May 12, 2002
Eli Broad Shares His Philosophy of Business and Leadership With the Anderson Community
May 12, 2002 — Just hours before receiving The Anderson School's 2002 Exemplary Leadership in Management (ELM) Award, Eli Broad took time out and met with a group of MBA students, faculty and staff to share some of his business wisdom and experience. Broad discussed his career and life highlights, discussing some important traits that UCLA Anderson stresses with students: entrepreneurship, leadership and community responsibility.
Bringing his experience home to the students, Broad said that he started in college as a pre-law major, but quickly decided that he did not want to be in school for six years. Switching to accounting, he graduated from Michigan State University and became a certified public accountant earning $67.40 a week. Two years later, Broad decided to leave the security of a steady paycheck to become an entrepreneur.
He hasn't looked back.
With a loan of $25,000 from his father-in-law, Broad started what is today KB Home (formerly Kaufman and Broad Home Corporation), one of the largest home builders in America. He challenged conventional wisdom about home building at the time.
"The status quo said that you couldn't build houses without a basement," said Broad. However, Broad did just that, and in the process sold homes for less than his competitors. Broad was aiming to build affordable homes for first-time buyers. He started his home building business in Dayton, Ohio and quickly expanded to locales around the country, including Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. Broad was the first home builder to erect townhouses in Huntington Beach, Calif., again targeting apartment dwellers looking for their piece of the American dream - which back then started at $8,990. Like many entrepreneurs, Broad also sought to expand beyond the borders of the United States and found much success in the Republic of France, where KB Home France is the largest home builder in that country.
KB Home has enjoyed many significant milestones:
First homebuilder to go public (some 40 years ago)
First homebuilder to be listed on the New York Stock Exchange (NYSE: KBH)
First homebuilder to get unsecured credit
First homebuilder to issue commercial paper
First homebuilder to offer consumer financing
Asked how he's been so successful, Broad said, "We're doing well by doing good." That has been his philosophy in creating a home building business. His aim was to create attractive and affordable homes designed for entry-level and first-time trade-up home buyers. And he's more than succeeded in that venture - which left him and his entrepreneurial nature eager for a greater challenge.
In 1974, Broad diversified. He looked at a variety of industries and researched how well they performed during the Great Depression. He found that insurance did well back then and decided to pursue opportunities in this industry. He bought Sun Life Insurance Company of America. However, Broad was not content with just selling insurance. He looked at the families moving into the homes he was building and saw that they had another unfulfilled need: retirement planning. He changed the company know today as SunAmerica into a retirement specialist, with the aim of helping individuals better manage their retirement savings. He introduced a generation of individuals to annuities, and over time, SunAmerica began to offer a variety of other financial products and services to customers, including mutual funds, investment counseling and retirement trust services.
SunAmerica was the fastest growing stock on the NYSE from 1990 to 1998. Adjusted for splits, the stock's value grew more than 10,000 percent during that nine-year period. In December 1998, Broad agreed to merge the company with American International Group (AIG) in a transaction valued at $18.5 billion in AIG stock.
After achieving significant success in his business ventures, Broad wanted to do more for the community and world in which he lived. He talked to students about his current pursuits as a "venture philanthropist." Broad explained that he believes in social investing, in which he makes a commitment to undertake social projects that involve some risk that the government isn't willing to take.
One major commitment that Broad and his wife Edy have made is to K-12 education. In 1999, the Broads founded The Broad Foundation with a mission of dramatically improving public education by improving governance, management and labor relations in the nation's largest urban school systems. With an initial commitment of $100 million, the Broads have since raised their pledge to $400 million.
Regarding his commitment to public education, Broad said, "The gap between poor and middle class is growing and that's not good for society or the economy." He went on to say that education could help narrow that gap. Broad also noted that there are no "silver bullets" with regard to solving the public education system in America.
"Human capital is the greatest investment one can make. I believe in investing in the future." And for Broad, that means investing in the lives of multitudes of children who are in public schools.
The Broad Foundation has created numerous programs that are proactively reaching out to school administrators with training programs. Broad explained that most school principals and superintendents start as teachers and rise through the ranks - typically without management training. Broad also seeks to create opportunities for business executives and military officers to become school administrators, citing their ability to come into the job with the skills necessary to manage and lead the large public school systems.
Broad commented that he's really "creating a new model for governance in non-profits." This model is based on solid management and leadership skills. He noted that Andrea Rich, president and director of the Los Angeles County Museum of Art (LACMA), made the switch to that position without a background in art, but with solid management skills. Rich was executive vice chancellor at UCLA when Broad, a member of the executive committee of LACMA, approached her about the opportunity.
Broad also discussed his avid support of the arts. He and his family are collectors of modern and contemporary art and have amassed several hundred pieces of artwork primarily from the last quarter of the 20th century (and now into the 21st century) that they lend to museums around the world. The Broads helped establish Los Angeles' Museum of Contemporary Art (MOCA) because they saw the need for such a facility in a city that has a large number of contemporary artists.
Another significant area of focus for Broad is his commitment to turn Grand Avenue in downtown Los Angeles into what he envisions as the "cultural and civic center of this region." He revived the effort to construct the Walt Disney Concert Hall at The Music Center of Los Angeles County by spearheading a fund-raising campaign. He also led the successful bipartisan effort to bring the Democratic National Convention to Los Angeles in 2000.
Broad is also interested in creating a major biomedical research facility on county land between Boyle Heights and downtown Los Angeles. He cites the need for such a facility as he watches countless individuals leave the Los Angeles region for other parts of California to launch their biomedical business ventures.
Though he is now 68 years old, Broad has no plans to slow down. Broad said, "I tried retirement once — about 31 years ago — and it just didn't work for me. I could not sit around and watch the status quo. I like to work.