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 or great opportunity?
First Surprise: All Agree on Best Firms • Consulting: McKinsey • Law: Cravath, Swaine & Moore • Healthcare: Mayo Clinic • Investing: Capital Group • Banking: Goldman Sachs • Auditing: Arthur Andersen
Second Surprise Across very different professions… same “secrets” for every great firm • Not different • Not many • All essential
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 on 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 outside 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
Challenging Investment Managers • 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
Changes Over 50 Years I • NYSE: 3M 4B • Derivatives: 0 4B+ • Institutional: 10% 98% • Commissions: 40¢ 3¢
Changes Over 50 Years II • Turnover 20% 100% + • CFAs: 0 120,000 • MBAs and PhDs • Global, Integrated Market • Internet • Bloomberg • IT • Algorithms • Reg FD
Old Active • Promise: Beat market! • Hero fund manager • Performance data • Defined “product” • Strong offense • Economic success via sales • Great business
New Active • Promise: Client focus • Professional service • Define problem • Engineer solution • Economic success via loyalty • Great profession
What About Arthur Anderson? • 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
Great Firms in Changing Times: Same “Secrets” Always. • Mission – Client focus • Culture – Teamwork at core • Recruiting – Those who will excel • Training – Accelerate to excellence • Innovation – Adapting to change • Leadership – Servant leadership – Persistent – Active
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