How to Succeed in Business and Politics | Wilbur Ross (39th Secretary of Commerce)

0:00Look, as a manager of people, as an employer, as an entrepreneur, and as an investor in startups, I can tell you the most important thing for your business is the quality of the quality of people. you hire. The best part is that great candidates are already on LinkedIn. Employees hired through LinkedIn are 30 % more likely to stick around for at least a year compared to those hired through the leading competitor. And I will tell you that the great thing about LinkedIn is that you're not just looking at random people. You're able to see the people who your friends and trusted peers and colleagues who they trust and who they've hired in the past and who they recommend.

0:42And hiring doesn't have to be complicated. Realistically, when you have a business to run, you don't want to spend hours on hiring. You want to hire the right person as quickly as possible. That's why LinkedIn Jobs AI Assistant suggests immediately 25 great big candidates daily so you can invite them to apply and keep things moving. Hire right the first time. Post your job for free at linkedin.com slash altature. then promoted to use LinkedIn Jobs' new AI assistant, making it easier and faster to find the top candidates. That's LinkedIn.com slash Altachirk. Post your job for free. Terms and conditions apply.

1:25Wilbur Ross, the man, the myth, the legend. I'm going to be honest. In 1999, I remember I was playing a lot of poker at the Mayfair Poker Club in New York City. And there was a guy there who worked for Wilbur Ross. And Wilbur Ross was running huge private equity funds. He started his own private equity fund, W.L. Ross. And he had a very just solid, unique style of investing and building businesses. and I was a little jealous of this guy because I wanted to work for Wilbur Ross. And Wilbur Ross has just been a consistent feature in just building businesses decade after decade. And then more recently, he was Secretary of Commerce all four years of Trump's administration.

2:12He served the entire four years. And he just had a lot, he has a lot to say about building businesses and about what's going on with the economy and what he thinks about different policies. But he has a new book out called Risks and Returns about his 55-year career building businesses and being in the government. So I can't believe I spoke to him. Here he is, Wilbur Ross.

2:39This isn't your average business podcast and he's not your average host. This is the James Altucher Show.

2:56I really enjoyed the book quite a bit. You're a personal slice of history. Well, thank you very much. You must read a lot of books, so I'm grateful you like this one. This was so enjoyable because, A, I've been a follower of your career for so many decades, and B, just your insights into all the experiences you've been through, whether running W.L. Ross or your experiences in the coal industry, the banking industry, and then, of course, as Secretary of Commerce and so many other things. So it's been a fascinating ride you've been on. You found yourself at the center of history so many times. Yeah, I stumbled into a lot of things.

3:38I wanted to ask you, like, if you could describe specifically, I always wonder, what does the Secretary of Commerce actually do? Like, what do you have power over? And you describe this in the book, but just for our listeners. Sure. And commerce is a very large conglomerate of within the US government. We have everything from the Census Bureau to managing 16 space satellites, to the National Weather Service, to the Patent and Trademark Bureau, to the Bureau of Economic Analysis, to the National Institute of Science and Technology to minority development aid agencies. It just runs the whole gamut.

4:33And in fact, 40 % of all the factual material emitted by the federal government comes from commerce. A lot of those reports that come out 8.30 Wednesday morning or 8.30 Friday morning, a lot of those actually come from the Bureau of Economic Analysis in Commerce. And then on top of all that, you have the trade situation, both tariffs on imports and export controls on militarily sensitive products to keep them from going to potential enemies. So there's an awful lot of activity. It also, as part of all these activities, we manage the Office of Space Commerce, which is getting to be a very important activity and will be, I think, even more important as we go forward.

5:41By the way, I agree. Right now I'm in a hotel, as you might surmise, and I'm at Midland Spaceport in Texas. They're doing a ceremony here celebrating kind of the opening of this new spaceport. Sure, sure. Well, I attended the first real innovation that Elon Musk had contributed to space, and that was at the Kennedy Center in Florida a few years ago. he developed the idea of making reusable the aft section of the launch mechanism. And that's about 70 % of the cost. So I watched with amazement as the rocket got to about 40 ,000 feet, this part disengaged, landed within a 200-meter circle, nice upright, not destroyed.

6:42And it changed the whole economics of space launches because you can imagine that the most expensive component you can now use 10 times instead of one time. It's a remarkable cost saving. And bringing the cost of space down is clearly going to make it very accessible for multiple uses. You know, but it's interesting. You talk a lot in the book about or particularly during your tenure as Secretary of Commerce about the bureaucracy of government and often kind of the frustration of dealing with all the red tape and slowdowns. Is it possible for entrepreneurs and innovators, like let's say an Elon Musk, to really, you know, make the greatest innovations in an area so highly regulated?

7:35Like, will there be continual space innovations? Because this is a heavily regulated area. Well, a couple of answers to that. But President Trump, as you know, has announced he's thinking about this efficiency commission to try to help him rework federal government. And he's talking about Musk being very, very involved with that. I think it's a fascinating idea because if there's anybody who's filled with new ideas, new ways to do things more efficiently, and certainly one of the leaders is Elon Musk. I had the great pleasure of touring his factory out near the L.A. County Airport, and it's amazing.

8:28It looks more like a laboratory. Everybody in white, they have the little booties on, they have the hairnets on, and rockets obviously have a lot of welds to them, and it's very important that the welds hold, because if you have any kind of a slight blow through, it's going to ruin the whole thing. So he's developed a system where there are two devices that climb up and down inside and outside the rocket. One does the welding. The second one inspects it. And if there's a defect, it orders the first one to come back. It's a totally automated thing. And so he's been making these rockets with a lot less manpower than they had before.

9:22And between that and pushing for reusability of key parts, he literally has single-handedly changed the economics of rocketry. Now, what other industries do you think have seen similar innovations in recent years? Well, clearly, everything to do with computers, with software, artificial intelligence now is the new incredible frontier. And in fact, I had an interesting experiment with AI. Henry Kissinger's 100th birthday party was coming up about a year and a half ago. And he and Eric Schmidt had just put out a wonderful book about artificial intelligence. Very good book. Yeah. So I thought I would give a test to AI in connection with Henry's birthday.

10:25So I figured AI probably was not very much invented to do poetry. So I asked the AI to do a poem in honor of Henry's 100th birthday. So there was a pause, and then out came the statement, I'm not actually very good at poetry. So it came with a little jumbled thing that didn't amount to much. So five minutes later, because I wanted to see if it could learn, I asked the exact same question. This time, out came 10 lines of poetry. It wasn't really poetry, but at least the last word on the lines rhymes. So it was a progress. Five minutes after that, I asked them the same question. And now out came 30 lines of iambic pentameter.

11:25So in the space of 15 minutes, it went from probably never having been asked to make a poem to writing a poem on a very specific topic that worked pretty well. And that made an incredible impression on me. The idea that we had created a device, a system that was self-learning is a real eye-opener. You know, throughout your career and your career, as you mentioned in the book, it spans eight decades. Just even typing that must have made you pause. But throughout your career, it seems like, yes, there were parts that were difficult and hard, but it seems pretty straightforward. Like you worked really hard.

12:17As you mentioned several times, you overprepared for every single meeting you went to. and you seem to go from success to success. What would you say was kind of like your biggest failure along the way, like a point where you were actually worried about your future? Well, in my very first job after I got out of the military, it started out in a very tumultuous and very scary fashion. What happened was this. I had been in ROTC at Yale, and I got a deferment from active duty so I could go straight to Harvard Business School. So after the business school, I served in the military, and then I got extended in my term because of the Cuban Missile Crisis.

13:11So it delayed my advent at work, at civilian work. Now, my new employer was a go-go money manager called Emory DeVay, and he was perfectly willing to extend the job offer until I could finish military. But here's what happened that created the turmoil. Two weeks before I joined the firm, Emory died and on his deathbed sold the business to a very wealthy client of his called Robert Winthrop of the Massachusetts Winthrop family. So it suddenly became Winthrop DeVay. So I literally changed employer before I even showed up for work and certainly before I got a first paycheck. Well, a couple of weeks later, in came one of our major clients, Jack Dorrance, who then was the CEO of Campbell Soup.

14:16And between Jack and the pension fund, we had$3 billion under management from them. They were one of our larger accounts. So the lunch was very nice, but he was clearly trying to scope out what was the new group going to be like compared with the very successful performance that the former Demery DeVay had had. So at one point, he said to Mr. Winthrop, Bob, I see we have a lot of Lucky Friday silver mine stock in our accounts. Can you tell me why? Well, Mr. Winthrop was used to being the client, not to being put on the spot like that. So he turned to me and he said, Wilbur, do my accounts have Lucky Friday in them?

15:09And I said, yes, sir, all of our accounts do, because like most money managers, you try to have symmetry of your portfolio. So then I explained why we were keen on Lucky Friday. And Jack Dorrance said, well, thank you very much. I had enjoyed the lunch. The following Monday, he pulled the$3 billion out from under the firm. So later that week, Mr. Winfrey, who was then on the board of Citibank, was grousing to Dick Perkins, who then was the CEO of Citibank. And he was explaining about this problem that he had bought this firm. Perkins said, don't worry about it, Bob. Take a few million dollars.

16:00Buy out Sam Milbank. He's the big partner in a nice old line firm called Wood Struthers. They'll call it Wood Struthers and Winthrop, and you won't be put on the spot again. So he did. Two weeks later, we became Wood Struthers and Winthrop. So now I've changed jobs yet another time, and I haven't changed my seat. I've gotten one or two paychecks. That's about all. And this was a firm where I didn't know anyone of the new owning firm and had never applied for a job there. So it was a little scary. And so how did you make yourself stand out there? Well, yeah. What happened, and this is what I mean by there being an opportunity lurking inside a problem, Woodstruthers decided to disband the venture capital company that we had as one of our activities.

17:03So they fired the entire staff of it, made me a corporate officer, I think, largely because I was the newest and most expendable person. And they said, if within two years you can liquidate this company and do it without us having to put in any more capital, without any litigation, and without any bad press, we'll give you a big bonus. Well, that's where I learned how to deal with distressed companies because they ranged from some very successful ones that we sold for good prices to some pretty terrible ones that we had to keep alive until we could find some way to resolve them. So that's really what gave me the first background in doing distress.

18:01And so it went from being a terrifying experience with all these changes in ownership to being a God-given opportunity. I could have just quit because there were other firms that had been willing originally to hire me, but I thought, no, I'll play the handout. Let's see how this works. And it really set the groundwork for my later career.

18:35Take a quick break. If you like this episode, I'd really, really appreciate it. It means so much to me. Please share it with your friends and subscribe to the podcast. Email me at Alcatra at gmail.com and tell me why you subscribed. Thanks.

18:56Look, as a manager of people, as an employer, as an entrepreneur, and as even an investor in startups, I can tell you the most important thing for your business is the quality of the people you hire. The best part is that great candidates are already on LinkedIn. Employees hired through LinkedIn are 30 % more likely to stick around for at least a year compared to those hired through the leading competitor. And I will tell you that the great thing about LinkedIn is that you're not just looking at random people. You're able to see the people who your friends and trusted peers and colleagues, who they trust and who they've hired in the past and who they recommend.

19:39And hiring doesn't have to be complicated. Realistically, when you have a business to run, you don't want to spend hours on hiring. You want to hire the right person as quickly as possible. That's why LinkedIn Jobs AI Assistant suggests immediately 25 great fit candidates daily so you can invite them to apply and keep things moving. Hire right the first time. Post your job for free at linkedin.com slash Altature, then promote it to use LinkedIn Jobs' new AI assistant, making it easier and faster to find the top candidates. That's linkedin.com slash Altature. Post your job for free. Terms and conditions apply.

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21:00Strategies rooted in strength and backed by experience. Ask a financial professional how Pacific Life can help you today. Pacific Life Insurance Company, Omaha, Nebraska, and in New York. Pacific Life and Annuity, Phoenix, Arizona. When you were at Rothschild, company and you essentially bought out their venture arm and made WL Ross your, your, your venture group. And you focused on, on distressed and even struggling industries. You kind of had one pattern, which is to take an unloved industry, like let's say coal and buy up and put together all the distressed coal. This is a time when coal was not, you know, wasn't a hot industry, so to speak.

21:48It wasn't like tech or internet or anything like that. And you created maybe the largest coal company in the world. Maybe you did this for steel, you did this for coal, you did this for auto parts. Maybe describe this strategy and roll up concept. Why it's such a successful concept to create wealth? Well, several things. One, industries tend to go bad as industry, because there's usually some sort of cyclical factor or governmental factor that comes into play that creates the problem, or even just a recession. So it gives us time to figure out which industries are likely to go bad and to study them so that we can have a game plan for how would you succeed if we did buy something in that industry.

22:50So the start of it is pre-planning long before we make the investment. It's usually at least six months, sometimes 12 months between when we start to look at an industry and when we put money to work in it. Meanwhile, what we'll be doing is analyzing the individual companies. And what we've noticed over the years is that when companies have been in financial difficulty for quite a while, they develop a kind of loser's mentality. If you ask them what's wrong with your business, they'll always point to some external factor. They'll say it's the class action lawyers. They'll say it's the union. They'll say it's the government.

23:45They'll say it's import. They never talk about the things to do with their company that they have within their control and therefore can fix. So the first thing that happens is when you bring to that situation a different mentality, a different mindset, one that instead of moaning about things that you can't control, a new group that's dedicated to controlling the things that you can control. And it may be the last round of expansion went too far. Often it's that an acquisition wasn't properly researched and it went bad. And always it involves too much debt. Give me one dramatic example. There was a very well-known Canadian shopping center developer called Robert Campo.

24:47and he made a hostile bid for federated department stores, which then was a gigantic enterprise. He paid$6 billion for the equity, of which he borrowed 97%. So he had$30 million investment in a$6 billion deal. Well, when the recession came, he suddenly found out you do a lot better collecting rent than you do paying rent. So it went bad. But as it was going bad, so was Woodward and Lathrop. So were other chains. So that proves the two points. One, over-leveraged. And two, industries tend to go sour as industry. right and then sort of buying the kind of like if you if you erase the debt and let's say erase that last acquisition you know rework the debt that that made it you're able to buy these companies start fresh combine them get back-end synergies and ultimately bring them public again as bigger newer companies.

26:12Yeah, absolutely. That was the exact formula that we used. And if you do it carefully, it works pretty well because fixing the balance sheet is in many ways the easiest part because that's what our bankruptcy courts are set up to do. The American bankruptcy system is relatively unique in the world in that our system is organized to facilitate the conversion of debt to equity and the rehabilitation of a business. In most countries, the bankruptcy code effectively amounts to liquidation. So part of the background of why we could do it in the U.S. is our bankruptcy code is very well written. It's very effective, and it lets you take care of the worst of the problems.

27:19It doesn't fix the management. And in fact, that's a strange thing. I've found it's very hard to get the bankrupt company's board of directors to get rid of the CEO that bankrupted the company. You would think it would be the first thing they would think of because after all, God brought it into bankruptcy. But it doesn't work that way. And I think the reason it doesn't is that we think that boards pick CEOs. Well, in reality, especially with big companies, the CEOs end up picking the board. And the board members are always their golfing buddies or their sailing buddies or what have you. So there's a unique bond between a board and the CEO that makes it hard on an interpersonal basis to fire the guy.

28:23And I think that's one of the causes of the problem. I mean, you would think that the debt holders, like if you're going bankrupt, that means your debt holders are knocking at the door. You would think the debt holders would insist on and have the power to pick a new CEO. Well, they ultimately do. And usually we would be acting on behalf of or in concert with the debt holders. And there's one unique thing in bankruptcy. You can do what is called credit bidding, namely a bond. Take Burlington Mills, the textile company. Its bonds went down to around$0.25,$0.30. We bought up a lot of them. I became the chair of the Unsecured Creditors Committee.

29:15And Burlington was resuscitatable, and Warren Buffett realized that. So he made a cash bid for it. But we were able to bid for it using the bonds at par rather than at the 25 or 30 cents that we had paid. So obviously, we positioned ourselves to outbid Buffett. And so I ended up in the strange position of having to convince the bankruptcy judge that the bondholders preferred to take equity in the company rather than cash from Buffett. So it was a very unusual set of circumstances, and it would only happen because of the American bankruptcy system. It's interesting. You got so much exposure to so many industries through these many years of doing these types of situations, and you saw the ups and downs of each industry, that it was no wonder in 2017, Donald Trump, who was becoming president, asked you to be Secretary of Commerce.

30:27I mean, and it sounds like you weren't very surprised at this. Like when he made the call to you, it sounds like you weren't very surprised. No, I wasn't very surprised. I had known him for years because I and Carl Icahn were on the creditor side of the Trump Taj Mahal bankruptcy, the casino in Atlantic City. So I'd known him for 25 years at the time. And after that bankruptcy, he actually hired me to help him in some other matters. So I knew him pretty well. And the way it came to be that I got actively involved was one morning I was on Squawk Box. And at that point in time, which was before the primaries, most of Wall Street was anti-Trump.

31:22They were either Democrats or they're anti-Trump for that reason, or they were Republican and had some other candidates. So Squawk Box people asked me, well, if Trump is the nominee of the Republican Party, would you support him? And they were, I think, expecting me to say no. I said, well, yes, of course I would. Absolutely. So then I explained why. And my explanation was that he was the only one of the candidates, in my view, that understood how unhappy and how determined for change middle class and lower middle class Americans were. They were sick and tired of having been worked over losing purchasing power for the prior couple of decades.

32:18And I felt that was an enormous societal problem, and that since Trump was the only one who even recognized the problem, he was the only one who was likely to try to fix it. So after that announcement, I started writing editorials, mostly in regional newspapers, taking up regional issues and how would Trump deal with them and debating people from the left-leaning think tanks. So I got pretty structurally involved with the campaign. And therefore, it wasn't a total surprise when the phone call came. And so, you know, a lot of these issues now, of course, the same issues are rearing their head again in this election, which is coming up.

33:14And, you know, and you've been so involved. I'd like to ask you, you know, some questions relating to your from what you've learned as your experience as Secretary of Commerce under Trump. But first, I want to ask a basic question, because obviously you mentioned inflation is a critical issue for the middle class, lower middle class, and for everybody, really. This is a basic question, but everybody asks it, what does it mean when the government, quote unquote, prints money? What are they printing? How does that work? Well, how it works is they simply can issue bonds, and that takes money, that creates money.

33:59The Federal Reserve lends banks against their deposits, and then you have deposits. So as you have deficit spending, you literally are pumping cash into the economy. And one of the reasons, probably the major reason why we had the rampant inflation that we recently have had is that the government pumped too much money in. And when you pump in too much money, and especially if you give it to people who are unemployed, and therefore this is their income, and that's largely what was being done, what happens is you create demand. But since they're not working, you don't create any countervailing supply.