Google’s New C.F.O. Ruth Porat Shares Her Vision - New Establishment Summit 2015-FULL CONVERSATION

so everyone in the audience knows that in late May Ruth Pratt became the CFO of Google and now with alphabet I think you're probably the most high-profile escapee from Wall Street where you served as the CFO of Morgan Stanley for six years after a long career as a banker but I think what most people may not know is that you're actually a native Californian sort of you were born in England but you moved here at six and you attended Stanford so welcome home thank you great to be here so after 22 years at Morgan Stanley how did this happen who called whom so I actually go back a long way with Google first time I had the opportunity to invest was in 1999 through an angel fund it was unfortunately a very small number of shares but Morgan Stanley then led the IPO and I'm on the Stanford Board so a lot of overlapping connections in fact I was quoting Eric's book back at Morgan Stanley well before I even knew there'd be an opportunity here and I just think it's a lot of Worlds converged it's great to be here so this was obviously a big decision what was your biggest fear your biggest reservation about doing this and has it turned out to be true well the most exciting part for me is actually every time I would come out here it was so clear that there's this extraordinary infectious culture of innovation and that was exciting and a magnet I think the thing that concerned me or that I at least had questions about was I think culture is so important for every organization and what does googley really mean and when I when I was finally gonna kinda got the words and it was about innovation and speed and decision-making and collaboration my anxiety was relieved but it was really what does googley and does it turn out to be that it does it does it's been it's really it's infectious that's it's exciting so one blog wrote when you came that adult supervision is back at Google do you view yourself as an adult well one of my most fun days actually at Google alphabet was obviously we don't do we we have bring your parent to work day so I brought my 93 year old dad to Google and that was so that's the adult supervision I live with so after your first earnings call it google the share is added about sixty billion dollars in market capitalization the next day it's the biggest one-day gain and market value for any company ever how do we all do that when one thing I always told my clients as a banker and certainly I've always told my CEO is ignore the stock price and just focus on the long run and things happen so I'll stick with that advice so a little more serious there are a few things and I think they're all tied together that have been magic to Wall Street's ears so let's break them out a little bit when I think is a little bit ironic in them when I think of Google I think of access to information but historically the company has not at least investors have not viewed it as giving them access to information so you've said that Google will be a more transparent company and you followed through on it why the change why I've you investors as and as our partners as stakeholders in the company and understand they're trying to build financial models and what what I tried to focus on in my prior life and here is helping them understand how we think what are the building blocks that really drive our behavior and I've not been a believer in point guidance very consistent with the founders original view that's been my view I think it really limits your flexibility to do what you want it can actually lead to to behavior that isn't supportive of long-term shareholder value but I do think that there's an opportunity to create a framework for what are the building blocks that are important so investors understand and that's what I'm really striving for so alphabet did you know before you joined I think if you go back in time the the vision of the founders has been very clear this notion I think it was best captured in the 2013 letter and Larry repeated it when we announced alphabet that incrementalism and technology leads to irrelevance and you need to continue to push the frontier and and look for for transformative move and with that at a certain point scale it really does beg the question of how should you be structured in order to deliver on the opportunity set that you have so I think that if you go back to the early days you can see the seeds of thought and the way they spoke about the business and what's the process of transforming it from idea to to reality the execute well the first part is really the structure around alphabet and I you know when I describe alphabet what I think is so powerful about it is the founders wanted to be able to be a magnet for great entrepreneurs to be an accelerant for great entrepreneurs and a lot of that is about giving them the autonomy to operate within this this larger family alphabet and so what was in what's been very valuable is creating a structure that allows us on the one hand to have maniacal focus within businesses and at the same time to continue to plant the seeds and really nurture in a smart way those next engines of growth so that we're not dealing with this question about incrementalism leading to irrelevance and then below that there's obviously a lot of hard work that goes into so how do you set it set them up so they can benefit from some of the scale that we have or the infrastructure while enabling them to be independent but it's really in the governance structure in what is alphabet so probably investors favorite thing that you said was that the company would now practice and I'm quoting discipline and expense management but how do you reconcile that tension between what investors want high profits with what the founders and maybe even societies want which is a desire for moonshots and the letter Larry wrote he talked about improving the lives of as many people as we can he didn't talk about making investors happy so how do you reconcile those two those two sometimes competing notions I don't think high profits necessarily correlates with creating maximum value over the long term I think what we're really focused on is creating maximum value over the long term and so the way I talked about it on the second quarter earnings call consistent with the founders vision is to continue to drive revenue growth but that's not an excuse think I may have even framed it that this way that's not an excuse for not focusing on expenses and so when I talked about expenses it was about looking at the rate of growth of expenses ensuring that we have the same discipline focus on what is your expense base and how does it need to grow to support that revenue growth you know I've said in my prior life you can't cost cut your way to greatness and so this wasn't about cost trying to cost cut one's way to to greatness it was about ensuring that we have the same very detailed disciplined approach to looking at the growth and expenses making choices in order to optimize while still supporting revenue growth and it is about revenue growth we've been clear about that from the earliest days and how do you make those choices when it comes to the commitment to a new moonshot or to saying one of these ideas the expenses are becoming out of out of whack with what this this idea is ever going to be with what it's realization can never be how do you make those decisions well my experience is as a banker and then as in my prior life as CFO was very much that there are certain things you can do top down but the most effective or when you're working closely with the business partners because they have the most nuanced understanding of the business and so what does that actually mean if you in the budgeting process can create a resource envelope that is tight enough that it drives discussion about how to self fund businesses they know what they want to prioritize and so it's really again in and that is why I stressed in the second quarter call the importance of the budgeting process where you get the discussion with the business partners who actually have the greatest insight and where they want to place those bets where they think they have the greatest opportunity there been some commitment comparisons between alphabet and Buffett's Berkshire Hathaway do you think that's a legitimate comparison I think there's some elements of what Berkshire Hathaway has talked about and what our founders have talked about that are true across many companies but but we're focused on the long term value creation he said that as well we're focused on backing great leaders and there are many other wise differences between the approach but if you take those some of the key principles that that Larry and Sergey and Eric articulated for many years it's about back in great entrepreneurs and and looking at the long term do you do you think any company even alphabet can have really have that luxury today of looking at the long term in a world that where investors are increasingly oriented toward short-term growth and short-term growth and profits I would certainly hope so because I think if you're just focused on the short-term again you might have it by definition a nice short-term run but what we're really I think the investments that have made this country extraordinary have taken time to play out and I think what is to me so inspiring about Silicon Valley is tech innovation and it is the engine for growth in the economy like no other and when you when you look at the data for every tech job created there five additional jobs created and that's about thinking about the long term so my experiences there are a lot of investors who appreciate the importance of the long term they just want to make sure you're making the right choices along the way so backing up there's been a lot of talk at this conference about the dreaded B word whether we're in a bubble you've been right in the thick of the last two from the first internet bubble dare I say first to the credit crisis when you help to the government deal with the mortgage giants Fannie Mae and Freddie Mac among many other things so do you have any bubble spotting techniques you can you can share is there is there any is there any way you can know in advance you know might my take from the financial crisis maybe isn't bubble spotting as much as it is what are the key lessons or kind of how do you fortify yourself so regardless of environment you're in a very strong position and there quite a number of them I think in and you could see them I think also as the banker that companies don't deal with all of these why one to me that's absolutely imperative is you need to build your infrastructure before you need it I mean your financial controls your metrics all of the dashboards you need and the metaphor that we used to use during the crisis is you wouldn't drive a car at a hundred miles an hour with mud all over the dashboard you shouldn't do this do that with your company as well so you need to clear those away I think that's an absolutely critical one I think the the other is you need to focus on what's your greatest source of vulnerability and you need to manage to protect yourself from that so in the financial crisis I often said liquidity is your oxygen and without it you choke and that's precisely what happened in firms did not build in duration the durability of liquidity and so when markets went awry liquidity vanished and they began to choke I think for any business across any industry you need to ask yourself what actually what is my source of vulnerability and if you're not doing that and you're just playing right into it you know you're near one that's going to have a problem with a bubble you know I think the other that's really important and you know Hank Paulson well last time we were together you were interviewing him I think that he said something to me during the crisis which I'll never forget which is you need to have the will and you need to have the means and too often by the time you have the will you no longer have the means now he was talking about the financial crisis and when he said it to me I was thinking of Greece but I think that's true in any business it's easy again going back to Larry's comment about incrementalism it's easy to think about incrementalism but if you don't make the tough choices that incrementalism can mean that at a certain point you don't you no longer have the means you may have the well but you no longer have the means to me those are really important lessons and then the last one is experienced I do think that we as a country we're really fortunate to have had Hank Paulson and Ben Bernanke in the driver's seat because they were able to be nimble and pivot based on their experience and I think marrying a lot of the vision and optimism and excellence engineering talent with experience from some of the other elements is important so those are necessarily spotting the bubble ahead of time but I think hopefully it's ways to make sure that you kind of maneuver through it do you see what Silicon Valley's vulnerabilities are and do you think people here see them well I go back to - I think some really clear lessons having been through the 90s and they the two that I come back to is one what's your differentiated advantage truly what's your differentiated competitive advantage and in the 90s as we all know now you know too many companies looked at what they were doing is transformative when I think as we were looking at that the opportunity to work with them the reaction was they look like an online catalog this isn't transformative so asking again what's truly transformative to me is one at one of the keys how are you doing something that is a really leapfrog and the other is goes back to the financial model how do you think about it what are the metrics how do you envision being able to fund through through an extended period of time so the crisis revealed these the impermanence of these seemingly fortress-like institutions from AIG to to Lehman did living through that change your worldview in any fundamental way to see large seemingly impervious companies almost vanished overnight the most staggering experience for me was AIG and the reason was it the speed with which it collapsed if you turn back the clock there were a series of events and there was the very famous Lehman weekend and I was down at the New York Fed and went home and got home and got a call from someone who said you need to come back down to the Fed we need to work on AIG AIG this was a Sunday night AIG will be out of money by Wednesday out of liquidity by Wednesday which I thought was an attempt at humor we were all pretty tired then I'm thinking this is not very funny but it wasn't it was it was the reality and when I went back down there what became very clear in the middle of the night for Monday going into Tuesday is they wouldn't make it to Wednesday to T through Tuesday let alone to Wednesday and what was so staggering about that was how many people in this country would suffer as a result individuals and small businesses and never had a chance to see it coming and that's where I came very much to that being liquidity is oxygen if you're a financial institution you've got to protect against that and it says the same thing in other industries we each have to ask ourself what is what's that vulnerability because the speed with which it happened when things unravel it was uncontrollable there was no degrees of freedom there was no ability to pivot or move because there was no time and you have to buy herself that time so you said on your last conference calls Morgan Stanley's CFO you said I think if you look back over the last five years we've started out by saying we as an industry needed to change I think if you look back over the last five years some made those changes kicking and screaming I think we are of the view that it was clear where it was going and it was needed and we're proud of the changes we've made do you think Wall Street has changed for the better do you think our large financial institutions are safer than they were in the pre-crisis days in the US I think if you look at the level of capital and the approach to liquidity and liquidity management it's fundamentally different I I was frustrated along the way and that's why I said kicking and screaming I think that when you go through something as profound as that it has to be a transformational moment for an industry and change what's needed and regulation was needed and some may have gotten there kicking and screaming hoping that there was a way to delay it but the industry fundamentally recapitalized and the approach to a lot of the activities has changed and I felt good about the fact that the industry was on firmer footing as far as I was concerned so after lots of years as a banker advising companies you decided in 2009 to become Morgan Stanley's chief financial officer why to switch from banking to being a chief financial officer and what is that like to go from being an advisor close to companies but outside them to being on the inside and well you just nailed why I did it it was fun having advised clients for so many years where I really felt like I was living their joys and their frustrations the ability to go inside and have my client be the firm I'd work with for so many years I thought was an extraordinary opportunity and to work with James Korman as closely as I did our CEO was was really phenomenal and that's why I did it it was it was really the focus and there is a difference when you're principal I mean it stops with you and the thousands of people internally who are counting on you the investors who are counting on you but it's a it's a privilege to be able to work with people and kind of go through that process with them and what did you what were the biggest lessons for you of going through these these years of enormous change on Wall Street and ears of reshaping of business in a fairly fundamental way well it is possible whatever and I guess that's why it the optimism out here I love so much you know you need to have clarity of vision you need to be able to rally the team around it and again my one of my lessons I said you've got to have infrastructure ahead of your requirements I think that's as true here as it is anywhere our companies are growing so rapidly that by the time you realize what you need you're already one or two generations beyond it and so I think being able to build those may have been late for the financial services industry with all the changes that were needed but it was really a sense of clarity that comes once you clear away that mud from the dashboard you stop and tell my team it's like the proverbial kitchen drawer you got to clear it out and you just got to keep clearing it out or you do it once and you implement system so you'd get the operating leverage and once you do you feel like it's clear sailing so I was that was probably a large part of it was your first call with Google's investors did it feel dramatically different than your calls with Morgan Stanley's investors or did it feel familiar well my first comment Morgan Stanley's investors coming out of the financial crisis so hopefully nobody will be going through experiences like that again but no it's it's cynics today I think investors understand where we're taking it and so it's it's been a lot of fun so in simple terms we think of Wall Street as old establishment and we think of Silicon Valley is the new establishment but there's one thing they have in common which is a problem with diversity and a problem with women and why is that the case and are the reasons the same I would say you said a problem with women it's a problem with too few women the snow thank you I'm quite realistic look I I think that there's clearly in my view and a meaningful opportunity to increase the percentage of women and other underrepresented groups in senior leadership positions I've been encouraged by the data that support the thesis that businesses actually perform better when you have diversity of view in your senior leadership position so this is not just the right thing to do socially it's the right thing to do for your business and the toughest part of all is how do you bust through subconscious bias what is it that along the way makes it harder for women or other groups to think they have a seat at the table and that it's a level playing field and I've spoken a lot I think about the importance of ensuring again that that the right steps are taken to make it a level playing field as much as has been written on the importance of leaning in I think the really important corollary is if you tell someone to lean in and the doors nailed shut you're just gonna get bruised and battered and collectively what we can do and I think mostly men since they're running most of the organizations is make sure those doors are open and what do I mean by that I think one of the really powerful tools that companies use should use can use is effective succession planning when you come in to propose who's next up you better make sure there's somebody on that list of women underrepresented minority and if not why not and how do we get them up on the list and make sure the door is open so that subconscious bias doesn't creep in and in my experience that conversation who's on the list why not how do we get them there what's the issue does start to highlight we're subconscious bias creeps in it's the beauty of transparency and I think that one of the things that that Google started a long time ago was putting out data belt so what are the numbers let's use transparency to force a conversation and get us to bust through subconscious bias and then let's have the real conversations because we can't just say it's tone from the top tone from the top is critical but then we need to follow through with things that are concrete and I'm optimistic we can do it I think we have actually more men and women who want to see the change and that's why I started with the importance of the business case it's the right thing to do for many reasons so I think that we've seen it across industries and at least in this industry here and in a financial service were having a real conversation about it you started on Wall Street in the late 1980s that was a different time and a hard time and you obviously managed to bust through those biases at a young age how do you think you did it you know my mom worked and I would say that gave me a sense you could be you could be successful professionally and and have the life that you wanted I often say that I hate the term work-life balance I think it's a setup and it's a trap for all of us I think what you want is a mix in your life that works it's kind of like a kaleidoscope is really boring if it's like too nice even things the glass you need to get it to mix and change so it's about mixed so I think role models are important I think it's very easy for women and other underrepresented groups to when you're in a senior position to not realize how broad your reach is and he was a role model women looking to come into the profession they look at you and they want to be you and I think that's so starting with role models and I just think there was my view was this is what I wanted and I had some great sponsors along the way who took risks on me and you need to make sure you have somebody who's in them who's in that position it does and my kind of stubborn I guess and didn't give up so I'm supposed to be a joke in the past you've talked a little bit about the difference between sponsors and mentors which i think is a really interesting way to think about things will you elaborate on that a bit I think it's sponsors someone who will take risk on you and has the power to put you in a position or the authority to put you in a position that that is that's the door opener a mentor can give you advice but isn't the one who's actually there to say you know what this might be a risk but I'm gonna take a risk on you and is there and will back you up and is there when you say I don't like you think that one makes sense for me they'll be honest and candid with you about you know what you might be that's your right or your wrong and to me the blocky breaks were people who took a risk on me and they were all men because there weren't senior women around when I was rising up through the ranks so I don't think the sponsor needs to look like you they need to be somebody who wants to take a risk on you and I do think it's our obligation to them make sure we're sponsoring the next generation so we're probably going to open it up to questions in a little bit but I wanted to ask well we're on the way to what we're on the way the questions what is the biggest economic issue out there that Silicon Valley isn't thinking about the one I'm really concerned about and I'm glad you asses is is student lending and the federal student lending program and it actually goes to an area you know extremely well which to me having worked on Fannie Mae and Freddie Mac in the housing crisis what was what was clear was that that was a well-intentioned social program home ownership in the United States in the 60s a well-intentioned social program that due to its design and execution really took us as a country down the wrong path and I think student lending has to many similarities to that program well intentions who could argue that education is in a passport to social and economic mobility but the execution and design and execution of the program I think again is hurting those it's intended to help and leaving taxpayers holding the money there's now a trillion three and student loans outstanding and what's most concerning is watching the the repayment rate at the default rate so sixty eight percent of kids who go to for-profit colleges are not graduating in six years so they're left with their loans they don't have the the degree that's the passport to social mobility and what's even worse with the student lending program is you can't extinguish that debt in bankruptcy there's a presumption that we the government can garnish social security and wages and so we're creating this growing social and economic problem again hurting those designed to help and to me having watched the first movie which was so painful seeing this second iteration of it I think is something that we need to keep on the agenda so if anybody has questions please line up at the the speakers is there a fix is there a is there a fix from Silicon Valley is there Washington fix this fortunately it's moved up on the agenda and there there's no silver bullet for something that's grown to this scale I think again transparency has been important those scorecards that have been created that actually provide families with greater visibility on what what's going on in institutions is a starting point and I also think at the core what are we trying to solve we're trying to give kids a useful education and so can technology play a critical role in that absolutely it can add all levels I thought marks comments earlier today on virtual reality or fantastic at Google one of the areas we're really excited about is what we're doing in VR our work with cardboard and going into the schools and this is not at the college level at the young level enabling kids to leave their their home turf and travel the world through VR and understand what's gone on in history and what's going on around the world so from the youngest ages to the oldest ages can technology play a role of course please go ahead I my question is very specific to whether or not you believe the valley is properly capitalized given the transformation that technology is having on the economy is it under or over capitalized because we have arguments going both ways in terms of the venture investments and also investments in larger corporations I think yesterday we heard from the Disney CEO that a trillion dollars where the capital has been transferred from public companies to the private sector and the question I guess in my mind is are we actually undercapitalized despite the huge cash infusions on the on the startup world it's a fascinating question because capitalization in this context I think is is a it's different than the world I came from and financing what I find so transformative and inspiring about technology is is that we're addressing really meaningful problems addressing problems of scale that can make a difference to so many people's lives and you know if you look for example at what we're doing with driverless cars I mean the opportunity to reimagine what are cities the efficiency that you can get why are we taking so much space for parking garages you know and when you look at a resource constrained environment why are we not using these resources more efficiently and you can go area after area and so the ability to put capital behind these ideas that can transform the lives of so many people I would say is an appropriate allocation of resources within that are we putting too much to work in certain areas certain private companies you know yes so well but it goes back to what's the most important what's the most important lesson that we've learned time time again selectivity is absolutely key you know Mary Meeker had some great data in her internet report that if you looked I think it was from 1980 to 2002 there were 1,700 i POS 2% of them created a hundred percent of them of the value and so is there some misallocation inevitably there there it's but it comes back to selectivities key and i think putting capital behind opportunities that are going to have the kind of impact that these have is is the place you want to be thank you hi Steven Levy great discussion so I'm curious in the discussions you had leading up to alphabet whether there was an account or argument fit at Google the whole is more than the parts in terms of the freedom of engineers to move from one place to another and the idea that all these companies benefited the infrastructure what I hear now in theory I guess the CEO can say hey Amazon Web Services can do a better job than the Google infrastructure there I love the CEOs would be free to do that could you talk about you know how much you worried about the idea of a silo ization and drawing away from the idea of splitting out Google from the other companies so the the question of of talent and mobility and the ability to to really find your way is always important but I would say that mobility and the way I've always looked at it my career is you're always running the risk if you don't create a really thriving exciting innovative environment that you're going to lose the best talent and then even whether it's to another alphabet company or outside of one's own company and so did have we did we consider what are what are the pros what are the cons I believe that we we did but I think the main point was we want to create the opportunity to attract the best talent to each one of these companies so that they can have the opportunity to innovate at scale in a way that they couldn't otherwise and it's an extraordinary platform on which you rest and within each one of them one of the key things for sundar runs who runs Google is sure you all know it's looking at the framework that the founders have talked about for many years seventy twenty ten seventy percent of the resources on the core twenty percent of Jason 10 percent moonshots big bets and that's true within Google a lot of what we're doing the 70-20-10 framework and innovation within Google as is key to for the alphabet family as a whole and so there is mobility within and as part of the overall alphabet family we've clearly spent time focusing on how we can be as effective as possible while still sticking to that core principle of as much autonomy as makes sense but the CEOs across the businesses clearly that is one of the areas that we've spent time on our view is those types of issues can be dealt with but what can't is creating a structure where you have as much autonomy as possible so one can be as nimble and as focused as possible thanks a lot could you comment on your feelings about practices like earnings estimates quarterly share buybacks options etc well I try to hit my comment on quarterly earnings and guidance so like I think that creating value for the long term is medium to long for however you want to frame it is where we deliver the most value for stakeholders and I think there's a risk short-termism can be a real risk to creating long term value and it may you know and and that's why I made the comment about earnings guidance I think there's a risk that that may at certain points in a company's journey have them sub optimized for the medium to long run because they're trying to solve for something short term I think short termism is it's a real risk across every industry and it's about giving guidance I beg your pardon can you stop giving guidance I mean what how are you limited can one stop giving guidance I'd rather not start but yeah the I think again the way the difference I was trying to convey is point guidance makes it a whole lot easier for someone to build a model and say okay you're gonna hit to this number but what's really the question is how does one think about running their business what what are the building blocks and so that there's a predictability about the way where we're operating and what are the core governing principles and I think that type of if you want to call it guidance I would say that falls into the umbrella of guidance is helpful how one transitions from from Wayne to something else if the view is that in the it is in the long-term best interest for our investors to be looking at this to give you the framework but the point guidance has constrained our ability to respond because we live in an uncertain world you're doing the right thing for your investors and we do live in an uncertain world I think we have time for one more question so thank you very much for your very candid and open discussion about diversity in the tech world and so my question to you is what has Google done very personally to implement policies around racial diversity in other diversity amongst under underrepresented groups and also what policies have they enacted so when those folks get into Google is not a hostile environment yeah it's a great question my first week I was delighted because one of the first things that I was asked to kind of that filled up onto my calendar was with our senior diversity team and that to me was a statement about how important this is on the agenda and it starts with tone from the top and leadership and then all that's being done specifically to address your question and we have a whole series of programs the view is this is a problem that's existed in society for a long time so there is no silver bullet so whether it's work on subconscious bias whether it's work on affinity groups so that you don't feel you're the only one which I think is a problem for women feeling I'm the only one who's dealing with this issue but we've also dealt with things like let's go to the college level and provide support where we have role models at the college level that tell underrepresented minorities you know what there's a place for you in engineering and let's make sure we're not just dealing with it once you get here but doing what we can and putting money behind it to make sure that we're actually increasing the pipeline and trying to change the trajectory here and let's put data out there so people can see what are our numbers they're getting better they're not where we want them to be and so again our leadership team has done a lot that across a spectrum to try and make a difference with a firm can from the senior team that we'd like to see ongoing improvements in diversity so thank you for asking that thank you so much thank you

Channel: Vanity Fair

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Keywords: vanity fair summit, vfsummit, new establishment summit, vanity fair new establishment, new establishment, new, news, style, culture, celebrity, hollywood, vanity fair, vf

Id: Qp37xhkb8n0

Length: 36min 34sec (2194 seconds)

Published: Thu Oct 08 2015