WEBVTT - Duff McDonald: How To Fix the Broken Elite Institutions 0:00:00.120 --> 0:00:02.320 Masters in Business is brought to you by the American 0:00:02.400 --> 0:00:07.160 Arbitration Association. Business disputes are inevitable, Resolve Faster with the 0:00:07.160 --> 0:00:12.240 American Arbitration Association, the global leader in alternative dispute resolution 0:00:12.360 --> 0:00:15.800 for over ninety years. Learn more at a d R 0:00:16.160 --> 0:00:22.600 dot org. VI is Masters in Business with Barry Ridholts 0:00:22.600 --> 0:00:28.120 on Bloomberg Radio. This week on the podcast, I sit 0:00:28.160 --> 0:00:32.720 down with author and journalist Duff McDonald. He has written 0:00:32.760 --> 0:00:37.120 such seminal books as Last Man Standing, The Ascent of 0:00:37.200 --> 0:00:41.239 Jamie Diamond, and JP Morgan Chase. His second book was 0:00:41.520 --> 0:00:45.360 The Firm, The Story of McKenzie and its secret influence 0:00:45.400 --> 0:00:50.040 on American business. And what's shocking about that book not 0:00:50.200 --> 0:00:54.240 only that McKenzie is as influential as it is in 0:00:54.320 --> 0:00:59.360 government and finance and business in general, but given their 0:00:59.400 --> 0:01:03.880 storied history and their power and influence, this was literally 0:01:03.920 --> 0:01:07.760 the first book ever written on mackenzie. That that's pretty shocking. 0:01:08.480 --> 0:01:13.679 Full disclosure, I myself have referenced Duff's work, and about 0:01:13.920 --> 0:01:16.920 half a dozen years ago I wrote something called is 0:01:17.040 --> 0:01:20.240 Mackensey the Root of All Evil? And the answer turned out, 0:01:20.319 --> 0:01:22.480 in my opinion, to more or less have been yes. 0:01:23.280 --> 0:01:27.520 His book is really a deep and detailed UH read 0:01:27.720 --> 0:01:31.520 into the storied firm, and it's quite fascinating. His most 0:01:31.600 --> 0:01:36.959 recent book is The Golden Passport, Harvard Business School and 0:01:37.000 --> 0:01:40.520 the Limits of Capitalism and the Moral Failure of the 0:01:40.640 --> 0:01:46.360 NBA Elite. It is also a deeply researched and highly critical, 0:01:47.040 --> 0:01:51.920 UH look at one of the most significant institutions in 0:01:51.960 --> 0:01:56.840 the world of filling the blank, government, finance, business, etcetera. UH. 0:01:56.880 --> 0:01:59.400 What I love about Duff's work is that it's not 0:01:59.600 --> 0:02:06.040 just opinion or vis rule, like or dislike. These are 0:02:06.080 --> 0:02:13.480 really deep dives, richly researched pieces of work into an institution, 0:02:14.160 --> 0:02:17.720 the people involved, the impact it's had on not only 0:02:17.840 --> 0:02:23.119 the world of business and finance and government, but just 0:02:23.480 --> 0:02:27.799 how it fits into the overall um skew of society 0:02:28.400 --> 0:02:31.359 and including things like what's the impact of our business 0:02:31.360 --> 0:02:35.160 school on economic inequality? And he approaches this from a 0:02:35.320 --> 0:02:40.280 very very objective, nonpartisan approach. I found all of his 0:02:40.320 --> 0:02:43.320 books to be absolutely fascinating, and I think you'll find 0:02:43.320 --> 0:02:47.639 the conversation we had quite interesting as well. So, with 0:02:47.720 --> 0:02:56.280 no further ado, my conversation with dof McDonald's my special 0:02:56.280 --> 0:03:00.480 guest today is Doff McDonald. He is a contributing editor 0:03:00.600 --> 0:03:04.520 at The New York Observer. He has previously contributed as 0:03:04.520 --> 0:03:09.440 an editor at New York magazine, Fortune and other fine publications. 0:03:09.520 --> 0:03:13.399 He has written pretty much for every major business publication, 0:03:13.560 --> 0:03:18.200 from Fortune, Business Week, conde As Portfolio, g Q, Wired. 0:03:18.480 --> 0:03:22.440 He has won numerous national magazine awards and is the 0:03:22.480 --> 0:03:26.200 author of numerous books. The one that caught my attention 0:03:26.360 --> 0:03:30.000 was The Firm, The Story of McKenzie and its secret 0:03:30.040 --> 0:03:34.040 influence on American business. But he has also written Last 0:03:34.080 --> 0:03:37.560 Man Standing, The Ascent of Jamie Diamond and JP Morgan Chase, 0:03:37.960 --> 0:03:42.640 and his most recent book is The Golden Passport Harvard 0:03:42.680 --> 0:03:46.920 Business School, The Limits of Capitalism and the Moral Failure 0:03:47.080 --> 0:03:51.440 of the NBA Elite. Duff McDonald, Welcome to Bloomberg. Thanks 0:03:51.480 --> 0:03:54.160 for having me. Let's start out talking a little bit 0:03:54.200 --> 0:03:59.080 about your career in journalism. What attracted you to writing 0:03:59.600 --> 0:04:04.560 about out business? It's funny you should ask. I went 0:04:04.600 --> 0:04:09.400 to Wharton as an undergraduate a little unwittingly. I was 0:04:09.440 --> 0:04:12.160 from Toronto and I did not have a sense of 0:04:12.680 --> 0:04:15.920 Wall Street at the time. I was interested in, uh, 0:04:16.440 --> 0:04:19.599 being a businessman was which is what I told my 0:04:19.640 --> 0:04:22.000 guidance counselor. So he told me to go to a 0:04:22.000 --> 0:04:25.440 business school. So I did, and I did well enough 0:04:25.520 --> 0:04:28.960 there and got a job at Goldman Sacks out of undergrad. 0:04:29.480 --> 0:04:31.440 It's not that you wanted to, but it's the law. 0:04:31.520 --> 0:04:34.120 You come out of Wharton and there there's a line. 0:04:34.480 --> 0:04:36.240 You could go to Goldman Sacks. Here, you could go 0:04:36.279 --> 0:04:38.839 to McKinsey. There, there's a whole bunch of options exactly, 0:04:38.880 --> 0:04:41.039 although I kind of stumped to my classmates, I only 0:04:41.080 --> 0:04:43.760 got one job offer from a real Sacks and apparently 0:04:43.760 --> 0:04:45.400 if you get one from Goldman, you're supposed to have 0:04:45.400 --> 0:04:48.160 gotten one from everybody else too. But I worked there 0:04:48.160 --> 0:04:52.920 for two years in corporate finance, and while impressed with 0:04:53.720 --> 0:04:57.280 the quality of the talent and the you know, they 0:04:57.279 --> 0:05:00.560 know what they're doing there, it wasn't for me. And 0:05:01.120 --> 0:05:03.039 I actually tried to get a job in book publishing 0:05:03.160 --> 0:05:06.320 first and couldn't get hired. So there was nothing available 0:05:06.360 --> 0:05:09.640 in steam engines. You were looking into businesses that were 0:05:09.680 --> 0:05:13.039 soon going to collapse, exactly, So thank you publishing industry 0:05:13.080 --> 0:05:16.040 for not hiring me and merely hiring me later. And 0:05:16.080 --> 0:05:19.760 then a friend suggested journalism, and I looked into so 0:05:19.800 --> 0:05:22.920 you had never really been thinking about writing. Has there 0:05:22.960 --> 0:05:27.919 been previous authorship, any writing casually? Not on the side, 0:05:28.080 --> 0:05:30.760 like I was a capable writer, But I know, I 0:05:30.760 --> 0:05:32.640 don't think I ever once said I want to be 0:05:32.760 --> 0:05:35.360 a writer. And so back to your question, how did 0:05:35.400 --> 0:05:40.200 I get into business journalism, It's because to get into journalism, 0:05:40.240 --> 0:05:42.760 I need I needed to write about business. So that 0:05:42.920 --> 0:05:47.240 you and, UM, that's that's pretty fascinating. What does your 0:05:47.279 --> 0:05:50.359 process look like? How do you figure out what you 0:05:50.440 --> 0:05:54.880 want to write about and how do you begin covering 0:05:54.880 --> 0:05:59.040 a specific topic? The areas you have written about, both 0:05:59.040 --> 0:06:02.839 in print and in books is pretty broad cross section 0:06:02.920 --> 0:06:09.120 of American finance. Yeah. I basically tend to follow my interest, 0:06:09.520 --> 0:06:12.960 you know, wherever it lands. Um, you know, maybe I 0:06:12.960 --> 0:06:17.640 shouldn't say that my my choice of topic is somewhat random, 0:06:17.720 --> 0:06:20.760 but I after a point in my career, got to 0:06:20.800 --> 0:06:24.440 a point where I could, uh, you know, I knew 0:06:24.520 --> 0:06:28.000 enough editors that I could get assignments with good story ideas. 0:06:28.000 --> 0:06:30.800 So it was just about a good story and we 0:06:30.880 --> 0:06:33.479 were pitching ideas to them and most of the time 0:06:33.520 --> 0:06:35.960 they liked it. Yeah, and I and and in the 0:06:36.000 --> 0:06:39.880 other direction, So you know, it's following. Uh, just sort 0:06:39.920 --> 0:06:43.000 of my interest. But if you look at the three books, uh, 0:06:43.040 --> 0:06:45.840 they all sort of follow each other. Jamie Diamond was 0:06:45.880 --> 0:06:48.960 the first one because I had a cover story in 0:06:49.120 --> 0:06:51.960 New York Magazine after the fall of bear Stearns, which 0:06:52.240 --> 0:06:56.839 we we sold as a book, and then Mackenzie followed that. 0:06:56.960 --> 0:07:02.080 Because Jamie himself, who's uh and no notoriously anti consultant. 0:07:02.320 --> 0:07:04.919 It didn't resonate enough with me at the time that 0:07:04.960 --> 0:07:07.039 I thought, oh, that's my next book, but enough that 0:07:07.080 --> 0:07:10.760 it was in the book about Jamie and my editor said, 0:07:10.800 --> 0:07:13.040 what what what about what he said about Mackenzie? What 0:07:13.080 --> 0:07:14.680 do you think? And I looked into and I was like, 0:07:14.760 --> 0:07:16.240 I can't believe no one's written a book. I was 0:07:16.280 --> 0:07:18.840 about to say, it's astonishing that they've been around as 0:07:18.920 --> 0:07:21.960 long as they have been and are as influential as 0:07:22.000 --> 0:07:24.760 they are. No one has really called them to test. 0:07:24.920 --> 0:07:31.080 I think it's because they probably never cooperated and uh, 0:07:31.200 --> 0:07:34.040 did they cooperate with you? They did? They did not. 0:07:34.240 --> 0:07:39.160 At first We used the age old this book is 0:07:39.200 --> 0:07:43.560 happening anyway, thing that we use in magazine journalism. You 0:07:43.600 --> 0:07:46.480 could either help shape it or just come out and 0:07:46.800 --> 0:07:48.720 you can read it with everybody else, and I promise 0:07:48.760 --> 0:07:51.360 you won't be happy. And the shocker is that Mackenzie 0:07:51.400 --> 0:07:54.239 came around. And then you get to the third book, 0:07:54.440 --> 0:07:58.040 Harvard Business School, and that came about just because you know, 0:07:58.160 --> 0:08:00.720 Mackenzie and Harvard have been connected for a long time, 0:08:00.760 --> 0:08:03.360 for a long time, and they are the only one 0:08:03.400 --> 0:08:07.360 of the three subjects that refuse to speak to me 0:08:07.400 --> 0:08:11.240 at all. That's interesting is your process. I know some 0:08:11.280 --> 0:08:14.200 people research research, research, and then they finished the research 0:08:14.560 --> 0:08:17.560 and they write right right, and other people research right, 0:08:17.640 --> 0:08:20.520 research right. How do you approach covering a subject I 0:08:20.560 --> 0:08:24.600 mean broad like McKinsey and Harvard Business School to fairly 0:08:24.680 --> 0:08:28.880 giant subjects. I'm more of the former, where I sort 0:08:28.920 --> 0:08:32.360 of try to frontload the research. I found through the 0:08:32.440 --> 0:08:35.080 three books that the hardest part of writing a book, 0:08:35.080 --> 0:08:39.440 at least for me, is the middle part, organizing what 0:08:39.559 --> 0:08:42.800 you know and getting ready to write. Because reporting, if 0:08:42.840 --> 0:08:46.240 you enjoy it and have a whatever capability at it's 0:08:46.240 --> 0:08:47.920 not that hard. You're just talking to people and you're 0:08:47.960 --> 0:08:51.160 doing a thousand words and it's a fairly clear structure. 0:08:51.920 --> 0:08:54.640 On the other hand, a hundred thousand words so like, 0:08:55.000 --> 0:08:57.640 so the first time I did that it nearly you know, 0:08:57.840 --> 0:08:59.920 broke my mind. I was like, I don't even know 0:09:00.760 --> 0:09:04.160 how to like take this word file and start cutting 0:09:04.160 --> 0:09:10.200 and pay. Like the sort of just manual challenge was 0:09:10.200 --> 0:09:14.720 was uh so terrifying. But um and you know, so 0:09:14.920 --> 0:09:18.840 I I do do research at first organization than writing. 0:09:18.920 --> 0:09:22.400 But you know, you by the time you're writing is 0:09:22.400 --> 0:09:25.200 when you know the most about the subject, So you know, 0:09:25.320 --> 0:09:28.640 you do go back and look into things that you 0:09:28.679 --> 0:09:31.920 stumble on at that point in the process. How how 0:09:32.000 --> 0:09:37.280 much of Harvard Business School is part of that group 0:09:37.440 --> 0:09:43.200 that the national populist movement around the world is tilting against. 0:09:44.200 --> 0:09:47.440 Before I looked into it, I would have I I 0:09:47.480 --> 0:09:49.520 think I if you'd asked me, I would have guessed 0:09:49.520 --> 0:09:52.719 that HBS was, you know, dominant in both business and 0:09:52.840 --> 0:09:55.880 government leadership positions. One of the things that's really interesting 0:09:55.880 --> 0:10:00.000 about them, as opposed to say Harvard Law School or 0:10:00.480 --> 0:10:04.400 or other places, is there are precious few Harvard m 0:10:04.440 --> 0:10:08.040 b A's that ever have a career in government. You know, 0:10:08.080 --> 0:10:11.160 they go in at the top, like Hank Paulson or 0:10:11.160 --> 0:10:13.080 something like that. But like, if you look at the 0:10:13.120 --> 0:10:16.760 top one thousand people in the federal government, you'll probably 0:10:16.760 --> 0:10:21.800 find five Harvard NBA's. Yeah, so they are not. They 0:10:21.800 --> 0:10:27.920 are not part of the governing elite, except if you, uh, 0:10:29.120 --> 0:10:32.960 business that corporations are essentially ruling this country well to 0:10:33.000 --> 0:10:35.920 a large degree they have, Yeah, so in that regard 0:10:36.480 --> 0:10:41.000 they are. I think the FT came out with a survey, 0:10:41.120 --> 0:10:46.720 its latest survey of the five thousand largest companies in 0:10:46.760 --> 0:10:50.920 the world or the thousand or something, and MBAs were 0:10:50.920 --> 0:10:54.920 not dominant as c as a percentage of CEOs, But 0:10:55.240 --> 0:11:00.480 of those CEOs that were MBA's, Harvard was totally dominant. 0:11:00.520 --> 0:11:03.280 They had more than twice as many as the closest one, 0:11:03.320 --> 0:11:07.200 which I think was Stanford or Inciot. So uh. They 0:11:07.240 --> 0:11:12.920 have a long history of accelerating people's climb to the 0:11:12.960 --> 0:11:17.120 top of whatever greasy pole they're climbing. Let let me 0:11:17.160 --> 0:11:19.120 throw a quote of yours at you and see what 0:11:19.160 --> 0:11:22.160 you have to say about this. Harvard Business School has 0:11:22.240 --> 0:11:26.120 not only proven an enormous failure, but it's very success 0:11:26.200 --> 0:11:31.679 has made it positively dangerous discuss. I think that one 0:11:31.720 --> 0:11:35.840 of the things that they have consistently failed to do 0:11:36.600 --> 0:11:42.480 is to teach their students that hierarchy and success does 0:11:42.520 --> 0:11:45.520 not equal. That does not mean that you are right 0:11:46.000 --> 0:11:49.400 and does not mean that you are wise. And part 0:11:49.400 --> 0:11:51.360 of that as to do with the fact that you 0:11:51.440 --> 0:11:55.000 can't pitch yourself as a graduate school of Harvard where 0:11:55.040 --> 0:11:59.080 your where, your mission is to make boatloads of money. 0:11:59.480 --> 0:12:03.360 So what they sell themselves as as educating enlightened leaders, 0:12:03.960 --> 0:12:08.840 and these enlightened leaders are convinced of their own destiny 0:12:09.000 --> 0:12:13.360 as leaders from the get go, and they confuse all 0:12:13.400 --> 0:12:18.120 sorts of other inputs for their essential correctness and rightness, 0:12:18.200 --> 0:12:21.160 and then you know, make decisions based on that. And 0:12:21.280 --> 0:12:24.640 it's uh, it's like they've confused the ability to make 0:12:24.679 --> 0:12:28.120 money with wisdom. So let me throw another of your 0:12:28.160 --> 0:12:31.920 quotes back at you. Harvard Business School has contributed to 0:12:32.080 --> 0:12:35.920 pretty much every bad thing that has happened in American 0:12:36.000 --> 0:12:39.600 business and the economy over the past century. Now is 0:12:39.600 --> 0:12:43.760 that a fact or a slight execut Uh? That's that's 0:12:43.880 --> 0:12:47.480 on paraphrases. Okay, So I wouldn't want to like, you know, 0:12:47.760 --> 0:12:49.599 a couple of reviewers have said that I blamed the 0:12:49.640 --> 0:12:54.400 recent financial crisis on them. I did not. Yeah, And 0:12:54.440 --> 0:12:58.400 in the book what I took issue with was Dean 0:12:58.559 --> 0:13:03.400 Jay light in the media aftermath of the crisis saying, uh, 0:13:03.600 --> 0:13:06.280 we won't. We don't want to spend time looking to 0:13:06.400 --> 0:13:09.280 fix blame. That's not interesting. But we must be part 0:13:09.320 --> 0:13:12.520 of the solution. And if you look at the list 0:13:12.720 --> 0:13:16.560 of HBS grads who are in positions of authority in 0:13:16.640 --> 0:13:20.200 the lead up to the crisis, you have George W. Bush, 0:13:20.240 --> 0:13:22.680 you have Christopher Cox, you have Hank Paulson, you have 0:13:22.840 --> 0:13:26.760 Jamie Diamond, you have down whoever. I'll take Coldman sax 0:13:27.000 --> 0:13:32.680 So Lynch, John Thayne, John Paulson. So you have it 0:13:32.920 --> 0:13:36.480 like that. In no way was I like it's their fault. 0:13:36.520 --> 0:13:38.800 But it's like, wait a second, when we're making a 0:13:38.880 --> 0:13:41.559 list of people to figure out how to not do 0:13:41.640 --> 0:13:44.640 this again, I don't think you have earned the right 0:13:44.720 --> 0:13:47.600 to be uh at the head of that line. You 0:13:47.640 --> 0:13:49.720 were at the head of it leading into this thing. 0:13:49.880 --> 0:13:53.280 The metaphor I I like is when a surgical procedure 0:13:53.360 --> 0:13:56.880 is botched, you always send in a fresh surgeon to 0:13:57.000 --> 0:13:59.560 fix it, who is not looking to cover up the 0:13:59.559 --> 0:14:02.840 previous snaffo. He's just going in or she's just going 0:14:02.840 --> 0:14:04.960 in to do what they need to do. When you 0:14:05.000 --> 0:14:07.600 send somebody to fix something where they may have had 0:14:07.679 --> 0:14:11.520 hand a hand in the creation of the problem you're 0:14:11.559 --> 0:14:14.040 not going to get And and that's been a pretty 0:14:14.120 --> 0:14:18.800 fair criticism of having Geithner and Larry Summers as part 0:14:18.800 --> 0:14:21.040 of the clan up crew. Are they there to clean up? 0:14:21.080 --> 0:14:23.440 Are they there to clean up their reputation? It's hard 0:14:23.480 --> 0:14:26.640 to tell. Yeah, And Hank Paulson, you know, credited with 0:14:27.000 --> 0:14:32.360 stabilizing a clearly precarious situation, but he that was not 0:14:32.560 --> 0:14:35.400 his only motivation at the time. He was motivated to 0:14:35.440 --> 0:14:38.560 save Goldman sacks. He was motivated to Uh, there were 0:14:38.600 --> 0:14:43.560 sweetheart deals with gold all over the place. So again, 0:14:43.880 --> 0:14:48.120 was it their fault? Who's you know who? We can't 0:14:48.120 --> 0:14:52.360 really blame anyone, but they certainly weren't without fault to say, 0:14:52.440 --> 0:14:56.080 to say the least. So here's a question that I'm 0:14:56.120 --> 0:15:01.200 curious about. So you you reference Stanford, you went to Wharton, 0:15:01.640 --> 0:15:06.840 There's the Booth School at Chicago, Columbia, talk at Dartmouth. 0:15:06.920 --> 0:15:13.280 You go down the list of high ranked MBA programs, 0:15:13.760 --> 0:15:16.480 it seems like there's a lot of competition. Is is 0:15:16.520 --> 0:15:20.240 Harvard Business School still it or have some of these 0:15:20.240 --> 0:15:24.880 other really well regarded entities cut a little bit into 0:15:24.920 --> 0:15:29.520 their space. I can answer that question with a quote 0:15:29.560 --> 0:15:32.280 that's in the book. I can't remember who said it, 0:15:32.520 --> 0:15:37.920 so i'm I apologize to its source now. But they said, um, 0:15:37.960 --> 0:15:42.040 if you want your grandparents to be impressed, uh, go 0:15:42.120 --> 0:15:44.560 to Harvard Business School. If you want your grandkids to 0:15:44.600 --> 0:15:47.360 be impressed, go to Stanford. That makes a lot of sense. Yeah, 0:15:47.840 --> 0:15:52.040 I read recently there are seventy six thousand Harvard NBA alumni, 0:15:52.560 --> 0:15:55.080 with a third of those living outside of the US. 0:15:55.600 --> 0:16:00.360 That's a pretty potent network of for any graduate school 0:16:00.400 --> 0:16:04.840 has Has Harvard Business School graduates become the new Illuminati? 0:16:05.880 --> 0:16:09.680 H I think I I'm I say in the book 0:16:09.760 --> 0:16:15.120 that it may be the most powerful alumni network that 0:16:15.240 --> 0:16:20.560 ever has been right. They are uh uh. They have 0:16:20.920 --> 0:16:26.760 significant representation among the world's wealthiest and among leadership at uh. 0:16:26.800 --> 0:16:30.240 In the corporate world overseas, they are in more government 0:16:30.480 --> 0:16:33.440 positions because that, you know, people tend to send their 0:16:33.520 --> 0:16:36.920 kids to the States to get that snamp of credibility. 0:16:37.320 --> 0:16:40.520 So let's talk a little bit about Jamie Diamond. Warren 0:16:40.520 --> 0:16:43.520 Buffett has described him as one of his favorite CEOs. 0:16:44.080 --> 0:16:47.880 What what's your take on Mr Diamond. Readers of the book, 0:16:48.680 --> 0:16:52.520 we'll see that I was impressed with him Uh, he's 0:16:52.600 --> 0:16:56.680 one of the most charismatic CEOs I've ever met. He 0:16:56.880 --> 0:17:02.280 clearly endears people to him, and you know, loyalty is 0:17:02.800 --> 0:17:06.520 one of his strong suits. I think his management of 0:17:06.600 --> 0:17:10.840 JP Morgan Chase pretty much, you know, stands for itself. 0:17:10.880 --> 0:17:13.080 I know that you haven't always you know, you've been 0:17:13.119 --> 0:17:15.439 a critic in the past, but as as far as 0:17:16.680 --> 0:17:19.159 as as managed as if your job is not so 0:17:19.240 --> 0:17:25.360 much a critic of him as the banking industries begging 0:17:25.440 --> 0:17:29.360 to be bailed out? How fortuitous was it that they 0:17:29.400 --> 0:17:34.200 had their big sub prime disaster years before the financial crisis? 0:17:34.240 --> 0:17:36.639 It so when they had a liquid date, there was 0:17:36.680 --> 0:17:39.359 a bit there for them to get out. It wasn't 0:17:39.440 --> 0:17:42.280 selling into the panic or am I giving them too 0:17:42.359 --> 0:17:45.040 much credit? You know. One of the things that I 0:17:45.119 --> 0:17:50.320 criticized the case method of teaching at HBS four is 0:17:50.359 --> 0:17:54.760 that they allow corporate executives to claim foresight when it 0:17:54.880 --> 0:17:59.240 was just circumstance and luck. I think, uh, in Last 0:17:59.240 --> 0:18:01.040 Man Standing at talk about the fact that they were 0:18:01.080 --> 0:18:04.200 just they were trying to get the pieces of the 0:18:04.320 --> 0:18:09.440 conveyor belt all moving at the right time, and uh, 0:18:09.520 --> 0:18:13.800 we're a step behind. Uh. Some of the other players 0:18:13.840 --> 0:18:18.160 like Meryl and uh uh so, yeah, there was luck there. 0:18:18.520 --> 0:18:20.840 But at the same time, I had numerous people tell 0:18:20.920 --> 0:18:24.119 me from inside the company that Jamie and and the 0:18:24.200 --> 0:18:27.480 people who work with him had sort of suddenly feeling 0:18:27.840 --> 0:18:32.280 on alert a little before everyone else. Well, I'm doing 0:18:32.280 --> 0:18:34.840 this from memory, and in my book, when I was 0:18:34.880 --> 0:18:39.440 researching bailout Nation back America was a disaster, Merrill Lynch 0:18:39.480 --> 0:18:45.040 going down less countrywide Morgantown. Notably missing from the parade 0:18:45.040 --> 0:18:48.680 of terribles was JP Morgan. And when you do the 0:18:48.760 --> 0:18:51.920 deeper dive, you find out, well, they had a derivative 0:18:51.920 --> 0:18:54.960 snaffoo when they had these problems with C d O s. 0:18:55.400 --> 0:18:57.960 But it wasn't right in the middle of the O 0:18:58.040 --> 0:19:00.760 eight oh nine where the bids went away. I want 0:19:00.760 --> 0:19:03.320 to say it was three or five years earlier. So 0:19:03.359 --> 0:19:06.880 when they had to clean that up, the housing market 0:19:06.920 --> 0:19:09.520 was still there. They were able to go out to 0:19:09.520 --> 0:19:11.720 the market and work their way out of whatever it was. 0:19:11.800 --> 0:19:14.040 And I apologize if I'm getting that wrong of doing 0:19:14.080 --> 0:19:19.120 this for memory, but clearly their derivative snaff who predated 0:19:19.640 --> 0:19:22.639 Bear and Lehman and A. I. G. And everybody else. 0:19:23.480 --> 0:19:25.880 It's always better to sell into an upmarket than into 0:19:25.920 --> 0:19:29.399 a panic. And also you know and their their next 0:19:29.440 --> 0:19:33.359 derivative snaffoo, the London Whale was after and I think 0:19:33.800 --> 0:19:36.400 it might be out of a little nivete on my part, 0:19:36.520 --> 0:19:40.840 But what Jamie said, and what Sandy while had said 0:19:40.880 --> 0:19:45.879 before him, is their focus on the Fortress balance sheet 0:19:46.720 --> 0:19:51.080 to be able to stand anything to or buy when 0:19:51.080 --> 0:19:54.760 the streets are running with blood or whatever it is. Uh, 0:19:54.920 --> 0:19:58.720 it's you know that that was a stated intention long 0:19:58.840 --> 0:20:01.920 before they did so. And look what they did. They 0:20:01.960 --> 0:20:05.920 picked up bear Sterns Sterns for a song, originally two dollars, 0:20:06.000 --> 0:20:08.800 ultimately ten dollars a share. They ended up getting that 0:20:09.000 --> 0:20:11.560 brand new bear Sterns building, which was probably worth at 0:20:11.560 --> 0:20:17.960 that point more than the rest and and and Washington 0:20:18.000 --> 0:20:21.439 Music if you remember was it was it city. Someone 0:20:21.520 --> 0:20:24.560 was maneuvering to get WOMBO and somebody who had a 0:20:24.680 --> 0:20:29.040 let's call it a dubious balance sheet, And when JP 0:20:29.200 --> 0:20:33.000 Morgan showed up, it was yeah, you guys are done. 0:20:33.000 --> 0:20:35.280 We're going there. And I will tell you from personal 0:20:35.280 --> 0:20:38.360 experience at the time, we had a Washington Mutual account, 0:20:38.840 --> 0:20:41.720 my a t M credit card where I used to 0:20:41.760 --> 0:20:44.879 get charged a dollar or two dollars that chase. I 0:20:44.920 --> 0:20:47.199 want to say the deal took place on like a 0:20:47.280 --> 0:20:50.960 Saturday or Sunday. By Tuesday or Wednesday, the fee was 0:20:51.040 --> 0:20:53.280 gone from you. It was in forty eight hours, and 0:20:53.359 --> 0:20:56.399 they were often running. It was a pretty seamless transition, 0:20:56.600 --> 0:21:00.520 and that was a pretty substantial purchase. And that was 0:21:00.600 --> 0:21:04.320 when in October it was like it was still in 0:21:04.880 --> 0:21:09.199 you know, Lehman frenzy. A lot of people rained a 0:21:09.200 --> 0:21:11.520 lot of hate down on the guy as as as 0:21:11.560 --> 0:21:15.679 their favorite you know, boogeyman from the financial crisis, but 0:21:15.840 --> 0:21:19.400 as a manager and as a you know, just from 0:21:19.440 --> 0:21:21.239 what I know him as a person and stuff like, 0:21:21.320 --> 0:21:24.639 I couldn't be more impressed. A couple of people wrote 0:21:24.680 --> 0:21:28.440 online that how do I square a positive biography of 0:21:28.520 --> 0:21:31.800 Jamie Diamond with a searing critique of Harvard Business School? 0:21:32.359 --> 0:21:34.720 And it's simply not everybody who comes out of there 0:21:34.800 --> 0:21:37.119 is Yeah, that's the point. It's like, I'm not saying 0:21:37.160 --> 0:21:39.080 everyone out of there is evil, and everyone out of 0:21:39.080 --> 0:21:41.400 there doesn't know what they're doing. Is they're clearly very 0:21:41.440 --> 0:21:44.000 good at teaching people of things they need to do 0:21:44.040 --> 0:21:46.119 to get to the top. But as Henry Mintzburg at 0:21:46.160 --> 0:21:49.919 McGill says, getting to the top is what matters to 0:21:50.040 --> 0:21:52.679 the student and the school when it's selling itself to 0:21:52.800 --> 0:21:55.800 prospective NBA students. What matters to the rest of us 0:21:55.880 --> 0:21:59.120 is what they do once they're there. And in that 0:21:59.240 --> 0:22:03.399 group I'm in, clearly is a standout. How secret is 0:22:03.520 --> 0:22:07.720 Mackenzie's influence? Yeah, I got mocked and from a couple 0:22:07.720 --> 0:22:11.879 of quarters for that saying it's no secret, uh, to 0:22:12.119 --> 0:22:17.200 which I responded, Um, we're trying to sell books and 0:22:17.200 --> 0:22:20.439 and the two points were honest. The secret part about 0:22:20.560 --> 0:22:25.160 Mackenzie's influence is that when it is not for public 0:22:25.240 --> 0:22:28.000 institution or governmental body or something like that that has 0:22:28.040 --> 0:22:32.120 to disclose it, none of their work is disclosed by anyone, 0:22:32.240 --> 0:22:36.040 by the client, by Mackenzie. So uh, some of it 0:22:36.080 --> 0:22:39.280 comes to light when there is scandal or when people 0:22:39.280 --> 0:22:43.000 want to brag about it, but the large proportion of 0:22:43.080 --> 0:22:46.399 their work is happens in complete secret. And hence the 0:22:46.480 --> 0:22:50.720 Mackenzie mystique you write about. Absolutely. Yeah. So these guys 0:22:50.920 --> 0:22:54.640 are behind the scenes interviewer or behind the scenes consultants 0:22:54.760 --> 0:22:58.439 who I make a point in the book that they 0:22:58.680 --> 0:23:02.480 what they do is they sell credit to their clients 0:23:02.560 --> 0:23:05.840 for their ideas, right, So mckensey that again, they sell 0:23:05.960 --> 0:23:09.280 credit for their ideas. In other words, they'll give the 0:23:09.280 --> 0:23:11.600 client the idea and say, hey, you can take credit. 0:23:11.680 --> 0:23:15.440 They never claim credit for it, right because no CEO 0:23:15.600 --> 0:23:19.199 wants to hire them, say tell me to do acquisition 0:23:19.280 --> 0:23:22.679 A or B, and then they do A and mackenzie 0:23:22.800 --> 0:23:24.920 is over there saying that was our idea. Then that 0:23:25.200 --> 0:23:28.440 doesn't happen. But the trade off is that mackenzie says, 0:23:28.880 --> 0:23:31.359 we will take no credit, but we will also take 0:23:31.400 --> 0:23:34.000 no blame, no blames. So let's talk a little bit 0:23:34.040 --> 0:23:37.600 bit about that blame. You and I were chatting, Um, 0:23:37.680 --> 0:23:41.920 I not looking to sell books headlines. A column one's 0:23:42.000 --> 0:23:46.240 called from two thousand eleven is McKinsey and Company the 0:23:46.320 --> 0:23:49.240 root of all evil. I must have read something you 0:23:49.320 --> 0:23:51.959 had written before you had written the book. Tell me 0:23:52.000 --> 0:23:56.040 if this quote sounds familiar. McKenzie, the global consulting firm, 0:23:56.040 --> 0:24:00.480 has created dubious strategies for all manners of companies, ranging 0:24:00.520 --> 0:24:04.920 from Enron to General Electric. Indeed, wherever there has been 0:24:04.920 --> 0:24:08.240 a financial disaster in the world, if you look around, 0:24:08.240 --> 0:24:12.520 somewhere in the background, McKenzie and Company is nearby. And 0:24:12.720 --> 0:24:14.639 let me throw some of these out at you and 0:24:14.680 --> 0:24:17.920 you tell me your thoughts, side pockets and off balance 0:24:17.920 --> 0:24:20.760 sheet accounting, leading it to become known as the firm 0:24:20.840 --> 0:24:26.240 that built en Ron. Jeff Skilling was Mackenzie also, right, Yeah, 0:24:26.560 --> 0:24:30.480 before Enron, so he hit for the cycle. Yeah, hbs 0:24:31.000 --> 0:24:34.760 Mackenzie and then Enron and then Jail perfect right, that's 0:24:34.800 --> 0:24:40.080 the full foursome. So and and while he was at Enron, 0:24:40.320 --> 0:24:43.720 he continued to use Mackenzie to the tune of ten 0:24:43.760 --> 0:24:48.240 million a year in fees. They hired MBA's mostly Harvard 0:24:48.320 --> 0:24:56.679 NBA's and had Mackenzie consultants at right, fawning articles and 0:24:56.840 --> 0:25:01.000 books like The War for Talent and and uh stuff 0:25:01.040 --> 0:25:03.480 about their off balance sheet accounting, talking about how this 0:25:03.520 --> 0:25:06.760 new asset light company was the company of the future 0:25:06.840 --> 0:25:11.120 and they were cheerleading all the way. Mackenzie argued that 0:25:11.640 --> 0:25:15.520