The Exchanges

Q Where did you take that coming out of college, those early lessons in behavior and economics?

A My first job on the street was at CSFB doing equity research. There was a guy there named Michael Movison who wrote really interesting papers. They rang my bell in the same way. He was looking at how ant farms behave and how emergent behaviors work, but he was a real outlier on the street. I was attracted to what he was doing, but very repelled by everything else I saw around me. I spanned this error from Long-term capital management blow up to the dot-com bubble burst, which was a interesting time to be on the street. One of the biggest equitization booms in the history of the markets. I worked in the healthcare group, which was ironically the only sector that did not work during that period of time because President Clinton balanced the budget and all the healthcare services companies crashed and was in a cubicle that was shrinking day by day. They kept cramming more and more people in and people next to me would be And the tech group promoted these massive offices, and I was in this office space dynamic where at one point I couldn't even turn my chair around. So as the walls were literally closing in on me, I looked around and I saw a system that was built on hero worship. Number one, we used to bring folks like Jeff Skilling of Enron in and have these big town hall meetings, and everybody would ooh and ah about how brilliant he was, and next in would be Hank Greenberg from …

AI assessment note: “My first job on the street was at CSFB doing equity research.”

Q In that period of time, before Rob joined and Mason, the whole way through, other than this very different way that you both described of conversing with management teams, what was the overlying strategy of Value Act from the beginning?

A There was a view that there was a great white space. Venture investors have board seats and engagement and great voices into their companies and their leaders. Private equity firms control their companies and have total control over the governance. And in the public markets, there had been a legal structure of votes and accountability, but one that wasn't very well developed. In the 19 nineties, there was very little proxified shareholder activism. We thought this is a white space and people who own the public securities should be adopting not just the mentality of an owner, but actually the role of an owner and having that kind of engagement. That was a pipe dream at the moment that the firm was formed because that is not how the world works. CEOs were not to be questioned in the 19 nineties. They were larger than life. If you remember what business week looked like in those days, it was almost like a tabloid. It just wasn't the way that the relationships were oriented in that time. A couple things really set the firm up for success. One was that there was a big mess left over from the nineties. All this massive equitization, we went up to 8000 public companies, many of whom did not have strategic focus or operational excellence. Industries were fragmented. Balance sheets were very cash heavy and not efficient. And then a funny thing happened in 2002, there was a wave of corpo…

AI assessment note: “people who own the public securities should be adopting... the role of an owner”

Q As you own a portfolio company over several years and things start to happen in how you had hoped and the company starts to make changes, improve the quality of the business. How do you think about selling or exiting the investment?

A You're picking that scab there, Ted, because as many of our LPs remind us, we sold a little too early on a couple of these things, including Microsoft and MSCI. So it's something as an organization, I like to learn and improve constantly. We've given a lot of thought to this idea. There are some investments where there's a discrete three to five year strategic planning cycle under which the company can execute a plan. And then it's going to mean revert to the average equity return. There are other businesses. The best term I can come up with is They win by winning, which is the more they win, the more horizons open, the more adjacencies, the more second order business models, the more bolt-ons, the more bundles. We did this extremely well with CBRE from 20 11 till about 20 23 for about 12 years. We are a significant part of building the biggest real estate company in the world. One of our partners was chairman of the board of that company, and that's a lighthouse example of a place where the stronger the network got, the more services it could offer, the more global reach, the more Sticky. And as importantly, the more important the mothership became versus all the individual brokers as a human capital franchise. If you can be the place where the best people want to work because you get the best clients and the best clients want to work because you have the best people. Now you'…

AI assessment note: “There are some investments where there's a discrete three to five year strategic planning cycle”

Q What are some of the other tools that you've adapted over the years that you bring to the companies you invest in?

A I think about them almost like pieces of a jigsaw puzzle that all click together and reinforce each other. Number one is strategy. Are we doing the right stuff? Are we playing in the right markets? Are we focused on the right things? How do we tracking that progress? We call that either dashboarding or building a better board book or KPIs so that we really see true economics. Then it's executive compensation, which is how do you tie outcomes to that? There's CEO succession and talent management, which is do you have the right people? To execute that strategy. Do the people match the strategy? Are they tracked with the right dashboards? Are they paid in the right way? And then you've got corporate identity slash investor relations, which is, are we telling the world who we are in a way that will attract the right investor base? An investor base that will be patient for what we are trying to get to, because it might take us, if you're in the case of Adobe, three years to convert from a license to a subscription model. And we want investors that get it and are along for the ride and are not trying to guess the quarter. Those are the basic building blocks of how we can help reorient a company recover from some of these diseases of abundance and inoculate itself against some of these temptations and weird things that public markets can do by creating alignment with public markets fo…

AI assessment note: “Number one is strategy... dashboarding or building a better board book or KPIs”