The Founders Who Fired Themselves Because They Knew They Weren't Great Operators
A dinner about a South Carolina plant turned into a job interview, a 90-day negotiation, and a 10-year run that professionalized Danaher.
Joys of Compounding · Mitch Rales - The Art of Compounding - [Art of Investing, EP.18]Mitch Rales, who with his brother Steve built Danaher, an industrial company, from small acquisitions, came to dinner ready to talk about a factory.
Across the table sat George Sherman, the chief operating officer of tool maker Black and Decker. The Rales brothers thought Sherman wanted to hand over work from a manufacturing plant in South Carolina if they would take over the facility. They arrived with plans and ideas.
Sherman had something else in mind. He said he was thinking about leaving Black and Decker to join another organization, and he wanted their opinion of the people there. Under the table, Mitch started kicking his brother.
They had long said to each other that Sherman was the kind of leader they wanted. By 1990 they had reached an uncomfortable conclusion about themselves. Mitch Rales said they understood vision, strategy, and how to allocate capital, but "We were not meant to be great operators."
Running a public company day to day, he said, is a heavy lift that requires attention to detail 24 hours a day, seven days a week, 365 days a year. They were willing to put in the time and energy, but they knew the details were not their strength. Mitch Rales likes to say that in 1990, "we fired ourselves" and hired outside help.
So when Sherman teed up his own candidacy, they did not hesitate. Ninety days later, after extensive due diligence by Sherman, they had a deal to make Sherman chief executive. It was a natural fit at the time, because Danaher was still primarily a tool company and Sherman was a tool man.
Sherman became Danaher's first real outside chief executive and stayed for 10 years. He professionalized the business, brought in processes, and helped spread the Danaher Business System, the company's approach to continuous improvement that became central to how it operated.
He capped the run with what the founders prized, a seamless handoff to his successor as chief executive, Larry Culp. Rales called it 10 great years, and a transition that was rewarding to watch and be part of.
Questions people ask
What does Danaher do today?
Danaher is a Washington, D.C.-area company built by Mitch and Steve Rales starting with small manufacturing deals in the early 1980s. It grew through acquisitions and continuous improvement into a science and technology company focused on life sciences, diagnostics, and other technical fields, with businesses such as Fortive spun off along the way.
What is the Danaher Business System?
It is Danaher's approach to continuous improvement, adapted from Japanese manufacturing ideas, especially Toyota's production methods. It uses tools like Kaizen, which are short, focused improvement projects, to reduce waste and improve quality in factories, offices, sales, and other work.
Who is Larry Culp?
Larry Culp succeeded Sherman as chief executive of Danaher and later became chief executive of GE, now GE Aerospace. He is credited with expanding Danaher from tools into higher-growth health and science businesses through acquisitions.