RICK FROST

LOUISIANA-PACIFIC CORPORATION

Interview with Rick Frost, CEO of Louisiana-Pacific Corporation.

Leading a large construction company in a recessionary period must be tough. How are things going?

The company started in 1973 selling building construction materials (of which 25% go into homes); needless to say, we have been up and down. We anticipated a downturn, but not the depth of the economic crisis. Revenue has been down these last few years, but we are a large player in this global industry and we expect to recover. Our OSB (oriented strand board) is shipped all over the world—including Asia and South America (and we have the largest share of that market). We are also the key producer in the siding business and are #3 in the world for engineered wood products.

What have you had to do to survive?

The key thing to survival is shoring up the hole in the bottom of the bucket, or in other words, addressing the cost structure. It is an interesting time because we anticipated a downturn in 2005 and amassed cash to help beat the cycle—we know we are in a cyclical business. We might have beaten the cycle, except we didn’t anticipate the depth of the economy on top of the cycle. So we ran through cash faster than we thought. We changed our focus to address cash and downsized to fit current levels of business, while protecting core competencies — our three core lines and the ability to grow them when the market comes back (our core of technical people, our best leaders, the majority of our outside sales force, our marketing capability and skilled plant labor).

What kinds of changes have been made that has allowed the company to grow into such a major player in this industry?

In 2003 the company headquarters was consolidated; prior to that we had regional offices. It makes it much easier to get key decision makers in one place for better resource allocation and teamwork and it has inspired our culture. It is our culture that has allowed our people to take ownership of their own future, to a large extent.

Your culture must empower people. Will you describe your culture for us?

Establishing a culture is a journey. Our culture is based on six values:

Do you have a vision statement, and if so, what is it?

Our vision statement is that we are and continue to be a respected, profitable and growing manufacturer of building products; to be an employer of choice because we are a safe, ethical, fun, challenging, and rewarding place to work; and supplier of choice based on the quality of our products and reliability of our service.

You mentioned the value of marketing earlier (when you talked about what you want to protect). For many in economic crisis, that is the first thing they give up. Talk about your brand.

Our brand promise focuses on quality and meeting or exceeding product and service expectations. We have tried a lot of ways to get people excited about it and realized it is all about relationship building. One way we develop those relationships is by developing programs such as our builder advantage program and rebate programs for distributors, as well as being relevant in areas they are personally passionate about, such as our decision to brand the Tennessee Titans NFL Stadium.

What about your Strategic Plan? Have you changed that lately?

We are spending more time in trying to define new ideas; is there a way to make the whole greater than the sum of its parts? We want to be easier to do business with, almost a one-stop shopping experience. In 2005, we were a holding company for three products. We heard we were tough to do business with because of working with different divisions. So now we are creating synergy and more simplicity.

Does acquisition factor into your growth plans?

We thought we might be interested, but almost everyone bled down; we are net cash over debt and want to stay that way. In a cyclical business, debt is not good. Since an acquisition would require debt, we don’t plan to take one on right now. Unemployment is the 800-pound gorilla impacting this industry, so we will wait to see what happens before November. As far as mergers are concerned, there are “no sissies left in this business” and no one wants to merge. There is tremendous resiliency in surviving. There just hasn’t been a lot of consolidation, in spite of economic trends.

So what is the toll on your company as you go through this great recession in a tough industry? How are you managing it?

I once heard “you end up where you ought to be”. I am here now because I am a good wartime general. Our core values matter to me, and if we can go through this Armageddon and still have good morale and a strong commitment to how we treat and respect people, we feel pretty good. We don’t have any enemies or lawsuits as we had to downsize. Gulag Archipelago, “man can do anything if he has hope; if you remove it he dies”. We tried to keep hope up. Although we couldn’t offer pay increases or bonuses, we haven’t lost people except on purpose. It is a tough role, but you have to wind your own watch. Once I took this job, I realized I can’t have another bad day; at least not at work. You need to show no fear, no lack of confidence.

So how did you end up making your value choices?

There was no particular event that precipitated them, but I have always read. Eisenhower said, “Leadership is about getting people to do what you want them to do because they want to do it.” That stuck with me. I enjoy thinking about how you build good organizations. It stems from thinking about the way I wanted them to be, based on my personal experience coming up in the organization (I started in 1976). I had a boss who said, “If you can’t articulate it, you can’t understand it.” I figured out what was important to me, what I would lose my job over and what I wouldn’t. This clarity of values provides predictability and consistency, and people know what they can expect from you and what you expect from others. I refer to it as “principal-based leadership”. It provides consistency in decision-making and manages others’ expectations. Every management decision we make, we ask the question “what is the senior notion”? It eliminates decisions of convenience and creates an environment of predictability.

How would you define leadership?

Leadership is about creating an environment in which others can be more successful. It helps the individual, which in turn, helps the company. It is very rewarding to watch people grow.

How does a leader motivate people to follow?

I have determined that people do things because of one of three reasons: it appeals to their intellect (makes sense), their affections (valued, respected) or sense of well-being (promotion, raise, keep job).

Will you share an example of something you have done that exemplifies your leadership style?

The first day in this role I gave my team a piece of paper. It was titled “How I want to be and how I don’t want to be”. I explained that whether or not I was successful in living up to it was up to them. Bad leaders get caught up in smoking their own exhaust. If you stay in this job too long, you may think you are a bit better than you are— it is too easy to get caught up in it. If I started acting differently, I asked them to walk into my office with that piece of paper and tell me I am not living up to my values. The paper is their protection. And yes, I have had several people use it as well as some tell me they have stayed because they don’t believe any other boss would do that. It keeps me humble. Self knowledge is the most important thing you can have, but you can’t see it, and it is easy to slip, so don’t get heavily invested in undesirable behavior before you figure it out and pull back. Lead by example.

Biography

Mr. Frost joined LP in 1996, with prior industry experience gained at Boise Cascade, Scott Paper Company, SD Warren, and SAPPI, covering a 31-year career in the forest products sector. During his tenure as Vice President of Timberlands and Procurement, Mr. Frost led the divestiture of LP’s forestlands and pulp businesses; the achievement of SFI 3rd Party Certification; consolidated all purchasing and logistics operations for the Company, and established an OSB business in Chile. In 2002, Mr. Frost became EVP of LP leading the Oriented Strand Board (OSB) and Engineered Wood Products (EWP) businesses, as well as procurement, logistics, corporate engineering and R&D. He also led the exit from the industrial panels and lumber businesses. Mr. Frost was named CEO of LP on Nov. 1, 2004 and is a member of its Board of Directors. He serves on the not-for profit boards of the American Forest & Paper Association (AF&PA), the Forest Products Association of Canada (FPAC), the Temperate Forest Foundation (TFF), and is vice-chairman of the National Air and Stream Council (NCASI). He is also past-chairman of the Forest Resources Association (FRA). Mr. Frost holds a B.S. in General Studies and a B.S. in Industrial Forest Management from LSU as well as an MBA from Northwestern State University of Louisiana.