14) What is Tribal Leadership and how to use it to value investments Eric Schleien

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Eric Schleien

14) What is Tribal Leadership and how to use it to value investments Eric Schleien

I had the pleasure of interviewing Eric Schleien. Over the past decade, Eric has trained thousands of individuals including board members of public companies as well as several Fortune 500 CEOs. Eric specializes in organizational culture and has become a leading authority on organizational culture in the investment industry.

Eric has been investing for 15 years and has been using breakthrough coaching methodologies for over a decade. Eric had the insight to combine proven coaching methodologies with shareholder activism techniques to create an entirely new model for shareholder activism that was more reliable and created greater sustainable results in a rapid period of time. On average, Tribal Leadership produces a 3-5x increase in profits of culturally troubled companies within an average of 24 months or less.

Eric currently resides in Philadelphia, PA.

Staying In Touch With Eric Schleien

Ney Torres:        [0:01] Welcome to the show! Today, we have Eric Schleien on the line. Welcome, Eric. I’m truly looking forward to interviewing you. For everybody listening right now, stick around. We’re going to talk about real estate, stocks. It’s going to become a very interesting interview because Eric is going into the next level of stock investing, which is activism. He also recently started a real estate company so he can talk about both things in depth. Welcome to the show, Eric. How are you?

Eric Schleien:     [0:38] I’m good. Thank you. It’s a pleasure to be here.

Ney Torres:        [0:41] I was looking at your web page. You have an impressive resume. How did you end up…? There’s a book I love. It’s called Permanent Value, which is about Warren Buffett. It’s a huge book for anybody seeing it. I think it’s a couple of thousand pages, right.

Eric Schleien:     [0:57] Yeah, it’s a big book. I actually have one of the copies. I’m looking at it right now on my bookshelf and it’s three large hardcover books. It’s like an encyclopedia.

Ney Torres:        [1:11] It’s like a couple of encyclopedias about Warren Buffett. How did you end up in the biography?

Eric Schleien:     [1:17] Well, I go to the Berkshire Hathaway meetings in Omaha every year. It looks like none of us are going this year, unfortunately, with everything going on. I don’t know when it was. It was quite a few years ago. I’m in Omaha. They have a place in the convention center where authors sell their books. And you know, if you have a book either about Warren Buffett or Berkshire Hathaway, or something related that either Buffett or Munger wants to be sold at the Berkshire Hathaway meeting, you can even buy a book there. So, the author of that book, he happened to be signing books. I said, “Hey, I have kind of a cool story, I think.” And at that time, either I was still in college or just finished college. I don’t remember exactly what year it was but I had been running a… I guess I was in college. I had been running a… I call it a hedge fund but it was just a little limited partnership that me and a buddy of mine started. His dad and my dad gave us a little money. Those were our two investors. It was essentially running a hedge fund out of my dorm room starting when I was 18 as a freshman in college. Yeah. So, I told him about that and he thought it was kind of cool. And he said, “Would you be interested in possibly being in the book? I could ask you some more questions and go from there.” And I said, “Sure.” And then, that’s kind of how it happened.

Ney Torres:        [2:52] Can I ask you, what’s your motivation? Because 19 to get into investments is very early. So, you probably had motivation from before.

Eric Schleien:     [3:00] Yeah. I’ll share with you a story if I may. When I was 14 years old, I was in a bookstore. I grew up in Westchester, New York, which is a little bit north of Manhattan. It was about 30-40-minute train ride into the city. At that time, I was walking either in Barnes and Noble, or Borders Bookstore. I was with my mom. I decided I wanted to be a big boy and be mature. So, I decided to go to the most mature section of the bookstore I could find, which was the business section. I go in, and I find this book. It was a book by, you know, the Motley Fool. Are you familiar with them?

Ney Torres:        [3:48] Yes. Yes, for sure. Yeah.

Eric Schleien:     [3:49] So, they have a book. I don’t remember the exact title but it’s something like a teens guide to making more money than your parents or you know, something like that. I thought that was very cool. Yeah, right? So, I just started reading it in the bookstore. It talks about the basic financial concepts, the importance of saving money, and not going into lots of dead and things like that.

[4:13] And then there was a part on investing and it shows this compound interest craft. If you have $10,000, and you compound it, even just the average market rate of return, which I think at that time was like 10% – 11% annualized, you end up making quite a bit of money over quite a few decades. So, I thought to myself, wow, if I worked at McDonald’s my entire life and flip burgers, and I saved money every year, I could actually, you know, be in my 60s and be worth over a million dollars. And I think I’m going to do better than flipping burgers at McDonald’s. I don’t know why I had that train of thought but that was my first thought when I saw that compound interest graph. So, then I thought, “Okay, I got to learn how to play this game.” At that point, the motivation was just, “Well, I could make Millions of dollars one day.”

[5:02] I started reading about different books or different investors that were mentioned in that book. And one of the books I bought was a book by a guy named Robert Miles called Warren Buffett Wealth. That was the first book on Buffett I read. That was like the epiphany for me. It was like the light bulb clicked. That led me to reading the Intelligent Investor and led me to reading common stocks, uncommon profits, and then the floodgates kind of opened up and I just started going down rabbit holes.

[5:34] The more I did it, the more I loved it. It stopped being about, “Wow, I could be wealthier than my parents one day.” or “Wow! I could be worth millions and millions and millions of dollars one day.” It became, “Wow! This is really fun and this is lifelong exploration for me.” So, that’s how I got into it. I just got obsessed with it. While I was still in high school, I knew that this was something I wanted to do the rest of my life. That was how I got into it. It’s like solving puzzles to me.

Ney Torres:        [6:08] Interesting. I kind of feel the same way. I just got a little later into the game like 21, 19, 21. But what is your family… And this is really important because very few people understand this. What does the people around…? Did they support you? Do they understand what you do?

Eric Schleien:     [6:25] They’re supportive of me. I don’t think everyone understands.

Ney Torres:        [6:28] Back in the day.

Eric Schleien:     [6:29] Oh, back in the day. Yeah. One of the rules they had for me when I was younger is… When it came to books, they were very supportive. If I wanted a book, they would buy it for me. That was one thing they highly encouraged and they would buy any book I wanted to read. So, when I found something I was that passionate about and it was a worthy pursuit, they didn’t necessarily fully understand what I was doing but they were fully supportive that I was engaging in something that was healthy and something that clearly seemed productive and was an intellectual pursuit that I could make a career out of. So, they were extremely supportive. I’m very grateful to have a family that was supportive to doing something that was a little bit different.

[7:24] Even when I was younger, my dad wanted to introduce me to someone. He was a more traditional investment banker, and he wanted me to work for him. I really wasn’t interested. I had already been clear that that was not the path I wanted to pursue. I think some people would have been like, “Eric, you’re an idiot. Why won’t you do that? He’s a good connection, blah, blah.” I think some fathers might have done that. And, you know, he very much respected and honored my choice that while it was finance, it wasn’t the path that I wanted to pursue and I was pretty clear about that from a pretty young age. So yes, very supportive.

Ney Torres:        [8:04] And sorry too. Some people don’t like this question, but how old are you right now?

Eric Schleien:     [8:09] Thirty-two.

Ney Torres:        [8:10] Thirty-two. Cool. And do you have an office? Have you always had an office or do you work at home?

Eric Schleien:     [8:15] Well, my office is literally my home. Well typically when there’s no coronavirus in the air I’m usually working in a coffee shop or a restaurant.

Ney Torres:        [8:26] Me too. I used to have this problem where my friends will tell me, Man, you’re jobless.” Like, “What do you do?” Like, “Why are you in your home all day long?” They don’t understand it. And finally, through this podcast I can tell them, “Oh, this is what I do.”

Eric Schleien:     [8:42] Yeah. I know. It’s funny. I’m sure there are people that literally think that I do nothing all day.

Ney Torres:        [8:47] Exactly! Well, going back to your resume. That’s impressive. We’re going to go back to stocks really fast, but before that, I want to talk about a little bit of you are part of True Tribal Leadership? It looks like you were a coach.

Eric Schleien:     [9:06] I am a coach.

Ney Torres:        [9:07] You are a coach?

Eric Schleien:     [9:08] Yeah.

Ney Torres:        [9:08] Cool.

Eric Schleien:     [9:10] So, tribal leadership. It’s a methodology that you basically can use to not only understand… It basically distinguishes culture. That’s a very nuanced term. I’ll break it down. Well, I’ll say two things. First, it’s a very very deep methodology so it’s not something I will be able to adequately teach you in just a call. Right? I mean it’s hundreds of hours of training and development but I can give you an overview.

[9:51] So, tribal leadership essentially is a methodology to elevate a culture in the context of business. It can be used for families, churches, temples. Any kind of group of people, it can make them more effective. In the context of business and for-profit organizations, it elevates the corporate culture, you can say.

[10:13] If you think about culture, everyone knows what it’s like to be at the effect of a really great culture, right? And then everyone knows what it’s like to be at the effect of a really crappy culture. If you walk into your local DMV, or you walk into like your post office, maybe it’s really nice inside but I know, for instance, when I walked into the post office, it’s like a little dreary inside. There’s not much innovation going on. I’ve been around some people who work at Google or you walk into an apple store, or you hang out with some of the guys at Zappos, it’s a very different experience. The problem is that culture ends up becoming this buzzword in society. At least that’s kind of how I’ve seen it. It’s such a nuanced phrase that no one really knows what it is other than they think, you know. Like, I go to the Berkshire Hathaway meetings, right, and it’s a great culture. It’s really really exciting. There’s something almost magical in the air when you’re in the Berkshire Hathaway ethos. Markel corporation is another company with a great culture and they’re sort of a small Berkshire Hathaway like company.

[11:35] So, when I read that book Tribal Leadership, it allowed me to distinguish sort of the core principles of why a culture was so great and actually how you could start impacting and making it more effective. It’s kind of like if you’re on an airplane, right, everyone knows what it’s like to be at the effect of an airplane. Everyone knows what it’s like to be in the air. It doesn’t mean that you know how to fly the airplane. Right? You don’t want me flying an airplane but I know what it’s like to be in an airplane. A lot of people who are part of great cultures or even who are the CEO of great cultures, it’s really interesting. If you ask them, “Why is your culture so great?” They’ll always have an explanation or a reason, or many many reasons why the culture is so great, right? They’ll say, “Oh, we have a great team. We have people that work really hard. We have a really great ethos of trust.” There’s always going to be something, but then if you want to recreate that, it’s not reliable. It’s not reliable to recreate what they’re what they’re saying. So, you know, there’s all these business books out there. It doesn’t mean that you can go read a business biography and then go out and recreate the same thing, taking the exact same actions. Does that make sense so far, what I’m saying?

Ney Torres:        [13:02] Yes, it does.

Eric Schleien:     [13:08] Is it okay?

Ney Torres:        [13:09] There’s a methodology to create a leadership within the company, right?

Eric Schleien:     [13:16] Yeah. Yeah. So, sometimes I think a great culture kind of happens by accident. And then, no one knows why it happened. You have the explanation, but you don’t have the root cause behind it. So, in tribal leadership, they break it down that in any group of people, there’s only five different ways that people organize themselves in relationships. And depending on how they’re organized, not only impacts the language but it impacts the experience and impacts how effective they are.

[13:45] So, there’s what we call the five stages of culture. Stage one, you’re probably not going to see it in the workplace. It’s less than 2% of groups of working tribes that are out there. They call them tribes. It’s stage one, it’s the language that’s you. You can kind of see where a culture is at from two different ways. You can look at the structure of people. You can also listen for how they talk. And then, stage one, the way they talk is that “life sucks”. So, that would be the culture of gangs or mental institutions or prisons or a lot of the homeless population. It’s stage one. It’s this undermining behavior. If you don’t see how much life sucks, I’ll bring you down too. Structurally, it’s a bunch of people who are kind of disconnected from society and kind of all come together. That’s stage one. You’re not going to be dealing with that in a world class Fortune 500 company, probably not.

[14:53] At stage two, the kind of speaking language is “my life sucks” which is very different than life suck. So “my life sucks”, essentially, I can see that life can work for other people. If I worked for Google, my life would be great but I don’t, so it does. At that moment, my life sucks. Most people who are up to something really big in life will go to stage two sometimes every day at some point. It doesn’t mean that you’re stuck there. It just means you have these moments when you’re there. A lot of sales organizations are actually stabilized at a stage two culture where everyone has this kind of underlying resignation and cynicism. And you know, the boss. If I can be like my boss and have his job one day, my life would be great. If I work really really hard, then maybe one day I’ll get there but I don’t right now so my life kind of sucks. That’s stage two. It’s a place of survival. You’re constantly trying to avoid being dominated by your boss or the top salesperson. It’s a doggy dog kind of mentality, where you’re the underling. And then in contrast to that, there is stage three. Also, one other thing with stage two is the structure is you’re around other people, but you’re not really authentically related to them. It’s kind of like, if you’re in college, you know, your first week in college and you go to a frat party, and you’re around a lot of other people, but you don’t know anyone there. Well, in that moment, my life sucks. If I knew all these people, was a little bit more popular and had some more friends, I’d be having more fun, but I don’t know so right now in this moment, it kind of sucks.

[16:36] Stage three is what’s being said as I’m great. And then, what’s being left unsaid is you’re not. So, about 50% of organizations have a stage three culture. Almost any banking institution, education, university, academia, most law firms is that kind of mentality where again, it’s that doggy dog but you’re trying to be at the top. And, stage three has a symbiotic relationship to stage two. So, if you’re the stage three boss, I’m great. Everyone around you is not as great as you. It’s a lot of stage two people around you. And also, at stage three, structurally, if you have and spoke dyadic relationships, so dyad or one to one relationship. So, if I’m related to you, I’m stage three. You’re in stage two. I’m your boss. Not only am I trying to dominate you but I’m trying to make you kind of like me. So then, you go home back from work. So, you’re at work, you go back home, and you go, “Oh, I can breathe again. I can be myself again.” If someone has that experience after coming home from work, they’re probably in that kind of stage three environment or stage two environment with the stage three boss. Also, at stage three, the mission statement, the statement of values, which typically any organization has, they’re still not really embedded in the culture, if you know what I mean. They’re there on a wall but you don’t really feel it. If anything, what’s a little even nastier is they can be used to dominate someone. Like, “Oh, look. You’re not being the values of our company.” So, it’s kind of a way to punish people than anything. Other things I could say about stage three, it’s going to be more effective than being at stage two, but it’s still a form of survival.

[18:43] Now, where the breakthroughs happen, and this is where sort of the magic of tribal leadership comes in is when you get to stage four. Stage four is where partnerships start showing up. It actually produces what I think a lot of consultants, the flavor of the month consultants come in, and they try to motivate people and you do team building and all this bullshit. It doesn’t really make much of a difference. So, stage four, you actually have real authentic partnership showing up. And your access to stage four is through what’s called triadic relationships. And you know, me and you, we might have different things we value at our core, right? They call it core values. I think it’s a little cheesy, but that’s what they are. They are core values. We may not have the same core values, but there’s going to be things that we resonate on and things that we can connect on. So, you know, you might have a passion for problem solving and understanding complexity. I have a passion for things like personal development, but we can have a conversation like this on a podcast because there’s something that we’re both kind of interested in that we can resonate on even if it’s not coming from the exact same place. Does that make sense, what I’m saying?

Ney Torres:        [20:03] Yeah. That’s number four.

Eric Schleien:     [20:04] So then in what stage four, you have these three-way relationships that are based in resonant values that get built. Or if you’re already at a stage four culture, you could actually break down all the relationships in that culture into these three-way relationships. And there’s a level of stability that gets created. I could literally do a whole podcast on triads. I’m not going to go there, but that’s essentially the gist of it.

[20:31] In stage four, people actually start experiencing those kinds of values. It feels different, and there’s a lot more flow. The improvement in effectiveness of company so profits in general go up anywhere between 300% to 500%. Typically, it takes about 24 months, but they go up about 300% to 500% within two years when you go from a stage two or stage three culture to a stage four culture. That is where the real breakthrough and performance comes in. The language that gets used is, “We’re great. They’re not.” So, you know, at Apple, right? We’re great, who’s not great? Microsoft. Like that. That’s kind of how they speak.

[21:21] The thing to take away is that it’s a structure that changes, right? So, if you have a stage three culture, and you have some consultant come in, and they go, “We’re going to do some team building. And let’s just use a lot more we language and focus on the team.” The reason it creates a level of cynicism, is because you’re saying all that stuff on top of a stage three structure. And the structure is what ends up creating the predominant experience, not the language. The language is a natural byproduct of the structure. So, if you have to force team building and force everyone to want to say we and pretend we’re on a team even though we all know that we’re trying to meet our own sales numbers. The culture is going to win over any kind of consultant strategy most of the time.

[22:07] Stage five is a place where it’s not sustainable, right? The sort of the goal is you want to stabilize an organization of stage four. And from stage four, you can go into stage five. Essentially what stage five is when these partnerships come together, these triads come together, and you have these massive teams that are all about fulfilling some kind of grand intention or noble cause. The truth and reconciliation process, that was a stage five project. You could actually say during the coronavirus right now you have scientists from all walks of life coming together to come up with solutions to fight this virus. That is a stage five project.

[22:55] Once that solution is reached. That project will dismantle and people will kind of go back to whatever they were doing before. It’s not like something that just stays around forever. The other thing with stage five, which is really interesting is that in the context of an organization, if you don’t have a stable culture of stage four, so a lot of startups, right, you know, they’ll have some grand mission to change the world someday, but they never had a stable stage four culture. So, the moment that economic reality hits, and things might get a little tough or maybe they’re losing some money, the organization will do evolve into stage two. But you see all the time in young companies. So, there’s a few key takeaways from that is number one is that people can only hear one stage above and below where they’re at. And then the other thing is that the game is to stabilize at stage four, so you can move into stage five. Only about 2% of organizations will ever even get to stage five.

[24:00] So, my goal with tribal leadership and why I got trained in this work was that when I read this book, I saw there was a natural alignment to do this in the context of shareholder activism. And because of my background in investing and value investing, I thought if I could buy a stake in a company that was already undervalued, and then go in, and actually make a difference with the culture and have an exponentially large effect for the bottom line, aside from the fact that, you know, people would be happier, and there’s just all these natural benefits from having a better culture as everyone knows, it would be a very different model for shareholder activism than just coming up with a new strategy or saying we’re just going to cut some costs, which is nothing wrong with that. I mean I’m not bashing anyone who does that. It’s just this is a little different.

Ney Torres:        [24:59] I understand. So, I kind of saw that coming. It makes complete sense. After getting your coaching certificate and all of that you still hold that feeling that you can go into company and raise the level of their organization that way.

Eric Schleien:     [25:15] I don’t know. I haven’t done it yet. I’ll put it this way. If I was to go on it alone, I think I could. I’ve done it with smaller groups and small organizations, but I haven’t worked at a large public company before or even a small public company before. So, I’ve teamed up with two people actually. One of them is someone who I won’t name because I don’t know if I have their permission to but they’ve been a shareholder activist for several decades. There’s going to be nuances that they might see that I just may not see. And they could also help with a lot of the process of any kind of proxy battle we need. Or if we do need to remove management, he could help a lot with that. Now, I have another colleague of mine and I do have permission to share about him. His name is Scott Forgy. I’ve actually interviewed him on my podcast. He has coached over 100,000 people around the world. He also does tribal leadership. And you know, he’s worked with many, many quite large organizations and still does. He is one of the head if not be top agile coach at Google, PayPal, LinkedIn. He does work with eBay. But yeah, I mean I was at the Berkshire Hathaway meeting with him last year. He’s on the phone with Vice Presidents of LinkedIn while we’re hanging out in Omaha. That’s his entire life is coaching. So, I could say with confidence that the two of us going in together will be very effective.

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