Truett turned eighty years old in March 2001 and requested that his birthday party at the home office be catered by the Varsity drive-in. The Varsity is still an institution in Atlanta, serving thousands of customers every day. Its founder, Frank Gordy, was a marketplace disruptor in 1928, creating a drive-in restaurant just as Atlanta was becoming an automobile-centric city.
Imagine . . . the founder of a fast-food restaurant chain filling the home office with the sights, smells, and tastes of a competing brand. Chick-fil-A employees and invited guests chowed down on chili dogs and fries instead of Truett’s own creation.
Truett had lived in a nearby housing project as a teenager in the 1930s, and he often walked over to the Varsity, where Mr. Gordy might be in the parking lot directing traffic or inside the restaurant in front of the counter, greeting customers. Decades later, Truett would reference Mr. Gordy’s attention to customers as a model for him and Chick-fil-A. The Cathy and Gordy families became friends.
One morning shortly after his eightieth birthday celebration, Truett joined our executive committee meeting. At that point in his career, Truett was less involved in the day-to-day operations, spending more of his time with the activities of the WinShape Foundation. And on that particular morning, we were already well into the meeting when he stepped into the room and took his place at the head of the table.
Jimmy, who presided over the meetings, asked, “Truett, do you have anything on your mind?”
“Yes,” he said. “I’ve decided that somebody who is eighty years old shouldn’t have almost $250 million in debt.”
We all chuckled and waited for Truett to tell us what was really on his mind. “No,” he said, “I’m serious. I want to know how you’re going to get me out of debt.”
Now, I’m not a finance professional, but the executive committee spent enough time reviewing numbers over the years for me to know that a healthy, growing company whose debt equals less than a quarter of the previous year’s sales would be considered a very conservative borrower. Yes, the absolute number sounded huge, but we had more than a thousand restaurants in 2001. We were building and opening fifty to sixty new restaurants every year. That alone required more than $150 million annually. And when we utilized debt, it was only for land and building shells—appreciating assets. As a result, we were still using predominantly cash flow to grow.
None of that was a comfort to Truett. A child of the Depression, to him any debt was a burden. Nineteen years earlier, in 1982, as I have written, we faced a financial crisis that had Truett concerned for the future of the company. And through the years he had often said he could handle any problem except a financial problem. But this was not a problem, and certainly not a crisis.
The Fed Funds Rate had already dropped a point and a half in three months and by the end of 2001 would fall from 6 percent all the way to 1.75 percent. In other words, money was cheaper than at any time in the history of the company. The traditional thinkers then and now would insist that we take advantage of the opportunity to borrow more, not less. With such low interest rates, we could open more stores faster.
Truett was suggesting instead that we finance growth and simultaneously eliminate debt using only cash flow. And he made it clear that this would be one of those few times—I can count all of them on one hand—that he would use his majority vote of one as owner of the company. There was no need for a show of hands.
Buck McCabe, our CFO, and his team went to work on the numbers, and at our next meeting he reported that we could eliminate debt over two or three time-frame scenarios. The greatest impact would be to limit the number of new restaurants we would be able to open.
Truett said the time frames were too long. “I’d like to be alive when we’re out of debt,” he said.
So Buck and his team sharpened their pencils and came back with a new proposal to eliminate all debt within ten years. But it would cost Chick-fil-A significantly in terms of growth. He had earlier projected that we would reach $5 billion in sales with normal growth and borrowing over that period. If we ceased additional borrowing and eliminated all debt, we would likely reach $3.5 billion in gross sales over the same ten years.
That was fine with Truett.
Year by year the wisdom of Truett’s decision grew clearer. Eliminating debt and relying on profits and cash flow for growth made us less likely to outgrow our infrastructure. It’s not uncommon for a fast-growing company to borrow money or sell stock, and then two or three years later be in trouble because it grew faster than its infrastructure could support. The company may lack appropriate technology or enough of the right people or adequate systems to maintain quality control. With an influx of cash from borrowing or stock sales, it can ramp up growth and then lose control of the brand because of its inability to support that growth. In our industry, Boston Market and D’Lites had already provided lessons for us.
Truett also understood that without debt, he had more flexibility to invest in the business or to give it away. He always wanted to be flexible when an unexpected opportunity presented itself or if the Holy Spirit led him to invest in a particular ministry. Debt limited that flexibility. This principle is a key component of stewardship. Truett could not be a good steward of all that God had entrusted to him if a bank controlled a portion of it, because it still had to be paid back.
In 2011, Truett would tell the Atlanta Journal-Constitution, “In the Great Depression, you bought something if you had the cash to buy it. We are just about debt-free right now, stretching that dollar as far as it will go. If you have debt, you have to worry about it. I would challenge each of you to try to be debt-free.”
And in 2012, Dan Cathy announced at the annual Chick-fil-A Operator seminar that the company had achieved its goal and was debt-free. Even the line of credit had been eliminated.
Transitioning to a New Leadership Model
For several years, the executive committee prepared for Jimmy Collins’s retirement as president in 2001. Dan Cathy would become president. In that time of preparation, we transitioned at Dan’s urging from a model of a single leader to a peer-group accountability team. We planned together, budgeted together, and discussed most significant issues in the business or the culture of the business together. If we could not reach consensus, we thought about it and prayed about it until we could reach an agreement. If someone ultimately had to make a decision, Dan did that. And though Dan was president and chief operating officer, Truett remained the chairman and chief executive officer of Chick-fil-A.
I absorbed the role of facilitating strategic planning for the company from Jimmy, working with the entire executive committee on key planning decisions. My role was to make sure the strategic plan incorporated all the major initiatives from every department that helped us fulfill our purpose and goals. At the right point, the executive committee heard the entire plan and budget, weighed in on it, and then approved it. This revised executive committee team structure and process remained in place until Truett’s passing (2014), at which point, Dan Cathy became CEO and built the team to complement his leadership style and goals.