The Exchanges

Q And then that was because you, you were running into trouble, right? You had to sell them.

A The firm, the firm ran into trouble because there was, um, People in the trading department exceeded limits on certain type of security, and it ended up that interest rates went the wrong way, and, you know, we lost doubly on the trade, and the impact of that on a mark-to-market basis would have gotten close to wiping out the entire firm's equity, and the way financial firms work is that if you have no equity, and people have lent you money to support Your balance sheet, and they realize there's nothing underneath them, then they panic and call their loans, and everyone calls them at the same time, more or less, then the firm collapses. And so that's what we were facing. So, so it's important that you either bring in additional capital very quickly before anybody knows you have that kind of severe problem, or you have to end up, you know, selling the firm on, on sort of almost a fire sale basis, so, so that The acquiring institution, which is larger, basically provides the same function as putting equity in. They're guaranteeing the rest of your balance sheet. So that was the position we found ourselves in, and, and I sold the firm to, um, American Express.

AI assessment note: “The firm, the firm ran into trouble because there was”

Q first job in investment banking, which I think you admitted you basically should have been fired, all the way to today, where you're one of the most respected, well-known CEOs and leaders in the world. Can you walk us a little bit through how you got started in investment banking, what the lessons were that you took away? Before you went to Harvard and came back and started over again.

A Yeah, sure. It's a journey, as they say. I got my first job pretty much by accident. It was at a firm called Donaldson, Luffin, Generette, which was sold years later to Credit Suisse, First Boston. And, you know, I had met somebody working at a reunion who was like a grownup. Uh, he was 37. And one of his classmates was one of the three founders of DLJ, and I didn't have a job. After I graduated, and I didn't even know who this man was, but I, I had given him and his children a book that my father used to read to me called Babar the Elephant. And I don't know why I did that. They just looked like a model family at a reunion. You know, it was like a husband and wife and two kids, a nuclear family. And I looked at that and I said, geez, you know, that's like a idealized portrait of some type. And I just went out and I didn't have much money. And I, I bought them Babar and, and gave them the book, and I think they were just so stunned that a complete stranger who was 21 years old did that, you know. Obviously, they thanked me for the book, and he said, you know, what are you doing after you graduate? Uh, I said, I have no idea. He said, well, you graduated already. I said, that's right. So I was another desperate undergraduate, so, you know, he sort of took me under his wing and introduced me to one or two people. One of whom was Bill Donaldson at Donaldson Lufkin Generate. You kn…

AI assessment note: “I got my first job pretty much by accident. It was at a firm called”

Q And you had to do a lot of those calculations by hand, and a lot of running around, whereas today it's a lot easier to get information. How, how do you think that changes how you learn the craft of banking, or?

A We were almost like in a guild from the Middle Ages. There were no calculators. This is my lifetime, and I think I'm young. I mean, you, you had slide rules. You, you had almost no databases. If you did a project where you needed stock price endings for the month or a week, you went to the basement, and they had a stack of newspapers spread out by year for like a hundred years, and you just opened newspapers, and you ended up being covered by newsprint. It was very excruciating work. On the other hand, it was real foundational building blocks because you had to fight it. For every bit of learning. It didn't just happen. Like now, people who work at our firm who are infinitely brighter than me, they just hit a button and the whole thing comes out. So this is a whole different type of learning.

AI assessment note: “it was real foundational building blocks because you had to fight it”

Q You said in your book, the best executives are made, not born. How do you go about making executives?

A Well, you train them, and you coach them, and you have them discuss with you difficult situations where they're not sure where to go. Because sometimes being executives has to do with making the best bad choice that you can. You have a situation that has to be resolved. There are two or three different ways to do it. Nobody likes to do that in isolation, and you don't want them to. Because the objective is to mobilize experience and judgment to help people. So once they've been through that, of course, then they've learned some stuff. That's why when you're older, you're usually a better executive than, you know, when you're in your thirties. When you're in your thirties, if I remember correctly, you really think you're very smart. I think I was the smartest at 32 or 33. I was really smart. And then I realized perhaps I wasn't so smart at all as I kept looking at things that I learned as I got older.

AI assessment note: “you train them, and you coach them, and you have them discuss with you”

Q What are some of the things that you know now about being CEO that you didn't know when you started?

A Oh my god. You don't have enough time for this interview, because I was just terrible when I started out, and I, I, I was sort of treating people like they were deals, and, and deals, they're mostly a zero-sum game. You know, if you're negotiating something, and, and you, and you get more money for your team, that means the other side gets less. So, so my biggest fall short, because I really was more of a, a deal person, Uh, and not really trained as a manager. You know, sometimes you'd have problems with, with people. You knew what the right answer was, but if you went ahead and implemented that, you, you could blow up a whole part of your business, because other people become destabilized. So I learned that, that figuring out what to do wasn't hard, but how to do it, and what kind of time frame to have, and what sequencing to have. Was a learned behavior. That's good if you, you know, sort of have a partner or someone you can talk to where you can describe a situation and say, how would you handle it? You're older. You're more experienced. Here, and then they'll usually say, well, what were you thinking of doing? And then you'll tell them and they'll say, nope, that, that's not the right way to do it. You're jamming this thing. You're going to alienate not just that person. But, you know, a bunch of other people don't do that. Try it this way. It's a learning experience, and …

AI assessment note: “I learned that, that figuring out what to do wasn't hard, but how to do it”

Q Why did it make a difference? Have you ever thought about, like, what was the actual cause of that?

A Yes, of course. I thought about it all the time. I thought about it every day. The difference was that there were no M&A boutiques that existed when we set up business. It was all just the big firms, and there were a relatively few of them, so it was in effect, you know, like a bit of a cartel. But from the user, which were corporations, there was enormous security in dealing with, you know, sort of a Like a Morgan Stanley Goldman Sachs, Solomon Brothers, First Boston, because they had, you know, a hundred years of history, they had prestige, they had other businesses besides M&A that the organization might want to use, and they had global access, uh, and so why make a change for two guys who used to be at one of those places? I, I sort of in my own mind thought we were still like, Doing equivalent work, because I mistook the fact that, you know, when you leave an established place, apparently that changes people's views of you. Not in terms of your capability, but maybe it's not you. Maybe it's just the firm where you're working, but for your own ego-driven reasons, you think it's you working at the firm that creates the business. Well, I learned it was mostly the firm. That's what corporations were looking towards, and so we found ourselves out there on the high wire with, with no model for corporations to hire two people, you know, with some made-up name to handle their most…

AI assessment note: “The difference was that there were no M&A boutiques that existed when we set up”

Q Pre-divorce. And so how did you harmonize that sort of the struggle and busy life of building what would go on to become one of the world's biggest businesses and a family and kids?

A On one level, it's a little easier because you're not so busy, right? Because you don't have any business. So you have more time for your family. On the other hand, the sense of impending doom is so refined, right? That it's hard to be emotionally present when you're worried about completely wiping out financially. So at the very beginning, it's, it's not hard from a time commitment perspective, but as you start getting going, and you don't have a big staff, and you're, you're trying to be successful, you know, it becomes a very all-consuming type of thing. Most entrepreneurial experiences are not leisure time Based. I mean, to become successful, particularly in a, in a, with a new concept where you have exceptional competition, you don't survive, let alone thrive without pouring your heart into it.

AI assessment note: “it's hard to be emotionally present when you're worried about completely wiping out financially”

Q What do you do when you find yourself, uh, with sevens? Do you try to develop them? At what point do you decide that, okay, we've put enough into this, and we have to sort of cut bait here, and...

A It's, it's always a, a tough decision, because the individual in that, uh, Zone is serviceable, but they need supervision, and they're not going to develop after you make a decision that you've tried to help the person develop. They won't develop beyond their capability range, and in certain functions, they may have a place, but not many of them, because, you know, we're in a high-performance area. It's just like a sports team. I mean, you can be the Patriots, Or you can be the Jets, right? So the Jets have a bunch of sevens, and the Patriots have a quarterback who's a 10. They've got some receivers who are nine. Uh, they have a line, you know, that's probably eight and a half to nine. They win, right? So you, you know what the outcome is if you want to staff with sevens, and you know, we have a very detailed evaluative process, and if, if somebody Really needs to have that spot who, who can play better than, you know, we try and help the person, you know, find a job somewhere else. You never terminate somebody because it's not fair. In other words, they're there because you asked them to be.

AI assessment note: “we try and help the person, you know, find a job somewhere else.”

Q Switching gears a little bit, one of the things you said in the book that struck me, and I've been thinking about it, and I'm wondering if you can expand on it, is You said it's as easy to do something big as it is to do something small. Can you expand on that?

A Yeah, sure. You know, you only have one shot to do something, and if you're focusing on doing something with your life, if you make a choice, that cuts off other choices. So you ought to wait until you find something that's really worthy of the effort, because you're going to be making a heroic effort in any case, You, you should find a really big idea addressing a really big opportunity, because then if you win, you win huge, but you also can excite other people to go on the journey with you. If, if you have some very small idea, who, who, who's, who's gonna really join you for that? There's not that much room at the end to compensate people, but if you have a big vision, With something that looks like it's pretty much a sure thing, because entrepreneurs don't really like taking risk. People who write about them and report on them think they're taking risk, but the person who's actually betting their life really thinks it's going to work, or else why would you bet your life? Having a vision to do something unique In the huge field where all the trends are going your way, that's where you should spend your time, because you win on every level. Easier to recruit people, the success is really big, you can keep growing within that field, because the field is huge, and if you catch a wave, or a cycle, I mean, this is really, that's how we built the firm.

AI assessment note: “you ought to wait until you find something that's really worthy of the effort”

Q When you think about running the company, how much of it do you think of on a deal basis? This might make sense, but we want to save some dry powder and be opportunistic. Like, how do you, how do you factor?

A Well, the way you look at it is, um, is what you're doing sound and safe? And is that going to work? And when you can find things like that, you do them. Whether you do them at the bottom of a cycle or In the middle of a cycle, or near the top of the cycle. You always have to know where you are in the cycle, so if you're near the top, this thing's gotta really, it's got a lot to prove to deploy that money. It's gotta have a, just a rip-roaring, wonderful set of momentum thesis, so it'll power through a downturn, and the price creation net of other things, you know, has to be safe by historic standards, not the standard of the day. You know, we, we always look at almost every asset class in terms of its cyclicality. Where is it, and what burden does that place on you to be more conservative than at a different stage?

AI assessment note: “You always have to know where you are in the cycle”

Q You have a grading system for people that came out in the book, which was, I think you just talked about seven, eight, nine, and 10. Can you sort of walk us through the differences between a seven, eight, nine, and 10, and then how you go about spotting tens when you're trying to attract talent?

A Yeah, I'll start in reverse, if I could, because that's the most fun. You know, trying to find somebody who's, who's a 10, and there aren't that many tens. You know, a 10 can do just about anything. It's sort of like a LeBron, or a Steph Curry, you know, or a Michael Jordan. Why are they tens? Because they can score at will. They're great ball handlers. They get great rebounds. They can see a whole court. They can pass the ball for assists. There is no facet of the game they can't do as well or better than anyone else. And people who are in that position create championships. So I was giving you a sports analogy, and it's the same in the business world. There, there are just Some people who have that sixth sense of what's going on in, in their area, they, they can sense danger, they can see opportunity, they know how to hire people, they inspire loyalty, they, they tend to be really nice people as a rule, and they can build enormous businesses where there's none, where they can take an existing business and dramatically accelerate its growth. So that's a 10. They can play All positions at the top level. A nine is, like, really good person. They can execute anything. They're clever. They're hardworking. They're reliable. You can put them in charge of something where you describe the situation, and they can pretty much bring it home without, you know, coaching, and, and so nines …

AI assessment note: “So that's a 10... A nine is, like, really good person.”

Q How often are those three or four key drivers related to the nature of the business versus the structure of the deal?

A The structure of the deal, you, you learn how to protect capital pretty easily. That's not so hard. The first rule is never meet a maturity. So if you're borrowing money, you can almost always pay the interest. In almost every case, you, you analyze it and you see how bad You know, the company performed in previous recessions, and then you take a discount from that, and you'll pay your interest. Where you get in massive trouble is if, during that kind of economic period, you basically have to refinance your debt. And then people look at how miserable the company's doing, and they say, well, it's good that you want to refinance your debt. I don't want to lend you money now. And then you're done.

AI assessment note: “The structure of the deal, you, you learn how to protect capital pretty easily.”