Chapter 136 - Plain Talk: Lessons from a Business Maverick
Today’s Chapter is based on the book “Plain Talk: Lessons from a Business Maverick” by Ken Iverson.
Ken Iverson was the chairman and CEO of Nucor Corporation, credited with transforming it from a nearly bankrupt company in the 1960s into one of the largest and most successful steelmakers in the United States. Under his leadership from 1965 to 1996, he pioneered the use of mini-mills, decentralized management, and an egalitarian corporate culture that significantly increased productivity and wages while minimizing bureaucracy. Iverson’s innovative management style and technological leadership established Nucor as a highly profitable and industry-revolutionizing steel company.
Here’s What I Learned:
Focus on the Long-Term
“If we think long term we can accomplish things that we wouldn’t otherwise accomplish. Time horizons matter. They matter a lot.”
— Jeff Bezos
Ken Iverson’s leadership at Nucor revolutionized the American steel industry by emphasizing a long-term approach that prioritized the company’s survival and the well-being of its employees over fleeting quarterly profits or stock price fluctuations. As a matter of fact, during his tenure, Iverson managed to transform a struggling company on the brink of bankruptcy into a Fortune 500 powerhouse.
Iverson’s philosophy was rooted in the belief that true success comes from building a resilient organization that can weather economic storms, rather than optimizing for momentary gains that might undermine long-term stability. Iverson explains that “We’ve joined with our employees to pursue a goal we can all believe in: long-term survival. We run Nucor first and foremost to ensure that, a decade or two from now, there will still be a place for our children and grandchildren to work without being laid off. That is our higher cause.”
One striking example of this mindset is how Nucor handled economic recessions. In the early 1980s, when the steel industry was hemorrhaging jobs, Nucor avoided layoffs by implementing a “painsharing” system where cuts were distributed progressively, with top executives bearing the heaviest load.
Iverson explained, “Why, then, would workers who had endured deep cuts in pay and who had every reason to fear for their futures reach out to share a laugh with a manager passing through their mill? Simple. No employee was being asked to carry more than his or her part of the burden. You see, their department heads had taken pay cuts of up to 40 percent, and the general managers and other officers of the company were earning 50-60 percent less than we had made in preceding years. My own pay dropped that year to about $ 110,000, from about $ 450,000 the year before. We not only shared the pain, we doled out the lion’s share to the people at the top.”
This “painsharing” wasn’t just a tactic; it was a manifestation of Iverson’s commitment to long-term survival. By ensuring that no one was disproportionately affected, Nucor maintained employee morale and loyalty, which paid dividends in productivity and innovation once the economy recovered.
““PAINSHARING” HAS HELPED us get through the tough times without ever laying off a single employee or closing a single facility for lack of work, even when the industry overall was shedding thousands of jobs. But our history of no layoffs is not noble, altruistic, or paternalistic. It’s not even a company policy. We’ve told our employees time and again, “Nothing’s written in stone. We’ll lay people off if it is a matter of survival.”“
— Ken Iverson
In the same line of thought, Iverson often critiqued the short-sighted compensation practices that were prevalent in other steel companies, where executives received raises amid losses. Iverson mentions that “Today’s trend is still to compensate top management with huge sums that increase every year and bear no relation to how well or poorly the company and its workers are doing. I recently came across this Wall Street Journal headline: “Bethlehem Steel CEO Gets Pay Raise of 37% Despite Profit Drop.” The article goes on to report that Bethlehem posted a loss of $ 309 million for the year. Net income was down 59 percent (not counting restructuring charges). The stock price fell 36 percent.’ So tell me, how does the chief executive, who had been at the helm four years, justify a 37 percent increase in pay?”
In contrast, Iverson compared a company to a collective vessel navigating stormy seas, where cooperation was necessary to ensure that everyone reached a better future. He once said, “But we’re people with a long-term perspective. The way we see it, making a living in today’s economy is like crossing a broad and stormy sea. You could jump straight in and start swimming. Of course, that would be foolish. People with sense will get together and build themselves a boat. And when the seas get a little rough, you could run around pushing your shipmates overboard. People with composure work together to pull through the storms. They deal with the perils of the moment together, never forgetting that the people around them represent their best hope of reaching a better future.”
Furthermore, Iverson extended this long-term approach to investment decisions. In fact, he refused to bow to Wall Street’s quarterly pressures to outperform short-term expectations. This long-term orientation allowed Nucor to tolerate experimentation and failure as the cost of learning. Iverson was clear-eyed about the economics of innovation: many bets will fail, but the few that succeed can be transformative. As Iverson explained, “We track and manage costs more closely than just about any business you can name, yet we anticipate and accept that roughly half of our investments in new ideas and new technologies will yield no usable results.”
“We’re not dogs on a leash, doing tricks to manage the stock price or maximize dividends quarter-by-quarter. We’re eagles. We soar. If investors want to soar, too, they’ll invest in us. The speculators, we don’t need.”
— Ken Iverson
This reminds me of the power of delayed gratification that we previously learned from Konosuke Matsushita. As a matter of fact, he warns us about the temptation of making short-term decisions that are detriment to the long run of a company. Matsushita explains that “we should avoid being fooled by the temptation of short-term gain is something we cannot repeat too often. In the final analysis, one can only appeal to people’s conscience. So I will just keep reiterating, in hopes that some will hear: resist the temptation of short-term gain.”
Similarly, Jeff Bezos understood the importance of long-term thinking as an owner. As the majority shareholder and CEO of Amazon, Bezos constantly reminded in his letters of shareholders the importance of long-term thinking. In fact, he often reminded that the stock price is not reflective of the value of the company, but it would be in the long-run if the company continues to increase its future cash flows. As Bezos once said, “Why focus on cash flows? Because a share of stock is a share of a company’s future cash flows, and, as a result, cash flows more than any other single variable seem to do the best job of explaining a company’s stock price over the long term.”
Furthermore, Bezos understood that he had to take long-term decisions in order to align both the interests of Amazon’s customers and shareholders; he needed to invest heavily in order to make constant innovations despite the high rate of failure. As he once explained, “We like to invent and do new things, and I know for sure that long-term orientation is essential for invention because you’re going to have a lot of failures along the way.”
“Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a one hundred times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”
— Jeff Bezos
Charlie Munger is also a prominent figure that has always been a big proponent of delayed gratification. He believes in the importance of patience and being prepared to act at scale when a great opportunities arise. As he once said, “If you’re glued together and honorable and get up every morning and keep learning every day and you’re willing to go in for a lot of deferred gratification all your life, you’re going to succeed.”
Munger gave a great example of delayed gratification: How he earned $400 million from reading Barron’s magazine. Munger had been reading Barron’s magazine for more than fifty years, but found only one actionable idea in it. He bought a cheaply valued auto parts company at $1 per share and sold a few years later at $15 per share, earning him $80 million in profits. Munger then gave this $80 million to Li Lu who turned it into $400 million. This story is a great example of the significance of extreme patience, deferred gratification, and the display of strong decisiveness at the right moment.
“People who arbitrage time will almost always outperform. The first order thought of instant gratification is a crowded path, ensuring mediocre results at best. Delayed gratification, which requires second order thinking, is less crowded and more likely to get results.”
— Shane Parrish
Decentralization
“There are two main reasons Berkshire has succeeded. One is its decentralization. Decentralization almost to the point of abdication. There are only 28 people at headquarters in Omaha. The other reason is our extreme centralization of capital deployment. Our centralization is just as extreme as our decentralization.”
— Charlie Munger
Ken Iverson’s Nucor was structured around decentralization, granting divisions near-complete autonomy to make decisions locally, which fostered innovation and responsiveness. This model contrasted with centralized bureaucracies, allowing Nucor to adapt quickly to market changes while holding managers accountable for results. By keeping divisions small and pushing authority downward, Iverson ensured that those closest to the work drove the business, rather than distant executives.
As a matter of fact, Iverson mentions that “Each division operates its one or two plants as an independent enterprise. They procure their own raw materials; craft their own marketing strategies; find their own customers; set their own production quotas; hire, train, and manage their own work force; create and administer their own safety programs…. In short, all the important decisions are made right there at the division. And the general manager of the division is accountable for those decisions. That’s where the buck stops at Nucor.“
For Iverson, this autonomy was non-negotiable and managers at Nucor enjoyed this decision-making responsibility and accountability. However, to maintain this autonomy, managers were expected to deliver a 25% return on assets and follow the ethical standards of the company.
“At Nucor, we chose long ago to build our company on a decentralized model in which each operating division enjoys true autonomy. We have told our managers to “trust your instincts”—and we have meant what we said. We’ve urged them to confer the same kind of decision-making autonomy to their people—to make their own decisions based on what they think is best for the business—and we have never backed off our commitment.“
— Ken Iverson
The main reason why Iverson believed in decentralization was because he believed that the frontline employees were the one that were closest to the problems and by consequence, have the best innovative ideas. He once said, “That is, by the people closest to where the work actually gets done. Those businesses must tell people on the front lines to “trust your instincts.” And businesses that tell their people to “trust your instincts” generally should be decentralized. A decentralized structure pushes the power to set strategy, spend money, make decisions, and create policies out toward the marketplace. It promotes local autonomy.“
As such, he believed it was primordial for managers to be maintain close contact with their employees. As he explained, “Managers are supposed to do what’s best for the business. And what’s best is to remember we’re all just people. Managers don’t need or deserve special treatment. We’re not more important than other employees. And we aren’t better than anyone else. We just have a different job to do. Mainly, that job is to help the people you manage to accomplish extraordinary things.”
“That’s the main reason we’ve tried to keep our divisions small. When a business grows beyond 400 or 500 people, it’s hard for management and employees to stay connected. I don’t order our managers to keep in close contact with their employees. But I do nag them. I say, “Andrew Carnegie was a financier. He could afford to treat people like peasants. We’re managers. We can’t.” They may not appreciate my nagging, but I do it with their interests in mind.“
— Ken Iverson
This reminds me of the concept of inverted management that we have previously learned from Bernie Marcus and Arthur Blank at Home Depot. In fact, they believed that their sales associates are the spinal cord of Home Depot as they are the ones interacting with the customers and building the image of the company. As such, it was important for them to take care of their people and they achieved this by understanding that every position in the company is critical. Marcus once said, “They are the ones who will have the product knowledge and be able to show the customer how to use it. They are the heroes of the company, the ones who create a cult among our customers. We’re trying to make our customers bleed orange.”
As such, it was important for the co-founders of Home Depot that all senior executives work in the stores to understand what happens on the sales floor. They also insisted that they would not ask their associates to do anything they wouldn’t do themselves.
“If an associate picked something up off the floor, it was because we did it first. We set the example. Few people ever felt that they were working for somebody. Hopefully, it was more like they were working with somebody. Everything was hand in hand.”
— Bernie Marcus & Arthur Blank
Furthermore, in their management structure called the inverted pyramid, Bernie Marcus and Arthur Blank would consider themselves at the complete bottom. Similarly, they believe that the main office is only there to provide support to the stores and its sales associates who are the key to the success of The Home Depot. Marcus explains that “what makes us so different from anyone else in our industry is that we take the inverted management structure so seriously. Hourly associates really do lead The Home Depot; every day, their decision making and independence makes our stores better, and that reinforces customer loyalty.”
Egalitarian Culture
“An idea meritocracy is the best system for making effective decisions.”
— Ray Dalio
Considering Iverson pushed for a decentralization model, it is not surprising that Nucor thrived by dismantling traditional hierarchies and creating an egalitarian culture where every employee was treated as an equal, regardless of title. This wasn’t mere rhetoric; it was embedded in policies that eliminated perks for executives, promoted open communication, and ensured transparency. Iverson believed that motivation stems from feeling valued and respected, and an egalitarian environment sustains that over time, leading to higher productivity and loyalty. By rejecting symbols of status and sharing information freely, Nucor built trust that differentiated it from union-heavy competitors in the steel industry.
“The term that comes closest to describing Nucor’s culture, I think, is “egalitarian.”
— Ken Iverson
One example of Iverson’s disdain for hierarchical symbols was evident in his decision to standardize hard hats, a small but powerful move to erase visible distinctions. Iverson explained, “In Nucor plants, like most hard hat environments, workers, supervisors, department managers, and the general manager of the facility all wore different color hard hats, signifying their place in the hierarchy. And a high-ranking executive visiting from headquarters might be given a gold hard hat to wear, as a symbol of his lofty status. This was in keeping with industry tradition, but it seemed so contrary to our goal of maintaining an egalitarian culture, I decided right then and there, without consulting anyone, that all Nucor personnel would wear green hard hats, and all visitors would wear white, from then on, no exceptions.“
Nucor’s egalitarianism extended to benefits and amenities with all executives forgoing luxuries to align with frontline workers. Iverson noted that “executives get the same group insurance, same holidays, and same vacations as everybody else. They eat lunch in the same cafeterias. They fly economy class on regular commercial flights (although we do allow the use of frequent flyer upgrades). We have no executive suites and no executive cars.“
Furthermore, Iverson believed in sharing information with his employees, as a tool to build trust and to promote an egalitarian working culture.
“Sharing information is another key to treating people as equals, building trust, and destroying the hierarchy. I think there are really just two ways to go on the question of information-sharing: Tell employees everything or tell them nothing. Otherwise, each time you choose to withhold information, they have reason to think you’re up to something. We prefer to tell employees everything. We hold back nothing.“
— Ken Iverson
Finally, by living as part of the company rather than above it, Iverson showed that egalitarianism isn’t just fair, it is a strategic advantage for motivation and performance. When asked how he could explain Nucor’s success, Iverson mentions that “It is 70% culture and 30% technology.”
This reminds me of how Sam Zell used to love to be challenged by his employees and more than welcomed debates. For him, it was important for him to create a work environment where his employee’s voice can be heard. As a risk taker, Zell’s greatest fear was to not have information that could of protected him from making a mistake due to the lack of communication with his staff. As such, he made sure to implement a meritocracy culture in his company to allow all his employees to be part of the decision making process.
“At our core, we are a meritocracy—an environment that Bob and I cultivated in the early days. A meritocracy gives you the freedom to be yourself by eliminating superficial markers, so you are measured only by what you produce. In essence, it is an equalizer that focuses everybody on what’s important so you have the opportunity to reveal your best. Once you’ve worked in a true meritocracy, it’s very hard to settle for anything else.”
— Sam Zell
This is eerily similar to Ray Dalio’s idea meritocracy, a system hat allows the best ideas to win regardless of who or where they come from. According to Dalio, the founder of Bridgewater, the world’s largest hedge fund, this is the best way to produce the best possible decision by enabling the best thinking of all team members.
Beyond the Book
Read "The Cookie Monster Knows More About Willpower Than You" by Farnam Street
Read "Charlie Munger Explains Why Bureaucracy is not Shareholder Friendly" by Farnam Street
Read "Bridgewater’s Idea Meritocracy" by Bridgewater
Watch "How to have an idea meritocracy in any organization" by Ray Dalio
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