Shaw's Ken Jackson: Focus on Leadership
Interview by Kemp Harr
Ken Jackson was born in Nashville and grew up in Tucker, Georgia, just outside Atlanta. Jackson studied accounting as an undergraduate at the University of Georgia, thinking at the time that he wanted to attend law school, but he later chose to get his master’s in taxation. He spent the early days of his career at Arthur Andersen, where he became partner after only nine years, and found himself serving a number of flooring industry clients, including Shaw Industries. Bob Shaw hired him as chief financial officer for Shaw in 1996.
Q: As an avid hunter and fisherman and passionate fan of the University of Georgia Bulldogs, you’re sort of an anomaly among the accountants that I know. What made you pick accounting as a professional focus?
A: I’m not quite sure how to take that question! At any rate, initially I chose accounting because I thought at the time that I wanted to attend law school. I talked with the law school admissions team at Georgia, and I learned that they placed a high value on an accounting major. I also found that accounting really rewarded hard work; in other words, if you were willing to work hard, you could be successful in the field. Finally, when I was coming through school, it became clear that if you were successful in accounting, you were almost assured of a job. My father was also successful in finance as part of Westinghouse’s corporate financial group.
Q: When you got your master’s in taxation, was your goal to eventually become a CFO for a manufacturer?
A: No way was that ever a part of my plan. I chose to pursue my master’s in taxation because it was, to me at least, a perfect combination of two disciplines. You worked with numbers (the accounting side), but you were also working with the law (the Internal Revenue Code). My goal was to become a partner in one of the Big Eight accounting firms of the day. I really never thought about leaving public accounting.
Q: Tell us about your early days with Arthur Andersen.
A: Public accounting, and in particular working at Andersen, was tremendous fun. Yes, it was a lot of hard work, but it was also interesting. My first assignment, believe it or not, was to prepare the corporate tax return for Shaw Industries for their fiscal year that ended June 30, 1980—which I did by hand!
I started off like everyone else as a staff person in 1981 and eventually became a partner in 1990. Along the way, I served a number of companies in our industry—Barrett Carpet Mills, J&J, and Shaw, of course—and I also served other manufacturers like Georgia Pacific and Club Car. Certainly the most unusual client I served was the Augusta National Golf Club.
I worked with a lot of great people at Andersen, many of whom left a huge mark on my career, and I got to see so many interesting transactions along the way. It was like getting paid to pursue a wonderful postgraduate degree in business. I loved it!
Q: What was the most difficult part of transitioning from your role at Arthur Andersen to your role at Shaw?
A: Basically everything was pretty new to me. Certainly my accounting background was helpful. However, you have to remember, in 1996 Shaw Industries was a public company, so all the banking relationships, the investor relationships, and the SEC reporting was brand new to me. The great news was that Bill Lusk (the previous CFO) stayed on for about a year, and he helped me with the transition. That, and the fact that Shaw has good people in a lot of places, was a huge advantage. You know, when I first got here, Bob Shaw advised me to be curious about what we were doing in certain areas and why, so that’s what I did. I also got another great bit of advice, “God gives us all two ears and one mouth; use them proportionately,” which is particularly good advice when you are brand new in a situation.
Q: What new skill sets or disciplines did you have to learn?
A: I had to get up to speed with SEC reporting, stock transactions, investor relations, bank facilities, internal reporting, pretty much everything. I had a ton to learn, but probably the biggest thing I needed to learn was what makes a business work. Remember, my prior experience was as a tax partner, rendering advice to clients in that arena. That was a far cry from what I was doing at Shaw.
I remember telling Bob Shaw, as I was agreeing to come here, that I might not be the most qualified person for the job. His response was interesting. Essentially he said that a resume lists facts, but he preferred to bet on people. With that, I jumped off the diving board. It was too late to worry about whether there was any water in the pool or not!
I knew a lot about Shaw Industries’ tax situation, but I was brought in as the CFO. I had to learn about the flooring business, which you don’t get as an advisor. You can’t be sufficiently deep in a business when you’re serving a lot of different clients in a number of different industries. I now had to completely focus on the business of Shaw Industries. When I first started, my family stayed behind in Atlanta for a while, which—though I certainly missed them during the week—really allowed me the time to dive in and get involved in trying to learn this business.
Q: You joined Shaw right as the company decided to venture into retail. Did you foresee what might happen and advise against it?
A: I really had no idea what would happen when the company went into the retail business. In fact, I’m not quite sure I knew what it meant. From my vantage point looking at the company’s track record from 1980 to 1996, almost everything Shaw touched had turned to gold.
That said, what I can say is that there were quite a few people here that believed it was a flawed strategy, and ultimately we exited that business in 1998. If there is a business lesson in all this, it is that if you make a decision that ultimately proves to be wrong, you’d better make another decision quickly rather than ride the bad decision into oblivion. Of course, the other lesson is that we all need to work hard daily to build the best relationship we can with our customers.
Q: For years now, you have lent your financial talents to Shaw’s aligned customers by analyzing their financial statements and benchmarking their performance against their peers. How did that get started?
A: It started back in 2007 when we asked ourselves what we could offer that would be an added value, so we tried it with 100 or so of our Shaw Design Center customers, and it expanded from there to where it is today.
It’s been a great experience to work closely with these customers. I do believe that, in many cases, it has deepened the relationship that we have with them. Through the downturn, many of them made hard decisions to survive, and, at least in some ways, the financial benchmarking exercise may have highlighted areas where they could improve their business. Some have really embraced it and can now do the work themselves—not so much comparing themselves to others but rather looking at and understanding their own trend lines. That’s what they really care about anyway.
Q: What is the single area that most retailers should focus on to become more successful?
A: Execution, and concentrating on what is under their control. Financially, they should focus on getting their staffing and people cost under wraps and increasing their productivity. Frankly, for most retailers, this is where the big dollars are.
They should also define what financial success looks like to them, then commit that to writing and go about doing what’s necessary to achieve it.
Q: From your perspective, what should floorcovering retailers focus on to win the battle against the home centers and category killers?
A: The market has room for several channels: independent retailers, home centers, distributors. What I suggest is that retailers identify and write down their moat, the competitive advantage in the market they are in, then go about strengthening their advantage, leveraging the things that allow them to be successful in their market; that may be design expertise, sales associates or installation. It’s important for retailers to know what makes them successful and build on that.
Q: I’ve heard you tell dealers that the carpet business is their most profitable product category. Why is that?
A: What I’ve really said is that retailers should combine a couple of elements together by category and see what rises to the top. Specifically, I talk to them about combining gross margin index and inventory turns. What many find is that, while carpet may sometimes have lower margins (and even that is in question), the inventory turns on it are quite good, particularly for those that sell off samples. Multiply your gross margin index by your turns of inventory and see what you get. If you take a look at another product, like ceramic, the margin could be higher, but the inventory turns could be much slower. Retailers should do the math and see what they get. I encourage them to focus not just margins but also on inventory turns, which drive cash flow, to compare different categories of flooring. That said, we’re more than happy to sell retailers all the flooring categories they desire.
Q: What is the essence of Warren Buffet’s success? What has he taught you?
A: He has a great expression. He plays in a “no-called-strike game,” meaning that he only has to swing at a pitch he likes. I really like this analogy.
In addition, he invests in basic businesses, which are understandable and that, to a degree, are protected by a moat. On several occasions, he has told us to make decisions in our business as though it’s the only asset we have, with the stipulation that we must pass the business along to the next generation. The ability to think long term about what you are doing can be a huge advantage. He has given us all the ability to think long term, which is quite a rare thing in today’s business world.
Q: What is driving the recent investments by flooring firms in U.S. manufacturing?
A: It’s not just flooring firms that are investing in the U.S. You remember the term off-shoring? Well, the new term is on-shoring, which is being driven by companies wanting to be closer to where their customers are, and that is often the U.S. market.
There are a couple of things that are driving this change. First, as China continues to develop, we’ve seen the emergence of its middle class, and with that has come increasing wages, which have mitigated part of their advantage. In addition, we’ve seen companies dealing with the long supply chain issues that come with products that take ten to 12 weeks to get to the U.S. market. And finally, the efficiency of the U.S. makes it highly competitive. A lot of this is driven by the desire to properly service the biggest market, and that’s right here.
Q: What is your forecast for business conditions over the next several years?
A: We are very bullish. Housing, we believe, will need to continue to expand, which will be the key driver of fixed residential investment. Growth in this area is a key driver for flooring in our market. Will there be some pauses along the way? Yes, because we all know that most things don’t move in a straight line. Will the graph of future growth be moving up and to the right? We think it will be, and business conditions should be quite good for several years to come, as our demographics around household formation pressure the need for more housing.
Q: What advice do you give to your son—or, for that matter, the new team members at Shaw—about what it takes to be successful in today’s business environment?
A: In my senior year of college, the Big Eight accounting firms came to campus, and I interviewed with all of them. In addition, I took the GMAT and applied to the master’s program in taxation at UGA, and I took the LSAT and applied to the university’s law school. At the end of it, I had invitations for on-site interviews at all eight firms, and I was accepted into both academic programs. I did all that because I believe that you should find and create as many alternatives as you can. That way, you aren’t forced to choose a path that you don’t like. People with more choices make better decisions.
In addition, I advise the young to wake up every day and out-work their competitor. I tell them to find out what makes number one number one and seek to emulate that. I remind them to stay hungry and humble and to ask themselves two simple questions at the end of every year, “Do I like what I’m doing? And can I afford to keep doing it?” If the answer to both questions is yes, you’re at the right place, and you should concentrate on doing the best you can at the job you have. Everything will take care of itself after that.
Copyright 2014 Floor Focus