You Can’t Engineer the Timing: Ron O’Hanley

0:00A CNBC original podcast. Ron O’Hanley was on track for a successful career at consulting firm McKinsey, when Mellon Bank offered him the chance to leave and run a business. He turned it down, then he began to wonder if he'd made the wrong decision. I had buyer's remorse. He said, was this the right decision? Three months later, O’Hanley called Mellon back and asked if the job was still available. It was, and the experience taught him a lesson about opportunity and timing. There's a lot of ways you can engineer your opportunities. You can seldom engineer the timing. For O 'Hanley, the right opportunity doesn't always arrive at the right time.

0:38And turning it down because of the timing can mean missing it altogether. If you're turning down something because it's not the right time, second guess that. And I did second guess and it turned out the best thing I ever did. Years later, another unexpected opportunity would take him to State Street, a financial institution founded more than 230 years ago that he initially questioned joining, but where he would eventually become CEO. For O 'Hanley, the lesson is knowing when to reconsider the path you thought you were on. These are Ron O 'Hanley's executive decisions.

1:18Very few young people say, I'm going to be a successful financier when they're thinking about what they want to do in their formative years. Tell me a little bit about your upbringing and what you thought you were going to do for a career. So I grew up in what you would describe today as a very middle-class family, right? My father worked for an industrial company. We lived in a part of the US that was entering its post-industrial phase. And so at the time, I had this curiosity about how things worked. So I thought I wanted to be an engineer. And then as I got closer to my mother and what she was doing, she also taught nursing, I thought, gee, there's a nice intersection here.

2:07I could be an orthopedic surgeon, right? Because it's about how the bones worked and all that. So early on, that's what I thought I was going to do either be an engineer or go be a uh go be a surgeon were they your early role models and early mentors they were as was my grandfather my mother's father um who was not an engineer but certainly could have been uh uh started out in the navy and then was a civilian contractor to the navy ran a machine shop uh for the navy and really could fix truly fix anything yeah um he always had a boat in his backyard or a boat in his basement that he had found or somebody had given him that he was reworking on so he would have been the third role model for me too and this idea of kind of fixing things and being curious about things what values did they give you education would have been the one.

3:00Again, both of them, but particularly my mother. I mean, she really went through life continuing to educate herself. She got her master's degree, I think, at the age of 55. She was constantly kind of bettering herself. But the other thing that influences, again, I mentioned I grew up in a town that was entering that post-industrial phase and seeing my father lose his job during that period because it's it's just really you know you think everything's fine and then it isn't um and of course like many parents of that generation they were trying to make it look everything's okay uh but then the moment came where it was time to select university and they said remember you're the oldest of five um so what it costs is actually going to matter here.

3:49Yeah. And the cost must have weighed quite heavy on you as well, because I mean, had you not gone to university and gone straight out to work, you could have been helping be a breadwinner for the family as well. So that would have weighed quite heavily on you. Yeah. And it did influence where I went. I'm very happy where I went to school. And one thing I've learned about, at least in the US, where you go matters a lot less than what you do about it while you're there. But I went to the place where I got the best deal. I got the largest scholarship. And that was 1980, you got your BA in political science at Syracuse as well.

4:26Why did you choose political science when, hang on a second, a couple of years earlier, you wanted to be an orthopedic surgeon? Well, I faced organic chemistry and I met my match and said, okay, we're not going there. And I was always very curious about the world in which we live in. um and there's an outstanding program there today still the number one ranked school of public citizenship and public affairs in the u.s so there were extraordinary professors there and i just got drawn into that vortex it's really interesting that actually you see as a strength that you didn't know what you wanted to do earlier on and actually you were able to try lots of different things.

5:05Yeah, and I think it's a combination of, I am a curious person. I have a lot of interest, and I'm also interested in learning and talking to others about what they do. I like hearing how their companies operate. So it was that combination of curiosity, not knowing what I wanted to do, that really led to my first major career decision, which was going into consulting. If there was one quality that people said to me, well, what's the top quality of being a CEO? It's curiosity. Every single time it comes up, if people are listening to this and watching and they want to be Ron O 'Hanley, they want to be a top Wall Street CEO, is curiosity the number one skill, quality, value, trait?

5:50I think it's a combination of curiosity and knowing that there's always something new to learn, which to me is the opposite side of the curiosity coin. Why are you curious? Because you're going to learn something. And if you ever believe in these roles that you've got command of it, you ought to step down right then. Because you don't. You really don't have command of it. You really don't know what's going to happen the next day. we are a cog in a very, very large system, right? And what might happen, three, five, ten institutions removed from us could have an impact on us. So you think you know it.

6:30You know, you think it's like just a big factory and I know all elements of it. You actually don't. So in 1986, you got your MBA at Harvard Business School, and then you spent a long time, over a decade, at McKinsey. Tell me a little bit about the decision to join McKinsey. Well, again, a little bit of it was wasn't sure what I wanted to do and got exposed to McKinsey, liked what they did. And to me, I thought this is going to advance my learning. I'll learn a lot more and I can decide what I want to do long term. At the time, I think like a lot of people think when they enter these roles, you know, I'll go there for two years.

7:07I'll figure out something else and do it. I loved my time there. lots of what's going on in terms of you had these at that time relatively newer entrants like the Fidelities of the World that were transforming the way money was being managed and so McKinsey was one of these places where it also gave you the ability to be quite entrepreneurial yeah I want to start a practice so did I've got a whole list of mentors from Mellon Bank AXA Syracuse but actually Peter Walker comes up a senior partner at McKinsey um why was he such an important mentor what did he give to you so um a couple things I remember talking to him after I'd arrived um and he made a point of welcoming me and you know the way that interview process we'd probably spoken nine months before um so one I was surprised you remembered me um but what drew me to him was he's talking is it was his passion around insurance which to me i thought other than watching paint dry is the most boring thing on earth and talked about here's why you ought to come work on this project with me what was interesting about it he was implying i had a choice which i didn't really have a choice but yeah i was going to do it but the it was again his curiosity a really successful uh senior partner at the firm that was constantly thinking about what is the next thing and curious about what was next.

8:43Tell me about an instance when you made a mistake where things hadn't gone well and then afterwards what your attitude was to that failure. Yeah, I can think of several instances, right, where you you'd done all the work and you think that the you think that the answer is about getting it analytically correct. I think one of the shortcomings of the consulting firms, at least then, and was my biggest learning when I left consulting was it's not about the answer. It's about the implementability of the answer. And I think we as consultants really never understood the challenges that your client had as a senior executive.

9:27And that immediately, by the way, struck me when I moved from consulting into, quote, the real world. You realize the time commitments that are put on an executive are very, very different than what you have as a consultant. I didn't realize how good I had it as a consultant. Your words, not mine. Left McKinsey to join the real world. PNY Mellon, 1997 to 2010. I mean, just give us a little bit about that period of your life, how important it was for you and that evolution of your career so back then it was melon i'd had several opportunities to leave i was actually enjoying myself mckinsey um i was a year or two away from becoming elected uh a senior partner at that point uh in fact was uh getting prepared to go run one of the offices in uh in europe now in reality as confident as i was i hadn't run much up to this point so did you have self-doubt?

10:21I didn't have self-doubt. I initially turned it down because I wanted to go do what McKinsey was enabling me to do, which is go run an office. And then thankfully, I had, if you will, call it seller's remorse, buyer's remorse. I said, was this the right decision? And it was, it turned out, and it's something that I always tell people later on, opportunities will come along. There's a lot of ways you can engineer your opportunities. You can seldom engineer the timing. And so if you're turning down something because it's not the right time, second guess that. And I did second guess and it turned out the best thing I ever did.

11:01So I called him up literally three months later and said, if it's still available, I'd like to come. Is your attitude to risk-taking different? Has it evolved throughout your career as well? Because I've had a lot of CEOs who've said to me in the early part of your career, take risks, take risks, try different things as well. You will regret it if you don't. I think probably my attitude towards risk has changed because at the time I didn't think this was a big risk, right? You think, okay, I'm coming from McKinsey. I know everything. What I didn't realize at the time was you know nothing about being an executive, right?

11:35You've advised executives. You haven't been an executive. And I go back to what I said earlier. You don't understand the time commitments that are being imposed on you. You don't understand that having an elegant answer is maybe this part of actually getting to success. It's how you implement it, how quickly you implement it, what you need to do to move and marshal an organization. And I learned that very quickly. I mean, when I think about it, here is this person that, you know, maybe at this point in my career, I was running three or four, five, 10-person teams. That's not a lot. And they're turning over this business that was, it was not an insignificant business with great growth aspirations and said, go forth, acquire, do what you need to do.

12:26They gave me a lot of opportunity. Honestly, I don't know that I would give somebody like me that opportunity right now. I know. So I think what has happened, and this is over the course of my career, I think executives have become, and institutions have become, much more risk averse. I think the financial crisis had a lot to do with this, and we are much more concerned about who are we going to entrust this to? Is there enough scaffolding around this person? You know, this is pre-financial crisis. And I think there was, I mean, I don't know exactly what Frank and Kip, their decision making was at the time, but they probably thought, how much harm can he cause?

13:11Right. He's a pretty smart guy. We know him. Yeah, he's never done this before, but if it fails, the institution isn't going to fail. That's fascinating, Ron. You talk about institutions becoming more risk averse and perhaps a little bit more cautious. And yet, in your career, I mean, I remember bearings when that all imploded. The amount of money that bearings lost compared then with the financial crisis and then compared later on with the kind of numbers we're talking about in an AI world now, it's insignificant. What I find fascinating is what you just said is that companies have become more risk averse, but the costs and the scale of the finances involved now are an order of magnitude.

13:54Yeah, but I also think the regulatory structure has caused firms to become more risk averse. If you think about how regulators now have changed the way they look at these institutions, you think about the rise. And by the way, I'm not critical of this. I think it was required, but you think about the rise of the risk function within financial institutions. Pre-financial crisis, if you had a risk function, which most didn't. It was not of the sophistication that we have now. That sophistication is great, but it also has caused institutions and therefore people to be much more cautious about the chances that they're taking.

14:34The amount of horror stories that between us, we must have heard about risk managers flagging warnings about positions, flagging warnings about traders, about exposures. Tell me about your experience of the great financial crisis as well. The early part of it, you were at Mellon. What was your experience? What did you learn from the great financial crisis? At the time, I was running the combined asset management business. And I remember that we were in a constant crisis mode as a management team. And remember the credit pressures that all these firms were under. And that was translating into this.

15:13The regulators said there's only so much that you can do. And then you realize that we're getting to the point where we've got to basically suspend trading in these funds because that's the only way that we're going to enable the fund shareholders to come out whole. If you believe that in 45 days, this is all going to pay off at par, the right thing to do, suspend trading in the funds, tell clients you're not going to get redeemed. You will get redeemed as everything matures. That is basically you're signing the death warrant for the business. And what was remarkable to me at the time is through the course of about five to seven days, the team, we have to be very quiet about this, but the money market team, knowing that they were going to put themselves out of a job, were doing everything they could to prepare for that orderly dissolution of the business.

16:06I've never seen anything like before and it just reminded me that firms are dependent on people and what people can find in themselves to do, recognizing that it has nothing to do for themselves but the clients they serve. Did you learn lots about yourself at that time? You do. And what you realize is that everybody is looking at you. Absolutely everybody is looking at you. And what they're looking for is, is this going to be okay? And you don't want to be dishonest to people, but you also want them to know that we've got to get through this. it may cost us something it's probably going to cost us something but we've got to do the right thing and you realize that um if if you want people to do something then you've got to behave in the way that you want them to behave you don't want them to panic because there were all kinds of behaviors there were other people just froze there were other people who were seasonally been around they've they on the surface were very very good at their job but they just froze and they couldn't act under that kind of pressure as well we saw a lot about human qualities during that period didn't we we did we did and again i go back to when people are doing something that they know is going to ultimately hurt them and hurt their pocketbook but they recognize that it's going to be the right thing for the client it's it's something that you never forget and i will never forget that experience final question on that how did it change you as a person?

17:40One, it made me realize that it's remarkable what people can do. And if they understand why they need to do something, everyday people can do extraordinary things. And two, it made me realize that no matter how brilliant you think you are and what kind of force you have as a leader, it's only as good as the people that are working with you. 2010 to 2014, you were at Fidelity Investment. You were president of the Asset Management and corporate services as well. But in 2014, you decided to leave Fidelity. Tell me a little bit about that as well. And what was a very interesting period, 2014 to 2015 in your life as well.

18:20Explain to me a little bit about that. I'd been around the large firm thing for a long time, Fidelity, Mellon, Bank of New York, Mellon. And then before that, McKinsey. And thought, I'll go off and do something small. I'll do a startup. I'll do something like that. Did you need a break? I mean, you've been in the business 28 years at this point. I didn't necessarily need a break, but I needed a break from what I was doing. And of course, you get all sorts of advice that you nod yes and didn't do, right? Which is use this time to be reflective, catch back up with your family. And sit in a monastery and think about life.

18:57Yeah, yeah. And I did that for about 14 minutes. And I didn't obsess about it, but you also recognize you're at a point where you don't get many more of these, so you want to make the right choice. And I realized as I was going through this period that there were certain things that actually I at least thought I was good at, but also that interested me. And the way large firms work and how you make large firms work was actually something that interested me. So there were lots of startup opportunities were presented, private equity, you know, would you come as the CEO? And they were all interesting and they were all, you know, on paper, fabulous wealth building kinds of things.

19:44But I thought, are you really going to be, am I going to be bored doing this? Fidelity had been a client at State Street. I obviously knew them just living in that ecosystem. And at first I thought, what am I going to do going to a 230-year-old bank? And it's a large but kind of marginal money manager. And what do I know about custody other than I've been a client of a custodian before? But learning about what they were doing, it fascinated me. I went in there with no promise to be the CEO, but was going to run the asset management business, which itself needed some work. But this is an amazing thing.

20:25You're 57, give or take, at that point. You're thinking you might go for a portfolio, you might maybe leave the business, you might do different things. But you went back into what ultimately became the biggest job of your career. I certainly wasn't going to retire. But again, what I realized floated my boat was this idea of a complex, large firm. How do you make them move? How do you make them nimble? Did State Street really need that? You joined in 2015. You became CEO-designate pretty much in 2017. Did State Street need a whole revamp across the board? So the revamp was largely underway. Certainly in terms of the strategic portfolio, much had been done by the predecessors.

21:13Basically converting, it was Jay Hooley, Ron Logue, Marsh Carter. There much had been done before then in terms of pruning the portfolio, really focusing the bank and then growing it tremendously in those areas of investment management and investment services. But culturally, it was not quite there. It was a global firm that was still pretty Boston-centric. What does that mean? Well, if you think about it, it was a global firm, but all decisions led back to Boston. Okay. Right? I mean, this incredible sprawl to the place. It's not a negative, but why is that not the optimal scenario? So here we had this large global business, but nobody from outside the US on the executive committee.

21:58None of the real decisions were being taking place anywhere but on the 11th floor of one financial center. So there was that transformation. The other thing that it absolutely needed, there was a lot of M &A that occurred up till then. And the real integration had not been completed. That's what you saw as your key role when you joined in 2015, took on the role of CEO, designated in 2017. You had to integrate and globalize this business. Yeah, and make it, it was already global, but you used the right word to globalize it, have it run as a global firm, recognizing that there's lots of time zones out there.

22:39There's not just the East Coast time zone, recognizing that if you really wanted to be global and have the impact on markets, you had to have people from those markets in decision-making roles.

22:54Ron, I want to bring up one episode which I want to be quite sensitive about because we are all allowed to make mistakes in our lives. In fact, one of the strengths that I'm hearing from top CEOs is you can make a mistake in life, you can learn from that mistake, and you can move on as well. You made a mistake when you were a very young man, and this was when you were at Vanderbilt University. You withdrew from law school. You admitted plagiarism when you were the editor-in-chief for the school's law review. You admitted this was a big mistake, and you learned from that mistake. You were in your third year.

23:25I don't want to dwell too much on that itself, but it came up again in 2017. I think it was the Boston Globe who mentioned when you were taken over or going to be taken over from Jay Hooley, it came up again as well. It's something you'd already told State Street as well, but a lot of people didn't know about it. Can you just tell me a little bit about the episode or what you learned from the unveiling bit to your staff in in 2017 so you're right we all make mistakes uh for me that's the mistake that i've never forgotten because you're focused on 2017 and of course a lot of people by then it was whatever 25 30 years later a lot of people weren't aware of it um but it was even the the bigger disappointment was the people that i that i disappointed at vanderbilt right as you note i I was the editor-in-chief.

24:17There were a lot of people who were dependent on me, and I made a terrible mistake that to this day I think about. There's probably not a week that goes by that I don't think about that. You are brilliantly successful CEO. You're a much admired man as well, and you've done some amazing things in your career, and we've covered some of those already as well. Every single week of your life, you think about that mistake from 1983. Isn't that extraordinary. Well, it's extraordinary only in that you recognize as a leader, and in fact, I probably think about it more as time has gone on, because you start to think about as a seasoned leader, if you're any good at it, you recognize that all of your actions potentially have some kind of reaction.

25:03You have an impact on people. What's that saying? You don't want to leave wreckage in your wake and you realize that when you make that kind of mistake it's not just about the mistake you made and how you feel about it but it's about the people that were dependent on you and how they feel about it but i think owning your own mistakes and something i say to my children as well rather than trying to hide them trying to ignore them trying to ignore the consequences it's important, it's powerful, and it can actually make you a much, much better person and a much better leader. I'm going to try something here.

25:42If you hadn't have made that mistake in 1983, would you be the leader you are now? Because you say you've thought about it a lot. It's obviously influenced the man who you have been since. I think that, I mean, that's in some ways an academic question, so I don't know the answer to it but i do have to believe that um it certainly caused me to think about my mistakes more um and we all make mistakes right we're actually lying to ourselves if we think that we're not making mistakes so which at least for me what it's caused me to do is when you make a mistake just take a moment to reflect on it yeah like what might i have done differently then i want to thank you for that because i think it's important that people see brilliantly successful people like you And it's not a linear path.

26:31It's not success. We learn as much from the tough episodes as we do from the good episodes. I want to talk about State Street now as well and the key decisions you're making at the moment as well. We're in an AI world. We're in a fast-changing financial environment, a globalized environment. Tell me about some of the key decisions you're making at the moment. So I think from a strategic perspective, we think of our, we're a large so-called GCIFI bank. Yeah. But I always say - You're a globally significant international financial institution. But the great thing about State Street is we have one client base, right?

27:07We have one client segment. It's the global institutional investor. We don't serve individuals directly. We serve those that serve the individual. So to me, that simplicity is actually the strength of State Street. Correct me if I'm wrong, but you're custodian to the combined GDP of the European Union plus the United States. We're talking something in the region of$49,$50 trillion. Yep. And what people need to remember about that is not just the scale of it, but at the end of that chain, at the very, very end of that chain, there's some pensioner who's reliant on you to, one, safe keep the money or for managing to provide a return.

27:47You obviously think about that end user, that end consumer. We do. And we talk about it actually when we... The one thing I love about new recruits now is they press you much harder than certainly I ever pressed anybody about, why are you here? Why should I come to State Street? Were we too deferential when we started our careers? I think we just wanted a job. Yeah, that's true. But I like that because then you talk about, here's what we do, and here's the influence we have. You can talk about these large sovereign wealth funds that we serve, and oh yeah, isn't that a lot of money? But you think about what's the purpose of a sovereign wealth fund?

28:23It's to provide benefits using the money from current generations in these assets, oil assets or whatever they are, for the benefits of future generations. That's a really cool mission. And you like to focus people on that. No interview with Ron O 'Hanley will be complete without talking about one of your many passions. And I'm sure your family is your number one passion. Your work is clearly a passion. But you would have been a sailor if you could have been, or you are a sailor anyway. Did you ever think about not being a banker and being a sailor instead? I mean, I think you first sailed at seven.

28:58Yeah, I did. It goes back to my grandfather. He always had a boat in his basement or a boat in his backyard. So he taught me how to sail. You've done some serious racing after this car. Tell me a little bit about what sailing means to you. So one, I think everybody needs some, and this isn't why I got into sailing, but this is why I've continued, one of the reasons I've continued to sail. It is a true escape. I mean, if you want to sail competitively, I sail competitively offshore. And if you want to do this, you've got to be completely focused on it. In some ways, it's very much like working in a large institution.