An exclusive e-Book for our subscribers

©2015 SARAHMCDUGAL.COM

Sarah McDugalAN INTERVIEW WITH MONTY MORAN

Chatting w/ Chipotle

PART 1: Empowerment 3

PART 2: Character 6

PART 3: Engaging Millennials 9

PART 4: Think Long-Term 11

SARAH MCDUGAL + MONTY MORAN

SARAH: Thanks for meeting with me, Monty! I’m excited to feature you and Chipotle in my book. My premise is that whether you are a celebrity, an individual leader, or a corporation managing your brand reputation – if your internal reality and your external marketing is not governed by the same set of core values, then one of your faces is lying.

MONTY: Yes, exactly, I couldn’t agree more.

SARAH: In the short term it might feel like a good idea to present something that is not real to the world in order to make a quick buck, but in the long-term that will backfire big time.

MONTY: Yeah, I agree.

SARAHMCDUGAL.COM 3

SARAH: I get a lot of people who say, “Wow, this is amazing, more people need to be thinking this way, but it’s hard to figure out how to follow through.” Other people say, “Yeah, you can’t do that, you can’t be wildly successful in business without cutting corners.”

MONTY: That’s absolute unmitigated horse manure. I don’t know how you can succeed without living the same face both directions. I sup-pose it might be possible, but I don’t believe it really happens. Not in the long haul. It can’t create a sustainable culture.

SARAH: I’m aware that in 2013 Chipotle outstripped Starbucks and McDonald’s by 9-10%. I know that you and Steve Ells were co-spots on number four of Fortune Magazine’s 2014 Business Person of the Year list. I watched one of your Mad Money interviews when Jim Cramer asked you, “How do you achieve a values-driven corporate culture throughout a large chain with so many locations when you’ve had such explosive rapid growth?” And you said that your employees are taught to look at people and know them. Tell me more about that.

Chatting w/ ChipotleSARAH MCDUGAL + MONTY MORAN

EMPOWERMENT – PART 1 OF 4

MONTY: We start out by trying to hire the right kind of people for Chipotle, hiring is very important. We hire an extraordinary number of employees – 50, 60, 70 thousand people a year.

SARAH: That’s a big job.

MONTY: Yeah, when we hire we don’t care about experience at all. We’ve always insisted on hiring people with what we call the 13 char-acteristics, which I came up with, that I do not believe can be taught. By the time you are 10 or 12 years old you either have them or you don’t.

SARAH: Wow!

MONTY: I don’t want to hire people who lack those characteristics and then try to teach them, because it’s an exercise in futility. Once you hire people for character, you have a better chance of getting people who can be sensitive and open and understanding, and car-ing about the people around them. Before I came, Chipotle hired for experience, which was as often a disadvantage as it was an advantage. It was very hard to break employees of terrible “fast food industry” habits.

Once we hire people, our foundational principle is that each person will be judged and rewarded based on their effectiveness in making the people around themselves better. And that foundational principle drives everything we do in regards to how we compensate, how we promote, who becomes our future leaders, who we exalt, who we hold up as examples of great leaders.

4 SARAHMCDUGAL.COM

When we hire we don’t care about

experience at all.

When I started, only 18% to 20% made it from crew to manager. Now, all of our GMs come from crew except for a scarce few. First you hire people who are fantastic, then you operate on this foundational prin-ciple, then you start rewarding people based on their effectiveness in making others better. Then you see your younger leaders in the com-pany start trying to help the people around them.

And when they do, you make heroes out of them, you announce it, you promote them. Every single promotion we make in the company of any consequence, we share why they got the promotion. And the reason is always: “this guy makes others better, this lady makes others better, look at what she’s done. She’s took this many crew and turned them into managers. She took that one and turned him into a restau-rateur, etc.”

We celebrate the successes of making others better. Once people start to see, “Oh my God, they really do reward you when you make others better… “ what happens is a multifold win.

First, you get lots of people who are being developed. Second, you get people who start to love each other and realize what it means to care about someone, to devote themselves to someone, to commit and empower somebody.

SARAHMCDUGAL.COM 5

SARAH: Tell me more about your Restaurateur Culture.

MONTY: I believe the general manager position is the most important position in Chipotle, period. Because GMs hire 99.9% of our people. They decide who comes in the door and who doesn’t. They’re either effective at developing people into future leaders, or not. They have complete ownership over our customer experience, which is what drives our success.

So the manager is the most important position in the company, but when I came on board we didn’t treat them that way. Most of our managers wanted to move up to an area manager position, where they leave the restaurant and oversee half a dozen restaurants. This promoted the very best managers, who were the most effective in creating a great restaurant experience and hiring people, right out of the restaurant.

SARAH: Hmm.

MONTY: So I said, “Look, I want the gravity in this company, the job everyone wants, to be the general manager level, not greater. I want them to be the heroes; I want everyone to want to be a great general manager.”

But in order to promote that content, I had to create a new name for the general managers who manage in an enlightened way. I called them restaurateurs. As the most important position in the whole com-pany, I personally interview every single one of them for this job. Every manager of the company who becomes a restaurateur gets it because one of the CEOs gave it to him. People thought I was crazy. But we did it.

I was looking for specific things in each candidate. To be a Chipotle restau-rateur, this elite general manager position, you must have a team of top performers who are empowered to achieve high standards. So, there’s three criteria: top performers, empowerment, and high standards.

SARAH: Right.

6 SARAHMCDUGAL.COM

Chatting w/ ChipotleSARAH MCDUGAL + MONTY MORAN

CHARACTER – PART 2 OF 4

MONTY: So at Chipotle, doing a great job doesn’t make you a top per-former, that’s not enough. You have to do a good job and make others better, and do it all of the time.

SARAH: So it can’t be just you, it has to be you and the people around you.

MONTY: Empowerment is a feeling when you are confident in your ability and encouraged by your circumstances so that you feel moti-vated and at liberty to fully devote your talent to a purpose.

That’s a lot of words, but it is simple:A) Confident in your ability, B) Encouraged by your circumstances.

Confident in your ability just means you know how to do your job, and you’ve been trained properly.

The harder part of empowerment is: how do you create encourag-ing circumstances for people? You feel encouraged by your circum-stances when you have a vision you believe in. In other words, when you know where you want to go.

MONTY: High standards are a throwaway because if you have top performers who are empowered with the right kind of knowledge, high standards are gonna fall out the bottom like a vending machine.

So the real focus is on building a crew of all top performers. How do you do that? First, you hire crew with the 13 characteristics. Second, you teach them to believe that the path to success is to make the people around them better. A top performer is someone who has the desire and ability to perform excellent work and through their constant effort to do so, elevates themselves, the people around themselves, and Chipotle.

SARAH: Hmm.

MONTY: So there are kind of two pieces to the definition. Number one, you do a great job. Number two, you make others better. That’s to break it down. Do great work and make others better.

SARAH: Right.

Doing a great job doesn’t make you a top performer,

that’s not enough.

SARAHMCDUGAL.COM 76 SARAHMCDUGAL.COM

SARAH: You have to have a deeper why.

MONTY: Yeah, and a great leader cares about you, challenges you, believes in you, trusts you, wants you to do better, loves you, and is committed to making you the very best you can be.

SARAH: Being at your best is a key part of that -- because allowing mediocrity and complacency is not consistent with helping you gain confidence. Increased confidence comes from conquering new things that you didn’t think you could do but now you can.

MONTY: Absolutely! You feel at liberty to fully devote your talents to a purpose.

SARAH: Do you share those 13 core characteristics or is that proprietary?

MONTY: I don’t keep it a great secret. They include being: smart, infec-tiously enthusiastic, polite, hospitable, respectful, happy, motivated, ambitious, presentable, curious, honest, let’s see…hospitable, maybe I already said that. These are communicable characteristics you can instantly identify in a two-minute interview with someone.

SARAH: And those are things people either have or they don’t.

8 SARAHMCDUGAL.COM

SARAH: Let’s talk about this phenomenon of how Chipotle has managed to connect strongly with millennials. Everybody everywhere is trying to crack the formula to engage millennials, and you’ve pulled it off. How?

MONTY: Millennials are highly ambitious, sometimes almost utopian in their ambition. They want what they want now, they want it fast.

SARAH: A little bit narcissistic.

MONTY: Yeah, they think they’re great, but they also insist on being associated with things that are genuine. They have a great bullshit detector. They think everything is bullshit, unless it’s truly genuine. At Chipotle what we’re doing is truly genuine.

If you heard the way we talk in the boardroom, it’s the same as how we talk in analyst meetings, the same as I talk in the restaurants. No one is inspired at the crew level, to hear set goals like, “Let’s drive the stock price up, or let’s make more money.” That’s just not a worthy goal.

But it is a worthy goal to bring people in and say, “Hey, I want you to be part of a team of all top performers who are empowered to achieve high standards. I want you to be part of the restaurateur culture of excellence. Where everyone one on your team is totally committed to making you better while you are simultaneously committed to making them better. Where all of you are working to change the way peo-ple think about being transferred in this restaurant by being a great restaurant experience and in creating a team that you’re super proud of and feels like a family.” A family by choice, not by birth, you know?

SARAH: It’s like the show Friends, in real life.

SARAHMCDUGAL.COM 9

Chatting w/ ChipotleSARAH MCDUGAL + MONTY MORAN

ENGAGING MILLENNIALS – PART 3 OF 4

Many times I’ve promoted someone to restaurateur

without ever meeting them.

MONTY: Yea! When I do a restaurateur interview, I go into the restau-rant and meet with the entire team one by one, we sit at a table and talk. The least important person I meet with is the manager who is up for restaurateur.

In fact, many times I’ve promoted someone to restaurateur without ever meeting them. I go unannounced to the restaurant and it may be the manager’s day off or they may be on vacation, so I interview the whole team and make the decision based on the empowerment of the team and whether they’re all top performers. Meeting the man-ager is absolutely optional.

SARAH: Because you can see their effectiveness without even see-ing them.

MONTY: Absolutely, and that’s actually a great message. When I make the promotion announcement, I always write something like, “Hey, I promoted Sarah to restaurateur today and she wasn’t even there! Let me tell you why…”

SARAH: Right.

MONTY: And that proves my thesis, that each person will be rewarded based on their effectiveness in making the people around them better. If you’ve built an unbelievable restaurant team who is empowered, fired up, optimistic, excited, visionary, loving, caring, genuine -- who cares how you did it. You couldn’t have done it in any way but a good way.

You can’t buy that, you can’t threaten it, you can’t over manage it, you can’t yell at people loud enough. You can’t empower people in any way except to make them feel confident in their ability and encouraged by their circumstances. That’s the only way to empower, end of story.

SARAH: I sense an incredible amount of personal passion as you’ve talked about implementing and applying values. Are they your per-sonal values as well or are they specifically for the company?

MONTY: Oh, absolutely they are my values; it is what I believe to be correct in the world. I believe that these values work anywhere, any-time, anyplace. I believe if you teach people to have these values and to live according to these values, then success will follow.

10 SARAHMCDUGAL.COM

SARAH: How did the slogan “Food with Integrity” come about? It’s so clean and concise, and it says everything it needs to say. Those are the hardest slogans to develop!

MONTY: Yes, isn’t it beautiful? I love it.

SARAH: It’s a terrific descriptor and tagline, and I know those don’t come easy.

MONTY: I would credit my co-CEO Steve Ells with “Food with Integ-rity”. It didn’t come across as a slogan at first, it was just sort of like, “Hey man, we want all of our food and all of our ingredients to be great. We want this food to be based on integrity, you know, it’s like food with integrity.” We just started saying it and I was like, “Dude, that’s good! We’re gonna trademark that.”

SARAH: That was a good call.

MONTY: But I would also credit Steve with the “Food with Integrity” philosophy. It’s this idea that we don’t want what we do to be the result of exploitation at any level, Sarah.

We don’t want to exploit human beings, or exploit animals; we don’t want to exploit farmers, or the environment. That’s why we love the people we hire, people who work hard, try hard, and care. They rise up meteorically at Chipotle. We’ve got people in executive team director positions who extraordinary, who are in their early or mid-20s, who started as crew making $8 an hour and are now overseeing 10,000 people.

SARAH: Right.

SARAHMCDUGAL.COM 11

Chatting w/ ChipotleSARAH MCDUGAL + MONTY MORAN

THINK LONG-TERM – PART 4 OF 4

We don’t want to exploit human beings, or exploit animals;

we don’t want to exploit farmers, or the

environment.

MONTY: In fact, I just had a meeting with one today who is a team director named Pedro, who came up from within the ranks, from the crew, and he is absolutely one of the top leaders in the company. He is marvelous, and brilliant, and just came from an hourly position. And now he is running Arizona, half of California, Washington, Oregon. Hundreds of stores.

SARAH: My goodness, that’s like the whole western seaboard there.

MONTY: Yeah, everything except Southern California.

SARAH: Has there been fallout from your willingness to suspend profit in order to do the right thing? You’ve said you see it as a strat-egy for long-term profit even if it creates shortfall in the short term, but how do you manage when that doesn’t go your way in the short term?

MONTY: Well, it’s difficult. You just do what you have to do. Yes, it has hurt us in the short term to suspend the sale of pork because one of our suppliers wasn’t living up to our protocols and we immediately removed the supplier. Just to give you an idea of how empowered our team is, the decision to eliminate the supplier (which caused us to be short on pork throughout the country), was made without even getting Steve and I involved.

The auditor found it, went to the purchasing guy and said, “We’ve gotta terminate him.” Period, end of story.

12 SARAHMCDUGAL.COM

SARAH: Their empowerment is so strong, that they know they can make a huge call like that?

MONTY: They know it’s absolutely choiceless. They simply must make the integrity-based call. Did it hurt us? Yes, short-term. But we’re working very hard and we think that in a couple of quarters we’ll be back up to full production with farmers we’re tremendously proud of. It was a nonnegotiable.

Another time, we had some pork already in our distribution centers, a lot of pork, and we found that some of the supplying farms were not adhering to our protocols. This decision came to Steve and me, and we had to decide what to do. Serve it and have signs in our restaurant saying “Sorry today’s pork wasn’t up to our specs”? Sell it to other ven-dors? Throw it away?

It was still great pork, all antibiotics-free. The protocols violated were nothing that we advertised. There was no legal issue if we wanted to sell it. But was that the best thing to do?

We decided to donate all of it, millions of dollars of pork, to a charitable organization that could use it well.

We didn’t do anything to market that decision but it leaked out and became a very positive marketing story for us, folks writing, “Oh my God, Chipotle really does stand by their values!” It was sort of nice to be caught doing good, if you want to call it that. I think when you’re committed to doing good, decisions are easier to make even though in the short-term they are choices you’d never catch another company making since they cost millions.

SARAH: Chipotle obviously has a massive platform; tens of thousands of employees.

MONTY: We have 1850 restaurants right now, and about 56,000 employees.

SARAH: Do you have plans to branch out into complementary areas of social responsibility in addition to environmental stewardship? I would love to see a company of Chipotle’s size, do socially responsible mes-sage campaigns to increase the platform of giving back and doing right. Especially aimed at that millennial generation you’ve already tapped into, to use your platform to push that against human exploitation?

MONTY: We have something called the Chipotle Cultivate Foundation. It’s a foundation to which we donate millions of dollars from fundraisers, and we give that money to causes… Sometimes it’s farmers who are doing the right thing, or teaching kids about food, or helping inner city schools grow gardens. I think one of our best charities is being successful at what we do: bringing high-quality ingredients to a huge amount of people in an accessible, genuine way, where just by spending money at Chipotle people are literally doing good for animal husbandry, environmental stewardship, family farms, local and organic movements. Eating at Chipotle results in a reduction of pesticides, herbicides, and pollution in our environment, plus greater health for humans, because our food is so straightforward. I think that’s absolutely how we’re gonna change the world.

SARAH: Final question: What advice would you give to leaders and entrepreneurs who may not be on a national CEO level (yet!), but they’re rising in that direction, committed to integrity, but they’re unsure about the risks associated with follow-through. What would you say to them?

SARAHMCDUGAL.COM 13

Those who do something genuine, something valuable, will be rewarded for it.

MONTY: I would say to really trust that if you provide genuine value to somebody, that you try to give as much as you can through your service or product in a genuine way – trust that sales will come, trust that people will join your cause, trust that the people who join your cause will make your cause powerful, and trust that profits will fol-low. So many folks think that by cutting corners, dumbing down their product or service, doing things in any way except what truly helps the customer – they think it will get them ahead in the short-run.

I would say take a long-term view and understand that those who give the most will be rewarded for it. Giving doesn’t mean not charging, okay? When you get a Chipotle burrito for $6.95 you’re getting a lot of thought, quality, and nourishment for a low price. And even though it’s for a low price we still profit from it, while giving a great experience.

It’s all about taking that long-term view.

ABOUT SARAH

Sarah McDugal is a brand strategist, leadership speaker, and author of One Face: Shed the Mask, Own Your Values, and Lead Wisely.

She directs & produces Hollywood-quality brand campaigns for companies who value their social impact alongside their bottom line.

Her work in media production launched 25 years ago as the teen TV host of a Christian youth program. She directs brand strategy and visual asset development for clients across the USA, UK, and Europe — both corporate and non-profit. As a speaker, Sarah presents on leadership, branding, and core values.

She has produced & directed more than 150 story videos from city-wide message campaigns to global satellite TV network shows, including a music video nominated for Video of the Year at the 2014 Canadian Gospel Music Awards.

An avid writer and globetrotter, her passport has stamps from more than 40 countries but still gets itchy feet.

14 SARAHMCDUGAL.COM