Intro Vocals 0:01
You’re watching the blockchain interviews hosted by Dan Weiskopf. Each episode features interviews with leading industry experts so that viewers can have a deeper understanding of today’s quickly evolving blockchain marketplace.
Dan Weiskopf 0:19
Thank you, Vikram Malhotra for joining us in the blockchain co series. You know, today we’re gonna we’re going to take a different tact for my audience, you know, I think we’re, we’re going through a very challenging period of time. And having the opportunity to speak to a senior partner at McKinsey, about management, I think is good for my listeners. And I think it’s really important. Vikram, thank you very much for joining us today, I would forward our honest dialogue or discussion about your book. And hopefully, we can solve some wonderful problems for a lot of folks out there. So for those who don’t know, Vikram, you know, he is a senior partner at McKinsey and Company also is, and he’s been there since 1986. By the way, that’s a long tenure, I’m sure. He was also a director of the board, and also McKinsey Managing Partner of Americas. He co-authored with Caroline Dewar and Scott Keller, this wonderful book that we’ll be talking about the CEO Excellence. And it talks about the six mindsets that distinguish the best leaders from the rest. And, I think most people can see the diagram below. So a couple of KPIs that I was most impressed with. And then we’ll bring Vikram on. Thanks for your patience, Vikram, of course, your book highlights that $5 trillion of added value was created through the top 200 CEOs. That’s the equivalent of the GDP of Japan. I mean, that’s a, you know, a huge number as far as I’m concerned. Now, our audience is made up of ETF, nerds, portfolio managers and financial advisors. And some of them will also be surprised, I think, by the fact that alpha 2.8 times alpha was created by some of these management’s in aggregate over the s&p 500. So put differently, that’s $10,000 of value over a decade versus $1,600. I read that Vikram, that KPI, and I was shocked. So starting right into it, if you would, we’ve got this diagram, up on the screen. We’d love for everybody to hear a little bit more about how you came together to write the book. And of course, the diagram as well.
Vikram Malhotra 3:05
Of course, of course. So the bottom line, then, is that great CEOs matter. Great leadership matters. It’s not just CEOs, great leadership matters, it makes a huge difference. We’ve done, you know, we have lots of analytics, and you’ve cited a couple of examples. You know, the other one, that’s one of my favorites, is that, you know, 40 to 45%, of performance of a company can actually be driven literally off the CEO, their leadership style, how they bring the team along all of that stuff that goes with it. So the bottom line is leadership matters, great CEOs matter the way we came to the book was we said, Okay, we’ve got all this research, you’ve cited a few of the facts. And we said, we’d like to interview some really great CEOs as part of this. So we kind of stepped back and said, you know, if you look at the world over the last 25 years, there have been 3500 CEOs, we said, let’s get people who’ve been enrolled for six years or more. And let’s get people who have delivered for the most part, not always 20% or more delivered shareholder returns, and been in the top quintile in their sector. So obviously very different if you’re in the tech sector, was in the financial services sector, was the healthcare sector. But in your sector, have you been top quintile in terms of shareholder return? This narrowed the group from 3500 to 200. And we went up to 75 of that 200. And we were very fortunate. 67 of them said, Yes, we’d like to be interviewed. So we interviewed 67 of them through the pandemic, mostly on Zoom one or two in person. And we discovered a bunch of interesting things.
The first is as we define the responsibilities of CEOs and you see the six in the middle here, what do CEOs do?They set the direction they align the organization. They mobilize leaders go up to the top right then gauged the board, they connect with stakeholders, they manage their own personal effectiveness as a leader, one of the first insights really was that these six responsibilities which are not rocket science, we could have come up with these without the interviews. But the first insight was great CEOs do all six of these things really well all of the time. So I’ve gone in with a bit of a hypothesis that there’ll be some CEOs who are great at setting the direction, but perhaps less good at aligning the organization, or they’d be great at mobilizing through leaders, but perhaps not quite as visionary as others might be but not true. They do all six of these things really well all of the time.
The second interesting insight was every one of the CEOs, while being great risk managers had audacious vision, and I’d be happy to give you some great examples of audacious vision. But they also realize the importance of being an integrator, Satya Nadella from Microsoft, in his interview with us said, you know, the issue is, it’s an inflammation of symmetry problem, no matter how good your organization is, you see more than everyone who reports to you and you see more than all the people on the board that you report to. So you got to have both audacious vision and you got to have great integration skills.
And then the third insight, which is what this book is really all about is against each one of these responsibilities. The middle you see off to the sides, in light blue, a mindset image. So the mindset, again, set the direction was a mindset of the board. In fact, a number of these great CEOs said to us, there’s one message you want to get out there is if you inherit a company, and it’s going just fine. If you stay on that path, about three years time, we’ll catch up to you, if you’re incremental, we’ll catch up to you in a year. So you’ve got to be visionary, and you’ve got to be bold. And so there’s that mindset of Be bold. Similarly, if I go down, three down on the left, or if you’re mobilizing two leaders, the mindset is solved for the team psychology? How do you really bring this team together and make them work well, and you know, you kind of see the other mindsets. And then I’m happy to go into examples and give you vignettes in each of these, but you direct me down as to whether you’d like me to dive deep in any one of these or whether you’d like to answer other questions. But the key here is, these six mindsets are very, very different than what you encounter in most CEOs, they don’t often have the six months, they certainly don’t have these six mindsets, working in concert with each other.
Dan Weiskopf 7:29
So let’s start out broad, and then we’ll get into narrow stuff, right? We’re experiencing conditions on a macro level economic conditions. Like we haven’t seen, maybe in a decade or two, right?What are you thinking is going on in the way of other co suites? Are these days right, you know, in the context of what your what your diagram is showing?
Vikram Malhotra 7:57
Yeah, I think there are two things happening, or maybe three things happening in concert. The first is great CEOs, in my mind remain bold in times like this, right? They view times like this is real opportunity. By the way, as you’ll see there, that first bullet point at the B board, which says vision, reframe the game. Many of these folks have already established their vision, they have a true Northstar around where they want the institution to go in the next five to eight years. It’s kind of that timeframe. And that doesn’t change when the macro context shifts, because they know the world will also you know, come back to some normality at some point. And so they need to react in the moment. Yes, they got to deal with quarterly earnings. Yes, they got to do all of that. But they don’t lose sight of their Northstar. And so to that extent, to the extent that they need to be bold in this timeframe, whether it’s product strategies, whether it’s customer segments, strategies, whether it’s what they do in m&a, but most importantly, now’s the time to double down on your resource allocation bet. So capital dollars, expense dollars, talent, is that really going against where your big opportunities and big priorities are? So number one thing they do is remain bored. Right?
The second thing that they do is, you know, I noted that these these great CEOs are bold, but they’re also amazing risk managers. So trust me, they’ve already planned these scenarios that you’ve seen today. They may not have planned for Russian invasion of Ukraine and war in Ukraine, but they certainly plan for inflation, the way we’re seeing it oil prices, the way we’re seeing it, all of that stuff, and a recessionary environment. So the scenario is planned out, and they’ve got their playbook, right. And the third thing that therefore then happens is they bring that magic together, how am I going to remain bored and how am I going to balance those risks? And what are the moves that I’m going to make to deal with that right some of it will be what we might naturally seen in right I went like this, there will be the productivity moves that will kick in, undoubtedly. But I think much more interestingly, as I think what you’ll see between now and 2023 won’t be a great year, I don’t think. But I think what you’ll see would mean the rest of 22 and 23 years, you know, these great CEOs really pushing hard and some interesting new opportunities, growth areas, m&a opportunities, and the like. That’s what that’s what they do in moments like this.
Dan Weiskopf 10:26
So Adobe, is listed as one of those companies in your book. And they recently made a very pivotal acquisition the CEO did, right. And candidly, I think there was some criticism of him for it in that he paid a lot of money for the company that he bought. But his long term vision as an example, is that it’s really going to be a bold move. $20 billion, to me is a lot of money. Can you speak a little bit about you know, that situation specifically?
Vikram Malhotra 11:03
I don’t know much about the deal, you’re referring to Dan. But here’s what I do know about sharks, no neuron, and an Adobe, sharp man took on Adobe, I don’t know, six or seven years ago, at this point, its market cap, when he took it on was $20 billion. He completely reframed the game in terms of its vision, and what it wanted to do. In the field, it was in the like, right. So if you go back somewhere in the book, we’ve kind of contrasted the old, old, old Adobe versus the new vision that Shantanu put in place. Okay, fast forward. And I know tech stocks went up a lot, but they will come down a lot to $250 billion market cap company, right. It’s a 10x shift between the market cap he took on and where it is today. Right. I think he’s on the right. I don’t know the specifics of the deal you’re talking about. But I think he’s on the right. And you know, there are a couple of interesting things about Adobe about chondral. I should talk about Adobe, I don’t know much about them. But I do know this from my conversation with Jonathan. Number one, he’s always remained true to the Northstar of his vision, right? Where do they want the company to go. And to that end, he is less worked up. And by the way, in my view, most great CEOs are less worked up around quarterly earnings versus what I believe I need to do to get to the end goal. That’s not to say they don’t worry about quarterly earnings don’t don’t look to deliver against it. But that is not the driving motivation, their driving motivation is Where am I headed? Right?That’s the first thing. The second is with Adobe, as is true of others, they tend to kind of focus on m&a in programmatic ways. You know, they will, they will typically do 5% -8% of the company, market cap wise in m&a Every year, right? And then, and then they’ll do that for five years in a row. And suddenly 40% or 50% of the company is different, right. But they tend not to do big bang m&a, and 20 billion may seem a lot, but in the current, you know, it’s less than, you know, 10% market cap of the company. So in that context is very much part of, you know, a programmatic m&a play. And then the third is, you know, one of the great defining features of of Shantanu is, every one of these great CEOs has a, as a process that they love, and sharpen, who in particular, has a great bottoms up innovation process in the company, which surfaces hundreds of ideas that get vetted and then get used in inappropriate ways. And I’m sure without knowing the details of this acquisition, that that innovation agenda will play into the acquisition as well.
Dan Weiskopf 13:58
Interesting. Yeah. So let’s talk a little bit about some of the companies that weren’t listed in your book. And, and maybe I missed it, but I didn’t seem didn’t see Amazon, and I didn’t see Apple. How is that possible?
Vikram Malhotra 14:16
It’s very straightforward. Both of them. As you recall, I said, 3500 companies that cut down to 200, both of them were part of the 200. Right? We made a very explicit decision with Jeff Bezos and Amazon, that this was going to be a book about people who ran companies that were kind of, you know, if you like up and running, and our general view was that there’s a great book to be read, written on founder led businesses. And we absolutely hugely respect what Jeff’s done and he absolutely qualifies to be interviewed and be part of this book. But we made a very explicit decision. And by the way out of the 300, they were sorry, 200. They were about 30 founders, you know, found the LEDs. I mean, Elon Musk would make the cartoon right. So we can argue with Elon, you know, that’s played out enough yet or not. But we made an explicit decision. Say there’s a founder led book to write let’s write that separately, right? This is about CEOs who are taken on either Well, running companies or not so well, running companies, they’ve done extraordinary things right. Now, Tim Cook, and Apple absolutely also qualified for this book. And I will say, of the 75 people that I reached out to he was in the eighth who didn’t either respond, we couldn’t get an interview with but if we had gotten one he would have been featured. He is the CEO would have been featured in this book.
Dan Weiskopf 15:45
Yeah, that’s interesting. I have been very surprised, as a portfolio manager. And this is a different question, but it does integrate with, with your mindset. Some companies don’t respond to our inquiries. And maybe they don’t know who we are, right. But your book makes a very explicit point that time is spent with shareholders who own your stock, not because you’re going to be thinking about the short term, but they are also speaking to shareholders on a regular basis. What insights do you find that a lot of the CEOs really incorporated? Is it in their mindset?
Vikram Malhotra 16:32
Yeah, so look, I would say that the CEOs were a little different on this I general conclusion is that great CEO is spending a lot of time connecting with stakeholders, and you know, whether that’s investors or analysts, trade unions, regulators, you know, you name it, right. I would say the, we did her in the book saying, you know, they connect a lot with investors. There’s, there’s a, there’s a, there was a sizable minority, who would say, you know, what, the investors are who they are, I gotta get I gotta get on with life. But in general, your point is, right, which is they do care about hearing from investors, they care about hearing from investors? For three reasons, right? Reason, number one is they, you know, this is the basic reason, right, we want to hear what you know, people in our stock are doing, I think, right? Number two is they want to hear from investors. Because many of them will come to believe that, I want to understand the type of investors in my stock. And then over time, I actually want to work really hard on shifting, who owns my stock, so that given my vision, given our direction, we can actually have people in the stock who believe in the long term vision right now, we’re only going to do this at the edges in a world where, you know, lots of big companies are, you know, in in ETFs, and mutual funds and the like, the only so much you want to do, but to the extent that they can kind of shift the composition of their stitch their shareholders, there are some who believe that’s an important piece of what they’ve got to do. And then the third reason is, you know, in being bored around setting the direction, many of these great CEOs, actually one of the things they love to do is an activist tear down of their company, if I was an activist coming to target this company, what would I do? Right? Or, or if I were a private equity company, and I own this company, how would I think about it differently in terms of the Levers, it’s part of this, you know, act like an outsider, right? And they kind of do that. And they actually believe investors will help them continue to refine their thinking around, you know, if I were doing a teardown, if I were doing a very different look at this company, like a PE firm might, might I think differently about the boldness that I’m displaying. Those are the two or three reasons that they love the conversations with the investor.
Dan Weiskopf 19:07
You know, I was surprised also coming back to companies that were not included in the pharmaceutical industry. I was surprised that Johnson & Johnson wasn’t listed. Can you speak to Johnson & Johnson, why that wasn’t listed or how, you know, the pharmaceutical industry fit in with your book?
Vikram Malhotra 19:31
Well, certainly, if if you look at the if you look at I can’t speak to the specifics of j&j. But it is possible. Remember, we did this analysis of who’s going to be in and out and in as of the end of 2019. Now, I can tell you if, in that period, if you looked at Remember, we’re not looking at the company, we’re looking at the individual Right, yeah, so I can’t tell you with Alex Gorsky had been in place For six years, right, which would be one qualifying thing if he’d been enrolled for five years that would eliminate that. Or if in his tenure at j&j had been a top quintile performer, one of those two clearly didn’t work, because they didn’t they didn’t make our list. But that’s neither here nor there. I’m not. And by the way, it shouldn’t, at all suggested not a great company. I, by the way, think in deeply and enormously highly of them. But I just don’t know if one of those two criteria they didn’t meet. So I can’t again, speak to the specifics, but that’s the reason they wouldn’t be in. There is certainly help. There were certainly healthcare and pharmaceutical companies in our group of 200. You know, one of my favorite ones in the book is Novo Nordisk, and the CEO de la Sorenson, who just did an amazing job in your company talking about being bold and visionary thing, a company where, you know, which is performing just fine. And, you know, sees this little glimmer of hope around the capability and biologics and turns it into the diabetes leader, that it is today, quite a quite remarkable story, actually.
Dan Weiskopf 21:08
You know, Vikram, literally back in 1987, I wrote a memo on the company for Charlie Allen, who was, you know, very early, when it came to investing in pharmaceuticals and biotechs. And, yeah, now that stocks done extremely well, and the company’s done very well. So, switching gears a bit when, you know, COVID hit, all of a sudden a lot of folks went to virtual right, because they had to know, I know that, you know, you wrote the book, data. 2019. Right. How do you think that’s impacted the communications between employees and leadership at this point?
Vikram Malhotra 21:58
Yeah, look, you know, I, I actually have spent a lot of time talking to CEOs beyond the book, and this is almost returned to work. And, you know, what’s the new new normal is clearly a hot topic, right? It’s clearly a hot topic. And there are some CEOs out there who are clearly pushing for, we gotta go back to the way it was, because you need that for mentorship and apprenticeship and the like. And the other extreme is, is a group which is gonna go, you know, I, you know, let’s just do you know, in a moment where employee attrition is high, and this is gonna go with the flow and go with whatever the employees want at the moment. And, of course, the truth lies, lies somewhere in between. I think the very best CEOs today are really looking at this and saying, there is a real opportunity in here. And the opportunity is, is a little less about who’s in the office and who’s not in the office, the opportunity is really around a new, more productive way of working, which also meets the ability to make a keep a do to raise employee satisfaction. So what do I mean by this? If you actually look at what happened to the pandemic, we surveyed a lot of people, right in the heat of the moment, you know, kind of think, April 2020, may 2020, July 2020, September 2020, what do you love the people who were the happiest in that period of time, we’re the senior team. And then people who were 234 levels down in the organization, maybe even 345 levels down the organization. And why were they the happiest? Because the pandemic had given permission for the leadership team not to worry about hierarchy, not to worry about that tear of middle management that was in essence, clogging up most companies and stopping them from working effectively.
And so suddenly, you didn’t have big meetings for two hours, you had shorter meetings for 30 minutes. Suddenly, you had the head of business unit, or the head of technology, digging three levels down the organization saying, yeah, there’s Joe, there’s Dan, there’s Jane, let me go directly to them and get what needs to get done. And suddenly, agility in a very different way came to be born. Right. And so today, what’s happening is that the best leaders here are sort of thinking about as we think about the new norms of how we work as an organization, how do I do two things one, just working, not three things actually. One, how do we work in many more productive ways to how are we more agile and three, in that context, how can I ensure that my employees are getting sufficient mentorship and apprenticeship and, and touch points because you know, sitting your room at home is amazing. gleaned over with ease. You no longer be human right? And, and that’s just leading to different norms. Right. So you know, whether it’s three days back four days back, whether it’s back a week, off a week, whatever it is, new norms are emerging that are very specific to individual companies. And I think it’s pretty exciting. And I think it will it. For those who get it right. I think the upside is enormous.
Dan Weiskopf 25:24
We’ve been virtual as an organization for Well, since our inception, really, and we’ve grown from eight to 42 employees in the last two years. And we do zoom calls on a regular basis. And it seems to work for us in our business model. But I get the challenges and I’m glad to see it as an opportunity. Speaking of opportunities, I, you know, as my last question, I have to ask you a little bit about blockchain. I don’t know if you’re a fan or not a fan. I am not talking crypto. I’m talking blockchain specific. Yeah, yeah. And to specific companies, if you could comment on it would be great. Whether it’s about blockchain or just generally, it is DBS group and MasterCard. I don’t expect that you are going to speak about their blockchain efforts, specifically. But if you could speak about those two companies in general, how they’re making decisions that would be wonderful.
Vikram Malhotra 26:19
Yeah, absolutely. Look, by the way, I’m a big fan of blockchain, I think the technology is awesome. And, you know, we continue to refine and shift and change it over time. And so, you know, it’s a very important part of our future. Right. And, you know, both from a security point of view speed point of view, or, you know, you name it, it’s, it’ll, it will and is already adding a lot. Let me, let me start with DBS. I’m a, I’m a big fan of Pierce Gupta and DBS and just remember where DBS was, which is the single worst bank. In Singapore, we’re not even talking in Singapore in one once, you know, relatively small country, it was the single worst bank. Right. And puce Gupta actually kind of took it and took it on the first leg of his journey where he called it he said, I want to become the Bank of choice in Asia, which he got it to, but that he only went to that one interim step because his organization wasn’t ready for what then turned out to be his next real bold vision. So back to my little chart here, top left, if you’re looking at it, you know, talk about vision, reframe the game, what he always wanted to do, which is what he eventually put out as his vision, six words, or five words, or eight words, whatever it is, but just think about the audacious nature of this vision. I want to be that technology company that makes banking joyful. I want to be the technology company that makes banking joyful. I mean, they will FinTech and this even like, you’ve made a statement in 2012, you want to make it 2009. And ended up making it 2012 2013. And think about how audacious he was being a FinTech before they were fintechs. Right. And he completely reoriented his bank around it, in terms of the use of technology, the use of agile, the use of all of that stuff to build a really sharp nimble bank. And he sent a lot of cultural messages into the organization.
I mean, one of my favorite little stories is they were fined by the Singapore authorities for an ATM mishap. And what happened was one of the programmers and essentially said, Look, you know, ATMs are not reacting and dealing quickly enough and let me make this little twist to it and that’ll help shave a few seconds off right. And it turned out it was a bad decision and it ended up costing the bank $6 million in losses and then there were fines involved and whatever right all good. And finish he said, You know what, I want to celebrate that because that is exactly the kind of innovation and and initiative that I want to celebrate, right. So I think what you got there is a bank that is hugely tech based, and deeply innovative, and always looking to empower its employees to kind of continue to push the envelope within guardrails and within other things that they do. And, you know, so terrific institution, right? I feel the same way about MasterCard, I think MasterCard, Ajay Banga is vision, in his view is the featured CEO and this was here to word vision, kill cash, right? We had all this energy at MasterCard that was all about how do we maintain our big credit card margins and keep going after that? And he was like, well, there’s all this opportunity to go after cash. And I remember this is 2011, not 2022. And you know, we’ve done a good job at killing cash. But he said let’s kill cash and You know, the energy and the innovation that unleashed the new product development, the focus on new technologies that were going to go off the cache was quite remarkable. And I’m sure blockchains play an important role in both of these institutions, both remarkable, remarkable institutions, which continue to grow and develop.
Dan Weiskopf 30:21
So Vikram, I didn’t know what your answer was going to be on the blockchain. So now I’m going to ask one more question. I love your answer, by the way, on those two. Do you have an opinion on what industries are going to be most affected by the blockchain industry wide financial services, by the way, too easy.
Vikram Malhotra 30:45
And I’m gonna disappoint you, Dan, which is I really wish Matt Higgenson was here who is a guru on blockchain. And he would give you chapter and verse on that answer. I would, I would be making stuff up. So I’m going to plead the fifth on this one.
Dan Weiskopf 31:02
I respect that stick with what you know. I appreciate it. Thank you so much for spending the time with me on our blockchain co Series. I love your book. Again, you know, everybody should get it. I learned a lot from reading it twice, by the way, and be safe. Have a great day. Indeed.
Vikram Malhotra 31:23
Be well, bye-bye.
Dan Weiskopf 31:25
Thank you.
