Peter Orszag

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0:32One of the most interesting and smartest people running an investment bank today is Peter Orszag. He previously served as head of the Congressional Budget Office, the Office of Management and Budget, and has a Ph.D. in economics from the London School of Economics. I sat down with him in his offices at Lazard Frere to talk about his career and also the future of investment banking as Lazard practices it. So you have been in the financial service world as an advisor for quite some time, but you also served in government. We'll talk about both aspects of your career. But right now, one of the things that has held back M &A, people say, is the regulatory environment in Washington.

1:07There hasn't been as much M &A activity as some people in the M &A advisory business, like Lazard, would like. Do you think it's the regulatory environment or do you think it's high interest rates? What has kept M &A from going forward at the pace that maybe some people think it should be going forward at? Well, let's start with what's driving it, the sort of the tailwind. So the biotech revolution, ongoing technology, I mean, we're seeing a revolution in generative AI, de-risking and changes in supply chains, and energy transition. I mean, there are some big building blocks that propel deal activity forward.

1:44And then on the headwinds, I think there have been a few. The rate at which interest rates went up meant that there was a disconnect between buyers and sellers on the value of assets. It also meant that financing was challenging. The financing markets were a little bit more illiquid. And then, yes, regulatory. But all three of those headwinds have been abating, first, as interest rates have topped out, and now we're debating how quickly they'll come down. And then, secondly, on the regulatory front, the government has lost some important cases in court. And what that has meant, in turn, is that many more boards and C-suites are willing to say, you know what, we'll see you in court, we'll litigate.

2:26JOHN YANG, CEO, The M &A World of Financial Services World, they may not know about Lazard. Tell us about the brothers that started Lazard. How did they convert themselves from dry goods sellers to financial experts? DAVID BROOKS, So the story of Lazard, we're 176 years old. We began in New Orleans. Three French brothers started a dry goods store, like many other firms. And this is documented in a great book called The Money Kings. So the Seligmans, the Schiffs and others follow the gold rush out to California, realize that lending gold to your customers and or shipping the gold back to their home countries and then lending on credit to your customers was more attractive than selling the suits and the other dry goods.

3:13Moved back to New York to set up a bank and then had correspondent banks in our case in Paris and London. And the rest is history. So it is, and I would say out of all those firms that started that way, we're the only ones still standing. Lazard today manages money. You have an asset management business, and you have an M &A advisory business. Is that right? Yes. And you're a leader in M &A advisory. Tell me, when CEOs want to do deals, why do they need an advisor? Because if they're smart CEOs, can't they get together without an advisor? What does an advisor really do for smart CEOs when they want to do an acquisition or a merger?

3:49Well, I think there are several things. I mean, Lazard bankers are known as bankers with conviction. So a lot of content, a lot of backbone in terms of saying, no, I don't actually think that's a good idea. So you know, you've been in many of these positions. It is very helpful to have well-informed, smart people who are willing to push back, suggest this versus that, etc. I think the role of an advisor is not just the narrow, you know, what's this thing worth, but do you really want to do this? What's the regulatory implications? How is this going to play from an investor relations and a PR perspective?

4:27It's the multi-dimensionality and having a thought partner or someone whose counsel you could benefit from. That's one part. The second part is in many negotiations, it's helpful to have an intermediary. It's why often you don't want to be your own lawyer and so I think that's the second part of the advisory role. So when you call a CEO of a fortune 50 company I assume you can get a meeting with that person it's not that hard so we always have an idea saying this is a good thing that you might consider doing or they come to ideas to you they bring them to you. It works both ways but what I like to do with CEOs is to have a broader discussion both about the world and and then about what their objectives are.

5:15And there's, we present ideas, and then sometimes people will say, I'm thinking about this. Could you work on this with us? JOHN YANG, CEO, The M &A Advisory Business, you're competing against people that have or organizations have large balance sheets. So if somebody wants to do a deal, they might say to J.P. Morgan, can you be my advisor, but can you also lend me money to do the deal? And the same is true with Morgan Stanley and Goldman Sachs. You don't use your balance sheet for that purpose. You just use your brainpower to kind of say it's a good deal or not a good deal. Is that a competitive disadvantage or a competitive advantage?

5:48I think it's a, well, let the market speak. What's happened over the past 15 or 20 years is massive share that went to independent advisory firms like ours that don't use their balance sheets to provide the advice, or that only provide the advice and don't use their balance sheets. And I think to win in that kind of environment, you need to have differentiated content, great ideas, insight into the players, an ability to read between the lines on the regulatory and other developments, and also deep relationships. You need to be both trusted and discreet. So you became the CEO in October of 23.

6:27Yep. And I think shortly thereafter you said you wanted to double revenues. Is that? I actually said that right before I took over. Right before. Okay. So you want to double revenues by 2030. Correct. Is that right? So is that realistic? Are you on the path to do that? We're ahead of schedule on accomplishing that. And I think that really reflects the power of Lazard's standing in the world, our brand. And what we needed to do is just up our ambition and increase, from a cultural perspective, our focus on working together. And we're doing it. And so you're seeing that in the results. I mentioned a record first half.

7:06We're really excited about the people that we're bringing on. And we're really excited about, most importantly, about what we're able to do on behalf of our clients. Now, you have a unit here. I guess it's called a geopolitical advisory unit. Do clients pay for that? And are they happy to get that and pay for it? Or do you kind of give it as a service? And do people really care about geopolitical events when they're doing M &A deals? Absolutely. So, I mean, in today's world, let's step back. What's happened over the past three or four decades is we've moved from an environment in which the oil and gas companies that always operated globally and needed to have geopolitical insight and maybe a few others had to take geopolitical considerations into account to a situation today in which pretty much every important business decision that is made has to take geopolitical issues into account or else you're going to go wrong.

7:57It's a fundamental business need. And Lazard has always been known as a banker plus, so people that had the ability to provide insight into not only what the other CEO was thinking, but what the prime minister was thinking or the president. So these are people who cross those boundaries between business and government. So Lazard was always known as having that skill set. And we thought we could professionalize it by bringing in people who have done that for a living in different settings. So the short answer is it's very much part of Lazard's DNA. We now have a unit that's dedicated to it in addition to just the bankers.

8:39And it is a revenue-generating activity. But it's also something that is a great entree into boardrooms and C-suites for our bankers also. So this has been a resounding success. What is the biggest geopolitical risk that you think now faces the world and certainly the United States? I think the fact of the matter is the biggest risk is that the world is changing. We don't yet have an intellectual framework that matches this new reality. So we have a splintering that's occurring between the major blocks of the U.S. and Europe on the one hand, China, Russia, and others on the other, and then some countries that are in between the two.

9:18And we have not adapted to that new world quite yet. Beyond that, there are flashpoints. There are two hot wars going on in Europe and the Middle East with unclear trajectories on both. So there's obviously elevated risk even before you get to the traditional, will China invade Taiwan and other things that people often talk about. Many people who are running investment banks come from Wall Street their whole career. You've been in government. Is there an advantage or a disadvantage in having served in government when you're doing the job you currently have? I view it as a significant advantage.

9:52And the reason is that it brings a perspective, having served in government, that is useful in lots of different settings. And it's that multidimensionality, the ability to stitch together pieces from different worlds that I think is very helpful. The other advantage that it gives, I believe, is that I have a lot of respect and admiration for our senior bankers at Lazard. And so I view it as my job to do part of the work, but then to hand things off to our senior bankers. And I think people who have spent their entire careers doing one thing, the natural inclination is to then go do it yourself.

10:33And then the problem becomes that you're not providing enough upward movement and ability to grow to the senior people. So this is a fantastic job, but I think I'm I hope and I believe that I'm better at it because of what I've done before. These days, AI can help you write emails, summarize long meetings and even create presentations that impress your most demanding customer. But how about industrial AI that uses data and simulation to boost productivity on the shop floor? AI tools that help you understand machine language. AI that helps you grow your business. With Siemens Accelerator, you can use AI services, software, and consulting from a single trusted digital business platform.

11:17Plus, you can find the right AI partner without having to search through hundreds of providers. That's AI for real from the global market leader in industrial AI. Siemens Accelerator. Learn more at Siemens.us slash accelerator. Let's talk about your own background as opposed to Lazard's background. So where were you born? I was born in Lexington, Massachusetts, outside of Boston. And what did your parents do? My dad was a MIT math professor at the time, and he also ran a consulting firm that my mother managed. So if your father is teaching math at MIT, I presume you're pretty good at math. Not by his standards.

11:57Oh. No, but I was okay. But you were good. I was okay, yes. Did you get 800 in your math SAT? I did very well in my math SAT, yes. So you chose not to go to MIT or another school up there called Harvard, but you went to Princeton. I did. And you got a PhD at the London School of Economics? That's correct, yeah. Okay, so when you got your PhD, what did you decide to do with a PhD in economics? You want to go teach, or what did you do when you came back to the States with your PhD? Well, actually, I had, in the meanwhile, in the middle of graduate school, and I think it reflects the fact that I clearly did not yearn to be a pure academic, I had spent a year, not quite a year, but a year in Moscow with a team of advisors to the government there.

12:36And then when President Clinton was elected, one of my undergraduate professors, Alan Blinder, called me up and said, isn't it kind of cold in Moscow? Would you like to come join the new Clinton administration at the Council of Economic Advisors, which I did? And how long were you in the Clinton administration? I did a couple stints. So I did a couple years. I went back and quickly finished my PhD. I went back in for about a year or two. So it must have been cumulatively maybe four or five years. In the Clinton administration, you eventually left and you went to Brookings. Is that true? So I left the Clinton administration.

13:10I then have the shortest tenure of anyone who voluntarily left McKinsey. I went to McKinsey in San Francisco. After three weeks, I decided that was not for me. My younger brother and I then founded an economic consulting firm, which subsequently grew. I taught at Berkeley. I then moved to Brookings in 2001. So eventually the Congressional Budget Office people called you and said, can you come up and run the Congressional Budget Office? The Congressional Budget Office was set up under the Budget Act of 1974. Correct. Since the Budget Act of 1974, deficits have been going this way. Budgets have been going with not balanced.

13:48Was the Budget Act a good idea because we were doing pretty well without it? Well, first, it didn't. This is having quite good. They went up, down, and now they're back up. But I think what the Budget Act did is it gave Congress better tools. But ultimately, these decisions are not going to be up to an agency like the Congressional Budget Office. They're up to our elected representatives. So I view the Congressional Budget Office as empowering the legislature to make decisions. but those decisions are not, you know, they're driven by other factors too. Okay, so you're doing that for a number of years, and then President Obama is elected, and he asks you to be the head of the Office of Management Budget.

14:29So for those who aren't familiar with that, what does that office do? So that's slightly different. It sounds similar to the Congressional Budget Office, but think of the Congressional Budget Office as an independent entity who's really analytical and whose job it is to evaluate the costs and implications of legislation, and then to testify on those to Congress. The Office of Management and Budget does some of that, but it also implements the president's policies. Think of it as like a COO-type role for a lot of the government. So the role is complex because you're a member of the cabinet, but also a member of the White House staff effectively, and the organization is partly analytical but also quite operational.

15:13So it's an unusual organization. When I worked in the Carter administration, there were two budget directors. The first one was Burt Lance, and he was a very good friend of Jimmy Carter's. And sometimes he would sit in the cabinet room where we're going through budget appeals, and he would say, Mr. President, that's OMB's position. Let me tell you my view. I never did that. You never did that. No. So before the administration was over, you decided to get it back into the private sector, and you left OMB to go to Citicorp. And can you explain why you go to Citicorp, a nice bank and everything, but how did you happen to pick Citicorp as a place to go to?

15:48Well, actually, I spent a little bit of time at the Council on Foreign Relations, which you know well, just to figure out what I wanted to do next. I was about to sign with one of Lazard's actually competitors when I got a call from Citi, which I had not really been considering. And the argument was, which I found some merit in, you've done other things, including consulting, et cetera, but you've never done banking. If you go to this other firm, you're only doing M &A. If you come to us, we've got 10 different things you could try. If you're bad at all of them, that's your fault. And why don't you kind of get trained and get experience across a variety of things and see what you really like?

16:31And that logic made sense to me. So you eventually went to Lazard about, I think, 2016? 16, yes. So how did you rise up to be the CEO in a relatively short period of time? Were you really good at M &A advisory? And to be good at M &A advisory, do you have to come up with ideas that clients want, or do you have to kind of just execute the things that they say they want to do? All of the above on M &A advisory. And with regard to my role at Lazard, I think Lazard is a special place. It's a place that has always valued people that are useful to their colleagues. So when I came here, my whole goal was, how can I be useful to you?

17:10You banker in industrials, you the banker in health care, you the banker in technology. And that's what I tried to do. So let's suppose the next president of the United States is a Democrat, and you've served in two Democratic administrations, the Clinton administration, the Obama administration. Suppose the next president is President Harris, and she calls you up and says, I need a secretary of treasury who knows Wall Street, also knows Washington. You're one of the few people who have worked in Wall Street and also worked in Washington. What would you say if she offered you that job? DAVID BROOKS, President, I think, with regard to the question of returning to government, there's neither supply nor demand.

17:45So I don't think your hypothetical is going to happen. But, more importantly, I'm really excited about what we're doing here at Lazard. We have got a lot of momentum. And Lazard is a special place. It's an important place. And I have vision of what we'd like to accomplish here that I'd like to see through. So I'll take that that you're not interested in being Secretary of the Treasury for the time being. I have a great unbelievably great job. Is ESG seen its high watermark in the United States and there's a pushback against it? And do you see clients not as interested in pursuing ESG as before?

18:21I think there's a big difference between the United States and Europe where there are There are probably the pendulum is swinging back more in the United States, including among investors, than is the case in Europe on some of these topics. And again, what we're trying to do at Lazard is see through that and kind of have an underlying North Star in terms of where we're going. Another acronym is DEI, which is a lot of pushback. So, for example, do you try to get women, African-American, Latino investment bankers here? Is it hard to do? The new investment banking is largely still a male-dominated profession, I assume.

18:58Is that fair to say? MARK SHIELDS, CEO, More diverse teams produce better outcomes when the problems are not routine. So, when you're dealing with a novel issue, something that's different, out of people's wheel boxes, having multiple different perspectives, where people are coming at it from different angles, produces better outcomes. That's the only kind of scenario where Lazard is getting hired. And so, from our perspective, having more diverse teams produces... It's not just better work environment and a more interesting dynamic and the ability to tap untapped labor pools of people that are highly talented, but also the thought that we're going to be better on behalf of our clients as a result.

19:36What's the difference between advising a president of the United States and advising a CEO? Do you ever say to a CEO, look, I've advised presidents and you're not a president, but I'll give you my advice, or you don't mention that you've been an advisor to presidents? I think perhaps the most important thing in providing good advice to either a president or a CEO is first do your homework. Don't, you know, it is too easy to make things up. That never works. And the second thing is to have conviction. The number of times I've seen people who say, I'm going to tell the president, you know, put him in his place or put maybe her in her place.

20:12And then they get into the Oval Office and they say, uh. And one episode really sticks out in my mind on this front, and it's something I try to remember in this job, and it's something that I definitely remember when I was in Washington, which is I was in my mid-20s, and I happened to be in the Oval Office, which, as you know, in your mid-20s is quite a thrill. And there was a discussion with Bob Rubin and President Clinton. President Clinton said something like, well, we're going to go out and say X, and, Bob, you'll give this speech and and all there are a lot of people nodding their head yes like yes mr.

20:48president and Bob said something like well that's terrific mr. president we only have one problem I can't give that speech and president kind of looks up at him quite stunned and said well why not and he said because I don't think it's true and it was a moment when I he did it in a way that wasn't offensive it sort of but he had backbone he had conviction and I think And that is what many CEOs, that's what many presidents either should want or do want in an advisor. You have a point of view, you're respectful, but you're not just riding the wave of what everyone else is saying. WILLIAM BRANGHAM, So your goal for Lazard is to grow the revenue and to keep it as an independent publicly traded company.

21:30Is there an advantage to being a publicly traded company in the business you do? Because some of your competitors are not publicly traded. I think the goal is to make Lazard far and away, I already think it's the best place to work on Wall Street, but far and away the preeminent both financial advisory and in the part of asset management that we do firm. And you could do that either as a public company or a private company. As you mentioned, some of our competitors are public, some are private. So I don't really view that as the key determinant. Instead, it is about that ambition to win. It's about conviction and about the content.

22:11So today, if somebody says, I want to work at one of these kind of firms, a small, not J.P. Morgan-sized organization, I want to use the skills that I developed to work at a place like Lazard, how does one get hired here? If you're in college or business school, what are you looking for when you hire somebody? Well, I talk a lot about succeeding at Lazard and our people being commercial and collegial. So what do I mean by that? Commercial, the ability to go out and act on behalf of our clients effectively, collegial in terms of being able to work together as a team in delivering the best possible outcomes for our clients.

22:46But beyond that, I think the attributes that we look for and that I seek out in our colleagues, it would be curiosity. You've talked a lot about that. Resilience and a work ethic and the ability to have conviction around your ideas so that you're not just going with the conventional wisdom and playing five-year-old soccer. Young investment bankers have often said work 80 hours a week, 90 hours a week. Why do they do that? Why can't they work 9 to 5 and not come in on weekends and just say, look, I got to have a balanced life, and I'm just not going to come in at night or on weekends. Why don't they do that?

23:22TEDDY ROZEVILLET, CEO, The Greatest Gift in Life is the Opportunity to Do Work Worth Doing. So I think the point here is there are many professions where you can't get around the effort part of it. But what I think our firm requires or owes our people who are putting in that effort is three things. The first is the opportunity I talk about practicing at the top of your license to run as far and as fast as you can. One of the exciting things, for example, about being in government at a relatively young age is you have this sense that, oh, my goodness, I'm this age and I'm doing that. And to create that same sense of excitement for people entering financial services, I think, is a characteristic of Lazard, and it's very important.

24:09So that's part one. Part two is, even if you're working hard, you need to have some degree of agency and the ability to, if something else is important in your life, to take time off, to go do that. It's one of the reasons why here in New York, for example, we still have three days a week in the office and two days remote because it eases those tradeoffs for many people. And then the third really important part of this compact is the feeling that you're part of something, you're working on important things. It's not just make work. And I think if you put all of those elements together, there are many, many people who would rather work, you know, whatever number of hours per week on interesting, important things rather than fewer hours on things that are not that interesting.

25:01And that's what we're looking for. That's the trade-off. Thanks for listening. To hear more of my interviews, you can subscribe and download my podcast on Spotify, Apple, or wherever you listen.

25:20Thank you.