Sloane Payne and Dave Joerger – Why Culture Matters (EP.500)

19:20Scott MacDonald:Passed forward a few years, they bought out the founder. And the question became, what did we do under that regime? What can we do different? How do we not make talented people feel small? And we went 180 degrees the other way. And the cool thing, the kicker is that at that point in time, Kurt, who's now retired, owned 90 % of the firm. When he retired three years ago, he owned 24 % of the firm. a firm that was hundreds of times larger than it was when he started. And he handed the rest of that equity to the rest of the employees at virtually no cost. Paul tells a story to the whole firm. He's laughing at himself all the way through it because he knows none of us really deserve what we have.

20:02Scott MacDonald:The firing and the Taco Bell that proceeded it was in a way the best thing that happened to him. We talk about our core values, fun and gratitude. That's where it comes from.

20:11Sloane Payne:if you canvas the industry, if you'd wave your hand over, what you guys have built is unusual

20:17Scott MacDonald:for somebody to do that. It is. It's unorthodox. A lot of the guys, the first generation, I guess we call it Gen 2, which was Paul, Kurt Winrich, a guy named David Brewer, Jim Owens, Tom Rizatsky, a number of them have retired. Most of them have retired. Paul's still here. But those guys all knew each other partly because of their faith. They knew each other through church connections. And I'm basically the resident atheist. So it's not like that's a prerequisite for belonging or connecting here. But if I'm being really honest, there is something fundamental in our values and ethos that's really nicely aligned with a Christian ethos and a sense of morality and helping other people and giving and generosity.

20:58Scott MacDonald:It's not an accident that that's been running through the firm for the last 30 or 40 years. It's fun to joke about it being an inversion story. We saw what one guy did and we just did the opposite. But there's something deeper than that about the ethics of the people and their affiliations with each other.

21:14Dave Joerger:Writing values down, writing stuff down and putting it on paper. I think we obviously do that. We have certain documents. When I first came on board with WCM, the first thing that I got was this three-page memorandum from Kurt Winrich called WCM Constitution of Values. And it was beautifully written, encapsulated pretty much everything you ever need to know about WCM. It was a phenomenal reference point, but I think everybody realized that the second you write something down, you give yourself an excuse not to do anything else. And I think that's what's the hard part about our culture is it requires a lot more work than just putting these concepts on a piece of paper.

21:55Dave Joerger:It's acting on those concepts, behaving aligned with those values, and you can't just do that every once in a while. And we're not saying that this is a recipe that can be necessarily replicated and copied across every single company, but for us, it works.

22:10Scott MacDonald:You can see it on our website. We are serious about our values. Fun, gratitude, and serving others. And when we say serve others, we mean serve our clients, serve our constituents, serve our employees, serve one another. And I don't know what the mission is, but those values I think are real. If you ask people on the ops team, what is the ops team's mission statement, they'd probably say something like get shit done, which is true. But have fun with it. Yeah, and have fun with it, which we do. I mean, we work really hard on fostering connection and doing fun stuff together. My wife, Lauren, that's her whole job.

22:43Scott MacDonald:She and another person named Ashley Morrison. We're literally building an offsite. It feels like every two and a half months we're doing something with either the whole firm or some subset of people and really focusing on relational stuff. This whole idea that if people like each other and work together, that it's just got this massively reinforcing benefits. And how often are you doing that? I want to talk about this because people do off-sites.

23:07Sloane Payne:It usually comes as a big splash, the wave ends, and then nothing happens. How do you guys think about that?

23:13Scott MacDonald:There was a period where off-sites, we would do one or two big ones a year. We were emphasizing the fun and the sense of gratitude, which is easy to cultivate if you're somewhere nice, eating and drinking and doing fun things together. having shared experiences and connecting. But then the service to others, that starts to raise the standard. I would say in the last five or six years, the off-sites have been more purpose-built. For instance, we're doing an off-site in Sonoma with everything that rolls up to the operations side, which would be finance, trading, compliance, the marketing team, the RFP team, the portfolio admin team, IT.

23:49Scott MacDonald:You get the gist of it. And that'll very much be a fun experience. We have lots of extracurricular things planned in small groups and in large groups. So you do have that shared experience, reflection, the fun together, the new exploration. But then every day there's programming. What are we working on? And actually, this is about trust. We talk about trust. What are the behaviors that we want to reinforce? There are just three or four things that we know are super impactful that are good hygiene in any relationship. Things like, don't talk about people when they're not in the room. If I've got something that's bugging me about Dave Jerger, I don't talk to Juliana about that.

24:24Scott MacDonald:And if I do, Juliana redirects me and says, you should share that with Juerger. We try to honor the absent. That's a standard of behavior. The other one is actively listening. The whole idea that someone's telling you something, sharing something, and you immediately want to make it autobiographical. You're trying to think like the human condition. Well, what does that remind me about me? Instead of being curious about their perspective and what it is they're trying to share. So there's some behaviors like that, that we'll focus on at an offsite that we build on and remind people, these are core to this whole foundation of trust, connecting the dots that the reason trust matters, it solves for a whole permission layer that at most firms, that's what slows you down and impedes your desire to do stuff is you've got to go get permission.

25:10Scott MacDonald:You've got to get buy-in from a bunch of different constituents in order to do anything new. Our view is have a really big field with really right fences and let people run. This weird thing happens where people know where the fences are. 95 % of the time, they don't have to check. They know. And when they don't know, that 5 % of the time where they run into a fence or run through a fence, it's usually somebody on their team. It's not Dave or me or somebody on the leadership team correcting. It's usually self-correcting, which is amazing.

25:41Dave Joerger:And those offsites are so much fun, but you can't just rely on those offsites to instill the culture. It's a daily practice. It's the conversations Sloan's were talking about where it's not just building the trust. It's not just maintaining the trust, but it's finding those people in the moments where they're questioning their loyalty and trust the most when they make a mistake. For instance, when someone makes a mistake, that's where the creep of losing trust has, I think, the best capability to move in. And it's what you do in those moments that for me, as a leader of a compliance team and a couple of other departments, how you respond to that person's flaw will define their performance for possibly their entire a career at WCM.

26:23Dave Joerger:And you have to do that consistently over and over again. I remember the first time I made a mistake when I was not doing lawyer things, when I was working for my high school friend and he was managing me and I had finally made an error that I knew was possible.

26:36Scott MacDonald:But when I did it, that deserves a repeat. Your boss is now your best friend from high school

26:41Dave Joerger:who got you the job. There's a whole blue book on this one. I was trying to move pretty fast through that nepotism point, which made the conversation even harder. Here's a guy who stuck his neck out for me to not only get me the job, but his reputation is now on the line as I'm trying to figure out how to do this thing I've never done over the last seven years of my career. And here I am finally making the first mistake. It was a small trade area looking back on it, but to me, it was everything. I thought I had blown up the firm. Fortunately, I didn't wait. I went to him. I got the trust aspect of the culture first.

27:15Dave Joerger:The conversation was happening early. And instead of bludgeoning me with critique and making me feel bad and humiliating me for making a mistake, it was him going over to the Bloomberg terminal, looking up the trade exposure and making a joke about how if I'd waited five more minutes, I would have probably cost the firm a couple$200 ,000 more. He was like, thank you for telling me. And asked me a question and said, how do you think we could prevent this going forward? He knew the answer. He knew the answer, however you do it, but he made my opinion matter in my most vulnerable moment. And when you do that, when you treat mistakes like that, you tell people that they're survivable.

27:55Dave Joerger:And then when they believe that, they tell you the truth. They tell you it earlier. And then when they tell you the truth about anything, we just solve problems faster and better. And then that's how we operate through and through. Yeah.

28:06Sloane Payne:It's so important to have a culture that you raise your hand and it gets recognized and you speak up and your hand doesn't get shut off. But I'm curious on that, David, it feels like for somebody in the CCO role, does that culture make your job easier at some level?

28:23Dave Joerger:It's a paradox. It definitely makes it easier, but there's times where you don't necessarily want to know everything that happened. And the chief compliance officer, there's a reasonable standard in the statute for a reason. You don't have to have a perfect system. You have to pick up every little mistake. But yes, it absolutely makes my job easier because my job is trying to figure out how to protect the firm from making those mistakes that humans are prone to make. And when you have a small team like me, you can't catch everything but when you expand that scope out to the whole firm you essentially turn your compliance team of five to six to a compliance team of 100 you have everybody looking out for the firm in the same way and because they know they're not going to come to me and get punished they're gonna get rewarded for telling me when things happen and happen earlier you get a lot more volunteering and a lot more cooperation towards that same goal it does go back to all this

29:17Scott MacDonald:relationship stuff. The things that we try to practice at work in relationships, seeing other people's perspectives, being curious, trying to honor the absent, being honest, giving hard feedback when it's needed. Those are the same things you do in good relationships outside of work. It's the same damn stuff. And it's not that complicated.

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30:30Sloane Payne:Learn more at srsaquium.com. That's S-R-S-A-C-Q-U-I-O-M.com. And now, back to the show. I want to talk a little about scaling and growth. How do you hire, keep that culture intact? It's got to be hard to bring in senior people that fit that bill without corrupting the pool.

30:55Dave Joerger:Yes. I think this is where a lot of companies probably can't do what we do because it's hard to keep it up. We have such a good understanding what makes us us and what values drive us towards the same goal, but you can't just let it stop there. It's that daily affirmations of all the behaviors and all the stories that we go through that make those values live. And someone coming from the outside like me when I came over or someone we just hired recently on my team who came from a very different culture, it takes effort to show him what it means to be a good WC young boy, what it means to have fun, what it means to be grateful, what it means to serve others.

31:31Dave Joerger:And the only way that I can do that is model the behavior. I can only show him in those moments every single day. When someone comes to you and talks about mistake, how do you approach them? I think about as we scale, we always thought it was going to be more difficult to keep our culture as we grew because smaller groups, it's easier to find each other on these values. You have more touch points, easier to stay connected when there's less people. But ironically, I think as we grow, the culture is actually scaling almost by itself. So long as we're modeling the behavior frequently in the right way, everyone picks it up and self-replicates and reciprocates.

32:09Scott MacDonald:This is funny for so many reasons. It is the counterintuitive answer because I think the culture is stronger now at 100 people than it was at 30 or 35. And it's not systems in process. Like Dave said, it's modeling behaviors. It's paying people generously. It's giving candid feedback. It's trusting that the values will self-replicate when you hire right. You've got to hire right. But it's this bottom-up creativity versus top-down planning. And it reinforces and starts to grow itself. It's honestly better than it was 10 years ago. So one person I didn't mention is Matt Miller. We call him Coach Matt.

32:46Scott MacDonald:He's our chief culture officer, and he's a big part of the answer to your question. Some of the specific behaviors we've mentioned, like honor the absent, listening to others without making it autobiographical, listening with curiosity, and giving lateral feedback to peers, feedback to people you report to, feedback to people that report to you. Doing that sooner before it becomes loud. We call it feedback sooner, not louder. Those behaviors, they came from Matt. The thing that's important isn't that Matt named these behaviors. is that he's one-on-one with people every single day, every week across the entire firm, constantly reinforcing best practices and good habits.

33:29Scott MacDonald:And habits require repetition and deliberateness, at least the good ones, right? So what Matt does as chief culture officer is he holds the space for all of that. He meets with people, they feel heard, they have somewhere to take a conflict or confusion. And then when they've done that, his motto basically is, what's your best next step? What are the behaviors you already know that work? How are you going to implement those? How are you going to move this forward? And that's his whole job. And a lot of firms assume culture will scale on its own, especially if you hire well. And I think we're guilty of this.

34:04Scott MacDonald:The idea that we hire for people that are hungry. We want to hire people that are humble. We want to hire people that are smart. That's a really good foundation for a culture, but it's not enough. You need a dedicated person building into the culture, reminding people of good relationship habits, helping people interact in ways that reduce friction, that encourage connection and collaboration. And that's Matt's job. It probably would have been useful at 20 people. At 50 or 60, it's absolutely essential. I can't imagine the firm scaling without the work that Matt does.

34:40Dave Joerger:But we have examples where we've run into the opposite outcome. where we've known what we had to do and we just didn't do it. And then we realized where that goes and it doesn't result in a hire that we can keep. So we had a sales guy we had to let go specifically because we were avoiding hard conversations, because we were waiting to talk to him about things that he wasn't doing right in line with our values. We pretty much did the exact opposite of our playbook. And not surprisingly, it didn't work out. So it takes that conscious, intentional effort to not just have the values written down somewhere, but to live them every day and model them for the rest of C.

35:16Scott MacDonald:I thought for the longest time, I'd read some Harvard Business School study or some fucking thing that said that interpersonal complexity goes up orders of magnitude when you go from a team of two to three to five, et cetera, that it's an exponential increase in the number of connections. And then so there's some natural law that happens over an organization of 40 or 50 people where it just becomes untenable. A whole new paradigm needs to be introduced to have cohesion and connection. And I was like, oh, this is absolutely got to be right. The philosophy guy sticking to a principle. It's utter horseshit.

35:50Scott MacDonald:I stuck to it. I was like, we can't grow over 45 people. It couldn't have been more wrong. I'm proud of that. You model the behavior and it replicates itself.

35:58Sloane Payne:The rough guidelines that I've read must be from Harvard Business School as well. But once you hit 50, the tacit information flow, you get big enough that not everybody's hearing it directly. It's all indirectly. And that's the part when in many organizations, the competition isn't really out there. It's in here inside. And that's where things get tricky. And that's a pretty common stress point for a lot of organizations.

36:20Scott MacDonald:I remember the quote Dave said last week, which I thought was again, it goes back to hiring. He said, we don't hire people we have to protect from each other. We hire people who protect each other. This stuff sounds so goofy when I say it, but I also know it's true. We haven't always been this way. One of the things that's been really hard to evolve at WCM as we've gotten bigger, we used to think that the culture was built on connection. It still is. But the idea that I had to know what your kids' names were, what sports they were in, what they're doing next week, I was really obsessed with that.

36:56Scott MacDonald:That's how people know we care about them, we're interested in them, cultivate that across the whole firm. That's pretty easy to do with 20 or 25 people. if you like the people genuinely, which we did and do, but it's not scalable. Something that went hand in hand with that was kindness without accountability. At early WCM, the firm was still small. We had this woman who was the office manager. She was just awesome, super warm, genuine kind of person you'd want to work with. But she also handled Paul's travel. and she had about a 65 % hit rate on reservations. Maybe it was less. I remember one time, Paul and I fly into Chicago.

37:38Scott MacDonald:We were on a prospecting meeting on a Tuesday. We grind through a full day of meetings. It's a Sheraton Five Points hotel or something. It's 1130 at night, go to the front desk. And the desk person's like, Paul Black, Sloan Payne, I'm not finding anything under that name. Pause, I'm typing. And she's like, oh wait, I see something. Like, today's April 4th. Your reservation's on May 4th. God, she made a reservation for us. It's a month wrong. And Paul would laugh. And not like a tight laugh. And not a frustrated laugh. It's just a genuine belly laugh because it was so perfectly consistently her.

38:17Scott MacDonald:So we'd find the nicest hotel within 10 miles, check in at midnight and move on. The point is nobody made her feel terrible. That was just the weather. That's just what you got. And that was the culture at the time. Nobody was thinking about it explicitly, but Paul laughing first set the temperature for everything. And if he could find it, so could everyone else. I think we still have that, but here's the turn. At some point, the firm grew and those road trips weren't just about prospecting runs. They were client meetings, people who had trusted us with money. So missing a reservation went from being a charming inconvenience to an actual liability.

38:57Scott MacDonald:the honest thing is that everybody loved her too much to have the real conversation she was so warm she was so genuinely good nobody wanted to be the person who told her that job wasn't right for her so we waited and she probably stayed longer than she should have and in a role that probably wasn't making her happy and it's because the people around her were too kind to be honest That's not kindness. That's avoidance dressed up as kindness. And she eventually left. And the cool thing is she became a minister, which the moment you hear it, it makes complete sense. That's awesome. So there's two things that are both true.

39:35Scott MacDonald:One thing that we still do is having the equanimity to laugh stuff off, find a solution. Don't make somebody feel small. That's a cultural asset that's worth protecting. And we still run on it. But I think holding people accountable to the job is also a way that you respect them. And you can't have one of those things without the other. And it took us a long time to figure out that second point that you really do have to hold each other accountable. And that's part of the relationship hygiene that Dave was talking about. We've got to remind people to do it, to do it sooner. We say we have a saying that you do that sooner, not louder, before you build up a story about it.

40:10Scott MacDonald:you give the person feedback before it's expanded into a narrative that's a fiction as much as it is the truth. So it's not like we just figured this out instantly. It's taken a lot of growing and evolving. Let's turn to tech and initiatives. What are you guys working on these days?

40:27Dave Joerger:The two-letter acronym. Only that. Everything AI. Our team hates us right now with how many projects we have on board, but because we have such a flat structure and we like to move fast, I hate to steal Zuckerberg's phrase, break things, but especially as a chief compliance officer, because I hate when things break. But we move with speed and purpose because we know there's just so much value and optimization potential with tools. And it's really fun what we're doing on the research side, but it also flows over pretty much everywhere. Anybody who wants to take on a project with a tool that they had access to on an AI side, they can just jump in and do it Without question, without permission, without any bureaucracy.

41:08Dave Joerger:I have a couple of things that we'll work on on the compliance side, but I've done a lot of fun stuff that we're doing with research, particularly with our best friend, Claude, over at Anthropic.

41:18Scott MacDonald:We have a thing called Sherpa, which is this internal AI research assistant. It's built by the investment team, and it's a data scientist and an AI guy we brought in. And it does deep research on earnings transcript, expert data networks, aggregating colossal amounts of information with very specific cues and prompts around what matters to us, prompts around what's changing, not give me a static research report. And all of it grew from within. There's an adjacent thing called Everest. On the investment side, we think a lot about company culture. So it's a whole culture analysis tool that's connected to our investment research apparatus.

41:55Scott MacDonald:at us. And it scales us in ways in terms of our understanding of culture and competitive advantage when we're looking at investment companies that are astonishing. And these things, like I said, they've emerged organically with our support and encouragement, but not because somebody on LT had the vision or the strategic idea that we needed it. It comes from the bottom up, which I absolutely love. Do you feel like that's a competitive advantage for you today, building your own

42:23Sloane Payne:research tool?

42:24Dave Joerger:I think the more competitive it comes from not just building the tool, but being willing to throw out the tool two weeks later because of how fast technology is progressing. And I don't even say that facetiously because Sherpa, Everest, those tools, we're literally actively changing them right now. Flexibility and being able to pivot, not getting stuck in these loss opportunity cost biases. I think that's where the true competitiveness will come with people leveraging AI. You got to be flexible.

42:54Sloane Payne:Are you sandboxing it where you're seeing what the output is or are you just deploying this into the wild?

42:59Dave Joerger:There's definitely validations built in. We just created what we're calling an AI task force, probably a silly name, but there's a group of people, representatives of pretty much every single department, all working together towards three initiatives, which have been defined by one of our head PMs. And it's build tools that, one, build better portfolios. And if not that, allow us to pick better stocks. And if not that, make our analysts more efficient. And so everything that we're building hopefully flows in the top priority. Number one, build better portfolios. If not that, at least flows down to number two and number three.

43:33Dave Joerger:If we have a mission statement right now with leveraging tech and AI, that's our mission statement that we're trying to march forward to. You guys have a couple of different offices?

43:42Scott MacDonald:How does that fold into the adoption? Culturally, it's not hard because typically, the reason we have other offices, there's a number of people that work remotely, but we have some discrete, purely separate offices. One's in Cincinnati, one's currently in St. Louis. We've had a couple others that didn't work out. There are teams that came out of other firms that needed a landing spot that for some reason, again, it's probably got introduced. And actually, both cases, they were personal relationships that we got introduced to, either pre-existing relationships with somebody at WCM or somebody very close.

44:13Scott MacDonald:We felt like the chemistry was good. It goes back to wanting to serve other people. Not necessarily are these great economic opportunities for WCM. Not necessarily given our size and the potential size of some of these other firms and their products, but it's a way for us to give back and spread the gospel of good culture and generosity and caring for people and doing good stuff. Our rule is you need to come to WCM in Laguna as much as you can. And you need to join us on off sites as much as you can, and you should be connected to us as much as you can and spare no expense in that pursuit, which is pretty easy.

44:52Scott MacDonald:Some of this stuff, I sound like I'm being virtuous. One very obvious thing I haven't said is we are in a high margin business with recurring revenue. If you make it in this business, it's hard. It's incredibly risky business. Managers blow up all the time. We're not immune to that. We've almost blown up at least three times that I know of, But because it is a high margin business with good recurring revenue, you can't afford to pay people well. You can't afford to be generous. And that creates a whole host of benefits. And you can afford to invest in your culture in ways that might seem extravagant from the outside, but that pay dividends in perpetuity.

45:27Scott MacDonald:We think really, really hard about that. Another example of just how powerful it is to overtrust people is we have a guy named Scott Peters. We hired him about a year and a half ago. Again, it was a friend of a friend. He called me one day. He was between jobs. He wasn't sure what he wanted to do. He wanted career advice. I like him so much. I'm like, Scott, why don't you come work for us? We'll figure something and know a few things you're good at. You've got a weird background. He had a business where he created luxury cowboy boots. He ran a bunch of Amazon stores. It doesn't look like he was cut from central casting.

45:59Scott MacDonald:It's an investment management firm, but he's been incredible. And one of the first things he did after being here for six months was figured out that Salesforce is utterly broken and that there's a much better way for us to handle a CRM and a sales tool. He figured out that it was HubSpot and he told us that we needed to migrate Salesforce to HubSpot and that he was going to do it. We had some outside consultants that told us it was going to take, I don't know, two years to get migrated and all the relational connections between the data. He did it with very little help in less than two and a half or three months.

46:34Scott MacDonald:that's the overcompensation and overtrust dynamic live and recent and it was so fun for him it's not heroics everybody's grateful for it and i'm just amazed by it you guys were based in laguna

46:48Sloane Payne:beach i'm curious as to the culture element and the diversity of thought but also is it easier or harder being in that part of the world to have an asset management business easier in some ways

47:02Dave Joerger:probably more difficult than others. It's easier because I'm wearing flip-flops right now and I wore them to work. I get to look over across the aisle to see my CEO wearing his flip-flops and shorts and golf polo. And I get to look outside and look at the glistening ocean when I ever want to. It's definitely easy to get people to come and be excited about working here and having fun. But the talent pool is much smaller. If we're hiring locally, obviously there's not as many people working in finance in Laguna Beach. We have to spread the net out a little bit wider. which is why we do actually have a lot of people who are working outside the firm.

47:36Dave Joerger:We have some remoters that are really good at what they do and are able still to find the moments and connection points to gather enough culture in the headquarter office where we can all stay aligned in that same value vector we're talking about. But it's intentional. We don't want to be on Wall Street. The whole point of this place is to not just think differently, but act differently. And what better way to do that and stick ourselves 50 feet from the ocean and go jump in it as opposed to stepping out of a high rise and getting on a subway and running into the rest of the thousand analysts in New York City and talk about all the things that they're working on.

48:15Dave Joerger:It's really intentional to do it in a very strange, irreverent way to how many investment advisor shops are started. So, yeah, I think it's a paradox. It's easy in some ways. It's hard in others with the talent pool. But it definitely works for us.

48:28Scott MacDonald:I think it's gotten easier too, because there is a brand and a reputational awareness and people do now want to work here. Whereas 15 years ago, it was harder, especially if you're hiring on the portfolio management analyst side to get people that were really finance driven to pull them out of Chicago or New York and get them to come to Laguna Beach. That was a weird proposition for many of them. that ends up producing cultural attributes that are beneficial that then become this, again, it's a self-perpetuating kind of phenomenon. I see it everywhere. And paradoxes are cool. It's another cool thing that we operate around that the more latitude you give people, the less rules you need.

49:07Scott MacDonald:They become self-regulating. That is definitely a paradox, but it definitely works.

49:12Sloane Payne:Sloan, so you're going to retire in two years. How did you come to that conclusion?

49:17Scott MacDonald:I'm loving my job right now. I work all the time. Generally speaking, I think most of us enjoy each other. And I love my job. I think I've finally gotten good at it. But there's all these other things I love to do. I love to fly fish. I love to ski. I love to snowboard. I love to mountain bike. And I don't have time for any of those. And I love my friends. I love to cook. I have all these great relationships. And I just have a switch, not a dial. And when I'm switched on at work, it's all work. I want to do some of those other things while my body still works and I don't, you know, my knees, my hips work, my brain sort of works.

49:50Scott MacDonald:That's really all it is. Going back to generosity, we've set up a succession planning. This thought for the leadership team started when Kurt was still here. There's something reassuring about, hey, we're building this thing. We really love the people that we've hired, that we've trusted. We want it to be self-perpetuating when we're gone, that it continues to create prosperity in our communities, for our clients, for employees. But what happens, a lot of investment management firms getting rid of the founder or second gen, whatever the ownership layer is heavy, because they want to realize some economics of what they've helped create becomes really burdensome.

50:31Scott MacDonald:And a lot of firms historically have taken out debt to buy out founders or they sell themselves to another firm. And then whatever culture you built, if not jeopardized, it certainly becomes tenuous. One of the things we figured out was when we leave, if you wanted to pay a market multiple for it, and if the firm had to go out and take a loan or when Kurt retired, 24, 25%, we paid a market multiple. That's a big loan, probably with a B on it. That becomes a liability. You go through a period of underperformance. You lose some clients. It becomes hard to service that. But a lot of firms have done that and failed or gotten into trouble.

51:07Scott MacDonald:And so what we did is said, wait a minute, we don't want to do that. The goal is for this thing to move in perpetuity. When I'm gone, I don't really care what everybody else does. Hopefully they'll do the right thing. But when I leave, just pay me for a few years. So our thing is the own equity. We'll continue to pay your dividend. You participate in the profitability of the firm for seven years. After that, you give your equity back at book value, which at an investment management firm is nothing. So it's a really nice glide path because what it does for somebody like me is I'm incentivized for the next seven years to be really good.

51:41Scott MacDonald:Well, I mean, it's two years from now that I retire, but I want to set Dave up for success. I already want that, but now I have a financial incentive. The alignment is really, really good. No, I'm not getting a market multiple. No, I'm not getting hundreds of millions of dollars, but I'm being well compensated. I stay on the board. I get to support Dave. I get to support the firm's prosperity and I get to support a trajectory that I think is awesome and going to reward a lot of people. That whole thing, I think it's beautiful.

52:09Dave Joerger:It also gives me a nice little carrot. If I'm not feeling comfortable one day about handling a certain issue, I can remind Sloan, hey, you still have to have this firm in operation. You're still on the dole. Come back in and help me.

52:24Sloane Payne:We've covered a lot of good stuff that we don't normally talk about. we're in a people business culture. Anything else that you guys want to touch upon that we haven't?

52:33Scott MacDonald:I wish people understood how simple it is to run a good business. And by that, I mean, you got to measure things. You have to hold people accountable, but doing it systematically and systemically, I think is a fool's errand. And instead, this idea of treat people really well, be generous, over trust them before they think they're ready, show them that you trust them, be honest, be candid, make work feel safe, make mistakes feel safe, celebrate errors, encourage people to learn and get better. It's just not that hard. And be curious. You know what? And sometimes we fuck up. Sometimes I'm actually an asshole.

53:11Scott MacDonald:And then when I do, I say sorry. Absolutely. I'm super self-conscious about the fact that all of this sounds so mushy and like, just love everybody and everybody just get along. It'll be fine. And you'll have an amazing firm. I know that I've tried to express that it's a lot more deliberate than that and that we do have hard conversations and we do fire people and I am demanding and Dave's demanding and the leaders. We have standards. It's just that for the most part, they're self-reinforcing.

53:42Dave Joerger:It sounds so cliche. We start talking about these values together, but the company is still made up of people. It's just people that you're trying to get through the day and perform better inch by inch. And all you have to ask yourself is how can I make this person better? Forget the company, forget the entity, forget the structure, just focus on the person and what would make that person do something great. And that's all you have to focus on. All the other pieces for themselves when you focus all that purpose behind the people as opposed to the entity. It sounds cliche, but it works.

54:17Sloane Payne:So much good stuff here. So I want to turn to close and we've got two questions for you guys. and I want you both to each answer it. The first question is,

54:25Dave Joerger:what advice would you give to an emerging manager? First, I would say, don't do it. Just give up. It's not going to be worth it. But it's going to touch upon a theme that we've already talked about. You got to hire the right people. Don't do anything before you figure out who you want to hire. You don't necessarily have to follow our recipe and rulebook, trying to find humorous, self-aware, no pedigree figure out what you want to accomplish and find those people that are going to be aligned with those values and hold yourself to it don't bend don't break if you're going to start a place that's made up of people and the output of those people you got to make sure you hire

55:08Scott MacDonald:first right i go back to the behavioral stuff which is what you just said the over trust thesis hire people that you know can figure it out you don't need to hire a guy that understands everything you could about a trade desk or everything you could know about compliance. You just need people that are self-reflective, curious, honest, low ego, have a sense of humor. There's so much power in that. And don't hire based on pedigree and credentials. Hire people with raw capability and let them build things. That's just worked so well for us. An analog to that or something adjacent to it is since I've been here, we have never had a five-year plan.

55:45Scott MacDonald:We have sales targets and we have some projects we're trying to complete every year, but we don't have a business plan for the next one, two, three, four or five years. Overemphasizing that stuff is often an error people make when they're creating something. And I think instead, do you just get the right people together and just run, let them run and see what happens.

56:07Sloane Payne:The other question I have is what one book article or other resource you commonly recommend to others?

56:13Dave Joerger:I love food. So pretty much the only thing I'll read is something that deals with food these days. It's a book called Unreasonable Hospitality. Will Gadara. Honestly, if you read that book and replace WCM with the restaurant, you'll get an absolute taste of what we're talking about. It's leading and building a firm and a company where you're just absurdly generous. You could create a culture just on being that, and it bleeds through everywhere, whether you like it or not. So that's one book. If you want to figure out what WCM is like, just replace Eleven Madison Park with WCM, and you have Howie Hopper on here.

56:51Dave Joerger:Love it.

56:52Scott MacDonald:My favorite book is, I'm reading Rory Stutherland. He came out of Ogilvy. The book is called Alchemy. Probably why I'm so obsessed with this idea that when you demand logic, there's a hidden price that you pay, you destroy magic. The whole world's run by logical people. But if that's the case, if it were only run by logical people, you'd only discover logical things. And I guess the point is in real life, a lot of things aren't logical. They're psychological. So you need both. I think sometimes that's lost at investment management firms. It's especially lost in the operational compliance side of things.

57:28Sloane Payne:Well, guys, thanks for the time. This was really a lot of fun and I look forward to staying in touch. Us too. Thanks, Scott. Thanks, Scott. Really enjoyed it. Thank you. Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com where you can access past shows, join our mailing list and sign up for premium content. Have a good one and see you next time. All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

58:04Sloane Payne:Clients of capital allocators or podcast guests may maintain positions in securities discussed on this podcast. Capital allocators and its affiliated entities receive compensation from WCM investment management under a consulting agreement. We are not a current client of WCM. The views expressed today are those of the speakers and should not be considered investment advice or a recommendation to buy or sell any securities.