Royal Flush

Herbert V. Kohler Jr. is arguably the most iconic, enigmatic and successful business owner in Wisconsin. Kohler, 68, is the chairman of the board, chief executive officer and president of Kohler-based Kohler Co. The company has more than 33,000 employees around the world who work for the firm’s four main business units: the Kitchen & Bath Group, the Interiors Group, the Global Power Group and the Hospitality & Real Estate Group.

The company was founded in 1873 by Kohler’s grandfather, John Michael Kohler. Herbert Kohler Jr. was named chairman of the board and CEO in 1972, at the age of 33.

The Kohler Co. has flourished under his leadership. In one of his best moves, Kohler ignored the advice of consultants and the desires of his own board of directors and converted The American Club, originally built as a residence hall for immigrant employees, into a first-class resort. The American Club has been a resounding success and is the only AAA Five Diamond Resort Hotel in the Midwest. Kohler later built two championship golf courses to provide a place for The American Club’s guests to play. The golf courses, Blackwolf Run and Whistling Straits, have hosted to major professional championship golf tournaments, with more to come.

Kohler recently unveiled his latest creation, the Craverie a café/chocolate shop with high calorie “indulgences,” including handmade chocolates and lean items that are low in calories and sodium, but not in flavor.

With the unveiling of the Craverie (see accompanying story), Kohler took time out of his busy schedule to chat with Small Business Times managing editor Andrew Weiland to share some of his secrets to business success. The following are excerpts from that interview.

SBT: Mr. Kohler, you run a company with 33,000 employees around the world and four divisions that do very different things. How do you stay on top of it all?

Kohler: “We have a lot of other passionate executives who know their businesses and drive their businesses. So I don’t have to spend my waking hours worrying about it. I don’t worry. I inspect or check here and there and what I look at are the essential ingredients that drive the business and make sure they are in order. But I normally don’t have to do much checking.”

SBT: How do you make sure you have the right executives in place? Obviously, it’s critical to have the right people to perform for you. How do you get the right people for the job and how do you keep them?

Kohler: “Well, this is a fairly exciting place to work. And the surroundings are unusual. People in Wisconsin have, and in particular in this neck of the woods, have quick access to metropolitan centers, the rest of the United States and literally the world. It’s a marvelous hub, this little place. We can reach New York in an hour and a half. We can reach L.A. in three hours. So it’s a global center for us. So finding people to work in such an environment is really not difficult at all with the recreational resources we have here, with the standard of living we have here and with the security that is paramount in the region. People find this to be one of the best places to raise a family in the world. Readers Digest called it the best in the United States (to raise a family). So, when you look at all of that, the excitement of the corporation and what it’s doing, when you look at the geography and when you look at the living environment, it’s really a marvelous combination of attributes. In terms of having people stay, we have very little turnover amongst our best people.”

SBT: What are the key philosophies and best practices that are most important to your company’s success?

Kohler: “The first best practice is that we are privately held. Our people are not focused on quarterly results, even though we maintain many of the disciplines of publicly held corporations. We look at longer-term results. And we’re considerably different than a corporation owned by private equity. Those folks have mountains of debt and have to suffer the rigors of extracting cash from those companies. Our weakest competitors are either publicly held or owned by private equity.

“We have a mission. Everyone in this company, regardless of what business they are in, kitchen and bath, power, furniture, hospitality, are in pursuit of this mission. Our mission is to raise the level of gracious living of everyone touched by our products and services. That means that every customer we have in the Craverie, that means that every person that buys a plumbing product, or an engine or a generator, plays a game of golf or stays in a hotel room, comes away feeling strongly positive about that experience. So much so that if that person talks about that experience a year from now or five years from now, invariably that person will smile. If we produce smiles, we’ve done our job. Not just momentary smiles, but deep-seeded smiles. If we produce smiles consistently, we are attaining our mission. But we have to do it thousands upon thousands of times every day.

“Now, to do that we have a couple of guiding principles. The first is that we live on the leading edge in design and technology in products and processes. Nothing we do can be a copy. With a copy, you’re not on the leading edge. That guiding principle, if we in fact do it consistently, is what makes this place so much fun because we are all charged with doing something better today than anything we did yesterday or the day before. Our job is to bring something new to this world, continually, and not clutter it up with the same old thing.

“The second principle is that we have a single standard of quality in everything we do. Making an engine, making a bathtub, producing a restaurant. It’s that single standard of quality above the norm that creates the reputation of Kohler.

“And then there’s a third principle that’s pretty important. And that is we take 90 percent of our earnings and reinvest it back into the business year after year after year. And that produces the fuel for growth.”

SBT: When you have a new idea, such as the Craverie, what is the key to making that innovation happen? A lot of entrepreneurs have what they think are great ideas, but they don’t know how to execute them to make them realities.

Kohler: “One of the real keys is producing prototypes, because you are going to find that as good as the idea might be, it’s going to have a lot of bugs. And in producing models, prototypes or samples, you’re going to find just a slew of things you would like to change. And to the extent that you do that, you will come up with a much better finished product than if you just took your first shot and out you went.”

SBT: How would you describe your leadership style, and how would you say it compares to the leadership styles of the other members of your family that have run this company?

Kohler: “My style is different than my grandfather’s, my father’s, my uncle, my children. We’re all different. What I bring to the party is ideas and the little sparks of fire, of interest, of potential. What we have in common is that we have this mission and this same set of guiding principles, and that’s far more important, ultimately far more important than simply trying to drive a profit and loss statement. We will get much better results, financially, by driving the mission with guiding principals than we will (being driven by) a P and L and a balance sheet.”

SBT: So much of what you and your company have done has been successful. Have you ever done anything in business that wasn’t successful? Have you ever made a mistake? And if so, what did you learn from it?

Kohler: “I could give you an exclusive story about all of my mistakes (laughs). And, we’d have a lot of fun with it. Once upon a time, I thought we should buy our largest distributor of plumbing products in France as a stepping stone into our own distribution in Germany. It was a bloody disaster. They simply weren’t capable of adapting, and we found ourselves competing with our customers, which is something you never want to do. So, after some serious financial decline, we sold it and went on to much better things. That’s an example of cutting bait. This company doesn’t often have to cut bait because it usually studies its opportunities very well before it invests. And when we invest, we are pretty darn certain that it’s going to be successful. It may not come out with the timing that you expect, but that’s one of the great benefits of a privately held company. We can persist with a good idea, whereas a publicly held company cannot do that. They have to produce immediate results, and if they don’t, bang, away goes the good idea.”

SBT: So much manufacturing in the United States has been shifted to overseas operations to take advantage of lower labor costs. You have manufacturing operations here in the U.S. and overseas. What is the future of manufacturing in Kohler, and why is it important for you to have overseas operations?

Kohler: “Well first of all, we have about 49 plants around the world. At least 80 percent of everything we produce outside of this country stays in the region in which it is produced. We have seven plants in China, 80 percent of that stays in China. The way you maintain a plant in Kohler, Wis., or elsewhere in this country is through advanced technology. I told you our first guiding principal is to live on the leading edge of design and technology in product and process. Take the technology part and the process part, and that’s what’s going on inside of these factories. They’re working on leading edge processes as much as other people are working on leading edge products. It’s those processes that keep these American plants competitive. Now, those plants have got to become more and more productive. And you might say, ‘Well that will force you to reduce the human involvement.’ It probably will in that process, undoubtedly will. But if your growth is where it should be, those people will have careers in other aspects of the business. The only times we have to lay off in this country is when we have some fairly serious decline in a sector of the economy, like what is going on at the moment in housing.”

SBT: I imagine the housing market problems are having an impact on your company, with the plumbing fixtures that go into new homes.

Kohler: “It has affected particularly the low end of our plumbing business, Sterling products in particular. But that’s offset by the mid-market and high-end, which continue quite strong. And so, overall, our plumbing business in this country will grow this year, slightly. We grew a lot last year. We’ll grow slightly this year.”

SBT: What are the biggest growth areas of your company right now?

Kohler: “Asia and Europe in plumbing and engines and furniture.”

SBT: To many people, this company, once best known for its plumbing fixtures, may now be better known for its hospitality business unit with the golf courses and The American Club. How did you get started in such a different industry?

Kohler: “It all started in the mid-70s when we wanted to protect some land from future housing development, which could have produced at least a half a million dollars in revenue by selling lots on the Sheboygan River. The idea was to protect that land from any future development and yet find a way to make the land profitable. How do you do that? How do you keep it green, how do you keep it natural, produce a profit and keep your successors away from it and not take advantage by selling all that land off? How do you do that?”

SBT: What is your vision for the future of the Kohler Co.?

Kohler: “My vision is very minimal. I’ll tell you why it’s so minimal. I’m focused on the mission and guiding principals. We have four great business groups. Each one of these business are capable of producing hundreds of ideas, many of which should be developed. Now, I will tell you that this company will be growing at about 10 percent per year, because that’s the momentum we have. In the markets across the world, that’s what we’re capable of. And that’s a lot of growth. Today we’re $5.5 billion in size. Just imagine what 10 percent means, every year.”

SBT: That’s a big pie.

Kohler: “(Laughs) It’s a big pie, and it gets bigger and bigger and bigger. That’s our job.”

SBT: Do you have a succession plan for when you are done running the company?

Kohler: “We put a lot of time into succession (planning). Every other year, we focus on succession from the foreman to the chairman, literally. And every other year, it’s revised because people grow and develop in different ways at different speeds.”

SBT: Do you envision your children running the company in the future?

Kohler: “If – and underline ‘if’ – they are capable. I am blessed with three children that are reasonably intelligent and love to work and feel passionate about this company.”

Herbert V. Kohler Jr.

Age: 68
Titles: Chairman of the board, CEO, president
Company: Kohler Co.
Family: Wife, Natalie Black, is general counsel, senior vice president of communications, and corporate secretary of the Kohler Co.; daughter, Laura, is senior vice president of human resources; daughter, Rachel, is president of the company’s Interiors Group; son, David, is president of the Kitchen and Bath Group. All four are members of the company’s board of directors.

Kohler Co.

Founded: 1873 by John Michael Kohler (Herbert V. Kohler Jr.’s grandfather)
Headquarters: Kohler, Wis.   
Annual revenues: $5.5 billion
Employees: More than 33,000   
Web site:
Business units:
  – Kitchen & Bath Group, includes Kohler, Sterling and other brands.
  – Interiors Group, includes furniture, upholstery, tile and luxury plumbing.
  – Global Power Group, includes Kohler Power Systems, SDMO generators, Kohler Rental and Kohler Engines.
  – Hospitality & Real Estate Group, includes The American Club, Whistling Straits golf course, Blackwolf Run golf course

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