Graziadio School of Business and Management Pepperdine University Commencement Address By Eli Broad

April 14, 2007

Chancellor Runnels, Chairman Biggers, President Benton, Dean Livingstone, members of the Board of Regents, faculty and administrators of this great school, thank you for this great honor. I would like to invite all of you, as well as the family and friends of the graduates, to listen to my remarks. But please be forewarned that they are not addressed to you. They are directed at the real honorees today – the members of the Graziadio graduating class of 2007.

Back in 1954, I was in much the same situation as you. To be sure, that was half a century ago and half a continent away at Michigan State, where the view of the Red Cedar River doesn’t quite compare to Pepperdine’s view of its local body of water. But like you, I was wearing a robe and a funny hat and was eager to get on with my life . . . however, first I had to listen to some gray-haired fellow give a commencement address.

I hope the similarities end there . . . because the gray-haired guy made no impression and I can’t recall a thing he said.

In the hope that at least some of you might remember my words today, I intend to make public, for the first time in my career, all of my secrets of success. So I can be reasonably sure of keeping your attention throughout my remarks, I will save them for the end.

The fact is that, even without knowing my secrets of success, you are well on your way.

You have just attended an outstanding business school, named in honor of my late friend George Graziadio. Indeed, you now have more formal training than George or I had. George wasn’t even able to finish college. But both of us did OK in business, so imagine what all of you will be capable of!

I received an accounting degree and became the youngest CPA in Michigan history. That was the last reasonable thing I did.

After two years, I was bored . . . and less than thrilled with the $67.40 I took home each week after taxes. So, I began the unreasonable phase of my career, a phase I still seem to be in.

Given how unreasonable my career has been, you can imagine how pleased I was when I came across this quote by George Bernard Shaw. He said, “The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”

I would like to share with you some highlights of my unreasonable journey since leaving that accounting firm. While I am proud of a number of accomplishments, there are real costs to being unreasonable. Long hours. Too little time with family. A near incapacity for, as they say, stopping and smelling the roses.

As you can see, I have a Type A personality, but I suspect this is something else I share with many of you in the graduating class. Yes, I see a lot of nodding mortar boards out there!

Well, I may be a highly organized Type A, but this does not mean my life has been highly organized. When I graduated, I saw no further than my two-year accounting career. Throughout my life, I have set goals of two-to-five years, not 20-to-50.

I hope this is somewhat reassuring to many of you as you set out with your degree into the great unknown. Welcome to the two-to-five-year club. The only requirement for membership is a willingness to be flexible, to seize opportunities as they appear and to cut losses when you find your journey has led to a momentary dead end.

For me, the accounting job was a dead end. I found myself working for clients who were making a lot more money than me but didn’t seem particularly smart. I have sometimes wondered what might have happened if that first job had paid more than $67.40. Fortunately, it didn’t and, at the age of 23, I partnered with one of my really smart clients, Don Kaufman, and went into the home building business.

We had a plan to differentiate our business. Quite simply, at a time when all the other builders were selling homes with basements but without carports, we would sell homes without basements and with carports. This allowed us to provide a more appealing product at a lower price. In other words, we felt we would be giving customers greater value.

We priced our homes at $13,740, which meant for many people the mortgage payments would be lower than their current rent. They went on sale in January 1957, and the first weekend we sold out. We continued to adapt our business model to differentiate our product and stay in the lead. We went on to be the first homebuilder to be listed on the American Stock Exchange and then on the New York Stock Exchange.

The reason I tell you all this has nothing to do with homebuilding. It has to do with the lessons the experience taught me – lessons that can be applied to any endeavor.

First of all, be informed. There is no substitute for knowledge. To this day, I read three newspapers a day. It is impossible to read a paper without being exposed to ideas. And ideas – more than money – are the real currency for success. I became as informed as much as possible about the home-building industry and eventually came up with the idea of doing away with basements, which was instrumental in our initial success.

The second lesson I learned was to ignore the conventional wisdom. Indeed, it is often pretty sensible to do the opposite, since the conventional wisdom tends to be quite unwise. The examples are everywhere. For millennia, the conventional wisdom held that the earth was flat. At the end of the 19th century, the conventional wisdom regarding technology was reflected in this statement by no less an authority than the director of the U.S. Patent Office, who said in 1899, and I quote, “Everything that can be invented, has been invented.” -unquote- If you want more contemporary examples, look no further than the stock market pundits who are nearly always wrong . . . or the WMD that our nation’s best and brightest were certain would be found in the deserts of Iraq. Well, in the construction industry of the 1950s, it was an accepted truth that homes needed basements, even though they were developed in an era of coal-fired heat, which was long gone. With some trepidation, we ignored this conventional wisdom and reaped the rewards.

Which brings me to the third life lesson of my plunge into home building: Risks aren’t so risky. Sure, Don and I were taking a risk. There was no guarantee people would buy basement-less homes. But if we failed, would that be the end of the world? No. I could always go back to accounting. On the other hand, what were the risks of not doing it? For me, there was a certain risk – remaining in a job that was no longer satisfying. And there was another, less tangible but very real risk – the risk of regret. Don and I had what we thought was a great business model. It meant going into debt, it meant challenging the status quo and it meant long hours with no certainty of reward. But if we didn’t do it, we would spend the rest of our lives wondering what would have happened if we had. So, I learned to embrace risk, as long as it was well thought out and, in a worst-case scenario, I’d still land on my feet. I applied these three lessons to our next major unreasonable venture – the acquisition of Sun Life Insurance Company of America. By this time, KB Home had become enormously successful and the reasonable thing would have been to continue focusing on homebuilding. But, we were very aware that this industry was particularly vulnerable to economic cycles and decided to diversify into a totally unrelated area.

So, we implemented lesson number one and became informed, gaining as much knowledge as possible about all of our options. We looked at the ultimate worst case scenario – the Great Depression of the 1930s – and found there was one industry that survived in pretty good shape: life insurance.

This led us to acquire Sun Life Insurance Company of America in 1971, after which we moved on to lesson number two – ignore the conventional wisdom. Since 1890, Sun Life had provided death benefits. Well, just as we thought consumers were more interested in carports than basements, we thought they wanted money for retirement more than they wanted it after they were dead. So, we divested the mortality-based business, renamed the company SunAmerica and moved into retirement planning, providing annuities, mutual funds, guaranteed investment contracts and financial planning services. This resulted in SunAmerica becoming the best performing stock on the New York Stock Exchange for more than a decade.

As you can imagine, this experience served to deepen my appreciation of taking intelligent risks. Not long after we acquired Sun Life, the economy was hit by the oil embargo of 1973 and went into a deep recession followed by what came to be known as “stagflation.” Because we had taken the risk of diversifying into a completely different business, we were able to weather the adversity of the overall economy.

As these examples should demonstrate, the three life lessons of valuing knowledge, disdaining conventional wisdom and embracing risk have served me well. But along the way, I have learned a few others:

Tolerate failure. No one bats a thousand. At one point, we owned 15 percent of TCI – Tele-Communications Inc. – a cable company now owned by Comcast. We divested this holding when we should have kept it. As a result, we missed the giant boom in the cable industry. Accept that you won’t always get it right. But remember that failure is only failure if you don’t learn from it.

Utilize technology. At SunAmerica, we were the first in the industry to use optical imaging and artificial intelligence. I am no technologist and cannot explain how most of these things work. But I don’t need to. I only need to understand how technology can provide a competitive advantage . . . and then make the most of it.

To lead is often to not be loved. A leader works with people for the purpose of getting things done, not for adulation. So, be prepared not to be loved. But if you’re right much more often than you’re wrong, you will earn people’s respect.

Be the best mover, not the first mover. The “first mover advantage” is not an absolute. It is often better to let someone else go first and see how many arrows they get in their back. We were not the first American builder to go into France, but we were the first one to be successful.

Avoid shortcuts. As you travel forth from this beautiful place, shortcuts will tempt you as quick ways to where you want to go. Don’t take them. Opportunities that seem too good to be true almost always are. The long road of hard and thorough work is the most dependable route to your destination.

In 1999, my long road in the business world came to an end when we merged SunAmerica into AIG for $18 billion.So I decided it was time to start a new chapter by devoting all of my time to The Broad Foundations, which are guided by a four-part mission: To transform K-12 urban public education, to make significant contributions to scientific and medical research, to foster public appreciation of contemporary art and to provide leadership for major civic projects in Los Angeles. Each one of these goals is ambitious – some would say, unreasonably so.

But we are achieving real and rewarding results. I believe this is largely because we are applying the same lessons I learned in the business world to foundation work. I call our approach “venture philanthropy.” I find I am working harder than ever and am as energized about the future as I was back on my graduation day in 1954.

In the intervening 53 years, the world has changed dramatically. The Internet, multiculturalism, the progress after the Cold War’s end and anguish over the rise of terrorism. But no matter how much the world has changed over the past five decades, the lessons I’ve learned have proved consistently valuable. And, I am confident, during the next five decades – your decades – they will be valuable as well.

And so, as promised, I will now reveal my secrets of success:

Set two-to-five year goals, be informed, ignore conventional wisdom, take intelligent risks, tolerate failure, embrace technology, be a leader, be best not always first, avoid shortcuts and, by all means, at some points in your life, be unreasonable.

Finally, here’s the biggest secret of all: There are no secrets. Everything I’ve told you is common sense. This doesn’t mean it’s easy. But it is all doable and success can be yours.

Just first, be clear of your own definition of success. After two years, I discovered that mine did not include being an accountant. Fortunately, there are thousands of contented accountants out there with a different personal world view.

To help you formulate your own definition of success, take a moment to listen to George Graziadio’s. He put it this way, -quote- “To me, success is not the destination or the goal. It’s the journey you take and what you learn along the way that are important.”

Or, to quote another sage philosopher – Dolly Parton, “Find out who you are and do it on purpose.”

That’s really all you need to know. No secret about it!

Thank you very much.