Howard Marks: Leaders on Leadership – An Intimate Conversation (Milken Institute – 2014)

I applaud each and all of you marathon runners for you have made it through the full course many if not most of you were here if not from the very first session at 7:00 a.m. on Monday many of you were here for special private sessions over the weekend you've made it through a hundred and sixty separate sessions 200 of them if you've been attending all the private ones you've made it through by this point close to six hundred and fifty four panelists and as we all know and marathon running the sweetest moment is crossing the finish line and here you know it's all been worthwhile and we have saved a great finish for last so without further ado what I'd like to do was introduce a wonderful eclectic panel on leadership led by somebody who through his example his thoughts his actions have provided leadership in so many areas throughout the country and around the world the chairman of the Milken Institute mic'd open so I liked it first start with leadership and you maybe didn't notice it but this year we had almost 1,000 women join us at the global conference over the last few days and there is particularly one individual who made that happen now when I think back to starting my own department in 1970 as I went to New York 60% of my professionals were women and didn't really think about it too much but my wife reminds me every night how many women's speakers how many women did came to the conference and I think we can see in countries particularly like Israel how enormous productivity changes and the former first lady of the UK told us you know that it you invest a dollar and a woman 90 percent of it gets effectively spent you invest a dollar in a man 30 percent gets effectively spent so there was one individual that made that happen I'd like her to stand Nancy or as Nancy if you're here could you please stand so we could thank you for what you've done on the last week so they even invited me to speak last night over the pavilion so the scene there's a battle during the hundred year war Henry's army cross the English Channel half the army is lost during the siege he's down to five thousand troops they're exhausted they're suffering from disease and they're concerned and there's a great deal of discussion about maybe they should defect and who is this crazy person that's leading them the French force was four to five to one they were fearful of this battle one of the greatest speeches ever written by an unknown writer by the name of William Shakespeare Saint Crispin's Day speech let's take a look at that speech this day is called the feast of Crispian he that outlives this day and comes safe home will stand at tiptoe when this day is named and rouse him at the name of Crispian he that shall see this day and live old age will yearly on the vigil feast his neighbours and say tomorrow is Saint Crispin's family strip his sleeve and show his scars and say these wounds I had on Crispin's day old men forget that all shall be forgot but he'll remember with advantages what feats he did that day pencil our names familiar in their mouths as household words Harry the King Bedford an exit I'm what a and tall but Salisbury and Gloucester be in their flowing cups freshly remember'd this story shall the good man teach his son and Crispin Crispian shall ne'er go by from this day to the ending of the world but we in it shall be remembered we few we happy few we band of brothers for he today that sheds his blood with me shall be my brother be he ne'er so vile this day shall gentle his condition and gentlemen in England now Abed shall think themselves accursed they were not here and hold their manhoods cheap whiles any speaks that fought with us well leadership it turned the tide of the battle casualties French casualties 15 to 1 to the British that day rallying his troops and changed in many ways the history well this is our final session unless you're coming to healthy aging tomorrow this is my sixth day and for many of you your sixth or fifth or fourth 650 panelists 11 different tracks we started in the morning on Monday focused on so many things one of them prevention and wellness and we talked to Troy Brennan about leadership at CBS the leadership at CBS CaroMont that made the decision to stop selling cigarettes two and a half billion dollars potential hip to their top line but the feeling was that they could not continue to sell cigarettes and still stand for health and other things that the company wanted to stand for we're culminating today with three visionary leaders who all made certain decisions in their life at some point took a risk took a chance that not only changed their life but changed the life for everyone they're associated with and so today we're going to try to focus on that topic and I'd like to start with an individual that we refer to as both governor and president and maybe Secretary Janet all in one a governor of Arizona a head of homeland security and making 300 million people in the United States feel safe and today leading probably the greatest university system in the world University of California system Janet what made you to decide to take that job as the president of the University of California and what risk did you think you were taking in making that decision you know after spending time in elective office in it as a member of the president's cabinet and when you were Homeland Security it's a it's a very big complex job it's the third largest department of the federal government it's a lot of Defense it's protecting the country it's a lot of work that nobody ever really sees and in fact you you really want to be the dog that doesn't bark most of the time because if it's barking something went wrong and the chance to flip from that it's going on offense and when I thought about it when this opportunity arose the chance to lead the education of the next generation of Californians the chance to help support a research enterprise that is the most robust of any research Enterprise in the United States that's going on offense and there's a risk of as in all big decisions there's a risk of failure the greater risk is not taking any risk at all it's easy to sit back and say I've done I finished my career I think I will be a consultant I can do that but with great challenge and challenge can be equated with risk comes great possibility of reward and that's the work I'm engaged in now it's fabulous let's take a look at a short video clip of Janet as she Wed Arizona was at the time six million residents obviously responsible to make sure no one was one to know her phone number is they had a homeland security telling us that everything was safe responsible today for two hundred and thirty five thousand students from that standpoint let's take a look at that clip I think one piece of advice would be go for it and take some risk you can always keep doing what you're doing but if you never test yourself and you never take a risk jumping from a very good law firm partnership to being a federal prosecutor that was a risk jumping from that to actually running for office that was a risk then running again for office that was an even bigger risk a bigger office a bigger challenge leaving a very comfortable existence in one state to come to Washington DC and work in a new Department with what you know lots of responsibilities and you know all that that entails also a bigger risk but in the end it allows you to by taking those risks that's that's really how you can exercise leadership he walked into my office in the late 1970s and asked me could I get him a drink I was wearing jeans and a Madras shirt and he was waiting to see me but he didn't know it was me I wasn't in a suit or anything and that has led to a friendship of 35 years and one of the things as a person that had the honor of financing companies a chance to see an individual with a vision far greater and the ability to lead far greater than most people that have ever lived and so Steve let's take a look at a short clip of you on the subject of leadership we live in a world today where everything between the internet twittering and Facebook and all the rest everything has become so important about words what you say how good you say it how good you look rhetoric has become almost a religion in politics it's the spin somehow it seems to me what has been lost or at least put in the backseat is what you do and to me leadership is about what you do Steve thank you for joining us and that was a pretty short synopsis but not too many people are capable of doing what you've done anam let all men however however grateful here in this Beverly gathered though frozen be reminded that ski season is not over nice and chilly in the air now I couldn't resist henry v carried me away there's the fact of leadership and then there's the art of leadership i guess for lack of a better term the fact of leadership the ability to make one or more persons by coercion or more gently persuasion perform as the leader wishes in the military and in many cases raw authority makes people behave in a way or more ambitiously think in a way that someone wants them to the art of leadership that would seem to me and to the extent that we have any sense of the art of leadership is to persuade people to behave in a certain way first of all because what you're asking to do makes sense and seems right to them but ultimately the greatest single point of leverage or force available in human nature and human psychology is to identify the goal that you as a leader the method of behavior that you're advocating somehow be identified with an elevated sense of self-esteem for the people you are leading when people feel good about themselves because of what you're asking them to do or were the activity in which they're engaged then in my view you've harnessed the ultimate energy available and the definition of a leader is someone who not using raw authority but suasion in that matter that's what that's what I would aspire to when I'm thinking clearly on the subject so Steve it's the late 1980s you're building a hotel called the Mirage that's going to revolutionize hotels as we know sensual elevator banks wings coming off that elevator banks central kitchens in the back for efficiency the outside they look like a French or an Italian or a Japanese restaurant in the back BusinessWeek of course writes it looks like snake eyes for Steve Wynn nice warm piece two weeks before we open it you're gonna have six to eight thousand employees you've been building this hotel for a few years and planning it for more you left nothing to chance you built a warehouse that people could go sleep in the rooms so you could see how they were it's 2 to 3 days before opening you can build a structure but the structure is only as good as the people that work in it what did you tell your employees many of which are relatively low wage what did you tell them how did you interact how did you get them prepared Bob Daly and Terry Semel came to that session very important moment training is finished the building is done the public has not received it yet it's been a campus for two weeks all the people have come to have probably survived at the rate of 1 out of every 10 our screening method for applications and interviews they're all excited because they have new beginnings everybody in life all of us love new beginnings and they have not yet decided that their supervisor is a damn fool it's too soon for that it takes at least two weeks for that to have its new beginnings and everybody is full of it the building is bright and shiny the carpets are I haven't been walked on yet and there they are and as a chairman it is probably the single greatest moment of leverage I'll ever get in the life of that enterprise and there they are so I put on Gracie slick in the Jefferson Airplane that says nothing's gonna stop us now get the music going every bloody buddy's blood is up and I look at them and I say I know what you want you want to make more money you so do I you want to have a better life who doesn't and maybe just maybe here you will find fulfillment and happiness believe me I want what you want but only people make people happy and you've got to take responsibility for these customers the person next to you is not going to do it you want a better life it's in your grasp and I'll make a deal with you I'll take care of the capital and the money part you take care of the customers it's that simple Mike I'm trying to come on to them so that they will take responsibility and maybe just maybe find what it is they're after in life which is to be feel good about yourself and fulfilled on the job it doesn't come very often to all of us to have such a wonderful experience in our work I think probably for the people who've come to this conference successful intellectually curious bright and shiny as you all are you've found that moment but think about the people that work for you not often the case for them if you can help them find that then you're a damn good leader and you can feel good about yourself when you look in the mirror now Steve Iowa's there with the opening of the wind okay eight to ten thousand employees and I remember you telling them that we're gonna make mistakes okay and what did you tell them to talk about what the customer when there isn't there that's our point first thing you got to do is give up the illusion the fiction of infallibility it causes more trouble than politics especially Jan of the causes of cover-up we give that up we're gonna have bad days we're gonna make mistakes but at the moment of failure in any organization that is also the maximum moment for the expression of character and the core value of that culture that's the moment when you can really score when people are in extremis when something hasn't gone right that's when we get to define ourselves ultimately because we come to the rescue people don't expect a lot they think their guns gonna be everybody for themselves now all of a sudden somebody steps up and makes it all better and that person saves all the rest of us I wish that lesson went to the government more often so he'll talk nineteen what did you say what did Janet say we should talk so it's the 1970s and we're the largest trader securities of companies in the gaming industry of my firm does not want to allow me to do any underwriting etc and I tell Steve that he's going to get on the white stallion and ride in to New York City and we're going to convince them that this industry isn't run out of some mobster location here and it's really an industry of the future etc and I of course I did tell Steve get some shoes with tie laces right so good too but what's so amazing is a decade or so later Fortune magazine rated Steve's firm the second most admired firm in the world and it was the most admired firm and it scored the highest of any company in the world on service and that expectation of what you're expecting was always succeeded Howard we've been together for more than thirty years and here's a look at some of Howard and and my videos together and discussions particularly of his some of the books he's written tons and the memos he's written that have changed the world in so many ways Howard Marks we have to understand that in large part outcomes will be governed by luck and randomness but people believe that it's their job to know what the future holds that you can know what the future holds that they do know what your or if they don't know what the future holds that they have to act like they do because if they admit they don't they'll get bounced but there's almost nothing in the world which is which is determined everything is uncertain Mark Twain said it's not what you don't know that gets you killed it's what you know for certain that just ain't true so how are we've spent you know many years trying to convince people with self-discovery of what they know might not be true I think from that standpoint you've written a lot about luck and being there I think it might be useful you know for the audience to look at those different points in your career we had a decision as to what you're going to do whether you're going to go on this path or another path and you know how you made those decisions and what was based on and and how today you lead a large public company that's responsible for managing you know more seventy five billion or more of other people's money from that desk at Citibank we first met well I think I think an example Mike is back in 78 which is when we first met in November 78 I had been the director research at Citibank I had a I was 29 when I got that job I had a big budget and a big staff and and a lot of responsibilities and I was on all the key committees at the bank and I was it was the most unhappy period of my life my job was to know two sentences on 400 companies and and nothing could be less satisfying and I got a call and they said there's some guy out in California named Milken or something who deals with high-yield bonds can you figure out what that is because one of the clients had asked for a portfolio so I could have tried to cling to that bureaucratically important job but instead I looked into what high-yield bonds were and I thought they were intriguing and you came and gave me what we would politely call this sales pitch and and and I went that way so I went from having is that a sales picture enlightenment that wasn't like that's what you called it and and and I went to having no employees and no budget and and to do something that was very interesting intellectually and and very rewarding and I was never more excited than by my new job and I think that you know that was it that was obviously a big fork in the road for my life and one of the things that made me made it possible to take what seems in the short-run the less prestigious and the less remunerative path was the fact that I the music that I couldn't really believe in what I had been doing you know as director of research trying to lead an organization trying to pick the best stocks you know I'd gone to the University of Chicago I'd learned something about something called the inefficient market and I believe that there are efficient markets and I concluded that the big stock market was one of them and what I said in 78 to myself to my bosses is I don't want to spend the rest of my life choosing between mark and Lilly among other things I can I think it can't be done so I opted for something that that that fit with my intellectual principles and and turned out extremely well and I think that I've never regretted it the book most important things you know yes you know a lot of us think okay we're gonna write a book someday we're gonna sit down and write a book but very few people ever have the discipline to do that because they're so busy doing that they never really stop and do I think you know there's so many unusual things in that book but I think one of the things that people don't really understand when you say second-level thinking yeah why should spend a minute talking about what is second-level thinking well you know if you think like everybody else you're going to perform like everybody else the goal in investment management is to outperform the others but clearly in order to do so you have to think better and different and and you have to deviate now of course the efficient market hypothesis says that most of the information is incorporated in the market already and the person who deviates from the consensus is usually wrong so you you know you can't deviate for the sense of the for the sake of deviating but I think by the same token you know you must have a variant perception and it's from that that out performance comes and you have to do it for a good reason you know the the first level thinker says it's a great company you should buy it and the second level thinker says it's a great company but it's not as great as everybody else thinks you should sell it and if you can do the latter and do it correctly really that's the route to our performance and I think that's true in every business is not following the crowd variant perception but knowing when you know you can have you can't have a variant perception about every decision and and have it be right as I said before you can't have a very impersonal out the difference between Merck and Lilly and be consistently right but when you find a commonly held belief which you identify as being wrong and you know why you think it's wrong and you have conviction then there's no better way to achieve success so let's take a look at a point in our country's history where we're kind of looking for leader for America to bounce back from the blow it has to overcome wounded national pride in Washington there's more concern than ever than the city has known since Pearl Harbor people are scared and many have panic reactions they are searching for someone and someone something and someone to blame there's a sudden crisis of confidence forcing the United States that changed its priorities now we're not talking about 9/11 this was the headlines in the newspapers in 1957 when Sputnik went up and as we think back of that period of time that all of us remember in some way the response ultimately of the president the United States was we choose to go to the moon in this decade not because it's easy because it's hard because the challenge is one we're willing to accept and one we are unwilling to postpone and one which we intend to win so the concern about leadership and science and as you all know less than a decade later we heard the eagle has landed Janet when you were a head of Homeland Security where their particular issues were you sat around and said okay what is the message we're going to deliver to the American people well how are we going to deal with this issue and what are the pluses and the minuses of different approaches on that well let me go back actually something that Steve said I thought was right on which is if you try to say that everything is a hundred percent great and nothing bad is going to happen and that you are infallible that to me shows a great side of insecurity and people smell that very quickly I think what people want to hear is kind of a lay out about what the problem is and what you're doing to fix it or to solve it and we had any number of those and and some of them were man man caused terrorist type incidents Boston Marathon bombing we just had the one-year anniversary all the way to mother nature wrecking havoc and we didn't I will tell you Mike we didn't spend a lot of times sitting around thinking about how we were going to spin things but what we did think about was what is the best way to give people the information they need so they know we're working to fix a problem and they are empowered and know what they need to do and where that is most acute is when you're right in the immediate aftermath of a disaster a series of tornadoes such as we just experienced in Arkansas this week we had 350 federally declared major disasters when I was the secretary I will tell you experience matters and I was much better at handling them and communicating with people about them at the end than I was at the beginning I think have you left that chair as the head of Homeland Security today every time there's a catastrophe do you rush and start thinking about what you would do no but there are moments when I and I think to myself I know what the current secretary is probably thinking about today you know what's that line from Camelot I know what the king is doing tonight or I wonder what the King is doing tonight well you wonder and you know it you've been there you know it and I'm glad I'm focused on California okay no there's a number of the powered and some of his books focuses on the concept of luck and what role look plays let's take a look at how some people have looked at that rule of luck Howard Schultz pointed out a lot of what we ascribe is luck is not luck at all it's really seizing the day and accepting responsibility for your future that's seeing what other people don't see and pursuing wisdom maybe one of the most famous quotes of all time on luck was Benjamin Franklin okay I'm a great believer in luck the harder I work the more luck I have and when I think particularly of Steve that reminded me when he finally won an Oscar Denzel Washington pointed out I say luck is when opportunity luck is when opportunity comes along and you're prepared for it so we could say it's luck that Steve Wynn decided to go to New Jersey we could say it's luck that Steve when decided to leave New Jersey we could say it's luck that Steve Wynn took his company to Macau with an unbelievable bet you know but after a series of decisions you start to wonder is it luck is a rehabilitation and you know I think that is a key in leadership why don't you take us back to some of those decisions Steve you mentioned when you mentioned that the Eagle you know before the end of the decade the eagle was landed we got on the moon buzzy Aldrin was my neighbor in Sun Valley I saw him here yesterday I said buzzy the next time you go to the moon get off first couldn't help myself mom Thank You Janet for public service and that you willing to do that bring all your abilities Howard thanks for lending me the money for the Atlantic City New Jersey Golden Nugget it was one of our first guys to do that the decisions um you know we've been sitting here past four days and all kinds of smart people been sitting up here talking to you everyone said well I I think I'm gonna have to be one of those guys say I'm not sure you know I things seemed simple to me at the time that day that I came in on crutches and you were wearing the Madras shirt the jeans and I thought you were one of the office boys with Stan's axe we were there together and your cousin it's good it's good to be an office boy people are have their defenses I'd broken my foot running cross-country in Sun Valley had a cast on my sled and crutches and I thought that in Atlantic City was as plain as the nose on your face how could anybody not understand that opportunity and you asked me to explain it to you took notes with your yellow legal pad I think you interrupted me once in 35 minutes for a definition and at the end you said it's time the drexel burnham do this and you'll get lace-up shoes and repeat this and I thought Atlantic City was simple the decision was self-explanatory and frankly speaking Mike when we were building the place in Las Vegas in 2004 two point seven five billion dollars with money that had been lent to us I wouldn't have done anything to interfere with getting keeping that promise if hell froze over except a concession in China for casinos I mean really the opportunity was the size of Mount Everest in my eyes so I can't take any credit for being a visionary there I you know the the biggest decisions that I've ever made in life have seemed very simple to me when things get complicated I usually back off I guess that's like you I'm sort of an instinct person and I think that at my best moments with my colleagues we've been very self-critical never to the extent that would paralyze us from making a decision but never actually believed in our own stuff I remember from the days of Penn the dialectic thesis antithesis synthesis I love that scene and fiddler on the roof when Tevye says bla bla bla for God but on the other hand I like that on the other hand and so you know I can't take too much credit for the decisions they've seemed pretty straightforward to me but you know Mike I'd like to add that Steve says it was it wasn't hard to make that decision and one of my beliefs is that success is always obvious in retrospect mm-hmm but Steve when you look at the property where you built your your dream hotel in Las Vegas the truth is another company owned that property first and they either either the potential wasn't as obvious to them or they didn't have the nerve to follow through and they sold it to you and you made it a lot out of it so it's not it's not always that obvious Howard Michael Jackson wanted to meet Siegfried and Roy for the Thriller tour because he wanted to do some illusion to disappear and reappeared in these arena shows and he called up Diana Ross and got me to introduce miss Siegfried and Roy it was just before the Mirage opened but it was finished and Michael asked me to take him on a tour and I did and we went back down to the Golden Nugget the place wasn't quite finished but it was shaped up and I got a phone call he asked me to come down to the suite is I'd like to ask you a favor no one will ever know about this except you and me but I'd like to ask you some questions and tape it and he had a little tape recorder and the chosen a Chairman's apartment where we did the towels commercial and he had a tape recorder and he I said okay sure this like an innocent enough request his first question is don't you get scared of what I mean it costs over 600 million it and it's so big and it's so complicated and I said you know Michael by the time we start one of these places we've had a design it develop a business plan convinced some of the toughest smartest financial people in the world to help us finance it we've been over and over it so many times we've we've examined we've cross-examined free cross-examined our premises by the time we get to breaking ground we really believe it based upon hard repeated visitations of our assumptions you know I I remember that question I still have a little cassette he gave me a copy of it Mike I've still got that Michael Jackson cassette I can go dig it up somewhere well I think the point also that you're saying Steve by the time you break ground you've lived with it for one or two or three almost to you and it's almost like an erector set that you're gonna just follow the pieces yeah that you've thought through that's a very different scenario then some of the positions I've occupied where you don't have that luxury you've got to make decisions like this and you've got to know that you will not have complete information in fact even as you're deciding new information is going to be coming in and at you all the time and what you have to be able to do as the leader is to make the call and understand that that call may change or you may evolve as the information evolves but the the notion of having two or three or four years to marshal a battle plan do what you're going to do etc that that is not something that you know what's the most important thing you bring to those moments I think what you bring to the table is the ability to sift to prioritize to direct and to project to folks confidence that that are there that there will be a you know we're gonna work this well you know can we let's take a look at this quote from General George Patton it is the essence of leadership at difficult times to demonstrate and induce confidence calm and courage many ways isn't that what you're saying to us absent the pearl-handled revolvers yes so Howard we had a we had Tony Blair spending last five days with us here and here's a quote from one of his panels that I think you can think about as you've led your firm the art of leadership is saying no not saying yes it is very easy to say yes you might want to think about it in terms of the type of assets you could have bought or areas that you haven't gone in you want to talk about what about that well I mean it it's making the hard decisions and an example is that I think that too you know that don't since we're all friends here I'll fill you in on a little secret in our business good performance brings more money and if allowed to go unchecked more money brings bad performance and so one of the critical decisions for a money maker is to stop the process at some point in time and the most important decisions you make in the marketing area are the business you don't take you know the people who are hiring you because you had a good year rather than because they believe in what you're doing in which case you'll never satisfy them the people who expect you to see the future and expect you to avoid every problem and take advantage of every opportunity and and the money that's going to be hot money and stay for a little while and then depart so I think that turning down money be it the wrong money or too much money is an example and anybody can make the easy decisions so you can't distinguish yourself by making the easy decisions it's the hard ones and and when you have to face them you know on horseback as you did Janet and without preparation without intricate game planning I think that's the real mark of leadership Steve the issue of them the cow you're somewhat in a unique position compared to many people Howard for example in that whereas Howard is not his firm holds positions for a period of time if they don't like him anymore they have the ability to self you make a decision to spend four billion dollars building a building in the county you cannot move it so you've made a decision for a long period of time that's dependent on future government decisions and other issues in a sense many of the decisions you you make are irreversible in that sense you could theoretically sell the company or sell the hotel as you did in Atlantic City but you've made a decision for a long period of time potentially for decades how does that weigh upon you as as you lead the company watch our port Anwar and I'm sure we'll see one go to Putin walkway Caixa I've said that I'm trying to learn how to speak Mandarin it's not easy but I hope over time my Mandarin gets better and I think that that sort of describes his situation I hope I'm there for decades first of all I'm going to remember that I'm a guest then I'm overwhelmed with gratitude and good fortune that I've been given a chance to participate in that activity rageous Lee beneficial though it is and there's only one thing left to do in my business and that is the basics better gimmicks razzmatazz worthless in the long run the only way to take things to another level to have a future to make sure that you can build a franchise is to do the basics better one single detail at a time God lives in the details and so building a hotel for the decades is to make sure that it's perfect for today try and look around the corner think ahead and try and think like a customer and you know when it gets right down to it don't let it get too cold in the room not funny think like a guest and just grind on it that's all I know how to do I'm on detail I'm a junkyard dog you know I mean and I surround myself with friends that don't think that way because I say so I'm trying and trying to Philly eight myself with bright people who've come to the same common-sense conclusions on their own so we are a group of like-minded people checking each other certainly with different personalities and different takes but on the basics we've come to the same conclusions using our own common sense common sense and you know when Janna talks about the world she lives in and how she had to make these decisions on changing fact patterns new information that's one of the reasons why sitting up here I said on the microphone thank you that's a tough thing you did a very difficult thing especially that job at Homeland Security man oh man ma'am you must have had some really weird times with the information that came in and I I admire you for the success that you had in a janitor thank you Steve Howard you have the luxury to do a great deal of traveling around the world your firm invest internationally as you look at the world through the eyes of the people in those countries your aunt how does that affect how you make decisions to lead your own phone and so whether you're in Europe or North Africa or Asia etc and you spent a large part of your life outside the United States how would you compare and contrast and that situation and how does it affect your leadership at the front well I think that one of the most important things is to have a view on the long term I've gone at different points in time to emerging countries for example Dubai and my first trip to the Middle East which is in o-5 and what they said is well we're not interested in the products you have to sell because we're just going to keep all our money in Dubai because it's going up 50% a year and it always will and so you have to realize that you know maybe that's - you talked before about the importance of reasonable expectations and and their their expectations had not been informed yet by living through a tough time now they have been and you know I really believe in what mark twain's that history does not repeat but it does rhyme and there are a few underlying themes like cyclicality regressions of the mean the importance of knowing what you don't know and and and and that kind of thing which are applicable in every market in every geography and some people have figured it out already and some people haven't who ever put up that slide was prescient about what I was going to say next but you know every once in a while in a certain geography or in a certain time when things are going great people say it's different this time this time the trees really can grow the sky and as Mark Twain said you know they can and and people get a harsh reminder so I think just keeping the universality of these experiences in mind is extremely important Howard we've seen a number of firms that have given birth in the financial service industry by people making a decision to leave in the 1970s George Roberts Henry Kravitz Kohlberg wanted a share of their profits and the leadership at Bear Sterns said no so they left in form another front yes as you look back to Howard Marks and Bruce cars and your other partners when you were working at trust company in the West if you were the CEO of trust company in the West at that time what would you have done to try to keep this team to eventually left and formed the great firm of oak tree today well you know I I don't want to talk ill but given the opportunity this is a panel on leadership and the point is that that that that leadership I think was not stressed there CCW was a big tent you know and and you know the shoe department at Bloomingdale's is not run by Bloomingdale's it's a concession you go in there in your rent space and you do your thing and I think that that company and other other companies that I know of are run under what we learned that Wharton is called Theory X which is you bring people in you give them a job you pay them and that's it you get more out of people as Steve said if you give them leadership and and TCW is a loose confederation of profit centers without a central core without a Creed without something that everybody there believed in and could get behind and I think that having that creating that could have made big difference of course as you say it's also nice to be able to increase your percentage of the profits well I think one of the keys with every with everything that you're addressing here is the question of what do you stand for what is your company stand for because there's obviously a lot of volatility yeah in this period of time so Janet when you met with the Regents and you met with the Chancellor's of the various universities mm-hmm I'm sure they asked you what do you stand for and what do you believe in in various ways they asked that question I think it's a you know one of the things I try to do is when you have a big complicated organization is try to boil it down to a Fraser - that everybody who's in that organization knows and can remember and it can be somebody who's working in the cafeteria all the way to a chancellor or the head of a a an agency within the department etc so and that requires you as the leader to kind of sit take a step back and say what is it that we do that we want to be that best in the world at that's our we want to be the best in the world and you know for the university I said we teach for California and we do a remarkable job this is not the place for statistics but it's an amazing story of accessibility and social mobility teaching for California and we research for the world we take on big problems and we have the we have the the bandwidth to address them and solve them in a cohesive in a way teach for California research for the world everybody can get plugged into that and then you and then I think is the leader you've got to be a source of energy I mean you're not just saying something you got to believe it yourself and then and everything you say and do is meant to be an energy source for those who are working with you and in the company and your firm wherever and so that's you know what I try to do is as I take over a new spot and that's what I communicated when I was being interviewed for this one where'd you go to school I went to undergrad at Santa Clara University and I went to law school at the University of Virginia and didn't you graduate as valedictorian from Santa Clara yes I did yes I did Howard went to Wharton Mike went to Wharton we all three of us went to University of Pennsylvania I was in English literature from the college and he's quoting in between right but you know Mike I think I think the common thread that I've heard from Janet and Steve and me and I know you believe it is that I think probably the most important single element of leadership is enunciated what the company stands for and what everybody should believe yeah and whatever together behind yeah you can't and and as a in the in O to which was a tough time in the stock market the third year of the first three year declined in the stock market since the depression a consultant once said to me you know you've got to stand for something other than just money and I think that's extremely important no it's interesting generally when you spoke here for a few years I traveled around with general Schwarzkopf mm-hmm and we spoke to motivate people particularly as it related to cancer and other issues together and I noticed the first time we went out I gave a talk he gave a talk and was a rousing talk and I next time we went out I gave a different talk and he gave the same talk and then the third time he went out I gave a different talk and he gave the same talk so I you know we were traveling and said and asked the general you know I noticed there's a lot of similarities between her first he thought her second and and your third talk and he said you know he's learned he's got to keep it simple first he has to keep it simple for himself that he's on message and second people cannot take that many different thoughts at one time so if he's delivering the same thing reinforcing it he wants people to be able to do things and I know Eisenhower is one of his famous quotes on leadership was leadership is the art of getting someone else to do something you want done because he wants to do it and so his point was to lead the troops and centrum if he said the same thing two or three times in a row eventually it would be theirs they would be saying it I went on and gave a different speech each time I hadn't learned from that standpoint because I wanted to present a different point but it was a powerful lesson for me to learn from that standpoint and so I'd like to maybe step back here Steve and let's start with you on this issue you not only made the decision to go to New Jersey or made the decision to revamp what the hotel industry was a mirage or redo it again that when and in mcallen again in McAllen here but you've made the decision in some cases almost a bet the company okay so your commitment to your employees and the shareholders that you know you are gonna make sure they're financially strong ok that's your responsibility then in good times and bad times how much were you willing to make that decision and quote bet the company how confident were you and each one of those that you proceeded to actually weren't betting the company you would create opportunities for the company I was very lucky at age 36 37 35 or 36 actually when I met you one of the things you did at at a point in my life when I had not given such matters serious thought you gave me a little afternoon tutorial when we were alone together somewhere about capital structure not just being the purview of eyeshade accountants or financial officers but really the fundamental issue of a CEO that the capital structure was the thing that protected service levels employee job security and everything else that lesson that came from you to me as we were alone one day about capital structure and its relation to the security and the real interior power of the enterprise was something that I absorbed and understood more and more as I got older and so when it seemed as if we were betting the enterprise so to speak I always managed to have in the company or personally a fallback position so that if things didn't go the way they were supposed to if as most human beings I could be wrong as I have been on occasion that it wouldn't be the end of the game that I wouldn't really be playing with the employees careers or their futures I love the idea of pushing the envelope of reaching out but I don't like the idea of being reckless it doesn't appeal to me I'm not suited temperamentally to fly without a net I'm not that kind of person and so it may have appeared that we're betting the company sometimes but while I'm while I'm driving we won't as I said Mike the tough decisions they seem simple to me because we checked ourselves and actually you know Mike before you gave me money in the old days to build these various companies before Howard did member Howard we got drilled and cross-examined we had it convinced smart people that we weren't flying without a net then we had our feet on the ground oh sure it may have been a new application it may have required some vision to see something look every Enterprise in the world exists every institution in the world exists like high-yield bonds big sum because one person decides at one moment in history that it's time for it to exist and I suppose at those moments those junctures of of history the the person looks a little strange to a lot of people but not to that person and I'm looking at one so I guess in a little way I might have been like you in those moments Mike I thought I knew what I was doing I think that and we all thought you would know what you're doing I think Howard to go to you I think you know people respond differently under pressure and for most of the people who might be watching this on the internet or here today if you put them at the free-throw line with two free throws and the team behind by two points at the end of the game and the time is right now most people would not want to raise their hand and take those shots or make that 8-foot pot etcetera but some people have been trained as Steve that they're in their element and they don't feel pressure in that element what type of environment have you as a leader try to create for your firm and your employees so that they feel comfortable in their environment they they're all not calling you on the telephone and saying hey Howard what do you think of this every day but how do you create an environment that during volatility and markets and when people think the world's coming in the end in 2008 or 2009 that they have the courage to invest or likewise when the market is very frothy that they have the courage to say no and not invest how do you create that environment that they're comfortable in their assignment that they're well first of all you have to make them believe you have to have an environment such that and you have to make them believe that they don't have to be perfect to succeed because they always say we're only human and I don't believe that anybody can get all these decisions right and the a great investor is someone who has a somewhat better batting average that's all and but they have to believe that there's a no penalty for trying and occasionally coming up short in 98 when we had the the ruble crisis the Russian default the Asian crisis and the and the meltdown of long-term capital management one of our smart people came to me and said you know I think this is it I think we're melting down now I think it's the end of the financial system I said tell me your problems he explained I said well I understand why you say that it's not illogical now go back to your desk and do your job because because you know a battlefield hero not that I equate what we do with them a battle figure is not someone who's unafraid and someone who's afraid and does it anyway and and that's what we all have to do and and I think that leadership is it is making clear to people that we understand that they are imperfect and they're not going to be invincible and we know that we're imperfect and not going to be invincible and we hold you to the same standard of ourselves and not a different one you know I know many times and particularly if you're in the financial service industry and they tell you it's the end of the world it's always the end of the world and I remember 1974 stock market went down 50% interest rates doubled and that we had a person from a major bank who came in told me this could be the end okay we cannot operate with interest rates at 12% so I had called a person at work for Price Waterhouse in Argentina who they'd be happy if interest rates for 12% just for one month let alone for the year and broaden it and they explained to them how they operate and I think he felt more comfortable but it's that perspective Howard that standpoint Janet and in terms of leadership when you were starting your career would you or during your career was there a moment you think back with a person that you step back and said boy that is a great leader you're in a meeting one day and can you recall any particularly in ear life where you were not the leader but someone else was the leader that either led you and the others what their statements that day that's a I'm sure there are you know there are people I think of as very effective leaders and they were different places and different times of my life when I was a small child it was you know the you know I leader on a backpacking trip one time I was with a group and we were riding cross-country horseback about 200 miles across southwestern southeastern New Mexico and we were totally lost with these horses and a canyon and we had gone right and greater wisdom would have suggested we should have got left and so we were really bollocks tough and it was quite a dangerous situation and I still remember the leader of the group just you know dismounted we got off and we walked basically down the face of the canyon with our horses everybody got down safely a couple of horses got scared a couple of them lost the shoe here were there but the horses were basically safe as well but it was that that sense of calm in the face of the storm that really stuck stuck with me and I I was pretty young then and that it was a powerful lesson for me well I want to thank everyone who joined us I also want to thank the thousands that joined us from around the world with our goal here to try to change the world energize you look for ideas and the leadership from this panel and in closing I thought I might read these words and this is what we were thinking about when we thought about planning this conference three months ago but we in it shall be remembered we few we happy few we band of brothers and sisters four we today that shares our knowledge shall be our brothers and our sisters and gentlemen and women around the world shall think themselves accurs'd that they were not here and hold themselves cheap whiles any speaks that join with us upon global conference day thank you for God

Channel: Oaktree Capital

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Length: 68min 42sec (4122 seconds)

Published: Wed Nov 11 2015