By Al Wahnon
Three basic instincts have driven Bob Shaw to the top of his game and kept him ahead of the pack in his relentless pursuit of success: a profound understanding of consumer needs, the realization that he must be a low cost producer, and a rapid and rational response to competition, which he says really motivates him. He also has the unfailing ability to put the right people in the right jobs to maximize their talents and increase their value to the company, which he sees through a larger prism. “We look at Shaw Industries not as a carpet company anymore; we look at it as a floor covering company. But we’ll quickly tell you our core business is soft floor coverings,” he said.

“Quite frankly, I think if you’re building an organization, you don’t have to limit yourself to floor coverings. I think the synergies you have in business can be multi-purpose. I always think of a room as being a cube and though today we’re only involved with the floor of the cube, we’ve got walls and we’ve got ceilings and we’ve got windows and we’ve got doors and we’ve got paint. We’ve got all kinds of things that bring a room together and there’s got to be some synergy there somewhere.” He knows something about building an organization. He parlayed a small dye house operation into a nearly $6 billion diversified floor covering empire.

His career in the industry is textbook. He joined the family business in 1958 as CEO, expanded it and renamed it Star Finishing in 1968, and in 1971 he launched Shaw Industries with his brother J.C. (Bud) Shaw. In the ensuing 35 years, he set the standard for the carpet industry and became the heartbeat of the manufacturing community. He knows the carpet business and readily shares his thoughts and prognostications. “I don’t think the carpet industry has totally matured yet. You must understand, we’ve been through almost 14 years without a deep recession; since 1992, it’s almost been up and out. Remember, when businesses get into trouble, it’s not on the down swing, it is when they are trying to recover and they don’t have the capital to do so. And I also think there will be a continuation of acquisitions in the soft floor covering business, which is really capital intensive.”

Will that continuation include Shaw Industries, will you be looking for acquisitions? “I’ll tell you, we’re constantly looking for acquisitions that fit, first of all, our culture. I think that’s very important, meaning those folks we partnered with, like a Julian Saul, they think as we do, their integrity is the same as ours, and so on. I think that’s the number one thing, because I don’t believe you can do business with or get business from somebody where you don’t have the same integrity or share the same culture. Then, number two, I think there has to be a willing seller before you can have a willing buyer.”

So, acquisitions are on the Shaw agenda, where the fit is right, of course. And he added, “My own personal opinion, I think in the floor covering industry there have been fairly high prices paid for the sales dollars of some of the companies that have been bought in the last two, three, four years. That’s just my opinion.” He went on to describe his acquisitions in the past six or seven years as “backward integration” and explained, “We bought Honeywell and a division of Dixie, which was its manufactured home business. Then we bought extrusion from Beaulieu. And all of this is to make sure that you are the low cost producer in your core business. I am a great believer that you take care of your core business before you enter into other areas.”

I mentioned that Warren Buffett, the head of Berkshire Hathaway, the fabled investment firm that is the parent company of Shaw Industries, recently acquired some paint companies, and before I could frame a question, Shaw pre-empted me. “I’ll tell you before you go there—there will be no consolidation, because that’s the way Warren is. When he buys a company, he lets the people there run the company. So there will not be any consolidation of existing companies.”

What about the synergies we spoke of earlier, home furnishings, home refurbishing? “There is pretty good synergy there. He owns the largest maker of manufactured homes and he’s far from being our biggest customer,” he chuckled. “It’s Clayton Homes, by far the biggest in manufactured homes. But Warren believes, without question, number one—he buys a company for the duration, meaning he looks at a very simple thing: What is your return on capital. If you can return more on capital than somebody else can, you get more of the capital. It works very well for him. And he bets on people, I can tell you that. He pretty well checks you out before he goes in business with you.”

The prelude to going into business with Warren Buffett is the decision to sell Shaw Industries. How did that come about? “Actually, it was Julian and I. He had a variant interest in his family situation and I had a variant interest really in not just one generation, but two generations—my brother and my sister, who had a high concentration of their net worth in Shaw. Now, during that period of time—that was six years ago, we sold the company in 2000—you could look at a public company and the multiples were not very good, they would give you something in the 12- to 13-times multiple on its stock. Then, there were organizers who were selling stock, or trying to diversify their portfolio, but they would be penalized on Wall Street—not because they weren’t performing, but because they would call it insider trading. Being a public company is not all it’s cracked up to be. Quite frankly, it’s a very difficult thing to satisfy Wall Street, satisfy what they would like you to do, and make a five-year plan of what you should be doing.”

The decision made, did you go to Warren Buffett or did he find you? “It’s a very simple thing. I looked around the whole world and said who would I want to be a partner with, and I chose Warren Buffet. Now, he didn’t choose me, but once we got together it was fine. And remember, Julian and I took Berkshire Hathaway stock; we didn’t take any cash. We kept our Shaw stock and a couple of years later we traded it in for Berkshire Hathaway stock. All that says is, I wanted to make sure Mr. Buffett knew I was his partner—I wasn’t anything but his partner, he just happened to own more than I did,” he concluded with a smile.

Having set the mood, I asked if the lucrative sale of Shaw helped Julian recover from the Maxim fiasco, a bankruptcy in which Saul inadvertently lost millions of dollars. “You know, we owned Maxim and we traded Maxim in and Julian took part of that in the transaction [for Queen Carpet]. We will not have to have a benefit for my good friend Julian Saul,” he said with an affectionate laugh. “He’s OK. I think a Care package is not necessary for Julian, a great friend of mine. By the way, we started doing business with Queen back at Star Dye Co., when we dyed their scatter rugs and we rented them half of the building on Hamilton Street so they could ship their rugs out of there, because they didn’t have any shipping area. So the Shaws and the Sauls go way back.” The only thing that goes back with Bob Shaw is relationships. Everything else goes forward.