Ken Bacon 0:00  

And I always say they're trading relationships, but then they're real partner relationships. A trading relationship is just very transactional. You really don't know the other person. It's just a trade. But a real relationship, a partnership is that we know each other. Yeah, we got contracts, we have agreements, but we trust each other. You

David Novak 0:28  

if you want to build lasting success, there's one resource you can't afford to overlook, and it's not money, it's not talent, and it's not time. Welcome to How leaders lead. I'm David Novak, and every week I have conversations with the best leaders in the world to help you become the best leader that you can be. My guest is Ken bacon. He's the co founder and managing partner at railfield Partners, a multi family investment and asset management firm, and before that, he was an executive VP at Fannie Mae. Ken has built an incredible career in real estate, and I've had the pleasure of seeing his leadership firsthand as we serve together on the Comcast board. You know, one of the things that makes Ken so successful is this understanding that trust isn't just a feel good concept. It's a real form of currency. It's something you earn, something you give, and if you're not careful, something that you can actually lose. And just like financial capital trust compounds over time, as you're about to see, the more you invest in it during your career, the greater the returns. So here's my conversation with my good friend and soon to be yours. Ken bacon,

David Novak 1:47  

you know, give us a snapshot of rail field and the business that you lead today. Well,

Ken Bacon 1:53  

by way of background, I used to run a division at Fanny made that provided loans for apartments. So 12 years ago, when I left another guy and I were doing some advisory work, and an opportunity presented itself to manage some money for a pension plan, and I remember a friend said, Oh, you're going to get just enough money to go broke. He was right. So I had never been on the equity side of the business. I had always been on the debt side. I had never been a borrower, and for years I said that's something I wanted to do. So when opportunity presented itself, I got some guys that used to work for me, and 10 years ago, we started rail field. We invest in existing apartments, we manage money for some family offices and several pension plans. We're in six states and 12 different markets, biggest market being Texas, where we're in Dallas, Fort Worth Austin, San Antonio, and my hometown of Houston. And what we try to do is, by kind of what I consider some conservative operating principles, make a good return for our investors, while making a good place to live for the tenants of our apartment buildings, and that's kind of our map you have,

David Novak 3:06  

as I understand it, a couple of other co founders that are in the business day to day. What's the rhythm that you have Ken to stay aligned and on mission as a leadership team? I'd say there

Ken Bacon 3:17  

are a couple of things. Number one, I had managed a large organization for over 20 years, and so when I started my second career, I wanted to be, I guess it's the model I consider, like the Orthodox Church. I wanted to be first among equals, so to speak. I didn't want to be the leader. I was a person with gray hair. I was a person who could bring certain things at a table, but I really wanted it to be more of like a confederation. In other words, we each have a swim lane, we each do our thing, and it's worked beautifully, because these guys once worked for me. They left Fannie Mae, built their own business, but we trust each other. We like each other, we have shared values. We enjoy each other's company. We agree on what we wanted to do with the business. So it's made it a fun thing to do. You

David Novak 4:12  

know, you mentioned that you spent 20 years at Fannie Mae, which provides equitable access to affordable housing, and there you you oversaw a portfolio of nearly $200 billion you know, what are the biggest lessons you learned in that role that you've carried with you?

Ken Bacon 4:32  

Well, one of the things I've learned is that know your partners, know who you're dealing with. You know, I always distinguish in business between what I used to, I used to be an investment banker, and I always say they're trading relationships, but then they're real partner relationships. A trading relationship is just very transactional. You know, you do something you really don't know the other person, you really don't care. It's just a trade. But a real relationship, a partnership is a. We know each other. Yeah, we got contracts, we have agreements, but we trust each other. We're working towards the same goal, and that's what I did at Fannie Mae. We did our business through a network of 25 lenders. I made it a point to get to know each and every one of the lenders. I often knew something about their families and even my biggest borrowers, the people who borrowed hundreds of millions of dollars, like Sam Zell, Steve Ross. I made it a point. I would go out, went to baseball games with Sam Zell. I went out to dinner with Steve Ross, because people said, Well, why did you do that? You know, you've got all these contracts. I said, Yeah, but if I have to resort to lawyers to do business with somebody, that's not a good place to be in. You know, the legal documents add clarity, but the legal documents should be built on a foundation of trust.

David Novak 5:57  

Where does that trust really come from? Ken, when you're, when you're, you know, you have to meet these people, and you got to kind of have your speller out to certain extent. You know, how do you, how do you smell or sniff out the people that you really, really know that you can bank on?

Ken Bacon 6:12  

You know, you got to spend time with people and get a feel for the sense of integrity and what they're doing. Look, real estate is a tough business. It's a sharp elbow business, and you understand that, right? I mean, everybody's trying to make money. If you're a lender, they're trying to get the best terms possible. But I won't mention one company, but Sam Zell is the read he had. EQr. There were a couple of big REITs, and the way I used to contrast it, one, one the big REITs would say, Ken, we need $200 million and here are the terms we wanted. And I bust my butt. I have my staff work, and then I get to the table, they'd say, Well, Freddie Mac is five basis points cheaper, or Prudential will give us more money. And so I learned, I said, Okay, these guys just want to trade. They're going to pick me off Sam's people were tough. They've asked for something. I said, guys, that's that's hard, that's impossible. They say that's what we want. I said, Okay, I'm gonna bust my butt to do it, but if I did it, they were good. So because of that, I always said, if they asked me for something, I would overextend myself, because they set the bar high. But I know if I clear it, they're not going to retreat. And so, you know, and I tell that to people, they said, Sam Zell, he was the grave dancer. He was this. I said, You know what? He never, ever went back on his word to me, neither he or his people. Steve Ross, his guys, Jeff bliss sharp, the smartest real estate operators, I know, but their word was good. And so, you know, you you do business with people, and you learn. You know,

David Novak 7:50  

I want to shift gears for a second, Ken and take you back to the beginning. What's the story from your childhood that shaped the kind of leader you are today? I tell

Ken Bacon 7:59  

this to people, sometimes they're kind of amazed. I grew up in the 50s and 60s in Texas. It was a time it was segregated, and some people here, oh, that must be horrible. I said I had a wonderful childhood, and part of that was due to the way my parents raised me. I got something from each one. So my dad had grown up in Illinois, where his parents were servants in Lake Forest, so he had gone to school with very rich white families. My mother, on the other hand, was from a Creole family. Her parents were from Louisiana. She grew up in Houston, so my parents are very different, but they each brought something to the table. So for my dad, I got my intellectual drive, my sense of values, my sense of integrity and honor. In fact, I used to tell people my dad, because he grew up in Illinois, sounded like Walter Cronkite, you know, and my dad would sit up. He was a physician, and at the end of the day he would sit up. I can still see him sitting in his favorite chair with his bourbon and his cigarette, and he might put on music, but he told me a story about the musicians. It might be Count Basie and Duke Ellington, and he was active in politics and civil rights. And he really gave me that that sense. And I got a chance to see a lot of leaders like Barbara Jordan, my dad ran the campaign for her state legislators run at her first run of Congress. So I kind of got that from my dad. My mom, on the other hand, was not really what I call a high minded person that she was one tough, tough lady. I mean, had tons of common sense, and really a lot of her sayings kind of got me so, for example, one of the things she used to tell me, she'd say, look, love with all your heart and soul, but never love with your mind. And by that she meant never. Let your feelings of love or even dislike for something affect how you think, right? Always try to be tough and objective when you're thinking. And another thing she told me when I was older and I was an investment banker, and I once got I thought jipped out of a bonus. And mother. I used to call my parents every Sunday, and I was complaining, and my mom said, Boy, you're too old and too black to expect life to be fair. Get over it. Now, when I tell that to people, they say, What did you mean? I said, Look, my mom's thing was, there's gonna be a lot of stuff in life that's gonna be unfair. It might be because of your race. It might be somebody that like whatever it is, don't sit around and cry about it. Do something. And when I told her about that thing, about the bonus, she said you either she said, You can quit, you can suck it up, or you can go in there and that boss and demand something. But don't sit here and have a pity party.

David Novak 10:57  

So what'd you do? Ken, I got to ask you, what was the end of that story? I

Ken Bacon 11:01  

went into the boss, told him how I felt. We reached an agreement, and he didn't give me the money for that year, but he treated me right the next year. But the reason I always like to tell that story is when I say my mom was tough. You know, her thing was, you know, you have to be assertive, and you have to stand up for what you believe, and don't let people push you around. Hey, everyone,

Koula Callahan 11:28  

it's Kula. We'll get back to the interview in just a second before we do though, I have a question for you. Have you downloaded the how leaders lead app on your iPhone? If you haven't take 20 seconds right now, go to the App Store, search for how leaders lead and download the how leaders lead app. In the app every day, you'll get a two minute video that'll give you a leadership insight from one of our amazing guests from our podcast to inspire you and to really get your mind in the right place before you start your work day. So go to the App Store, search how leaders lead, download the how leaders lead app and start your day every day with two minutes of leadership wisdom. It'll take 20 seconds go to the App Store, download the app, and you'll be able to watch every day, just like me, the leadership insight from how leaders lead. You

David Novak 12:14  

actually were in segregated schools for the first 11 years of your life. Yeah. You know, so give us a sense of what that was like and what it really taught you.

Ken Bacon 12:25  

You know, I tell people, Look, segregation was undoubtedly bad, evil system, but needed to go. But there were two benefits of it that I think in some respects, were good. One was when I went to school, my kids here in DC, my kids went to private schools. And yes, there were some poor kids with scholarships, but you know, it was kind of like upper middle class and very wealthy people they went to school with. When I went to school, I had to go to school. There might have been some other doctors and teachers kids, but you know, I had to go to school with some hoodlums sometime. I remember when I was a banker, I once came through Houston and stopped at a gas station in my old neighborhood, and I was with a senior person from Kidder Peabody, the firm I was with. And as I was getting gas, this guy came out, this greasy overall, said Kitty. And, you know, we started talking. So when I got back in the car, my boss said, well, Ken, who is that guy I went to elementary school with? He said, Does he own this? I said, own it. Said, Man, he's just pumping gas. So I had to go to school and interact with people from all different classes. So that was one good thing, because there was a sense of community. And the other thing was, when I went to a football game, that quarterback was black, and in my neighborhood, the first black graduate of the University of Texas Dental School lived on my block. One of my friends dad was one of the first two or three guys to graduate from University of Texas law school. Another friend of mine's dad was the first graduate of the architecture program. So I grew up with people who were pioneers. I grew up with people who were leaders. So as a result, when integration came about, I had no hang ups and no, you know, you know, I was used to seeing people who look like me in a leadership position, and I think that's something I see in your book. You had something from Carol Dweck, who's a psychologist at Stanford, and Carol once did a study about looking at students from different ethnicities and how they did at Stanford, and one of the things she discovered is that it wasn't uncommon for some black students at the time to, if they got a bad grade, to get discouraged because they felt, you know, they didn't have that inner like what i. Call model of somebody successful doing what they were doing. That's not all the time. I'm just saying that some people came up in situations when integration came and people like me started leaving the neighborhoods. Some people didn't have role models, and it was something that they had to to acquire later in life. And I'd say that's I mean, and I've talked to some friends about who grew up in the South, and people have often said the same thing, that like the teachers, when I went to class, if somebody didn't do their homework, the teacher might say, Now, Johnny, you didn't do your homework. I'm gonna see your mom at church on Sunday. I don't want to tell her you didn't do your homework. So that sense of community, that sense of seeing people in positions of authority. That was one of the good things I got.

David Novak 15:42  

You know, I also understand that I was fascinated by this. When you're growing up the late world. You know, renowned jazz musician Count Basie,

David Novak 16:01  

would actually come over to your house for dinner when he came through town, you know, you got to tell us one of those stories. Well,

Ken Bacon 16:07  

what happened? My dad was a music nut, right? He really loved music. He knew a lot of blues musicians. I mean, like, like, in Hopkins, Bobby blue, bland, and he knew a guy who was a drummer for Count Basie. And what happened one time Count Basie was coming through Houston, and the drummer was coming to our house. And my mother was an incredible Cook, an incredible cook. I mean, my mother, at one time or another, she served Count Basie Sam Cooke, a mayor, a governor in Texas, people raved about her cooking, particularly her gumbo. So anyway, this drummer was going out and Count Basie said, Where are you going? He says, Look, my friend Bob bacon's wife is an incredible cook. So Count Basie heard this and said, let me come along. And I think the first time he came in the house of our memory seriously, correctly. I think my mother had some red beans and rice, and maybe she had some gumbo. And Tom Basie said he liked greens, collard greens. So the next time he came to town, my mother fixed the collard greens

David Novak 17:16  

and stuff, and she knew the way to the man's heart. Oh,

Ken Bacon 17:19  

that's right, that's right. And so that was one of the like I said that my brother and I often laughed at when we grew up. We think about all the characters and all the people we met, and it was like it was a wonderful child,

David Novak 17:30  

absolutely, you know, and, you know, I'm a little surprised, Ken, you have to do some my research that you don't have a hint of a, of a, you know, English accent, because, because you were a Marshall Scholar while you were at Stanford, which meant that you had the opportunity to study in London. Tell us about that experience, of what it taught you. Well,

Ken Bacon 17:51  

you know, I'm in business today because of what happened when I went to England. I was kind of a left wing intellectual when I was at Stanford, you know, I was involved in student protests, nothing destructive or violent, but, you know, I was always looking at what was wrong with the system. And I get this scholarship because I wanted to be a professor. That's what I wanted to do. I wanted to teach. And I get to England, and I want to study economics. And I still remember there was a guy who was a marshal in my year, and he once probably told me, he says, well, Ken, you know, I've got a part time job. I said, What's that? He says, I'm going to be working at Lehman Brothers. I said, What's that? He said, Lehman Brothers is like Morgan Stanley. I said, What's that? So he sat up and explained to me about investment banks. And I said, Okay, this sounds interesting. Sounds like another kind of like this capitalist thing. Well, all of a sudden I was in this dorm with people from all the British colonies. I mean, from Africa to West Indies, India, Pakistan. So one day, I was talking to one of my Nigerian friends, and he was studying accountancy, and he was very proud. He was going to get something at Royal Dutch Shell. And I said, Well, why do you want to go work for a company that's exploiting your country? Says, Ken, I just don't want to work for the company. I want to own a company or run an oil company. And what I realized, and it's unfortunate, a lot of people in this country don't get this when you get on an international stage, everybody's a capitalist. You know what I realized when I was there, I said, you know, all Africans and West Indians, I know these guys are making plans to go back to their countries and run things. So that got me looking at business from a different perspective. And when I went to England, there was also the Labor government was empowered. Jim Callahan was prime minister. There were labor strikes. I had to deal with national health, and I started saying, man, just a socialism. You can have it. Get me back to the glow USA. So that's what got. Me interested in business, so I started talking to people. And I think if Margaret Thatcher, I'm not a huge fan of Margaret Thatcher, but she did get England back on the right course. And one of the things, and the reason I say that I had an opportunity to go work at Royal Dutch Shell, but the reason I didn't, is when I figured out what the taxes were, I said, Hell, I'm living better as a student than I would if I took this job. So when I finished my studies, I did my thesis, I traveled some, I got back to Texas, I shaved my beard off, got a white shirt and tie and my father's minister, Reverend Lawson, his wife, knew there was somebody in their church who belonged to who worked at IBM. And I went down IBM, and that's how it all started. I got a job at IBM in sales, shaved my beard, put on that white shirt tie every day,

David Novak 20:56  

and blue suit I'm sure. Oh yeah, IBM was famous for that. And so you you work your way to Wall Street. And I know throughout your career, Ken, you've seen crisis time and time again. You know you have the star stock market crash in 87 the Russian bond crisis. 911 the financial crisis of 2008 the pandemic, all these things, you know what? What's your approach of leading a team through such uncertain times. And how do you keep people motivated? You know, when their future isn't so clear?

Ken Bacon 21:28  

You know, I'd say that up until the financial crisis, most of the things that happen, I consider kind of temporary in terms of their economic impact on people like 911 was clearly devastating. Talking the other day that someone, I remember, I had teams all over the country, and how do we get people back home? But the global financial crisis, I'd have to say, was the hardest one, because Fannie Mae got taken over by the government. People stock got wiped out. And I remember there were people, I mean, I was feeling bad for myself because so much of my net worth got wiped out. But then I realized there were other people who made a lot less than I did who were really feeling it. So one of the things I did is I didn't try to sugar coat it. I held meetings, I traveled to my different offices, and I started off by acknowledging the pain that people felt, you know, being honest. And said, Look, I know what you're going through, so one is to be honest with people, and at the same time, point a way out to deal with that, to deal with that hurt, and the way to do it is not to lie, paint a funny picture. But what I told people is, I said, Look, we're all hurting. Yes, your stock's been wiped out, but you know what? We have a job. You're going to get a check. And most important of all, we have a mission. And what I used to tell people like, Look, you might be mad at the company, you bet might be mad at the government, but you know who you work for. You work for your family, and if you can find a better job right now, come to me. I will help you. I'll give you a reference. I'll do whatever with me while you're here. And you have an obligation to your family, but you also have an obligation to your customers, because your customers are hurting too. So I said, you know, we can sit here and again my phrase, you can have a pity party, or you can get up, dust yourself off, go get the paycheck, go help your customers and keep doing business. And I said, You know what? What's done is done. I can't make that come back, but we can move forward.

David Novak 23:44  

Your mom's uh, tutelage is really helping you there for no doubt about that. Yeah, Ken, Ken, when did you, when did you catch the real estate home ownership, bud?

Ken Bacon 23:56  

You know, I wish I could tell you this as a result of some long, thought out, logical process. It wasn't when I was in business school, I told you I got interested in business but I never lost what I call, called my liberal do good impulse. So when I was in business school, Kidder Peabody public finance team came to campus and I just went, I'm not gonna lie, I went to the reception just to get some free food, right? Because, you know, all these best of banks would always have great food. So I went to get some great food, and I met the people. And I loved the people. Guy who was running that division named Mike Hernandez, just a great guy, met some other people, so I joined public finance because, again, it was going to deal with governments, municipalities. I said, Look, I can make some money. I'm not going to make as much money as like Bill Lewis, who's a good friend, who was going to M and A, but I'll be able to make a good living. And one of the senior. People. I was talking to them, and I mentioned that my girlfriend was not my wife was in Houston. He said, Well, let me get you on some Texas accounts. And the business they were doing in Texas was primarily tax exempt housing bonds. So it happened by happenstance, because I would go to Texas every week. I was going to Dallas, Waco, all, all types of places. And some people were concerned about me going to Texas, because I remember they said, Well, I don't know if we can send this black guy down there. And some of these clients are kind of red Nicky. And I remember I said, You know what I'm going to do better than you. And they said, Why? Because I said, it's my home state. I said, I know how to deal with people. And we went down, and it was Grand Prairie Texas, which is at that time, was just a tiny spot. It's a big suburb now, tiny spot, and they wanted to do some housing bonds. And I remember the guy in charge of the Housing Finance Agency was a builder, and he was a Texas Tech guy, big burly guy. And my boss went up there, and she, you know, guys started talking about football, and I started talking about Texas Tech and SMU the Longhorns. And then something came up about hunting. I asked, well, you know, what are you shooting? And she just lost it. She said, those are horrible people. I don't want to do you deal with them. So what happened? I would go down to Texas every week, and that's when I really started kind of falling in love with real estate, because I realized that, you know, you do a lot of things in finance, and it's just moving paper. I got to see things i finance come out of the ground. I really like that. And one of the most moving moments of my career came when I was at Fannie Mae, and we were the largest investor in the low income housing tax credits in the country. And one of my wife's grandmothers died, and I was going back to Houston for the funeral, and I went to the neighborhood that my my grandmother used to live in, my mother used to live in, and I was going to the church, Catholic Church, that the Creoles had built back in the 1930s when they came over from Louisiana. And I just hadn't been in the neighborhood in decades. And I'm riding along, and I remember myself, you know, Miss Broussard used to live here was because a bunch of people French speaking French, French names, and a lot of them were dead, but the houses were dilapidated. Everything was kind of old. The neighborhood had really gone down. And then I was going, Man, this is really, really bad. And all of a sudden I saw this sign, senior apartments built by such and such a church financed by such and such a bank with with financing from Fannie Mae. And I saw that right before I went to the church, and that just made me feel so good, because I said, you know, the best thing happening in this neighborhood is a project that my division is financing, and to this day, I still like seeing properties, because, again, it's tangible. I'm sure David like the pride you would feel if you went to a well run franchise, and you know, the food was just right, yeah. So when you get a chance to see and when I mentioned to you earlier how I would go spend time with some of my borrowers, I remember when they were building the time, what I think they call the Time Warner Center, up in Columbus Circle, and Steve Ross invited me and my wife for dinner. And I remember we were walking through the condos with wires hanging from the ceiling. Steve was going, Yeah, and this is going to overlook the Hudson, and this is going to see the part, you know, he was just animated about it. When you see people identify with their projects, when you see a neighborhood change, there's just nothing like it,

David Novak 28:53  

that's great. And you were quite the innovator in this, in this field. You were the first to securitize commercial mortgages at scale. First explain to our everybody what what that means, in layman's terms, you know, securitizing commercial mortgages, and then what it took to really pull this off. I had

Ken Bacon 29:15  

left you to repeat body. I was at Morgan Stanley, and I was doing I had gone from tax exempt to taxable financing when securitization first started, and I left Kidder to go to Morgan Stanley, but most of my clients were savings and loans, so 1989 they're all going under, and I was going to have to do something different in the firm. And there was a guy I knew who was a partner Michael Youngman at Vincent Elkins, and Michael had left his law firm to go work for the board of the Resolution Trust Corporation. That's what they formed to deal with the bailout. And he used to call me all the time to ask me questions. And one day he just happened to say, you know, boy, we could really use somebody like. You with your knowledge of the markets. I said, Well, why don't you make me an offer? He said, Well, Ken, you would have to take a tremendous pay cut to come here. I said, Well, you did it so much to my wife's chagrin and to the people, everybody thought I was crazy to leave Morgan Stanley, but I took this job in government, one of the best things I ever did, and we got there, and what I discovered, I was in charge of policy, and I discovered that at that time, the government thought they were gonna end up with over 100 billion, 100 $50 billion in assets. Now that doesn't seem like a big number today, but 1990 that was a huge number. And what I discovered that the biggest bank failure the FDIC had ever dealt with was Continental Illinois, which is, I think was either 8 billion or 10 billion, and it took them over a decade to resolve that. So Michael and I were talking, we said, look, we'll be here forever getting this done. And so Michael one day said, well, couldn't we bundle this stuff and sell it like like that? I said, Well, you know, no one's ever done commercial mortgages. They've been single family. And we started talking to rating agencies and exploring it, and people said, you couldn't do it. We said, why not? So first battle was to convince the powers that be in government to do it. And there are some people who I don't think get enough credit. Nick Brady was Secretary of the Treasury, so my board at the board I reported to was Nick Brady, Jack Kemp Alan Greenspan, a guy named Bob Larson was head of the Taubman organization, and another guy named Phil Jackson, who was a retired governor at the Federal Reserve. And there were people at the FDIC, there were people in the Senate. Everybody didn't want us to do it. And and I remember that one guy we got into a meeting, Greenspan, who was not quiet in private meetings. And one guy said, Well, you know, if you package these things, Wall Street's gonna make a lot of money. And I remember Greenspan said, precisely, this is America. That's what people do. People make money, and if they make a lot of money, other people will get into it, and over time, the price equilibrium will set in the taxpayers benefit, but the government should not hold assets. So Alan Greenspan and Nick Brady, to me, were two unsung heroes who really made a difference. So they let me and Mike do it.

David Novak 32:22  

So Ken, what does it mean to securitize a commercial mortgage? It

Ken Bacon 32:27  

means that you put a bunch of mortgages together, which allows you to diversify risk. You get them rated, you do a filing with the SEC so now you have a publicly traded rated security, which means that the universe of investors is huge, right? When we first did it, most insurance companies, people didn't know what to make of it, but once we educated them, all of a sudden, we had the biggest pools of capital in the world available to us, insurance companies, bank, pension plans, who couldn't buy, either couldn't buy because of regulatory reasons, individual mortgages, or else it just wasn't worth their time. All of a sudden, they could buy a security, they could trade it. They could go to Goldman Sachs. They could go to Salomon Brothers, who were still in business at that time, and they could trade it. They could repo it. And so it allowed that part of the real estate market to play in public markets, so there was more liquidity that led to better pricing, and it was just a win win all the way around. You know, you

David Novak 33:32  

mentioned people who have such powerful reputations, like Alan Greenspan. I mean, you know, incredible leader in his own right, and you've had these huge jobs with with all kinds of power. How do you, how do you really get to the real truth? You know? Because a lot of times, people are angling for something to to their own benefit. How did you really get to the real skinny? You know,

Ken Bacon 33:57  

I didn't plan on it, you know, it just, it just happened. And I think one of the things is that when I had that job, I got to meet with people like Ace Greenberg at Bear Stearns. I met the I met I met the heads of every major Wall Street firm, Dick Fuld. I met them all because I control a lot of business, and I learned that when you have something that's of value to people, a lot of people want to talk to you. But I also learned something, a lesson I joke about today, that I said, you know, when you have a big job, like when I ran Fannie Mae and I controlled all this money, I told people, you know, I was a visionary leader, strategic genius, till the day I walked out the door. Then when I walked out the door, I was just just another smoke with a tie and a dream, right? So I learned sometimes some people confuse you. Their position with themselves. And so one of the things I learned is like, Hey, you got this job where you have a lot of power, you can use it, but realize it ain't you, right? It's that it's that title, it's that job, and when you leave it, and that's why I think some some people, it's so hard for some CEOs, for some politicians, to walk away because their identity gets wrapped up in what they are, not who they are inside.

David Novak 35:28  

We'll be back with the rest of my conversation with Ken bacon in just a moment. Chili's recently reported its third straight quarter of double digit sales growth this year, and if you want to see what's driving their incredible comeback. Check out my interview with Kevin Hochman, the CEO of Chile's parent company, brinkers International.

Kevin Hochman 35:47  

I'm in a Chili's in Chicago, just outside of O'Hare. I'll never forget this. And I'm in, we call it the heart of house, so the back of the house of the kitchen, we call the heart of the house at Brinker. And I'm in the heart of the house with a team member, and she's counting shrimp. So her job for the first hour of the day was she counts eight shrimp, puts them in a little bag, twists the bag, counts eight shrimp, puts them in a little bag, twist the bag, and so on. She'll do that for probably 45 minutes. It's called portioning. And so when I asked her the question, hey, what's the one thing that you would do if you were CEO tomorrow, she'd say, I stopped counting these darn shrimp. And I said, Well, what would you do if you didn't count the shrimp? And she said, when the customer orders a shrimp taco or a shrimp fajita, I'll count eight shrimp. I'll put them on the grill. You know what? Sometimes I'll count seven, sometimes I'll count nine, but guess what? Most of the time, I'm gonna count eight, right? So we took that idea back to the restaurant Support Center, and they said, Hey, we got to test this. We're gonna have a bunch of shrimp waste. I don't know about this. And I said, Well, what's there to test? Like, she's right? Like, once in a while, she'll get it wrong, up or down, but we're not gonna have big waste issue. So we rolled it out, and guess what happened of shrimp waste? Absolutely nothing, right. Literally didn't change. Like, we we measure this stuff, literally every day we get reports every day it didn't change. And then, most importantly, that team member, she doesn't want to do that. She doesn't value that to her that thinks it's a waste of time. So that makes her job way more engaging when we're like, hey, we listened to you. We got rid of that, and go do something that you're excited about doing. Go

David Novak 37:16  

back and listen to my entire conversation with Kevin, episode 183 here on how leaders lead. So what led you, Ken, to start your own firm at railfield partners.

Ken Bacon 37:26  

You know, I still like real estate, I still like the essence of what I did, but I didn't like the luggage that came with it, having to manage people, and I didn't like committees. So when I opportunity presented itself, I decided, well, you know, let me go out here and try it. And I like to tell people to be an entrepreneur. You should either be twisted 25 and broke, or 55 have your kids educated. So when I started, my son had already finished college and was kind of out of my pocket, not completely, but kind of out of my pocket, and my daughter was getting ready to graduate, and my parents were both deceased, so basically, I didn't really have a lot of obligations, and so I could be a little selfish. And so I decided, let me give it a try. Someone asked me, Well, did you miss Fannie? Mae? I said every two weeks, that's funny, you missed that regular paycheck. On the other hand, though, the sense of freedom, the sense of what I call you eat, what you kill, I've enjoyed that. I've enjoyed

David Novak 38:37  

in your business today, you have to be extremely intentional about building relationships, and you're really good at it. You know, what's something that you think everybody can learn from that that you put into practice when it comes to building relationships? Well, you

Ken Bacon 38:52  

know, I talked earlier about building trust and about conducting yourself in a certain way. I mean, look, I dealt with hundreds of people at Fannie Mae, and I said, you know, if I dealt with 100 big real estate people, I said, they're going to be 10 who are going to be good to me when I leave. I said, the thing is, you don't know who that's going to be. And we got some deals. I remember I was once at a conference. Was walking along, and I ran across a guy whose company had almost gone under the financial crisis, but they handled it so nicely. They didn't try to go into bankruptcy, they didn't try to fight me. They work with me. And so I didn't deny them credit. I just put the, you know, on more conservative terms. So they survived. And I ran across the CEO, and he said, Ken, what how are you doing? I said, Man, it's hard out here. I said, I need some deals. He said, You know what? We've got some properties for sale. He says, Look, I've got a fiduciary responsibility. But. I'll let you get a last look. And so I got a deal like that. Another time, there was a guy who had worked at one of my lenders. I called him up, and I used to call it knee pad chapstick. Time I'm on my knees begging. And I got chapstick because I'm having to kiss a lot of you the way, you know, when you come from a big company, David, I don't know if you've experienced this, you know, when you're a big company, everybody comes to you all of a sudden, you're now at the big company. You have to go to them. Some people can't make that change. But I went to another guy and I said the same thing, and he called me up and said, Look, I've got a deal. I'm gonna put it on the market, I'll give you notice. He called me back the next day, said, You know what, I'm not going to put it on the market. I'm going to get a broker's price opinion, and you and I will negotiate the price, and that's how we did the deal. So I had people I built relationships with because I had treated them honorably, and the global financial crisis presented an opportunity. I could have shafted a lot of people, but I tried to treat everybody with respect, and there's some people who remembered that and returned the favor. That's great.

David Novak 41:10  

You just mentioned negotiations, and you've mentioned earlier that you're kind of in the sharp elbow business. What are your rules for negotiation? Do you have any or what's really key, from your perspective, to find that win, win. My

Ken Bacon 41:24  

key, and I used to tell this to my staff, is, don't kill over the last nickel, even if the other guy is trying to do it, let people walk away feeling they got a victory if to the degree you can afford to do it, because that builds goodwill and trust. Now there's some people you do that with, and they walk away saying, oh, sucker, you know, I got him, and they don't appreciate it. But the other people will say, You know what, I like doing business with this guy. So I never tried to just pin people against the wall. You know, when I got close to what I wanted, and you know, it was hard. Sometimes my staff would say we should have got another five basis points. I said, You know what? It's not going to change our life that much. Let the let the let the customer win. And some people forgot about that, but there some people appreciate it. And again, I did my fiduciary duty. But there comes a time in any negotiation where it's the point of diminishing returns. You

David Novak 42:26  

know, I've heard you say that you actually got your PhD in bad deals. Tell us about one of those deals and a key lesson that you learned from it.

Ken Bacon 42:36  

Well, what I learned when I was at ROTC there was a guy, Tim Ryan, I think he's now the head of Santander us. Uh, Tim was the the guy who the regulator, who would close down his savings and loans. And if they closed them down on Friday, you know, that weekend, my team would go in and look at the books. And what I learned a lot of times is that I talk about trust, but there Reagan had a great thing, trust but verify. So I'll give you an example. I would go in there and see a deal, and you'd say, well, wait, why did this deal go? Go belly up? I mean, it looked like it was fully leased. Then you start pulling the leases, and you'd say, oh, this person said they were a dancer. Well, they might have been working the script club. Oh, this person said they were in the auto business, and you found out maybe the guy was like a taxi driver. In other words, people would sometimes the some of these landlords would inflate people's income or inflate their profession in the documents. So I learned that the first time you do business with somebody, check all the little things just don't take things at face value. You know, trust is something that should be earned. And so I learned that that's number one, and number two is a lot of people do deals assuming that the world will always be as it is. Another saying from my mother, assume spells ass out of you and me.

David Novak 44:14  

I think my mom taught me that one too.

Ken Bacon 44:18  

So I'll give you an example. In my little business at railfield, we did some deals from 2014 I'd say, 2018 to 2019 we would get a an adjustable rate mortgage, and we would buy a cap, and we would do that, and we would watch it, and we'd always say, if rates you start seeing rates go up, will lock in a fixed rate. When we got to 2020, when rates were really low, we started saying, You know what this is, you know? I hope the people, Jerome Powell, forgives me, but I felt the Fed was like, like a drug dealer, and they were getting everybody free drug. Bucks, and everybody was getting high off low interest rates. And I said, you know, this can't last. I said, if we can get a good fixed rate, let's lock it in. And we were losing deals to people doing these bridge loans, and it was a temptation to go doing but I said, you know, these bridge loans, this is an adjustable rate mortgage. It's purely floating. And I said, I'm not going to do it. So part of our discipline was knowing that sometimes you see the crowd going one way, and you got to just sit on your hands and say, Look, this doesn't make sense. I'm not going to do it. That's how we stayed out of trouble. You know, we just sat on our hands because there were times when, I mean, it's just like investing. I've had people I remember when crypto was hot, and I'd say, You know what, if I don't understand it, I'm not going to do it. I'm not going to invest in it, because I don't know what I'm doing. So when interest rates got crazy, when they were so low, I just said, You know what, I'm not going to do a floating rate deal, because there's only one way for rates to go and us up. And there were people who did bridge loans. That is, they did short term loans, floating rate when sofr, which is like LIBOR, it's like an index was at five basis points. A couple of years later, was 500 basis points. And so people said, Oh, I'm gonna do this loan at 250 basis points over sofr or LIBOR. It's five bips. They said, Oh, this is cheap money. But I said, the index is floating, guys, this is historically, this is very low. I didn't think was gonna go to 500 I knew I'm gonna stay at five basis points. So I just said, I'm not gonna do that kind of loan.

David Novak 46:40  

And it proved to be a good move for sure. You know, I

Ken Bacon 46:43  

like to say that in risk management, the biggest impediment to good risk management is imagination, because people often assume that this is how the world is and this is how the world stay. And you got to be able to imagine that things could get worse. You know, kids

David Novak 46:58  

so much wisdom. There just been so much fun, and I want to have some more with you with my lightning round of questions. So are you ready for this? I'm ready. All right, the three words that best describe you, empathy, integrity, humor. If you could be one person for a day besides yourself? Who would it be? I tell you,

Ken Bacon 47:15  

somebody just passed away. Quincy Jones, the music producer, your biggest pet peeve people who dissemble, in other words, people who don't really come out and say what they want or what they're trying to do, and they kind of dissemble and beat around the bush. I can't I can't stand that. Who would play you in a movie trying to think of somebody good looking with free I can't say Denzel Washington, who would play me? Jeffrey Wright.

David Novak 47:43  

What's something you'd only know about Houston if you're from there?

Ken Bacon 47:49  

Now I'm gonna call some controversy from Houston. Where to find the best barbecue

David Novak 47:56  

you're only able to answer this next one in French. Okay, do you still speak French? What's the one thing you do? Just for you, hunting your most prized possession,

Ken Bacon 48:13  

a painting by John Biggers was a friend of my family. Is a great artist. He's deceased now, and I have a painting of his, and I saw it when he first was doing the drawing for the painting. And I got a lot I videotaped it on a Super Eight camera. I just found the little cassette the other day.

David Novak 48:35  

If I turned on the radio in your car, what would I hear? Sirius

Ken Bacon 48:39  

radio, the jazz station. No surprise

David Novak 48:42  

there. What's something about you? A few people would know that I'm a good cook. Pick that up from your mom. What's one of your daily rituals? Something that you never miss my coffee? All right, we're out of the lightning round now. Good job. That was great. You know, you know Ken. I've had the great honor of being on the Comcast board with you, and I have to tell you, of all the directors, I don't think anyone ever asked for extremely insightful and thoughtful questions. How do you stay current to be able to bring such a studied point of view to the table? Because it's all your questions seem to always be rooted in reality or something you experienced.

Ken Bacon 49:25  

Comcast was the first board I got on, and I learned a lot of lessons, and I only want to go on a board where I know respect and like the management team, and I like the business, even if I don't fully understand that, I have to like the business. And with Comcast, I have Google set up. So every day, I get all the headlines about Comcast. I read about the competition, I read about bro. Broadband. And I'm fascinated. I have to say, of all my boards, Comcast is probably the most intellectually challenging. Because when I first joined the board, it was just, oh, what's dish doing? What's AT and T doing. And now, I mean, we're looking at Amazon. I mean, everybody, it's a free for all. So I find it very stimulating. And I just try to, you know, I'm a voracious reader of newspapers and magazines. I get a lot of newsletters, and if I like something, I just like reading about it and finding out about it. And Comcast is, I think Brian Roberts is one of the best CEOs in the country, but the whole the board, I always thought all boards were like the Comcast board,

Ken Bacon 50:54  

but it's a very collegial board, and the management is accessible. I've never had anybody from Comcast push me away to symbol and because I love the company, I love what they do, it motivates me and keeps me excited. What have you learned about

David Novak 51:12  

leadership just watching Brian Roberts in action? What strikes you most from about leadership, from him, Brian

Ken Bacon 51:18  

Roberts does something that's very rare. He goes into every meeting. He parks his ego at the door. He listens extremely well, and when he gets ready to make a move, he never tries to sell you on what he's going to do. He says, I'm thinking about doing X. Here's the pros, here's the cons, and he will argue that con side just as much energy and much thoughtfulness and integrity as he will the pro side. And so as a result, you feel comfortable pushing back or agreeing or disagreeing. Now I always tease him that I say when Look, when you want to do something, I'm the wrong guy to ask, because I'm going to say, put the pedal to the metal. Let's go for it, baby, right? But, but I do that because I know that he's thought it through completely, and that's, to me, what makes him great. Because I've been around a lot of people, and by the way, I'm not saying this in a critical sense, but a lot of people say, here's what I'm going to do. I know it's right, and get on board. That's what I'm going to do. Brian doesn't do that. He says, I want to know what you think. And I told someone, maybe he deserves an Academy Award. But, I mean, I'm sure you've experienced this David, where he will call an individual board member and say, I'm thinking about doing something. What do you think? And he listens to what you have to say. Yeah,

David Novak 52:44  

he's definitely seeks the input. Is a great listener that you. You teach a finance course, as I understand it, for an MBA program at Georgetown, what you What's the key thing you wish that students do earlier on in their careers? I

Ken Bacon 52:58  

wish that you hear people say, follow your passion. Yeah, that's that's good advice. But also think that people one of the things I always like to tell people, What price are you willing to pay for success? And I say that because you know everybody, you know everybody wants to go to heaven, but nobody wants to die, you know. So a lot of people say, I want this, but are you prepared? Whether it's the time, whether it's the moves, you know, I know in your background, you moved around a lot when you were younger, and you, you know, You excelled at that. You learned to embrace that, and you're good at it. You're comfortable at it. A lot of people aren't. So, you know, I'll talk to somebody like, this happens a lot. I've talked to a lot of young people. Oh, I love to work for Comcast in New York. And I say, well, the headquarters in Philadelphia? Well, I said, Well, maybe that isn't a place for you. If I could work in New York. I just said, if you're not prepared to embrace Philadelphia, then maybe they sit in the place for you. I'm not saying that you're going to be your whole career, but if you really like the company, you should be prepared to spend time there. And I'm not saying that that's bad if you don't want to do it. I'm just saying this isn't a thing. That's what I mean about the price. And I've gone through this with my kids and my nephew, nieces and nephews, where I tell people, Look, if you want something, you know, one of my daughter's friend's mother once commented when my daughter was working at Morgan Stanley before business school. She's working so hard. Why do you make her do that? I said, well, first of all, hard work ain't never killed nobody. She ain't doing nothing that I didn't do. And I said, secondly, I'm not making her do anything. I said, if you want certain things in life, you gotta, you gotta put in the time, so hard work, and by the way, not everybody wants to do it. And I say, that's fine, yeah,

David Novak 54:56  

when you, when you think about your, your what's an. Thanks for you, Ken, what's your unfinished business? My

Ken Bacon 55:03  

unfinished business. There's a ton of books that I've started I haven't completed. I want to do more reading. I'd like to do a little more teaching. Remember, I once said that that's what I wanted to do, to teach. I love my course at Georgetown. I like to teach more and I'd like to while I'm still mobile, travel more and more time with family. You know, I've been very, very blessed. I've been married for 40 something years. My kids are both fine and employed. I love my in laws. I regard some of my nieces and nephews almost like my kids. And you realize as time goes by that sometimes your kids have less use for you. You realize that some of your friends may not be here. So I'm at the stage in life where I still like being in the game the business, but, you know, I'm going to start having to pull back from some boards, and I think it's more time for like, friends and family and the mind.

David Novak 56:12  

Last question here, Ken, you know, what's one piece of advice you'd give to anyone who wants to be a better leader? Piece

Ken Bacon 56:19  

of advice is think hard and long about why you want to lead and what you hope to achieve by leading. I see people oftentimes, I want to be x. I want to be the big chief. And I'll often say why I'm I'm amazed. Sometimes, some people say, Well, it's the money. I said, Well, you know, you you make money being a drug dealer, right? You could, oh, that's illegal. I said, Well, why do you want to do it? And what do you want to accomplish? One of the things I always like to do is to say, I took something from a to b that I whatever, I took over, I made it better. And once I made it better, you know, Fannie Mae didn't fire me, but I looked up one day and I said, you know, I think I've accomplished everything. Every I've had several jobs where I say I've accomplished everything that I wanted to do. It's time to move on. And so I think to be a good leader, you should have in your mind. It might be fuzzy, but like, what is the end point? What does success look like. And why are you doing what you're doing now, for some people, I might just be money, but for me, it was building something, taking something that was good and making it better.

David Novak 57:31  

You know, Ken, you know, I've observed you now for a number of years, and you have a really great moral compass, and you do a fantastic job of finding that magic between mission and making money. You know, making money in a way that it betters the world. And, you know, anybody has the opportunity to work with you always comes out better. And I want to thank you so much for taking the time to be on this podcast and sharing your insights. And I

Ken Bacon 58:06  

want to thank you, because when I was looking at your book and the lessons there, I said, Man, I wish I would have had that like 40 years ago.

David Novak 58:17  

You can write your own book. I'm sure that

Ken Bacon 58:21  

wisdom is, what does they say? Energy is wasted on the young and wisdom on the old. So that's good. Ken

David Novak 58:35  

is one of those leaders who just gets it. What really stands out to me is how much he values trust, not just as a fluffy concept, because it's not fluffy, but because it's real. It's tangible, and it's a form of currency and business and leadership, trust is what makes everything else possible. You've got to have wisdom to extend it to the right people, and you've got to earn it yourself by being consistent and true to your word. Do that, and it comes back to you exponentially, both in the reputation you build and the opportunities you're going to find. So here's something simple for you to try this week. Ask yourself, how you're earning the trust of others. Do you follow through on what you say? Do you show up consistently for your team. Now pay special attention to those little moments, because that's where trust grows. So do you want to know how leaders lead? What we learned today is that great leaders understand that trust is a form of currency. Coming up next on how leaders lead is Lindsay Snyder, the owner and president of In and Out Burger and boy do I love their burgers and fries. We

Lynsi Snyder-Ellingson 59:44  

want them to not only serve the best burger fries and drinks, but we want them to do it in a way where our customers feel the difference. They feel that we care. So the loyalty goes both ways. Customers trust our brand, because. Because they know we're giving them the best. Thanks

David Novak 1:00:01  

again for tuning in to another episode of how leaders lead, where, every Thursday you get to listen in while I interview some of the very best leaders in the world. I make it a point to give you something simple on each episode that you can apply to your business, so that you will become the best leader you can be. You