Richard McPhail is the CFO and Executive VP of Home Depot, the largest home improvement retailer in the United States.

Mr. McPhail has over 20 years of experience in corporate finance, business development, real estate, and international financial management and planning.

He joined The Home Depot in 2005 and became its CFO in 2019. Before Home Depot, Mr. McPhail was the executive VP of corporate finance with the Marconi Corporation. He has also held positions with Wachovia Securities and Arthur Andersen.

Key interview takeaways:

• It is more important to be able to execute with flexibility in the present than to be able to predict the long-term future.

• Figure out what your values are and stick to them. If you make decisions based on your values, you will be able to look back and be proud of what you did.

• Finally, don’t underestimate how willing others will be to help you! Being the one to reach out first already sets you apart from the crowd.

Grace Tan (BT): Thank you so much for your time today! To start off, could you tell us a bit about how you got to the career and role you have today?

Richard McPhail (RM): I’ve always been interested in economics and finance in particular.

To me, if you kind of start all the way at the top, free market economics is the basis for improvements in the human standard of living, and if you drill down further, finance is the method of allowing the market to invest in ideas that will help increase that standard.

And so, I always thought finance was a neat marriage of math and sociology. In fact, economics could be seen almost as a sub-study of psychology and sociology — understanding how people think about using the resources that are at their disposal, and how a society enables the improvement of its standard of living.

And that idea’s been important — and I’m very lucky for that — in my role at Home Depot. It's been a real honor to be a part of a company that seeks to do so much for its communities and to help our customers improve their standard of living in their homes.

And we do that, in essence, every day at Home Depot. Say somebody has a good idea and we’ll decide to fund it. You might have a software engineer at Home Depot who has a brilliant idea, and needs a team to lead it, and so we’ll finance that project and maybe that leads to an experience on our website that really clicks with the customer and helps them make their life better.

BT: It’s really amazing to hear about that culture of empowerment at Home Depot, and to get an idea of the role that the CFO plays in advancing company culture and values.

Another example that comes to mind, then, would be how Home Depot raised employee salaries and implemented other policies to lend support during the pandemic. What was making those decisions like, and do you have any other advice for how to lead with values, especially during a crisis?

RM: That was one of the decisions that we are most proud of.

My advice, bluntly put, would be to figure out what your values are, and to stick to them. When we entered the pandemic, we had no idea how this was all going to turn out. But we, as a management team, promised one thing: we said, we will be guided by our values through this whole thing, and if we make decisions based on our values, we're going to be able to look back and be proud of what we did.

And one of our values is taking care of our people, so in 2020 we provided extra compensation and benefits to our hourly associates in payments that totaled over $2 billion over the year. That decision was purely guided by our values, and in hindsight, it was the decision we're most proud of.

We have the freedom to decide what kind of culture we want to have, and we've decided that it's going to be a culture that feels like a family and feels like people taking care of each other.

BT: On the note of adapting to the pandemic, The Home Depot really invested in its online experience and features over the past year.

However, the company is also looking to revamp stores and to pour some investment into the physical locations as well, which leads me to ask, what is the role of the in-person experience of Home Depot? What is the comparative advantage of being a company that is sustaining both a digital and physical side in this business?

RM: What is so interesting about that question is that 10 years ago or so, the conventional wisdom was that physical stores would become a thing of the past. In hindsight, that has been proven completely wrong. If you just look at our sales in 2020, we had total sales of $132 billion. But only about 14% of those sales were enabled by our digital assets; the store is still where the vast majority of where our commerce occurs.

But there's also no doubt that to be successful, a company must have a similar experience across their digital platforms and stores. The two have to complement each other. We call that being interconnected. We think that our website is quickly becoming the “front door” of our store that everyone goes through first.

One interesting example of how this interconnection works is that in 2020, 60% of our online orders were actually picked up in a physical Home Depot store. That's something we would have never imagined 10 years ago — that the store would be that important, not just as a place to shop, but as a place to pick up online orders. You would have also thought that COVID and the need for social distancing would have driven people away from picking up in-store, but the opposite unfolded. We saw greater take up of people driving to the store, rather than having items delivered to their home.

And so, to answer your question about the differentiator, I believe there's a level of convenience that an interconnected retailer can provide that simply can't be replicated online. When you think about immediate gratification, chances are, if you live in North America, there will be a Home Depot store close enough that you can place an order and have that product in your hands within the same day or in a matter of hours.

It’s also that within home improvement, we're a project retailer. Our customers, for the most part, buy multiple items that are being used for a project. And it is hard to understand everything that you might need for a project, or to feel confident that you can get that knowledge without visiting a store. The digital world is a fantastic world that has made inspiration much more efficient. But at the moment of truth when you are going to spend significant money, particularly on your home, our customers have shown us that they prefer to do that in store.

So to us, the most important part of daily operations is the associate in the orange apron. That person is there because home improvement is complicated and our customers need help, and our associates are the best in the world at offering that help. And so that's another one of — and maybe the greatest — differentiator that we have. The associate wearing that apron is the hub of our experience at Home Depot.

BT: On another aspect of operations, things like inventory planning for Home Depot are on a fairly short schedule, or even done week to week, and I wanted to ask how you sort of derive long term plans, especially financially, when there can be fairly short term changes.

RM: The two things that we manage on the short cycle are how much inventory we buy and how many associates we staff in the stores, and those are decisions that are oriented around weeks and maybe a few months, not years. We are also always investing for the future, and we don’t allow short term developments to impact our long term strategy.

But generally, what we've learned through 2020 is that it is more important to be able to execute with flexibility than it is to be able to predict the long-term future. I think that's a learning that a lot of companies took away. I think companies have had a mentality that, for decades, has been centered around this annual plan which is almost a forecast or a prediction of how things might turn out.

But, as I said, it doesn't matter how good we are at predicting it — it only matters how good we are at executing in the demand environment we find ourselves in. So I think for many companies, the concept of annual planning has diminished in importance and gone towards “let's make sure that we can operate with flexibility.”

BT: Thank you! To end off the interview, could you speak to the role of mentoring, either in terms of mentoring others and finding a mentor for yourself?

RM: I think when you're a student, in that time of your life, you probably underestimate the willingness of more experienced people to give you a little bit of time. And I think that the best mentoring does not occur with a formal mentoring relationship; I think the best mentoring happens when a person at the beginning of their career just reaches out to someone who's more experienced and says, “Hey, would you mind just a 30-minute cup of coffee?”

I know that that really catches my attention, because so few people actually ask that question.

And so, my advice would be: if there's someone that you know of, in a career or field that is interesting to you, don't be shy. Be considerate, be polite, but ask for help. I think people love helping each other and I'm always really impressed when somebody at the beginning of their career asks me for a little bit of time.

BT: Thank you Mr. McPhail & the Home Depot team for making this interview possible!