Sallie Krawcheck's Columbia Business School Commencement Speech
By Sallie Krawcheck
Dean Hubbard, Members of the Faculty, Distinguished Guests, Family and Friends and, most importantly, Class of 2015…..
As we stand here on the eve of Columbia Business School’s 100th anniversary, we look forward and we look back….and we remember.
I remember when I was in your seat....oh, the good old days.....
I was about to take an investment banking job I didn’t really want, having failed in my goal of transitioning from Banking to Media. I was about 8 weeks away from finding out that my now-ex-husband was having an affair with my now-ex-friend....and about 10 weeks away from vomiting through my first day of work....and about 10 weeks and 3 days from realizing that I had taken the wrong job….and about 14 months away from quitting that job.
And so I was a few years away from being a stay-at-home mom with an infant. And thus a few years away from believing I had thrown away my Columbia Business School tuition dollars…..from believing I had failed.
Until the one fateful day I was standing in my kitchen – 1 month away from my 30th birthday (aka, “the end of youth”) – and had a blinding flash of insight.....one that so many young women have.....that I should be a sellside equity research analyst.
My mission set, all I had to do was execute.
I won't go through all the rejections I got. Let's just say they included UBS, Goldman Sachs, DLJ, First Boston, Deutsche Bank, Credit Suisse, Bear Stearns, Dillon Read, Salomon Brothers, Nomura, Morgan Stanley (where the search person helpfully pointed out that it was because I had a baby), Lehman Brothers (who rejected me three times.…just to make sure I really, really, really knew I had been rejected), Merrill Lynch, and Smith Barney (because the Director of Research didn’t think I would work hard enough….something he found not to be the case when I later ran Smith Barney).
The only job offer I got was from Sanford Bernstein, which I’d never really heard of…..to cover life insurance…..which I didn’t really have a passion for…..for half of my old salary and at a lower level of seniority.
So I took it.
And so, sitting here in your shoes, I was a few years away from the story I want to share with you today.....about the very first research report I ever published....a mere 3 months into my new job.
It was on American General. This was a life insurance company that was diversifying its business, by swiftly growing in subprime lending. As a result, unlike other life insurance companies, it was growing quickly…..and the other research analysts were applauding.
While the world at large saw massive growth, by pulling apart the credit ratios, I believed I saw a swiftly deteriorating credit picture, masked by that growth. (No, this wasn’t 2007; it was 1994.) The title of my first research report: “Whoa Nelly.”
I sent it over to an American General executive for fact checking, to a friendly guy….. in fact the first person who had called to welcome me to my new job at Bernstein. And he told me that my analysis was unconventional at best….and wrong….and well off of the consensus view of analysts who had been in the business for years and years.
Why, he asked, would I be so foolish as to publish it?
It reminded me of advice I had received from a successful analyst at one of the big Wall Street firms, as I considered embarking on my new career. She had told me to be careful of making bearish calls, illuminating it with a 2-by-2 chart labeled along the top: Buy or Sell (for the stock recommendations). And labeled along the side: Right or Wrong (for the outcome of those calls).
If you made a bullish call on a company’s stock and you were right, all was good. You were a hero. After all, we’re natural optimists, right, and the market is net long.
Bullish and wrong, oh well. Most investors were long the stock, so you were wrong together; it can happen to anyone.
Bearish and right, the most you got was grudging respect, since nobody much likes a party pooper (see Meredith Whitney and her bearish bank calls); make a bearish call and you’re wrong, and you may be done (see Meredith Whitney and her bearish muni calls).
This analyst went on to tell me that Wall Street was the only industry in the world in which one could become a millionaire by simply being mediocre and essentially hiding in the pack. One would be a fool to stand out as a bear.
So, as I heard this company executive out, I was sweating out of every pore in my body. Even pores I didn’t know that I had. He told me I was likely ending my career before it even started.
So you know what I did? I published that negative research, without changing a single word.
It wasn’t really that I was so sure the research was right. After all, I was brand new to the industry.
But I do remember reminding myself that American General wasn’t my client. Instead my clients were the masses of faceless investors out there, most of whom I would never meet. And my job was to give them the best advice I could…..even if it was advice they might not want to hear.
As it turned out, the research was right. Not more than 6 weeks later, the company reported earnings results that showed clear credit deterioration. In fact, as often happens when things go wrong, the deterioration was even worse than I had forecasted. The company muddled through and later sold itself to AIG (yes, that AIG).
With this insight, as I moved into a leadership position, our strategy at Bernstein evolved to one that fully focused on the investing client and that eradicated conflicts of interest. While most Wall Street research departments worked for both investing and corporate clients – whose interests were, by definition, in conflict – we pulled out of the investment banking business and solely focused on doing the best job we could for investing clients.
This was a losing business strategy for years. Yes, because we gave up millions of dollars a year in revenues. But also because our clients thought it was sort of dopey of us to give up the money (their reasoning was they wanted us to have a more financially successful business….and thus have more money to invest in our business….which would in turn benefit them).
They thought this right up until the corrosive impact of these conflicts was revealed during the research scandals of the early 2000s.
I can hear some of your internal thoughts now: "Oh, well Sallie, you could do that whole get-rid-of-the-conflicts thing because Bernstein was small." I would contend that it depends on how you define small.
But which do you think earned more money in the years leading up to 2008? The equity research business of Sanford Bernstein or all of Merrill Lynch?
The answer is Bernstein…..because the business avoided the huge losses by sticking to what we knew and serving our clients.
I’ve often thought back and wondered what the heck I was thinking in publishing that research. Who wouldn't want to make millions of dollars by staying in the pack??
A personality test I recently took tells me it's because I'm "disagreeable." I also think it's because I'm different, different from most on Wall Street. I grew up in the south, didn’t go to a school with the powers-that-be on Wall Street.
And I embraced that difference and saw it as a strength. I actively looked for points of difference in my research and saw it as a driver of potential value for clients. And I worked at a firm that itself was different and that celebrated difference.
And my message to you today is to embrace your difference....and to embrace the difference of others.
If you look at what I might call "business pop culture" today, so much of what we are telling women is how to conform: how to negotiate like a man, how to ask for a raise like a man, how to get the promotion like a man. It assumes business is a box and you have to operate in the box.
So much of what will come at YOU and your generation will be with that same end goal, a goal of conforming to business as it is today. Helpful people telling you to how be successful by playing by today's rules…..helpful people helpfully telling you to stay in the pack.
But diversity – of thought, of background, of perspective, of experience, of disposition, of color, of gender, of age – is powerful. And it’s diversity, and clashes of ideas, that drives innovation and superior financial results.
Indeed I would argue that the power of diversity is diversity itself…..not taking diverse individuals and getting them to all act alike.
A particular point of strength of your generation is that so many of you are looking for – indeed demanding – that your work be more than just work. You reject the idea that you can be working OR you can be giving back at any one time. Your generation looks for and embraces the "and"…..to work AND to give back.
Indeed, for so many of you, the meaning and purpose of work suffuses all of what you do.
I'm working to build businesses today that reflect a meaning that I believe matters. For me, that meaning is the economic and financial engagement of women. If we achieve that, we grow the economy and make real progress to solving some pretty big problems, like (oh, you know) the retirement savings gap.
As for companies? The winners will be those that meet you and your generation where you are....that meet women where they are…..that meet people of difference where they are……that embrace the meaning and purpose you bring to the workplace…that don’t demand you conform to a 1995 way of operating.
And those that don't?
For so many years, if a company didn't align with the impact you wanted to have on the world, so be it. The discovery process for employees was pretty hard. If a company's value statement said it valued its people, well, I guess it must value their people.....and they would hold that line even through the massive lay-offs or escorting those laid-off employees out of the building.
Today the discovery process has improved and will continue to, thanks to technology and social media. And the companies that embody meaning and purpose will find it to be an advantage….a significant advantage….not a drag away from focusing on profits. Instead it can and will add to profits.
But, also so importantly, compared to when I was in your seat.....you also have the opportunity and ability to start your own companies. The costs of starting businesses have come down so much, that you can build businesses that can reflect your own ideas, your own values, your own mission, your own purpose in a way and at a rate that has not been possible until this point in history.
And I would argue that this group has a special responsibility in business and in driving business forward, having gone to this business school, having the benefit of this education, occupying this position “at the very center of business.”
I have a friend, Vernice Armour, who asks a question that I always love: “What's your gutsy move?”
I would add to that, on this day of graduation and new beginnings: “What's your impact going to be? What's your meaning and purpose? What’s your point of difference? What’s your gutsy move?”
If we all keep that front and center, the next 100 years for this school will be even brighter than the past 100.
Thank you, and congratulations and good luck to all of you.
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