WEBVTT - John Mack on Life Lessons From Financial Crisis 0:00:00.080 --> 0:00:05.960 M This is Mesters in Business with Very Results on 0:00:06.240 --> 0:00:10.880 Bloomberg Radio this weekend. On the podcast, Boy Do I 0:00:10.920 --> 0:00:15.600 have an extra special guest, John Mac, legendary CEO of 0:00:15.600 --> 0:00:21.120 Morgan Stanley. Man. This is just a master class on leadership, 0:00:21.320 --> 0:00:26.760 on team building, on understanding of business and understanding what 0:00:26.920 --> 0:00:30.120 to do for your clients. So not only that they 0:00:30.160 --> 0:00:34.680 give you business, but they give you their loyalty and 0:00:34.800 --> 0:00:38.560 their ongoing respect. I don't know what else to say 0:00:38.720 --> 0:00:45.159 other than my conversation with Morgan Stanley's John Mac. I've 0:00:45.159 --> 0:00:48.640 been looking forward to this conversation for quite a while. 0:00:48.680 --> 0:00:50.479 As soon as I saw the book came out, I 0:00:50.600 --> 0:00:53.680 was I have to really get the inside dope from John, 0:00:54.200 --> 0:00:57.680 and so let's start with the beginning. You started Smith 0:00:57.720 --> 0:01:02.600 Barney in n was so compelling about a North Carolina 0:01:02.720 --> 0:01:06.880 kid from Duke going to Wall Street. It was pretty simple. 0:01:07.040 --> 0:01:09.759 So I was on a scholarship at Duke, an athletic scholarship, 0:01:09.920 --> 0:01:14.560 and cracked C five in my neck. So my scholarship 0:01:14.640 --> 0:01:17.840 was only valid for four years and I needed one 0:01:17.880 --> 0:01:21.280 class to graduate. I had very little money I thought 0:01:21.319 --> 0:01:24.000 had passed away when I was in college, so I 0:01:24.040 --> 0:01:26.880 needed a job and I went down and knocked on 0:01:26.959 --> 0:01:31.160 the door a company called First Securities of North Carolina, 0:01:31.280 --> 0:01:33.080 and a guy named Bill Vannor said, look, you know 0:01:33.160 --> 0:01:35.080 nothing about the business. I'll put you in the back 0:01:35.120 --> 0:01:37.760 office and you can go to your one class every 0:01:37.840 --> 0:01:40.840 day ahead and you go on your lunch out and 0:01:40.920 --> 0:01:42.560 come back and go to work. So it was me 0:01:43.360 --> 0:01:45.840 and nine women in the back office and they had 0:01:45.880 --> 0:01:49.800 the old IBM computer punch cards. That's how long ago 0:01:49.840 --> 0:01:52.680 it was. So I got a sense and a field 0:01:52.680 --> 0:01:55.080 for the business. And I got to know a lady 0:01:55.160 --> 0:01:59.200 named Fannie Mitchell who ran job placement for Duke University. 0:01:59.760 --> 0:02:02.000 It's when people would come down and say, you know 0:02:02.440 --> 0:02:05.320 Procter and Gamble or IBM, whoever it may be. She 0:02:05.360 --> 0:02:06.840 would say, we've got you got to talk to his 0:02:06.920 --> 0:02:09.320 John mac and I think you know. I would see 0:02:09.360 --> 0:02:11.919 it in the cafeteria and most students would ignore. I'd 0:02:11.919 --> 0:02:13.600 sit down, have a couple of coffee with her, or 0:02:13.680 --> 0:02:16.840 have lunch with her. So that's how I got involved 0:02:17.120 --> 0:02:20.840 with the securities business. And then Smith Barney was in 0:02:20.919 --> 0:02:24.280 town and they were going to open an office in Atlanta, 0:02:24.520 --> 0:02:26.320 and they ended up hiring me to go to their 0:02:26.360 --> 0:02:29.680 Atlanta office. So I come up to New York in 0:02:31.080 --> 0:02:34.960 and I'm working at Smith Parney and they decided because 0:02:35.160 --> 0:02:39.480 of the explosion of volume the New York Stock has 0:02:39.560 --> 0:02:43.639 change stopped all new branches from opening. So I got 0:02:43.639 --> 0:02:45.880 a chance to go into the municipal behind apartment. That's 0:02:45.880 --> 0:02:49.120 what I did. I was a trader salesman, and I 0:02:49.240 --> 0:02:52.560 learned a lot about a risk and also learned a 0:02:52.560 --> 0:02:55.400 lot about drinking at lunch. And you've got to be 0:02:55.480 --> 0:02:59.360 very careful going out with clients having a couple of drinks. Hey, 0:02:59.400 --> 0:03:02.840 you come back to the desk a little uh buzzed? 0:03:03.560 --> 0:03:06.239 What happens? Can't you make a trading mistake that way? Well, 0:03:06.360 --> 0:03:09.040 not only you can. I did. Uh. We went down 0:03:09.080 --> 0:03:11.519 to say Van if you remember that years ago, down 0:03:11.520 --> 0:03:14.680 to Walla Street. It was US Trust was my client, 0:03:14.720 --> 0:03:17.560 a guy named Jimmy Dagnan, and US Trust was the 0:03:17.600 --> 0:03:20.239 adviser for the State Employees of New York, which is 0:03:20.280 --> 0:03:23.360 a huge pension giant. So we sat there and we 0:03:23.480 --> 0:03:26.800 drank for at least three hours. Now, wait, are you 0:03:26.960 --> 0:03:29.440 normally a drink or during lunch or if the client 0:03:29.560 --> 0:03:32.600 is drinking, you gotta keep up. I'm a client guy. 0:03:33.560 --> 0:03:36.320 No one wants to drink alone. So if he's drinking 0:03:36.400 --> 0:03:39.160 or she's drinking, I'm drinking. And I came back and 0:03:39.160 --> 0:03:42.120 I made a mistake, and uh, thank god they didn't 0:03:42.160 --> 0:03:47.000 fire me. And over time we eradicated that and fixed it. Uh, 0:03:47.040 --> 0:03:49.160 And then I learned be very careful when you go 0:03:49.200 --> 0:03:51.040 out to lunch on Wall Street. So tell us a 0:03:51.080 --> 0:03:53.440 little bit about the culture on the street in the 0:03:53.520 --> 0:03:56.240 late sixties and early seventies. What was it like. It 0:03:56.320 --> 0:04:01.080 was a crazy time. The thing of politically correct didn't exist, 0:04:01.520 --> 0:04:04.240 to say the very least. All Right. So I'm I'm 0:04:04.320 --> 0:04:10.480 two years old. I'm at Smith Barney. I'm a municipal trader. Uh. 0:04:10.640 --> 0:04:13.120 Then I go into the corporate behind the market and 0:04:13.160 --> 0:04:17.520 I hear about these crazy parties that Wall Street was 0:04:17.520 --> 0:04:20.120 was throwing. And I only went to one and left. 0:04:20.839 --> 0:04:24.200 I mean it was basically strippers and people getting drunk. 0:04:24.240 --> 0:04:27.359 And you know, I came from a town of about 0:04:27.360 --> 0:04:31.880 twelve thousand people in North Carolina, Baptist religion. Mainly, it 0:04:31.960 --> 0:04:34.080 was a new or for me, but it taught me 0:04:34.120 --> 0:04:36.800 a lot. You gotta pay attention and you've got to 0:04:36.839 --> 0:04:40.400 make sure that you don't get drunk at lunch. And 0:04:40.440 --> 0:04:42.680 you gotta make sure you tell the truth. Telling the 0:04:42.680 --> 0:04:44.880 truth is certainly a key part, and that's a theme 0:04:44.960 --> 0:04:47.880 that comes up again and again in your book. We'll 0:04:47.920 --> 0:04:50.680 get to that in a little bit. You mentioned the 0:04:50.760 --> 0:04:53.919 New York Stock Exchange didn't allow any new branches to 0:04:54.000 --> 0:04:58.159 be open. I have a vague recollection of Wall Street 0:04:58.240 --> 0:05:02.240 being closed on Wednesday days to catch up on the paperwork. 0:05:02.279 --> 0:05:04.760 Tell us a little bit about that's correct. They closed 0:05:04.760 --> 0:05:07.920 on Wednesday to catch up on the paperwork. And all 0:05:07.960 --> 0:05:10.720 the firms, whether it was first of all Us and Morgan, 0:05:10.800 --> 0:05:13.520 Stanley going Goldman, Sacks and Morgan at that time didn't 0:05:13.520 --> 0:05:16.280 have a big secondary business. We had to clear up 0:05:16.320 --> 0:05:19.599 the back office. So you'd shut it noon and try 0:05:19.680 --> 0:05:22.919 to figure out these securities go to why, and these 0:05:23.320 --> 0:05:30.080 securities go to Z literally paper certificates and delivering absolutely 0:05:30.160 --> 0:05:33.559 talk about, you know, ancient technology. One of the things 0:05:33.640 --> 0:05:36.720 you mentioned was that by the nine eighties there were 0:05:36.800 --> 0:05:42.360 two key forces driving changes on Wall Street, deregulation and technology. 0:05:42.440 --> 0:05:45.720 Corret tell us about that. Well, the markets were changing, 0:05:45.839 --> 0:05:49.560 they were global, and as they became global and you 0:05:49.600 --> 0:05:52.919 were competing around the world, it was clear that you 0:05:53.040 --> 0:05:56.120 needed to free up our securities business to be more 0:05:56.160 --> 0:05:59.200 active on a global basis. So we got rid of 0:05:59.240 --> 0:06:02.159 a lot of regular sation. We got more oversight, but 0:06:02.360 --> 0:06:06.880 not regulatory control. I mean, clearly reported the sec New 0:06:06.920 --> 0:06:10.840 York Stock Exchange, etcetera. But it wasn't smothering. I mean, 0:06:11.040 --> 0:06:13.080 you know, we were not used to it, but it 0:06:13.160 --> 0:06:15.680 was the right thing for New York Stock Exchange to do. 0:06:15.760 --> 0:06:20.000 There had to be more regulation. And uh, you know, 0:06:20.120 --> 0:06:22.880 as as I said earlier, it's a global market, and 0:06:22.920 --> 0:06:24.920 you wanted to make sure that we represented New York 0:06:24.920 --> 0:06:28.760 Stock ex Change and really America the proper way. And 0:06:28.640 --> 0:06:32.280 it worked, and the UK was much stricter than we were, 0:06:32.360 --> 0:06:35.320 and in Germany they were stricter and we were, and 0:06:35.360 --> 0:06:38.880 clearly the Japanese were stricter than we were. And over 0:06:38.960 --> 0:06:43.479 time all these different regulatory areas from around the world 0:06:44.120 --> 0:06:46.200 came up with a conclusion, we need kind of an 0:06:46.240 --> 0:06:52.240 overall management system for risk and regulatory oversight. So if 0:06:52.279 --> 0:06:54.599 you took a big risk in China and Japan or 0:06:54.640 --> 0:06:57.320 in Europe, you needed to roll that up so the 0:06:57.400 --> 0:07:00.320 US regulator or the UK regulator could see what your 0:07:00.360 --> 0:07:03.200 overall risk was. I think that was a huge and 0:07:03.440 --> 0:07:06.800 very important move. You spent the first part of your 0:07:06.839 --> 0:07:11.440 career primarily in fixed income. First, you mentioned municipals in corporate. 0:07:11.840 --> 0:07:16.480 What was the appeal of the bond side of the business. Well, originally, 0:07:16.480 --> 0:07:18.840 when I joined Smith Barney, I was going to go 0:07:18.920 --> 0:07:21.880 to Atlanta in the retail office and cover Florida and 0:07:21.880 --> 0:07:25.400 other other southern states. And then I got to know 0:07:25.520 --> 0:07:28.000 a guy named George Wilder who had been in the 0:07:28.080 --> 0:07:31.200 municipal bond of business, and a guy named John McDougall 0:07:31.280 --> 0:07:34.720 who was a municipal bond trader, and they convinced me, 0:07:34.800 --> 0:07:36.800 you know, once you stay in New York, you're a 0:07:36.800 --> 0:07:40.720 great salesman and you can sell and trade muntis with us. 0:07:41.480 --> 0:07:43.880 And I like New York, and I like the business, 0:07:43.920 --> 0:07:48.880 and I like the investment world of large pension funds, 0:07:49.240 --> 0:07:52.240 money managers and things like that. So we did a 0:07:52.280 --> 0:07:56.320 combination of things. We covered clients, and then we satisfied 0:07:56.440 --> 0:08:00.440 the desire of retail salesman who wanted to buy UNI's 0:08:00.440 --> 0:08:03.640 in New York state or in California of Florida. So 0:08:03.680 --> 0:08:06.000 that's how I got into the bond business. What was 0:08:06.040 --> 0:08:09.960 it like trying to build a team on a bond 0:08:10.000 --> 0:08:12.880 desk that you described in the book could get a 0:08:12.920 --> 0:08:16.400 little frenetic. Yeah it was, but you know, we built 0:08:16.440 --> 0:08:18.720 it over the long period of time, and we all 0:08:18.800 --> 0:08:22.400 grew up over that period of time. And you learned 0:08:23.080 --> 0:08:25.440 that Number one, you had to be upfront. You had 0:08:25.440 --> 0:08:28.880 to focus on your clients. You couldn't get drunk at lunch, 0:08:28.920 --> 0:08:32.040 which occasionally we all got drunk at lunch and sometimes 0:08:32.120 --> 0:08:35.439 made a mistake. And you learned to focus on your 0:08:35.480 --> 0:08:39.559 client and uh, you know, it became a very personal 0:08:39.600 --> 0:08:41.599 business and you got to know who they were. You 0:08:41.679 --> 0:08:44.920 got to know their families. And I remember when I 0:08:44.960 --> 0:08:48.280 was at Smith Barney invented IF. At Smithers, I was 0:08:48.360 --> 0:08:50.880 given the worst accounts because I went from trading to sale. 0:08:50.880 --> 0:08:53.520 So we'll dump all these accounts on John Mack. Give 0:08:53.559 --> 0:08:56.160 it to the kid. You got it. And uh. There 0:08:56.200 --> 0:08:58.319 was a gentleman named Dick Van Skoye at the Mellon 0:08:58.400 --> 0:09:02.920 Bank who managed and advised that the state employees of 0:09:02.960 --> 0:09:08.040 Pennsylvania teachers and retirement funds. It was huge, but he 0:09:08.120 --> 0:09:12.040 was tough as nails, and you learned very quickly that 0:09:12.080 --> 0:09:14.400 you better be on your toes when you dealt with Dick. 0:09:14.800 --> 0:09:16.720 And I got to know him. He was a great mentor, 0:09:16.880 --> 0:09:19.720 taught me a lot about the business, and I spent 0:09:19.760 --> 0:09:21.840 a lot of time in Pittsburgh, even to the point 0:09:21.920 --> 0:09:23.640 that my wife and I would go out. I mean 0:09:23.840 --> 0:09:26.959 I remember going out to Pittsburgh with these huge funds. 0:09:27.000 --> 0:09:30.120 It was probably it was probably the largest account in 0:09:30.120 --> 0:09:32.679 the country. A Melon Bank at the time, and a 0:09:32.720 --> 0:09:37.079 guy named Jackie Coogler at Solomon Brothers, and Solomon was 0:09:37.120 --> 0:09:39.120 the dominant player in the bond market. They were the 0:09:39.200 --> 0:09:42.600 number one broker banker for the pension funds for the 0:09:42.640 --> 0:09:46.959 state of Pennsylvania, both in teachers and the employees. And 0:09:47.000 --> 0:09:49.760 I just kept digging away, working hard at it, and 0:09:49.920 --> 0:09:54.160 over time I became their number one dealer they dealt with. 0:09:54.800 --> 0:09:58.280 And George Polochick, who came over from the Ukraine after 0:09:58.440 --> 0:10:01.720 the Russians back then took over in World War Two, 0:10:02.600 --> 0:10:05.680 was running it. He had been at sun Life in Canada, 0:10:05.880 --> 0:10:07.800 and I got along with him well, and I did 0:10:07.800 --> 0:10:09.640 a lot of business with the Melon Bank, to the 0:10:09.679 --> 0:10:14.440 point I became their number one broker dealer. And policheck, 0:10:15.120 --> 0:10:19.280 who loved martinis, walked onto the Solumna floor and screamed 0:10:19.320 --> 0:10:22.400 out to Coogler. How does it feel to be number two? 0:10:23.360 --> 0:10:26.600 That's the environment we're in And I'll tell you, I mean, 0:10:27.880 --> 0:10:32.760 I think business it's personal and uh. We got to 0:10:32.800 --> 0:10:35.760 know the people at Melan Bank, whether it was you know, 0:10:36.400 --> 0:10:39.559 Sally's daughter who was in med school, at George policheck 0:10:39.640 --> 0:10:41.680 who was going back over to Europe for a while. 0:10:42.640 --> 0:10:45.640 We really worked at getting to know people in building trust. 0:10:46.320 --> 0:10:47.920 And at the end of the day, it's all about 0:10:47.960 --> 0:10:50.880 trust and it's all about delivering on what you say 0:10:50.920 --> 0:10:53.240 you're gonna do. And with the help of a lot 0:10:53.280 --> 0:10:55.760 of people, that's what we did. And of course my 0:10:55.880 --> 0:10:58.800 partner in all this was Christy macken. As I said earlier, 0:11:00.040 --> 0:11:02.040 my clients say, look, John, we don't we really don't 0:11:02.080 --> 0:11:06.559 care about you. Send Christia your wife. Yeah, she was 0:11:06.600 --> 0:11:10.480 awesome and it is awesome. So you eventually become head 0:11:10.480 --> 0:11:14.000 of the fixed income department. And what was it like 0:11:14.160 --> 0:11:18.000 to go from sales and trading to managing a whole 0:11:18.080 --> 0:11:21.960 team of salespeople and traders. Well, it was very different 0:11:22.280 --> 0:11:25.160 and I learned very quickly, thank God for Dick Fisher, 0:11:25.880 --> 0:11:30.320 that you have to be more balanced and not as um. 0:11:30.400 --> 0:11:33.600 I don't know if the word is aggressive, ruthless, uncouth, 0:11:34.200 --> 0:11:38.440 all of those words. We used to sit in clusters 0:11:38.600 --> 0:11:43.800 of four salespeople together, and we probably had five clusters. 0:11:44.840 --> 0:11:47.760 And one of my rules were that the desk can 0:11:47.800 --> 0:11:50.600 never be empty. You always need one person there because 0:11:51.320 --> 0:11:53.040 you know, if no one's there in the photo rings, 0:11:53.200 --> 0:11:57.439 no one's picking it up. Occasionally you know no one 0:11:57.559 --> 0:12:00.680 was there, and I'd walk in and be really piste 0:12:00.720 --> 0:12:02.840 off about it and reach over and I would just 0:12:03.200 --> 0:12:09.640 clean the desk off everything. And thank God for Dick Fisher. 0:12:09.760 --> 0:12:12.080 I mean, he said, look, John, you got the biggest 0:12:12.080 --> 0:12:14.439 gun in the firm, in that division. Your job has 0:12:14.520 --> 0:12:18.240 never used your gun. So I learned a lot from him, 0:12:18.280 --> 0:12:21.000 and I calmed things down. I wasn't as aggressive, wasn't 0:12:21.000 --> 0:12:24.640 as pushy, but I was still demanding. And look, it's 0:12:24.679 --> 0:12:28.520 a great business with great opportunities, but you gotta pay attention. 0:12:28.880 --> 0:12:30.840 You gotta pay attention to the people around you. Gotta 0:12:30.840 --> 0:12:34.880 pay attention to your clients. And this idea of especially 0:12:34.880 --> 0:12:38.720 at Morgan Stanley, the surest way to be fired at 0:12:38.720 --> 0:12:41.600 Morgan Stanley is that the word got back. You've got 0:12:41.600 --> 0:12:45.559 a client laid somewhere, you're gone, there's no debate, no discussion. 0:12:46.320 --> 0:12:49.800 So we really focused on trying to get close to 0:12:49.840 --> 0:12:53.320 our clients, give them what they needed, introduced them to 0:12:53.679 --> 0:13:00.760 other clients that also had similar asset management responsibilities. And 0:13:00.880 --> 0:13:03.480 Morgan Stanley at the time was really growing from a 0:13:03.559 --> 0:13:06.480 pure investment bank that covered you know, A T and 0:13:06.600 --> 0:13:10.240 t IBM, Southern cal you name it. They had at 0:13:10.240 --> 0:13:14.359 the Government of Japan, and we really worked at imbuing 0:13:14.520 --> 0:13:18.120 that culture of first class business in the first class 0:13:18.160 --> 0:13:22.600 way into the Morgan Stanley sales and trading business. So 0:13:22.679 --> 0:13:25.200 let's talk a little bit about some of the things 0:13:25.240 --> 0:13:29.240 you discussed in the book. You describe how different Wall 0:13:29.240 --> 0:13:32.280 Street is today from when you began. Tell us a 0:13:32.280 --> 0:13:37.559 little bit about the process of finance being institutionalized and 0:13:37.640 --> 0:13:41.240 how the culture has changed. Well, I think the biggest 0:13:41.320 --> 0:13:46.640 changes the markets became so big and global that Wall 0:13:46.679 --> 0:13:48.480 Street had to change. So if you go back and 0:13:48.520 --> 0:13:51.960 when I started the business, basically your client base was 0:13:52.000 --> 0:13:55.400 here in the United States, but over time, as globalization 0:13:55.720 --> 0:13:58.880 took place, your clients would be all over the world. 0:13:59.480 --> 0:14:03.800 And UH, people were more and more focused on what 0:14:03.960 --> 0:14:08.120 are the maximum returns we can make in investing, and 0:14:08.360 --> 0:14:11.280 it got to be a twenty four hours a day 0:14:11.280 --> 0:14:14.880 trading whether you're in in China or Japan, or Europe 0:14:14.960 --> 0:14:17.560 or US. So you had to be on your game, 0:14:17.640 --> 0:14:20.760 and you also had to be available to do business 0:14:20.760 --> 0:14:23.200 at night, and our traders oftentimes would stay up all 0:14:23.320 --> 0:14:26.880 night to satisfy inquiries coming in from China or be 0:14:26.960 --> 0:14:30.880 there early in the morning for London. So globalization was 0:14:30.920 --> 0:14:35.280 the big change, and then technology added to it. Technology 0:14:35.320 --> 0:14:38.320 allowed people to see markets and here we are at Bloomberg. 0:14:38.880 --> 0:14:40.920 They were looking at machines. They could tell you what 0:14:40.960 --> 0:14:43.080 was going on in in Hong Kong or what was 0:14:43.120 --> 0:14:46.880 going on in Europe. So the markets became seven and 0:14:46.920 --> 0:14:50.280 as a result, you had to staff. In my case 0:14:50.320 --> 0:14:53.440 of fixed income division, you needed people around the world 0:14:53.560 --> 0:14:57.640 to be able to satisfy clients who are investors and 0:14:57.720 --> 0:15:01.480 at the same time satisfy clients who are raising money 0:15:01.480 --> 0:15:04.640 through Morgan Stanley. So if a t n T was 0:15:04.680 --> 0:15:07.680 doing a big bond deal, we want to make sure 0:15:07.800 --> 0:15:10.480 that you know the Japanese, the Chinese, and just go 0:15:10.560 --> 0:15:12.960 around the world the Middle East, London and back to 0:15:13.000 --> 0:15:16.000 New York. That all of our clients got a chance 0:15:16.040 --> 0:15:18.680 to see and talk to a salesman who had information 0:15:19.200 --> 0:15:21.680 about the transaction we were doing for a T and T. 0:15:22.240 --> 0:15:25.800 So globalization was the big change. Then add to that 0:15:25.920 --> 0:15:28.720 and here we are at Bloomberg Technology. You know, when 0:15:28.760 --> 0:15:30.800 I got into business, there was no technology. You had 0:15:30.840 --> 0:15:34.160 a little machine that would do uh, interest rates for 0:15:34.400 --> 0:15:35.960 you know, you'd put in a price and it would 0:15:35.960 --> 0:15:38.560 give you what the yield is. But now you go 0:15:38.600 --> 0:15:41.120 into Morgan Stanley, You're going to JP, Morgan or Goal 0:15:41.240 --> 0:15:45.760 makes no difference. Every desks has a box with data 0:15:45.800 --> 0:15:48.720 and information. And if you go back when I got 0:15:48.720 --> 0:15:52.040 in the business in in the early early seventies. Uh, 0:15:52.280 --> 0:15:55.520 matter of fact, in the late sixties, that didn't exist. 0:15:56.120 --> 0:15:58.760 I mean people would go out for lunch and you know, 0:15:59.080 --> 0:16:02.680 take a couple of hours, didn't miss anything. But today 0:16:02.960 --> 0:16:05.440 you don't leave your desk, right, let's say the very least. 0:16:05.720 --> 0:16:09.160 So you helped to build a very special culture at 0:16:09.200 --> 0:16:15.280 Morgan Stanley. What goes into building a competitive investment bank? 0:16:15.320 --> 0:16:19.240 How do you create and sustain that culture? Well, I 0:16:19.280 --> 0:16:22.600 think by and large, people who come into the business 0:16:23.040 --> 0:16:25.920 are competitive, They want to achieve and they want to 0:16:25.960 --> 0:16:29.400 do well. What I was trying to do was to 0:16:29.440 --> 0:16:33.720 take all this um I guess courage is the wrong word. 0:16:34.040 --> 0:16:37.760 This aggressiveness, this ability to build business, and how do 0:16:37.800 --> 0:16:42.120 you make it into a one firm versus the guys 0:16:42.120 --> 0:16:44.840 in San Francisco they get an order, don't share it 0:16:44.840 --> 0:16:47.160 with New York. If we do it, you know, we'll 0:16:47.160 --> 0:16:50.120 get more more of a commission. So what I was 0:16:50.160 --> 0:16:52.200 trying to do when I took over the fixed income 0:16:52.240 --> 0:16:54.800 division is to create a one firm entity. I call 0:16:54.840 --> 0:16:57.760 it the one firm firm. And I brought in a 0:16:57.800 --> 0:17:01.680 guy named Tom DeLong, who I had met on an airplane. 0:17:01.720 --> 0:17:03.720 So Christie and I were out in Utah. We were 0:17:03.760 --> 0:17:07.000 looking at buying a house because we started picking up skin. 0:17:07.080 --> 0:17:10.840 And by the way, I'm a terrible skier. Um, So 0:17:10.880 --> 0:17:13.040 I'm talking to this guy on the plane, and I said, 0:17:13.359 --> 0:17:16.360 what do you do. We said, I'm a professor at 0:17:16.359 --> 0:17:18.320 b y U and I'm coming back to talk to 0:17:18.640 --> 0:17:22.119 A T and T and their management group about you know, 0:17:22.240 --> 0:17:26.360 managing people and evaluations, etcetera. And I said, well, look, 0:17:26.359 --> 0:17:27.920 I'd like you to come in and see me when 0:17:27.960 --> 0:17:30.119 you have time. I'd like to talk to you. So 0:17:30.200 --> 0:17:32.760 Tom comes in and by the way, now Tom was 0:17:32.800 --> 0:17:36.399 a professor at Harvard University, so Tom comes in and 0:17:36.480 --> 0:17:41.520 he interviews my senior group. And he comes in. He said, well, 0:17:41.520 --> 0:17:45.640 here's what people think. To get ahead at this division. 0:17:45.720 --> 0:17:50.399 They have to be your friends exactly, that's right, and 0:17:50.440 --> 0:17:52.520 if they're not your friend, they don't make it. And 0:17:52.520 --> 0:17:55.639 he said that may not be reality, but that's what 0:17:55.680 --> 0:17:59.320 they all believe. So he said, what you should do 0:17:59.440 --> 0:18:02.280 is set up in an independent group of people, let 0:18:02.320 --> 0:18:05.520 them make a presentation to you of the talent it 0:18:05.520 --> 0:18:08.119 should be promoted. And you know, if you have a 0:18:08.160 --> 0:18:10.639 strong objection, you can say that, but by large you 0:18:10.640 --> 0:18:13.199 should accept what they put in front of you. So 0:18:13.280 --> 0:18:16.080 that's exactly what they did. They took me picking who's 0:18:16.080 --> 0:18:19.200 going to be promoted, and there was a promotion committee 0:18:19.720 --> 0:18:22.919 and also a compensation committee, and then they would come 0:18:22.960 --> 0:18:25.959 to me and make recommendations. And so you didn't favor 0:18:26.000 --> 0:18:29.160 one person. You had somewhere between four and eight people 0:18:29.200 --> 0:18:31.679 on these committees. And when they brought it to me, 0:18:31.760 --> 0:18:35.320 unless I had something very specific that I'd say, well, 0:18:35.440 --> 0:18:38.560 let me tell you why I disagree, I accepted their recommendation. 0:18:39.200 --> 0:18:42.240 And that move really changed the culture of the division 0:18:42.400 --> 0:18:44.919 and it came into you know, you don't have to 0:18:44.920 --> 0:18:47.760 be Max's friend or anyone else. Is about being professional, 0:18:47.920 --> 0:18:52.240 direct and honest. And your peers would do the evaluation 0:18:52.480 --> 0:18:55.199 on how you're doing, what you're doing, and what you 0:18:55.200 --> 0:18:59.080 should be doing. This is the full three and the 0:18:59.160 --> 0:19:04.680 peers would all so anonymously review their managers absolutely and 0:19:04.760 --> 0:19:07.200 what was the results from those sort of things. Well, 0:19:07.240 --> 0:19:10.760 in some cases we found that managers were not setting 0:19:10.840 --> 0:19:14.320 the right tone as far as being energetic and working 0:19:14.320 --> 0:19:18.640 with them. Uh, they were reluctance oftentimes to go out 0:19:18.680 --> 0:19:21.240 with salesman and help them entertain with the clients or 0:19:21.280 --> 0:19:24.240 spend time with clients. So we really put more pressure 0:19:24.280 --> 0:19:26.520 on managers to be involved and not just sit in 0:19:26.560 --> 0:19:28.720 an office or on a training desk at the far 0:19:28.920 --> 0:19:32.840 end and just you know, take advantage of people working 0:19:32.880 --> 0:19:35.480 hard but they're not involved. So it got it more involved, 0:19:36.000 --> 0:19:38.679 and it also got us to eliminate some of the 0:19:38.720 --> 0:19:42.480 managers when you saw these three sixty reviews and some 0:19:42.600 --> 0:19:45.200 of the data, and then you you would dive into 0:19:45.240 --> 0:19:48.280 it and find out they're right, We're not going to 0:19:48.359 --> 0:19:50.959 have people like that at this firm. So not a 0:19:50.960 --> 0:19:53.160 lot of reduction at head counts, but a few people 0:19:53.200 --> 0:19:56.719 we asked to leave and you talk about um the 0:19:56.720 --> 0:20:01.000 willingness of senior management to assist with clients. You seem 0:20:01.080 --> 0:20:03.840 to be ready to jump on a plane to go 0:20:04.000 --> 0:20:07.000 anywhere in the world, China to Tokyo, and it didn't 0:20:07.040 --> 0:20:11.159 matter if you could help close a deal. Uh, you 0:20:11.240 --> 0:20:14.720 were there, that's true. I mean number one, I love 0:20:14.760 --> 0:20:18.800 the business. I mean to go to China and build 0:20:18.800 --> 0:20:21.280 the relationships we built in China and go to Europe 0:20:21.359 --> 0:20:24.360 or it didn't make any difference where I went. I 0:20:24.440 --> 0:20:28.320 loved the business. And you know, China was just opening up. 0:20:28.960 --> 0:20:31.399 And one of the guys who used to be at 0:20:31.400 --> 0:20:33.600 the World Bank said, you know, John, what China really 0:20:33.640 --> 0:20:37.399 needs I think it was ed limb. It needs an 0:20:37.440 --> 0:20:41.600 investment bank. So we formed a small investment bank owned 0:20:41.840 --> 0:20:44.919 mainly by the Chinese, but Morgan Stanley on of it, 0:20:45.520 --> 0:20:48.040 and we built a securities business with it with the 0:20:48.160 --> 0:20:51.960 Chinese in China and why and she Sean who was 0:20:52.000 --> 0:20:54.560 the vice premier, He was the gentleman I worked with 0:20:55.720 --> 0:20:58.359 and Uh. It took a lot of time, but the 0:20:58.480 --> 0:21:01.359 Chinese wanted to create their own capital markets. They wanted 0:21:01.359 --> 0:21:03.320 to be independent, and they wanted the ability to go 0:21:03.359 --> 0:21:06.240 around the world raise money. Because we do any American 0:21:06.240 --> 0:21:08.560 infestment bank. And I tell one of the things that 0:21:08.600 --> 0:21:12.080 really touched me. Uh, we're talking about China, but let's 0:21:12.080 --> 0:21:17.280 say China communists, we're talking about die hard communists. Why 0:21:17.280 --> 0:21:19.719 don't she Sean who was running the Central Bank at 0:21:19.720 --> 0:21:23.399 the time, and then he was given the responsibility by 0:21:23.480 --> 0:21:27.879 gron Gi to build a securities business. And I'm working 0:21:27.920 --> 0:21:30.159 with him to do this joint venture. And he flies 0:21:30.200 --> 0:21:32.680 over to New York and we're sitting in my office 0:21:32.800 --> 0:21:36.320 on whatever floor at Morgan Stanley and we're never about 0:21:36.320 --> 0:21:38.960 an hour and a half. We're making zero progress. We're 0:21:39.000 --> 0:21:43.160 not getting anywhere. And i'd been in Europe with him 0:21:43.160 --> 0:21:45.400 and talked to him over there. We're making progress there. 0:21:45.480 --> 0:21:47.840 Now here he is in New York and it's like 0:21:48.720 --> 0:21:51.439 there's like a big heavy stone on him. And I 0:21:51.480 --> 0:21:53.359 look at him and I finally figure out he's a 0:21:53.440 --> 0:21:59.600 chain smoker. I said, she Sean, light him up. He said, 0:21:59.600 --> 0:22:01.520 I can't do that. I said, what do you mean 0:22:01.560 --> 0:22:03.639 you can't do that? He said, in New York, he 0:22:03.680 --> 0:22:05.879 can't smoke inside. I said to my office, you can 0:22:05.920 --> 0:22:09.360 do anything you want to light them up? And he smoked, Luckies, 0:22:09.400 --> 0:22:12.280 can you imagine smoking Luckies. He smoked Luckies, he lit 0:22:12.320 --> 0:22:14.679 him up. We got the deal filter right, no filter, 0:22:15.119 --> 0:22:18.320 We got the deal done. And I keep reflecting back, 0:22:18.760 --> 0:22:21.520 you gotta pay attention to the person who's in the 0:22:21.600 --> 0:22:24.199 room with you. But I'm impressed that he knows the 0:22:24.320 --> 0:22:27.960 local rules and customs in New York. Very respectful. That's 0:22:28.000 --> 0:22:31.760