The 1 A.M. Meeting That Turned Prologis Around

With over 500M SF of warehouse space worldwide, Prologis reigns as the indisputable king of industrial real estate. But in late 2008, as the financial crisis set in, the company was in dire straits.

Prologis’ stock price, which had peaked at just over $70 in May, had plummeted to just $2 per share in November, making the company the third-worst-performing member of the S&P 500. Though it held a massive portfolio of properties, Prologis was on the edge of bankruptcy. 

It was in this environment that Walt Rakowich was called in to become the company’s CEO. Rakowich, who had served for 10 years as Prologis’ chief operating officer and chief financial officer, had resigned in the spring, when tensions in the senior leadership were trickling through the rest of the company. Now, his job was to turn the company around. At the headquarters in Denver, his team began to work deep into the night.

There was one meeting, Rakowich recalled on this week’s Walker & Dunlop Walker Webcast, where it felt as though things were coming apart.

“There were about 10 or 12 people in the room, and it was around 1 in the morning,” Rakowich said. “One of our most trusted financial advisers was explaining that we were likely going to blow the covenants on $6B in bonds by the next quarter. It was the first time that I had heard my colleagues start using the word ‘bankruptcy.’”

Rakowich asked the group if he could take a minute to clear his mind and walked out of the room through the darkened office. As his head began to spin, he raced toward a chair at the end of a hallway. He managed to slump into the chair as he fainted, but not before smashing his head on a desk nearby.

Rakowich woke up 10 minutes later, blood dripping from a cut on his head, and realized with shock that his colleagues were still waiting for him. After cleaning himself up briefly in a restroom, he returned to the meeting. 

“I walked back in and said, ‘Let’s talk about bankruptcy,’” Rakowich said. “My CFO said, ‘Let’s talk about the huge lump on your head.” 

At that moment, Rakowich decided to lay everything on the table. 

“I told them that they had brought me back to run the company because they thought I would have all the answers, but I had absolutely no idea what to do,” Rakowich said. “After I had been vulnerable and let my guard down, real communication started to happen and we started to band together to solve our problems.”

The meeting is the moment that Rakowich credits with beginning to turn Prologis around financially. But for the new CEO, it also served as a personal watershed moment. He wanted to leave behind the “hubristic pride and narcissism” that had led Prologis’ former leaders to overextend and overleverage the company and begin leading with humility and transparency. 

That approach was put to the test a few weeks later as Rakowich and his CFO put together a presentation for all of Prologis’ employees that laid bare the company’s bleak financial situation. Prologis would be laying off around a third of the company’s staff. Typically, he said, public companies keep employees in the dark about layoffs until it has been decided which employees will stay on and which are losing their jobs. But even without a clear plan of who would be getting laid off, Rakowich wanted to be as upfront as possible with his employees.

The results surprised him. Rakowich told Walker & Dunlop CEO Willy Walker that rather than experiencing a sudden drop in morale and productivity, Prologis’ employees seemed to come together in pursuit of saving the company. Rakowich said that many of the employees he laid off rejoined Prologis a few years later as markets stabilized and the company began the buying streak that would make it the largest owner of industrial real estate in the world. 

“Executives fear telling their employees bad news, but employees usually already know it’s coming,” Rakowich said. “If you can handle it in a dignified way, employees will often give you positive accolades for doing something courageous and difficult that you think is right.”

Though he left Prologis in 2012, Rakowich serves on the boards of several publicly traded companies and has continued to document the growing push for transparency and honesty from executive suites. In September, he published a book, Transfluence: How To Lead With Transformative Influence in Today's Climates of Change, that compiles some of the lessons he learned from his time at the helm of Prologis and elsewhere.

With the ubiquity of smartphones and social media, information now travels even faster across companies and industries than when Rakowich served as CEO. As a result, employees have rightly come to expect their executives to be more communicative about the decisions they make and more human in how they enforce those changes.

“The command-and-control style of leadership is out. It doesn’t work anymore,” Rakowich said. “The most talented employees today want leaders that are empathetic and purpose-driven, because they want their own work to have meaning and purpose.”

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This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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