[00:00]Maya: Welcome to Owl Have You Know, a podcast from Rice Business. This episode is part of our Flight Path Series, where guests share their career journeys and stories of the Rice connections that got them where they are.

Dan Tinker never imagined he would be where he is today. From management trainee to having his company acquired by a behemoth publicly traded company for billions of dollars, the Executive MBA graduate tells us about his unique journey, what he believes are the hallmarks for success, and how the dynamic leadership qualities he gained at Rice have made all the difference.

Welcome, Dan.

[00:35]Dan: Thanks for having me. I'm thrilled to be here.

[00:38]Maya: Well, we're thrilled to have you. You have quite a story. You are the president and CEO of SRS Distributions. You've got over 26 years in the building products distribution industry. You started as a management trainee, and you've risen to president and CEO. And I'm not going to bury the lead here, SRS Distribution was recently acquired in March of this year by the Home Depot for an estimated $18.25 billion. Congratulations!

[01:10]Dan: Thank you. Yeah, we're pretty proud of that. It was a great outcome for everybody, and we're thrilled to be part of their family now. And it's been a great 16-year run with that company that we founded back in ‘08. It's been tremendous. And really proud of the wealth creation event for all of our employees. We were able to spread the equity of the company across all employees. So, with the event, not just our private equity partners got a great return, but 9,000 employees got to share in over $3 billion of proceeds, which is pretty amazing, life-changing for a lot of people.

[01:42]Maya: Absolutely, this didn't just fall out of the sky. This was years and years and years of work and effort. And I am so looking forward to hearing your story and your journey, from, really, starting at A&M, and majoring in the building products distribution area in that industry. So, what got you interested in that field?

[02:06]Dan: Actually, the real honest answer is, I was a terrible electrical engineer as a freshman at A&M and realized that was not in the cards for me. And I was fortunate enough to have some friends at A&M that had transferred into the industrial distribution program, which was in the college of engineering at A&M and loved it and said, “Hey, you've got a big, bold personality, and I think the electrical engineering is probably not a great fit. Why don't you check this out?” And I, thank goodness, I did.

So, switching majors early on. And I fell in love with the major, fell in love with the industry of wholesale distribution in this country. Basically, everything, all goods have to be sold through distribution to get to market in this country, whether it's food, whether it's electronics, whether it's building products, whatever it is. So, it’s a huge industry. It's not thought of very often. It's not, maybe, glamorous or sexy, but everything has to get through it to get to market or get to the job site or get to the home.

And Amazon's made it a little more popular because they really are, at the end, they're a distribution company that gets products to your doorstep. But we do the same thing. We just do everything in big, bulky, heavy things to construction sites. And we deliver today to over 15,000 job sites a day, heavy materials in full truckload format.

But yeah, so I started, fell in love with it at A&M, and was lucky to work for some amazing mentors right out of college that taught me how to do acquisitions, how to run a business, how to run an operating division. And I had people that pushed me way above, kind of, what I was ready for all the steps of my journey, including mentors pushing me to go get my Rice MBA at a pretty young age. I was the second youngest in my class, in my EMBA class, when I entered at 27, and then I graduated when I was 29.

[03:50]Maya: Wow. Well, let's talk about some of those people. Let's talk about, first of all, your friends that encouraged you to go into the building products distribution arena. Are you still friends with them?

[04:00]Dan: Yeah, absolutely. In fact, I was with a couple of them this weekend at the A&M-LSU game. We were tailgating, having a great time and reminiscing. But yeah, I'm very, very close to my A&M college friends from the program, as I am with my Rice classmates as well. We do a reunion trip each year, and they're great people as well.

[04:19]Maya: So, when you graduated from A&M in ‘96, take me on your trip, let's go down memory lane. So, you graduated and you started as a trainee. And I believe you were in one of the worst performing divisions, or was that later where you took it to the best performing division in a year?

[04:38]Dan: Yeah, that was early on. I was a management trainee at the corporate campus in Dallas for my first nine months, going through a rotation, learning everything from IT, marketing, sales, purchasing, HR. They were trying to rotate me through all the corporate departments, but I really wanted a P&L. I wanted my own P&L. I wanted to compete. We didn't have a single branch manager under the age of 40 at that time. We had 165 locations in the company, and I was 22, and I convinced the senior managers to give me the worst branch in the company. I said, “Look, how bad can I screw it up? It's already broken.”

So, they sent me to Little Rock, Arkansas, which is probably the last place I wanted to go on earth at the time as a Texan. But I said, “I'll go anywhere. I don't care. Give me the worst branch.” They said, “Okay, we'll let you do it, because if you fail, we'll just close it anyway. We're probably going to have to close it anyway.”

[05:30]Maya: You set expectations low, is that what you did?

[05:33]Dan: They did. Thank goodness. I did whatever I could to sell them to convince me to give me a shot, even though I had not been in the industry a long time. I just had confidence that I could inspire a team, I could build a team, and I could lead a team. And yeah, we took that branch from dead last out of 165 to, in our first year, we were branch of the year in the entire company.

So, pretty big. It's, kind of, funny, I actually give some of the credit to a book called Don't Fire Them, Fire Them Up, which I read when I got the assignment before I got to the branch. And it basically was a similar story of a guy that took over the worst Xerox location in the country in Cleveland. He turned it around from worst to first in one year. And I honestly followed the blueprint, probably the only time I've read a book and followed the blueprint perfectly in my entire career, but I did it very early on when I was 22. But it was everything, from setting a blistering pace at the outset, big, bold goals to stir people's souls, get all the wrong people off the bus, get all the right talent on the bus, and then do amazing things and lead people well. They all deserve good leadership. And there was a leadership board. So, again, I was taking over for a terrible situation, that it was pretty easy to upgrade, but yeah, we just got amazing success.

And it really came from recruiting a bunch of talent, giving them all the tools they need to succeed, and then getting out of the way and letting them do it because they were working for a kid that was half their age. But it was fun. It was a heck of a lot of fun. It really did springboard my whole career and gave me a credibility that launched me into regional jobs and then a VP job. But by the time I was 26, I was vice president, and then I entered it and got pushed into the Rice program pretty young because they were trying to groom me for a president role. So, it's amazing how just one opportunity, if you can seize it and do well, can springboard your whole career.

[07:15]Maya: So, in terms of finding that talent, you know, and then getting out of the way, which resonates with a lot of leaders, I hear that a lot, of, you know, you got to acquire the right talent, and then you just gotta let them do what they're really good at doing, and to keep them inspired and motivated and to keep moving forward, and to keep them, also. Talent acquisition and then retainment is really, really vital. So, when you look at someone, what are those leadership qualities that really stand out that you look for?

[07:47]Dan: Well, first and foremost is work ethic and attitude. I think intellect is not the first thing on the list because most people, in what we're, I mean, we're not running SpaceX and building rockets. We're selling building materials for more than we pay for it and getting it to a job site. So, it's about grit and work ethic and passion and people that care about other people.

So, I look for servant leaders that are humble, that know that they're not the smartest person in the room, that every one of the people they lead are smarter than them at something, and they need their humility and respect. And to me, that's always been a secret weapon of leaders in our group, is, the team counts more than the person, the leader is there to get the best talent on the team, motivate that talent, because inspired talent, if it's not inspired doesn't do anything for you, so, you have to motivate the talent. And how you do that is you give them a chance to win. You ask them, “What do you need to compete? What do you need to win customers? More inventory, more trucks, better pricing, better service. What do you need us to put around you to win on the playing field of business? And I'll give it to you all. I'll provide everything you ask for, but I do expect results in return, which means I need your best effort. I need you to out-hustle the competition. I need you to work harder than anybody else.”

And that's, kind of, the mindset. And we just…it all comes down to culture and vision then inspiration, and then holding people accountable. Because you're going to find people that can't do that, won't do that, don't want to do that at different parts of their career. They're just not engaged. And it takes some discipline to be willing to part ways with people that just are dragging the team down, pulling the team back, or just aren't all in. And I don't apologize.

I tell every person that ever wants to come work for us, we are a fast-paced, high-growth company, we always will be. If that is too much for you, then you should go work for our competition. I have no problem with that. You can work a 40-hour week and you can get in at 8:00 and leave at 5:00. Our employees get speeding tickets on the way to work, not on the way home, because they can't wait to get there. They think of work as their hobby and their passion and their fun time, and then they go home to their families to relax and rest. It's competitive but it's a team sport. And that's, kind of, the mantra we've always pushed.

[10:01]Maya: It's a team sport, 100%. Those are the most successful organizations where it is, it's a team sport. And it's not just written on the wall. It's actually lived and breathed and it resonates with people. So, when you were in your 20s, because you said you were one of the youngest in your EMBA class, so, tell me what propelled you to go after this MBA. I know that you had mentioned that you had some mentors and some folks that were pushing you to do this. And why did you choose Rice? Was it just the location or was it, “I want to go to Rice.”

[10:32]Dan: No, I really wanted to go to Rice. As an Aggie, it was really tough for me to apply to UT's program, as you can probably imagine. So, it was, basically, I applied to A&M's program. They had one in the Woodlands at the time, so I was living in spring in North Houston, and I did apply to A&M, got into the A&M program, and got into Rice. But I really felt, if I could get into Rice, it would complement my A&M degree. I really thought Rice was an up and coming program at the time. It certainly was. It certainly proved to go on to amazing new heights under the current leadership, which I'm very proud to be a Rice alum as well.

But loved the school, loved the environment, loved the fact that it just got a brand-new building, recruited a lot of new faculty. And it just seemed like it was a good compliment to my undergrad degree. And so, yeah, it was an easy decision once I got into Rice.

[11:17]Maya: Can you tell me about some of your favorite classes and about your team? Were you broken up into smaller teams to do all of the work that you're required to do, all of the deliverables?

[11:29]Dan: Yeah, I had an amazing team my first year of six people that we're still all very good friends. We actually named our team Team Toast because we thought we were all toast after our first big exam. I don't think any of us did very well on our first test the first week or second week or our group project or something. And so, we renamed our team Team Toast. But we went on to do very well. And all of us, obviously, finished and had a good two-year run there. But, yeah, as far as my favorite classes that I remember, entrepreneurship, and then I had a private equity class that I loved the professor, and I just loved learning more about private equity in general. It's served me well. I've gone on to work for six different private equity firms and made them all great returns. And they've been great partners and allowed me to generate tons of wealth, like I mentioned at the outset, for so many other people and changed so many lives.

Private equity gets a bad rap in a lot of worlds, and it's so unwarranted, in my opinion. Where else in the world can you just have a, dream up an idea, build a team, go to a private equity sponsor, you don't have capital or come from a rich family, and go borrow the money or have them infuse your capital in your business to sell part of the company, and then they provide you enough capital to get as big as you could possibly be successfully?

And we've done that. We started SRS with only $12 million and bought the company, SRS, out of bankruptcy for $12 million. The company we just sold to for $18.25 billion, we paid only $12 million for just 16 years ago. And it made that much wealth creation, because we had three different great private equity sponsors for about five-year runs in the first, second and third phase.

So, I'm a big proponent of private equity. I'm not anti-public, but I do believe there's trade-offs of being private versus public. I love being private. I love not having to manage the company for quarters. I like managing the company for long-term success, not short-term success.

[13:26]Maya: You said that you bought it out of bankruptcy. So, tell me the history of the company.

[13:30]Dan: So, the group I went to work for out of college that I did the turnaround with was a company called Cameron Ashley Building Products. The management team tried to buy that company. It was actually public. We tried to buy it private in ‘99. And we lost the company to a strategic buyer. So, the management team, kind of, the senior officers moved on. They started to put the band back together and started another company in the industry called Shelter Distribution. And that's where I went after Rice. And they recruited me to be president of that company in ‘04, after I graduated. And then we sold that company in ‘05 to another company in the industry, another strategic that was a public company.

So, I worked for them for two years but couldn't stand the culture. They were, kind of, I was a big morale guy. They were a big process, GE-type management style. And I said, “Look, this just isn't for me. It's not the right fit. I don't believe in what you're selling and I need to move on.” And I did, I had to sit out a year to burn off a non compete. I worked with private equity as, kind of, a consultant. And then, we put the team together one more time. We bought SRS out of bankruptcy. It was a family-owned company that was doing really well until the housing collapse. And then during the housing crisis, it got over-levered, had too much debt, and basically the debtors put the company into bankruptcy.

So, we ended up buying it out of bankruptcy court for, again, like I said, $12 million. And the rest is history. We bought five other companies that first year and got to about breakeven in profitability. And it moved it from $30 million in sales all the way up to about $180 million in sales. And then, by the fifth year, we were already doing about $800 million in sales and making about $55 million of EBITDA.

So, we've done 135 acquisitions, bought 135 and integrated 135 companies all under one ERP system. We've opened over 250 Greenfield brand-new startup locations, and gone from 100 employees to 11,000 employees. So, it's been an amazing 16-year run and created a ton of wealth for our employees, created over 500 millionaires in the company, just from the employee group, including frontline hourly workers. Like, we have a forklift operator who retired 10 years early who never made more than $18 an hour. And he retired with $3 million of equity from the company, which is awesome.

[15:37]Maya: It's just changing lives, you know. Like, that must feel so incredibly rewarding to be able to do that. You're also very active in your philanthropic work, which I would love to talk with you about as well. But before we get to that, so did Home Depot approach you, or how did that work? Because it is their largest acquisition, correct?

[15:57]Dan: It is. It's the largest acquisition in the company's history. No, they did not. They played hard to get, for sure, the whole time. I always had them on our radar for where I wanted to end up, where I thought we would thrive the most in a strategic environment. We always had the opportunity to go public if we wanted and be a standalone public company. We were certainly big enough. We were getting too big to stay private equity backed at $10 billion at sale. So, we knew we had to do something to monetize for this generation and this group of investors. So, we put a short list of names of companies that we admired I thought we would be a good fit for, but Home Depot was absolutely my number-one choice.

And what happened actually, it's, kind of, a classic, in my opinion, a Coke versus Pepsi story. We got Lowe's interested in it because Home Depot wasn't giving us any time of day, but we got Lowe's interested to take a look at the company. And they started doing some real diligence and work and testing, you know, the company touring, looking at our tech stack, looking at our model. And they got more and more intrigued over time. They're very slow and methodical. They didn't pounce on anything. But they got far enough along that I think it was a credible threat that they were potentially considering making an offer to buy the company. And then when Home Depot got wind of that, their attitude completely changed. They got very…

[17:11]Maya: Funny how that happens, isn’t it?

[17:11]Dan: It's amazing how well competitive fuel added to the fire, but then, all of a sudden, Home Depot said, “Hey, yeah, all right, fine, we'll let Dan and his CFO come give us a pitch on why they think it's a good fit for us. 

[17:26]Maya: But they already knew. They already knew why you were a good fit for them.

[17:29]Dan: Oh, yeah, they knew who we were. They knew what we were up to. I think they were pleasantly surprised, though, in the meeting that we were fully integrated, that we were on one ERP, that we are more of a platform for them for future growth than just a standalone entity that was, kind of, going to, maybe, be stagnant after they acquired.

And I think what we convinced them is, we are not just a great asset for you, but we can unlock future competitive advantage for you and really serve as your wholesale distribution platform for the pro while your retail side has been trying to crack that code and has been unable to for a long time. We accelerate that. We give you that immediate platform and get you years ahead of your competition now by giving you all the things we do that the retail side can't do, whether that's professional sales force, job site delivery, extending credit to customers, knowing the pro business, having, you know, a B2B mindset, not a B2C mindset, and having good technology, good customer-facing digital technology and customer-facing technology.

So, all of that surprised them. And then once they learned all that, they got super excited and said, “Yeah, we have to own this business.” And then, it's been a great marriage, so far. The deal closed in June. And so far, the two company cultures could not be more aligned. Both are, make money, have fun, give back, high growth, high morale companies, very proud of doing the right thing and being an admired company.

We do things right with integrity. We do things right for our employees, our suppliers, our customers. Nobody loses. Everybody associated with the company wins. That's how the model works. And so, it's a very ubiquitous, positive momentum. And it's the market leader. We're part of the world's largest building products company now, and it's also a Fortune 20 company, and we couldn't be any happier.

And the culture fit has been perfect. And it's hard to say that when you have a big… it's certainly not a merger when you have a $155 billion company buying a $10 or $11 billion company, but it's an acquisition. But, you know, we were a big company, all right, and it’s hard not to mess that culture integration up. And they've done a beautiful job leaving what they needed to leave alone, but also, being creative on adding value and integrating things that will add value to our competitive position, going forward.

[19:39]Maya: So, did you ever get a response back from Lowe's?

[19:44]Dan: Oh, yeah. I mean, obviously, we had to tell them we had signed an agreement to work exclusively with someone else. Didn’t tell them who it was. They obviously knew who it was.

[19:55]Maya: Yeah, they knew.

[19:56]Dan: And then when the deal got announced to Wall Street, because it being a public company, it was kept very quiet. For the most part, they knew. And obviously, we had to go through HSR review with the government that appeared from March to June, but it was out in the public by then. But by March, they knew and, kind of, suspected, I think, that that's who it was when they were told they can't get in our data room any longer and you can't do any more diligence working with some other party. They're smart guys. They knew exactly what it was.

[20:22]Maya: Sure. So, you'll be guiding SRS within a new structure in the Home Depot. And what opportunities are you the most excited about in terms of this additional growth in the future?

[20:34]Dan: Yeah, I'm just really excited about putting their power behind us, you know, not just their buying power, but they have huge corporate resources that we can lean on. They have great knowledge. They've done tons of work in the space at a much broader product offering than we have. So, leveraging their technology. A lot of people don't realize Home Depot is the fifth largest e-commerce company in the United States. So, they've got a huge e-commerce leadership position in our industry. They've got the leadership position in retail; and now, we're going to help get them the leadership position in wholesale.

And no one else in the industry has all three phases, has e-commerce, retail, and wholesale. So, we're really going to become the first omnichannel building products company in the United States. And super excited about that. And leveraging all of those cross-sale opportunities. We're really going to be able to allow contractors and builders to buy any way they want. They can buy online and pick it up at a store. They can buy online and pick it up at a distribution. They can buy online and have distribution deliver it to the job site. They can buy in a store and have it delivered to the job site. So, there's every single angle they have or could possibly want in any buying occasion or purchasing occasion. We've got it covered. And across the whole country, we'll, kind of, widen the aperture of our product focus because we've been very laser-focused on heavy R&R, remodeling and repair, items. But now, we'll get into more new construction, more cyclical items, because we want to be able to offer the cross-trade pro as well to be able to buy any product that they want for a job site or construction project.

So, I can't wait to unlock the product breadth and depth that their supplier base brings to our network. And then I can't wait for us to bring the customer service aspect of job site delivery and extending credit to the contractor and a professional sales force that they'd never had for the pro. So, blending those resources together is going to be super powerful. We just have to do it in a very slow, methodical, thoughtful way with our customer insight the whole way, and make sure it's a really good customer experience.

[22:34]Maya: And those are leadership qualities and skills that you have honed in on through your time at A&M and through your work experience and, definitely, through Rice. So, could you tell me an unexpected skill that you've discovered or honed that is crucial to leadership? I know it's a big broad question, but for those that are just getting started, like you were back in ‘96, what's that secret sauce?

[23:01]Dan: Well, those are two different questions that I'll answer differently, but they're going to be tied together. But the first thing I think that is the skill that I wouldn't have guessed coming out of business school that I think I've gotten honed in, and it served me very, very well, is, I think I have a really good ability to ignore the things that don't move the needle.

I mean, being a CEO and being in charge of everything, the whole enterprise, you have to know what's your highest and best use of your time. And I've always been able to really stick to the strong points that I had a good understanding of what's going to drive shareholder value creation, what's going to drive customer wins, what's going to drive supplier partnerships, what's going to drive growth.

And so, I refuse just to be bogged down by minutia that distracts me from, even though it may be important work, I put people around me that can get that important monotonous process-driven work done, but I make sure I stay focused on driving the growth of the company through acquisitions, new partnerships, recruiting talented executives, pushing us to do more in digital and technology than anybody else in the industry.

So, I think, having a big, bold vision, and then making sure we're getting out of our comfort zone and looking around the corner, to always know, just because we can compete today doesn't mean we're not going to be able to compete in a year. And putting ourselves in a position to be winning, not chasing is a huge, huge deal when you get to the C suite, especially in the CEO job.

So, I think that's big piece, you know, and then other things come to mind are, just like I mentioned earlier, getting the wrong people off the bus, and sometimes knowing your company has grown too much for a certain person that can't keep up and it's time to upgrade that position. That other person may still deserve a spot on your team.

They're just not going to be the lead person in that department, but you can outgrow some of your leaders and that's okay. That's healthy. That's natural. But you always have to be constantly going and looking for talent that's bigger than your scale. When I was a billion dollar company. I was looking for executives that could run a 2 billion company.

When we were 2, I was looking for executives that could handle 4. We were 5, I was looking for executives that could handle 10. And now that we're 10, I'm trying to add executives that can handle 20. So, always, kind of, have a doubling mindset. We need a team that can handle double the size of the company.

Today and that way we don't have to ever take a year off and stop growing because we've got the bandwidth to do it.

[25:22]Maya: And always look for people that you recognize what their competitive advantage is, you know, like, you need to figure out what is your competitive advantage? What are you really, really good at? And that's where you should be, I think that that's crucial, really, for any kind of growth with any kind of company.

[25:38]Dan: Yeah, and don't lose your DNA. Don't lose your roots. We call it the founder’s mentality. There's a great book out there done by a bunch of people at Bain that studied tons of successful companies and they all. The ones that outpace everyone else, they keep the founder's mentality. They stay hungry. They never get complacent. They're obsessed with winning with customers, winning with employees, high morale, staying true to the company's DNA and not getting distracted, away from that. So, super powerful as well. So, we, I always say our culture is so thick, you can cut it with a knife here.

It's real. It's not just a PowerPoint presentation. We actually have a culture book. We have a culture presentation that every new hire gets. They get it. Everybody understands our culture, what it means. It's all in, full engagement, big, bold, audacious goals. Go big or go home.

Everyone understands, but it's also do things right, act with integrity, all of those things you'd expect, keep our employees safe, be good stewards in the industry, be good partners with our suppliers, be advocates for our customers. And then, again, but my secret sauce has always been, hire the most talented people I could find, give them every resource they need, and then honestly, get out of their way.

Don't tell them how to do their job. Don't micromanage it. Just tell them, hey, I want you to think as big as I'm thinking and bigger than you're thinking and just push yourselves out of your comfort zone and don't be afraid to take risks. I'm not going to yell at you if something fails. I need you to fail forward.

I need you to try things and learn and get better. I had a great professor at Rice tell me the definition of profit is the reward a company deserves for taking risks. That's the best definition of profit I've ever heard.

That stuck with me. And so, risk doesn't mean risk in a sense of, like, I'm doing something risky. It just means doing new things, trying different things to find different ways to accelerate the growth of the company, but it's a bias to action is what really it means. Let's move forward and let's not get stuck in Groundhog Day and monotonous work.

And let's keep pushing up to buy another company, add another product line, go to a new market, go after a new customer segment, whatever it is. Let's try to push and expand in different ways all the time, and growth fuels promotions, and internal growth, it has a way of building on itself and building snowballing momentum that people get caught up with the energy and it's contagious, which is super powerful.

[28:05]Maya: I want to get my hands on that book.

[28:09]Dan: I'll give you the culture book, and if you come visit the campus, uh, they call them Tinkerisms, but all my little sayings and little quips to just, kind of, remind people what we're all about is all over every wall, like, right outside of our boardroom, it says, “Dream big, be bold,” In the hallway behind that it says, “It takes teamwork to make the American dream work.” I mean, there's just stuff, and some of them you'd say are corny or whatever, but they're all things I've heard throughout my career that I stole from mostly other people, other professors, other good leaders. One of them, my favorite, is, “The company we are today won't be able to compete with the company we will become tomorrow.”

It's continuous improvement. So, it's just reinforcing. You can't help but have it not sink into your company's ethos, when everywhere you turn, it's written everywhere and it's all over, you know, our materials and I'm just big on that. I'm big on rallying a team to do bold, amazing things and then, you know, we get the spoils of it, which has been amazing financial success and wealth again, amazing wealth creation event, and we've got our own foundation now. We’ve given back over $15 million. You mentioned philanthropy. They're a huge deal. We even changed our mission statement. Our mission statement used to be very simple.

Every employee knew it. It was just, “Make money and have fun.” And then after we had our first liquidity event, we changed it to, “Make money, have fun and give back.” And then we started the foundation. And now the foundation donates well over $1 million, almost $2 million a year to amazing charities from veterans causes to women and children causes to people impacted by weather related disasters, because we do unfortunately benefit when there's tornadoes and hurricanes, and we have, we help rebuild those communities, but because we end up selling a lot more product when there's calamities like that, we certainly want to give back to the communities that were devastated by those events as well.

[29:53]Maya: And that's called the SRS Raise the Roof Foundation.

[29:56]Dan: That's correct.

[29:57]Maya: And you've raised over $15 million in the past 10 years, or has that number expanded?

[30:02]Dan: It's getting bigger. Obviously, when we sold the Home Depot, we got some…

[30:05]Maya: You have some extra funds?

[30:06]Dan: We got some wealthy employees that are feeling a little more generous to probably get a little tax benefit before the end of the year. So, I'm guessing that number is going to climb a lot between now and December 31st.

[30:15]Maya: That's wonderful to be able to do that. Also serve on the board of the One Tribe Foundation. Can you tell me about that nonprofit?

[30:23]Dan: Yeah, it's a great nonprofit. It's based here in Dallas. It is headed by a wounded combat marine, a good friend of mine, Jake Schick. And it started as 22Kill, and they changed it to One Tribe Foundation. But the whole mission of the, is it to remind people that more people have died since Iraq and Afghanistan in this country that are veterans by suicide than died overseas, and that we have a mental health issue that we have to deal with.

And so, it's really raising money to fund therapeutic ways to keep our veterans mentally with us and make sure that they don't resort to that. We do all kinds of therapy from traditional clinical therapy all the way to non-traditional things like hunting excursions where they still have the camaraderie with their brothers and sisters from the military.

Lots of other things too that have been proven to work and, keep building a community around them that they still feel part of that military unit, even though they're back home and, and doing a lot of good things there to further that cause. And really, you know, the goal is to never have a single veteran commit suicide, but we're a long way from achieving that, but we, deal with over, like, 9,000 to 10,000 cases a year, and we're now including first responders as well to visit some.

We have mental health challenges all, after COVID, really all up and down the country and lots of different places, but there's still a huge need. So, I'm very passionate about mental health for everybody, not just veterans and first responders, but even I've seen it impact adolescents in this country since COVID in a big way.

So, I'm just a big fan of doing everything we can trying to get people to admit it's okay to admit you're not okay, and you need help before it's too late, you know, if people get help, and seek help, their chance of having a full recovery on the mental side is very good. But if they keep it from people and bottle up their depression, it can be terrible. So, we certainly can't do enough. If we save one life, it's worth it.

[32:15]Maya: Well, absolutely. and there something that, you know, drew you specifically to this kind of work?

[32:22]Dan: My dad served in the Army, but he did not, not for a career, just temporarily. Our chairman, Ron's dad served as well. And gave us a desire to focus our efforts, with our foundation on heavily towards veterans. but the mental health side, it was really an awareness that once we got to know the veteran community, we didn't just give money.

We got engaged and got involved. We learned more of the need and heard more about it. And we just felt like we wouldn't get to play the game of business, we wouldn't get to be able to change lives and have all these people have a…be born into one socioeconomic status and be moved into a higher one, because we live in the greatest country in the world. That greatness is protected every day and that freedom is protected and that ability to have this free enterprise capital, American business society, is protected every day by our veterans. And so, the fact that I'm sitting here and getting to be a CEO, because I didn't serve in the military, or I wouldn't be able to do both, I owe those veterans and all of our military, the utmost respect.

And I feel like we owe them as a country, everything to protect our way of life. So, it's just to me. There's no higher calling. There are no more courageous people on the planet. Everyone else runs away from the fight. They run to it.And, they do amazing things that are unsung every day.

So, anything we could do to give back, the government does some, but not enough. And I expect all businesses to step up and add to what we need to get done for our military.

[33:46]Maya: So, what is next for you? I know that you're going to be working with Home Depot, right, to, sort of, integrate and then what are you going to do next, Dan?

[33:57]Dan: Well, you know, they're not kicking me out yet. And I think they want me…

[34:00]Maya: I don't think anybody would ever kick you out of anywhere.

[34:03]Dan: And I'm having a lot of fun. So, I'm super excited about the next 5 years and what we can create together. But at some point, I want, my heir apparent can push me out of the way and say, I want to run over you or I want to run faster than you're even running and I'll know when that time is right, whether that's three years from now, five years from now, seven years from now, we'll see, but when that time comes, when I know it's time for a new leader to take us to a whole nother level with their new bold vision and their new energy and passion to take it there, uh, we'll know and I'll be thrilled to hand that baton on.

And then look, I hope I can stay involved with Home Depot in a bigger way. Maybe as an advisor, maybe a board member or something along those lines would be a dream come true for me. I love the company and I want to stay involved as long as I can. But then from there, yeah, I think, obviously managing the family office and working with some of the private equity friends that I've made along the way, helping them as an advisor, maybe sit on a few other boards.

Maybe even come back and teach somewhere along the way. It always appealed to me to maybe teach a class at Rice or teach a class at A&M and that would be very fulfilling. My wife has her Ph.D. and she is a professor as well. So, it'd be kind of fun to teach while she's teaching as well. That way, uh, my employees will be tired of all my BS. It'll be time to spread it to a bunch of new young kids that haven't heard it before. So, that'd be good.

[35:20]Maya: Well, I think that would be a fantastic transition to, you know, I'll come and audit your class, and I love the Tinkerisms. You should start writing a book and writing those down.

[35:31]Dan: Well, it's funny you mentioned a book. People ask all the time. I just tell them I don't have time for that right now. Maybe later when I'm done, but, we are, I'm thrilled because when I was sitting in the back row of Rice MBA classes, I was daydreaming, not paying attention, half the time about building a company, what I want it to look, like, what I want it to be admired for, And I, was literally thinking back then, I would love to have a case study written about a company that I led and Harvard has just sent me a draft of the Harvard Business Review case on SRS that'll be coming out in the spring. So, super proud of that.

[36:04]Maya: That's amazing. Stay tuned for that. I can't wait to get my hands on that as well, 

so, you know, Dan, it's been a pleasure to talk with you and, it's just been one of these, American Dream stories that people look up to and, you know, they read and they learn and they're, like, you know, what, like, I'm, that's going to be one of my mentors. and that's what I want to do with my life. And so, it's been such an inspirational talk and I just wanted you to leave us with some final words of wisdom.

[36:34]Dan: Yeah, no, I really appreciate all those kind words. I’m very proud of the company, but it was a team effort. I think the most thing I'm proud of is the fact we shared the wealth. I'm a huge proponent of corporations bringing in your frontline employees and giving them an opportunity to share in the wealth creation as shareholders of the company.

I think all companies should be required to do it. They should do it, even whether you're private, whether you're family, private equity, or public. You'll be amazed what your employees will do for you if they're now co-owners of the company. We have everyone rowing in the same direction, everyone cares more, but they deserve to share in the upside.

And I'm telling you, a self-funding proposition. All the wealth we created for our investors did not come at the expense that they had to be diluted by giving some of the equity to the frontline employees. What we gave away, we got back, they got back fivefold in better returns on their investment.

So, I hope we're a, kind of, a, with the case study and with more publicity, there's a great group out there called Ownership Works, which is a nonprofit trying to get more corporations to give broad equity ownership to their frontline employees. And we've already done a video on how it's impacted a lot of our employees that bought their first homes for the first time.

We have younger employees that bought their mother's or father's mortgages and retired their debt of their parents’ homes and done so many cool things with this wealth event or many wealth events we've had that it’s super powerful. And there's nothing better you can do for your people to give them not just a hand, into the company, but a hand up in life.

That it's changing their lives, their kids lives, their grandkids lives. We have employees that are sending their kids to college with no student debt now because of this, so many different ripple effects and then giving back to charity as well. So, if more companies can do it and follow our example, that'd be awesome.

Love for us to be, you know, I came through grad school when Enron was happening in Tyco and it's about the time I think when American business became vilified. And still to this day, I fear our media still portrays American corporations as bad, and that's not good. That's wrong. Most American companies that I know of are solid, great companies that do great things every day, and the media doesn't want to focus on that.

So, hopefully, stories like ours start getting out and people realize, hey, there's great companies doing amazing things. The American dream is still alive and well, and it's happening everywhere in this country. You're just not hearing about it.

[38:54]Maya: The good news movement. There's a whole Instagram thread. I follow it and it's only good news, right? Only good news because, you know, there's so much good that's happening and you're right, we do need to focus on that, and to make sure that people know about all of the magnificent things that our country is doing and, rather than focus on the bad.

I used to be in the news business, so, the term was, if it bleeds, it leads. I'm not in the news business anymore for a specific reason. I'd rather tell good stories like the one I just shared, about you. So, again, really, really grateful for your time. I know you're super duper busy and really looking forward to seeing you as a professor at Rice Business.

[39:32]Dan: All right. Well, don't sign me up yet. I'll get in trouble with Home Depot, but I'll have my resume ready when the time comes. But thank you so much. I really enjoyed our talk today. Thanks.

[39:42]Maya: So did I, Dan. Thank you.

Thanks for listening. This has been Owl Have You Know, a production of Rice Business. You can find more information about our guests, hosts, and announcements on our website, business.rice.edu. Please subscribe and leave a rating wherever you find your favorite podcasts. We'd love to hear what you think.

The hosts of Owl Have You Know are myself, Maya Pomroy, and Scott Gale.

[00:00]Maya: Welcome to Owl Have You Know, a podcast from Rice Business. This episode is part of our Up Next series, where faculty, researchers, and alumni weigh in on the trends currently shaping the world of business.

On today's episode of Owl Have You Know, we explore the unique perspective of not one but two faculty members who share not only their deep love of teaching, but of one another. Beloved professors Lee Ann and Alex Butler have dedicated more than a decade to Rice Business. They tell us the story of how they met, fell in love, and why there is no place they would rather be together.

Thank you so much both for being on our podcast. It's a real treat to have professors join me. It's really a phenomenal perspective, because usually, I'm interviewing students, alumni, and now, we get to flip the coin and talk to professors. And not only are you both professors at Rice Business, but you're a husband-and-wife team.

[01:01]Alex: That's right.

[01:02]Maya: Was that planned — to work together?

[01:06]Alex: The working together part, no. The being together part, absolutely.

[01:10]Maya: Okay. Good answer. That's a very good answer. So, let's start from the beginning. How did you two meet?

[01:19]Lee Ann: Well, the short answer is, we met in a bar.

[01:22]Maya: Amazing.

[01:23]Lee Ann: The slightly longer answer is I had a friend who had a romantic interest in another of my friends and asked if I could facilitate a meetup. And I said, sure, “My friend and I will be at a bar this night, this time.” He came with his new friend, Alex. My mutual friends did not end up working out, but we did. So, we've been married for 28 years now.

[01:47]Maya: Wow, congratulations! The whole thing just started with “we met in a bar.” I mean, it can only just get better from here, right? So, Lee Ann, you are a senior lecturer in management, and you are also a former litigator. So, you are an attorney by trade and now teach business law. You were also integral in launching the online program, MBA@Rice. And Alex, your background is finance — corporate finance — and you do a lot of research and you study the financial markets. And both of you were at the same places at the same time. So, I'm assuming this was before 28 years ago and that you've probably worked together before. Is that accurate?

[02:36]Alex: I was faculty at Louisiana State University many years ago, we had a need for someone to come in last minute and teach business law. And that's where Lee Ann came in. And I don't want to put words in her mouth, but I think she found it a pretty daunting prospect, since she had not taught before. But I think she ended up really liking it, and she really has a knack for it. But I don't want to steal your story, Lee Ann.

[03:01]Lee Ann: Well, that's pretty much it. I, really, I think, had no true conception, despite being married to an assistant professor, of how much work goes into prepping a class for the first time when I accepted this adjunct job. But I’m so glad I did because I realized this is really what I want to do. I love talking about the law. I love thinking about the law, discussing the law with other people, and particularly people who are just interested in it prospectively, as opposed to maybe people that are very, very interested in their specific problem at one specific time. So, teaching ends up being, kind of, a perfect fit.

[03:39]Maya: So, tell me what got you really interested in law, to begin with.

[03:43]Lee Ann: So, I was in elementary school. And we had someone talk to us, who was a lawyer, kind of, a Career Day type of thing. And they described practicing the law as sitting around all day doing puzzles but you don't have all the pieces all the time, but you still have to come up with a solution. And I was a super geeky little kid that loved to do puzzles. And I thought, “Oh, my God, this is the life for me. This is what I want to do.” And from that point on, I knew that I wanted to go to law school. So, went to business school first. My undergrad is in business. And then straight on to law school, and then worked in the area of contractual, on the litigation side, but dealing a lot with financial transactional matters, so got to use to the business school part, too.

[04:28]Maya: Financial transactional matter. So, that goes back to you, Alex, since that's something that's in your wheelhouse. So, tell me about your upbringing and what led you to finance.

[04:38]Alex: So,both of my parents were academics. Mom was a poet, dad was an economist. Never even occurred to me to get a real job or that career progression would begin until after the Ph.D. And fortunately, I really enjoy both the teaching and the research sides of things. I enjoy mentoring students.

In terms of, how did I end up in finance? So, when I was an undergraduate student at Rice long, long ago, we didn't have a business major but we had economics major. And so, I was a mathematical economic analysis major. And that was really good training for graduate work in either economics or finance. And I had one finance professor, in particular, who I really enjoyed the class and the professor. And so, that's, sort of, how I got on that path. And that's where I am now.

[05:21]Maya: So, we need to back up and say that, yes, you actually went to Rice as an undergraduate student. Are you from Houston?

[05:27]Alex: No, I grew up in Alabama. So, in fact, when I started looking at colleges, at the time, I had never heard of Rice. But then, my parents, “Have you thought about Rice?” I have not thought about Rice. I'd never even heard of Rice, but then started looking into it. I'm like, “Wow, this is my kind of place.” So, came and visited campus and really enjoyed it and knew then that that was going to be my first-choice school.

[05:49]Maya: And you got in.

[05:51]Alex: And I got in.

[05:51]Maya: So, you went to Rice as an undergraduate and then pursued, you know, a master's and a Ph.D. and all of these phenomenal degrees, and then you decided that you were a researcher before you became a professor, or was that, sort of, hand in hand?

[06:07]Alex: It goes hand in hand. So, Ph.D. is, at least, in most finance programs, is a research degree. Albeit, the first year or two, you take a lot of courses. Really, the point is to learn how to become a researcher, how to become a scholar, how to produce knowledge through research. And I hadn't fully appreciated that when I started on the path. So, it's a good thing that I like it because, you know, both my parents were academics. I wasn't quite ready for just how research-intensive the job really is.

[06:36]Maya: No, for sure. And you've been at Rice for quite some time. What year did you start as a professor?

[06:40]Alex: Yes. I've been back here since 2009.

[06:43]Maya: 2009. And you have actually won a few awards at Rice. You won the Jones School Award for Scholarship Excellence in 2011 and 2012. Congratulations!

[06:56]Alex: Thank you.

[06:56]Maya: And before that, you were at UT Dallas, and so were you, Lee Ann. So, you were both at UT Dallas, you were both at Louisiana State, and found yourself back at Rice together. And how long have you been at Rice, Lee Ann?

[07:07]Lee Ann: Same amount of time.

[07:08]Maya: Well, that would make sense, wouldn't it? Have you been married for 28 years? So, do you have children?

[07:16]Lee Ann: We have two, both off at college. We are beginning our empty-nester era.

[07:20]Maya: Where are they in school?

[07:22]Lee Ann: One is at Austin College and one is here at University of Houston.

[07:25]Maya: Wonderful. Do they want to become academics, lawyers, you know, finance people? Or, are they going to be artists? Or, are they taking a completely different path than their parents?

[07:36]Alex: Well, they started off on the artist track, and I think both are pivoting a little bit — the older one toward medicine, maybe, or maybe chemistry, and the younger one to education, I think.

[07:48]Maya: Nice. Then, close to home. That must be nice to be able to see them. Because I've got one that's 17 and she wants to go to Maine, which I'm like, “That's a really, really, really long flight. And I would really… like, why didn't you consider Rice, right?” So, I'm still working on that a little bit, but as you well know, they want to forge their own path, and if you say one thing, they're going to go in the complete opposite direction.

[08:13]Alex: I am familiar with that, yes.

[08:17]Maya: So, what is it about Rice? Because you've been to other universities and been professors there. So, could you tell me what it is, that magic sauce? Because you've been there for quite some time and you've seen the evolution and the progression, you know, Dean Rodriguez has done so much for the university. And now, we have an undergraduate program, which you have been integral in as well, in terms of launching. Tell me a bit about Rice from your perspective.

[08:43]Lee Ann: For me, it comes down to, A, the students, right? That is, my interaction, most of the time, they are phenomenal. They are here to learn and they have that kind of hunger that's amazing. I really enjoy teaching in the MBA program because they come with so much work experience and I learn something every single class that I teach. Hopefully, they learn a lot from me, but I am absolutely learning a lot from them each time, too. But we also have wonderful support and administration here, which is not always the case at every school. But we, kind of, have the whole package, which is just a joy, a joy to work here.

[09:21]Maya: And tell me about the undergraduate program, because I know that that is something that Rice had been working on for quite some time. And there are lots of institutions that only have graduate school programs, for a reason. If you could just shed a little bit more light on why you feel that that was an important decision to be made and how it really expands the opportunities that Rice provides.

[09:45]Alex: Yeah, the undergraduates, so, really, sort of, underserved population, in my view. Of course, I'm biased. You know, I'm in the business school.

[09:53]Maya: Well, you wanted a business major. That's one of the things that you were looking for.

[09:56]Alex: We all need to learn finance, of course, of course. But there was a lot of demand from the students for a business major, and there was none. After many years, we finally started offering an undergraduate business minor. So, that started in, I think, 2007, so just before I got here. And that was limited to six courses, sort of, the core courses you expect in an MBA program, but taught at the undergrad level, and that was it. Those are the only undergraduate business offerings that we had at all. And almost immediately, that undergraduate business minor became the most popular minor on campus by a factor of about three. The next most popular one was…had maybe 10 people, 20 people per year, and we were graduating 60, 80, 90, 100 people per year with a business minor.

So, obviously the demand was there for something bigger. So, after, sort of, years of getting the pieces in place and laying some groundwork, we were finally able to launch the business major. The rationale behind it is that it's much more like a social sciences degree than, say, an engineering degree, in the sense that most social sciences majors — so, economics, psychology, what have you — have a fairly limited number of course requirements. Whereas, in engineering, a student might have two free electives the entire time that they're an undergraduate. That was not the model we wanted. We wanted something that was, sort of, lean, flexible, and so that the students could double-major if they wanted to. And many of them do, be that in comp sci or one of the engineering majors, or especially, in humanities and economics.

[11:37]Maya: How many are enrolled? There was the first graduating class, right?

[11:42]Alex: Yeah. So, we had our first graduating class this past year. And I think there were 61 students in that class. And so, for some perspective, the total size of the graduating class of undergrads at Rice is on the order of 1,000 students. So, 6% of the entire graduating class was a business major, and those students became business majors, not realizing that we were going to have a business major when they chose to enroll at Rice.

So, they got here, surprise, now we have a business major, and ah, yay! And so, those are the people who not only chose to come over to business, but did so late in the game, and still were able to get everything done. On a going forward basis, I think we're going to have, probably, at least double that many students every year. So, 100 to 120, maybe more. Hard to know, because the students can change their major on a whim, basically, but it looks very promising.

[12:41]Maya: You know, I'll ask you, Lee Ann. So, in terms of teaching, because you teach across the board for students that are in different phases of their career journey, what have been some of the most surprising things that you have learned from your students? Because you mentioned earlier that there's a lot that you learn from your own students. So, what are some of those things?

[12:59]Lee Ann: Weirdly, this is my favorite thing ever that I learned, and that is the term “land skirt.” We know of land men, but I had no idea that there was a feminine version-

[13:09]Maya: I didn't, either.

[13:10]Lee Ann: … of executors and executrix, but yes, the land skirt. I often hear insight as to particular goings on at particular companies that I probably won’t repeat, that I find incredibly interesting, given what I know about the law and the current environment. So, I will not repeat those things here. But they always have fascinating stories.

[13:30]Maya: As educators and as professors, what have been some of the most surprising things that you have learned?

[13:35]Alex: Well, I mean, this is probably not the answer you were expecting, but several years ago, we ran an experimental course where faculty from four different functional areas got together, all of whom were going to teach their discipline, but along the theme of decision-making.

And so, we had someone from one group who's going to think about decision-making in teams, one person decision-making as far as how personal psychological biases affect your decisions, one person doing game theory, and I doing decision-making with data. So, I learned a few things in that. One was what a great place to work where someone can have this bonkers idea of, let's come at decision-making from four different ways, all of us with our own strange perspectives, and deliver that as a course to the students and have the administration be like, “Yeah, man, let's do that. That sounds awesome.” And so, we did. So, that was a neat thing to learn.

The second thing I learned is that you can try it, but if your plan is to teach that content in two consecutive 10-hour days on a weekend, no one's going to be happy with that. And third, to amplify that, is if you try to do that during the second half of the second semester of an MBA student's second year, they would really rather not to hear about statistics and making decisions with data on that beautiful, beautiful Saturday in March.

[15:07]Maya: Yes, I was in those classrooms on those beautiful, beautiful Saturdays in March, and I actually picked seats where I wouldn't see the window on purpose. I understand that. So, I've got quite a few questions about both of you, you know, working together. Do you… you know, a lot of couples working together would be a disaster, right? It's a nightmare to work together. But for some, it’s exactly the right fit. And I want you to, sort of, shed some light on what it's like? Do you come to school together every day and have lunch together? No, completely separate? I can see you shaking your head, Lee Ann, “No, we don’t do that”

[15:49]Lee Ann: Yeah. Most days, I do not… I see him at breakfast. I see him at dinner. I do not see him in between. Faculty meeting days, I'm pretty sure that I will see him and I might even get to sit at the same table as him if I get there early enough. But no, we have offices on different floors. We teach in different areas. We don't even teach the same students.

[16:09]Alex: Oh, that grossly understates how much overlap there is, no.

[16:15]Maya: This is perfect.

[16:15]Alex: So, audience, from here, everything she said is correct and true, except that what she's left out is that, every night at dinner, we're talking about aspects of your job, right? And so, I've been teaching for over 30 years. My main undergrad class I teach, I've been teaching every year since I got here. And yet, through conversations I had at dinner with Lee Ann, I changed up some of the things I'm doing in the classroom this year. And it's worked like a charm. I should have asked her earlier, “How do you deal with this thing?” And she would have told me, I'd be like, “Okay, well, I'll try that.”

And so, this time I did. And sure enough. And, you know, I think that's a two-way street. I think some of the things that I share with her, she can adapt to her classroom. Even though our student populations are very different and the content that we teach is very different, a lot of the pedagogical stuff that you, kind of, pick up along the way, you learn better when you have someone to share it with.

[17:11]Maya: And to bounce ideas off of.

[17:12]Alex: Exactly.

[17:12]Lee Ann: Yeah, and we've each sat through each other's classes. So, I have sat through his BUSI 343. He sat through Business Law and Reg with me. So, that also is nice. I don't know if I would be excited to invite a random professor to just sit in on my class and critique me, but your husband can do it nicely.

[17:32]Maya: Oh, that's amazing. You do that for one another. Do you take notes?

[17:37]Lee Ann: Absolutely.

[17:37]Alex: Yes, absolutely.

[17:39]Lee Ann: I am a big proponent of note-taking with pen and paper. And absolutely, I took notes.

[17:44]Maya: So, what kind of feedback did you give one another?

[17:46]Lee Ann: Some, I think, actual constructive. Some, you know, “Dude three seats away from me was balancing his checkbook instead of listening,” kind of comments. But, you know, little things. He's a great professor, so there's not a whole lot of feedback to give him.

[18:02]Alex: Well, and when we pivoted to online during the pandemic, pretty much none of us knew what we were doing or how we were going to do it. That was a semester where I was not teaching, but Lee Ann was. And so, I logged on to the Zoom, just like all of our students did, and quietly, you know, watched with my camera off, like, I'm guessing many of the students were. But that helped me think about, “All right, so, I know I'm going to be doing this in the fall. 

How do I want to do my pivot?”

So, I got to watch her. I knew what her content was because I've been talking with her about what she teaches for years. And I think I was able to help her by saying things like, you know, just logistical things, like, “Oh, you know, the microphone didn't pick that up, or the camera makes you look funny with that light over to the side,” or whatever, right? That was super helpful.

[18:50]Maya: I want to pivot a little bit about some of your research, Alex, that you've done. You most recently did some research which was fascinating, I read the article, about racial disparity amongst people that are applying for auto loans, which is a very relevant topic in this day and age. And I wanted to talk to you a bit about that.

[19:12]Alex: Yeah, it was a very interesting learning experience all the way through. I think of myself as a corporate finance and financial intermediation researcher, but over the past five or 10 years or so, I've, sort of, pivoted toward consumer finance and household finance. And one of the reasons why I've enjoyed that change is because it's us. You know, it's normal people that I'm studying now. And so, to think about how people make their decisions, it's really gratifying. If you can learn something about how that aspect of the world works as opposed to some tiny niche nuance of financial intermediation, banking law, whatever might be important, but if you're sitting next to some random person on an airplane, they say, “What do you do?” Well, let me explain to you how the basal record, like, you know.

[20:01]Maya: “Sorry, I don't speak English,” and then turn around.

[20:05]Alex: Exactly. So,this paper was really interesting. The question of how do lenders price auto loans is a tough one to answer because data are nearly non-existent.

[20:17]Maya: What specifically about this, though? Like, was it about this? Was it something that you read that wanted you to take a deeper dive into this specific category? Or, what was that?

[20:27]Alex: Sure. Well, there's lots of research on how and whether there's racial discrimination in mortgage markets. For decades now, this has been an area of a lot of interest to regulators, to researchers. And we have some really good data on that called HMDA, the Home Mortgage Disclosure Act data, which basically requires any bank, any lender for mortgages to, when someone applies for a mortgage, to take some information down and then report it to this database, such as the person's income and their race, as well as other aspects about the loan itself and the home that they're trying to buy.

But there's nothing like that for auto loans. It is the Wild West. There is very little regulation. There's very little oversight. And there's certainly no government-mandated database of racial characteristics of the applicants and the ultimate borrowers. So, our innovation in this paper is that we have data for individual credit histories, and then there's this publicly available database for mortgages. Well, anybody in the consumer credit database who had a mortgage at some point in time is going to be in both databases.

And so, what we found is that we could match on when you got a mortgage, where that mortgage was, geographically, how much you borrowed, and a few other characteristics that show up in both databases, so that we could match two different completely anonymized databases, and then say, “Oh, we're here for the people who got auto loans. Now, if they also had a mortgage, I can figure out what race they are based on what they reported when they applied for their mortgage loan.”

And so, it allows us a lens into this otherwise really opaque market. And what we found is just absolutely stunning. So, if you look at how minorities and non-minorities are treated in this market, the difference is huge. In terms of approval rates, if you take two people, one minority, one non-minority, and hold everything else equal, including their credit score, including how much debt they have, because we know all that because we have their credit reports, we have their credit histories, and if you compare that, the minorities are denied substantially higher than the non-minority people. The difference is, like, the equivalent of having a 30-point gap in your credit score. That's a hurdle that the minorities are facing when they apply for these loans.

And don't forget, these are the people who, at some point in time, got a mortgage. So, these are not bad credit risk people. This is a selected sample of people who are already pretty good. Of those who make it past the approval stage, minorities pay higher interest rates, too.

[23:23]Maya: Right, by, like, 60% or something? Some ridiculous…

[23:27]Alex: So, 50 basis points, on average. And in areas where racial discrimination is more prevalent, generally speaking, it goes up to one and a quarter percentage points. So, this is on a mean, average auto loan rate of about five and a half percent.

[23:44]Maya: So, where are these places? I'm curious. I’m assuming the South. Am I right?

[23:50]Alex: So, the South in part, but also some places in the Midwest and some places out in the Mountain West as well. The coasts, not so much, but it's an interesting way to figure out what areas may have more racial animus than others. It's based on Google search volume for racial epithets and slurs, basically. It's a method used in economics that we, sort of, ported over for our paper.

So, even the people who get approved, they make it over that hurdle and they end up paying 50 to 125 basis points more than their non-minority counterparts. All that could still be if it's just the case that the minority people in our sample are worse credit risks.

[24:34]Maya: That makes sense.

[24:35]Alex: Yeah, maybe we're just attributing what looks like racial discrimination to just different credit risks, but it's not, because the minorities who get these loans default less than their non-minority counterparts. They're better credit risks.

[24:52]Maya: That’s just really hard to wrap your brain around, you know. It’s just hard.

[24:55]Alex: It really is. And it made it difficult in the peer review process because a lot of our anonymous peers refereeing our paper were unwilling to think that that could possibly be true. And yet, it seems to be, no matter what sort of alternative tests we throw at it, the result still holds.

So, as an example, if, instead of looking at auto loans, which are a fairly human-intensive process, if you look at credit card loans, which are completely automated and algorithmic, there's none of this evidence of racial disparity there in our sample, none.

[25:32]Maya: But in auto loans, there is. That's fascinating.

[25:34]Alex: But in auto loans where there's no oversight, you have humans involved, there's no algorithms that are doing this, the results are there and they're big. And overall, the minority wedge is about 30 to 40 points on their credit score, that they need to have higher than their non-minority counterparts to get the same approval rates, the same APRs, despite the fact that they actually default less.

[25:59]Maya: So, is this part of the major anti-discrimination enforcement policy that was initiated in 2013, but then it was halted in 2018? Could you talk to me a bit about that? Is this why or is it not?

[26:13]Alex: So, it's not why, but there were Obama-era policies that said, “Hey, seems like maybe there's racial discrimination in the auto loan market. Let's stop that, huh?” And so, the CFPB, the Consumer Finance Protection Board, was charged with trying to put minorities and non-minorities on a more even footing. And what we see there is, indeed, the interest rates, which is what they were charged with, sort of, keeping an eye on, the interest rate gap shrunk substantially during that period of oversight. But then, later administrations said, “No, I don't think we need to enforce that as heavily anymore.” And as soon as they rolled that off, the wedge came back.

[26:55]Maya: So, with this information, now that you have it and it's data and it's happening, now what?

[27:04]Alex: Well, I mean, I guess one of the nice things about my position is I can go out, try to ask a question, and try to find the truth, and then share that truth with the world. And then, hopefully, policymakers will see this and take it seriously and start to think about how to affect change. But I don't think that's… that's probably not a thing that I'm going to be actively a part of, unless I get called to, I don't know, discuss it in front of Congress or something.

[27:35]Maya: To testify in front of Congress? Could you tell me the journal that this study is in?

[27:39]Alex: Yeah, this is in the review of financial studies, which is one of our top finance journals. And when it was published, it was published as the lead article and editor's choice, which means that the editor took a particular interest in it and, sort of, put it on a little platform, if you will, so that it would have a little bit more attention.

[27:56]Maya: Thank you for that. That way, people can go and read it for themselves because I read it and it was really a little bit startling and fascinating. And you think that things like this don't happen today, but clearly, they do. And then moving on to the legal aspect of it, so, Lee Ann, when Alex came home and he was doing this study, talked to you about it, from your legal perspective, what were your thoughts?

[28:21]Lee Ann: I was sadly not surprised. I was extremely proud of the innovation that he created in effort to find this data that is so, so very hard to find. And that's one of the problems, what gets measured gets managed, right? And if we can't measure it, we don't really know where there's a problem. We can't convince the people in power to make those changes. But coming from a regulatory background, it absolutely did not surprise me. It's sad, but true.

[28:48]Maya: So, I'm curious, because, you know, you've got a legal mind and you've got a financial mind. And so, if you could teach a class together at Rice, what would it be?

[28:59]Alex: We've talked about this a lot, actually. I think that the best synergies, co-variants that we would get is probably some sort of class on how companies might raise external capital security offers and things like that, because a lot of what Lee Ann teaches is securities regulation, which I find fascinating. A lot of what my research is on is, how does the supply of finance affect how companies and businesses and governments do their thing? And so, a course that, sort of, combined those two seems like a natural fit for us. So, I can talk about the economics behind what happens when firms can and can't raise external capital. And then Lee Ann can come in and explain why my explanation was way too simplistic because the actual rules are far more complex than that. And do you know that if you do that, you're actually issuing an illegal security? And like, oh, yes, I know that. I sat in your class. I just forgot. You didn't say it was on the exam.

[29:53]Maya: Well, yeah, you can't put it on the exam. I'm just saying. That's just opening up a whole can of worms. So, Lee Ann, I was going to ask you, so, what are some of the most critical, legal or ethical challenges that business leaders face today? Because that's something that you're preparing this generation of leaders to tackle.

[30:12]Lee Ann: Well, I think the ethical challenges come every day. And probably, the most difficult bit is when we just don't realize it's an ethical dilemma that's in front of us, right? And we tend to think of ourselves, everyone thinks of themselves as an ethical person, “I don't need to worry about this because I'm a good person and I will do the right thing.” But when we take the time to actually systematically go through it in a logical way, I think not only what does my ethical framework tell me is right and wrong in the situation, but how might others view it? Because not everyone has the same framework as me or anyone else. So, ethically, we are bombarded with dilemmas on a daily, if not hourly, basis.

Legally, right now, the regulatory environment is at a super weird point. We had some major U.S. Supreme Court decisions this summer that created some huge amounts of uncertainty. Typically, those types of big blockbuster cases are in one area, you know. It’s in securities law. It’s in antitrust. It's in criminal law. But the repeal of the Chevron doctrine hits every administrative agency.

[31:26]Maya: Could you explain that doctrine for those of us that don't know?

[31:29]Lee Ann: So, the Chevron doctrine, which had been the law for a very long time, basically said, you know, we've created these administrative agencies because Congress has a lot on its plate. We need experts to guide us in very specialized areas, right? No one in Congress really knows how to fly an airplane or not enough of them. So, we're going to have a group of experts form the FAA and they're going to make the rules and regulations under congressional oversight. And the Chevron doctrine said, “Given that we have these experts, if a question is posed to the court, is this legal? Is this constitutional? We are always going to defer to the agency's interpretation.”

This is a very simplified version. It's many steps to Chevron review, but basically, there's a thumb on the scale for the administrators because they're the experts. And the repeal of that says, “Actually, we're going to let the courts have a much more involved hand,” or that's, at least, what we think might happen. We don't know. The wheels of justice grind slowly. So, we're waiting for the first wave of cases to go through where we don't have Chevron in place. We don't know. And that, coupled with a major election coming up in November, it's going to be really difficult to teach regulation this fall because there's just a lot of balls in the air. We don't know exactly where they're going to land.

[32:51]Maya: And both of you are teaching. You talked about uncertainty. I mean, talk about uncertainty. There's uncertainty in regulation. There's uncertainty in the financial markets. There's uncertainty literally everywhere. And it must be really, really challenging to teach in this day and age, right?

[33:07]Lee Ann: It makes it fun, right? Because we get to think through all the scenarios. But even if you have a bright line rule, there's going to be the incentive to find a way to work around it. And regulators and legislatures, they have to try to balance. We want to give clarity to businesses, to individuals. If we give too much clarity, they're going to find a way around it, right? So, we need a bit of vagueness also. Finding that sweet spot is difficult for them. Dealing with the gray areas is difficult for those of us who want to comply with the laws and the regulations. So, it's great for discussion. As a lawyer, if I were practicing right now, I would be terrified for my clients, but as someone who is just talking about how things might play out, it's fascinating.

[33:50]Maya: Yeah. And what about you, Alex? What do you think about teaching right now in this? I mean, it really is, I mean, an inverted yield curve that's now not as inverted. I'm, kind of, a finance geek. And so, I follow all of those metrics and, yes, the election. And then you've got, you know, the Fed. There's always uncertainty. That's the only thing certain in this world. But it just, sort of, feels like there's more of it right now. Is there more uncertainty? You tell me.

[34:19]Alex: Well, you know, I'm, kind of, framing against when I was teaching a financial institutions course in the fall of 2008.

[34:26]Maya: Ah, financial crisis. Good times.

[34:30]Alex: And the way it worked out, my lectures tended to line up almost exactly with how the financial world was crumbling. So, the week after all the banks went belly up, that's when my lecture on commercial banks was. And the week after the investment banks all went belly up is when my investment banking lecture happened to be. And so, I would watch the news and just realize, “Oh, everything that I was planning on talking about next Tuesday is now obsolete.”

[35:02]Maya: Bear Stearns doesn't exist. Lehman doesn't exist. They're all gone.

[35:06]Alex: I know. You know, and I had this great slide showing how the investment banking industry had evolved through time and all the mergers and the spinoffs. And I just went to that slide and it's like start putting Xs through all the firms because they just didn't exist anymore, or if they did, not as investment banks. So, yeah, the uncertainty makes it a challenge, but that's the game.

[35:29]Maya: That's the game. So, what do you see for the future? I know you don't have a crystal ball about financial markets or about the law and regulation, but let's talk about Rice. What are you the most excited about for the future of this fabulous institution that you're both a part of, that you, obviously, went to as an undergrad? And you have seen how much it has evolved. What are you both most excited about what's up next? I know that the business school is expanding, which is also just exciting to see. I was on campus. I’m actually auditing a financial class, because like I said, finance geek. So, I'm seeing all of, you know, the construction and everything else that's happening. What are you most excited about?

[36:12]Alex: The construction's pretty exciting. To have that big of an extension to our building is going to be really great. And with the expansion of the undergraduate program, we really, really need it. And so, it'll be nice to have that space and to have that, sort of, visible commitment to integrating with the rest of the universities.

For so long, we had no undergraduate presence or barely any at all. And to now have this huge impact on the university is really gratifying. And I look forward to seeing how we can further serve Big Rice as a business school.

[36:46]Maya: We do talk about it as Big Rice. I know, there's some people that don't know that, but yes, there's Big Rice and then there's the other that falls under Big Rice.

[36:55]Alex: That’s right.

[36:56]Maya: That was something that I learned when I was there. I was like, “Wait, I'm sorry, what is that? Big Rice? Is there, like, a medium and small?” I didn't understand. I think that the business school is certainly such a powerhouse at Rice. And, you know, when you were looking for places to go to university and you didn't even know what Rice was, I mean, man, Rice is now one of the new Ivies and it's the place to be. And it's the best investment for your dollar, if you want to talk about finance, and all these things, it's come such a long way. And for me, that's something that's very exciting. And, obviously, I haven't been there nearly as long as the both of you have been there. It's really rewarding to see.

[37:38]Alex: Yeah, it’s really gratifying when we, when the business school does well in the rankings. And, you know, sometimes, when you see these rankings where they break it down by discipline, finance area usually does really, really well, often in the top 10. The undergraduate program, one of the rankings, gave us a ranking last year, even though we hadn't even had any graduates yet, and we ranked in the top 25, just straight out of the gate. So, it's a very exciting time.

[38:05]Maya: So, Lee Ann, what are you the most excited about for the future?

[38:08]Lee Ann: I’m also, even though I don't teach in the undergraduate program, I am just thrilled with that. I am thrilled with that expansion. I think bringing young students in and getting them ready for the topsy turvy world that is business in the U.S. right now is more important than ever. And having such a quality well to draw from, from the Rice undergraduate population, is going to be amazing. And I think it's going to put some young blood in the building. And that's, kind of, exciting, too. I am excited, as always, to continue with our MAcc program. I think we produce…

[38:47]Maya: That's master of accounting, for those that know what MAcc means. 

[38:48]Lee Ann: Yes. And it's a one-year program to help students transition to the world of public accounting, certified public accounting. But we have produced more Elijah Watt Sells winners. That is the very tip-top, I think, quarter of a percent of the CPA test-takers. I mean, that's just amazing. So, getting to work with those kinds of really high-quality students that love accounting is a joy. And I hope that we get to continue doing that.

[39:16]Maya: Yeah, that sounds great.

[39:18]Alex: And it's one of the few places where we have overlap in students because a lot of our undergrads end up going into our Master of Accountancy program. Of those who do, many of them are undergraduate business majors or business minors. And so, they have invariably taken my course. And so, when I hear that they're going to the MAcc program, I say, “Oh, that's good. Now, you get to take classes from the better Professor Butler.”

[39:40]Maya: Oh, that's a nice thing to say.

[39:43]Alex: True.

[39:45]Lee Ann: He's a very sweet man.

[39:45]Maya: Aww. Well, 28 years, you know, that's quite a milestone. What are you going to do for your 30th wedding anniversary? Put you on the spot.

[39:53]Lee Ann: Yeah, that's a good question. 25 was during COVID, and we did nothing. We had big plans. That did not work. I don't know. We had talked about going back to where we went on our honeymoon, which was Northern California wine country. But I don't know what we're going to do. Alex is our vacation planner.

[40:07]Alex: Yeah. Well, you know, I think that'll be during the summer. So, why don't we just stay here?

[40:14]Lee Ann: There's nothing better than Houston in the summer.

[40:17]Maya: Right. I mean, exactly. Like, I'm sorry, worst place on earth in the summer time. But the best time because there's no traffic because there's nobody here. Everybody, sort of, scatters, and then it's, like, “Oh, I can get around town. I don't have to worry about sitting on 59 for 45 minutes.” Yeah, no, wine country sounds like a good place to go. And you also have an anniversary of being professors at Rice coming up as well.

[40:43]Lee Ann: 15 years, yeah?

[40:44]Maya: 15 years. What do you… do professors get something special? I'm just curious.

[40:49]Lee Ann: I think not until you've been here as long as Professor Zeff has do you get something special.

[40:55]Alex: I don't think anyone's been here as long as Professor Zeff has.

[40:58]Maya: How many years?

[40:59]Alex: I don't know exactly, but I took accounting from him when I was an undergrad.

[41:05]Maya: Okay.

[41:05]Alex: And he had been around for a while then.

[41:08]Maya: So, I went to McCombs as an undergrad and had a finance professor. And then I went back and got this Executive MBA and had the same professor, but this time, for economics. And it was Professor Brandl. And I was like, “Okay, 20 years.” So, 20 years apart, I mean, what are… and it was during COVID. What are the odds of that? I was, like, you remember me, right? I was sitting in the second row. It was like, “Yeah, I do not remember you at all.” But yeah, it's, kind of, interesting the way that the world works and someone that you had as a professor is still there. And that's a testament to the university, the tight-knit community that it is, and one of the reasons that you both want to be there and you never want to leave.

[41:55]Alex: Exactly.

[41:56]Maya: Well, any words of wisdom? Because we have to ask you about words of wisdom, as we're owls. Give me some words of wisdom. These will be our parting thoughts.

[42:06]Alex: Buy low and then sell high.

[42:12]Lee Ann: That is wise. That is sage, sage advice all.

[42:15]Maya: So, don’t buy anything right now.

[42:19]Lee Ann: Yeah. Well, at least the dock worker's strike is over, so we will have things to buy at their inflated prices, which is good. I would say, never write it when you can say it. Never say it when you can nod, and never nod when you can wink. Sadly, I can't wink, so Alex has to do that for me.

[42:38]Maya: I love that. I'm going to say that. I am not going to write it. Well, this has really been such an honor to have both of you. Thank you for taking the time to talk with us.

[42:48]Alex: Thanks so much.

[42:51]Maya: Thanks for listening. This has been Owl Have You Know, a production of Rice Business. You can find more information about our guests, hosts, and announcements on our website, business.rice.edu. Please subscribe and leave a rating wherever you find your favorite podcasts. We'd love to hear what you think. The hosts of Owl Have You Know are myself, Maya Pomroy, and Scott Gale.