What It Takes to Create a Great Firm Asset Management Forum - - PowerPoint PPT Presentation

What It Takes to Create a Great Firm

Asset Management Forum Montreal October 23, 2014

“My Opportunity”

• Clean slate: free to decide
• Free to dream
• Long-term focus
• Inspiration of J.P. Morgan:

“First-class business in a First-class way”

Reality

• One chance – and only one
• No experience in great firm
• No guide books on great firms
• No exemplars as great firms
• Better figure this out – and fast!

Asking Around Again & Again

• Other than your own firm, which

firm is best… –To work for a great career? –To work for you on a major problem

• r great opportunity?

First Surprise: All Agree on Best Firms

• Auditing: Arthur Andersen
• Consulting:

McKinsey

• Law:

Cravath, Swaine & Moore

• Healthcare:

Mayo Clinic

• Investing:

Capital Group

• Banking:

Goldman Sachs

Second Surprise

Across very different professions…

• Not different
• Not many
• All essential

same “secrets” for every great firm

Olympic Athletes Are All The Same

• About 20 Years Old
• Great athletes
• Great competitors
• Strong commitment to excel
• Moms worry
• Dads worry
• Friends wonder

All strive to Excel

• No medal: “Olympian” forever
• Bronze medal: “Olympic medal winner”
• Gold medal: “Won the gold medal”
• Silver medal: “Lost the gold”

Great Firms: All About Serving Clients

• Mission
• Culture
• Recruiting
• Training
• Innovation – micro
• Innovation – macro
• Leadership

Mission An Inspiring Long- Term Purpose

• Capital: Serve investors’ long-term interest
• Mayo Clinic: Needs of patient come first
• Cravath: Be most effective firm
• n most difficult cases in U.S. law
• McKinsey: Help management discover,

define, and solve major problems

Culture

• How we do things around here
• Take a pad - always
• firm vs. Firm
• On weekends vs. never on weekends
• Sandwiches at desk vs. Partners’ dining room
• Always jackets vs. never jackets
• Never say “I”
• Funeral service for partner
• Teams and teamwork always at core

Recruiting

Getting really right people: Absolutely priority #1

• Senior executive’s personal top priority
• Systematic, full court press – year after year
• 20-30 interviews – both parties learning
• Not “Top Quartile;” Not Top “Decile”
• “You go to Stanford”
• Can’t be the best firm unless have best people
• Recruiting today will determine firm tomorrow

Training and Developing People

Educating and organizing for excellence

• Cravath: “Come for the training”
• “Nobody at Mayo could ever be as good
• utside Mayo.”
• Capital: 360 annual reviews at 60, 65, 70, 75…
• Pine Street at Goldman Sachs
• McKinsey: Regular feedback at age 50 & 55 –

for Personal Plans

Client Relationships

Ties that last because clients always come first

• Capital: Paternalism for investors
• Goldman Sachs: Takeover defense
• McKinsey: Depending on client “insiders”
• Mayo Clinic: Single destination medicine
• Cravath: Transferring clients early – even IBM

Micro Innovation

Changing how the game is played

• Capital: Multiple-counselors
• McKinsey: Geography, industry & function
• Mayo Clinic: Group practice
• Cravath: Lock step, Discovery attorneys,

Goldman Sachs: Private client services

Macro Innovation

Changing the game itself

• Investment banking structure
• Internationalization
• Multiple hospitals; Global technology
• Global network
• Dealer in commodities, currencies, etc.
• Cravath system; Recruit fewer first years

Leadership

• Bring all the secrets together all the time
• Identify trouble early and act boldly
• Levels of leadership:

– Transaction leaders – Process leaders – Servant leaders

• Product vs. service focus
• Investment managers proliferate
• Intermediaries proliferate
• Efficient markets vs. Performance investing
• Extra fees vs. Extra returns
• Indexing
• ETFs
• Target Date Funds
• Internet Intermediaries
• DB into DC

Challenging Investment Managers

Changes Over 50 Years I

• NYSE: 3M 4B
• Derivatives: 0 4B+
• Institutional: 10% 98%
• Commissions: 40¢ 3¢

• Turnover 20%

100% +

• CFAs: 0 120,000
• MBAs and PhDs
• Global, Integrated Market

Changes Over 50 Years II

• Internet
• Bloomberg
• IT
• Algorithms
• Reg FD

• Promise: Beat market!
• Hero fund manager
• Performance data
• Defined “product”
• Strong offense
• Economic success via sales
• Great business

Old Active

• Promise: Client focus
• Professional service
• Define problem
• Engineer solution
• Economic success via loyalty
• Great profession

New Active

• The exemplary professional firm in 1960s
• Excellence on every dimension
• Lost focus on professional excellence
• Silent shift to profit focus – again & again
• 44 steps in self-destruction
• DOJ indites; Supreme Court negates

What About Arthur Anderson?

• Mission – Client focus
• Culture – Teamwork at core
• Recruiting – Those who will excel
• Training – Accelerate to excellence
• Innovation – Adapting to change
• Leadership – Servant leadership

Great Firms in Changing Times: Same “Secrets” Always.

– Persistent – Active