June 27, 2020 / VOLUME NO. 111
The Importance of Blue Notebooks
David Cote’s tenure as CEO of the industrial conglomerate Honeywell International, from 2002 until March 2017, demonstrates the dividends that can come from time spent indulging one’s intellectual curiosity.

He regularly devoted two or three days a month entirely to thinking freely about the business, and would jot down the ideas and questions these sessions gave rise to in a blue notebook.

That intellectual rigor, combined with a willingness to explore ideas from outside his industry, helped Cote proactively react to the 2008-09 financial crisis, an experience he shares in his book Winning Now, Winning Later: How Companies Can Win in the Short Term While Investing for the Long Term.

Cote spent the years leading up to the recession turning Honeywell around, fixing its accounting issues, long-standing environmental and safety problems, and rebuilding its culture, which was in shambles following previous acquisitions. Strategic decisions were weighed based on both their short-term and long-term impacts on the company.

And Cote kept his ear to the ground to spot the warning signs of a downturn. Despite stakeholders’ belief that Honeywell would be insulated from the recession, Cote took early action — selling a business line and using the $623 million gain to consolidate operations in preparation for a tougher environment.

That restructuring, along with conservative assumptions about the company’s sales for the 2009 fiscal year, helped Honeywell increase earnings that year.

Cote also wanted to ensure Honeywell would be positioned to take advantage of opportunities as the downturn abated. Costs weren’t cut at the expense of customers, which kept them satisfied. Employees were furloughed — rather than let go — to keep talent inside the organization. And the company continued building supplier relationships so it could pivot quickly when the recovery came.

Along the way, Cote communicated frankly with Honeywell’s investors, board and employees.

Cote wrote a post-mortem analysis of his company’s response to the recession that spanned nine pages, so his successors could learn from his experience.

“Wise leaders are always preparing for the next recession,” he writes in his book, “even if they don’t realize it.”

Emily McCormick  / vice president of research for Bank Director
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