Ethics in the Financial World

Alexander: I’ll just give a comparison. I don’t mean this to bash on Wharton, but it was my experience at Wharton. So my ethics class — and every business school will have one ethics and leadership class. It’s just what you do. You want to be able to say you’ve taught that, just like we talked about all the other general classes you take your first year.

And the first day of the class, our professor had been teaching it for 40 years. And you’ve got about 80 or 90 students chatting away in a room, having a good time. The professor walks in, walks down to the main stage area up in the front, throws down this giant manila folders, makes a loud thud. So, of course, all the students stop, turn, and they try to see what’s going on. Points at the folder and he said, “These are all of my students from Wharton over the last 40 years who have gone to jail.”

Paul: Wow.

Alexander: Now you could argue, okay, Wharton is the first or second biggest. Between HBS and Wharton, there are a huge number of alums who come through that. This is the elite capitalism, probably people pushing the barriers. You know, Michael Milken went to jail, for example. So all sorts of things happened, but it’s indicative that our class, we envisioned just have a manila folder with nothing in it saying we would prefer to stay way behind the line. And that’s the approach that we want to teach our students.

Paul: Is that possible in 21 century finance?

Alexander: Well, the rules change all the time. So I think some people will accidentally footfall over them unintentionally.

Paul: Sure. I’m not talking about that. I’m talking about is it possible to have the billion-dollar-level companies — Fortune 100 — without that line being crossed? I think by individuals, it is. But collectively, does the whole, the finance person that the finance entity cross that line? Or is it possible?

Alexander: I don’t think you have to cross the line. You might say, to make the most profit, you’d have to cross the line, but that’s when you get into thinking about who are your different classes of people that you’re trying to satisfy. If you’re only worried about your shareholders, they would mostly care about maximizing profits. Now you could argue avoid lawsuits and leaving some money on the table, maybe that’s better for the long term. Goldman Sachs used to have the term “long-term greedy,” which they don’t use anymore, the assumption being you wouldn’t want to take all the money from your clients so they continue doing good over time, and they’ll pay you a lot more.

There are some finance companies out there who are very intentional about we would rather not take some business because it crosses an ethical line for us. Social impact investing is a good example. People talk about not investing in sin stocks. But the reality is sin stocks make a lot of money, so maybe you’re leaving money on the table by not investing in them.

So you can set your own limits and set your own boundaries. How you then manage your employees to stay within those is an interesting challenge in a place like JPMorgan where you’re talking about quarter of a million people, one of the hugest organizations. That’s a hard thing to manage.

Paul: That’s what I’m wondering. Exactly. How do you police that? I’m wondering about the challenges of if you come into a situation where you want to behave ethically, and you may indeed do that, but others around you maybe two a wall away — so you don’t even see them — are behaving unethically. So there’s these tensions because it’s not in their nature, necessarily. It’s not in anybody’s nature to behave ethically. It might be nice. But I’m just wondering how as a society… Obviously, if more people took a finance course at an organization that maybe taught a little more ethics than saying “Here’s all the people that have gone to jail,” to sort of “Here’s how to avoid jail” as opposed to “Here’s how to do it right.” What are your thoughts?

Ethics: Different People Have Different Standards

Alexander: Well, first, I’ll deviate. Just a quick story.

So if you have to go find an accountant. How do you find the right one? Have you ever heard this?

Paul: No.

Alexander: So you go and interview the person. You say, “What is two plus one?”

And he says, “Three.”

“You’re very smart. Thank you. Let yourself out.”

You interview the second person. “What is two plus one?”

And he says, “Four.”

And you say, “You’re not very smart. Please let yourself out.”

You ask the third guy, “What is two plus one?”

He says, “What do you want it to be?”

So, everyone sets their own line and their own standard. And I know that you can’t police a whole organization. So at JPMorgan, we were setting up standards. We were setting up processes and protocol. The point was we were trying to catch the bad actors. You cannot guarantee there will be no bad actors. There are always people looking to push it because they have different standards. They have different ethical approaches; however you want to think about it.

What you can try to do it is I tend to think of it as we’re working at a micro level. And that micro level can grow and over time can become a macro level. The way we think about it is we want to put our graduates out with a certain perspective that in five or ten years, it would be successful for me to see that they have been getting promoted, that they are mentoring others. That sphere of influence is growing and changing. And you hopefully make a movement out of it. And that’s a long-term situation. I don’t think there’s a quick fix to it, but at the end of the day, I can’t control what the person is doing next to me. If I have my own personal rules and standards, I have to accept that there’s going to be cost implications. So I might get a lower bonus. I might not get promoted.

For example, JPMorgan has a reputation for being one of the better and easier places to work on Wall Street, but it is not easy. And there are a lot of terrible behaviors that go on that are allowed and even condoned by senior management. One of the things I talk about at Gordon College, people asked me, “How’s it going?”

I said, every day… “Some days I feel like I’m walking on clouds.”

“Why?”

“I never see anybody get yelled at.”

“What do you mean?”

People yelled out at JPMorgan all the time, every day. That’s the kind of culture you work in. You accept that maybe because of the high payoff, whatever it might be. But you asked me a bit before, what drives it. Well, the other part about being here is just the different attitudes and perspectives.

Compliance in the Finance World

Paul: Interesting. So would you say that there’s this huge focus on compliance over the past 10 years and it’s growing exponentially. Is that a sort of fallout of a lack of ethics over the past 50 years or 40 years? But I mean, 40 years ago, if you said you had to write a rule compliance book that said you’re going to say what you do and do what you say, people would have looked at you like “What, are you crazy? Of course it’s obvious that we would do that.”

So where are we now where we have to write down the fact that when the baby is crying, I’m going to go and get them a bottle. Or when the baby is running towards the hot stove, I’m going to stop them.

Alexander: Let’s put it in context of… A lot of these rules and regulations were designed internally to make regulators happy. Some of the rules were written externally by the government and imposed upon, and then the companies have to figure out how to implement them.

So if we look back over time — go back 100 years when Glass Steagall was implement, and they separated commercial banking from investment banking. That document produced by the government is something like 10 pages long. And if you look at the Dodd Frank Act when it came out, you’re talking thousands of pages long. I mean, literally, from the floor to the ceiling in this room. And no one knows what it means. It wasn’t even finished. No one can interpret it. There’s so much in and against each other within that document. So there’s a lot of finger pointing that goes on. There’s no clarity even for companies within themselves. So you’re talking about a big entity like a JPMorgan — “Well, how do we implement all that for ourselves? How do we make that work? How do we change a culture?” And that’s a battleship that doesn’t turn on a dime anyway.

All that’s the say that, imagine there’s an entrepreneur starting a business from scratch. And when it’s just you, it’s your own ethics and your own standards. That’s the way it works. As soon as you hire one person, well, you’re either going to impose what you want upon them because they work for you, you’re going to negotiate together, or somewhere in between. You’re a success when you grow to 10 people, you grow to 100 people. You’re going to manage that in a very different way now. And eventually, you’re so divorced that, you’ve got a big enough company, you’ve got 500 people, you don’t meet the people when they’re getting hired. You don’t talk to them. You don’t see them. How do they live the values that you wanted your company to have? That’s not easy.

Paul: Right. So it’s not easy. But do we have the responsibility to do it?

Alexander: I would assume, as someone… Let’s pretend it’s your name on the door, and you’re building a company for the long term, for the betterment of society. You can do well while doing good is my theory — maybe not as well as you might do in other situations. But hopefully there are reasons that you’re doing well, and maybe you’re giving some of it away, whatever it might be. Your job, your pride is on the line every day. That’s your name. But I don’t know that every employee always thinks of that. Because some of them are just getting a paycheck, working from 9-5 to support their family. Others might be buying time till they do something else that’s a better job. How do you win over the hearts and minds to have people doing what you would like them to do? I think that’s something companies wrestle with every day, and there’s no easy answer to it.

Paul: Oh, bummer. I was hoping you’d give us an easy answer. Oh, yeah, just check this box, and it’s done. Not to be too flip, but it is the challenge. And the system is, systemitization… Is that, is that the right word?

Alexander: Systematize.

People Are Important: Why Every Hire Matters

Paul: Systematizing of all of these aspects, not just what the business does but how it thinks about what it does and how it promotes what it does and how it promotes the people. You know, the people aspect of what it does and making sure that we’re not just about bottom line — at least that’s how I want to run by business. Is what’s the most important thing here — the people.

Alexander: I think you’ve hit upon what I would answer it as. I think it’s all about the individuals. So let’s take Southwest as a classic example. Everybody wants to be Southwest, and their CEO will let any company come in at any time and benchmark them. He said, “You can see whatever our processes are. I don’t care, because you can’t duplicate our people.”

You only get hired at Southwest through referral. That’s the only way you can get hired. So they have worked really hard. Think about when you go fly with Southwest versus other airlines. They’re generally a little bit nicer, generally a little bit happier, and they’re genuine, actually.

So what will happen is the flight attendants are staying overnight in some city, and they’ll go out to Applebee’s for dinner, and they really like the server or the hostess. And they’ll say, “Hey, could we give you an application? We’d love for you to apply.”

Paul: Interesting.

Alexander: That’s the way they hire. Think about it in the same way of “I’m a manager, and I get to hire for my micro team.” My boss might have a very different personality from me. We might want to hire different types of people. I want to bring my own culture and my own values. And I think that’s the way a lot of companies work. So if you think about how do I bring it forward, it is all about the people.

My favorite business book — I don’t know if you’ve read it — is called Good to Great.

Paul: Yeah.

Alexander: Okay. I love the analogy of you will get the right people on the bus — which is your business — and only once they’re on the bus do you figure out where the bus is going, what direction it goes and then we figure out what seat to put them in.

I always thought, well, you hire the CFO, and that’s where you’re going to do. There’s a story in the book where the COO is holding down both COO and CFO roles. He’s trying desperately to hire a CFO. And the CEO walks down the hallway, sees him, says, “How are you doing on the hiring?”

He said, “You know, I found someone today. I think they’re going to be okay. I think they’ll be good enough.”

The CEO turned on a dime, and he said, “That is not good enough. We will do whatever we have to do to find the right person, knowing that hire is critical, especially at a senior role.” But think about even at a small company, your company here. If you hire someone who maybe is the opposite culture from everybody else come in, and it — cancer is a big extreme — but really could change everything dramatically. Every hire is crucial.

And I think there are so many people out there that are willing to hire someone to check a box and said, “Okay, Ted, ever done this job before. We’ll just hire you. We’ll put you in there, and then I can move on with my life.”

As a manager, I feel like my job is to know my people so that they feel trusted and valued so that they’re ready to give, get feedback when I need to give it to them, and you can grow and develop them. I feel like that’s part of my job, is to share with people to grow and develop for their own careers, no matter however long they’re in my role.

Find the Right Person

Paul: Yeah. I think one of the biggest things that I’m learning lately is how much I have to change and learn to change in the things I’m doing. And more of the attitude “I’ll hire really great people, and I’ll have them do things.” But I really need to learn and understand things in a way that I might have been vacating a little bit too easily. So as you’re developing this business, there’s going to be things that you didn’t know how to do, and it would be really tempting to go off and say, “Oh, I just find somebody that can do that,” but you really need to understand it and own it and then find the right people to do it.

Alexander: And I think this comes back to what we talked about earlier, about that board of advisors. So if you have people in your camp that have been there and done it before. I think about entrepreneurs. These are people that got the scars and have the t-shirt to prove it. Right? Someone who can help me learn now. As an entrepreneur, I always feel like I’m going to fail. And “fail” might be an extreme way to say “I’m going to fall down. I’m going to get hurt.” But as long as I fall forward, I made progress. Or as long as I keep getting up, I’m making progress. That’s a successful entrepreneur — a person who keeps getting up enough times.

But again, like my first job, I don’t have to do this on my own. There are a lot of people. I can read books; I can listen to great podcasts; I can have people in my corner to bounce ideas off of. For me, it’s thinking, none of this is easy. Like we were just talking about, how do you get people around you to help you? Either they have the same values or some people who don’t, to challenge you and say, “Is that really that important? Do you need to do that?”

A Different Kind of Entrepreneur

Paul: Right. Cool. So we’ve been talking with Alexander: Lowry of Gordon College. And I’m not going to try and say it but the executive director…

Alexander: Of the Master of Science and Financial Analysis.

Paul: Financial analysis.

Alexander: Rolls off the tongue.

Paul: You’re going to shorten that. Five years from now, you’re going to have a different title. It’s going to be shorter. That’s one of those discoveries during the marketing of it. So we’ve covered quite a bit. Is there anything you’d want to touch on that we haven’t covered?

Alexander: You know, I would say that, for someone thinking about being an entrepreneur, there are different ways to go about it. And I think in these day and age, people think startup, sexy. “I’m going to build a unicorn and get a billion dollars.” That’s well and cool. It’s very hard to do. Most people don’t get there. But even a different approach…

So you were talking about me as an entrepreneur today. I don’t know that everyone would see that because you can do it in — I’m going to call it — a risk-averse way. So I am, by definition, my risk tolerance, especially now that I’m a father, has changed from what it used to be. But this is a new business, but it’s a business with support. Right? So I’ve got an established name behind me. I’ve got a good brand. I’ve got resources, as opposed to me walking on the street, hanging up a shingle, and starting something from scratch. So people can go about it in very different ways. Maybe their tolerance changes over their life. Maybe as they’ve learned and tried dig things, their approach is different, or whether you have the right partners with you or not for support. So there’s no one way to be an entrepreneur. And I would just encourage people. It’s like find what works for you. What’s your way?

All Over the World

Paul: Excellent. Okay. So now this won’t be aired for some time. So this will be after the Bob Doll event and maybe even after the next one. What’s after Bob? Do you have another one planned?

Alexander: So July 19th is Wai-Kwong Seck, who is the CEO of State Street, Asia. And he was also the CFO of Singapore Stock Exchange. July 19.

Paul: Okay, so really a low performer. Really hasn’t done anything in his life.

Alexander: And then October 10th, we have Peter Greer, is the CEO of Hope International, and they do micro-loans. So microfinance, which we thought would be just a different perspective on the market.

Paul: Alright. And so we’ve got people listening all over the world. I mean, this is crazy that this little podcast, lots of people listen to it — thousands and thousands. Tens and tens as somebody… I forget who says that. I forget. Anyway, there’s a podcast that tens and tens of people are listening to this. Oh, it’s Jeremy Clarkson.

Alexander: Oh, I like it.

Finance MBA at Gordon: Better, Faster, Affordable

Paul: Yeah, on Top Gear. Tens and tens of people are listening in. You have an opportunity for undergrads to consider getting into finance, and they’ve got a cheaper way to do it by coming to Gordon.

Alexander: Better, faster, more affordable is how I would say it.

Paul: Better, faster, more affordable. Yeah, and it’s substantially shorter. I mean, it’s half the time, and like a third of the, a quarter of the price? That’s a big deal. I mean, we’re not talking a dollar here. We’re talking 30,000 compared to 150,000. And then you’ve got professionals, both companies could offer this to their employees. Or, if you work in a company that has tuition reimbursement, this is a great opportunity to get it done in a year. And you guys, as one of your people said, it’s a reverse commute, so it’s a lot easier to commute up to Wenham as opposed to going into Boston. I mean, just that time and that stress would probably make it easier.

So, you’re going to have your first or second class? When are the classes?

Alexander: We’re starting our second cohort with the autumn semester.

Paul: Autumn semester. So when does that start?

Alexander: August 30th — very end of August.

Paul: Okay. Alright. Cool. So if you’re interested in that and definitely check that out at Gordon.edu.

Alexander: Slash grad finance.

Paul: Slash grad finance. See that’s what you’re going to called. Grad, graduate finance. That’s what it’s going to be. Guarantee it.

Alexander: A bit easier.

Closing

Paul: Alright. Well, any other final parting comments?

Alexander: It was a pleasure. Thank you for your time today, Paul. Enjoyed it.

Paul: Alright. Well, thank you for coming in.

More Episodes:

This is Part 3 of our interview with Alexander Lowry. If you missed Part 1 “Masters of Science & Financial Analysis,” you can listen to it here!
Find part 2 of the podcast, “Creating the New MBA Program at Gordon College,” here!

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Ethics in the Financial World

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Ethics in the Finance World

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