tv The David Rubenstein Show Peer to Peer Conversations Bloomberg June 10, 2017 9:00am-9:31am EDT
♪ david: what was it like when you came here? did people make crocodile dundee jokes? james: people would say to me, is it true that all australians wrestle crocodiles? i would say, well not all of them. david: wall street ceo's are thought to be people who throw things at the walls, scream and yell. james: i think if you are the seventh of 12 children, you don't want to be the thrower. david: are you in favor of repealing dodd-frank? james: that is a terrifying thought to start again. what will replace it? the world doesn't want the large banks to be unregulated. david: you have been a ceo for seven years. that is pretty long. james: what are you telling me, david? [laughter] >> would you fix your tie, please? david: well, people wouldn't recognize me if my tie was fixed, but ok. just leave it this way. all right.
♪ david: i don't consider myself a journalist. and nobody else would consider myself a journalist. i began to take on the life of being an interviewer even though i have a day job of running a private equity firm. how do you define leadership? what is it that makes somebody tick? james, thank you very much for doing this. james: honored to be here, david. david: you have an accent compared to me. maybe in australia, you don't have an accent, but you have an australian accent. i assume that is because you grew up in australia. james: it is. and it is also a measure of me being tone deaf that after 30 years, i have not been able to get rid of it. david: i am an only child, so i don't know what it is like to be in a big family. you were in a family of 11 children? james: 12, originally.
david: what was that like? james: two passed away, so we have 10. it was actually very noisy. you, i think, learned a great deal of empathy for others because you are in an environment where something was going bad every day in our household and something was going good. david: what part of australia were you growing up in? james: melbourne. david: melbourne. so when your parents are producing new children regularly, did you ever asked them what was going on? [laughter] james: i had not quite thought about it in that language. [laughter] james: we did not think of it as a production line. we more thought of, here is nicholas, isn't that great? david: ok. your father had a job where he could afford all those kids easily? james: he was an engineer working for a large corporation, and and ironically, he counseled me my whole life to never work for big business. david: ok. james: you need to be independent and control your own firm, as he called it. he was an engineer. he set up his own practice when he had seven children at the age of 37 with no income. and obviously was successful. he was not particularly financially motivated.
he was very intellectually curious. to him, education, reading, ideas, debate were the essence of our family function. david: you live here now, but do you go back and see your siblings, and what do they think now that you are a famous person in the united states? do they look in awe of you? or they don't treat you any differently than when you were growing up? james: you must not know my siblings very well, or australians for that matter. there is actually a cultural phenomenon in austria, which i think is a truism. it is called the tall poppy syndrome. in any field of poppies, there's always one or two flowers that grow above, and they sort of disrupt the beauty of the field, and you chop them off to keep that. in australia, they equate the tall poppy syndrome is that if you are extremely successful, you have a higher burden to be more modest and give back more.
sort of a reverse psychology. my family is great. i am very close to my siblings. we always get together for dinner when i am down there, and we have a terrific time. they have all been successful in lots of different ways. one was a standup comic for a while. one has been one of the top judges down there. they have all done different things and have had fulfilling lives. so no, there is no awe, i can assure you that. [laughter] james: it's like, "james, it is your turn to get the barbecue going." you know? david: you were educated as a lawyer in australia, so you could have practiced law there, i assume, but you chose to come to business school in the united states. why did you choose not to practice law and come all the way to the united states, and did you intend to stay here, or did you think you were going to go back? james: i practiced law for four years actually, and i was not very good at it. my two elder sisters were lawyers and both terrific. i was more interested in being where the decisions are being made. lawyers, their job is to create the structure in which decisions can operate and can be processed well, to clean up after there have been problems, to document
and help the negotiation of things, but they are not at the decision point. for my career, i have always try to get closer and closer to being the person or part of a team that is making decisions. it is just a different -- everybody has different things which excite them. david: you are practicing law, presumably you're making some money. you gave that up to come to business school in new york at columbia? james: yes columbia. david: what was it like when you came here? did people made crocodile dundee jokes about australia or they didn't do that? james: they did, actually. [laughter] david: really? [laughter] james: i was very lucky because i have a very ugly scar on my arm from when i played football, which i was not very good at, but i got a major scar from it, so i can pretend to be good. and people would say to me, "is it true all australians wrestle crocodiles?" i said, "well, not all of them."
of course that leads to the question, "did you wrestle a crocodile?" "well, of course." [laughter] james: that's what we do in australia, and i show them my scars. david: ok. james: i came to the states because, seriously, it was, there was an advertisement at the time which i think i saw growing up in australia, but maybe i saw it in the u.s., which essentially said, if you can make it here, you can make it anywhere. and the concept that this was the land that if you came to and you worked really hard, i borrowed 24% interest to come here. paid for all my student loans, worked really hard, you could be successful here. there was a path forward. i was fortunate to get the student visas and a green card, and ultimately citizenship, which i took 12 years ago and i felt the welcoming nature of the u.s. economy and the people and willingness to accept people who are prepared to have a go here, i thought was just wonderful.
david: you graduated from business school and then went to work for mckenzie, is that right? james: that's right, yeah. david: so you wanted to be a consultant? or at least you joined a consulting firm. what was that like? james: it was great. it was one step closer to where business decisions get done. you are working with management teams. you are helping companies to figure out their strategy, and you are helping them to improve their operations. it was like going to business school for real every day. it was fantastic and you get paid to do it. i couldn't believe my good luck. david: so then you went after a few years, you were recruited by one of your clients. james: it sounds like i couldn't keep a job here. this is not going so well. david: well, they recruited you. merrill lynch recruited you. james: dave kamensky. david: dave kamensky said you were so good as a consultant, come in and actually do the job here. and what was your job at merrill lynch? james: first job was to run marketing, then it was to run the sales organization for the brokerage business. david: you were doing that, and then somebody calls you from morgan stanley and says, you are doing a great job at merrill lynch, why don't you get an even better job and come over here? is that how it happened? james: well, they had a business that needed fixing, and i had some expertise in that business. actually it was a very struggling business at the time. it was the old wealth management business.
john mack called me when he got recruited back to morgan stanley in 2005, i think, and asked me to be part of the team, which i thought was a very exciting challenge, so i did that. david: so when you came over to run the wealth management business, did you ever think you would be the ceo of something like morgan stanley? james: i did not. i told john actually when he was interviewing me for the job, i said, "you know, we can fix this business. i am pretty confident about that." i knew a lot of people in the market. i felt immodestly that i understood with the issues were and i felt we could fix it. but i said, "i can only fix it to a certain level, and then you will have an important decision to make, and that is probably two years from now." that decision is do you double the business because this is a business that has scale economics and you need to double it, or sell it to somebody else who will double theirs? there was an inevitability about this outcome. and i said at that point i would leave. i did not have any anticipation of being there longer than two years. david: you did not think you would go back to australia? james: no, but i also did not think we would have a financial
crisis. david: right. australians seem like they are relatively even keeled, and consultants are even keeled, so you seem to be an even keeled guy, but wall street ceos are thought to be people who throw things at walls, scream, yell, and slam phones down. so is that image wrong? or have you just succeeded even though you are low-key, or do you actually throw things as well? [laughter] james: you seem modest and controlled in your personality. aren't you used to ceo's who are throwing things? james: i think if you are the seventh of 12 children, you don't want to be the thrower. that is not going to end so well. no, i think part of it is honestly just personality and that probably helps shape you. your family obviously does. but i think these businesses have been on a 30-year transition from very tightly held private partnerships where , frankly, more extreme personal behavior, taking more risk because it's your own money, etc., etc., was par for the course.
versus now, these are big global corporations. we are relatively small among the big banks here. we have $2 trillion of client assets. we have $1 trillion balance sheet, 55,000 employees all over the world. these are major global corporations. they are going to behave and act like major global corporations. i don't see any of those executives behaving the way maybe the historical caricature of a wall street would have. ♪ david: are you in favor of repealing dodd-frank? james: that is a terrifying thought, actually, to start again. because what will replace it? the world doesn't want the large banks to be unregulated. ♪
♪ david: the world for people running wall street firm seems to be pretty good in that sense that wall street profits are high, therefore expectations are so high that things will inevitably go down? james: if you believe the u.s. economy has turned, which i do, and the federal reserve apparently concurs, and if you believe that we are destined for economic growth, more like 3% than 1.5%, particularly with unemployment where it is, and if you believe that some of the policies the new administration is talking about on the economic front come through with little
trade disruption, then it is not a total surprise that markets reflect that. david: you are the ceo of one of the best-known wall street firms in the country, in the world, so why do you think the image of wall street firms is not so great in the country? james: well, first, i have to say coming into this room, i got a round of applause, which i appreciate. i will go anywhere for a round of applause these days. you know, it's -- the facts are that, absent the great depression, the great recession that we all went through, wall street had a large part to do with it, if not the major part to do with it, and a lot of the synthetic type products that were created that gave rise to putting a level of risk in the financial system that turned out to be systemic risk, that led to massive failures of institutions, which led to the taxpayers having to bail out the remaining institutions, it is not surprising that the public and the taxpayer would have such a negative reaction to those who caused this to happen.
david: now it is seven, eight years later, why is the image not better? james: it is hard to love money unless you have it. david: all right. james: being attracted to wall street as a concept is not something most people just naturally gravitate to. folks gravitate to new technologies. they gravitate to consumer services that obviously palpably make their lives better. they gravitate towards entertainment. you gravitate towards the things that you can viscerally feel and touch. the flow of capital is not one of those things, so in many folks' minds, it gets back to where does it causes problems. what we have not done a good job of, as i said, is articulating why capital is what takes these incredibly innovative little companies that once were like a facebook, like an apple, like a google, and creates capital to let them grow and become these incredible success stories. david: are you in favor as some
people in the wall street community seem to be of repealing dodd-frank, or are you actually tolerating it and you can live with it? james: i would not repeal it. i think that would be a mistake. there has been -- we have redesigned the way in which large financial institutions in this country function, how they are capitalized, the liquidity they hold, the leverage they operate under, the way they are managed, the way they are overseen by the federal reserve and other agencies, and what happens to them if they get into trouble. that has been a multi-year process. certain elements have definitely gone too far, but the essence of that structure, i think has been absolutely critical, and that is the reason the u.s. financial system is so much better shape than almost anywhere in the world. now, are there pieces of dodd-frank that i clearly feel went too far, have unintended consequences, are disruptive to
market liquidity? there is no question about that, but i would not start again. that is a terrifying thought actually to start again because what is going to replace it? the world does not want the large banks to be unregulated. david: did you know donald trump before he was president of the united states? james: i think i had met him once, and i spoke to him once about a transaction one time. so very little contact. david: you never turned him down for a deal, i assume? james: i did not, personally, no. david: ok. have you seen him since he whas been president? james: no, i have not. david: do you have any advice that you would like to give him or he doesn't need any advice from you? [laughter] james: he has a pretty large team of advisors and a lot more people who want to be advisers. so i don't think the shortage of advice is the problem. [laughter] james: i think -- somebody once said to me, the office of the president of the united states, it consumes people.
and they have got a very bold agenda, but at the same time, the world is not staying static. you know, we have enormous geopolitical uncertainty. you have issues around north korea right now, iran, the immigration crisis in syria. there are a lot of pockets of the world that could easily engulf and consume the time of the president, so i think it is critical that they be very focused on a small number of achievable goals and that the team is very coordinated, deliberate, and cooperative in working to get those done. david: now the strategy you have employed as ceo, and since you have been ceo, i think the market capitalization is up 110%, so i hope you get a good bonus for that. james: thank you. david: but your strategy has been to de-risk the firm a bit and go into wealth management a little bit more than was before. what was the reasoning behind that strategy? james: the analogy i used it is an aircraft carrier. and the wealth management business is incredibly stable. in really bad markets, it might be down in revenues 10%.
now in really good markets, it might be up in revenues 15%. it's not -- it's never going to -- the day that the wealth management business blows through the roof is the day you should be scared. you want it stable. we got the balance from that with the speed in the engine room from all the capital markets businesses, and i thought, and the board thought, that mix, and john mack also was part of this, obviously, that mix was an incredibly powerful thing to present to investors and to clients. david: if i want to have my money managed by, let's say, morgan stanley, what kind of rate of return should i get? let's say i give you x dollars, what should i tell your money management people that i want and be reasonably happy to get? james: well, it depends on who you are. if you are david rubenstein and you have got a lot of your money tied up in carlyle and in all your funds, very illiquid, very long-term trap that you don't want to take out, then you're probably going to be very conservative with what you put into the markets. i would think prudently.
you are not buying the hottest stocks. that's not what you do. you have your risk already in your business. if you have got $35,000 to invest, i would say you should buy an s&p index fund and sit on it and never look at it again and wait into your action near -- wait until you are actually near the date of retirement. david: who manages your money? james: i have a wonderful financial advisor. david: at morgan stanley? james: at morgan stanley and she does a terrific job. david: so does she call you up and does she worry that she does not do a good job for you that she might lose her job? [laughter] james: she is a professional. she treats me like hopefully like all of her clients. i probably get a little extra care and attention, i suspect. but they are a professional team. they do what they should do. they do a quarterly report. we sit down with my wife every year and do an annual review of our total financial situation, and we adjust accordingly. ♪ david: you told me a story recently that you went out to pick up some pizza. when you are the ceo of morgan stanley, can't you get somebody to deliver the pizza to you?
♪ david: what is the greatest pleasure of being the ceo of morgan stanley? when you go to a restaurant, do you get people to give you your seat right away? do you have people give you tickets to all the events you want to go to? you can get tickets to "hamilton" easily? james: i saw "hamilton" recently for the first time, and, wow. that was just -- david: did you have trouble getting tickets? i assume not. james: of course. of course. the greatest pleasure for me -- and this is going to sound hokey, but it is true, we had -- our firm has been around for a little over 80 years. for about 65 to 70 years, we had very few issues.
i mean, you had your normal growth pains, if you will, we and then we had a period of a decade where we try to become a firm we weren't, which was doing a lot of prop trading, participating in markets just for our benefit. there was no obvious client on the other side of it. it was just -- a lot of firms do that. hedge funds do that, but that wasn't what was our core dna, and what we have done in the last few years is tried to do is restore morgan stanley to its core dna, which is all about serving our clients. david: so today, how do you spend your time? what percentage of your time do you spend meeting clients or prospective clients? is that 10%, 15%? james: no, it changes. each year, i sit down and write the 10 things i want to get done that year, and in the early years in the job, they were very much problem issues. we owned a half-built -- i don't know if you remember, but we owned a half-built casino in atlantic city. we wrote that off. a lot of things that needed to get resolved.
happily, as time has gone on, they are resolved, and i am spending much more time on client activity. a much larger part of the job now is trying to help our teams do what we are supposed to, why we come to work every day, help our clients. david: what about employees? how much time do you spend rallying the troops? james: in fact, tonight we have our new managing director dinner, which we have all of our 142 new managing directors this year, and their spouses and partners, and i will be speaking to them right after this, so i try every day to do something that connects to a group of employees, whether it is summer interns or senior managing directors. david: and you travel what percentage of your time? james: i don't know, probably about a third. david: a third. you have been the ceo since 2010, so in the lifespan of wall street ceo's, seven years or so, that is pretty long. james: what you telling me, david? [laughter] david: well, you are a young person.
james: that my number is up? david: when you eventually decide you might want to do something else, have you ever thought about what you might want to do? james: i think we all have fantasies of what we would like to do, then reality steps in and says, "actually, what are you any good at it?" it is fun to dream, but you have got to be true to what your real skills are, and i would certainly like to teach and i would like to spend more time -- i was more involved philanthropically than i have been in the last few years because i have just not had the time. more time doing that. i would like to spend more time teaching, and investing, and learn at the feet of david here. i want to spend more time in australia. it is a big world. david: so you were very low-key by wall street standards.
you told me a story recently where you came back the other day and went out to pick up some pizza. now when you are the ceo of morgan stanley -- can't you get somebody to deliver the pizza to you, or how come you have to go pick it up yourself? james: you know, i don't regard the ceo thing as defining you as a person. i think it's -- everybody is different, but you have to be able to once you are not ceo, for that not to materially affect how you are as a person. and a lot of people it does, i have seen it over many years, -- not everybody. our life is very simple. we keep a very balanced, sort of down-home kind of life. i mean, obviously we live well, but you can't define -- the job should not define you. your job is you are ceo for a point in time. you are helping to drive the vessel, and you will get off it, and hopefully it does better after you are gone. david: looking at the world today, if you're starting your career all over again, would you go into finance knowing what you now know? james: yep. when i was at law school, i had three jobs. this is a true story. one of them was, i worked in a
sheet metal factory melding sheet metal together, which is incredibly difficult. the second was i was a toilet cleaner at my college, which was an all-male college, which was an incredibly difficult job. [laughter] james: and the third was working on saturdays at the local brokerage firm called potter partners, which is now owned by a global firm, helping to match trades that have not been matched during the week, so the loose-end trades. i loved it. the first shares i bought were oil expiration options, which was far in the risk. david: did you make money on it? james: yeah. but i was 19 years old, why not take some risks? i love the markets. i love the business, and i love working with ceo's and clients and trying to get good financial transactions done. david: now you have children. are they in the financial markets? james: no. no, they are not. one is working in d.c. in a consulting business, and one is still in college, and she is an artist, a musician, very
creative. david: so when you became ceo of morgan stanley, did they treat you differently? did they have more respect than before, or no? [laughter] james: not really, no. [laughter] david: no. james: no, we are very grounded. the kids are great. i spent a lot of time with them going through the sat test and visiting colleges and all that sort of stuff. no, i think, you know, first and foremost, you are dad and you want to be as normal of a dad as you can, and hopefully some of the trappings of office and the stuff around it, you have got to keep that away from your family. your family is your family. david: so they don't say, "my dad is ceo of morgan stanley." they don't tell people that? james: i don't think so. they are trying to build their own lives, and like all of us, we want our kids to have the right level of independence, but know that you are there to support and love them no matter what happens. ♪ ..
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