I got more familiar with fashion and things like this, and then you have basics that are slower turning and then fashion items get higher margin, higher risk. And so after I understood the product flow, I ran the inventory. We created algorithms like a hedge fund. Like ultimately we can sell the bra or the basic turtleneck, the basic cami, the basic jean, like the regular cut.

22:13Hey, one day it will sell. So it's like a lower risk financial instrument, like a bond, little upside, but you get your money back and you get a quote coupon. And in this case, the coupon is called the gross profit on the bra or gross profit on the jeans. And then I said, wait, that's kind of boring. You can't have a diversified portfolio with just bonds. So we need some equity. And so there would be certain fashion pieces that were fashionable that would go out of style in six weeks, right? And so I just said, oh, like, let's have this. It's higher risk. That means we have to turn, we have to sell it faster.

22:55The margin should be higher, the dollars, for the amount of risk we're taking. And then there were certain fashion items, they were super risky. Like that's the equivalent of like buying e-liquid real estate in like Argentina, right? Like just like venture, a venture investment that could be zero. And you expect a lot of them to be zero. So this would be like the leather pencil skirt that you're buying. It could go viral. Yeah, it could be a meme stock. Or it could be really ugly and no one buys it, right? And so the whole inventory flow, I set it up as if it were a set of financial instruments instead of it being fashion.

23:38Oh, it's so good. And then I explained it, though. Here's the fun part. You have to picture the buyers and the merchants. You know, the first time I said it, I was like, well, this is what it's going to be like. And they're looking at me like, oh, geez. But, you know, I think I'm a decent teacher. Like, I think in my nature, I'm a teacher. So I find ridiculous ways to teach things. And I just said at the end, do you see what this is? It is kind. I want you to have so much freedom and agency. Go do your job. No one's going to be mad at you. You can't blow up the company if you buy the ugly prom dress that no one buys.

24:19Mathematically, you cannot blow up this company. It's such a beautiful way to empower people. Right. But then they understood it and they laughed. I think a lot of times leaders or companies, particularly in finance or esoteric things, make people feel small or stupid. But I think knowledge should be democratic. And if you can't teach it in a way that people can understand, then you're not a very good leader or you're just arrogant. And I think ultimately it hurts your enterprise. But two of the things I was most proud of when people talked to me about kindness and about math were those two examples, was workers' comp, actuarial, leading that to compensation, creating even better behavior.

25:04And the second thing was this hedge fund inventory, like turtlenecks. So cool. It mathematically creates an environment that is kind. It's such a cool example. Well, James, we could talk to you forever. And I know we're running up against time. Fast forward to now, and you want to make these ideas contagious. What's one or two things you hope that people take away from this conversation? It's social compact, what I'm writing about and saying, can we be kind? Can we be mathematically honest? And those are table stakes. And I hope that your listeners realize that like, it's like unlikely its company was dead.

25:45And it was a Korean guy with no experience doing this, probably all black women, ultimately, a lot of white women came and Asian women came to. And it didn't money was like the third or fourth form of capital we had to use. That's the lesson. That's the lesson. Money amplifies things. And so we started, it was starting off with humanities, civics, science, and then bringing in business know-how to amplify those things. And I think that's what we need. Beautiful. It's such a privilege to meet you. And we're so grateful for your time and energy and example in the world. You're awesome. I feel the same way.

26:27And thank you so much for having me.

26:41Frances, what do you hope listeners take away from this conversation? So a couple of things. One is, this was a, you know, how do you lead change through culture? And what we know about culture is that there are the physical artifacts in an organization, there are the shared behaviors in an organization, and then there are the mental models. And the great teaching of culture is that if you want to change behavior, you have to change how people think. That is exactly what James Rhee is on the planet to do. He showed you can do it in an organization. You can do it in an organization under tough times with six weeks to go.

27:20if you influence how people think, they will reliably behave differently. And if he went in and commanded people to behave differently, it would never have worked. So this was one of the great Edgar Schein's right insight. And so this to me was, I get why it worked. If you want to get people to change their behaviors, don't command them to behave differently. Influence how they think so that they will reliably behave differently. That's the first thing I have. And the second thing I have is that kindness and math. I mean, that net income after labor, that is such a beautiful mental model because we have like net income before depreciation.

28:05Like we have it before all of these like all of these other things, but to do it from a human centered approach, bringing kindness and math together. I really loved it. And my third thought is, kindness isn't lowering the bar. Kindness is actually raising the bar, but giving you the agency to reach it. And I loved that as well. Yeah, it's such a powerful example. You know, we talked about language in this conversation, and it's almost as if you can't really find the words, you know, like mindset seems like it doesn't do it justice. Even culture doesn't, it's like the just core basic assumptions we make as human beings when you shift those, anything is possible.

28:55You get what? And it's possible to shift them on a systems level. And I think that's the core assumption of the work we've always done, but it was, it was, I don't know, there was something so humbling about it being brought to life in such a powerful example. And, you know, you get why Edgar Schein originally talked about the shared basic assumptions. I think he would have said the shared core basic assumptions. Yeah. No, you're right. It's like the word basic. Yeah. It's so important. It really lands with this story. I also think that the piece that I really think about with this example is the power of respect, the respect that he brought to his employees, their potential, his customers.

29:49I mean, again, it's a word that doesn't really do it justice, but when that becomes part one of the shared basic assumptions, that's what we're all doing here. It's part of that emotional foundation. And dignity came to mind for me because there's so much dignity in being useful. I bet the employees were wildly more useful to the organization three days after he started than they were for years before because they didn't know how to be useful. And there is so much dignity in being able to contribute. And so So I'm so in for all of it. And I can't wait to read more. The next book I read is going to be The Red Helicopter.

30:36Yes. Hear, hear. I think that is everybody's homework. Everybody's homework is to read The Red Helicopter. And let's go and bring kindness and math to the world. All right, let's do it. Thanks, everyone, for listening to this conversation. We want to hear from you, too. If you want to figure out a workplace problem together in the collective as part of our shared humanity, send us a message, email us, call us, text us. You can email us at fixable at TED.com or call or text at 234-FIXABLE. That's 234-349-2253.

31:20Fixable is brought to you by the TED Audio Collective and Pushkin Industries. It's hosted by me, Anne Morris. And me, Frances Fry. Our team includes Izzy Carter, Constanza Gallardo, Ban Ban Chang, Michelle Quint, Corey Hajim, Alejandra Salazar, and Roxanne Heilash. This episode was mixed by Louis at Story Yard. If you're enjoying the show, make sure to subscribe wherever you get your podcasts and tell a friend to check us out.