Kellogg School bestows distinguished leadership award on real estate titan; Zell shares his unique views on risk with capacity audience
4/12/2007 - There’s an enormous risk in not taking any risks, said Sam Zell, the billionaire real estate entrepreneur who has taken plenty and seen most of them pay off handsomely in the four decades since he launched a career while still an undergraduate at the University of Michigan.
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“One of the beauties of being 24 is that you have unlimited hubris,” said Zell, reflecting on the early days of his professional life that began as an apartment manager and eventually resulted in him creating a real estate empire with Robert Lurie, a fraternity brother from Michigan who died in 1990. Today, the 65-year-old founder of Chicago-based Equity Group Investments ranks among the most affluent, and outspoken, business leaders in the U.S.
It was Zell's leadership that was recognized during an April 11 event at the James L. Allen Center where he received the Kellogg School's annual Award for Distinguished Leadership. Created in 2001 by the student-run Business Leadership Club in collaboration with the Office of the Dean, the award recognizes outstanding leaders and reinforces the importance of leadership at Kellogg, while also enhancing relationships between the school and the business community. Previous recipients have included John W. Bachmann, former Edward Jones managing partner, and Warren Buffett, CEO of Berkshire Hathaway.
Zell’s business acumen places him among such luminaries, but he has a style all his own.
Dressed in jeans, an open-collar shirt and a corduroy jacket — fairly standard garb for the Chicago native — Zell quipped, “I was going to wear a suit but somebody rented it before I got to the store.”
The casual apparel and relaxed presentation seemed to agree with the capacity audience gathered to hear Zell discuss the importance of risk and entrepreneurship as well as his views on exemplary leadership and the current private equity landscape. The self-described “grave dancer,” so called because of his penchant for turning around distressed or moribund ventures, also outlined the reasons he believes “the role of the business owner is critical” to the long-term health of the American economy.
Speaking in the Allen Center’s McCormick Tribune Auditorium provided the appropriate symbolism since Zell recently purchased the Tribune Co. — whose assets include major U.S. newspapers such as the Chicago Tribune and Los Angeles Times. The highly leveraged deal was completed April 2 for a reported $8.5 billion. Zell’s personal investment of $315 million is expected to make him chairman of the company.
When asked how the famously direct entrepreneur would approach this role, he said he would “act like an owner” in what he called the “large and notorious transaction,” before going on to define what ownership should entail.
“As owner, I bear the responsibility of all my fellow shareholders,” said Zell. “I take that responsibility very seriously.”
Those responsibilities have many dimensions, he noted. An owner should act as the “arbiter of risk,” assessing strategic opportunities wisely to “make the right decision, [though] not necessarily the most popular” one, Zell said. Owners, by their example, also set the cultural and ethical expectations for their organizations and “deliver the message” to everyone in the business.
“I don’t think anyone ever left my office scratching their head saying, ‘Gee, I wonder what he meant,’” said Zell, known for his frank exchanges and maverick style. (He’s the leader of his own motorcycle club, Zell’s Angels.)
He also recalled an interview he conducted in London in 1985 where he told a reporter, “If it isn’t fun, we didn’t want to do it.” When he returned to the U.S. shortly afterward, his employees greeted him in shirts emblazoned with the new slogan. They had listened to the boss and taken him at his word.
Described as a pioneering real estate entrepreneur by Kellogg student David Moore ’08 who nominated Zell for the distinguished leadership award, Zell also shared some leadership practices that he believes have contributed to his success. Among these are humility (“The 11th commandment is, ‘Thou shalt not take thyself seriously’”) and an open-door culture that encourages innovation and a free flow of information — something especially critical for an entrepreneurial environment, said Zell, adding that his mantra is “no surprises.”
He also noted that the leader must operate as the chief salesperson for the organization, internally and externally. “I have to be able to sell my ideas to my own people, get their buy-in, or else we won’t succeed,” said Zell, who remains chairman of the board of Equity Group Investments, after selling Equity Office Properties, the largest office owner in the U.S., to Blackstone Group in November for $36 billion. The deal, reportedly the largest private equity transaction ever, created value for both parties, according to Zell, who also offered his views on the role these agreements play in the market today.
Zell predicted that the recent proliferation of private equity deals would prove beneficial for the economy, since by taking companies private the transactions allow firms to avoid public-market scrutiny and pressure that often result in short-term, quarter-to-quarter profit focus. Instead, the company’s leadership can adopt a longer-horizon perspective afforded by their private status. But Zell said is was not denigrating the public markets, which he called “incredibly important.”
“I’m an extraordinary proponent of public markets because, ultimately, liquidity is what determines value,” he said.
But more companies are being forced to go private or else list on foreign exchanges, pulling out of New York and the U.S. because of the Sarbanes-Oxley Act of 2002, said Zell. Created in the aftermath of corporate accounting scandals like Enron, the legislation was designed to reform accounting practices. Some believe the costs related to ensuring such compliance are prohibitive.
Zell proffered his opinion, saying that history might well judge the “preposterous provisions” of Sarbanes-Oxley in the same light as the Smoot-Hawley Tariff Act of 1930, legislation widely viewed by economists as exacerbating the Great Depression.
“Congress thinking it can legislate morality is just [nonsense],” said Zell.
Zell has been a benefactor to the Kellogg School, as well as his alma mater. The Zell Center for Risk Research at Kellogg was established by a gift from the entrepreneur. The center’s mission is to promote the study of risk and facilitate an understanding of how people perceive risk, while exploring the implications these perceptions have for risk management across a variety of enterprises.
“Kellogg is very fortunate to have Sam Zell among its friends,” said Kellogg School Dean Dipak C. Jain during the award ceremony, calling Zell an “icon of Chicago and world-class leader.”