M/I Homes CEO - CBUS Speaks Podcast | Welcome to Better

Posted by Bruce Borden in M/I Homes Culture

Bob Schottenstein, President and CEO of M/I Homes, was recently interviewed by Molly and Davis from local Columbus podcast, CBUS Speaks, on his experience as both a lawyer and CEO of a homebuilding company, as well as his input on many of the issues faced in our world today. Read highlights from the interview below, or listen to the full interview here.

Molly/Davis: So talk to us about what you saw in Columbus during that time or what your childhood was like. Give our listeners a little bit of a back story on your time going up in Columbus.

Bob: Wow, well I've lived in Columbus all my life, and I absolutely love Columbus. I've always loved it. I love it more today than I loved it then, but I've always loved it. It's always been home to me. I come from a pretty large family, to say the least—in fact quite a large family—and I was quite close with many of my cousins, aunts, and uncles growing up, so that further maybe solidified the comfort, the warmth, the sense of security that the city had.

But I've always thought Columbus was somewhat unique, in that being a Midwestern City, and I probably wasn't that aware of this when I was in elementary school. In fact, I wasn't, but Columbus has a certain sense of humility about it, which is one of my favorite characteristics in life. All of us—me included—could use a little bit more humility, but I think Columbus has always had a sense of humility, and along with that, an authenticity and honesty and a wonderful heart. It became clear to me, particularly when I was in high school and as I graduated from high school: Columbus cares. Always has. And that was reflected in so many different kinds of things, but when called upon, the people of Columbus would answer the call; they would answer the bell and they would do so with heart and with passion.

And you know, we may not have any particularly great, defining physical characteristics—I suppose there's a river or two—but it's not like there's a ski mountain within sight of where we're sitting, and it's not like you can hear the ocean waves break at night—you can't—but the quality of life here is very, very high. There's always been a commitment to good schools.

Things have gotten challenging lately in terms of safety and security throughout the whole country, but I think Columbus has generally distinguished itself when you look at those qualities and characteristics that make for a place that people want to live. A great public university anchors our city; that is critically important. It is the state capital. It would be hard for me to imagine living anywhere other than Columbus.

Molly/Davis: What was it like for you as a leader in the community, when you pretty much saw it all happen in front of your eyes, this development of Columbus from what Short North used to be, two blocks, a block, and now the Ohio State/Short North/Downtown—it's almost seamless.

Bob: You know what, I didn't think about it like, I am a leader of the community, what do I do about it? I never I never really thought about it that way. But, I'm very competitive, and I’m a big Ohio State fan. I want to beat Michigan; we want to be everyone we play: I want to beat Cincinnati; I want to beat Cleveland; I want to beat Austin; I want to beat Charlotte. Our company does business in many of those cities, and from a business standpoint I love them, but when it comes to the competitive juices I want Columbus to win all the time.

I remember when I first joined the Ohio State Board in 2005, sitting in a board meeting up on campus, and I was just imagining—because the area around the Campus, particularly High Street, as you begin to move South towards the Short North and Downtown, it was not safe; it was not walkable. There was nothing appealing about it in terms of the kinds of neighborhood energy that you'd like to see, and I remember chatting about it with another board member; we were saying, “You know what? The way the Short North has grown, one of these days you're going to be able to walk comfortably from Broad and High to Campus any hour of the day, and it will feel like one consistent, seamless, high-energy street. How great will that be for the city?” And it’s happened a lot faster than I thought it would. I love what's happened in our Downtown. I'm in the homebuilding business, and we build a lot of homes in suburbs. We don't create housing in, at least—generally speaking—downtown environments, but I could not be more pleased to see the housing, the quality of the housing, and really, the recreation, if you will, of the downtown neighborhood.

Molly/Davis: So going back to your career path. As you were growing up, watching your father, Irving and cousin Mel go about their businesses, it’s to my understanding that you actually wanted to be a lawyer at first, and you actually worked in a private practice for 14 years before joining M/I Homes. Talk to us a little bit about the desires you had as you moved through high school and college, in your young professional career, and how Columbus might have shaped those ideals for you.

Bob: I think you're lucky—I think that you're literally lucky—if, as you grow up, there is someone out there that isn't just a role model, but that is a good role model. Not necessarily a mentor, if you will, but someone who you look up to for all the right reasons.

I mean, it’s possible to have a role model that can steer you left when you want to be going right, but I was very, very fortunate to have my dad, both my parents, but particularly my dad because of his business success and the way in which he did things. My dad was Irving Schottenstein—he passed away in 2004—and my dad's first cousin, a guy by the name of Mel Schottenstein, died very young in 1993. Irving and Mel—my dad being Irving; Mel being his first cousin, and Mel was also my cousin—were powerful, powerful influences in my life. I don't think I could overstate it.

The way they conducted themselves, they cared about the community, extremely high-integrity individuals, they had gotten involved in a number of philanthropic and/or nonprofit kinds of endeavors; Mel was the founder of the homeless shelter, and the Mid-Ohio Foodbank. A lot of those things came out of his ideas. These were things that he felt passionate about. He also happened to be a very successful lawyer. I wanted to be like him, I mean idolize is probably too weird of a word, but I looked up to him, just completely. And the fact that he wasn't my dad maybe made it easier for me to look up to him in those kinds of ways.

But I wanted to be like him, and he was a lawyer and I can remember being in fifth or sixth grade sort of thinking to myself, I want to be like Mel, and from that point forward I wanted to be a lawyer. My dad was an equally strong influence on me. My dad had a tremendous work ethic. I think I was lucky. And he might have had to beat it into me, but it didn't matter because it worked. But he instilled a very strong work ethic in me. I remember growing up I never went to camp during the summers. My siblings did, but I didn't. I'm not really sure why—maybe I should have—but I had more fun. But fun for me was working with my dad. Now what did I do when I was 12, 13, 14, 15, years old? I picked up trash, I watered flowers in apartment complexes, I did manual labor, I mowed lawns, I did whatever I could to “help” him, and I just loved the notion of working with my dad—feeling like I was helping him, even though it was in a very small way because I was completely unskilled to do anything else.

Molly/Davis: So another moment I talk about, you might refer to as a “seminal moment,” which is the moment that defines a big change in your life for the good or for the bad So after you were working as a lawyer for 14 years why did you decide to focus on business and take that jump into going to work at M/I Homes. What I heard you say was the foundation of the business in construction for 2 to 3 years. What was your thought that went into that decision?

Bob: Wow, I guess it wasn't that long ago: that was 1990, 30 years ago. So I started practicing law in 1977 and I loved it, and if I had to do it over again I would do exactly the same thing. 0.0 regrets.

I really enjoyed the people I worked with. I worked at a really good firm. I liked the work that I did. I did a lot of corporate real estate and transactional work, and it was rewarding! It was rewarding both from a professional standpoint and also economically rewarding.

Around maybe 12, 13 years into it I started to just get a little bit itchy, if you will, or I started asking myself, Are you sure you want to do this forever? I was always on the client side of the table, but there would be situations where, when a transaction ended, I would think to myself, I might have rather been on the other side: the owner side of the table. it's a harder side to be on, trust me, but maybe it was just thinking the grass may be greener, but I don't think so. It was obviously more than that: I felt like I wanted to do something more enterprising.

I felt like I wanted to be not just in a “pure service business.” Nothing wrong with the practice, the law. It's just a great profession, and I'm a big advocate in people getting a law degree that they have any kind of interest in. I believe that I wanted to do something more enterprising. For about 12 to 18 months I thought about a lot of different things. I considered going to work at one company or another, and I had a great relationship with my dad. I'd really never worked for him other than summer jobs that I mentioned earlier. But I’d never worked full-time for my dad. M/I really was a fairly young business then (it was only 14 years old), but it was a growing business.

Because I was born Irving’s son I also had an interest in the business. Just because I was born and because it was a potential future inheritance, if you will, but I didn't look at it that way so much. I really felt like I wanted to be in business. I felt like I had an aptitude for it, and I felt like I could contribute. And after tremendous back and forth, should I leave? Shouldn’t I leave? Should I leave? Shouldn’t I leave?, I finally left the law firm in the end of ‘89, early 1990, joined M/I, and went from wearing, at the time—no one wear suits anymore—but wearing a suit and a tie and carrying a briefcase, I ended up buying a truck and work boots and worked construction my first six months. And then I moved throughout different pieces of the company over the next several years.

Molly/Davis: So as you worked those entry-level jobs, I think it might be a good lesson to young people, because I saw some articles you were quoted in saying how important the foundation to the business is, that you have to really understand the foundation in order to succeed and move up the ladder. So for a young person entering what some people may consider a large corporation, how important is it for an entry-level job for them to really focus on what their task at hand is, not worry about what would come later?

Bob: There were a couple things going on. First of all, I was not only sensitive to the fact that my last name was Schottenstein and I was the founder’s son, but I was insecure about it. And I lived with that insecurity for a long, long time. It might just have recently left, truth be known, but I always worried that people would think that the only reason I was there was because Irving was my dad or Mel, his partner, was my cousin.

You know what? At the beginning that might have been the only reason I was there, but I wanted to make the best of it. The other thing is, my dad was not only a very humble guy, but my dad absolutely loathed—loathed—anyone who had any sense of entitlement. He didn't feel that anything would be given to anyone: it has to be earned. And he really believed that to his core. And I knew he was right, and I wanted to at least embody that I believed that too.

I said that there's only one place to start, and that’s sort of at the bottom. It's not that I knew I was going to master construction, because that's somewhat of a life's work, but I at least would have an appreciation for that part of our business. It is the foundation of our business, literally and figuratively. I didn't want anything given to me—I wanted to earn it.

So, I spent six months in construction, and spent a number of months in sales, then moved into the office at purchasing, worked in land for several years, and land acquisition, and just moved into a lot of different areas within the company. I was bound and determined! I didn't want anything given to me. I didn't want to be treated specially because I was Irving’s son, but I also didn't want to be treated unfairly because I was Irving’s son. I wanted the opportunity to let the chips fall where they may, and I've never looked back.

I said I have no regrets about practicing law. I absolutely am glad I left when I left, and I could not be happier being where I am. I love what I do, and I think that it's almost an emotional thing for me to say it, because a lot of people go through life never quite finding a passion. Maybe I'm just easy or low-maintenance, but I feel like what I've done I've been very passionate about both. I can't ever recall (okay, maybe once or twice, but basically I can't ever recall) waking up in the morning and saying, Oy, I gotta go to work. I don't look at it that way, and I really feel lucky, especially after changing career paths.

Molly/Davis: As you worked your way up in M/I Homes, you soon became CEO, and in 2004, your father passed away soon after. What was it like taking the reins at the company at that particular time? And talk about some of the expansion that you had during that time period.

Bob: A little bit of the housing history that I may be the only one that really is interested in—the listeners will decide—but I joined M/I in 1990, and between 1990 and basically 2006 we had 16 consecutive record years. And I was dumb enough to think that it had to do with me. The industry rode an absolutely incredible economic wave for about 16 years, but nothing that was even noticeable. If there was a slip, it was imperceptible, and it was the macroeconomic conditions that most influence our industry: things like job growth and interest rates and consumer confidence. All of them were pointing in the right direction, and we had an unbelievable tailwind. We probably didn't realize it; we probably thought we were smart, too. And we do a good job, I don't want to be too silly about it, but if you're running downhill with the wind at your back, even if you're not in very good shape, you can run a long way. We were running downhill with the wind at our back. Now, we were in pretty good shape, so we really had one hell of a run.

My dad passed away in 2004, in February. 2004 was another record year; I'm like CEO now—like, alone—for the first time, and we have a big company, but I wasn't really sure if I even knew what to do. There were certain relationships I had with other CEOs in town. I remember calling on one in particular saying, “I'm CEO. I don't know how to be a CEO! I mean, I guess I'm just going to do the same stuff I was doing before, but what do I do?” And then 2004 was a record year, 2005 was a record year, 2006 was a record year, and then, BANG. All of a sudden, towards the third quarter in 2007, this beautiful music—this beautiful tailwind—the wind stops blowing, and the music stops playing, and for the first time in my life—you asked about seminal moments, and I probably should have referred to this one—for the first time in my life, I was faced with real economic diversity, and it was really, really bad.

What we're dealing with now in our country, with the economic impact of the COVID, let alone the health crisis, is horrible for so many industries and businesses. We’re reading about restaurants and hotels and the impact on travel and tourism—airlines and retail—some companies that were iconic—file bankruptcy. This is horrible.

In the Great Recession, housing was the epicenter. And there's a reason they call it the epicenter: it's where all the crap flows to. Three out of every four homebuilders in the United States went out of business during the Great Recession. 3 out of 4. At the beginning of the calendar year in 2007 (we have been public since 1993), we were one of 20 publicly traded homebuilders. By 2009, there were only twelve of us left. So 8 of the 20 (these are the biggest builders in the country) had gone out of business nationally; all builders; 75%. They didn't just go through reorganization; they shuttered, they liquidated, they closed their doors. It lasted 4 and ½ to 5 years. It's a matter of public record.

I mean our company lost over 500 million dollars throughout that 4 and ½ period. There were many a night when I would wake up in the middle of the night believing that we were going to go out of business. How could this happen? I'd walk the halls in my house, looking up at the sky, symbolically talking to my dad, Sorry I screwed it up, this great business. Frankly, had the recession not come to an end—I mean, technically it ended before, but for the country, if you will, in a real way the recession didn't end until 2012, so it went on for eight, nine, ten, 11 and ½ to 12—and, had it been going on for another couple years, I might be sitting here talking to you, but I would probably be applying for a job, because we would have gone out of business, too. And I don't say that lightly. It would have taken down every builder in the country. We had a little bit of staying power left, but not much.

Molly/Davis: After that and having gone through that personally, and as a company, what did you take away from that, that maybe is still in place going through this crisis?

Bob: I talked about the insecurities that I had when I joined M/I Homes, and even though I had a lot of success as a lawyer before that, I had successes once I joined the company. While my dad was alive, I got promoted up a number times, and I'm sure I earned those things. I always had this thing gnawing at me: whether I really earned it. You know the old line, “Born on third base and thought you hit a triple?” I wouldn't say I was born on third base. But I did have a lot given to me, and I questioned internally, this so-called insecurity, whether I really earned it.

I have more confidence and I think I am a better, more compassionate, more effective CEO, if you will, by a lot coming out as a result of what we had to endure. Going through that recession, laying off 70% of our people, losing money every single year, playing full-time defense—like every day was a goal line stand, if you could use the football analogy—just hoping you could continue to stay afloat from the cash flow position and make payroll. The scars, and the endurance, and the fact that we survived it. I say we—I had a lot of help from a lot of good people in our company, but we got through it. It's like all of a sudden, when the clouds cleared and the music quietly began to play again, I felt pretty good about myself, and I felt really good about our company.

We were true to our values. We never cut corners on quality during the recession; we never cut corners on customer service: the very things that made up the core values of our company. Who we are, the ethical standards that we have: we didn't compromise those by 1 inch during those 4 and ½ year period. And I'm really proud of that. I don't want to come across as arrogant, but I'm really proud of that, and our company got recognized for the way in which we operated during that period. We got a couple of national awards—and, sometimes, those national awards are pure BS—but let me tell you, we earned those awards.

Molly/Davis: You’re a humble guy, but Builder Magazine did recognize you as “Builder of the Year,” specifically for recognition of his decisive leadership through the Great Recession.

So kind of playing off of how you talked about doing things the right way, even during that tough time period, how do you think the way that your company carries itself has allowed you to be so successful in expanding, since like 2010? Doing things the right way also could lead to financial success.

Bob: This goes back to some of the mentors in my life—Mel, Irving, others, Les Wexner—who are not only really successful people, but incredibly principled. Incredibly principled. And some people listening to this may be cynical and think that's not the case, though, that is the case.

Mel always talked about how important it was, not just to be right, but to appear right. Not just to be right, but to appear right. Think about that. I remember the first time I heard that I was probably 12 or 13 years old, and was like, Wow, this guy is really smart.

And my dad had so many stories; he wouldn't tell them because he was too humble. People that had met him at various times in their life, and then I would meet them, and they would go, “Oh, Irving was your father? Let me tell you what your dad did for me.” And I wouldn't think to myself, Why didn't Dad ever tell me he did these things for these people? He didn't because they were the right thing to do.

That was, I guess, in my DNA—I hope it's in my DNA, I think it is. And Les Wexner is the same way. He cares so much about the greater good—always, always challenging; asking; demanding: how can we make things better?

So you asked about growing the business; we have a fairly simple formula: you start with quality, you start with taking care of your customers, you do things the right way, and, hopefully, you're smart about the land you buy. The first three things are intangible; the 4th—there's a real scorecard on that one. We are in the “location, location location” business, and hopefully we’re smart about the land we buy, and if we are, and we pay attention to quality, and pay attention to doing right by our customers, and operate a high standard, I think we can be really successful. And that’s what we try to do.

Molly/Davis: Like you were saying, you were hoping these qualities you were seeing in your dad are in your DNA, I think that you could say something similar for Columbus. With Columbus' leaders and the generations to follow, you hope that's in the DNA of Columbus.

Bob: In the intro, you mentioned the Columbus Partnership. From the outside looking in, some people may see it as elitist. I don't know, and maybe I didn’t need to offer that up, but it’s not. Nothing could be further from the truth. In fact, it’s the exact opposite, and I'll tell you why. And this is, I think, a tribute to Les Wexner and also to John F. Wolf, who really were the founding fathers. I don't mean to make it a male-female thing, but they were the founding fathers of the Columbus Partnership.

They never brought their egos into the room; they never brought their self interest into the room. The work at the Partnership was never about how to get more circulation for The Columbus Dispatch. The work at the Partnership was never about how to find more buyers or shoppers for Victoria's Secret or Bath & Body Works. It was never about that.

In fact, if anything, a lot of the key initiatives and work of the partnership had nothing to do directly with their businesses. Never has. It was always about “How can we make Columbus a stronger city? How can we strengthen quality of life, broadly speaking, in Columbus? How could Columbus be a more inclusive community? How can Columbus be a more welcoming community?”

We don't want people to travel to so-and-so to see best practices; we want people to come here. And it was that ethic, that value, that lesson that John really just baked into the constitution of the partnership that I think made it special. We've done visits to other cities; I went to Minneapolis with a group from the Partnership to visit with their Partnership, and it was an impressive group. We went and saw what they're doing in Austin, we went and saw what they’re doing in Raleigh, and those who are impressive groups, too, but I think ours is a little bit different. There’s just zero self-interest. And if someone wants to impose their own agenda, they don't last very long in the Partnership. They either quit coming to meetings or they're asked to leave, or you try to convince them to do it this way.

Molly/Davis: I think the Partnership success speaks for itself over these last 34 years. That's a gigantic part of what our podcast is about: educating young people on the history of Columbus and how it was built, and why this might be the right place for you to stay in your career, or why the next generation should care about giving back in the same way that your generation, I feel, has given back. We actually have Alex Fischer as our Capstone episode, kind of recapping some of the leaders we've had on. Now I want to get into a bigger question.

Bob: Before you get to the bigger question, I just want to say one thing because I may not get a chance to say this. A long, long time ago, someone really smart said to me something about “I know you care about your net worth, and net worth is important, but self-worth is a lot more important than net worth.” And there's a caution there: it's important—everyone wants to be successful, and I love giving back, I love helping when I can—but you’ve got to have resources to be able to help others, so net worth matters, I get it, but self-worth is significantly more important than net worth, and the factors that make up someone's self worth—being humble, authentic, honest, ethical, operating with equanimity—these are the things that make up your self-worth.

Molly/Davis: That’s a really impactful point. I know you might have an interest on addressing some of this: just from your time working in the legal profession; your time working in the housing market in multiple markets across America; having your career move from the 70s, 80s, 90s, to now today, with all the stuff going on in the world, what are some of these injustices that you might have witnessed up close or from a distance, and is there anything that you wish you could have gone back and said, “hey, this isn't right?”

Bob: That's a great question. It's never too late to do the right thing. You start out with that. So I don't feel like there's an opportunity missed, but I think that there are some things that need to be repaired. And I think that I'm extremely fair-minded, and I think people that know me would say that.

Growing up in Columbus as a Jew (and this may be hard for certain people to hear), when I was in junior high and high school, and I knew I wanted to be a lawyer, there were only one or two firms that I could even think about going to work for. Why is that? Because there were only one or two big firms that would hire Jews. That was in the 1960s, not long ago. So in terms of my own persona, I'm sensitive to discrimination. The very first house I bought in Bexley, the deed restrictions for that neighborhood had a sentence, written in the 1940s, that says you can't sell to anyone that is, the words are “Negro or Jew.” That was in Bexley, the neighborhoods of Arlington, Grandview, Worthington, the older ones. I'm sure all have that language. Now that's illegal—it’s unenforceable—but that's how they were written.

To come to the world today: I think that the murder of George Floyd was an awakening for me, and I think it was an awakening for a whole lot of people. But I can only speak for me, and I really know for sure it was definitely an awakening for me. I think I've always sensed that [Black Americans] had a tougher way to go, but I don't think I fully [realized] the rampant, rampant racism that exists in this country.

If I were born black, I would not be CEO of M/I Homes. And if you look at the members of the Columbus Partnership, at those that are white, it's most of them. I would presume that if most of them were born black they would not be where they are. That is not right! That is not fair! There has been systemic discrimination in housing and housing patterns in this country for a long, long, long time, and I think for too long a lot of us, we didn't turn our head to it, but we didn't really think about it.

The last number of months since that horrible killing, it's almost consumed me. I look at our company and I look at our industry, and this is pretty much true of the entire real estate industry. We're a homebuilding company, but we're sort of viewed as a real estate company. The real estate industry has pretty much been dominated, almost exclusively to a fault, by white men—not right! I guess the lack of diversity, frankly the lack of gender diversity that's come to correct itself quite a bit—not enough, and I don't just say that as the father of three daughters—I mean, I just believe very strongly that it’s clearly in terms of racial diversity within our industry. It's pretty appalling.

When you gave my introduction you talked about that I'm on the executive committee of the Policy Advisory Board at Harvard’s Joint Center for Housing. There are 55 board members on that Policy Advisory Board: they're all white, all CEOs of some of the biggest housing companies in the United States. Housing and housing products companies. There are only three or four women. To be on that board you have to be the CEO of a large company that impacts housing in the United States—either a builder, an apartment developer, the head of Sherwin-Williams is on it, the head of Owens-Corning, Johns-Manville—so these are big, big, in many cases Fortune 100 companies, whose business impact housing, like ours does. The lack of diversity is appalling.

And so to answer your question, the time is now to do something about it, and you can't just snap your fingers and fix it, but you can begin. And I think it's—I don't know if it's a marathon, but it's more of a marathon than a sprint—but again, this is me you're interviewing; me, not the industry. We need to become a more diverse company, and in so doing, we will be a stronger and a better company. I guess if it's a regret that we didn't take this step, we’ve talked about it for the last several years. It's not like it wasn't readily apparent to, “but talk and season’s over,” as someone once said. This is no time to talk: this is time to act. I think we're going to start to see a lot of changes across Corporate America, and not a moment too soon in our country.

I think this is a red-hot issue, and there's an opportunity to right wrongs and to begin to take steps forward. I think that we can't afford to waste the opportunity this time, and look, it's not made any easier by the fact that the COVID-19 pandemic has crippled the American economy. Unemployment looks like maybe it's stabilized somewhat, and all these things are cyclical. I believe in the U.S. economy long-term like crazy. I'm very optimistic about it, but we’ve got to get back to where we're all starting to hire again so the opportunities can be given.

This is a really important moment in time, and this is a moment in time that we will be judged by 10 years from now when they say “what did you do?” We want to be able to answer that with our heads held high.

Molly/Davis: I saw you were quoted saying your 2019 was a “banner year” for your company. So you got to talk about finding two passions, one in the legal profession and one in the homebuilding/real estate space, so as you’ve reached this pinnacle of your career, what would you kind of say was the one thing you would want to say to the next generation, just kind of wrapping up our podcast? What one thing would you say to me and Molly, but also our listeners—what would you tell them?

Bob: Well I don't think I can just say one thing. The high school or college graduation speech line you’ve got to find your passion—I don't want to say that because they've heard that. But you do. I mean, you can’t do anything well that you don’t like. You’ve got to care about the greater good. You’ve got to do things the right way. Integrity matters, telling the truth matters, and have fun! It takes no skill to alienate people (that's one of my lines, “It takes no skill to alienate people”). People are great. You find a way to work with people, and you get a hell of a lot done.

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