#93 - Alex Ehrlich: The Leadership Pyramid, Team-Centered Culture

27:36There's a lot of give and take in the breadth of that relationship. And so it's a great, wonderful business and often little understood outside of Wall Street and the hedge fund community. That word trust that I use a lot, I think it's one of the places on Wall Street where really, really, really matters. And, you know, and it matters in a consumer group, i.e. people who run hedge funds, who tend to be very hard-nosed and driven and, you know, don't necessarily want to give their trust until it's been earned. But it's a critically important differentiator. You had a great run at Goldman. But what changes in culture at Goldman Sachs led you to ultimately move on?

28:17I stayed till 2003. And then I went to UBS and I left. I want to say this, you know, I only speak well of the three firms that I worked for because they were all, they were, are all great firms. And I grew up at Goldman Sachs and I, you know, just, I benefited so wildly beyond my expectations, you know, from people and so many things about being at the firm. But I grew up there, you know, through the, you know, starting in 79. So really through the 80s and the 90s. I left in 2003. Firm went public in 99. The IPO, in my opinion, didn't immediately change anything, but it changed a lot, you know, within the next few years in terms of culture.

28:58I think that pre-IPO, you know, we used to talk a lot about the partnership culture. And post-IPO, in my humble opinion, I was not running firm or paid to, you know, have this opinion, but I felt like the culture was changing. And it was, in my opinion, sort of really evidenced by some very specific changes that were occurring that I will not talk about, but they were things that I objected to. And it wasn't my place to object. I didn't run the firm and that I, you know, sort of thought about it. It took me two years to kind of go through a process, you know, because it was the only place I'd ever worked.

29:36It was home. And it took me two years to go through process of coming to the conclusion that I had better leave. Because if I didn't leave, I was going to become really unhappy and become somebody who, you know, sort of hated his job, but did it, you know, in order to make the money. And I didn't want to be that person. You know, I wanted to be somebody who felt like an owner and felt like a partner and felt like that I could be 100 % behind the way we were doing our business. And it doesn't just be doing business, it also means it's sort of the way we ran the place and treated people so um i left um you know with great respect for goldman sex and great respect for the fact that we had a different sort of opinion about how to sort of how the culture should work and so my job was to leave not to sort of sit around and whine and become the guy who didn't want to change with the times and that's kind of what happened And then I spent six very happy years at UBS in many ways, but I think I spent four happy years at UBS and then the financial crisis hit.

30:36And I can't claim those years were happy because that was just a really tough time for everybody in the market, as you'll recall. And so I was there from 03 to 09. And it was a very tough place to be in 08 and 09. And I left to join Morgan Stanley as Global Head of Prime Brokerage there. um you know nine you know because i was just lucky enough that they decided to blame my predecessor you know for a whole bunch of things um in and so the opportunity opened up and i was lucky enough to get it and then i spent 10 plus years you know at morgan stanley running prime brokerage there or co-running it actually and then a couple other things i ran the futures business and the fund administration business and i did a ton of work um on dei chairing the diversity council for the investment bank the last three years that I was there and then moved on and started the next phase of my life let me ask you some questions about leadership which I know you've spent considerable time thinking about you've described three things intelligence hard work and integrity as the baseline for hiring at top firms but the true success depends on fostering the right behavioral culture, which we've touched on.

31:51What qualities do you look for beyond the table stakes? And how do you build an environment where collaboration and team first mindset are rewarded over competition and individualism? So you're 100 % right. You know, I just want to recap one thing you said briefly. Your brain, your work ethic, your integrity, those are table stakes. You know, if you're not smart enough to handle complexity, it's not going to work well. And if you don't work hard and you're a little lazy and everybody else, you're all your teammates think like you're the weak link who's, you know, they're all happy to work harder to cover for you.

32:25Again, you know, you're not going to last. And, you know, on integrity, it's like if people think you can't be trusted, again, you know, you're going to be out fast. So, you know, while everybody wants to recruit to get their smart, hardworking people who are presumably ethical, the reality of it is, you know, like pretty much all the firms can get those people. And so there's just zero differentiation. And when I used to interview young people. I used to say that to them. I'd be like, you know, you're such an impressive resume. You're 3.9 at MIT, and you've done all these outstanding things. And I'm absolutely convinced that you're wonderful.

32:57But I also just want to tell you that those are entirely not differentiating in the market. So can you start by telling me why I should hire you that has nothing to do with how smart you are and how hard you work? And so we get into that. The short answer to your question, if I'm capable of short answers, I have developed a view over many years, particularly coming out of Goldman Sachs and having to spend the rest of my career figuring out how to beat Goldman Sachs, which is a great firm that hires the smartest people and the smartest working people, all that stuff, is that ultimately you cannot beat Goldman, you know, or anybody by trying to sort of figure out like, how am I going to get the smarter kids ahead of MIT or Harvard or wherever, or St.

33:38John's for that matter. And you can't work people so that they're working harder than everybody else because it's like boot camp and who wants to live in that as you know so that can't be your differentiator at the end of the day it's hiring your fair share of those great young people and then turning them into a team that consistently gets the best out of those people and therefore produces more than the sum of the parts so you do not want a dog-eat-dog culture you do not want a culture where people feel like there's a finite pie and for me to get more of the pie. My teammate has to get less of the pie.

34:11You do not want a culture where people feel like they should not share information. They should hoard information because if they look better, they'll get paid better. You ultimately have to work very, very hard in the way that you identify people that you hire and then the way you train them and the way you promote them and the way you reward them. And that's like a bottoms up sort of comment, like hire, train, promote, reward. But it's a top down comment too. You also have to work very, very hard with your leadership teams to make sure that at every level, there is a uniform sense of what the culture wants from people, what success looks like in the culture.

34:46And the way to beat, and I say this again with all due respect, the way to beat the number one team, whoever they are, is simply by hiring great people and getting them to collaborate better. Because every single time you're up against a team of great, talented people who are hoarding information, you're going to beat them by sharing information. If they're knifing each other in the back, you're going to beat them by having people who don't knife each other in the back and don't have to spend their time watching out for people throwing knives at them in the back. This all sort of rests upon sort of another level of philosophy, which is that I firmly believe people want to come to work and have fun and they want to enjoy themselves.

35:25And that, you know, people don't, you know, when I was, you know, involved in the securities lending business, I used to have this little stock speech I would give people where I would talk about how just remember that your job is not a calling. Like, you know, people have, some people have a calling, right? Like, you know, God is a calling. Religion is a calling for people. I think medicine can be a calling for people. Some people grow up, like, I just want to heal the sick. I don't want to be a doctor or a nurse or a social worker. These are helping professions that people feel called to. I think art's a calling.

35:57Like, I know a lot of artists and many of them will say, I didn't choose to be an artist. I just am an artist. The rest of us just have to get jobs. and nobody grows up thinking if I could just lend stock for a living, I'd be so happy. And so, you know, it's not a calling. It's a job. People and even Wall Street with its like sort of, you know, typical passion for competition and for success and for making money is still full of people who basically just start out as smart kids who need jobs. Smart kids who chose a job on Wall Street, number one, first and foremost, because they did not have a calling because if they had a calling, they wouldn't be in that room.

36:37And number two, because they wanted a challenging job. They're smart. They wanted to do something interesting and challenging. And number three, they want to make some money and there's nothing wrong with that. And so, you know, this is for people who don't have a calling, Wall Street's a great place to work. You're going to find it challenging. You're going to work with cool people. You're going to serve cool people as customers. You're going to maybe get a chance to travel the world. You might make a lot of money. You are going to have intellectual challenges you're dealing with every day. It's a great profession being a banker of any kind.

37:05But let's not confuse it with a calling and let's not sort of suppress the fact that as people, we want happiness. We want to be pursuing happiness. So if your idea of Wall Street is, I know it's going to suck. I know it's going to be like boot camp. I know people are going to beat me viciously, but I'm going to put up with it and I'm going to be the best that I can possibly be because there's a golden ring at the end. and I will suppress my desire for happiness. I kind of don't want those people working for me. Those are not my idea of the people I want to hire. I want to hire people whose view of their job on Wall Street is, it fits within a larger set of life goals.

37:47It fits within a larger context of what they want from their life. And it's very important. I'm not wimpy about this. I expect people to work really hard. But I also expect people to enjoy their lives and have families and enjoy their children. and I also want the people who are going to sort of work together well and trust each other and as I said earlier, create more than the sum of the parts. So these characteristics that I look for beyond they're smart and they're hardworking and they're ethical, I look for empathy because I think, listen, if you're not a person who's empathetic, you're all about yourself and that's never going to work in the model that I'm describing.

38:23I look for people who have self-awareness about kind of where they fit in the puzzle that they don't just think the world revolves around them I look for a whole bunch of behavioral traits which I won't necessarily list here and then if you want to basically take this this approach that I have of being very very behavioral about the attributes of success in leadership and how I want to groom people and create great leaders based on those traits then you have to ask yourself how do I know those people when I see them how do I find those people at any level whether it's an undergraduate recruitment up to I've got this key leadership spot I need to hire for and I need to get a higher managing director to sort of take this over.

39:04And yeah, it's a whole nother set subject that I'm happy to talk endlessly about. But it sounds like the perspective that you're describing is then to compare it to another perspective. So one idea in terms of leadership is I'm going to get the most out of each person and I'm going to create a competitive environment and each person is going to try to do better than their peers. So that's one approach. The other is to say, it's more top down of how do we make the team better? And if there's more collaboration, and obviously you want to encourage individual accomplishments, but if there's more collaboration, then one plus one can be three or more, because you can bring more to the table.

39:48And so that's just a different way to approach it. That's absolutely right. Absolutely right. I also, So I'll share a story with you here, which is something I used to, a story I used to tell when I would do. I used to, I love, as you can probably tell, I used to love teaching classes. I used to teach a lot of classes in my banking career. And I've also taught, you know, lectured at a bunch of colleges and things. And I still love doing that. Talking about sort of behavioral traits that drive success and how to have a great career and how to avoid mistakes and things like that. I used to use an example for people that used to generate hot debate, but it gets at the essence of this thing.

40:22So I used to have this story that I would tell, which I would refer to as the Derek Jeter Challenge. And of course now, it's been years since Derek Jeter retired, but I used to use this more when he was still playing. At least everybody knew who he was and people loved him and all that. So maybe the year before he retired, he was playing a game against California Angels. It's late August. Yanks are in the pennant race. It's a late inning game. It's like the eighth inning. Yankees are down 1-0 in the eighth inning. and um he's at bat and um i get hit by the pitch and he throws the bat down and he trots down first base the instant replay slow-mo clearly showed he did not get hit by the pitch it clearly showed that the ball hit you know that little bit of the bat that sticks out under your hands a little bit that's what it hit it hit just right below his hand but it definitely hit the wood and it just fell straight down and he immediately sort of shook his hand like oh that hurt and then and he threw the bat down, and he tried down to first place, and the umpire left him there, and he was awarded first place, but the instant replay was crystal clear, did not get hit.

41:25And you used to tell that story, and I would say, a room full of 50 kids, new analysts at Morgan Stanley, say, okay, how many of you think that that's cheating, and that that's actually sort of not really the kind of clean play and ethical behavior that you would expect of Derek Cheater? and less than half the room would raise their hand. A small number of people would raise their hand. Like, that's cheating. And then I would say, okay, most of you don't think he's cheating. Anybody want to talk about, like, why that's not cheating? And there would always be 10 people ready to talk, and they would always express some of the following points.

42:05This is not Little League. This is Big League Baseball. You are paid to win ballgames. He is paid to win games by any means necessary. It was not his problem. The umpire blew the call. It is totally his job to get to first base. And by the way, he scored the time run in a 1-0 game, and the Yankees went on. I forget they won or lost, but that was a pivotal moment in the game. So almost everybody who cares about sports would say he did nothing wrong. And by the way, there's money on the line because if the Yankees get into the playoffs, what do they get? Like$100 ,000 per person, and they get more for being in the World Series.

42:38And the team makes money by hosting games, and they sell more concessions, and they sell more tickets. So it's like the prevailing you in the room is always, it's a business. and i would say okay fine let's reset the scenario and ask it a different way it's not derrick jeter who does that it's your 10 year old brother who's playing little league and you're on the sidelines watching your 10 year old brother and you see that happen and he gets sent down to first base after the game what do you say to your 10 year old brother do you say you know i kind of get the fact that you know what you did but that's not how we've taught you that's not the way you're supposed to play the game you know this is you're supposed to be ethical you know you didn't get hit you shouldn't go into first place you didn't get hit you shouldn't have pretended you got hit or do you say big slap on the back well done dude you got the first you know and you scored a run at that point the room always swung from it's a business to it's little league and ethics matter and i've done this i don't know two dozen times the room always swung The room always started with, you know, Jeter did the right thing because he's a professional baseball player.

43:45And then it ended with my 10-year-old brother should not be playing. That's not how I'm teaching my 10-year-old brother to play the game. I'm teaching him sportsmanship. And I'm like, okay, so what's the transition? And now let me ask you, all you folks here in the room at, you know, an investment bank who've worked so hard to get into this room. And you're all first-year analysts. And by the way, congratulations because you're all wonderful. But are you here to win by any means necessary? or are you here to bring your values to this place? Are you here to sort of find ways to make money regardless of the rules or are you here to bring your values and ethics to the table and tell us when you feel uncomfortable if you get to a moment where you feel somebody's asking you to do something that's just not right?

44:31And this is like a seminal kind of moment for these young people because what you want to imbue in them is that we're not here to make money at all costs. We're not here to do the wrong thing. And that's not who we want to be because at the end of the day, we want people to trust us. Trust is more valuable than almost anything else we can create in our relationships. And, you know, I'd be, you know, you know, tell platitudes, you know, you lose trust. You know, it's like, I'm so hard doing it. Yeah, it's like people have to trust you and we hire you because we think you're trustworthy. And we are not telling you to go out and do anything.

45:00You win games by any means necessary. Because in all honesty, that's what led to the financial crisis. what led to the financial crisis was people doing things that were technically legal but were wrong that resulted in massive financial losses for others but people felt that they didn't could do them because everybody else was doing them and so if you don't want your people to lead you into the next financial crisis or participate in the next financial crisis that somebody else starts you got to have a different culture So sorry if that was like a long-winded story, but I used to teach a class called Defense Against the Dark Arts, which is obviously a root ball from Harry Potter's, you know, sort of Bester Snape's class.

45:41And it was all about that. It was all about like, how do you avoid making mistakes that ruin careers and sometimes send people to jail and cost people their lives and their fortunes? How do you, you know, and so I'll stop there. And I suppose it requires you to not be short-sighted. Because if you look around and all your competition is doing that and you don't, then you may fall behind near-term but win long-term. Yeah. Well, totally. I mean, and, you know, it really kills you because, you know, you know Wall Street. You know, you'll have one bad apple someplace, some bank that's doing something they shouldn't be doing.

46:15And because they're doing something they shouldn't be doing, they're very profitable. And because they're profitable, they can pay people more. so if they want to hire Yurga people they can because you can't pay people that way so you know there are all kinds of like real world arguments that put pressure on people to do their own thing what I find is I don't know that I have the answers to these all these questions about like what do you do in that situation but I do know that if you put sunlight on them so that you are getting people from an early age to understand these are the things that can lead people astray and they you can then cast certain things in that light for people you've got a better shot of keeping people from, frankly, hurting themselves and hurting all of us.

46:55Would you walk us through your leadership pyramid, which you and I have talked about in the past, and how you developed it and what's most misunderstood among high-performing leaders? So the leadership pyramid, we've already talked about some of it, so I'll try and go as quickly as I can. The leadership pyramid is just based on the fact that one of the few things I learned in college in my year and a half of, you know, getting educated, was I encountered Maslow's hierarchy of needs. And that was actually something I always thought was really impressive on just a personal psychological basis. And after I had left Goldman and I was at UBS and I was trying to build a business and, you know, I knew my job was to sort of figure out how to beat Goldman, which was a great firm.

47:36And, you know, I had had these observations about, you know, what we already talked about, like, you know, your brain and your work ethic and your integrity. That's just kind of like the bottom of a pyramid, like a ticket for admission to play the game. And I started thinking about Maslow and how Maslow had like his pyramid. And, you know, every level in the pyramid is sort of a higher level of complexity of meeting human needs. And I started to think, I wonder if there's a behavioral pyramid that describes career success, career progress, behavioral traits, leadership traits, similar to the way that Maslow did his pyramid.

48:08and so um i used to refer to this as the behavioral pyramid for success and like maslow had i think five levels but i had four so it's just a pyramid and there's four levels and the bottom one we've already talked about the base of the pyramid is you got to be smart you got to work hard you got to have ethics if you don't you're going to fall off the pyramid you're out and now you get into the interesting stuff um that you know sort of the seven boxes above um and in sort of stratifying those boxes, those levels, what I was trying to do was think of career ascent. So if the bottom of the pyramid is entry level, so let's call it on Wall Street language, that would be an analyst.

48:45So that gets you an analyst job. What gets you promoted to associate? Why do we keep you? Because we don't keep you just because you're good at spreadsheets and PowerPoints and, you know, organizing roadshows, because that's not the line of leadership, but that's a low level degree of ability. So you start looking for those behavioral traits. And so on that second level, what I would put would be empathy, because as I already mentioned, it's really the cornerstone of leadership capability is that you are empathetic in your core. It's who you are, because if you're not, you're never going to be a good leader.

49:19And by the way, I could talk about all of these things for 10, 15 minutes, every box for 10 to 15. So I'm just trying to go very, very quickly. The second box on that level for me is self-awareness. And by self-awareness, what I mean is just recognizing that by our biology, we are always the star of our own show. Like we're center stage in everything we do. Everybody else has a part in our life, but we're the star. And self-awareness in the context of business means that you know the world does not revolve around you. You are revolving around other people's worlds, including, you know many many people above you many people around you many people below you so self-awareness is sort of you you can astral project and see where you are in the chessboard consistently instead of thinking the whole the whole thing revolves around you diversity um and i do not mean what you look like i don't mean the type of diversity that is controversial right now i'm talking about diversity of thinking i'm talking about you know your ability to be comfortable with people who don't think like you, who aren't like you, who don't sound like you, who have different experiences with you.

50:24Because that is ultimately a leadership trait because you're comfortable with people, you will form interesting intellectual relationships and bonds, and you will also be a better manager and leader for people who are different from you. And then the final fourth thing on that level is just showing signs of creativity that you're not limited to being great at executing what people tell you to do, but you somehow begin to go beyond that and you show signs of bringing value that nobody told you to bring to the table. It doesn't have to be art. It's not artistic creativity. In a business context, you might think of it more as a burning desire for continuous improvement, which drives you to be looking for things that could be better.

51:04So that's that like sort of associate level. And then you go up a level. I've only got three things left. There's sort of two things on this next level and then one at the peak. You go up a level and now you're into like an officer level. So let's say again, in Wall Street context, you know, you've gone from analyst or associate. Now, maybe you're a vice president and you're probably at that point, you know, 28 to 30 years old or so. And it's your first officer level job. And there are two more traits that I would put on there at that level. One is you act like an owner at all times. You take the accountability that owners take for everything going on around you.

51:41You lose that trait that almost every young person has of acting like labor instead of management. You know, labor, we talked about this labor, you know, you show up, you're like, where's my desk? What do I do? What time do you want me to come in and, you know, tell me my job? And ownership is, think about it like, you know, you own a store and it's on the street front and you're selling, you know, whatever it is you want to sell, whether it's, you records or clothing and people come in the store and you're the owner and you have some employees and they're doing their thing, you don't get to ask anybody what your job is.

52:11Your job is to do everything from, you know, as early in the morning to as late as night as you could stand it to make sure the store is successful. And so people have to make that transition. And by the way, they also have to stop acting like putting their personal interest in front of the ownership interests of the partnership that they are being invited to be a part of. Second, and the only other thing on that level, which I find is a huge differentiating trait for people, is the ability to build your own network. Because in a job, your manager management is trying to make you successful by making sure you have the tools you need to be successful and you know the people you need to know to be successful.

52:53But as we said earlier, they're not telling you how the other 29 floors work. They're not introducing you to the people on the other 29 floors. You want to have a great career and have more and more sort of the lottery tickets in your career to be successful. You've got to build a network. And if you're working at a, you know, a good firm, there are so many people you can meet who are going to add value to your life and your career. And nobody's going to tell you to meet them and people aren't even going to necessarily introduce you. So this question of kind of how anybody gets to run Goldman Sachs, as I said earlier, or Morgan Stanley or anything else, it's interrelated to this question of how did they build their network when they didn't need to so and yeah again i could talk about that for a long time but that's everything below the apex of the pyramid the apex is um just one thing and it's usually controversial like i'm had this to this class and you know there's always be somebody that wanted to argue about this including sometimes very senior people who just really blatantly disagree with me and I hinted at this earlier, that to me, one of the central traits of leadership and creatively important for very senior leaders is that those people have to be in pursuit of their own happiness.

54:08They have to be in pursuit of happiness because if they're only in pursuit of success, and many people will take this point of view, like I've had this said to me many, many times, it's like, dude, I did not come here to be happy, okay? I'm not being paid to be happy. I'm not here to be happy. I'm not here to make you happy. I am here to be successful. And in the context of like the investment banking world that I come from, it's basically I get paid for three things. I get paid to, you know, make money, serve my clients well, and beat Goldman Sachs. And I use Goldman Sachs as an example, not that they're always number one.

54:41You know, if you're Goldman, you're being paid to beat Morgan Stanley. The point is that if that's how you see the world, that is particularly in this era with sort of cultural changes as generations pass on and people are concerned about happiness. You're at a step with the way the world is changing. And you are not going to inspire people to want to be like you. You might be really, really good at your job. You might inspire people to know what you know. People may very well want to learn with you, learn from you. They may want to be on team with you so they can, you know, sort of soak up your brilliance.

55:17But they're not patterning themselves on you because they actually want to be happy. Secondly, if you're not concerned on your own happiness, people don't think you're concerned about their happiness. And people want to know that the management above them cares about their, at the very least, about their progress and their career happiness, if not their personal happiness. there's a lesson in the in the talmud you know the the the learning uh accompaniment to the to the bible that is a saying that um if you saved one life you've saved the entire world and the basis for that is that it's the concept that every single one of us is our own has our own world like the world exists for each of us in in its entirety we we all have our own world so it's a sort of pretty, you know, sort of use of language.

56:07We, if you save life, you save a world, right? That has always affected me and my thinking about managing people, because I know I come to work, and it's got my world with me. None of us are in the last job we want to have. None of us are, you know, want to be stuck at whatever level we're at, even at the very, very senior levels. We all have aspirations and ambitions until we no longer do. But the idea that I've always kind of really loved working for people who could see me and could say, oh, I can see where you're headed. I can see where you want to head. Even if they say to me, you're not ready, you're never going to get there.

56:40But at least I can acknowledge where they know. You can't leave people alone and wait for them to earn their promotion. You can't leave people alone and wait for there to be a promotion available, which may not come for years and years, and be a good leader. You can be a practical manager that way. You could be managing your workforce. but if you want to keep people and you want to keep motivated and you want to make sure that your very best people are not leaving you need to know where every single person is in terms of their own personal sense of when have i been in this job long enough and what opportunities can come to me how do i keep enriching myself and growing and the best firms are really good at that they and that that becomes part of the culture so you know it's it's all tied up in this idea that But if the only thing you care about in life is your career, because the only thing you care about in life is yourself, because, you know, you think Wall Street is just a blood sport and you came here to make money and you don't give a shit about whatever else is going on in people's lives.

57:37You know, there are places in which you will be successful. But in a business that I'm describing, it needs to create trust, customer trust, first and foremost, earn customer trust. And you earn customer trust by being trustworthy. Like the trick to earning trust is you're just trustworthy. You can't sell trust, but you can earn it. and that depends upon you hiring people that are trustworthy, and that depends upon you building an organization of those people who are trustworthy, and that depends upon those people being great and getting the best out of those people, and making sure those people feel heard, and those people, like, the best idea wins, not the most politically senior idea wins.

58:14The worst possible leadership is one where, like, let me just tell you all what to do, because I'm the boss, because you may not be the smartest person in every given moment and so yeah i think it's a pretty coherent sort of philosophy around um just in this one sense because of of a business based on sort of intellectual qualities serving people who are complicated and have i mean if we were making commodities and we're making widgets and the only differentiation we could have in the marketplace was like the cost of the goods and and speed to market um i mean we this would not be the conversation.

58:47But in Wall Street and in the world of investment management, I think the paradigm's really important. I guess one way to compare the leadership pyramid in two different contexts. So if you have firm A that takes the full pyramid, as you described, with happiness at the apex, and you take firm B that excludes happiness at the apex and has everything else, and you're a very productive person, where do you think you're going to end up working? and where do you think you're going to work more and longer? And where is the most productivity going to be squeezed out of you? If you kind of put those side by side, it becomes more obvious.

59:23Yeah. I mean, look, I don't want to name names or make specific comments about specific firms, but I can tell you from my experience having been at Trollman and UVS and Morgan Stanley, this thing works. It creates teams that are unbeatable. and and by the way they enjoy the heck out of being unbeatable they really enjoy coming to work and and it creates lifetimes of friendships and loyalties in an environment that can often be quite cutthroat people can be kind of like i didn't come to wall street to make friends yeah well you should you can you alluded to this a little bit earlier but what role does diversity of thought play in building a resilient and innovative organization as opposed to just checking the boxes of DEI like you touched on.

1:00:13Yeah, I mean, let's take a moment and talk about checking the boxes of DEI for a second before I try and answer that question. Yeah, checking the boxes of DEI has, in my opinion, never been a good idea. It is not about the current political environment and the sort of demonization of the quote-unquote DEI. You know, it's about, to me, the idea is that you never, ever, ever have a conversation about quote-unquote diversity if you didn't have a problem you were trying to address. And so the real question is not diversity. The real question is, do your statistics of employment and leadership and promotion and compensation indicate that everybody's happy here, that everybody's advancing and that this is a place that is inclusive and equitable and fair?

1:00:58Or do your statistics tell you something else? But your goal is not to fix the statistics. Your goal is not to go out, and this is where I would say checking the box, Your goal is not to hire five people who look like a certain thing in order to sort of fix a statistical imbalance. Your goal is to be a place that people want to work. It's to have a great culture. If your goal, I mean, if you stick with these, the pyramid values, and by the way, I'm not overdoing it. You know, like, this is just me talking. It's not like, and people can come up with better versions of this pyramid. People can come up with different ways of doing this.

1:01:29But if you basically sort of are thinking about these values, you are not going to have a workplace that is not diverse. You're going to have an inclusive workplace. You're going to attract all the right people, and you're going to end up with good metrics as opposed to checking boxes in order to try and get to good metrics that are like sort of addressing the symptoms without addressing the problem. Right. The boxes are the byproduct of your culture. Exactly. And you can't just fix the byproduct without shifting the culture. Right. Exactly. You know, you get people, the more they have in common, the more they see the world the same way.

1:02:05the more they think alike. And, you know, that can be a strength in some ways, but it's not a strength, you know, when you're sort of encountering, you know, really diverse situations in the world. It's because so much is not black and white. There's a lot of shades of gray and you're seeking the truth. And if everybody views the problem through the same lens, you're going to miss a lot as opposed to people looking at it from all different perspectives. And if you have an open and healthy debate, you're more likely to reach the truth. No, that's exactly right. And the team where everybody fanatically agrees with themselves, with each other, is almost certainly missing something.

1:02:45And so, you know, from my experience, the best way that you avoid that is you just bring in all sorts of different perspectives. I run a company now. It's a very small company, corporate capita. And, you know, we're a financial services company. and we're very focused on serving, you know, people who live paycheck to paycheck, as you said, you know, when you introduced me. That's been an amazing experience for me in terms of this question about diversity, because we are serving very, very diverse communities all across the country. And I mean, diverse in every way, you know, sort of racial, ethnic, you know, religious communities, non-religious communities, you know, we're serving industrial communities in the South, we're serving inner cities, you know, in a bunch of places around the country.

1:03:24The definition of kind of how people think about how they use money. The definition of what people want, what people need, what people think they want and need, how people live their lives. You cannot be us and think we can just tell people what to do. You cannot be our business. We cannot be successful if we just think we know the right answers for everybody. And, you know, we're very diverse in terms of sort of the population that makes up per capita, but we're very heavy in people who've done banking, who spent their careers in banking, and a few lawyers and some technologists, but a lot of bankers.

1:03:59Our diversity perspective has been inadequate to the requirements of our job. And we have had to go get academic help from people who are cultural anthropologists who have really helped us. We have a wonderful PhD cultural anthropologist on our staff as our head of research who helps us understand communities because it makes an enormous difference in our ability to be successful. So not if that's only a Wall Street comment, but it's a true comment upon sort of why diversity matters. Well, you talked about per capita, and I know part of your mission is, and it addresses this point of brains equally distributed, but opportunity is not.

1:04:40Can you share examples of how you're leveling the playing field for underbanked communities? With all due respect to many great banks in this country that have great banking businesses and, you know, are trying to serve communities, the reality of it is that to the extent that a bank is a public company, people need, the people who run the bank need to drive up the share price. and they drive out the share price by driving up the return on capital. And the way you drive out the return on capital is you're either going to focus on acquiring more high margin clients who are typically wealthy or selling more high margin products to people who can afford those high margin products.

1:05:19And people who live paycheck to paycheck are just not going to drive up your return on capital. And so, you know, banks make an effort in many ways to serve underserved communities, but it's really hard. and we basically sort of imagined per capita as a full product financial services company that could deliver both banking and non-banking services. Really, we like to refer to ourselves more as a financial wellness company than a bank, and we're not a bank, you're a, you know, a meal bank. So we have bank services provided by our sponsor bank partner, in whose name the FDIC insurance exists. with that sort of legal detail that my lawyers would yell at me if I didn't say.

1:06:04But we serve these communities in ways that are built around a business model where we are not trying to optimize the profitability of each product that we sell or each transaction that we do. We're not asking ourselves what's the most we can get out of us. We're built around a financial model that says if we can provide broad range of comprehensive services to people and price it extremely fairly. The goal for us is if we can make consistently make a profit of$25 a year for a customer, then there's a huge market. It's over 100 million Americans who are working full-time for hourly wages and living paycheck to paycheck.

1:06:49And so the question will become, how would we attract those people? What's our cost of customer acquisition? How do we scale? Well, very, very fair questions for investors and us. But the fundamental thesis of we are keeping prices low because we're not trying to optimize the P &L around each product. We're trying to optimize around a business model around each consumer. And there's a huge addressable market. Then the challenge becomes, can we build that? Like, technically, can we build that in a very scalable way? And can we acquire those customers at a low enough cost, you know, to build a business that becomes vastly profitable?

1:07:25So we're not a not-for-profit. We are very much a mission company with values and principles and built around the idea of serving people well and really focus on income inequality as one of the really driving focuses of what we do. But we're for profit. But we think there's no conflict between the two. We think we can be a vastly profitable company if we get those two sets of things right, what we deliver and how we scale. And how do you see technology changing the way banking services reach and include underserved communities over, let's say, the next five to 10 years? First question is, how do you see AI changing everything over the next five?

1:08:02I mean, obviously, there's enormous change coming. And I wish I had the right crystal ball in sort of picking exactly how it's going to work. What we can do is recognize that AI is a critical part of what we're doing. and it's very critical into how we're implementing AI. But I'd step back from that and say that even before you ask that question, you could make an argument that just in the modern digital economy as it is, not going into the whole AI question, just in the modern digital economy, not having a fairly priced bank account at your disposal is a huge handicap. and that you know you could argue that um you know we already recognize a class of services in our country as utilities we don't let people you don't have to pay a fortune for their electric bill or their water bill and you could argue at some point people will say that basic banking services are just utility and uh i know that's heresy to a lot you know people um but uh you know if we're really if you if you really sort of take a leap forward and think about sort of how AI is going to change the world and how tightly integrated so many things are going to be, we can easily see a world where banking services are just one part of a very, very comprehensive bundle of wellness tools that let you live your life the way you want to live it based on your circumstances.

1:09:29And we have a vision for that, which I won't share here, but we have a vision for that that we think, again, we're doing the foundational work right now. it goes back to the whole hedge fund conversation. We're doing the foundational work right now to do the same thing that we have done in the hedge fund business, which is we need people to trust us. Why should people trust us? They've never heard of us. They don't know who we are. Why should they trust us? So this fundamental question of how do we embed ourselves into the lives of people, not by selling them something, but by actually meeting a need that they have.

1:10:04I'm really very serious about that. It's like, of course you can sign up for an account. You can open an account at Percapita by going on the app stores, you know, Google and Android, you download it, you can open an account in five minutes. That's great. We get people like direct to consumer who sign up and they sign up that way. But really, we're a B2B2C business primarily. And what we're trying to do is we're happy to sign up consumers, but we're really focused on how do we, having built a quite sophisticated financial services platform, how do we fit into serving the needs of organizations across the country who serve their constituents in one way or another.

1:10:42It could be an organization that's serving veterans. It could be an organization serving Native Americans. It could be an organization serving people who are in debt or people who are trying to just focus on raising their credit rating. It could be a university that needs to provide banking account services for their freshmen because their freshmen get financial aid, which includes work study, which includes the job, which means they need a bank account because they need to get paid from the work study program. So our B2B2C business is built around this idea that we are a great strategic partner with lots of product functionality that people can, you know, that organizations can refer to them as channel partners, that our channel partners can pick and choose from and deliver to their constituents.

1:11:25And so that's, I'm probably giving you more than you want to know about the business model, but that's, That's, you know, we think that is a pretty clear path if we can deliver it, if we're successful, if we can create that trust. Well, Alex, this has been a great discussion. I've enjoyed particularly the leadership conversation. I think it's really insightful and very thoughtful. So appreciate you spending some time with us. Thank you. My pleasure, Alex. Thanks for having me on. It's been a pleasure. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast.

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