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Two Steps Forward

Ray of Hope: A Conversation with Ray Anderson

A conversation with Interface's Ray Anderson, on the occasion of the 10th anniversary of his "spear in the chest" epiphany.

It may well have been “The Spear Heard ‘Round the World” -- the “spear in the chest” Ray Anderson says he felt in 1994, when he recognized that his company was a “plunderer of the Earth,” as he later put it. Since then, Anderson -- founder and chairman of Interface, Inc., a floor covering manufacturer based in Atlanta -- has traversed the globe, preaching the gospel of sustainability, while pursuing an ambitious effort to transform Interface’s products, processes, and business models to reflect his newfound commitment.

Interface is by no means the only carpet company to embrace a strong environmental ethic. Its competitors -- Collins & Aikman and Shaw Industries, for example -- also have innovated around the sustainability theme, creating new products and takeback systems designed to “close the loop” by turning old carpet into new. But Anderson’s company, more than the others, has put itself in the limelight -- and subjected itself to scrutiny.

I decided to take advantage of the 10th anniversary of Anderson’s spear-in-the-chest epiphany to catch up with him and take stock of the past decade’s ups and downs.

Below is the edited conversation.

Joel Makower: Ten years, just to start off -- does it feel like it's flown by or has it been a slog? How do you look at this past decade in terms of this journey you’ve been on?

Ray Anderson: It’s been the most exciting in my life. We feel like we’re re-inventing the system and that’s fun. We’ve been through the toughest business cycle in our history and we’ve survived. Thanks to sustainability and commitment we’ve made. I don’t think we would have made it otherwise.

Makower: I want to get to that part of the story. Let's take stock in where you come. You’ve set a bunch of goals, seven fronts or faces of what you call Mount Sustainability. How is that going? How are you measuring success?

Anderson: Well, we got a number of metrics that we are tracking very carefully, one of which is total greenhouse gases produced by global company, and that figure is down from our baseline. Ninety-six is the baseline on that one. It’s down an absolute tonnage 46%.

Makower: That’s one measure. What about other measures?

Anderson: Renewable energy is 12% of the total amount and we got a diminished total because we've done a lot with efficiency. And it's headed towards 100%. The nonrenewable energy has been reduced 30% against the same baseline of 1996.

Makower: Any other metrics you want to mention?

Anderson: We got water usage is down 27% for the whole company. Our carpet tile business is down 70% per unit of production and the broadloom carpet business is down 40% per unit of production. We’ve shut down a third of our smokestacks, 47% of our effluent pipes, by basically obviating them through process changes.

Let me dig a little deeper here. Carbon intensity of the company is down by a third -- that’s the petrol-derived material in energy to produce a dollar of revenue. We’ve planted 45,000 trees to offset 68 million passenger-miles in commercial airplanes, and our North American carpet business, a $500 million business, will be climate-neutral by the end of this year.

Makower: So that’s the environmental leg of the stool. How about economic and, if you have any, on the social side?

We’ve actually gained market share in that decline and that has come about really because of better products and market support -- the goodwill of the marketplace based on what we’re doing.

Anderson: The economic leg, as I said is at the outset -- we wouldn’t be here if we hadn’t taken this direction. The marketplace in which we operate declined fully 30%, peak to trough, over a 5-year period, and it’s only just now bottoming out. Imagine if tax revenues dropped 30% -- what that would do to the United States of America? Imagine what it would do to a city to lose 30% of its revenue? Any company, to lose 30% of its revenue -- that’s exactly what has happened. We’ve actually gained market share in that decline and that has come about really because of better products and market support -- the goodwill of the marketplace based on what we’re doing. And better products have come about because our product design people have taken to biomimmicry in a big way and we’re getting products out of that part of development process that we never would have dreamed of.

Makower: Are those products in the marketplace?

Anderson: Absolutely. In our carpet tile business to date, I think probably close to 40% of sales are based on products derived from the biomimmicry thought process. There’s a whole family of products -- 29 or 30 products -- that constitutes close to 40% of our business today.

Makower: What aspect of biology are they mimicking?

Anderson:  Our product designer asked his design team to go into the forest, and spend a day and figure out nature’s designs principles. How would nature design a floor covering? And they spent a day and it finally dawned on them that you look at the forest floor and there are no two things alike. No two sticks, no two stones, no two leaves, no two anything alike. So you got this sort of chaotic  mix of diversity and you can pick up a rock here and drop it there and you can’t tell you’ve changed a thing. Pick up a limb here and drop it there and you can’t tell you changed a thing.

They came back to the studio and designed carpet tiles where the design in the face of the carpet tile, no two tiles were alike. We introduced that product -- we called it Entropy, for obvious reasons: disorder. And in a year and a half it became the bestselling product in our line, faster than any other product ever has.

Makower: Do you have a sense that that sales ramp was related to its environmental sustainability attributes?

Anderson: The unique design properties of the product. For example, you can pick up a tile and move it and you can’t tell that you’ve moved it. You can replace a damaged tile and you can’t tell you’ve changed a thing. Ordinarily, with carpet tiles you would see the sort of the sore-thumb effect when you move a tile or replace a tile. But with the Entropy-type product you can’t find the new tile in the field of existing tiles, which now enables you to actually rotate the tiles on the floor the way you would the tires on your car. And that extends the useful life of the product. Reduces the added stock requirements, the extras the user has to keep on hand for his replacement process.

The installers love it. They put it in very quickly with practically no waste, and the user ten years from now can order up the same product and not have to worry about a different dye lot. The dye lots are mergeable. You put them on the floor together and you can’t tell where one ends and the other begins.

This product has a huge functional advantage. We ask ourselves, is that the whole story? Just the functional advantage of the product? You probably know, is it Joanna Macey that filmed the speaking circuit and begins every speech asking her audience to close their eyes and visualize that perfect place where they can go and be secure and comfortable and creative? That perfect place. Then she lets them think about it and she asks, "How many of you were indoors?" Almost no one ever raises their hand. In other words, that perfect place for almost everybody is somewhere outdoors. We reasoned that maybe Entropy in a subliminal way brings outdoors indoors because it does create a different kind of ambience.

Makower: This is a classic case where a sustainable product succeeds not because its sustainable, but because its simply a better product.

Anderson: It’s a better product, and then you introduce recycled content, solar energy and all of those into the making of the product and you’ve got a reduced footprint at the same time you’ve got a better, more appealing product. And it also comes climate neutral.

Makower: Let’s go back a minute. You talked about how the sustainability commitment kept you going through tough times partly because of the support of the community?

Sustainability is now the brand for Interface. Everything is in a brand, and for a company there’s hardly anything more important than its reputation, which is all rolled up and contained in the brand.

Anderson: The goodwill of the marketplace. Sustainability is now the brand for Interface. What’s in a brand? Well, everything is in a brand, and for a company there’s hardly anything more important than its reputation, which is all rolled up and contained in the brand. And sustainability is now a brand and that’s recognized in the marketplace and there is a pre-disposition on the part of lots and lots of designers that deal with us because of that. People just want to do the right thing and they can figure out what it is.

Makower: So explain how that support from the community kept you going when things dropped 30%?

Anderson: We can probably point to at least 20% of our sales where we know we got the business because of the sustainability commitment. It might have been the recycled content, it might have been the fact that it is solar made, it could have been any one of a hundred different specific reasons, but all of those are under the umbrella of sustainability. I think there’s probably at least another 20% of the business that you cannot point to a specific reason other than this overall sort of goodwill. It’s what companies spend millions in advertising to create and for us its happening just because we’re doing this stuff. We’re doing it in a credible, measurable, and transparent way. You can go to our web site and find 400 pages of total transparency on what we’re doing and that translates into credibility and credibility translates into goodwill and support particularly from the interior design and architectural community.

Makower: What’s been your biggest frustration or disappointment in this journey?

Anderson: The fact that we’ve had to slog through six years of downturn in the industry. It all began for us in the third quarter in 1998 when corporations and governments and everybody around the world woke up to the fact that Y2K was coming, and we reckon $500 billion got spent worldwide on computers which of course contributed to the dot-com bubble, but it also took an awful lot of capital out of  carpets and furniture that might have been bought had people not been focused solely on their computers.

So it started with that, and then the dot-com collapse and then 9/11 and corporate confidence has been in the tank ever since. We’ve been dealing with that and the frustrating thing for me that is the world looking at Interface through its normal lens could not see the success that we were actually generating through sustainability. It was all obscured by the miserable financial conditions. We’ve gone from 8,500 people to 5,200 people and shut down 9 facilities around the world dealing with this marketplace decline of over 30%.

Makower: Let me take another stab at my question. That was interesting context, but I guess I was trying to look not at things that you couldn’t control, like the economy, but maybe some of the things you could control. The process within interface. What has been the biggest thing that you haven’t been able to do?

Anderson: The Evergreen Lease.

Makower: Yes, I was going to ask about that.

Anderson:  The Evergreen Lease hasn’t been embraced by the marketplace. There’s a lot of reasons for that and you live and learn. There’s a lot of institutional inertia. The typical corporation or governmental agency, the capital budget is controlled by one person, the operating budget by another. The Evergreen Lease requires that these people pool their resources. And getting the corporation or the government to do that has been incredibly difficult. Our salespeople give up and take the order the conventional way. It opens a lot of doors and starts the sales process in one direction and it ends up being culminated in another direction.

That’s not all bad, but it's still a disappointment that the lease itself hasn’t been accepted. There are even IRS impediments in the way that the IRS treats an operating lease, and all of the conditions that have to be satisfied for an operating lease. That’s proven to be an impediment. In fact, the economics are not yet in place because we don’t have the whole system built yet to make the lease really work.

The whole system is closing the loop on all the material flows. And those technologies are not yet all in place. One by one, we’re chipping away.

Makower: What’s the whole system?

Anderson: The whole system is closing the loop on all the material flows. And those technologies are not yet all in place. One by one, we’re chipping away. When we started, not one of them existed. But, one by one, they fall into place and eventually we’ll have the whole system in place, including the collection and return and disassembly and closing the loop on the individual components. Until that happens, the economics are not really fulfilled. As the price of oil goes up, it helps.

Makower: Do you see this happening anytime soon?

Anderson: Well, $50 oil is right around the corner and all of that makes the recycled content more valuable and it increases the incentive to hurry.

Makower: But it doesn’t sound like $50 oil is going to break through corporate inertia and IRS rules.

Anderson: We've got to get the technological piece completed and in place and prove the economics, and then the lease will prove itself. I think that when the economics are compelling you’ll break through the institutional inertia.

Makower: How about your ability to really push this and drive these concepts deep into corporate culture, deep into the line worker wherever she is located and really make this part of the fabric? It seems like very few companies have been able to crack that nut.

Anderson: I think we’ve probably done better than most anybody I know in that regard. It is in the DNA of Interface today -- sustainability is. If you walked onto our factory today, you could engage any employee at random and you would hear basically the same story of how proud they are of what they’re doing. What we’re doing and what they’re proud of. It’s like Maslow’s higher purpose and it really has a galvanizing effect. When Fortune magazine names a smallish Georgia-based carpet manufacturer as one of the 100 Best Companies in America to Work For two years in a row, you know something is going on. When we would ask Fortune what was it with our people, they said it’s sustainability and it's your commitment to training, and of course most of the training was all about sustainability. I think we have managed by hook or crook to drive it into the DNA of company, a lot of that has to do with being consistently on message: "This is where were going.".

Makower: If you look at everything you’ve done over the past years, and your inarguable levels of success, I’m struck by how few followers you have. I’m not talking about people who don’t believe you are an extraordinary individual, but I’m talking about corporations  that are doing this to the level that you are. In other words, if this is so great, why isn’t everybody doing it?

Anderson: If anybody’s looking at interface, they couldn’t tell it was good from our financial results -- which is what I was saying earlier -- that the marketplace, the financial situation within our industry, has obscured the real progress that we’ve made. But as we come out of this mess that we’ve been in, and it is recovering finally, the evidence is going to be there, clear and apparent for anybody that cares to look. It’s a better way to make a better product.

Makower: You’ve made well over 1,000 speeches in the last ten years, or maybe 2,000.

Anderson: Not that many, maybe about 80 a year maybe for 9 years.

Makower: OK, so it’s only 700 or 800 speeches, all over the world, talking to not just the choir, but the congregation: The Business Roundtable, The Conference Board -- you know where you have been. You’ve been profiled and written about and talked about and the buzz has been there and you’ve been out telling the story, including the story about how sustainability carried you through tough times. I’m still struck by the fact that how relatively few others have embraced this level of commitment. I was just wondering what your observations are.

Anderson: I am amazed and I think that if I had to try and put my finger on it, I would say that if the CEO doesn’t take the lead it won’t happen. Nike for all their good efforts, are just moderately successful because Phil Knight just doesn’t get it.

The average CEO tenure is maybe ten years and long-range planning is maybe five years and there is very little sense of legacy in that CEO who’s hired to maximize shareholder value and then be on his way.

You think about why is one CEO different from other? You realize that there are three basic types of CEOs: There are the those who have founded their companies, there are those who inherited their companies and there are those who are hired to run their companies, and far and away the preponderance is that third category -- CEOs hired to run the company. And the average tenure is maybe ten years and long-range planning is maybe five years and there is very little sense of legacy in that CEO who’s hired to maximize shareholder value and then be on his way.

I think it's probably among founders and sometimes inheritors that this sense of legacy is really important as it is for me: I’m a founder. And that’s part of the reason it is such a different paradigm. The CEO with his nose to grindstone, a limited horizon, a short range planning horizon, is just not going to go through the trouble; this is hard stuff. And until the marketplace pulls it through it's just not going to happen. That’s one of the uniquenesses about Interface: We’re in a marketplace that has accepted and even demanded what we are doing. It was the interior designers and architects who were asking us ten years ago, "What’s your company doing for the environment?" That’s what set us on this path of trying to get answers to that question. So, for us, we have a receptive market, even a demanding marketplace, we've got a CEO that gets it, and we've got good people who figured it out.

Makower: So where does that leave everyone else?

Anderson: If they want a model, all they have to do is look to us, but they look to us and they see financial results in the tank and that’s not a very appealing, attractive sight.

Makower: Right, but looking to Interface is one thing, replicating it is another. How do we move the needle forward?

Anderson: By demonstrating success in all three dimensions: environmental, social and economic. And bringing those three bottom lines together in one superior economic bottom line and demonstrating that it’s a better way to make a bigger profit. I really believe that will happen at Interface as the market recovers -- that the three bottom lines will come together in one very superior bottom line. Now that’s a forward-looking statement, with all the appropriate legal caveats. My legal people would have heartburn if they read that without the caveats in there. I really believe that and it's going to happen, and it’s going to happen right here.

Makower: When will you know you’re successful?

Anderson: We already know. Without question. There’s never been one thought of turning back through all the six years of crap we’ve been dealing with. Shutting down plants, turning people loose, fighting red ink. Never been one thought. We had five years of real success and that convinced it was real, and then we had the 30% decline.

Makower: A lot of companies argue that the companies aren’t more profitable because they’re being sustainable, that they can afford to do the sustainability thing because they’re more profitable. Have you disproven that?

Our cost has gone down, not up, because of sustainability. The waste-elimination effort alone has saved us at least $231 million.

Anderson: Yes. Our cost has gone down, not up, because of sustainability. The waste-elimination effort alone has saved us at least $231 million. I guess it's more than that -- that was at the end of 1993. Close to $250 million over this nine-plus years, and that more than paid for all the rest -- the R&D, capital investments, process changes and everything that we’ve done on the other six faces of sustainability. All of that has more than been paid for on the waste savings alone.

So we have made money from Day One in terms of  driving down costs. And you couple that with products that are better than they’ve ever been and the goodwill of the marketplace, and the growing demand for environmentally responsible products -- the USGBC in its LEED codification process is proof positive of that, that the demand is increasing -- and you’ve got a lot of good things working.

Makower: So it sounds like after ten years of keeping at this, that the world is finally catching up with you, that the time maybe has come.

Anderson: In the fullness of time. I think that’s in the Bible.

Makower: What’s next? What’s keeping you excited these days?

Anderson: What excites me is the thing that you’ve been grasping for here: the fact that the marketplace is really waking up. The green building movement is phenomenal and I know you’re keeping up with that. The LEED registration is being filed in exponentially growing numbers and that’s just a reflection of what’s happening in the marketplace in a larger sense.

The power is with the people, and when the people say "This is what we want," you’ll have corporate America and the corporate world wake up. We are being asked by more and more companies, "How are you doing this?" That’s good news because not only are they interested in doing it for themselves, they become customers and that’s our marketplace -- the corporate world. The educational community, higher education in particular, gets it, and a big part of the green building movement is concentrated in higher education and in government in general. The Agenda 21 coming out of Rio said from the beginning that it would happen at the municipal level before it happened at the national level for the United States, and it’s true. So we’re just salivating here to get this marketplace to hurry up and recover in an overall sense because we will emerge with a bigger share, without a doubt.

Makower: Thank God you’ve got waterproof carpet with all that salivating going on! It’s great to hear the story and to hear that you’re still excited by all this.

Anderson: If you check our stock price it’s gone from 22 to 2. That’s the bad news, but its back to 8 now, that’s the good news.

Makower: And heading north?

Anderson: Heading north we think -- with all the appropriate legal caveats.

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