Rerun: Morgan Stanley Chair and CEO: Succession, culture, stress, and leadership

You will be amazed. Tune in. James, you are one of the most influential people in global finance. And now you are stepping down after 14 very successful years. And it's an honor to be here with you.

And now that you're stepping down, you can tell us what you really, really.

And it's a very normalizing environment. You can't be too egotistical, or you get pushed down by your siblings. You find that there are others who are very good at certain things that you're not good at, and vice versa. It's a very humbling environment, a very warm environment.

Some people say that in McKinsey, they hire insecure overachievers. Was that where you were at the time?

I wasn't a very good lawyer. I had two sisters who were very good lawyers and one became a top judge. So in the family hierarchy of achievement, I did fine. There were some people at McKinsey who are extraordinarily gifted intellectually.

Not all of them gifted interpersonally.

And I found in business, you really needed a mix of having enough intellect to deal with complex problems and enough personality to deal with complex people. And my upbringing helped bring that forward.

It's much easier to get a visa. And New York was a long way away. It was very expensive. So the first was that decision. Then I had to borrow to come to university and the interest rate the bank charged me was 24%.

So it was considered by many to be extremely risky decision. By me, it wasn't risky at all, because I thought I got to go and live in New York for two years. I got a business school education and I had some debt that at some point in my life, I'd figure out how to pay off. So I think that was the most defining thing was taking myself out of a very clear track to be a career lawyer, which I would have done. I was working in a great law firm and I got a wonderful job down there.

So I clearly had a path to a successful career as an attorney, but it didn't excite me. It wasn't in my stomach. I think the second most pivotal decision was leaving McKinsey. I had risen through the ranks to be a senior partner at a pretty young age and I was being given more and more responsibilities and I had bigger and bigger clients. But again, in my heart, while I really enjoyed my consulting time and I had many wonderful colleagues there, and I think we did some great work, for some clients for sure, I ultimately wanted to be where the decisions were being made.

Not advising on how to make decisions, but actually doing it and bearing the consequence, the good and the bad.

Sometimes you're driven by the talent you have around you. So there are many different pathways, but the heart of establishing a strategy is understanding what it is you're trying to arrive.

Kidder, Peabody, EF Hutton, Drexel, Lambert, Dylan Reed, Bear Stearns, Lehman Brothers. They're all gone, right? Gone. Nikolai, how many industries can you look at and over a 20 year period see 70% of the participants, credit suites, 70% of the participants disappear? So that's pretty good evidence that there's something structurally unsound.

It doesn't mean you can't be successful. Some companies, like Goldman Sachs, have managed to persevere throughout, but the odds clearly were against you. And the market was rewarding you with a model of about nine times earnings, pretty mediocre, because the market's not stupid. It's saying, gee, in your industry, people seem to fail a lot and we lose everything. So why would we pay?

I can't speak for others. I've never operated from envy and hopefully in life, but certainly in corporate life. I regard we have certain assets, certain DNA, certain capabilities, and I think you leverage your own strengths. But

others, interestingly, in the last five years, almost everybody has started trying to pursue our strategy in some form or another. In the early years, it was deeply unpopular, both internally at Morgan Stanley and externally. And you're right, a lot of people called for me to be fired. They felt I was misguided and naive and a consultant. And I said, no, the evidence, the facts are the facts.

You can have an opinion, but you can't escape the facts. The facts are Solomon Brothers does not exist, got consumed. Drexel does not exist. Lehman does not exist. These are facts.

And sure, if one client goes broke and takes their money out, or one financial advisor leaves for a competitor, or 100 leave, you wish it didn't happen. But we've got 15,000.. So the sort of catastrophic risk issues in that business were very small. It was much more around operating things, having strong compliance, having great technology systems, having great cybersecurity. It was more things like that, that you had much more control over than, wow, having three traders who make a multi-billion dollar bet on something.

And that's problem with the trading side. Now, we've controlled that and we've managed it, and we've reshaped it and put much more discipline around it. But I just felt wealth management,

it's a wonderful business because it's a markets business. At the end of the day, markets are about.

moving capital from people who have it to people who need it, from savers to borrowers, from.

investors to issuers. And same thing, whether it's Norges or whether it's James Gorman as an individual, or whether it's the US government or whether it's a major corporation, they're all doing the same thing. They're just moving capital back and forth. So I saw our role as being in the middle of that flow of capital. And if we could do it for Norges, we could do it for GIC, we could do it for Tomasic, we could do it for James Gorman.

It's the same concept. And what's the?

Don't overcomplicate it. I tried to articulate it in a way that everybody would understand what we're trying to do. And I started seeing in the media over the years, words which I'd deliberately used come back at us. Ballast and speed. The ballast of an aircraft carrier, but the speed of the engine.

Ballast being wealth and asset management, speed being trading and banking. And these words started playing back to us. It's kind of fun to see your slogans coming back. It was fun. Catastrophic risk.

Insure against it, hedge against it, sell it off, distribute it, do something, get rid of catastrophic risk. So I think consistency of message, clarity of message. You don't have to show off of how clever you are or not. That's not important. What investors care about is, do you have a plan?

Can you define success? And will you give me guideposts or stones like crumbs down the road to show me you're generally headed in the right direction? The slope of the gradient. In other words, can you achieve, let's say, pre-tax margin goals in wealth management business? I said, when our margins were about 2%, I said, I thought we could quickly get to 15%.

Nobody believed that. And we quickly got to 15%. And where are you now? We're at about 27 or something. And I said, and now I've said we will get to 30%.

We haven't done it yet, but we will do it. But along the way, if you show investors, here's what we said we'd do. Now, let me give you, and it's a long track record, 14 years of evidence. And every year, boom, boom, boom, and every now and then a slight dip. But the slope of the curve, it's pretty clear.

you're going from the bottom left to the top right. And in all of our efforts, we tried to communicate the vision for where we're going, the rationale behind it, that it wasn't from envy, that it leveraged our strengths. And we would give you evidence. And it would be imperfect. Sometimes we miss a little bit.

But generally, you would come away from it. I wanted investors to come away saying, you know what, they told us, what they're going to do, and they've kind of done it.

retrace or build it down. Instead, you did the opposite. Came back with a vengeance.

They didn't like that. I said, the reason I'm telling you that is because we've been terrible. Now, if we can go from terrible to mediocre, then we can start talking about going from mediocre to decent. Then we can talk about decent to good. Then we can talk about good to great.

So I'm very comfortable with us being good in the business. We've taken our market share. I mean, it's stabilized around 6% over a bunch of years. Now, it's 10, some years, 11%. That's probably about right.

But it starts culturally, getting the management of the acquired company to embrace what you're doing and getting them to trust you. Because if they're not trusting you, yes, they've been bored and their shareholders made a lot of money, but they don't trust you, they don't respect you, then the whole organizations will fight against each other.

I mean, we've allowed certain businesses like E-Trade to keep their name, Calvert has kept its name, Parametric kept its name. So honor their roots, but they're part of the Morgan Stanley family. And the Morgan Stanley family has five core values. We want them to embrace those same values. One is do the right thing.

You have choices, how you conduct yourself, do the right thing. Second is clients always come first. The third is lead with exceptional thinking. The fourth is give back to your communities. And the fifth is, which we've added in the last couple of years, a commitment to diversity and.

Jerome Caravalho at Societe Generale. Our own people, we had 11 traders who ran a fixed income prop desk that lost $10 billion of capital. They lost a third of our capital. that we'd spent 85 years building, 11 people. Now, why did they do it?

Because they were greedy, they thought they could make more money, they'd get paid more, et cetera. So that I said, okay, we know, and we've got. now 83,000 people work for us. now. I can't control human behavior.

If you've got members of Congress in the United States, some of them end up in jail. Members of the police force end up in jail. Members of religious orders end up in jail. It's not human beings. are human beings.

It doesn't matter what cloak they're wearing. Some of them are just evil. And some of them are greedy, and some are stupid and some are reckless. And our job is to let people know in no uncertain terms that you're obligated to do the right thing here. And if we find you doing things like talking to the media when you're not authorized, we find you biased against an employee because of their background or some form of diversity that they have.

Anything that suggests you're not doing the right thing, you're done, you're out of here. Well, you're talking about all the bad guys, how do you make sure you hire the good guys? Because good guys respect that kind of culture. Good guys are drawn to a place where they know it's values driven. We've had no problem with, the new CEO has been here over 30 years.

One of his two lieutenants, co-presidents, Dan Simkwitz, has been here over 30 years and Andy Saperstein, the other one, came with me 17 years ago. The length of our tenure of our operating management committees is extraordinary.

You are the face of the company. Your personal judgment really matters. Your willingness to own decisions really matters. You don't have a boss. I mean, you have a board of directors who will ultimately fire or hire you, but day to day, you don't have a boss.

We asked them for health checks. We asked them to tell us if there's something that we should know about their lives. We tested them and we gave Ted and one of the others strategy to run. We gave Ted all of global technology to run. We took them to forums and situations and put them on TV and showed them what the job of a CEO is really like, and saw how they move towards the flame.

Some people retreat from the flame or the fight and some people move towards it. Ted rose to the occasion beautifully.

And this is something which I felt was not life-changing, but it was a meaningful statement. And I didn't want to give it to the two who didn't become CEO as sort of like, oh, I'm sorry, here's a little reward to keep you happy. No, I wanted to give all three equal to show they're a team at the top of the company. And some shareholders won't like it. I think for a company of our size, we've taken our market capitalization up.

In my tenure, it's gone up $80, $90 billion.

Several competitors haven't gone up at all. When we started, I'll give you a fun fact. When we started this journey, we were smaller than Credit Suisse, UBS, Barclays, and Deutsche. Five years ago, we were bigger than each of them. We're currently bigger than all of them combined.

So the team that made that happen was not just me. It was a team. And the most important members of that team were these three leadership. So this is a way of saying from the board, we think you guys are fantastic. Now, you've got to perform to get this, but this is our way of showing the three of you.

we think you're fantastic. I thought that was a.

And you say that it's all about the people, but I mean, it's amazing.

What kind of reflections do you have? How do you reflect on that?

Why? It's.

Then I joined McKinsey and I thought I'd be a consultant my whole life and ended up being hired by a client. And it happened to be into run a wealth management, actually it's to run marketing at Merrill Lynch. And then they put me into run wealth management and I wasn't a wealth management guy. And then suddenly I'm hired by Morgan Stanley to come and fix their wealth management business. Then financial crisis comes and I'm the CEO.

You make it sound a bit.

And you have to have that kind of self-confidence.

I say, well, of course we got those wrong. We had to get something wrong. We've done a hundred things. So, rather than saying, why did that happen? How could that possibly happen?

Say it's part of moving a complicated organization forward. So owning decisions and consequences is critical. I think being able to articulate in clear, simple language. so everybody, from the folks who serve me coffee upstairs to the most sophisticated traders in London or Frankfurt or wherever, they understand you. I think consistency of message, clarity of message, ownership of decisions, and then a temperament that does not get wildly buffeted in what is a very wild ocean.

There are constant waves washing over the top of you. And if you let that get at you, I almost see my job as taking the stress of the organization that I feel in my executives. when they come into me with problems into my body, almost physically, draw it in, process it, and bring it back out to the organization with a solution. I'm focused on not what the problem is. We'll deal with that later.

It's what's the pathways to solutions and get people focused on forward-looking. Does that stress?

during the early years when it was incredibly stressful and I was working constantly. And I went to see doctors. I said, there's nothing wrong with you. And then it occurred to me, my head was saying, everything's great. You're on top of this.

We've got this. We've got a plan. We're going to beat them. And my stomach, my gut, was saying, you might think you're great up there. We're not great down here.

Because all of it's going somewhere and it's coming down and hitting us. So we're rejecting it. And at that point, I decided to get much fitter and I started rowing on a rowing machine and I became extremely fit. You still look quite fit. Thank you.

I was really fit back then. And I just decided to, I never really knew about meditation and I've never, very rarely practiced yoga. But I think, and a very close friend who meditates all the time told me, she said, you're meditating a lot. You're closing your mind to the world around you. I'll often just look out my window in the office and watch the hawks and the pigeons flying around Manhattan.

And you're stilling the world around you to give your brain a chance to regroup. So I think a combination of self-awareness that the pace I was on was unsustainable,

fitness, and then a fit mind. When you have these moments in your office,

I play music every morning in the office, which I blast on speakers across the executive floor.

Horns and trumpets, Tijuana takes very uplifting. And then I played a song by the band Fun, because I thought what I'm going to pick and it was carry on. So it's kind of like, firstly, a little humbling, followed by a very uplifting song that we actually played at my father's funeral. This Tijuana Brass, followed by carry on, move forward. So it can be opera.

I played some jazz last week. I'll play anything, hip hop, some Australian music.

Was that mainly during the financial crisis or?

And he started explaining title as an engineer, and I realised the job was like the waves always coming at you. They never stop because it's global and it's 24 hours, seven days a week. The only time business really stops for me is from sort of noon Saturday to noon Sunday, because pretty much everywhere around the world is closed in that time frame.

I see friends. I go out to dinners. I'm not a sort of New York socialite personality, but I occasionally have to go and do stuff like that. But pretty low key. I mean, a lot of walking, a lot of hiking and just pretty out in nature.

But the way to stop the ocean, you can never stop the ocean. So the way to stop the ocean constantly being at you is to turn your back to it. If you stand there watching the ocean coming in and feel this is endless, then physically turn around so you can't see it anymore. You can see. a field, changes your mindset.

It calms you. And that was my metaphor for how I had to treat this job. I had to be able to turn my back to it. In other words, shut off my mind. And I have a little pond at the back of my beach house, which has different birds at different times of year.

come and make it their home. And right now we have a family of swans with about 17 ducks. And it is absolutely glorious to get up in the morning, open the big curtain from my bedroom, which looks over the pond and see these elegant swans floating around. And that's me turning my back on work. I'm not looking at emails.

I've been more positive, I'll just start with different regions, more positive on China-U.

S. relations, because I think China, having made arguably the biggest policy mistake since the Second World War,

since Germany's decision to engage in hostile conflict,

China's policy mistake is the one-child policy. Guaranteed, shrink the labor force right when they've got an aging labor force. So that has been a terrible decision that they're rapidly trying to reverse, but you can't change birth rates overnight. And unless China can change its immigration, which I think is improbable, it's going to be really challenged without having strong global trade. It needs to be the market for consumers that aren't its consumers, because it won't have enough of them to fund China.

So you think that's where it will pick up? I think they have to work together with the U.S. much more than politics would suggest. How do you read Europe? We have a first land war in Europe in 70 years.

Absolutely unfathomable that somebody would think you drive tanks across from one country border to another, yet suddenly it happened. We knew it was coming with the Crimea in 2014.. We effectively shut our business in Russia in 2014 because as soon as I saw that, I said, if they can take the Crimea, they can move further into Ukraine and God knows where.

I wasn't some great predictor. I just thought the Russians had betrayed their intentions pretty clearly. So we had to act on it. I think it's a tragedy at every level. Geopolitically, it's not meaningful in the sense of the Russian economy is not big enough.

The Ukrainians have done an extraordinary job in resisting, and the rest of the world has largely aligned around their resistance. The most recent turbulence in the Middle East, with the terrorists from Hamas simply going through the fences and killing people, is a reminder that terrorism is omnipresent, particularly in that part of the world.

Unfortunately, what looked like we might be getting towards some sort of treaties between Israel and Saudi, it will either accelerate it or put it back decades, and I'm not sure which right now. How do you read the AI race? The AI race between the superpowers?

I think artificial intelligence. I don't think of it as so much a race between the superpowers. I think if there's nobody who will win, nobody will create enough distinctive technology to damage somebody else. I think within corporations and industries, you'll see much more bifurcation of performance than you in cybersecurity. Reach a level of parity among the more sophisticated countries,

Can we spend a bit more time on the corporate culture at Morgan Stanley? We talked about doing the right things,

First, I have a 20-year view. If you want to build senior executives, you have to start with them 20 years before. You've got to look through your pipeline of talent, and too many organizations focus on the level below the CEO. That's bait. They're already pretty fully developed, for better or for worse.

I'm focused.

I'm two levels below. I apply for a job here, and I managed to get an interview with the great James Gorman. What are you looking for in me? Authenticity. How do you see that?

Don't think. You haven't got time to think. People can't lie. If you've got no time to think, you say the truth. If you're smart, you're smart.

You're funny, you're funny. You're shy, you're shy. It's like, so I immediately get a better sense of who the person really is just from that one question. Tell me one thing about you that you are actually distinctive compared to most people who you come across in your world. Now, tell me one thing that you're actually not compared to most people.

We've all got one thing on both sides of those edges, or they wouldn't be in the interview. Things I'm trying to get at, what is the real person? I can see their academic record. I can see their employment record. What I can't see is who it is that we're going to be dealing with who, when thrown in a team room, who has to navigate a delicate or sensitive or nuanced issue, will have the skills to do it.

The people who are most likely to do that are people who are.

for those jobs. We have a whole machine. You need mental health care for your children. We have ways for you to participate in programs we have set up for that. We have a whole thing that gets at your mind, body and work spirit to make you the best employee you can be.

It doesn't mean you'll be the best employee in your group, but the best you can be. That's our aspiration.

Colm Kelleher, who is now the chairman of UBS, he was our president. He worked for me. The week I became CEO, my first weekend, he called me and left a message on my answering machine at my place outside New York City on.

Sunday late morning, I think it was. He said, there's an issue. I think you're aware. it's this topic and I'd love to catch up with you on it. I thought I knew what the issue was.

I could wait. Nothing was going to happen between Sunday at 10 in the morning and Monday at seven in the morning. Nothing. I didn't call him back.

I went into his office on Monday morning at seven o'clock and I said, Colm, I got your message. He said, yes, I left a message on your machine. Did you hear it? I said, I heard it, but I decided you wouldn't want to be disturbed with your family on a Sunday night. I knew it didn't have to be solved last night.

Let's talk about it now.

He very rarely called me. on a weekend after that. I was setting boundaries for him and for me.

If you ever want to talk about it, I said, I'm not trying to sell you banking services. I'm not here about business. I'm here about it as a fellow CEO.

Then some of them will say, well, and I'll ask them, how's your board? That will lead to questions. Is your success of staying around? How's your relationship with that person? We have a conversation.

Some are very short, five, seven minutes. Some are 30, 40 minutes. A number of them have come back to me multiple times and asked for advice on different things. I'm now dealing with a very difficult director. or how did you set up succession?

How do you deal with the stress? A lot of CEOs are very lonely and they don't want to appear back to your, what was it, insecure overachievers? Most CEOs are insecure overachievers. You think so? Oh, yeah.

They don't want to admit to the fact, maybe they're not as smart as people think they're going to be. Maybe they don't know everything that people think they should know. They feel compelled to be constantly wise from day one. It's ridiculous. You're not.

There's a lot you.

You can only do that if you figured out how to manage the stress. Otherwise, you don't survive. A lot of CEOs tell me they're just utterly exhausted when it's done. I'm full of energy. I'm ready to go.

I just don't think I should be CEO of Morgan Stanley. What would you do next after having been chairman? I'm probably going to join one board, something on the West Coast, because part of my life is now on the West Coast. I want something that is complicated. I like solving problems.

I'm not interested in joining boards so I can attend board meetings and get paid for it. It's not about status or finance. It's more about give me a problem in a different industry I can work on. I'd like to do that. I'll teach a little bit.

I'm involved. I chair a business school at Columbia University.

My university in Australia calls me an enterprise professor, which is their polite way of flattering me, but it means I can teach down there. I can teach at Columbia. On the sides, I'll still be executive chair, but on the edges, something that keeps your mind working in a new industry and something that keeps you around young people and teach. My son said, I'm not intellectual enough to be a professor. I said, I'm not a professor, I'm a teacher.

I'm not generating original research, but I've accumulated a lot of.

experiences and judgments that I think I can share with others.

What would be your advice to young people?

Don't worry about what you're being paid or try and negotiate what you're being paid unless it's grossly unfair. If it's grossly unfair, you shouldn't be working at that place. Do things because in your core, you know you're interested in them.

I've had some in the last few months, a number of approaches to go on boards, and there are a lot of industries, I respect them, but I'm just not that interested. Just don't get out of bed. When I read the newspaper, if there's something about that industry, I'm not reading that.

It's not like a curiosity, it's just lack of interest.

Pick things that really align with what your interests are. Then don't try and always, so many of these kids are trying to get to the next level. The best way to get to the next level is do your level so well that the people around you say, boy,

James is great, we should give him more to do. Rather than James came to see us and said, he wants a promotion. God, I don't know that he's ready and da, da, da, da, da. That's like always pushing for yourself to be put ahead rather than others. recognize you.

The best way to succeed, do the job you're paid to do really.